High Court Of Bombay
Nickunj Eximp Enterprises (P.) Ltd. Vs. ACIT
Assessment Years : 2005-06 To 2007-08
Section : 142(2A)
Dr. D.Y. Chandrachud And A.A. Sayed, JJ.
Writ Petition (Lodg.) Nos. 2717 To 2720 Of 2011
January 12, 2012
JUDGMENT
1. The Assistant Commissioner of Income-tax, Range-1(2), issued a notice on May 27, 2011, to the petitioner proposing a special audit under section 142(2A) for the assessment years 2005-06, 2006-07 and 2007-08. The notice stated that as a result of survey proceedings in October, 2010, and in the enquiries made during the course of assessment proceedings for the assessment year 2008-09, it was found that purchases made from 11 parties were bogus. Even though the books of account were audited, it was stated that the findings recorded during the course of assessment proceedings for the assessment year 2008-09 and the material impounded during the survey indicate a similar state of affairs for other assessment years starting from the assessment year 2005-06. Moreover, it was stated that additions have been made on the issue of bogus purchases even in the assessment year 2001-02. Accordingly, notices were issued under section 148 on December 7, 2010, for the assessment years 2005-06, 2006-07 and 2007-08 and assessment proceedings were pending for those assessment years. In these facts and in view of the discrepancies in the audited accounts, the petitioner was asked to show cause as to why a special audit should not be ordered under section 142(2A) of the Income-tax Act, 1961, for the assessment years 2005-06, 2006-07 and 2007-08.
2. The petitioner submitted a reply to the notice on June 14, 2011. The reply, inter alia, stated that though the notice was based on the assessment proceedings for the assessment year 2008-09, as a matter of fact the Assessing Officer during the proceedings for the assessment year 2008-09 had neither rejected the books of account nor had he recorded any finding that the books maintained by the assessee were complex or that the correct income could not be determined from the books. Moreover, it was stated that the assessment for the assessment year 2008-09 was completed under section 143(3) and, consequently, there was no basis in relying upon the proceedings for that assessment year to order a special audit for the three years, viz., the assessment years 2005-06, 2006-07 and 2007-08. Reliance was placed on several judgments construing the provisions of section 142(2A). The petitioner contended that no specific instance as to the complexity of the accounts was pointed out by the Assessing Officer.
3. The Assessing Officer has passed an order on November 7, 2011, issuing a direction for a special audit under section 142(2A). The direction records that a survey under section 133A was conducted on October 19, 2010, during which a hard disk was impounded. Analysis of the data indicated that the assessee had claimed to have purchased goods from several parties, entries relating to which were deleted, but retrieved during the survey. Verification of the data impounded during the survey proceedings pertaining to the assessment years 2005-06 to 2010-11 showed that purchases from many suppliers were found to be bogus. These aspects were discussed in the order passed by the Assessing Officer under section 143(3) for the assessment year 2008-09. The direction is thus principally based on the material which was brought out in the course of the survey proceedings and the subsequent enquiries during the assessment proceedings for the assessment year 2008-09.
4. Counsel, appearing on behalf of the petitioner, submitted that a special audit can be ordered 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 of the assessee and the interests of the Revenue is of the opinion that it is necessary to do so. In this regard it was urged that both in the notice and in the eventual direction reliance has been placed on the assessment proceedings for the assessment year 2008-09. For the assessment year 2008-09, it has been submitted that the assessment has been completed under section 143(3) without the special audit and the proceedings are pending in appeal before the Commissioner of Income-tax (Appeals). Learned counsel further submitted that :
(i) for the assessment years 2005-06 and 2006-07, the assessment was completed under section 143(3). The assessment is sought to be reopened under section 148. On the date when the notice to show cause was issued for conducting a special audit under section 142(2A), even the reasons for reopening the assessment were not furnished to the assessee and as a matter of fact, the reopening for the assessment year 2005-06 is beyond a period of four years ;
(ii) for the assessment year 2007-08, an assessment has been made under section 143(3). During the course of the assessment proceedings, additions were made on account of bogus purchases. The matter was carried in appeal to the Commissioner of Income-tax (Appeals) and eventually to the Tribunal which remanded the proceedings back for verification and for finding out the details of the alleged purchases. The matter is stated to be pending before the Commissioner of Income-tax (Appeals) upon remand by the Tribunal ;
(iii) for the assessment year 2009-10, a return was filed. After carrying out a scrutiny notice was issued under section 142(1) on July 8, 2011. On these facts it was urged that the jurisdictional condition in section 142(2A) has not been fulfilled. It was urged that the Assessing Officer has not entered any finding that having regard to the nature and complexity of the accounts of the assessee, it was necessary to order an audit under the statutory provision in question.
