Pawan Kumar Jain vs The Asstt. Commissioner (Central)

R.S. Chauhan, J.—Aggrieved by the appointment of a special auditor vide order dated 9-8-2002, the petitioner has challenged the same before this Court.

The brief facts of the case are that the petitioner had started a business of iron and steel in the year 1992-93. Ever since then, he was regularly filing the Income Tax returns on a regular basis after proper auditing in accordance with the provisions of Section 44-AB of the Income Tax Act, 1961 (`the Act'' for short). He was surprised to receive a notice u/s 158 (BC) of the Act, on 9-2-2001, wherein he was required to file return of income in the prescribed form for alleged undisclosed income. Vide letter dated 28-8-2001, the petitioner requested for the copy of the seized record and the statement recorded, so that he could file a proper return. But before the petitioner could file a proper return, the Assessing Officer issued a questionnaire u/s 142(1) of the Act for the purpose of Block Assessment. Eventually, the Block Assessment was filed on 10-7-2002. But before the petitioner could file his reply to the questionnaire, without giving him an opportunity of hearing, vide order dated 9-8-2002, the Assessing Officer directed that a special auditor be appointed u/s 142(2A) of the Act. Immediately, on 10-9-2002, the petitioner submitted a representation to the respondent, wherein he claimed that the appointment of special auditor was absolutely unjustified. For, neither any complexity of accounts, nor any interest of revenue was involved in order to justify the appointment of special auditor. Since, the petitioner is aggrieved by the said order, he has approached this Court.

Mr. N. R. Saran, the learned Counsel for the petitioner, has contended that passing of an order u/s 142(2A) of the Act is not an administrative function, but is a quasi- judicial function. Therefore, the quasi-judicial order can be passed only after giving an opportunity of hearing to the petitioner. However, in the present case, the respondent did not give any opportunity of hearing to the petitioner. Hence, his rights under principles of natural justice have been violated. In order to support his contention, the learned Counsel has relied upon the case of Rajesh Kumar and Others Vs. D.Commissioner of Income Tax and Others,

On the other hand, Mr. J.K. Singhi, learned Counsel for the Revenue, has contended that in order to protect the interest of the Revenue, Section 142 (2A) of the Act bestows ample power on the Assessing Officer to direct special auditing of the Assessee''s accounts. Since the provision is in the interest of public at large, as it ensures the declaration of undisclosed wealth, it should be applied as liberally as possible. Therefore, the Assessing Officer was justified in directing the appointment of special auditor. Secondly, since the petitioner committed certain irregularities, which were discovered, by the Tax-Department, therefore in order to prevent tax evasion, the Assessing Officer was justified in invoking his powers u/s 142 (2A) of the Act. Hence, the learned Counsel has supported the impugned order.

Heard learned Counsel for the parties and perused the material available on record.

The nature, function and the requirement of Section 142 (2A) of the Act are no longer res-integra. These issues have been elaborately dealt by the Apex Court in the case of Rajesh Kumar (supra). In that case the Hon''ble Supreme Court was called upon to interpret and to deal with Section 142 (2A) of the Act. The interpretation of Section 142 (2A) of the Act was necessitated by the fact that different High Courts had given different interpretations to the said provision. While Calcutta High Court held that principles of natural justice would have to be complied with, Allahabad, Bombay and Delhi High Courts thought otherwise. It is in this background, that the Apex Court was required to deal with the ambit and scope of Section 142 (2A) of the Act.

To begin with, the Apex Court stated as under:-

We may at the outset notice that the following are the relevant factors for invoking Section 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 assessing officer 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.

It further observed as under:

The expression "having regard to" in this context assumes some significance. An opinion must be formed strictly in terms of the factors enumerated therein. The expression indicates that in exercising the power regard must be had also to the factors enumerated therein together with all factors relevant for exercise of that power.

It further held as under:

The factors enumerated in Section 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 minimize 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. v. Kensington and Chelsea Rent Tribunal, ex p. MacFarlane (1974) 1 WLR 1486]

Lastly it observed thus:

The hearing given, however, 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 ones. But, that would not mean that the principles of justice are not required to be complied with. Only because certain consequences would ensue if the principles of natural justice are required to be complied with, the same by itself would not mean that the court would not insist on complying with the fundamental principles of law. If the principles of natural justice are to be excluded, the Parliament could have said so expressly. The hearing given is only in terms of Section 142 (3) which is limited only to the findings of the special auditor. The order of assessment would be based upon the findings of the special auditor subject of course to its acceptance by the assessing officer. Even at that stage the assessee cannot put forward a case that power u/s 142(2A) of the Act had wrongly been exercised and he has unnecessarily been saddled with a heavy expenditure. An appeal against the order of assessment, as noticed hereinbefore, would not serve any real purpose as the appellate authority would not go into such a question since the direction issued u/s 142(2A) of the Act is not an appellate order.

Thus, according to the Apex Court an order passed u/s 142(2A) of the Act is a quasi-judicial order. The same can be issued only after giving an opportunity of hearing to the Assessee. In case an opportunity of hearing has not been given, the order would be in violation of Article 14 of the Constitution of India.

In the present case, admittedly, the respondent did not give any opportunity of hearing to the petitioner while passing the impugned order dated 9-8-2002. Therefore, clearly the order dated 9- 8-2002 is unsustainable in the eye of law.

Therefore, the impugned order dated 9-8-2002 is, hereby, quashed and set aside. However, the revenue is free to initiate the proceeding against the petitioner u/s 142 (2A) of the Act after giving him an opportunity of hearing.

Accordingly, the writ petition is, hereby, allowed. There shall be no order as to costs.