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TaxTMI 
TaxTMI 
TaxTMI 
2019 (11) TMI 1191
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....by the petitioner (Annexure "U" to the petition) and all subsequent proceedings in continuation thereof. 2. The facts giving rise to the present petition are that the petitioner herein is a practising chartered accountant since 1983 and is filing regular returns of income since the year 1984-85. The source of income of the petitioner is from house property, remuneration from partnership firm, capital gains and other sources. It is the case of the petitioner that he is not required to prepare personal books of account nor is he obligated to prepare personal books of account under any of the provisions of the Income Tax Act, 1961. A search operation came to be conducted at the residence and office premises of the petitioner herein on 29.11.2016. Pursuant thereto, the notices under section 153A of the Act dated 12.5.2017 came to be issued for assessment years 2011-12 to 2016-17. In response to the said notices, the petitioner filed his returns of income for assessment years 2011-12 to 2016-17 on 10.06.2017. 2.1 Thereafter, on 19.9.2017, the petitioner received notices under section 143(2) of the Act for assessment years 2011-12 to 2016-17. The petitioner gave his reply to such notic....
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....ion to section 288(2) of the Act and nominated by the Principal Commissioner of Income Tax, Ahmedabad for the purpose. 2.7 The petitioner filed his reply dated 22.12.2018 in continuation of the reply dated 17.12.2018 in response to the notices issued under section 142(2) of the Act. In response to the show cause notice dated 21.12.2018 for proposal for special audit under section 142(2A) of the Act, the petitioner raised objections dated 26.12.2018 to the proposal for special audit under section 142(2A) of the Act, which was received by the first respondent on 27.12.2018. The first respondent disposed of the objections raised by the petitioner against the proposal to special audit under section 142(2A) of the act for assessment years 2011-12 to 2016-17 and assessment year 2017-18 by a communication dated 26.12.2018. On the same day, that is, 26.12.2018, the petitioner requested the second respondent - Principal Commissioner of Income Tax - Central, to provide an opportunity of personal hearing before granting any approval for the action under section 142(2A) of the Act. On 27.12.2018, the second respondent informed the petitioner that personal hearing was fixed on 28.12.2018. On ....
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....partment even in scrutiny assessment of earlier years. It was submitted that hence, a basic pre-requisite condition for invoking sub-section (2A) of section 142 of the Act is not satisfied in the case of the petitioner. Hence, the respondents lack the jurisdiction to invoke section 142(2A) of the Act. 3.1 It was further submitted that in the absence of accounts, the question of complexity in account does not arise and that the Assessing Officer has not even called for the books of account at any point of time. In this regard, the attention of the court was invited to the reply dated 26.11.2018 of the petitioner to the show cause notice dated 21.12.2018 for proposal for special audit under section 142(2A) of the Act. It was contended that the bank pass book/bank statement can never be equated with the books of account. In support of such submission, the learned advocate placed reliance upon the decision of the Bombay High Court in the case of Commissioner of Income Tax v. Bhaichand N. Gandhi, [1982] 11 Taxman 59 (Bom.), wherein the court referred to the decision of the Supreme Court in the case of Baladin Ram v. Commissioner of Income Tax, 71 ITR 427 (SC), for the proposition that ....
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.... to what is the nature of the complexity of the accounts. It was submitted that the Assessing Officer should have examined the relevant accounting entries himself before forming an opinion; however, in case of the petitioner, as the respondent knew that the petitioner is not required to maintain the books of account, he has never called for the books of account for verification. It was submitted that the petitioner, in the personal discussion had given in writing and brought to the notice of the Principal Commissioner of Income Tax, Central that he is not maintaining the books of account; however, the Principal Commissioner of Income Tax, Central has granted the approval in a mechanical manner to get the books of account audited by special auditors. It was submitted that therefore, the Principal Commissioner of Income Tax (the second respondent herein) has mechanically granted approval to the proposal for appointment of special auditor which is contrary to the settled legal position of law rendering the proceedings a nullity in the eyes of law. 3.4 In support of such submission, the learned advocate placed reliance upon the decision of the Supreme Court in the case of Rajesh Kumar....
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.... the Assessing Officer. The approval must reflect the application of mind to the facts of the case. 3.6 Reference was also made to the decision of the Calcutta High Court in the case of West Bengal State Co-operative Bank Ltd. v. Joint Commissioner of Income Tax, [2004] 138 Taxman 238 (Cal.), for the proposition that the Commissioner of Income Tax should not give any approval mechanically and if he finds that there is no examination of the books of account by the Assessing Officer before sending the proposal, he will not certainly give any approval. Under this section, the Commissioner of Income Tax does not exercise the jurisdiction of the appellate authority rather the approving authority. Approval means and connotes supporting and accepting of an act and conduct done by another person. Therefore, it would be his duty to examine on receipt of his proposal, whether the Assessing Officer has correctly done it or not, if he finds that this requirement has not been fulfilled, then he must not approve of the same. It was submitted that in this case, the Principal Commissioner of Income Tax has mechanically granted the approval and hence, the approval stands vitiated as being contrar....
