Case: Rajesh Kumar and Ors Vs. D. Commissioner of Income Tax and Ors

Appellant No. 1 is a proprietory concern. It is an assessee under the Income Tax Act, 1961 (for short "the Act"). A raid was conducted in their premises on 18.12.2002. Some documents including their books of accounts were seized; a few of which were in the hard disk of the computer. They upon seizure all through remained in possession of the respondents. Assessment was under the law required to be completed within a period of two years. A notice was issued under Section 158BC of the Act by the Deputy Commissioner of Income Tax, Central Circle 18 requiring the appellants to submit return of undisclosed income for the block period of ten years pursuant whereto returns were filed. A notice was issued under Section 142(1) of the Act. Questionnaire was issued on 1.11.2004. On 22.11.2004, the Deputy Commissioner decided to proceed first with the assessment proceedings under Section 158BC of the Act in the case of three individuals, viz., Smt. Sushila Rani, Smt. Sunayana Prabhakar and Smt. Sunanda Prabhakar as also two companies, viz., M/s. Daily Agro Milk Food (P) Ltd. and M/s. Sushila Milk Specialities (P) Ltd. The said questionnaire was responded to. Affidavits were also filed before the Deputy Commissioner on behalf of M/s. Sushila Milk Specialities (P)a letter dated 23.11.2004, the Deputy Commissioner mooted a proposal for special audit in terms of Section 142(2A) of the Act to the Commissioner of Income Taxis no link between the business conducted by the assessee and books of account prepared for the purpose of filing return of income. Two sets of books of accounts have been found for the same concern for the same financial year in two separate computers.There have been numerous instances of transactions outside the books. Few of them are listed asinstances thereafor were given. It was furthermoreare many more instances like these listed above. The above analysis makes it clear that the account of the assessee involves complication and requires an expert audit to bring out the financial results which can be relied upon at the time ofCommissioner of Income Tax approved the said proposal of the Deputy Commissioner of Income Tax by a letter dated 29th February, 2004carefully considering the matter and discussing the same with the Assessing Officer at length I am of the opinion that having regard to the nature and complexity of the accounts of the assessee and the interests of the revenue, it is necessary to carry out special audit in this case u/s 142(2A). In particular, it has been kept in mind that a sizeable amount of the purchases and sales of the assessee are outside the books of accounts. Also the trading account and financial statements of this concern would have to be prepared after thoroughly analyzing the two sets of books of accounts maintained by the assessee, as well as the seized material, which shows clear evidence of huge unaccounted transactions. Keeping in view the above you are required to have the special audit of the assessee conducted u/s 142(2A) by M/s Dhanesh Gupta & Co., CA, 1-1/16, Ansari Road, Shanti Mohan House, Darya Ganj, New Delhi. He should be asked to furnish a report of such audit in the prescribed manner, i.e., in Form No. 6B, within 120 days of the order u/s 142(2A) to be issued by the Assessing Officer. The terms of reference of this audit should include the following:-To prepare final accounts and draw-up a statement of accounts for each assessment year falling within the Block period, i.e., 1.4.96 to 18.12.2002, after auditing the two sets of books of account maintained by the assessee and after keeping in view all the unaccounted transactions revealed by the seized material, which are outside the books of account.The fees to be paid to the Special Auditor by the assessee will be determined subsequently, as perthereto one M/s. Dhanesh Gupta & Co. was appointed as a special auditor. Only on 7.12.2004, Appellant Nos. 1 to 3 were informed by a letter in regard to appointment of an auditor for special audit of their accounts in terms of Section 142(2A) of the Act. Indisputably, prior thereto no opportunity of hearing was given to them. The Deputy Commissioner was requested by the appellants herein to supply a copy of the reasons therefor by a letter dated 11.12.2004 which was refused by a letter dated 13.12.2004. The Chartered Accountant submitted its audited report onWrit Petition was filed by the appellants before the Delhi High Court raising inter alia a question that the order impugned therein was vitiated in law having been passed without giving an opportunity of hearing to them as also on the ground that the same suffers from total non-application of mind. Mala fide on the part of the Deputy Commissioner was also alleged. By the impugned judgment, the said writ petition has been dismissed.

Court's reasoning:
In this case itself the appellants were not made known as to what led the Deputy Commissioner to form an opinion that all relevant factors including the ones mentioned in Section 142(2A) of the Act are satisfied. If even one of them was not satisfied, no order could be passed. If the attention of the Commissioner could be drawn to the fact that the underlined purpose for appointment of the special auditor is not bona fide it might not have approved thethat two sets of accounts were being maintained the same would not mean that the nature of accounts is difficult to understand. It could have furthermore not been shown that the power is sought to be xercised only for an unauthorised purpose, viz., for the purpose of extension of the period of limitation as provided for under Explanation 2 to section 158BE of theorder of approval is also not to be mechanically granted. The same should be done having regard to the materials on record. The explanation given by the assessee, if any, would be a relevant factor. The approving authority was required to go through it. He could have arrived at a different opinion. He in a situation of this nature could have corrected the assessing officer if he was found to have adopted a wrong approach or posed a wrong question unto himself. He could have been asked to complete the process of the assessment within the specified time so as to save the Revenue from suffering any loss. The same purpose might have been achieved upon production of some materials for understanding the books of accounts and/ or the entries made therein. While exercising its power, the assessing officer has to form an opinion. It is final so far he is concerned albeit subject to approval of the Chief Commissioner or the Commissioner, as the case may be. It is only at that stage he is required to consider the matter and not at a subsequent stage, viz., after the approval ishearing given, however, need not be elaborate. The notice issued may only contain briefly the issues which the assessing officer thinks to be necessary. The reasons assigned therefor need not be detailed ones. But, that would not mean that the principles of justice are not required to be complied with. Only because certain consequences would ensue if the principles of natural justice are required to be complied with, the same by itself would not mean that the court would not insist on complying with the fundamental principles of law. If the principles of natural justice are to be excluded, the Parliament could have said so expressly. The hearing given is only in terms of Section 142 (3) which is limited only to the findings of the special auditor. The order of assessment would be based upon the findings of the special auditor subject of course to its acceptance by the assessing officer. Even at that stage the assessee cannot put forward a case that power under Section 142(2A) of the Act had wrongly been exercised and he has unnecessarily been saddled with a heavy expenditure. An appeal against the order of assessment, as noticed hereinbefore, would not serve any real purpose as the appellate authority would not go into such a question since the direction issued under Section 142(2A) of the Act is not an appellate order.