TaxTMI 
TaxTMI 
2019 (7) TMI 1324
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....out special audit and any other action or order in pursuance to or in furtherance to the impugned order and notice of demand. (c) to call for the records of the proceedings, look into them and be pleased to issue a writ of certiorari or any other appropriate writ, order or direction quashing the impugned order (Exhibit-A) as bad in law. (d) Pending the hearing and final disposal of this Petition, to maintain status quo in the matter and ask the Respondents and its subordinates not to take any action or to do anything in furtherance and pursuance of the impugned orders. (e) To allow this Petition with cost. (f) To pass any further or other orders as the Hon'ble Court may deem proper in the interest of justice and in the circumstances of the case." 2. On the face of the cause-title, this writ-application could be said to be not maintainable. This writ-application has been preferred by Cama Hotels Limited in its capacity as a public limited company duly incorporated under the Companies Act, 1956. However, without going into any other technicality, we thought fit to examine the matter on merits. 3. Article 226 of the Constitution of India c....
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....e to file reply to the show cause notice, reasonable time be given to the assessee. Therefore, the period was extended to 18.12.2006. On 18.12.2006, reply to the show cause notice was filed by the assessee. On the same day, the order under Section 142(2A) of the Act was passed by the Dy. Commissioner of Income Tax (OSD) Page 4 of 33 Downloaded on : Thu Jul 25 12:21:29 IST 2019 C/SCA/13445/2007 JUDGMENT Range-1, Ahmedabad, directing for appointment of the Special Auditor to audit the books of accounts of the assessee and on the same day, the order of the Dy. Commissioner of Income Tax (OSD) Range-1, Ahmedabad has been approved by the Commissioner of Income-Tax. The case of the petitioner is that neither reasonable opportunity was given to hear the assessee before the order was passed on 18.12.2006 nor the reply of the assessee has been considered. In the order dated 18.12.2006 passed by the Dy. Commissioner of Income Tax (OSD) Range-1, Ahmedabad under Section 142(2A) of the Act, there was no reference of the reply filed by the assessee. Even it is not clear whether the order was passed even before filing of the reply on that date. These facts are not contr....
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....n nature, but it is a quasi-judicial order and the principles of natural justice are required to be complied with. 12. According to Mr.Divatia, the impugned order of special audit passed by the respondent no.1 in exercise of his powers under Section 142(2A) of the Act could be termed as illegal inasmuch as the conditions precedent laid under the provisions of law are not fulfilled. Those conditions are as under : "(a) The Respondent no.1 has failed to establish that the nature and complexity of the accounts require Special Audit. (b) The approving authority, i.e. the Respondent no.2 is required to go through the material on record and explanation given by the assessee before granting approval." 13. Mr.Divatia submitted that for the purpose of invoking the provisions of Section 142(2A) of the Act, the following three conditions are required to be fulfilled : "(i) the nature of accounts (ii) complexity of the accounts, and (iii) the interest of the revenue." 14. According to Mr.Divatia, none of the aforesaid three conditions could be said to have been fulfilled in the present case. Mr.Divatia submitted that the expression 'com....
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....r his three units. 18. Mr.Bhatt pointed out from the affidavit-in-reply filed on behalf of the Revenue that almost six months were granted to the assessee to furnish separate account as required. Mr.Bhatt, the learned standing counsel appearing for the Revenue, seeks to rely on the following averments made in the reply on oath : "(a) Separate P&L Accounts do not show a clear picture of business income and expenditure unit wise but presents complex accounts which cannot be analysed logically. It is an admitted fact that for any hotel the principal head of income is room rent and food & beverages sold in the restaurant. It is noticed that the assessee has not furnished headwise income earned by it from room rent and food & beverages served in the restaurant. In absence of this break up in the P&L Account, the Assessing Officer is not able to ascertain a true picture of the business of the assessee. (b) The assessee did not furnish a clear picture of purchases in the case of Cama Hotels, Khanpur. In its P&L Account, the assessee has mixed up all purchases under the head of "purchases". In absence of specific details of purchases of each item, it is not possible fo....
