Madhya Pradesh Audyogik Kendra Vikas Nigam, Bhopal v. Principal Commissioner Of Income Tax-I, Bhopal & Another Jabalpur, Dated : 07.11.2020

HIGH COURT OF MADHYA PRADESH : JABALPUR Heard through Video Conferencing Writ Petition No.2980/2020 Madhya Pradesh Audyogik Kendra Vikas Nigam, Bhopal vs. Principal Commissioner of Income Tax-I, Bhopal & another Jabalpur, dated : 07.11.2020 Shri Anurag Gohil, learned counsel for the petitioner. Shri Sanjay Lal, learned counsel for the respondents. Petitioner, Madhya Pradesh State Public sector undertaking beingaggrieved by a decision to get its Books of Account audited under theprovisions for compulsory audit under Section 142(2A) of the IncomeTax Act, 1961 (for short ‘IT Act’), communicated vide letter F.No.ITO-2(4)/BPL/142 (2A)/MPAKVNL Bhopal/AY 17-18 dated 31.12.2019, hasfiled this writ petition seeking its quashment on the ground that thepetitioner was not given an effective opportunity of hearing. 2.Evident, it is from impugned communication that scrutinyassessment proceedings under Section 143 of the Income Tax Act ispending against the petitioner. It is further borne out from record thatnotice under Section 143(2) of the IT Act was issued on 16.08.2018 forthe following reasons : “a. Low receipt from house property in ITR as compared torental receipts in 26AS. b.Low income in comparison to highloans/advances/investment in shares appearing in balancesheet. c.Sale consideration of property in ITR is less than saleconsideration reported in Form 26QB. d.Expenses debited to P&L account for earning exemptincome. e.Large refund claimed out of advance tax. f.Large investment in property (Form 26QB) ascompared to total income.” 3.That, a questionnaire was issued under sub-section (1) of Section142. The reply was not found satisfactory for the reasons that thepetitioner was not maintaining its books of account accurately and hasnot followed the accounting principles correctly and the nature ofaccounts being complex and bulky led the department to take recourseto compulsory audit. 4.Though the impugned action is questioned on the ground thateffective opportunity of hearing was not given. However, the recordreveals that before taking decision on 31.12.2019 a notice was issuedon 30.12.2019 to the petitioner vide DIN & Letter No.ITBA/COM/F/17/2019-20/1023245419(1) dated 27.12.2019 was giventhe opportunity of hearing. The communication states : “Government of IndiaMinistry of FinanceIncome Tax DepartmentOffice of the Income Tax OfficerITO, 2(4), Bhopal To, The Managing Director, M.P.Audyogik Kendra Vikas Nigam, (Bhopal), Ist Floor,Tawa Complex, Arera Colony, Bhopal, Madhya Pradesh.India Dated 27.12.2019 DIN & Letter No. ITBA/COM/F/17/2019-20/1023245249(1). Sir/Madam/M/s. Subject:Pending Scrutiny, Assessment proceedings-Calling for explanation & providing opportunity for theA.Y.2017-18 reg. Kindly refer to this office notice u/s 143(2) dated16.08.2018, notice under Section 142(1) dated 15.11.2019,notice u/s 142(1) dated 20.12.2019 (final opportunity) andyour reply in compliance to the above notices. Vide your reply dated 23.12.2019, it is submitted thatthe tax audit filed by the company for the year 2016-17, hasthe lower effect on the profit of the company byRs.12,79,90,420/- is due to change in accounting policy inthe relevant year. According to the audit report in Form 3CD for theAY 2017-18 the auditor has mentioned that “the accountsare prepared under mercantile system on historical cost &as per GAAP, applicable standards. There is change in themethod of accounting as per Govt. of M.P.Govt. hasdirected to prepare its accounts of no profit & no loss basisand transfer or receive surplus/deficit in State Govt.account maintained with company. The net effect of suchchange is income is income is understated byRs.12,79,90,420/-.” Vide your reply dated 23.12.2019, it is submitted thatthe tax audit filed by the company for the year 2016-17, hasthe lower effect on the profit of the company byRs.12,79,90,420/- is due to change in accounting policy inthe relevant year. According to the audit report in Form 3CD for theAY 2017-18 the auditor has mentioned that “the accountsare prepared under mercantile system on historical cost &as per GAAP, applicable standards. There is change in themethod of accounting as per Govt. of M.P.Govt. hasdirected to prepare its accounts of no profit & no loss basisand transfer or receive surplus/deficit in State Govt.account maintained with company. The net effect of suchchange is income is income is understated byRs.12,79,90,420/-.” On perusal of the letter dated 31.03.2017 issued bythe Govt. of M.P.State, it is seen that there is no significantchange in the accounting standard for the year underconsideration. It is found in the year under referencewithout paying tax, entire income has been diverted to theState Govt. account which is to be maintained by youseparately for proper maintenance of income of yourbusiness. In fact no income is finally & permanently givento the State Govt. There is no major change in the nature of the business and on these business activities you werehitherto filing correct return