5. On the other hand, counsel appearing on behalf of the Revenue has relied upon an affidavit-in-reply which has been filed by the Assistant Commissioner of Income-tax, Circle1(2), Mumbai, to elaborate upon the nature of complexity that arises in the case for the assessment years 2005-06, 2006-07 and 2007-08. The affidavit also deals with the reasons for not recommending a special audit for the assessment year 2008-09.
6. For the purposes of these proceedings and at the present stage, we are not inclined to enquire into the submissions which have been urged on behalf of the assessee. The order which has been passed by the Assessing Officer, neither deals with the submissions which were urged on behalf of the assessee in response to the notice to show cause dated May 27, 2011, nor for that matter does the order contain reasons of the nature that are sought to be elucidated in the affidavit-in-reply. There is, therefore, substance in the grievance of the petitioner that there has been a violation of the principles of natural justice on the part of the Assessing Officer in issuing a direction for a special audit under section 142(2A) without considering the objections of the assessee. The primary requirement of section 142(2A) is a recording of an opinion by the Assessing Officer, having regard to the nature and complexity of the accounts of the assessee and the interests of the Revenue that it is necessary to get the accounts audited, in terms of the statutory provision. The Assessing Officer must do so before he orders a special audit under section 142(2A). A recourse cannot be taken to the provisions contained there lightly and without due fulfilment of the statutory requirements. In these circumstances, we are of the view that it would be appropriate to set aside the impugned order dated November 17, 2011, and to direct a fresh consideration by the Assessing Officer of the objections which have been raised by the assessee. We may also note that as a result of the proviso which was inserted into the provisions of section 142(2A) by the Finance Act of 2007, with effect from June 1, 2007, it has been 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. Parliament has in its legislative wisdom specifically incorporated a requirement of a reasonable opportunity of being heard. This requirement cannot be a meaningless formality and the whole object and purpose of such an opportunity is to enable the assessee to demonstrate before the Assessing Officer that ingredients of section 142(2A) are not fulfilled. In the present case, we are of the view that the submissions which have been urged on behalf of the assessee would warrant some application of mind by the Assessing Officer. Consequently, in order to enable the Assessing Officer to reconsider the issue and without this court expressing an opinion on the merits of the submissions, we quash and set aside the impugned order dated November 17, 2011.
7. We direct that the Assessing Officer shall reconsider the issue as to whether a direction should be issued under section 142(2A) after considering the objections which the assessee has raised and upon affording to the assessee a reasonable opportunity of being heard in terms of section 142(2A).
8. On December 20, 2011, this court had granted a stay to the direction for a special audit and to the consequential assessment for the assessment years 2005-06, 2006-07, 2007-08, 2009-10. In order to obviate the bar of limitation, we direct that from the day of the institution of the writ proceedings under article 226 in this court on December 12, 2011, until a fresh order is passed with reference to the notice under section 142(2A), the consequential assessment proceedings shall remain stayed. The Assessing Officer shall pass an order on the notice to show cause within a period of six weeks from today. The petitions are accordingly disposed of.
[Citation : 346 ITR 6]
