Sca/7618/2021 Of Dishman Infrastructure Limited v. The Assistant Commissioner Of Income Tax, Central Circle (2)

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 7618 of 2021 With R/SPECIAL CIVIL APPLICATION NO. 7620 of 2021 FOR APPROVAL AND SIGNATURE: HONOURABLE MS. JUSTICE BELA M. TRIVEDISd/-andHONOURABLE DR. JUSTICE ASHOKKUMAR C. JOSHISd/-==========================================================1Whether Reporters of Local Papers may be allowedto see the judgment ?NO2To be referred to the Reporter or not ?YES3Whether their Lordships wish to see the fair copyof the judgment ?NO4Whether this case involves a substantial questionof law as to the interpretation of the ConstitutionNOof India or any order made thereunder ?==========================================================DISHMAN INFRASTRUCTURE LIMITED VersusTHE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE(2) ==========================================================Appearance: MR SN SOPARKAR, LD. SR. ADVOCATE WITH MRS SWATI SOPARKAR(870) for the Petitioner(s) No. 1MR MR BHATT, LD. STANDING COUNSEL WITH MRS MAUNA M BHATT(174) for the Respondent(s) No. 1 ========================================================== CORAM: HONOURABLE MS. JUSTICE BELA M. TRIVEDI and HONOURABLE DR. JUSTICE ASHOKKUMAR C. JOSHIDate : 19/08/2021 CAV JUDGMENT (PER : HONOURABLE MS. JUSTICE BELA M. TRIVEDI) 1 Both the petitions, being inter-connected with each other, involving similar questions oflaw and facts, were heard together finally atthe admission stage with the consent of thelearned Advocates for the parties, and hence are being decided by this common judgement. 2 Initially, the petitioners in both the petitions had challenged the order dated8.4.2021 passed by the respondent, disposing ofthe objections raised by the respectivepetitioners against the proposed referral forspecial audit within the meaning of Section142(2A) of the Income Tax Act, 1961 (hereinafterreferred to as the “said Act”), and had alsochallenged the impugned directions given by therespondent to the petitioners vide thecommunication dated 22.4.2021 under the saidprovisions. To be precise, following prayerswere sought in both the petitions:- 7. … that this Hon’ble Court be pleased toissue a writ of mandamus or a writ in thenature of mandamus or a writ of certiorari ora writ in the nature of certiorari or anyother appropriate writ, direction or order andbe pleased to: (a)quash and set aside the impugned orderdated 8.4.2021 at Annexure-A to thispetition; (b)quash and set aside the impugneddirections of 22.4.2021 at Annexure-A tothis petition; (c)pending the admission, hearing andfinal disposal of this petition, to stayimplementation and operation of the noticesat Annexure-A to this petition;” However, at the time of hearing, the learned Sr. Advocate Mr. S. N. Soparkar did not pressfor the challenge to the impugned order dated8.4.2021 and confined himself to the challenge to the impugned directions dated 22.4.2021. TheCourt, therefore, while issuing “notice” to therespondent in both the petitions, had passed thefollowing order on 14.6.2021:- “1. The Petitioner by way of present petitionhas sought to challenge the impugned orderdated 8.4.2021 at Annexure-A as well as theimpugned directions dated 22.4.2021, which arealso part of Annexure-A. 2. After arguing for some time, learned SeniorAdvocate Mr. S.N.Soparkar for the petitionerconfines himself to the challenge to the impugned directions dated 22.4.2021 (Annexure-A) and does not press for the challenge to theimpugned order dated 8.4.2021 (Annexure-A). 3. Issue Notice as regards the challenge tothe impugned directions dated 22.4.2021(Annexure-A), returnable on 28.6.2021. 4. In the meantime, it is needless to say thatthe Special Auditor shall confine himself tothe scope of Section 142 (2A) of the IncomeTax Act read with Rule 14A and Form 6B of theIncome Tax Rules.“ “1. The Petitioner by way of present petitionhas sought to challenge the impugned orderdated 8.4.2021 at Annexure-A as well as theimpugned directions dated 22.4.2021, which arealso part of Annexure-A. 2. After arguing for some time, learned SeniorAdvocate Mr. S.N.Soparkar for the petitionerconfines himself to the challenge to the impugned directions dated 22.4.2021 (Annexure-A) and does not press for the challenge to theimpugned order dated 8.4.2021 (Annexure-A). 3. Issue Notice as regards the challenge tothe impugned directions dated 22.4.2021(Annexure-A), returnable on 28.6.2021. 4. In the meantime, it is needless to say thatthe Special Auditor shall confine himself tothe scope of Section 142 (2A) of the IncomeTax Act read with Rule 14A and Form 6B of theIncome Tax Rules.“ 4 In view of the above order, the prayercontained in Paragraph 7(a) with regard to thechallenge to the impugned order dated 8.4.2021has stood rejected, as not pressed for in both the petitions. As regards the remainingchallenge to the impugned directions dated22.4.2021, the factual matrix as stated in theSpecial Civil Application No.7618 of 2021 istaken into consideration for the sake ofconvenience. 