C/SCA/4691/2017 CAV JUDGMENT IN HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION NO. 4691 of 2017 For Approval and Signature: HONOURABLE MR.JUSTICE M.R. SHAH Sd/ and HONOURABLE MR.JUSTICE B.N. KARIA Sd/ 1 Whether Reporters of Local Papers may be allowed to see No judgment ? 2 To be referred to Reporter or not ? No 3 Whether their Lordships wish to see fair copy of No judgment ? 4 Whether this case involves substantial question of law as No to interpretation of Constitution of India or any order made thereunder ? TAKSHASHILA REALTIES PVT LTD....Petitioner(s) Versus DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 4(1)(2) & 2....Respondent(s) Appearance: MR JP SHAH, SR. ADVOCATE with MR MANISH J SHAH, ADVOCATE for Petitioner(s) No. 1 MR NITIN K MEHTA, ADVOCATE for Respondent(s) No. 2 NOTICE SERVED BY DS for Respondent(s) No. 1 , 3 CORAM: HONOURABLE MR.JUSTICE M.R. SHAH and HONOURABLE MR.JUSTICE B.N. KARIA Date : 09/06/2017 CAV JUDGMENT (PER : HONOURABLE MR.JUSTICE M.R. SHAH) [1.0] By way of this petition under Article 226 of Constitution of India, petitioner assessee Takshashila Realties Pvt. Ltd. (formerly known as Takshashila Gruh Nirman Pvt. Ltd.) has prayed for Page 1 of 23 HC-NIC Page 1 of 23 Created On Mon Jun 19 14:18:33 IST 2017 C/SCA/4691/2017 CAV JUDGMENT appropriate writ, direction and order to quash and set aside impugned order dated 28.12.2016 passed by Assessing Officer under Section 142(2A) of Income Tax Act, 1961 (hereinafter referred to as IT Act ), by which in exercise of powers under Section 142(2A) of IT Act, Assessing Officer has directed assessee to get accounts for AY 2014 15 audited through Special Auditor. [2.0] facts leading to present Special Civil Applications, in nutshell, are as under : [2.1] That, in case of erstwhile firms viz., M/s. Chanakya Infracon Private Limited; M/s. Chanakya Buildcon [P] Limited; M/s. Takshashila Realties Private Limited; M/s. Youngstar Infracon [P] Limited and Takshashila Properties [P] Limited, assessment proceedings for A.Y 2010 2011 were completed. That, pursuant to order dated 22nd March 2011 passed by High Court of Gujarat in Company Application No. 263 of 2011, five companies viz., M/s. Chanakya Buildcon Private Limited; M/s. Chanakya Infracon Private Limited; M/s. Takshashila Properties Private Limited; M/s. Takshashila Realities Limited and M/s. Youngstar Infracon Private Limited came to be amalgamated with Takshashila Gruh Nirman Private Limited. Messrs. Takshashila Gruh Nirman Private Limited is subsequently named as M/s. Takshashila Realities Limited. It appears that in case of transferee companies viz., M/s. Takshashila Gruh Nirman Private Limited; M/s. Chanakya Buildcon Private Limited; M/s. Chanakya Infracon Private Limited and M/s. Youngstar Infrastructure Private Limited, reassessment proceedings came to be initiated for A.Y 2010 2011. Notices under Section 148 of IT Act came to be issued and served upon respective assessees. aforesaid transferee companies original assessees preferred Special Civil Applications No. 13971 of 2016; 14018 Page 2 of 23 HC-NIC Page 2 of 23 Created On Mon Jun 19 14:18:33 IST 2017 C/SCA/4691/2017 CAV JUDGMENT of 2016; 14071 of 2016 and 14794 of 2016 before this Court challenging Notices under Section 148 of Act and reassessment proceedings. That, by detailed judgment and order dated 5th December 2016, Division Bench of this Court, dismissed said Special Civil Applications. [2.2] That thereafter, petitioner herein Takshashila Realities Private Limited has been served with Notice under Section 142(2A) of IT Act and petitioner, as successor of firms viz., M/s. Chanakya Buildcon Private Limited; M/s. Chanakya Infracon Private Limited; M/s. Takshashila Properties Private Limited and M/s. Youngstar Infracon Private Limited was called upon to show cause why order for special audit under Section 142(2A) of IT Act may not be passed. In show cause notice, it was noted that conversion of five firms into companies, after revaluation of land, merger of five companies with M/s. Takshashila Gruh Nirman Private Limited; later with issue of equity shares against balance of revaluation credits at premium; valuation of shares as Discounted Cash Flow method by estimating cash flows and adopting random discounted rate for valuation, there is complex web of transactions in group of firms namely introduction of land by some of partners; revaluation of lands and crediting of amounts in current accounts of all partners; conversion of firms into companies which merged with existing Company; valuation of share by discounted cash flow method and allotment of shares against amounts outstanding as unsecured loans at unreasonable premium, clubbed with multiple revaluation or properties over years, starting from 2008 to 2013 in various entities involves application of provisions of Companies Act, application of Accounting Standards and examination of provisions of capital gains in hands of various partners, firms and directors is involved, and therefore, having regard to nature and Page 3 of 23 HC-NIC Page 3 of 23 Created On Mon Jun 19 14:18:33 IST 2017 C/SCA/4691/2017 CAV JUDGMENT complexity of accounts, volume of accounts, doubts about correctness of accounts, multiplicity of transactions in accounts, or specialized nature of transaction in cases which finally of assessee, and interest of Revenue, accounts are required to be got audited by Special Auditor from point of view of taxation of capital gains and accounting of stock in trade at each stage of transfer so that there is no loss to