TaxTMI 
TaxTMI 
2021 (5) TMI 468
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....barred by limitation is as under: - 1."The learned Commissioner of Income-tax (Appeals) erred in upholding the validity of order passed under section 143(3) of the Act for the Assessment Year 2008-09 on 12th August 2011. The order passed under section 143(3) of the Act is barred by limitation and is bad in law and ought to be cancelled. 2.The learned assessing officer vide directions dated 30.12.2010 invoked the provisions of section 142(2A) to order Special Audit without bringing any material on record to demonstrate complexity of books of Account etc. The learned assessing officer has acted in the utmost prejudicial manner and against the spirit of the law. The order passed under section 143(3) of the Act is barred by limitation and is bad in law and ought to be cancelled." 3. The issue raised in assessee's appeal is against the order of CIT(A) upholding the exercise of jurisdiction under section 142(2A) of the Act by the Assessing Officer by directing Special Audit without demonstrating the complexity in the books of accounts and holding that the assessment is not barred by limitation. 4. The facts in brief are that the assessee filed the return of income....
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....t and therefore, a show cause notice dated 11.07.2011 was issued to the assessee before framing the assessment. Finally, the assessment was completed by the Assessing Officer at Rs.135,21,32,850/- as against the return of income of Rs.44,21,06,679/-. 5. The assessee challenged the order of Assessing Officer before the CIT(A) on this jurisdictional issue as well as on merit. The learned CIT(A) while dismissing the jurisdictional ground raised by the assessee has observed and held as under: - 6. "Para 5.3 I have considered the submissions of the Appellant. In this case, special audit under section 142(2A) was ordered. The audit under section 142(2A) is a tool available with the Assessing Officers to be used in appropriate cases for determining the Total Income. Further, in the audit was ordered after following the procedure laid down in the Act. Therefore, in my view, there cannot be any valid grievance in this regard. As regards, the appellant's claim that the assessment was barred by limitation, I find that since in this case audit under section 142(2A) was ordered, explanation 1 to. section 153 is applicable in this case for the computation of period of limitation for....
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....e ld AR submitted that the Assessee filed its return of income for the assessment year 2008-09 declaring a total income of Rs. 44,21,06,679. The return of income was accompanied by the Annual Accounts and the Audit Report etc. On 14.09.2009,the Assessee's return of income for assessment year 2008-09 was selected for scrutiny and a notice under section 143(2) of the Act was issued. On 17.09.2020 the AO effectively started the assessment from this date by asking the assessee to furnish information with respect to certain items. The case was then adjourned to 18.10.2010 (see page 101 of Volume I of the Paper Book). The Assessee's Authorized Representative, Mr. Samir Gaglani has, as a mark of acknowledgement, placed his signature on the order sheet noting immediately after the texts relating to adjournment of the case to 18.10.2010. However, after the endorsement relating to the case being adjourned, the noting states "A' asked to I produce books of a/c & vouchers." The Assessee submits that during the course of the hearing no such direction was ever issued. This noting did not form part of the original entry on 17.09.2010 and has been added subsequently by the AO. This ....
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....urprised to receive a show cause notice dated 24.12.2010 issued under section 142(2A) of the Act (see pages 89 to 191 of Volume I of the Paper Book). The ld AR submits that this action has been taken in the present case only because the AO realised that he won't be able to pass the assessment order within the period of limitation which was to expire on 31.12.2010. This was done only with a view to extend the period of limitation. The said notice also does not make any reference to the Assessee's books of account let alone a failure to produce them. The show cause notice makes a reference to eight different issues. The Assessee submits that as stated in greater detail hereafter and as analysed , none of those aspects even remotely affect the nature and complexity of the accounts or how carrying out of an audit would serve the interests of the revenue. The issues referred to in the show cause notice already stood examined by the AO in the course of assessment proceedings. If the AO was not satisfied with its explanation, the recourse available with him was adding/ disallowing the amount but the same would not justify directing an audit under section 142(2A) of the Act. It ....
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....manly impossible for the CIT to apply his mind to all the aspects referred to in the proposed order and also carry out the necessary steps before nominating the Chartered Accountant. The Assessee therefore submits that this condition has also not been fulfilled in the present case. On 12.08.2011, the AO passed his assessment order under section 143(3) of the Act determining its total income at Rs. 135,21,32,850. A bare perusal of the additions/ disallowances made in the said order shows that out of eight issues referred to in the show cause notice dated 24.12.20 10 issued under section 142(2A) of the Act and more than sixteen issues in the order dated 30.12.2010 passed under the said section, only seven aspects (four aspects out of those referred to in show cause notice) have been taken into account, which also stood substantially deleted in the appellate Order passed by the CIT(A), except for certain minor items. Further, the issues in respect of which additions have been made are routine issues considered in any assessment proceeding not justifying any audit as per section 142(2A) of the Act. The ld AR submits that the assessment order was challenged before the ld CIT(A) on th....
