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2023 Supreme(Del) 4861
IN THE HIGH COURT OF DELHI AT NEW DELHI
Prathiba M. Singh, J.
Principal Commissioner of Income Tax – Appellant
Versus
Micro And Small Enterprise Facilitation Council & Anr. – Respondents
W.P.(C) 13754 of 2019 and CM APPL. 55377 of 2019, 23859 of 2021, 42231 of 2021 with W.P.(C) 16294 of 2022 and CM APPL. 50997 of 2022, 54199 of 2022,
Decided On : 06-07-2023
W.P.(C) 13754/2019 and CM APPL. 55377/2019, 23859/2021, 42231/2021 with W.P.(C) 16294/2022 and CM APPL. 50997/2022, 54199/2022, 1336/2023
Mr. Ruchir Bhatia, Senior Standing Counsel, Mr. Shlok Chandra, Jr. Standing Counsel with Mr. Keshav Garg, Advocate, for the Petitioner.
Mr. Jitendra Kumar Singh, Advocate, for the Respondents for R-2.
Mr. S.B. Gupta in person.
Headnote:
The Income Tax Act, 1961 (IT Act) and the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) were examined to determine if the Micro and Small Enterprises Facilitation Council (MSEFC) had jurisdiction over disputes related to fees payable to Chartered Accountants (CAs) for Special Audits conducted under Section 142(2A) of the IT Act. The Court held that the MSMED Act did not apply in this case because there was no buyer-supplier relationship between the parties and the CA Firm was not a 'supplier' as defined under the MSMED Act. The Court also found that the determination of fees under Section 142(2D) of the IT Act was final and could not be challenged in a civil court or through arbitration under the MSMED Act. Therefore, the Court set aside the MSEFC's references of the CA Firm's claims to arbitration and held that the CA Firm's remedies, if any, to challenge the IT Department's determination of fees were left open.
Fact of the Case:
The Petitioner, the Principal Commissioner of Income Tax, Central-1, filed two writ petitions challenging the directions for reference to arbitration passed by the MSEFC in four cases related to fee payable to CA Firms for Special Audits conducted under Section 142(2A) of the IT Act. The CA Firm, being on the panel of the Income Tax Department, was nominated as a Special Auditor by the IT Department in four cases for carrying out Special Audit in terms of Section 142(2A) of the IT Act. After the completion of the audits, the CA Firm raised invoices for the services provided. However, the IT Department made partial payments and the CA Firm invoked the provisions of the MSMED Act and approached the MSEFC for recovery of the balance amount along with interest. The MSEFC initiated conciliation proceedings, but they failed, and the MSEFC referred the cases to the Delhi International Arbitration Centre (DIAC) for arbitration.
Finding of the Court:
The Court held that the MSMED Act did not apply in this case because there was no buyer-supplier relationship between the parties and the CA Firm was not a 'supplier' as defined under the MSMED Act. The Court also found that the determination of fees under Section 142(2D) of the IT Act was final and could not be challenged in a civil court or through arbitration under the MSMED Act.
Issues: 1. Whether the MSMED Act applies to disputes related to fees payable to CAs for Special Audits conducted under Section 142(2A) of the IT Act? 2. Whether the determination of fees under Section 142(2D) of the IT Act is final and can be challenged in a civil court or through arbitration under the MSMED Act?
Ratio Decidendi: 1. The MSMED Act does not apply to disputes related to fees payable to CAs for Special Audits conducted under Section 142(2A) of the IT Act because there is no buyer-supplier relationship between the parties and the CA Firm is not a 'supplier' as defined under the MSMED Act. 2. The determination of fees under Section 142(2D) of the IT Act is final and cannot be challenged in a civil court or through arbitration under the MSMED Act.
Final Decision: The Court allowed the writ petitions and set aside the MSEFC's references of the CA Firm's claims to arbitration. The Court held that the CA Firm's remedies, if any, to challenge the IT Department's determination of fees were left open.