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....nts were complex and it was in the interest of the Revenue that special audit under Section 142(2A) of the Act should be directed. According to Mr.Bhatt, such decision may not be disturbed by this Court in exercise of its extraordinary jurisdiction under Article 226 of the Constitution of India. 21. In the aforesaid circumstances, Mr.Bhatt prays that there being no merit in the present writ-application, the same be rejected. 22. Having heard the learned counsel appearing for the parties and having gone through the materials on record, the only question that falls for our consideration is, whether the impugned order of special audit deserves to be quashed and setaside. 23. At the outset, it is required to be noted that the impugned order of special audit has been passed by the Assessing Officer in exercise of powers under Section 142(2A) of the Income Tax Act and, therefore, while considering the legality and validity of the impugned order passed under Section 142(2A) of the Act, Section 142 of the Act (including Section 142(2A) of the Act) is required to be referred to and considered, which reads as under : "142. Inquiry before assessment. - (1) For the purpose of....
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....e accounts or specialised nature of business activity of the assessee, and the interests of the revenue, is of the opinion that it is necessary so to do, he may, with the previous approval of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, direct the assessee to get the accounts audited by an accountant, as defined in the Explanation below sub-section (2) of section 288, nominated by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner in this behalf and to furnish a report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed and such other particulars as the Assessing Officer may require : Provided that the Assessing Officer shall not direct the assessee to get the accounts so audited unless the assessee has been given a reasonable opportunity of being heard. (2B) The provisions of sub-section (2A) shall have effect notwithstanding that the accounts of the assessee have been audited under any other law for the time being in force or otherwise. (2C) Every report under sub-section ....
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....n amended by adding sub-sections (2A), (2B), (20) and (2D) by the Taxation Laws (Amendment) Act, 1975. It has come into force with effect from 1.4.1976. Under sub-section (2A), the IT0 has been empowered to direct an assessee in a case where the nature and complexity of the accounts and the interests of the revenue so require, to get his accounts audited by a Chartered Accountant and furnish a report of such audit in the prescribed manner. Such a direction can be issued only with the prior approval of the Commissioner. The Chartered Accountant, for the purposes of conducting the special audit, is also to be nominated by the Commissioner. The expenses of and incidental to, including the remuneration of the special auditor, must be paid, by the assessee. The report of such audit has to be submitted in the prescribed form duly signed and verified by such auditor. 25. Sub-section (2B) of Section 142 provides that special audit could be directed even though the accounts of the assessee have already been audited in accordance with law. 26. Under sub-section (3) of Section 142, the assessee is entitled to an opportunity of being heard in respect of a material collected under special....
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....venue to get the accounts audited by an Accountant. The two requirements were conjunct and not disjunct and these were the essential pre-requisites. The object being the special audit should be directed, if it assists and succours, the Assessing Officer in framing correct and proper assessment based on the accounts maintained by the assessee, i.e., the Assessing Officer must reach a finding that the accounts of the assessee were complex and in order to protect the interest of the Revenue, recourse to the said provision should be made. The expression or word 'complexity' it was observed refers to state of quality of being intricate or difficult to understand but the Supreme Court observed that what would be the complex to one, might be simple to another and, therefore, an Assessing Officer must make a genuine attempt to understand the accounts, appreciate the entries, in the event of doubt, seek explanation and then form the required opinion based upon objective criteria and not purely on the basis of subjective satisfaction. The provision did not entitle the Assessing Officer to pass the buck to the Special Auditor as it was the Assessing Officer's responsibility to scr....
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....ies were, (i) nature of accounts, (ii) complexity of accounts, and (iii) interest of revenue and opinion on the said aspects must be formed. Special audit should not be ordered for an underlined purpose which was not bonafide. It should not be ordered and approved mechanically and certainly not for unauthorised purpose of extension of limitation to complete the assessment. The petitioner in support of their contentions have referred to decisions of Calcutta High Court in Bata India Ltd. v. CIT, (2002) 257 ITR 622/125 Taxman 808, West Bengal State Co-operative Bank Ltd. v. Jt. CIT, (2004) 267 ITR 345/138 Taxman 238 (Cal.) and decision of Kerala High Court in Muthoottu Mini Kuries v. Dy. CIT, (2001) 250 ITR 455/115 Taxman 216 (Ker.). In these decisions, it was held that the Assessing Officer should normally have workable skill and idea of accounting because of the nature of duty entrusted to them. An Assessing Officer was not a layman or one with no experience in dealing with the accounts. He was supposed to be acquainted with the method of accounting and with comprehensive knowledge with regard to matters required to be examined. 32. Aforesaid rulings, when appraised and reflecte....
