Wp v. The Income Tax Officer Company Ward 1(1), Chennai

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 18.12.2015 CORAM: THE HONOURABLE MR.JUSTICE R.MAHADEVAN WP.No.9127 of 2004 M/s.CRS Sons & Co. Limited Chennai-17Petitioner Vs The Income Tax Officer Company Ward 1(1), Chennai Respondent Prayer:- This Writ Petition is filed to issue a Writ ofCertiorarified Mandamus to call for the records of theRespondent in Company Ward 1(1) 2003-2004, pertaining to thePetitioner and to quash the impugned order dated 9.3.2004. For Petitioner : For Respondent Mr.Subbaraya Ayyar Padmanabhan:Mr.T.Pramodkumar ChopdaSenior Standing Counsel ORDER In this Writ Petition, the Petitioner seeks to quashthe order dated 9.3.2004 of the Respondent, in and by which, aSpecial Auditor was appointed for auditing the books ofaccounts of the Petitioner for the assessment years 1996-97 to2002-03. 2. The facts, which are necessary for disposal of thisWrit Petition, are that the Petitioner is engaged in the textilebusiness. The returns filed by the Petitioner were accepted,except for the assessment year 1997-98, for which regularassessment under Section 143(3) of the Income Tax Act, 1961 wasmade and a survey under Section 133A was also conducted on18.11.2002. Pursuant to the same, the Assessing Officer issuednotices dated 13.2.2003 and 29.11.2002 for the assessment years1996-97 to 2001-2002 for reopening the assessment under Section148 of the Act. The Petitioner sent a reply, stating that theoriginal returns filed for the assessment years 1996-97, 1997-98and 1998-99 may be considered as the returns filed in responseto the said notices. For the assessment years 2000-01, 2001-02and 2002-03, the Petitioner filed revised returns on https://hcservices.ecourts.gov.in/hcservices/ 30.05.2003. Subsequently, the Assessing Officer issued thenotices under Section 143(2) on 24.9.2003 and 20.11.2003. ThePetitioner appeared in all hearings and also furnished all thedetails. Thereafter, the Assessing Officer issued the noticeunder Section 142(2A), dated 13.2.2004, proposing to appoint aSpecial Auditor for auditing the books of accounts of thePetitioner, alleging that the books of accounts were complex innature and calling upon the Petitioner to put forth theirobjections on or before 18.2.2004 in this regard, to which thePetitioner also filed a reply. While so, the Respondent passedthe impugned order dated 9.3.2004, appointing a Special Auditorfor auditing of the accounts of the Petitioners, alleging thatthe accounts were complex in nature. Hence, this Writ Petitionhas been filed. 3. The learned counsel for the Petitioner contendedthat the nature of the accounts were very simple and there wasno complexity in the same, as alleged by the Assessing Officerand that the impugned order has been passed under Section 142(2A) of the Act, without affording sufficient and properopportunity to the Petitioner and without assigning any validreason and hence, prayed for quashing of the impugned order. 3. The learned counsel for the Petitioner contendedthat the nature of the accounts were very simple and there wasno complexity in the same, as alleged by the Assessing Officerand that the impugned order has been passed under Section 142(2A) of the Act, without affording sufficient and properopportunity to the Petitioner and without assigning any validreason and hence, prayed for quashing of the impugned order. 4. The learned standing counsel for the Respondent, byfiling a counter affidavit, contended that during the assessmentproceedings, the Assessing Officer came to the conclusion thatthere were complexities in the books of accounts, inasmuch as itwas found that various entries in the day book as well as theledger do not contain the narration so as to ascertain thenature of the entries as well as their corresponding accountingin the other books and these type of discrepancies were seen ina number of books for about six to seven assessment years andthat if the assessment is completed without a special audit, itmay go against the interests of the Revenue and that sufficientopportunity was given to the Petitioner and that it is notnecessary for the Assessing Officer to give a show cause noticeor give a hearing to the assessee before issuing the directionsunder Section 142(2A) and only the assessment order would createa liability and accordingly, by the impugned order, a SpecialAuditor was appointed and prayed for dismissal of this WritPetition. 