Tehmul Burjor Sethna v. Asst. Commissioner Of Income Tax Central Circle 1(1

C/SCA/6632/2019 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 6632 of 2019 FOR APPROVAL AND SIGNATURE: HONOURABLE MS.JUSTICE HARSHA DEVANI andHONOURABLE MR.JUSTICE VIRESHKUMAR B. MAYANI ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ?see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ?judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ? ================================================================ TEHMUL BURJOR SETHNA Versus ASST. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 1(1) ================================================================ Appearance:MR R. K. PATEL, ADVOCATE with MR DARSHAN R PATEL(8486) for the Petitioner(s) No. 1MR M.R. BHATT, SENIOR ADVOCATE with MRS MAUNA M BHATT with MR KARAN SANGHANI, ADVOCATE for the Respondents ================================================================ CORAM: HONOURABLE MS.JUSTICE HARSHA DEVANIand HONOURABLE MR.JUSTICE VIRESHKUMAR B. MAYANI Date : 31/07/2019 ORAL JUDGMENT (PER : HONOURABLE MS.JUSTICE HARSHA DEVANI) 1.By this petition under articles 226 and 227 of the Constitution of India, the petitioner has challenged the notice dated 19.11.2018 issued under section 142(1) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for assessment years 2011-12 to 2016-17 (Annexure “I” to the petition); show cause notice dated 12.12.2018 (Annexure “K” to the petition); notice dated 21.12.2018 issued by the first respondent – Assistant Commissioner of Income Tax, Central Circle – 1(1), Ahmedabad for special audit (Annexure “N” to the petition); and the order dated 26.12.2018 rejecting the objections filed by the petitioner (Annexure “U” to the petition) and all subsequent proceedings in continuation thereof. 2.The facts giving rise to the present petition are that the petitioner herein is a practising chartered accountant since 1983 and is filing regular returns of income since the year 1984-85. The source of income of the petitioner is from house property, remuneration from partnership firm, capital gains and other sources. It is the case of the petitioner that he is not required to prepare personal books of account nor is he obligated to prepare personal books of account under any of the provisions of the Income Tax Act, 1961. A search operation came to be conducted at the residence and office premises of the petitioner herein on 29.11.2016. Pursuant thereto, the notices under section 153A of the Act dated 12.5.2017 came to be issued for assessment years 2011-12 to 2016-17. In response to the said notices, the petitioner filed his returns of income for assessment years 2011-12 to 2016-17 on 10.06.2017. 2.1Thereafter, on 19.9.2017, the petitioner received notices under section 143(2) of the Act for assessment years 2011-12 to 2016-17. The petitioner gave his reply to such notices on 29.9.2017. 2.2For assessment year 2017-18, the petitioner filed return of income on 31.10.2017. Notices under sections 143(2) and 142(1) of the Act came to be issued by the first respondent on 3.4.2018 for assessment year 2017-18 requiring the petitioner to furnish certain information. The petitioner received another notice under section 143(2) of the Act, whereby the petitioner was informed that his case was selected for limited scrutiny for assessment year 2017-18. 2.1Thereafter, on 19.9.2017, the petitioner received notices under section 143(2) of the Act for assessment years 2011-12 to 2016-17. The petitioner gave his reply to such notices on 29.9.2017. 2.2For assessment year 2017-18, the petitioner filed return of income on 31.10.2017. Notices under sections 143(2) and 142(1) of the Act came to be issued by the first respondent on 3.4.2018 for assessment year 2017-18 requiring the petitioner to furnish certain information. The petitioner received another notice under section 143(2) of the Act, whereby the petitioner was informed that his case was selected for limited scrutiny for assessment year 2017-18. 2.3The petitioner received separate notices dated 25.9.2018 under section 142(1) of the Act for assessment years 2011-12 to 2016-17. The petitioner filed his reply to the notice under section 143(2) of the Act for assessment year 2017-18 on 28.9.2018. The petitioner received a common notice under section 142(1) of the Act for assessment years 2011-12 to 2016-17 on 19.11.2018, wherein the petitioner was also called upon to furnish details for assessment year 2017-18. The petitioner filed his response to the notice issued under section 142(1) of the Act for assessment years 2011-12 to 2017-18 on 23.11.2018. The petitioner filed further reply to the notice issued for assessment years 2011-12 to 2017-18 on 12.12.2018. 2.4It is the case of the petitioner that on 12.12.2018, the first respondent issued further show cause notice raising queries, which were not part of the notices issued under section 143(2) of the Act for limited scrutiny. On 17.12.2018, the petitioner filed his reply to the notice for assessment years 2011-12 to 2017-18. 2.5On 20.12.2018, a Mazharnama came to be drawn, whereby the seal on the seized hard disc was shown to the petitioner along with two witnesses and after confirming that the seals on the hard disc were intact, the seal from the original hard disc was removed in the presence of the petitioner and two independent witnesses and was connected to the system for data retrieval. It is further recorded therein that the backup of the hard disc was taken in a 2 TB external hard disc for use as working copy and the original seized hard disc had been sealed again in presence of the petitioner and two witnesses. 