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Judgment
Narayan Shukla, J.—Heard Mr. Abhinav Mehrotra, learned counsel for the petitioner as well as Mr. Siddharth Dhaon, learned counsel for the respondent Nos. 1 and 2.
The petitioner has assailed the order dated 11.03.2015 passed by the Income Tax Officer, Hardoi whereby the petitioner has been directed to get his accounts pertaining to assessment year 2012-13 audited under Section 142(2A) of the Income Tax Act, 1961.1
Learned counsel for the petitioner has submitted that the direction for special audit has been made without examining the books of accounts of the assessee, which is in violation of principles of natural justice. It has been stated that the order impugned is illegal and beyond jurisdiction as it has been issued beyond period of limitation which has expired on 31.03.2015. It has been submitted that the direction of special audit of the accounts cannot be issued unless the books of accounts of the petitioner have been inspected. In this case, the concerned authority had never required the assessee to produce his books of accounts before granting approval for the assessment.
It has also been submitted that the Assessing Officer has formed opinion for the assessment of petitioner''s accounts without observing the factors enumerated under Section 142(2A).
He cited following cases:--
"In the case of Sahara India (Firm), Lucknow Vs. Commissioner of Income Tax, Central-I and Another, (2008) 216 CTR 303 : (2008) 226 ELT 22 : (2008) 300 ITR 403 : (2008) 6 JT 83 : (2008) 6 SCALE 733 : (2008) 14 SCC 151 : (2008) 169 TAXMAN 328 . Admittedly, the petitioner was issued a show cause notice before passing the order impugned for reassessment. In this case, the question for adjudication was whether a pre-decisional hearing was required to be given to the assessee before passing the order under sub section 2A of Section 142 of the Act. The Hon''ble Supreme Court has considered the scope of Section 142(2A) of the Act as under:
"6. A bare perusal of the provisions of sub-section (2A) of the Act would show that the opinion of the Assessing Officer that it is necessary to get the accounts of assessee audited by an Accountant has to be formed only by having regard to: (i) the nature and complexity of the accounts of the assessee; and (ii) the interests of the revenue. The word "and" signifies conjunction and not disjunction. In other words, the twin conditions of "nature and complexity of the accounts" and "the interests of the revenue" are the prerequisites for exercise of power under Section 142(2A) of the Act. Undoubtedly, the object behind enacting the said provision is to assist the Assessing Officer in framing a correct and proper assessment based on the accounts maintained by the assessee and when he finds the accounts of the assessee to be complex, in order to protect the interests of the revenue, recourse to the said provision can be had. The word "complexity" used in Section 142(2A) is not defined or explained in the Act. As observed in Swadeshi Cotton Mills Company Ltd. Vs. Commissioner of Income Tax and Another, (1987) 63 CTR 335 : (1988) 171 ITR 634 : (1987) 32 TAXMAN 271 , it is a nebulous word. Its dictionary meaning is: "The state or quality of being intricate or complex or that is difficult to understand. However, all that is difficult to understand should not be regarded as complex. What is complex to one may be simple to another. It depends upon one''s level of understanding or comprehension. Sometimes, what appears to be complex on the face of it, may not be really so if one tries to understand it carefully." Thus, before dubbing the accounts to be complex or difficult to understand, there has to be a genuine and honest attempt on the part of the Assessing Officer to understand accounts maintained by the assessee; appreciate the entries made therein and in the event of any doubt, seek explanation from the assessee. But opinion required to be formed by the Assessing Officer for exercise of power under the said provision must be based on objective criteria and not on the basis of subjective satisfaction. There is no gainsaying that recourse to the said provision cannot be had by the Assessing Officer merely to shift his responsibility of scrutinizing the accounts of an assessee and pass on the buck to the special auditor. Similarly, the requirement of previous approval of the Chief Commissioner or the Commissioner in terms of the said provision being an inbuilt protection against any arbitrary or unjust exercise of power by the Assessing Officer, casts a very heavy duty on the said high ranking authority to see to it that the requirement of the previous approval, envisaged in the Section is not turned into an empty ritual. Needless to emphasise that before granting approval, the Chief Commissioner or the Commissioner, as the case may be, must have before him the material on the basis whereof an opinion in this behalf has been formed by the Assessing Officer. The approval must reflect the application of mind to the facts of the case."