5. This court heard the learned counsel on either sideand considered their submissions and also perused the materialsplaced on record and the relevant provisions of the Act. 6. The undisputed facts are that to the notices dated13.2.2003 and 29.11.2002 for the assessment years 1996-97 to2001-2002 for reopening the assessment under Section 148 of theAct, the Petitioner sent a reply, stating that the originalreturns filed for the assessment years 1996-97, 1997-98 and 1998-99 may be considered as the returns filed. For theassessment years 2000-01, 2001-02 and 2002-03, the Petitioneralso filed revised returns on 30.05.2003. Thereafter, theAssessing Officer issued the notices under Section 143(2) dated24.9.2003 and 20.11.2003 and the Petitioner appeared in allhearings and made their submissions. Then, the Assessing Officerissued a notice under Section 142(2A), dated 13.2.2004,proposing to appoint a Special Auditor for auditing the accountsof the Petitioner and calling upon the Petitioner to appear on18.02.2004 at 2.30 p.m., to which the Petitioner also filed areply. Thereafter only, the impugned order dated 9.3.2004 cameto be passed, appointing a Special Auditor for auditing of thebooks of accounts of the Petitioner. 7. According to the Petitioner, there is no complexityin the books of accounts and the impugned order has been passedunder Section 142(2A) of the Act, without affording sufficientand proper opportunity to the Petitioner and without assigningany valid reason and without mentioning the nature of thecomplexities in the books of account in detail. 8. On the other hand, it is the contention of theRespondents that it is always open to the assessing officerunder Section 142(2A), to go for a special audit, by appointinga special auditor, when he is of the opinion that there arecomplexities in the books of accounts and if they related tovarious entries, which are not properly correlated and that ifthe assessment is completed without a special audit, it may goagainst the interests of Revenue and that sufficient opportunitywas given to the Petitioner and that it is not necessary for theAssessing Officer to give a show cause notice or give a hearingto the assessee before issuing the directions under Section 142(2A) and only the assessment order would create a liability. 8. On the other hand, it is the contention of theRespondents that it is always open to the assessing officerunder Section 142(2A), to go for a special audit, by appointinga special auditor, when he is of the opinion that there arecomplexities in the books of accounts and if they related tovarious entries, which are not properly correlated and that ifthe assessment is completed without a special audit, it may goagainst the interests of Revenue and that sufficient opportunitywas given to the Petitioner and that it is not necessary for theAssessing Officer to give a show cause notice or give a hearingto the assessee before issuing the directions under Section 142(2A) and only the assessment order would create a liability. 9. Now, the question that arises for consideration isas to whether before passing an order under Section 142(2A), anopportunity of hearing or a show cause notice needs to be givento the assessee and whether there should be narration of thenature of the complexities in the books of accounts. 10. In the notice dated 13.02.2004, the assessingofficer opined that having regard to the nature and thecomplexity of the books of accounts and the deficiencies in thebooks of accounts of the Petitioner and the interests of therevenue, it was proposed to get the accounts of the Company andits directors audited by a Special Auditor under Section 142(2A)of the Income Tax Act, 1961 and opining so, in order to give anopportunity to the Petitioner, in this regard, called upon thePetitioner to appear on 18.02.2004 at 2.30 p.m. https://hcservices.ecourts.gov.in/hcservices/ itself, the assessing officers justified the appointment of theSpecial Auditor, by briefly narrating the nature of complexitiesin the books of accounts of the Petitioner. Even the Directorof the Company himself admitted to infirmities in the books,vouchers, etc. and to that effect, it is also stated in theimpugned order as under:-“6. In reply to Qn.No.12 in the sworn statementrecorded at the time of survey, the Director of theCompany himself admitted to infirmities in the books,vouchers, etc. and offered additional income on anestimated basis. 