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....ng reliance on clause (iv) of Explanation 1 below section 153(9) of the Act to contend that the limitation stood extended as the Assessee had been directed to get its accounts audited under section 142(2A) of the Act. It is in this context i.e., to ascertain the validity of the assessment order that the Tribunal has to adjudicate on the following issues a) Whether it is a pre-requisite that the AO should examine the books of account before forming his opinion with respect to the nature and complexity thereof, as referred to in section 142(2A) of the Act. In the present case, in the absence of the AO examining the Assessee's books of account, he could never have formed his opinion with respect to the nature and complexity thereof and interests of the revenue justifying such direction. b) Whether, based on the facts and in the circumstances of the present case, the formation of opinion by the AO as required by section 142(2A) of the Act viz., about the nature and complexity of the accounts and the interests of the revenue has no basis and is unsustainable in law c) Whether, the previous approval which is also a jurisdictional precondition has been granted by the Commissioner of I....
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.... and rationally form an opinion. I have examined the proposal dated 28th March, 2003, of the Assessing Officer, namely, the Assistant Commissioner of Income-tax. It appears that he sought for various information to complete assessment correctly and such information could not be supplied by the petitioner, as the accounts are not maintained in such fashion. Moreover, the business transactions of the petitioner are huge and conducted through 48 branches in West Bengal. Because of this failure he has presumed the accounts of the assessee (petitioner) are very complex and the desired information cannot be collected easily." (emphasis in bold supplied). This view is also taken in Alidhara Texpro Engineering Pvt. Ltd. v. DCIT 332 ITR 115 (Guj). In the present case, the Assessee submits that the AO never called for and, hence, it has not produced before him its books of account. Consequently, without examining the same he could never have formed his opinion about the nature and complexity thereof. In this regard, the Assessee also relies upon the affidavit dated 14.09.2019 sworn by its Managing Director Mr. Russell A. Mehta, copy of which has been filed before the Tribunal in the co....
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....ting of any other date, or in the show cause notice dated 24.12.2010 issued under section 142(2A) of the Act, or the order dated 30.12.20 10 passed under the said section or the assessment order dated 12.08.2011 passed under section 143(3) of the Act alleging that the Assessee has failed to produce the accounts after being called upon to do so. In the absence of any observation/objection/comment about the examination of the books of account by the AO in the proceedings, it cannot be presumed that any books of account were examined by him before directing audit to be conducted under section 142(2A) of the Act; iv) In paragraph 5 at page 2 of the remand report dated 16.12.2013 filed by the AO before the CIT(A), reference has been made to several dates on which the matter was heard by him and basis thereof a general remark has been made that the AO thoroughly examined the books of account and other details submitted by the Assessee. The Assessee submits that the said remark in no way discloses that it had produced the books of account and that the AO had examined the same. 12. In view thereof, it is clear that, in the present case, the AO has directed audit of Assessee's accoun....
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....the account , volume of accounts, doubts regarding correctness of account, multiplicity in transactions in accounts, or specialized nature of business activity and in the interest of revenue. The ld Dr referred to reasons recorded by the AO as noted in the para 3.2 of the assessment order. The ld DR argued that the submissions made and the objections raised by the assessee in its reply are not convincing. Full information and details with regard to transactions of purchase, valuation of stock, fund transactions with various bank accounts, utilization of borrowed funds, investment in acquisition of property, have not been furnished along with supporting evidences. There is also no satisfactory explanation for the steep fall in GP and NP rate during the year as compared to the earlier two years. Further, the exact nature of services rendered to justify huge claim of expenses on account of labour charges, legal & professional expenses, salary etc., method of valuation of opening/closing stock etc., could be known only on special audit. Therefore, having regard to the nature and complexity of the accounts of the assessee and in the interest of the revenue, it was considered to be....