2.6Thereafter, the first respondent issued a notice dated 21.12.2018 under section 142(2A) of the Act to the petitioner, proposing to get the petitioner’s accounts for assessment years 2011-12 to 2017-18 audited by an accountant as defined under the Explanation to section 288(2) of the Act and nominated by the Principal Commissioner of Income Tax, Ahmedabad for the purpose. 2.7The petitioner filed his reply dated 22.12.2018 in continuation of the reply dated 17.12.2018 in response to the notices issued under section 142(2) of the Act. In response to the show cause notice dated 21.12.2018 for proposal for special audit under section 142(2A) of the Act, the petitioner raised objections dated 26.12.2018 to the proposal for special audit under section 142(2A) of the Act, which was received by 2.7The petitioner filed his reply dated 22.12.2018 in continuation of the reply dated 17.12.2018 in response to the notices issued under section 142(2) of the Act. In response to the show cause notice dated 21.12.2018 for proposal for special audit under section 142(2A) of the Act, the petitioner raised objections dated 26.12.2018 to the proposal for special audit under section 142(2A) of the Act, which was received by the first respondent on 27.12.2018. The first respondent disposed of the objections raised by the petitioner against the proposal to special audit under section 142(2A) of the act for assessment years 2011-12 to 2016-17 and assessment year 2017-18 by a communication dated 26.12.2018. On the same day, that is, 26.12.2018, the petitioner requested the second respondent – Principal Commissioner of Income Tax – Central, to provide an opportunity of personal hearing before granting any approval for the action under section 142(2A) of the Act. On 27.12.2018, the second respondent informed the petitioner that personal hearing was fixed on 28.12.2018. On 28.12.2018, the petitioner wrote a letter to the second respondent requesting him to drop the show cause notice issued for proposal of special audit under section 142(2A) of the Act. 2.8On 30.12.2018, the first respondent informed the petitioner that M/s T.R. Chadha & Co., LLP was appointed as a Special Auditor within the meaning of section 142(2A) of the Act and that the petitioner was required to get the accounts audited for financial years corresponding to assessment years 2011-12 to 2017-18. 2.9On 4.2.2019, M/s T.R. Chadha & Co., LLP (Special Auditor) requested the petitioner to provide certain details. By a letter dated 19.2.2019, addressed to the second respondent, the petitioner informed him that the Special Auditor was not doing the work of audit. On 20.2.2019, the petitioner addressed a communication to the Special Auditor objecting to several issues, for which the Special Auditor had raised queries, as according to him, such issues did not fall within the purview of the Special Auditor’s work/jurisdiction. 2.10On 1.3.2019, the petitioner received a letter from M/s T.R. Chadha & Co., LLP in connection with his letter dated 20.2.2019 responding to the allegations made by him of the auditors exceeding their scope and jurisdiction by asking various details for audit. 2.11By a communication dated 15.3.2019, the Special Auditor raised various queries/clarifications and called upon the petitioner to provide the details/clarifications asked in the letter and also pending details at the earliest. 2.12At this stage, the petitioner approached this court seeking the reliefs noted hereinabove on the ground of lack of valid jurisdiction as well as on other grounds. 3.Mr. R. K. Patel, learned advocate for the petitioner invited the attention of the court to the provisions of sub-section (2A) of section 142 of the Act, to submit that the same can be invoked having regard to the nature and complexity of the accounts, volume of the accounts, doubts about the correctness of the accounts, multiplicity of transactions in the accounts, which all presupposes that the assessee is required to maintain the accounts. It was submitted that the petitioner, who is a partner of a firm, is not statutorily required to maintain accounts/books of account. It was submitted that this is an undisputed fact since the assessment year 1984-85, which has been accepted by the department even in scrutiny assessment of earlier years. It was submitted that hence, a basic pre-requisite condition for invoking sub-section (2A) of section 142 of the Act is not satisfied in the case of the petitioner. Hence, the respondents lack the jurisdiction to invoke section 142(2A) of the Act. section 142 of the Act is not satisfied in the case of the petitioner. Hence, the respondents lack the jurisdiction to invoke section 142(2A) of the Act. 3.1It was further submitted that in the absence of accounts, the question of complexity in account does not arise and that the Assessing Officer has not even called for the books of account at any point of time. In this regard, the attention of the court was invited to the reply dated 26.11.2018 of the petitioner to the show cause notice dated 21.12.2018 for proposal for special audit under section 142(2A) of the Act. It was contended that the bank pass book/bank statement can never be equated with the books of account. In support of such submission, the learned