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High Court Of Calcutta
Y. R. MEENA, RANJAN KUMAR MAZUMDER
JOINT COMMISSIONER OF INCOME-TAX - Appellant
Versus
I.T.C.LTD. - Respondent
A. P. O. T. 425 Of 1999
Decided On : 07/02/1999
INCOME TAX - Appointment of Special Auditor - Section 142(2a) - Nature and Complexity of Accounts - Interests of Revenue - Opportunity of Hearing - Approval of Chief Commissioner - Turnover Limit - Concurrent Jurisdiction of Commissioner and Chief Commissioner - Production of Documents - Section 142(1) Notice - Assessment Based on Special Auditor's Report - Communication to Assessee.
Fact of the Case:
The assessee challenged the impugned order dated May 4, 1999, on the ground that before issuing of notice under Section 142 (1) of the Income-tax Act, 1961, the Income-tax Officer has not applied his mind, and that it is not possible to comply with the direction referred to in the said notice. The Revenue challenged the impugned order on the ground that the learned single Judge has granted leave in terms of prayer (1) of the writ petition, that is, the stay of operation of the order appointing special auditor.
Finding of the Court:
The court held that the appointment of a special auditor under Section 142 (2a) of the Act is justified when the nature and complexity of the accounts are such that it is not possible for the Assessing Officer to justify the correct assessment of the income and not possible for him to examine the correctness of the accounts.
Issues: 1. Whether the appointment of a special auditor under Section 142 (2a) of the Act is justified in the facts and circumstances of the case? 2. Whether the assessee was given a reasonable opportunity of hearing before the approval of the appointment of the special auditor by the Chief Commissioner? 3. Whether the turnover limit prescribed in Section 44ab of the Act is applicable to the appointment of a special auditor under Section 142 (2a) of the Act? 4. Whether the assessee is required to produce all the documents referred to in the notice issued under Section 142 (1) of the Act? 5. Whether the assessment based on the report of the special auditor can be communicated to the assessee or given effect to before the disposal of the petition challenging the appointment of the special auditor?
Ratio Decidendi: 1. The appointment of a special auditor under Section 142 (2a) of the Act is justified when the nature and complexity of the accounts are such that it is not possible for the Assessing Officer to justify the correct assessment of the income and not possible for him to examine the correctness of the accounts. 2. The assessee was given a reasonable opportunity of hearing before the approval of the appointment of the special auditor by the Chief Commissioner, as evidenced by the written submissions filed by the assessee on the appointed date. 3. The turnover limit prescribed in Section 44ab of the Act is not applicable to the appointment of a special auditor under Section 142 (2a) of the Act. The power conferred on the Assessing Officer, and the approval of the Commissioner and Chief Commissioner is not confined to any turnover, in business or profession. 4. The assessee is not required to produce all the documents referred to in the notice issued under Section 142 (1) of the Act unless the particular evidence or document is necessary to be looked into for completion of the assessment order. 5. The assessment based on the report of the special auditor shall not be communicated to the assessee or given effect to before the disposal of the petition challenging the appointment of the special auditor.
Final Decision: The court allowed the Revenue's appeal and set aside the impugned order dated April 5, 1999, directing the Assessing Officer to proceed with the appointment of the special officer. The court also directed the Assessing Officer not to insist that the assessee produce all the documents referred to in his notice under Section 142 (1) in pursuance of the order dated April 5, 1999, unless the particular evidence or document is necessary to be looked into for completion of the assessment order. However, the court made it clear that the assessment so made in pursuance of the report of the special auditor shall not be communicated to the assessee or the effect should not be given to that order till disposal of the petition in question pending before the learned single judge.
( 1 ) THESE are two connected appeals, one made by the Revenue and the other made by the assessee. The Revenue has challenged the impugned order on the ground that the learned single Judge has granted leave in terms of prayer (1) of the writ petition, that is, the stay of operation of the order appointing special auditor. The assessee has challenged the impugned order dated May 4, 1999, on the ground that before issuing of notice under Section 142 (1) of the Income-tax Act, 1961, the Income-tax Officer has not applied his mind, and that it is not possible to comply with the direction referred to in the said notice.
( 2 ) AS both the appeals are connected, whether the accounts of the assessee be audited by the special auditor appointed under Section 142 (2a) of the Act or whether the Assessing Officer should look into the accounts himself, in case the special auditor is not permitted to audit the account and the Assessing Officer is also not in a position to look into the accounts of all the branches when the assessee is not in a position to produce all the books of account maintained by all the 43 branches of the assessee, then whether it can be said that the impugned order under Section 142 (2a) of the Act is without application of mind. Sub-section (2a) of Section 142 reads as under :" (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 so to do, he may, with the previous approval of the Chief Commissioner or Commissioner, direct the, assessee to get the accounts audited by an accountant, as defined in the Explanation below Sub-section (2) of Section 288, nominated by the Chief Commissioner or Commissioner 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 Assessing Officer may require. "there is no dispute that the Assessing Officer with the approval of the Commissioner or Chief Commissioner can direct the assessee that his accounts be audited by the special auditor appointed by the Assessing Officer with the approval of the Commissioner or Chief Commissioner.
( 3 ) LEARNED counsel for the assessee submits that before appointment of a special auditor there must be an opinion of the Assessing Officer that the nature and complexity of the accounts is such and/or also in the interests of the Revenue, it is necessary that accounts of the assessee be audited with the special auditor appointed, with the approval of the Commissioner or Chief Commissioner under Sub-section (2a) of Section 142 of the Act. He placed reliance on the decision of this court in the case of Peerless General Finance and Investment Co. Ltd. v. Deputy CIT [1999] 236 ITR 671, and on the decision of the Allahabad High Court in the case of Swadeshi Cotton Mills Co. Ltd. v. CIT [1988] 171 ITR 634. He further submits that after proposal by the Assessing Officer, the notice was issued by the Commissioner, after hearing the assessee he simply recommended the case, supporting the view of the Assessing Officer, to the Chief Commissioner and the Chief Commissioner has not given an opportunity to the assessee, though hearing was given by the Commissioner. Therefore, the Chief Commissioner should not have given approval for appointment of special auditor under Sub-section (2a) of Section 142 of the Act.
( 4 ) HE further submits that it is not possible to and nobody can comply with the requirement of the Assessing Officer in a notice under Section 142 (1) of the Act for completion of the assessment. He also drew our attention to page 202 of the notice issued by the Chief Commissioner and to page 204 of the written submissions filed by the assessee on March 12, 1990, before the Chief Commissioner. He also placed reliance on the
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