Multi Commodity Exchange of India v. Deputy Commissioner of Income-tax, Central Circle - 8(3), Mumbai / Pr. Commissioner of Income-tax - Central 8, Mumbai / Union of India
[Citation -2019-LL-0220-69]

Citation 2019-LL-0220-69
Appellant Name Multi Commodity Exchange of India
Respondent Name Deputy Commissioner of Income-tax, Central Circle - 8(3), Mumbai / Pr. Commissioner of Income-tax - Central 8, Mumbai / Union of India
Court HIGH COURT OF BOMBAY
Relevant Act Income-tax
Date of Order 20/02/2019
Assessment Year 2015-16
Judgment View Judgment
Keyword Tags reasonableness of expenditure • related party transactions • transfer pricing • special audit • genuineness of transaction • correctness and completeness of accounts • multiplicity of transaction • interest of revenue • specialised business
Bot Summary: Pardiwala for the petitioner took us painstakingly through the documents and materials on record and raised following contentions:- i. The impugned order contains a direction to the auditor to audit the accounts whereas under Section 142(2A) of the Act, the powers of the Deputy Commissioner are to ask the assessee to have the audit of the accounts carried out; ii. Sub-section of Section 142 reads as under: If, at any stage of the proceedings before him, the Assessing Officer, having regard to the nature and complexity of the accounts, volume of the accounts, doubts about the correctness of the accounts, multiplicity of transactions in the accounts or specialized nature of business activity of the assessee, and the interests of the revenue, is of the opinion that it is necessary so to do, he may, with the previous approval of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, direct the assessee to get the accounts audited by an accountant, as defined in the Explanation below sub-section of Section 288, 13 of 23 ::: Uploaded on - 25/02/2019 ::: Downloaded on - 26/02/2019 12:01:40 ::: 1. We may notice that the group of words, the nature and complexity of the accounts, volume of the accounts, doubts about correctness of the accounts, multiplicity of the transactions in the accounts or specialized nature of business activity of the assessee and was substituted by the legislature by Finance Act, 2013 w.e.f. 1.6.2013 for the following group of words : the nature and complexity of the accounts of the assessee and. As far as the third grievance of the petitioner is that the Assessing Officer did not examine the books of account before ordering/directing the special audit is concerned, on facts we find that the show-cause notice as well as the impugned direction proceed on the basis that on verification of the books of account and vouchers that the issue of special audit arose. The special audit can now be directed not only if the accounts are complicated but also if there is doubt to the correctness of the account or multiplicity of transactions or volume of transaction or specialized nature of the accounts. In case of Takshashila Realities Ltd Vs. Deputy Commissioner of Income Tax, Circle 4(1)(2)4, the Gujarat High Court also referred to the amended provisions of Section 142(2A) and observed as under:- 17.1 Now so far as submission made on behalf of the petitioner that the Assessing Officer cannot direct special audit under Section 142 2A of the Act before calling for the accounts from the petitioner in the assessment proceedings and without doubting the accounts and/or considering the complexity in the accounts is concerned, it is required to be noted that as per amended Section 142 2A of the Act, apart from the nature and complexity of the accounts, etc. Os wp 3550 18.doc partners into the 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 the balances of revaluation credits at an unreasonable premium, and after having been satisfied that considering the specialized nature of business activities of the assessee, the Assessing Officer has passed an order of special audit in exercise of powers under Section 142 2A of the Act.


