TaxTMI 
TaxTMI 
2019 (11) TMI 1191
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.... 26.12.2018 rejecting the objections filed 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-....
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....18 audited by an accountant as defined under the Explanation 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 ....
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....fact since the assessment year 1984-85, which has been accepted by the department 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 Ra....
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....tement. It was submitted that the Assessing Officer has not mentioned anywhere as 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....
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.... material on the basis of which an opinion for conducting special audit was formed by 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 m....
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.... were becoming timebarred on 31.12.2018. Reference was made to paragraph 8 of the notice dated 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 ge....
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.... 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 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 r....
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....nd 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." 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, t....
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....ent year-wise details have been asked for by issuing specific show cause notices for different assessment years, which itself renders the proceedings invalid. 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 learne....
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.... for accounts of the assessee audited by special auditor. "That, the 5 Companies, which have amalgamated with Takshashila Gruh Nirman Pvt. Ltd., have their beginning as partnership 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 Takshsh....
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.... opinion that it is necessary to get the accounts audited by a Special Auditor from the point of view of taxation of capital gains and accounting of stockin- trade at each stage of transfer so that there is no loss to 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 Spec....
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....whereas the second part does not refer to accounts and refers to specialized nature of business activities of the assessee. It was submitted that therefore, the contention that in the absence of any duty cast upon the assessee to maintain 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 ....
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....the word "account" a restrictive meaning the latter give it a comprehensive meaning. Similarly is the above word defined, both restrictively and expansively, in Black's Law Dictionary (Sixth Edn.) to mean: "A detailed statement of the mutual demands in the nature 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....
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.... that therefore, it is not as if no notice was issued prior to the notice dated 25.9.2018. It was pointed out that during the course of search, voluminous documents and materials came to be seized and the returns filed by the petitioner were not in consonance with the seized material. It was submitted that 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....
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....t is not at the fag end of the period of limitation that the Assessing Officer has woken up. It was submitted that the first notice was issued on 19.9.2017 and that in response thereto, on 29.9.2017 and 4.12.2017, the petitioner had stated that he is not required to maintain the books of account and therefore, 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 m....
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....ne of the causes why possibly frauds could not be detected in some cases. Indeed such cases have made the audit work more comprehensive, intrusive and investigative. The court further observed that 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. 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....
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.....11 Reliance was also placed upon an unreported decision of this court in the case of Cama Hotels Ltd. v. Samir Vakil or his successor Dy. CIT (OSD), rendered on 12.7.2019 in Special Civil Application No.13445 of 2007, wherein the court has held that the question of complexity of accounts has to be judged applying the yardstick 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 Relianc....
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....(SC)." 11. In my opinion, it is the subjective satisfaction of the authority concerned to decide on the basis of material on record, as to whether the accounts are complex in nature, or not? The word "complex" is not defined in the Act and hence, it has to be given its wide and liberal meaning. As in this case, if the authority noticed that large 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 w....
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....xercise powers under section 142(2A) of the Act, it cannot be said that the Assessing Officer has committed any error and/or illegality. Mr. Bhatt submitted that in the facts of the present case, the extent of papers found during the course of search are around two lakh pages and the documents are more voluminous than in the cited decision. 4.14 The attention 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 tra....
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.... of the court was also invited to Form 6B prescribed under rule 14A of the Act, to point out that it is in this format that the Special Auditors are required to submit their report. It was pointed out that the accountant has to state therein that they have examined the balance sheet as well as the profit and loss account of the assessee. It was submitted that in the 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 ac....
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....unless the conditions precedent are fulfilled and it would be a void order or a nullity. 5.5 Reliance was placed upon an unreported decision of this court in the case of Nitin Babubhai Rohit or his successor in office v. Ashok Bhavanbhai Patel rendered on 14.3.2018 in Special Civil Application No.22960 of 2017, wherein the court has held that in view of serious illegalities 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....
