Gujarat H.C : No special audit u/s 142(2A) can be ordered without recording prima facie opinion about complexities of accounts

High Court Of Gujarat

Alidhara Texpro Engineering (P.) Ltd. Vs. DCIT

Assessment Year : 2005-06

Section : 142

D.A. Mehta And S.R. Brahmbhatt, JJ.

Special C.A. Nos. 7240 And 7251 Of 2008

March 17, 2009

JUDGMENT

D.A. Mehta, J. – All the four petitions have been taken up together as the basic facts are common. Considering the scope of controversies between the parties, the petitions are taken up for final hearing and disposal today. Rule. Learned counsel for the respondent in all the four matters is directed to waive service.

2. Though, all the four petitions are taken up for hearing together, it is necessary to indicate at the outset that there are two classes; one relating to petitioners of Special Civil Appln. Nos. 7240 of 2008 and 7551 of 2008; whereas the other class relates to petitioners of Special Civil Appln. Nos. 7252 of 2008 and 7253 of 2008. Admittedly all the four petitioner companies belong to one group.

3. For assessment year 2005-06 during course of assessment proceedings, respondent authority was of the opinion that powers available under section 142(2A) of the Income-tax Act, 1961 (the ‘Act’) are required to be exercised, and accounts of all the four assessees are required to be got audited by an accountant having regard to the nature and complexity of the accounts of the assessees and the interests of the revenue. Accordingly, a common show-cause notice dated 24-12-2007 was addressed to all the four companies. On 28-12-2007 a common reply was tendered by the four petitioner companies through their chartered accountants. On 31-3- 2007 (sic) four separate orders came to be made by the respondent authority, directing the four petitioner companies to have their books of account for assessment year 2005-06 audited.

4. Learned counsel for the petitioners has submitted that the entire exercise undertaken by respondent authority is without jurisdiction, and for this purpose, learned counsel read extensively from the notice dated 24-12-2007 as well as the objections dated 28-12-2007, to submit that, in the first instance, insofar as Farmsons Fashions (P.) Ltd., (petitioner of SCA No. 7253 of 2008) (‘FFPL’) and Gokulanand Texturisers (P.) Ltd., (petitioner of SCA No. 7252 of 2008) (‘GTPL’) have wrongly been included in these proceedings without there being even a prima facie observation against the said two companies. That, even if the observations made in relation to the two other companies, namely, Alidhara Texpro Engineering (P.) Ltd., (petitioner of SCA No. 7240 of 2008) (Texpro), and Alidhara Textool Engineering (P.) Ltd.,(petitioner of SCA 7251 of 2008) (Textool), there may be some controversy insofar as FFPL and GTPL are concerned, respondent authority had not been able to make out any case and at least those two petitions were required to be allowed.

It was further submitted in relation to all the four petitioners that the entire exercise of invoking powers under section 142(2A) of the Act was a mala fide exercise only to gain time for completing assessments as the assessments were otherwise getting barred by limitation on 31-12-2007. On merits also various contentions were raised. However, in light of the view that the Court is inclined to take, it is not necessary to reproduce and deal with the said contentions. In support of the contentions made, learned counsel for the petitioners has placed reliance on Apex Court decision in case of Sahara India (Firm) v. CIT [2008] 300 ITR 403 (SC).

5. On behalf of respondent authority, learned counsel referred to the affidavit in reply dated 14-10-2008 and submitted that all the petitions are required to be rejected, as the reference made to the special audit in exercise of powers under section 142(2A) of the Act vide order dated 31-12-2007 has exhausted itself, the auditors reports having been received, assessments having been framed thereafter on 31-3-2008, and the petitioners having preferred appeals before CIT(A). For this purpose attention was invited to the following averments made in affidavit-in-reply:

“(4) I state that the petitioner has challenged the impugned order dated 31-12-2007 passed by me by filing the present petition under article 226 of the Constitution of India. I state that the said order was passed by me under section 142(2A) of the Income-tax Act, 1961 (‘the Act’). I state that, after passing the said order on 31-12-2007, the same was served upon the representative of the petitioner immediately. I state that the case was referred to the auditor, M/s. Kothari Ajit & Company, Chartered Accountants, Surat, immediately after passing the said order. I state that, if the petitioner was feeling aggrieved by and dissatisfied with the said order dated 31-12-2007, the petitioner ought to have filed a petition immediately before this Hon’ble Court and got the same circulated for hearing.

