Isolux Corsan India Engineering &Construction Private Limited v. Deputy Commissioner Of Income Tax,Circle 1 (1), Gurgaon And Others

CWP83572014 IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH CWP83572014 (O&M) Date of decision: 07.10.2014 Isolux Corsan India Engineering &|Construction Private Limited ..... Petitioner VERSUS Deputy Commissioner of Income Tax,Circle 1 (1), Gurgaon and others .... Respondents CORAMHON;BLE MR. JUSTICE RAJIVE BHALLAHON;BLE MR. JUSTICE AMIT RAWAL Present+Mr.C.S.Aggarwal, Senior Advocate, withMr.Parkash Kumar, Advocate, andMr.Ashim Aggarwal, Advocate, for the petitioner. Mr.Tejinder K. Joshi, Advocate, for the respondents, KOK KOK RAJIVE BHALLA, J. (ORAL) ,wCM123022014 Allowed as prayed for. The rejoinder filed on behalf of the petitioner is taken on record. ,,CWP83572014 Prayer in this petition, is to quash order dated30.03.2014 (Annexure P-1), passed by the Deputy Commissionerof Income Tax, Circle-I(1), Gurgaon, under Section 142(2A) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’),directing the petitioner to get its accounts audited from M/sS.S. Kothari Mehta & Company, New Delhi Counsel for the petitioner submits that apart from the CWP83572014 | 2 || fact that the impugned order does not assign any reason {foralriving at the conclusion and/or issuing directions, to get accountbooks audited, order dated 30.03.2014 has been passed in grossand blatant violation of the first proviso to Section 142(2A) of theAct which mandates the grant of an opportunity of hearing to anassessee before an order is passed requiring an assessee to get itsaccounts audited from an auditor to be nominated by the assessingofficer. Apart from the aforesaid submissions, counsel for thepetitioner submits that vide order dated 24.03.2014 thepetitioner/assessee was called upon to file a reply positively by 11AM on 27.03.2014. The reply was filed before 11 AM on27.03.2014 but an opportunity of hearing, as required by the firstproviso to Section 142(2A) of the Act was not afforded to thepetitioner much less, was the petitioner called upon to clarifyaverments in the reply. A perusal of the interim orders, appendedwith the reply proves that before the impugned order was passedan opportunity of hearing was not afforded to the petitioner. Theimpugned order is not only null and void for failure to afford anopportunity of hearing but for absence of a perceptible process ofreasoning much less any reason assigned in support of thedirection to the petitioner to get its accounts audited from anauditor nominated by the assessing officer, Counsel for the respondents submits that the CWP83572014 } 3] examination of the petitioner's accounts, stretched over a period ofSix months, during which numerous queries were raised some ofwhich were answered but as others remained unanswered and infact added more confusion to the accounts, the assessing officerhad no option but to adopt the procedure prescribed by Section142(2A) of the Act and order the petitioner to get its accountsaudited from the auditor nominated by the assessing officer. Afterthe petitioner filed a reply, the reply was duly considered andpermission was obtained from the Commissioner of Income Tax,Faridabad, before the impugned order was passed. This apart, arepresentative of the petitioner was present before the assessingofficer on 27.03.2014 but did not add anything beyond thecontents of the reply and, therefore, no further opportunity wasrequired to be granted to the assessee. It 1s further submitted thatan opportunity of hearing need not necessarily translate into anoral hearing and may take the shape of calling upon the parties tofile reply. It is further submitted that the impugned order must beread in the context of interim orders passed during the period ofSix months, preceding the passing of the impugned order. Aperusal of these orders reveals that during the process of scrutiny,a large number of questions were addressed to the petitioner someof which were answered and as others questions remainedunanswered or raised further questions. The only option left with CWP83572014 | 4 || the assessing officer was to adopt the procedure prescribed bysection 142(2A) of the Act. We have heard counsel for the parties, perused thepleadings particularly the impugned order dated 30.03.2014. A relevant extract from the impugned order reads as follows: - “Please refer to the above subject. Scrutiny proceedingsu/s 143(3) are going on in your case for AY. 2011-12. Iam ofthe opinion that having regard to the nature and complexity ofyour accounts and in the interests of revenue, your accountsdeserve to be audited as provided in Section 142(2A) of theIncome Tax Act, 1961. You are hereby directed u/s 142(2A) of the Income TaxAct, 1961 to get your accounts audited by the followingaccountant: - M/s S.S.Kothari Mehta & Company, 146-149,Tribhuwan Complex, Mathura Road, Ishwar Nagar, Bahapur,New Delhi-1100605 Report of such audit in the prescribed form |FormNo.6B]| duly signed and verified by the above mentioneaccountant must be submitted to the undersigned within 90days of receipt of this direction. This issues with priorapproval of the Commissioner of Income Tax, Faridabad, (Ref,letter no.CIT/FBD/Tech./142(2A)/13-14/6571-72 dated30.03.2014).” The question that calls for an answer, is whether Section 142(2A) of the Act renders it imperative that