Revenue out of complex web of transactions involved. At this stage it is required to be noted that similar notices were issued for AY 2010 11 and after considering objections submitted by very petitioner and after obtaining approval from Principal Commissioner, Assessing Officer passed order of Special Audit under Section 142(2A) of IT Act, which was subject matter of Special Civil Application No.2920/2017 and by detailed judgment and order Division Bench of this Court has dismissed said Special Civil Application confirming order passed by Assessing Officer of Special Audit for AY 2010 11. dispute in present petition is with respect to special audit for AY 2014 15. [2.3] That, petitioner assessee filed its objections, which came to be disposed of by Assessing Officer. That thereafter, Assessing Officer sent proposal to Principal Commissioner of Income tax, Ahmedabad IV for its approval. That said Principal Commissioner of Income tax granted his approval and appointed respondent no. 3 as Special Auditor. Thereafter, by two communications, petitioner has been called upon to get accounts audited for AY 2014 2015, as successor of viz., M/s. Chanakya Infracon Private Limited; M/s. Youngstar Infracon Private Limited; M/s. Chanakya Buildcon Private Limited and M/s. Takshashila Properties Private Limited by Special Auditor. Page 4 of 23 HC-NIC Page 4 of 23 Created On Mon Jun 19 14:18:33 IST 2017 C/SCA/4691/2017 CAV JUDGMENT [3.0] Feeling aggrieved and dissatisfied by impugned order passed by respondent no. 1 Assessing Officer passed under Section 142(2A) of IT Act, assessee has preferred present Special Civil Application. [4.0] Shri J.P. Shah, learned Senior Advocate appearing on behalf of petitioner has vehemently submitted that impugned order passed in exercise of powers under Section 142(2A) of IT Act appointing Special Auditor is absolutely bad, illegal and contrary to provisions of section 142(2A) of IT Act. [4.1] It is further submitted by Shri Shah, learned Senior Advocate appearing on behalf of petitioner that in present case petitioner submitted return of income for AY 2014 15 along with Statutory Audit Report and Tax Audit Report. That assessment for AY 2014 15 started with notice under Section 142(1) of IT Act dated 30.03.2016 by Assessing Officer and petitioner gave reply thereto. It is submitted that thereafter various correspondences between petitioner and Assessing Officer took place and last compliance was by letter dated 19.12.2016. It is submitted that after petitioner s letter dated 19.12.2016, suddenly, Assessing Officer issued notice under Section 142(2A) of IT Act dated 21.12.2016. It is submitted that show cause notice dated 21.12.2016 was in respect of account for AY 2014 15, assessment of which was getting time barred on 31.12.2016. It is submitted that thereafter by letter dated 27.12.2016, petitioner objected to proposal of Special Audit under Section 142(2A) of IT Act. That Assessing Officer rejected objections vide communication dated 28.12.2016. It is submitted that simultaneously petitioner also received letter dated 28.12.2016 directing petitioner to get its accounts for AY 2014 15 Page 5 of 23 HC-NIC Page 5 of 23 Created On Mon Jun 19 14:18:33 IST 2017 C/SCA/4691/2017 CAV JUDGMENT audited by Special Auditor. It is submitted that in show cause notice as well as impugned order except repeating language used in section 142(2A) of IT Act, no other reasons have been assigned. It is submitted that even accounts were not examined by Assessing Officer and therefore, Assessing Officer cannot form opinion without calling for record and before examining account that accounts are complex and correctness thereof is doubtful and thus interest of Revenue is compromised if special audit is not ordered. It is submitted that therefore, impugned order under Section 142(2A) of IT Act is absolutely illegal and bad in law which requires to be quashed and set aside. [4.2] It is vehemently submitted by Shri Shah, learned Senior Advocate for petitioner that language used in Section 142(2A) of IT Act is that, Assessing Officer, having regard to nature and complexity of accounts, &... may pass order for special audit. It is submitted that in view of aforesaid language of Section, Assessing Officer cannot direct special audit under Section 142(2A) before calling for accounts from petitioner in assessment proceedings. [4.3] It is further submitted that even otherwise, Assessing Officer could not have formed opinion without calling for record and before examining accounts that accounts are complex and correctness thereof is doubtful, and thus, interest of Revenue is compromised, if special audit is not called for. It is submitted that therefore, before calling for accounts from petitioner in assessment proceedings, Assessing Officer without even doubting correctness of accounts could not have passed order for special audit under Section 142(2A) of IT Act. In support of his above submissions, Shri Shah, learned Senior Advocate for petitioner has Page 6 of 23 HC-NIC Page 6 of 23 Created On Mon Jun 19 14:18:33 IST 2017 C/SCA/4691/2017 CAV JUDGMENT relied upon following decisions viz., [i] Delhi Development Authority & Anr. v. Union of India & Anr., [2013] 350 ITR 432 [Delhi]; [ii] Peerless General Finance & Investment Co. Ltd. v. Deputy Commissioner of Income tax & Ors. [1999] 236 ITR 671 [Calcutta]; [iii] Muthoottu Mini Kuries v. Deputy Commissioner of Income tax & Anr. [2001] 250 ITR 455 [Kerala]; [iv] West Bengal State Cooperative Bank Ltd. v. Joint Commissioner of Income tax & Ors. [2004] 267 ITR 345. [4.4] It is further submitted by Shri Shah, learned Senior Advocate appearing for petitioner that as such original assessment was subjected to scrutiny assessment under Section 143(3) of IT Act, and therefore also, there was no need for special audit of accounts. It is further submitted by Shri Shah, learned Senior Advocate that reasons, or most of events on which Assessing Officer has placed reliance upon for forming opinion for directing special audit under Section 142(2A) of IT Act have not at all occurred in AY 2014 2015, and thus, foundation of forming opinion itself is not sustainable, making direction and approval bad in law. It is further submitted by Shri Shah, learned Senior Advocate that even Principal Commissioner of Income tax has accorded approval in mechanical manner and it does not reflect any proper application of mind by said Commissioner in according approval. It is submitted that Principal Commissioner, while granting approval, is required to Page 7 of 23 HC-NIC Page 7 of 23 Created On Mon Jun 19 14:18:33 IST 2017 C/SCA/4691/2017 CAV JUDGMENT apply his mind and he is not required to act mechanically. In support of his above submissions, Shri Shah, learned Senior Advocate for petitioner has relied upon decision of Hon'ble Supreme Court in case of Sahara India [Firm] v. Commissioner of Income Tax & Anr., reported in [2008] 300 ITR 403 [SC] as well as decision of Delhi High Court in case of DLF Commercial Projects Corporation & Anr. vs. Assistant Commissioner of Income Tax & Ors., reported in [2013] 357 ITR 211 [Delhi]. It is further submitted by Shri Shah, learned Senior Advocate for petitioner that even otherwise, directions for which special audit is ordered are mainly questions of law, which are required to be considered by Assessing Officer, and therefore, for such accounts are not required to be got audited through Special Auditor. It is submitted that therefore also, impugned order under Section 142(2A) of IT Act deserve to be quashed and set aside. [4.5] It is further submitted by Shri Shah, learned Senior Advocate appearing on behalf of petitioner that in present case as conditions mentioned in section 142(2A) of IT Act for ordering special audit are not satisfied, it is requested to quash and set aside impugned order. [4.6] Now, so far as order passed by this Court in Special Civil Application No.2920/2017 and other petitions in case of very assessee but for earlier years is concerned, it is submitted by Shri Shah, learned Senior Advocate appearing on behalf of petitioner that said decision shall not be applicable to facts of case on hand for AY 2014 15 as in year 2014 15, there were only 4 to 5 entries and transactions with respect to booking of flats and therefore, for AY 2014 15, there is no necessity of special audit. Making above submissions and relying upon above decisions it is Page 8 of 23 HC-NIC Page 8 of 23 Created On Mon Jun 19 14:18:33 IST 2017 C/SCA/4691/2017 CAV JUDGMENT requested to allow present petition. [5.0] Present petition is vehemently opposed by Shri Nitin Mehta, learned Advocate appearing on behalf of Revenue. [5.1] affidavit in reply is filed on behalf of Assessing Officer in petition. [5.2] Shri Mehta, learned Advocate appearing for Revenue has vehemently submitted that in facts and circumstances of case, more particularly for reasons stated in show cause notice and being satisfied that case is made out for special audit under Section 142(2A) of IT Act and only thereafter, Assessing Officer has passed impugned orders of special audit under Section 142(2A) of IT Act and that too after getting approval from Principal Commissioner of Income tax, Ahmedabad IV. [5.3] It is further submitted by Shri Mehta, learned Advocate appearing for Revenue that impugned order for special audit under Section 142(2A) of IT Act is absolutely in consonance with provisions of Section 142(2A) of IT Act. It is submitted that at time when notice was issued by Assessing Officer calling upon assessee to show cause why accounts for AY 2014 2015 may not be got audited through Special Auditor, re assessment proceedings were pending before Assessing Officer, which were in form of notice under Section 148 of IT Act. It is submitted that Section 142(2A) of IT Act confers power upon Assessing Officer to order accounts audited through Special Auditor, if at any stage of proceedings before him, Assessing Officer, having regard to nature and complexity of accounts, &...&. is of opinion that it is necessary to so to do. It is submitted that therefore during re assessment proceeding, Page 9 of 23 HC-NIC Page 9 of 23 Created On Mon Jun 19 14:18:33 IST 2017 C/SCA/4691/2017 CAV JUDGMENT Assessing Officer has thought it fit and having satisfied that it is necessary to so to do, has passed Order under Section 142(2A) of IT Act, and therefore, same is absolutely in consonance with provisions of Act. [5.4] It is further submitted by Shri Mehta, learned counsel for Revenue that as per Section 142(2A) of IT Act, apart from nature and complexity of accounts, volume of accounts, doubts about correctness of accounts, multiplicity of transactions in accounts or specialized nature of business activity of assessee and in interest of Revenue, if Assessing Officer is of opinion that it is necessary so to do, he may, with previous approval of Principal Commissioner, direct assessee to get accounts audited by Accountant [Special Auditor]. It is submitted that in present case, having found that looking to multiplicity of transactions in accounts and