ROSY BLUE (INDIA) PVT. LTD.,MUMBAI vs. DCIT CENT. CIR. - 46, (NOW DCIT CENT. CIR. 8(3)), MUMBAI

The issue raised in assessee‟s appeal is against the order of CIT(A) upholding the exercise of jurisdiction under section 142(2A) of the Act by the Assessing Officer by directing Special Audit without demonstrating the complexity in the books of accounts and holding that the assessment is not barred by limitation.

The facts in brief are that the assessee filed the return of income on 30.09.2008 declaring the total income of ₹44,21,06,679/-. Subsequently, the case of the assessee was selected under scrutiny and statutory notices were duly served to the assessee. The assessee is engaged in the business of Import, Export, Manufacturing, Processing of diamonds and trading in commodity derivatives. In Para 3 of the assessment order, the Assessing Officer observed that assessee has failed to furnish the details/ information as called for from time to time. It was also stated that since the assessee could not produce the substantive evidences in support of various queries and finally a show cause notice dated 24.12.2010 was issued to show

The assessee challenged the order of Assessing Officer before the CIT(A) on this jurisdictional issue as well as on merit. The learned CIT(A) while dismissing the jurisdictional ground raised by the assessee has observed and held as under: -

“Para 5.3 I have considered the submissions of the Appellant. In this case, special audit under section 142(2A) was ordered. The audit under section 142(2A) is a tool available with the Assessing Officers to be used in appropriate cases for determining the Total Income. Further, in the audit was ordered after following the procedure laid down in the Act. Therefore, in my view, there cannot be any valid grievance in this regard. As regards, the appellant's claim that the assessment was barred by limitation, I find that since in this case audit under section 142(2A) was ordered, explanation 1 to. section 153 is applicable in this case for the computation of period of limitation for passing the order u/S 143(3) of the Act and the assessment order was passed within the time limit considering the extended time limit as per explanation 1 to section 153 of the Act. The allegation that the Audit under section :14(2A) of the-Act was directed only to gain is not substantiated. The appellant has also claimed that the Assessing Officer was prejudiced in support of his claim that the assessment was barred by limitation. Now, whether or not the Assessing Officer was prejudiced has no bearing on the issue being decided which is

The learned AR submitted before the Bench that the assessment framed by the Assessing Officer under section 143(3) of the Act dated 12.08.2011 is bar by limitation as the special audit u/s 142(2A) of the Act was ordered by the AO just to extend the time limit for framing the assessment without satisfactions of necessary preconditions of section 142(2A) of the Act. The learned AR submitted that in terms of section 153(1) of the Act, the assessment order ought to have been passed before the expiry of twenty-one months from the end of the assessment year in which the income was first assessable. For the assessment year 2008-09 i.e. the year under consideration, this period would expire on 31.12.2010. However, according to the Revenue the period of limitation stood extended because of clause (iv) of Explanation 1 to section 153(9) of the Act as the Assessing Officer in the present case by his order dated 30.12.2010 had directed the assessee to get its books of account audited under section 142(2A) of the Act. The learned AR submitted that the jurisdictional pre-conditions for directing special audit under section 142(2A) were not fulfilled and hence, the said order was barred by limitation and is invalid. Further the Assessing Officer had taken recourse to the provisions of section 142(2A) of the Act only with a view to extend the period of limitation for completion of assessment which is not permissible under the Act without the conditions envisaged in section 142(2A) being satisfied. Therefore, the learned AR prayed before the Bench that it is of paramount importance to decide by this Bench whether the Assessing

In respect of the assertion made by the AO that he had called for the books of account vide order sheet noting dated 17.09.2010 (see page 101 of Volume 1 of the Paper Book), the Assessee submits that the order sheet noting as originally recorded on the said date did not make a reference to the direction to produce the books of account and vouchers by the assessee. This has been subsequently done to cover up the deficiency. This is shown by the following facts i) The order sheet noting on 17.09.20 10 after making reference to the information required to be furnished ends with the sentence "case adj to 18.10.1(7'. How could there be any further entry after the case stood

