TaxTMI 
TaxTMI 
2026 (4) TMI 56
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....erred to as the petitioner and the assessee interchangeably) for the Assessment Year (AY) 2013-14 and 2015-16 under Section 142(2A) of the Income-tax Act, 1961 (the Act), and also challenging the decision of the respondents/Revenue to initiate reassessment proceedings against the petitioner for AY 2013-14 and AY 2015-16, pursuant to a search and seizure carried out on 15.02.2022 under Section 132(1) of the Act. 2. By way of W.P.(C) 13553/2024 and W.P.(C) 14898/2024, the petitioner is impugning the audit direction dated 13.09.2024 along with notices dated 10.06.2024 and 05.07.2024 relatable to AY 2013-14 and the audit direction dated 08.10.2024 along with notices dated 10.06.2024 and 05.07.2024 relatable to AY 2015-16 respectively. 3. W.P.(C) 13572/2024 and W.P.(C) 15970/2023 have been filed impugning the following respectively: i. Notice dated 31.03.2024 issued under Section 148 of Act and notice dated 24.05.2024 issued under Section 143(2) of the Act and reasons recorded dated 29.05.2024, for the Assessment Year (AY) 2013-14. ii. Notice dated 31.03.2023 under Section 148 of the Act and notice dated 25.05.2023 issued under Section 143(2) of the Act along wit....
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....rther, on 31.03.2017, it filed a revised Return of Income declaring an income of Rs. 2,35,79,73,090/- and claimed a refund of Rs. 48,45,960/-. 8. Thereafter, on 15.02.2022, a search and seizure operation was undertaken by the Revenue in exercise of powers under Section 132(1) of the Act at the registered office of the petitioner. On 17.02.2022 and 19.02.2022, the bank accounts and trade receivables of the petitioner were provisionally attached by the Revenue under Section 132(9B) of the Act. During the course of the search, various documents, gadgets including electronic records from the laptops, hard drives and mobile phones of the employees of the petitioner were seized and further, statements of various officials of the petitioner company were recorded on several occasions between 15.02.2022 to 22.02.2022. 9. During the search, 42 items of information/material were submitted by the petitioner, including the laptop of one Mr. Zhaolei (who is an employee of the petitioner) having the Enterprise Resource Planning (ERP) accounting system access along with its username and password. ERP accounting system is a comprehensive accounting system which contains all data required for ....
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....on 31.03.2017 and 31.03.2019 respectively. Further, the jurisdictional pre-condition to reopen an assessment beyond 3 years and up to 10 years under Section 149(1)(b) i.e., escapement of income amounting to Rs. 50 lakh or more, represented in the form of an 'asset' is not satisfied in the present case, as no income relating to an 'asset' has even been pointed out by the Revenue which has escaped assessment. Therefore, no fresh incriminating material has been unearthed by the Revenue during the search proceedings and thus, the impugned notices are ex facie time-barred, without jurisdiction and are liable to be quashed. 13. A challenge has also been mounted to Explanation 2 to Section 148 of the Act as well as proviso to Section 148A of the Act (the impugned provisions) as being in violation of Part III of the Constitution of India, inasmuch as, the procedural safeguards laid down by the Supreme Court in GKN Driveshafts v. ITO, [2003] 259 ITR 19 (SC) and statutorily prescribed under Section 148A of the Act have not been made applicable to search cases. Further, in view of the impugned provisions, even in absence of any incriminating material/information available, the Assessing Of....
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....r while copying the data and was duly pointed out by the petitioner: v. No discrepancies found in the accounts in the other years; vi. The pre-condition laid down in Section 142(2A) of the Act is not fulfilled in the present case; vii. Roving and fishing enquires cannot be made through special audit in absence of any specific defects in the books of account; viii. Extend the timeline for completion of the post-search assessment proceedings in view of the directions of this Court dated 09.02.2024; 16. On 05.07.2024, the respondents issued a revised notice under Section 142(2A) of the Act to show cause as to why the accounts of the petitioner should not be audited, reiterating the grounds mentioned in the notice dated 10.06.2024 and additionally raising doubts regarding the allowability of the provision for customer claims. The revised notice also contained the Terms of Reference, which are as follows: i. To construct books of accounts of the petitioner from the ERP data dump seized during the search action for AY 2013-14; ii. The petitioner failed to provide its books of accounts and rather only provided the transaction level ....
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....are not satisfied in the present case. Section 142(2A) of the Act reads as under: (2A) If, at any stage of the proceedings before him, the Assessing Officer, having regard to the nature and complexity of the accounts, volume of the accounts, doubts about the correctness of the accounts, multiplicity of transactions in the accounts or specialized nature of business activity of the assessee, and the interests of the revenue, is of the opinion that it is necessary so to do, he may, with the previous approval of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, direct the assessee to get either or both of the following, namely:- (i) to get the accounts audited by an accountant, as defined in the Explanation below sub-section (2) of section 288, nominated by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner in this behalf and to furnish a report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars, as may be prescribed, and such other particulars as the Assessing Officer may require; (ii) to get the inven....
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....ishing the correct ERP data dump culminating into trial balance and profit and loss account for the relevant period through emails dated 06.05.2022, 10.05.2022, 22.03.2023 and 01.04.2023, and thereafter, no issues have been raised or communicated by the Revenue. However, none of the explanations contained in the aforesaid emails have been considered by the Revenue while passing the impugned directions. The impugned notices and directions are vague, cryptic and fail to justify the requirement of invoking the provisions of Section 142(2A) of the Act. It is their contention that therefore, the impugned notices and the directions are liable to be quashed. 20. They submitted that the respondent No. 1 has merely reproduced the language of Section 142(2A) of the Act in the impugned directions as evident from paragraph 20 wherein, it has been concluded that the necessity for special audit has arisen on account of unstructured data and discrepancy therein, satisfying the jurisdictional requirement of complexity and volume of accounts and multiplicity of transactions, without actually analysing the requirements of Section 142(2A) of the Act. Further, the approval given by the respondent N....
