Madhya Pradesh H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the direction issued by the AO for special audit under s. 142(2A) of the IT Act, 1961, was arbitrary and illegal and, therefore, the time taken in special audit cannot be excluded ?

High Court Of Madhya Pradesh : Indore Bench

CIT vs. Vijay Kumar Rajendra Kumar & Co.

Sections 142(2A), 153, Expln. 1(iii)

Asst. Year 1985-86

A.M. Sapre & Ashok Kumar Tiwari, JJ.

MCC No. 355 of 1995

4th October, 2004

Counsel Appeared

R.L. Jain with Ku. Mandlik, for the Applicant : Joshi, for the Respondent

ORDER

A.M. Sapre, J. :

This is a reference made under s. 256(1) of the IT Act by the Tribunal to this Court at the instance of Revenue (CIT) to answer the following two questions of law :

“1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the direction issued by the AO for special audit under s. 142(2A) of the IT Act, 1961, was arbitrary and illegal and, therefore, the time taken in special audit cannot be excluded ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in cancelling the assessment on the ground that the same is barred by limitation ?”

Heard Shri R.L. Jain with Ku. Mandlik, learned counsel for the applicant, and Shri Joshi, learned counsel for non-applicant. The question arises out of asst. yr. 1985-86 for which previous year has ended on 31st March, 1985. In substance, the question is, whether direction given by AO to assessee to get the accounts audited in terms of s. 142(2A) of the Act can be upheld in the facts of the case. In the opinion of CIT(A), the directions are legal, proper and were rightly issued by the AO to assessee. This is what the CIT(A) held while upholding the directions : “I have considered the above submissions of the assessee and do not agree with the contentions. Firstly, the s. 142(2A) does not provide for giving of any opportunity to the assessee before passing an order under the said section. It is purely the discretion of the AO whether the circumstances exist requiring action under s. 142(2A) or not. This aspect has further to be verified by the CIT, who accords his approval for passing of an order under s. 142(2A). As the order has been passed under s. 142(2A), after taking prior approval of the CIT, Bhopal, it would not be proper for this authority to sit on judgment whether the approval given by the CIT, Bhopal, is proper or not. Therefore, this matter is not open for decision by me and the assessee’s contention in this regard cannot be entertained.” The Tribunal did not agree with the view taken by the CIT(A) and quashed the directions. In the opinion of Tribunal, since no opportunity of hearing was afforded to the assessee before issuing the direction for getting the audit done and since the accounts did not involve any complexity, the assessment made is barred by limitation so to the direction for getting the audit done.

5. The question as to interpretation of s. 142(2A) was decided by this Court (Single Bench) in Writ Petn. No. 9515 of 2003, Sewaram Takhtani vs. Asstt. CIT decided on 5th April, 2001 [reported at (2004) 188 CTR (MP) 441Ed.]. In our view, the view taken by this Court is in accord with the intention of the legislature and we uphold it. By placing reliance on several authorities of Supreme Court and High Court this Court held as under : “10. Submission of learned counsel for the petitioner was that neither there was any material to form any such opinion nor any opinion was formed and hence, the impugned order is not sustainable. I do not agree. In the first place, it is dealt with supra and held against the petitioner. Secondly, mere perusal of assessment proceedings (Annex. P-4) pending before AO also indicates that AO did go into the material seized as also the books of account in the course of assessment proceedings and then passed the impugned order. It cannot, therefore, be contended by the petitioner that there was no material on record for forming an opinion or that there was no application of mind to the facts of the case before passing the impugned order. I am supported by authorities reported in Kumar Films (P) Ltd. vs. CIT (2003) 179 CTR (Pat) 39 : (2002) 258 ITR 257 (Pat), Shivkant & Brothers vs. Union of India (2003) 184 CTR (Raj) 534 (Annex. R-8) and Living Media vs. CIT (2002) 175 CTR (SC) 299 : (2002) 255 ITR 268 (SC).

11. In my opinion, it is the subjective satisfaction of the authority concerned to decide on the basis of material on record, as to whether the accounts are complex in nature, or not. The word ‘complex’ is not defined in the Act and hence, it has to be given its wide and liberal meaning. As in this case, if the authority noticed that large number of transactions are executed in Benami by the petitioners and that none of them are reflected in books of account and that the books of account maintained by the petitioner contain several discrepancies, erasures and over-writings, etc., then certainly such accounts are not dependable for determining the exact tax liability. Indeed, the application of mind by the authority is also discernible when one peruses the impugned order. They need to be reaudited in accordance with law. In such circumstances, the authority has only option to take recourse to the provision of s. 142(2A) ibid and issue necessary direction. It is not for the Court to again examine whether accounts in question are complex, or not ? Because, the writ Court does not act as an appellate Court over such decisions of AO.” Once we hold that direction for getting the special audit under s. 142(2A) is legally sustainable and was rightly issued then the provisions of s. 153, Expln. 1(iii) get attracted. In other words, the period spent in special audit has to be excluded for making an assessment. In this case, it is not in dispute that once the directions under s. 142(2A) are held to be legal/valid then the assessment made in question by AO on 2nd Feb., 1989, comes within limitation. It is accordingly held to be within limitation.

Accordingly, and in view of aforesaid, we answer both the questions in affirmative, i.e., in favour of Revenue and against the assessee. In other words, we hold that Tribunal was not justified in holding that direction issued under s. 142(2A) of the Act for special audit is arbitrary or illegal and, therefore, time taken in special audit cannot be excluded. Instead, we hold that AO was justified in issuing a direction for special audit under s. 142(2A) of the Act and that the time taken in special audit can be excluded. We also hold by answering the second question that Tribunal was not justified in cancelling the assessment on the ground that the same is barred by limitation. Instead, we hold that assessment made is within limitation. No costs.

[Citation : 271 ITR 337]

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