Kara Carpets vs Commissioner of Income Tax and Others

Surya Prakash Kesarwani, J.—In this writ petition the petitioner has prayed for the following relief:

(i) that a suitable writ, order or direction be issued declaring the proceedings under s. 142(2A) of the IT Act, 1961 as illegal, arbitrary, null and void;

(ii) that a suitable writ, order or direction be issued declaring the proceedings for the asst. yr. 2009-10 in respect of the petitioner have become time-barred as on 31st Dec., 2011;

(iii) that a suitable writ, order or direction in the nature of certiorari be issued quashing the letter dt. 29th Dec., 2011 (Annex. 11 to the writ petition) marked to the petitioner and received by the petitioner on 9th Jan., 2012 insofar as it requires the petitioner to furnish the audit report under s. 142(2A) within four months from the receipt of the letter:

(iv) that a suitable writ, order or direction in the nature of prohibition restraining and prohibiting the respondents, their officers, servants and agents in proceeding in any manner whatsoever under the provisions of s. 142(2A) of the IT Act;

(v) that a suitable writ, order or direction be issued as this Hon''ble Court may deem fit and proper in the facts and circumstances of the case.

(vi) To award costs throughout.

Briefly stated the facts of the present case are that the petitioner is a partnership firm engaged in manufacture and export of carpets from Bhadohi. For the asst. yr. 2009-10, the petitioner got his accounts audited by a chartered accountant under s. 44AB of the IT Act, 1961 (hereinafter referred to as "the Act") as the turnover of the firm exceeded the limit of 40 lacs per annum. The petitioner filed his return of income on 24th Sept., 2009 along with a duly audited balance sheet, P & L a/c and the auditor''s report for the asst. yr. 2009-10 (financial year 2008-09). For the asst. yr. 2007-08, the case of the petitioner was taken up on scrutiny under s. 143(2)/142(1) of the Act and the assessment order was passed on 31st Dec., 2009 after detailed scrutiny. In respect of the assessment year in question i.e. 2009-10 the case of the petitioner was taken up for scrutiny. A notice dt. 13th Oct., 2011 under s. 42(1) of the Act was issued by the AO to the petitioner to submit reply on certain queries mentioned in the notice. On 25th Oct., 2011, the petitioner submitted a detailed reply supported by relevant documents. The AO fixed 2nd Nov., 2011 for hearing and required the petitioner to furnish details in respect of interest on STDR, insurance claim, design development charges, import licence, sale bills and stock register. The petitioner submitted the details on 2nd Nov., 2011. The AO further required the petitioner to submit details with regard to valuation of C/S, reason for non-inclusion of insurance claim and interest, bills and supporting documents of expenses of commercial tax, foreign bank charges, ECGC premium, telephone and mobile expenses, electricity expenses, bank interest and bank charges. The petitioner produced the relevant information and documents on the date fixed i.e. 9th Nov., 2011 and 16th Dec., 2011.

On 16th Dec., 2011 the AO issued a show-cause notice under s. 142(2A) of the Act fixing 21st Dec., 2011 for reply, forming an opinion that the accounts maintained by the petitioner is complex and special audit is required in the interest of Revenue. This notice was received by the petitioner on 20th Dec., 2011. On the date fixed i.e. 21st Dec, 2011 the petitioner appeared before the AO along with his chartered accountant. The AO asked the petitioner to submit its reply in writing by the next day. On 22nd Dec., 2011, the petitioner submitted a detailed reply through its chartered accountant with its explanation on each of the grounds mentioned in the show-cause notice, and submitted that in case any further information or explanation is required, the petitioner is willing to submit the same. No further enquiries or explanation were sought by the Addl. CIT, Range-1, Varanasi-respondent No. 2, who without passing or serving any order upon the petitioner proceeded to request for approval of CIT under s. 142(2A).