advocate placed reliance upon the decision of the Bombay High Court in the case of Commissioner of Income Tax v. Bhaichand N. Gandhi, [1982] 11 Taxman 59 (Bom.), wherein the court referred to the decision of the Supreme Court in the case of Baladin Ram v. Commissioner of Income Tax, 71 ITR 427 (SC), for the proposition that the only possible way in which income from an undisclosed source can be assessed or reassessed is to make the assessment on the basis that the previous year for such an income would be the ordinary financial year. Even under the provisions embodied in section 68 of the said Act, it is only when any amount is found credited in the books of the assessee for any previous year that the section will apply and the amount so credited may be charged to tax as the income of that previous year, if the assessee offers no explanation or the explanation offered by him is not satisfactory. Applying the principle, the court held that the pass book supplied by the bank to its constituent is only a copy of the constituent’s account in the books maintained by the bank. It is not as if the pass book is maintained by the bank as the agent of the constituent, nor can it be said that the pass book is maintained by the bank under the instructions of the constituent. The court held that the Tribunal was, therefore, justified in holding that the pass book supplied by the bank to the assessee in that case could not be regarded as a book of the assessee, that is, a book maintained by the assessee or under his instructions. Reliance was also placed upon the decision of this court in the case of Alidhara Texpro Engineering (P.) Ltd. v. Deputy Commissioner of Income Tax, [2011] 332 ITR 115 (Guj.), and more particularly, to the contents of paragraph 7 thereof. 3.2Next, it was contended that the non-application of mind on the part of the respondent Assessing Officer is evident from the fact that in the objection rejection order dated 26.12.2018, there is a reference to submissions filed by the petitioner on 27.12.2018 in response to the show cause notice under section 142(2A) of the Act, inasmuch as on 26.12.2018, the Assessing Officer had refused to personally accept the same. 3.3It was submitted that despite the fact that the Assessing Officer was aware of the fact that the petitioner is neither maintaining the books of account, nor required to maintain the books of account, he has sent the notice dated 19.11.2018 to furnish financial year-wise statements of the following: (i) statement of affairs, (ii) statement of income and expenditure, (iii) statement of receipts and payments, and (iv) fund flow statement. It was submitted that the Assessing Officer has not mentioned anywhere as to what is the nature of the complexity of the accounts. It was submitted that the 3.3It was submitted that despite the fact that the Assessing Officer was aware of the fact that the petitioner is neither maintaining the books of account, nor required to maintain the books of account, he has sent the notice dated 19.11.2018 to furnish financial year-wise statements of the following: (i) statement of affairs, (ii) statement of income and expenditure, (iii) statement of receipts and payments, and (iv) fund flow statement. It was submitted that the Assessing Officer has not mentioned anywhere as to what is the nature of the complexity of the accounts. It was submitted that the Assessing Officer should have examined the relevant accounting entries himself before forming an opinion; however, in case of the petitioner, as the respondent knew that the petitioner is not required to maintain the books of account, he has never called for the books of account for verification. It was submitted that the petitioner, in the personal discussion had given in writing and brought to the notice of the Principal Commissioner of Income Tax, Central that he is not maintaining the books of account; however, the Principal Commissioner of Income Tax, Central has granted the approval in a mechanical manner to get the books of account audited by special auditors. It was submitted that therefore, the Principal Commissioner of Income Tax (the second respondent herein) has mechanically granted approval to the proposal for appointment of special auditor which is contrary to the settled legal position of law rendering the proceedings a nullity in the eyes of law. 3.4In support of such submission, the learned advocate placed reliance upon the decision of the Supreme Court in the case of Rajesh Kumar v. Deputy Commissioner of Income Tax, [2006] 157 Taxman 168 (SC), wherein the court has held that an order of approval is not to be mechanically granted, but the same should be done having regard to the materials on record. The explanation given by the assessee, if any, would be a relevant factor. The approving authority was required to go through it. He could have arrived at a different opinion. He, in a situation of this nature, could have corrected the Assessing Officer if he was found to have adopted a wrong approach or posed a wrong question unto himself. He could have been asked to complete the process of the assessment within the specified time so as to save the revenue from suffering any loss. The same purpose might have been achieved upon production of some materials for understanding the books of account and/or the entries made therein. While exercising its power, the Assessing Officer has to form an opinion, albeit subject to approval of