IN HIGH COURT OF DELHI AT NEW DELHI Date of Decision: 24.12.2019 W.P.(C) 13822/2019 NBCC (INDIA) LTD. Petitioner Through: Mr.S.Krishnan, Advocate Versus ADDITIONAL COMMISSIONER OF INCOME TAX & ORS. Respondents Through: Mr. Lakshmi Gurung, Sr. Standing Counsel with Mr. Talha Rahman, Jr. Standing Counsel, Mr. Siddharth Gupta, Advocate, Mr. Mohd. Shaz Khan, Advocate CORAM: HON'BLE MR. JUSTICE VIPIN SANGHI HON'BLE MR. JUSTICE SANJEEV NARULA SANJEEV NARULA, J. (Oral) 1. present writ petition under Article 226 of Constitution of India is directed against action of respondent No.1 directing special audit of accounts of petitioner in course of assessment proceedings for assessment year 2017-18. Brief facts 2. factual matrix giving rise to present petition, in brief, is that petitioner, Indian Company, wherein Government of India also has stake, is engaged in business of construction. petitioner filed its original return of income-tax for aforenoted assessment year on 30 th W.P.(C) 13822/2019 Page 1 of 27 October, 2017. return was revised on 28.03.2018 and 27.02.2019 to provide for subsequent TDS credits and to update details of post- retirement benefits to employees. Respondents issued notice under Section 143(2) of Act and initiated scrutiny proceedings. petitioner asserts that said proceedings remained dormant for 344 days, until another notice under Section 142(1) dated 02.08.2019 was issued. This notice enclosed questionnaire for framing petitioner s assessment and raising several queries. petitioner filed detailed reply and answered 12 of 53 queries, raised in aforesaid notice. On 23.08.2019, another reply was filed and evidence and explanation was given in respect of 10 other queries. Respondent No.1 issued another notice dated 26.08.2019 requiring petitioner to expedite filing of details, pointing out that proceedings were time barring. Petitioner states that in response thereto, it filed reply dated 02.09.2019, giving explanation and evidence regarding 11 queries. With that, first level response, and details in respect of almost all 53 queries raised by respondent No.1 stood answered. Since at petitioner s end, its personnel were engaged in compliances for current year s filings, letter dated 12.09.2019 was submitted seeking some time for submission of residual particulars. 3. In meantime, respondent No.1 had been enquiring from petitioner of reason for not filing advance tax. Frequent telephonic conversations were made and ultimately, email dated 19.09.2019 was sent by respondent No.1 enquiring as to why advance tax deposited for W.P.(C) 13822/2019 Page 2 of 27 first quarter of current year i.e. financial year 2019-20 was only Rs.14 crores, while corresponding amount for preceding year was Rs.19 crores. This query was replied vide email dated 27.06.2019 and letter dated 16.08.2019, pointing out that advance tax deposited in preceding year had led to refund claim of Rs.40 crores, which when provided for, showed little variation in earlier years deposit. On 09.09.2019, Principal Commissioner of Income Tax wrote to petitioner directing payment of correct amount of advance tax for relevant quarter. said amount was deposited vide challan dated 13th September, 2019 and on very same evening, respondent No. 1 issued notice under Section 142(1), reproducing initial questionnaire of 53 queries making incorrect reference to filings by petitioner and asking to show cause as to why special audit under Section 142(2A) not be ordered in petitioner s case. Petitioner filed response thereto dated 23.09.2019 making reference to details already filed and clarified. While petitioner s averments were not adverted to, it received notice under Section 143(2) on 27.09.2019, once again listing nine issues as subject matter for scrutiny assessment. notice under 142(1) was also issued by new incumbent to office of respondent No.1, raising four new queries. time period specified for complying with aforesaid notice was stipulated as 05.10.2019. However instead of waiting for date fixed, respondent No.1 on 04.10.2019 issued another notice under Section 142(1), making allegations of non-compliance on part of petitioner. This was also responded to, vide letter dated 11.10.2019 and parallelly, response was sent to notice under Section 142(1) dated W.P.(C) 13822/2019 Page 3 of 27 04.10.2019. Petitioner then filed evidence /correspondence in response to initial questionnaire on 25.10.2019; 04.11.2019; 08.11.2019; 13.11.2019; 19.11.2019; 20.11.2019 and 28.11.2019. respondent No.1 thereafter passed order under Section 142(2A) of Act, which is impugned in present petition. Contentions of Petitioner 4. Mr. S.Krishnan, learned counsel for petitioner has assailed action of respondent No.1 for ordering special audit on several grounds. His first submission is that respondent No.1 has not issued any notice under Section 142(2A) of Act. notices dated 13.09.2019 and 27.09.2019 were issued under Section 142(1) of Act and cannot sustain proceedings under section 142(2A) of Act, since two provisions operate in completely different spheres. Notice under Section 142(1) is issued directing filing of particulars requisitioned by Assessing Officer (hereinafter referred to as AO ) and proceedings under Section 142(2A) can be initiated by Assessing Officer, who has taken such particulars on record and formed opinion on basis of such particulars, that reference to special audit is necessary. He then submitted that proviso to Section 142(2A) requires pre-decisional hearing based on show cause notice. Since AO was still requisitioning information and documents, he was in no position to confront assessee with alleged complexity and volume of accounts. Thus, opinion formed by AO for ordering special audit without evaluation of information is misconceived action. He further submitted that W.P.