With regard to the manner of withdrawal of payment to weavers, the petitioner submitted that the method adopted during the assessment year in question is an old practice and has been accepted by the Tribunal, Allahabad Bench Allahabad in his case for the asst. yr. 2003-04; and that in view thereof no opinion could be formed for special audit so as to overreach the order of the Tribunal. He relied on the judgment of Hon''ble Supreme Court in the case of Union of India and others Vs. Kamlakshi Finance Corporation Ltd., . In para. 36 of the writ petition, it is stated that the petitioner was surprised to receive a letter dt. 29th Dec., 2011 written by one M/s. V.K. Jindal & Co., Chartered Accountants (hereinafter referred to as special auditors) on 2nd Jan., 2012, informing the petitioner that that they have been appointed as an auditor to audit the accounts of the petitioner for the financial year ending 31st March, 2009 under s. 142(2A) of the Act pursuant to the order of the CIT, Varanasi dt. 23rd Dec., 2011. The petitioner was required to provide documents as mentioned in the said letter. It is stated in para. 38 that the CIT neither passed any order nor informed orally or in writing, or served any order upon the petitioner directing the petitioner to get its books of accounts audited by special auditor as appointed by the AO. In para. 39 it is stated that on 6th Jan., 2012 the petitioner applied for certified copy of the order sheet in respect of asst. yr. 2009-10, was not made available to the petitioner. It is stated in para. 40 that on 9th Jan., 2012, the petitioner received a copy of the letter dt. 28th Dec., 2011 of the Addl. CIT, Range-1, Varanasi addressed to the special auditor with copy to the petitioner. In para. 44 it is stated that the said letter dt. 28th Dec., 2011 issued by the Addl. CIT, Range-1, Varanasi addressed to the special auditor with copy to the petitioner requiring him to submit the audit report under s. 142(2A) within four months from the date of receipt of this order. This letter was served on the petitioner on 9th Jan., 2012 after the limitation for completing assessment for asst. yr. 2009-10 expired on 31st Dec., 2012 and thus the assessment proceeding became time-barred. Aggrieved with the letter dt. 29th Dec., 2011 sent by the special auditor intimating their appointment for audit under s. 142(2A) by the CIT, Varanasi for asst. yr. 2009-10, and the proceedings for special audit, the petitioner has filed the present writ petition.

We have heard Sri Nikhil Agarwal, learned counsel for the petitioner and Sri Dhananjay Awasthi for the respondents and carefully considered their submissions.

Submissions on behalf of petitioner

Sri Nikhil Agarwal submits that:

(i) The limitation for asst. yr. 2009-10 was to expire on 31st Dec., 2011, and as such the power under s. 142(2A) of the Act was invoked by the respondents only for extending the period of limitation as it is evident from the noting on the top of the notice dt. 16th Dec., 2011 (Annex. 7) that "time-barring, Limitation expires on 31st Dec., 2011."

(ii) The petitioner was not heard, nor any order was passed and was served on the petitioner under s. 142(2A) and as such the impugned letter dt. 29th Dec., 2011 (Annex. 10) received on 9th Jan., 2012 sent by the special auditor intimating their appointment by the CIT, Varanasi with reference to letter dt. 23rd Dec., 2011, is wholly illegal.

(iii) The respondents have neither issued any order or direction for audit by special auditor under s. 142(2A) of the Act nor any such order or direction has been received by the petitioner from the respondents. This Court vide order dt. 24th Jan., 2012 directed the learned counsel for the Department to seek instructions whether the order directing special auditor under s. 142(2A) of the Act was made and served on the petitioner but nothing has been brought on record by the respondents despite a pointed query made by the Court. Neither any such order has been served in accordance with the provisions of s. 282(1) of the Act, nor any proof of service of order under s. 142(2A) of the Act has been filed by the respondents.

(iv) The ingredients of s. 142(2A) of the Act are not present in the instant case namely the nature of accounts, complexity of accounts, nor the interest of Revenue is involved, and as such the power under s. 142(2A) of the Act cannot be invoked by the respondents.

(v) The so called points mentioned in the letter of the Addl. CIT dt. 28th Dec., 2011 (Annex. 12) with regard to the system of accounts and the income and expenditure could be easily looked into by the AO. The entire exercise has been done by the respondents merely for collateral purposes so as to extend the limitation which expired on 31st Dec., 2011.

Elaborating his submissions Sri Nikhil Agarwal submits that unless an order is communicated and served upon the petitioner, it is not an order in the eyes of law, as held by Hon''ble Supreme Court in the case of Bachhittar Singh Vs. The State of Punjab, , Union of India (UOI) Vs. S.P. Singh, and Greater Mohali Area Development Authority and Another Vs. Manju Jain and Others, . He has referred to the judgment of Hon''ble Supreme Court in the case of Rajesh Kumar and Others Vs. D.Commissioner of Income Tax and Others, to contend that s. 142(2A) of the Act can be invoked only in the specified circumstances which do not exist in the present case. The AO has not considered the reply submitted by the petitioner.