The Supreme Court further held that the order under Section 142(2A) does entail civil consequence, it must be consistent with the rules on natural justice and concluded it with the following orders:
"24. The upshot of the entire discussion is that the exercise of power under Section 142(2A) of the Act leads to serious civil consequences and, therefore, even in the absence of express provision for affording an opportunity of pre-decisional hearing to an assessee and in the absence of any express provision in Section 142(2A) barring the giving of reasonable opportunity to an assessee, the requirement of observance of principles of natural justice is to be read into the said provision. Accordingly, we reiterate the view expressed in Rajesh Kumar and Others Vs. D.Commissioner of Income Tax and Others, AIR 2007 SC 181 : (2006) 206 CTR 175 : (2006) 287 ITR 91 : (2006) 10 JT 76 : (2006) 11 SCALE 409 : (2007) 2 SCC 181 : (2006) 8 SCR 284 Supp : (2006) 157 TAXMAN 168 ."
A Division Bench of this Court in Purvanchal Vidhut Vitran Nigam Ltd. Vs. Union of India (UOI), (2010) 233 CTR 547 : (2010) 188 TAXMAN 355 followed the judgment of the Supreme Court given in Sahara India''s case (supra) and held that the proceedings under Section 142(2A) of the Act is not strictly a judicial proceeding and held as under:
"11. The proceeding under section 142(2A) of the Act is not strictly a judicial proceeding and, therefore, the elaborate reasoning is not required to be given. In the case of Rajesh Kumar (supra) the Apex Court has held that the hearing given need not be elaborate. The notice issued may only contain briefly the issues which the Assessing Officer thinks to be necessary. The reasons assigned, therefore, need not be detailed one. We are further of the view that under Article 226 of the Constitution of India, in a writ jurisdiction, this Court can consider whether there was material for the issue of direction and not the sufficiency of the material."
In the case of Jhunjhunwala Vanaspati Ltd. Vs. Assistant Commissioner of Income Tax and Another (No. 1), (2004) 188 CTR 434 : (2004) 266 ITR 657 : (2004) 137 TAXMAN 214 , the Division Bench of this Court has held as under:
"27. In our opinion, it is not necessary for the Assessing Officer to give a show cause notice or give a hearing to the assessee before issuing the directions under Section 142(2A). In our opinion, the direction under Sub-section (2A) of Section 142 is purely administrative in nature and not quasi judicial. Moreover, in our opinion, such a direction does not have civil consequences. It does not affect the assessee''s rights or liability. Hence, the decision of the Supreme Court in State of Orissa Vs. Dr. (Miss) Binapani Dei and Others, AIR 1967 SC 1269 : (1967) 15 FLR 209 : (1967) 2 LLJ 266 : (1967) 2 SCR 625 , does not apply. No doubt an administrative order if it has civil consequences can only be passed after giving opportunity of hearing, but in our opinion a direction under Sub-section (2A) of Section 142 does not have civil consequences because it does not affect his rights and does not create any liability against the assessee. It is only the assessment order which will create a liability. The purpose of the direction under Sub-section (2A) of Section 142 is to ensure that a correct assessment order is passed so that the Revenue is not deprived of its dues. Hence, we do not agree with learned counsel for the petitioner that an opportunity of hearing or show cause notice has to be given to the assessee before passing the direction under Section 142(2A)."
