http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 14 CASE NO.: Appeal (civil) 4633 of 2006 PETITIONER: Rajesh Kumar & Ors. RESPONDENT: D.C.I.T. & Ors. DATE OF JUDGMENT: 01/11/2006 BENCH: S.B. Sinha & Dalveer Bhandari JUDGMENT: J U D G M E N T [Arising out of SLP (Civil) No. 9427-9430 of 2005] S.B. SINHA, J : Leave granted. Appellant No. 1 is proprietory concern. It is assessee under Income Tax Act, 1961 (for short "the Act"). raid was conducted in their premises on 18.12.2002. Some documents including their books of accounts were seized; few of which were in hard disk of computer. They upon seizure all through remained in possession of respondents. Assessment was under law required to be completed within period of two years. notice was issued under Section 158BC of Act by Deputy Commissioner of Income Tax, Central Circle \026 18 requiring appellants to submit return of undisclosed income for block period of ten years pursuant whereto returns were filed. notice was issued under Section 142(1) of Act. Questionnaire was issued on 1.11.2004. On 22.11.2004, Deputy Commissioner decided to proceed first with assessment proceedings under Section 158BC of Act in 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. said questionnaire was responded to. Affidavits were also filed before Deputy Commissioner on behalf of M/s. Sushila Milk Specialities (P) Ltd. By letter dated 23.11.2004, Deputy Commissioner mooted proposal for special audit in terms of Section 142(2A) of Act to Commissioner of Income Tax stating: "There is no link between business conducted by assessee and books of account prepared for purpose of filing return of income. Two sets of books of accounts have been found for same concern for same financial year in two separate computers. There have been numerous instances of transactions outside books. Few of them are listed as under:..." Several instances thereafor were given. It was furthermore stated: "There are many more instances like these listed above. above analysis makes it clear that account of assessee involves complication and http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 14 requires expert audit to bring out financial results which can be relied upon at time of assessment" Commissioner of Income Tax approved said proposal of Deputy Commissioner of Income Tax by letter dated 29th February, 2004 stating: "After carefully considering matter and discussing same with Assessing Officer at length I am of opinion that having regard to nature and complexity of accounts of assessee and interests of 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 sizeable amount of purchases and sales of assessee are outside books of accounts. Also trading account and financial statements of this concern would have to be prepared after thoroughly analyzing two sets of books of accounts maintained by assessee, as well as seized material, which shows clear evidence of huge unaccounted transactions. Keeping in view above you are required to have special audit of 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 report of such audit in prescribed manner, i.e., in Form No. 6B, within 120 days of order u/s 142(2A) to be issued by Assessing Officer. terms of reference of this audit should include following:- To prepare final accounts and draw-up statement of accounts for each assessment year falling within Block period, i.e., 1.4.96 to 18.12.2002, after auditing two sets of books of account maintained by assessee and after keeping in view all unaccounted transactions revealed by seized material, which are outside books of account. fees to be paid to Special Auditor by assessee will be determined subsequently, as per norms." Pursuant thereto one M/s. Dhanesh Gupta & Co. was appointed as special auditor. Only on 7.12.2004, Appellant Nos. 1 to 3 were informed by letter in regard to appointment of auditor for special audit of their accounts in terms of Section 142(2A) of Act. Indisputably, prior thereto no opportunity of hearing was given to them. Deputy Commissioner was requested by appellants herein to supply copy of reasons therefor by letter dated 11.12.2004 which was refused by letter dated 13.12.2004. Chartered Accountant submitted its audited report on 17.1.2005. Writ Petition was filed by appellants before Delhi High Court raising inter alia question that order impugned therein was vitiated in law having been passed without giving opportunity of hearing to them as also on ground that same suffers from total non- application of mind. Mala fide on part of Deputy Commissioner was also alleged. By impugned judgment, said writ petition has been dismissed. Submissions of Mr. K. Sampath, learned counsel appearing on behalf http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 14 of appellants are: (i) Section 142(2A) of Act having regard to enormity of power deserves strict construction. (ii) Principles of natural justice inhere in said provisions. (iii) Application of mind on part of assessing officer on three relevant