JUDGMENT [ENTITY], J.
1. The petitioner-assessee has in the instant writ application questioned the order of approval passed by respondent No. 1 contained in his communication dated November 8, 2001, being annexure P-21 whereby special audit under [SECTION] of the [ACT], has been ordered and a decision taken to appoint an auditor.
2. The case of the petitioner is that there is no warrant to order special audit in terms of [SECTION]. It is the case of the petitioners that an audit has been conducted under the provisions of [SECTION] and such report in prescribed Form No. 3CD has been furnished along with the statutory audit report under the [ACT]. The assessing authorities have not found any fault either with tax audit report ([SECTION]) or the statutory audit report. It is, therefore, contended that there was no material whatsoever before the respondent authorities on the basis of which they could be satisfied that the nature of the company's accounts was such or that the company's accounts were complex so that having regard to the interests of the Revenue, it was necessary to have a special audit under [SECTION] conducted. The impugned order for special audit, it has been strenuously urged, has been made on extraneous, irrelevant and collateral considerations, without application of mind and without the existence or satisfaction of the conditions precedent for forming the requisite opinion.
3. It is further contended by Mr. [ENTITY], learned senior counsel, assisted by Mr. [ENTITY], Mr. [ENTITY] and Mr. [ENTITY], the learned advocates for the petitioner that all information has been furnished to the Assessing Officer along with the return of tax and all requisitions under [SECTION] and [SECTION] of the Act have been complied with. The Assessing Officer did not call for nor examine the books of account. At no point of time, it is contended by Mr. [ENTITY], did that the Assessing Officer require the company to produce any of the books of account regularly maintained by it and as such the Assessing Officer or the approving authority ([ENTITY] did not have any occasion to examine such books of account of the petitioner-company. It is, therefore, urged that the respondents could not have formed any opinion as required under [SECTION] of the Act.
4. It must be stated here that we are concerned in the instant case with the assessment year 1988-89, the previous year of the company relevant to the said assessment year was the calendar year ended on December 31, 1987. The petitioner-company along with its return of income filed, inter alia, the audited annual accounts under the [ACT], tax audit report under [SECTION] and the audit reports under [SECTION] and [SECTION]. It is further stated by the petitioner in the instant writ application that apart from the said enclosures the company also filed, inter alia, details of the miscellaneous expenses with further break up of the different expenses comprised therein like legal and audit expenses, contribution to recognised funds and trade subscriptions, etc. The petitioner-company was served with notices under [SECTION] and [SECTION] dated August 8, 1990, September 14, 1990 and November 28, 1990, and it is the case of the petitioner that all such particulars and information asked for by the Assessing Officer by his aforesaid notices have been duly furnished on various dates and the queries raised were duly explained.
5. It must also be stated here that by an order dated February 27, 1991, the petitioner-company was informed by the Assessing Officer that special audit under [SECTION] had been proposed in the company's case for the assessment year 1988-89 and that Shri [ENTITY], chartered accountant, was being appointed as the nominated accountant. The petitioner-company questioned the said action by filing a writ application which was marked as [CASE NUMBER] challenging the legality and validity of, inter alia, the appointment of the auditor under [SECTION] of the Act. The said writ petition was disposed of by an order of his Lordship [ENTITY] J., on July 12, 2001. The order impugned in that writ petition was quashed and set aside with liberty, however, to the respondent authorities to give a hearing to the petitioner-company if they wanted to take any steps under [SECTION] for the assessment year 1988-89. Further his Lordship was pleased to make it clear in that said order that the merits of the case had not been gone into. Pursuant to the aforesaid order of court hearing was afforded to the petitioner-company by the Commissioner of Income-tax, Kolkata-II (for short "the CIT"), by his letter dated October 19, 2001 (annexure P-19). The petitioner in response thereto submitted their objections through their letter dated November 6, 2001 (annexure P-20). Annexure P-21 is the order passed by the Commissioner of Income-tax, Kolkata-II, dated November 8, 2001, which has been impugned in the instant writ application. It has been recorded in the impugned order that the Commissioner of Income-tax had discussed with the authorised representatives of the petitioner and that he has also gone through the written submissions dated November 6, 2001. For the sake of convenience a relevant portion from the impugned order is extracted hereunder as it contains the reasons upon which the impugned order is founded :
"There is no denying the fact that the accounts submitted by you along with the return for the relevant assessment year are so complex in nature that it is difficult for the Assessing Officer to deduce the taxable income. Some vital information was also not ascertainable from the accounts so submitted, like the exact nature of miscellaneous expenses for Rs. 1.94 crores, purchase of finished products for Rs. 61.69 crores, bifurcation of income from regeneration of rubber both synthetic and natural. Profitability on sale of purchased products is more than the manufactured ones, but it is not ascertainable from the accounts submitted. These can only be made known if the accounts are got specially audited by an auditor appointed by the Department on the strength of whose report the Assessing Officer would be able to deduce the true profit and make assessment accordingly. I, therefore, consider it to be a fit case for special audit under [SECTION] of the [ACT], and have decided to appoint an auditor accordingly. The name and address of the auditor will be intimated to you shortly."