IN HIGH COURT OF JUDICATURE AT BOMBAY O.O.C.J. WRIT PETITION NO. 3550 OF 2018 Multi Commodity Exchange of India CTS-255 Exchange Square, Suren Road, Andheri (East), Mumbai - 400 093. .. Petitioner Versus 1. Deputy Commissioner of Income Tax Central Circle - 8(3), 6th Floor, Room No. 659, Aykar Bhavan, M.K. Road, Mumbai - 400 020. 2. Pr. Commissioner of Income Tax - Central 8, Ayakar Bhavan, Mumbai - 20.02.2019 3. Union of India Aaykar Bhavan, M.K. Road, Churchgate, Mumbai - 400 020 .. Respondents ...Mr. Percy Pardiwala, Senior Advocate, Mr. Riyaz Padevkar & Shri. Tanzil Padvekar i/by Dave & Padvekar Associates for Petitioner Mr. N.C. Mohanty for Respondents .....CORAM : AKIL KURESHI & B.P. COLABAWALLA, JJ. DATE : FEBRUARY 20, 2019. ORAL JUDGMENT (Per Akil Kureshi, J.) 1. petitioner has challenged order dated 12.11.2018 and further order dated 9.11.2018 under which Revenue Authorities have ordered special audit of petitioner's accounts for assessment year 2015-16 in 1 of 23 ::: Uploaded on - 25/02/2019 ::: Downloaded on - 26/02/2019 12:01:40 ::: 1. os wp 3550 18.doc terms of Section 142(2A) of Income Tax Act, 1961 ("the Act" for short). 2. Brief facts are as under: 2.1 Petitioner is public limited company registered under Companies Act, 1956. petitioner is recognized National Commodity Exchange. petitioner provides platform for trading in Commodity futures contracts across segments including Bullion, Ferrous and Non Ferrous Metals, Energy and Agricultural Commodities. 2.2 Deputy Commission of Income Tax issued show cause notice on 5.9.2018 calling upon petitioner why petitioner's accounts for assessment year 2015- 16 should not be sent for special audit as per provisions of Section 142(2A) of Act. In such show cause notice, said Authority highlighted different issues on basis of which he was prima facie of opinion that special audit of accounts of petitioner was called for. In this context, he had recorded following discrepancies:- 2 of 23 ::: Uploaded on - 25/02/2019 ::: Downloaded on - 26/02/2019 12:01:40 ::: 1. os wp 3550 18.doc "a) assessee has claimed to have paid professional charges to Financial Technologies Knowledge Management Company Ltd (FTKMC), related concern. Information available on record indicates that said amounts are merely in nature of accommodation and further are also in any case above contracted rates. b) assessee has entered into several agreements with NHBC, related concern for payment of rent of warehouses. There are also several non-agreement based monies paid by assessee. Details available on record also indicate that warehouses for which rent has been claimed to have been paid were used by certain other persons. c) assessee has claimed to have awarded multiple technological agreement to FTIL, related concern. assessee has also entered into contract with FTIL for sub- letting premises. rationale of these charges paid to FTIL is not established. Further, amounts paid to FTIL also are above market rates. d) assessee has entered in multiple related party transactions. identification of related parties along with determination of fair market value also required determination." In background of such discussion, said Authority after referring to provisions of Section 142(2A) of Act conveyed to petitioner as under:- "4 As per facts and circumstances enumerated in para 2 above, it is noted that assessee company is engaged into specialized business of Exchange and its nature of accounting is complex. Further, it is observed that accounts 3 of 23 ::: Uploaded on - 25/02/2019 ::: Downloaded on - 26/02/2019 12:01:40 ::: 1. os wp 3550 18.doc of assessee company are voluminous. above instances also indicate that there exist serious doubts about correctness of accounts. There are also multiple related party transactions entered, reasonableness and genuineness of which is under question. In entirety of fact and reasons stated herein, it is in interest of revenue that audit u/s. 142(2A) of Act be directed in your case. 5. In view of above, this is to inform you that special audit of your books of accounts, as per provisions of Section 142(2A) of Act is being proposed in your case in respect of AY 2015-16. 6. You are therefore given opportunity of being heard. You are therefore requested to state your views on above either in person or by authorized representative on or before 14.9.2018 at 12.30 p.m. Please note that in case of no response from you within specified time limit, it will be presumed that you have no objection to proposed action and accordingly, matter will be decided as proposed." 