M/S UNITECH LTD.,,NEW DELHI vs. ADDL. CIT, NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH “H” NEW DELHI) BEFORE SHRI I.C. SUDHIR AND SHRI L.P. SAHU ITA No. 5180/Del/2013 Assessment Year: 2009-10 M/s. Unitech Ltd., vs. Additional CIT, 6-Community Centre, Range-18, Saket, New Delhi-1100 17 New Delhi. (PAN: AAACU1482H) (Appellant) (Respondent) ITA No. 5718/Del/2013 Assessment Year: 2009-10 Additional CIT, VS. M/S. Unitech Ltd., Range-18, 6-Community Centre, New Delhi. Saket, New Delhi (PAN: AAACU1482H) (Appellant) (Respondent) Assessee by: S/Shri Salil Aggarwal, Adv., Gautam and, CA and Shjalesh Gupta, CA Department by: S/Shri Dilip Shivpuri & Ruchir Bhatia, Government Standing Counsels Date of hearing : 12 .01.2016 Date of pronouncement: 08 :04.2016 ORDER PER I.C. SUDHIR: JUDICIAL MEMBER These cross appeals preferred by assessee and revenue are directed against the order of learned CIT(A)-XXI, New Delhi dated 16.8.2013 and relate to assessment year 2009-10. 2. The appellant-assessee is a public limited company engaged in the business of construction and development of real estate projects. For the assessment year under consideration, it filed a return declaring an income of Rs. 922,30,17,671/- on 29.9.2009, which came to be assessed at an income of Rs. 3361,18,87,560/- in an order dated 1.8.2012 under section 143(3) of the Act. On appeal, learned CIT(A) granted part relief to the appellant and hence the appeals before us.

share capital by eight wireless companies was in no manner comparable with transfer of existing shares by the appellant company. 2.3 That the learned Commissioner of Income Tax (Appeals) has overlooked that sale of shares by the appellant company of eight wireless companies and subscription of fresh equity shares of eight wireless companies by M/s Telenor Asia Pte Ltd. was non comparable for various reasons like there was time gap between the two transactions, the share sold by the appellant were encumbered shares whereas fresh shares issued were free, the economic interest always remained with the appellant in case of transfer of shares and even the funds were also provided by the appellant to finance the purchase etc. and as such theoretical, hypothetical and notional addition sustained is wholly unjustified and untenable in law. 2.4 That the learned Commissioner of Income Tax (Appeals) has also erred in proceedings to uphold the addition on wholly irrelevant, extraneous and immaterial consideration that alleged real net worth of eight wireless companies increased substantially after the 2G license was granted by the DOT and as such, addition sustained is not in accordance with law. 2.5 That further finding of the learned Commissioner of Income Tax (Appeals) that “assessee company has deliberately transferred the 75% stake in eight wireless companies at the face value of Rs. 10/- per share only when the real net worth of the shares were @ Rs. 179.73 per share at which the Telenor had subscribed the shares of these eight wireless companies” is factually incorrect, wholly misconceived and is contrary to evidence on record and therefore, legally untenable. 2.6 That the finding of the learned Commissioner of Income Tax (Appeals) that “assessee has foregone the capital gain which was due to the assessee and this has been done deliberately to avoid the capital gain and as such the AO is justified to make this addition” is also illogical, devoid of merit and, unsupported by any material on record and, therefore not tenable. 2.7 That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts by overlooking the detailed submissions, arguments and materials furnished by the appellant company and judicial pronouncements relied upon the appellant company to support the aforesaid contention. 3 That the learned Commissioner of Income Tax (Appeals) has also erred both in law and on facts in sustaining the re-characterization of income on disinvestment shares to M/s Tata Realty and Infrastructure Ltd. of Rs. 438,21,46,700/- as business income instead of capital gain declared by the appellant company. 3.1 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that the learned Assessing Officer having accepted the fact that appellant company had subscribed to shares of six subsidiary companies which were classified as investments in books of accounts could not have proceeded to arbitrarily hold the same as “business income” on assumptions and presumptions which are factually and legally misconceived and therefore, unsustainable. 3.2 That mere fact that in the year under consideration, the appellant company had invested in shares and disinvested shares of various companies