specialized nature of business activities of assessee and in interest of Revenue, it is necessary to get accounts of assessee audited by Special Auditor, Assessing Officer has rightly passed order under Sec.142(2A) of IT Act. [5.5] It is further submitted by Shri Mehta, learned Advocate for Revenue that in present case, complex issues involved in erstwhile firms and companies before conversion and amalgamation. It is further submitted that even there are complex issues and multiplicity of transactions in accounts of assessee in relation to introduction of land and revaluation of same over period of time; successions/ conversion of firms to company, treatment of capital account of partners as loan, valuation of land at unreasonable premium and other issues, and therefore, accounts of assessee are required to be audited by special auditor in interest of Revenue. Page 10 of 23 HC-NIC Page 10 of 23 Created On Mon Jun 19 14:18:33 IST 2017 C/SCA/4691/2017 CAV JUDGMENT [5.6] It is further submitted that there was conversion of four firms viz., [i] Chanakya Infrastructure; [ii] Chanakya Buildcon; [iii] Takshshila Gruh Nirman; [iv] Yongstar Infrastructure into four companies ie., Chanakya Infracon Private Limited; Chanakya Buildcon Private Limited; Youngstar Infracon Private Limited and Takshishila Properties Private Limited and later merger of one more company Takshshila Realities Private Limited with four above mentioned companies into Transferee company ie., Takshshila Gruh Nirman Private Limited. order of five companies merging into Takshshila Realities Private Limited was passed on 10th May 2012 by High Court of Gujarat in Financial Year 2012 2013, relevant to Assessment Year 2013 2014. There is complex web of transactions in group of firms and conversion of firms into companies and their amalgamation/merger thereafter. issues relate to introduction of land by partners into firms, revaluation of land, credit of partners capital account equal to revalued amount of land, conversion of capital account to loan account of shareholders and issue relating to issue of equity shares against balances of revaluation credits at premium. above issues are clubbed with multiple revaluation of properties over years, starting from 2008 to 2013 and also includes fact of valuation of shares by discounted cash flow method and allotment of shares against amounts outstanding as unsecured loans at unreasonable premium. It is submitted that therefore, in facts and circumstances of case, Assessing Officer is justified in passing impugned order under Section 142 [2A] of Act. [5.7] It is further submitted by Shri Nitin Mehta, learned counsel for Revenue that in facts and circumstances of case, it cannot be said that Principal Commissioner of Income tax has not applied his mind Page 11 of 23 HC-NIC Page 11 of 23 Created On Mon Jun 19 14:18:33 IST 2017 C/SCA/4691/2017 CAV JUDGMENT and/or that there is non application of mind on part of Principal Commissioner of Income tax in granting approval. It is submitted that against show cause notice, objections were raised by petitioners and order disposing of objections were placed before Principal Commissioner of Income tax with other materials and only thereafter, after considering above material, Principal Commissioner has accorded approval. [6.0] Now, so far as reliance placed upon decision of Kerala High Court in case of Muthoottu Mini Kuries [Supra] by learned counsel for petitioner, in support of his submissions that unless and until books of account are before Assessing Officer and after verification of books of account, Assessing Officer is of opinion that there is complexity in account and/or he doubts correctness of accounts and then and then only Assessing Officer can pass order under Section 142(2A) of IT Act is concerned, it is submitted by Shri Nitin Mehta, learned counsel for Revenue that said decision has been rendered prior to amendment in Section 142(2A) of IT Act. It is submitted that after amendment in Section 142(2A) of IT Act, apart from nature and complexity of accounts, volume of accounts, doubts about correctness of accounts, multiplicity of transactions in account, if Assessing Officer is of opinion that having regard to specialized nature of business activities of assessee and in interest of Revenue, Assessing Officer may pass order under Section 142(2A) of IT Act. It is submitted that with respect to specialized nature of business activities of assessee, there need not be any books of account before Assessing Officer at stage of passing of order under Section 142(2A) of IT Act. [6.1] It is further submitted by Shri Mehta, learned Advocate appearing Page 12 of 23 HC-NIC Page 12 of 23 Created On Mon Jun 19 14:18:33 IST 2017 C/SCA/4691/2017 CAV JUDGMENT on behalf of Revenue that in case of very petitioner for earlier years i.e. 2010 11 onwards and with respect to very transactions / conversions, Assessing Officer passed orders under Section 142(2A) of IT Act which were subject matter of Special Civil Application No.2920/2017 and other allied petitions and by detailed judgment and order Division Bench of this Court had dismissed said petitions. It is submitted that present year under consideration i.e. AY 2014 15 is subsequent year and consequential effect of earlier transactions/conversions are required to be considered in detail and therefore, for which and considering multiplicity of transactions, Assessing Officer has rightly thought it fit to get accounts even for 2014 15 audited by Special Auditor. Making above submissions and