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....ny assessments has been reflected in the impugned notices and direction to justify invocation of Section 142(2A) of the Act. That apart, the issues relating to the transactions of customer claims undertaken with the Associated Enterprise have already been decided by the Tribunal in favour of the petitioner. 25. It is also their submission that Section 142(2A) of the Act cannot be invoked in those cases where reassessment proceedings have already been initiated. The purpose of Section 142(2A) of the Act is to provide an aid at the stage of assessment proceedings and the same cannot be invoked at the stage of reassessment. The scope of reassessment proceedings are limited only to the extent of escaped income and therefore, the special audit directions cannot be permitted to audit the entire books of accounts of the petitioner beyond the reasons/information based on which reassessment proceedings have been initiated. Reliance in this regard is placed on the judgment of the Supreme Court in CIT v. SUN Engineering, (1992) 4 SCC 12 363, as well as of the Bombay High Court in Ritz Ltd. v. CIT, (1995) 216 ITR 138 wherein it has been categorically said that the jurisdiction of Income-tax....
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....of the Act requires the Assessing Officer to demonstrate the complexity of the accounts of the assessee which an ordinary prudent person, reasonably informed about accounts and law is not in a position to comprehend, as a condition precedent. He has referred the judgment of the Supreme Court in the case of Rajesh Kumar and Others v. DY CIT and Others. (2007) 2 SCC 181, wherein, it was held that: "13. The expression "complexity" would mean the state or quality of being intricate or complex or that it is difficult to understand. Difficulty in understanding would, however, not lead to the conclusion that the accounts are complex in nature. No order can be passed on whims or caprice." 29. He contended that complexity of accounts cannot be equated with giving raw ERP data which was later converted into Trial Balance and was duly provided to the respondents for FY 2014-15 to 2020-21. Though the Revenue is repeatedly alleging that the ERP data dump provided by the petitioner are complex in nature, nowhere in the impugned notices and directions has it been specified that on what basis it arrived at the conclusion that the books of accounts of the petitioner is complex and volum....
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....expression "nature and complexity of the accounts" has been interpreted in a very restrictive manner by various courts. It is, therefore, proposed to amend the aforesaid sub-section so as to provide that if at any stage of the proceedings before him, the Assessing Officer, having regard the nature and complexity of the accounts, volume of the accounts, doubts about the correctness of the accounts, multiplicity of transactions in the accounts or specialized nature of business activity of the assessee, and the interests of the revenue, is of the opinion that it is necessary so to do, he may, with the previous approval of the Chief Commissioner of the Commissioner, direct the assessee to get his accounts audited by an accountant and to furnish a report of such audit." 32. The contention raised by the learned Senior Counsel for the petitioner based on the above is that it is evident from the above that special audit reference can be made only if the concerned Officer believes that it is not possible for him to form an opinion on the correctness of accounts of the Assessee keeping in mind the nature, volume and complexity of accounts. Based on such audited accounts, the Assessing Off....
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....claims has been decided in favour of the petitioner by the Tribunal vide order dated 24.02.2021 in AYs 2012-13 and 2013-14. The issue of allowability of warranty expenses is decided in the favour of the petitioner by Tribunal in the petitioner's case for AYs 2008-09 and 2009-10 vide orders dated 07.05.2018 (reported as 2018 (171) ITD 19) and 06.06.2019. Therefore, the issue has been finally settled by the Tribunal and the impugned notices and direction have been issued ignoring the same and thus, are liable to be quashed. 37. Yet another submission is that the Terms of Reference are beyond the scope of Section 142(2A) of the Act, as the Assessing Officer does not have any authority to direct preparation of fresh books of accounts for the assessee. To buttress this argument, reliance is placed on the judgment in the case of CIT v. Bajrang Textiles, [2007] 294 ITR 561 (Rajasthan). RE: REASSESSMENT 38. The learned Senior Counsel for the petitioner have submitted that the reopening of the two assessment years are beyond the six years limitation provided under Section 153A(1)(b) of the Act read with first proviso to Section 149(1) of the Act, and is also barred by limitation be....
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....ented in the form of an asset, the entire proceedings initiated under Section 148 read with Section 149(1)(b) are vitiated for want of jurisdiction. 42. Section 153A of the Act which was inserted with effect from 01.06.2003 replaced the erstwhile provisions of Section 158BB etc. which had the concept of 'block assessment years', which has now been done away with. It is submitted that each assessment year has to be dealt with separately and for reopening an assessment, incriminating material in each year has to be seen separately as held by the Supreme Court in Principal Commissioner of Income-tax, Central-3 v. Abhisar Buildwell (P.) Ltd.,[2023] 454 ITR 212 (SC), and this Court in Saksham Commodities Ltd. v. Income Tax Officer, [2024] 464 ITR 1 (Delhi). Absent incriminating material unearthed on account of search, the reopening of assessment under Section 153A of the Act cannot be sustained. Even otherwise, with respect to searches conducted after 01.04.2021 and before 01.09.2024, opening or re-opening of assessment can be undertaken only by issuance of notice under Section 148 of the Act, which has to be issued for each year separately. Therefore, absent incriminating material l....
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....dent 2013-14 Asset as well as entries in the books of account Entry in the books of account 2015-16 Issue not examined at all Issue not examined at all 2016-17 Entries in the books of account entries in the books of account 47. It is their submission that the Revenue, in order to justify the illegal and arbitrary reopening of assessment, has adopted inconsistent stand for the sole reason to reopen the assessment beyond six years limitation provided under Section 153A of the Act. Therefore, without the existence of an asset, AY 2013-14 being beyond 6 years, the impugned notice dated 31.03.2024 is time barred and is liable to be quashed on the basis of limitation, In any event, there is no incriminating material disclosed as a result of search. Therefore, the reassessment proceedings are liable to be quashed even otherwise. SUBMISSIONS FOR AY 2015-16 48. According to the learned Senior Counsel for the petitioner, the sole ground for reopening the assessment for AY 2015-16 is that the provision for warranty expenses incurred by the petitioner is reimbursed by the Associated Enterprise, and therefore the notional receivables on this account amounts t....
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....led that income, represented in the form of asset". It is submitted that receivables, as argued by the Revenue, is nothing but a notional or fictional asset and the law only contemplates the existence of a real or tangible asset. 52. That apart, since the petitioner and its Associated Enterprises are subject to transfer pricing, the Arms' Length Price is determined by applying the Transaction Net Margin Method (TNMM) approach which takes into account the profit margins that is determined by the Revenue. Thus, once the profit margin is determined, no further addition can be made because all eligible items of expenditure and all amounts includible as income are already taken into account while determining the Arms' Length Price and the Net Margin, and there is no requirement to recover each and every transaction entered with its Associated Enterprises. Therefore, the warranty expenses, even if receivable, will not form an asset in transfer pricing cases. Moreover, these receivables are not shown in the balance sheet as an asset, in view of the approval of transfer pricing assessments. 53. According to the learned Senior Counsel for the petitioner, the Revenue has taken an incon....