factors is imperative. (iv) Statutory power contained in Section 142(2A) of Act cannot be used for collateral purposes. Submissions of Mr. Gopal Subramanium, learned Additional Solicitor General, on other hand, are: (i) As Section 142(2A) of Act is juxtaposed between provisions for filing return and assessment, said provision must be interpreted to be in aid of assessment and not as part of order of assessment. (ii) proposal mooted by assessing officer to Deputy Commissioner would show nature of accounts as also complexity thereof, particularly, in view of fact that assessee was said to have been maintaining two different sets of accounts. complexity of accounts was also evident as parties were associated with various firms and companies. (iii) Section 142(2A) contains sufficient safeguards including approval to be granted by high ranking officer and in event order passed thereunder is subjected to judicial review authorities would place entire records to satisfy conscience of court that same does not suffer from non-application of mind. (iv) If principles of natural justice are held to be implicit in said provision, extent thereof must be confined to requirements of provisions only and not detailed hearing. (v) Giving opportunity of hearing sometimes would lead to assessment of reasons as assessing officer is not required to go into correctness or otherwise of accounts at that stage. Interpretation and application of Section 142(2A) of Act, thus, falls for our consideration. We may at outset notice that following are relevant factors for invoking Section 142(2A) of Act: (i) nature of accounts (ii) Complexity of accounts and (iii) Interest of revenue. formation of opinion of assessing officer must be on premise that while exercising his power regard must be had to factors enumerated therein. use of word and shows that it is conjunctive and not disjunctive. All aforementioned factors are conjunctively required to be read. formation of opinion indisputably must be based on objective consideration. expression "complexity" would mean state or quality of being intricate or complex or that it is difficult to understand. Difficulty in understanding would, however, not lead to conclusion that accounts are complex in nature. No order can be passed on whims or caprice. It is also not in dispute that whereas Calcutta High Court and Kerala High Court have taken view that before issuance of direction under Section 142(2A) of Act, it is necessary to comply with principles of natural justice, Allahabad High Court, Bombay High Court and Delhi High Court have thought it otherwise. When raid is conducted on premises of assessee, block http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 14 assessment is permissible, procedures wherefor have been laid down under Section 158BC of Act. Section 158BE(b) of Act contemplates that order thereunder is necessary to be passed within two years from end of month in which last of authorizations for search under Section 132 or for requisition under Section 132A, as case may be, was executed in cases where search is initiated or books of accounts or other documents or any assets are requisitioned. Statute of limitation is statute of repose. Indisputably same, subject to exceptions contained in explanation appended to Section 158BE, is imperative. Having regard to aforementioned, we may have to construe Sub- section (2A) of Section 142 of Act. Before, however, we do so, it may be noticed that said provision is meant to be applied for passing order of assessment. order of assessment is to precede filing of return in terms of Section 139 of Act. Various other steps in that behalf are also contemplated under Sections 139A, 140 and 141A of Act. inquiry may be made prior to passing of order of assessment by assessing officer under Section 142 of Act. Section 136 raises legal fiction that proceeding under Act shall be judicial proceeding and every income tax authority shall be deemed to be civil court for purposes of Section 195 of Code of Criminal Procedure. power of inquiry conferred upon assessing authority is of wide amplitude. Sub-sections (2A), (2B), (2C), (2D) and (3) of Section 142 of Act read as under: "(2A) If, at any stage of proceedings before him, Assessing Officer, having regard to nature and complexity of accounts of assessee and interests of revenue, is of opinion that it is necessary so to do, he may, with previous approval of Chief Commissioner or Commissioner, direct assessee to get accounts audited by accountant, as defined in Explanation below sub-section (2) of section 288, nominated by Chief Commissioner or Commissioner in this behalf and to furnish report of such audit in prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed and such other particulars as Assessing Officer may require. (2B) provisions of sub-section (2 A) shall have effect notwithstanding that accounts of assessee have been audited under any other law for time being in force or otherwise. (2C) Every report under