TaxTMI 
TaxTMI 
TaxTMI 
2021 (11) TMI 219
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....g various additions under different heads amounting in all to Rs. 6889, 06,69,100/-, as detailed in para 2 of the CIT(A)'s order. 3. The assessee challenged the order of the AO before the Ld.CIT(A) on various grounds, including challenging the reference made by the AO to special audit. The Ld.CIT(A) thereafter adjudicated the various grounds raised and partly allowed the assessee's appeal. The grounds raised regarding the challenge to the reference to special audit was dismissed by the Ld.CIT(A) holding that the said reference was not appealable before him. 4. Aggrieved by the order of the Ld.CIT(A) the assessee has now come up in appeal before us. Besides the grounds raised in its appeal filed before us in Form No. 36, the assessee also raised an additional ground vide its letter dated 07.12.2020, which reads as under: "That the assessment order passed u/s 143(3) is prima face illegal, bad in law, without jurisdiction, void ab-initio and is thus barred by time limitation as the very reference to the special audit u/s 142(2A) of the act is illegal and bad in law." 5. The Ld.Counsel for the assessee pleaded that the ground raised being a legal ground and the entire facts and de....
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....r of an appeal; and not, a direction issued u/s I42(2A) of the Act. In this appeal there is no challenge to the directions u/s 142(2A) of the Act. The challenge is that order of assessment is barred by limitation which is a valid contention supported by the judgment of Hon'ble Supreme Court in the case of Sahara India (Firm) v CIT (supra). The challenging to the validity of order u/s 142(2A) of the Act is confined to the extent that order is barred by limitation and not to the extent of refunding the fees or any other consequence flowing out of the order u/s 142(2A) of the Act. Further observation of Hon'ble Court that principles of natural justice arc required to be complied with has also been reaffirmed in the case of Sahara India (Firm) (supra). The judgment of AT&T Communication Services India (P) Ltd. v CIT (supra) is on facts and has no application to the case of appellant company. Also the judgment in the case of DLF Ltd. v Addl. CIT (supra), has no application as hereto none of the contentions raised before us have been decided to the contrary. The learned counsel for the revenue has not been able to point out any material so as to arrive at different view of the ma....
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....n 142(2A) of the Act cannot be raised before the ITAT while examining whether the assessment order has been barred by limitation. 6. The Court finds that the ITAT itself has been taking a different position in many other cases, the orders in which have been enclosed with the present petition. For instance, in its order dated 9th December, 2015 passed in ITA No. 2256/Del/2005 (PHI Seeds Ltd. New Delhi v. Dy. Commissioner of Income Tax, Circle 14(1), New Delhi), the ITAT after noticing the aforementioned decision of the Supreme Court in Sahara India (Firm) v CIT (supra) held: "7.4. In the present proceedings what we are examining, is whether the extended period of limitation as provided under Explanation l (iii) of Section 153 is available to the Assessing Officer for completion of assessment u/s 143(3), or not. The assessee contends that the order u/s 142(2C), extending the period granted for completion and submission of audit report is made without an application being made for W.P.(C) 7734/2017 extension by the assessee and for any good and sufficient reason, and hence the extension is bad in law and hence the AO would not get the benefit of the extended period of time to spec....
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....ssee, the requirement of observance of principles of natural justice is to be read into the said provision. Accordingly, we reiterate the view expressed in Rajesh Kumar's case (supra). ...... 29. There is no denying the fact that the law on the subject was in a flux in the sense that till the judgment in Rajesh Kumar (supra) was rendered, there was divergence of opinion amongst various High Courts. Additionally, even after the said judgment, another two-Judge Bench of this Court had expressed reservation about its correctness. Having regard to all these peculiar circumstances and the fact that on 14th December, 2006, this Court had declined to stay the assessment proceedings, we are of the opinion that this Court should be loathe to quash the impugned orders. Accordingly, we hold that the law on the subject, clarified by us, will apply prospectively and it will not be open to the appellants to urge before the Appellate Authority that the extended period of limitation under Explanation 1 (iii) to Section 153 (3) of the Act was not available to the Assessing Officer because of an invalid order under Section 142 (2A) of the Act. However, it will be open to the appellants to qu....