(C) 13822/2019 Page 4 of 27 order dated 03.12.2019 referring to notice under Section 142(2A) is wholly misplaced and is attempt to create record of non-existent notice. Mr. Krishnan has then sought to canvass that respondent No.1 has attempted to interpolate online interface maintained by Principal Director General of Income Tax (System) by making backdated reference to document dated 13.09.2019 through upload on 03.12.2019. He referred to copies of screenshots annexed with petition, of online interface taken for several dates prior to 03.12.2019 to demonstrate that no notice under Section 142(2A) dated 13.09.2019 had ever been uploaded. In nutshell, Mr. Krishnan reinforced his arguments that there was no notice under Section 142(2A) issued by respondent No.1 till date and proceedings are liable to be quashed on this short ground alone. He also sought to argue that action of respondent No.1 is that of prejudice. He submitted that first reference to Section 142(2A) by respondent No.1 was made on very same evening when petitioner deposited sum of Rs.14 crores as advance tax. reference to special audit is act of vengeance for non-compliance to respondent s threatening direction to pay correct amount of advance tax. Next, Mr. Krishnan endeavoured to demonstrate that reference order of respondent No.1 is act of his own apathy in initiating assessment proceedings; five months before limitation was to intervene. Notices under Section 143(2) stood issued on 23.08.2018 and 19.09.2018, when no details were requisitioned. Respondent No.1 took 316 days to issue format-based questionnaire initiating proceedings in earnest. This inclination is conspicuous from fact that notice under Section 142(1) W.P.(C) 13822/2019 Page 5 of 27 dated 27.09.2019 required compliance by 05.10.2019 and instead of waiting for said period to expire, respondent No.1 issued notice on 04.10.2019 falsely alleging non-compliance. Lastly, on merits Mr. Krishnan submitted that necessary explanation and particulars had been furnished to respondent No.1. He did not apply his mind on same and instead in routine manner has formed opinion which is contrary to law laid down by Supreme Court in Sahara India (Firm) vs. CIT, 2008 300 ITR 403 (SC) that commands AO to form opinion based on objective criteria and not on basis of subjective satisfaction. petitioner has been regularly assessed to income-tax by office of respondent No.1 for several years and is amongst highest tax payers in its range. petitioner undergoes scrutiny assessment every year, and till date no officer has found details on record to be complex or voluminous and therefore, there is no prima facie case for reference to special audit. To demonstrate this, Mr. Krishnan also sought to take us through queries raised by AO, issue-wise, to explain that such queries had been either raised after show cause notice dated 13.09.2019 or to say that respondent No.1 has failed to exercise reasonable domain knowledge with correct intent. Closing his submissions, it was also argued that though monetary cost of audit is statutorily to be borne by respondents, it would nevertheless cause severe prejudice to petitioner as it would have huge negative impact on perception amongst institutions, investors, customers, stakeholders and general public. W.P.(C) 13822/2019 Page 6 of 27 5. We have given due consideration to contentions urged by Mr. Krishnan. object behind enacting provision of Section 142(2A) of Act is clear from plain reading of its language and said provision is to assist AO in framing correct and proper assessment based on accounts maintained by assessee, having regard to nature and complexity of accounts, its volume and doubts about its correctness, multiplicity of transactions or specialized nature of business activity of assessee and interest of revenue. While testing reasoning of AO for making reference to special audit, we have in our decision in Religare Finvest Limited vs. Deputy Commissioner of Income Tax and Anr., 2019 SCC OnLine Delhi 100 emphasized that exercise of power is to be guided by principles laid down by Supreme Court and Sahara India (Firm)(supra). At same time we have observed that while exercising our jurisdiction under 226 of Constitution of India, we are not to act as Appellate Court. subjective satisfaction of AO falls exclusively within scope of his jurisdiction and if reasoning adopted by AO is rational and is borne from record, we would refrain ourselves from interfering with such jurisdiction, as courts normally do not interfere in field which falls within exclusive domain of AO. Therefore, in order to evaluate reasoning, it would be apt to examine reasons assigned by respondent No.1 in its order dated 03.12.2019 dealing with objection to show cause notice. aforenoted order runs into 13 pages and therefore, only relevant portion is being extracted herein below: W.P.