sub-section (2 A) shall be furnished by assessee to Assessing Officer within such period as may be specified by Assessing Officer: Provided that Assessing Officer may, on application made in this behalf by assessee and for any good and sufficient reason, extend said period by such further period or periods as he thinks fit; so, however, that aggregate of period originally fixed and period or periods so extended shall not, in any case, exceed one hundred and eighty days from date on which direction under sub-section (2A) is received by assessee. (2D) expenses of, and incidental to, any audit http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 14 under sub-section (2A) (including remuneration of accountant) shall be determined by Chief Commissioner or Commissioner (which determination shall be final) and paid by assessee and in default of such payment, shall be recoverable from assessee in manner provided in Chapter XVII-D for recovery of arrears of tax. (3) assessee shall, except where assessment is made under section 144, be given opportunity of being heard in respect of any material gathered on basis of any inquiry under sub-section (2) or any audit under sub-section (2 A) and proposed to be utilised for purposes of assessment." Principles of natural justice are based on two basic pillars: (i) Nobody shall be condemned unheard (audi alteram partem) (ii) Nobody shall be judge of his own cause (nemo debet esse judex in propria sua causa) Duty to assign reasons is, however, judge made law. There is dispute as to whether it comprises of third pillar of natural justice. [See S.N. Mukherjee v. Union of India, (1990) 4 SCC 594 and Reliance Industries Ltd. v. Designated Authority and Others, 2006 AIR SCW 4911] However, other view is that question as to whether reasons are required to be assigned is matter of legislative policy which should be left to decision of Parliament. In Raipur Development Authority and Others v. M/s. Chokhamal Contractors and Others [(1989) 2 SCC 721], Constitution Bench opined: "It is no doubt true that in decisions pertaining to Administrative Law, this Court in some cases has observed that giving of reasons in administrative decision is rule of natural justice by extension of prevailing rule. It would be in interest of world of commerce that said rule is confined to area of Administrative Law. We do appreciate contention, urged on behalf of parties who contend that it should be made obligatory on part of arbitrator to give reasons for award, that there is no justification to leave small area covered by law of arbitration out of general rule that decision of every judicial and quasi-judicial body should be supported by reasons. But at same time it has to be borne in mind that what applies generally to settlement of disputes by authorities governed by public law need not be extended to all cases arising under private law such as those arising under law of arbitration which is intended for settlement of private disputes. As stated elsewhere in course of this judgment if parties to dispute feel that reasons should be given by arbitrators for awards it is within their power to insist upon such reasons being given at time when they enter into arbitration agreement or sign deed of submission. It is significant that although nearly decade ago Indian Law Commission submitted its report on law of arbitration specifically mentioning therein that there was no necessity to amend law of arbitration requiring arbitrators to give reasons, Parliament has not http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 14 chosen to take any step in direction of amendment of law of arbitration. Even after passing of English Arbitration Act, 1979 unless court requires arbitrator to give reasons for award [vide sub-sections (5) and (6) of Section 1 of English Arbitration Act, 1979], award is not liable to be set aside merely on ground that no reasons have been given in support of it." [See also Rajendra Construction Co. v. Maharashtra Housing & Area Development Authority and Others, (2005) 6 SCC 678] We, however, need not dilate on said question being not very necessary for purpose of this case. But it is beyond any cavil that ordinarily unless excluded by operation of statute, superior courts while exercising power of judicial review shall proceed on basis that assignment of reasons is imperative in character. When authority be it administrative or quasi-judicial adjudicates on dispute and if its order is appealable or subject to judicial review, it would be necessary to spell out reasons therefor. While, however, applying principles of natural justice, however, court must also bear in mind theory of useless formality and prejudice doctrine. If assessee files return same is not presumed to be incorrect. When assessing officer, however, intends to pass order of assessment, he may take recourse to such steps including one of asking assessee to disclose documents which are in his power or possession. He may also ask third