of income but this year all of asudden entire income is reduced to Zero. So looking to thenature and complexity as observed from your replies givenhitherto and on the examination of return of income, auditreport, submissions given, it appear that your statutory CAhad also made specific comments in the audit report itselfthat Rs.12,79,90,420/- net income is diverted & loweredand it is nothing but small change carried out by you in youinternal accounting system. It is a cardinal rule that anyprivate planning made by any assessee cannot over rule theprovisions of Income Tax Act, 1961. Hence looking to the volume of the accounts, doubtsabout the correctness of the accounts, multiplicity oftransactions in the accounts and also specialized nature ofyour business activity and keeping in mind the interest ofrevenue, it is imperative to cause the special audit in thiscase. In view of the above and keeping in view of CBDT’sinstruction no.1078 regarding referring cases for specialaudit, you are requested to please explain as to why thecase shall not be referred for special audit u/s 142(2A) ofthe Income Tax Act, 1961. The case for compliance fixed on 30.12.2019 at10:30 AM. The compliance may please be made on thestipulated date being limitation matter involved. This maybe considered as an opportunity to be heard given to theassessee as per provisions of section 142(2A) of the IncomeTax Act, 1961. Govind Khandelwal ITO, 2(4), Bhopal” 5.These facts nullify the contention of the petitioner that they hadno effective opportunity of hearing. That Section 142(2A) of IT Actcontemplates that if, at any stage of the proceedings before him, the Assessing Officer, having regard to the nature and complexity of theaccounts, volume of the accounts, doubts about the correctness of theaccounts, multiplicity of transactions in the accounts or specialisednature of business activity of the assessee, and the interests of therevenue, is of the opinion that it is necessary so to do, he may, with theprevious approval of the Chief Commissioner or Commissioner, directthe assessee to get the accounts audited by an accountant, as defined inthe Explanation below sub-section (2) of section 288, nominated by theChief Commissioner or Commissioner in this behalf and to furnish areport of such audit in the prescribed form duly signed and verified bysuch accountant and setting forth such particulars as may be prescribedand such other particulars as the Assessing Officer may require. Provisoto sub-section (2A) of Section 142 entails an opportunity of hearing. 6.In Rajesh Kumar vs. Dy.CIT & others (2007) 2 SCC 181 whiledwelling on the scope and the expanse of hearing under Section 142(2A) of the IT Act, it has been observed : “61. The hearing given, however, need not be elaborate.The notice issued may only contain briefly the issues whichthe assessing officer thinks to be necessary. The reasonsassigned therefor need not be detailed ones. But, that wouldnot mean that the principles of justice are not required to becomplied with. Only because certain consequences wouldensue if the principles of natural justice are required to becomplied with, the same by itself would not mean that thecourt would not insist on complying with the fundamentalprinciples of law. If the principles of natural justice are tobe excluded, the Parliament could have said so expressly.The hearing given is only in terms of Section 142 (3) whichis limited only to the findings of the special auditor. TheThe notice issued may only contain briefly the issues whichthe assessing officer thinks to be necessary. The reasonsassigned therefor need not be detailed ones. But, that wouldnot mean that the principles of justice are not required to becomplied with. Only because certain consequences wouldensue if the principles of natural justice are required to becomplied with, the same by itself would not mean that thecourt would not insist on complying with the fundamentalprinciples of law. If the principles of natural justice are tobe excluded, the Parliament could have said so expressly.The hearing given is only in terms of Section 142 (3) whichis limited only to the findings of the special auditor. The order of assessment would be based upon the findings ofthe special auditor subject of course to its acceptance by theassessing officer. Even at that stage the assessee cannot putforward a case that power under Section 142(2A) of the Acthad wrongly been exercised and he has unnecessarily beensaddled with a heavy expenditure. An appeal against theorder of assessment, as noticed hereinbefore, would notserve any real purpose as the appellate authority would notgo into such a question since the direction issued underSection 142(2A) of the Act is not an appellate order.” 7.In the case at hand, as adverted supra the petitioner was affordedan opportunity of hearing before taking recourse to sub-section (2A) ofSection 142 directing the petitioner to get the accounts audited by anaccountant. 8.In view whereof, no interference is caused. Consequently,petition fails and is dismissed. No costs. (Sanjay Yadav) Acting Chief Justice (Vijay Kumar Shukla) Judge