which were land owning companies could not be a ground much less a valid ground to suggest that income derived by the appellant company from disinvestment of shares had nexus with the trading activities and therefore the treatment of gain on disinvestment of shares as business income is wholly untenable. 3.3 That the finding of the authorities below that share transactions were ordinarily in the line of business of the appellant company and with dominant intention of earning profit on re-sale of shares overlooks the nature of investments accepted by the revenue in the preceding assessment years and in any case, once such investments were duly disclosed as investments in the books of accounts, there could be no valid justification to suggest and conclude that income on disinvestment of investments was business income of the appellant company. 3.4 That the learned Commissioner of Income Tax (Appeals) has also failed to appreciate written submissions alongwith evidence placed on record to establish that gain on disinvestment of shares of subsidiary companies to M/s. Tata Realty and Infrastructure Ltd. was “capital gain” and the approach adopted to regard the same as business income was “look through approach” which in essence lifted the corporate veil and was not permissible That the finding that “the floating of subsidiary companies and sale of 3.5 land through the sale of shares of the subsidiary companies is a regular practice and is a regular business of the assessee and therefore, the Assessing Officer was justified to treat the income of business income” is not only arbitrary but also shows the casual approach of the learned Commissioner of Income Tax (Appeals), in upholding the arbitrary addition. 4 That likewise the learned Commissioner of Income Tax (Appeals) has further erred in treating the capital gain of Rs. 478,50,42,117/- on disinvestment of shares of the following companies as business income of the appellant company: S.No. Name of the company Amount of gain (Rs.) 1. M/s. Mirik Developers Pvt. Ltd. 182,73,10,657 2. M/s Gibson Builders Pvt. Ltd. 181,94,71,146 3. M/s. Lurzon Developers Pvt. Ltd. 112,16,67,801 4. M/s. Tulip School Ltd. 78,50,000 5. M/s. High Vision Realty Projects Pvt. Ltd. 80,00,000 6. M/s. Unitech Buildwell Pvt. Ltd. 7,42,513 Total 478,50,42,117 5 That the learned Commissioner of Income Tax (Appeals) has also erred both in law and on facts in upholding the addition of Rs. 252,83,28,670/- by enhancement of sale consideration arising on sale of land rights by the appellant company to M/s Aswan Developers Pvt. Ltd. 5.1 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that addition made by the learned Assessing Officer by enhancing the consideration received on sale of land rights from Rs. 98.54 lakh per acre to Rs. 4,35,00,000/- per acre by adopting the purported fair market value instead of actual consideration is without any justification and contrary to various judicial pronounce and as such, same is legally unsustainable.

5.2 That the learned Commissioner of Income Tax (Appeals) while upholding addition, has failed to appreciate that once the transaction has been entered into between two independent parties which is supported by comparable instances of transactions of sale of adjoining area of land and then by no stretch of imagination, it could be validly held in absence of any material to the contrary that there was any understatement of consideration thereby, hypothetical, notional, theoretical addition sustained overlooks the business expediency of the of the appellant company is wholly misconceived and misplaced. 5.3 That the finding that, assessee is in the business of floating subsidiaries, purchasing of land, development of land and subsequent sale of land through the sale of shares of the subsidiary companies and as such, it is normal business income of the assessee evidently shows complete lack of appreciation on the part of the learned Commissioner of Income Tax (Appeals) of the factual matrix of the case of the appellant company and judicial position and therefore, the ground alone the addition sustained may kindly be deleted. 6 That the learned Commissioner of Income Tax (Appeals) has further erred both in law and on facts in upholding the addition of Rs. 120 crores representing the alleged deemed dividend under section 2(22)(e) of the Act. 6.1 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that sum advanced by M/s. Shivalik Venture Pvt. Ltd. to the appellant company under a Memoandum of Understanding dated 13.09.2008 was a business advance and therefore, a commercial transaction and as such, beyond the scope of section 2(22)(e) of the Act. 6.2 That even otherwise, the learned Commissioner of Income Tax (Appeals) has failed to appreciate that since there were no accumulated profits at the beginning of the year in M/s. Shivalik Venture Pvt. Ltd., and as such the addition made by invoking section 2(22)(e) of the Act was wholly unjustified, misconceived and therefore, not taxable. 6.3 That the finding of the learned Assessing Officer that Memorandum of Understanding dated 13.09.2008 is a sham document without making any enquiries whatsoever from M/s. Shivalik Venture Pvt. Ltd. is contrary to facts and law, and therefore, unsustainable. 6.4 That without prejudice to the above and in the alternative, the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in not directing to reducing the amount of Rs. 33.19 crores being the amount of debit balance in the account of M/s. Shivalik Venture Pvt. Ltd. and outstanding on the date from the amount of Rs. 120 crores taxed as alleged deemed dividend in the instant year and as such, addition made in any case is excessive by Rs 33.19 crores. 7 That the learned Commissioner of Income Tax (Appeals) has further erred both in law and on facts in upholding addition of Rs. 19,45,51,374/- representing the waiver of loan by M/s. Fortis Mutual Fund and held to be business income of the appellant despite the fact that the same was capital receipt in view of settled legal pronouncements. 7.1 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that mere fact that loans were sanctioned for general corporate

purposes though undisputedly was actually utilized for purchasing of shares of M/s. Shivalik Venture Pvt. Ltd. could not be a ground to regard the said waiver of loan as income of the appellant company. 7.2 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that the finding of the learned Assessing Officer that waiver of Rs.6,22,50,000/- in respect of interest already charged to Profit & Loss Account is taxable u/s 41(1) and waiver of principal amount of loan amounting to Rs. 13,23,01,374/- is chargeable as income u/s 28 of the Act 1961, is legally and factually misconceived and therefore, unsustainable. 8 That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in upholding the addition of Rs. 92,116/- representing the purported difference between balance of M/s. Prime Construction as per the books of appellant company and as per the ledger of account furnished by M/s Prime Construction and brought to tax as income under section 41(1) of the Act. 8.1 That the finding of the learned Commissioner of Income Tax (Appeals) that there was no proper reconciliation of discrepancy and therefore, addition made is confirmed, is wholly unjustified and untenable, more particularly, when mere difference in balance as per the books of assessee and as per the books of creditors could not be a ground to invoke section 41(1) of the Act. 9 That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in upholding disallowance of expenditure of Rs. 3,42,556/- out of advertisement expenses of Rs. 5,83,916/- incurred and claimed by the appellant company by making payment to M/s. Cross Section International, Delhi. 9.1 That the finding of the learned Commissioner of Income Tax (Appeals) that assessee has been unable to reconcile the discrepancy in the claim of expenses is factually incorrect, legally misconceived and thus untenable. 10 That the learned Commissioner of Income Tax (Appeals) has also erred both in law and on facts in upholding disallowance of sum of Rs. 66,43,500/- representing alleged short deduction of TDS on service tax by invoking section 40a(ia) of the Act. 10.1 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that section 40a(ia) of the Act is wholly inapplicable on alleged short deduction of income tax and as such, disallowance made is perse without jurisdiction. 10.2 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that the allegation that there was short deduction of TDS on account of service tax is factually and legally misconceived and therefore, no disallowance was warranted under section 40a(ia) of the Act. 10.3 That even otherwise, in any case, no disallowance was warranted under section 40a(ia) of the Act as the entire sum stood paid during the year. 11 That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in upholding the levy of interest under section 234A, 234B, 234C and 234D of the Act which is not leviable on the facts and circumstances of the case of the appellant company.”