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....ity of hearing to the assessee, the approval of the PCIT to the special audit was mechanical, that the entire effort was only with the motive to extend the period of limitation. 12. The Ld. DR vehemently contested all the charges and contentions of the Ld. Counsel for the assessee. 13. We have heard both the parties and have also carefully gone through the documents referred to before us as also the case laws relied upon. 14. As per the provisions of law relating to reference by AO to special audit of accounts of an assessee, as part of the process of inquiry conducted during assessment, contained u/s 142(2 A) of the Act, the same can be referred only if the AO is of the opinion that the special audit is necessary after taking into consideration the nature and complexity of the accounts and the interest of the Revenue. This is evident from a bare perusal of section 142 (2 A) of the Act itself which is being reproduced hereunder: "Section 142(2A) (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....
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....n Swadeshi Cotton Mills Co. Ltd. vs. CIT (1987) 63 CTR (All) 335 : (1988) 171 ITR 634 (All), it is a nebulous word. Its dictionary meaning is : "The state or quality of being intricate or complex or that is difficult to understand. However, all that is difficult to understand should not be regarded as complex. What is complex to one may be simple to another. It depends upon one's level of understanding or comprehension. Sometimes, what appears to be complex on the face of it, may not be really so if one tries to understand it carefully." Thus, before dubbing the accounts to be complex or difficult to understand, there has to be a genuine and honest attempt on the part of the AO to understand accounts maintained by the assessee; appreciate the entries made therein and in the event of any doubt, seek explanation from the assessee. But opinion required to be formed by the AO for exercise of power under the said provision must be based on objective criteria and not on the basis of subjective satisfaction. There is no gainsaying that recourse to the said provision cannot be had by the AO merely to shift his responsibility of scrutinizing the accounts of an assessee and pass on the buck ....
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....mpugned assessment year before us is A. Y. 2014- 15.As per section 153 of the Act, the limitation for passing assessment order in this case was 31.12.2016.There is no quarrel with respect to the aforesaid. The order sheet entries made by the AO during assessment proceedings, filed before us at P.B 254 - 279, reveal that while the assessment proceedings commenced on 31. 08.2015 with the issuance of notice u/s 143(2) of the Act, except for a standard questionnaire issued to the assessee on 26.10.2015, to which due reply was filed by, no substantial queries were raised till 16.12.2016, i.e. almost the fag end of the period for passing assessment order u/s 143(3) of the Act, i.e. 31. 12.2016. The assessee in the intervening period, we have noted from the order sheet, was asked to furnish reasons for revising his return and furnish details of computation of income from industrial and finance activity, which reply was filed on 11.07.2016.On 16.12.2016,when the assessment was getting time barred on 31.12.2016 the assessee was asked to answer a slew of queries, in all 9 as under, the reply being required to be filed within 4 days by 20/12/16.The queries raised, as noted in the order sheet ....
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....which we find are primarily to the effect that certain information/explanation remained to be filed by the assessee. 22. The contents of the notice clearly revealing the said facts as under: "GOVERNMENT OF INDIA MINISTRY OF FINANCE INCOME TAX DEPARTMENT Office of the Deputy Commissioner of Income-tax Panchkula Circle, Aayakar Bhawan, Sector 2, Panchkula - 134 112 F.No.DCIT/Pkl/Cir/PKL/2016-17/ Dated: 20/12/2016 To M/s Haryana State Infrastructure Development Corporation Ltd., C-13 & 14, Sector 06, Panchkula. Sub:- Notice u/s 142(2A) OF THE It Act 1961 for the assessment for the A.Y. 2014-15 - reg. - ******* Please refer to the assessment proceedings for the A.Y. 2014-15 pending in this office. 2. In this regard, during the course of assessment proceedings you were asked to provide the information as per noting sheet entry dated 16.12.2016 vide your reply dated 20.12.2016 you have provide the following explanation:- Sr. No. Information Desired Reply/Explanation 1. Explain how figures of IA Activity shown till 31.03.2013 have been incorporated in the Balance Sheet and Statement of Profit & Loss for 31.03.2014. It is submitted that the Corporation has ch....
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....mputed in a manner adopted in earlier Assessment Year(s). We submit that the Corporation was following cash system of accounting for maintaining its accounts till F.Y. 2012-13 and had been showing certain income from Industrial Area Activity by allocating expenses between Industrial Area Activity and Finance Activity. However, the Corporation has changed its system of accounting from cash basis to accrual basis w.e.f. 01.04.2013 i.e. F.Y.2013-14. Accordingly, the Finance Statements for the F.Y. 2013-14 have been prepared on Accrual Basis, in accordance with the generally accepted accounting principles in India and to comply with the Accounting Standards prescribed in the Companies Act and also in accordance with the Government Notification No.GSR 550 (E) dated 16.05.1989 and 770 (E) dated 10.09.1990 which provide for accounting of interest income on loans financed to industrial projects and interest on instalments due on the cost ofindustrial plots/sheds etc., on cash basis. In Assessment Year 2014-15, the Corporation has computed the income from Industrial Area Activity earned till 31.03.2014 in A.Y. 2014-15. Due to change in the system of accounting from cash basis to accrual ba....