the Chief Commissioner or the Commissioner, as the case may be. within the specified time so as to save the revenue from suffering any loss. The same purpose might have been achieved upon production of some materials for understanding the books of account and/or the entries made therein. While exercising its power, the Assessing Officer has to form an opinion, albeit subject to approval of the Chief Commissioner or the Commissioner, as the case may be. 3.5Reliance was also placed upon the decision of the Delhi High Court in the case of DLF Commercial Projects Corporation v. Assistant Commissioner of Income Tax, [2012] 26 taxmann.com 236 (Delhi), for the proposition that the provision of sub-section (2A) of section 142 of the Act requires the Assessing Officer to form an opinion that having regard to the nature and complexity of the accounts of the assessee and the interests of the revenue, it is necessary to get the accounts audited by a special auditor nominated by the CIT or the CCIT. The proviso makes it incumbent upon the Assessing Officer to give the assessee a reasonable opportunity of being heard before special audit is directed. The direction to conduct special audit has to be, under the sub-section, given with the previous approval of the CIT or the CCIT. It is, thus, the Assessing Officer who is to form the opinion and not for anyone else. The approval to be granted by the CIT or the CCIT, as held by the Supreme Court in the case of Sahara India (Firm) is an inbuilt protection against arbitrary or unjust exercise of power by the Assessing Officer and therefore, a heavy duty is cast on the high ranking authority to see that the approval is not granted in a ritualistic manner; he is required to examine the material on the basis of which an opinion for conducting special audit was formed by the Assessing Officer. The approval must reflect the application of mind to the facts of the case. 3.6Reference was also made to the decision of the Calcutta High Court in the case of West Bengal State Co-operative Bank Ltd. v. Joint Commissioner of Income Tax, [2004] 138 Taxman 238 (Cal.), for the proposition that the Commissioner of Income Tax should not give any approval mechanically and if he finds that there is no examination of the books of account by the Assessing Officer before sending the proposal, he will not certainly give any approval. Under this section, the Commissioner of Income Tax does not exercise the jurisdiction of the appellate authority rather the approving authority. Approval means and connotes supporting and accepting of an act and conduct done by another person. Therefore, it would be his duty to examine on receipt of his proposal, whether the Assessing Officer has correctly done it or not, if he finds that this requirement has not been fulfilled, then he must not approve of the same. It was submitted that in this case, the Principal Commissioner of Income Tax has mechanically granted the approval and hence, the approval stands vitiated as being contrary to the settled principles enunciated by the different courts, including the Supreme Court. 3.7Next, it was submitted that a consolidated reference for special audit for seven assessment years involving section 153A of the Act and limited scrutiny under section 143(3) of the Act has been issued in the present case, which is contrary to the C.B.D.T. Circular as no requisite permission has been obtained for full scrutiny. The attention of the court was 3.7Next, it was submitted that a consolidated reference for special audit for seven assessment years involving section 153A of the Act and limited scrutiny under section 143(3) of the Act has been issued in the present case, which is contrary to the C.B.D.T. Circular as no requisite permission has been obtained for full scrutiny. The attention of the court was invited to the notice under section 143(2) of the Act issued in respect of assessment year 2017-18, to submit that under the Limited Scrutiny (Computer Aided Scrutiny Selection), the petitioner was required to clarify only one issue, viz., “cash deposit during demonetization period”. The attention of the court was invited to the C.B.D.T. letter dated 30.11.2017, issuing instructions for unauthorized expansion of scope of limited scrutiny, wherein it has been stated that the C.B.D.T. has issued detailed guidelines/directions for completion of cases of limited scrutiny selected through CASS module. These guidelines postulate that an Assessing Officer, in limited scrutiny cases, cannot travel beyond the issues for which the case was selected. The idea behind such stipulations was to enforce checks and balances upon powers of an Assessing Officer to do fishing and roving inquiries in cases selected for limited scrutiny. It was submitted that the resultant effect of going beyond the scope of limited scrutiny is that the entire reference to special audit is vitiated on facts and in law. 3.8It was further submitted that though the search proceedings commenced on 29.11.2016, effective show cause notice for scrutiny was issued only on 19.11.2018, that is, after a gap of almost two years. It was submitted that thereafter, the show cause notice under section 142(2A) of the Act came to be issued on 21.12.2018 in respect of seven assessment years. It was submitted that the proposal for approval to the Principal Commissioner of Income Tax is dated 27.12.2018 and the approval is granted on 29.12.2018 in a mechanical manner. It