7. The director has further admitted thatM/s.Sundaravalli collections is a part and parcel oftheCompanyandundisclosedincomeofM/s.Sundaravalli Collections would be offered in theCompany's hands. Therefore, in order to verify anddeduce the correct income of the Company, one has toexamine the books of accounts of the Company alongwith that of M/s.Sundaravalli Collections. Further,the exact details of the quantity and nature of thegoods purchased are not available in the books of theCompany, but the same is available only in the booksof M/s.Sundaravalli Collections. So, for computationof income of M/s.CRS Sons and Company Limited,reference to the books of M/s.SundaravalliCollections is also necessary. Reference to books oftwo entities to fix the income of one entity is byitself a complex process.”12. At this juncture, it is relevant to extractSection 142(2A) of the Income Tax Act, 1961 as under:- “2A. If, at any stage of the proceedings before him,the Assessing Officer, having regard to the natureand complexity of the accounts of the assessee andthe interests of the revenue, is of the opinion thatit is necessary to do so, he may, with the previousapproval of the Chief Commissioner or Commissioner,direct the assessee to get the accounts audited byan accountant as defined in the Explanation belowsub- section (2) of section 288, nominated by theChief Commissioner or Commissioner in this behalfand to furnish a report of such audit in theprescribed form duly signed and verified by suchaccountant and setting forth such particulars as maybe prescribed and such other particulars as theAssessing Officer may require.”13. A bare perusal of Sub-section (2A) of Section 142shows that all that is required therein is that the assessingofficer should be of the opinion that in view of the nature andcomplexity of the accounts of the assessee and the interest ofthe Revenue, it is necessary to direct a special audit of the assessee's accounts. There is also no express provision fornarrating the nature of the complexities in the books of theaccounts of an assessee in detail. 14. As per the Section 142(2A), though there is noexpress provision for affording an opportunity of hearing to anassessee, in the case on hand, before passing the impugnedorder under the said Section, a notice dated 13.02.2004,however, was issued, fixing the personal hearing on 18.02.2004at 2.30 p.m. and the Petitioner also sent a reply dated18.2.2004 to the same, but a copy of the said reply dated18.2.2004 does not find a place in the typed set of papers filedby the Petitioner. Hence, the contention of the Petitioner, inthis regard, is untenable. 15. For the prepositions that it is not necessary foran assessing officer to give a show-cause notice or give ahearing to the assessee before issuing the directions underSection 142(2A) and that it is suffice if he is of the opinionthat there is complexity in the accounts of such an assessee,there are number of decisions of various Courts, upholding thesaid preposition. 16. In Atlas Copco (India) Ltd. vs V.S. Samuel,Assistant (2006 202 CTR Bom 361:2006 283 ITR 56 Bom), it hasbeen held as under:-“13. Mr. Ashok Kotangale, the learned counselappearing for the Revenue, on the other hand, reliedupon the Division Bench judgment of the AllahabadHigh Court in the case of Jhunjhunwala Vanaspati Ltd.v. Asstt. CIT and Another. The Division Bench of theAllahabad High Court in clear and unambiguous termsgave its opinion that it was not necessary for the AOto issue a show-cause notice or give a hearing to theassessee before issuing the direction of specialaudit under Section 142(2A). The Division Bench ofthe Allahabad High Court held that an order underSection 142(2A) giving direction of special auditdoes not entail any civil consequences nor affect therights of the assessee. Such order does not createany liability against the assessee. The AllahabadHigh Court held thus : “A bare perusal of Sub-section (2A) of Section 142shows that all that is required therein is that theAO should be of the opinion that in view of thenature and complexity of the accounts of the assesseeand the interest of the Revenue, it is necessary todirect special audit of the assessee's accounts.” In our opinion, it is not necessary for the AO togive a show-cause notice or give a hearing to the “A bare perusal of Sub-section (2A) of Section 