2000-VIL-579-ALH-DT

Equivalent Citation: [2004] 269 ITR 563, 174 CTR 286

ALLAHABAD HIGH COURT

Date: 28.03.2000

SAHARA INDIA MUTUAL BENEFIT CO. LTD.

Vs

COMMISSIONER OF INCOME TAX.

BENCH

Judge(s)  : S. H. A. RAZA., KAMAL KISHORE.

JUDGMENT

Sahara India Mutual Benefit Co. Ltd., Sahara India (Firm), Sahara India Financial Corporation Ltd., Sahara India Airlines and Sahara India Mass Communication have filed the present writ petitions assailing the order passed on various dates by Shri M. C. Baurai, Deputy Commissioner, by means of which the petitioners were directed to get their accounts audited for the various assessment years mentioned in the impugned orders by the chartered accountant and furnish the report of such audit in the prescribed form duly signed and verified by the chartered accountant. In addition to the particulars prescribed in Form No. 6B read with rule 14A of the Income-tax Rules, 1962, the chartered accountant was asked to furnish the report on certain other points mentioned in the annexure enclosed as annexure A. The audit report under section 142(2A) of the Income-tax Act, 1961 ("the Act") should be furnished before the authority passing the order by April 30, 2000. The petitioners were to pay the audit fee which was tentatively determined. It was further provided in the impugned order that the amount in addition to other expenses incidental to audit was to be paid by the petitioners to the chartered accountants in accordance with law and procedure.

Before dealing with the factual matrix as set out in the writ petition in short compass and the law on the subject, it would be relevant to glance over the provisions of section 142(2A) which reads as under:

"(2A) If, at any stage of the proceedings before him, the Assessing Officer, having regard to the nature and complexity of the accounts of the assessee and the interests of the Revenue, is of the opinion that it is necessary to do so, he may, with the previous approval of the Chief Commissioner or Commissioner, direct the assessee to get the accounts audited by an accountant, as defined in the Explanation below subsection (2) of section 288, nominated by the Chief Commissioner or Commissioner in this behalf and to furnish a report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed and such other particulars as the Assessing Officer may require."

If we split the provision then it would transpire that the following ingredients must be fulfilled before an assessee can be directed to get his accounts audited by the special audit by the Assessing Officer:

1. The account books of the petitioners should be of complex nature;

2. The special audit should be in the interests of Revenue;

3. The special audit must be necessary because of the aforesaid complexity and interests of Revenue;

4. There should be previous approval of the Chief Commissioner or the Commissioner;

5. The special audit, having regard to the aforesaid necessity, must be relevant for the assessment proceedings.

It is not the case of the petitioners that the previous approval of the Chief Commissioner or Commissioner, has not been obtained. The only grievance of the petitioners appears to be that the orders by means of which the approval was granted was not furnished to the petitioners.

Mr. S.P. Gupta, the senior counsel appearing on behalf of the petitioners, has placed before us the following propositions of law which require adjudication by this court:

(a) The impugned order passed in Writ Petitions Nos. 1309 and 1310 of 2000 was signed by an authority having no jurisdiction over the petitioners.

(b) The objective assessment that the accounts were of complex nature was not at all arrived at by the authority passing the impugned order. The satisfaction arrived at was not based on the objective material placed before the authority concerned and the order suffers from non-application of mind.

(c) The complexity of the accounts could be verified from the account books which were never examined by the authority passing the impugned order.

(d) Even after passing the impugned order, the account books which were produced by the petitioners show that the process of the examination of the account books has not yet been completed by the authority concerned.

Mr. S.P. Gupta, the senior counsel appearing on behalf of the petitioners, laid emphasis on the facts that admittedly Mr. M.C. Baurai was the assessing authority, but as he went on leave and another officer, namely, Mr. M.K. Singhania had taken over, thus Mr. M.C. Baurai ceased to have any jurisdiction over that matter. Only Mr. Singhania, the Deputy Commissioner, could have passed an order purporting to be one under section 142(2A) but the impugned order was passed by Shri M.C. Baurai who had no jurisdiction to pass such an order.

No doubt such an order purporting to be one under section 142(2A) could be passed by the assessing authority and the approval might be granted by the Commissioner or Chief Commissioner.

The "Assessing Officer" as has been defined under section 2(7A) in the Act which means, "that the Assistant Commissioner or Deputy Commissioner or Assistant Director or Deputy Director or the Income-tax Officer who is vested with the relevant jurisdiction by virtue of the directions or orders issued under sub-section (1) or sub-section (2) of section 120 or any other provision of this Act, and the Joint Commissioner or Joint Director who is directed under clause (b) of sub-section (4) of that section to exercise or perform all or any of the powers and functions conferred on, or assigned to, an Assessing Officer under this Act."