(C) 13822/2019 Page 7 of 27 3. Anomalies and complexity noted in Books of accounts of assessee: I. Department's Query:-The assessee has disclosed advance of Rs 1299 crores received from its client and Rs. 36.36 crores as revenue in advance as against Rs. 1286.11 crores and Rs. 11.95Cr respectively in comparison to Previous A.Y. It needs to be examined whether these advances are in nature of accrued income. details regarding these advances to ascertain revenue nature as well as their genuineness etc. were specifically called for vide question 20 dt. 02.08.2019. reply submitted by you doesnot suffice reason for which question were raised so this issue remained unexamined. Further in your reply dt. 02.09.2019 to point no. 15 of notice u/s 142(1) dt. 02.08.2019 has stated as follows- "It is submitted that amount of Interest passed on to clients is subject matter of agreement with client which varies from case to case. Further, computation of interest is based on advances which were lying as advances with NBCC during relevant assessment year and interest is calculated for period amount was kept as advance in NBCC's books as per terms of respective agreement and same cannot be correlated with closing balance of advance from clients. There may be cases where advance was received/settled at yearend leading to increase/decrease in quantum of advances without corresponding change in interest to clients. Zone wise details of interest paid to clients is enclosed as Annexure "C'." From above reply of assessee, it is evident that interest passed on to clients is complex in nature as well as is voluminous in terms of period of holding of advance, rate of interest and calculation of interest amount vis- -vis terms & conditions of agreements with these clients. These issues needs in depth further verifications. Non specific reply of assessee raises doubt about correctness of these transactions. W.P.(C) 13822/2019 Page 8 of 27 II. Department s query:- Assessee has claimed TDS of 73,69,98,262/- in respect of 501 parties in return of income. As per provision of Section 199 of Income-tax Act, 1961, read with Rule 37BA of Income-tax Rules, assessee can take TDS credits only for receipts disclosed as income in particular assessment year. It is difficult for A.O. to examine correctness of above claim and to examine whether assessee has disclosed above receipts as income in its accounts. Further, despite of opportunity given assessee could not produce any details what so ever so as to ensure that TDS has been claimed only in respect of income which is credited as receipt. In absence of desired details it is difficult to ascertain whether TDS claimed in return as prepaid taxes entirely relates to income offered in Profit and Loss Account of assessee. In its reply assessee submitted "TDS deducted and certificates for deduction of TDS are received as per Rules prescribed in Act. company follows percentage completion method of accounting. Naturally TDS deductions on advances made to company for construction would not match with profit enuring out of works done utilizing such advances. This is of regular feature with company. credit for TDS has always been given in past in terms of form 26-AS, after appreciating lack of link of TDS with income earned." In above submission assessee itself has agreed that TDS deductions on advances made to company for construction would not match with profit enuring out of works done utilizing these advances. However, assessee has submitted that in past years also assessee has been applying same method. If something has not come into notice this cannot be taken as precedent because as per provision of Section 199 and Rule 37BA where it is mentioned that credit to only those TDS shall be given whose corresponding income is assessable in that AY. xxxxxxx W.P.(C) 13822/2019 Page 9 of 27 Therefore, assessee's argument that as these TDS credit were given in last years therefore it should be allowed for this AY is not acceptable as assessment proceeding/ITR filing are governed by provisions laid down by IT Act/Rules and clearly as per above discussion assessee is in violation of Rule 37BA. This raises doubts over correctness of TDS claimed by assessee and it becomes necessary that TDS credit claimed by assessee for AY 2017-18 gets verified. III. Department's query:-As per Part D1 of Cost Audit Report which is product services profitability statement for year ended in 31.03.2017. profit margin as against sales turnover of Rs. 185.34 Crore in real estate business is Rs. 32.23crores in FY 2016-17. Whereas profit margin as against sales turnover of Rs. 273.99 crores was Rs. 119.37 crores in Fy 2015-16. This clearly shows that profit margin in real estate business was 43.57% to sales in FY 2015-16 which has come down to 17.40% in FY 2016-17 (AY 2017-18). Since you did not produce any evidence regarding expenses claimed in P&LA /c in real estate business. This aspect of case remains unverified. Similarly as per same detail given in Part D1 of Cost Audit Report, profit margin of Rs. 31.51 Crore has been shown against sale of Rs. 534.08 Crores in infrastructure head in FY 2016-17. Whereas profit margin of Rs. 31.36 Crores is shown against sale turnover of Rs. 307.66 Crores only in FY 2015-16. Here again profit margin in infra business was 10.19% in FY 2015-16 whereas same has come down to meagre of 5.90% in FY 2016-17 (AY 2017-18). Since neither accounts of expenses claimed under this head nor credible evidences is produced despite of opportunity given to you. same remains unverified. In response assessee submitted as under:- Cost audit report only provides cost analysis in term of norms different from those which are applicable for computation of commercial profits. profit margin in real estate business has W.P.