was emphatically argued that the sequence of events clearly indicates that the entire exercise of reference to special audit by the first respondent is for the purpose of buying limitation as the proceedings were becoming time-barred on 31.12.2018. Reference was made to paragraph 8 of the notice dated 12.12.2018, wherein the Assessing Officer has categorically stated that this was a time-barring matter and the case was getting barred by limitation on 31.12.2018. In support of such submission, the learned advocate placed reliance upon the decision of the Supreme Court in the case of Rajesh Kumar v. Deputy Commissioner of Income Tax (supra), wherein the court has observed thus: “49.Assuming that two sets of accounts were being maintained the same would not mean that the nature of accounts is difficult to understand. It could have furthermore not been shown that the power is sought to be exercised only for an unauthorised purpose, viz., for the purpose of extension of the period of limitation as provided for under Explanation 2 to section 158BE of the Act.” 3.9Reference was also made to the decision of this court in the case of Alidhara Texpro Engineering (P.) Ltd. v. Deputy Commissioner of Income Tax (supra), to submit that the entire exercise of invoking powers under section 142(2A) of the Act was a mala fide exercise only to buy time as the assessments were otherwise getting barred by limitation. Reference was made to the decision of the Delhi High Court in the case of DLF Commercial Projects Corporation v. Assistant Commissioner of Income Tax (supra), wherein the assessment proceedings were getting barred by time on 31.12.2011. The Assessing Officer had fixed the hearing on 28.12.2011. It was on that day, that is, 28.12.2011 that the approval of the CCIT to the special audit proposal was communicated to him. The court observed that this extended the period of limitation for completing the assessment, which was also an aspect that was required to be kept in view. The court found it difficult to believe that the CCIT could have applied his mind in such a short period of time and ultimately quashed the direction for special audit and the order containing the terms of reference to special auditors and all further proceedings consequent thereto. 3.10It was next contended that the entire exercise of reference to the Special Auditor is delegation of the jurisdiction of the assessment proceedings to the auditor, which is impermissible in law. In this regard reference was made to the reply dated 20.2.2019 of the petitioner to the notice dated 4.2.2019 of the Chartered Accountants appointed for special audit. Reliance was placed upon the decision of the Delhi High Court in the case of Delhi Development Authority v. Union of India, [2012] 25 taxmann.com 234 (Delhi), wherein the court has held thus: “24. We have referred to the aforesaid note in detail for two reasons. Firstly, the note reveals that the Assessing Officer felt that the case required detailed scrutiny or monitoring, verification of entries, which were substantial in number. Detailed scrutiny of large number of entries by itself, on standalone basis, will not amount to complexity of accounts. The accounts do not become complex because merely there are large number of entries, e.g., a petrol pump may have substantial sales, to thousands of customers daily at prices fixed under law/Rules, but this by itself will not be the accounts complex. Similarly, an Assessing Officer is required to scrutinize the entries and verify them, but this does not require services of a special auditor or a Chartered Accountant to undertake the said exercise. Section 142(2A) is not a provision by which the Assessing Officer delegates his powers and functions, which he can perform to the special auditor. The said provision has been enacted to enable the Assessing Officer to take help of a specialist, who understands accounts and accounting practices to examine the accounts when they are complex and the Assessing Officer feels that he cannot understand them and comprehend them fully, till he has help and assistance of a special auditor. Interest of the Revenue being the other consideration. In the present case, the Revenue has not submitted that test check of entries was undertaken, but anomalies or mistakes were detected. For proceeding further, and to compute the taxable income, help and assistance of an accounting expert was required. Secondly, we notice that the Assessing Officer felt that special auditor is required for determining and deciding certain legal issues, i.e., nature and character of Nazul I and Nazul II land, payments received and the treatment of the said payments, receipts or expenditure in the books for the purposes of taxation. The special auditor cannot go into and examine the said legal issue or question regarding taxability. This has to be determined and decided by the Assessing Officer. This determination/decision requires passing of the assessment order. However, at this stage, the Assessing Officer should indicate his prima facie or tentative view on why the legal issue requires examination of accounts by the specialist. A Chartered Accountant, a specialist in accounts does not have a role to play and cannot be delegated and asked to decipher, decide or express his opinion on nature and character of Nazul I or Nazul II land receipts and payments. In a given case, the complexities of account and the legal issue may be