Sri Nikhil Agarwal further submits that all these factors of s. 142(2A) are conjunctively required to be read for the formation of the opinion which must be based on objective consideration. The complexity would mean the state or quality of being intricate or complex, or that it is difficult to understand. The difficulty in understanding would, however, not lead to the conclusion that the accounts are complex in nature and no order can be passed on the whims or caprice of AO. The power under s. 142(2A) cannot be lightly exercised. An order of approval cannot be mechanically granted. An approval can be granted having regard to the material on record and the explanation given by the assessee. The approving authority should go through the explanation before giving approval. He referred to the judgment of Hon''ble Supreme Court in the case of Chairman-Cum-M.D., Coal India Ltd. and Others Vs. Ananta Saha and Others, , and submits that since the initial action of the respondents was not in consonance with law as such the subsequent proceeding would not sanctify the proceedings. In support of his submissions, he has also relied upon the Division Bench judgment of this Court in the case of Swadeshi Cotton Mills Company Ltd. Vs. Commissioner of Income Tax and Another, , and the judgment of Hon''ble Supreme Court in the case of Sahara India (Firm), Lucknow Vs. Commissioner of Income Tax, Central-I and Another, . Sri Nikhil Agarwal has also referred and relied on the judgment of Bombay High Court in the case of Nickunj Eximp Enterprises Pvt. Ltd. Vs. Assistant Commissioner of Income Tax and Others, .

Submissions on behalf of respondents

Sri Dhananjay Awasthi submits that:

(i) An order under s. 142(2A) of the Act was passed after considering all the relevant factors and submissions made by the assessee including written reply dt. 22nd Dec., 2011 of the firm in response to show-cause notice dt. 6th Dec., 2011.

(ii) The approval to the proposal of special audit under s. 142(2A) of the Act in respect of the petitioner for the asst. yr. 2009-10, was granted by the CIT, Varanasi vide letter dt. 23rd Dec., 2011.

(iii) The allegation of the petitioner that there was no complexity is misleading.

(iv) The allegation of the petitioner that no opportunity was provided to him is also misleading because the Act does not provide for hearing at every stage. The petitioner was heard before recommendation for approval and only thereafter the proposal was forwarded to the CIT for approval for special audit under s. 142(2A).

(v) The petitioner cannot challenge the issue of complexity because that differs from case to case and no benchmark can be set. Since at the present, no financial implications are involved, hence, the petitioner has no reason to challenge the special audit. The only requirement of opportunity has been complied with and which was duly considered by letter dt. 23rd Dec., 2011.

(vi) All the ingredients of s. 142(2A) of the Act were present and as such the order for special audit under s. 142(2A) has been passed in accordance with law.

In support of his submissions Sri Dhananjay Awasthi has relied on the following judgments:

(i) U.P. Samaj Kalyan Nirman Nigam Ltd. Vs. Commissioner of Income Tax-II and Others, ;

(ii) Neesa Leisure Ltd. vs. Dy. CIT (2014) 98 DTR (Guj) 215 : (2013) 35 taxmann.com 216 (Guj);

(iii) Division Bench judgment of this Court dt. 31st Jan., 2011 passed in Writ Tax No. 77 of 2011, Treadstone International Ltd. vs. Union of India & Ors.;

(iv) Division Bench judgment of this Court dt. 3rd Feb., 2012 passed in Writ Tax No. 141 of 2012, U.P. Hotels Ltd. vs. CIT & Anr.;

(v) U.P. State Industrial Development Corpn. Ltd. Vs. Chief Commissioner of Income Tax, .

Our findings

On the facts of this case, we find that the following issues arise for our consideration:

(i) Whether the order/direction for audit under s. 142(2A) of the Act as approved by the CIT, Varanasi vide letter dt. 23rd Dec., 2011 has been passed without consideration of the reply submitted by the petitioner?

(ii) Whether the petitioner was afforded opportunity of being heard as required under the proviso of s. 142(2A) of the Act?

(iii) Whether any order under s. 142(2A) was passed by the AO and the same was served on the assessee in accordance with the provisions of s. 282(1) of the Act?

(iv) Whether the ingredients of s. 142(2A) exist in the present set of facts so as to enable the AO to exercise the power to direct the special audit of the accounts maintained by the petitioner.