(C) 13822/2019 Page 10 of 27 to be based on overall commercial achievement and not on objectives contained in cost audit report. Understandably since two have relationship or link such question were raised in past time in assessment. This information was never called for and reconciliation with financial books already placed in cost audit report. As to realizations from structure business complete details of input cost and out put receipts are available which are simply amenable to verification. No effort has been made so far by anyone at your end for examining this aspect of matter in year reply of assessee cannot be accepted as assessee has not appreciated reasoning behind asking such query. AO has simply asked assessee to reconcile profit earned with respect to sales turnover and corresponding expenses. As apparent from Cost Audit report in head of real estate ratio of profit to sales turnover has reduced from 43.57% in last year to 17.40% in present AY. Further in infrastructure head there was dip in ratio of Profit to sales turnover from 10.19% to 5.90%. assessee was asked to produce ledgers of several expenses vide notice u/s 142(1) dated 02.08.2019 but till date assessee has not produced any of these ledger accounts. sudden dip in profit to sales ratio for both head discussed above raises doubts about correctness of accounts that's why assessee was asked to produce reconciliation of these profit shown alongwith ledger details of expenses but assessee has failed to do so till date. Therefore this fact still remains unverified. Further assessee has submitted that AO has failed to ask for complete details of input cost and output receipt. Here assessee has failed to appreciate this fact that vide notice u/s 142(1)dated 02.08.2019 assessee was asked in detail to submit cost, revenue earned pertaining to its projects pertaining to all three head under which assessee functions i.e. for Project Management Consultancy, Real Estate W.P.(C) 13822/2019 Page 11 of 27 Development and Engineering, procurement and construction. Thus assessee's contention is not acceptable as AO has already asked for these details but due to non compliance on part of assessee this issue still remains unverified. IV. Department's query:-"As per note 19 of Balance Sheet as on 31.03.2017 trade payables has been shown as Rs. 2534.54 Cr whereas trade payables as on 31.03.2016 were 1784.87Cr. It means there is increase of 42%of trade payables in this year. However on perusal of works and consultancy expenses claimed in FY15-16 & FY 16-17were Rs. 5248.56 Cr. and Rs. 5703.54 Cr. Respectively means that there is meager increase of 8.67% in work and consultancy expense. Further, details were called vide above mentioned notices so as to ascertain identity and genuiness of trade payables but same were not furnished by assessee to justify increase in trade payable of 42% as against increase in business expenses of just 8.67%." Assessee's submission in this regard:- "on aspect of trade payable it needs to be noted that they do not lie in field of revenue. They are items of current liabilities. Profit cannot be worked out on basis of assumptions and presumptions based on trade payables over period of years. No such principle is known to business or commerce or accounts. As per note 19 to Balance sheet it is observed in note that in profit and loss in balance sheet closing balance in Bank account and work in progress account is stated this is amenable question and ready verification from records." reply of assessee cannot be accepted as trade payable may also inflate asset side of balance sheet of assessee by same amount and to balance asset and liability assessee has to create inflated assets in its balance sheet. Further on perusal of purchase from P&L A/c it is observed that land purchase & material consumed has fallen from last years Rs .231.62 Cr. to Rs. 10.01 Cr this year. W.P.(C) 13822/2019 Page 12 of 27 However trade payable has increased by Rs.750.61Cr. Show cause notice dated 13.09.2019 increase in works and consultancy expenses claimed has only increased 8.67%. This seems to very peculiar case and verification of this issue is required. Keeping all these facts in mind AO asked for details so as to ascertain identify and genuiness of trade payable along with ledger account of trade payable. assessee remained non compliant on this issue. Therefore it can be concluded that assessee has not filed satisfactory reply in response to show cause notice issued to it under section 142(2A) of Income Tax Act,1961. V. Department's query:-"As per Note 27 of P&L A/c for FY 2016-17 closing balance in inventory of land bank has been shown as Rs. 630.66 Cr. and closing balance of Work in progress is shown of Rs. 936.11 Cr.. details along with evidences were called for examination of all ongoing projects vis- -vis investment made in purchase of lands but same could not be produced till date." Assessee's submission in this regard:- "As to details called for in respect of contents of note 27 regarding inventory of land bank and closing balance of work-in-progress it is submitted that they are all as per record. This information was never sought in any of your questionnaire yet however details have been placed on record along with those under SI. No. 28 of questionnaire." reply of assessee cannot be accepted. AO vide questionnaire dated 02.08.2019 has asked assessee to submit details regarding inventories of assessee. Here assessee instead of giving detail of inventories, it has provided relevant note from Financials which is already available with AO. No other detail was ever submitted by assessee. Therefore, this issue still remains unanswered. Further reminder dated 04.10.2019 along with some further queries were issued to assessee vide notice dt. 27.09.2019. W.P.