Date Of Order 02-01-2018 W.p v. The Assistant Commissioner Of Income Tax & Another

IN THE HIGH COURT OF KARNATAKA, BENGALURU. DATED THIS THE 2 DAY OF JANUARY, 2018) BEFORE THE HON'BLE Dr. JUSTICE VINEET KOTHARIWRIT PETITION No.1863/2017C/W'WRIT PETITION No.25223/2016 (TIT) WRIT PETITION No.1863/2017 Between:| M/s. Karnataka Industrial Area Development Board#49, 4[th]&5[th]Floors, Khanija BhavanRace Course Road, Bengaluru-5600011(Represented by its CKO & EM, Sri. PankajKumar Pandey, IAS, aged about 40 years©/o Sri. Deo Mani Pandey) _.. Petition (By Mr. Chythanya K.K, Advocate) And: 1.)The Assistant Commissioner of Income Tax(Exemptions), Circle-1, 6th FloorUnity Building Annexe, Mission RoadBengaluru-560 027.(Exemptions), Circle-1, 6th FloorUnity Building Annexe, Mission RoadBengaluru-560 027. iaThe Commissioner ot Income Tax(Exemptions), 6th Floor|Unity Building AnnexeMission Road, Bengaluru-560027.(Exemptions), 6th Floor|Unity Building AnnexeMission Road, Bengaluru-560027. ... Respondents (Mr. E.R. Indrakumar, Senior counsel for|Mr. E.I. Sanmathi, Advocate1 Date of Order 02-01-2018 W.P.No.1863/2017C/W W.P.No.29223/2016M/s. Karnataka Industrial Area Development BoardVs. The Assistant Commissioner of Income Tax & Another 2/19) This Writ Petition is filed under Articles 226 & 227 ot!the Constitution of India, praying to quash as far as thePetitioner is concerned by an appropriate writ or order in thenature of Certiorari or otherwise, the impugned OrderF.No.KIADB/ACIT(E)/C-1/2016-17, passed by the LearnedFirst Respondent for conduct of Special Audit’ under section142(2A) of the Income-tax Act, 1961, dated 19-12-2016,enclosed as Annexure-A & etc., | WRIT PETITION No.25223/2016 Between:| Karnataka Industrial Area Development Board#49, 4[th]&5[th]Floors, Khanija BhavanRace Course Road, Bengaluru-5S60001(Represented by its CEO & EMori. Naveen Raj SinghAged about 47 years)...Petitione (By Mr. Chythanya K.K, Advocate) And: 1.)The Deputy Commissioner of Income Tax(Exemptions), Circle-1, 6[th]FIOOr|Unity Building Annexe, Mission RoadBengaluru-560 027.(Exemptions), Circle-1, 6[th]FIOOr|Unity Building Annexe, Mission RoadBengaluru-560 027. oOThe Commissioner of Income Tax.(Exemptions), 6[th]Floor.Unity Building AnnexeMission Road, Bengaluru-560027.(Exemptions), 6[th]Floor.Unity Building AnnexeMission Road, Bengaluru-560027. ... Respondents | (Mr. E.R. Indrakumar, Senior counsel for|Mr. E.I. Sanmathi, Advocate) KRREK Date of Order 02-01-2018 W.P.No.1863/2017C/W W.P.No.29223/2016M/s. Karnataka Industrial Area Development BoardVs. The Assistant Commissioner of Income Tax & Another 3/19) This Writ Petition is filed under Articles 226 & 227 otthe Constitution of India, praying to quash as far as thePetitioner is concerned by an appropriate writ or order in thenature of Certiorari or otherwise, the impugned Order videF.No.DCIT(E)/KIADB/2015-16, passed by the Learned FirstRespondent for conduct of ‘Special Audit’ under section142(2A) of the Income-tax Act, 1961, dated 28-03-2016,enclosed as Annexure-A & etc., | These Writ Petitions coming on for Preliminary Hearing|in “‘B’ Group this day, the Court made the following:- ORDER Mr. Chythanya K.K., Advocate for Petitioner - KIADBMr.E.R. Indra Kumar, Senior CounselFor Mr. E.I. Sanmathi,Advocate for Respondents 1. The petitioner —M/s. Karnataka Industrial Area DevelopmentBoard(KIADB),aaGovernmentot Karnataka Undertaking has challenged before thisCourt the orders passed by the Respondent — DeputyCommissioner of Income Tax, Bangalore, directing‘Special Audit’ot its Accounts for the Assessment. Years9013-14and9014-15under Section |142(2-A) ofthe Income Tax Act, 1961,by two separate orders Date of Order 02-01-2018 W.P.No.1863/2017C/W W.P.No.29223/2016M/s. Karnataka Industrial Area Development BoardVs. The Assistant Commissioner of Income Tax & Another 4/19) passedOT)28/03/20161nNWritpetition No.25223/2016and on.15/12/2016inWrit Petition No.1863/2017. ORDER Mr. Chythanya K.K., Advocate for Petitioner - KIADBMr.E.R. Indra Kumar, Senior CounselFor Mr. E.I. Sanmathi,Advocate for Respondents 1. The petitioner —M/s. Karnataka Industrial Area DevelopmentBoard(KIADB),aaGovernmentot Karnataka Undertaking has challenged before thisCourt the orders passed by the Respondent — DeputyCommissioner of Income Tax, Bangalore, directing‘Special Audit’ot its Accounts for the Assessment. Years9013-14and9014-15under Section |142(2-A) ofthe Income Tax Act, 1961,by two separate orders Date of Order 02-01-2018 W.P.No.1863/2017C/W W.P.No.29223/2016M/s. Karnataka Industrial Area Development BoardVs. The Assistant Commissioner of Income Tax & Another 4/19) passedOT)28/03/20161nNWritpetition No.25223/2016and on.15/12/2016inWrit Petition No.1863/2017. 