JUDGMENT
Prathiba M. Singh, J.
Background
1. Both the present petitions raise interesting legal issues relating to the interplay between the Income Tax Act, 1961 (hereinafter `IT Act') and the Micro, Small and Medium Enterprises Development Act, 2006 (hereinafter `MSMED Act') relating to fee payable to CA Firms, for Special Audits directed under Section 142(2A) of the IT Act.
2. The Petitioner i.e., the Principal Commissioner of Income Tax, Central-1, has filed the present writ petitions challenging the directions for reference to arbitration passed by the Respondent No. 1 i.e., the Micro & Small Enterprise Facilitation Council (hereinafter `MSEFC') - an authority established under Section 20 of the MSMED Act. Respondent No. 2 i.e., M/s SBG & Co. is a partnership firm of Chartered Accountants (hereinafter `CA Firm') of which Mr. S.B. Gupta is a Partner. The said CA Firm is also registered as a `Micro Enterprise' under the provisions of the MSMED Act.
3. The CA Firm, being on the panel of the Income Tax Department (hereinafter `IT Department'), was nominated as a Special Auditor by the IT Department in four cases for carrying out Special Audit in terms of Section 142(2A) of the IT Act.
4. After the completion of the said Special Audit assignments and the submission of the final audit reports, the CA Firm raised four invoices in respect of the said audits. The grievance of the Special Auditor- CA Firm is that qua the invoices raised, the full payment has not been made. Further, in respect of one of the assignments the payment has not been received at all.
5. Under such circumstances, the CA Firm invoked the provisions of the MSMED Act and approached the MSEFC by way of references under Section 18 of the Act.
6. Pursuant to the said references, the matter was thereafter referred to the Delhi International Arbitration Centre (hereinafter `DIAC') by the MSEFC vide the impugned reference orders and a retired judge of the Supreme Court was appointed as the Arbitrator in W.P.(C) No. 16294/2022. However, in W.P.(C) No. 13754/2019, the ld. Arbitrator was yet to be appointed.
7. The IT Department has preferred the present two writ petitions, challenging the impugned reference orders passed by the MSEFC on the ground that the MSEFC under the MSMED Act lacks jurisdiction to deal with claims raised by Special Auditors under Section 142(2A) in respect of the fee payable in terms of Section 142(2D) of the IT Act.
Brief Facts
8. The facts in the two writ petitions are set out below.
W.P(C). 13754/2019
9. On 21st/22nd March 2013, the IT Department passed an order under Section 142(2A) of the IT Act, directing the Assessee i.e., M/s Sahara India (Firm), to get its accounts audited by the CA Firm, which was nominated as the Special Auditor, for the assessment year 2010-11. The Special Audit was to be conducted within a period of 60 days.
10. Thereafter, M/s Sahara India (Firm) filed W.P.(C) No. 3273/2013 titled `Sahara India (Firm), Lucknow v. Commissioner of Income Tax, Delhi (Central)-1, New Delhi & Others' before this Court, challenging the nomination of the Special Auditor by the IT Department.
11. In W.P.(C) No. 3273/2013, an interim order dated 24th May 2013 was passed, directing that no assessment order by the IT Department would be passed in the said case. It was, however, directed that the Special Audit may continue. It was further directed that while the Special Audit may be carried on, the Special Audit report shall not be served upon M/s Sahara India (Firm).
12. In the meantime, the IT Department extended the period of Special Audit by a total period of 180 days in terms of Section 142(2C) of the IT Act. A further extension of 45 days was granted vide order dated 4th October 2013 passed in W.P.(C) No. 3273/2013 titled `Sahara India (Firm), Lucknow v. Commissioner of Income Tax, Delhi (Central)-1, New Delhi & Others'.
13. Pursuant to the aforementioned extensions, the CA Firm carried out the Special Audit of M/s Sahara India (
