Chartered Accountant Finance: [aaykarbhavan] Judgments and article on Audit and accounts.

IT : Where certain disallowance made by Assessing Officer by detailed discussion was left from final calculation, such mistake could be corrected under section 154

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[2013] 33 taxmann.com 106 (Punjab & Haryana)

HIGH COURT OF PUNJAB AND HARYANA

Commissioner of Income-tax, Chandigarh

Punjab Agro Industries Corpn. Ltd.*

HEMANT GUPTA AND MS. RITU BAHRI, JJ.

ITC NO.77 OF 1999

MARCH 14, 2013

Section 154 of the Income-tax Act, 1961 - Rectification of mistake apparent from record [Disallowance left in final calculation] - Assessment year 1988-89 - Assessing Officer disallowed certain prior period expenses by detailed discussion - However, while computing additions on account of disallowances in final calculation, said disallowance was left from calculation - Whether such mistake could be corrected by Assessing Officer in exercise of powers conferred under section 154 - Held, yes [Para 7] [In favour of revenue]

Ms. Urvashi Dugga for the Appellant. Akshay Bhan and Alok Mittal for the Respondent.

ORDER

Hemant Gupta, J. - Present petition is under Section 256(2) of the Income Tax Act, 1961 (for short 'the Act') for directing the Income Tax Appellate Tribunal (for short 'the Tribunal') to refer the following substantial question of law in respect of assessment year 1988-89:

"Whether on the facts and in circumstances of the case, the ITAT was right in law in set aside order of CIT(A), who restored the matter to the file of Assessing Officer for passing fresh orders under Section 154 after allowing opportunity of being heard to the assessee?"

2. The Assessing Officer finalized assessment of the respondent-assessee for the assessment year 1988-89 on 31.12.1990. The Assessing Officer disallowed many expenditures including expenditure of Rs.40,29,208/-, which is evident from para 5 of the order, which reads as under:

"5. Expenditure of Earlier years

The assessee has debited a sum of Rs.6,66,056/- for the Ist period and Rs.40,29,208/- for the IInd period as adjustments relating to earlier years. The assessee has claimed certain expenses relating to the earlier years. The liability to pay arose in that relevant year. The payments made are not allowed as business expenditure in this year as the assessee had control over the disposal of funds and the liability to meet that expenditure arose in the earlier years in which the transactions took place. Moreover, in the IInd period ending on 31.03.1988 the assessee has claimed write off of diminution of shares of subsidiary companies to the extent of Rs.33,76,052/- under this head. No further details in this regard has been furnished. Also this is a capital loss and is not allowable. Similarly, for the IInd period the assessee has claimed loss of Rs.4,04,433/- on account of unclaimed balances, provision, liabilities no longer required. The nature and details of this expenditure have not been furnished. In the absence of the same these are not allowed. The total expenditure of Rs.46,95,264/- is not taken towards computation of income for this relevant year."

3. However, while computing the additions on account of the disallowances in the final calculations, the disallowance of Rs.40,29,208/- was left from the calculations. Soon after the assessment order was passed, the Assessing Officer realize the omission and passed an order under Section 154 of the Act so as to add amount of Rs.40,29,208/-.

4. Aggrieved against the correction of the order passed by the Assessing Officer, the assessee filed an appeal before the Commissioner of Income Tax (Appeals). Such appeal was accepted for the reason that opportunity of hearing has not been granted to the assessee. However, in further appeal, the Tribunal set aside the order of the Commissioner of Income Tax (Appeals) and held that the order made by the Assessing Officer under Section 154 is null & void. The Revenue sought reference under Section 256 (1) of the Act, which was declined by the Tribunal vide order dated 04.01.1999. Still aggrieved, the Revenue has invoked the jurisdiction of this Court under Section 256(2) of the Act.

5. Since the issue is short and purely legal in nature, we proceed to decide the question of law at this stage with the consent of the parties.

6. Section 154 of the Act empowers the Income Tax Authority to rectify any mistake apparent on the record and permits amendment of any order passed by it under the provisions of the Act. Section 154 of the Act during the relevant assessment year reads as under:

"154. (1) With a view to rectifying any mistake apparent from the record, an income-tax authority referred to in section 116 may amend any order passed by it under the provisions of this Act.

(1A) Where any matter has been considered and decided in any proceeding by way of appeal or revision relating to an order referred to in sub-section (1), the authority passing such order may, notwithstanding anything contained in any law for the time being in force, amend the order under that sub-section in relation to any matter other than the matter which has been so considered and decided.

(2) Subject to the other provisions of this section, the authority concerned-

(a)		may make an amendment under sub-section (1) of its own motion, and
(b)		shall make such amendment for rectifying any such mistake which has been brought to its notice by the assessee, and where the authority concerned is the Deputy Commissioner (Appeals) or the Commissioner (Appeals), by the Assessing Officer also.

**"

7. The order passed by the Assessing Officer on 31.12.1990 leaves no manner of doubt that an amount of Rs.40,29,208/- was disallowed by the Assessing Officer by detailed discussion, as reproduced above. It was only while computing the total disallowances, an amount of Rs.40,29,208/- was left from the final calculations. Such mistake could very well be corrected by the Assessing Officer in exercise of the powers conferred under Section 154 of the Act. The only procedural irregularity can be said to be of not granting any opportunity of hearing to the parties. Though, we have doubt that any opportunity was required for correction of such inadvertent and clerical mistake, but since the Commissioner of Income Tax (Appeals) has granted such opportunity, we restrain ourselves to opine any further on the issue.

8. Therefore, the learned Tribunal is not right in setting aside the order passed by the Commissioner of Income Tax (Appeals), which only contemplated that an opportunity of hearing should be provided to the assessee.

9. Consequently, the substantial question of law is answered in favour of the Revenue and against the Revenue.

IT : Dues of State owned Financial Corporation on basis of mortgage will have primacy over realization of dues under Income-tax Act

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[2013] 33 taxmann.com 93 (Karnataka)

HIGH COURT OF KARNATAKA

Karnataka State Industrial Investment Development Corpn. Ltd.

Commissioner of Income-tax*

RAM MOHAN REDDY, J.

WRIT PETITION NO. 46786 OF 2012 ( T-IT)

MARCH 13, 2013

Section 222, read with section 281 and second schedule, of the Income-tax Act, 1961, and sections 29 and 31 of the State Financial Corporations Act, 1951 - Collection and recovery of tax - Certificate Proceeding [Priority in debts] - Whether dues of State owned Corporation and a Financial institution will have primacy over all other charges on a mortgaged property since Income-tax Act does not provide for a priority to statutory charge over all other charges including mortgage under State Financial Corporations Act - Held, yes [Para 14] [In favour of petitioner]

FACTS

■		The petitioner, a State owned corporation and a financial institution, sanctioned a term loan to assessee to establish a luxury hotel. By way of security, the assessee created an equitable mortgage of the commercial building, together with common facilities thereof.
■		The assessee having failed to repay the amount, the petitioner invoked section 29 of the SFC Act and took over possession of the properties mortgaged and furnished as security.
■		At the same time, the Tax Recovery Officer passed an order attaching the immovable properties of the assessee to recover a sum towards income tax dues of the assessee. On being informed about said recovery proceedings, the Tax Recovery Officer intimated the petitioner to proceed with the sale of the immovable properties as it had the first charge.
■		However, on writ, it was the allegation of the petitioner that efforts of recover were thwarted by the department by not issuing a no-objection certificate to the petitioner to go ahead with the sale of the said properties on the premise that expert legal opinion suggested that tax payable by the assessee was prior in point of time to the execution of the mortgage deeds in favour of the petitioner.

HELD

■		Regard being had to the provisions of the State Financial Corporations Act, it is clear that a first charge on the property is created clearly giving priority to dues of said State owned corporation and a Financial institution over all other charges on property on basis of mortgage since the Income-tax Act does not provide for a priority to the statutory charge over all other charges including mortgage under the SFC Act. [Para 14]
■		Although the revenue points to rule 93 of the Second Schedule of the Income-tax Act, 1961, which contemplates that nothing in the said Schedule shall affect any provision of the Act whereunder tax is a first charge upon any asset, is unable to refer to any provision of Income-tax Act, whereunder income tax due can be treated as a first charge on the assets of the assessees. So also, reference made to section 281 of the Act too is not in the direction of establishing creation of a prior charge in favour of the Income Tax Department over the assets of the assessee since what is contemplated under the section is in relation to certain transactions of transfer being void during the pendency of an assessment proceeding. [Para 15]
■		Interestingly, it must be noticed that the Tax Recovery Officer in the letter dated 27-1-2006, by way of a reply to the notice dated 6-5-2005 of the petitioner conceded to the fact that petitioner had a prior charge over the immovable properties and that the Income tax department be treated as the second mortgagor (to be read as mortgagee). Though the Revenue submits that the Tax Recovery Officer's opinion would not change the statutory provisions, one could not be impressed by that submission in the light of the above view. Tax Recovery Officer's opinion is valid and not the opinion of the Commissioner in his letter dated 14-7-2011. [Para 17]
■		In the result, this petition is allowed in part. The order of the Tax Recovery Officer attaching property mortgaged in favour of the petitioner was quashed and the respondent-Income tax authorities are restrained from interfering with the process of sale of immovable properties, subject matter of mortgage, in favour of the petitioner, for recovery of its dues. [Para 18]

CASE REVIEW

Union of India v. Somasundram Mills (P) Ltd.[1985] 21 Taxman 9 (SC) (para 10) distinguished.

Union of India v. Sicom Ltd. [2009] 2 SCC 121 (para 9) followed.

CASES REFERRED TO

Union of India v. Sicom Ltd. [2009] 2 SCC 121 (para 9), Union of India v. Somasundram Mills (P) Ltd.[1985] 21 Taxman 9 (SC) (para 10),Central Bank of India v. State of Kerala [2009] 4 SCC 94 (para 11), State Bank of Bikaner and Jaipur v. National Iron and Steel Rolling Corpn. [1995] 2 SCC 19 (para 13) and Axis Bank Ltd. v. CIT[2013] 212 Taxman 19 (Mag.)/[2012] 17 taxmann.com 139 (Punj. & Har.) (para 17).

B.R. Jayatheertha for the Petitioner. Thirumalesh for the Respondent.

ORDER

1. Petitioner, a State owned Corporation and a Financial Institution governed by The State Financial Corporations Act, 1951 (for short, 'the SFC Act') sanctioned a term loan of Rs. 1,25,00,000/- to M/s. Veekay Developers Pvt. Ltd. to establish a Luxury Hotel at Sy. No.32-2A, Bangra Kulur Village, Mangalore City, on 13.09.1995, which term loan was transferred to V.K. Clubs and Homes Pvt. Ltd. By way of security, the borrower - M/s. V.K. Clubs and Homes Pvt. Ltd., created an equitable mortgage by deposit of title deeds, the portions of land and building i.e., measuring about 4390 Sq. feet on the ground floor; 2100 Sq. feet on the first floor; 3515 Sq. feet and 1020 Sq. feet on the third floor; about 18,435 Sq. feet on the 4th, 5th and 6th floors of the Commercial building, together with common facilities thereof, situate at Sy. No.32/2A of Bangra Kulur Village, Mangalore. By way of further security, the said borrower created equitable mortgage over free hold rights in three shops measuring about, 325 Sq. feet; 115 Sq feet and; 535 Sq. feet, respectively, in all, measuring 975 Sq. feet, with common facilities, in the building on land bearing Sy. No.32/2A, Bangra Kulur Village, Mangalore. The additional loan of Rs. 86,00,000/- when sanctioned, Rs. 76.33 lakhs was released during the year 1998, for which, the building measuring 2110 Sq. feet on the first floor of the building on Sy. No.32/2A of Bangra Kulur Village, was offered as security by way of equitable mortgage by deposit of title, under the agreement dated 28.04.1998.

2. The borrower, having failed to repay the amount due together with interest led the petitioner to invoke Section 29 of the SFC Act and took over possession of the properties, mortgaged and furnished as security. Though the petitioner took possession of the mortgaged properties, nevertheless, the borrower committed default in the payment of the amounts due.

3. On 05.12.2000, the Tax Recovery Officer, Mangalore Range - second respondent passed an order attaching the immovable properties, including, properties mortgaged of the petitioner invoking Rule 48 of II Schedule to the Income-tax Act, 1961 (for short, the Act), to recover Rs. 80,03,276/- towards income tax dues, from Sri Vivian Kamath D'Souza, M/s. Veekay Developers Pvt. Ltd., M/s. Shalimar Constructions and M/s. Canara Builders. Following that order, the second respondent on 23.12.2000, issued a public notice in Udayavani news paper informing about the attachment of the immovable properties calling upon anybody who had any claim or right to the said properties, to furnish necessary documents in support of the claim.

4. On 05.01.2001, petitioner brought to the notice of the second respondent the sanction of the loan on 13.09.1995 and 20.03.1998; the mortgage of the immovable properties, as also taking possession of the said properties on 30.12.1998 and 25.02.1999, invoking Section 29 of the SFC Act. This was followed by notice dated 06.05.2005 to the second respondent, in response to which, a letter dated 27.01.2006 Annexure 'F' was addressed by the Tax Recovery Officer informing the petitioner to proceed with the sale of the immovable properties as it had the first charge and to treat the Income-tax department as a second mortgagee and after appropriation of the sale proceeds, the remainder if any, to hand over the same for appropriation towards income-tax dues.

5. Petitioner instituted Misc. Case No.42/2008 on 16.07.2008 against the borrowers before the III Addl. District and Sessions Judge, D.K., Mangalore, which was allowed by judgment and decree dated 17.04.2009 permitting the petitioner to enforce the liability under Section 31(1)(a) and (aa) of the SFC Act for recovery of Rs. 8,79,82,220/- together with interest at 22.5% per annum from 16.09.2007 until realization and further sum of Rs. 4,62,75,763/- together with interest at 21% per annum from 16.09.2007 until realization.

6. It is the allegation of the petitioner that efforts to recover its dues by selling the assets and adjusting the proceeds, is thwarted by the Income-tax department in not issuing a no-objection certificate to the petitioner to go ahead with the sale of the said properties, on the premise, that expert legal opinion suggests that tax payable by the assessees is prior in point of time to the execution of the mortgage deeds in favour of the petitioner, followed by an order of attachment, the Income-tax department and hence a priority charge in the matter of recovery of debts as indicated in the letter dated 14th July, 2011 Annexure 'J'.

7. Hence, this petition for the following reliefs:

"(a)		issue a Writ of Mandamus directing the Respondents to lift the attachment in respect of Properties bearing No.32/2A, Bangra Kulur Village, Mangalore.
(b)		issue a Writ of Mandamus restraining the Respondents from interfering in sale of the aforesaid properties and appropriate the proceeds towards amounts due to it.
(c)		issue a Writ of Mandamus restraining the respondents from selling the aforesaid properties and appropriate the proceeds towards arrears of tax due from Sri Vivian Kamath D'Souza, M/s. Veekay Developers Pvt. Ltd., M/s. Shalimar Constructions and M/s. Canara Builders.
(d)		issue such other writ, order or direction the Court may deem fit in the facts and circumstances of the case.
(e)		Grant such other relief as the Court may deem fit in the above case and cost in the interest of justice and equity."

8. Having heard the learned counsel for the parties, perused the pleadings and the statutory provisions, the point for consideration is:

"Whether realization of income-tax dues from the assessee under the Income-tax Act, 1961 will have priority over the secured debt in terms of the State Financial Corporations Act, 1951?"