2.4 petitioner filed detail reply to said show cause notice under communication dated 25.9.2018 opposing proposal for special audit. In such reply, petitioner contended that requirements of Section 142(2A) of Act for special audit were not specified in present case. It was contended that there was no honest attempt on part of Assessing Officer to understand books of accounts of assessee company or 4 of 23 ::: Uploaded on - 25/02/2019 ::: Downloaded on - 26/02/2019 12:01:40 ::: 1. os wp 3550 18.doc application of mind on his part. With respect to discrepancies mentioned in show cause notice, it was contended that Financial Technologies Knowledge Management Company Limited (FTKMC) was not party related to assessee as per Section 40A(2)(b) of Act. It was further contended that several transactions had already been subjected to transfer pricing mechanism and Transfer Prising Officer ("TPO" for short) had already examined such transactions. On such grounds, proposal for special audit of accounts was opposed. 2.5 Deputy Commissioner of Income Tax passed order on 6.11.2018 disposing of objections of petitioner, dealing with each objections. 2.6 Under communication dated 8.11.2018, Deputy Commissioner of Income Tax sought approval from Principal Commissioner of Income Tax for special audit of accounts of petitioner under Section 142(2A) of Act. In such letter, Deputy Commissioner had given full details of complexity in petitioner's accounts and 5 of 23 ::: Uploaded on - 25/02/2019 ::: Downloaded on - 26/02/2019 12:01:40 ::: 1. os wp 3550 18.doc reasons why he was of opinion that special audit was necessary. On 9.11.2018, Principal Commissioner of Income Tax granted his approval to Deputy Commissioner of Income Tax for special audit of petitioner's accounts. On 12.11.2018, Deputy Commissioner passed impugned order. reasons for passing impugned order may be reproduced hereunder:- "1. M/s. Multi Commodity Exchange of India Ltd is commodities exchange and erstwhile subsidiary of M/s Financial Technologies (India) Ltd. (FTIL). 2. During course of proceedings, it was observed that assessee had incurred various expenses to related and non- related parties, which need to audited. Some of these expenses are as follows: a) assessee has entered into several agreements with NBHC, relate concern, for payment of rent of warehouses. There are also several non-agreement based monies paid by assessee. Details available on record also indicate that some of warehouses for which rent has beet claimed to have been paid were used by certain other persons. b) assessee has claimed to have awarded multiple technological agreements to M/s Financial Technologies India Ltd (FTIL), related concern. rationale of charges paid to FTIL is not established. Further, amounts paid to FTIL also are above market rates. 6 of 23 ::: Uploaded on - 25/02/2019 ::: Downloaded on - 26/02/2019 12:01:40 ::: 1. os wp 3550 18.doc c) assessee has entered into multiple related party transactions. identification of related parties along with genuineness of transactions and factor of arms length pricing or reasonableness of expenditure also requires determination. Besides above transactions, assessee has entered into various transactions in other years, which may have bearing in AY 2015-16 too. Some of these transactions are as follows: a) assessee has claimed to have paid divestment fees to MPPL Enterprises Pvt. Ltd. and Ovira Logistics Pvt. Ltd. Documents available on record indicate that these amounts paid are mere book entries b) assessee has also claimed to have paid expenses to Financial Technologies Knowledge Management Company Ltd. (FTKMC), related concern. Information available on record indicates that said amounts are merely in nature of accommodation and further are also in any case above contracted rates. c) assessee has claimed to have engaged Vardhaman International for creating traders database. aspect of actual work being performed is not established. d) assessee has claimed deduction u/s. 80G of donation paid to Arunodaya Charitable Trust. existence and activities of Arunodaya Charitable Trust have been doubted. e) assessee has claimed to have engaged Splash Media and Infra Ltd to display hoardings at Mahim Causeway and Haji Ali locations in Mumbai. There are no documents on record to 7 of 23 ::: Uploaded on - 25/02/2019 ::: Downloaded on - 26/02/2019 12:01:40 ::: 1. os wp 3550 18.doc establish genuineness of activities carried out by Splash Media and Infra Ltd. f) assessee has claimed to have engaged Mediacom Communications as its media agency for outdoor, print and TV campaigns. These payments are not established beyond doubts. 