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....ata need to be deleted and some were to be added. 58. It is his case that in such a scenario, the correctness of the ERP data provided by the petitioner remains doubtful, more so when it is conceded by the petitioner itself, that there exist duplicate and missing entries. As such, the ERP data as provided cannot be relied upon to assess the correct income. That apart, the statement of Mr. Lalit Kumar, statutory auditor of the petitioner was recorded under Section 131(1) of the Act on 23.5.2022, wherein he had stated that raw ERP data is not sufficient to audit the books of the company and the same has to be reconciled with the financials. He also stated that the completeness of the ERP data also needs to be established by appropriate procedures. As per Mr. Rai, in view of the same, the ERP data submitted cannot be treated as necessary compliance for providing adequate facility to inspect the books of accounts during the search. 59. He has drawn our attention to Section 128 of the Companies Act, 2013 to contend that a company is allowed to keep books of accounts or other relevant papers in electronic mode, in the manner prescribed in Rule 3 of Companies (Accounts) Rules, 2014 ....
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....scribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139" 61. According to him, a perusal of the above would establish that: i. Return filed in response to a notice under Section 148 would be treated as a return under Section 139 of the Act. ii. The proceedings, as would be applicable if a return under Section 139 was actually furnished, would kick in and the procedure to initiate assessment which would start by way of issuance of notice under Section 143(2) of the Act would similarly apply to the instances where reassessment proceedings are initiated. iii. Accordingly, all the powers that would be available to the Assessing Officer that would normally be available in the course of assessment would also be available during the reassessment proceedings under Section 148 of the Act. iv. Thus, the powers to call for information and make inquiries as available under Section 142 of the Act would be available while carrying out the reassessment proceedings. 62. He also submitted that a reading of Section 142 of the Act would reveal that the powers....
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....ich was voluminous in nature and spread across various years. ii. The ERP data was in itself erroneous as it was admitted by the assessee, itself that there were duplication of data of FYs 2016-17 and 2017-18 and therefore, some entries were to be added whilst others were to be deleted. iii. The Tax Head of the petitioner, Mr. Amit Duggal, had stated that books of accounts were kept in the system of the Deputy Manager, (Finance) and that he was not aware of the location of the ERP system server and whether there was any backup server in India. iv. The Deputy CFO of the petitioner, Mr. Sandeep Bhatia, stated that they could download the necessary reports, based on requirement by raising a query in the ERP system and that he was also not aware if the physical servers were located in India. v. The statutory auditor of the petitioner, i.e. Mr. Lalit Kumar, stated in his statement under Section 131(1) that raw ERP data was not sufficient to audit the books of the company and the same was to be reconciled with the financials of the company. vi. The mandate of Section 128 of the Companies Act, 2013 was also not met as the top officials of the c....
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....ending that the records were available on the laptop of the CEO, which were made available. He has referred to the judgment of the High Court of Judicature at Allahabad in Sahara India Mutual Benefit Co. Ltd. v. Commissioner of Income Tax, [2004] 269 ITR 563 (Allahabad), wherein, according to him, it was held that when the books of accounts are not produced and the intent of the assessee is to deliberately stall the proceedings, then they could not raise a hue and cry regarding the same. 68. That apart, he has submitted that a direction for special audit may render serious civil consequences for an assessee and therefore, when the determination of direction for a special audit is to be given, it should be followed with the objective satisfaction of the Assessing Officer in consonance with the interest of the Revenue. This is predicated on the intention of the legislature to balance the rights of the assessee and the interest of the Revenue, i.e., to determine taxable income and act on the same accordingly, is not jeopardised. 69. He stated that it is trite law that when the conduct of an assessee is not transparent and the details as called for are not provided, a special aud....
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.... the assessee also provides a warranty to Indian customers that would cover any losses towards manufacturing defect in the equipment; e. However, since the assessee was not the manufacturer of the equipment, it had a back to back commitment from its parent entity to reimburse the assessee for any amounts that it goes out of pocket for towards the Indian customers. The evidence of such back to back commitment was two-fold as also noted in the satisfaction note are as follows: i. The Transfer Pricing Study Report clearly recorded that all risk with respect to warranty claims was to be borne by the foreign parent of the assessee and not by the assessee. ii. This aspect about the Transfer Pricing Report of the assessee with respect to the claim of warranty expenses made by the assessee was specifically noted by the Assessing Officer as under: M/s Huawei Telecommunications (India) Company Private Limited AY 2015-16 Approval for issuance of order u/s 148 of the Act "5.3.2 The company has claimed expenses as provision of warranty in the various years. The Transfer Pricing Report of HTICPL show that the claim of warranty expenses made by the ass....
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....n agreement, such warranty is finally required to be borne by the supplier of the product. Thus, while the assessee may be required to recognise the expenditure on warranty in its books of accounts due to its obligations towards the final client, reimbursement or compensation received from the supplier is also required to be recognised in the same way. The assessee cannot be in a worse position vis-a-vis warranty, even after back to-back compensation being provided by the supplier." f. With respect to the tax treatment of the warranty claims, it was observed that the assessee had made a provision on an estimate basis of any future warrant claims and claimed expense deduction in the relevant AY even though no such expense is incurred in the said AY. g. It was in this light that it was specifically noted by the Assessing Officer that while there were doubts with respect to the allowability of the expense claims made by the assessee, especially with respect to the accuracy of such provisioning, as to whether the assessee was claiming expenditure deduction and reducing its taxable profits on account of future expenses. If so, it must also reflect the receivables due f....
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....nts of the taxpayer, which is in the nature of an 'asset'. Accordingly, I am satisfied that the books of account seized during search suggest that the income chargeable to tax of Rs. 12,33,22,221/- has escaped assessment represented in form of asset in the case of assessee for A.Y. 2015-16" 76. The Principal Commissioner of Income-Tax (PCIT), while granting its approval also noted that there was escapement of income reflected in the form of an "asset" i.e., receivable and the conditions set out in section 149(1)(b) read with the 4th proviso to section 153A were met. It is also stated that no assessment was carried out for AY 2015-16 under Section 143(3) and this was the first time the issue of warranty claims would be examined by the Assessing Officer. AY 2013-14 77. Mr Rai has submitted that for AY 2013-14, the issue is with regard to provision for warranty claims made by the petitioner, which was reimbursed by the Associated Enterprise. His contention is that therefore, income of the petitioner has escaped assessment, in the nature of receivables for customer claims. 78. Pursuant to the search and the notice issued under Section 148 of the Act, a note sheet re....
