High Court Of Madhya Pradesh
Jharneshwar Nagrik Sahakari Bank Maryadit vs. Union Of India & Ors.
Section 142(2A)
Arun Mishra, J.
Writ Petn. No. 1140 of 2004
27th July, 2004
Counsel Appeared
Sumit Nema, for the Petitioner : Rohit Arya with Ajit Ade, for the Respondents
ORDER
Arun Mishra, J. :
This writ petition has been filed by the petitioner co-operative bank as against the order (P-3), dt. 29th Jan., 2004 passed by Asstt. CIT, in exercise of power under s. 142(2A) of IT Act directing the petitioner to get the accounts audited by auditor/respondent No. 4. Petitioner has also prayed for quashment of order (P-5) dt. 25th Feb., 2004 passed by respondent No. 2 refusing to withdraw the directions under s. 142(2A). A notice (P-2) dt. 6th Jan., 2004 was issued under s. 158BC by respondent No. 3 for furnishing a return for block period. It is averred in the petition that petitioner is a registered co-operative society and its income is fully exempt under s. 80P(2)(a)(i) of IT Act. On 21st Feb., 2002 search operations were carried out at the premises of the petitioner-society in which 13 numbers of loose papers were seized. The limit of completion of assessment was two years. Period was to expire on 28th Feb., 2004. Respondent No. 3 remained dormant for 22 months. Only at the fag end of the period of limitation on 6th Jan., 2004 initiated assessment proceedings by issuance of notice under s. 158BC. On 29th Jan., 2004 respondent No. 3 passed an order directing the petitioner to get the account audited by the auditor appointed by the Department. Such a direction can only be given after application of mind and examination of books of account. At no point of time account books have been examined, thus order is illegal. It is further averred that s. 158BC provides for extension of time for completion of assessment in cases when accounts have been referred for auditing under s. 132 of the Act. The entire exercise is undertaken by the respondent No. 3 just to get more time for completion of the assessment. Petitioner has approached the respondent No. 2, CIT. Application for direction under s. 142(2A) has been dismissed summarily. Petitioner has further pointed out that cost of audit has to be borne by the petitioner. Accounts have been audited, reports have been filed. Return of the income-tax was filed at the relevant time. Thus, petitioner has been saddled with the unnecessary financial burden and time consuming exercise. Order is without any basis and lacks objectivity.
4. A reply has been filed by respondent Nos. 1 to 3 contending that search operations under s. 132 (1) of the IT Act were carried out at banking premises at 113, Berasia Road, Bhopal, on 21st Feb., 2002. The search operations were finally concluded on 22nd Feb., 2002. Following valuables, documents were found/seized : (A) Annex. CF-1 dt. 21st Feb., 2002. Cash found Rs. 23,69,640. No seizure of cash was made. (B) LPS-1 dt. 21st Feb., 2002—Loose papers from sl. Nos. 1 to 13 were found and seized. (C) BS-1 dt. 22nd Feb., 2002—A cheque book of Sri Amish Sharma was found but not seized. (D) Printouts of various accounts as on 21st Feb., 2002 containing pp. 1 to 161. (E) Printouts of various accounts as on 22nd Feb., 2002.
5. Simultaneously, survey operations under s. 133A of IT Act were also carried out at Bairagarh Branch, Bhopal. Survey operations on 21st Feb., 2002 were done at Arera Colony Branch, Bhopal, BHEL Indrapuri Branch, Bhopal, New Market Branch, Bhopal. Various printouts were taken from the branches as under : (A) Bairagarh Branch, Bhopal 12 pages (B) Arera Colony Branch, Bhopal 79 pages (C) Bhel Indrapuri Branch, Bhopal 64 pages (D) New Market Branch, Bhopal 23 pages All the seized, impounded documents mentioned above are in possession of the Department.
6. It is further contended that proceedings under s. 158BC of IT Act were initiated. Notice was issued on 6th Jan., 2004. Search operations were carried out because of the reason that M/s Shalimar Housing & Finance Ltd. and its directors, shareholders, family members of the directors and shareholders were using the petitioner-bank for depositing their unaccounted money in benami names. The search operations in Shalimar group cases and the bank were carried out simultaneously. The cases of Shalimar Housing & Finance Ltd. and directors, family members of the directors were to be assessed at Mumbai. The CIT, Mumbai, proceeded to transfer the cases from Mumbai to Asstt. CIT-3(1), Bhopal. The Shalimar group cases were centralized in this circle on different dates. Last order under s. 127 was passed by the CIT, Mumbai, on 16th Feb., 2004, against which Shri Sanjay Mirchandani has filed a Writ Petn. No. 503/2004 in the High Court of Judicature at Mumbai, which is pending. Unless the place of assessment was finally decided in entire Shalimar group cases, notice under s. 158BC in the case of bank alone could not be issued. Notice under s. 158BC was received by the petitioner on 7th Jan., 2004. It was required to furnish the return of block period within 20 days. The return was due on 27th Jan., 2004. Petitioner sought extension of time to furnish the return of block period up to 20th Feb., 2004. Return of the block period has not been filed till today. Time of 20 days was sufficient for the bank to furnish return of the block period. Non-filing of the return within due date was also one of the reasons to conclude that in case of bank, direction for audit under s.142(2A) would be appropriate. Seized as well as impounded documents were investigated. With due application of mind and material on record, decision for audit under s. 142(2A) was taken. There is no ulterior purpose. There was sufficient reason to believe that accounts of the bank have complex nature. There is functioning of the head office and four branches at different parts of Bhopal town, there was prima facie a case of complexity in accounts. The head office is not regarded as only a unit. The survey operations of four branches were simultaneously carried out. Printouts of the important documents were obtained and taken into possession. These printouts were required to be tallied from the accounts of head office. The petitioner failed to furnish the return of block period within time. There is failure on the part of the petitioner to produce the account books/return for block period.