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....d 12.12.2018, wherein the Assessing Officer has categorically stated that this was a time-barring matter and the case was getting barred by limitation on 31.12.2018. In support of such submission, the learned advocate placed reliance upon the decision of the Supreme Court in the case of Rajesh Kumar v. Deputy Commissioner of Income Tax (supra), wherein the court has observed thus: "49.Assuming that two sets of accounts were being maintained the same would not mean that the nature of accounts is difficult to understand. It could have furthermore not been shown that the power is sought to be exercised only for an unauthorised purpose, viz., for the purpose of extension of the period of limitation as provided for under Explanation 2 to section 158BE of the Act." 3.9 Reference was also made to the decision of this court in the case of Alidhara Texpro Engineering (P.) Ltd. v. Deputy Commissioner of Income Tax (supra), to submit that the entire exercise of invoking powers under section 142(2A) of the Act was a mala fide exercise only to buy time as the assessments were otherwise getting barred by limitation. Reference was made to the decision of the Delhi High Court in the case of DL....
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....pecialist, who understands accounts and accounting practices to examine the accounts when they are complex and the Assessing Officer feels that he cannot understand them and comprehend them fully, till he has help and assistance of a special auditor. Interest of the Revenue being the other consideration. In the present case, the Revenue has not submitted that test check of entries was undertaken, but anomalies or mistakes were detected. For proceeding further, and to compute the taxable income, help and assistance of an accounting expert was required. Secondly, we notice that the Assessing Officer felt that special auditor is required for determining and deciding certain legal issues, i.e., nature and character of Nazul I and Nazul II land, payments received and the treatment of the said payments, receipts or expenditure in the books for the purposes of taxation. The special auditor cannot go into and examine the said legal issue or question regarding taxability. This has to be determined and decided by the Assessing Officer. This determination/decision requires passing of the assessment order. However, at this stage, the Assessing Officer should indicate his prima facie or tenta....
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....d. Existence of the power is not in dispute; it is the exercise of power, which is in dispute and question. The exercise of power must withstand and meet the requirements prescribed. Failure to exclude irrelevant and extraneous matters negates the "opinion" as the said matters should not cloud or dent formation of opinion. Reasons recorded must be genuine and have a nexus with the twin statutory requirements i.e. complexity of accounts and interest of the Revenue." 3.11 Reliance was also placed upon the decision of the Calcutta High Court in the case of West Bengal State Cooperative Bank Ltd. v. Joint Commissioner of Income Tax (supra), wherein the court has held that primarily the Assessing Officer should examine either by himself or to get the accounts examined by some other official subordinate to him and then apply his mind to form opinion about the nature and complexity of the accounts. The said section leaves ample scope for the Assessing Officer to abuse or misuse power conferred thereunder by appointing a special auditor, to be more precise the task of the Assessing Officer of examining accounts can be shifted to the third party at the cost of the assessee. In the facts ....
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....d. 3.14 It was further submitted that the petitioner has alleged mala fides right from the response to the show cause notice for reference to special audit and has further informed the Principal Chief Commissioner of Income Tax, as well as the Director General of Income Tax (Investigation), to check the laptops of the auditors since they are not conducting audit work of the petitioner, but are carrying out professional work of their firm. In this regard, the attention of the court was invited to the communication dated 19.2.2019 of the petitioner addressed to the Principal Commissioner of Income Tax as well as the Director General of Income Tax (Investigation), Ahmedabad. 3.15 Alternatively and without prejudice to the above contentions, the learned advocate submitted that even when section 142(2A) of the Act talks of audit for "specialized nature of business activities of assessee", the pre-requisite condition of maintenance of books of account as per statutory requirement, is a must. To bolster his submission, the learned advocate placed reliance upon the decision of this court in the case of Takshashila Realties (P.) Ltd. v. Deputy Commissioner of Income Tax, Circle-4(1)(2), [....
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....p firms, which were already doing the real estate and construction business and were executing various projects like Takshashila Residency at Naroda Dehgam Road, Takshshila Colonials at Maninagar and Takshshila Habitat at Vastral, apart from hotel and commercial projects. Hotel projects with shops were earlier executed by Chanakya Buildcon, later by Chanakya Buildcon Pvt. Ltd. and now after amalgamation the present Takshshila Gruh Nirman Pvt. Ltd. has completed project and entered into sale agreement. Chanakya Infrastructure commenced construction of Takshshila Habitat and in the middle of the construction, the firm was converted into Company viz., Chanakya Infracon Pvt. Ltd. under chapter IX of Company Act. Now, the Chanakya Infracon Pvt. Ltd. has been amalgamated with Takshshila Gruh Nirman Pvt. Ltd. Similar is the case with Takshshila Gruh Nirman, a firm converted into company Takshshila Properties Pvt. Ltd. and amalgamated with Takshshila Gruh Nirman Pvt. Ltd. The 80IB project Takshshila Colonials, for which approval was granted by Local Authority to erstwhile firm and stock-in-trade/CWIP has changed hands and the 80IB deduction is being claimed in the present Takshshila Gruh....
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....o the revenue out of the complex web of transactions involved." 20. Considering the aforestated facts and circumstances of the case and having regard to the multiplicity and specialized nature of transactions and in the interests of the Revenue, when the Assessing Officer has passed the impugned orders of special audit under Section 142 [2A] of the Act, the same cannot be faulted with." 3.16 It was submitted that even if the Special Auditor is to be appointed in connection with the business of the petitioner in relation to multiplicity of transactions and various materials, still it can be done only if the books of account are to be statutorily maintained, in the absence of which invocation of section 142(2A) of the Act is not justified. Reliance was placed upon the decision of this court in the case of Asharam Thaumal Harplani (Asaram Bapu) v. Deputy Commissioner of Income Tax, [2017] 82 taxmann.com 265 (Gujarat), wherein the court has held that 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....