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....le the draft assessment order for AY 2013-14 has not been passed yet, the same for AY 2015-16 has been passed, wherefrom it can be seen that the assessee has in fact, recovered an amount of Rs. 69,81,40,820 towards reimbursement of customer claims from its from Associated Enterprise as per its own statement made during the course of reassessment. The relevant part of the draft assessment order for AY 2015-16 is reproduced below: "13.1 In response, the assessee has furnished its response vide letter dated 22.04.2025, and the same has been reproduced as below: "In this regard, it is submitted that the Assessee has created provision for customer claim amounting to INR 88,51,14,056 during the subject AY, the working of the same is enclosed as Annexure 4. The break-up of the same is provided as under:" Amount (in INR) Remarks 7,02,12,421 Refer Note 26 (other expenses) of the audited financial statements 11,67,60,815 Refer Note 27 of audited financial statements 69,81,40,820 Refer footnote below Note 27. In this regard, it is submitted that the same has already been recovered from the Associated Enterprises and therefore, there is no impact on the Prof....
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.... the proviso to Section 148A of the Act as it was in force then. Therefore, in cases of search, pursuant to a specific deeming fiction, past years can be reopened without the specific requirement of furnishing of reasons or an opportunity to the assessee. The reason for such deeming fiction is to ensure that assessments in serious cases of search are not hindered on account of procedural requirements, particularly since a search is only initiated on fulfillment of conditions as set out in Section 132 of the Act and on specific approval of superior authorities. As such, once a search is carried out, then the Assessing Officer can reassess past years and make the addition/disallowance based on the material available during or post search. Even prior to 01.04.2021 the assessment under Section 153A, pursuant to a search, was carried out without serving of any show-cause notice and only on service of a notice under the said provision. 85. He has drawn our attention to the judgment in Principal Commissioner of Income-tax v. Naveen Kumar Gupta [2024] 168 taxmann.com 574 (Delhi), wherein this Court while drawing a comparison between Sections 153A and 148 regimes as they stood prior to 0....
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.... neither require to record reasons for his belief that the income of the assessee for the concerned assessment year has escaped assessment nor does he require to seek further approvals as required under Section 148 of the Act. However, he must be satisfied that the assets seized or requisitioned or the documents, books of account or other material transmitted by the AO of the searched person belongs to or contains information, which has a bearing on the determination of the income of the assessee. The reassessment must be predicated on material held to be incriminating and the income assessed / reassessed must be relatable to the material found as held by this Court in Kabul Chawla and affirmed by the Supreme Court in Abhisar Buildwell (P) Ltd. (supra)." 86. It is stated that therefore, once the search assessment regime was subsumed by Sections 147 and 148 of the Act reopening provisions (instead of the erstwhile Section 153A), w.e.f. 01.04.2021, the deeming fiction was specifically provided to ensure smooth implementation of search assessments without the need of furnishing or providing reasons to reopen by way of information suggesting escapement of income. He further stated t....
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....nt case, the six to ten year period from the end of the relevant assessment year of search would include AY 2016-17 to AY 2013-14. Further, as the reasons recorded for AY 2016-17 also include reasons for AY 2013-14 in addition to the independent finding in AY 2013-14 of escapement of income in the nature of assets (receivables towards customer claims), the preliminary trigger on a cumulative and independent basis for the relevant assessment years in aggregate is met. 89. It has been submitted that so long as reasons exist, recording in a different format, i.e. elaborating reasons for AY 2013-14 in the reasons recorded for AY 2016-17, does not vitiate the reassessment. In cases of search there is a deeming of reasons for escapement of income to reopen the past years and the procedure prescribed in Section 148A of the Act for issuance of notice along with reasons is not applicable to reopenings pursuant to a search. In such cases, where the Assessing Officer is sharing the internally recorded reasons with the assessee, there is no prescribed format, structure, or year-wise manner in which such reasons are required to be recorded. Reliance in this regard is placed on the judgment o....
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.... law that when the notice can be upheld on even a single ground, the entire reopening is to be upheld. There is a clear preliminary factual finding that the assets in the form of receivables were not disclosed by the assessee that resulted in the escapement of income. If the receivables were reflected, they would be taken as income especially since the assessee has claimed expenses on account of provisioning, and hence the assessee is attempting to reduce its taxable income by claiming expenses despite having corresponding right to recover the reimbursements. 91. It is also his case that the asset test is in fact met, as the receivables amount to asset for the purposes of the fourth proviso to Section 153A. Explanation 2 to Section 153A reads as under: "Explanation 2.- For the purposes of the fourth proviso, "asset" shall include immovable property being land or building or both, shares and securities, loans and advances, deposits in bank account." 92. Mr. Rai has stated that as can be seen from the above, the definition of asset is broad and inclusive and not exhaustive. Even ejusdem generis, it can be seen that receivables are covered by the definition since loans ....
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....ts or evidence, which reveals that the petitioner's income that is represented in the form of an asset has escaped assessment." 96. It has been further submitted that the assessee has not placed on record the Distribution Agreement or any other document to demonstrate that there was no clause providing for reimbursement. In the absence of any such supporting document, the assertion that no reimbursement arrangement existed is unsupported by evidence. As against this, there is a factual finding by the Assessing Officer in the reasons recorded that such a clause existed in the Distribution Agreement. In any case, in addition to the reimbursement clauses in the Distribution Agreement unearthed during the search, the Assessing Officer has also relied upon the FAR Analysis prepared by the assessee to reflect that the assessee was indemnified fully by its foreign parent. Therefore, there is enough evidence for the Assessing Officer to form a preliminary view to reopen assessment pursuant to the search. He has also challenged the submission on behalf of the petitioner that the Revenue could not show the receivables as assets from the balance sheet of the assessee, by stating that the b....
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....te reasons are recorded in AY 2016-17. Under Section 153A of the Act, recording of reasons for initiation of reassessment proceeding is mandatory and cannot be bypassed. They contended that the reliance placed on CIT v. Calcutta Knitwear, [2014] 362 ITR 673 (SC) is completely erroneous as it is confined to the recording of satisfaction in the case of a third person arising out of search proceedings and only holds that such satisfaction may be recorded even after completion of assessment of the searched person. The ratio of the said decision has no application whatsoever to reassessment proceedings initiated against a searched person. It is submitted that the proceedings under Section 153A in the case of a searched person stand on a completely different footing and cannot be equated with proceedings initiated against a non-searched person, as sought to be done by the respondents. The reliance placed by Mr. Rai on Super Malls (P.) Ltd. vs. PCIT, 8 New Delhi [2020] 423 ITR 281 (SC)[05-03-2020] is also contested as incorrect inasmuch as, this judgment was rendered in the context of Section 153C of the Act where satisfaction notes are recorded by the Assessing Officer of the searched pe....