relying upon recent decision of Division Bench of this Court in case of Ulhas Securities Private Limited v. Deputy Commissioner of Income Tax [Special Civil Application No. 1266 of 2017] in which Division Bench of this Court has considered amended Section 142([2A) of IT Act, it is requested to dismiss present petition. [7.0] In reply to above, Shri Shah, learned Senior Advocate for petitioner has submitted that decision of Division Bench of this Court in case of Ulhas Securities Private Limited [Supra] shall not be applicable to facts of case on hand. It is submitted that in case before Division Bench, it was case wherein requisitioned material comprising 40,000 papers in 42 gunny bags were collected during search and seizure operation which were required to be verified and scrutinized, and therefore, there might be justification for special audit under Section 142(2A) of IT Act. It is submitted that therefore, decision in case of Ulhas Securities Private Limited [Supra] shall not be applicable to facts of case on hand. Page 13 of 23 HC-NIC Page 13 of 23 Created On Mon Jun 19 14:18:33 IST 2017 C/SCA/4691/2017 CAV JUDGMENT [8.0] Heard respective counsels appearing for petitioner as well as Revenue at length. [8.1] At outset, it is required to be noted that impugned orders have been passed by Assessing Officer of Special Audit in exercise of powers under Section 142(2A) of IT Act. Therefore, while considering legality and validity of impugned orders passed under Section 142(2A) of IT Act, 142(2A) of IT Act is required to be referred to and considered, which read as under : 142(2A) If, at any stage of proceedings before him, Assessing Officer, having regard to nature and complexity of accounts, volume of accounts, doubts about correctness of accounts, multiplicity of transactions in accounts or specialised nature of business activity of assessee and interests of revenue, is of opinion that it is necessary so to do, he may, with previous approval of Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, direct assessee to get accounts audited by accountant, as defined in Explanation below sub section (2) of section 288, nominated by Principal Chief Commissioner or Chief Commissioner or Principal 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 : Provided that Assessing Officer shall not direct assessee to get accounts so audited unless assessee has been given reasonable opportunity of being heard. [8.2] Thus, considering amended Section 142(2A) of IT Act, if at any stage of proceedings before him, Assessing Officer, having regard to [a] nature and complexity of accounts; [b] volume of accounts; [c] doubts about correctness of accounts; [iv] multiplicity of transactions in accounts; or [v] specialized nature of business activity of assessee and interests of Revenue, is of Page 14 of 23 HC-NIC Page 14 of 23 Created On Mon Jun 19 14:18:33 IST 2017 C/SCA/4691/2017 CAV JUDGMENT opinion that it is necessary so to do, he may, with previous approval of Principal Commissioner of Income tax, direct assessee to get accounts audited by accountant [Special Auditor]. As per proviso to Section 142(2A) of IT Act, before passing order of Special Audit and prior to directing assessee to get accounts so audited, Assessing Officer is required to give reasonable opportunity of being heard to assessee. [8.3] In present case, before passing impugned Orders under Section 142(2A) of IT Act, opportunity of being heard has been duly given to assessee and show cause notices were issued and served upon petitioner calling upon petitioner to show cause why, for reasons stated in said notice, books of account may not be subject to audit by special auditor. It is required to be noted that in show cause notice, reasons were specifically mentioned pointing out necessity to get accounts audited by Special Auditor. That thereafter, petitioner assessee raised objections in detail, which have been disposed of by Assessing Officer by speaking order and only thereafter, after seeking approval from Principal Commissioner of Income tax; as required under Act, Assessing Officer passed impugned orders under Section 142(2A) of IT Act. Therefore, as such, procedure which is required to be followed, while passing order under Section 142(2A) of IT Act, has been duly followed by Assessing Officer. [8.4] In so far as submissions on behalf of petitioner that in present case, Notice under Section 148 of IT Act for AY 2014 2015 was issued on 21st December 2016 and immediately after five days only, Notice under Section 142(2A) of IT Act was given, and therefore, impugned Order under Section 142(2A) of IT Act is bad in law, as no Page 15 of 23 HC-NIC Page 15 of 23 Created On Mon Jun 19 14:18:33 IST 2017 C/SCA/4691/2017 CAV JUDGMENT opportunity has been given as per decision of Hon'ble Supreme Court in case of GKN Driveshafts [India] Limited [Supra] is concerned, it is required to be noted that objections raised against re assessment proceedings/notice under Section 148 of IT Act is altogether different proceeding. notice under Section 148 of IT Act and objections to be raised against re assessment are altogether different and distinct proceedings then Order under Section 142(2A) of IT Act. What is required to be considered while passing order under Section 142(2A) of IT Act, at time order under Section 142(2A) of IT Act, any proceedings are pending before Assessing Officer or not ? Notice under Section 148 of IT Act ie., re assessment proceedings can be said to be proceedings pending before Assessing Officer, and therefore, if at