142shows that all that is required therein is that theAO should be of the opinion that in view of thenature and complexity of the accounts of the assesseeand the interest of the Revenue, it is necessary todirect special audit of the assessee's accounts.” In our opinion, it is not necessary for the AO togive a show-cause notice or give a hearing to the assessee before issuing the directions under Section142(2A). In our opinion, the direction under Sub-section (2A) of Section 142 is purely administrativein nature and not quasi judicial. Moreover, in ouropinion, such a direction does not have civilconsequences. It does not affect the assessee'srights or liability. Hence, the decision of theSupreme Court in State of Orissa v. Dr. Binapani Deidoes not apply. No doubt an administrative order ifit has civil consequences can only be passed aftergiving opportunity of hearing, but in our opinion adirection under Sub-section (2A) of Section 142 doesnot have civil consequences because it does notaffect his rights and does not create any liabilityagainst the assessee. It is only the assessment orderwhich will create a liability. The purpose of thedirection under Sub-section (2A) of Section 142 is toensure that a correct assessment order is passed sothat the Revenue is not deprived of its dues. Hence,we do not agree with learned counsel for thePetitioner that an opportunity of hearing or show-cause notice has to be given to the assessee beforepassing the direction underSection 142(2A). 14. That the order passed under Section 142(2A) ispurely administrative in nature and that such orderis not quasi judicial admits of no ambiguity. Thelaw-makers while enacting Section 142(2A) empoweredthe AO to direct the assessee to get the accountsaudited by special auditor. The legislature, toensure that such power is not abused, providedsafeguards. For forming an opinion as to whether itis necessary to have the accounts of the assesseeaudited by a special auditor, the AO has to haveregard to the nature of complexity of the accounts ofthe assessee and the interest of the Revenue. Afterforming such opinion, he has to seek the approval ofthe Chief CIT or the CIT, as the case may be, beforeany direction is issued to the assessee to have hisaccounts audited by a special auditor. This by itselfis a vital safeguard in preventing abuse of power. Inthe very scheme of things, we are unable to read thatthe assessee needs to be heard before the directionsare issued to the assessee for audit of its accountsby a special auditor. Such order, in our opinion,does not entail any civil consequences. No decisionis given. Merely because the assessee is required topay the auditor's fee, that does not mean that anyliability is created against the assessee and thatsuch order entails any civil consequences. Theissuance of direction for special audit facilitates the AO to have the complex accounts of the assesseeexamined by an independent auditor. That helps andassists him in assessing the income of the assessee.We find ourselves in agreement with the view of theAllahabad High Court in the case of JhunjhunwalaVanaspati Ltd. (supra) and respectfully disagree withthe view of the Calcutta High Court in the case ofPeerless General Finance & Investment Co. Ltd.(supra) and West Bengal State Co-operative Bank Ltd.(supra) and the view of the Kerala High Court in thecase of Muthoottu Mini Kuries (supra). In ouropinion, the assessee is not required to be heardbefore passing an order under Section 142(2A)of theIT Act, 1961. 18. We have no hesitation in concluding that theorder dated 11th November 2005 giving direction tothe Petitioner for special audit under Section 142(2A) for assessment year 2003-04 does not sufferfrom lack of jurisdiction or error of law.” 18. We have no hesitation in concluding that theorder dated 11th November 2005 giving direction tothe Petitioner for special audit under Section 142(2A) for assessment year 2003-04 does not sufferfrom lack of jurisdiction or error of law.” 17. It was not necessary for the assessing officer toissue a show-cause notice or give a hearing to the assesseebefore issuing the direction of special audit under Section 142(2A) and an order under Section 142(2A) giving direction ofspecial audit does not entail any civil consequences nor affectthe rights of the assessee. Such order does not create anyliability against the assessee, as has been held in yet anotherdecision