parties to produce documents. Section 136 of Act by reason of legal fiction makes assessment proceeding, judicial proceeding. assessment proceeding, therefore, is part of judicial process. When statutory power is exercised by assessing authority in exercise of its judicial function which is detrimental to assessee, same is not and cannot be administrative in nature. It stricto sensu is also not quasi judicial. By way of example, although it may not be very apposite, we may state that orders passed under Order XII of Code of Civil Procedure by court cannot be held to be administrative in nature. They are judicial orders and subject to order which may be passed by higher courts in regard thereto. Indisputably, prejudice of assessee, if order is passed under Section 142(2A) of Act, is apparent on face of statutory provision. He has to undergo process of further accounting despite fact that his accounts have been audited by qualified auditor in terms of Section 44AB of Act. auditor is professional person. He has to function independently. He is not employee of assessee. In case of misconduct, he may become liable to be proceeded against by statutory authority under Chartered Accountants Act, 1949. In this case, fee of special auditor has been fixed at Rs. 1.5 lakhs. assessee during audit of account by special auditor had to answer large number of questions. Whether he defaulted therein or not is matter of little or no consequence for purpose of construction of said provision. We may, however, notice that whereas according to Revenue assessee was not cooperating, according to assessee, as all books of accounts having been seized, there was nothing it could do in matter. Effect of civil consequences arising out of determination of lis under statute is stated in State of Orissa v. Dr. (Miss) Binapani Dei and Others [AIR 1967 SC 1269: (1967) 2 SCR 625]. It is authority for proposition when by reason of action on part of statutory authority, civil or evil consequences ensue, principles of natural justice are required to be followed. In such event, although no express provision is laid down in this behalf compliance of principles of natural justice would be implicit. In case of denial of principles of natural justice in statute, same may also be held ultra vires Article 14 of Constitution. http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 14 K.J. Shetty, J. in Swadeshi Cotton Mills Company Limited v. Commissioner of Income-Tax and Another [171 ITR 634] succinctly laid down import of said provision in following terms: "The exercise of power to direct special audit depends upon satisfaction of Income-tax Officer with added approval of Commissioner. But he must be satisfied that accounts of assessee are of complex nature, and, in interests of Revenue, accounts should be audited by special auditor. special auditor is also auditor like company s auditor, but he has to be nominated by Commissioner and not by company. accounts are again to be audited at cost of company. This is substance of statutory provisions. power thereunder cannot, in our opinion, be lightly exercised. satisfaction of authorities should not be subjective satisfaction. It should be based on objective assessment regard being had to nature of accounts. nature of accounts must indeed be of complex nature. That is primary requirement for directing special audit. But word " complexity " used in Sub-section (2A) is nebulous word. Its dictionary meaning is : " state or quality of being intricate or complex or that is difficult to understand." However, all that are 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 face of it, may not be really so if one tries to understand it carefully. Therefore, special audit should not be directed on cursory look at accounts. There should be honest attempt to understand accounts of assessee." We may, however, notice that learned Judge referred to guidelines of Central Board of Direct Taxes and having regard to facts and circumstances of case opined that exercise of power was not arbitrary. applicability of principles of natural justice, on other hand, has been highlighted in Peerless General Finance & Investment Co. Ltd. (supra), West Bengal Co-Op. Bank Ltd (supra) Bata India Limited v. CIT [2002 (257) ITR 622], Joint Commissioner of Income Tax v. I.T.C. Ltd. and Another [239 ITR 921] and Muthootu Mini Kuries v. Deputy Commissioner of Income-Tax and Another [250 ITR 455]. In Swadeshi Cotton Mills v. Union of India [(1981) 1 SCC 664], Chinnappa Reddy, J., in his dissenting judgment summarized legal position in following terms: "The principles of natural justice have taken deep root in judicial conscience of our people, nurtured by Binapani, Kraipak, Mohinder Singh Gill, Maneka Gandhi etc. etc. They are now considered so fundamental as to be implicit in concept of ordered liberty and, therefore, implicit http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 14 in every decision making function, call it judicial, quasi-judicial or