(C) 13822/2019 Page 13 of 27 Pointwise discussion where assessee's reply is not found satisfactory is as under 1. Department's query:- On perusal of your annual report in Note-29 to Financial Statement under head Employee benefits expenses, auditor has reported as below:- "The above expenses includes provision of Rs. 2201.32 lakhs on estimated basis on account of wage revision due to employees w.e.f January 1,2017." Clearly you have created provision of Rs. 2201.32 lakhs in current year and from perusal of computation of income submitted by you it is observed that you have not added back this provision to your income keeping in view taxability of this provision you are requested to submit your reply. Assessee's submission dated 04.10.2019- 1. "As your kind self would be aware, pay revision in central Government is done after 10 years, and approved recommendations of 7th pay commission were given effect from 01st January2016 for central Government employees. On similar lines, pay revision in CPSE's also took place based on DPE guidelines w.e.f 01.01.2017. 2. revised salary payable to employees is due from 01.01.2017, pending calculation of revised salary on case to case basis. Accordingly, liability in this regard was quantified based on DPE guidelines, and amount of arrears were actually disbursed to employees in months of January 2018 and may 2018. 3. relevant office order authorizing payment of revised salary forms Annexure B to this letter, while relevant report of 3rd PRC committee forms Annexure c hereto. 4. said claim is allowance in terms of law settled supreme W.P.(C) 13822/2019 Page 14 of 27 court in case of Bharat Earthmovers v. CIT [(2000 245 ITR 428 (SC)] 5. In tax audit report also, liability on account of pay revision has not been consider by independent auditor as contingent liability. said report already stands filed. 6. Thus, liability had definitely arisen stood quantified with reasonable certainity, pertained to relevant period, and stands properly discharged. All requirements for allowability stand met. On perusal of assessee s submission it comes out that for present AY assesee has made provision of Rs. 2201.32 Lakhs, same amount was claimed as allwabale deduction by assessee. Vide notice dt.04.10.2019 assessee was asked about allowability of this expense as per IT Act, 1961. In regard to reply submitted by assesse, assessee has stated that all condition for claiming provision was met. However, this was not case here as for claiming any provision as decided by Hon'ble Supreme Court in case of Rotork Controls India (P.) Ltd v. CIT [2009]180 taxmann 422/3141TR 62 there needs to be scientific method for ascertaining amount of provision. While in case of assessee independent auditor himself has considered it as estimated amount which is evident from note 29. relevant portion is reproduced once again as under:- "The above expenses includes provision of Rs. 2201.32 lakhs on estimated basis on account of wage revision due to employees w.e.f January 1, 2017." Further, from reply submitted by assessee it is not possible to ascertain what was actual expense incurred by assessee during year (if any) or in subsequent year against this provision as no details have been submitted by assessee. Further, with no specific reply received from assessee it is W.P.(C) 13822/2019 Page 15 of 27 difficult for AO to understand how difference (between provision created with actual expense occurred) was treated in subsequent years. In whole, this provision created by assessee needs further verification and quantification and as on date this fact remains unverified. 1. Department's Query (iii) notice dated 27.09.219- On perusal of your annual report in Note-31 to Financial Statement under head payment of Auditors auditor has reported as below:- "In Previous Year, Payment to Auditors include RS.2.50Lakhs for Audit fees. 50 Lakhs for Tax Audit & RS.2.00Lakhs for corporate Governance related for AY.2014-15" Clearly you have included expenses pertaining to AY.2014-15 of RS.5.00 Lakhs in AY.2017-18. You are following mercantile method of accounting, accordingly to which you are required to claim any expenses on basis of its accrual during that year in which it accrues. Keeping in view taxability of this provision you are requested to submit your reply. In response assessee vide its reply dated 04.10.2019 submitted. Payment to Auditors (Refer point no.2(iii) of annexure to notice u/s 142(1) of Act dated 27.09.2019): Your kind self has referred to Note 31 of Accounts (page 150of Annual Report), noticing therein, payment to auditors which related to AY.2014-15. We have been asked to explain why expenses pertaining to AY.2014-15 have been claimed in AY.2017-18. In this regard, Assessee submits: 1. relevant Note 31-A itself refers to FY.2014-15, and not AY.2014-15: 2. expenses referred therein have been claimed and duly W.P.