TaxTMI 
TaxTMI 
2020 (1) TMI 655
X X X X Extracts X X X X
X X X X Extracts X X X X
....02.2019 to provide for subsequent TDS credits and to update details of post-retirement benefits to employees. Respondents issued notice under Section 143(2) of the Act and initiated scrutiny proceedings. The petitioner asserts that the said proceedings remained dormant for 344 days, until another notice under Section 142(1) dated 02.08.2019 was issued. This notice enclosed a questionnaire for framing petitioner's assessment and raising several queries. The petitioner filed a detailed reply and answered 12 of the 53 queries, raised in the aforesaid notice. On 23.08.2019, another reply was filed and evidence and explanation was given in respect of 10 other queries. Respondent No.1 issued another notice dated 26.08.2019 requiring the petitioner to expedite filing of details, pointing out that the proceedings were time barring. Petitioner states that in response thereto, it filed the reply dated 02.09.2019, giving explanation and evidence regarding 11 queries. With that, the first level response, and details in respect of almost all 53 queries raised by respondent No.1 stood answered. Since at petitioner's end, its personnel were engaged in compliances for the current year's filings, a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Section 142(2A) of the Act, which is impugned in the present petition. Contentions of the Petitioner 4. Mr. S.Krishnan, learned counsel for the petitioner has assailed the action of the respondent No.1 for ordering special audit on several grounds. His first submission is that respondent No.1 has not issued any notice under Section 142(2A) of the Act. The notices dated 13.09.2019 and 27.09.2019 were issued under Section 142(1) of the Act and cannot sustain the proceedings under section 142(2A) of the Act, since the two provisions operate in completely different spheres. Notice under Section 142(1) is issued directing the filing of particulars requisitioned by the Assessing Officer (hereinafter referred to as "AO") and proceedings under Section 142(2A) can be initiated by the Assessing Officer, who has taken such particulars on record and formed an opinion on the basis of such particulars, that reference to special audit is necessary. He then submitted that proviso to Section 142(2A) requires pre-decisional hearing based on the show cause notice. Since the AO was still requisitioning information and documents, he was in no position to confront the assessee with alleged comple....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... law laid down by the Supreme Court in Sahara India (Firm) vs. CIT, 2008 300 ITR 403 (SC) that commands the AO to form an opinion based on objective criteria and not on the basis of subjective satisfaction. The petitioner has been regularly assessed to income-tax by the office of the respondent No.1 for several years and is amongst the highest tax payers in its range. The petitioner undergoes scrutiny assessment every year, and till date no officer has found the details on record to be complex or voluminous and therefore, there is no prima facie case for reference to special audit. To demonstrate this, Mr. Krishnan also sought to take us through the queries raised by the AO, issue-wise, to explain that such queries had been either raised after the show cause notice dated 13.09.2019 or to say that the respondent No.1 has failed to exercise reasonable domain knowledge with correct intent. Closing his submissions, it was also argued that though the monetary cost of audit is statutorily to be borne by respondents, it would nevertheless cause severe prejudice to the petitioner as it would have a huge negative impact on the perception amongst institutions, investors, customers, stakehold....