In that regard section 120 of the Act is also relevant which deals with the jurisdiction of the income-tax authority which provides as under:

"120. Jurisdiction of income-tax authorities. - (1) Income-tax authorities shall exercise all or any of the powers and perform all or any of the functions conferred on, or as the case may be, assigned to, such authorities by or under this Act in accordance with such directions as the Board may issue for the exercise of the powers and performance of the functions by all or any of those authorities.

(2) The directions of the Board under sub-section (1) may authorise any other income-tax authority to issue orders in writing for the exercise of the powers and performance of the functions by all or any of the other income-tax authorities who are subordinate to it. ...

(5) The directions and orders referred to in sub-sections (1) and (2) may, wherever considered necessary or appropriate for the proper management of the work, require two or more Assessing Officers (whether or not of the same class) to exercise and perform, concurrently, the powers and functions in respect of any area or persons or classes of persons or incomes or classes of income or cases or classes of cases; and, where such powers and functions are exercised and performed concurrently by the Assessing Officers of different classes, any authority lower in rank amongst them shall exercise the powers and perform the functions as any higher authority amongst them may direct, and further, references in any other provision of this Act or in any rule made thereunder to the Assessing Officer shall be deemed to be references to such higher authority and any provision of this Act requiring approval or sanction of any such Authority shall not apply."

Nowhere in the writ petitions has it been averred that the jurisdiction to make assessment was not conferred upon Mr. M.C. Baurai, but in the supplementary counter-affidavit filed today, it was averred that Mr. Baurai ceased to have the jurisdiction of that area. Undoubtedly Mr. Baurai was the Deputy Commissioner. Mr. M.C. Baurai in his counter-affidavit filed in writ petition bearing No. 1291 of 2000 (MB) stated that he was posted as the Deputy Commissioner, Central Circle (IV) and holding jurisdiction of Central Circle-I, Lucknow, meaning thereby that he was having concurrent jurisdiction of Central Circle-I as well.

The contention of Mr. S.P. Gupta, senior counsel, that he was not the actual Assessing Officer is misconceived inasmuch as both Mr. M.C. Baurai and Mr. Singhania have concurrent jurisdiction over the matter.

The second phase of the argument of Mr. S.P. Gupta, appears to be, that it is one of the ingredients of section 142(2A) that the account books of an assessee should be complex in nature and an audit may be deemed necessary for the reason of the complexity of the account books of the assessee. In that regard reliance was placed on the pronouncement of the single judge of the Calcutta High Court in Peerless General Finance and Investment Co. Ltd. v. Deputy CIT [1999] 236 ITR 671. The facts of the case were that by an order dated March 20, 1998, the Assessing Officer being the Deputy Commissioner, Special Range-13, directed the petitioner to get the accounts audited in respect of points enumerated therein and furnish the report of the said special audit within a period of 150 days from March 18, 1998. It appears that prior thereto the proposal dated March 16, 1998 for special audit under section 142(2A), in the case of that petitioner was neither placed before the Chief Commissioner, the Chief Commissioner without granting any approval merely nominated Shri G. P. Agarwal, FCA, for the purpose of special audit on March 16, 1998.

The single judge was perfectly justified by holding that before an approval is sought for the Assessing Officer must form an opinion, as regards the conditions laid down in the section itself. The section envisages application of mind on the part of the Assessing Officer as also the Commissioner or Chief Commissioner as the case may be, while granting the approval. Regarding the complexity of the accounts of the assessee in the interests of Revenue the hon'ble single judge observed:

"Thus, both nature and complexity of the accounts as also interest of the Revenue are necessary ingredients for exercise of the said power. Thus, the opinion required to be formed by the Assessing Officer must be based on objective consideration and not on the basis of his subjective satisfaction."

It was further observed by the single judge that the Chief Commissioner before granting such approval must have before him the materials on the basis whereof an opinion had been formed. It was further observed that the Assessing Officer, therefore, was required to place all materials before the Commissioner or the Chief Commissioner, as the case may be, to show that he intends to take recourse to the said provision having regard to the nature and complexity of the accounts of the assessee and the interests of the Revenue. But as no such material has been placed before the Chief Commissioner in that case, hence, the writ petition was allowed.

It is well-settled that the taxing provisions in any Act should be construed strictly in the interests of the Revenue and any irregularity should not affect adversely. The court should not generally intervene. An authority who has to pass an order, undoubtedly should satisfy itself subjectively or objectively, but even the subjective satisfaction which may be arrived at by an authority, while passing an order, must be based on the basis of the objective materials from which the authority may arrive at his subjective satisfaction on the basis of objective materials while taking such an action.

We need not delve into the question as to whether the Assessing Officer while passing an order under section 142(2A) may form a subjective satisfaction on the basis of the objective material or should arrive at a satisfaction in an objective manner, because it is not at all necessary at this stage. In the present case, we have to examine as to what would be the position, if the material on the basis of which the satisfaction may be arrived at is not produced by an assessee.