4 In the revenue’s appeal in ITA No. 5817/D/2013 the grounds of appeal raised are as under: “1 On the facts and circumstances of the case and in law, ld. CIT(A) erred in deleting and addition of Rs. 35,10,000/- made by the AO on account of capital gain as business income on the buyback of shares of M/s Gurgaon Technology Parks Ltd. without appreciating the intention of the assessee in the said investment was not to earn dividend but to gain by selling the shares of the subsidiary companies. 2 On the facts and circumstances of the case and in law, ld. CIT(A) erred in deleting the addition of Rs. 11,57,47,608/- on account of interest free loan given to the subsidiaries, without appreciating that Hon’ble SC has itself stated that decision n the case of SA Builders needs reconsideration in Addl. CIT vs. M/s Tulip Star hotels Ltd. 2012 TIOL-42 SC IT dt. April 30, 2012. 3 On the facts and circumstances of the case and in law, ld. CIT(A) erred in deleting the addition of Rs. 29,5,92,000/- by directing to allow deduction u/s 80IB(10) without appreciating that as per lay-out plans the commercial area was exceeding the limit prescribed and the project has to be considered as a whole. 4 On the facts and circumstances of the case and in law, ld. CIT(A) erred in deleting and addition of Rs. 15,64,96,084/- wihich was made on the account of variation of rates of sale of flats without appreciating the prepondence of probability was against the assessee. 5 On the facts and circumstances of the case and in law, ld. CIT(A) erred in deleting and addition of Rs. 50 crores made by AO by holding the forfeiture of advance paid for purchase of hotels as a capital expenditure. 6 On the facts and circumstances of the case and in law, ld. CIT()A erred in giving a relief of Rs. 22,66,78,086/- out of the total disallowance of Rs. 26,33,18,259/- made u/s 14A r.w.r 8-D without appreciating that assessee failed to give bifurcation of expenses incurred on exempt income. 7 On the facts and circumstances of the case and in law, ld. CIT(A) erred in deleting the addition of Rs. 2,11,68,804/- out of deduction u/s 24 without appreciating that the corresponding income was in the nature of business income and not income from house property. 8 On the facts and circumstances of the case and in law, ld. CIT(A) erred in deleting the addition of Rs. 1,68,54,000/- made on account of disallowance of processing charges on the loan taken by Unitech Power Transmission Ltd. (UTPL) without appreciating that the said loan was actually availed by UTPL and not by the assessee company. 9 On the facts and circumstances of the case and in law, ld. CIT(A) erred in deleting the addition of Rs. 20,91,39,405/- on account of disallowance of proportionate interest expenses in respect of investment of Rs. 260.26 crors made by assessee in its subsidiary M/s Unitech Overseas Ltd. without appreciating that judgment in the case law of S.A. Builders Ltd. vs. CIT 288 ITR 1 was not final and the said investment was not legal in the first place. 10 On the facts and circumstances of the case and in law, ld. CIT(A) erred in deleting the addition of Rs. 1,59,39,46,799/- due to disallowance of interest

payment to Tata Reality & Infrastructure Ltd. without appreciating that there were not enabling clauses in the MOU between assessee and TRIL for such interest payment. 11 On the facts and circumstances of the case and in law, ld. CIT(A) erred in deleting the addition of Rs. 3,18,66,715/- being disallowance of prior period expenses. 12 The appellant craves leave for reserving the right to amend, modify, alter and or forego any ground(s) of appeal at any time before or during the hearing of appeal.”

5 The learned counsel Shri Salil Aggarwal, Advocate appearing on behalf of the appellant company submitted that the primary issue as raised in Ground 1 to 1.3 in ITA no. 5180/D/2013 is with respect to the contention of the appellant that order of assessment was barred by limitation. He therefore prayed that argument be heard in respect of the preliminary issue challenging the validity of the impugned assessment. Shri Dilip Shivpuri, learned special counsel for the revenue appearing alongwith Shri Ruchir Bhatia did not have any objection to the aforesaid prayer made by the learned counsel for the appellant company. Accordingly, both the sides argued in respect of the aforesaid contention and written submissions alongwith paper book filed have been placed on record. No arguments on merits of the various issues raised in these appeals were either heard or are being disposed off by this order. 6 With this background, we now proceed to dispose off Grounds 1 to 1.3 in ITA No. 5180/D/2013 7 In Ground 1, the appellant company has contended that the order of assessment dated 1.8.2012 u/s 143(3) was barred by limitation.. In Ground 1.1 it has been contended that learned CIT(A) has failed to appreciate that pre-conditions for invoking the provisions contained in section 142(2A) of the Act were not satisfied in the instant case and direction for special audit were issued with a motive to extend the period of limitation, therefore reference was without jurisdiction. In Ground 1.2 it has been further contended that learned CIT(A) failed to appreciate that there was no complexity involved with regard to the books of accounts and the directions for special audit could not have been issued for drawing legal