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....ain the accounts statutorily, sub-section (2A) of section 142 of the Act cannot be invoked, is misconceived and does not merit acceptance. 4.1 Reference was made to sub-section (12A) of section 2 of the Act, which defines "books or books of account" to include ledgers, day-books, cash books, account books and other books, whether kept in the written form or as print-outs of data stored in a floppy, disc, tape or any other form of electromagnetic data storage device. It was submitted that in subsection (2A) of section 142 of the Act, the legislature has consciously used the words "accounts" and not "books of account" and that the expression "accounts" has a wider meaning than the expression "books of account". Reference was made to the decision of the Supreme Court in the case of Central Bureau of Investigation v. V. C. Shukla and others, (1998) 3 SCC 410, wherein it has been held thus: "20. Mr Sibal, the learned counsel for the Jains, did not dispute that the spiral notebooks and the small pads are "books" within the meaning of Section 34. He, however, strongly disputed the admissibility of those books in evidence under the aforesaid section on the ground that they were neither ....
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.... of debit and credit between parties, arising out of contracts or some fiduciary relation. A statement in writing, of debits and credits, or of receipts and payments; a list of items of debits and credits, with their respective dates. A statement of pecuniary transactions; a record or course of business dealings between parties; a list of statement of monetary transactions, such as payments, losses, sales, debits, credits, accounts payable, accounts receivable, etc., in most cases showing a balance or result of comparison between items of an opposite nature." 22. Mr Altaf Ahmed relied upon the wider definition of the word "account" as mentioned above to contend that MR 71/91 fulfils the requirements of "account" as it records a statement of monetary transactions - such as receipts and payments - duly reckoned. Mr Sibal on the other hand urged that business accounts must necessarily mean only those accounts which record transactions between two parties, arising out of a contract or some fiduciary relations (a meaning accepted by the High Court). He submitted, relying upon the definition of "memorandum" as appearing in Words and Phrases, that MR 71/91 could at best be described as ....
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....hat considering the voluminous documents as well as the nature of such documents, the Assessing Officer. after clearly recording detailed reasons, was of the view that having regard to the nature and complexity of the accounts, volume of the accounts, doubts about the correctness of the accounts, multiplicity of transactions in the accounts, specialized nature of business activity and the interest of revenue, it was necessary to get the accounts of the petitioner for assessment years 2011-12 to 2017-18 audited by an accountant as defined under sub-section (2) of section 288 of the Act. It was submitted that prior to issuing directions under section 142(2A) of the Act, the Assessing Officer had issued notice to the petitioner and had duly considered the objections submitted by the petitioner and passed a reasoned order dated 26.12.2018. It was submitted that the Principal Commissioner of Income Tax had also afforded an opportunity of personal hearing to the petitioner and had thereafter approved the proposal under section 142(2A) of the Act. The learned counsel for the revenue had produced the original file for the perusal of this court and submitted that the proposal was considered....
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....re, such books are not maintained. It was submitted that therefore, prior to issuance of the notice under section 142(2A) of the Act, there was an earnest effort on part of the Assessing Officer to understand the seized documents. It was pointed out that in the show cause notice, it has been specifically mentioned that the assessee is engaged in a specialized business of providing accommodation entries through the conduit of various trusts etc. and hence, the requirement of sub-section (2A) of section 142 of the Act is duly satisfied. 4.6 It was submitted that expression, 'accounts' employed in section 142(2A) of the Act does not mean the regular books of account which would be maintained by an assessee, else the legislature would have used the words "books of account". According to the learned counsel, the legislature has purposely used the word "accounts" and hence, any material found during the course of the search relating to any financial transactions would fall within the ambit of the expression "accounts". It was submitted that in this case, the court is not concerned with the books of account regularly maintained by an assessee. It was urged that the benami transactions w....
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....istance from the qualified specialists to complete the assessment and determine the taxable income of an assessee. 4.9 Reference was also made to the decision of this court in the case of Takshashila Realties (P.) Ltd. v. Deputy Commissioner of Income Tax, Circle-4(1)(2) (supra), wherein the court held that as per the amended section 142(2A) of the Act, apart from the nature and complexity of the accounts, etc., even in case of multiplicity of transactions in the accounts or specialized nature of business activity of the assessee and the interest of the Revenue, the Assessing Officer can pass an order for special audit in exercise of powers conferred under section 142(2A) of the Act. Therefore, while forming an opinion to get the accounts audited by Special Auditor; considering the specialized nature of business activities of the assessee, there need not be any books of account before the Assessing Officer. In the facts of the said case, having found that there are complex issues relating to introduction of land by the partners into the firms; revaluation of land; credit of partners in capital account equal to revalued amount of land; conversion of capital account to loan account ....
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....k or test; whether the accounts would be complex and difficult to understand to a normal Assessing Officer who has basic understanding of accounts etc., without the aid, assistance and help of a Special Auditor. Thus, due regard has to be given to nature and character of transactions, method of accounting, whether actuarial were adopted for making entries, basis and effect thereof, etc., though mere volume and complexity are somewhat different. The court further held that 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. 4.12 Reliance was also placed upon the decision of the Madhya Pradesh High Court in the case of Sewaram Takhtani v. Assistant Commissioner of Income Tax, [2004] 138 TAXMAN 290 (MP), wherein the court held thus: "8. As taken note of supra, it is not in dispute that the block assessment proceedings in question are initiated in consequence o....
