Allahabad H.C : In addition to the particulars prescribed in Form No. 6B r/w r. 14A of the IT Rules, 1962, the Chartered Accountant was asked to furnish the report on certain other points mentioned in the Annexure enclosed an Annexure-A

High Court Of Allahabad

Sahara India Mutual Benefit Co. Ltd. vs. CIT

Sections 2(7A), 120, 142(2A)

S.H.A. Raza & Kamal Kishore, JJ.

Writ Petn. Nos. 811, 1290, 1291, 1309 & 1310 of 2000

28th March, 2000

Counsel Appeared

Desh Deepak Chopra & S.P. Gupta, for the Petitioner

JUDGMENT

BY THE COURT :

Sahara India Mutual Benefit Co. Ltd., Sahara India (Firm), Sahara India Financial Corpn. Ltd., Sahara India Airlines and Sahara India Mass Communication have filed the present writ petition assailing the order passed on various dates by Shri M.C. Baurai, Dy. CIT, by means of which the petitioners were directed to get their accounts audited for the various assessment years mentioned in the impugned orders by the Chartered Accountant and furnish the report of such audit in the prescribed form duly signed and verified by the Chartered Accountant. In addition to the particulars prescribed in Form No. 6B r/w r. 14A of the IT Rules, 1962, the Chartered Accountant was asked to furnish the report on certain other points mentioned in the Annexure enclosed an Annexure-A. The audit report under s. 142(2A) of the IT Act, 1961 (‘the Act’) should be furnished before the authority passing the order by 30th April, 2000. The petitioners were to pay the audit fee which was tentatively determined. It was further provided in the impugned order that the amount in addition to other expenses incidental to audit to be paid by the petitioners to the Chartered Accountants in accordance with law and procedure.

2. Before dealing with the factual metrix as set out in the writ petition in short compass and the law on the subject, it would be relevant to glance over the provisions of s. 142(2A) which reads as under : “(2A) If, at any stage of the proceedings before him, the AO, having regard to the nature and complexity of the accounts of the assessee and the interests of the Revenue, is the opinion that it is necessary to do so, he may, with the previous approval of the Chief CIT or CIT, direct the assessee to get the accounts audited by an accountant, as defined in the Explanation below sub-s. (2) of s. 288, nominated by the Chief CIT or CIT in this behalf and to furnish a report of such audit in the prescribed from duly signed and verified by such accountant and setting forth such particulars as may be prescribed and such other particulars as the AO may require.”

3. If we split the provisions then it would transpire the following ingredients must be fulfilled before an assessee be directed to get his account audited by the Special Audit by the AO : The account books of the petitioners should be of complex nature; The Special Audit should be in the interest of Revenue; The Special Audit must be necessary because of the aforesaid complexity and interest of Revenue; There should be previous approval of the Chief CIT or the CIT; The Special Audit, having regard to the aforesaid necessity, must be relevant for the assessment proceedings. It is not the case of the petitioners that the previous approval of the Chief CIT or CIT, hobtained. The only grievance of the petitioners appears to be is that the orders by means of which the approval was granted was not furnished to the petitioners. Mr. S.P. Gupta, the senior counsel appearing on behalf of the petitioners, has placed before us the following propositions of law which required adjudication by this Court : (a) The impugned order passed in Writ Petition Nos. 1309 and 1310 of 2000 was signed by an authority having no jurisdiction over the petitioners. (b) The objective assessment that the accounts which were of complex nature were not at all arrived at by the authority passing the impugned order. The satisfaction arrived at was not based on the objective material placed before the authority concerned and the order suffers from non-application of mind. (c) The complexity of the accounts could be verified from the account books which were never examined by the authority passing the impugned order. (d) Even after passing the impugned order, the account books which were produced by the petitioners which shows that the process of the examination of the account books have not yet been completed by the authority concerned. Mr. S.P. Gupta, the senior counsel appearing on behalf of petitioners, laid emphasis on the facts that admittedly Mr. M.C. Baurai was the assessing authority, but as he went on leave and another officer, namely, Mr. M.K. Singhania had taken over, thus Mr. M.C. Baurai ceased to have any jurisdiction over that matter. Only Mr. Singhania, the Dy. CIT, could have passed an order purporting to be one under s. 142(2A) but the impugned order was passed by Shri M.C. Baurai who had no jurisdiction to pass such an order. No doubt such an order purporting be one under s. 142(2A) could be passed by the assessing authority and the approval which might be granted by the CIT or Chief CIT