9 inferences particularly having regard to the fact that the method of accounting and manner and mode of business stood accepted by the revenue in the preceding assessment years in respect of assessments framed under section 143(3) of the Act. In Ground 1.3 it has been challenged that the finding of the CIT(A) that the assessee also fulfilled the conditions of Part 2(6) of Instruction Number 1076 for selecting case for special audit as there was allegation of tax deviation as the Assessing Officer has received information from the Investigation Wing that the assessee is involved in 2G scam vide remand report of the Assessing Officer dated 18.4.2013 and 2.5.2013 is factually incorrect, legally misconceived and unsustainable. In essence the challenge in each of the above grounds is that the reference for special audit u/s 142(2A) of the Act was illegal and therefore consequently the order of assessment is barred by limitation. 8 The factual matrix emanating from record is that return of income for the instant assessment year was filed on 29.9.2009 declaring an income of Rs. 1334,87,70,381/- u/s 139(1) of the Act. The return of income was selected for scrutiny and various replies were furnished in response to notices/questionnaire issued by Addl. CIT, Range-18, New Delhi. In the notice u/s 142(1) dated 20.10.2011 one of the directions was to produce books of accounts. Accordingly the books of accounts were produced on 28.10.2011 and they were impounded vide order of the same date on the ground that books were voluminous and difficult to understand as no narration of entries were made in the said books of accounts. A show cause notice dated 16.11.2011 was issued requiring the assessee to state as to why having regard to the nature and complexity of accounts and in the interest of revenue, its accounts may not be audited u/s 142(2A) of the Act. The appellant filed replies dated 23.11.2011, 28.11.2011 and 1.12.2011 and subsequently directions u/s 142(2A) of the Act were proposed to be made on account of following reasons: “(i) An MOU was entered between Unitech Ltd., its subsidiaries and TRIL (Tata Realty Infrastructure Ltd.) for purchase of 517 Acre of non- agricultural land situated at village Jharsa, Gurgaon at cost of Rs. 2500 crores. Later on this MOU was revised and according to which Unitech Ltd., its 6 project land owning companies agreed to transfer 100% shareholding in project land measuring to

49.159325 acres by way of sale of 100% paid up share capital of project land owning companies to TRIL at a consideration approx. Rs. 692.04 crore which was reduced to 601.00 crore and also land 49.159325 acres to 44.15 acres. The advance received by the assessee from TRIL was allegedly utilized for giving advance to eight wireless subsidiaries of the Unitech Ltd. The assessee company transferred share of its 6 subsidiaries companies possessing lands to TRIL. Part of shares of these were purchased at cost of par values and other part was purchased at exorbitantly higher price prior to 3-7 days of sale and sold at approximately same consideration. Shares of these 6 companies were purchased by the assessee 3 to 7 days before the transfer of these shares to TRIL. The source of payment in making these purchase were to be correlate with fund of the assessee. It was also to be examined, whether these entries were book- entries and whether any payment was actually been made to subsidiaries. In absence of bank statement in proper form no co- relation could be made. (ii) The assessee company had received Rs. 534 crores form Simpson Unitech Wireless (P). Ltd. through very complicated transactions and apparently it was a consideration for sale of shares of 8 Wireless companies by the assessee to Simpson Unitech Wireless (P). Ltd. What the assessee had received was much more than what had been accounted as income of the assessee. The nature of these transactions was to be ascertained to determine its taxability under the Act. The entire transaction was to be correlated with the fund flow and bank statement of the assessee. Similarly transactions of sale of shares of 8 Wireless Companies to M/s Cestos Unitech Wireless Pvt. Ltd. and Acorus Unitech Wireless Pvt. Ltd. were to be looked into and similar co- relation was to be made. This was necessary in view of the fact that that under similar transactions prices charged by the 8 Wireless Companies was 18 times higher than apparent sale consideration shown by the assessee. iii) Assessee has entered three share purchase agreement: (i) SPA with Unitech Limited, Millennium construction Pvt. Limited and Mirik Developers as confirming party who owned 45.00 Acres of land at Chennai. 100% shares of Mirik Developers and held by Unitech Limited. Millennium construction Pvt. Limited purchases 100% shares holding of Mirik Developers from assessee company along with all assets (moveable and immoveable) and liabilities at a consideration of Rs. 1,97,97,60,693/-. As per clause 3.2 (a) of the agreement, it was mentioned that Rs. 1,82,78,10,657/- is towards purchase price of sale shares @ Rs. 36,556.21 per share. And at clause 3.2 (b) it was stated that a sum of Rs. 15,19,50,036/- is towards the full repayment/ discharge of unsecured loan procured by Mirik Developers from Unitech Limited. Basis of valuation of share at such a high premium was not known and reason for diverting 15 crores to Mirik Developers was also not explained. Assessee had been adjusting the unsecured loan to the sale consideration of shares of Rs 15,19,50,036/-. Such transaction seemed to concealing true gain and true tax liability and as per AO the amount of Rs. 1,97,97,60,693/- should be treated as sale consideration and profit arising from this transaction should be added as share profit and worked out accordingly. Even the A/R was unable to tally/ show the ledger account detailing the above transaction with corresponding bank entries. Similar, issues

