Back
2017 Supreme(Del) 3027
IN THE HIGH COURT OF DELHI AT NEW DELHI
S. RAVINDRA BHAT, DEEPA SHARMA, JJ.
SAHARA INDIA FINANCIAL CORPORATION LTD. LUCKNOW - Petitioner
Versus
COMMISSIONER OF INCOME TAX DELHI AND ORS. - Respondents
W.P.(C) 3222 of 2008, W.P.(C) 8157, 8160, 14123, 14141 of 2009, W.P.(C)886, 1009-1014, 888 of 2011, W.P.(C) 3272, 2591 of 2013, W.P.(C)2879 of 2014, 4408, 8841, 8877, 8878, 9138-9152, 9464 of 2015
Decided on : 23-08-2017
For the Petitioner:Mr. Satyen Sethi, Advocate along with Mr. Arta Trana Panda, Advocates, Mr. Ajay Vohra, Sr. Advocate along with Ms. Kavita Jha and Mr. Vaibhav Kulkarni, Advocates, Mr. M.S. Syali, Sr. Advocate along with Mr. Satyen Sethi, Mr. Arta Trana Panda, Mr. Mayank Nagi and Mr. Tarun Singh, Advocates, Ms. Rashmi Chopra along with Mr. Ruchesh Sinha and Ms. Ariya, Advocates
For the Respondent:Mr. Dileep Shivpuri along with Mr. Sanjay Kumar, Advocates, Mr. Rajesh Gogna, CGSC, Mr. Kirtiman Singh, CGSC along with Mr. Pranav Agarwal, Mr. Waize Ali Noor and Mr. Prateek Dhanda, Advocates, Ms. Kailash Golani, Advocate, Ms. Shraddha Bhargava, Advocate, Mr. Arun Bhardwaj, Advocate along with Mr. Sriram, Advocate, Mr. Harish Kumar Garg, Advocate, Mr. Ashok K. Manchanda, Advocate along with Ms. Lakshmi Gurung, Advocate, Mr. Vivek Goyal, CGSC, Ms. Mrinalini Sen, Advocate along with Ms. Kritika Gupta, Advocate, Ms. Saroj Bidawat, Advocate, Ms. Manisha Aggarwal, Advocate along with Ms. Mansi Gupta, Advocate
The amendments to Section 142(2A) of the Income Tax Act, 1961 (hereafter “the Act”) are not violative of Article 14 of the Constitution of India.
Headnote:
The court held that the amendments to Section 142(2A) of the Income Tax Act, 1961 (hereafter “the Act”) are not violative of Article 14 of the Constitution of India. The court reasoned that the criteria inserted in Section 142(2A), by the amendment, are all essentially subjective and provide unbridled power to the AO. For instance, in relation to the criteria “volume of accounts”, it is contended that what is volume of accounts may differ from one AO to another and in the absence of any definition provided in the section, the discretion provided to an AO is excessively wide. This may also lead to the situation where even two similarly placed assessees may be discriminated at the sole discretion of the AO. Similarly, in relation to “doubts about the correctness of accounts”, it is contended that doubts by itself are insufficient unless backed by specific defects for having recourse to the drastic action of a special audit. Again what would constitute “doubt” would differ from one AO to another. Hence, it is contended that the power provided to the AO is totally subjective and unchecked. In relation to the ground of “multiplicity of transactions in the accounts”, the petitioner contends that the said expression is also without qualification or benchmark. The scope of the criteria is so wide that no examination or verification of the transactions would be required. Similarly, in relation to the criteria of “specialized nature of business activity of the assessee”, it is contended that the criteria are manifestly unreasonable and arbitrary.
Fact of the Case:
The present batch of Writ petitions challenges the constitutionality of the amendment of Section 142(2A) of the Income Tax Act, 1961 (hereafter “the Act”). Since the question raised for the Court’s consideration is the same in all of these writ petitions, the facts in W.P.(C) 9138/2015 are taken as reference and are described below.
Finding of the Court:
The court held that the amendments to Section 142(2A) of the Income Tax Act, 1961 (hereafter “the Act”) are not violative of Article 14 of the Constitution of India. The court reasoned that the criteria inserted in Section 142(2A), by the amendment, are all essentially subjective and provide unbridled power to the AO. For instance, in relation to the criteria “volume of accounts”, it is contended that what is volume of accounts may differ from one AO to another and in the absence of any definition provided in the section, the discretion provided to an AO is excessively wide. This may also lead to the situation where even two similarly placed assessees may be discriminated at the sole discretion of the AO. Similarly, in relation to “doubts about the correctness of accounts”, it is contended that doubts by itself are insufficient unless backed by specific defects for having recourse to the drastic action of a special audit. Again what would constitute “doubt” would differ from one AO to another. Hence, it is contended that the power provided to the AO is totally subjective and unchecked. In relation to the ground of “multiplicity of transactions in the accounts”, the petitioner contends that the said expression is also without qualification or benchmark. The scope of the criteria is so wide that no examination or verification of the transactions would be required. Similarly, in relation to the criteria of “specialized nature of business activity of the assessee”, it is contended that the criteria are manifestly unreasonable and arbitrary.
Issues: Whether the amendments to Section 142(2A) of the Income Tax Act, 1961 (hereafter “the Act”) are violative of Article 14 of the Constitution of India.