3. In entirety of fact and reasons stated herein, you are required to conduct special audit u/s. 142(2A) of Act on following terms of reference:-" terms of reference for special audit were as under:- 3.1 auditors need to audit books of accounts of M/s. Multi Commodity Exchange of India Ltd for A.Y. 2015-16. They have to examine and report on following aspects in general. 1. Whether proper books of accounts are maintained and verifiable? 2. Whether all bills / Vouchers and other relevant original documents are maintained and verifiable? 3. Whether all statutory requirements have been met? 3.2 In addition to above, auditors need to critically examine following issues in light of facts as discussed above. i. Genuineness of business activity undertaken by assessee company. ii. Detailed examination of parties covered u/s 40A(2)(b) of Income Tax Act, 1961 and nature, genuineness and reasonableness of payments made to these parties. iii. Detailed examination as regard to major expenses exceeding Rs. 10 lakhs and tax deduction/collection thereon apart from 8 of 23 ::: Uploaded on - 25/02/2019 ::: Downloaded on - 26/02/2019 12:01:40 ::: 1. os wp 3550 18.doc those referred in subsequent points and allowability thereof as per provisions of Act. iv. Detailed examination as regard Trade payables, their existence, genuineness and subsequent payments thereof. v. In respect of expenditure incurred by assessee towards advertisement, business promotion, marking, sponsorship, etc whether expenditure incurred is genuine? Whether it is commensurate with services rendered by other party? vi. Details of donation paid along with genuineness and allowability of same under provisions of Act. vii. Allowability of Warehousing Charges having regard to provisions of Act. viii. Allowablity of Technological Service charges having regard to Act. ix. Any other issues arising in course of audit, which ought to have been offered as income in return of income but not offerred by assessee x. Any other issue which in opinion of auditor is relevant for this office for completion of assessment 3.3 It is noted that similar issues have been involved in preceding years also i.e A.Y. 2010-11 to AY 2014-15 and accordingly audit shall be conducted in accordance with terms of reference referred above even in those years. Certain discrepancies were noted in report of Pricewaterhouse Coopers ("PWC Report") which is also significant to be considered while deciding above terms of references for A.Y. 2010-11 to 2015-16. Copy of said report along with all its annexure (3 volumes) are also enclosed with this letter" This is order, petitioner has challenged in present petition. 9 of 23 ::: Uploaded on - 25/02/2019 ::: Downloaded on - 26/02/2019 12:01:40 ::: 1. os wp 3550 18.doc 3. Learned counsel Shri. Pardiwala for petitioner took us painstakingly through documents and materials on record and raised following contentions:- i. impugned order contains direction to auditor to audit accounts whereas under Section 142(2A) of Act, powers of Deputy Commissioner are to ask assessee to have audit of accounts carried out; ii. He contended that requirements of Section 142(2A) of Act were not satisfied. Deputy Commissioner, therefore, committed error in exercising powers without satisfaction of necessary requirements; iii. Learned counsel contended that order suffers from non-application of mind. Deputy Commissioner had proceeded on basis of several inaccurate or erroneous grounds. Even when pointed out in objections, Deputy Commissioner refused to accept such errors; iv. It was contended that several of transactions referred to in impugned order were already subjected to transfer pricing mechanism. TPO had already examined transactions minutely. 10 of 23 ::: Uploaded on - 25/02/2019 ::: Downloaded on - 26/02/2019 12:01:40 ::: 1. os wp 3550 18.doc No useful purpose would be served by sending such transactions for special audit; v. learned counsel also drew our attention to judgment of this Court in Writ Petition No. 143 of 2018 and connected petitions dated 1.10.2018 filed by this petitioner in which Court had quashed order for special audit with respect to several earlier assessment years. 4. On other hand, Mr. Mohanty, learned Counsel for Revenue opposed petition contending that Deputy Commissioner had issued show cause notice calling upon objections from petitioner to proposal of special audit of accounts. objections were disposed of by speaking order. impugned order was passed after taking necessary approval from Principal Commissioner. Deputy Commissioner has recorded proper reasons for exercise of powers. He pointed out that provisions of Section 142(2A) of Act has been amended w.e.f 1.6.2013 substantially widening scope for special audit. He contended that in facts of present case, necessary ingredients of Section 142(2A) were fully satisfied and order was, therefore, correctly passed by Deputy 11 of 23 ::: Uploaded on - 25/02/2019 ::: Downloaded on - 26/02/2019 12:01:40 ::: 1. os wp 3550 18.doc Commissioner. 