X X X X Extracts X X X X
X X X X Extracts X X X X
....raised so this issue remained unexamined. Further in your reply dt. 02.09.2019 to the point no. 15 of the notice u/s 142(1) dt. 02.08.2019 has stated as follows- "It is submitted that the amount of Interest passed on to clients is a subject matter of agreement with the client which varies from case to case. Further, the computation of interest is based on the advances which were lying as advances with NBCC during the relevant assessment year and interest is calculated for the period the amount was kept as advance in NBCC's books as per the terms of the respective agreement and the same cannot be correlated with the closing balance of advance from clients. There may be cases where the advance was received/settled at the yearend leading to increase/decrease in quantum of advances without a corresponding change in interest to clients. The Zone wise details of interest paid to clients is enclosed as Annexure "C'." From the above reply of the assessee, it is evident that interest passed on to clients is complex in nature as well as is voluminous in terms of period of holding of advance, rate of interest and calculation of interest amount vis-à-vis terms ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....assessment proceeding/ITR filing are governed by provisions laid down by the IT Act/Rules and clearly as per the above discussion the assessee is in violation of Rule 37BA. This raises doubts over the correctness of TDS claimed by the assessee and it becomes necessary that the TDS credit claimed by the assessee for AY 2017-18 gets verified. III. Department's query:-As per the Part D1 of the Cost Audit Report which is the product services profitability statement for the year ended in 31.03.2017. The profit margin as against the sales turnover of Rs. 185.34 Crore in real estate business is Rs. 32.23crores in FY 2016-17. Whereas the profit margin as against sales turnover of Rs. 273.99 crores was Rs. 119.37 crores in Fy 2015-16. This clearly shows that the profit margin in real estate business was 43.57% to the sales in the FY 2015-16 which has come down to 17.40% in FY 2016-17 (AY 2017-18). Since you did not produce any evidence regarding the expenses claimed in the P&LA /c in the real estate business. This aspect of the case remains unverified.* Similarly as per the same detail given in the Part D1 of the Cost Audit Report, profit margin of Rs. 31.51 Crore has ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o till date. Therefore this fact still remains unverified. Further the assessee has submitted that the AO has failed to ask for complete details of input cost and output receipt. Here the assessee has failed to appreciate this fact that vide notice u/s 142(1)dated 02.08.2019 the assessee was asked in detail to submit the cost, revenue earned pertaining to its projects pertaining to all the three head under which assessee functions i.e. for Project Management Consultancy, Real Estate Development and Engineering, procurement and construction. Thus assessee's contention is not acceptable as the AO has already asked for these details but due to non compliance on the part of the assessee this issue still remains unverified. IV. Department's query:- "As per the note 19 of Balance Sheet as on 31.03.2017 the trade payables has been shown as Rs. 2534.54 Cr whereas the trade payables as on 31.03.2016 were 1784.87Cr. It means there is an increase of 42%of trade payables in this year. However on perusal of the works and consultancy expenses claimed in FY15-16 & FY 16-17 were Rs. 5248.56 Cr. and Rs. 5703.54 Cr. Respectively means that there is a meager increase of 8.67....
X X X X Extracts X X X X
X X X X Extracts X X X X
....projects vis-à-vis investment made in the purchase of lands but the same could not be produced till date." Assessee's submission in this regard:- "As to the details called for in respect of the contents of note 27 regarding inventory of land bank and closing balance of work-in-progress it is submitted that they are all as per record. This information was never sought in any of your questionnaire yet however the details have been placed on record along with those under SI. No. 28 of the questionnaire." The reply of the assessee cannot be accepted. The AO vide questionnaire dated 02.08.2019 has asked the assessee to submit the details regarding the inventories of the assessee. Here assessee instead of giving detail of the inventories, it has provided the relevant note from Financials which is already available with the AO. No other detail was ever submitted by the assessee. Therefore, this issue still remains unanswered. Further a reminder dated 04.10.2019 along with some further queries were issued to the assessee vide notice dt. 27.09.2019. Pointwise discussion where the assessee's reply is not found satisfactory is as under ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he IT Act, 1961. In regard to the reply submitted by the assesse, the assessee has stated that all the condition for claiming the provision was met. However, this was not the case here as for claiming any provision as decided by Hon'ble Supreme Court in the case of Rotork Controls India (P.) Ltd v. CIT [2009]180 taxmann 422/3141TR 62 there needs to be scientific method for ascertaining the amount of the provision. While in the case of the assessee the independent auditor himself has considered it as estimated amount which is evident from the note 29. The relevant portion is reproduced once again as under:- "The above expenses includes provision of Rs. 2201.32 lakhs on estimated basis on account of wage revision due to employees w.e.f January 1, 2017." Further, from reply submitted by the assessee it is not possible to ascertain what was the actual expense incurred by the assessee during the year (if any) or in subsequent year against this provision as no details have been submitted by the assessee. Further, with no specific reply received from the assessee it is difficult for the AO to understand how the difference (between provision created with the actual ex....