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.... to Section 153A of the Act. Firstly, there is no receivable at all as there is no contractual provision which requires the associated overseas entity to pay these amounts to the petitioner for the relevant assessment year. Further, a receivable does not constitute an asset as per the explanation to Section 153A in as much as, the definition of the asset is provided under fourth proviso to Section 153A of the Act. The principle of ejusdem generis cannot be applied to read 'receivable' in the definition of asset, as the aforesaid principle of statutory interpretation is applied to interpret where general words are followed by a specific class of words. An expense claim or a provision which is 'receivable' cannot be equated with 'land or buildings', 'shares and securities', 'loans and advances', or 'deposits in bank account'. They have stated that the judgment in M.J. Exports (P.) Ltd. v. Joint Commissioner of Income-tax [2025] 176 taxmann.com 342 (Bombay) referred to by the Revenue in support of their argument that a debt receivable constitutes an asset, has no application to the instant matter. In that case, provisions for doubtful debts and advances were created in circumstances w....
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....mounts includible as income are already taken into account while determining the Arms' Length Price and the net margin, and there is no requirement to recover each and every risk borne by the Associated Enterprises. 104. He has opposed the submission of the Revenue that the draft assessment order passed for AY 2015-16 reflects that amounts were recovered by the petitioner on account of reimbursement of customer claims. Firstly, no such material is referred in the reasons and neither is this the reason stated for reopening. Secondly, the reimbursement does not relate to AY 2013-14. Thirdly, mere reimbursement and that too, for another year, cannot be considered as an 'asset' for reopening assessment. Further it is bad in law to rely on a draft assessment order for AY 2015-16 which did not exist at all when the impugned notice for AY 2013-14 was issued, so as to justify the re-opening for AY 2013-14. Fourth, once a provision is created, it can either be utilised or written back. If it is written back, there is no requirement of reimbursement as it would be automatically credited to the profit and loss account as well as increase taxable profits. Therefore, in any case it is untena....
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....dian entity against any loss, cost, or expense arising from non-performance, product defects, or product-related issues. The Agreement expressly delineates the allocation of responsibilities and risks between the parties. Clause 3.2(b) of the Distribution Agreement unequivocally provides that Associated Enterprise shall assume risks relating to product quality, order processing errors, mistakes in communication of product specifications, and other product-related matters, insofar as such risks are not attributable to the petitioner. Further, the indemnity obligation (Article VII of the Distribution Agreement dated 01.04.2010) is couched in wide and comprehensive terms, and when read in its commercial context, necessarily encompasses warranty obligations, customer claims, liquidated damages, and losses arising from manufacturing or product defects. Consequently, when Clause 3.2(b) is read in conjunction with the indemnity obligation under Article VII, it is evident that although petitioner may initially discharge such claims vis-à-vis customers in India, the financial burden of such payments is contractually borne by the foreign Associated Enterprise. Consequently, any amount....
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....sis itself is sufficient to establish the existence of such a recoverable right and along with the Distribution Agreement, the factum of receivables gets even more fortified. 110. Contesting he submission of the learned Senior Counsel for the petitioner, he stated that the respondents are not seeking to justify the reopening the assessment of AY 2013-14 on the basis of reasons recorded for AY 2016-17. Separate reasons have been duly recorded for AY 2013-14, founded on incriminating material emanating from the search. Where material found during a search evidences a continuing transaction or arrangement giving rise to recurring tax consequences across multiple years, such material is relevant and applicable to each of those assessment years. The reasons recorded for AY 2016-17 clearly show that the incriminating material unearthed during the search revealed the reimbursement of customer claims quantified at Rs.12,86,11,894 pertaining to AY 2013-14. What the statute requires is the existence of such material to the year sought to be reopened, and not the timing or manner in which such material is first recorded or articulated. He has contested the applicability of the judgments in....
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....m another year. This position is settled in Indian National Congress (supra) wherein it was held that where proceedings arise from a common search, a composite or common satisfaction is not impermissible, provided the material gathered in the course of search has relevance to the assessment years sought to be reopened. In other words, the case of the Revenue is that the incriminating material evidencing a continuing contractual and functional arrangement existed and was relevant to AYs 2013-14 and 2015-16. 114. According to Mr. Rai, the apprehension expressed by the petitioner that the interpretation of the Revenue would lead to the reopening of multiple years without year-specific incriminating material is wholly unfounded. The present case does not rest on a mere "block reopening", but on incriminating material emanating from a search which evidences a continuing arrangement giving rise to recurring tax consequences across years. The law does not require such material to be rediscovered or rearticulated repeatedly for each year; rather, it requires that the material exists and bears a live nexus to the year sought to be reopened, which condition stands fully satisfied in the p....
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....nly for two limited purposes: firstly, to demonstrate that the contention of the petitioner that that no amount was ever reimbursed/recovered is factually incorrect; and secondly, to respond to a specific query of this Court as to whether additions were proposed in respect of warranty or customer claims. 118. Contesting the stand of the petitioner, he stated that whether reimbursement was actually received and whether margins under the Transaction Net Margin Method already factor in the risks, pertain purely to the merits of the reassessment and are wholly irrelevant for examining the validity of jurisdiction to reopen the assessment. The existence of an asset for jurisdictional purposes is not contingent upon its disclosure in the balance sheet. On the contrary, the very object of search and reassessment proceedings is to bring to tax income and assets which have not been disclosed in the books of account. 119. It is his case that the judgment of this Court in the case of Smart Chip Private Ltd. (Supra) is distinguishable since in the said case there was no issue with regard to existence of an asset, whereas in the present case, there is clear preliminary reasoning in both A....
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.... the same ought to have been recorded particularly in a situation where the reasons for AY 2013-14 was recorded at a later point in time. 124. The expenses on account of customer claims which were initially disallowed in the regular assessment, and later allowed by the Tribunal for AY 2013-14, were the sole liability of the petitioner. There was no case of the respondents at the time of regular assessment that any amount was receivable from the Associated Enterprise. It is stated that this argument is merely a change of opinion to justify re-opening of assessment and to find an asset where there exists none. Even otherwise, the amount of customer claims was never receivable, and as such there is no question of referring to that amount as an asset. 125. It is also submitted that the respondent's reliance on Calcutta Knitwear (Supra) and Super Malls (P.) Ltd. (Supra) is misleading as the ratio of these judgments cannot be applied mechanically without there being any incriminating material in the present relevant year. The present assessment being made under Section 147 of the Act is akin to search assessment under Section 153A (under the erstwhile provisions) and not under Sect....
