M/S The Hind Samachar Limited v. Assistant Commissioner Of Income Tax Range Iii, Jalandhar Andanother

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH. CWP No.4332 of 2010 (O&M) Date of decision: 5.8.2010 M/s The Hind Samachar Limited -----Petitioner Vs. Assistant Commissioner of Income Tax Range III, Jalandhar andanother. ----Respondents CORAM:- HON'BLE MR JUSTICE ADARSH KUMAR GOELHON’BLE MR. JUSTICE AJAY KUMAR MITTAL Present:-Mr. Akshay Bhan, Advocate for petitioner in CWP No.4332 of 2010.Mr. Sanjay Bansal, Sr.Advocate withMs. Shaveta Malhotra, Advocate for the petitioner in CWP Nos.12423 and 6194 of 2010. Mr. Vivek Sethi, Standing Counsel for the revenue. Adarsh Kumar Goel,J. 1.This order will dispose of CWP Nos.4332, 12423 and 6194 of2010, as the issues involved are inter-connected. 2.In CWP No.4332 of 2010 filed on 8.3.2010, challenge is to theorder passed by Assistant Commissioner of Income Tax, Jalandhar dated17.12.2009, Annexure P.9, under section 142(2A) of the Income Tax Act,1961 (for short, ‘the Act’) for the assessment year 2007-08. 3.Case of the petitioner is that it is engaged in printing andpublication of newspapers. Though the company was established as far backas in the year 1949, successors of the original founder are Sudershan Chopraand Vijay Kumar Chopra. Sudershan Chopra is running the business of theassessee mainly at Delhi and Jaipur, while Vijay Kumar Chopra is runningthe business at Jalandhar and Ambala. There was a family settlement between the parties and thereafter proceedings took place before theCompany law Board. The Company Law Board gave directions fordivision of the business which were affirmed by Company Judge of thisCourt vide order dated 4.11.2008. The matter was thereafter carried to theHon’ble Supreme Court wherein order dated 19.1.2009 was passed directingthe parties to maintain accounts of their respective allotted units.Accordingly, two separate sets of accounts were being maintained. Duringthe course of assessment for the assessment year 2007-08, the AssessingOfficer vide impugned order directed the petitioner which represents ‘A’group to get the accounts audited by auditor nominated by the department.The order was issued after approval by the Commissioner of Income Tax.The petitioner was required to furnish audit report within 120 days of thesaid letter. 4. Grievance in the petition is that speaking order was not passedunder Section 142(2A) of the Act. Such order could not be passed inabsence of accounts being complex. The impugned order does not indicatehow opinion as to desirability of special audit was formed. Litigationbetween Group ‘A’ and Group ‘B’ and maintaining of separate accounts didnot by itself create any complexity. In the return filed by the assessee, taxaudit report, balance sheet and other documents have been duly filed. 5.On notice being issued, reply has been filed on behalf of therespondents stating that accounts of the assessee were found to be complexfor the assessment years 2003-04 to 2006-07 and special audit wasconducted which led to detection of undisclosed income of crores of rupees.The defects found in the accounts of the assessee were the same whichjustified the direction for special audit in the earlier assessment year. Adequacy of grounds for the opinion that it was necessary to order specialaudit, could not be gone into. 6.In CWP No.6194 of 2010 filed on 3.4.2010 by group ‘B’ of theassessee, the same order has been challenged on almost identical groundsand is also sought to be defended on identical grounds by the counsel. 5.On notice being issued, reply has been filed on behalf of therespondents stating that accounts of the assessee were found to be complexfor the assessment years 2003-04 to 2006-07 and special audit wasconducted which led to detection of undisclosed income of crores of rupees.The defects found in the accounts of the assessee were the same whichjustified the direction for special audit in the earlier assessment year. Adequacy of grounds for the opinion that it was necessary to order specialaudit, could not be gone into. 6.In CWP No.6194 of 2010 filed on 3.4.2010 by group ‘B’ of theassessee, the same order has been challenged on almost identical groundsand is also sought to be defended on identical grounds by the counsel. 7.In CWP No.12423 of 2010 filed on 14.7.2010 during thependency of earlier two writ petitions, prayer is for quashing notice dated16.6.2010 and for declaring continuation of assessment proceedings for theassessment year 2007-08 to be illegal on account of having become timebarred. Return was filed by group ‘A’ on 29.3.2009 and by Group B on30.10.2007. Limitation for completing the assessment under section 153(1)(a) is two years from the end of the assessment year in question. By virtue ofProviso, the period of two years has been reduced to 21 months. Thus,limitation to complete assessment was upto 31.12.2009. However, by virtueof order under section 142(2A), period from the date of order under section142(2A) and ending with the last date by which the report is required to befurnished has to be excluded. The maximum period prescribed cannotexceed 180 days under section 142(2C) of the Act. According to thepetitioner, since the assessment was not completed upto 31.12.2009 in anycase, after period under section 142(2A) is to be excluded, the limitationexpired on 29.6.2010. 