9. The answer to this question need not detain the Court for long in the light of the authoritative. pronouncement of the Apex Court in Union of India v.Sicom Ltd. [2009] 2 SCC 121 observing that under Article 372 of the Constitution, as also well settled principles of law statutory provisions will prevail over the Crown debt, coupled with the non obstante clause in Section 46B of the SFC Act, not only prevail over contracts but also other laws. In other words, the 'SFC Act', having provided for recovery of debt in preference to all other debts under any other law, the Financial Corporation was entitled to appropriate the sale proceeds towards the discharge of debt due to it, at the first instance.

10. Although Sri Thirumalesh, learned counsel for the Revenue places reliance upon the decision of the Apex Court in Union of India v. Somasundram Mills (P.) Ltd. [1985] 21 Taxman 9 in support of the submission that general principle of law that debts due to the State are entitled to priority over all other debts, therefore, debts due to Income-tax department is a prior charge on the immovable properties, mortgaged in favour of the petitioner - Financial Corporation, that it is inapplicable to the facts of this case. That judgment when referred to at paragraph 18 in SICOM Limited's case, it was observed that the facts obtaining therein was with conflict of interest between a secured creditor and an unsecured creditor and not a question that arose for consideration in that petition, which reads thus:

"Whether realization of the duty under the Central Excise Act will have priority over the secured debts in terms of the State Financial Corporations Act, 1951 (for short "the SFC Act")?"

In that view of the matter the decision in Somasundaram's case has no application, more so since the present case is not one of conflict with secured and unsecured creditor.

11. Learned counsel for the Revenue places reliance upon the decision of the Apex Court in Central Bank of India v. State of Kerala [2009] 4 SCC 94 more appropriately, at paragraph 172 onwards. The question that arose for decision making in that case was:

"Whether Section 38C of the Bombay Sales Tax Act, 1959 (the Bombay Act) and Section 26- B of the Kerala General Sales Tax Act, 1963 (the Kerala Act) and similar provisions contained in other State legislations by which a first charge was created on the property of the dealer or such other person, who was liable to pay sales tax, etc. were inconsistent with the provisions contained in the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (the DRT Act) for recovery of "debt" and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ' (the Securitisation Act) for enforcement of "security interest" and whether by virtue of non obstanteclauses contained in Section 34(1) of the DRT Act and Section 35 of the Securitisation Act, the two Central legislations had primacy over State legislations?"

12. The facts therein were that the borrower, who mortgaged his properties to the creditor Bank failed to repay the dues and therefore, the Bank instituted a suit, which when decreed by the Debts Recovery Tribunal, a recovery certificate issued in favour of the Bank, and the Recovery Officer issued notice for sale of the properties of the borrower. At that stage, the Tahsildar issued a notice to the borrower for recovery of a certain sum as arrears of land revenue stating that the properties had been attached and steps were being taken to sell the same by auction. It is further observed that the Tahsildar claimed that by virtue of Section 26B of the Kerala Act, the State Government had a first charge over the attached properties, which was opposed by the Bank contending that being a Central legislation, the DRT Act would prevail over the Kerala Act. When writ petitions and writ appeals were dismissed, the matter came up before the Supreme Court. The answer to the question was, that there is no provision in the DRT Act or the Securitisation Act, by which first charge is created in favour of Banks, financial institutions or secured creditors qua the property of the borrower and that Section 13(1) of the Securitisation Act provides for limited primacy to the right of a secured creditor to enforce security interest vis-à-vis Section 69 or 69-A of the Transfer of Property Act. It was further held that the Parliament incorporated the non obstante clause in Section 13 of Securitisation Act, 2002 and gave primacy to the right of secured creditor vis-à-vis other mortgagees who could exercise rights under Sections 69 or 69-A of the Transfer of Property Act and that primacy has not been extended to other provisions like Section 38-C of the Bombay Act and Section 26-B of the Kerala Act, by which first charge is created in favour of the State over the property of the dealer or any person liable to pay the dues of sales tax, etc. It was further held that if Parliament intended to create first charge in favour of banks, financial institutions or other secured creditors on the property of the borrower, in priority, over the first charge created under State legislations, then it would have incorporated provisions similar to those contained in Section 14-A of the Workmen's Compensation Act, 1923, Section 11(2) of the EPF Act, Section 74(1) of the Estate Duty Act, 1953, Section 25(2) of the Mines and Minerals (Regulation and Development) Act, 1957, Section 30 of the Gift Tax Act and Section 529-A of the Companies Act, 1956 and ensure that notwithstanding series of judicial pronouncements, dues of banks, financial institutions and other secured creditors should have priority over the State's statutory first charge in the matter of recovery of the dues of sales tax, etc. There being no provision incorporated either in the DRT Act or Securitisation Act, it was held that it was not possible to read any conflict or inconsistency or overlapping between the provisions of the DRT Act and the Securitisation Act, on the one hand, and Section 38-C of the Bombay Act and Section 26-B of the Kerala Act, on the other, and the non obstante clauses contained in Section 34(1) of the DRT Act and Section 35 of the Securitisation Act cannot be invoked for declaring that the first charge created under the State legislation would not operate qua or affect the proceedings initiated by banks, financial institutions and other secured creditors for recovery of their dues or enforcement of security interest, as the case might be.

13. As a matter of fact, at paragraph 172 of the judgment in Central Bank of India's case, Apex Court extracted its earlier judgment in State Bank of Bikaner and Jaipur v. National Iron & Steel Rolling Corpn. [1995] 2 SCC 19, wherein it was observed that the first charge created under section 11AAAA of the Rajasthan Sales Tax Act will operate on the property as a whole and not only on the equity of redemption.

14. Regard being had to the provisions of the State Financial Corporations Act, it is clear that a first charge on the property is created clearly giving priority to the dues of the said statutory authority over all other charges on the property, on the basis of the mortgage, since the Income-tax Act, 1961 does not provide for a priority to the statutory charge over all other charges including mortgage under the 'SFC Act'.

15. Although, learned counsel for the respondent points to Rule 93 of the Second Schedule of the Income Tax Act, 1961, which contemplates that nothing in the said Schedule shall affect any provision of the Act whereunder tax is a first charge upon any asset, is unable to refer to any provision of Income Tax Act, whereunder income-tax due can be treated as a first charge on the assets of the assessees. So also, reference made to Section 281 of the Act too is not in the direction of establishing creation of a prior charge in favour of the Income Tax department over the assets of the assessee. Since what is contemplated under the Section is in relation to certain transactions of transfer being void during the pendency of an assessment proceeding.

16. Learned counsel for the petitioner is correct in his submission that in similar though not identical circumstances, the Division Bench of the High Court of Punjab and Haryana in Axis Bank Ltd. v. CIT [2013] 212 Taxman 19/[2012] 17 taxmann.com 139 (Mag.), declined to accept the plea of the revenue that Rule 93 of the Second Schedule of the Income Tax Act, 1961 creates a prior charge over the assets of the assessee even though there is a provisional attachment order issued under Section 281B of the Act.

17. Interestingly, it must be noticed that the Tax Recovery Officer in the letter dated 27.01.2006 Annexure 'F', by way of a reply to the notice dated 06.05.2005 of the petitioner through its learned counsel conceded to the fact that petitioner had a prior charge over the immovable properties and that the Income-tax department be treated as the second "mortgagor" (to be read as mortgagee). Though the learned counsel for Revenue submits that the Tax Recovery Officer's opinion would not change the statutory provisions, I am not impressed by that submission in the light of the view supra. Tax Recovery Officers opinion is valid and not the opinion of the Commissioner of Income Tax in his letter dated 14.07.2011 Annexure J.

18. In the result, this petition is allowed in part. The order of the Tax Recovery. Officer attaching property bearing No 32/2A of Bangra Kulur Village, Mangalore, mortgaged in favour of the petitioner is quashed and the respondent - Income-tax authorities are restrained from interfering with the process of sale of immovable properties, subject matter of mortgage, in favour of the petitioner, for recovery of its dues. In the event of the petitioner putting up for sale the immovable properties in question and after appropriation of the sale consideration towards its dues, remainder if any, is directed to be made over to the Income-tax Department for appropriation against its dues from the assessees, none other than Vivian Kamath D'souza; Veekay Realtors Pvt. Ltd.; Veekay Promoters Pvt. Ltd.; Veekay Developers Pvt. Ltd.; Veekay Home Builders Pvt. Ltd.; Shalimar Construction Pvt. Ltd. and Canara Builders.

IT : High Court has power to frame substantial questions of law other than questions on which appeal has been admitted

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[2013] 32 taxmann.com 380 (SC)

SUPREME COURT OF INDIA

Commissioner of Income-tax-II, Ahmedabad

Mastek Ltd.*

R.M. LODHA, J. CHELAMESWAR AND MADAN B. LOKUR, JJ.

C.C. NO. 3075 OF 2013†

MARCH 4, 2013

Section 260A of the Income-tax Act, 1961 - High Court, appeal to - Whether High Court's power to frame substantial question(s) of law at time of hearing of appeal other than questions on which appeal has been admitted remains under section 260A(4); however, subject to two conditions, (one) Court must be satisfied that appeal involves such questions, and (two) Court has to record reasons therefor - Held, yes - [In favour of assessee]

R.P. Bhatt, Sahil Tagotra, Om Prakash and Mrs. Anil Katiyar for the Appellant.

JUDGMENT

1. Heard Mr. R.P. Bhatt, learned senior counsel for the petitioner.

2. We find that appeal filed by the Revenue under Section 260A of the Income Tax Act, 1961 (for short, 'Act') has been admitted by the High Court and two substantial questions of law have been framed for consideration of the appeal.

4. The grievance of the Revenue is that by necessary implication, the other questions raised in the memo of appeal before the High Court have been rejected.

5. We are afraid that the Revenue is under some misconception. The proviso following the main provision of Section 260A(4) of the Act states that nothing stated in sub-section (4), i.e., 'The appeal shall be heard only on the question so formulated' shall be deemed to take away or abridge the power of the Court to hear, for reasons to be recorded, the appeal on any other substantial question of law not formulated by it, if it is satisfied that the case involves such question.

6. The High Court's power to frame substantial question(s) of law at the time of hearing of the appeal other than the questions on which appeal has been admitted remains under Section 260A(4). This power is subject, however, to two conditions, (one) the Court must be satisfied that appeal involves such questions, and (two) the Court has to record reasons therefor.

7. In view of the above legal position, we do not find any justifiable reason to entertain this special leave petition, although we are inclined to condone delay of 72 days.

8. Delay condoned.

9. Special leave petition is dismissed.

VARSHA

IT : Tribunal cannot dismiss an appeal for want of prosecution, without same being decided on merit

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[2013] 32 taxmann.com 342 (Gujarat)

HIGH COURT OF GUJARAT

Sanket Estate & Finance (P.) Ltd.

Commissioner of Income-tax*

AKIL KURESHI AND MS. SONIA GOKANI, JJ.

TAX APPEAL NOS. 133 & 134 OF 2012†

DECEMBER 4, 2012

Section 254 of the Income-tax Act, 1961, read with Rules 19, 20 and 24 of the Income-tax (Appellate Tribunal) Rules, 1963 - Appellate Tribunal - Orders of [Decision on merit] - Assessment years 1998-99 and 1999-2000 - Whether Tribunal cannot dismiss appeal only for want of prosecution without same being decided on merit - Held, yes [Para 25] [In favour of assessee]

FACTS

■		The appellant filed the return of income. The Assessing Officer on scrutiny assessment determined the total income by detailed adjudication.
■		On appeal, Commissioner (Appeals) partly allowed these appeals.
■		Further aggrieved by these orders, the appellant challenged the same by preferring the appeal before the Mumbai Tribunal, which were eventually transferred to Ahmedabad.
■		The appellant send communication addressed to the Tribunal on 20-10-2008, 4-11-2008, 16-4-2009, 29-9-2009, 8-4-2010 and 25-10-2010. The matter was requested to be fixed on 26-10-2010 with a further request to tag later years appeals with the earlier appeals.
■		The Tribunal dismissed the appeals on account of non-appearance of the appellant's representative on 4-8-2006. The appeals of 1998-99, 1999-2000 which were transferred from Mumbai were followed by the Commissioner (Appeals) in the subsequent years' appeals of the very same assessee. The appeals of 2001-02 and 2002-03 were fixed for hearing before the Ahmedabad Bench, while appeals of 1998-99 and 1999-2000 were awaited since 2008. The notice was sent which had been received back from the postal authority with a remark that it was not claimed and as none was present, at the given address. The Tribunal decided it ex parte and dismissed the same for want of prosecution.
■		On appeal :

HELD

■		Apart from the facts that the present appellant continuously and persistently followed the said issue, it appears that these appeals came to be dismissed without the same being decided on merits. [Para 17]
■		The Tribunal has chosen to dismiss the appeal on the ground of non-prosecution. It also noted that RPAD was sent and the same had returned with the remark of the postal department as none having claimed the same. Instead of deciding the matter on merits, it chose to dismiss the same for want of prosecution and this order in our opinion is contrary to the provision of law. [Para 23]
■		Rule 24 of the Income-tax Rules, 1963 makes it abundantly clear that the Tribunal cannot dismiss the appeal without adverting to the merits. Even on the day on which the hearing is adjourned, the appellant chose not to appear in person or through an authorized representative. It is incumbent upon the Tribunal to dispose of the appeal on merits after hearing the respondent and afterwards if the appellant appears and satisfy the Tribunal, sufficient cause for its non-appearance on the date of hearing, the Tribunal can set aside the ex parte order and restore the appeal. In the instant case, it can be noted from the letters addressed by the present appellant to the Tribunal that it was awaiting transfer of both the appeals of 1998-99 and 1999-2000 since Commissioner (Appeals) had relied upon such orders of earlier years. [Para 24]
■		If the record of these appeals were necessary for proceedings with the appeals, which were pending of the years 2001 to 2002, 2002-03, in the instant case, it was a matter of transfer from Mumbai Bench to the Ahmedabad Bench of these appeals and the present appellant has made out sufficient cause indicating from the material placed on record that it had never abandoned the cause. On the contrary, it had consistently pursued the matters as it was having a direct bearing on the appeals of subsequent years. Even otherwise, what is the requirement of the law is of adjudication on merit even when either side or both the sides choose not to contest. In view of the aforesaid, the Tribunal erred in dismissing the appeal only on the ground of non-prosecution without adverting to the merits of the matter and, therefore, the order impugned passed by the Tribunal was to be set aside and the matter was to be remanded to the Tribunal to adjudicate the same on merits. [Para 25]

CASE REVIEW

CIT v. S Chenniappa Mudaliar [1969] 74 ITR 41 (SC) [para 24] followed.

CIT v. Multiplan India (P.) Ltd. [1991] 38 ITD 320 (Delhi) [para 24] distinguished.

CASES REFERRED TO

CIT v. Multiplan India (P.) Ltd. [1991] 38 ITD 320 (Delhi) (para 2), CIT v. S. Chenniappa Mudaliar [1969] 74 ITR 41 (SC) (para 3), Anil Kumar Agrahari v. CIT [2010] 323 ITR 260 (MP) (para 3), Tribhuwan Kumar v. CIT [2007] 294 ITR 401 (Raj.) (para 3) and Rajendra Prasad Borah v.ITAT [2008] 302 ITR 243/174 Taxman 568 (Gauhati) (para 3).

Vijay S. Ranjan for the Appellant. Ms. Paurami Sheth for the Respondent.

ORDER

Ms. Sonia Gokani, J. - The appellant, aggrieved by the order of the Income Tax Appellate Tribunal dated 4.8.2006, filed the present appeal under Section 260A of the Income Tax Act (for short "the Act"), raising following substantial question of law for our consideration:-

"Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in dismissing the appeal preferred by the present appellant as not maintainable in view of the decision of the Income-tax Appellate Tribunal, Delhi Bench, in the case of CIT v. Multiplan India (P.) Ltd. [1991] 38 ITD 320?"