(C) 13822/2019 Page 16 of 27 allowed in AY.2016-17 3. NO EXPENDITURE ONTHIS COUNTHASBEEN CLAIMED IN PRESENTYEAR. From above, it is clear that there is difference in version of assessee and its auditors evidently showing defects in correctness of its accounts. Therefore same needs further verifications. xxxxxxxx 7. It is also matter of record that sufficient time and opportunity has already been granted to assessee to furnish details and reconcile same with its books. However, assessee failed to do so. 8. Keeping in view facts discussed here in above and this office earlier letter dated 13.09.2019 and also another letter dated 27.09.2019 to assessee in this regard giving opportunity to show cause as to why special auditor within provision of Section 142(2A) of IT Act, 1961 not be appointed in case of assessee and considering detailed submission along with annexures and having gone through them carefully and reasons for not accepting assessee's arguments wherever deemed fit as detailed above, undersigned is of considered view that having regard to nature and complexity of accounts of assessee, volume of accounts and doubt about correctness of accounts and interest of revenue it is held necessary to get accounts of accounts of assessee for AY 2017-18 audited by accountant as defined in Explaination below sub-section (2) of Section 288 r.w.s 142(2A) of IT Act, 1961. (Emphasis supplied) 6. On perusal of aforesaid order, it can be easily discerned that in W.P.(C) 13822/2019 Page 17 of 27 opinion of AO, several queries and corresponding replies of assessee reveal complexity in accounts of assessee. Say for illustration, interest passed on to clients, where details furnished in terms of period of holding of advance, rate and calculation of interest amount vis- -vis terms and conditions of agreement with clients, are complex and voluminous. non-specific reply of assessee raised doubts about correctness of transactions and lead AO to seek further verification. Similarly, in respect of TDS claim of Assessee, query was raised regarding difficulty faced by AO in examining whether TDS receipts have been disclosed in accounts of assessee. It was pointed out in reasons that TDS deductions on advances made to company for construction would not match with profit enuring out of works done utilizing these advances , thus causing complexities and anomalies. On several other queries, AO has observed that petitioner has not submitted satisfactory reply to queries and failed to produce its ledger, accounts and documents as called for. Referring to Cost Audit report of assessee, it has been pointed out in reasons, that in head of real estate ratio of profit to sales turnover has reduced from 43.57% in last year to 17.40% in present AY and in infrastructure head there was dip in ratio of Profit to sales turnover from 10.19% to 5.90% . Therefore, sudden dip in profit to sales ratio for both heads discussed above raises doubts about correctness of accounts that s why assessee was asked to produce reconciliation of these profit shown along with ledger details of expenses but assessee has failed to do so till date . W.P.(C) 13822/2019 Page 18 of 27 Similarly, reasons note that on perusal of balance sheet, it is observed that land purchase & material consumed has fallen from last year s Rs. 231.62 Cr. to Rs. 10.01 Cr. this year , though, trade payable has increased by Rs. 750.61 Cr while increase in works and consultancy expenses claimed has only increased 8.67% . Therefore, in opinion of AO, this issue needs to be verified. In absence of relevant documents/books of accounts, true picture of income of assessee cannot be drawn. assessee failed to furnish necessary details and reconcile books, and this prompted AO to form subjective satisfaction based on objective assumption on basis of responses furnished by assessee. answers to questionnaire raised by respondent No.1 was not found to be satisfactory and impugned order for special audit was issued. AO has clearly brought out complexity in accounts, in reasons given for arriving at satisfaction. Respondent No.1 has highlighted several aspects that indicated complexity of accounts and interest of revenue would be served if special audit report is obtained and therefore, we are not persuaded to hold that reasons are not sufficient or that there has been denial of opportunity of hearing to petitioner. conclusion that account books and material furnished was complex in nature for which special audit is required, as observed above, is subjective satisfaction arrived at by AO. It cannot be said that there was any arbitrary exercise of power, in directing special audit under Section 142(2A) of Act which would call upon this court to exercise judicial review so as to strike down order. We, therefore, do not find any W.P.