The ‘AO’ as has been defined under s. 2(7A) in the Act which means, “that the Asstt. CIT or Dy. CIT or Asstt. Director or Dy. Director or the ITO who is vested with the relevant jurisdiction by virtue of the directions or orders issued under sub-s. (1) or sub-s. (2) of s. 120 or any other provisions of this Act, and the Jt. CIT or Jt. Director who is directed under cl. (b) of sub-s. (4) of that section to exercise or perform all or any of the powers and functions conferred on, or assigned to, an AO under this Act”. In that regard s. 20 of the Act is also relevant which deals with the jurisdiction of the IT authority which provides as under : “Jurisdiction of IT authorities—(1) IT authorities shall exercise all or any of the powers and perform all or any of the functions conferred on, or as the case may be, assigned to, such authorities by or under this Act in accordance with such directions as the Board may issue for the exercise of the powers and performance of the functions by all or any of those authorities. (2) The directions of the Board under sub-s. (1) may authorise any other IT authority to issue orders in writing for the exercise of the powers and performance of the functions by all or any of the other IT authorities who are subordinate to it. (3) and (4)……… (5) The directions and orders referred to sub-ss. (1) and (2) may, wherever considered necessary or appropriate for the proper management of the work, require two or more AOs (whether or not of the same class) to exercise and perform, concurrently, the powers and functions in respect of any area or persons or classes of persons or incomes or classes of income or cases or classes of cases; and, where such powers and functions are exercised and perform concurrently by the AOs of different classes, any authority lower in rank amongst them shall exercise the powers and perform the functions as any higher authority amongst them may direct, and further, references in any other provisions of this Act or in any rule made thereunder to the AO shall be deemed to be references to such higher authority and any provision of this Act requiring approval or sanction of any such authority shall not apply.”

10. Nowhere in the writ petitions it has been averred that the jurisdiction to make assessment was not conferred upon Mr. M.C. Baurai, but in the supplementary counter-affidavit filed today, it was averred that Mr. Baurai ceased to have the jurisdiction of that area. Undoubtedly Mr. Baurai was the Dy. CIT. Mr. M.C. Baurai in his counter-affidavit filed in writ petition bearing No. 1291 of 2000 (MB) stated that he was posted as the Dy. CIT Central Circle (IV) and holding jurisdiction of Central Circle-I, Lucknow; meaning thereby that he was having a concurrent jurisdiction of Central Circle-I as well.

11. The contention of Mr. S.P. Gupta, senior counsel that he was not the actual AO is misconceived inasmuch as both Mr. M.C. Baurai and Mr. Singhania have concurrent jurisdiction over the matter.

12. The second phase of the assessment of Mr. S.P. Gupta, appears to be, it is that it is one of the ingredients of s. 142(2A) that the account books of an assessee should be complex in nature and an audit may be deemed necessary for the reason of the complexity of the account books of the assessee. In that regard reliance was placed on the pronouncement of the Single Judge of the Calcutta High Court in Peerless General Finance & Investment Co. Ltd. vs. Dy. CIT (1999) 156 CTR (Cal) 512 : (1999) 236 ITR 671 (Cal). The facts of the case were that by an order dt. 20th March, 1998, the AO being the Dy. CIT, Special Range-13, directed the petitioner to get the accounts audited in respect of points enumerated therein and furnish the report of the said special audit within a period of 150 days from 18th March, 1998. It appears that prior thereto the proposal dt. 16th March, 1998 for Special Audit under s. 142(2A), in case of that petitioner was neither placed before the Chief CIT, the Chief CIT without granting any approval merely nominated Shri G.P. Agarwal, FCA for the purpose of Special Audit on 16th March, 1998.

13. The Single Judge was perfectly justified by holding that before an approval is sought for, the AO must form an opinion, as regard the conditions laid down in the section itself. The section envisages the application of mind on the part of the AO as also the CIT or Chief CIT as the case may be, while granting the approval. Regarding the complexity of the accounts of the assessee in the interest of Revenue the Hon’ble Single Judge observed : “Thus, both nature and complexity of the accounts as also interest of the Revenue are necessary ingredients for exercise of the said power. Thus, the opinion required to be formed by the AO must be based on objective consideration and not on the basis of his subjective satisfaction.”

14. It was further observed by the Single Judge that the Chief CIT before granting such approval must have before him the materials on the basis whereof an opinion had been formed. It was further observed that the AO, therefore, was required to place all materials before the CIT or the Chief CIT, as the case may be, to show that he intends to take recourse to the said provision having regard to the nature and complexity of the accounts of the assessee and the interest of the Revenue. But as no such material have been placed before the Chief CIT in that cases, hence, the writ petition was allowed.

15. It is well-settled that the taxing provisions in any Act should be construed strictly in the interest of the Revenue and any irregularity should not affect adversely. The Court should not generally intervene. An authority who has to pass an order, undoubtedly should satisfy itself subjectively or objectively, but even the subjective satisfaction which may be arrived at by an authority, while passing an order, must be based on the basis of the objective materials from which the authority may arrive at his subjective satisfaction on the basis of objective materials while taking such an action.

16. We need not delve into the question as to whether the AO while passing on order under s. 142 (2A) may form a subjective satisfaction on the basis of the objective material or should arrive at a satisfaction in objective manner, because it is not at all necessary at this stage. In the present case, we have to examine as to what would be the position, if the material on the basis of which the satisfaction may be arrived at is not produced by an assessee.