beforepassing an order an assessing officer is required to afford areasonable opportunity of being heard to an assessee? Thequestion so posed, would necessarily require reproduction of section 142(2A) of the Act, alongwith its first proviso which read as follows: - /////////142(2)(2A) If, at any stage of the proceedings before him, theAssessing Officer, having regard to the nature and complexityof the accounts, volume of the accounts, doubts about thecorrectness of the accounts, multiplicity of transactions in theaccounts or specialised nature of business activity of theassessee, and the interests of the revenue, is of the opinion thatit is necessary so to do, he may, with the previous approval ofthe Chief Commissioner or Commissioner, direct the assesseeto get the accounts audited by an accountant, as defined in theExplanationbelow sub-section (2) of section 288, nominatedby the Chief Commissioner or Commissioner in this behalf andto furnish a report of such audit in the prescribed form dulySigned and verified by such accountant and setting forth suchparticulars as may be prescribed and such other particulars asthe Assessing Officer may require : Provided that the Assessing Officer shall not direct theassessee to get the accounts so audited unless theassessee has been given a reasonable opportunity ofbeing heard.”assessee to get the accounts so audited unless theassessee has been given a reasonable opportunity ofbeing heard.” Section 142(2A) of the Act, confers power upon theassessing officer, where the nature and complexity of accounts etc,and the interest of the revenue so requires to record an opinion that itis necessary to call upon the assessee to get his accounts audited byan accountant nominated by the assessing officer. The first provisoto Section 142(2A) of the Act, however prohibits an assessing officerfrom directing such an audit unless the assessee has been afforded a“reasonable opportunity of being heard.” The expression“reasonable opportunity of being heard” inhers an obligation toafford a reasonable opportunity of being heard. The mere callingupon the assessee to file a reply would not fulfill the preemptorycondition set out in the first proviso to Section 142(A) of the Act,The grant of a reasonable opportunity of being heard, is a statutory CWP83572014 | 6 || pre-condition to the exercise of power under Section 142(2A) of theAct, and if an assessing officer fails to afford a reasonableopportunity of being heard, before passing an order under Section142 (2A) of the Act, such an order would be null and void. CWP83572014 | 6 || pre-condition to the exercise of power under Section 142(2A) of theAct, and if an assessing officer fails to afford a reasonableopportunity of being heard, before passing an order under Section142 (2A) of the Act, such an order would be null and void. A perusal of interim orders, appended with the reply asAnnexure R1, and the impugned order reveals that the assessingofficer granted an opportunity to file a reply but after receiving thereply did not grant an opportunity of being heard. It would beappropriate to reproduce interim orders from 27.03.2014 upto30.03.2014 which read as follows: - “27.03.2014 CA Sh.Dharmendra Gupta, AR, attends. Submitsreply to show cause for audit u/s 142(2A). 27.03.2014 After considering the assessee's reply to the showcause dated 24.3.2014 a detailed proposal is sent to CITFaridabad for approval u/s 142(2A) for special audit in thiscase. Issues, underlying basis and assessee's reply is enclosedwith the proposal. 30.03.2014 Assessee is issued direction u/s 142(2A) to get itsaccounts audited by an accountant. Prior approval has beenobtainedfromCIT,FaridabadvideletterNo.CIT/FBD/Tech/142(2A)/13-14/8571-72 dt 30.3.2014.” A perusal of these orders as well as the impugned orderleaves no ambiguity that an opportunity of being heard was noteranted to the petitioner/assessee thereby prohibiting the assessingofficer from exercising power under Section 142(2A) of the Act, toorder audit of the petitioner's accounts by an auditor nominated bythe assessing officer. — | 7 || An argument advanced by counsel for the revenue thatduring the process of examination of accounts, spread over theperiod of six months during which various queries were raised withrespect to the accounts, may be considered as an opportunity ofhearing, disregards the fact that a hearing is to be afforded after theassessing officer forms a prima-facie opinion, based upon crediblematerial that the accounts produced by the assessee require to beaudited by an auditor nominated by the department. The assessingofficer formed such an opinion and served a show cause notice uponthe assessee but thereafter did not afford an opportunity of beingheard. The absence of an opportunity of being heard, in ourconsidered opinion, cannot be cured by reference to queries thatpreceded the show cause notice and, therefore, renders the impugnedorder, a nullity. In view of what has heen recorded hereinabove butwithout expressing any opinion as to the rights of the parties, the writpetition is allowed, order dated 30.03.2014, is set aside, leaving it tothe department to proceed in accordance with law. The departmentwould be at liberty to proceed afresh/further and if permissible inlaw, exclude the period spent during pendency of this writ petition. | RAJIVE BHALLA |JUDGE |} AMIT RAWAL JUDGE JUDGE