2. It is the say of the appellant that he filed the appeal before the Income Tax Appellate Tribunal being ITA No.2963/AHD/2003 for the assessment year 1999-2000 yet another appeal being ITA No.2962/Ahd/2003 was filed by the petitioner for assessment year 1998-99. These appeals were legally competent and they were consolidated. Then they were required to be decided by the Tribunal in accordance with law on merits. Instead of relying on the decision of Income Tax Appellate Tribunal, Delhi Bench in the case of CIT v. Multiplan India (P.) Ltd. [1991] 38 ITD 320, the Tribunal chose to dismiss the same summarily for want of prosecution.

3. Learned advocate Mr. Vijay Ranjan appear ing for the appellant has fervently submitted before this Court that the order of the Tribunal is patently erroneous and in post 1987 period, the amendment in Rule 24 makes it incumbunt upon the Tribunal to decide the appeal on merits. He further urged that even in the absence of the appellant, the Tribunal cannot dismiss the appeal for default in prosecution. He also submitted that the impugned order of the Tribunal though is passed on 4.8.2006, these appeals are preferred on 10.2.2012, as the order impugned was never served upon the appellant. Only on obtaining a copy of the said order on 12.12.2011, the present appeal came to be filed. He has taken us to the paper book indicating the communication addressed to the Tribunal. He sought to rely upon following decisions of the Apex Court:-

(a)		CIT v. S. Chenniappa Mudaliar [1969] 74 ITR 41(SC).
(b)		Anil Kumar Agrahari v. CIT [2010] 323 ITR 260(MP).
(c)		Tribhuwan kumar v. CIT [2007] 294 ITR 401(Raj).
(d)		Rajendra Prasad Borah v. ITAT [2008] 302 ITR 243/174 Taxman 568 (Gauhati).

5. Per contra, learned advocate Ms. Paurami Sheth appearing for the Revenue has contested this petition on the ground that delay in filing the appeal itself is vital for there being no sufficient grounds having been made out by the appellant.

6. She further urged that if the appellant was attempting to pursue his cause after 2008, he could have enquired about the pendency of the appeals. On having failed to so do it, this appeal itself is not maintainable.

7. Upon thus hearing both the sides, and on closely examining the material on the record with the assistance of the learned counsels, this appeal is being decided answering the question in favour of the appellant assessee.

8. Undisputed facts as have emerged in this case of the appellant assessee, are that the appellant filed the return of income for the assessment year 1998-99 and 1999-2000 respectively on 30.11.1998 and 28.12.1999 along with audited Statement of Accounts and Tax Audit Report.

9. The Assessing Officer on scrutiny assessment in both the years, determined the total income by detailed adjudication.

10. Aggrieved by these assessments, the same were challenged before the CIT(Appeals), Mumbai, which partly allowed these appeals. Further aggrieved by the same, the appellant challenged these orders by preferring the appeals for the year 1998-99 and 1999-2000 being ITA NO.2962, 2963 AHD.2003.

11. The appeals for the assessment years 1998-99 and 1999 to 2000 were originally filed by the appellant assessee before the Mumbai Tribunal, which were eventually transferred to Ahmedabad.

12. One can note communication of the present appellant addressed to the Tribunal on 20.10.2008, 4.11.2008, 16.4.2009, 29.9.2009, 8.4.2010 and 25.10.2010.

13. It appears that at the time of hearing of appeals of assessment year 2001-02 and 2002-03, the Tribunal required information regarding the status of appeals for assessment years 1998-99, 1999-2000, since CIT(Appeals) relied upon earlier years for deciding subsequent years' appeals. Letter dated 25.10.2010 indicates that on enquiring from the Assistant Registrar, Ahmedabad the appeals were shown to have been transferred to Ahmedabad, which reached the Registry on 12.6.2006. Accordingly, the matter was requested to be fixed on 26.10.2010 with a further request to tag those later years' appeals with the earlier appeals of Assessment Years 1998-99 and 1999-2000.

14. Letter from Assistant Registrar to the Chief Commissioner of Income-tax dated 9.8.2005 is indicative of transfer of ITA NO.2962 and 2963 for the assessment year 1998-99 and 1999-2000 respectively in the case of the present appellant to the Ahmedabad Bench.

15. Request for clubbing appeals on 27.10.2010 addressed to Vice-President also reiterates these facts. It appears from the communication dated 23.9.2011 addressed to the Assistant Registrar by the present appellant that oblivious of such transfer and dismisal in limine the appellants' case for the assessment year 2001-02, 2002-03 had been fixed for hearing on 3.11.2011.

Both the appeals No.2962 and 2963, which were transferred from Mumbai were already decided on 4.8.2006. Copy of the order since was not available, this appeal could not be filed earlier. It appears that the copies had been supplied to the appellant in December, 2011.

16. The last communication from the appellant dated 20.12.2011 also reiterates these facts and thus the senario that emerges is that the Tribunal dismissed the appeals on account of non-appearance of the appellant's representative on 4.8.2006. These appeals of 1998-99, 1999-2000 which were transferred from Mumbai were followed by CIT(Appeals) in the subsequent years appeals of the very same assessee and those appeals of 2001-2002 and 2002-2003 when were fixed for hearing before the Ahmedabad Bench, Appeals of 1998-99 and 1999-2000 were awaited since 2008. However, the order impugned is indicative that the notice was sent through RPAD which had been received back from the postal authority with a remark that it was not claimed and as none was present, the Tribunal decided it ex parte and dismissed the same for want of prosecution.

It would be apt to reproduce the order of the Tribunal as under:

"These are appeals filed by the assessee and are directed against two separate orders of CIT(A) dated 28.01.2003 & 30.01.2003 for Asst. Years 1998-99 and 1999-2000 respectively.

2. Notice of hearing was sent through RPAD which has been received back from the postal authorities with the remark "N/C". However, none was present on behalf of assessee on the fixed date of hearing. Therefore, in the circumstances we presume that assessee is not interested in prosecuting its appeals. Hence we dismiss the appeals filed by the assessee in-limine for want of prosecution following the decision of Tribunal in the case of CIT v. Multiplan India (P.) Ltd. 38 ITD 320 (Delhi)."

17. The question, therefore, would be as to whether the Tribunal was justified in so doing it. Apart from the facts that the present appellant continuously and persistently followed the said issue, it appears that these appeals came to be dismissed without the same being decided on merits.

18. It would be profitable, at this stage, to refer to Rules 19, 20 and 24 of the Income-tax Rules, which read as follows:

"Rules 19, 20 and 24 of the Income-tax (Appellate Tribunal) Rules, 1963, read as thus:-

"19.(1) The Tribunal shall notify to the parties specifying the date and place of hearing of the appeal and send a copy of the memorandum of appeal to the respondent either before or with such notice.

(2) The issue of the notice referred to in sub-rule (1) shall not by itself be deemed to mean that the appeal has been admitted.

Rule 20. In an appeal under sub-section(1) of Section 253, in fixing the date for the respondent to appear and answer to the appeal, a reasonable time shall be allowed for the necessary communication with the Commissioner through the proper channel and for the issue of instructions to an authorised representative to appear and answer on behalf of the respondent.

1**

Rule 24. Where, on the day fixed for hearing or any other date to which the hearing may be adjourned, the appellant does not appear in person or through an authorized representative when the appeal is on for hearing, the Tribunal may dispose of the appeal on merits after hearing the respondent:

Provided that where an appeal has been disposed of as provided above and the appellant appears afterwards and satisfies the Tribunal that there was sufficient cause for his non-appearance, when the appeal was called on for hearing, the Tribunal shall make an order setting aside the ex parteorder and restoring the appeal."

19. The Apex Court in the case of S. Chenniappa Mudaliar (supra), prior to the amendment of Rule 24 (1946 Rules) was deciding this very question as to whether the Tribunal is bound to give proper reasons of question of fact as well as law on merits and whether it can dismiss the appeal on the default of appearance. It was also deciding as to whether Rule 24 of 1946 Rules, which provided for dismissal of appeal for failure of appellant to appear is ultra vires as being in conflict with the provision of Section 33(4) of 1922 Act. It is answered in affirmation.

20. In the case of Rajendra Prasad Borah (supra), while interpreting Rule 24 of Income Tax Rules, 1963, Gauhati High Court has held that per se, it does not empower the Tribunal to dismiss the appeal for default in absence of appellant in the following words:-

"After hearing learned counsel for the parties and on a perusal of the provisions of law referred to hereinabove, it is more than apparent that the course adopted by the learned Tribunal in disposing of the assessee's appeals in the manner as delineated in the impugned order, cannot be sustained. Apart from the fact that, section 254(earlier section 33) of the Act makes it incumbent on the learned Tribunal to dispose of the appeals on merits as has been enunciated by the apex court in CIT v. S. Chenniappa Mudaliar [1969] 74 ITR 41, rule 24 as it stands, per se does not empower the learned Tribunal to dismiss an appeal for default in the absence of the appellant. The learned Tribunal's reliance on the decision of the Income-tax Appellate Tribunal, Delhi, rendered in CIT v. Multiplan India (P.) Ltd. [1991] 38 ITD 320, is apparently misplaced in the teeth of the decision of the apex court in CIT v. S. Chenniappa Mudaliar [1969] 74 ITR 41."

21. In the case of Tribhuwan kumar (supra), the Rajasthan High Court while interpreting Rules 19,20 and 24 of 1963 Rules also examined the decision of Delhi Bench rendered in the case of Multiplan India (P.) Ltd. (supra) by holding thus:-

"6. Having considered the aforesaid three provisions, we are unable to comprehend the view of the Tribunal that the assessee's appeal was not maintainable in view of rules 19 and 20 of the Rules. Surely the appeal preferred by the assessee was competent under section 253 of the Income-tax Act. How, in the circumstances the Tribunal could hold that the assessee's appeal from the order of the Commissioner of Income-tax (Appeals) was not maintainable when the appeal lay from the said order. The Tribunal misread and misapplied rules 19 and 20 of the Rules of 1963, in holding that the assessee's appeal was not maintainable. If for any reason, the assessee was not being represented on the date of hearing, the Tribunal could have proceeded for hearing of the appeal ex parte provided in rule 24 but that was not done. The appeal has not been heard on the merits and the Tribunal erroneously held that the assessee's appeal is not maintainable in law."

22. In the case of Anil Kumar Agrahari (supra), the Madhya Pradesh High Court was examining the dismissal for non-prosecution of appeal by the Tribunal and it held categorically that the Tribunal could not have dismissed the appeal without going into the merits of the case, by rejecting the adjournment application filed by the counsel. And, the matter was remanded back to the Tribunal for adjudication on merits. It also took note of decision rendered in Rajendra Prasad Borah (supra) as also the decision rendered by the Apex Court in S. Chenniappa MudaliarI (supra) so also the decision of the Tribhuwan kumar (supra), and held that the Tribunal could not have dismissed the appeal without adverting to the merits of the case and on the line of the decisions of Gauhati and Rajasthan High Courts, it set aside the order of Tribunal dismissing the appeal for want of prosecution.

23. In the instant case, as could be noted from the order impugned, that the Tribunal has chosen to dismiss the appeal on the ground of non-prosecution. It also noted that RPAD was sent and the same had returned with the remark of the postal department as none having claimed the same. Instead of deciding the matter on merits, it chose to dismiss the same for want of prosecution and this order in our opinion is contrary to the provision of law.

24. When the Supreme Court decided the case of S. Chenniappa Mudaliar (supra), no amendment in Rule in the Income-tax Appellate Tribunal Rules was made as yet. Rule 24 of the Income Tax Rules, 1963 makes it abundantly clear that the Tribunal cannot dismiss the appeal without adverting to the merits. Even on the day on which the hearing is adjourned, the appellant chose not to appear in person or through an authorised representative. It is incumbent upon the Tribunal to dispose of the appeal on merits after hearing the respondent and afterwards if the appellant appears and satisfy the Tribunal, sufficient cause for its non-appearance on the date of hearing, the Tribunal can set aside the ex parte order and restore the appeal. However, reliance of the Tribunal on the decision of the Delhi Bench in the case of Multiplan India (P.) Ltd. (supra) is erroneous and, therefore, requires to be set aside. In the instant case, it can be noted from the letters addressed by the present appellant to the Tribunal that it was awaiting transfer of both the appeals of 1998-99 and 1999-2000 since CIT (Appeals) had relied upon such orders of earlier years.

25. If the record of these appeals were necessary for proceedings with the appeals, which were pending of the year 2001 to 2002, 2002-03, in the instant case, it was a matter of transfer from Mumbai Bench to the Ahmedabad Bench of these appeals and the present appellant has made out sufficient cause indicating from the material placed on record that it had never abandoned the cause. On the contrary, it had consistently pursued the matters as it was having a direct bearing on the appeals of subsequent years. Even otherwise, what is the requirement of the law is of adjudication on merit even when either side or both the sides choose not to contest. In view of the aforesaid, we are of the considered view that the Tribunal erred in dismissing the appeal only on the ground of non-prosecution without adverting to the merits of the matter and, therefore, we set aside the order impugned dated 4.8.2006 passed by the Tribunal and also remand the matter to the Tribunal to adjudicate the same on merits. Appeal is allowed accordingly.

IT : Where Assessing Officer raised additional tax demand upon assessee, which was more than twice admitted tax liability, High Court had stayed entire disputed demand till next date of hearing

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[2013] 32 taxmann.com 220 (Rajasthan)

HIGH COURT OF RAJASTHAN

Virender Singh Shekhawat

Income-tax Officer, Suratgarh*

DR. VINEET KOTHARI, J.

S.B. CIVIL WRIT PETITION NO. 12153 OF 2012

FEBRUARY 8, 2013

Section 251 of the Income-tax Act, 1961 - Commissioner (Appeals) - Powers of [Stay of recovery of tax] - Assessee is a practicing advocate in department - Assessing Officer made a certain addition in declared income of assessee and raised additional tax demand upon him, which was more than twice admitted tax liability - Commissioner (Appeals), on appeal filed by assessee along with stay application, merely stayed 60 per cent of disputed demand and asked assessee to make payment of 40 per cent of demand - High Court, on writ petition filed by assessee, issued show cause notice to Assessing Officer and directed him to remain present before Court on next date of hearing - Whether in meanwhile entire disputed demand was liable to be stayed and bank account of assessee attached in this regard required to be released - Held, yes [Para 7] [In favour of assessee]

CASES REFERRED TO

Maharana Shri Bhagwat Singhji of Mewar v. ITAT [1997] 223 ITR 192 (Raj.) (para 1) and Maheshwari Agro Industries v. Union of India [2012] 206 Taxman 375/17 taxmann.com 68 (Raj.) (para 1).

Suresh Ojha for the Petitioner.

ORDER

1. The learned counsel for the petitioner submitted that despite this Court's judgment in the case of Maharana Shri Bhagwat Singhji of Mewar v.ITAT[1997] 223 ITR 192 (Raj.) and Maheshwari Agro Industries v. Union of India [2012] 206 Taxman 375/17 taxmann.com 68 (Raj.) cited before the learned Commissioner of Income-tax, Bikaner and also the Assessing Authority wherein it has been held that if demand of tax raised by the Assessing Authority is more than twice the admitted tax liability, then recovery of difference of tax has to be kept in abeyance during pendency by first appeal before the CIT (Appeals) as per the CBDT instructions which are binding on the authorities both these authorities by the impugned orders have merely stayed 50/60% of the disputed demand and have asked the petitioner a practising income tax practioner in the same department to make the payment of 40% of the disputed demand Rs. 4,07,400/- in the two instalments.