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....number of transactions are executed in Benami by the petitioners and that none of them are reflected in books of accounts and that the books of accounts maintained by the petitioner contains several discrepancies, erasures and overwritings, etc. then certainly such accounts are not dependable for determining the exact tax liability. Indeed, the application of mind by the authority is also discernible when one peruses the impugned order. They need to be reaudited in accordance with law. In such circumstances, the authority has only option to take recourse to the provision of Section 142(2A) ibid and issue necessary direction. It is not for the Court to again examine whether accounts in question are complex, or not? Because, the writ Court do not act as an appellate Court over such decisions of Assessing Officer." 4.13 Reliance was also placed upon the decision of this court in the case of Asharam Thaumal Harplani (Asaram Bapu) v. Deputy Commissioner of Income Tax (supra), wherein the court found that the contention of the petitioner that the Principal Commissioner of Income Tax had mechanically granted approval to the proposal made by the Assessing Officer, had no substance. The co....
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....on of the court was invited to the first sub-paragraph of paragraph 4 of the affidavit-in-reply filed on behalf of the respondents, wherein it has been averred that during the search proceedings, several documents and digital evidences in the form of mobile SMS and WhatsApp chat were found and seized from the petitioner's premises. The total volume of digital data runs into 6 HD drives of 1 TB each. Only the WhatsApp chat back up of the petitioner's phone runs into more than 60,000 pages. From these evidences, it was gathered that the petitioner was running an organized business of money laundering and accommodation entry providing. It was submitted that the total volume of the documents would come to around two lakh pages and that it is in these circumstances, after considering the volume of the documents, multiplicity of transactions as well as the specialized business of the assessee, that the reference to special audit under section 142(2A) of the Act has been made, which is wholly justified. 4.15 It was, accordingly, urged that the Assessing Officer was wholly justified in invoking the provisions of section 142(2A) of the Act and that the petition being devoid of merits, dese....
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.... present case, in the absence of any liability to maintain books of account or balance sheet or profit and loss account on the part of the petitioner, it would not be possible for the Special Auditor to submit the prescribed Form 6B. It was submitted that insofar as the decision of the Delhi High Court in the case of DLF Ltd. v. Additional Commissioner of Income Tax (supra), there is a specific finding with regard to the existence of accounts and accuracy thereof. Similarly, in the case of Takshashila Realties (P.) Ltd. v. Deputy Commissioner of Income Tax, Circle-4(1) (2) (supra) also, there was existence of accounts and the assessee therein was required to maintain accounts. It was pointed out that in the decision in case of Asharam Thaumal Harplani (Asaram Bapu) v. Deputy Commissioner of Income Tax (supra), audited accounts were available. It was submitted that therefore, the above decisions were rendered in the context of facts wherein the assessee was statutorily required to maintain accounts and hence, no reliance can be placed upon the same by the revenue. 5.2 The attention of the court was further invited to the terms of reference issued under section 142(2A) of the Act vi....
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....ies committed by the Commissioner of Income Tax in passing the revisional order, mere fact that some time had passed before the department took a formal decision to challenge the same, and to file the petition and the fact that in the meantime partially the directions were carried out, would not detain it from interfering with such order. 5.6 In conclusion, it was urged that in the present case, there are no books of account and hence, there is no question of complexity of accounts and, therefore, the reference under section 142(2A) of the Act to the Special Auditor, has no basis and the terms of reference issued under section 142(2A) of the Act as well as all proceedings pursuant thereto, are required to be quashed and set aside, and the petition deserves to be allowed. 6. Before adverting to the merits of the rival submissions, the factual background giving rise to the present petition may be adverted to for giving a better picture of the controversy in issue. 7. In this case, a search came to be conducted at the residential premises of the petitioner on 29.11.2016. Pursuant thereto, separate notices under section 153A of the Act came to be issued to the petitioner on 12.5.201....
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....section 153A of the Act were initiated by issuing notices under section 153A for assessment years 2011-12 to 2016-17. It is further stated therein that copies of seized material were provided to the petitioner during post-search proceeding for furnishing pagewise explanation with respect to the noting on the seized papers. However, it is seen after perusal of records that he has not yet furnished page-wise explanation of the incriminating documents seized during the search from his residential premises. The Assessing Officer, accordingly, called upon the petitioner to furnishing page-wise explanation of each and every transaction of noting mentioned in the seized documents along with corroborative/supportive evidence. From the record as available before the court, it appears that the petitioner has not given any reply to the notice. 7.4 On 19.11.2018, notice under section 142(1) of the Act came to be issued by the Assessing Officer to the petitioner to furnish in writing, verified in the prescribed manner, the information called for as per Annexure "A" to the notice and on the points or matters specified therein. At point No.15 thereof, the petitioner was, inter alia, called upon....