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....eases) without any development (b) Sale of plots of land (including long term sale type leases) with development in the form of common facilities like laying of roads, drainage lines and water pipelines, electrical lines, sewage tanks, water storage tanks, sports facilities, gymnasium, club house, landscaping etc. (c) Development and sale of residential and commercial units, row houses, independent houses, with or without an undivided share in land. (d) Acquisition, utilisation and transfer of development rights. (e) Redevelopment of existing buildings and structures. (f) Joint development agreements for any of the above activities. Since the activities undertaken by the Corporation fall under the scope of transactions covered under the Guidance Note on "Accounting for Real Estate Transactions", therefore, the POCM is applicable to the Corporation. 6. Basis of ascertaining revenue from operations. Revenue from Industrial Infrastructure activities is recognized in accordance with the provisions of Accounting Standard (AS) 9 on Revenue Recognition, read with Guidance Note on "Recognition of Revenue by Real Estate Developers (Revised 2012)". Revenue is computed based on the "Perce....
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....n computed at Rs. 1,050.40 Crore) in Assessment Year 2014-15 and the original return was filed showing entire income ofindustrial Area Activity earned till 31.03.2014. The Corporation has revised the return by reducing income of Rs. 1,050.40 Crore out of total income for Assessment Year 2014-15 because tax has already been levied by the Department on the amount of Rs. 1,050.40 Crore. In case, the said income is not reduced out of taxable income of Assessment Year 2014-15 it would amount to double taxation i.e. once paying tax in Assessment Year 2005-06 to Assessment Year 2013-14 on the basis of assessment made by the Department and again paying tax in Assessment Year 2014-15 on the basis of income declared in accounts. In case at a later stage, the appeals of the assessee are allowed by ITAT and income assessed from Industrial Area Activity is deleted, in that case, assessee Corporation agrees to pay the tax in Assessment Year 2014-15 as the same can be done u/s 154/155 while giving appeal effect to the orders of ITAT for years in appeal. The above explanation has been considered and examined and is discussed as unde r Regarding explanation No. 1 & 2, i) You have explained ....
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....ious head of accounting eg. Cost of land acquired for existing projects as well as future projects, Infrastructure and industrial area development expenses recoverable. The bifurcation of expenses and recoveries ofind. Area activity was given as annexure-i. But no year- wise, site-wise, head wise breakup is given e.g as per details of expenditure of Gurgaon site the cost of land is shown as 529,242, 907/-, but from this amount it is not verifiable that when the land was acquired, when the construction was begun and how much work is pending. No working and breakup has been provided on this point also. Regarding explanation No. 3, no tenable reply regarding the reason of change of method of accounting by HSIIDC has been provided. Regarding explanation No. 4, you have replied that valuation of closing stock/work in progress is valued at lower of cost or net relizable value. No detailed calculation/working has been given in support of amounts shown and where shown it is not substantive. For example the work in progress, the explanation of the same was not provided. Regarding explanation No. 5, As the corporation was established in 1967 and it is developing Indl. Estates and IMTs ....
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.... ending 31/03/2013 and 31/03/2014 the assessee replied that upto 31/03/13 since it was following cash system of accounting no stock was accounted for while thereafter it followed the Percentage Completion Method (PCOM) for accounting for inventory, valuing it at cost or net realizable value which ever was less. To this the AO notes that no calculation of working of inventory has been provided by the assessee. 26. To the query raised regarding how PCOM method was applicable to the assessee, the assessee replied that its activities fell under the scope of transactions covered By the guidance note issued by ICAI on Accounting for real estate transactions which recommended PCOM method. It was also explained as to how its activities fell under the said guidance note. To this the AO noted that why this method was not adopted in earlier years also. 27. On being asked to explain basis of ascertaining revenue from operations, due reply explaining the same was filed. To this the AO notes simply that it is not verifiable since assessee passes through various stages and no specific information/no detailed working has been provided by the assessee. 28. To the query as to why Rs. 1050 crores ....