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High Court Of Calcutta
Mahemmad Habeeb Shams Ansari
BATA INDIA LTD - Appellant
Versus
COMMISSIONER OF INCOME TAX - Respondent
W. P. 2593 Of 2001
Decided On : 09/09/2002
INCOME TAX - Special audit - Section 142(2a) - Conditions precedent - Nature and complexity of accounts - Interest of revenue - Satisfaction of assessing officer - Objective assessment - Grounds for approval - Impugned order quashed.
Fact of the Case:
Petitioner challenged the order of approval passed by the Commissioner of Income Tax (CIT) under section 142(2a) of the Income Tax Act, 1961 (the Act), directing a special audit of the petitioner's accounts for the assessment year 1988-89. The petitioner contended that there was no warrant for ordering a special audit as the statutory audit report under the Companies Act, 1956, and the tax audit report under section 44ab of the Act had been furnished, and no fault was found with either report. The petitioner also argued that the impugned order was passed without application of mind and without the existence or satisfaction of the conditions precedent.
Finding of the Court:
The court held that the impugned order was not sustainable as the conditions precedent for ordering a special audit under section 142(2a) of the Act were not satisfied. The court observed that the satisfaction of the assessing officer and the approving authority (CIT) should not be subjective but should be based on objective assessment of the nature and complexity of the accounts. The court found that the assessing officer and the CIT had not examined the petitioner's books of account and had not found any fault with the audit reports furnished by the petitioner. The court also noted that the grounds relied upon by the CIT in the impugned order, such as the complexity of the accounts and the need to ascertain certain vital information, were not supported by any objective evidence.
Issues: 1. Whether the conditions precedent for ordering a special audit under section 142(2a) of the Act were satisfied. 2. Whether the impugned order was passed without application of mind and without the existence or satisfaction of the conditions precedent.
Ratio Decidendi: 1. The conditions precedent for ordering a special audit under section 142(2a) of the Act are: (i) the nature and complexity of the accounts of the assessee; and (ii) the interests of the Revenue. 2. The satisfaction of the assessing officer and the approving authority (CIT) should not be subjective but should be based on objective assessment of the nature and complexity of the accounts. 3. The power to direct a special audit under section 142(2a) of the Act should not be lightly exercised and must be based on objective criteria. 4. A cursory look at the books of account would not serve the purpose of determining the complexity of the accounts.
Final Decision: The court quashed and set aside the impugned order dated November 8, 2001, relating to the special audit in the petitioner's case for the assessment year 1988-89.
( 1 ) THE Court: Petitioner-assessee has in the instant writ application questioned the order of approval passed by respondent No. 1 contained in his communication dated November 8, 2001 being annexure P-21 whereby special audit under section 142 (2a) of the IT Act has been ordered and decision taken to appoint an auditor.
( 2 ) THE case of the petitioner is that there is no warrant to order special audit in terms of section 142 (2a ). It is the case of the petitioners that an audit has been conducted under the provisions of section 44ab and such report in prescribed form - 3cd has been furnished along with statutory audit report under the Companies Act, 1956. The assessing authorities have not found any fault either with tax audit report (section 44ab) or the statutory audit report. It is, therefore, contended that there was no material whatsoever before the respondent authorities on the basis of which they could be satisfied that the nature of the company's accounts was such or that the company's accounts were complex so that having regard to the interest of the revenue, it was necessary to have a special audit under section 142 (2a) conducted. The impugned order for special audit, it has been strenuously urged, has been made on extraneous, irrelevant and collateral considerations, without application of mind and without the existence or satisfaction of the conditions precedent or forming the requisite opinion.
( 3 ) IT is further contended by Mr. R. N. Bajoria, learned senior counsel, assisted by Mr. J. P. Khaitan, Mr. C. M. Ghorawal and Mr. Sandeep Chowdhury, learned advocates for the petitioner that all information have been furnished to the assessing officer along with the return of tax and all requisitions under section 142 (1) and 143 (2) of the Act have been complied with. The assessing officer did not call for nor examine the books of account. At no point of time, it is contended by Mr. Bajoria that the assessing officer required the company to produce any of the books of account regularly maintained by it and as such the assessing officer or the approving authority (CIT) did not have any occasion to examine such books of account of the petitioner company. It is, therefore, urged that the respondents could not have formed any opinion as required under section 142 (2a) of the Act.
( 4 ) IT must be stated here that we are concerned in the instant case with the assessment year 1988-89, the previous year of the company relevant to the said assessment year was the calendar year ended December 31, 1987. The petitioner company along with its return of income filed, inter alia, the audited annual accounts under the Companies Act, 1956, tax audit report under section 44ab and audit reports under sections 32ab (5) and 80hhc (4 ). It is further stated by the petitioner in the instant writ application that apart from the said enclosures the company also filed, inter alia, details of the miscellaneous expenses with further break up of the different expenses comprised therein like legal and audit expenses, contribution to recognised funds and trade subscriptions etc. Petitioner company was served with notices under section 142 (1) and 143 (2) dated August 8, 1990, September 14, 1990 and November 28, 1990 and it is the case of the petitioner that all such particulars and information asked for by the assessing officer by his aforesaid notices have been duly furnished on various dates and the queries raised were duly explained.
( 5 ) IT must also be stated here that by an order dated February 27, 1991 petitioner company was informed by the assessing officer that special audit under section 142 (2a) had been proposed in the company's case for the assessment year 1988-89 and that Shri K. L. Chatrath, C. A. was being appointed as the nominated Accountant. Petitioner company questioned the said action by filing a writ application which was marked as W. P. 1245 of 1991 challenging the legality and vali
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