In the present case, what transpires from the counter-affidavit, it appears to be, that the petitioners did not produce the account books which were asked for. It is evident from the impugned order itself and stated in the counter-affidavit that the impugned order was passed on the basis of the material which was available.

The contention of Mr. S.P. Gupta, senior counsel, appears to be that the authority could not have reached a conclusion that the account books were of such a complex nature where an audit by a chartered accountant was necessary without looking into the account books. Assuming that the account books were not produced by the petitioners, it was contended, then the income-tax authorities could have imposed a penalty or initiated criminal proceedings against the petitioners. If this argument is accepted, then it would mean that the assessment of a particular year should wait, till a person who refuses to perform his obligation to produce his account books, is punished under the provisions of the Act.

We are definitely of the view that such a fallacious argument would frustrate the assessment for purposes of payment of income-tax. A person cannot be permitted to gain, on account of his own fault. If the petitioner deliberately, knowing the consequences, refused to produce the account books, the petitioner cannot be permitted to raise a hue and cry that the account books were not perused by the Assessing Officer before passing the impugned order.

The averments made in paras 25, 26, 27, 28 and 31 of the writ petition bearing No. 811 (MB) of 2000 itself show the sufficient material pertaining to the complexity of account books. In para. 25 it has been averred that only the list of the depositors of sums exceeding Rs. 20,000 had not been supplied (by the petitioner). In regard to this query, it was very clearly submitted that the number of the depositors exceeded two crores. It may be two and a half crores. There were more than 1,200 branches wherein the deposits had been made. It was not humanly and physically possible to scan the entire list of depositors only to select such depositors whose deposits were in excess of Rs. 20,000. He will submit a complete list of the depositors. Later on in para. 26 of the writ petition it was pointed out that the volume of the business of the petitioner may be very high in comparison to other companies. But, according to the knowledge and information of the petitioner, no other company had ever been required to furnish the list of depositors of sums exceeding Rs. 20,000. In fact preparing such a list was almost impossible. The petitioner was always ready to produce all the books of account. They had in fact been produced. The petitioner did not have any objection to such a list being drawn by respondent No. 2 if the same could be drawn. The petitioner shall still have no objection if respondent No. 2 can draw a list of this kind from the account books of the petitioner.

It was further averred in para. 27 of the writ petition that it was for the aforesaid reason that the auditors of the petitioner could not draw list of the depositors exceeding Rs. 20,000. As already submitted, drawing a list of this kind out of the deposits of more than 1,200 branches was, and is, an impossible task. In para. 32 of the writ petition again it was stated that the queries made by respondent No. 2 in three notices, referred to above, were such that the supply of the information sought by those queries could have taken several months. However, the petitioner complied with the queries with the fastest possible speed which could be attained having regard to the magnitude of the business of the petitioner.

On the one hand, the petitioner states in Writ Petition No. 811 (MB) of 2000 that the petitioner had produced the books of account. On the other hand, he states that the respondents never examined and scrutinised the accounts books. The petitioner himself indicated the magnitude of his business by stating that the number of depositors exceeded Rs. 2 crores, it may be two and a half crores. There were more than 1,200 branches wherein the deposit had been made. It was not humanly and physically possible to scan the entire list of the depositors only to select such depositors whose deposits were in excess of Rs. 20,000. The petitioners admit that preparation of a list was an impossible task and wanted the income-tax authorities to draw the list if the same could be drawn from the account books of the petitioner. Whether the aforesaid averments made in the writ petition itself do not disclose the complexity of the accounts?

At any rate it was a matter of satisfaction of the authorities concerned. The Assessing Officer has arrived at a definite conclusion on the basis of available material and exercised his powers under section 142(2A). It was the duty of the petitioners to have got their account audited by the chartered accountant and placed the audit report before the income-tax authorities. What the petitioners could not do, may be done by an auditor nominated by the income-tax authorities, the petitioners should have no grievance. They should not worry about the audit of the accounts, because the auditor who is a chartered accountant would examine the relevant account books and submit his report thereafter. The petitioners shall be given an opportunity to show cause against the same and only thereafter the assessment shall be made. It seems that the present writ petition has been filed to stall the assessment proceedings.

More or less identical facts and law are involved in all the writ petitions. The petitioners failed to perform their duty and obligation to produce the account books and relevant information which were complex in nature before the income-tax authorities for the assessment of income-tax leaving no option to the Assessing Officer but to exercise his powers under section 142(2A). Such an action was genuinely required in the interests of the Revenue. We are definitely of the view that the special audit, having regard to the complexity of accounts, is relevant for the assessment proceeding. The writ petitions are devoid of merit and are accordingly dismissed.

Petition dismissed.

 

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