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....r not keeping in view the nature and complexity of accounts and the interest of the Revenue direction for special audit is justified for the reasons set out in the order dated 11th May 2007. 34. The powers under Section 142(2A) of the Act have to be exercised in terms of the legislative provisions. The object and purpose behind the legislation is to facilitate investigation and proper determination of the tax liability. The importance and relevancy of the legislation cannot be underestimated and it is a power available with the Assessing Officer to aid and assist him. The accounts should be accurate and provide real time record of the financial transactions of the assessee. The preparation of the accounts is the work of the Accountant on the payrolls or employed by the assessee. In order to ensure reliability and accuracy, enterprises resort to internal audit and an external audit which can be a statutory audit. Internal audits are normally conducted in-house generally by acquainted or qualified Accountants. Statutory audit is compulsory under the Companies Act, 1956, or when stipulated by the Act and the accounts have to be audited by a qualified Chartered Accountant. The Chart....
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....person who is academically qualified and has practical experience to understand accounts and unearth tax evasion or furnishing of inaccurate particulars etc. The provision balances the right of the Revenue with the inconvenience which the assessee may face. The Assessing Officers are not Chartered Accountants and when required and permissible, therefore, can take help and assistance from the qualified specialists to complete the assessment and determine the taxable income of an assessee. (see DLF Ltd. v. Additional Commissioner of Income-Tax) 36. A Division Bench of this Court, in the case of Asharam Thaumal Harplani (Asaram Bapu) v. Deputy Commissioner of Income-Tax, reported in (2017)82 taxmann.com 265 (Gujarat), explained in details the scope of Section 142(2A) of the Act. Justice M.R.Shah (as His Lordship then was) speaking for the bench, observed as under : "6.1 At this stage, it is required to be noted that Section 142(2A) of the IT Act has been amended w.e.f. 01.06.2013 and it provides that if at any stage of the proceedings before him, the Assessing Officer, having regard to the nature and complexity of the accounts, volume of the accounts, doubts about the corr....
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....this, challenge to the impugned order is required to be considered." "6.4 Now, so far as the contention on behalf of the petitioner - assessee that one of the requirement for exercising the powers under Section 142(2A) of the IT Act that the Assessing Officer must be satisfied in interest of revenue, the account is required to be audited by the Special Auditor is concerned, it is required to be noted that considering the amended provision of Section 142(2A) of the IT Act which has come into force w.e.f. 01.06.2013, the Special Auditor can be appointed if at any stage of the proceedings before him, the Assessing Officer having regard to the nature and complexity of the account of the assessee and the interest of the revenue, is of the opinion that it is necessary so to do, he may direct the account to be verified by the Special Auditor. Therefore, having regard to the nature and complexity of the account, if the Assessing Officer is satisfied and / or is of the opinion that accounts are required to be verified by the Special Auditor, he may pass such order. Therefore, on the aforesaid ground that the Assessing Officer has not stated that the accounts are required to be audi....
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.... profit & loss accounts of the different units as called for. Minute scrutiny of the P&L accounts submitted by the assessee reveals the following facts : 8.1 In P&L A/s. of the Cama Rajputana Club Resorts, Mt. Abu the assessee has shown "Room Income" of Rs. 1,23,27,597/- similarly in P&L A/s. of Cama Hotels, Khanpur the assessee has shown "Lodging Income" of Rs. 6,14,98,575/-. It is a fact that for any hotel the principal head of income is Room rent and food and beverages sold in the restaurant apart from income of other services provided by the hotel. It can be seen that the assessee has not furnished head wise income earned by it from room rent and food and beverages served in the restaurant. The basic purpose of referring the case to special audit as mentioned in the show-cause issued by this office on 12/12/06 was to prepare detailed P&L account of each of the unit considering them as separate profit center and then ascertain profit or otherwise of particular unit and then group as a whole. Instead of furnishing details of principal head of income separately, the assessee has mixed them up and presented a complex accounts which cannot be analyzed logically. ....
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....shown in the P&L A/c. furnished by the assessee. It is needless to say that the assessee has claimed all these expenses in P&L A/c. of Cama Rajputana, Mt.Abu. It is very surprising that without incurring all these expenses how the assessee is able to run its hotel at Ahmedabad. It is possible that the assessee might have clubbed all these expenses in some of the head appearing in the P&L A/c. submitted by it due to mixing up of the accounts, the accounts have become very complex and we are not in a position to ascertain these expenditure separately. 8.6 It will not be out of place to mention that for last couple of year the assessee failed to get its books of accounts audited and submit the audit report to the department in time. Accordingly department levied penalty also for late submission of the audit report. This fact also indicates towards improper maintenance of books of accounts by the assessee. 9. All the above facts shows that the assessee is not in a position to submit detailed Profit and Loss account as called for and the system of maintenance of accounts of the assessee is so complex that the assessee is not in a position to submit details of various h....