It is further contended that question of production of books of account arises after return of block period is filed. The petitioner has failed to file return of the block period. There was no occasion to ask the petitioner to produce books of account. The documents which were in possession of the respondent No. 3, were sufficient to form an opinion of complex nature of accounts. Non-filing of the return within the specified period, is sufficient reason to conclude complex nature of accounts. Under the provision of s. 158BC of IT Act, undisclosed income is assessed. The undisclosed income does not fall under the category of exemption, hence appointment of auditor has been rightly ordered and the order is within the jurisdiction. Sec. 80P (2)(a)(i) of IT Act exempts the income-tax from banking operations. Undisclosed income is not subjected to exemption, which is to be determined under s. 158BC. Authorisation under s. 132 was issued. Shri Sumit Nema, learned counsel appearing for the petitioner has strenuously urged that there is absolutely no basis to exercise the power under s. 142(2A) of IT Act. Notice under s. 158BC was issued at the fag end of limitation of the two years. In order to gain the limitation, power under s. 142(2A) of IT Act has been exercised. He has further submitted that without looking into the accounts, opinion could not have been formed as to the complex nature of the accounts, hence order is bad in law. The same deserves to be quashed. He has placed reliance on the decision of Calcutta High Court in Bata India Ltd. & Anr. vs. CIT (2003) 179 CTR (Cal) 147 : (2002) 257 ITR 622 (Cal). Shri Rohit Arya, learned senior counsel with Ajit Ade, for the respondent Nos. 1 to 3 has submitted that it is a case where not only the accounts of head office but of various branches have also to be looked into, which are complex in nature. Number of documents were seized at the time of raid on the head office and the branches which were incriminating. There is serious allegation against the Shalimar group that money was deposited benami and money has not been accounted for exemption. Sec. 80P has nothing to do with the undisclosed income under s. 158BC. In spite of direction, petitioner has not filed return for block period and has thus not produced the account books, hence material seized including of the account, which was in possession of Department, was looked into and considering the complex nature of the case, power has been exercised in objective manner to order audit. There are sufficient grounds to exercise the power. It was not to gain time for completing the assessment under s. 158BC of IT Act. The main question for consideration is whether exercise of power under s. 142(2A) of IT Act is proper. Sec. 142(2A) of IT Act reads thus :
“(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 of the opinion that it is necessary so to do, 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 form 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.”
11. Power under s. 142(2A) can be exercised at any stage of the proceedings. Power has to be exercised in objective manner having regard to the nature and complexity of the accounts and the interests of the Revenue. On formation of such an opinion, assessee can be directed to get the accounts audited by an accountant as defined in the Explanation below sub-s. (2) of s. 288, nominated by Chief CIT. Expenses have to be borne out as provided under s. 142(2D) by the assessee. The remuneration has to be determined by the Chief CIT or CIT, which determination shall be final. In the instant case, there is an allegation of ‘Benami transaction’ made by the Shalimar Housing & Finance Ltd. and its director, shareholders, family members of the director and shareholders. They were using the petitioner-bank for depositing their unaccounted money in benami names. Search operations have been carried out in the head office and four branches. In spite of being required, petitioner has not filed return for the block period and has not produced the account books. Thus, account books containing 161 pages and 13 loose papers, which were seized on 21st Feb., 2002 from the bank and also large number of papers which were seized from the bank, have been found to be complex in nature. Entries of head office and branches printouts are to be tallied. Opinion has been formed inter alia, on the basis of seized and impounded material to appoint an auditor under s. 142(2A), which cannot be said to be improper in the peculiar facts of the instant case. It cannot be said that its order is not on the basis of objective consideration, particularly when the nature of investigation, which is required to be made, is such which requires close scrutiny of the transactions. Obviously, auditor could have been appointed as provided under s. 142(2A). In similar circumstances special audit was held to be based on objective consideration when voluminous record of the textile mills of number of branches, has to be looked into, it was held that direction to make the audit by auditor appointed under s. 142(2A) of IT Act, justified in Swadeshi Cotton Mills Co. Ltd. vs. CIT (1987) 63 CTR (All) 335 : (1988) 171 ITR 634 (All).
Counsel for petitioner has placed reliance on the decision of Calcutta High Court in Bata India Ltd.’s case (supra), in which it has been laid down that satisfaction has to be based on objective consideration. Authority must form an opinion as to complex nature of the accounts. In the said case, return has been filed with the audited annual accounts under the Companies Act, 1956. No fault was found in the tax audit reports as provided under s. 44AB or statutory audit report, hence it was held that power was not exercised in objective manner. In the instant case, return itself has not been filed for the block period. There were seized incriminating documents in possession of respondent Nos. 1 to 3. Raids were carried at head office and several branches. Benami transactions had to be enquired into of Shalimar Housing & Finance Ltd., its directors, shareholders, family members of directors and shareholders. Thus, I find that decision of the Calcutta High Court is based on different facts renders no help to petitioner. In the facts and circumstances of the case, I find that order is proper and it cannot be said that power has been arbitrarily exercised. Consequently, I find no merit in the petition. The same is dismissed. Parties to bear their own costs as incurred.
[Citation : 280 ITR 339]