4.1 The petitioner is a limited Company ofwhich most of its shareholders are citizens of India. The petitioner is in the business ofdevelopment of Special Economic Zone (SEZ) atVillage Bhamsara, Kalyanghadh, and Ghangad,Near Bagodara. On 19.12.2019 and on subsequent dates, a search/seizure and surveyactions were conducted in “Dishman Group” andvoluminousdata/materials/documentswere were seized from the various premises, including the residential premises of the petitioner.Consequent to the search action, theproceedings under Section 153A of the Act havebeen initiated in case of the petitioner –assessee. 4.2 On 23.2.2021 the respondent issued a notice under Section 142(1) of the said Act,calling upon the petitioner to furnish thedetails as mentioned therein. According to the petitioner, since the respondent had called for the numerous details spanningacross 10 years and since Covid-19 Pandemic situation was prevailing, the petitioner tooktime to compile all the details and submitthe same. 4.3 On 19.3.2021, the respondent issued a notice under Section 142(2A) of the said Actand also supplied the Satisfaction Note drawnfor referring the case for an independent audit. The petitioner objected to the saidnotice and sought the copies of the statementsof Bharatbhai Padia and Chiragbhai Thakkar andalso sought personal hearing vide the lettersdated 27.3.2021 and 30.3.2021. 4.4 The petitioner was communicated videletter dated 31.3.2021 to collect therequisite statements on 1.4.2021. The petitioner was also granted an opportunity ofhearing by fixing the hearing on 5.4.2021,however, petitioner neither collected thestatements, nor remained present for personalhearing. 4.5 The petitioner instead challenged thesaid notice dated 19.3.2021 before this Courtby filing a petition being SCA No.6033 of2021, which subsequently came to be withdrawnas per the order dated 5.4.2021. 4.6 On 5.4.2021, the petitioner intimatedthe respondent that the copies of thestatements were not provided. On 6.4.2021 thepetitioner was provided with the copies of the C/SCA/7618/2021 CAV JUDGMENT DATED: 19/08/2021 statements of Mr.Bharat Padiya and Mr.ChiragThakkar. On 7.4.2021, the petitioner wrote aletter, seeking copies of the seized materialfrom Mr.Rajiv Shah and the findings of theInvestigation Wing. 4.7 The respondent after considering theobjections of the petitioner contained in theletter dated 27.3.2021 passed the impugnedorder on 8.4.2021 disposing of the saidobjections. Thereafter, the respondent issuedthe impugned directions on 22.3.2021 underSection 142(2A) of the said Act. C/SCA/7618/2021 CAV JUDGMENT DATED: 19/08/2021 statements of Mr.Bharat Padiya and Mr.ChiragThakkar. On 7.4.2021, the petitioner wrote aletter, seeking copies of the seized materialfrom Mr.Rajiv Shah and the findings of theInvestigation Wing. 4.7 The respondent after considering theobjections of the petitioner contained in theletter dated 27.3.2021 passed the impugnedorder on 8.4.2021 disposing of the saidobjections. Thereafter, the respondent issuedthe impugned directions on 22.3.2021 underSection 142(2A) of the said Act. Both the petitions containing almostidentical facts have been resisted by therespondent by filing the affidavits-in-reply, towhich the respective petitioners have filedtheir affidavit-in-rejoinder. 6 During course of the arguments, the learnedSr. Advocate Mr.Soparkar for the petitioners inboth the petitions made the followingsubmissions:- 6.1 The Assessing Officer before making thereference under Section 142(2A), is requiredto peruse the accounts, make a genuine andhonest attempt to understand the accounts,appreciate the entries made therein and in theevent of any doubt, seek explanation from the assessee. If the Assessing Officer is still not able to understand, then he may makereference to the special auditor, afterproviding an opportunity of hearing to theassessee, as observed by the Supreme Court incase Sahara India (Firm) Vs. Commissioner of Income-tax & Anr., reported in 300 ITR 403.However, in the present case, the respondenthad not undertaken any of such exercises andsought voluminous account and data from thepetitioners on 23.2.2021. 6.2 The show-cause notices under Section142(2A) were issued on 19.3.2021 to the petitioners in utter disregard of theprovisions contained in Section 142(2A),delegating his adjudicatory function to theauditor. 6.3 As held by the Supreme Court in case ofRajesh Kumar & Ors., Vs. Deputy Commissioner of Income-tax & Ors., reported in 287 ITR 91(SC), the assessment proceedings are part of ajudicial process and are not administrative innature. The opinion of the Assessing Officeris required to be based on an objectivecriteria and not on subjective satisfaction,as held by the Supreme Court in case of SaharaIndia (Firm) Vs. Commissioner of Income-tax &Anr., (supra). 6.4 The special auditor cannot go into andexamine the legal issues or question regardingthe taxability, which otherwise is required tobe done by the Assessing Officer himself.However, in the instant case, the respondenthas delegated upon the auditor, theinvestigation into the affairs of thepetitioners, including the social functions,analysis of the seized documents and formingan adjudicatory opinion of the impact and theconsequences of the same, not only on theincome of the petitioners for the current year, but for the other years and other lawsand other assessees. In this regard, relianceis placed on the decisions of the Delhi HighCourt and Calcutta High Court. 