administrative. Where authority functions under statute and statute provides for observance of principles of natural justice in particular manner, natural justice will have to be observed in that manner and in no other. No wider right than that provided by statute can be claimed nor can right be narrowed. Where statute is silent about observance of principles of natural justice, such statutory silence is taken to imply compliance with principles of natural justice. implication of natural justice being presumptive it may be excluded by express words of statute or by necessary intendment. Where conflict is between public interest and private interest, presumption must necessarily be weak and may, therefore, be readily displaced." In Delhi Transport Corporation v. D.T.C. Mazdoor Congress and Others [1991 Supp (1) SCC 600], Ray, J. opined: "\005It is now well settled that audi alteram partem rule which in essence, enforces equality clause in Article 14 of Constitution is applicable not only to quasi-judicial orders but to administrative orders affecting prejudicially party-in-question unless application of rule has been expressly excluded by Act or Regulation or Rule which is not case here. Rules of natural justice do not supplant but supplement Rules and Regulations. Moreover, Rule of Law which permeates our Constitution demands that it has to be observed both substantially and procedurally\005" [See also Basudeo Tiwary v. Sido Kanhu University and Others, (1998) 8 SCC 194 and Uptron India Ltd. v. Shammi Bhan, (1998) 6 SCC 538] Some exceptions to applicability of principle is stated in Jagdish Swarup s Constitution of India, 2nd Edition, page 289 in following terms: "Not only, therefore, can principles of natural justice be modified but in exceptional cases they can even be excluded. There are well-defined exceptions to nemo judex in causa sua rule as also to audi alteram partem rule. nemo judex in causa sua rule is subject to doctrine of necessity and yields to it as pointed out by Apex Court in J. Mohapatra and Co. v. State of Orissa. So far as audi alteram partem rule is concerned, both in England and in India, it is well established that where right to prior notice and opportunity to be heard before order is passed would obstruct taking of prompt action, such right can be excluded. This right can also be excluded where nature of action to be taken, its object and purpose and scheme of relevant statutory provisions warrant its exclusion, nor can audi alteram partem rule be invoked if importing it would have effect of paralyising administrative process or where need for promptitude or urgency of taking action so http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 14 demands, as pointed out in Maneka Gandhi s case." [See also Haji Abdul Shakoor & Co. v. Union of India and Others, (2002) 9 SCC 760] Exceptions, therefore, are required to be provided for either expressly or by necessary implication. We may at this stage notice views of Delhi, Bombay and Allahabad High Courts where it was held that principles of natural justice are not required to be complied with in appointment of special auditor. Division Bench of Delhi High Court considered question at some length in Yum Restaurants India Pvt. Ltd. V. Commissioner of Income-Tax [2005 (278) ITR 401 (Delhi)]. ratio of judgment, however, is not very clear. Same inconsistencies appear to have crept therein, which would be noticed little later. While holding that, as proposition of law, distinction between administrative order and quasi-judicial order is very fine one, it had been observed that same would not mean that principles of natural justice would be mandatorily required to be complied with only because consequence of order passed thereunder would be adverse to interest of party or it prejudically affects person. It was stated that functions of statutory authority under Section 142(2A) are more of administrative action than quasi-judicial function. Relying on or on basis of decision of this Court in Canara Bank and Ors. v. Debasis Das and Ors., [(2003) 4 SCC 557], learned Judges opined that although principles of natural justice are integral part of procedure but one must notice that concept of natural justice has undergone great deal of change. But, then while observing that Section 142(2A) of Act do not exclude application of principles of natural justice, it was opined that interaction with and confrontation of assessee would serve purpose. Distinguishing judgment of Calcutta High court in cases of Peerless General Finance & Investment Co. Ltd. v. Dy. CIT and Ors., (1999) 236 ITR 671 and West Bengal Co-Op. Bank Ltd. v. Commissioner Income- tax and Ors., (2004) 267 ITR 345, High Court observed: "\005However, scope of kind of hearing that assessee would be entitled to, was not discussed even in these judgments, primarily for reason that in one case Assessing Officer had taken into consideration irrelevant material like litigation pending between Reserve Bank of India and