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....ssue. Such an indemnity clause was not even referred to in the reasons recorded for AY 2015-16 and is a fresh attempt to justify reopening of assessment for AY 2015-16 which goes beyond the reasons recorded. 128. It is submitted that the stand of the Revenue in their rejoinder submissions that the said Distribution Agreement dated 01.04.2010 was not in existence during the relevant AY 2015-16 is completely misconceived inasmuch as, a bare perusal of the Clause 9.1 of the said Agreement establishes that the Agreement is automatically renewed unless a notice is provided by any of the parties. Thus, the Agreement dated 01.04.2010 was the only Distribution Agreement in force during the relevant AY 2015-16 and was only substituted by a later Agreement w.e.f. 01.01.2017 which is after AY 2015-16. It is thus clear that the respondents were basing their entire case on an incorrect agreement which had no application on AY 2015-16 and the reassessment ought to be quashed on this short ground alone. 129. Further, the respondents in their written submission dated 15.01.2026 claim that the Agreement dated 01.04.2010, which is the only applicable Distribution Agreement prevalent during AY ....
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....cepted in the original assessment proceedings, it has taken into account all the risks assumed by the petitioner and no further addition can be made by making reference to different obligations arising under Distribution Agreement as all such risks have already been considered by computing the Arm's Length Price. In the absence of any contractual obligation requiring separate recovery of warranty-related expenses, the Respondent's contention is untenable. 132. It is also submitted that the respondents themselves in paragraph 15 of their rejoinder have admitted that a receivable is an accrued and enforceable right, whereas a provision is contingent and notional. Therefore, in the absence of any enforceable right of recovery, the respondent cannot assume jurisdiction to reopen assessment. ANALYSIS AND CONCLUSION 133. Having heard the learned counsel for the parties and perused the record, the primary issues which arise for consideration are the following:- a) Whether the notices under Section 148 of the Act issued by the respondents for AYs 2013-14 and 2015-16 are beyond limitation as there is no income in the nature of an asset escaping assessment. b) Whet....
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....to a deeming fiction in Explanation 2 to Section 148 of the Act as was in force then; 2) Pursuant to the search under Section 132 of the Act, information came to the fore that there is an escapement of income of the petitioner in the nature of an asset, being receivables on account of counter claims and warranty; 3) From the Transfer Pricing Report of the petitioner, it can be seen that the entire claims towards customer claims and warranty are to be borne by the Associated Enterprise and not the petitioner; 4) The petitioner in its reply to a query raised by the Revenue during the draft assessment proceedings for AY 2015-16 conceded that subsequent to the reopening, there have been certain reimbursements; 5) Any receivables would amount to asset for the purpose of Section 153A, as can be seen from the wording of Explanation 2 therein; 6) Even applying the principle of ejusdem generis, receivables would have the same meaning as 'loans and advances' mentioned in the Explanation 2; 7) Where material found during a search evidences a continuing transaction or arrangement giving rise to recurring tax consequences across multiple yea....
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....40. A perusal of the above reveals that the Associated Enterprise shall assume the risk related to product quality or other related matters, as long as such risk, error or mistake is not attributable to the petitioner, and also that the Associated Enterprise is to indemnify the petitioner from and against any loss, cost or expense incurred by the petitioner related to any act or omission in connection with the non-performance of a supplied product. 141. When the petitioner has a right to be indemnified for any expense incurred by it for non-performance of the product, it cannot contend that there is no contractual agreement for reimbursement, as the creation of provisions for customer claims and warranty would amount to an "act... in connection with the non-performance of the Products supplied..." 142. It is also to be noted that the petitioner in its reply dated 22.04.2025 to the query raised by the Revenue with respect to the draft assessment proceedings of AY 2015-16 has admitted that an amount of Rs. 69,81,40,820/- has been recovered from its Associated Enterprise on account of customer claims. If that be so, the submission of Mr. Datar and Mr. Gulati that there is no agr....
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....ambit of an asset and would otherwise escape assessment. 147. That apart, the Conceptual Framework for Financial Reporting under Indian Accounting Standards (Ind AS) issued by the Indian Accounting Standard Board defines an asset as a present economic resource controlled by an entity as a result of past events. An economic resource is further defined as a right that has the potential to produce economic benefits. It describes three aspects of an asset viz. right, potential to produce economic benefits, and control. Relevant portion of the Framework is reproduced as under:- "Definition of an asset 4.3 An asset is a present economic resource controlled by the entity as a result of past events. 4.4 An economic resource is a right that has the potential to produce economic benefits. 4.5 This section discusses three aspects of those definitions: (a) right (see paragraphs 4.6-4.13); (b) potential to produce economic benefits (see paragraphs 4.14-4.18); and (c) control (see paragraphs 4.19-4.25). Right 4.6 Rights that have the potential to produce economic benefits take many forms, including: (a) ....
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.... even in the future. It can include a right that corresponds to an obligation of another party, a right to receive cash, or a right to benefit from an obligation of another party to transfer an economic resource, if a specified uncertain future event occurs. Such a right only has to exist and it need not be certain that it will produce economic benefits, for it to be termed as an asset. Further, a present obligation can exist for an entity even if transfer of the economic resource cannot be enforced until some point in the future. 149. In the present case, by virtue of the Distribution Agreement, the petitioner has acquired a right to be indemnified by the Associated Enterprise for the expenses it incurs on customer claims/warranty. Even if the actual indemnification/reimbursement happens only in the future, it does not take away the fact that such a right has arisen in the relevant assessment year when the provisions for customer claims/warranty were made. Such a right to receive reimbursement in the future would certainly enhance the economic stature of the petitioner, and as such, would amount to an asset. 150. Going by the above, we are of the view that the amounts receiv....