In the case of U.P. Samaj Kalyan Nirman Nigam Ltd. Vs. Commissioner of Income Tax-II and Others, (2013) 6 ADJ 71 : (2013) 263 CTR 602 : (2013) 357 ITR 12 : (2014) 221 TAXMAN 464 , the Division Bench has held that the proceedings under Section 142(2A) of the Act is not strictly a judicial proceeding and, therefore, the elaborate reasoning is not required to be given. The ingredients of Section 142(2A) of the Act are that the Assessing Authority must form an opinion with regard to the nature and complexity of the accounts, which has been done.
Per contra Mr. Siddharth Dhaon, learned counsel for the revenue has submitted that without disputing the proposition of law that before issuing an order under Section 142(2A) of the Act, the principles of natural justice has to be followed, has submitted that admittedly the petitioner was issued a show cause notice, therefore, violation of principles of natural justice cannot be alleged. He drew attention of this Court towards the provisions of Section 142(2A) of the Act and submitted that no more exercise has been provided to be adopted by the Assessing Officer for re-assessment. Section 142(2A) of the Act reads as under:
"Section 142(2A).--If, at any stage of the proceedings before him, the Assessing Officer, 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 business activity of the assessee and the interests of the revenue, is of the opinion that it is necessary so to do, he may, with the previous approval of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, direct the assessee to get the accounts audited by an accountant as defined in the Explanation below sub- section (2) of section 288, nominated by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner in this behalf and to furnish a report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed and such other particulars as the Assessing Officer may require:
Provided that the Assessing Officer shall not direct the assessee to get the accounts so audited unless the assessee has been given a reasonable opportunity of being heard."
In Sahara India''s case (supra), the Hon''ble Supreme Court has held that the opinion of the Assessing Officer to get the accounts of assessee audited by an Accountant has to be formed only by having regard to: (i) the nature and complexity of the accounts of the assessee; and (ii) the interests of the revenue. Thus, the twin conditions of "nature and complexity of the accounts" and "the interests of the revenue" are the prerequisites for exercise of power under Section 142(2A) of the Act. It has been held that before dubbing the accounts to be complex or difficult to understand, there has to be a genuine and honest attempt on the part of the Assessing Officer to understand accounts maintained by the assessee; appreciate the entries made therein and in the event of any doubt, seek explanation from the assessee. The opinion the Assessing Officer requires based on objective criteria and not on the basis of subjective satisfaction. The Supreme Court has further observed that recourse to the said provision cannot be had by the Assessing Officer merely to shift his responsibility of scrutinizing the accounts of an assessee and pass on the buck to the special auditor. Similarly, the requirement of previous approval of the Chief Commissioner or the Commissioner of the Department in terms of the said provision being an inbuilt protection against any arbitrary or unjust exercise of power by the Assessing Officer, casts a very heavy duty on the said high ranking authority to see to it that the requirement of the previous approval, envisaged in the Section is not turned into an empty ritual.
In view of the aforesaid discussions, we are of view that before issuance of order of re-assessment under Section 142(2A) of the Act, the Assessing Officer had issued notices to the assessee but in none of them the opinion formed by the Assessing Officer for special audit of petitioner''s accounts for the assessment year 2012-13, in regard to the nature and complexity of the accounts and the interest of revenue has been disclosed. Hon''ble Supreme Court in Sahara India''s case (supra) held that the Assessing Officer has to be formed opinion having regard to the nature and complexity of the accounts of the assessee and the interest of the revenue. The order impugned passed by the Assessing Officer does not disclose the consideration of aforesaid ingredients before issuing the order impugned.
Therefore, we are of the view that the order impugned dated 11.03.2015 passed by the Income Tax Officer, Hardoi is not in consonance with the requirement of Section 142(2A) of the Act and, therefore, it is not sustainable. In the result, the order dated 11.03.2015 is hereby quashed with the liberty to the Assessing Officer to pass a fresh order in terms of the provisions of Section 142(2A) of the Act.
The writ petition is, accordingly, disposed of.
1The Act