intertwined or connected and, therefore, examination of accounts may indirectly or directly require his opinion on a legal matter/issue, but this is not true or so stated in the present case. The case and the stand of the assessee is that as per the statute, including the Rules, Nazul I and Nazul II land, payments received, expenditure incurred etc., belong to the Central Government and nothing whatsoever can be attributed to them. There is no examination, consideration of the legal aspect and formation of a tentative view. The decision on this legal issue cannot be transposed and passed to the Chartered Accountant as a special auditor as he is not a specialist and mandated by the Act to undertake the said exercise. The case of the assessee is that it is maintaining separate accounts for Nazul I and Nazul II lands and the General Development Account. The said accounts are audited by the Comptroller and Auditor General and have been accepted by the Central Government. The case of the assessee is that it is maintaining separate accounts for Nazul I and Nazul II lands and the General Development Account. The said accounts are audited by the Comptroller and Auditor General and have been accepted by the Central Government. 25. We also find merit in the contention raised by the petitioner that the Assessing Officers have repeatedly in all orders, for the purpose of recording reasons, taken the "notes of accounts" and verbatim incorporated the same. This is apparently correct and, therefore, discloses non-consideration and non-application of mind, which constitutes an error in the decision making process. It is an easy and convenient manner to transfer the obligation of scrutiny and examination to the special auditor. It may be true and correct that certain aspects mentioned in the Notes of Accounts may, if required and necessary and after in depth examination, justify appointment of a special auditor but the Assessing Officer has to be cautious and careful to segregate them from others while recording the reasons. If such an exercise is undertaken, it will show due and proper application of mind and not exercise of power under Section 142(2A) on the pretend or on the pretext that such power exists and, therefore, should be exercised. Existence of the power is not in dispute; it is the exercise of power, which is in dispute and question. The exercise of power must withstand and meet the requirements prescribed. Failure to exclude irrelevant and extraneous matters negates the "opinion" as the said matters should not cloud or dent formation of opinion. Reasons recorded must be genuine and have a nexus with the twin statutory requirements i.e. complexity of accounts and interest of the Revenue.” 3.11Reliance was also placed upon the decision of the Calcutta High Court in the case of West Bengal State Co-operative Bank Ltd. v. Joint Commissioner of Income Tax (supra), wherein the court has held that primarily the Assessing Officer should examine either by himself or to get the accounts examined by some other official subordinate to him and then apply his mind to form opinion about the nature and complexity of the accounts. The said section leaves ample scope for the Assessing Officer to abuse or misuse power conferred thereunder by appointing a special auditor, to be more precise the task of the Assessing Officer of examining accounts can be shifted to the third party at the cost of the assessee. In the facts of the said case, the court found that undoubtedly, the Assessing Officer never tried to examine the books of account before forming his opinion. The court was of the view that voluminous and the numbers of books of account or the plea of impossibility are no ground to abdicate his duty. If it is possible for an auditor or his team to examine the books of account, then why is it impossible for an Assessing Officer, is not comprehensible, after all he is presumed to have workable skill and idea of accounting because the nature of the duty entrusted to him under the statute reasonably demands such skill and knowledge of examining accounts. The court further held that the Commissioner of Income Tax should not give any approval mechanically and if he finds that there is no examination of the books of account by the Assessing Officer before sending the proposal, he will not certainly give any approval. Under this section, the Commissioner of Income Tax does not exercise the jurisdiction of the appellate authority rather the approving authority. Approval means and connotes supporting and accepting of an act and conduct done by another person. Therefore, it would be his duty to examine on receipt of his proposal, whether the Assessing Officer has correctly done it or not, if he finds that this requirement has not been fulfilled, then he must not approve of the same. 3.12The attention of the court was invited to the terms of reference issued by the Assessing Officer under section 142(2A) of the Act and more particularly, to clause (x/vi) of paragraph 12 thereof, which reads thus: “Any other issue that the Principal Commissioner of Income Tax, Central (Ahmedabad) may deem fit”, to submit that thus, in the directions issued by the Assessing Officer to the Special Auditor, the Principal Commissioner of Income Tax is involved on merits despite the fact that the Principal Commissioner of Income Tax has only jurisdiction of approval and not appellate jurisdiction for these proceedings. 