6. Mr. [ENTITY], the learned senior advocate for the petitioner, apart from the contentions already noticed supra, drew the attention of this court to the notice of hearing dated October 19, 2001, issued by the Commissioner of Income-tax (annexure P-19) and contended that even at that stage the approving authority (Commissioner of Income-tax) was of the "firm opinion" that special audit is warranted. It was, therefore, contended that the impugned order is founded upon predetermined mind and the opportunity of hearing afforded to the petitioner was a mere formality to comply with the order of the court dated July 12, 2001.
7. It was further contended by Mr. [ENTITY], learned senior counsel, that in the affidavit-in-opposition affirmed on April 4, 2002, by the Assistant Commissioner of Income-tax, Circle 6, it has been categorically stated in paragraph 7 that on November 5, 2001, the Chief Commissioner of Income-tax, Kolkata-II, accorded his approval for conducting special audit after affording opportunity to the assessee as per the court's direction. Again in paragraph 18, it has been stated as under :
"With reference to paragraph 15 of the writ petition it is reiterated that approval to conduct special audit was accorded by respondent No. 2 being the Chief Commissioner of Income-tax-II, Kolkata. Approval was not given by the Commissioner of Income-tax-II, Kolkata, as alleged or at all ."
8. Mr. [ENTITY] therefore contends that the impugned order though passed by the Commissioner of Income-tax is one really based upon the approval given by respondent No. 2, Chief Commissioner of Income-tax-II. The said authority respondent No. 2 has not heard the petitioner but granted approval in violation of the principles of natural justice. The impugned order passed by the Commissioner of Income-tax, respondent No. 1, cannot therefore be sustained as it is founded upon extraneous considerations. The authority that accorded approval is respondent No. 2 but the order is passed by respondent No. 1 and cannot therefore be sustained, contends Mr. [ENTITY].
9. On behalf of the respondents, Mr. [ENTITY] on behalf of his leader Mr. [ENTITY], the learned senior advocate assisted by Mr. [ENTITY], the learned advocate for the respondent-tax authorities, sought to sustain the impugned order based upon the reasons contained therein. It was further contended that each assessment year is to be considered independently. It is not relevant, contends Mr. [ENTITY], relying upon the averments made in the affidavit-in-opposition, that in the preceding year or in a succeeding year any particular provision was not invoked and the same would debar the Department for invoking the same in a subsequent year. It was, therefore, contended that the special audit under [SECTION] can be conducted even in a case where other statutory audit has already been conducted or where in the past assessments had been made without special audit under [SECTION] of the Act.
10. Mr. [ENTITY] next contended that there is no error apparent on the face of the record warranting interference with the impugned order which has been passed in compliance with the principles of natural justice. The impugned order, it is contended, has been passed in compliance with the orders of court and, therefore, it is no longer open to the petitioner to contend that there is no ground for special audit under [SECTION] as the court in its aforesaid order granted liberty to the respondents to take steps under [SECTION] by giving an opportunity to the petitioner of being heard in the matter.
11. Before I deal with the main controversy, as regards the legality and validity of the impugned order, it would be appropriate to dispose of certain ancillary contentions, as noticed supra, advanced by learned counsel for the respective parties.
12. I cannot accede to the contention of Mr. [ENTITY] that as the court in the earlier writ application by its order dated July 12, 2001, granted liberty to the respondent, the instant writ application questioning the impugned order is not maintainable. In its earlier order dated July 12, 2001, the court quashed and set aside the order passed under [SECTION] of the Act. The liberty granted to the respondents was "to give a hearing to the petitioners if the respondents wanted to take any steps under [SECTION] of the Act". It was made clear that the court had not gone into the merits of any points as had been pleaded in the petition. On a proper construction of the said order it will appear that the order earlier passed by the respondents under [SECTION] of the Act was quashed and set aside on the ground of violation of the principles of natural justice. Therefore, if any steps were proposed to be taken under the said section liberty for the same was granted subject to an opportunity of being heard given to the petitioner. In my view, therefore, the points raised in the instant writ application had not been disposed of on the merits in the earlier writ application so as to foreclose consideration on the merits of the contentions raised in the instant writ application.