that stage of proceedings [in present case, re assessment proceedings before him], Assessing Officer, having regard to multiplicity of transactions in account or specialized nature of business activities of assessee and interest of Revenue, is of opinion that it is necessary to so to do, he may pass order under Section 142(2A) of IT Act; subject to compliance with procedure, as required under Section 142(2A) of IT Act. Therefore, in facts and circumstances of case, it cannot be said that impugned order is contrary to Section 142(2A) of IT Act. [8.5] Now so far as submission made on behalf of petitioner that Assessing Officer cannot direct special audit under Section 142(2A) of IT Act before calling for accounts from petitioner in assessment proceedings and without doubting accounts and/or considering complexity in accounts is concerned, it is required to be noted that as per amended Section 142(2A) of IT Act, apart from nature and complexity of accounts, etc., even in case of Page 16 of 23 HC-NIC Page 16 of 23 Created On Mon Jun 19 14:18:33 IST 2017 C/SCA/4691/2017 CAV JUDGMENT multiplicity of transactions in accounts or specialized nature of business activity of assessee and in interests of Revenue, Assessing Officer can pass order for special audit in exercise of powers conferred under Section 142(2A) of IT Act. Therefore, while forming opinion to get accounts audited by special auditor; considering specialized nature of business activities of assessee, there need not be any books of account before Assessing Officer. In present case, having found that there are complex issues relating to introduction of land by partners into firms; revaluation of land; credit of partners in capital account equal to revalued amount of land; conversion of capital account to loan account of shareholders and issues relating to issuance of equity shares against balances of revaluation credits at unreasonable premium, and after having been satisfied that considering specialized nature of business activities of assessee, Assessing Officer has passed order of special audit in exercise of powers under Section 142(2A) of IT Act. [8.6] We see that decision for audit of assessees' account is backed by proper material on record and reasons recorded by Assessing Officer. His formation of belief that looking to multiplicity of transactions in accounts and specialized nature of business activities of assessee, special audit is called for, and therefore, it cannot be faulted. [8.7] At this stage, it is required to be noted that following material weighed with Assessing Officer, while forming opinion that there is necessity for accounts of assessee audited by Special Auditor. That, 5 Companies, which have amalgamated with Takshashila Gruh Nirman Pvt. Ltd., have their beginning as partnership firms, which were already doing real estate and construction business and were executing various projects like Takshashila Residency at Naroda Page 17 of 23 HC-NIC Page 17 of 23 Created On Mon Jun 19 14:18:33 IST 2017 C/SCA/4691/2017 CAV JUDGMENT Dehgam Road, Takshshila Colonials at Maninagar and Takshshila Habitat at Vastral, apart from hotel and commercial projects. Hotel projects with shops were earlier executed by Chanakya Buildcon, later by Chanakya Buildcon Pvt. Ltd. and now after amalgamation present Takshshila Gruh Nirman Pvt. Ltd. has completed project and entered into sale agreement. Chanakya Infrastructure commenced construction of Takshshila Habitat and in middle of construction, firm was converted into Company viz., Chanakya Infracon Pvt. Ltd. under chapter IX of Company Act. Now, Chanakya Infracon Pvt. Ltd. has been amalgamated with Takshshila Gruh Nirman Pvt. Ltd. Similar is case with Takshshila Gruh Nirman, firm converted into company Takshshila Properties Pvt Ltd and amalgamated with Takshshila Gruh Nirman Pvt. Ltd. 80IB project Takshshila Colonials, for which approval was granted by Local Authority to erstwhile firm and stock in trade/CWIP has changed hands and 80IB deduction is being claimed in present Takshshila Gruh Nirman Pvt. Ltd. (Takshshila Realities Ltd.) That, at time of formation or at later date some of partners brought land into firms as their capital contribution. Before conversation to companies,the firms got lands available in books revalued and amounts were credited in current capital accounts of partners. Consequent to amalgamation, Company has issued and allotted 6,00,000 equity shares at fair price of Rs. 10/ and premium Rs. 390/ per share against unsecured balances of Rs. 24 Crores, treating same as share application money and share premium. fair market value of shares has been arrived by company on 'Discounted Cash Flow (DCF) method. basis for free cash flow to equity is randomly taken by company. Conversation of 5 firms into companies, after revaluation of lands, merger of 5 companies with Takshshila Gruh Nirman Pvt. Ltd. Later with issue of equity shares against balances of revaluation credits at premium. Valuation of shares as Discounted Cash Flow method by estimating cash flows and adopting random discounted rate for valuation. There is complex web of transactions in group of firms namely introduction of land by some of partners, revaluation of lands and crediting of amounts in current accounts of all partners, conversion of firms Page 18 of 23 HC-NIC Page 18 of 23 Created On Mon Jun 19 14:18:33 IST 2017 C/SCA/4691/2017 CAV JUDGMENT in to companies which merged with existing company, valuation of share by discounted cash flow method and allotment of shares against amounts