assessee while in other cases, Assessing Officer had not even asked for books of accounts of assessee before passing order of special audit under section 142(2A). These judgments have no application to facts of case in hand on any known canon of ratio decidendi. Respectfully we would differ with view taken by Calcutta High Court in above noticed judgment only with regard to extent of application of principles of natural justice at pre- decisional stage in exercise of powers under section 142(2A) by Assessing Officer. expression used in these judgments "reasonable opportunity of hearing and also to meet cause against him cannot apply in stricto senso to direction for special audit during pendency of assessment proceedings. Pre-decisional hearing in this regard would fall within very restricted and limited scope. purpose would be http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 14 sufficiently achieved if assessee is questioned or confronted with his accounts in relation to nature and complexity thereof." court, however, considered question as regards post- decisional hearing in regard to report received by assessing authority in furtherance of order passed under Section 142(2A) of Act opining: "\005Equally true is that provisions do not indicate complete exclusion of principles of natural justice as well. It is difficult to provide any straight-jacket formula which without variations can be applied to cases universally. Every case would have to be decided on its own merits and with reference to judgments which are squarely applicable to that case." learned Judges concluded: "a) Provisions of Section 142 (2A) of Act do not contemplate by specific language or necessary implication, issuance of show cause notice or grant of comprehensive hearing to assessee by Assessing Officer. b) Limited to extent indicated hereinafter, principles of natural justice would be read into principles of Section 142 (2A) of Act. It is for reason that directions issued under this provision are bound to vest assessee with civil consequences of compulsive expenditure and audit of its books by accountant, who but for such direction would have no right to such examination. This would, to some extent, be interference in internal management of company related to its accounts. c) Before Assessing Officer seeks approval of competent authority under Section 142 (2A) of Act, it would be obligatory upon him to call upon assessee during course of assessment proceedings for purposeful interaction and confrontation in regard to nature and complexity of assessee s accounts. d) Such interaction with and confrontation of, assessee with his account books should be with object to attain better clarity and understanding of accounts by Assessing Officer. There has to be serious attempt on part of Assessing Officer to seek clarification of his doubts in regard to nature and complexity of assessee s accounts for better comprehension." [Highlighting is ours for showing inconsistencies in judgment] In any event, learned judges did not exclude application of principle altogether. Division Bench of Bombay High Court in V.S. Samuel, Assistant Commissioner of Income-Tax and Others [2006 (283) ITR 56], however, disagreed with decisions of Calcutta High court and Kerala High Court stating that order passed under Section 142(2A) of Act is purely administrative in nature. It was opined: http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 11 of 14 "\005Such order, in our opinion, does not entail any civil consequences. No decision is given. Merely because assessee is required to pay auditor s fee, that does not mean that any liability is created against assessee and that such order entails any civil consequences. issuance of direction for special audit facilitates AO to have complex accounts of assessee examined by independent auditor. That helps and assists him in assessing income of assessee..." We would consider reasonings of learned judges at appropriate stage. In Gurunanak Enterprises v. Commissioner of Income-tax and Another [259 ITR 637], Division Bench of Delhi High Court observed: "It is, thus, clear from decisions referred to supra that before exercising power to direct special audit under Section 142(2A) Assessing officer must form opinion with regard to twin conditions, namely, nature and complexity of accounts and interests of revenue, with added approval of Chief Commissioner or Commissioner, as case may be. Both these conditions would of course depend upon facts of each case. Further, power under Section is not to be lightly exercised and has to be based on objective criteria and honest and sincere effort should be made to understand accounts of assessee since order under provision not only entails heavy monetary burden on assessee, it causes lot of inconvenience to him as well." It was, however, stated: "It is not within province of judicial review to minutely analyse materials on which opinion of Assessing Officer is rested to find out whether same is