were also crept out in other transactions with SPA with Unitech Limited, Advance Techno Solutions Pvt. Limited, Advance Techno Solutions Pvt. Limited and Luzone Developers. iv) Assessee company had purchased 14,04,000 shares (purchased @ Rs. 10/- per share on 05.06.2007) of Gurgaon Technology Parks Limited at a total consideration of Rs. 1,75,50,000/- and shown by- back transaction of the shares. Assessee did not produce original share certificates, stock register/ Investment register showing chronological order of sale and purchases of shares, number and dates of transactions when books accounts requisitioned. v) The assessee group has several hundred subsidiary/ associate companies. The transactions related to land purchased by the assessee company are routed through various group companies in a very intricate and complex manner. The same will have a substantial tax implication which is too complex to work out. Huge advance have been given to M/s Crimson Developers Pvt. Limited, Azors Properties Pvt. Limited, Zanskar Realty Pvt. Limited and M/s Unitech Realty Builders Pvt. Limited. Huge advance given to above subsidiaries and other subsidiaries factors needs thorough investigation and verification. Assessee company has diverted huge interest bearing funds to subsidiary companies as interest free funds in the name of purchase of land/ advances/ investment in shares/ loan etc. which is not a business purpose and out of normal courses of business. vi) The Assessee Company is advancing income generated from real estate business to its subsidiaries free of interest and showing loss amounting to (Rs. 13,17,56,705/-) from main activity of business from real estate in computation of total income, definitely requires elaborate and extensive search of accounting details under section 142(2A) of the I.T. Act 1961 to assist assessment proceedings to vindicate the interest of revenue. vii.) Assessee company has transferred 75% of its shares in 8 Unitech Wireless companies to three subsidiary companies viz. Simpson Unitech Wireless Pvt. Limited, Cestos Unitech Wireless Pvt. Limited and Acorus Unitech Wireless Pvt. Limited at par value of Rs. 10 on 30.01.2009. whereas Telenor Asia Pte (Singapore based company) had purchased share of 8 Unitech Wireless companies at around same time @ Rs. 179/- per share (including 10/ face value and Rs. 169/- as premium). The share consideration amounting to Rs. 1645.65 crores arising out of this transaction have not been offered to tax and has also not been reflected in books of accounts. viii) Waiver of loan amounting to Rs. 19.45 cr.: Assessee has claimed deduction on a/c of waiver of loan amounting to Rs. 19.45cr. Taken from Fortis Investment Management (India) Pvt. Ltd by treating it as capital receipt, there is no clarity in the transaction. Assessee’s reply in respect of waiver of loan amounting to Rs. 19.45 crores is distorted, complex and untenable. ix) Assessee had claimed a deduction u/s 80IB amounting to Rs. 2,95,92,000/- in the year under consideration. Vide this office letter dated 01.08.2001, the assessee was asked to furnish the completion certificate of the project, No. of unites owned by assessee company and No. of units now owned by assessee and list of allottees with name, address and age. In reply to the query of this assessee

filed a reply dated 18.10.11 that the project was still going on during the year under consideration and as such no completion certificate is there during the relevant year. The assessee filed a list of sales made on 31.03.2009, in which requisite information as called for in the questionnaire were not furnished. Further assessee was asked to furnish the actual cost- Excluding land the assessee had not filed the relevant information after repeated requests made by the AO.” 9 The proposal for conducting special audit u/s 142(2A) of the Act was sent to the CIT, Delhi-IV on 5.12.2011. The CIT, Delhi-IV vide his order dated 8.12.2011 granted approval for getting the special audit done u/s 142(2A) of the Act. Vide directions u/s 142(2A) of the Act dated 8.12.2011, it was held that accounts of the appellant were complex and necessary orders were issued for audit of its accounts by an accountant within the meaning of section 288 of the Act. The special audit for A.Y. 2009-10 was conducted by M/s Dass Gupta and Associates, B-4, Gulmohar Park, New Delhi and report thereof was submitted on 4.6.2012. Subsequent to the aforesaid the assessee vide reply dated 27.6.2012 contended before the AO that assessment proceedings are barred by limitation. Reliance was placed on the decision of Jodhpur Bench in the case of Bajrang Textiles v DCIT 83 TTJ 566 affirmed by the Rajasthan High Court in the case of CIT v Bajrang Textiles 205 CTR 97. It was submitted that no directions u/s 142(A) can be made on whims or caprice and, more particularly in absence of any complexity in the books of accounts of the appellant company. It was submitted that the reference made was without jurisdiction in view of the following reasons: a) That there was no “complexity” in the books of accounts of the assessee company; b) That order for special audit was made with a motive to make fishing and roving enquiries and, with an ulterior motive to extend the period of limitation; c) That directions for Special Audit were in complete infraction of Instruction No. 1076, dated 12th July, 1977 issued by CBDT, which provides for the Guidelines for selection of cases for audit under section 142(2A) of the Act; and

13 d) That learned CIT did not apply his mind at all as regards the pre-requisite for grant of prior approval and, mechanically granted the approval for appointment of special auditors.