13. No doubt, as contended by Mr. [ENTITY], learned senior counsel for the petitioner, there is a reference to the approval having been granted by the Chief Commissioner of Income-tax-II, Kolkata, in paragraphs 7, 12, 18 and 21 of the affidavit-in-opposition. Merely because of that it cannot be concluded that the impugned order was in fact was passed by the Chief Commissioner, respondent No. 2, and not by respondent No. 1, Commissioner of Income-tax, who afforded an opportunity of being heard to the petitioners' representatives. As already noticed supra, notice of hearing being annexure P 19 dated October 19, 2001, was issued by the Commissioner of Income-tax, Kolkata, in compli-
ance with the order of court dated July 12, 2001. Objections (annexure P-21) were submitted before the Commissioner of Income-tax by the petitioners and the impugned order dated November 8, 2001 (annexure P-21) is one passed by the Commissioner of Income-tax, respondent No. 1. It cannot be denied that respondent No. 1 ([ENTITY] is competent to grant approval in terms of [SECTION] of the [ACT].
14. Also, it must be stated here that merely because no special audit under [SECTION] of the Act was directed in the past or even thereafter for the assessment years subsequent to 1988-89 it cannot be said that the assessing authority is denuded of its power to order such special audit if the facts and circumstances warrant a special audit under [SECTION] of the Act.
15. [SECTION] of the Act has been the subject-matter of construction by several High Courts including this High Court. The said [SECTION] of the [ACT] reads as under :
"If, at any stage of the proceedings before him, the Assessing Officer, having regard to the nature and complexity of the accounts of the assessee and the interests of the Revenue, is of the opinion that it is necessary so to do, he may, with the previous approval of the Chief Commissioner or Commissioner, direct the assessee to get the accounts audited by an accountant, as defined in the Explanation below [SECTION], nominated by the Chief Commissioner or Commissioner in this behalf and to furnish a report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed and such other particulars as the Assessing Officer may require."
16. In [PRECEDENT], a learned single judge of this court held as under (page 674) :
"A bare perusal of the said provision leaves no manner of doubt that before an approval is sought for, the Assessing Officer must form an opinion as regard the conditions laid down therein. It further envisages application of mind on the part of the Assessing Officer as also the Commissioner or Chief Commissioner as the case may be."
It was further held as follows (page 675) :
"There cannot be any doubt whatsoever that if an order is passed under the said provision, the assessee is visited with civil consequences as not only he may have to pay a huge amount by way of fees of the special auditor as also the accountant but also has to face the difficulties in getting his books of account audited."
17. It was also observed in that case that the provisions of [SECTION] have to be strictly construed, the power under the said provision should not be lightly exercised and must be based on objective criterion. A cursory look at the books of account would not serve the purpose.
18. The Allahabad High Court in its judgment in [PRECEDENT] held that the exercise of the power to direct special audit depends upon the satisfaction of the Income-tax Officer with the added approval of the Commissioner. The assessing authority must be satisfied that the accounts of the assessee are of a complex nature, and, in the interests of the Revenue, the accounts should be audited by a special auditor. The satisfaction of the authorities should not be subjective satisfaction but should be based on objective assessment regard being had to the nature of the accounts. The nature of the accounts must indeed be "of a complex nature. That is the primary requirement for directing a special audit". The court also considered the meaning to be assigned to the word "complex". It was observed that all that is difficult to understand should not be regarded as complex. What is complex to one may be simple to another. It depends upon one's level of understanding or comprehension. Sometimes, what appears to be complex on the face of it, may not be really so if one tries to understand it carefully. Their Lordships of the Division Bench of the Allahabad High Court thereupon declared (page 637) ;
"Therefore, special audit should not be directed on a cursory look at the accounts. There should be an honest attempt to understand the accounts of the assessee."
19. Their Lordships, in that case, have extracted the Central Board of Direct Taxes instructions regulating the discretion conferred by [SECTION] being Instruction No. 1076, dated July 12, 1977, and observed that these guidelines are no doubt binding on the income-tax authorities. But they should not be construed as a mandate to the authorities for directing special audit in every case falling under those guidelines. Emphasis was laid on objective assessment of the accounts of the assessee as to its nature and complexity and it was observed that without there being any such finding as to complexity of the accounts special audit ought not to be directed.
20. The Kerala High Court in [PRECEDENT] , likewise construed the provisions of [SECTION] and observed that when the statute prescribed an audit by a third party, it required that the Assessing Officer should have a satisfaction that the accounts of the assessee were complex in nature. This decision could have come to be made only after seeing the accounts. It was further observed that even if there was difficulty in appreciating the entries in every case, it was not healthy to refer the matter to a chartered accountant as an explanation could have been obtained from the assessee or from his authorised representative under [SECTION] of the Act.
21. A Division Bench of the Calcutta High Court in [PRECEDENT] observed that before appointment of the special auditor there should be a ground that in the interests of the Revenue and considering the "nature and complexity" of the accounts maintained by the assessee, the appointment of the special auditor under [SECTION] is necessary. More importantly it was held by the Division Bench that this depends upon the facts of each case and the pertinent question to be asked is whether in the facts and circumstances of a particular case the appointment of the special auditor is justified or not.