(5) I further state that, after the said order dated 31-12-2007, the auditor, M/s. Kothari Ajit & Co. submitted its audit report on 10-3-2008, I state that, after receipt of the audit report from M/s. Kothari Ajit & Co., a notice under section 142(1) of the Act was issued to the petitioner on 18-3-2008 fixing the hearing on 20-3-2008 along with show-cause notice for addition on account of gross profit. I state that the representative of the petitioner attended the hearing and, after considering the submissions, assessment order under section 143(3) of the Act came to be passed by me on 31-3-2008 determining total income of the petitioner at Rs. 2,45,79,870. I state that the petitioner has not moved a petition for orders before 12-5-2008 and, by that time, the assessment order was already passed, the impugned order dated 31-12-2007 was already implemented, the audit report was received and, on the basis of the audit report, the assessment order under section 143(3) of the Act was also passed and served upon the petitioner.

(6) I further state that the petitioner has got the present petition moved for urgent hearing first time on 12-5-2008 and, before that, the petitioner has not taken any care to get the matter heard by this Hon’ble Court. I therefore state and submit that the present petition has been filed and moved for hearing after gross delay and the petitioner has got the present petition moved for urgent hearing first time after about more than two months from the date on which the assessment order under section 143(3) of the Act was passed on the basis of the audit report submitted by M/s. Kothari Ajit & Co. in pursuance of the order dated 31st December, 2007. I further state that the petitioner has allowed the said audit to be completed and the audit report being submitted by M/s. Kothari Ajit & Co. and, thereafter also, allowed the Assessing Officer to pass the assessment order under section 143(3) of the Act and when it is found that the Assessing Officer has made additions in the income, the present petition has been moved before this Hon’ble Court, which is clearly an afterthought. I therefore, state and submit that the present petition is required to be dismissed on this ground alone.”

6. As can be seen from the show-cause notice dated 24-12-2007, the entire notice granting opportunity of hearing for special audit under section 142(2A) of the Act, proceeds on the footing as if only two companies, namely Alidhara Texpro Engineering (P.) Ltd. and Alidhara Textool Engineering (P.) Ltd., are involved, though the notice is addressed to all the four companies. This fact becomes clear from a mere glance at the notice (Annex. B). In para No. 2 of the notice, details of four companies are stated in a tabular form, wherein FFPL and GTPL appear at serial Nos. 1 and 4, while Texpro and Textool appear at serial Nos. 2 and 3. Thereafter in para No. 3 the first sentence reads as under :

“3. The companies quoted at serial Nos. 2 and 3 are the business of manufacture of textile machinery and parts. A perusal of the previous case records reveal that there have been additions to the assessee’s returned income on the following heads.”

This is again followed by the following observations in para No. 7 :

7. In view of the above, your group concerns were required to reply to the Q. Nos. 2 to 9 of notice under section 142(1) of the Income-tax Act, 1961 dated 14-11-2007 in the cases of the mentioned at serial Nos. 2 and 3.”

Again in para No. 9, while reproducing in tabular form the comments in the audit report and the corresponding submissions, it is observed that :

‘9. The comments in the audit reports of the assessee companies at serial Nos. 2 and 3 and the submissions made are tabulated as follows for ready reference.’