10 It was contended that the above submission now also finds support from the audit report of learned Special Auditor. It was submitted that, all what has been done is to draw adverse legal inferences on the facts as stated by the assessee company and recorded in the books of accounts of the appellant company. The AO however did not find any merit in the above contentions raised by the appellant company. It has been held that complexity of books of accounts is to be decided by the AO and not by the appellant company. It has been held that release of books of accounts on 16.11.2011 does not warrant any inference that books of accounts were not complex enough to refer to special audit. It has been held that since appellant company has chosen not to challenge the reference u/s 142(2A) in Court, there was no ground to oppose the said reference during the assessment proceedings. Reliance was placed on the judgment in the case of Sahara India Financial Corporation Ltd. v CIT 157 Taxman 279 (Del). It has also been held that order for special audit was not the final order and it was a step towards completion of the assessment proceedings. It has been further held as under: “I have perused the objection of the assessee company and found no merits in same due to the following reasons: That the prescribed form on which report u/s 142(2A) of the Income Tax Act’ 1961 has to be furnished is only in Form 6B and no other format on which auditor is required to give his report as per Rule 14A of the I.T. rules 1962 which states as under:

“The report of audit of the accounts of an assessee which is required to be furnished under sub-section (2A) of section 142 shall be in Form No. 6B.” As per content of Form 6B of the Income Tax Rules, 1962 the Special Auditor has to confirm the followings: a) Whether balance sheet and profit and loss accounts for the year under consideration are in agreements with the books of accounts maintained by the assessee company; b) Apart from this the auditor has to obtain all information and explanation as are necessary for the purpose of audit and verify as to whether the said accounts reflects a true and fair view of the state of affairs of the assessee and reflects true and correct profits/loss of the company alongwith the particulars desired in Annexure to Form 6B and such other particulars as to Assessing Officer may desire in addition to the above. Hence the legislation has given vast power to the special auditor to examine all aspects having bearing on profit and loss account and balance sheet so as to enable him to form his opinion whether the profit and loss account and balance sheet give a true and fair view or not. The under signed cannot curtail the power of special auditor which has been given by the legislation. In view of the above it cannot be interpreted that the special auditor could not report deficiencies of books of acocutns and other matters having bearing on profit and loss account and balance sheet other than what is referred to him while reporting in resonse to special audit on reference u/s 142(2A) of the I.T. Act, 1962. It has also been held in the case of Rajesh Kumar, Prop. Surya Trading vs. Dy. CIT (2005) 275 ITR 641 (Del) that the expression ‘accounts of the assessee’ covers not only the books of account of the assessee but also other documents which are available in the course of an assessment and at any stage subsequent thereto, that may become available to the Assessing Officer.”

11 On appeal, the contention was again rejected by the CIT(A) on following basis; “I have considered the order of the AO and the submissions of the assessee and I do not find any merit in the submissions of the assessee. The assessee had raised the similar issues before the AO during the course of assessment proceedings and AO had clarified all the facts and circumstances vide the order of the AO. The AO has clearly mentioned in the order the various complexities involved in this case. AO has also mentioned in the order that the audit report was received on 4.6.2012 and the assessment has been completed with the time limit of 60 days on 1.8.2012 as provided u/s 153 read with Explanation 1. The assessee also fulfilled the conditions of para 2(VI) of Instruction No. 1076 for selecting the case for special audit as there were allegations of tax evasion as the AO has received information from the investigation wing that the assessee was involved in 2G scam vide the remand reports of the AO dated 18.4.2013 and 2.5.2013.

15 4.4 After considering all the facts and circumstances of the case I am of the view that there is no merit in the appeal of the assessee against the proceedings of special audit u/s 142(2A) in this case as the AO had given sufficient time and opportunity to the assessee and the assessment has been also completed within time as provided u/s 153 vide the order of the AO and accordingly the action of the AO is confirmed.”

12 Before us the learned counsel for the assessee submitted that according to section 153(1) of the Act, limitation period for framing an assessment is 21 months from the end of the relevant assessment year and, since the instant assessment is for assessment year 2009-10, the limitation date u/s 153(1) of the Act expired on 31.12.2011. It was submitted that 23 days prior thereto i.e. 8.12.2011, the directions were given for special audit u/s 142(2A) of the Act. It was submitted that the directions for special audit without satisfying the statutory provisions in section 142(2A) of the Act were with an attempt to extend the period of limitation and therefore the impugned order of assessment is barred by limitation. It was submitted that during the assessment proceedings the appellant regularly filed from time to time various replies on various dates and on 28.10.2011 the appellant also produced the books of accounts which were impounded holding that the accounts are voluminous and difficult to understand. It was submitted that a show cause notice dated 16.11.2011 was issued to the appellant whereby the learned AO asked the appellant to submit reply as to why the books of accounts should not be audited u/s 142(2A) of the Act and the appellant filed his detailed reply on 23.11.2011. It was further submitted that subsequently the learned AO sent proposal to CIT, Delhi-V for conduct of special audit which was approved on 8.12.2011 and on the same date special auditor was appointed to