6.5 An appraisal report was made by theinvestigating team after a search, to theconcerned Assessing Officer and such reportencompassed complete and thorough analysis done on the seized documents by theinvestigating team, and therefore, theAssessing Officer had sufficient assistance tounderstand the seized documents. Therefore,the delegation of the work of both - theinvestigating officer as well as of the Assessing Officer upon the Special Auditor isbad and illegal. 6.6 As regards the voluminous 50 TB of data and 22000 plus loose papers found during thesearch operation, it is submitted that duringthe post-search investigation proceedings,personal hearings were granted and exhaustivesubmissions were filed by the petitioners. Onthe basis of the same, the DDIT(Inv), Unit done on the seized documents by theinvestigating team, and therefore, theAssessing Officer had sufficient assistance tounderstand the seized documents. Therefore,the delegation of the work of both - theinvestigating officer as well as of the Assessing Officer upon the Special Auditor isbad and illegal. 6.6 As regards the voluminous 50 TB of data and 22000 plus loose papers found during thesearch operation, it is submitted that duringthe post-search investigation proceedings,personal hearings were granted and exhaustivesubmissions were filed by the petitioners. Onthe basis of the same, the DDIT(Inv), Unit 1(3), Ahmedabad had quantified the undisclosedincome to the tune of Rs.3,959 crore, asreflected in the satisfaction note of therespondent. However, disregarding the saidreport, the respondent again intends to repeatthe same exercise. 6.7 The respondent cannot make a referenceunder Section 142(2A) solely “in the interestof revenue”. The condition of interest ofrevenue is a joint condition with any one ofthe previous conditions. 6.8 Many queries raised in the terms of reference have no bearing on the seizeddocuments but are related to the assessment ofthe income as such. As observed in case ofPrincipal Commissioner of Income-tax Vs.SaumyaConstruction (P) Limited, reported in (2016)387 ITR 529 (Gujarat), the assessmentspursuant to search and seizure have to belimited to only incriminating materials foundduring the search, and no normal additions canbe made in the assessment, by making a rowinginquiry. 6.9 In case of Vodafone Mobile ServicesLimited Vs. Dy. Commissioner of Income Tax(W.P. (c) No.4081/2016), it has been held thatthe special auditor must confine himself tothe accounts. The special auditor has limitedscope and is not an adjudicator. 6.10 As regards the issue of international transactions, the respondent has alreadyreferred the issues of internationaltransactions to the Transfer Pricingdepartment on 13.4.2021 and now in theimpugned directions again has referred theissues of cross border transactions to thespecial auditor. 6.11 The information which refers to theviolation of section 269SS/T or dis-allowability of expenses under Section 37(1)is already certified by the Tax Auditor andverified by the Assessing Officer during theassessment proceedings which are completedtill A.Y. 2015-16. 6.12 As regards the applicability of other C/SCA/7618/2021 CAV JUDGMENT DATED: 19/08/2021 laws, the auditor is not expected to do rovingand fishing inquiries and he cannot beexpected to do the work of the AssessingOfficer. The said work has to be done by therespondent Assessing Officer himself byexamining the legal position and decided inaccordance with law. 7 Per contra, the learned Sr. Standing CounselMr.M.R. Bhatt for the respondent made thefollowing submissions:- 7.1 The petitioners having not challengedthe orders dated 8.4.2021 disposing of the objections of the respective petitionersagainst the proposed referral for specialaudit under Section 142(2A) of the Act, theCourt is required to examine the challenge todirections dated 22.4.2021 only. 7.2 Section 142(1)(ii) and (iii) entitles the Assessing Officer to call upon theassessee to produce such account or documentas the Assessing Officer may require or togive information as the Assessing Officer may require. 7.3 Section 142(2),(2A) also requires theassessee to furnish a report of such audit inthe prescribed form (Form 6B) setting forthsuch particulars as may be prescribed and suchother particulars as may be required by theAssessing Officer. 7.1 The petitioners having not challengedthe orders dated 8.4.2021 disposing of the objections of the respective petitionersagainst the proposed referral for specialaudit under Section 142(2A) of the Act, theCourt is required to examine the challenge todirections dated 22.4.2021 only. 7.2 Section 142(1)(ii) and (iii) entitles the Assessing Officer to call upon theassessee to produce such account or documentas the Assessing Officer may require or togive information as the Assessing Officer may require. 7.3 Section 142(2),(2A) also requires theassessee to furnish a report of such audit inthe prescribed form (Form 6B) setting forthsuch particulars as may be prescribed and suchother particulars as may be required by theAssessing Officer. 