Thereafter in para No. 11 once again various details in a comparative tabular statement in relation to Texpro and Textool, for various assessment years, preceding and succeeding, the assessment year in question are produced. It is only in para No. 13 of the notice that the respondent authority says :

‘In view of the same, your group entities as above are proposed for the special investigative audit. . . .’

7. Thus, it becomes apparent that insofar as FFPL and GTPL are concerned, the Assessing Officer has not been able to even prima facie form an opinion that 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 so to do, he may, . . . . direct the assessee to get the accounts audited by an accountant, . . . .

In the show-cause notice there is no whisper, leave alone any findings, as to any complexity of the accounts of either FFPL or GTPL, and therefore, there was no question of formation of any opinion. In the circumstances, the entire exercise commencing from show-cause notice dated 24-12-2007 and culminating in assessment order dated 31-3-2008 is bad in law and without jurisdiction. The Assessing Officer has not been able to show, as the record reveals, that insofar as the said two companies, namely FFPL and GTPL are concerned, the accounts of the said two companies were ever considered by the Assessing Officer, and thereafter having regard to complexities of said accounts he had formed an opinion to have the said accounts specially audited. In absence of the prerequisite conditions of the provision being fulfilled, the action of the respondent authority insofar as Farmsons Fashions (P.) Ltd., and Gokulanand Texturisers (P.) Ltd. are concerned, cannot be sustained.

8. However, insofar as Texpro and Textool are concerned, the Court is of the opinion that the said two petitioners do not deserve any relief only on the limited count of having approached the Court after the order dated 31-12-2007 made under section 142(2A) of the Act had exhausted itself. Admittedly, as noted hereinbefore, vide order of 31-12-2007 special audit was assigned to the auditors named in the order, the auditors tendered their report on 10-3-2008, the petitioners were called for hearing on 20-3-2008 and after that assessments were framed on 31-3-2008, the petitions were moved only on 12-5-2008, despite having been preferred in February, 2008. The Court, therefore, in this peculiar fact situation, does not intend to exercise the extraordinary jurisdiction under article 226 of the Constitution of India and entertain the petitions on this count alone. In the view that the Court has taken, it is not necessary to record and deal with the detailed submissions on merits, considering the fact that the appeals filed by Texpro and Textool are pending and it is open to the said two petitioners to take up all contentions, including challenge to exercise of powers under section 142(2A) of the Act as laid down by the Apex Court in the case of Sahara India (Firm) (supra).

9. The Court is conscious of the fact that even in case of Farmsons Fashions (P.) Ltd. and Gokulanand Texturisers (P.) Ltd., the special audit was over and assessments have been framed on the same day as noted in case of Alidhara Texpro Engineering (P.) Ltd. and Alidhara Textool Engineering (P.) Ltd. but due to lack of jurisdiction at the threshold, as noted hereinbefore, the said two petitioners have been dealt with separately as a class and differentiated vis-a-vis the other two petitioners, namely Alidhara Texpro Engineering (P.) Ltd. and Alidhara Textool Engineering (P.) Ltd.

10. In the result, insofar as Special Civil Appln. Nos. 7252 of 2008 and 7253 of 2008 are concerned, show-cause notice dated 24-12-2007 and consequential order dated 31-12-2007 under section 142(2A) of the Act are hereby quashed and set aside, as being without jurisdiction. As a consequence, needless to state that, the auditors report dated 10-3-2008 and the consequential assessment orders dated 31-3-2008 also are bad in law and cannot survive. Accordingly Special Civil Appln. No. 7252 of 2008 and Special Civil Appln. No. 7253 of 2008 are allowed in the aforesaid terms. Rule made absolute.

11. Insofar as Special Civil Appln. No. 7240 of 2008 and Special Civil Appln. No. 7251 of 2008 are concerned, for the reasons stated hereinabove, the petitions are rejected. Rule discharged. There shall be no order as to costs in any of the petitions.

[Citation : 332 ITR 115]

Leave a Reply

Your email address will not be published. Required fields are marked *