sufficient for authority concerned to come to conclusion that accounts of assessee need to be subjected to special audit. As noticed above, what is complex to one may be simple to another and, therefore, issue has to be examined from view point of Assessing Officer concerned. Court is not expected to substitute its own understanding and comprehension of accounts of assessee." decisions of Calcutta High Court and Kerala High Court were held to have been decided on their own facts. It is significant to note that except Bombay High Court, views taken by Calcutta and Delhi High Court had not been explicitly dissented from. learned Judges of Delhi High Court in Yum Restaurants India Pvt. Ltd. (supra) and Gurunanak Enterprises (supra) did not hold that decisions have been incorrectly rendered. They were, however, held to be inapplicable to facts of cases. We may place on record that even learned Additional Solicitor General categorically stated before us that doctrine of procedural safeguards applied by Calcutta High Court and Kerala High Court cannot be faulted with having regard to peculiar fact situation obtaining http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 12 of 14 therein. fact, thus, remains that there may be situation when provision would be misused. order may be passed not only without any application of mind but also in ignorance of requirements of law. Bombay High Court and Delhi High Court, with respect, in our opinion, are not correct in stating that direction issued under Section 142(2A) of Act to be administrative in nature. In view of Section 136 of Act, entire proceedings of assessment before Assessing Officer being judicial, it is difficult to understand how part thereof, which indisputably is resorted to in aid of ultimate order of assessment, without any statutory interdict would be called to be administrative order. When books of accounts have been produced and examined, assessing officer would be proceeding to make ultimate order of assessment. In SBP & Co. v. Patel Engineering Ltd. and Another [(2005) 8 SCC 618], Seven-Judge Bench of this Court opined that order of Chief Justice or Designated Judge being final in nature, order passed thereunder would be judicial order and not administrative order stating: "The power exercised by Chief Justice of High Court or Chief Justice of India under Section 11(6) of Act is not administrative power. It is judicial power." In any event, when civil consequences ensue, there is hardly any distinction between administrative order and quasi judicial order. There might have been difference of opinions at one point of time, but it is now well-settled that thin demarcated line between administrative order and quasi-judicial order now stands obliterated [See A.K. Kraipak and Others v. Union of India and Others - (1969) 2 SCC 262 and Chandra Bhawan Boarding and Lodging, Bangalore v. State of Mysore and Another \026 AIR 1970 SC 2042 and S.L. Kapoor v. Jagmohan and Others - AIR 1981 SC 136]. Recently, in V.C. Banaras Hindu University v. Shrikant [2006 (6) SCALE 66], this Court stated law, thus: "An order passed by statutory authority, particularly when by reason whereof citizen of India would be visited with civil or evil consequences must meet test of reasonableness\005" expression "having regard to" in this context assumes some significance. opinion must be formed strictly in terms of factors enumerated therein. expression indicates that in exercising power regard must be had also to factors enumerated therein together with all factors relevant for exercise of that power. In India Cement Ltd. and Others v. Union of India and Others [(1990) 4 SCC 356], it was stated: "The meaning of expression having regard to is well settled. It indicates that in exercising power, regard must be had also to factors enumerated together with all factors relevant for exercise of that power." In Delhi Farming & Construction (P) Ltd. v. Commissioner of Income Tax, Delhi [(2003) 5 SCC 36], it is stated: "The words "having regard to" used in section do not restrict consideration only to two matters indicated in section as it is impossible http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 13 of 14 to arrive at conclusion as to reasonableness by considering only two matters mentioned isolated from other relevant factors. It is neither possible nor advisable to lay down any decisive tests for guidance of Income Tax Officer. satisfaction depends upon facts of each case. only guidance is his capacity to put himself in position of prudent businessman or director of company and his sympathetic and objective approach to difficult problem that arises in each case." factors enumerated in Section 142(2A) of Act, thus, are not exhaustive. Once it is held that assessee suffers civil consequences and any order passed by it would be prejudicial to him, principles of natural justice must be held to be implicit. principles of natural justice are required to be applied inter alia to minimize arbitrariness. It