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....8 to the petitioner for getting the accounts audited by an accountant having regard to the nature and complexity of accounts, volume of accounts, doubts of the correctness of the accounts, multiplicity and specialized nature of transactions and the interests of the revenue. It is stated therein that the petitioner is involved in specialised business of providing accommodation entries and income earned out of it is not apparently reflected in his books/returns filed. Moreover, there are several other incriminating suspicious documents seized during the search which raise a question mark on the correctness of his books. For example: "i. Agreement of purchase of agricultural land with Baldevbhai R. Patel and Lalitbhai R. Patel. Since, you are not a farmer, the said agreement becomes doubtful in nature (A-1 Page 41-47). ii. Agreement for purchase of land for Rs. 145.43 crore with unnamed persons. (A-1 Page 29-37). iii Agreement for purchase of land from Mrs. Vanita M. Shah as the PoA holder of several other persons. The agreement is for an amount of Rs. 65.08 crore (A-1 Page 3-6). iv. Letter on letterhead of M/s Zee Marketing (Guj) Pvt. Ltd. signed by you as the director of th....
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....egular books of accounts for his personal affairs, the Assessing Officer found it complex and hence, proposed that books of accounts are complex and hence, special audit is required to be conducted under section 142(2A) of the Act. It was alleged that second show cause notice was issued after the petitioner informed the Assessing Officer that he is going to make complaint against him with higher authorities for such illegal conduct and malice motive for issue of such ridiculous show cause notice; and just to safe guard their illegal conduct and save skin for unethical conduct and to put pressure on the assessee, the show cause notice for special audit under section 142(2A) of the Act has been issued. It was also contended that the Assessing Officer has not called for production of books at any point of time and that the assessee is not maintaining any personal books of account, so question of complexities and special audit of it does not arise. It was contended that if the Assessing Officer found any such complexities, which attract section 142(2A) of the Act, he should not have issued show cause notice on the basis of the seized material for addition of Rs. 3,000 crore, which clea....
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....to the Principal Commissioner of Income Tax reiterating what is stated in the letter dated 26.12.2018 and also complaining about the illegal conduct and highhandedness of the officers, mental harassment and abuse of power and requesting him to drop the show cause notice issued for proposing special audit under section 142(2A) of the Act. 7.15 By the impugned communication dated 30.12.2018, the Assessing Officer directed the petitioner to get his accounts audited for the financial years corresponding to assessment years 2011-12 to 2017-18 by the approved auditors M/s T. R. Chadha & Co., LLP (hereinafter referred to as "the Special Auditors"). It was, inter alia, stated therein that the nominated accountant will be required to submit the report as per rule 14A of the Income Tax Rules and in prescribed Form No.6B. In addition, the nominated accountant is issued various directions some of which are not germane. As noted earlier, the learned counsel for the petitioner has stressed upon item x/vi which reads thus: "Any other issue that the Pr.CIT, Central (Ahmedabad) may deem fit." It has also been pointed out that there is reference to books of account at various places in such instruc....
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....8, 9.1.2019, 30.1.2019, 4.2.2019, 5.2.2019 and 1.3.2019. It is also stated that out of 120 days allotted for completing the audit, 75 days have already elapsed. 7.21 Thereafter, this petition came to be filed on 2.4.2019. Notice came to be issued on 8.4.2019 and further proceedings came to be stayed. On 6.5.2019, the interim relief came to be modified by permitting the Special Auditors to proceed further under section 142(2A) of the Act. It was, however, ordered that the final audit report shall not be submitted without the prior permission of the court. 8. In response to the averments made in the petition, an affidavit-in-reply had been filed on behalf of the respondents, wherein it has, inter alia, been stated that the main allegations leading to the search action in the case of the petitioner was that he was engaged in laundering of unaccounted money of several persons. During the search proceedings, several documents and digital evidences in the form of mobile SMS and WhatsApp chat were found and seized from the petitioner's premises. The total volume of digital data runs into 6 HD drives of 1 TB each. Only the WhatsApp chat back up of the petitioner's phone runs into more th....
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....re, i.e., business of accommodation entry providing, are enumerated therein as follows: i. Accommodation entries with the help of Trust, namely, Environment Research and Development Trust. ii. Control and operation of the bank account of the above named trust - noticed from the evidences seized as well as his admission in statement under section 132(4). iii. Misuse of bank account of the above named Trust and wrongful claim of tax benefits for self and family members. iv. Indulgence in money laundering activity - from the analysis of petitioner's communications with different persons, viz., Manish M. Patel, Sebastian and Veeramani etc., it has been seen that there were discussions regarding conversion of black money into white by routing the same through the bank accounts of different entities including charitable organizations. v. Misuse and operation of several bank accounts held in the names of the other persons, viz., Neil Master, Arti Panchal, Rajesh Panchal, Devina Panchal, Mehul Lall, Kaushal Shah, Mitesh Jani, Samir Patel and Regency Spin Tex Ltd. admitted by him in his statement under section 132(4). Most of the transactions in these accounts are interlinked and ....
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.... Act has been annexed along with the affidavit. 9. The petitioner has filed affidavit-in-rejoinder to the affidavit-in-reply filed on behalf of the respondents, denying the averments and contentions raised in the affidavit-in-reply. Along with the affidavit-in-rejoinder, a copy of the statement recorded under section 132(4) of the Act on 29.11.2016 as well as assessment orders of Environment Research & Development Centre for assessment years 2011-12, 2012-13, 2013-14, 2014-15, 2015-16 and 2016-17 have been annexed. A copy of the assessment framed in the case of the petitioner under section 143(3) read with section 147 of the Act for assessment year 2010-11, a copy of the reasons recorded for reopening the assessment as well as a copy of the statement of the time spent on audit in the case of the petitioner for special audit, have also been annexed. 10. It is in the backdrop of the aforesaid facts and contentions, that the validity of the direction under section 142(2A) of the Act to the petitioner to get the accounts audited by an accountant is required to be examined. 11. At this stage, it may be germane to refer to the provisions of section 142 of the Act, which read thus: ....