(v) Whether the proceedings for special audit has been initiated for collateral purpose, so as to extend the period of limitation?

We find that since all the issues are inter-linked it is appropriate to consider all the issues collectively.

It is not undisputed that the petitioner filed his return of income for asst. yr. 2009-10 on 24th Sept., 2009 along with detailed computation chart, audited P & L a/c, balance sheet and the auditor''s report (Annex. 2) in Form No. 3CD, containing statement of accounts required to be furnished by the petitioner. The averments in para. 15 of the writ petition that for the asst. yr. 2007-08 the case of the petitioner was taken up for scrutiny under ss. 143(2), 142(1) of the Act and the assessment order dt. 31st Dec., 2009 was passed after detailed scrutiny, have been admitted by the respondent in para. 14 of the counter affidavit.

To properly appreciate the controversy before us, it would be appropriate to reproduce certain paras of the writ petition and reply thereof in the counter affidavit as under:

From the averments made in paras 33 and 34 of the writ petition and reply thereof in para. 18 of the counter affidavit it is clear that the mode and manner of payments made by the petitioner in earlier assessment years was duly accepted and recognized by the Tribunal, as past practice. Detail averments made in paras 16, 17, 18, 19, 20, 21, 22 and 23 with regard to the participation by the petitioner in regular assessment proceedings, submissions of replies to notices and production of the relevant information and documents as desired by the AO have been admitted by the respondents in para. 15 of the counter affidavit.

The admission of the averments of para. 23 of the writ petition by the respondents in para. 15 of the counter affidavit clearly shows that the AO had orally informed the petitioner after submission of the reply on 9th Nov., 2011 that hearing in the case has ended, and thus petitioner was under a bona fide belief that the AO was satisfied with the replies, submissions of documentary evidences and examination of accounts, auditor''s report, balance sheet, P & L a/c of the petitioner for the asst. yr. 2009-10.

The Addl. CIT, Range-1, the AO, Varanasi issued a show-cause notice dt. 16th Dec., 2011 to the petitioner under s. 142(2A) of the Act alleging therein that books of accounts and documents maintained by him is complex and the interest of Revenue will be affected adversely if special audit is not directed. The date for submission of reply was fixed for 22nd Dec., 2011. On the top of the notice, the AO mentioned as under:

Time barring

Limitation expires on 31st Dec., 2011.

The petitioner submitted his reply dt. 22nd Dec., 2011 to the AO, annexing therewith various statements containing details on the enquired heads. The order of the Tribunal for asst. yr. 2003-04 dt. 23rd Nov., 2007 was also filed by the petitioner. In paras 38, 50, 51, 56, 59 and 60 the petitioner has stated that no order for special audit was served on him; the limitation for assessment expired on 31st Dec., 2011; the matter has become time-barred; none of the necessary ingredients of s. 142(2A) of the Act are conjointly present in the instant case, and that the power under s. 142(2A) of the Act cannot be exercised for extending the period of limitation. These averments have not been specifically denied by the respondents in paras 18, 22 and 23 of the counter affidavit quoted above. On 24th Jan., 2012 this Court passed the following order:

List in the additional cause list on 2nd Feb., 2012. Shri Dhananjay Awasthi appearing for the IT Department will seek instructions specially on the issue whether any order dt. 31st March, 2009 directing special audit under s. 142(2A), IT Act, 1961, was made and was served on the petitioner.

In view of the aforenoted pleadings in the writ petition and the counter affidavit and in the absence of any material on record brought on record by the respondents despite the order of the Court dt. 24th Jan., 2012 (afore quoted), we find that the order under s. 142(2A) of the Act was not made and served on the petitioner before 31st Dec., 2011. Even if the letter of the AO dt. 28th Dec., 2011 addressed to the special auditor, of which a copy was sent to the petitioner is assumed to be an order under s. 142(2A) of the Act, it was served on the petitioner on 9th Jan., 2012. The averments of the petitioner in para. 56 of the writ petition that none of the ingredients for exercising powers under s. 142(2A) of the Act are conjointly present in the instant case, have not been denied by the respondents in para. 23 of the counter affidavit. Even in the letter of the AO dt. 28th Dec., 2011 and the letter of the approval of CIT dt. 23rd Dec., 2011 to the proposal of special audit there is no discussion or consideration to the replies of the petitioner submitted in response to the show cause notice for special audit. The proposal for special audit dt. 23rd Dec., 2011 sent by the AO and filed along with counter affidavit also does not disclose the consideration of the reply of the petitioner.