2. The petitioner being a Government of|Karnataka Undertaking, engaged in the activities ofDevelopment of Industrial Areas within the State ofKarnataka and is already subject to Audit at the hands— of the Comptroller and Auditor General of India (C & AG) as well as the independent CharteredAccountant, also under the provisions of the KIADB Act.itself and has already produced these two Audit Reports.for the said two years before the Respondent - IncomeTax Authority. 3. The core contention raised before this Court|by the petitioner KIADB, while assailing the correctness of the‘Special Audit’ordered by the RespondentAuthority, by the learned counsel for the petitioner Date of Order 02-01-2018 W.P.No.1863/2017C/W W.P.No.29223/2016M/s. Karnataka Industrial Area Development BoardVs. The Assistant Commissioner of Income Tax & Another 0/19) assessee Board, Mr. Chythanya is that the RespondentAssessing Authority so directed the‘Special Audit’aT| the fag-end of the period of limitation on 31/03/2016for the Assessment Year 2013-14 Assessment before|which the said Authority was expected to pass theassessment|orders|withoutSivingareasonableopportunity of hearing to the petitioner assessee Board. 4. He submitted that the provisions of Section142 (2-A) of the Income Tax Act, 1961 (‘Act’ for short)read with its Proviso requires the Assessing Authority tosive a reasonable opportunity of hearing to the assesseeagainst a Notice for directing the‘Special Audit’undersection 142 (2-A) of the Act. However, in the presentcase, the Notice to the petitioner assessee Board inWritPetition No.25223/2016was given on)18/03/2016giving only one day’s time to show cause against suchNotice for which the assessee Board prayed for some Date of Order 02-01-2018 W.P.No.1863/2017C/W W.P.No.29223/2016M/s. Karnataka Industrial Area Development BoardVs. The Assistant Commissioner of Income Tax & Another 6/19] reasonable time to submit its objections and it did sosubmit its objections on|29/03/2016, but without waiting for the objections to be furnished andconsidered by the said Assessing Authority, he passedthe impugned order under Section 142 (2-A) of the Act,directing‘SpecialAudit’videimpugnedorderAnnexure AOT)|28/03/2016,itself. oO. He also urged before the Court that the|Respondent Authority has merely referred and reliedupon the Audit objections and Audit Paras given by theComptroller and Auditor General of India (C & AG) forthe said period to which the assessee Board had givenits due reply and explanations to the said Comptrollerand Auditor General oft [India and it was for theiconsideration and there was no independent applicationof mind and formation of reasonable belief by theAssessing Authority himself to direct such)‘Special Date of Order 02-01-2018 W.P.No.1863/2017C/W W.P.No.29223/2016M/s. Karnataka Industrial Area Development BoardVs. The Assistant Commissioner of Income Tax & Another 1/19) Audit’under the Income Jax Act in the case of the petitioner assessee Board, which is exempt from.payment of Income Tax under the provisions of Section11 of the Act. 6. Similar are the facts in the connectedWritPetition No.1863/2017for the Assessment Year|20 14 Date of Order 02-01-2018 W.P.No.1863/2017C/W W.P.No.29223/2016M/s. Karnataka Industrial Area Development BoardVs. The Assistant Commissioner of Income Tax & Another 1/19) Audit’under the Income Jax Act in the case of the petitioner assessee Board, which is exempt from.payment of Income Tax under the provisions of Section11 of the Act. 6. Similar are the facts in the connectedWritPetition No.1863/2017for the Assessment Year|20 14 15and the learned counsel for the petitioner assessee|Board submitted that though on the date of giving ofNotice, the limitation was not expiring, as the Noticewas given on|08/11/2016and though the objectionswere furnished vide.Annexure EOTL28/11/2016, but|without considering the same in right perspective, theimpugned order was passed on15/12/2016by a shortcryptic and unreasoned order videAnnexure A 7. While issuing the Notices