7.4 Form 6B is in three parts. The firstpart requires the special auditor to examinebalance sheet, profit and loss account etc.,the second part requires the special auditorto obtain all the information necessary forthe purpose of audit, and the third partrequires the opinion of the special auditor.It is submitted that the report by the specialauditor in the form 6B is not restricted tothe Annexure stated in the said form but wouldalso contain such other particulars as wererequired by the Assessing Officer. This canalso be culled out from the guidance notes oftax audit, issued by the institute ofChartered Accountant. C/SCA/7618/2021 CAV JUDGMENT DATED: 19/08/2021 7.5 Insofar as the terms of reference areconcerned, for each and every direction,respondent has offered comments in tabularform, in an excel sheet, separately filed.The directions issued by the Assessing Officerare strictly in consonance with Section 142(2A) read with Form 6B. 7.6 The arguments made by the petitioner during the course of hearing essentiallypertained to the order dated 8.4.2021 directing the special audit, which as such hasnot been pressed into service as per the orderpassed by the Court on 14.6.2021. 7.7 The respondent has issued the impugneddirections under Section 142(2A) after issuingsummons to the assessee under Section 142(1),after pursuing the record available, afterrecording the satisfaction, after consideringand disposing of the objections raised by thepetitioner. 7.8 During the search proceedings several documents and digital evidence in the form of hard drives, mobile data, laptop data andother storage device were found and seizedfrom the petitioner’s premises, including theresidential premises. The total volume ofdigital data runs into more than 50 plus HDdrives of 1 TB each i.e. more than 50 TB sizedata. There is SAP software data also seizedfrom the petitioners’ premises. The loosematerial seized by the department during thecourse of search proceedings runs into morethan 22000 pages. Hence, from the said seizedmaterial, it was gathered that the petitionerwas running an organized activity of providingaccommodation entries along with the otherunaccounted transactions resulting into taxevasion. 7.9 Placing reliance on the affidavit-in-reply, filed on behalf of the respondent, ithas been submitted that the petitioners wereinvolved in providing accommodation entries,money laundering, as there were transactionswith almost 290 parties having no businessrelations with the petitioners for giving loans and advances. There were complex issuesrelating to the accommodation entries witharound 300 people involving an amount of aboutRs.1,500 crore. There were bogus claims ofexpenditure, higher income shown throughinflated sales and commission income, sale ofunaccounted scraps, transactions with foreignsubsidiaries and the sales routed through themwithout availing any actual services, etc. 7.9 Placing reliance on the affidavit-in-reply, filed on behalf of the respondent, ithas been submitted that the petitioners wereinvolved in providing accommodation entries,money laundering, as there were transactionswith almost 290 parties having no businessrelations with the petitioners for giving loans and advances. There were complex issuesrelating to the accommodation entries witharound 300 people involving an amount of aboutRs.1,500 crore. There were bogus claims ofexpenditure, higher income shown throughinflated sales and commission income, sale ofunaccounted scraps, transactions with foreignsubsidiaries and the sales routed through themwithout availing any actual services, etc. 7.10 The petitioners being in the businessof specialized activity of developing themolecules on behalf of third parties, and thetechnology transfer getting involved into thetransactions required specialized skill andknowledge. 7.11 As regards the correctness of books ofaccounts, it was found from the impoundedmaterial that numerous transactions reflectedin the bank statements were recorded in someother names. The said facts were dulyaccepted by Shri Harshil Dalal, Group CFO ofthe assessee company during the course ofrecording his statement. 7.12 Thus, the ingredients of Section142(2A) with regard to the nature andcomplexity, volume, doubts about thecorrectness and multiplicity of transactionsbeing found in existence and since it was inthe interest of revenue, the special audit hasbeen directed after complying with therequirement of principles of natural justice.Reliance is placed on the decisions in case ofUlhas Securities (P) Ltd. Vs. DCIT, reportedin 393 ITR 514 (Guj), in case Cama Hotels Ltd.Vs. Samir Vakil for His Successor DCIT (OSD) &Anr., reported in 418 ITR 109 and in case ofTehmul Burjor Sethna Vs. ACIT, reported in 418ITR 596. 7.13 As per the proviso to Section 142(2C),the special auditor is required to give hisreport within 180 days, however, due toabsolute non-cooperation by the petitioner –assessee coupled with voluminous record asreferred, and taking note of Supreme Court’sdecision in case of VLS Finance Ltd. & Anr.Vs. CIT & Anr., reported in (2016) 384 ITR 1 (SC), the period during which the petitionremained pending be excluded for the purposeof calculating the limitation. 