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....ts 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. (2-B) The provisions of sub-section (2-A) 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. (2-C) Every report under sub-section (2-A) shall be furnished by....
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....ct, 2013, prior thereto, it reads thus: "(2A) If, at any stage of the proceedings before him, the Assessing Officer, having regard to the nature and complexity of the accounts 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 Chief 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 Chief 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." 12. In the context of the unamended provisions of section 142(2A) of the Act, the Supreme Court in Sahara India (Firm) (1) v. Commissioner of Income Tax, (2008) 14 SCC 151, held thus: "6. A bare perusal of the provisions of sub-section (2- A) of the Act would show that the opinion of the assessing officer that it is necessary to get the accounts of the assessee audited by an accountant has to be formed only by ....
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.... requirement of the previous approval, envisaged in the section is not turned into an empty ritual. Needless to emphasise that before granting approval, the Chief Commissioner or the Commissioner, as the case may be, must have before him the material on the basis whereof an opinion in this behalf has been formed by the assessing officer. The approval must reflect the application of mind to the facts of the case." 13. In Rajesh Kumar v. Commissioner of Income Tax, (2007) 2 SCC 181, the Supreme Court held thus: "11. We may at the outset notice that the following are the relevant factors for invoking Section 142(2-A) of the Act: (i) the nature of accounts, (ii) complexity of accounts, and (iii) interest of the Revenue. 12. The formation of opinion of the assessing officer must be on the premise that while exercising his power regard must be had to the factors enumerated therein. The use of the word "and" shows that it is conjunctive and not disjunctive. All the aforementioned factors are conjunctively required to be read. The formation of opinion indisputably must be based on objective consideration. 13. The expression "complexity" would mean the state or quality of bei....
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....ntant and to furnish a report of such audit in the prescribed form. The expression "nature and complexity of the accounts" has been interpreted in a very restrictive manner by various courts. 35.2 Sub-section (2A) of section 142 has been amended to provide 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 correctness of the accounts, multiplicity of transactions in the accounts or specialized 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 Chief Commissioner or the Commissioner, direct the assessee to get his accounts audited by an accountant and to furnish a report of such audit in the prescribed form. 35.3 Applicability: - This amendment takes effect from 1st June, 2013." 18. Thus, it is the restrictive interpretation of the expression "nature and complexity of the accounts" by various courts that has occasioned the amendment, evidently, therefore, the intention of the legislature was to widen the scope and ambit of sub-section (2A....
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....r books of account" as contemplated under section 2(12A) of the Act. However, as rightly submitted by the learned counsel for the respondents, the expression used in the sub-section is "accounts" and not "books of account", and had the legislature so intended, it would have employed the expression "books of account" instead of "accounts". 22. In CBI v. V.C. Shukla (supra), the Supreme Court though dealing with a case relating to section 34 of the Indian Evidence Act, had occasion to construe the scope and ambit of the expression "account". The Court held thus: "20. Mr Sibal, the learned counsel for the Jains, did not dispute that the spiral notebooks and the small pads are "books" within the meaning of Section 34. He, however, strongly disputed the admissibility of those books in evidence under the aforesaid section on the ground that they were neither books of account nor were they regularly kept in the course of business. He submitted that at best it could be said that those books were memoranda kept by a person for his own benefit. According to Mr Sibal, in business parlance "account" means a formal statement of money transactions between parties arising out of contractual ....
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.... list of statement of monetary transactions, such as payments, losses, sales, debits, credits, accounts payable, accounts receivable, etc., in most cases showing a balance or result of comparison between items of an opposite nature." 22. Mr Altaf Ahmed relied upon the wider definition of the word "account" as mentioned above to contend that MR 71/91 fulfils the requirements of "account" as it records a statement of monetary transactions - such as receipts and payments - duly reckoned. Mr Sibal on the other hand urged that business accounts must necessarily mean only those accounts which record transactions between two parties, arising out of a contract or some fiduciary relations (a meaning accepted by the High Court). He submitted, relying upon the definition of "memorandum" as appearing in Words and Phrases, that MR 71/91 could at best be described as a memorandum of some transactions kept by a person for his own benefit to look into the same if and when the occasion would arise. 23. From the above definitions of "account" it is evident that if it has to be narrowly construed to mean a formal statement of transactions between two parties including debtor-creditor relation and....
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.... put to the petitioner is: "During the course of search action under section 132 of the I.T. Act, 1961, cash of Rs. 7,14,700/- has been found from your residence. Please furnish whether the same has been reflected in your regular books of accounts?" In response thereto, the petitioner's answer is: "I do acknowledge that during the course of search action under section 132 of the I.T. Act, 1961, cash of Rs. 7,14,700/- has been found from my residence. In this regard, I want to state that this cash is duly reflected in my books of accounts and in fact as date i.e. on 29.11.2016 I am having a cash balance of Rs. 2 crores less approx. Rs. 40 to 50 lakhs deposited in bank. Therefore, the same is duly reflected in my books of account." Thus, in his statement under section 132(4) of the Act, the petitioner has referred to his books of account; whereas subsequently, he has taken a stand that he does not maintain books of account. 24. Be that as it may, assuming that the petitioner does not maintain books of account as he is statutorily not mandated to do so, does it mean that merely by dint of this reason, subsection (2A) of section 142 of the Act cannot be invoked in his case? In the opi....