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....action. Accordingly, for the purpose of better coordination, effective investigation and meaningful investigation, the case of the assessee was centralized with the office of the undersigned vide order u/s 127 of the Income Tax Act, 1961 (hereinafter referred to as "the Act") bearing number F. No. Pr. CIT/FBD/Tech/127/Cent/2022-23 dated 09.11.2022 passed by the Pr. CIT, Faridabad. 4. During the search proceedings certain incriminating digital evidences, loose sheets, diaries etc were found and seized from the business premise of HTICPL 19, 10 and 11th Floor, Capital Cyberscape, Gurugram Manesr, Urban Complex, Sector-59, Ullahwas, Gurugram, Haryana-122011" 5. 5. As per submitted audit report dated 08.06.2020 in Form 3CA for FY 2019-20, as per Form 3CD, point 11(b), following books of accounts were mentioned to be maintained at 9th Floor, Capital Cyberscape, Gurugram Manesar, Urban Complex, Sector-59, Ullahwas, Gurugram, Haryana-122011, viz i. General ledger (computerized) ii. Journal Book (computerized), iii. Monthly payroll records (computerized), iv. Inventory ledger (Computerized), v. Fixed assets register (computeriz....
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....see claimed that the said provision is created by the Assessee due to probable deduction that the customer might make on account of potential delay in supply of goods or provision of services. Based on the search and post search investigation carried out in the case it became clear that the said provision is not an ascertained liability. Further, it appears the Assessee does not have any present obligation to discharge such liquidated damages, the provision made on this account appears to be a contingent liability which lacked reasonable certainty and possible quantification. Therefore, the same do not constitute expenditure and cannot be the subject matter of deduction. In light of this new fact emerged during search proceedings and post search investigation that assessee does not have any obligation to discharge such liquidate damages, the allowability of provision customer claim without scientific basis should be investigated and nature of transaction. The issue in monetary terms for the year under consideration is given below: AY Amount of provision of customer claims created (in INR) 2013-14 12,86,11,894 9. The undersigned shall be deemed to have informati....
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....88,49,299 was created as per P&L Account. 5.3.4 As per the Distribution agreement between assessee and it's Associated Enterprises i.e. M/s Huawei International Pte Ltd, any expenditure incurred on account of warranty is required to be borne by the supplier of the product i.e., the Associated Enterprises. However, assessee has debited warranty expenses and not shown any separate compensation being received from the supplier in the books of accounts. The argument of the assessee that the warranty expenditure is required to be borne by it in terms of the contract with the final client is fallacious. While the provision of warranty for supply of a defective product might be the obligation of the" assessee, in terms of its supply contract with the final client, in terms of the distribution agreement, such warranty is finally required to be borne by the supplier of the product. Thus, while the assessee may be required to recognise the expenditure on warranty in its books of accounts due to its obligations towards the final client, reimbursement or compensation received from the supplier is also required to be recognised in the same way. The assessee cannot be in a wors....
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...., the income which has escaped assessment (Rs. 12,33,22,221/-) should exist as a payment receivable in the books of accounts of the taxpayer, which is in the nature of an 'asset'. Accordingly, I am satisfied that the books of account seized during search suggest that the income chargeable to tax of Rs. 12,33,22,221/- has escaped assessment represented in form of asset in the case of assessee for Α.Υ. 2015-16." (emphasis supplied) 154. A perusal of the notice under Section 148 of the Act dated 31.03.2024 and the satisfaction note containing the reasons recorded for AY 2013-14 would reveal that the re-assessment is being initiated pursuant to the search dated 15.02.2022 under Section 132 of the Act. However, unlike the reasons recorded for AY 2015-16, it does not state that the provision was reimbursable by the Associated Enterprise, making it an asset. It also does not make any reference to the Distribution Agreement or the Transfer Pricing Study. Though the said notice and reasons recorded for AY 2013-14 were issued after the search and also after the notice dated 31.03.2023 for AY 2015-16 was issued, the Assessing Officer has not made any....
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....different words does not clothe the reassessment notice, in the opinion of the Court, with any more sanctity, nor does it take away the vice of lack of jurisdiction noticed in the order in WP 8685/2010. Moreover, an assessment cannot be reopened merely to verify the genuineness of the expenses as that would amount to an impermissible fishing or rowing enquiry without any tangible material to show escapement of income. For the above reasons it is held that the impugned notice is not justified and beyond the authority of law. It is accordingly quashed and the writ petition is allowed." (emphasis supplied) 158. It is pertinent to note here that the allowability of the provisions made for customer claims for AY 2013-14 as well as the methodology used for arriving at the amounts so claimed, was subject matter of an appeal before the Tribunal, in ITA No. 7510/Del/2017, wherein while relying upon the judgment of the Supreme Court in Rotork Controls India (P) Ltd. (supra), the Tribunal has held as under:- "42. Evidence brought on record by the taxpayer shows that aforesaid conditions have been fulfilled and as such, provision made qua the amount provided by th....
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....h, shares and securities, loans and advances, deposits in bank accounts. 19. The AO seeks to disallow expenses on account of doubting the genuineness for the reason that the same were not incurred wholly or exclusively for the purpose of the petitioner's business. Absent any further material to establish that such expenses had resulted in the acquisition of any asset, the conditions stipulated in the fourth proviso to Section 153A(1) of the Act would remain unsatisfied." (emphasis supplied) 160. Since the genuineness or allowability of expenses cannot be the sole reason to initiate reassessment, we must hold that though the notice for AY 2013-14 was issued subsequent to the notice in AY 2015-16, the Assessing Officer failed to specify as to how the provision made for customer claims would amount to income escaping assessment in the nature of an asset, for him to assume jurisdiction. Therefore the reasons recorded by the Assessing Officer to reopen the assessment for AY 2013-14 do not satisfy the fourth proviso to Section 153A(1) of the Act. 161. The argument of Mr. Rai is that the reasons provided for AY 2016-17 (subject matter of a separate writ petition W.....
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....lso. However, it is not his case that the notice or the satisfaction note for AY 2016-17 make any reference to incriminating material found qua AY 2013-14 or a block period. In the absence of such reference by the Assessing Officer, the notice / satisfaction note for AY 2016-17 cannot be considered as a common or composite satisfaction note resting on incriminating material pertaining to the AY 2013-14. For this reason, the above submission of Mr. Rai and his reliance on the judgment in Indian National Congress (supra) warrant rejection. 163. We are of the view that reliance was rightly placed by the learned Senior Counsel for the petitioner on the judgment of this Court in the case of Saksham Commodities Limited (supra) to say that the Assessing Officer needs to necessarily identify the assessment years to which the material gathered in the course of a search may relate to before issuing the notice. The judgment in the case of Saksham Commodities Limited (supra) though delivered in the context of Section 153C of the Act dealing with abatement of pending assessment and reassessment pursuant to a search, contains ratio applicable to the facts of the present case. We reproduce the....