(C) 13822/2019 Page 19 of 27 substance in contentions of Mr. Krishnan that respondent No.1 has not examined material and response to questionnaire furnished by petitioner. We cannot hold that there is no application of mind on part of respondent No.1 for issuing impugned directions. In our opinion, satisfaction recorded by AO is in consonance with principles enunciated in Section 142(2A) of Act. doubts expressed by AO are on basis of complexity of accounts recorded upon objective considerations mentioned in impugned order on each query. Though petitioner has sought to explain all queries so raised in present petition, however, we feel that it is not in our jurisdiction to go into accounts and audit report and discuss same. Respondent No.1 has applied his mind and anomalies and discrepancies that have been pointed out in impugned order, to our mind are sufficient to meet test of judicial review while questioning subjective satisfaction for appointment of special auditor. In our opinion, aforesaid reasons are sufficient to sustain action of respondent to order special audit in view of limited and guarded scope of judicial review. 7. Having satisfied ourselves that impugned order does not call for any interference on merits, we have also considered other contentions raised by learned counsel for petitioner to scrutinize if there has been any jurisdictional error. submission of Mr. Krishnan that there has been no notice issued by respondents under Section 142(2A) of Act, is bereft of merits. On bare perusal of notice dated W.P.(C) 13822/2019 Page 20 of 27 13.09.2019, it becomes evident that same has been issued as per said provisions. Though covering letter has subject line notice under sub section (1) of Section 142 of Income Tax Act, 1961 , however, content and import of said notice is to afford opportunity to petitioner to show cause as to why special audit should not be ordered. proviso to Section 142(2A) stipulates that AO shall not direct assessee to get accounts audited unless assessee has been given reasonable opportunity of being heard. reasonable opportunity of being heard, envisaged in proviso to sub- section 2A of Section 142 is based on principle of natural justice. This includes show cause notice, whereby assessee is put to notice of materials which are adverse. By this exercise, opportunity is given to party which is likely to be impacted by order under Section 142(2A) to respond to notice and address adversities in material pointed out therein. In fact, even prior to insertion of proviso, Supreme Court in its decision of Sahara India (Firm) (supra) had observed that even in absence of express provision for affording necessary opportunity of pre-decisional hearing to assessee, requirement of observance of principles of natural justice is to be read into said provision. In instant case, this fundamental requirement is clearly met and notice dated 13.12.2019 afforded opportunity to petitioner, as contemplated under law. On perusal of Para 10 and 11 of said notice, it becomes further evident that same was show cause issued to meet statutory requirement of provision by giving reasonable opportunity of being heard to assessee before passing order to get W.P.(C) 13822/2019 Page 21 of 27 accounts audited under Section 142(2A) of Act. said portion is extracted herein below:- 10. In view of facts and circumstances discussed above vis- a-vis issue involved in this case it can be seen that details needs to be examined to ascertain genuineness of transaction are not only voluminous but complex in nature. Further, multiplicity involved in transactions and your failure in making compliance to notices, issued earlier creates doubt about correctness of accounts. Therefore, considering interest of revenue involved in this case as well as specified nature of certain transactions you are required to show cause as to why your case for AY 2017-18 shal1 not be audited from Auditor as per provision of Section 142(2A) of Income Tax Act, 1961. 11. You are requested to submit your reply online on efiling portal and furnish your explanation/objection on or before 23.09.2019. If you fail to furnish any explanation/objection by 23.09.2019 then no more opportunity will be given and decision on conducting Special Audit u/s 142(2A) will be taken on basis of information available on record. 8. Mr. Krishnan has argued that reasonable opportunity should also include opportunity of personal hearing that he says was denied to Petitioner despite requests. However, we are not convinced with this submission. On this issue, we are inclined to agree with views taken by Gujarat High Court in Neesa Leisure Limited vs. DCIT [2013] 35 Taxman 331 (Guj), where this precise question has been dealt with and answered in following words: 14. opportunity of being heard is one of prime aspects of principles of natural justice. reasonable opportunity of being heard normally includes show-cause notice; disclosure of material adverse to noticee; opportunity to party likely to be adversely effected to make representation against W.P.(C) 13822/2019 Page 22 of 27 such notice and reasoned order; howsoever brief, taking in account such representation, if so made. requirement of personal hearing, however, is normally not seen as necessary concomitant to reasonable opportunity of being heard. In other words, opportunity of hearing does not always include personal hearing. 