8 At the outset, it may be noted that thoughthere is voluminous record produced and lengthyarguments advanced by the learned Advocates forthe parties, the issue involved in the presentpetitions runs in a very narrow compass. Asstated earlier, the petitioners had initiallychallenged the legality and validity of theorder dated 8.4.2021 disposing of the objectionsraised against the proposed referral for specialaudit and also challenged the legality of thedirections issued under Section 142(2A) of thesaid Act vide the order dated 22.4.2021,however, at the initial hearing of the petitionson 14.6.2021, the learned Sr. AdvocateMr.Soparkar for the petitioners in both thepetitions had confined himself to the challengeto the impugned directions dated 22.4.2021 andhad not pressed for the challenge to theimpugned order dated 8.4.2021. Ergo, the Courtis required to examine the legality of the C/SCA/7618/2021 CAV JUDGMENT DATED: 19/08/2021 impugned directions dated 22.4.2021 only,whereby the respondent has directed thepetitioners to get their books of accountsaudited by the Accountant nominated by thePrincipal, CIT (Central-1), Ahmedabad, anddirected the nominated Accountant to submit the report as per Rule 14A of the Income-Tax Rulesin the prescribed Form No.6B, and further directed the nominated Accountant to go through the XLV issues/points mentioned therein. The petitioners have been directed to submit thereport of the Accountant within 90 days from the C/SCA/7618/2021 CAV JUDGMENT DATED: 19/08/2021 impugned directions dated 22.4.2021 only,whereby the respondent has directed thepetitioners to get their books of accountsaudited by the Accountant nominated by thePrincipal, CIT (Central-1), Ahmedabad, anddirected the nominated Accountant to submit the report as per Rule 14A of the Income-Tax Rulesin the prescribed Form No.6B, and further directed the nominated Accountant to go through the XLV issues/points mentioned therein. The petitioners have been directed to submit thereport of the Accountant within 90 days from the date of the said directions. It may bepertinent to note that the necessary corollaryof not challenging the order dated 8.4.2021would be that the petitioners in both thepetitions do not challenge the powers of therespondent to pass the order for special auditas contemplated under Section 142(2A) of thesaid Act, nor do they challenge the decision- making process followed by the respondent whilepassing the said order dated 8.4.2021. 9 In the backdrop of the aforesaid, and for the better appreciation of the rival contentionsraised by the learned Advocates for the parties,it would be germane to reproduce the relevantprovisions contained in Section 142(2A) of theAct, the Rule 14A of the Income-Tax Rules, asalso the Form No.6B annexed to the Rules:- “Inquiry before assessment. (2A) If, at any stage of the proceedings beforehim, the Assessing Officer, having regard to thenature and complexity of the accounts, volume ofthe accounts, doubts about the correctness of theaccounts, multiplicity of transactions in theaccounts or specialised nature of business activityof the assessee, and the interests of the revenue,is of the opinion that it is necessary so to do, hemay, with the previous approval of the PrincipalChief Commissioner or Chief Commissioner orPrincipal Commissioner or Commissioner, direct theassessee to get the accounts audited by anaccountant, as defined in the Explanation belowsub-section (2) of section 288, nominated by thePrincipal Chief Commissioner or Chief Commissioneror Principal Commissioner or Commissioner in thisbehalf and to furnish a report of such audit in theprescribed form duly signed and verified by suchaccountant and setting forth such particulars asmay be prescribed and such other particulars as theAssessing Officer may require : Provided that the Assessing Officer shall notdirect the assessee to get the accounts so auditedunless the assessee has been given a reasonableopportunity of being heard. Rule 14A assessee which is required to be furnished undersub-section (2A) of section 142 shall be in FormNo.6B FORM 6B FORM NO. 6B [See rule 14A] Audit report under section 142(2A) of the Income -tax Act,1961 I/Wehaveexaminedthebalancesheetof ...........................................[name andaddress of the assessee] Permanent Account No........... asat ............and the profit and loss account for the yearended on that date which are in agreement with the books ofaccount maintained at the head office at .... and branchesat ...... I/We have obtained all the information and explanationswhich to the best of * my/our knowledge and belief werenecessary for the purposes of the audit. In * my/ouropinion, proper books of account have been kept by the headoffice and the branches of the assessee visited by * me/usso far as appears from * my/our examination of books, andproper returns adequate for the purposes of audit have beenreceived from branches not visited by * me/us subject to thecomments given below : I/We have obtained all the information and explanationswhich to the best of * my/our knowledge and belief werenecessary for the purposes of the audit. In * my/ouropinion, proper books of account have been kept by the headoffice and the branches of the assessee visited by * me/usso far as appears from * my/our examination of books, andproper returns adequate for the purposes of audit have beenreceived from branches not visited by * me/us subject to thecomments given below : .........................................................................................................................................................In * my/our opinion and to the best of * my/our informationand according to explanations given to * me/us, the saidaccounts give a true and fair view. - (i) in the case of the balance sheet, of the state of theabovenamed assessee's affairs as at ...., and (ii) in the case of the profit and loss account, of theprofit or loss of the abovenamed assessee for the accountingyear ending on ....... The prescribed particulars and such other particulars aswere required by the Assessing Officer ...... by his orderNo........ dated ..... are annexed hereto. In * my/ouropinion and to the best of * my/our information andaccording to explanations given to * me/us, these are trueand correct. Place .. Date ... Signed Accountant ** Notes : 1.*Delete whichever is not applicable. 2.**This report has to be given by the accountant nominated by the Chief Commissioner or Commissioner of Income-taxunder section 142(2A) 3. Where any of the matters stated in this report isanswered in the negative or with a qualification, the reportshall state the reasons therefor. ANNEXURE Statement of particulars 1. Books of account maintained2. Method of accounting employed. Indicate whether there isany change from the method of accounting employed in theimmediately preceding previous year3. (i) Method of valuation of opening and closing stock of(a) Raw materials (b) Stores (c) Work-in-progress(d) Stock-in-trade(ii) State whether there is any change in the method ofvaluation of any of the aforesaid items as compared to themethod employed in the immediately preceding previous year(iii) If the answer to (ii) above is in the affirmative,specify the amount by which the profit or loss for the yearhas been affected by such change4. In respect of items manufactured full quantitativedetails of raw materials and finished products as indicatedbelow: Raw materials(a) Opening stock (b) Purchases during the year (c) Consumption during the year(d) Sales during the year(e) Closing stock (f) Yield of finished products (g) Percentage of yield (h) Shortage Finished products (a) Opening stock (b) Purchases during the year (c) Quantity manufactured during the year(d) Sales during the year(e) Closing stock at the end of the year (f) Shortage and percentage thereof Notes : 1. Separate quantitative details on the above linesshould be given in respect of by -products, if any.2. Where the assessee is a dealer in goods, quantitativedetails on the above lines should be given in respect ofthe goods dealt in?5. (i) Has the assessee conducted physical verification ofraw materials, stores and finished products, or the goodsdealt in?(ii) Details of discrepancies, if any6. (a) Amount of expenditure incurred by the assessee in respect of :(i) Advertisement(ii) Maintenance of accommodation in the nature of guesthouse(iii) Travelling(iv) Entertainment [including the amount of entertainmentallowance paid to any employee or other person](b) Whether the expenditure incurred by the assessee inrespect of any of the items referred to in (a) above exceedsthe amount admissible under the Income-tax Act/Rules? If so,give details. 7. Where the assessee is a firm, details of payments by wayof interest, salary, bonus, commission or remuneration tothe partners of the firm respect of :(i) Advertisement(ii) Maintenance of accommodation in the nature of guesthouse(iii) Travelling(iv) Entertainment [including the amount of entertainmentallowance paid to any employee or other person](b) Whether the expenditure incurred by the assessee inrespect of any of the items referred to in (a) above exceedsthe amount admissible under the Income-tax Act/Rules? If so,give details. 7. Where the assessee is a firm, details of payments by wayof interest, salary, bonus, commission or remuneration tothe partners of the firm 8. Where the assessee is a company, give details of-(i) Any expenditure which has resulted directly orindirectly in the provision of any remuneration, benefit oramenity to (a) a director ; (b) a person who has asubstantial interest in the company ; and (c) a relative ofthe director or of such person (ii) Any expenditure or allowance in respect of assets ofthe company used wholly or partly for the purposes orbenefit of any of the persons referred to in (i) above[state whether any such person is an employee of theassessee or not] 9. Details of amounts not deductible under section 40A :(a) Particulars of payments which appear to be excessive orunreasonable in terms of section 40A(2)(a) (b) Particulars of payments in excess of Rs. 2,500 * madeotherwise than by a crossed cheque or draft - section 40A(3)(c) Particulars of expenditure or allowance in excess of thelimits specified in section 40A(5)(c) ** (d) Particulars of expenditure incurred by way of fees andsalary to an ex-employee in excess of Rs. 60,000 - section40A(6) **(e) Provisions for payment of gratuity not allowable -section 40A(7) (f) Where the assessee is a company, the amount of intereston deposits not allowable under section 40A(8) † 10. Whether any amount is borrowed on a hundi from, or anyamount due thereon (including interest on the amountborrowed) is repaid to, any person otherwise than through anaccount payee cheque? If so, give details. 