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....ir case is selected for scrutiny assessment. 7.3 Notice under section 142(1) of the Act dated 25.9.2018 for assessment years 2011-12 to 2016-17 came to be issued to the petitioner stating that during the course of search at his residential premises, several incriminating documents as per Annexure A/1 of panchnama dated 1.12.2016 were found and seized; accordingly, proceedings under 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....
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....rding that the seal of the hard disc seized from the residential premises of the petitioner was removed and was connected to system for data retrieval. Back up of this disc was made and was taken on a 2TB external hard disc for use as a working copy. The original seized hard disc was sealed again in the presence of the assessee and the two witnesses. 7.9 Thereafter, the Assessing Officer issued a detailed notice dated 21.12.2018 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 ....
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....8 was issued by the Assessing Officer in consensus with the JCIT, none of the authorities noticed any complexities which can attract section 142(2A) of the Act; after filing returns of income for more than one year, the Assessing Officer did not conduct any assessment proceedings as well as no requisite inquiries were made in respect of seized materials; the assessee being an individual is not required to maintain books of account; though the petitioner has not maintained any regular 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 a....
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.... 7.13 Thereafter, the petitioner addressed a letter dated 26.12.2018 to the second respondent - Principal Commissioner of Income Tax requesting for personal hearing if he received any proposal for special audit in his case. By a letter dated 27.12.2018, the petitioner was informed that opportunity to represent his case before the Principal Commissioner of Income Tax (Central), Ahmedabad personally was fixed on 28.12.2018. 7.14 The petitioner addressed a letter dated 28.12.2018 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 accou....
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....for completion of audit, approximately 61 days have already elapsed and that the audit is required to be completed within the strict timelines allotted by the department. 7.20 Thereafter, by a letter dated 15.3.2019 addressed to the petitioner, the Special Auditors called for certain clarifications as detailed therein. It is further stated that in addition to the details/clarifications asked for in the said letter, they are awaiting pending details asked for vide their letters dated 31.12.2018, 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 h....
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.... reflected in his books of account. It is also stated that the petitioner himself had sworn affidavit dated 24.12.2016 taking full responsibility of all the activities of the trust and all the transactions in its bank account. It is averred that the reasons which led to forming belief that the accounts of the petitioner are complex in nature, voluminous and doubtful and there is multiplicity of transactions in his accounts and also that the petitioner was involved in a business having specialized nature, 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 s....
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....assessment proceedings for assessment year 2017-18 in consequence to notice under section 143(2) of the Act dated 3.4.2018 are pending. The second notice under section 143(2) of the Act dated 25.9.2019 issued for limited scrutiny under CASS module has no impact on the pending proceedings for assessment year 2017-18 and does not cause any material change on the same. A copy of the approval granted by the Principal Commissioner of Income Tax dated 29.12.2018 and nominating M/s T.R. Chadha & Co., LLP as accountant to get the accounts audited under section 142(2A) of the 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 sect....
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....t of all assets and liabilities not included in the accounts; (b) the Assessing Officer shall not require the production of any accounts relating to a period more than three years prior to the previous year. (2) For the purpose of obtaining full information in respect of the income or loss of any person, the Assessing Officer may make such enquiry as he considers necessary. (2-A) 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 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....
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....quiry under sub-section (2) or any audit under sub-section (2-A) and proposed to be utilised for the purposes of the assessment. (4) The provisions of this section as they stood immediately before their amendment by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), shall apply to and in relation to any assessment for the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year and references in this section to the other provisions of this Act shall be construed as references to those provisions as for the time being in force and applicable to the relevant assessment year. 11.1 Sub-section (2A) of section 142 of the Act came to be amended by the Finance Act, 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 sectio....
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....nation from the assessee. But opinion required to be formed by the assessing officer for exercise of power under the said provision must be based on objective criteria and not on the basis of subjective satisfaction. 8. There is no gainsaying that recourse to the said provision cannot be had by the assessing officer merely to shift his responsibility of scrutinising the accounts of an assessee and pass on the buck to the special auditor. Similarly, the requirement of previous approval of the Chief Commissioner or the Commissioner in terms of the said provision being an inbuilt protection against any arbitrary or unjust exercise of power by the assessing officer, casts a very heavy duty on the said high-ranking authority to see to it that the 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 Raje....