3.13It was further submitted that in this case, a search was conducted on 29.11.2016, which is post the amendment of 2003 for search proceedings, and hence, no block assessment is to be framed. Despite this fact, no separate assessment year-wise details have been asked for by issuing specific show cause notices for different assessment years, which itself renders the proceedings invalid. 3.14It was further submitted that the petitioner has alleged mala fides right from the response to the show cause notice for reference to special audit and has further informed the Principal Chief Commissioner of Income Tax, as well as the Director General of Income Tax (Investigation), to check the laptops of the auditors since they are not conducting audit work of the petitioner, but are carrying out professional work of their firm. In this regard, the attention of the court was invited to the communication dated 19.2.2019 of the petitioner addressed to the Principal Commissioner of Income Tax as well as the Director General of Income Tax (Investigation), Ahmedabad. 3.15Alternatively and without prejudice to the above contentions, the learned advocate submitted that even when section 142(2A) of the Act talks of audit for “specialized nature of business activities of assessee”, the pre-requisite condition of maintenance of books of account as per statutory requirement, is a must. To bolster his submission, the learned advocate placed reliance upon the decision of this court in the case of Takshashila Realties (P.) Ltd. v. Deputy Commissioner of Income Tax, Circle-4(1)(2), [2017] 80 taxmann.com 176 (Gujarat), wherein the court has held thus: “17. Now so far as submission made on behalf of the petitioner that the Assessing Officer cannot direct special audit under Section 142 (2A) of the Act before calling for the accounts from the petitioner in the assessment proceedings and without doubting the accounts and/or considering the complexity in the accounts is concerned, it is required to be noted that as per amended Section 142 (2A) of the Act, apart from the nature and complexity of the accounts, etc., even in case of multiplicity of transactions in the accounts or specialized nature of business activity of the assessee and the interests of the Revenue, the Assessing Officer can pass an order for special audit in exercise of powers conferred under Section 142 (2A) of the Act. Therefore, while forming an opinion to get the accounts audited by special auditor; considering the specialized nature of business activities of the assessee, there need not be any books of account before the Assessing Officer. In the present case, having found that there are complex issues relating to introduction of land by the partners into the firms; revaluation of land; credit of partners in capital account equal to revalued amount of land; conversion of capital account to loan account of shareholders and issues relating to issuance of equity shares against the balances of revaluation credits at an unreasonable premium, and after having been satisfied that considering the specialized nature of business activities of the assessee, the Assessing Officer has passed an order of special audit in exercise of powers under Section 142 (2A) of the Act. under Section 142 (2A) of the Act. 18. We see that the decision for audit of the assessees' account is backed by proper material on record and reasons recorded by the Assessing Officer. His formation of belief that looking to the multiplicity of the transactions in the accounts and specialized natureof business activities of the assessee, a special audit is called for, and therefore, it cannot be faulted. 19. At this stage, it is required to be noted that the following material weighed with the Assessing Officer, while forming an opinion that there is necessity for accounts of the assessee audited by special auditor. “That, the 5 Companies, which have amalgamated with Takshashila Gruh Nirman Pvt. Ltd., have their beginning as partnership firms, which were already doing the real estate and construction business and were executing various projects like Takshashila Residency at Naroda Dehgam Road, Takshshila Colonials at Maninagar and Takshshila Habitat at Vastral, apart from hotel and commercial projects. Hotel projects with shops were earlier executed by Chanakya Buildcon, later by Chanakya Buildcon Pvt. Ltd. and now after amalgamation the present Takshshila Gruh Nirman Pvt. Ltd. has completed project and entered into sale agreement. Chanakya Infrastructurecommencedconstructionof Takshshila Habitat and in the middle of the construction, the firm was converted into Company viz., Chanakya Infracon Pvt. Ltd. under chapter IX of Company Act. Now, the Chanakya Infracon Pvt. Ltd. has been amalgamated with Takshshila Gruh Nirman Pvt. Ltd. Similar is the case with Takshshila Gruh Nirman, a firm converted into company Takshshila Properties Pvt. Ltd. and amalgamated with Takshshila Gruh Nirman Pvt. Ltd. The 80IB project Takshshila Colonials, for which approval was granted by Local Authority to erstwhile firm and stock-in-trade/CWIP has changed hands and the 80IB deduction is being claimed in the present Takshshila Gruh Nirman Pvt. Ltd. (Takshshila Realities Ltd.) That, at the time of formation or at the later date some of the partners brought land into the firms as their capital contribution. Before conversation to companies, the firms got the lands available in the books revalued and the amounts were credited