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High Court Of Calcutta
Kalyan Jyoti Sengupta
WEST BENGAL STATE CO-OPERATIVE BANK LTD. - Appellant
Versus
JOINT COMMISSIONER OF INCOME-TAX - Respondent
W. P. 1897 Of 2003
Decided On : 02/18/2004
INCOME TAX - SPECIAL AUDIT - APPOINTMENT OF SPECIAL AUDITOR - SECTION 142 (2A) OF THE INCOME-TAX ACT, 1961 - CONDITIONS PRECEDENT - JURISDICTION OF THE ASSESSING OFFICER AND THE COMMISSIONER - SCOPE AND PURPOSE OF SECTION 44AB OF THE ACT - PRINCIPLES OF NATURAL JUSTICE - APPLICABILITY.
Fact of the Case:
The petitioner, a co-operative society, challenged an order appointing a special auditor under Section 142 (2a) of the Income-tax Act, 1961, and also the vires of the said section to the extent that it covers the same field as Section 44ab of the Act. However, the challenge to the vires was not pressed at the time of arguments.
Finding of the Court:
The court held that the Assessing Officer, before forming an opinion regarding the nature and complexity of the accounts, must examine the books of account and apply his mind to the entries therein. A cursory look at the books of account is not sufficient for the formation of opinion by the Assessing Officer. The satisfaction of the Assessing Officer must be based upon objective considerations and not on the basis of subjective satisfaction.
Issues: 1. Whether the Assessing Officer and the Commissioner of Income-tax exercised their jurisdiction as per the mandate of Section 142 (2a) of the Income-tax Act, 1961. 2. Whether the impugned order of approval followed by direction for special audit under Section 142 (2a) of the Act is bad in law.
Ratio Decidendi: 1. The power under Section 142 (2a) of the Income-tax Act, 1961 cannot be exercised without the conditions mentioned therein being satisfied: (i) the Assessing Officer must form an opinion, having regard to the nature and complexity of the accounts of the assessee and, (ii) in the interest of the Revenue, that it is necessary to appoint a special auditor. (ii) The Assessing Officer must have a previous approval of the Chief Commissioner/Commissioner of Income-tax. 2. Before the Assessing Officer comes to the conclusion as to the nature and complexity of the accounts, he shall make a genuine and honest attempt to understand the accounts of the assessee and appreciate the entries therein and in case of doubt, he should seek explanation from the assessee or his representative. 3. The Assessing Officer's opinion must be based upon objective considerations and not on the basis of subjective satisfaction. 4. The Assessing Officer must have occasion and opportunity to examine the accounts of the assessee to form his opinion as above. 5. The Commissioner of Income-tax, while giving approval for the appointment of a special auditor, must examine whether the Assessing Officer has correctly followed the procedure and whether the requirement of Section 142 (2a) has been fulfilled.
Final Decision: The court set aside the impugned order of approval for the appointment of a special auditor and directed the respondent authorities to restore the writ petition in position, as if there was no special audit. However, the judgment and order will not prevent and prejudice the respondents if they are advised to proceed afresh but then this has to be done complying with the aforesaid observation.
( 1 ) BY the instant writ application the petitioner has basically challenged an order dated June 13, 2003, passed by the Commissioner of Income-tax, Calcutta-700 021, appointing Shri P. K. Agarwala as a special auditor under Section 142 (2a) of the Income-tax Act, 1961 (hereinafter referred to as "the said Act"), and also incidentally the vires of Section 142 (2a) of the said Act in so far as it covers the same field as Section 44ab of the said Act as regards its constitutionality. However, at the time of arguments the question of vires was not pressed by learned senior counsel Dr. Pal. The direction for filing of affidavits was given on two occasions, to understand the case of the Revenue, however, no affidavit was filed, so it was decided the matter should be heard without any affidavit-in-opposition.
( 2 ) THE short facts of the case are that the petitioner is carrying on banking business after having been formed under the Co-operative Societies Act, 1912. The members and/or shareholders of the petitioner are the Government of West Bengal, holding about 38 per cent. shares and balance are being held by the different District Central Co-operative Banks and other co-operative societies. The petitioner is also a scheduled bank within the relevant provisions of the Banking Regulation Act and is being directly controlled by Reserve Bank of India and also by National Bank for Agriculture and Rural Development (NABARD ). The books of account and documents of the petitioner are regularly and systematically audited by both the Co-operative Audit Directorate, Government of West Bengal, as well as by the auditor under Section 44ab of the said Act.
( 3 ) IN almost all the relevant assessment years the petitioner has been enjoying exemption from paying tax on the income under the provision of Section 14 (3) (i) (a) of the Indian Income-tax Act, 1922, then prevailing, now under Section 81 (1) (a) of the present Act. When the petitioner was reasonably expecting refund of a sum of Rs. 1,40,27,398, Rs. 1,45,31,755, Rs. 92,26,412, Rs. 1,01,94,817 and Rs. 1,59,24,661, respectively, for the assessment years 1996-97 to 2000-01, which were duly and appropriately adjudged to be refunded, by the appropriate income-tax official, the Assessing Officer all of a sudden decided to reopen the aforesaid assessments for the relevant periods. The petitioners duly replied to the notices under Section 148 of the aforesaid Act and met queries and requisitions made by him in connection with the re-opening of assessment under Section 147 of the said Act.
( 4 ) WHILE the petitioners were exchanging correspondence, meeting queries and supplying information, they received a copy of the letter dated May 29, 2003, addressed by the Income-tax Officer, Technical-21, for respondent No. 3 to M/s. P. K. Agarwala wherefrom it transpired that respondent No. 3 wanted special audit to be done under Section 142 (2a) of the said Act of the accounts of the petitioner for the assessment years 1996-97 to 2002-2003 and for the said purpose M/s. P. K. Agarwala had been nominated as chartered accountant for conducting audit. The petitioner duly protested against the aforesaid proposal for special audit contending amongst others that it was not necessary in this case as the accounts of the petitioner have been audited not only under Section 44ab of the said Act but also by the other agencies.
( 5 ) ON June 13, 2003, respondent No. 3 passed an order approving the proposal of the Assessing Officer for special audit under the aforesaid section for the aforesaid assessment years. The said order, however, was passed considering the petitioner's objection filed on June 4, 2003. No affidavit-in-opposition was filed but I directed production of the relevant records, so I had the benefit of going through the same.
( 6 ) DR. Pal, senior advocate, appearing for the petitioner, contends that the impugned order of the Commissioner is bad in law for two broad reason
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