5. Both sides have referred to judgments, reference to which would be made at appropriate stage. 6. From material on record, it may be seen that Deputy Commissioner after issuing show cause notice recording his grounds why he proposed to call for special audit, considered objections of petitioner to such proposal. He passed detail order disposing of objections citing reasons. Subsequently, he also obtained approval from Principal Commissioner before passing impugned order. In such order, he recorded that assessee had entered into several agreements with related concern for payment of rent of warehouses. Some of warehouses for which rent was claimed to have been paid were used by other persons. He also recorded that assessee had claimed to have awarded multiple technological agreements to FTIL as related concern and rational of charges paid to FTIL was not established. amounts paid to FTIL were also above market rates. He 12 of 23 ::: Uploaded on - 25/02/2019 ::: Downloaded on - 26/02/2019 12:01:40 ::: 1. os wp 3550 18.doc also recorded that assessee had entered into multiple related party transactions and identification of related parties along with genuineness of transactions and factor of arms length pricing or reasonableness of expenditure was required to be determined. He also recorded that divestment fees claimed to have been paid by assessee appeared to be mere book entires. He also recorded that some of payments were in nature of accommodation entires and claims of donation etc. were doubtful. On such grounds, he formed belief that special audit would be necessary. He, therefore, laid down terms of reference for special audit. 7. Section 142 of Act pertains to inquiry before assessment. Sub-section (2A) of Section 142 reads as under: " If, at any stage of proceedings before him, [Assessing] Officer, having regard to [the 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] 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, 13 of 23 ::: Uploaded on - 25/02/2019 ::: Downloaded on - 26/02/2019 12:01:40 ::: 1. os wp 3550 18.doc 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.] We may notice that group of words, "the 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" was substituted by legislature by Finance Act, 2013 w.e.f. 1.6.2013 for following group of words : "the nature and complexity of accounts of assessee and". It can thus be straight away seen that prior to this amendment, power of Assessing Officer to call for special audit would have to be exercised having regard to nature and complexity of accounts of assessee and interest of revenue. legislature has now considerably widened scope of exercise of such powers by including several other situations besides nature and complexity of accounts of 14 of 23 ::: Uploaded on - 25/02/2019 ::: Downloaded on - 26/02/2019 12:01:40 ::: 1. os wp 3550 18.doc assessee. Thus, additional expressions which now finds way into Section 142(2A) of Act are volume of accounts, doubts about correctness of accounts, multiplicity of transactions in accounts or specialized nature of business activities of assessee. correctness of decision of Deputy Commissioner, therefore, shall have to be considered from such widened scope of his powers. We are conscious that requirement of formation of opinion as special audit being in interest of Revenue continues to apply before and after amendment. Nevertheless, basic essential requirements of exercising powers have been substantially widened by legislature by way of such amendment. We are also conscious that proposition that special audit would result into serious legal consequences to assessee and therefore, even if there was no statutory requirement, principle of natural justice must be followed before Assessing Officer could exercise powers, would continue to govern situation. In case of Sahara India (Firm) Vs. CIT1, Supreme Court has held and observed that exercise of power under Section 142(2A) leads to serious civil 1 [2008] 300 ITR 403 (SC) 15 of 23 ::: Uploaded on - 25/02/2019 ::: Downloaded on - 26/02/2019 12:01:40 ::: 1. os wp 3550 18.doc consequences, and, therefore even in absence of any express provision for affording opportunity of per- decisional hearing to assessee, requirement of observance of principle of natural justice is to be read into said provision. 