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....ecial Audit is based on presumptions and conjectures in as much as the AO never called for an examined the books of account before issuing such directions' is incorrect. Based on this remand report the Ld CIT(A) dismissed the ground of appeal taken by the assessee in this respect as noted by him in para 5.3 of the appellate order. This goes to show that the Ld CIT(A) was fully satisfied with the correctness of reference for Special Audit in accordance to section 142(2A). During the hearing held on 16.09.2019 before the bench, the assessee produced copy of order sheet of the assessment record which shows that books of accounts were requisitioned by the AO for verification vide his order sheet dated 17.09.2010, much before the case was referred for Special Audit. This particular fact also goes in line with the contention of the AO in his remand report noted above, that reference for Special Audit u/s 142(2A) was made after examination of books of accounts and other documents. Hence the assessee's contention made during the hearing on that date that books of accounts were not seen before referring this matter for Special Audit does not have any leg to stand on. The Department ....
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....ee, the reference was made after examination of books of accounts and other documents, after affording opportunity to the assessee and after taking due approval from the jurisdictional CIT. Therefore, all the judgements (supra) do not apply in the facts of the case of the assessee. In view of this, the ground of appeal raised by the assessee as assessment being time barred needs to be rejected. 15. We have heard rival submissions and perused the materials on record including the written submissions filed by both the parties. The jurisdictional issue raised before us by the assessee as has been discussed above is qua wrong exercise of jurisdiction while giving direction under section 142(2A) of the Act without complying with the necessary pre-conditions as envisaged in the said section and primarily the audit was directed under section 142(2A) of the Act just to extend the time limitation under section 153(1) of the Act. In terms of section 153(1) of the Act, the assessment for the instant year should have been framed by 31.12.2010. However, the assessment was actually formed on 18.08.2011 as the Assessing Officer issued notice under section 142(2A) of the Act dated 24.12.2010....
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....of account of the assessee due to which the Assessing Officer was not in a position to assess the income of the assessee correctly. The assessee filed its objections to its show cause notice on 30.12.2010 copy of the same is filed at page No. 92-99 of the assessee's paper book and the case was finally adjourned to 31.12.2010. Thus, the Assessing Officer prepared the proposal for Special audit under section 142(2A) of the Act and submitted the same to the learned Commissioner of Income Tax through Addl. CIT for approval thereof. We also note that in the show cause notice dated 24.12.2010 there were 8 items on which the Assessing Officer sought to invoke the provisions 142(2A) of the act, whereas in the proposal the Assessing Officer proposed 16 items as is clear from the draft order dated 30.12.2010 proposed under section 142(2A) of the Act appointing M/s Ray and Ray as a special auditor to conduct the special audit. Thus, we note that the assessee has not been confronted with all the issues on which the audit was sought to be proposed. We also note that the CIT accorded the proposal of the Assessing Officer for special audit on the same date which shows that approval has been grant....
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....oceeding, a judicial proceeding. The assessment proceeding, therefore, is a part of judicial process. When a statutory power is exercised by the assessing authority in exercise of its judicial function which is detrimental to the assessee, the same is not and cannot be administrative in nature. It stricto sensu is also not quasi-judicial. By way of example, although it may not be very apposite, we may state that orders passed under Order XII of the Code of Civil Procedure by a Court cannot be held to be administrative in nature. They are judicial orders and subject to the order which may be passed by higher Courts in regard thereto. Indisputably, the prejudice of the assessee, if an order is passed under section 142(2A) of the Act, is apparent on the face of the statutory provision. He has to undergo the process of further accounting despite the fact that his accounts have been audited by a qualified auditor in terms of section 44AB of the Act. An auditor is a professional person. He has to function independently. He is not an employee of the assessee. In case of a misconduct, he may become liable to be proceeded against by a statutory authority under the....
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.... the complexities in the books of accounts. For the exercise of this power u/s 142(2A), it has been provided that the prior approval has been taken from the CIT which is a statutory safeguard provided in the Act against any unreasonable or arbitrary exercise of power by the Assessing Officer which has to be granted by the CIT after following the due process and after dule application of mind. Thus, the approval by the CIT should be granted after examining and after due application of mind to the proposal submitted by the Assessing Officer but in the present case it appears not to be so. The assessee filed objection to the show cause notice on 30.12.2020 and Assessing Officer after considering the reply of the assessee framed the proposal containing 16 issues in the draft order proposed under section 142(2A) of the Act and thereafter the same was sent to CIT through Addl. CIT and approval was accorded on the same day by the CIT. But as is apparent from the facts before us, the exercise of jurisdiction under section 142(2A) of the Act has been exercised in a mechanical, routine and perfunctory manner and so is the approval granted by the CIT as all the formalities were done on the sa....