to the Respondent,Department, this Court passed a detailed interim order Date of Order 02-01-2018 W.P.No.1863/2017C/W W.P.No.29223/2016M/s. Karnataka Industrial Area Development BoardVs. The Assistant Commissioner of Income Tax & Another 8/19] in one of the connected petitions, on|05/07/2016, In|Writ Petition No.25223/2016.which was as follows:- “7Heard for Admission. | DaThe learned counsel for the petitioner —KIADB, submits that at the fag end of thelimitation expiring of the Assessment Year2013-14, the learned Deputy Commissioner ofIncomeTax,Circle-1,Bengaluru,has|mechanically ordered a ‘Special Audit’ undersection 142(2A) of the Income Tax Act, 1961,for the petitioner and submitted report within90 day, even though the petitioner being aGovernment of Karnataka undertaking, createdunder a _ special statute, already got itaccounts audited not only by the independentChartered Accountant, but by the Comptrollerand Auditor General of the State and prior toordering such ‘Special Audit’ under Section142(2A) without complying with the principlesof natural justice fully, even though requiredunder proviso to sub-section (2A) of the Act, thesaid authority has been directed the petitioner - Date of Order 02-01-2018 W.P.No.1863/2017C/W W.P.No.29223/2016M/s. Karnataka Industrial Area Development BoardVs. The Assistant Commissioner of Income Tax & Another 9/19) KIADB just to get the period of limitation tocomplete the assessment for Assessment Year2013-14 of the petitioner which is in the natureof charitable trust/institution without anyobject ofprofit. 3The learned Counsel submitted that theproceedings seeking to cancel the registrationof the petitioner's Institution, for the earlierAssessment year 2003-04 and 2004-05, hasalready reached up to the Hon'ble Apex Court. ©He also urged that the alleged reasonsexpressedinimpugned|communicationAnnexure-Adated28.3.2016namely, *....considering the complexities involved, volumeof|transactionsanddoubtaboutthecorrectness of the accounts, it is felt necessaryand expedient to refer the case for ‘SpecialAudit’ u/s.142(2A)......~ are mere repetitionthese words in the provisions of Section142(2A) of the Act itself without any applicationof the mind by the respondent-Authority to thefacts of the case in hand. Date of Order 02-01-2018 W.P.No.1863/2017C/W W.P.No.29223/2016M/s. Karnataka Industrial Area Development BoardVs. The Assistant Commissioner of Income Tax & Another 10/19) Date of Order 02-01-2018 W.P.No.1863/2017C/W W.P.No.29223/2016M/s. Karnataka Industrial Area Development BoardVs. The Assistant Commissioner of Income Tax & Another 10/19) 4. Prima-facie, this Court is of the opinion|that the petitioner-KIADB is working as apublic authority of developing the industriallands within the State and being a Governmentof|Karnatakaundertaking,theTeCaSO?’available for directing ‘Special Audit’ undersection 142(2A) of the Act, may not beavailable|totherespondent-IncomeTax|Department. In this case, as the petitioner-KIADB has already undertaken the process ofCWOauadtitbyindependentauditors,ComptrollerandAuditorGeneraland.CharteredAccountsandtherefore,thecontention raised by the learned counsel for thepetitioner has considerable force. The casealso unnecessarily drags in the public bodieslike KIADB into litigation against RevenueDepartments and to say the least, it isunfortunateandleastjustifiedlitigationburdening the dockets of the Court. Suchlitigation1S generallycausedby|theirresponsible acts of the Revenue officials, who,in order to shirk their own responsibilities,| Date of Order 02-01-2018 W.P.No.1863/2017C/W W.P.No.29223/2016M/s. Karnataka Industrial Area Development BoardVs. The Assistant Commissioner of Income Tax & Another 11/19) issue aforesaid kinds of notices and orders likethe one impugned in the present case. oO. The matter would therefore require furtherconsideration by this Court. — Let the notices be tussued to therespondents. A copy of the writ petition along|with Annexures may be served upon them|and also upon Mr.E.I.Sanmathi, learned|standing counsel for Income Tax Department.Both the respondents 1 & 2 (Commissioner ofIncome Tax and Deputy Commissioner ofIncome Tax) are directed to positively file theirpersonal affidavits in response to the noticeissued by this Court justifying their action for|directing the “Special Audit’ under Section 142(2A) in the case of the present petitioner bythe next date of hearing and they are also|directed to remain present before the Court on|the next date. List this case again on)18.07.2016.In|the meanwhile and until further orders, theoperation of the impugned communication Date of Order 02-01-2018 W.P.No.1863/2017C/W W.P.No.29223/2016M/s. Karnataka Industrial Area Development BoardVs. The Assistant Commissioner of Income Tax & Another Annexure-Adated28.03.2016shall remain|stayed.” 