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....iness activity of the assessee. 17. At this juncture, it may be germane to refer to the explanatory notes to the provisions of the Finance Act, 2013 issued by the Central Board of Direct Taxes vide Circular No.03/2014 dated 24th January, 2013, which to the extent the same are relevant for the present purpose, read thus: "35. Direction for special audit under sub-section (2A) of section 142 35.1 Sub-section (2A) of section 142 of the Income-tax Act, before its amendment by the Act, inter-alia, provided that if at any stage of the proceedings, 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 approval of the Chief Commissioner or Commissioner, direct the assessee to get his accounts audited by an accountant 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 A....
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....er alia been defined to mean: (i) a statement of moneys received and paid with calculation and balance, (ii) a formal record of debts and credits relating to the person named or caption placed at the head of the ledger account, (iii) computation, and (iv) a statement of fact or occurrence. Thus, the expression "account" also takes within its ambit a statement of pecuniary transactions, a record or course of dealings with parties as well as computation. The expression "accounts"cannot be read to mean 'books of account' which are statutorily required to be maintained by certain classes of assessees, but has to be given a wider meaning. 21. It is the case of the petitioner that he does not maintain any personal books of account as he is statutorily not required to maintain the same. In effect and substance, therefore, the petitioner seeks to equate the expression "accounts" with "books or 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 expressio....
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.... conduct in money affairs; a statement or record of financial transactions, a reckoning or computation; a registry of pecuniary transactions or a reckoning of money transactions; a written or printed statement of business dealing or debits and credits; or a certain class of them. It is thus seen that while the former definitions give the word "account" a restrictive meaning the latter give it a comprehensive meaning. Similarly is the above word defined, both restrictively and expansively, in Black's Law Dictionary (Sixth Edn.) to mean: "A detailed statement of the mutual demands in the nature 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 Ahme....
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....alks of audit for specialised nature of business activities of assessee, the prerequisite condition of maintenance of books of account as per statutory requirement is a must. Besides, the petitioner has consistently taken a stand in the proceedings under section 153A of the Act and pursuant to the notice for referring the matter for special audit that he does not maintain books of account. However, a perusal of the statement of the petitioner as recorded under section 132(4) of the Act, a copy whereof has been annexed by the petitioner along with his affidavit-inrejoinder, shows that at item No.12, the following question has been posed to the petitioner: "Please state where do you maintain and keep your books of accounts?" In reply to which, the petitioner has stated "All the books of accounts are maintained in TALLY program as is available at my office at 304, Akanksha Building, Opp. Vadilal House, Navrangpura, Ahmedabad." At item No.18, the question 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....
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....anation of the incriminating documents seized from his residence; however, he had made a very general submission. The Assessing Officer has specifically put to the petitioner the nature of the incriminating material seized and asked the petitioner to explain each one of them; for example, the payment of Rs. 2 crores for transfer of ownership of trust - Environment Research and Development Centre; huge cash withdrawals from the account of the Trust by an employee of the petitioner; investment in a joint venture by the petitioner; cheques issued by Sahajanand Construction Company in favour of the petitioner for a total sum of rupees eleven crores found during the course of search at the office premise of Zee Marketing Pvt. Ltd. (the petitioner's company); offer of an amount of Rs. 4.5 crores and jewellery of Rs. 1.25 crores to the petitioner's wife for agreeing for separation; various WhatsApp messages containing incriminating information which show suspicious 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 ....