is trite, even if there is possibility that Tribunal would correctly follow statutory provisions, still compliance of principles of natural justice would be required. [See R. v. Kensington and Chelsea Rent Tribunal, ex p. MacFarlane (1974) 1 WLR 1486] Justice, as is well known, is not only be done but manifestly seem to be done. If assessee is put to notice, he could show that nature of accounts is not such which would require appointment of special auditors. He could further show that what assessing officer considers to be complex is in fact not so. It was also open to him to show that same would not be in interest of Revenue. In this case itself appellants were not made known as to what led Deputy Commissioner to form opinion that all relevant factors including ones mentioned in Section 142(2A) of Act are satisfied. If even one of them was not satisfied, no order could be passed. If attention of Commissioner could be drawn to fact that underlined purpose for appointment of special auditor is not bona fide it might not have approved same. Assuming that two sets of accounts were being maintained same would not mean that nature of accounts is difficult to understand. It could have furthermore not been shown that power is sought to be exercised only for unauthorised purpose, viz., for purpose of extension of period of limitation as provided for under Explanation 2 to section 158BE of Act. order of approval is also not to be mechanically granted. same should be done having regard to materials on record. explanation given by assessee, if any, would be relevant factor. approving authority was required to go through it. He could have arrived at different opinion. He in situation of this nature could have corrected assessing officer if he was found to have adopted wrong approach or posed wrong question unto himself. He could have been asked to complete process of assessment within specified time so as to save Revenue from suffering any loss. same purpose might have been achieved upon production of some materials for understanding books of accounts and/ or entries made therein. While exercising its power, assessing officer has to form opinion. It is final so far he is concerned albeit subject to approval of Chief Commissioner or Commissioner, as case may be. It is only at that stage he is required to consider matter and not at subsequent stage, viz., after approval is given. In K.I. Shephard and Others v. Union of India and Others [(1987) 4 SCC 431 : AIR 1988 SC 686], this Court observed: http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 14 of 14 "It is common experience that once decision has been taken, there is tendency to uphold it and representation may not really yield any fruitful purpose." [See also H.L. Trehan and Others v. Union of India and Others (1989) 1 SCC 764, L.N. Mishra Institute of Economic Development and Social Change, Patna v. State of Bihar and Others (1988) 2 SCC 764 and V.C. Banaras Hindu University and Ors. v. Shrikant, 2006 (6) SCALE 66] Whereas order of assessment can be subject matter of appeal, direction issued under Section 142(2A) of Act is not. No internal remedy is prescribed. Judicial review cannot be said to be appropriate remedy in this behalf. appellate power under Act does not contain any provision like Section 105 of Code of Civil Procedure. power of judicial review is limited. It is discretionary. court may not interfere with statutory power. [See for example Jhunjhuwala Vanaspati Ltd. v. Assistant Commissioner of Income-Tax and Another (No. 1), 266 ITR 657, see, however, U.P. State Industrial Development Corporation Limited v. Commissioner of Income-Tax and Others, 171 ITR 640] hearing given, however, need not be elaborate. notice issued may only contain briefly issues which assessing officer thinks to be necessary. reasons assigned therefor need not be detailed ones. But, that would not mean that principles of justice are not required to be complied with. Only because certain consequences would ensue if principles of natural justice are required to be complied with, same by itself would not mean that court would not insist on complying with fundamental principles of law. If principles of natural justice are to be excluded, Parliament could have said so expressly. hearing given is only in terms of Section 142 (3) which is limited only to findings of special auditor. order of assessment would be based upon findings of special auditor subject of course to its acceptance by assessing officer. Even at that stage assessee cannot put forward case that power under Section 142(2A) of Act had wrongly been exercised and he has unnecessarily been saddled with heavy expenditure. appeal against order of assessment, as noticed hereinbefore, would not serve any real purpose as appellate authority would not go into such question since direction issued under Section 142(2A) of Act is not appellate order. For reasons aforementioned, appeal is allowed. No costs. Rajesh Kumar & Ors. v. D.C.I.T. & Or