22. It is in the light of the above well settled principles that the validity of the impugned order has to be judged.
23. The impugned order passed by the Commissioner of Income-tax, Kolkata-II, the relevant portion whereof has been extracted, supra, would show that the learned Commissioner of Income-tax proceeded on the premise that the accounts submitted by the assessee along with the return for the relevant assessment year is complex. Thereafter it proceeds to record that some vital information is not ascertainable from the accounts so submitted and the same can only be made known if the accounts are got specially audited by the auditor.
24. I am inclined to accept the submissions made by Mr. [ENTITY], the learned senior advocate for the petitioner, that the grounds based upon which the impugned order is founded, cannot be sustained in the light of the judgments, cited supra. As can be seen from the letter dated October 19, 2001 (annexure P-19), whereby the petitioner was given opportunity to present his case personally or through the authorised representative, the Commissioner of Income-tax expressed even at that stage that he was of the "firm opinion" that special audit is warranted. The contention of Mr. [ENTITY] that the issue was prejudged and is based upon considerations ignoring the relevant considerations which ought to have been taken into account, therefore, is not without merit.
25. The Assessing Officer/approving authority could have arrived at a satisfaction as to complexity of the accounts only after seeing the accounts or if the requisitions made by the Assessing Officer were not fully and duly complied with. As contended by Mr. [ENTITY], all requisitions made by the Assessing Officer were fully complied with and, therefore, there was no material before the Assessing Officer or the approving authority ([ENTITY] on the basis of which it can be said that there has been non-compliance with the requisitions made upon the assessee. The books of account have not been looked into. No fault has been found with the two audit reports that have been furnished by the assessee along with the return. It is not even the case of the respondent-Revenue that the petitioner-assessee has not complied with the requisitions made upon it by the Assessing Officer or that the compliance is either incomplete or inadequate. No requisition was made by the Assessing Officer with respect to the particulars which have been made the foundation and the basis of the impugned order of approval passed by the Commissioner of Income-tax.
26. As can be seen from the judgments referred to supra the two pre-conditions justifying action under [SECTION] are the nature and complexity of the accounts and the interests of the Revenue. There can, therefore, be no doubt that before an approval is sought for the Assessing Officer must form an opinion as regards the said two conditions. The satisfaction is to be based upon objective considerations. There has to be an application of mind on the part of the Assessing Officer. The said condition is not satisfied in the case on hand. From the proposal of the Assessing Officer it would appear that he formed the opinion :
"As the details filed by the assessee-company as well as auditors' report do not give much details about those expenses, it is necessary to appoint a special auditor to examine all related supporting vouchers and other particulars,
(a) Legal and audit expenses ;
(b) Expenses for relief and welfare of employees, their families indicating medical relief, tuition fees etc. ;
(c) Advertisement expenses ;
(d) Operating expenses on insurance ;
(e) Miscellaneous expenses ;
(f) Repairs on buildings, machineries and others."
27. The approving authority ([ENTITY] based his impugned order on the ground that :
"Some vital information was also not ascertainable from the accounts so submitted, like the exact nature of miscellaneous expenses for Rs. 1.94 crores, purchase of finished products for Rs. 61.69 crores, bifurcation of income from regeneration of rubber both synthetic and natural. Profitability on sale of purchased products is more than the manufactured ones, but it is not ascertainable from the accounts submitted . . ."
28. It was not the case of the Assessing Officer that because of the complexity of the accounts the particulars are not ascertainable from the accounts submitted. If some vital information cannot be ascertained from the accounts the Assessing Officer could have called for particulars from the assessee, which he is entitled to do. As held in the Allahabad High Court judgment, cited supra, there should be an honest attempt to understand the accounts of the assessee. The power to appoint a special auditor cannot be lightly exercised. "Complexity" of the accounts cannot be equated with doubts being entertained by the Assessing Officer either with regard to the correctness thereof or the need for obtaining certain vital information not ascertainable from the accounts. As noticed supra, the Assessing Officer considered it necessary to appoint a special auditor to examine all related supporting vouchers in relation to the expenses under various heads specified therein. In the absence of reasons based on which it can be said that the accounts are complex, mere assumption that they are complex would not satisfy the test nor would the appointment of a special auditor merely for the purpose of examination of related supporting vouchers bring the matter within the ambit of [SECTION] of the Act.
29. For all the aforesaid reasons, the impugned order dated November 8, 2001, relating to special audit in the petitioner's case for the assessment year 1988-89 cannot be sustained and is accordingly quashed and set aside. The respondent authorities are at liberty to proceed with the finalisation of the assessment for the assessment year in question in accordance with law.
30. Writ application accordingly stands disposed of.
31. In the facts and circumstances of the case, there shall, however, be no order as to costs.