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....ous transactions/activities in the nature of accommodation entries; cash payments to several persons; transactions relating to purchase of immoveable properties. 26. Thereafter, another notice dated 12.12.2018 came to be issued by the Assessing Officer pointing out the issues in respect of which additions are required to be made and calling upon the petitioner to give a reply. The Assessing Officer has pointed out the contents of numerous seized documents and his opinion thereon. He has further called upon the petitioner to furnish the source of the cash deposits in his bank accounts, etc. and has called upon the petitioner to furnish his submission by 17.12.2018. The petitioner has given his reply on 17.12.2018; however, the Assessing Officer has found that the replies are not clear cut and that the petitioner's responses are partial, incomplete and unsatisfactory. The Assessing Officer was further of the opinion that the seized documents, inquiries conducted and statements recorded, revealed that the petitioner was engaged in the specified business of converting black money into white for various persons and has given certain details for forming such opinion. The Assessing Offi....
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.... the opinion of this court, the material found during the course of search wherein various financial transactions have been recorded, which may have a bearing on the determination of income of the petitioner for the relevant assessment years, will be required to be examined for the purpose of computation of the correct income of the petitioner. 29. While it is true that the petitioner being an individual may not be required to maintain accounts statutorily, but that does not mean that he is not required to give a correct account of his income in his return of income. If the computation of his income as shown in his return of income is not commensurate with his real income or the evidence collected by the authorities during the course of the search, he is required to give a proper account of the same. When the voluminous documents seized during the course of search show that various financial transactions recorded in the seized material do not form part of the computation of income as reflected in the return of income, it means that the income is not properly accounted for and the petitioner can be called upon to state the correct accounts. Merely not maintaining accounts, or there....
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...., has thought it fit to get the material verified by an accountant as defined in the Explanation below sub-section (2) of section 288 of the Act nominated by the Principal Commissioner of Income Tax in this behalf to furnish a report of such audit in the prescribed Form 6B and having regard to the fact that the other relevant parameters for referring the matter for special audit have been satisfied, no fault can be found in the action of the Assessing Officer in referring the matter for special audit under sub-section (2A) of section 142 of the Act. 32. The decisions on which reliance has been placed by the learned counsel for the petitioner may now be adverted to. 32.1 In Alidhara Texpro Engineering (P.) Ltd. v. Deputy Commissioner of Income Tax (supra), there were, in all four petitions. In case of two petitions, the court entertained them and granted relief for the reason that the entire notice granting opportunity of hearing for special audit under section 142(2A) of the Act proceeded on the footing that only two companies were involved though notice was addressed to all the four companies. Therefore, in view of the fact that in case of two companies, in the show cause notice....
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....mplex because merely there are large number of entries, e.g., a petrol pump may have substantial sales, to thousands of customers daily at prices fixed under law/Rules, but this by itself will not be the accounts complex. Similarly, an Assessing Officer is required to scrutinize the entries and verify them, but this does not require services of a special auditor or a Chartered Accountant to undertake the said exercise. Section 142(2A) is not a provision by which the Assessing Officer delegates his powers and functions, which he can perform to the special auditor. The said provision has been enacted to enable the Assessing Officer to take help of a specialist, who understands accounts and accounting practices to examine the accounts when they are complex and the Assessing Officer feels that he cannot understand them and comprehend them fully, till he has help and assistance of a special auditor. Interest of the Revenue being the other consideration. In the present case, the Revenue has not submitted that test check of entries was undertaken, but anomalies or mistakes were detected. For proceeding further, and to compute the taxable income, help and assistance of an accounting ex....
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....ion making process. It is an easy and convenient manner to transfer the obligation of scrutiny and examination to the special auditor. It may be true and correct that certain aspects mentioned in the Notes of Accounts may, if required and necessary and after in depth examination, justify appointment of a special auditor but the Assessing Officer has to be cautious and careful to segregate them from others while recording the reasons. If such an exercise is undertaken, it will show due and proper application of mind and not exercise of power under section 142(2A) on the pretend or on the pretext that such power exists and, therefore, should be exercised. Existence of the power is not in dispute; it is the exercise of power, which is in dispute and question. The exercise of power must withstand and meet the requirements prescribed. Failure to exclude irrelevant and extraneous matters negates the "opinion" as the said matters should not cloud or dent formation of opinion. Reasons recorded must be genuine and have a nexus with the twin statutory requirements i.e. complexity of accounts and interest of the Revenue." In the facts of the said case, the court held that the existence of ....