The order of approval dt. 23rd Dec., 2011 passed by the CIT, Varanasi has been filed as Annex. C-A1 with the counter affidavit filed by respondents reads as under:

Government of India Office of the CIT Aayakar Bhawan, M.A. Road, Varanasi

F. No. CIT/VNS/HQ 1/Spl. audit/2011-12/2635

dt. 23rd Dec., 2011

To

The Addl. CIT Range-I, Varanasi.

Sub: Proposal for special audit under s. 142(2A) of the IT Act, 1961 in the case of M/s. Kaka Carpets, Gyanpur Road, Bhadohi for asst. yr. 2009-10-- Regarding:

Please refer to your office letter F. No. Addl. CIT/R-I/VNS/2011-12 dt. 23rd Dec., 2011 on the subject mentioned above.

In reference to the same as per your proposal, after considering the facts of the case and material on record, I find the proposal fit for conducting special audit under s. 142(2A) of the IT Act, 1961. The approval is hereby accorded and M/s. V.K. Jindal & Co., D-53/118, Plot No. 11, Kaliya Nagar, Rathyatra, Varanasi is hereby nominated to conduct special audit under s. 142(2A) of the IT Act, 1961.

Copy to the:

(D.N. Mishra) CIT, Varanasi

M/s. V.K. Jindal & Co., D-53/118, Plot No. 11, Kaliya Nagar, Rathyatra.

The order of approval also indicates that the AO had sent the proposal vide his letter dt. 23rd Dec., 2011, on which the CIT granted the approval on the same day. The approval does not reflect application of mind to the facts of the case and in the reply given by the petitioner. The copy of the said approval was sent by the CIT, Varanasi to the special auditor. The assessee was not communicated with the order passed by the AO, nor the order of approval by the CIT.

In the case of Swadeshi Cotton Mills Co. Ltd. (supra) a Division Bench of this Court has observed as under:

This is the substance of the statutory provisions. The power thereunder cannot, in our opinion, be lightly exercised. The satisfaction of the authorities should not be subjective satisfaction. It should be based on objective assessment regard being had to the nature of the accounts. The nature of the accounts must indeed be of a complex nature. That is the primary requirement for directing a special audit. But the word ''complexity'' used in sub-s. (2A) 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 are 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. Therefore, special audit should not be directed on a cursory look at the accounts. There should be an honest attempt to understand the accounts of the assessee.

These guidelines are no doubt binding on the IT authorities. But they should not be construed as a mandate to the authorities for directing special audit in every case falling under those guidelines. If that were the object, then we must say that they would run counter to the provisions of subs. (2A) of s. 142. It is, therefore, necessary to observe that the requirements of subs. (2A) must first be satisfied in every case with an objective assessment of the accounts of the assessee as to its nature and complexity. Without there being any such finding, special audit ought not to be directed.

(Emphasis, italicised in print, supplied by us)

In the case of Rajesh Kumar & Ors. (supra), Hon''ble Supreme Court affirmed the Division Bench judgment of this Court in the case of Swadeshi Cotton Mills Co. Ltd. (supra) and held as under:

We may at the outset notice that the following are the relevant factors for invoking s. 142(2A) of the Act:

(i) The nature of accounts

(ii) Complexity of accounts and

(iii) Interest of the Revenue.

The formation of opinion of the AO must be on the premise that while exercising his power regard must be had to the factors enumerated therein. The use of the word ''and'' shows that it is conjunctive and not disjunctive. All the aforementioned factors are conjunctively required to be read. The formation of opinion indisputably must be based on objective consideration.

The expression ''complexity'' would mean the state or quality of being intricate or complex or that it is difficult to understand. Difficulty in understanding would, however, not lead to the conclusion that the accounts are complex in nature. No order can be passed on whims or caprice.

K.J. Shetty, J. in Swadeshi Cotton Mills Company Ltd. Vs. Commissioner of Income Tax and Another, succinctly laid down the import of the said provision in the following terms:

The exercise of power to direct special audit depends upon the satisfaction of the ITO with the added approval of the CIT. But he must be satisfied that the accounts of the assessee are of a complex nature, and, in the interests of the Revenue, the accounts should be audited by a special auditor. The special auditor is also an auditor like the company''s auditor, but he has to be nominated by the CIT and not by the company. The accounts are again to be audited at the cost of the company.

