Welspun India Ltd. vs Assistant Commissioner of Income Tax and Others

Heard Mr. K. Gopal, the learned Counsel for the petitioner, and Mr. R.V. Desai, the learned senior counsel for the Revenue.

The communication dt. 25th March, 2004, whereby the AO directed the petitioner to get its accounts audited by the special auditor is under challenge.

The learned Counsel for the petitioner argued that there was no justification for having the accounts of the assessee audited by a special auditor when the AO had not examined the accounts. He relied upon the cases namely : (i) Swadeshi Cotton Mills Company Ltd. Vs. Commissioner of Income Tax and Another, ; (ii) Bata India Ltd. and Another Vs. Commissioner of Income Tax and Others, ; (iii) Deputy Commissioner of Income Tax Vs. Muthoottu Mini Kuries, ; and (iv) U.P. State Handloom Corporation Ltd. Vs. Commissioner of Income Tax and Another, and submitted (1) that no attempt was made by the AO in examining the accounts and had it been done, the accounts would not have been found complex (2) that the special audit places financial burden on the assessee as the expenses are required to be borne by the assessee and, therefore, without hearing the assessee, the order of approval and the nomination of special auditor could not have been passed by the respondent No. 2 (3) that sufficient opportunity was not given to the assessee in furnishing the details which were called for vide communication dt. 17th March, 2004, and (4) that conditions precedent for passing the order u/s 142(2A) were not satisfied.

On the other hand, the learned senior counsel for the Revenue justified the order and submitted that various discrepancies were detected by the AO from the documents and the material furnished by the assessee during the assessment proceedings. He invited our attention to the facts recorded in the communication sent by the AO to the CIT seeking his approval for appointment of special auditor. According to the learned senior counsel, the tax audit report was not reliable. The assessee did not submit (i) basis of valuation of spinning division, (ii) copy of valuation report, (iii) unitwise P&L a/c and balance sheet, and (iv) divisionwise schedule of fixed assets though specifically asked for. The AO also found that proper apportionment of expenses between the spinning division and the other divisions of the assessee was difficult and there was huge borrowings and the interest claimed during the assessment year needed to be verified. The learned senior counsel also submitted that on the one hand, the assessee by the communication dt. 12th July, 2004, sought extension of time for submitting the report and on the other hand after the time was extended approached this Court by way of writ petition and on this ground alone the writ petition deserves to be dismissed. The learned senior counsel relied upon the judgments namely : (a) Jhunjhunwala Vanaspati Ltd. Vs. Assistant Commissioner of Income Tax and Another (No. 1), ; (b) Living Media Ltd. Vs. Commissioner of Income Tax and Another, ; and (c) Uttaranchal Welfare Society Vs. Commissioner of Income Tax and Others, .

We considered the rival submissions. In our considered view, the writ petition does not deserve to be admitted in the light of the conduct of the assessee. As already noticed above, by the communication dt. 25th March, 2004, the AO directed the petitioner to have its account audited by the special auditor nominated by the respondent No. 2. The report as required u/s 142(2A) was required to be furnished within 120 days from the date of the receipt of the communication. The petitioner received the said communication immediately thereafter. The petitioner seems to have had no grievance in having its accounts audited by the special auditor as directed in the communication dt. 25th March, 2004. This is clear from the letter written by the petitioner on 12th July, 2004 to the AO seeking extension of time for submitting the report. The said letter is self-explanatory and leaves no manner of doubt that the petitioner accepted the direction of the AO in having its accounts audited through the special auditor, but due to some internal difficulties prayed for extension of time for submitting the report by the special auditor by the end of August, 2004. The said letter dt. 12th July, 2004 reads thus :

"Welspun India Ltd.

July 12, 2004

To,

The Asstt. CIT-7(3), Room No. 643, 6th floor, Aayakar Bhavan, Mumbai 400 020.

Sub : Appointment of auditor for special audit u/s 142(2A). Asst. yr. 2001-02

Dear Sir,

Please refer to the letter ACIT-7(3)/Special Audit/2003-04 dt. 25th March, 2004 received by us from your goodself for conducting special audit u/s 142(2A) of the company for the asst. yr. 2001-02. M/s Agarwal & Chhajed wanted to commence the audit at Vapi on 12th July, 2004, however presently our factory staff are engaged in preparation of quarterly, 30th June, 2004 P&L a/c and the balance sheet which will be subject to limited review by the statutory auditors In addition to this, quarterly internal audit is also in progress at Vapi factor The preparation of the board meeting to be held on or around 27th July, 2004 also in progress. The above work is expected to be over by 24th July, 2004.

We will be able to schedule the visit of special auditors at Vapi factory only after 24th July, 2004. The auditors may take about two weeks time and the final audit report may take about 8-10 days thereafter. In view of the above, we request you to kindly give extension of time for submitting the report by the special auditors by the end of August, 2004.

We hope your goodself will accede to our aforesaid request. We also assure you of our full co-operation to the special auditors during their special audit and completion of report at Vapi factory.

Thanking you,

Yours truly, For Welspun India Ltd. Sd/- Director/Authorised Signatory

It was only thereafter that on 14th July, 2004, that the petitioner lodged the present writ petition. We are afraid, by his conduct the petitioner has disentitled himself from any relief in extraordinary jurisdiction. In view thereof, we do not deem it necessary to go into the diverse aspects on merits canvassed before us.

Writ petition is, accordingly, dismissed in limine.