11. (a) Particulars of proforma credits/drawback/refund ofduties of customs or excise or both/refund of sales tax.Whether they have been credited to the profit and lossaccount? (b) Particulars of expenditure/income of anyearlier year debited/credited to the profit and loss accountof the relevant previous year (c) Particulars of anyliability of a contingent nature debited to the profit andloss account 12. Particulars of each loan taken by the assessee (otherthan any loan taken from a bank or financial institution) inthe following form : (i) Name, address and permanent accountnumber of the lender Printed from (ii) Whether amount borrowed on hundi? (iii) Whether loan account squared upduring the year? (iv) Maximum amount outstanding at any timeduring the year and rate of interest paid (v) Details ofsecurity including collateral security offered, if any (vi)Name and address of the guarantor, if any 13. Particulars of each loan/overdraft taken from a bank orfinancial institution in the following form : (i) Maximumamount outstanding at any time during the year (ii) Detailsof security including collateral security offered, if any(iii) Name and address of the guarantor, if any 14. Whether the assessee has deducted tax at source and paidthe amount so deducted to the credit of the CentralGovernment in accordance with the provisions of ChapterXVIIB? If not, give details of defaults committed 15. (a) Details of taxes, duties, etc., paid by the assesseeduring the previous year (b) Whether any discrepancy has been noticed in therespective dates of payments and the entries in the books ofaccount? If so, give particulars thereof.” 13. Particulars of each loan/overdraft taken from a bank orfinancial institution in the following form : (i) Maximumamount outstanding at any time during the year (ii) Detailsof security including collateral security offered, if any(iii) Name and address of the guarantor, if any 14. Whether the assessee has deducted tax at source and paidthe amount so deducted to the credit of the CentralGovernment in accordance with the provisions of ChapterXVIIB? If not, give details of defaults committed 15. (a) Details of taxes, duties, etc., paid by the assesseeduring the previous year (b) Whether any discrepancy has been noticed in therespective dates of payments and the entries in the books ofaccount? If so, give particulars thereof.” 10 Now, adverting to the first and foremostsubmission of the learned Sr. AdvocateMr.Soparkar that the impugned directions givenby the respondent Assessing Officer are bad inlaw as the respondent has delegated upon thespecial auditor the work, which he himself isrequired to do and which otherwise is in thenature of investigation, it may be noted thatthe observations made by a three-Judge Bench ofthe Supreme Court in case of Sahara India (Firm) Vs. Commissioner of Income-tax & Anr. (supra)clinch the issue. In the said case, the SupremeCourt has elaborately discussed the scope ofSection 142(2A), while dealing with the issue as C/SCA/7618/2021 CAV JUDGMENT DATED: 19/08/2021 to whether in every case, where the Assessingofficer issues a direction under Section 142(2A)of the IT Act, 1961, the assessee has to beheard before such an order is passed? In thesaid case, the Supreme Court while agreeing withthe decision of the Two-Judge Bench in case of Rajesh Kumar Vs. DCIT (Supra) held that theexercise of power under Section 142(2A) of thesaid Act leads to serious civil consequences,and therefore, even in absence of expressprovision for affording an opportunity of pre-decisional hearing to an assessee, and inabsence of any express provision in Section142(2A) barring the giving of reasonableopportunity to an assessee, the requirement ofobservance of principles of natural justice isto be read into the said provision. Theobservations made in the said case of SaharaIndia (Firm) with regard to the consequencesthat would follow to the order of special auditpassed in exercise of the powers conferred underSection 142(2A) being relevant, they deserve to be reproduced and the same read as under:- Rajesh Kumar Vs. DCIT (Supra) held that theexercise of power under Section 142(2A) of thesaid Act leads to serious civil consequences,and therefore, even in absence of expressprovision for affording an opportunity of pre-decisional hearing to an assessee, and inabsence of any express provision in Section142(2A) barring the giving of reasonableopportunity to an assessee, the requirement ofobservance of principles of natural justice isto be read into the said provision. Theobservations made in the said case of SaharaIndia (Firm) with regard to the consequencesthat would follow to the order of special auditpassed in exercise of the powers conferred underSection 142(2A) being relevant, they deserve to be reproduced and the same read as under:- “21. In the light of the aforenoted legalposition, we are in respectful agreement withthe decision of this Court in Rajesh Kumar(supra) that an order underSection 142(2A)does entail civil consequences. At thisjuncture, it would be relevant to take note ofthe insertion of proviso toSection 142(2D)with effect from 1st June, 2007. The provisoprovides that the expenses of the auditorappointed in terms of the said provisionshall, henceforth, be paid by the CentralGovernment. In view of the said amendment, itcan be argued that the main plank of thejudgment in Rajesh Kumar (supra) to the effectthat direction underSection 142(2A) entailscivil consequences because the assessee has topay substantial fee to the special auditor isknocked off. True it is that the payment ofauditor's fee is a major civil consequence,but it cannot be said to be the sole civil orevil consequence flowing from directionsunderSection 142(2A). We are convinced thatspecial audit has an altogether