Gdp Agro And Food Products Pvt. Ltd. Thr. vs. Principal Commissioner Of Income Tax

1 THE HIGH COURT OF MADHYA PRADESH W.P. No. 2248/2018 G.D.P. Agro and Food Products Pvt. Ltd. Vs. Principal Commissioner of Income Tax Gwalior and others Gwalior, 04/04/2018 Shri K.N. Gupta, learned Senior Counsel with Shri R.S. Dhakad, learned counsel for the petitioner. Shri D.P.S. Bhadauriya, learned counsel for the respondents. With the consent of learned counsel for the parties, the matter is finally heard. The petitioner was issued a notice by Principal Commissioner of Income Tax, Gwalior on 14/12/2017 relating to proceeding for the Accounting Year 2015-16. The notice stated that the proposal for special audit under Section 142(2A) of the Income Tax Act has been received and on perusal of Assessing Officer's submission, it has been found that there are huge transaction available in the impounded books but same are not available in the regular book of the assessee. It further stated that in view of the nature and complexities of the books of accounts, impounded 2 materials, the Assessing Officer has recommended the case should be referred for special audit under Section 142(2A) of the Income Tax Act. The petitioner was called upon if he has any objection in respect of the reference which may be stated. The petitioner gave reply on 18/12/2017 contending inter alia that with the advent of tax auditing under Section 44AB of the Income Tax Act which being carried out and Form 3CD provides extensive details on all aspects of the case relating to tax assessment, the proposal may be dropped. It was also stated that under the statute the direction for special audit can only be given by the Assessing Officer. It was also stated that the assessee has maintained accounts following mercantile system adhering to accounting standards and all the loose papers and dumb documents have been either explained or would be explained whenever confronted by the Assessing Officer in the cause of assessment proceedings. It was also contended by the assessee that in the case survey under Section 133A was conducted 3 on 15/01/2015; Audit Report under Section 44AB and return of income was filed on 30/09/2015, and as per CBDT instructions, being a survey case, assessment was to be made after scrutiny and assessment in search and survey cases were to be done expeditiously. The reply did not find favour with the Principal Commissioner of Income Tax, who proceeded to approve the proposal by the Assessing Officer vide communication dated 18/12/2017 after forming an opinion that the books of accounts of the assessee are voluminous and complex and do not represent the correct picture of business of the assessee. The petitioner takes exception to the said proposal on the contention that the stipulation contained under Section 142(2A) of Income Tax Act has not been adhered to and before taking of decision by the Assessing Officer, an opportunity of hearing has not been given. Section 142(2A) stipulates:- “142(2A). If, at any stage of the proceedings before him, the Assessing Officer, having regard to the nature and 4 complexity of the accounts, volume of the accounts, doubts about the correctness of the accounts, multiplicity of transactions in the accounts or specialised 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 (2) of section 288, nominated by the Principal Chief

Commissioner

Chief Commissioner or Principal Commissioner or Commissioner in this behalf and to furnish a report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed and such other particulars as the Assessing Officer may require: Provided that the Assessing Officer shall not direct the assessee to get the accounts so audited unless the assessee has been given a reasonable opportunity of being heard.” 5 Thus the primary requirement of Section 142(2A) is a recording of an opinion by the Assessing Officer, having regard to the nature and complexity of the accounts of the assessee and the interests of Revenue that it is necessary to get the accounts audited, in terms of the statute. In the present case, the main contention is that the Assessing Officer has not formulated any opinion as to complexity and that no opportunity of hearing has been given to the assessee. These contentions, however, are contradicted by respondents. In the reply filed it is stated in paragraph 5.6 that:- “5.6 That, in reply to Para 5.6 it is most humbly submitted that the petitioner's case is related to AY 2015-16. On 15-9- 2016 notice was issued to the petitioner. Thereafter on 4-7-17 under section 129 of the Act notice was issued in response Shri Arun Daga, AR attended the office on 15-7-17. Again notice was issued to the petitioner on 3-10-17 fixing the date of hearing on 12-10-17. On 23-10-17 notice under section 142(1) was issued. In response to this notice the AR 6 attended the office on 9-11-17 and submitted part details the same wer eplaced on record and the date of hearing was fixed on 21-11-17. On 21- 11-17 Shri Arun Daga AR of the assessee attended the office and sought adjournment the case was adjourned and the next date of hearing was fixed on 27-11-17 on this date remaining details were placed on record by the petitioner and the case was fixed on 6- 12-17. The statement of Shri Dharam Agrawal director M/s GDP Agro and food Pvt. Ltd was recorded on oath on 6-12- 17. He was shown the impounded material and was specifically asked whether the entries mentioned in the impounded material have been taken into account in the regular books of account, his reply was not found satisfactory. The seized material was complex in nature and was not in the form of cashbook or ledger therefore a proposal for special audit under section 142(2A) of the Act was sent to the respondent No. 1 vide letter dated 6-12- 17. This proposal was examined by the respondent no. 1 and accordingly a notice dated 14-12-17 was issued to the 7 assessee by the answering respondent. The contention of the petitioner were not found tenable therefore approval was granted vide letter dated 18-12-17 i.e. impugned here in. Hence it is clear that continuously the proceedings took place and there is no lapse of time as claimed by the petitioner. As per section 142(2A) of the Act 1961 it is very clear that if at any point of time during the assessment proceedings, if it is found that the books of the assessee are not true and correct then the case may be referred for special audit. From the above facts it is clear that because books of the assessee do not show the true and correct picture therefore the Assessing Officer has rightly referred the case for special audit after following the procedure and giving opportunity of hearing as laid down in the Act.” However, no material document has been commended at to establish that the Assessing Officer had issued any notice in compliance to the stipulations in the proviso to Section 142(2A) of the Income Tax Act which mandates that the Assessing Officer shall not direct the assessee to get the 8 account so audited unless the assessee has been given a reasonable opportunity of being heard, which in our considered opinion being sine qua non before directing for statutory audit; therefore we intend to stay the assessment proceedings as proposed by the Principal Commissioner of Income Tax vide communication dated 18/12/2017 and direct the Assessing Officer to afford an opportunity of hearing and after considering the same objectively, shall proceed further. Let the same be done within a period of 30 days from the date of communication of this order. The petition is finally disposed of in above terms. No costs.

(Sanjay Yadav) (Ashok Kumar Joshi) Judge Judge shubh* Digitally signed by SHUBHANKAR MISHRA Date: 2018.04.05 17:59:54 +05'30'