8. In present case, we have already noted that detail grounds on which Assessing Officer formed opinion that special audit was necessary and final order that he passed calling for such special audit. As noted, final audit proceeds on various grounds of genuineness of transactions and payments by assessee. We may recall, doubts about correctness of accounts, multiplicity of transactions and specialized nature of business activities are some of additional grounds, now recognized by legislative for special audit. We do not find that order requires any interference. 9. Merely because impugned order contains narration that special auditor should conduct audit, would not destroy very essence of order nor would 16 of 23 ::: Uploaded on - 25/02/2019 ::: Downloaded on - 26/02/2019 12:01:40 ::: 1. os wp 3550 18.doc same be fatal to order itself. It is true that Section 142(2A) of Act envisages direction to assessee to get accounts audited by accountant as defined in explanation below sub-section (2) of Section 288 of Act as may be appointed by Principal Commissioner. However, inconsequential inaccuracy in language used in impugned order, would not be fatal to order itself. 10. decisions cited by Shir. Pardiwala in respect of contention that requirements of Section 142(2A) were not satisfied, are all rendered before amendment in Section 142(2A) w.e.f. 1.6.2013. In case of Delhi Development Authority & Anr. Vs. Union of India & Anr.2, Division Bench of Delhi High Court in background of per-amended provisions had quashed order of special audit. It was in this background observed that in order to direct special audit under Section 142(2A) of Act, Assessing Officer must form opinion with regard to twin conditions namely nature and complexity of accounts and interest of revenue. As noted, this expresses "nature and complexity of accounts" has now 2 (2013) 350 ITR 432 (Delhi) 17 of 23 ::: Uploaded on - 25/02/2019 ::: Downloaded on - 26/02/2019 12:01:40 ::: 1. os wp 3550 18.doc been substantially widened by legislature. amended provision of Section 142(2A) came up for consideration before this Court in case of Sharad Kantilal Shah Vs. Deputy Commissioner of Income Tax, Central Circle 8(3)3 wherein it was observed as under:- "7. As far as third grievance of petitioner is that Assessing Officer did not examine books of account before ordering/directing special audit is concerned, on facts we find that show-cause notice as well as impugned direction proceed on basis that on verification of books of account and vouchers that issue of special audit arose. Thus, this grievance of non- examination of books of account is without any substance. Moreover after amendment to section 142(2A) of Act with effect from 2013, special audit is not restricted only to complexity of accounts. special audit can now be directed not only if accounts are complicated but also if there is doubt to correctness of account or multiplicity of transactions or volume of transaction or specialized nature of accounts. Moreover other grievance that notice did not indicate reasons which led him to prima facie view directing special audit stands belied by fact that show-cause notice dated July 25, 2016, issued to petitioner, in fact, indicated basis for directing special audit on basis of volume of total trades executed by petitioner, multiplicity of transactions in accounts, including nature and complexity of accounts and doubts about correctness of accounts. Therefore, this grievance is also without substance. 10. We find that impugned order dated 10 March 2016 directing special audit is not without jurisdiction. procedural 3 [2017] 393 ITR 594 (Bombay) 18 of 23 ::: Uploaded on - 25/02/2019 ::: Downloaded on - 26/02/2019 12:01:40 ::: 1. os wp 3550 18.doc safeguards of notice, approval of Chief Commissioner and hearing have undisputedly been complied with. Besides, satisfaction recorded by Assessing Officer before directing special audit is his opinion on basis of facts before him and such opinion is not shown to be perverse. We are not court of appeal to substitute opinion of Assessing Officer to exercise power under section 142(2A) of Act by our opinion to contrary. We find that opinion reached by Assessing Officer to direct special audit on present facts is reasonable and possible view." 11. In case of Takshashila Realities (P) Ltd Vs. Deputy Commissioner of Income Tax, Circle 4(1)(2)4, Gujarat High Court also referred to amended provisions of Section 142(2A) and observed as under:- "17.1 Now so far as submission made on behalf of petitioner that Assessing Officer cannot direct special audit under Section 142 [2A] of 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 Act, apart from nature and complexity of accounts, etc., even in case of multiplicity