outstanding as unsecured loans at unreasonable premium, clubbed with multiple revaluation or properties over years starting from 2008 to 2013 in various entities involves application of provisions of Companies Act, application of Accounting Standards and examination of provisions of capital gains in hands of various partners, firms and directions is involved. Having regard to nature and complexity of accounts, volume of accounts, doubts about correctness of accounts, multiplicity of transactions in accounts or specialized nature of transaction in cases which finally of assessee, and interests of revenue, am of opinion that it is necessary to get accounts audited by Special Auditor from point of view of taxation of capital gains and accounting of stock in trade at each stage of transfer so that there is no loss to revenue out of complex web of transactions involved. [9.0] Considering aforestated facts and circumstances of case and having regard to multiplicity and specialized nature of transactions and in interests of Revenue, when Assessing Officer has passed impugned orders of special audit under Section 142(2A) of IT Act, same cannot be faulted with. [9.1] At this stage, decision of Delhi High Court in case of DLF Limited & Anr. vs. Additional Commissioner of Income tax & Anr., reported in [366] ITR 390 [Delhi] is required to be referred to and considered. In said decision, Delhi High Court has considered scope, ambit and powers of Assessing Officer, while passing order under Section 142 of IT Act. In said decision, it is observed that Section 142(2A) of IT Act is enabling provision to help and assist Assessing Officer to complete scrutiny assessment with assistance of accountant. In paragraphs 10, 11, 26 & 27 of decision, Delhi High Court has observed as under : Page 19 of 23 HC-NIC Page 19 of 23 Created On Mon Jun 19 14:18:33 IST 2017 C/SCA/4691/2017 CAV JUDGMENT 10. Aforesaid rulings when appraised and reflected, state that while examining question of complexity in accounts, we have to apply test of reasonable man by replacing word and qualities of reasonable man, with word and qualities of reasonably competent Assessing Officer. question of complexity of accounts has to be judged applying yardstick or test; whether accounts would be WPC 2363/2013 Page 8 of 21 complex and difficult to understand to normal assessing officer who has basic understanding of accounts etc., without aid, assistance and help of special auditor. Thus due regard has to be given to nature and character of transactions, method of accounting, whether actuarial were adopted for making entries, basis and effect thereof, etc., though mere volume of entries might not be justification by themself as volume and complexity are somewhat different. Accounts should be intricate and difficult to understand. Every scrutiny assessment entails investigation and verification of books of accounts, genuineness of transactions or entries reflected in books, computation of income etc. It is exercise which demands expertise and degree of skill to understand accounts and decipher whether true and full income has been disclosed; whether there has been jugglery in accounts or camouflage has been adopted. No undesirable assumptions should be made and return filed is presumed to be correct, but deep and in depth scrutiny depending upon facts may be warranted. Section 142 [2A] is enabling provision to help and assist Assessing Officer to complete scrutiny assessment with help of assistance of accountant. 11. There has been substantial expansion of scope and ambit of Special Audit under Section 142 [2A] of Act with effect from 1st June, 2013. amended section has been widened to include volume of accounts, doubts about correctness of accounts, multiplicity of transactions in accounts or specialised nature of business activity of assessee. These amendments by Finance Act, 2013 with effect from 1st June, 2013, substitute words "nature and complexity of accounts of assessee". We are not concerned with said amendment in present case as impugned order in question directing special audit was passed on 25th March, 2013, before amendments became WPC 2363/2013 Page 9 of 21 effective. We are, therefore, primarily concerned with whether or not keeping in view nature and complexity of accounts and interest of Revenue direction for special audit is justified for reasons set out in order dated 25th March, 2013. (We have not examined constitutional validity of amended provisions and we express no opinion on said aspect). Page 20 of 23 HC-NIC Page 20 of 23 Created On Mon Jun 19 14:18:33 IST 2017 C/SCA/4691/2017 CAV JUDGMENT 26. Powers under Section 142 [2A] have to be exercised in terms of legislative provisions. object and purpose behind legislation is to facilitate investigation and proper determination of tax liability. importance and relevancy of legislation cannot be underestimated and it is power available with Assessing Officer to aid and assist him. Accounts should be accurate and provide real time record of financial transactions of assessee. Preparation of accounts is work of accountant on payrolls or employed by assessee. In order to ensure reliability and accuracy, enterprises resort to internal audit and external audit which can be statutory audit. Internal audits are normally conducted in house generally by acquainted or qualified accountants. Statutory audit is compulsory under WPC 2363/2013 Page 19 of 21 Companies Act, 1956 or when stipulated by Act and accounts have to be audited by qualified Chartered Accountant. Chartered