Ratio Decidendi: The court held that the amendments to Section 142(2A) of the Income Tax Act, 1961 (hereafter “the Act”) are not violative of Article 14 of the Constitution of India. The court reasoned that the criteria inserted in Section 142(2A), by the amendment, are all essentially subjective and provide unbridled power to the AO. For instance, in relation to the criteria “volume of accounts”, it is contended that what is volume of accounts may differ from one AO to another and in the absence of any definition provided in the section, the discretion provided to an AO is excessively wide. This may also lead to the situation where even two similarly placed assessees may be discriminated at the sole discretion of the AO. Similarly, in relation to “doubts about the correctness of accounts”, it is contended that doubts by itself are insufficient unless backed by specific defects for having recourse to the drastic action of a special audit. Again what would constitute “doubt” would differ from one AO to another. Hence, it is contended that the power provided to the AO is totally subjective and unchecked. In relation to the ground of “multiplicity of transactions in the accounts”, the petitioner contends that the said expression is also without qualification or benchmark. The scope of the criteria is so wide that no examination or verification of the transactions would be required. Similarly, in relation to the criteria of “specialized nature of business activity of the assessee”, it is contended that the criteria are manifestly unreasonable and arbitrary.
Final Decision: The court held that the amendments to Section 142(2A) of the Income Tax Act, 1961 (hereafter “the Act”) are not violative of Article 14 of the Constitution of India. The court reasoned that the criteria inserted in Section 142(2A), by the amendment, are all essentially subjective and provide unbridled power to the AO. For instance, in relation to the criteria “volume of accounts”, it is contended that what is volume of accounts may differ from one AO to another and in the absence of any definition provided in the section, the discretion provided to an AO is excessively wide. This may also lead to the situation where even two similarly placed assessees may be discriminated at the sole discretion of the AO. Similarly, in relation to “doubts about the correctness of accounts”, it is contended that doubts by itself are insufficient unless backed by specific defects for having recourse to the drastic action of a special audit. Again what would constitute “doubt” would differ from one AO to another. Hence, it is contended that the power provided to the AO is totally subjective and unchecked. In relation to the ground of “multiplicity of transactions in the accounts”, the petitioner contends that the said expression is also without qualification or benchmark. The scope of the criteria is so wide that no examination or verification of the transactions would be required. Similarly, in relation to the criteria of “specialized nature of business activity of the assessee”, it is contended that the criteria are manifestly unreasonable and arbitrary.
S. RAVINDRA BHAT, J.
Facts
1. The present batch of Writ petitions challenges the constitutionality of the amendment of Section 142(2A) of the Income Tax Act, 1961 (hereafter “the Act”). Since the question raised for the Court’s consideration is the same in all of these writ petitions, the facts in W.P.(C) 9138/2015 are taken as reference and are described below.
2. Shri Dhir Chand Sharma, (hereafter, the “petitioner” or the “assessee”) is a contractor and during the assessment year in question it was engaged in the business of supplying earth materials. Search and seizure operations were carried out under Section 132 of the Income Tax Act, 1961 (hereafter “the Act”) in M/s. NKG and the petitioner who at the time was undertaking contract work for M/s. NKG was also subject to search and seizure operations under Section 132. A notice under Section 153A was issued to the petitioner and in response, the petitioner filed return for the assessment year (AY) 2010-11 declaring income of Rs.8,56,148/-. Notices were issued to the petitioner under sections 143(2) and 142(1) of the act.
3. In response to the aforesaid statutory notices, the petitioner filed replies alongwith the copy of the audited statement of accounts etc. In the said replies, the petitioner submitted that the main source of its income for the AY under consideration was that the petitioner was engaged in contract work for M/s. NKG in the nature of supplying of supplying earth materials, (i.e. mitti/grits) and was not engaged in any other business activities in any nature whatsoever. Notice under Section 142(2A) was then issued to the petitioner by the Assessing Officer (AO), requiring the petitioner to show cause as to why special audit of its accounts for the AYs 2007-08 to 2013-14 should not be directed. The AO was of the view that the accounts of the assessee were complex and voluminous and the same were of specialized nature. In response to this notice, the petitioner submitted its objections to the proposed special audit and submitted that it had maintained regular books of account and further, that there was no complexity in its books of accounts or any multiple or complex transactions.
4. Thereafter, the AO proceeded to pass the order under Section 142(2A) of the Act after seeking the approval of the Principal Commissioner of Income Tax, for AYs 2010-11 to 2012-13, leaving out AYs 2007-08 and 2013-14, which were originally also sought for special audit. The AO directed the petitioner to furnish report of special audit within period of 90 days from the receipt of the impugned order.
Contentions
5. OSC contends that Section 142(2A), as amended by the Finance Act, 2013, violates Article 14 of the Constitution of India. The petitioner contends that by the said amendment, the scope of Section 142(2A) was substantially widened with effect from 01.06.2013. It is contended that from a bare reading of the amended Section 142(2A) it is clear that the Legislature intends to remove the restrictions inherent in the said provision and expand its scope far beyond what it was earlier. The only ground that was earlier present in Section 142(2A), on which special audit could be directed, was “nature and complexity of the accounts of the assessee”. It is urged by the petitioner that after the amendment the grounds that have been added to Section 142(2A), have no relation to the erstwhile complexity of accounts and rather is completely generic and all encompassing going beyond the object of enacting Section 142(2A) in the first place.
6. By widening the scope of Section 142(2A), submits the petitioner, arbitrary powers having no relation to the object of Section 142(2A) are conferred on the officers to administer the section. Such unguided discretion, having no nexus to the object of Section 142(2A), submits the petitioner, is contrary to the principles of equality enshrined in