2. The learned counsel for the petitioner submitted that the impugned additions of income in the hands of a practising advocate are absolutely uncalled for and unjustified and said addiitons were made in the declared income of the practising advocate in the Department out of vengeance and mala fide reasons on the part of the Assessing Aurthority and therefore the impugned assessment order as well as interim stay orders with the aforesaid conditions of deposit of 40% of the disputed demand are liable to be quashed. The matter require consideration.

3. Issue show cause notice to the respondents copy of this order may also sent to the respondents along with the notice.

4. Rule is made returnable within three weeks "Dasti Direct services permitted.

5. Counsel to file proof of service on the respondents and not merely proof of despatch of notices before the next date positively in the alternative affidavit of the counsel/party of compliance to the extent made be filed.

6. The respondents are expected to file reply to the writ petition also before the next date.

7. In the meanwhile the recovery of disputed demand from the petitioner shall remain stayed and the bank account of the petitioner if attached in this regard shall be raleased forthgwith.

8. Mr. M.K. Singh Income tax Officer Suratgarh who passed the impugned order is directed to remain present before the Court on the next day of hearing.

--
Regards,

Pawan Singla

BA (Hon's), LLB

Audit Officer

IT=Disallowances omitted by AO inadvertently during final calculation is rectifiable under sec. 154

IT : Where certain disallowance made by Assessing Officer by detailed discussion was left from final calculation, such mistake could be corrected under section 154

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[2013] 33 taxmann.com 106 (Punjab & Haryana)

HIGH COURT OF PUNJAB AND HARYANA

Commissioner of Income-tax, Chandigarh

Punjab Agro Industries Corpn. Ltd.*

HEMANT GUPTA AND Ms. Ritu Bahri, JJ.

ITC No.77 of 1999

MARCH 14, 2013

Ms. Urvashi Dugga for the Appellant. Akshay Bhan and Alok Mittal for the Respondent.

ORDER

"5. Expenditure of Earlier years

5. Since the issue is short and purely legal in nature, we proceed to decide the question of law at this stage with the consent of the parties.

"154. (1) With a view to rectifying any mistake apparent from the record, an income-tax authority referred to in section 116 may amend any order passed by it under the provisions of this Act.

(2) Subject to the other provisions of this section, the authority concerned-

(a)		may make an amendment under sub-section (1) of its own motion, and
(b)		shall make such amendment for rectifying any such mistake which has been brought to its notice by the assessee, and where the authority concerned is the Deputy Commissioner (Appeals) or the Commissioner (Appeals), by the Assessing Officer also.

**"

9. Consequently, the substantial question of law is answered in favour of the Revenue and against the Revenue.

Your Queries on Accounts and Audit

[2013] 33 taxmann.com 82 (Article)

Your Queries on Accounts and Audit

VINAYAK PAI V.

1. Accounting for investment in partnership firm in consolidated financial statements

1.1 Query - ABC Limited operates in the alcoholic beverages industry in India and derives revenues through business operations in the product segments comprising of liquor, glass and contracts. The company is listed on the Bombay Stock Exchange and presents consolidated financial statements to its shareholders in compliance with the listing agreement. As part of its foray into the real estate segment, the company had invested an amount of Rs. 50 crores along with other individual related parties three years back. The venture was structured as a partnership firm with ABC Limited sharing 75% in the profits and losses of the partnership firm and pro-rated representation on its governing body. The financial statements of the partnership firm have been reporting a non-material loss in each of the three years, primarily on account of administrative expenditure, as the partnership firm is still in the property development phase.

The company has been reporting the investment in the partnership firm as "Investments-long term" under the erstwhile Schedule VI and under "Non-current investments" under the revised version of Schedule VI. The investments have been accounted for at cost less provision for proportionate share in the losses of the partnership firm. This treatment has been followed both in the stand-alone as well as in the consolidated financial statements of ABC Limited. The statutory auditors are in agreement with this accounting treatment.

The internal auditors have raised this as a non-compliance issue with the Board. Kindly provide your expert opinion on the appropriateness of the treatment of the investment by the company in the partnership firm engaged in real estate activity.

1.2 Analysis of the issue - The query is analyzed in terms of the requirements of the Companies Act, 1956 and applicable accounting standards on two dimensions, viz., stand-alone financial statements and consolidated financial statements.

1.2.1 Stand-alone financial statements - The Companies Act, 1956 does not require preparation and presentation of the consolidated financial statements. The financial statements presented to shareholders are required to be prepared on a stand-alone or separate basis and the investments are accounted for as per the applicable accounting standard AS 13 - Accounting for Investments.

Para 3 of AS 13 defines an investment as "assets held by an enterprise for earning income by way of dividends, interest and rentals for capital appreciation, or for other benefits to the investing enterprise"

Further, a current investment is defined as "an investment that is by its nature readily realisable and is intended to be held for not more than one year from the date on which such investment is made". On the other hand, a long-term investment is an investment other than a current investment.

In the stand-alone financial statements of ABC Limited, the investments are appropriately classified as non-current investments. Investments classified as long-term investments should be carried in the financial statements at cost. However, provision for diminution shall be made to recognise a decline, other than temporary, in the value of the investments, such reduction being determined and made for each investment individually.

The accounting treatment in the separate financial statements appears to be in line with accounting requirements. However, the financial statements submitted along with the query indicate that the company has not disclosed the accounting policy for determining the carrying amount of the investment as required by Para 35(a) of AS 13.

1.2.2 Consolidated financial statements - Consolidated financial statements are the financial statements of a group presented as those of a single enterprise. The Securities Exchange Board of India (SEBI) listing agreement requires a listed entity to prepare and present consolidated financial statements. Accordingly, ABC Limited is required to prepare consolidated financial statements as per the requirement of AS 21 - Consolidated Financial Statements.

It appears that ABC Limited has intentionally or inadvertently accounted for the investment in the partnership firm at cost less permanent diminution in value, whereas the same needs to be accounted for by using the "consolidation model of accounting" prescribed by AS 21.

It may be noted that the definition of a subsidiary under the Companies Act is narrower that the definition of a subsidiary under AS 21.

The relevant definitions are analyzed herein below:

1.2.2.1 THE DEFINITION OF A SUBSIDIARY UNDER THE COMPANIES ACT- For the purposes of this Act, a company shall be deemed to be a subsidiary of another if, but only if, (a) that other controls the composition of its Board of directors; or (b) that other - (i) where the first-mentioned company is an existing company in respect of which the holders of preference shares issued before the commencement of this Act have the same voting rights in all respects as the holders of equity shares, exercises or controls more than half of the total voting power of such company, (ii) where the first-mentioned company is any other company, holds more than half in nominal value of its equity share capital; or (c) the first-mentioned company is a subsidiary of any company which is that other's subsidiary.

1.2.2.2 THE DEFINITION OF A SUBSIDIARY UNDER AS 21 - CONSOLIDATED FINANCIAL STATEMENTS- The relevant definitions are listed hereinbelow:

(a)		A subsidiary is an enterprise that is controlled by another enterprise.
(b)		A parent is an enterprise that has one or more subsidiaries.
(c)		A group is a parent and all others its subsidiaries.
(d)		Control: (a) the ownership, directly or indirectly through subsidiaries, of more than one-half of the voting power of an enterprise; or (b) control of the composition of the board of directors in the case of a company or of the composition of the corresponding governing body in case of any other enterprise so as to obtain economic benefits from its activities. For the purpose of AS 21, an enterprise is considered to control the composition of the governing body of an enterprise that is not a company, if it has the power, without the consent or the concurrence of any other person, to appoint or to remove all or a majority of members of the governing body of that other enterprise.

As can be seen from the above, ABC Limited controls the partnership as: (a) its share in the profits and losses of the partnership is greater than 51%, and (b) it has dominant control on the governing body of the partnership firm.

The partnership firm is, therefore, a subsidiary of ABC Limited as per the applicable provisions of AS 21 and, therefore, the investment in the firm needs to be consolidated. As per Para 9 of AS 21, there are no exceptions to consolidation under circumstances where the control is not temporary. A parent which presents consolidated financial statements should consolidate all subsidiaries, domestic as well as foreign. ABC Limited, therefore, is non-compliant with applicable accounting standards and should take necessary steps to correct the error.

2. Retrospective changes to accounting policies under IND-AS

2.1 Query - Our company ABC Limited is an Information Technology services company and is listed on the NSE. We are analyzing the impact of IND-AS 8 Accounting Policies, Changes in Accounting Estimates and Errors as a part of our preparedness to converge our company's financial statements with International Financial Reporting Standards. IND-AS requires retrospective application of any change in accounting policy which is different from the current practice under the Indian GAAP. On a change of accounting policy, the previous year's figures previously reported are restated to conform to the new accounting policy.

Is the previous year's column required to be labelled as "Restated"? The guidance on implementing IND-AS 8 does not provide any clarity on this issue. Kindly provide your expert opinion.

2.2 Opinion and analysis - A restatement is specific to correction of an error, whereas a change in an accounting policy is not a restatement, despite the fact that previously issued financial statements are being revisited in the reporting period of change in the comparative figures column.

An analysis of the relevant provisions of IND-AS 8 follows hereinbelow:

Para 14 states that an entity shall change its accounting policy only if the change:

(a)		is required by an IND-AS: or
(b)		results in the financial statements providing reliable and more relevant information about the effects of transactions, other events or conditions on the entity's financial position, financial performance or cash flows.

Further, Para 19 provides guidance on applying changes in accounting policies as follows:

(a)		an entity shall account for a change in accounting policy resulting from the initial application of an IND-AS in accordance with the specific transitional provisions, if any, in that IND-AS, and
(b)		when an entity changes an accounting policy upon initial application of an IND-AS that does not include specific transitional provisions applying to that change, or changes an accounting policy voluntarily, it shall apply the change retrospectively.

It would also be pertinent here to analyze the definitions of "retrospective application" and "retrospective restatement" in the context of the query:

Retrospective application is applying a new accounting policy to transactions, events and conditions, as if that policy had always been applied, whereas a retrospective restatement is correcting the recognition, measurement and disclosure of amounts of elements of financial statements, as if a prior period error had never occurred.

It is not appropriate to use the term "Re-stated" when an accounting policy is changed, since a restatement is a re-issue of previously issued financial statements to correct an error. The appropriate terminology to use is "As Adjusted" for comparative figures when an accounting policy is changed retrospectively in the current period.

It may be noted that this opinion is based on the current version of IND-AS 8 placed on the Ministry of Corporate Affairs (MCA) Website.

3. Reporting revaluation reserve for parent company's consolidation purposes

3.1 Query - KLM India Limited is a unlisted company and operates in the automobile spares manufacturing sector. It has recently received private equity funding from US investors. As part of the investor's agreement, the management is required to submit monthly MIS (Management Information System) reports to the PE investor. One of the reports includes submission of unaudited US GAAP financial statements.

Our query is with respect to the line item "fixed assets". Our company had invested in lands and buildings a few years ago. Three years back, we had revalued the asset on a systematic basis availing of the services of a property valuer and accounted for the upward revaluation by crediting the same to the "revaluation surplus" in the balance sheet prepared under the Indian GAAP.

Are we required to recast this revaluation surplus to "other comprehensive income" section of the financial statements under the US GAAP ? Further, kindly clarify if the excess depreciation needs to be adjusted against retained earnings or can we recoup the same from the US GAAP profit and loss account ?

3.2 Opinion and analysis - United States generally accepted accounting principles do not permit revaluation of fixed assets. The accounting literature applicable to this query is ASC 360 - Property, plant and equipment and ASC 852 - Reorganizations.

Property, plant and equipment are prohibited from being written-up by an entity to reflect appraisal, market values or current values which are above historic costs to the entity except under special circumstances like quasi-reorganizations.

Unlike IFRS which permits the choice to an entity to select either the cost model or revaluation model for subsequent measurement of items of property, plant and equipment, there is no similar choice under the US GAAP accounting framework.

Accordingly, you need to strip out the amount standing to the credit of the revaluation surplus in the balance sheet under Indian GAAP as well as bump down the revaluation increase residing in the asset account in recasting the company's Indian GAAP financial statements to conform to the requirements of the US GAAP. It is presumed that KLM India Limited has been recouping the additional depreciation from the Indian GAAP Statement of Profit and Loss.

Therefore, you will not have a "Property, plant and equipment - revaluation surplus" in the "Accumulated Other Comprehensive Income" section of the US GAAP financial statements.

IT-Amendment to sec. 2(15) fixing monetary limit authorises AO to deny exemption and not to revoke registration

IT : Amendment to section 2(15) by introducing Proviso fixing monetary limit in respect of public utility services cannot be a reason to cancel registration in exercise of power under section 12AA(3)

IT : Registration under section 12AA is only to identify a charitable institution, however, mere registration per se will not confer any right on taxpayer to claim exemption of income

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[2013] 33 taxmann.com 142 (Cochin - Trib.)

IN THE ITAT COCHIN BENCH

Mahatma Gandhi Charitable Society

Commissioner of Income-tax, Thiruvananthapuram*

N.R.S. GANESAN, JUDICIAL MEMBER
AND B.R. BASKARAN, ACCOUNTANT MAMBER

IT Appeal No. 250 (Coch.) of 2011
[ASSESSMENT YEAR 2011-12]

NOVEMBER 16, 2012

Section 12AA, read with sections 2(15), 11 and 12, of the Income-tax Act, 1961 - Charitable or religious trust - Registration procedure [Cancellation of registration] - Assessment year 2011-12 - Whether amendment to section 2(15) by introducing proviso fixing monetary limit in respect of public utility services cannot be a reason to cancel registration - Held, yes - Whether registration under section 12AA is only to identify a charitable institution, however, mere registration per se will not confer any right on taxpayer to claim exemption of income - Held, yes - Whether, therefore, in case of a charitable trust, if contractual receipt exceeds monetary limit provided in proviso to section 2(15), Assessing Officer can reject claim of exemptions under sections 11, 12 and 13 even though, registration under section 12AA has been granted to said trust - Held, yes [Paras 6 and 6A] [In favour of assessee]

FACTS

■		The assessee was a public charitable society. One of the objects of assessee-society was to provide employment to needy and deserving citizens. The assessee-society had been granted registration under section 12AA.
■		During the relevant assessment year, the Commissioner in exercise of his power under section 12AA(3) passed an order withdrawing registration granted to assessee-society. The reason for withdrawing registration was that the assessee had participated in an auction with Indian Railway and became a successful bidder. The total receipt from the contract with Indian Railway exceeded Rs. 4 crores. Therefore, in view of the First Proviso to section 2(15), the assessee could not be considered to be a charitable institution any longer.
■		On appeal:

HELD

■		Section 12AA(3) was introduced by Finance Act, 2004 with effect from 1-10-2004. This section empowers the Commissioner to cancel the registration granted under sections 12A and 12AA on satisfaction of two conditions, viz. (1) when the activity of the trust or institution is not genuine; (2) when the activity is not carried out in accordance with the object of the trust/institution.
■		In other words, the registration can be cancelled only if the Commissioner is satisfied that the object of the trust is not genuine or the activity of the taxpayer society was not carried out in accordance with the object. It is not the case of the revenue that the object of the trust is not genuine. It is also not the case of the revenue that the assessee has not carried out its activity in accordance with the object of the trust. The only objection of the revenue is that the aggregate contract receipt from railway is exceeding Rs.10 lakhs; therefore, the taxpayer is not charitable institution.
■		If the aggregate contract receipts exceed Rs.10 lakhs in any of the years, at the best, the Assessing Officer may deny exemption at the time of assessment proceedings. In view of the above, it is opined that the subsequent amendment to section 2(15) by introducing Proviso fixing the monetary limit in respect of public utility services could not be a reason to cancel the registration. [Para 6]
■		Another question which may incidentally arise for consideration is that once the taxpayer is not a charitable institution in terms of section 2(15), since contract receipts admittedly exceed the limit prescribed by the Parliament, whether the taxpayer is entitled for exemption under sections 11 and 12.
■		It is well settled proposition of law that registration under section 12AA is only to identify a charitable institution. Mere registration per se will not confer any right on the taxpayer to claim exemption under sections 11, 12 and 13. In other words, though the registration under section 12AA is a pre-requisite for claiming exemption, the exemption under sections 11, 12 and 13 is not automatic. The taxpayer has to satisfy the conditions prescribed in sections 11, 12 and 13 for the purpose of claiming exemption under those provisions of the Act.
■		The taxpayer has to recognize/establish that the aggregate contract receipts do not exceed Rs.10 lakhs. Therefore, when the contract receipts from railway exceeded the monetary limit fixed by the Parliament, the taxpayer trust may not entitle for exemption under sections 11, 12 and 13. However, this issue can be examined by the Assessing Officer at the time of assessment.
■		When the object of the public utility services is one of the charitable purpose as mentioned in section 2(15), the monetary limit provided in proviso to section 2(15) could be examined by the Assessing Officer at the time of assessment. If the monetary limit exceeded the limit provided by the Parliament, the Assessing Officer can very well reject the claim of exemptions under sections11, 12 and 13 even though, registration under section 12AA was granted. Therefore, cancellation of the registration under section 12AA(3) may not be proper. [Para 6A]
■		In view of the above discussion, the order of the lower authority is set aside and the appeal of the assessee stands allowed. [Para 7]

CASES REFERRED TO

Kalinga Institute of Industrial Technology v. CIT [2011] 336 ITR 389/[2012] 20 taxmann.com 829 (Orissa) (para 2) and Welham Boys' School Society v. CBDT [2006] 285 ITR 74/[2007] 158 Taxman 199 (Uttaranchal) (para 2).

