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2019 Supreme(Del) 991
IN THE HIGH COURT OF DELHI AT NEW DELHI
S. Ravindra Bhat, Prateek Jalan, JJ.
National Projects Construction Corporation Limited (NPCC) - Appellant
Versus
Deputy Commissioner of Income Tax and Another – Respondents
Writ Petition (Civil) No. 592 of 2019; Civil Miscellaneous Appeal No. 2622 of 2019
Decided On : 08-04-2019
Important Points
Subject
Taxation Law - Income Tax
Act Referred
INCOME TAX ACT : S.142(2)(d), S.142(4), S.142(3), S.142(2)(a), S.142(2)(b), S.142(2)(c)
Headnote
Income Tax Act - Validity of order under Section 142(2A) challenged - Summary of Acts and Sections: Section 142(2A), Section 139, Section 143(6)(a), Section 143(3), Section 139 of the Companies Act, 2013 - The court discussed the provisions of Section 142(2A) and its guiding principles, as well as the nature and complexity of accounts, voluminous transactions, and the interest of the revenue in forming an opinion for the purpose of special audit.
Fact of the Case:
The NPCC challenged the validity of an order under Section 142(2A) of the Income Tax Act issued by the Assessing Officer (AO) on behalf of the Revenue. The NPCC filed its return for Assessment Year (AY) 2016-17, which was selected for scrutiny. The Revenue issued multiple notices and eventually proposed a special audit under Section 142(2A). The NPCC contested the order, alleging non-application of mind, unfairness, and an intent to extend the limitation period for completing assessment proceedings.
Finding of the Court:
The court found that the AO's order directing special audit was justified and made in bona fide exercise of power. It noted that the NPCC's returns had to be tested in the light of actual evidence, and the order was made after a genuine attempt to understand the nature of the assessee's business and method of accounting. The court dismissed the writ petition, stating that there was no merit in the challenge to the order.
Issues: Validity of the order under Section 142(2A), non-application of mind, unfairness, intent to extend the limitation period for completing assessment proceedings.
Ratio Decidendi: The court held that the order directing special audit was justified and made in bona fide exercise of power. It emphasized the guiding principles regarding conduct of special audit and the nature of orders to be made, as well as the need for a genuine attempt on the part of the AO to understand the accounts maintained by the assessee.
Final Decision: The court dismissed the writ petition challenging the order under Section 142(2A) and excluded the time during which the petition was pending for the purpose of computing the period of limitation to carry on and conclude the special audit.
Tarun Gulati, Adv., Yashwant Singh, Adv., Sparsh Bhargava, Adv., Ruchir Bhatia, Adv.
S. Ravindra Bhat, J.
In the present writ petition, the validity of an order under Section 142(2A) of the Income Tax Act (hereafter referred to as "Act") issued by the Assessing Officer (hereafter referred to as "AO") on behalf of the respondent (hereafter referred to as "Revenue") has been challenged. The petitioner, a Public Sector Undertaking (PSU) and hereafter called "NPCC", urges various grounds, including non-application of mind and unfairness by the AO.
2. The NPCC filed its return for Assessment Year (AY) 2016-17 on 16.10.2016 declaring a total income of Rs. 18,02,20,380/-. Later, it revised its return on 29.03.2018 to reflect the correct TDS credit available based upon the AS-22 receipts. The return was selected for scrutiny and the notice was issued on 07.09.2018 by the Revenue. The NPCC was asked to produce the documents it relied upon in respect of its returns. It submitted - on 20.09.2018 computation of income and audit financials in respect of return of income. Another notice calling for information was issued by the Revenue on 29.09.2018. The NPCC uploaded the information and documents, in the Revenue's web-portal - in response to this notice (of 29.09.2018) on 21.11.2018. A week later, i.e. on 28.11.2018, the Revenue called for particulars with respect to the following four items:
"(a). Furnish in the prescribed manner details of Party wise work done along with PAN details and ledger of the parties.
(b). Provide details of other expenses along with bills and vouchers of the expenses and its applicability towards the business to the tune of Rs.100.75 crore.
(c). Provide partywise details of the long term advances shown at note no. 10 and 11 of the balance sheet.
(d). And, provide justification and details of huge increase in cash and cash equivalent along with evidences."
3. The NPCC contends that when it was in the process of collecting relevant information from the concerned zonal officer, another notice was issued on 04.12.2018 electronically by the Revenue outlining the ten key points and calling for information which included evidence regarding adverse comments given by the auditor; party-wise details of the liabilities showing in the balance sheet under the head trade-payables, security deposits, advances from project authorities, interest accrued and due on advances from project authorities along with respective ledger accounts of parties and their confirmation; copy of sales tax/VAT returns for the year with details of the sales tax payment; project-wise details of entire works undertaken during the year with separate profit and loss accounts of each projects; write-ups of the modus operandi of business and comments on method of accounting of receipts and expenses. The petitioner submits that it could furnish the information on 11.12.2018. According to NPCC, the queries were satisfactorily replied.
4. On 18.12.2018, a Show Cause Notice (SCN) was issued by the Revenue proposing a special audit, under Section 142 (2A), stating as follows:
"(a). The NPCCC had not replied to the adverse comments of the auditors satisfactorily and thus the issues and apprehensions raised by the auditors remained unsatisfied.
(b). Submissions of ledger confirmation of parties with their copy of ITR, audit report, B/S, P/L pertaining to liabilities shown in the balance sheet under the head trade-payable, security deposit advances from project authorities along with respective ledger account of parties and their confirmation remained unattended/un-addressed.
(c). The NPCC had not provided project wise details of entire work undertaken during the year.
(d). That despite of huge turnover in the last five years, the Net profit figure is going down.
(e). Further it was also alleged that details of the liabilities as on 31.03.2016 were also not produced."
5. The notice also stated as follows:
"In view of the abovementioned facts it is