of the Division Bench of the Allahabad High Courtreported in (2004-188-CTR-All-434:2004-266-ITR-657 All) (in thecase of Jhunjhunwala Vanaspati Ltd. v. Asstt. CIT and Another).18. Similarly, in yet another decision rendered in thecase of Gurunanak Enterprises v. CIT (2003-259-ITR-637), theDelhi High Court observed as under:-"It is not within the province of judicial review tominutely analyse the materials on which the opinionof the Assessing Officer is rested to find outwhether the same is sufficient for the authorityconcerned to come to the conclusion that the accountsof the assessee need to be subjected to specialaudit. As noticed above, what is complex to one maybe simple to another and, therefore, the issue has tobe examined from the view point of the AssessingOfficer concerned. The court is not expected tosubstitute its own understanding and comprehension ofthe accounts of an assessee. We also do not find any substance in the submissionof learned counsel for the Petitioners that merelybecause no special audit under the said provision hadbeen directed in the past several years or that theiraccounts had already been subjected to statutory audit under Section 44AB of the Act and thePetitioners' assessments were completed withoutnoticing any complexity in the accounts, theAssessing Officer is denuded of his power to orderspecial audit subsequently, even though the nature ofbusiness and the method of accounting adopted by theassessee had remained the same as in the past. If thefacts and circumstances so warrant, a special auditunderSection 142(2A)may be ordered in respect of anyyear." 19. In Kumar Films Pvt. Ltd. v. CIT (2002-258-ITR-257), the Patna High Court held that the High Court, in writjurisdiction, cannot judge the satisfaction of the authoritywhen it has ordered for appointment of an auditor after takingnote of the nature of the controversy and accounts. In LivingMedia Ltd. v. CIT (2002-255-ITR-268), the Honourable SupremeCourt affirmed the judgment of the Delhi High Court in thisconnection. In U.P. State Handloom Corporation Ltd. v. CIT(1988-171-ITR-640), the Allahabad High Court upheld thedirections under Section 142(2A). 19. In Kumar Films Pvt. Ltd. v. CIT (2002-258-ITR-257), the Patna High Court held that the High Court, in writjurisdiction, cannot judge the satisfaction of the authoritywhen it has ordered for appointment of an auditor after takingnote of the nature of the controversy and accounts. In LivingMedia Ltd. v. CIT (2002-255-ITR-268), the Honourable SupremeCourt affirmed the judgment of the Delhi High Court in thisconnection. In U.P. State Handloom Corporation Ltd. v. CIT(1988-171-ITR-640), the Allahabad High Court upheld thedirections under Section 142(2A). 20. On the facts found prima facie, no fault can befound with the assessing officer having taken a decision toinitiate a special audit under Section 142(2A), that too whenvarious discrepancies were admittedly found in a number of booksfor about six to seven assessment years. Further, no case ismade out for interfering with the impugned order referring to aspecial audit. The purpose of the direction under Sub-section(2A) of Section 142 is to ensure that a correct assessment orderis passed so that the Revenue is not deprived of its dues.Therefore, it is always open to the assessing officer underSection 142(2A), to go for a special audit, by appointing aspecial auditor, when there are complexities in the books ofaccounts and if they are related to various entries, which arenot properly correlated. Even in the impugned order dated9.3.2004 itself, the assessing officer justified the appointmentof the Special Auditor by briefly narrating the nature ofcomplexities in the books of accounts of the Petitioner. 21. In view of the reasons, discussions and in thelight of the decisions cited above, the irresistible conclusionthat could be arrived at is that the impugned order, appointinga Special Auditor for auditing the books of accounts of thePetitioner on the ground that there were complexities in theaccounts, made under Section 142(2A) does not suffer from lackof jurisdiction or error of law. 22. In the result, this Writ Petition is dismissed. Nocosts. -s/d- Assistant Registrar(CSIII) True Copy Sub-Assistant RegistrarSrcm To:The Income Tax Officer , Company Ward 1(1), Chennai+1 cc to M/s.Subbaraya Aiyar Padmanabhan andRamamani Advocate sr.68904WP.No.9127 of 2004bvr(co)aa15/03/2016