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he provision of Section 142(2A) of the IT Act, 1961 not be appointed in the case of the assessee and considering the detailed submission along with annexures and having gone through them carefully and reasons for not accepting assessee's arguments wherever deemed fit as detailed above, the undersigned is of the considered view that having regard to the nature and complexity of the accounts of the assessee, volume of the accounts and doubt about the correctness of the accounts and the interest of the revenue it is held necessary to get the accounts of the accounts of the assessee for AY 2017-18 audited by an accountant as defined in the Explaination below sub-section (2) of Section 288 r.w.s 142(2A) of the IT Act, 1961." (Emphasis supplied) 6. On perusal of the aforesaid order, it can be easily discerned that in the opinion of the AO, several queries and the corresponding replies of the assessee reveal the complexity in the accounts of the assessee. Say for illustration, the interest passed on to the clients, where the details furnished in terms of period of holding of advance, rate and calculation of interest amount vis-à-vis terms and conditions of the a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....complexity in the accounts, in the reasons given for arriving at a satisfaction. Respondent No.1 has highlighted several aspects that indicated the complexity of accounts and the interest of revenue would be served if the special audit report is obtained and therefore, we are not persuaded to hold that the reasons are not sufficient or that there has been a denial of an opportunity of hearing to the petitioner. The conclusion that the account books and the material furnished was complex in nature for which a special audit is required, as observed above, is the subjective satisfaction arrived at by the AO. It cannot be said that there was any arbitrary exercise of the power, in directing special audit under Section 142(2A) of the Act which would call upon this court to exercise judicial review so as to strike down the order. We, therefore, do not find any substance in the contentions of Mr. Krishnan that respondent No.1 has not examined the material and the response to the questionnaire furnished by the petitioner. We cannot hold that there is no application of mind on the part of the respondent No.1 for issuing the impugned directions. In our opinion, the satisfaction recorded by t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... insertion of the proviso, the Supreme Court in its decision of Sahara India (Firm) (supra) had observed that even in the absence of an express provision for affording the necessary opportunity of pre-decisional hearing to an assessee, the requirement of observance of principles of natural justice is to be read into the said provision. In the instant case, this fundamental requirement is clearly met and the notice dated 13.12.2019 afforded an opportunity to the petitioner, as contemplated under the law. On perusal of Para 10 and 11 of the said notice, it becomes further evident that the same was a show cause issued to meet the statutory requirement of the provision by giving a reasonable opportunity of being heard to the assessee before passing the order to get the accounts audited under Section 142(2A) of the Act. The said portion is extracted herein below:- "10. In view of the facts and circumstances discussed above visa-vis issue involved in this case it can be seen that the details needs to be examined to ascertain the genuineness of the transaction are not only voluminous but complex in nature. Further, the multiplicity involved in the transactions and your failure in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d not been given personal hearing of the appeal that he preferred to the Central Board of Revenue and the application in revision to the Government. But there is no rule of natural justice that at every stage a person is entitled to a personal hearing. Furthermore, the appeal was out of time. The memorandum of appeal to the Central Board of Revenue was posted on 4th May 1954. The time to file the appeal, however, expired on 1st May 1954, so that even if the date of the posting is taken as the date of the appeal the petitioner was out of time." xxxxxxx 21. In the present case, therefore, we need to examine the provisions of the Act and the nature of order passed by the authority. As already noted, Section 142 (2A) of the Act empowers the Assessing Officer; with the previous approval of the Chief Commissioner or the Commissioner, during the pendency of an assessment proceedings, to get the accounts of the assessee audited by the special auditor. It is, of course, true that any such order that the Assessing Officer may pass would result into adverse civil consequences. We may, however, recall that post 2007, the requirement that the assessee must weigh the financial ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uld not mean that the principles of justice are not required to be complied with. Only because certain consequences would ensue if the principles of natural justice are required to be complied with, the same by itself would not mean that the Court would not insist on complying with the fundamental principles of law. If the principles of natural justice are to be excluded, Parliament could have said so expressly. The hearing given is only in terms of section 142 (3) which is limited only to the findings of the special auditor. The order of assessment would be based upon the findings of the special auditor subject of course to their acceptance by the Assessing Officer. Even at that stage the assessee cannot put forward a case that power under section 142 (2A) of the Act had wrongly been exercised and he has unnecessarily been saddled with a heavy expenditure. An appeal against the order of assessment, as noticed hereinbefore, would not serve any real purpose as the appellate authority would not go into such a question since the direction issued under section 142 (2A) of the Act is not an appealable order." It was this view, which the Supreme Court approved in Sahara India (F....