8. Though no notice has been issued in this writ petition, learnedcounsel for the revenue has assisted the Court on the issue involved in thispetition also with reference to the averments in the reply already filed inother petitions. His stand is that after the notice was issued by this Court inCWP No.4332 of 2010 on 12.3.2010 and in CWP No.6194 of 2010 on April29, 2010, the assessee did not cooperate in compliance of order of special audit. Even though, no stay was granted by this Court, the assessee in letterAnnexure P.10 annexed to CM No.8029 of 2010 in CWP No.4332 of 2010,took the stand that special audit be kept in abeyance as the writ petition waspending in which notice was issued and time taken in the litigation will getcondoned. 9.The question for consideration is whether the impugned orderdated 17.12.2009 is liable to be quashed on the ground that the same wasnot in conformity with the requirements under section 142(2A) of the Actand whether assessment proceedings are liable to be quashed on the groundof same having become time barred. audit. Even though, no stay was granted by this Court, the assessee in letterAnnexure P.10 annexed to CM No.8029 of 2010 in CWP No.4332 of 2010,took the stand that special audit be kept in abeyance as the writ petition waspending in which notice was issued and time taken in the litigation will getcondoned. 9.The question for consideration is whether the impugned orderdated 17.12.2009 is liable to be quashed on the ground that the same wasnot in conformity with the requirements under section 142(2A) of the Actand whether assessment proceedings are liable to be quashed on the groundof same having become time barred. 10.Learned counsel of the petitioner submits that Section 142(2A)of the Act requires the Assessing Officer to be satisfied objectively aboutthe necessity of directing special audit having regard to nature andcomplexity of accounts and interest of the revenue. In the present case, theAssessing Officer has merely directed special audit without being satisfiedabout the necessity to do so having regard to nature and complexity ofaccounts. No finding has been recorded as to what nexus direction forspecial audit had with the nature and complexity of accounts and interest ofrevenue. In support of this submission, reliance has been placed onjudgments of the Hon’ble Supreme Court in Rajesh Kumar v. DeputyCommissioner of Income Tax, (2006) 157 Taxman 168 and Sahara India(Firm) v. Commissioner of Income Tax, Central-I, (2008) 169 Taxman328. It was submitted that opportunity of hearing was required to be givento the assessee before passing of the order. Before dubbing the accounts tobe complex, genuine and honest effort was required to be made tounderstand the accounts and to seek explanation from the assessee. Theopinion formed should be based on objective criteria. The said provision could not be resorted to merely to shift responsibility of scrutinizing theaccounts and to pass on the buck to the special auditor. Requirement ofprevious approval of the Chief Commissioner also showed that the powercould not be exercised arbitrarily. The approval should not be mechanicallygiven by the Chief Commissioner. 11. From the impugned order, we are unable to find that therequirements of Section 142(2A) of the Act have been met. The order doesnot show consideration of legal requirements and reasons on which theopinion may have been formed for directing special audit. Though grant ofapproval by the Commissioner has been mentioned, it has not beenmentioned as to why it was considered necessary having regard to natureand complexity of accounts and interest of revenue that special audit wasnecessary. In the reply for the first time, it has been mentioned that specialaudit was necessary because of defects in accounts found during the courseof special audit for the preceding assessment years 2003-04 to 2006-07.During the course of hearing, learned counsel for the revenue has produceda file which contains letter written to the Commissioner giving reasons fornecessity of special audit. The fact remains that these reasons areconspicuous by their absence in the impugned order. The impugned orderunder section 142(2A) of the Act thus does not meet the requirement of law.12.In above situation, question is what is the order to be passed.13.In our view, the impugned order will have to be quashed butwe cannot stop at that. After quashing the impugned order, we have toclarify that the Assessing officer will be free to pass a fresh order undersection 142(2A) of the Act, if necessary, and if permissible in accordancewith law. 14.As regards the plea of limitation, we are of the view that theperiod from filing of the writ petition to the expected date of availability of 14.As regards the plea of limitation, we are of the view that theperiod from filing of the writ petition to the expected date of availability of a copy of this order i.e. from 8.3.2010 upto 16.8.2010 shall be excluded. Wealso clarify that Explanation I to Proviso to Section 153 of the Act providesthat where the period of limitation after excluding time as mentioned in subsections 1, (1A) , (1B) 2, (2A) and (4) is less than 60 days, the limitationshall be extended to 60 days. In this view of the matter, CWP No.12423 of2010 is allowed to be withdrawn on the statement of learned counsel for thepetitioner at this stage, while CWP Nos.4332 and 6194 of 2010 will standallowed in above terms. The assessee may appear before the AssessingOfficer for further proceedings on 16.8.2010. Orderdastion payment. (Adarsh Kumar Goel) Judge August 5, 2010‘gs’ (Ajay Kumar Mittal) Judge