16 conduct audit of appellant’s books of account. It was submitted that the aforesaid directions were not satisfying the statutory precondition as: a) the appellant has been maintaining the accounts in the same manner year after year; b) the department has not found the same to be complex in the earlier year even though scrutiny assessments made; c) the appellant carried on the same business activity and maintained the accounts in the exactly similar manner in the current year as it had maintained in the earlier year; d) the financial statements of Appellant Company for the subject year have been duly audited by the statutory auditors after verification of the books of account and other relevant documents maintained by the Company; and e) perusal of the notice issued for special audit would show that there is no complexity in the accounts of the assessee. 13 The learned counsel in support of the above submission further submitted that in the instant year, percentage of expenses claimed is the lowest and the profit declared in the instant year is the highest. A chart furnished in support of the above is as under: Sr. Financial Sales Total Profit Job & No. year expenses Construction i) 2004-05 18.05 15.50 2.46 13.96 (85.82%) (14.18%) (77.34%) ii) 2005-06 18.65 16.12 2.52 14.31 (86.47%) (13.53%) (76.72%) iii) 2006-07 16.35 15.20 1.16 12.77 (92.88%) (7.12%) (78.09%) iv) 2007-08 39.12 34.73 4.38 31.06 (88.78%) (11.22%) (79.40%) v) 2008-09 57.73 46.45 11.28 40.48 (80.46%) (19.54%) (70.13%)

14 It was submitted that financial statements of appellant company for the impugned assessment year have been duly audited by the statutory auditors after verification of the books of account and other relevant documents maintained by the company and there is no adverse remark/finding of the statutory auditors with respect to the books of account of the company or transaction entered into by company. It was submitted that the appellant company is maintaining its books of accounts in the same manner year after year in the past years also the appellant also the appellant had prepared its books of accounts in the same manner, on which basis the assessing officer has passed the assessment orders and since there is no change in accounting method and since the profit declared in the instant year is the highest, the question of complexity does not arise in the impugned assessment year and thus, there was no need for special audit under section 142(2A) of the Act. In the written submission it was submitted as under: “16 Therefore, in view of the aforesaid principles laid down by the Indian judiciary with respect to the conduct of special audit under section 142(2A), it is humbly submitted that an order under section 142(2A) cannot be passed arbitrarily merely because Assessing Officer finds some difficulty in understanding the accounts of a particular assessee. There has to be genuine and honest attempt on the part of the Assessing Officer to understand accounts maintained by the assessee and obtain necessary explanations from the assessee, wherever required. The Assessing Officer, after duly considering the accounts of the assessee and the explanations offered by the assessee, should come to a conclusion that the accounts of the assessee are complex and thus, require special audit in the interest of revenue. 16.1 In the instant case, there is no complexity in the books of account of the Appellant Company, which have been prepared in accordance with the accepted accounting principles. The aforesaid accounts have also been audited by the statutory auditors of Appellant Company and there has been no adverse remark/inference from the statutory auditors in this regard. Further, as stated earlier, all the income/expenses reporter therein are normal income/expenses earned/incurred by any person carrying on similar business activities and thus, the accounts of Appellant Company cannot be said to be complex merely on account of such income/expense heads. Therefore, since there is no complexity in the accounts of Appellant Company conduct of special audit in the instant case would be unwarranted and unjustified. 16.2 In view of the above it is submitted that the Ld. AO made the proposal mechanically and, for abdicating the responsibility by directing the purported enquiries to be made, which ideally should have been done by herself. It is thus submitted that, show cause notice has been issued with a premeditated and predetermined opinion to direct the assessee to get is accounts audited u/s

142(2A) of the Act and thereby extend the period of limitation and as such, notice is issued only for collateral purposes. 16.3 Finally the appellant would like to submit that said appointment of special auditor is mere pretence so as to circumvent the period of limitation, particularly after finding that, assessee has furnished all replies to your questionnaire and, directions and also produced books of accounts. In fact all what has happened is that, after having received and, examined all relevant information/evidence including books of accounts over a period of 15 months running into at least 30 replies supported by enclosures and, forming an opinion in respect of disallowances/ additions proposed to the returned income when referring it to a Special Auditor. It is submitted that, such books of accounts have duly been examined and verified and during the course of discussion either no explanation was sought or any adverse comments were made, since there was no complexity noted in the accounts maintained. 16.4 It is thus submitted that, reference made was without jurisdiction in view of the following reasons. a) There was no "complexity" in the books of accounts of the appellant company. b) The appellant has not changed it's method of accounting and following the same method from many years. c) The order for special audit was made with a motive to make fishing and roving enquires and with an ulterior motive to extend the period of limitation. 16.5 The appellant also submits that the maximum period for receiving the report of the special auditor would not be material while interpreting the above proviso as legislature has given the extended period of 60 days for completing the assessment only in exceptional circumstances and not to extend the period of limitation in the garb of making references at the fag end of the assessment which itself provides the outer limit of receiving the information that the ld. AO ought to make efforts to receive such report within period of limitation and not wait for the report to count the period of limitation from the date of receipt thereof. 16.6 Accordingly, it is prayed that assessment may kindly be quashed/annulled in view of the above submission.” 15 It was emphasized that order passed for special audit u/s 142(2A) of the Act (at page 436 of Paper book) is a cryptic and non speaking order and no specific instance of complexity with regard to books of accounts to be pointed out in the said order. It was submitted that replies and explanations as tendered by assessee has not been discussed at all in the order u/s 142(2A) of the Act. It was further submitted that the opinion required to be formed by the Assessing Officer for exercise of power under the provisions of section 142(2A) of the Act must be based on objective criteria and not on the basis of subjective satisfaction. It was