differentconnotation and implications from the auditunderSection 44AB. Unlike the compulsoryaudit underSection 44AB, it is not limited tomere production of the books and vouchersbefore an auditor and verification thereof. Itwould involve submission of explanation andclarification which may be required by thespecial auditor on various issues withrelevant data, document etc., which, in thenormal course, an assessee is required toexplain before the Assessing Officer.Therefore, special audit is more or less inthe nature of an investigation and in somecases may even turn out to be stigmatic. Weare, therefore, of the view that even afterthe obligation to pay auditor's fees andincidental expenses has been taken over by theCentral Government, civil consequences wouldstill ensue on the passing of an order forspecial audit.” Section 44AB, the special audit under Section142(2A) is not limited to mere production of the books and vouchers before an auditor and verification thereof. It would involve submission of explanation and clarification, which may be required by the special auditor on various issues with relevant data, documents etc., which in normal course an assessee is required to explain before the assessing officer. Therefore, the special audit is more or less in the nature of an investigation and insome cases may even turn out to be stigmatic. Thus, the special auditor may not only be required to do the work which the AssessingOfficer would do in normal course but may alsobe required to do the work which could be in thenature of investigation. 12 It may further be noted that Section 142(2A) was amended w.e.f. 1.6.2013, whereby the words "the nature and complexity of the accounts,volume of accounts, doubts about the correctness of the accounts, multiplicity of transactions in the accounts or specialized nature on business activities of the assessee,and", have been substituted for the words “thenature and complexity of the accounts of theassessee”. The Division Bench of this Court in less in the nature of an investigation and insome cases may even turn out to be stigmatic. Thus, the special auditor may not only be required to do the work which the AssessingOfficer would do in normal course but may alsobe required to do the work which could be in thenature of investigation. 12 It may further be noted that Section 142(2A) was amended w.e.f. 1.6.2013, whereby the words "the nature and complexity of the accounts,volume of accounts, doubts about the correctness of the accounts, multiplicity of transactions in the accounts or specialized nature on business activities of the assessee,and", have been substituted for the words “thenature and complexity of the accounts of theassessee”. The Division Bench of this Court in case of Tehmul Burjor Shethna Vs. ACIT (supra),considering the said amendment, has observed thefollowing - “17. At this juncture, it may be germane torefer to the explanatory notes to theprovisions of the Finance Act, 2013 issued bythe Central Board of Direct Taxes videCircular No.03/2014 dated 24th January, 2013,which to the extent the same are relevant forthe present purpose, read thus: “35. Direction for special audit under sub-section (2A) of section 142 35.1 Sub-section (2A) of section 142 of theIncome-tax Act, before its amendment by theAct, inter-alia, provided that if at any stageof the proceedings, the Assessing Officerhaving regard to the nature and complexity ofthe accounts of the assessee and the interestsof the revenue, is of the opinion that it isnecessary so to do, he may, with the approvalof the Chief Commissioner or Commissioner,direct the assessee to get his accounts auditedby an accountant and to furnish a report ofsuch audit in the prescribed form. Theexpression “nature and complexity of theaccounts” has been interpreted in a veryrestrictive manner by various courts. 35.2 Sub-section (2A) of section 142 has beenamended to provide that if at any stage of theproceedings before him, the Assessing Officer,having regard to the nature and complexity ofthe accounts, volume of the accounts, doubtsabout the correctness of the accounts, multiplicity of transactions in the accounts orspecialized nature of business activity of theassessee, and the interests of the revenue, isof the opinion that it is necessary so to do,he may, with the previous approval of the ChiefCommissioner or the Commissioner, direct theassessee to get his accounts audited by anaccountant and to furnish a report of suchaudit in the prescribed form. 35.3 Applicability: – This amendment takeseffect from 1st June, 2013.” 18. Thus, it is the restrictive interpretation ofthe expression “nature and complexity of theaccounts” by various courts that has occasionedthe amendment, evidently, therefore, the intentionof the legislature was to widen the scope andambit of sub-section (2A) of section 142 of theAct. The scope and ambit of sub-section (2A) ofsection 142 of the Act has, therefore, becomewider upon its amendment with effect from 1 stJune, 2013 and cannot be construed in the samerestrictive manner as it was prior to itsamendment. 19. As noted hereinabove, sub-section (2A) ofsection 142 of the Act can be invoked havingregard to the nature and complexity of theaccounts, volume of the accounts, doubts about thecorrectness of the accounts, multiplicity oftransactions in the accounts or specialise