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.... to assess or reassess the six AYs' or the "relevant assessment year". The Act thus sanctions and confers an authority upon the AO to exercise the power placed in its hands for up to a maximum of ten AYs'. Despite the conferral of that power, the question which would remain is whether the facts and circumstances of a particular case warrant or justify the invocation of that power. It is the aforesaid aspect which bids us to reiterate the distinction between the existence and exercise of power. 50. What we seek to emphasise is that merely because Section 153C confers jurisdiction upon the AO to commence an exercise of assessment or reassessment for the block of years which are mentioned in that provision, the same alone would not be sufficient to justify steps in that direction being taken, unless the incriminating material so found is likely to have an impact on the total income of a particular AY forming part of the six AYs' immediately preceding the AY pertaining to the search year or for the "relevant assessment year". 51. Ultimately Section 153C is concerned with books, documents or articles seized in the course of a search and which are found to have the pote....
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....rboured. The Supreme Court in unequivocal terms held that absent incriminating material, the AO would not be justified in seeking to assess or reassess completed assessments. Though the aforesaid observations were rendered in the context of completed assessments, the same position would prevail when it comes to assessments which abate pursuant to the issuance of a notice under Section 153C. Here too, the AO would have to firstly identify the AYs' to which the material gathered in the course of the search may relate and consequently it would only be those assessments which would face the spectre of abatement. The additions here too would have to be based on material that may have been unearthed in the course of the search or on the basis of material requisitioned. The statute thus creates a persistent and enduring connect between the material discovered and the assessment that may be ultimately made. The provision while speaking of AYs' falling within the block of six AYs' or for that matter all years forming part of the block of ten AYs', appears to have been put in place to cover all possible contingencies. The aforesaid provisions clearly appear to have been incorporated and made....
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....hus reinforce the requirement of incriminating material having an ineradicable link to the estimation of income for a particular AY. 57. It becomes pertinent to note that both Sections 153A and 153C require the assessee upon being placed on notice to furnish ROIs' for the six AYs' or the "relevant assessment year". All that the two provisions mandate is that notwithstanding the submission of those ROIs', the AO would frame one assessment order in respect of each of the years which were made subject matter of the notice and which would deal with both disclosed and undisclosed income. This too reinforces our view that Section 153C would apply only to such AYs' where the jurisdictional AO is satisfied and has incriminating material for those AYs' and which may be concerned with disclosed and undisclosed income. xxxx xxxx xxxx 61. A reading of the aforesaid Satisfaction Notes would establish that jurisdictional AOs' appear to have proceeded on the premise that the moment incriminating material is unearthed in respect of a particular AY, they would have the jurisdiction and authority to invoke Section 153C in respect of all the assessment years which could oth....
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.... and needs to be set aside. 166. Insofar as, AY 2015-16 is concerned, we have already reproduced the reasons provided for issuing the notice dated 31.03.2023 under Section 148 of the Act, which clearly reveal that the reassessment has been initiated pursuant to evidence that has been unearthed during the search that suggest that there are receivables in the nature of reimbursement of the provisions for warranty. It has been stated that since such receivables have not been recorded in the books of the assessee, income has escaped assessment in the nature of an asset. We have already held that the receivables at the hand of the petitioner would be an asset for the purpose of Section 153A of the Act. As such, the notice dated 31.03.2023, for AY 2015-16 being within ten years of the end of the relevant assessment year 2015-16, meets the requirement under Section 153A and also Section 149(1) of the Act. Therefore, the said notice cannot be said to be beyond limitation. The challenge to the notices dated 31.03.2023 and 25.05.2023 along with the satisfaction note for AY 2015-16, therefore, cannot be sustained. 167. Some of the arguments raised by the learned Senior Counsel for the p....
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.... is significant contradiction between the data for two financial years. Further, there are lakhs of line items in the data dump, which have not been segregated into ledgers, making it voluminous and complex. 170. There is no dispute that the special audits have been directed for the purpose of reassessment initiated for AY 2013-14 and AY 2015-16, as would be clear from the submissions of Mr. Rai noted in the paragraph Nos. 60 to 62 above. If that be so, as we have set aside the notice for reassessment under Section 148 of the Act for AY 2013-14 for the want of jurisdiction/ limitation, the direction and notice for special audit for that assessment year serve no purpose, and would not survive. 171. Now we may examine the issue with regard to the direction for special audit for AY 2015-16. The primary submission of Mr. Datar and Mr. Gulati is that the purpose of Section 142(2A) of the Act is to provide an aid at the stage of assessment proceedings and the same cannot be invoked at the stage of re-assessment. According to them, the scope of re-assessment proceedings are limited to the extent of the scope of escaped income and therefore, special audit directions cannot be issued ....
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.... He has substantiated his argument by reasons which we have already reproduced in paragraph no. 64 above. 174. Additionally, it has also been stated in the notice dated 05.07.2024 that while provisions made for warranty has been deducted, the petitioner had not clarified weather such liquidated damages are actually recoverable from the Associated Enterprise. It has also been stated that such expenses on account of warranty, according to Transfer Pricing Report is liability of the Associated Enterprise. We have already held that by virtue of the Distribution Agreement, the provisions for warranty claimed by the petitioner would be reimbursed by the Associated Enterprise. 175. It has also been alleged that the petitioner has failed to provide its books of accounts, instead providing transactional level ERP data in Microsoft Excel format. It had also failed to keep a back-up of the digital books of accounts in India, accessible at all times and backed up daily, as required by law. 176. The contention of the learned Senior Counsel for the petitioner that volume of accounts and multiplicity of transactions cannot be presumed merely on account of lakhs of line items in the ERP d....
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....uminous, and there is multiplicity of transactions in the accounts of the petitioner, would be sufficient for the Assessing Officer to exercise the power under Section 142(2A) of the Act and direct the petitioner to have its accounts audited. Mr. Rai is justified in relying upon the judgment in the Takshashila Realities Private Limited (supra) wherein it was held that apart from the nature and complexity of accounts, even in case of multiplicity of transactions, in the accounts or specialised nature 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. 179. Additionally, since we have already held that the reassessment proceedings initiated under Section 148 of the Act for AY 2015-16 are not barred by limitation and have upheld the notice for the same, we are of the view that the challenge raised to the direction for special audit for AY 2015- 16, is devoid of merit and needs to be rejected. 180. Though the parties have referred to a host of judgments as noted above, in support of their contentions, in the facts of this case and in view of ....