15. In case of F.N Roy v. Collector of Customs AIR 1957 SC 648 contention was raised that petitioner was not given personal hearing in appeal which he preferred before Central Board of Revenue and in petition for revision to Government. Such proceedings arose out of order of confiscation of goods of petitioner by Customs authorities. contention regarding personal hearing was rejected in following terms : "11. It was then stated that petitioner had not been given personal hearing of appeal that he preferred to Central Board of Revenue and application in revision to Government. But there is no rule of natural justice that at every stage person is entitled to personal hearing. Furthermore, appeal was out of time. memorandum of appeal to Central Board of Revenue was posted on 4th May 1954. time to file appeal, however, expired on 1st May 1954, so that even if date of posting is taken as date of appeal petitioner was out of time." xxxxxxx 21. In present case, therefore, we need to examine provisions of Act and nature of order passed by authority. As already noted, Section 142 (2A) of Act empowers Assessing Officer; with previous approval of Chief Commissioner or Commissioner, during pendency of assessment proceedings, to get accounts of assessee audited by special auditor. It is, of course, true that any such order that Assessing Officer may pass would result into adverse civil consequences. We may, however, recall W.P.(C) 13822/2019 Page 23 of 27 that post 2007, requirement that assessee must weigh financial burden of special audit has been done away with. Once such special auditor submits his report, setting forth particulars; as may be prescribed, as also such as Assessing Officer may require, further assessment would take place. 22. In present case, Assessing Officer had issued notices to assessee under section 142 (1) of Act. When there was no compliance, notice for appointment of special auditor came to be issued. Petitioner's objections were considered, approval from Commissioner was sought. On strength of such approval so granted by Commissioner, Assessing Officer on basis of his opinion that accounts of assessee were complex and in interest of Revenue, it was so required, directed that accounts be audited by special auditor. 23. To our mind proviso to Section 142 (2A) of Act does not envisage any personal hearing before order under sub-- section (2A) can be passed. said proviso only requires giving reasonable opportunity of being heard to assessee. Such reasonable opportunity ordinarily would not include right of personal hearing. It may, in given case, at discretion of Assessing Officer that same may be granted. same may even be either desirable or necessary in given set of circumstances where complex and technical questions of law and facts are involved. Such requirement, however, cannot be read into or fastened under proviso to section 142 (2A) of Act. In other words, in context of statutory provisions, such requirement cannot be seen as part of scheme of Act. In given case, in special set of facts and circumstances it may be desirable or even necessary, but not in all cases. 24. In case of Rajesh Kumar (supra), Supreme Court though read requirement of hearing in Section 142 (2A) even prior to introduction of provision, nowhere provided that such hearing must be personal hearing. In fact, observations made by Supreme Court in paragraph 63 of said judgment would indicate that such hearing would be of summary nature. It was W.P.(C) 13822/2019 Page 24 of 27 observed as under : "63. 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 their 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 appealable order." It was this view, which Supreme Court approved in Sahara India (Firm) (supra). In such decision also, requirement of personal hearing was not read into provision. (Emphasis supplied) 9. On perusal of record, we also find that apart from aforesaid show cause notice, AO has given several other opportunities to petitioner by calling upon them to furnish their response along with documentary evidence. After issuing statutory notice dated 13.09.2019, another opportunity was given on 27.09.2019, when there was change W.P.(C) 13822/2019 Page 25 of 27 of incumbent in office of respondent No.1. Also, notices under Section 142(1) along with questionnaire were issued to assessee on 02.08.2019, followed by reminder on 26.08.2019. Despite aforesaid opportunities, assessee was unable to answer queries raised by respondent to satisfaction of AO. In impugned order, AO has threadbare considered each response to queries raised and concluded that accounts of petitioner are voluminous and complex. 10. We also do not find any substance in petitioner s submission that action of respondent No.1 is mala fide or is outcome of failure to pay advance tax to lacking of respondents authority. Such submissions are based on conjectures and surmises and in absence of any cogent material to support this assumption, we refuse to entertain such plea. Equally, we find no merit in submissions of petitioner that respondent No.1 has interpolated record. essential mandate of Section 142(2A) requires opportunity of hearing, which in present case has been met for reasons discussed in detail hereinbefore. Petitioner does not dispute that notice dated 13.09.2019 was served upon petitioner. Resultantly, it had opportunity to put forth its case and objections for ordering special audit. Once this requirement is fulfilled and petitioner tendered its reply thereto, prerequisite under Act was met. 11. We find no reason to entertain present petition. As result, W.P.(C) 13822/2019 Page 26 of 27 petition and application are dismissed. No order as to costs. SANJEEV NARULA, J. VIPIN SANGHI, J. DECEMBER 24, 2019 v W.P.(C) 13822/2019 Page 27 of 27 NBCC (India) Ltd. v. Additional Commissioner of Income-tax & Or