K.M.V. Pandalai for the Appellant. M. Anil Kumar for the Respondent.

ORDER

N.R.S. Ganesan, Judicial Member - This appeal of the taxpayer is directed against the order of the Commissioner of Income-tax, Thiruvananthapuram dated 24-02-2011 withdrawing the registration granted u/s 12A of the Act.

2. Shri K.M.V. Pandalai, the ld.counsel for the taxpayer submitted that the Administrative Commissioner has not recorded his satisfaction and the circumstances which warranted the exercise of his powers u/s 12AA(3) of the Act. According to the ld.counsel, the powers conferred on the Commissioner u/s 12AA(3) of the Act could be invoked on recording his satisfaction and the circumstances which warrants the withdrawal of the registration. The ld.counsel placed his reliance on the judgment of the Orissa High Court in Kalinga Institute of Industrial Technology v. CIT [2011] 336 ITR 389/[2012] 20 taxmann.com 829. The ld.counsel for the taxpayer further submitted that the registration u/s 12AA of the Act was granted on 30th January, 1995 after satisfying the object and activities of the taxpayer. For all earlier assessment years exemption was granted by the assessing officer. According to the ld.counsel, the taxpayer was carrying on its activity in accordance with the object that is provided in the Memorandum of Association. When the taxpayer was granted approval u/s 12AA of the Act and carried on its activity in accordance with the object for which registration was granted, it cannot be said that the taxpayer was not carrying on its activity in accordance with its object. According to the ld.counsel, the powers of the Commissioner to cancel the registration is confined to the provisions of section 12AA(3) of the Act. The Commissioner cannot exceed the conditions provided in section 12AA(3) of the Act. According to the ld.counsel, the taxpayer has not changed or amended its object. The ld.counsel further submitted that the taxpayer was expected to carry out its activity consistent with its object of the trust. Therefore, the activity of the taxpayer trust should be tested u/s 12AA(3) of the Act and not with reference to provisions of section 2(15) of the Act. According to the ld.counsel, there is no reference about section 2(15) in section 12AA of the Act. The ld.counsel further pointed out that the Commissioner at the best may examine whether the activity of the trust was carried on in accordance with the object of the trust or not? The Commissioner, according to the ld.counsel, has no power, jurisdiction or discretion beyond the conditions mentioned in section 12AA(3) of the Act. The ld.counsel has also placed reliance on the judgment of the Uttaranchal High Court in Welham Boys' School Society v. CBDT [2006] 285 ITR 74/[2007] 158 Taxman 199. The ld. counsel submitted that even in case the taxpayer was not carrying on its activity in terms of its charitable trust, the Commissioner at the best may deny exemption u/ss 11 & 12 of the Act. The ld. counsel further submitted that providing employment to needy and deserving citizens is one of the objects mentioned in clause (5) of the Memorandum of Association. The ld. counsel further submitted that providing employment opportunity to the needy and deserving people is a charitable activity. Therefore, the Administrative Commissioner is not correct in withdrawing the registration granted u/s 12AA of the Act.

3. On the contrary, Shri Anilkumar, the ld. DR submitted that no doubt registration was granted u/s 12AA of the Act by the Commissioner. However, the provisions of section 2(15) of the Act was amended by Parliament by Finance Act 2009 with retrospective effect from 01-04-2009. According to the ld. DR, if the activity of the taxpayer involves carrying on any trade, commerce or business or activity of rendering services in relation to trade, commerce or business cannot be considered to be a charitable activity. The Parliament, however, introduced another Proviso to section 2(15) of the Act w.e.f. 01-04-2012 thereby brought down the requirement of the aggregate value of the receipt from the activities to Rs.10 lakhs or more in the previous year. In this case, according to the ld. DR, the taxpayer has participated in an auction with Indian Railway and became a successful bidder. The total receipt from the contract with Indian Railway exceeds Rs.4 crores. Therefore, in view of the First Proviso to section 2(15) of the Act, the taxpayer cannot be considered to be a charitable institution any longer. According to the ld. representative providing employment to the poor or carrying out the works on contract cannot by itself be considered as charitable activity. According to the ld. representative, since the gross receipt from the contract exceeds Rs.4 crores for the previous year relevant to the assessment year under consideration, the taxpayer cannot be considered to be a charitable institution within the meaning of section 2(15) of the Act. Therefore, the Administrative Commissioner has rightly withdrawn the registration.

4. We have considered the rival submissions and also perused the material available on record. Admittedly, the Administrative Commissioner granted registration u/s 12AA of the Act. Subsequently by the impugned order, the Administrative Commissioner withdrawn the registration on the ground that the object of the institution was not carried on in accordance with provisions of section 2(15) of the Act. We have carefully gone through the provisions of section 12AA(3) of the Act which reads as under:

"12AA(3) Where a trust or an institution has been granted registration under clause (b) of sub-section (1) [or has obtained registration at any time under section 12A [as it stood before its amendment by the Finance (No.2) Act, 1996 (33 of 1997)] and subsequently the Commissioner is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, as the case may be, he shall pass an order in writing cancelling the registration of such trust or institution:

Provided that no order under this sub-section shall be passed unless such trust or institution has been given a reasonable opportunity of being heard."

Section 12AA(3) was introduced by Finance Act, 2004 with effect from 01-10-2004. This section empowers the Commissioner to cancel the registration granted u/s 12A and 12AA on satisfaction of two conditions, viz. (1) when the activity of the trust or institution is not genuine; (2) when the activity is not carried out in accordance with the object of the trust / institution? The contention of the ld.counsel for the taxpayer before this Tribunal is that once registration was granted, it cannot be cancelled unless the Commissioner recorded his satisfaction about the non genuineness of the institution or that the activities are not carried out in accordance with the object of the trust. The ld.counsel further contended that once registration was granted, there cannot be any further reference to section 2(15) of the Act since there was no reference in section 12AA(3) of the Act.

5. The question arises for consideration is that when the taxpayer trust was registered u/s 12AA of the Act on the basis of the object disclosed in the Memorandum of Association and considering the provisions of section 2(15) of the Act, can such registration be cancelled or withdrawn after introduction of Proviso to section 2(15) of the Act? We have also carefully gone through the provisions of section 2(15) of the Act. The Parliament defined charitable purpose in section 2(15) of the Act. This is an inclusive definition. One of the objects of the trust is public utility which was considered to be charitable in nature. However, by First Proviso to section 2(15) of the Act, the Parliament intended to exclude the object of 'general public utility' from the definition of charitable purpose provided, if the activity involved carrying on of any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity. The application of First Proviso was originally intended to apply in respect of the institution whose aggregate value of the receipt from the activities referred to in First Proviso is Rs.25 lakhs and above in the previous year. Subsequently by Finance Act, 2011, the Parliament intended to apply First Proviso to section 2(15) only in respect of the institution whose aggregate value of the receipt is Rs.10 lakhs and above. Therefore, when the charitable institution carrying on activity of general public utility whose aggregate value of the receipt exceeds Rs.10 lakhs or above cannot be considered to be a charitable institution.

6. The taxpayer in the present case was established for carrying out various activities including giving employment to atleast one member in a family which is needy and deserving. By placing reliance on this clause which contained in the Memorandum of Association at clause 4(17) of the Memorandum, the ld.counsel for the taxpayer contended that giving employment opportunity to the poor is one of the objects of the taxpayer trust which would fall in the advancement of any other object of the general public utility. Therefore, the Administrative Commissioner, after considering this object found that the taxpayer is carrying on an activity in advancement of any other object of general public utility. Once it is considered and granted, subsequent amendment fixing the monetary limit cannot be a reason for withdrawing the registration u/s 12AA(3) of the Act. No doubt, section 12AA(3) provides for cancellation of registration under two conditions, viz. (1) when the activity of the trust or institution is not genuine; (2) when the activity is not being carried out in accordance with the object of the trust / institution. The aggregate value of receipt could be examined by the assessing officer at the time of assessment proceedings. The Commissioner cannot go beyond the two conditions provided in section 12AA(3) for cancelling the registration. In other words, the registration can be cancelled only if the Commissioner is satisfied that the object of the trust is not genuine or the activity of the taxpayer society was not carried out in accordance with the object. It is not the case of the revenue that the object of the trust is not genuine. It is also not the case of the revenue that the taxpayer has not carried out its activity in accordance with the object of the trust. The only objection of the revenue is that the aggregate contract receipt from railway Rs.4 crores is exceeding Rs.10 lakhs; therefore, the taxpayer is not charitable institution. If the aggregate contract receipts exceed Rs.10 lakhs in any of the years, at the best, the assessing officer may deny exemption at the time of assessment proceedings. In view of the above, this Tribunal is of the considered opinion that the subsequent amendment to section 2(15) of the Act by introducing Proviso fixing the monetary limit in respect of public utility services cannot be a reason to cancel the registration.

6A. Another question which may incidentally arise for consideration is that once the taxpayer is not a charitable institution in terms of section 2(15) of the Act, since contract receipts admittedly exceed the limit prescribed by the Parliament, whether the taxpayer is entitled for exemption u/ss 11 & 12 of the Act? It is well settled proposition of law that registration u/s 12AA of the Act is only to identify a charitable institution. Mere registration per se will not confer any right on the taxpayer to claim exemption u/ss 11, 12 & 13 of the Act. In other words, though the registration u/s 12AA is a pre-requisite for claiming exemption the exemption u/s 11, 12 & 13 are not automatic. The taxpayer has to satisfy the conditions prescribed in sections 11, 12 & 13 of the Act for the purpose of claiming exemption under those provisions of the Act. The Taxpayer has to recognize/establish that the aggregate contract receipts do not exceed Rs.10 lakhs. Therefore, when the contract receipts from railway exceeded the monetary limit fixed by the Parliament, this Tribunal is of the considered opinion that the taxpayer trust may not entitle for exemption u/ss 11, 12 & 13 of the Act. However, this issue can be examined by the assessing officer at the time of assessment. When the object of the public utility services is one of the charitable purpose as mentioned in section 2(15) of the Act, this Tribunal is of the considered opinion that the monetary limit provided in Proviso to section 2(15) could be examined by the assessing officer at the time of assessment. If the monetary limit exceeded the limit provided by the Parliament, the assessing officer can very well reject the claim of exemptions u/s 11, 12 & 13 of the Act even though, registration u/s 12AA of I.T. Act was granted. Therefore, cancellation of the registration u/s 12AA(3) of the Act may not be proper.

7. In view of the above discussion, the order of the lower authority is set aside and the appeal of the taxpayer stands allowed

IT- Concealment penalty can't be imposed if divergent views exist on dis-allowance of an exp.

IT : Where disallowance of bad debt was due to difference of opinion, no penalty under section 271(1)(c) could be imposed on that account

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[2013] 33 taxmann.com 97 (Gujarat)

HIGH COURT OF GUJARAT

Commissioner of Income-tax-IV

Sambhav Media Ltd.*

AKIL KURESHI AND MS. SONIA GOKANI, JJ.

TAX APPEAL NO. 589 of 2012†

JANUARY 22, 2013

Section 271(1)(c), read with section 36(1)(vii), of the Income-tax Act, 1961 - Penalty - For concealment of income [Bona fide claim, disallowance of] - Assessing Officer imposed penalty under section 271(1)(c) upon assessee on account of disallowance of bad debt - Tribunal deleted penalty holding that it was a case of difference of opinion on allowability of certain deductions and in absence of any material to indicate any dishonest attempt on part of assessee to conceal income, no penalty could be imposed - Whether Tribunal was justified in deleting penalty - Held, yes [Para 4] [In favour of assessee]

CASE REVIEW

CIT v. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158/189 Taxman 322 (SC) followed.

CASES REFERRED TO

CIT v. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158/189 Taxman 322 (SC) (para 4).

Ms. Paurami B. Sheth for the Appellant.

ORDER

Ms. Sonia Gokani, J. - This Appeal is preferred under Section 260A of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), challenging the order dated 02.03.2012 of the Income Tax Appellate Tribunal (hereinafter after referred to as "ITAT"), proposing following substantial question of law for our consideration:

"Whether the Appellate Tribunal is right in law and on facts in confirming the order passed by CIT (A) of cancellation of the penalty to the tune of Rs.3,31,200/- levied by the Assessing Officer u/s. 271 (1) (c) ? "

2. Heard learned counsel Ms. Paurami Sheth for the revenue and examined the material on record with her assistance.

3. The issue pertains to deletion of penalty imposed on account of disallowance of bad debts. It appears that the assessee disclosed all relevant material facts before the Assessing Officer at the time of filing of return. The Assessing Officer did not find such claim sustainable and imposed penalty on the assessee. The CIT(A) deleted such penalty and the Tribunal has rightly held in the finding that it is a case of difference of opinion in allowability of certain deductions and in absence of any material to indicate any dishonest attempt on the part of the assessee to conceal the income, no penalty can be imposed.

4. We do not find anything to entertain this Tax Appeal as neither there is any concealment of income nor is there any material to indicate filing of inaccurate particulars of income by the assessee. The CIT(A) & Tribunal were right in deleting the penalty imposed under Section 271(1)(c) of the Act in view of the decision of the Apex Court in the case of CIT v. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158/189 Taxman 322. The Apex Court held thus:

"It was pointed out that unless the wording directly covered the assessee and the fact situation herein, there could not be any penalty under the Act. It was pointed out that there was no concealment or any inaccurate particulars regarding the income were submitted in the Return. Section 271(1)(c) is as under:-

"271(1) If the Assessing Officer or the Commissioner (Appeals) or the Commissioner in the course of any proceedings under this Act, is satisfied that any person-...