In the present case, the Assessee filed its response to the show cause notice issued by the AO before him on 30.12.2010. After considering its response, the AO has highlighted around more than sixteen issues in the draft order proposed to be passed by him under section 142(2A) of the Act. Thereafter, the said proposal has been sent to the CIT through the Additional CIT and the approval has been granted on the same date. Further, he also has to nominate a Chartered Accountant for performing the audit. In the least he has to identify the person/ firm who would be able to perform the audit and ascertain its availability. The nomination of a particular Chartered Accountant would be meaningless if he is going to be pre-occupied with other engagements and would not be able to take up this assignment. Based thereon, the AO has passed the order dated 30.12.2010 directing audit do be conducted in the assessee's case. It is humanly impossible that the AO after receiving its response on eight different issues formed his opinion making a reference to sixteen issues, the CIT applying his mind to all these issues and approving of

The ld DR per contra submitted at the outset, that the provisions of section 142(2A) are applied in a case having regard to nature and complexity of the account , volume of accounts, doubts regarding correctness of account, multiplicity in transactions in accounts, or specialized nature of business activity and in the interest of revenue. The ld Dr referred to reasons recorded by the AO as noted in the para 3.2 of the assessment order. The ld DR argued that the submissions made and the objections raised by the assessee in its reply are not convincing. Full information and details with regard to transactions of purchase, valuation of stock, fund transactions with various bank accounts, utilization of borrowed funds, investment in acquisition of property, have not been furnished along with supporting evidences. There is also no satisfactory explanation for the steep fall in GP and NP rate during the year as compared to the earlier two years. Further, the exact nature of services rendered to justify huge claim of expenses on account of labour charges, legal & professional expenses, salary etc., method of valuation of opening/closing stock etc., could be known only

We have heard rival submissions and perused the materials on record including the written submissions filed by both the parties. The jurisdictional issue raised before us by the assessee as has been discussed above is qua wrong exercise of jurisdiction while giving direction under section 142(2A) of the Act without complying with the necessary pre-conditions as envisaged in the said section and primarily the audit was directed under section 142(2A) of the Act just to extend the time limitation under section 153(1) of the Act. In terms of section

In this case, the fee of the special auditor has been fixed at Rs. 1.5 lakhs. The assessee during the audit of the account by the special auditor had to answer large

Effect of civil consequences arising out of determination of lis under a statute is stated in State of Orissa v. Dr. (Miss) Binapani Dei AIR 1967 SC 1269. It is an authority for the proposition when by reason of an action on the part of a statutory authority, civil or evil consequences ensue, prin-ciples of natural justice are required to be followed. In such an event, although no express provision is laid down in this behalf compliance of principles of natural justice would be implicit. In case of denial of principles of natural justice in a statute, the same may also be held ultra vires article 14 of the Constitution.”

The special audit under section 142(2A) of the Act has to be directed by the Assessing Officer only in the genuine cases where the Assessing Officer finds that he is not in a position to assessee the income of the assessee having regard to the complexities in the books of accounts. For the exercise of this power u/s 142(2A), it has been provided that the prior approval has been taken from the CIT which is a statutory safeguard provided in the Act against any unreasonable or arbitrary exercise of power by the Assessing Officer which has to be granted by the CIT after following the due process and after dule application of mind. Thus, the approval by the CIT should be granted after examining and after due application of mind to the proposal submitted by the Assessing Officer but in the present case it appears

Even on merits of the case we note that the AO had made several adhoc additions/disallowances out of expenses and one main addition on account of valuation of closing stocks. The valuation as done by the assessee was disputed by the special auditor for the reasons that the same is not supported with evidences which was calculated on estimated realisable value by the assessee on some

The other grounds raised are not being adjudicated as the jurisdictional and time barring issue have been in favour of the assessee.