8. The learned counsel for the Revenue, Mr. E.R. Indra Kumar, Senior Counsel, however, submitted|before the Court that the Respondent Authority hasconsideredtheAuditobjections|raisedbythe.Comptroller and Auditor General of India and its replyand explanation furnished by the assessee Board andon the basis of the said material, the Respondent —Assessing Authority has given his own observations andformed an opinion that a.‘Special Audit’was requiredin the circumstances of the case. | 9. He also urged before the Court that the)exemption given to the petitioner Board is a conditionalone and therefore the requirement of)‘Special Audit’may result in certain findings ultimately which mayaffect even the exemption given to the petitioner Board.| Date of Order 02-01-2018 W.P.No.1863/2017C/W W.P.No.29223/2016M/s. Karnataka Industrial Area Development BoardVs. The Assistant Commissioner of Income Tax & Another 1Q.|He has also supported the impugned ordersas being in consonance with the provisions of the Actitself and submitted that after the amendment of sub-section (2-D) of the Act, the cost of such‘Special Audit’is to be borne by the Central Government itself. 9. He also urged before the Court that the)exemption given to the petitioner Board is a conditionalone and therefore the requirement of)‘Special Audit’may result in certain findings ultimately which mayaffect even the exemption given to the petitioner Board.| Date of Order 02-01-2018 W.P.No.1863/2017C/W W.P.No.29223/2016M/s. Karnataka Industrial Area Development BoardVs. The Assistant Commissioner of Income Tax & Another 1Q.|He has also supported the impugned ordersas being in consonance with the provisions of the Actitself and submitted that after the amendment of sub-section (2-D) of the Act, the cost of such‘Special Audit’is to be borne by the Central Government itself. 11. Having heard the learned counsels for theparties, this Court is of the opinion that the impugnedorders passed by the Respondent Assessing Authorityare rather mechanically passed without due applicationof mind particularly in the case of an assessee, which isa Government Undertaking engaged in the activity of apublic purpose namely development of Industrial Areaswithin the State of Karnataka and it is exempt fromIncome Tax as such even though exemption given to itunder Section 11 of the Act, may be conditional. 12. The purpose ofSection 142 (2-A)ot the Act is» to get a true and fair view of the Accounts produced by Date of Order 02-01-2018 W.P.No.1863/2017C/W W.P.No.29223/2016M/s. Karnataka Industrial Area Development BoardVs. The Assistant Commissioner of Income Tax & Another 14/19) the assessee so that upon the‘Special Audit’conducted at the instance of the Revenue may yieldmore revenue in the form of Income Tax and it is not!expected to be mere paper exercise or a repetitive auditexercise. Therefore, the special circumstances mustexist to direct the‘Special Audit’under Section 142 (2-A) of the Act and such special circumstances or thespecial reasons must be discussed in detail in the orderunder Section 142(2-A) of the Act itself. 13. From the facts narrated above, it|prima facieappears that the Assessing Authority has not onlydirected the|‘Special Audit’in the case of the petitionerassessee Board rather mechanically, but at the fag-endof the limitation period, perhaps just to buy more timeto pass the assessment orders in the case of theassessee Board, which admittedly for the period in Date of Order 02-01-2018 W.P.No.1863/2017C/W W.P.No.29223/2016M/s. Karnataka Industrial Area Development BoardVs. The Assistant Commissioner of Income Tax & Another question enjoyed the exemption from Income Tax underSection 11 of the Act. 14. It is not in dispute before this Court that theAssessee has already produced the two Audit Reports,one by the Comptroller and Auditor General of Indiaand another by a Chartered Accountant who is also anindependent