A glance at this provision would suggest that in order to be covered, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. Present is not the case of concealment of the income. That is not the case of the Revenue either. However, the Learned Counsel for Revenue suggested that by making incorrect claim for the expenditure on interest, the assessee has furnished inaccurate particulars of the income. As per Law Lexicon, the meaning of the word "particular" is a detail or details (in plural sense); the details of a claim, or the separate items of an account. Therefore, the word "particulars" used in the Section 271(1)(c) would embrace the meaning of the details of the claim made. It is an admitted position in the present case that no information given in the Return was found to be incorrect or inaccurate. It is not as if any statement made or any detail supplied was found to be factually incorrect. Hence, at least, prima facie, the assessee cannot be held guilty of furnishing inaccurate particulars. The learned counsel argued that "submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income". We do not think that such can be the interpretation of the concerned words. The words are plain and simple. In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars. In Commissioner of Income Tax, Delhi v. Atul Mohan Bindal [2009 (9) SCC 589], where this Court was considering the same provision, the Court observed that the Assessing Officer has to be satisfied that a person has concealed the particulars of his income or furnished inaccurate particulars of such income.

We are not concerned in the present case with the mens rea. However, we have to only see as to whether in this case, as a matter of fact, the assessee has given inaccurate particulars. In Webster's Dictionary, the word "inaccurate" has been defined as:-

"not accurate, not exact or correct; not according to truth; erroneous; as an inaccurate statement, copy or transcript".

We have already seen the meaning of the word "particulars" in the earlier part of this judgment. Reading the words in conjunction, they must mean the details supplied in the return, which are not accurate, not exact or correct, not according to truth or erroneous. We must hasten to add here that in this case, there is no finding that any details supplied by the assessee in its return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under Section 271(1)(c) of the Act. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the Return cannot amount to the inaccurate particulars.

We do not agree, as the assessee had furnished all the details of its expenditure as well as income in its Return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the Return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not, in our opinion, attract the penalty under Section 271(1)(c). If we accept the contention of the Revenue then in case of every Return where the claim made is not accepted by Assessing Officer for any reason, the assessee will invite penalty under Section 271(1)(c). That is clearly not the intendment of the Legislature."

In view of above, this Appeal deserves no consideration and therefore, the same is dismissed.

Varsha

*In favour of assessee.

† Arising out of order of Tribunal, dated 2-3-2012.

ST-Electricity charge recovered from tenant not includible in rent from letting out of an immovable property

ST : Electricity charges, towards electricity consumed by tenant, recovered on actual basis by landlord are not includible in value of renting of immovable property services; but, operation and maintenance charges are includible

ST : Operation and maintenance charges recovered by a landlord from his tenant are incidental to principal service of renting of immovable property and are not taxable prior to 1-6-2007

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[2013] 33 taxmann.com 102 (CCE - Chennai)

COMMISSIONER OF CENTRAL EXCISE (APPEALS), CHENNAI BENCH

Ticel Bio Park Ltd., In re*

P. AYYAM PERUMAL, COMMISSIONER (APPEALS)

ORDER-IN-APPEAL NO. 89 OF 2011 (MST)
Appeal No. 355 OF 2010 (MST)

JUNE 15, 2011

I. Section 65(90a), read with section 67, of the Finance Act, 1994 - Renting of Immovable Property Service - - Electricity charges, towards electricity consumed by tenant, recovered on actual basis by landlord and paid to State Electricity Board shall not form part of taxable value as such sums are collected as 'pure agent' and are excludible in view of rule 5(2) of Service Tax (Determination of Value) Rules, 2006 - However, operation and maintenance charges recovered by a landlord from his tenant are incidental to principal service of renting of immovable property and shall form part of taxable value of such services [Paras 6.3 and 6.4] [In favour of assessee]

II. Section 65(64) of the Finance Act, 1994 - Management, Maintenance or Repair Services - Operation and maintenance charges recovered by a landlord from his tenant are incidental to principal service of renting of immovable property - Since renting of immovable property was brought to tax with effect from 1-6-2007, such operation and maintenance charges could also be taxed only with effect from 1-6-2007; such charges were not taxable for period prior thereto under 'maintenance or repair services' [Para 6.4] [In favour of assessee]

FACTS

Facts

■		The assessee was rendering 'Renting of Immovable Property Services' and was including the 'operation and maintenance charges' in taxable value of such services.
■		The assessee didn't include the electricity and air conditioning charges in the taxable value while paying service tax on the charges collected towards 'Renting of Immovable Property Services'.
■		The Department argued that said charges were liable to service tax by inclusion in value of renting of immovable property services.
■		It was also alleged that assessee was recovering 'operation and maintenance charges' and was not paying service tax thereon under 'Maintenance & Repair Services' prior to 1-6-2007. The Department invoked extended period of limitation to recover service tax on such charges.

Assessee's arguments

■		No service tax is demandable on the amount representing electricity charges which was the actual amount paid to the Electricity Board, as the same is deductible in terms of Service Tax Valuation Rules under 'pure agent'.
■		Further, no service tax is leviable on the supply of electricity which is 'goods' and not 'Service'.

Issue Involved

■

Whether the assessee was liable to pay service tax as demanded ?

HELD

Electricity and Energy Charges for Air condition equipments were not includible, as such sums were collected as pure agents :

■		The assessee had provided individual electricity meter for each module in the tenancy area for every tenant and maintained complete record of electricity consumption for every month. It collected electricity charges based on the actual consumption at the tariff fixed by Government of Tamil Nadu.
■		The activity of providing electricity and collecting electricity charges for remittance to State Electricity Board tantamount to sale of goods and no Service tax involved as no service is rendered by assessee.
■		The assessee made collections for electricity consumed by tenants and remitted it to Electricity Department. The said activity was covered by the definition of Pure Agent, as per rule 5(2) of the Service Tax of (Determination of Value) Rules, 2006. The assessee had not collected any excess amount towards Electricity Charges. The Electricity Charges collected from tenant and paid to State Electricity Board was nothing but an incidental reimbursable expense, which assessee had incurred while providing the service i.e. 'Renting of Immovable Property Service'. Said incidental reimbursable expense incurred as a "Pure Agent" need not be included in the taxable value as per rule 5(2) of the Service Tax (Determination of Value) Rules, 2006. [Para 6.3]

'Operation & Maintenance' Charges collected from tenant were not taxable under 'Maintenance & Repair Service' prior to 1-6-2007 :

■		The principal service i.e. 'Renting of Immovable Property Service' 'became taxable only from 1-6-2007. The assessee started paying service tax from 1-6-2007 onwards on the 'Operation & Maintenance Charges'.
■		The demand of service tax on "Operation & Maintenance Charges" for period from 16-6-2005 to 31-5-2007 i.e. before the principal service 'renting of immovable property' became taxable, was irrational.
■		Even otherwise, invocation of extended period of limitation to recover service tax on such charges was invalid as none of the ingredients to invoke the extended period under section 73(1) of the Finance Act, 1994 was present in the instant case. [Para 6.4]

EDITOR'S NOTE

The view, in this case, that recovery of electricity charges is not includible in taxable value corresponds to prima facie view rendered in Chennai City Centre Holding (P.) Ltd. v. CST [2012] 27 taxmann.com 329 (Chennai - CESTAT) and Econ Hinjewadi Infrastructure (P.) Ltd. v. CCE [2013] 29 taxmann.com 283 (Mum. - CESTAT). A similar treatment must be accorded to recovery of water bills.

CASES REFERRED TO

Malabar Management Services (P.) Ltd. v. CST [2008] 14 STT 107 (Chennai - CESTAT) (para 4), CCE v. Ashok ARC 2005 (179) ELT 513 (SC) (para 4), Laghu Udyog Bharathi v. Union of India [1999] 105 Taxmann 630/[2006] 4 STT 322 (SC) (para 4), Kunj Behari Lal v. State of Himachal Pradesh AIR 2000 SC 1069 (para 4), Mafatlal Industries Ltd. v. Union of India 1997 (89) ELT 247 (SC) (para 4), Minakshi Castings v. CCE 1999 112 ELT 737 (Tri. - Delhi) (para 4), Ispat Industries Ltd. v. CC 2006 (202) ELT 561 (SC) (para 4), Mundra Port & Special Economic Zone v. CCE[2009] 18 STT 314 (Ahd. - CESTAT) (para 4), CCE v. Balakrishna Industries 2006 (201) ELT 325 (SC) (para 4) and Plaza Maintenance & Services Ltd. v. CST [Stay Order No. 416/2010, dated 6-9-2010] (para 5.2).

Ms. Sandhya Sakthivel for the Appellant. Ms. Meenakshi Venkatakrishnan for the Respondent.

ORDER

1. This is an appeal filed by M/s. Ticel Bio Park Lte., Taramani, Chennai - 600 113 (hereinafter referred to as appellant) against the Order-in-Original No. 86/2010, dated 5-8-2010 passed by the Additional Commissioner of Service Tax, Service Tax Commissionerate.

2. Briefly stated facts of the case are that the appellant are registered with the Service Tax Department for rendering 'Renting of Immovable Property Services'. On Scrutiny of the records by the Officers, it appeared that the appellant had not included the electricity and air conditioning charges in the taxable value while paying Service tax on the charges collected towards 'Renting of Immovable Property Services' from June 2005 to January 2007 and also not paid any Service tax on 'Operation & Maintenance charges under 'Maintenance & Repair Services' from 16-6-2005 to 31-5-2007. The above facts came to the notice of the Department only during the course of scrutiny of records made by the Officers of the SIV Cell of the Chennai Service Tax Commissionerate. The appellant had neither intimated the Department nor indicated the same in their ST-3 Returns. Hence, it appeared that the appellant had suppressed the facts with intent to evade payment of Service tax.

3. Hence a Show Cause Notice proposing to demand of Rs. 25,31,822/- being the Service tax and Ed. Cess under proviso to Section 73(1) of the Finance Act, 1994 and also charging interest under Section 75 of the Finance Act, 1994 besides proposal for imposing penalties under Sections 76 and 78 of the Finance Act, 1994 was issued to the appellant. After due process of law, the Lower Adjudicating Authority confirmed the proceedings initiated in the Show Cause Notice but dropped the proposal for imposing penalty under Section 76 of the Finance Act, 1994 vide impugned Order-in-Original.

4. Aggrieved, the appellant had filed this appeal mainly on the following grounds :

(i)		that the Show Cause Notice is time-barred, as none of the ingredients that are required for invoking the extended period of 5 years are present.
(ii)		that the appellant has paid Service tax on the rents received from their clients as per the lease agreements and the question of payment of Service tax on any of the reimbursements from the client does not arise.
(iii)		that the appellant has leased the premises to various parties and all the charges that are received from the clients form part of the lease agreement and therefore, the question of treating the operation and maintenance charges as taxable under Management, Maintenance & Repair Services does not arise.
(iv)		that the appellant is discharging Service tax on the operation and maintenance charges from the clients with effect from 1-6-2007.
(v)		that the contract entered into with tenants is in the nature of a composite contract, and cannot be vivisected for the purpose of Service tax. It is submitted that as the entire amount is collected as lease rent the same cannot be bifurcated for the sake of levy of Service tax under the Management, Maintenance or Repair Service.
(vi)		To support his contention, the appellant relied on the following decisions :-

(a)		Malabar Management Services (P.) Ltd. v. CST [2008] 14 STT 107 (Chennai - CESTAT).
(b)		CCE v. Ashok ARC 2005 (179) ELT 513 (SC).
(c)		Laghu Udyog Bharati v. Union of India [1999] 105 Taxmann 630/[2006] 4 STT 322 (SC) and Kunj Behari Lal Butail v. State of Himachal Pradesh AIR 2000 SC 1069.
(d)		Mafatlal Industries Ltd. v. Union of India 1997 (89) ELT 247 (SC).
(e)		Minakshi Castings v. CCE 1999 (112) ELT 737 (Tri. - Delhi).
(f)		Ispat Industries Ltd. v. CC 2006 (202) ELT 561 (SC).
(g)		Mundra Port & Special Economic Zone Ltd. v. CCE [2009] 18 STT 314 (Ahd. - CESTAT).
(h)		CCE v. Balakrishna Industries 2006 (201) ELT 325 (SC).

(vii)

that the appellant satisfy the conditions as set out in the rule to be deemed as a "Pure Agent" of their clients inasmuch as the electricity charges are collected and paid to the Electricity Board.

5. Personal Hearing was held on 1-6-2011. Ms. Sandhya Sakthivel, HR Consultant (M/s. Deloitte) representing the appellant and Mrs. Meenakshi Venkatakrishnan, Inspector, V Division, Service Tax Commissionerate, appeared on behalf of the respondent-Department.

5.1 During the hearing, in addition to reiterating the submissions already made in the appeal memorandum, she has further submitted that this is an issue where the Department demanded Service tax on the value representing the electricity consumption and further holding that her client has suppressed the facts from the Department, imposed equal penalty.

5.2 In this regard, she has submitted that no Service tax is demandable on the amount representing electricity charges which was the actual amount paid to the Electricity Board. Hence, not includible for payment of Service tax as the same is deductible in terms of Service Tax Valuation Rules. In addition, she has also relied on the Tribunal, Chennai decision in the case of Plaza Maintenance & Services Ltd. v. CST [Stay Order No. 416/2010, dated 6-9-2010] and according to which no Service tax is leviable on the supply of electricity which is "goods" and not "Service".

6. I have carefully gone through the case records and the oral as well as written submissions. The issues to be decided are whether :-

(i)		the Electricity Charges and Air conditioning charges collected from the lessee viz., Bio-Tech Industries by the appellant are included in the taxable value of Renting of Immovable Property Service, and
(ii)		Operation & Maintenance Charges collected from the lessee are chargeable to Service tax under "Maintenance & Repair Service".

6.1 Let me take up the issues one by one :

(a)		whether Electricity Charges and Air conditioning charges collected from the lessee viz., Bio-Tech Industries by the appellant are included in the taxable value of Renting of Immovable Property Service :
		I find from the records that Tamil Nadu Industrial Development Corporation Ltd. (TIDCO), 100% owned by Tamil Nadu Govt. had initiated action to establish a state-of-the-art Biotechnology Park, the first of its kind in India, in technical collaboration with Cornell University, USA for promoting research and development in biotechnology sector for the economic development of the State. Govt. of Tamil Nadu has declared TICEL Bio Park a Research and Development (R&D) institution and accordingly sanctioned concessional power tariff applicable to Research and Development institutions. The Department had issued a Show Cause Notice to the appellant as to why Electricity Charges and Energy Charges for the Air-condition equipments should not be included in the taxable value for determining Service tax under "Renting of Immovable Property Service".

6.2 The appellant contended that the Biotech Research and Development Industry cannot afford to absorb the actual cost of infrastructure, repair, maintenance, consumables, etc. which have to be subsidized by State/Central Govt. for the economic development of the country through the Frontier technology namely Biotechnology. In this context, the Govt. of Tamil Nadu had allotted the land at very subsidized rates besides the land cost is treated as interest free loan. The Government of India organizations namely, CLRI, HLL lifecare Ltd., National Biodiversity Authority, etc. have occupied space in Bio park. Under the circumstances, TICEL Bio Park is acting as a pure agent on behalf of Government of Tamil Nadu for the development of Research and Development in Biotechnology sector especially in Healthcare, Agri-biotech, Biopharmaceutical, environmental, etc.