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....ting various financial transactions was put to him, and he was called upon to explain the same, he was required to explain the same to the satisfaction of the Assessing Officer. However, while the petitioner did offer some explanation, the same was not to the satisfaction of the Assessing Officer. In the absence of any satisfactory explanation coming forth, the Assessing Officer is required to consider the seized material and compute the income of the petitioner for the assessment years under consideration. Considering the nature of the documentary evidence which, in the opinion of the Assessing Officer, reveals that the petitioner is involved in the business of accommodation entries and money laundering, there is multiplicity of transactions, and furthermore, such documentary evidence is voluminous and complex for him to decipher on his own, the Assessing Officer has thought it fit to resort to special audit under the provisions of section 142(2A) of the Act. In 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 relevan....
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....cer to do so. Therefore, even if for the sake of argument the petitioner's contention that as he is not required to maintain accounts statutorily the question of complexity and volume of accounts would not arise were to be accepted, even then the petition would fail on the count that a direction to get the accounts audited by an accountant can also be given if the Assessing Officer having regard to the specialised nature of business of the petitioner is of the opinion that it is necessary to do so. 31. It has been contended on behalf of the petitioner that the Assessing Officer could have made additions in terms of the show cause notice issued by him and that there was no necessity for referring the matter for special audit under section 142(2A) of the Act. In the opinion of this court, if instead of making a high pitched assessment merely because the petitioner has not explained the documentary evidence seized during the search, the Assessing Officer, in his wisdom, 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 ....
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....h reveals that the assessee's books of account are complex in nature and not true. There is plethora of documents found and seized during the search action in the assessee's case which involve huge sums of money running into thousands of crores of rupees and large amounts of cash transactions. Therefore to arrive at correct taxable income and the extent of real fund flow, this exercise of carrying out independent audit within the meaning of section 142(2A) of the Income Tax Act, 1961 becomes inevitable. 32.3 In Delhi Development Authority v. Union of India (supra), the court held thus: "24. We have referred to the aforesaid note in detail for two reasons. Firstly, the note reveals that the Assessing Officer felt that the case required detailed scrutiny or monitoring, verification of entries, which were substantial in number. Detailed scrutiny of large number of entries by itself, on standalone basis, will not amount to complexity of accounts. The accounts do not become complex 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 th....
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....rred etc., belong to the Central Government and nothing whatsoever can be attributed to them. There is no examination, consideration of the legal aspect and formation of a tentative view. The decision on this legal issue cannot be transposed and passed to the Chartered Accountant as a special auditor as he is not a specialist and mandated by the Act to undertake the said exercise. The case of the assessee is that it is maintaining separate accounts for Nazul I and Nazul II lands and the General Development Account. The said accounts are audited by the Comptroller and Auditor General and have been accepted by the Central Government. 25. We also find merit in the contention raised by the petitioner that the Assessing Officers have repeatedly in all orders, for the purpose of recording reasons, taken the "notes of accounts" and verbatim incorporated the same. This is apparently correct and, therefore, discloses non-consideration and non-application of mind, which constitutes an error in the decision 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....
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....f Income Tax (supra), in the proceedings under section 147, the assessee wanted special audit. The court held that under the scheme of section 142, it is the obligation of the Assessing Officer to give a direction for production of accounts, wherever it is necessary. The Assessing Officer has to form an opinion as regards the complexity of nature in relation to the accounts. He has to take such measure for examining the books of account as of necessity. The above decision came to be rendered in February, 2004, which is prior to the amendment of subsection (2A) of section 142 of the Act. Besides, in the facts of the present case, the Assessing Officer did put all the seized material to the petitioner and called upon him to explain the same. It is only upon finding the explanation to be not satisfactory and considering the nature of the material on record and the specialised nature of business of the petitioner, that the Assessing Officer has resorted to the provisions of section 142(2A) of the Act. 32.6 While it is true that in Asharam Thaumal Harplani (Asaram Bapu) v. Deputy Commissioner of Income Tax (supra) and Takshashila Realties (P.) Ltd. v. Deputy Commissioner of Income Ta....
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....this court has held thus: "17. Now so far as submission made on behalf of the petitioner that the Assessing Officer cannot direct special audit under Section 142 (2A) of the Act before calling for the accounts from the petitioner in the assessment proceedings and without doubting the accounts and/or considering the complexity in the accounts is concerned, it is required to be noted that as per 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 interests 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 present 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 eq....