Auditor. The reasons recorded andCOmMmmunicated to the assessee for suc‘Special Audit’prima facieindicate that the Assessing Authority hasmerely quoted the observations and objections of theComptroller and Auditor General of India, its AuditParas and its explanation and reply by the petitionerassessee Board and adding a few lines of his own as.Assessing Authority's observations, the said Respondent.has directed the|‘Special Audit’. The orders impugned|before this Court neither disclose the discussion on the|objections of the assessee for there being no justification Date of Order 02-01-2018 W.P.No.1863/2017C/W W.P.No.29223/2016M/s. Karnataka Industrial Area Development BoardVs. The Assistant Commissioner of Income Tax & Another 16/19) for‘Special Audit’and at least in one case torassessment|YCar2013-14,the|said.RespondentAssessing Authority did not even wait for the objectionsto be placed on record and before they were furnishedOT]29/03/2016,the said Respondent had alreadypassed the impugned order on28/03/2016while thelimitation for passing the assessment order was expiringOT]31/03/2016 Date of Order 02-01-2018 W.P.No.1863/2017C/W W.P.No.29223/2016M/s. Karnataka Industrial Area Development BoardVs. The Assistant Commissioner of Income Tax & Another 16/19) for‘Special Audit’and at least in one case torassessment|YCar2013-14,the|said.RespondentAssessing Authority did not even wait for the objectionsto be placed on record and before they were furnishedOT]29/03/2016,the said Respondent had alreadypassed the impugned order on28/03/2016while thelimitation for passing the assessment order was expiringOT]31/03/2016 15. The hot-haste, the casual and cavalierattitude of the Respondent Assessing Authority inwhich he is invoking a serious provision of the Actagainst an assessee which is a Government Undertakingengaged in a public purpose of Industrial Developmentand being exempt from Income Tax under the KIADB.Act itself, are very telling facts, in the perspective ofwhich, invoking of these provisions of Section 142 (2-A)of the Act in this manner was absolutely not called for. — Date of Order 02-01-2018 W.P.No.1863/2017C/W W.P.No.29223/2016M/s. Karnataka Industrial Area Development BoardVs. The Assistant Commissioner of Income Tax & Another This reflects an irresponsible and reckless manner inwhich the Assessing Authority has treated an ordinarybusinessman assessee and an exempted GovernmentUndertaking in the same manner, at the same level andput them on the same scale, which they are not. 16. This Court is, therefore, of the opinion thatthe impugned orders under Section 142(2-A) of the Actcannot be sustained. While quashing the two ordersunder Section 142 (2-A) of the Act for the AssessmentYears2013-14and2014-15, this Court would howevergive one more opportunity to the Respondent Assessing.Authority to reconsider the matter in the light of theaforesaid at its own level and consider the objectionsand written submissions filed by the petitioner assesseeBoard in the correct perspective and pass fresh orders. 17. The Respondent Assessing Authority will befree to drop the said proceedings under Section 142 (2- Date of Order 02-01-2018 W.P.No.1863/2017C/W W.P.No.29223/2016M/s. Karnataka Industrial Area Development BoardVs. The Assistant Commissioner of Income Tax & Another A) of the Act. In case, he decides to order ‘Special Audit’again even now he will have to record the detailedTEaASONSforthe|Sarmmshowingthe|independentapplication of mind to the material on record and not tojust rely upon the Audit Reports given by the otherAgencies and pass the orders under Section 142 (2-A) ofthe Act, aS if in a Supervisory position over these twoAudit Reports already furnished to the said TaxAuthority.| 18. With these observations and directions, thepetitions are allowed. The impugned orders|AnnexureAdated|28/03/20161n |Writ petition No.25223/2016 andAnnexure Adated15/12/20161n |Writ Petition No.1863/2017are hereby quashed and set aside. 19. It goes without saying that the RespondentAssessing Authority will pass such fresh orders only Date of Order 02-01-2018 W.P.No.1863/2017C/W W.P.No.29223/2016M/s. Karnataka Industrial Area Development BoardVs. The Assistant Commissioner of Income Tax & Another 19/19) aiter providing a reasonable and proper opportunity of hearing to the assessee petitioner. No order as to costs. BMV Sd/-. JUDGE|