in the current capital accounts of the partners. Consequent to amalgamation, the Company has issued and allotted 6,00,000 equity shares at a fair price of Rs. 10/- and a premium Rs. 390/- per share against the unsecured balances of Rs. 24 Crores, treating the same as share application money and share premium. The fair market value of shares has been arrived by the company on 'Discounted Cash Flow (DCF) method. The basis for free cash flow to equity is randomly taken by the company. That, at the time of formation or at the later date some of the partners brought land into the firms as their capital contribution. Before conversation to companies, the firms got the lands available in the books revalued and the amounts were credited in the current capital accounts of the partners. Consequent to amalgamation, the Company has issued and allotted 6,00,000 equity shares at a fair price of Rs. 10/- and a premium Rs. 390/- per share against the unsecured balances of Rs. 24 Crores, treating the same as share application money and share premium. The fair market value of shares has been arrived by the company on 'Discounted Cash Flow (DCF) method. The basis for free cash flow to equity is randomly taken by the company. Conversion of 5 firms into companies, after revaluation of lands, merger of 5 companies with Takshshila Gruh Nirman Pvt. Ltd. Later with issue of equity shares against the balances of revaluation credits at a premium. Valuation of shares as Discounted Cash Flow method by estimating cash flows and adopting a random discounted rate for valuation. There is complex web of transactions in the group of firms namely introduction of land by some of the partners, revaluation of lands and crediting of amounts in the current accounts of all partners, conversion of firms in to companies which merged with the existing company, valuation of share by discounted cash flow method and allotment of shares against the amounts outstanding as unsecured loans at unreasonable premium, clubbed with multiple revaluation or properties over the years starting from 2008 to 2013 in various entities involves application of provisions of the Companies Act, application of Accounting Standards and examination of provisions of capital gains in the hands of various partners, firms and directions is involved. Having regard to the nature and complexity of the accounts, volume of the accounts, doubts about the correctness of the accounts, multiplicity of transactions in the accounts or specialized nature of transaction in the cases which finally of the assessee, and the interests of the revenue, am of the opinion that it is necessary to get the accounts audited by a Special Auditor from the point of view of taxation of capital gains and accounting of stock-in-trade at each stage of transfer so that there is no loss to the revenue out of the complex web of transactions involved.” 20. Considering the aforestated facts and circumstances of the case and having regard to the multiplicity and specialized nature of transactions and in the interests of the Revenue, when the Assessing Officer has passed the impugned orders of special audit under Section 142 [2A] of the Act, the same cannot be faulted with.” audited by a Special Auditor from the point of view of taxation of capital gains and accounting of stock-in-trade at each stage of transfer so that there is no loss to the revenue out of the complex web of transactions involved.” 20. Considering the aforestated facts and circumstances of the case and having regard to the multiplicity and specialized nature of transactions and in the interests of the Revenue, when the Assessing Officer has passed the impugned orders of special audit under Section 142 [2A] of the Act, the same cannot be faulted with.” 3.16It was submitted that even if the Special Auditor is to be appointed in connection with the business of the petitioner in relation to multiplicity of transactions and various materials, still it can be done only if the books of account are to be statutorily maintained, in the absence of which invocation of section 142(2A) of the Act is not justified. Reliance was placed upon the decision of this court in the case of Asharam Thaumal Harplani (Asaram Bapu) v. Deputy Commissioner of Income Tax, [2017] 82 taxmann.com 265 (Gujarat), wherein the court has held that the Special Auditor can be appointed if at any stage of the proceedings before him, the Assessing Officer having regard to the nature and complexity of the account of the assessee and the interest of the revenue, is of the opinion that it is necessary so to do, he may direct the accounts to be verified by the Special Auditor. Therefore, having regard to the nature and complexity of the accounts, if the Assessing Officer is satisfied and/or is of the opinion that accounts are required to be verified by the Special Auditor, he may pass such order. It was submitted that therefore, a basic pre-requisite for the purpose of invoking sub-section (2A) of section 142 of the Act is that the assessee should be required to statutorily maintain the accounts and in the absence of such condition being satisfied, the provisions of section 142(2A) of the Act cannot be invoked. 3.17It was further submitted that the entire basis for referring the matter to Special Auditor under section 142(2A) of the Act is that the petitioner is engaged in the business of accommodation entries through the Trust. According to the learned advocate, this