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.... [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 audited by Special Auditor in the interest of Revenue, the impugned order is no....
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....pproval must reflect the application of mind to the facts of the case. 34.1 In this regard, the learned counsel for the revenue had produced the entire files relating to the proposal for special audit under section 142(2A) of the Act as well as the approval given by the Principal Commissioner of Income Tax for the perusal of this court. A perusal of the files revealed that a detailed proposal setting out the reasons as to why the accounts of the petitioner required special audit, had been sent by the Assessing Officer through the Joint Commissioner of Income Tax and thereafter, after preparing a detailed satisfaction note, the proposal has been approved by the Principal Commissioner of Income Tax. A perusal of the satisfaction note duly reflects proper application of mind on the part of the Principal Commissioner of Income Tax who has looked into the material on record and has independently arrived at the conclusion that a special audit is required. The contention that the Principal Commissioner of Income Tax has granted approval in a mechanical manner, therefore, does not merit acceptance. 35. It has also been contended on behalf of the petitioner that the reference to speci....
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....entitles him to the grant of discretionary relief under article 226 of the Constitution of India. 37. A contention has also been raised that in this case that the petitioner has alleged mala fides against the Assessing Officer and that therefore, the reference to special audit is actuated by mala fides. In this regard, a perusal of the averments made in the petition shows that no such allegations of mala fides find place therein. Such allegations of mala fides have been made in the objections raised against the special audit as well as before the Principal Commissioner of Income Tax; however, such allegations are on the ground that as the petitioner had stated that he would complain against the Assessing Officer to the higher authorities, the Assessing Officer had resorted to special audit. In the opinion of this court, except for the bald allegations of mala fides, nothing substantial has been brought out so as to establish actual mala fides on the part of the Assessing Officer. Besides, if mala fides are alleged, the same have to be specifically spelt out in the petition so as to afford an opportunity to the Assessing Officer to deal with the same. 38. It has been also cont....
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....erefore, the CBDT instructions pertaining to limited scrutiny through CASS would not be applicable to the facts of the present case. 39. Section 153A of the Act provides for taking action thereunder for six assessment years preceding the assessment year relevant to the previous year in which the search came to be carried out. Therefore, for the assessment year relevant to the previous year in which the search was carried out, the Assessing Officer would be required to resort to scrutiny assessment, which he has done in this case as the search came to be carried out in the previous year 2016-17 and the corresponding assessment year is assessment year 2017-18. 40. As discussed hereinabove, the specific object behind enacting section 142(2A) of the Act is to assist the Assessing Officer in framing an assessment when he finds the nature of accounts of the assessee to be complex, finds the accounts to be voluminous, doubts the correctness of the accounts, finds multiplicity of transactions in the accounts or finds the business activity of the assessee to be of a specialized nature and in the interest of revenue, by having the services of a special auditor at hand. In this case, co....
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....ding separate assessment year wise show cause notices not having been issued for different assessment years is concerned, the same is beyond the scope of the present petition, wherein the subject matter of challenge is the direction to get the accounts audited by an accountant as envisaged under sub-section (2A) of section 142 of the Act and further proceedings pursuant thereto. 44. It has also been contended on behalf of the petitioner that the entire basis for referring the matter to Special Auditor under section 142(2A) of the Act is that the petitioner is engaged in the business of accommodation entries of Trust, whereas in the case of the Trust the Assessing Officer has framed assessment orders on 28.12.2018 without making any reference under section 142(2A) of the Act and that in the orders of the Trust there is not even a whisper of any accommodation entry in the case of the Trust or involvement of the petitioner in any manner whatsoever. The petitioner has placed reliance upon the assessment orders passed in the case of Environment Research Centre, namely the Trust in question, copies whereof are placed on record along with the affidavit-in-rejoinder. In this regard, a p....