The main legal point established in the judgment is that the Assessing Officer must exercise his jurisdiction for ordering a special audit under Section 142(2A) of the Income Tax Act,1961, objectively and fairly, and there should be no violation of principles of natural justice.

JUDGMENT :

Sanjeev Narula, J.

C.M. No 38598/2019 in W.P.(C) 9358/2019 &

C.M. No 38600/2019 in W.P.(C) 9359/2019

1. Exemption allowed, subject to all just exceptions.

2. The applications stands disposed of.

W.P.(C) 9358/2019 & CM APPL. 38597/2019 &

W.P.(C) 9359/2019 & CM APPL. 38599/2019

3. Both the present petitions under Article 226 of the Constitution of India challenge the respective orders, both dated 06.08.2019, passed by Deputy Commissioner of Income Tax, Circle 21 (1), C.R. Building, I.P. Estate, New Delhi directing the Petitioners to have their books of account for the assessment year 2016-17 audited by the Special Auditor under Section 142 (2A) of the Income Tax Act,1961 (hereinafter referred to as the "Act").

Brief Facts

4. The facts and grounds urged in both the petition are more or less similar and furthermore since identical arguments have been advanced, the same are being decided by a common judgment. However, facts narrated in WP (C) No. 9359/2019 are being noted and discussed for the purpose of deciding the petitions.

5. The Petitioner contends that it is engaged in the business of lending, investment, financial advisory services and distribution of third-party financial products and has been consistently following the same method of accounting for the purpose of maintaining its books of account and filing its tax return. For assessment year 2016-17, the year under consideration, the Petitioner originally e-filed its return of income declaring total income of Rs. 44,64,06,770/-. The return of income was revised declaring same total income. The case of the Petitioner was selected for scrutiny through CASS and notice was issued under section 143(2) of the Act. During assessment proceedings, Respondent No.1 called for various information, details and data, which were duly furnished by the Petitioner from time to time. The Petitioner filed, before the Revenue, a copy of the order dated 14.03.2019 passed by Securities & Exchange Board of India ("SEBI"). In the said letter, the Petitioner explained that SEBI, vide order dated 14.03.2019, directed the Petitioner and M/s. Religare Finvest Ltd. ("RFL"), subsidiary of the Petitioner, to initiate steps to recall all the loans diverted to the companies associated with the former promoters.

6. Petitioner further represented that the new professional management of the Petitioner is taking all steps to recall the loan and that the transactions referred in the SEBI order, in any case, had no effect on the taxable income of the Petitioner.

7. A show-cause notice dated 30.05.2019 was issued by Respondent No.1 requiring the Petitioner to furnish certain details/information by 06.06.2019. In the said notice, Respondent No.1 referred to forensic audit report furnished by SEBI and its order dated 14.03.2019 alleging diversion/ siphoning of funds of the Petitioner to the companies related to its erstwhile promoters. The Petitioner was directed to give an explanation and to show cause why books of account may not be rejected.

8. In the meanwhile, despite Petitioner furnishing the details as directed, a notice dated 13.06.2019 was issued by Respondent No. 1 requiring it to show-cause as to why books of accounts of the Petitioner may not be referred for special audit under section 142 (2A) of the Act, considering the complexity and volume of the accounts and the specialized nature of the business activity of the Petitioner. In the said show-cause notice Respondent No. 1 primarily referred to and reproduced the contents of the notice dated 30.05.2019, and stated that, "Due to complexity of transactions and voluminous books of account and details, specialized nature of business activity", the accounts of the Petitioner are proposed to be referred for special audit under section 142(2A) of the Act. Petitioner was directed to furnish its response within 4 days, i.e. by 17.06.2019.

9. In response to the aforesaid notice, the Petitioner gave an elaborate reply dated 17.06.2019, rebutting the allegations and