6.3 The appellant also stated that they had provided individual electricity meter for each module in the tenancy area for every tenant and maintains complete record of electricity consumption for every month. They collect electricity charges based on the actual consumption at the tariff fixed by Government of Tamil Nadu. The activity of providing electricity and collecting electricity charges for remittance to TNEB tantamount to sale of goods and no Service tax involved as no service is rendered by TICEL. They have also stated that the energy for operating the AC equipment is charged under the head of AC charges from clients on no profit/no loss basis. They further stated that the Company collects for the Electricity consumed by clients and remit it to Electricity Department. The above activities covered by the definition of Pure Agent, as per Rule 5(2) of the Service Tax of (Determination of Value) Rules, 2006. I find force in their argument. It is not the Department's case that the appellant has collected any excess amount towards Electricity Charges. It is also not disputed that the appellant are providing 'Renting of Immovable Property Service'. I find that the Electricity Charges collected from their client and paid towards TNEB is nothing but an incidental reimbursable expense, which the appellant had incurred while providing the service i.e. 'Renting of Immovable Property Service'. In view of the above I hold that the incidental reimbursable expense, which the appellant had incurred as a "Pure Agent" need not be included in the taxable value as per Rule 5(2) of the Service Tax (Determination of Value) Rules, 2006. Thus the tax already paid by the appellant is in order.

(b)

Whether 'Operation & Maintenance' Charges collected from the lessee are chargeable to Service tax under "Maintenance & Repair Service" :

6.4 I find that the principal service i.e. 'Renting of Immovable Property Service' 'became taxable only from 1-6-2007. I also find that the appellant started paying Service tax from 1-6-2007 onwards on the "Operation & Maintenance Charges", the day 'Renting of Immovable Property Service' became taxable. However, I find that the demand for payment of Service tax on the amount collected as "Operation & Maintenance Charges" under the heading "Management, Maintenance and Repair Service" was made with effect from 16-6-2005 to 31-5-2007 i.e. before the principal service became taxable, which seems to be irrational. It was also noticed that the Show Cause Notice in this regard was dated 23-6-2009 invoking the period from 16-6-2005 to 31-5-2007, which is clearly time-barred as none of the ingredients to invoke the extended period under Section 73(1) of the Finance Act, 1994 is present in the instant case. Hence the demand fails on both counts.

7. In view of the above discussions and conclusions arrived at, I set aside the impugned Order-in-Original and allow the appeal.

8. Appeal allowed.

Vineet

*In favour of assessee.

2013-TIOL-422-HC-ALL-IT

IN THE HIGH COURT OF ALLAHABAD

AT LUCKNOW

Writ Petition No. 3492 of 2013 (M/B)

U P SAMAJ KALYAN NIRMAN NIGAM LTD

COMMISSIONER OF INCOME TAX-II, LUCKNOW

Rajiv Sharma And Arvind Kumar Tripathi (II), JJ

Dated : May 1, 2013

Income Tax - Sections 10 (26B), 142(2A), Companies Act - Section 617 - "accounts of the assessee", "special audit"- Whether the submission of audited accounts per se would oust the jurisdiction or authority of the AO to pass a direction for special audit u/s 142 - Whether when a Government company provides unsatisfactory response to the queries and the show cause notice issued u/s 142 pursuant to discrepanices noticed by the AO, a special audit is rightfully warranted - Whether there can be any violation of principle of natural justice, when the the assessee was duly served with a show cause notice, before issuing direction for special audit - Whether the expression 'accounts of the assessee' can be given a narrow interpretation, so as to confine it to only the accounts of the assessee - Whether the proceedings u/s 142 (2A) is strictly a judicial proceeding and requires elaborate reasoning - Whether when the opportunity has been given to the assessee alongwith proper reason for framing the opinion that the nature of the accounts is complex and in the interest of the revenue, special audit is necessary, the approval granted by the Commissioner cannot be said to be mechanical and without application of mind.

The assessee is a Government Company, registered u/s 617 of the Companies Act, 1956, whose entire paid up share capital is held by the Government of Uttar Pradesh. The object of the assessee company is to promote the interest of the members of the Scheduled Caste and Scheduled Tribes or Backward Classes and schemes connected therewith and accordingly, the income arising from that activity is exempted u/s 10 (26B) of the Income Tax Act, 1961 ("Act"). The books of accounts of the assessee are audited by the statutory auditors duly appointed by the Comptroller & Auditor General of India ("CAG") well as Accountant General, U.P. It is submitted that for the year 2009-2010, accounts were audited and on the basis of the said audited accounts, the report was filed as per provisions of the Income-tax Act. During the AY 2009-10, the AO noticed certain discrepancies in the accounts books and reports of the CAG pertaining to the assessee, which were not understandable and complex in nature. A show cause notice u/s 142 was issued to which no satisfactory reply came, and therefore, the AO passed an order for appointment of Special Auditor to audit the books of the assessee.

Aggrieved, the assessee filed this writ petition before the High Court.

The counsel for the assessee contended that the accounts which were maintained were not complex or not understandable. He argued that there was no basis for justification to get the same audited in exercise of the powers conferred u/s 142(2A). Next the AR submitted that the impugned order was passed without application of mind as the formation of opinion of the Assessing Authority must be objective and not subjective satisfaction. The AR elaborated that prior to ordering the special audit and obtaining approval from Commissioner, Income Tax the assessee was not given an opportunity as per law to rest it case.

In the countr argument, the Departmental Representative highlighted the discrepancies in the books of the assessee and contended that after considering the assessee's submission in response to show cause notice u/s 142 (2A) of the Act as well as documents, it was found that all the replies and documents were not satisfactory and as such, the AO had formed an opinion that accounts of the assessee being complex in nature as well as not understandable and as such it did not reflect correct income. The DR argued that since this may have resulted in loss of revenue and accordingly, ordered special audit u/s 142 (2A) after obtaining necessary approval from the Commissioner, Income Tax, was ordered.

Having heard the parties, the High Court held that,

++ before dealing with the rival submissions, we would like to mention that it is a settled principle of law that while exercising its jurisdiction under Art. 226 of the Constitution of India, this Court does not sit as a Court of appeal and a patent illegality or lack of inherent jurisdiction in passing the impugned action/letter would be a limited ground for invoking the jurisdiction of this Court. There cannot be any dispute to the proposition that the competent authority under the provisions of the Act is vested with power to direct special audit, provided the conditions and requirements of Section 142 (2A) of the Act are satisfied. The provisions of this section contemplate that at any stage of the proceedings, the Assessing Officer having regard to the nature and complexity of accounts of the assessee and interest of the Revenue, is of the opinion that it is necessary to do so, he may with the previous approval of the specified authority direct the assessee to get accounts audited by an accountant defined in Explanation below Section 288(2) of the Act. The discretion vested in the Assessing Officer, thus, is a wider magnitude and of course has to be exercised in consonance with the provisions of the section, keeping in view the facts and circumstances of the case;

++ the above enunciated principle clearly shows that there has to be objective consideration and application of mind by the Assessing Officer, based upon the material and proper examination of the books of account produced by the assessee, before a direction, as contemplated under Section 142(2A), can be issued to the assessee. In the present case, during pendency of the assessment proceedings, the reply filed by the assessee was found to be unsatisfactory. After examination of the books of account and the documents, the Assessing Officer was of the opinion that it would be in the interest of Revenue to direct special audit under the provisions of the Act. The contention raised before us is that there is no application of mind and no reasons have been provided in the impugned direction by the Assessing Officer. We find no merit in this contention. Before passing the impugned direction, the Assessing Officer had issued a detailed questionnaire under Section 142 (1) of the Act to the petitioner requiring him to furnish the details, to which the petitioner has furnished the reply dated 16.1.2013. Thereafter, not being satisfied with the reply so tendered by the petitioner, a show cause notice was issued to the petitioner on 25.2.2013, to which the petitioner again submitted his reply dated 7.3.2013 on 8.3.2013 but the reply so tendered was found unsatisfactory and as such, the Assessing Officer formed an opinion that it is necessary in interest of Revenue a proposal for special audit under Section 142 (2A) is being sent to Commissioner, Income Tax, Lucknow. On receipt of the said proposal, the Commissioner had approved the proposal of the Assessing Officer and remitted the same to the Assessing Officer. Thereafter, impugned order was issued for special audit. In these circumstances, we cannot hold that there was no application of mind by the concerned officer before issuing the impugned direction;

++ we also find no merit in the contention raised on behalf of the petitioner that the expression 'accounts of the assessee' can only refer to the books of account of the assessee and not the other records available before the Assessing Officer for examination or otherwise. The complexity of accounts of the assessee is to be determined not only by the books of account, but even by other documents which are available, in the course of an assessment and at any stage subsequent thereto may become available to the Assessing Officer. To give a narrow meaning to the expression 'accounts' so as to confine it to the books of account, submitted by the assessee simplicitor, would amount to giving an interpretation which would completely defeat the very object of the section. The mere fact that the petitioner has submitted audited account and, therefore, there is no occasion for directing special audit, is also of no help to the petitioner. Submission of audited accounts per se would not oust the jurisdiction or authority of the Assessing Officer to pass such a direction. Of course, he is expected to issue directions after due application of mind and in accordance with the principles aforenarrated. The Assessing Officer, while applying his mind, to the facts and circumstances of the case, need not confine himself only to the books of account submitted by the assessee, but can take into consideration such other documents related thereto and which would be part of the assessment proceedings. In the case at hand, the books of account as well as other records have rightly been considered by the Assessing Officer before issuing the impugned directiont

++ thus, from perusal of the above report, it reflects that Auditor have pointed out many infirmities in the Assessee's acccount. In Purvanchal Vidyut Vitran Nigam Ltd. Versus Union of India, it has been held that the object behind enacting Section 142 (2A) is to assessed the assessing officer in framing a correct and proper assessment based on the accounts maintained by the assessee and when the assessing officer finds the accounts of the assessee to be complex, in order to protect the interest of the revenue. Further it was held that where the opportunity has been given to the assessee and their proper reason for framing the opinion that the nature of the accounts is complex and in the interest of the revenue, special audit is necessary and the direction for special audit cannot be said to be without material and the approval granted by the Commissioner of Income Tax cannot be said to be mechanical and without application of mind. Furthermore, the proceedings under Section 142 (2A) of the Act is not strictly a judicial proceeding and, therefore, the elaborate reasoning is not required to be given. In the instant case, notice issued to the petitioner has contained issues in brief, which the Assessing Officer thinks to be necessary and the reasons assigned therein is perfectly justified and opportunity has also been provided to the petitioner prior to impugned order. Moreover, the ingredients of Section 142 (2A) of the Act are that the Assessing Authority must form an opinion with regard to the nature and complexity of the accounts, which has been done. Therefore, the case laws relied upon by the petitioner's counsel are not applicable in the instant case.

Assessee's petition dismissed

Cases followed:

Gurunanak Enterprises vs. CIT and Anr (2003) 259 ITR 637 (Del)

Rajesh Kumar and others vs. Deputy Commissioner of Income-Tax and others (2006-TIOL-140-SC-IT)

Purvanchal Vidyut Vitran Nigam Ltd. vs. Union of India 329 ITR 508 (Alld.)

JUDGEMENT

Heard Sri Jaideep Narain Mathur, Senior Advocate, assisted by Sri Neerav Chitravanshi, Sri Anuj Kudesia and Sri Ashish Agarwal, learned Counsel for the petitioner and Sri D.D.Chopra, learned Counsel for the opposite parties.

Through the instant writ petition under Article 226 of the Constitution of India, the petitioner prays for following reliefs :

"A] Issue an order, direction or writ in the nature of certiorari quashing the impugned order 28.03.2013 issued by the Opposite Party No.2 (Annexure No. 1 to this writ petition), whereby opposite party no.3 has been appointed to conduct the audit of the accounts of the petitioner under Section 142 (2A) of the Income Tax Act, 1961 for the Assessment Year 2010-11.
B] Issue an order, direction or writ in the nature of mandamus commanding the opposite parties not to give effect to the impugned order dated 28.03.2013 issued by the opposite party no.2 (Annexure 1 to this writ petition) and further be pleased to restraint the opposite parties from proceeding further in any manner in pursuance to the impugned order dated 28.03.2013 issued by the Opposite Party No.2 (Annexure 1).
C] Issue any other appropriate writ, order or direction which the Hon'ble Court may deem just, fit and proper in the facts and circumstances of the case.
D] Award the costs of the petition to the petitioner."

Shorn off unnecessary details the facts of the case are as under :

The petitioner is a Government Company, registered under Section 617 of the Companies Act, 1956. The entire paid up share capital is held by the Government of Uttar Pradesh. The object of the petitioner's company is to promote the interest of the members of the Scheduled Caste and Scheduled Tribes or Backward Classes and schemes connected therewith and accordingly, the income arising from that activity is exempted under Section 10 (26B) of the Income Tax Act, 1961 [hereinafter referred to as the "Act"]

The books of accounts of the petitioner are audited by the statutory auditors duly appointed by the Comptroller & Auditor General of India as well as Accountant General, U.P. It is submitted that for the year 2009-2010, accounts were audited and on the basis of the said audited accounts, the report was filed as per provisions of the Income-tax Act.

Admittedly, the petitioner is filing its Income Tax Returns regularly from the time it came into existence alongwith the audited balance sheet, profit and loss account as well as the audit report. The assessment proceedings upto the assessment year 2009-10 were completed and account books were duly accepted but while going through the account books as well as the reports of the Comptroller & Auditor General of India and the Accountant General and the auditor's report submitted by M/s Dubey Pandey & Company Chartered Accountants, Lucknow, during the assessment proceedings for the Assessment Year 2010-11, the Assessment Officer noticed certain discrepancies which are complex in nature and not understandable and as such, the Assessing Authority after obtaining necessary approval from the competent authority, issued a show cause notice under Section 142 (2) (A) of the Act for appointment of a Special Auditor for examining the books of accounts to which reply was tendered, but the reply so tendered was not found satisfactory and as such, orders were passed for appointment of a Special Auditor to audit the accounts books of the petitioner by M/s Mahendra Kumar Satya & Company, Chartered Accountants, 4th Floor, Sri Ram Tower, Ashok marg, Lucknow, which in turn was directed to furnish a report of such audit in the prescribed form duly signed and verified by the Chartered Accountant. Being aggrieved by the said order, the instant writ petition has been filed.

Mr. Jaideep Narain Mathur, Senior Advocate, appearing on behalf of the petitioner submits that the accounts which are maintained are not complex or not understandable. There is no basis for justification to get the same audited in exercise of the powers conferred under Section 142(2A) of the Act. Next he submitted that the impugned order dated 28.3.2013 passed under the aforesaid provisions of the Act reflects non-application of mind as the formation of opinion of the Assessing Authority must be objective and not subjective satisfaction.

Elaborating his submission, Sri Mathur submits that since prior to ordering the special audit and obtaining approval from Commissioner, Income Tax (opposite party No.1), the petitioner ought to have given an opportunity as per law but no such opportunity was given to the petitioner. Thus, the impugned order is liable to be set-aside. To strengthen his aforesaid arguments, Mr. Mathur has relied upon the cases of Rajesh Kumar and others versus Deputy Commissioner of Income-Tax and others reported in [(2007) 2 SCC 181 = (2006-TIOL-140-SC-IT) and Sahara India (Firm), Lucknow versus Commissioner of Income-Tax, Central-I and another reported in [(2008) 14 SCC 151] = (2008-TIOL-73-SC-IT-LB).

Refuting the assertion of the petitioner, Mr. D.D. Chopra, learned Counsel for the opposite parties submits that the order for special audit has been passed on the grounds that (i) the assessee has not charged percentage @ 12.5% in its many of its projects; (ii) the value of work done differs in the two audit reports furnish by the assessee; (iii) during the year, the assessee has changed the accounting policy from accrual basis to cash basis in respect of interest earned on bank deposits; and (iv) the accounts have not been prepared as per AS-7 (revised).