Accountants are not ordinary accountants but specialists who have successfully undergone academic study and have extensive practical experience and trained for said work. Curriculum requires article ship under mentor who is himself Chartered Accountant with some years of experience. As opposed to ordinary accountant, Chartered Accountant with his experience and academic background is in better position to investigate, examine and scrutinize entries and records of financial transactions. Calibre and competence of Chartered Accountants is of high degree and should not and cannot be equated with capability of ordinary accountant or normal person having knowledge or acquainted with accounts. Off late there has been demand for increased public scrutiny of accounts, inspite of statutory audit. Enron and other cases abroad and Satyams case in India have highlighted need and necessity to have controls and system of checks, perhaps even beyond scope of traditional audit. Financial statements and accounts are being increasingly exiguously examined to rule out possibility of wrong doings, cover up or evasion of taxes. Financial statements and accounts are coming under increasing scrutiny and investigation. Chartered Accountant is financial investigator and prober, is required to be curious, tenacious and well conversant to identify and unearth frauds, misreporting and wrong claims in accounts. 27. aforesaid observations should not be construed as general expression or opinion, that every account or statement of income must be viewed with suspicion, distrust and scepticism. past instances are mere warnings, for closer and more indepth scrutiny. It is also fact that WPC 2363/2013 Page 20 of 21 business transactions have become more complicated Page 21 of 23 HC-NIC Page 21 of 23 Created On Mon Jun 19 14:18:33 IST 2017 C/SCA/4691/2017 CAV JUDGMENT and accounting entries more complex than ever before. This may be one of causes why possibly frauds could not be detected in some cases. Indeed such cases have made audit work more comprehensive, intrusive and investigative. Ethical managements may at times regard such enquiries as unwarranted intrusion or hounding approach. Section 142 [2A] does not permit fishing or roving inquiry approach or witch hunt but is regulated provision which accepts need and necessity of Assessing Officer to take help of expert accountant i.e. Chartered Accountant, person who is academically qualified and has practical experience to understand accounts and unearth tax evasion or furnishing of inaccurate particulars etc. provision balances right of Revenue with inconvenience which assessee may face. Assessing Officers are not Chartered Accountants and when required and permissible, therefore, can take help and assistance from qualified specialists to complete assessment and determine taxable income of assessee. At this stage it is required to be noted that whatever objections were raised by petitioner vide objections dated 27.12.2016, have been dealt with by Assessing Officer while disposing objections on 28.12.2016. At this stage it is required to be noted that in objection dated 27.12.2016 as such petitioner raised objection for AY 2010 11. Nothing is on record that any other further objections were raised for AY 2014 15. At this stage it is also required to be noted that in objections petitioner never pointed out that there is no consequential effect of previous transactions in year under consideration. It is case on behalf of Revenue / Department that effect of earlier transactions / conversions in earlier years would have direct bearing for AY 2014 15 also. Under circumstances, after giving fullest opportunity to petitioner and after dealing with objections raised by petitioner and thereafter having obtained approval from Principal Commissioner who has granted approval after considering material on record and thereafter when Assessing Officer has passed order of Special Audit considering specialised Page 22 of 23 HC-NIC Page 22 of 23 Created On Mon Jun 19 14:18:33 IST 2017 C/SCA/4691/2017 CAV JUDGMENT nature of business activities of assessee and multiplicity of transactions, it cannot be said that Assessing Officer has committed any error. Now, so far as submission on behalf of petitioner that along with return of income for AY 2014 15, petitioner submitted Special Audit Report and Tax Audit Report and therefore, there is no further requirement of Special Audit is concerned, at this stage it is required to be noted that considering section 142(2B) of IT Act irrespective of fact whether assessee has got accounts audited by Auditor, Assessing Officer can pass order of Special Audit. Under circumstances, merely because assessee along with return of income submitted Statutory Audit Report and Tax Audit Report, considering section 142(2B) of IT Act, order of Special Audit under Section 142(2A) of IT Act cannot be said to be invalid. [10.0] In view of above and for reasons stated hereinabove, more particularly considering scope and ambit of Section 142(2A) of IT Act, it cannot be said that in facts and circumstances of case, respondent has committed any error and/or any illegality while passing order under Section 142(2A) of IT Act. Under circumstances, present writ petition deserves to be dismissed and is accordingly dismissed. Notice is discharged. No costs. Sd/ (M.R. SHAH, J.) Sd/ (B.N. KARIA, J.) Ajay Page 23 of 23 HC-NIC Page 23 of 23 Created On Mon Jun 19 14:18:33 IST 2017 Takshashila Realities Ltd. v. Deputy Commissioner of Income-tax Circle-4(1)(2) & 2