17. In the present case, what transpires from the counter-affidavit, it appears to be, is that the petitioners did not produce the account books which were asked for. It is evident from the impugned order itself and stated in the counter-affidavit that the impugned order was passed on the basis of the material which was available.

18. The contention of Mr. S.P. Gupta, senior counsel appears to be is that the authority could not have reached to a conclusion that the account books were of such a complex nature where an audit by a Chartered Accountant was necessary without looking into the account books. Assuming that the account books were not produced by the petitioners, it was contended, then the IT authorities could have imposed a penalty or initiate criminal proceedings against the petitioners. If this argument is accepted, then it would mean that the assessment of a particular year should wait, till a person who refuses to perform his obligation to produce his account books, is punished under the provisions of the Act.

19. We are definitely of the view that such a fallacious argument would frustrate the assessment for purposes of payment of income-tax. A person cannot be permitted to gain, on account of his own fault. If the petitioner deliberately, knowing the consequences, refused to produce the account books, the petitioner cannot be permitted to raise a hue and cry that the account books were not perused by the AO before passing the impugned order.

20. The averments made in paras 25, 26, 27, 28 and 31 of the writ petition bearing No. 811 (MB) of 2000 itself show the sufficient material pertaining to the complexity of account books. In para 25 it has been averred that only the list of the depositors of sums exceeding Rs. 20,000 had not been supplied (by the petitioner). In regard to the query, it was very clearly submitted that the number of the depositors exceeded two crores. It may be two and a half crores. There were more than 1,200 branches wherein the deposits had been made. It was not humanly and physically possible to scan the entire list of depositors only to select such depositors whose deposits were in excess of Rs. 20,000. He will submit a complete list of the depositors. Later on in para 26 of the writ petition it was pointed out that the volume of the business of the petitioner may be very high in comparison to other companies. But, according to the knowledge and information of the petitioner, no other company had ever been required to furnish the list of depositors of sums exceeding Rs. 20,000. In fact preparing such a list was almost impossible. The petitioner was always ready to produce all the books of account. They had in fact been produced. The petitioner did not have any objection to such a list being drawn by the respondent No. 2 if the same could by drawn. The petitioner shall still have no objection if the respondent No. 2 can draw a list of this kind from the account books of the petitioner. [Emphasis, italicised in print, supplied]

21. It was further averred in para 27 of the writ petition that it was for the aforesaid reason that the auditors of the petitioner could not draw list of the depositors exceeding Rs. 20,000. As already submitted, drawing a list of this kind out of the deposits of more than 1,200 branches was, and is, an impossible task. In para 32 of the writ petition again it was stated that the queries made by respondent No. 2 in three notices, referred to above, were such that the supply of the information sought by those queries could have taken several months. However, the petitioner complied with the queries with the fastest possible speed which could be attained having regard to the magnitude of the business of the petitioner.

22. On the one hand, the petitioner states in the writ petition No. 811 (MB) of 2000 that the petitioner had produced the books of account. On the other hand, he states that the respondents never examined and scrutinised the accounts books. The petitioner himself indicated the magnitude of his business by stating that the number of depositors exceeded 2 crores, it may be two and a half crores. There were more than 1,200 branches wherein the deposit had been made. It was not humanly and physically possible to scan the entire list of the depositors only to select such depositors whose deposits were in excess of Rs. 20,000. The petitioners admit that preparation of the list was impossible task and wanted the IT authorities to draw the list if the same could be drawn from the account books of the petitioner. Whether the aforesaid averments made in the petitioner itself do not disclose the complexity of the accounts.

23. At any rate it was a matter of satisfaction of the authorities concerned. The AO has arrived of a definite conclusion on the basis of available material and exercised his powers under s. 142(2A). It was the duty of the petitioners to have got their account audited by the Chartered Accountant and placed the audit report before the IT authorities. What the petitioners could not do, may be done by an auditor nominated by the IT authorities, the petitioners should have no grievance. They should not worry about the audit of the accounts, because the auditor who is a Chartered Accountant would examine the relevant account books and submit his report thereafter. The petitioners shall be given an opportunity to show cause against the same and only thereafter the assessment shall be made. It seems that the present writ petition has been filed to stall the assessment proceedings.

24. More or less identical facts and law are involved in all the writ petitions. The petitioners failed to perform their duty and obligation to produce the account books and relevant information which were complex in nature before the IT authorities for the assessment of income-tax leaving no option to the AO to exercise his powers under s. 142(2A). Such an action was genuinely required in the interest of Revenue. We are definitely of the view that the Special Audit, having regard to the complexity of accounts, is relevant for the assessment proceeding. The writ petitions are devoid of merit and are accordingly dismissed. Petition dismissed.

[Citation : 269 ITR 563]

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