of transactions in accounts or specialized nature of business activity of assessee and interests of Revenue, Assessing Officer can pass order for special audit in exercise of powers conferred under Section 142 [2A] of 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 4 [2017] 34 taxmann.com 172(Gujarat) 19 of 23 ::: Uploaded on - 25/02/2019 ::: Downloaded on - 26/02/2019 12:01:40 ::: 1. os wp 3550 18.doc 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 Act." 12. Karnataka High Court in case of Habitat Shelters P Ltd Vs. Pr. CIT, Banglore5 after referring to amended Section 142(2A) of Act observed as under: "7. Obviously, this Court cannot go into sufficiency of reasons assigned by Assessing Authority for directing such Special Audit. Only if there were no reasons assigned and objections of petitioner assessee were not considered, perhaps, breach of principles of natural justice, as required under Section 142(2A) of Act and Proviso thereto could be so contended by assessee, but from record, it does not appear to be either absence of opportunity of hearing altogether or absence of any reasons at all. 8. Thus, this Court cannot draw any inference of breach of principles of natural justice or arbitrariness in impugned order passed by respondent Authority. Accordingly, requirement of Section 142(2A) of said Act cannot be said to have been not complied by respondent Authority. same requires no interference under Article 226 of Constitution of India. Therefore, Writ Petition is liable to be dismissed and is accordingly dismissed. No costs." 5 [2018] 254 Taxman 160 20 of 23 ::: Uploaded on - 25/02/2019 ::: Downloaded on - 26/02/2019 12:01:40 ::: 1. os wp 3550 18.doc 13. Merely because some of transactions were subjected to transfer pricing mechanism, would not debar Assessing Officer from exercising powers under Section 142(2A) of Act, if conditions for exercising such powers were otherwise satisfied. Transfer Pricing Officer would be essentially concerned with assessment of arm's length price of specified transactions with associated enterprise. 14. Reference to judgment of this Court in case of this very assessee would also be of no avail. It was case in which assessee had challenged orders passed by Assessing Officer calling upon for special audit of petitioner's accounts for several assessment years. However, decision of Court was not on merits. judgment records that Court had put it to both counsel for petitioner and respondent why whole gamut of special audit be followed. Instead, during course of assessment, that will be undertaken pursuant to notice under Section 148 of Act and when petitioner was possessed copy of report of PWC, all 21 of 23 ::: Uploaded on - 25/02/2019 ::: Downloaded on - 26/02/2019 12:01:40 ::: 1. os wp 3550 18.doc contentions in relation to such proceedings can be raised and thereafter, orders can be passed after hearing petitioner. This suggestion was accepted by both sides. It was, in this background, Court disposed of petition with following directions:- " Petitions can be disposed off with direction that special audit in terms of impugned notice and approval need not be undertaken for all materials in relation to petitioner's transactions, their share holdings, are already referred to in PWC report as also pending proceedings under Section 148 of I.T. Act. There is return of income filed under protest by petitioners on 26th April, 2017 and that is under assessment. If during course of assessment and pursuant to this return, petitioner desires to raise objections with regard to contents of PWC report and to be relied upon by Assessing Officer, then, Assessing Officer shall allow petitioner to raise necessary contentions and after dealing with them, he shall pass order in accordance with law." 15. Firstly, as noted, Court did not decide petitioner's objection to special audit on merits, instead proceeded on consensus. Secondly, assessment years involved in said orders besides others were 2010-11, 2011-12 and 2014-15. For assessment years 2010-11 and 2011-12 unamended provisions of Section 142(2A) would apply. In result, we do not find merit in this petition. same is dismissed. Ad-interim relief, if any, 22 of 23 ::: Uploaded on - 25/02/2019 ::: Downloaded on - 26/02/2019 12:01:40 ::: 1. os wp 3550 18.doc stands vacated. [ B.P. COLABAWALLA, J. ] [ AKIL KURESHI, J ] 23 of 23 ::: Uploaded on - 25/02/2019 ::: Downloaded on - 26/02/2019 12:01:40 ::: Multi Commodity Exchange of India v. Deputy Commissioner of Income-tax, Central Circle - 8(3), Mumbai / Pr. Commissioner of Income-tax - Central 8, Mumbai / Union of India
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