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....t in Asharam Thaumal Harplani (Asaram Bapu) v. Deputy Commissioner of Income Tax (supra) and Takshashila Realties (P.) Ltd. v. Deputy Commissioner of Income Tax (supra), the assessee was required to maintain the accounts, whereas there is no statutory duty cast upon the petitioner to maintain accounts statutorily, in the light of the reasoning adopted by this court hereinabove wherein the expression 'accounts'has been given a wider meaning to bring within its scope record of financial transactions and computation of income, the said decision would also not come to the aid of the petitioner. 33. Out of the decisions relied upon by the learned counsel for the respective parties, majority of such decisions have been rendered prior to the amendment of sub-section (2A) of section 142 of the Act. However, four decisions of this court have been rendered in the context of the amended subsection (2A) of section 142 of the Act. These are the decisions in the cases of Ulhas Securities (P.) Ltd., Takshashila Realties (P.) Ltd., Asharam Thaumal Harplani (Asaram Bapu) (supra) and Cama Hotels Ltd. v. Samir Vakil or his successor Dy. CIT (OSD) rendered on 12.7.2019 in Special Civil Application No....
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....ssues relating to introduction of land by the partners into the firms; revaluation of land; credit of partners in capital account equal to revalued amount of land; conversion of capital account to loan account of shareholders and issues relating to issuance of equity shares against the balances of revaluation credits at an unreasonable premium, and after having been satisfied that considering the specialized nature of business activities of the assessee, the Assessing Officer has passed an order of special audit in exercise of powers under Section 142 (2A) of the Act. 18. We see that the decision for audit of the assessees' account is backed by proper material on record and reasons recorded by the Assessing Officer. His formation of belief that looking to the multiplicity of the transactions in the accounts and specialized nature of business activities of the assessee, a special audit is called for, and therefore, it cannot be faulted. 20. Considering the aforestated facts and circumstances of the case and having regard to the multiplicity and specialized nature of transactions and in the interests of the Revenue, when the Assessing Officer has passed the impugned orders of....
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....nts are required to be audited by Special Auditor in the interest of Revenue, the impugned order is not required to be quashed and set aside, more particularly, when it is stated in the order that looking to the complexity and the multiplicity of transactions, accounts are required to be verified by the Special Auditor. Considering the object and purpose of Section 142(2A) of the IT Act, it appears that the accounts are required to be audited by the Special Auditor under Section 142(2A) of the IT Act with a view to facilitate the Assessing Officer in passing the Assessment order and with a view to arrive at right conclusion." 33.4 In Cama Hotels Ltd. (supra), the court has not specifically dealt with the amended provisions of section 142(2A) of the Act. 33.5 On a plain reading of the above decisions of this court, it is amply clear that the same do not support the case of the petitioner and on the contrary lean in favour of the revenue. 34 A contention has been raised on behalf of the petitioner that the Principal Commissioner of Income Tax has not applied his mind and has mechanically passed the order under subsection (2A) of section 142 of the Act. In DLF Commercial Projects C....
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....nce. 35. It has also been contended on behalf of the petitioner that the reference to special audit has been made only with a view to buy time as the assessment was becoming time barred. In this regard, it may be noted that in the objections raised by the petitioner against reference to special audit under section 142(2A) of the Act, no such contention with regard to resort to the provisions having been made with a view to buy time has been made, nor has such contention been raised before the Principal Commissioner of Income Tax except that in the letter dated 26.12.2018 addressed to the Principal Commissioner of Income-tax requesting to provide personal hearing before granting any approval for the action proposed under section 142(2A) of the Act, it has been stated that the show cause notice for special audit has been issued just 10 days before time barring assessment. Thus, it is only before this court that such contention has been raised for the first time. Having regard to the sequence of events as referred to hereinabove as well as the facts and circumstances of the case, the court is of the view that such contention does not merit acceptance. 36. Another notable aspect of t....
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....opportunity to the Assessing Officer to deal with the same. 38. It has been also contended on behalf of the petitioner that for assessment year 2017-18, the petitioner has received a notice for limited scrutiny under CASS and hence, it is not permissible for the Assessing Officer to examine any other issue except as provided in such notice in view of the CBDT instructions dated 26th September, 2014, 29th December, 2015 and 30th November, 2017, copies whereof have been annexed along with the petition and therefore, for this assessment year, no reference could have been made for special audit. Before adverting to the merits of the contention, it may be noted that the CBDT instructions apply in cases selected for scrutiny under Computer Aided Scrutiny Selection. The reason(s) for selection of cases under CASS are displayed to the Assessing Officer in AST application and notice under section 143(2), after generation from AST, is issued to the taxpayer with the remark "Selected under Computer Aided Scrutiny Selection (CASS)". The Assessing Officer while issuing notice under section 142(1) of the Act in such cases is required to proceed to verify only the specific aspects requiring exam....
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....f revenue, by having the services of a special auditor at hand. In this case, considering the specialised nature of the petitioner's business, which is not reflected in his returns of income, the Assessing Officer has, in the interest of the revenue, thought it fit to direct the petitioner to get his accounts audited by an accountant as envisaged under sub-section (2A) of section 142 of the Act, instead of merely making additions on the basis of the seized material in the absence of any explanation coming forth on the part of the petitioner. In the opinion of this court, considering the nature of the documents and other material and the volume thereof, the multiplicity of transactions and the specialised nature of the business of the petitioner, no fault can be found on the part of the Assessing Officer in invoking the provisions of sub-section (2A) of section 142 of the Act. 41. Insofar as the procedure for invoking sub-section (2A) of section 142 of the Act is concerned, there is no infirmity in the process as the petitioner has been given opportunity of hearing by the Assessing Officer as well as the Principal Commissioner of Income Tax. The Assessing Officer has duly considere....