This is the substance of the statutory provisions. The power thereunder cannot, in our opinion, be lightly exercised. The satisfaction of the authorities should not be subjective satisfaction. It should be based on objective assessment regard being had to the nature of the accounts. The nature of the accounts must indeed be of a complex nature. That is the primary requirement for directing a special audit. But the word ''complexity'' used in sub-s. (2A) 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 are 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. Therefore, special audit should not be directed on a cursory look at the accounts. There should be an honest attempt to understand the accounts of the assessee.

The factors enumerated in s. 142(2A) of the Act, thus, are not exhaustive. Once it is held that the assessee suffers civil consequences and any order passed by it would be prejudicial to him, principles of natural justice must be held to be implicit. The principles of natural justice are required to be applied inter alia to minimise arbitrariness.

It is trite, even if there is a possibility that the Tribunal would correctly follow the statutory provisions, still compliance of principles of natural justice would be required. [See R. vs. Kensington & Chelsea Rent Tribunal, ex p. MacFarlane (1974) 1 WLR 1486 (QB)].

Justice, as is well-known, is not only be done but manifestly seem to be done. If the assessee is put to notice, he could show that the nature of accounts is not such which would require appointment of special auditors. He could further show that what the AO considers to be complex is in fact not so. It was also open to him to show that the same would not be in the interest of the Revenue.

In this case itself the appellants were not made known as to what led the Dy. CIT to form an opinion that all relevant factors including the ones mentioned in s. 142(2A) of the Act are satisfied. If even one of them was not satisfied, no order could be passed. If the attention of the CIT could be drawn to the fact that the underlined purpose for appointment of the special auditor is not bona fide it might not have approved the same.

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 Expln. 2 to s. 158BE of the Act.

An order of approval is also not to be mechanically granted. 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 AO 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 accounts and/or the entries made therein. While exercising its power, the AO has to form an opinion. It is final so far he is concerned albeit subject to approval of the Chief CIT or the CIT, as the case may be. It is only at that stage he is required to consider the matter and not at a subsequent stage, viz., after the approval is given.

(Emphasis, italicised in print, supplied by us)

In the case of Sahara India (Firm) (supra), Hon''ble Supreme Court held as under:

A bare perusal of the provisions of sub-s. (2A) of the Act would show that the opinion of the AO 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 s. 142(2A) of the Act. Undoubtedly, the object behind enacting the said provision is to assist the AO 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 s. 142(2A) is not defined or explained in the Act. As observed in Swadeshi Cotton Mills Co. Ltd. vs. CIT, 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 AO 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 AO 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 AO 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 CIT or the CIT in terms of the said provision being an in-built protection against any arbitrary or unjust exercise of power by the AO, 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 CIT or the CIT, 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 AO. The approval must reflect the application of mind to the facts of the case.

(Emphasis, italicised in print, supplied by us)

So far as the judgments relied by Sri Dhananjay Awasthi are concerned, we are of the view that these judgments as noted in para. 9 above, do not support the case of the respondents particularly in the light of the discussions made in foregoing paras of this judgment.

In view of the above discussion, the pleadings of the parties, the provisions of s. 142(2A) of the Act and the principles of law laid down by the Division Bench of this Court in the case of Swadeshi Cotton Mills Co. Ltd. (supra), and by Hon''ble Supreme Court in the case of Rajesh Kumar (supra) and Sahara India (Firm) (supra) and the conclusions reached by us in paras 15, 16, 17, 18, 19 and 21 above, we are of the view that AO should reconsider the issue as to whether a direction should be issued under s. 142(2A) of the Act after considering the objections of the assessee and affording a reasonable opportunity of being heard, in terms of s. 142(2A) of the Act. It is only after the AO reaches to a fair conclusion after considering the reply given by the petitioner, and affording an opportunity of hearing, the CIT as approving authority will consider whether the special audit is required to be carried out for the purposes of understanding the accounts maintained by the assessee. The opinion must be formed reflecting the application of mind based on objective criteria and not on the basis of subjective satisfaction. In result the writ petition succeeds and is allowed. The order of approval dt. 23rd Dec., 2011 and the letter dt. 29th Dec., 2011 are set aside. The AO, respondent No. 2 and the CIT as approving authority are directed, to reconsider the matter for directions for special audit under s. 142(2A) of the Act, in accordance with law. There shall be no order as to the costs.