On the strength of the decisions rendered in U.P. State Industrial Development Corpn. Ltd. versus Chief Commissioner of Income-tax : [(2011) 203 Taxman 337/15 taxmann.com 65 (Allahabad)], Uttaranchal Welfare Society v. Commissioner of Income-tax (All) [(2004) 141 Taxman 560] and Rajesh Kumar Prop. Surya Trading versus Deputy Commissioner of Income-tax [(2005) 144 Taxman 865 (Delhi)], it has been contended that after considering the assessee's submission in response to show cause notice under Section 142 (2A) of the Act as well as documents, it was found that all the replies and documents were not satisfactory and as such, the Assessing Authority has formed an opinion that accounts of the assessee being complex in nature as well as not understandable and as such it does not reflect correct income, which may result in loss of revenue and accordingly, ordered special audit under Section 142 (2A) of the Act after obtaining necessary approval from the Commissioner, Income Tax, Lucknow. Thus, the writ petition is liable to be dismissed.

Before dealing with the rival submissions, we would like to mention that it is a settled principle of law that while exercising its jurisdiction under Art. 226 of the Constitution of India, this Court does not sit as a Court of appeal and a patent illegality or lack of inherent jurisdiction in passing the impugned action/letter would be a limited ground for invoking the jurisdiction of this Court.

Having heard Counsel for petitioner at great length as well as examining the facts and circumstances of the present case, we are of the considered view that impugned order dated 28.3.2013 does not suffer from a patent illegality or inherent lack of jurisdiction on the part of the Assessing Officer.

There cannot be any dispute to the proposition that the competent authority under the provisions of the Act is vested with power to direct special audit, provided the conditions and requirements of Section 142 (2A) of the Act are satisfied. The provisions of this section contemplate that at any stage of the proceedings, the Assessing Officer having regard to the nature and complexity of accounts of the assessee and interest of the Revenue, is of the opinion that it is necessary to do so, he may with the previous approval of the specified authority direct the assessee to get accounts audited by an accountant defined in Explanation below Section 288(2) of the Act. The discretion vested in the Assessing Officer, thus, is a wider magnitude and of course has to be exercised in consonance with the provisions of the section, keeping in view the facts and circumstances of the case.

In the case of Gurunanak Enterprises vs. CIT and Anr, (2003) 180 CTR (Del) 203 : (2003) 259 ITR 637 (Del), the Division Bench of the Hon'ble Delhi High Court has held as under :

"A bare perusal of the provision would show that the opinion of the AO has to be formed only by having regard to : (i) the nature and complexity of the accounts of the assessee; and (ii) the interests of the Revenue. The word 'and' signifies conjunction and not disjunction. In other words, the twin conditions of 'nature and complexity of the accounts' and 'the interests of the Revenue' are the pre-requisites for exercise of power under s. 142(2A). Although the object behind enacting the said provision is to assist the AO in framing the assessment when he finds the accounts of the assessee to be complex and is to protect the interest of the Revenue recourse to the said provision cannot be held by the AO merely to shift his responsibility of scrutinising the accounts of an assessee to determine his true and correct income, on to an auditor. True that an order under the said provision cannot be passed on the ipse dixit of the AO merely because he finds some difficulty in understanding the accounts. There has to be a genuine and honest attempt on his part to understand the accounts of the assessee, appreciate the entries therein and if in doubt, seek explanation from the assessee or his representative, rather than pass on the buck to the special auditor. A cursory look at the books of account is not sufficient. It needs little emphasis that the opinion required to be formed by the AO for exercise of power under s. 142(2A) must be based on objective consideration and not on the basis of subjective satisfaction."

In another case of Ramesh Chander Industries Ltd. vs. Union of India (1998) 100 Taxman 570 (Del), the Division Bench of the Hon'ble Delhi High Court has held as under :

"A bare reading of the provision shows that all that is required for initiation of special audit is formation of the opinion that it is necessary so to do depending on the availability of the abovesaid two facts. The provision does not use the words 'reason to believe'. Recording of reasons is not an essential requirement of the provision. The AO must obtain previous approval of the Chief CIT or the CIT. The intervention of such a high ranking authority is an in-built protection to the assessee again any arbitrary or unjust exercise of the power by the AO. It is not the case of the petitioner that such previous approval of the Chief CIT or the CIT has not been obtained. There is no allegation of mala fide. This Court would not in exercise of its writ jurisdiction sit in appeal over the formation of the opinion by the AO."

Reference in this regard can also be made to the case of Super Cassettes Industries Ltd. vs. Asstt. CIT (1999) 102 Taxman 202 (Del), which reads as under :

"8. In Abhay Kumar and Co.'s case (supra) validity of s. 44AB and s. 271B of the Act was under challenge. The learned Judge also interpreted s. 44AB. The emphasis was on the question whether this section was applicable to commission agents or not. The petitioners therein were commission agents. During the course of this judgment, the learned Judge had observed :
'The assessee is not put to double jeopardy in having to get his accounts audited once under s. 142(2A) and again under s. 44AB. In fact, s. 142(2A) was a dormant provision which was to be invoked in a given situation that has been made explicit by incorporating the same in s. 44AB. The two provisions are consistent.'
8.1In our opinion, even this observation does not advance the petitioner's case before us. The learned Judge has held the two provisions to be consistent and not hit by the rule of double jeopardy. The specific object behind enacting sub-s. (2A) into s. 142 is to assist the AO in framing an assessment when he finds the accounts of the assessee to be complex, by having the services of a special auditor at hand. Special audit can also be ordered so as to protect the interest of the Revenue. Such objects may or may not be achieved by the audit contemplated by s. 44AB."

The above enunciated principle clearly shows that there has to be objective consideration and application of mind by the Assessing Officer, based upon the material and proper examination of the books of account produced by the assessee, before a direction, as contemplated under Section 142(2A), can be issued to the assessee. In the present case, during pendency of the assessment proceedings, the reply filed by the assessee was found to be unsatisfactory. After examination of the books of account and the documents, the Assessing Officer was of the opinion that it would be in the interest of Revenue to direct special audit under the provisions of the Act. The contention raised before us is that there is no application of mind and no reasons have been provided in the impugned direction by the Assessing Officer. We find no merit in this contention. Before passing the impugned direction, the Assessing Officer had issued a detailed questionnaire under Section 142 (1) of the Act to the petitioner requiring him to furnish the details, to which the petitioner has furnished the reply dated 16.1.2013. Thereafter, not being satisfied with the reply so tendered by the petitioner, a show cause notice was issued to the petitioner on 25.2.2013, to which the petitioner again submitted his reply dated 7.3.2013 on 8.3.2013 but the reply so tendered was found unsatisfactory and as such, the Assessing Officer formed an opinion that it is necessary in interest of Revenue a proposal for special audit under Section 142 (2A) is being sent to Commissioner, Income Tax, Lucknow. The order dated 14.3.2013 is reproduced as under :

"Assessee's reply dated 7.3.2013 to show cause notice under Section 142 (2A) & other replies & documents filed by assessee are examined but not found satisfactory. The basis of charging centage from 0 to 12.5% is not clear. It is also not clear that revenue has been recognized by the assessee as per AS-7 (revised). As per AS-7 (revised) revenue from contract work should be recognized on the basis of percentage of completion method, however it appears that assessee has recognized revenue on deposit work as cost plus centage charges. Further, assessee has also charged method of accounting in respect of interest income.
Having regard to the nature and complexity of assessee's accounts and considering it necessary in interest of revenue a proposal for special audit under Section 142 (2A) is being sent to CIT-II, through proper channel for kind approval."

On receipt of the said proposal, the Commissioner had approved the proposal of the Assessing Officer and remitted the same to the Assessing Officer. Thereafter, impugned order was issued for special audit. In these circumstances, we cannot hold that there was no application of mind by the concerned officer before issuing the impugned direction.

We also find no merit in the contention raised on behalf of the petitioner that the expression 'accounts of the assessee' can only refer to the books of account of the assessee and not the other records available before the Assessing Officer for examination or otherwise. The complexity of accounts of the assessee is to be determined not only by the books of account, but even by other documents which are available, in the course of an assessment and at any stage subsequent thereto may become available to the Assessing Officer. To give a narrow meaning to the expression 'accounts' so as to confine it to the books of account, submitted by the assessee simplicitor, would amount to giving an interpretation which would completely defeat the very object of the section. The mere fact that the petitioner has submitted audited account and, therefore, there is no occasion for directing special audit, is also of no help to the petitioner. Submission of audited accounts per se would not oust the jurisdiction or authority of the Assessing Officer to pass such a direction. Of course, he is expected to issue directions after due application of mind and in accordance with the principles aforenarrated. The Assessing Officer, while applying his mind, to the facts and circumstances of the case, need not confine himself only to the books of account submitted by the assessee, but can take into consideration such other documents related thereto and which would be part of the assessment proceedings. In the case at hand, the books of account as well as other records have rightly been considered by the Assessing Officer before issuing the impugned direction.

In Rajesh Kumar and others versus Deputy Commissioner of Income-Tax and others (supra), two sets of accounts were maintained by the assessee and it is only on the basis of the aforesaid facts, provisions of Section 142 (2A) were invoked and as such, the Apex court has held that merely for maintaining two sets of accounts will not arrive at a conclusion that the accounts so maintained are difficult to understand.

In Sahara India (Firm) (supra), the Apex Court held that no notice was issued while referring the matter to the Special Auditor and as such, there is a violation of principle of natural justice.

The facts of the aforesaid cases are not applicable in the instant case, insofar as discrepancies in maintaining the accounts have been pointed by statutory Auditor appointed by the Comptroller & Auditor General of India vide his report dated 9.2.2011. Para-4 of the said report dated 9.2.2011 is produced as under :

"(i) Figure of Sundry Debtors, Sundry Creditors (Including head "Interest on unutilized funds"), Loans and Advances (Including Advance Income Tax, TDS, Service Tax & VAT). Account of U.P. Government, Security (TDR) in hand, Balance in PLA in Lucknow Treasury, Advances (Client) and other liabilities are subject to confirmation, reconciliation and consequent adjustment, if any.
(Refer Note No. 1.00, 7.00 & 19.00 of 'Notes on accounts')
While making adjustments in Client Account with related WIP A/c, the Company came out with certain Client Heads where recovery was assessed as not possible. Therefore, an amount of Rs.13,35,702.59 (Prev. Yr. Rs.65,74,193.19) has been provided for as Bad & Doubtful Debts during the year.
(ii) No effect has been taken in the financial statement on account of shortage/excess which may arise after checking of consumption statement for the year 2009-10 and in respect of certain units for earlier years-Amount unascertained. The system of preparing consumption statements of Individual Deposit Works carried out by the Company allows giving accounting effect, if any, towards recoveries to be made from various concerned staff of the units. Any delay in preparing/checking these consumption statements and any legal issues arising there-from causing undue delay in realizing dues from concerning staff, affects recoverability of the said amounts. A sum of Rs.NIL (Prev. Yr. Rs.18,60,740.04) has been provided for/written off as Bad & Doubtful Debts on this account during the year.
(Refer Note No. 11.00, 24.00 & 29.00 of 'Notes of accounts').
(iii) Interest on investment out of unutilized government funds has been treated as funds received from government and the same is partly disclosed as 'Current Liabilities' and remaining taken to profit & loss account as 'Other Income'. Since interest accrued on funds employed by the company out of its own resources and that of unutilized government funds has not been separately identified, the company has, as a consistent practice since earlier years, bifurcated interest on fixed deposits with banks and interest on saving accounts maintained at head office on the basis of formula adopted by it.
(Refer Policy No. 4.00 of 'Accounting Policies' & Note No. 12.00 of 'Notes on accounts.)
Due to non-availability, the Company was unable to provide GO dated 04.12.1993 or any amendments thereto and in the absence of the same, we are unable to comment on the formula adopted by the Company for bifurcation of interest earned at HO between 'Current Liabilities' and 'Other Income' and also interest earned at Units.
Further, this unconfirmed/reconciled balance of Rs.4039.82 Lacs (Prev. Yr. Rs.3407.82 Lacs) under the heading "Interest on unutilized fund" shown as liability to Govt. in the books of the Company is though accrued but not crystallized as ownership is not confirmed as yet. Pending crystallization of fund, it is yet to be decided and correctly classified either as "Short Term Fund" or "Long Term Loan Fund" liability from the State Govt.
(iv) The Company receives funds from clients for execution of various construction repair works. While funds received are credited in a separate account, the expenses incurred against it are shown as work-in-progress. The Company has, during the year, carried out an exercise and based on the same WIP to the extent of Rs.492.17 Cr. (Prev. Yr. Rs.345.12 Cr.) has been adjusted from Client account through Policy decision in this regard.
It has been explained to us that during the year under audit the company has followed the system of adjustment of funds received against a project with the corresponding work in progress on the basis of internal documentation in respect of projects where completion certificate has not been received from the clients.
Further, however, on the basis of information and explanation furnished to us, whereas some adjustments have been done during the year few adjustments have not been done for want of relevant information. Pending adjustments have resulted in overstatement of the figure of work in progress Rs.90,006.05 Lacs (Prev. Yr. Rs.1,30,195.79 Lacs). The amount of such overstatement have not been determined and disclosed by the company.
(v) We would like to draw attention to 'Accounting Policy No. 7.00' which deviates from the Basic Accounting Principles to be strictly on "Accrual Concept" than on "Hybrid Concept";
Further, there is a change in accounting policy in respect of accounting of "Interest earned on Saving Bank Accounts" from accrual basis to cash basis. According to the Corporation, the same has been done for practical purposes. Net profit has been understated by Rs.1,18,01,436.00 (Prev. Yr. NIL)
(Refer significant accounting Policy No. 7.04 & Notes on account No. 23.00)
There is another change in policy in accounting for VAT refundable from Commercial Tax Authorities as per Annual Returns & VAT Audit Reports of the Units. The Corporation has not accounted for the same as refund receivable and simultaneously no credit has been given to the respective clients account. Therefore, Current Assets (VAT Refund Receivable) as well as Current Liabilities (Client Account) are understated by Rs.20,27,371.00 (Prev. Yr. NIL)."

Thus, from perusal of the above report, it reflects that Auditor have pointed out many infirmities in the Assessee's acccount. In Purvanchal Vidyut Vitran Nigam Ltd. Versus Union of India reported in 329 ITR 508 (Alld.), it has been held that the object behind enacting Section 142 (2A) is to assessed the assessing officer in framing a correct and proper assessment based on the accounts maintained by the assessee and when the assessing officer finds the accounts of the assessee to be complex, in order to protect the interest of the revenue. Further it was held that where the opportunity has been given to the assessee and their proper reason for framing the opinion that the nature of the accounts is complex and in the interest of the revenue, special audit is necessary and the direction for special audit cannot be said to be without material and the approval granted by the Commissioner of Income Tax cannot be said to be mechanical and without application of mind. Furthermore, the proceedings under Section 142 (2A) of the Act is not strictly a judicial proceeding and, therefore, the elaborate reasoning is not required to be given. In the instant case, notice issued to the petitioner has contained issues in brief, which the Assessing Officer thinks to be necessary and the reasons assigned therein is perfectly justified and opportunity has also been provided to the petitioner prior to impugned order. Moreover, the ingredients of Section 142 (2A) of the Act are that the Assessing Authority must form an opinion with regard to the nature and complexity of the accounts, which has been done. Therefore, the case laws relied upon by the petitioner's counsel are not applicable in the instant case.

We see no merit in this writ petition and the same is dismissed accordingly at the admission stage itself.

No order as to costs.

Chartered Accountant Finance

Tuesday, May 21, 2013

[aaykarbhavan] Judgments and article on Audit and accounts.

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