submitted that no opportunity was granted before invoking the provisions of section u/s 142(2A) of the Act. The AR placed reliance on case laws under the following propositions: “Proposition 1: Non speaking order u/s 142(2A) of the Act is an order vitiated in the eyes of law and thus, deserves to be quashed i) Hind Samachar Ltd. v ACIT 335 ITR 277 (P&H) ii) Prateek Resorts & Builders (P) Ltd. v ACIT 199 Taxman 140 (Mag) Proposition 2: Order passed without recording reasons is unsustainable, since recording of reason is meant to serve the under principle, that justice must not only be done but it must also appear to have been done i) Bal Kishan Dhawan (HUF) v UOI 366 ITR 639 (P&H) ii) Kranti Associates (P) Ltd. v Masood Ahmed Khan (2010) 9 SCC 496 (SC) Proposition 3: Order u/s 142(2A) without giving an opportunity of being heard is invalid order, since detailed replies submitted by assessee were not considered as not further enquiries or explanations were sought for. Part – I; Section 142(2A) i) Kaka Carpets v ACIT 224 Taxman 335 (All) ii) Isolux Corsan India Engineering & Construction (P) Ltd. v DCIT 52 taxmann.com 400 iii) CIT v Subboji Rao Ch. 355 ITR 320 (Kar) Part – II; Others i) Marc Bathing Luxuries Ltd. v ITSC 364 ITR 64 (Del) Proposition 4: Approval u/s 142(2A) by CIT should reflect application of mind and should not be mechanical i) Kaka Carpets v ACIT 224 Taxman 335 (All) Proposition 5: Validity of an order u/s 142(2A) can be challenged before the Hon’ble Tribunal and once such reference is found to be invalid than the order of assessment is barred by limitation i) Sahara India (Firm) vs. CIT 300 ITR 403 (SC) Bajrang Textiles v DCIT 83 TTJ 566 approved by Hon’ble Rajasthan High ii) Court in the case of CIT v Bajrang Textiles 294 ITR 561 iii) CIT v Vijay Kumar Rajendra Kumar & Co. 271 ITR 337 (MP) iv) CIT v Subboji Rao Ch. 355 ITR 320 (Kar) Proposition 6: Approval granted by CIT is mechanical approval and is without application of mind and therefore, order u/s 142(2A) is unsustainable i) Signature Hotels (P) Ltd. v ITO 338 ITR 51 (Del) ii) United Electricals Co. (P) Ltd. v CIT 258 ITR 317 (Del) Sahara India (Firm) vs. CIT 300 ITR 403 (SC”) iii) 16 The learned special counsel Shri Dilip Shivpuri for the revenue on the other hand contended that submissions of the appellant are not maintainable. It was contended that order u/s 142(2A) of the Act was not an appealable order and therefore any submission to the effect that order u/s 142(2A) is an invalid order in

20 the instant proceedings is not tenable. The judgment of Hon'ble Supreme Court in the case of Rajesh Kumar and Ors. Vs. DCIT 287 ITR 91(SC) was cited in support of the above submission. It was submitted that the appellant having not challenged the order u/s 142(2A) of the Act in an appropriate proceedings was therefore precluded for raising such a plea in the instant proceedings. It was submitted that period of limitation stood extended by 180 days in terms of section 142(2C) read with section 142(2A) and section 153 of the Act. Apart from the above it was submitted that even in the argument of the assessee there are no reasons that the order u/s 142(2A) is incorrect. He also made reference to proposal sent by the AO to CIT seeking approval for special audit and approval by CIT along with reasons for according approval for special audit u/s 142(2A) of the Act. It was further submitted that the contention of the assessee that no opportunity of being heard was granted is also contrary to record as both AO and CIT had granted necessary and adequate opportunity during the assessment proceedings. Reliance was placed on the judgments of Hon’ble Delhi High Court in the case of AT&T Communication Services India (P) Ltd. v CIT 362 ITR 97 (Del.) and DLF Ltd. and Another v Addl CIT 366 ITR 390 (Del.). The learned counsel also made reference to the E-Book on Principles of Natural Justice. 17 In rejoinder submission the learned counsel for the assessee submitted that ITAT is duly competent to look into the aspect whether special audit u/s 142(2A) of the Act was being ordered correctly or not and on this proposition the learned counsel relied on the judgments in the cases of Sahara India Firm v CIT 300 ITR 403 (SC), CIT v Vijay Kumar Rajendra Kumar & Co. 271 ITR 57 (MP) and Bajrang Textiles v DCIT 83 TTJ 566 (Jodhpur) duly affirmed in 294 ITR 561 (Raj). It was submitted that order passed for special audit u/s 142(2A) of the Act should be a speaking order specifying the reasons for special audit i.e. satisfaction of AO should by objective and not subjective. He placed reliance on the judgments in the case of Prateek Resorts & Builders (P) Ltd. 199 Taxman 140 (Mag)(All) and Hind Samachar Ltd. v ACIT 335 ITR 227 (P&H). It was thus prayed that reference for special audit was done to overcome the period of limitation and

21 since, said reference was without jurisdiction and therefore, impugned proceedings are barred by limitation. 18 We have considered the arguments advanced by both the parties, perused the records of the case, and have gone through the case laws cited before us. The issue raised and agitated in the grounds is that the order of assessment dated 1.8.2012 u/s 143(3) of the Act is barred by limitation. Chapter XIV deals with procedure for assessment. Under the said Chapter, section 153 provides for time limit for completion of assessment and reassessments. Sub-Section (1) of Section 153 of the Act provides as under: “153 (1) No order of assessment shall be made under section 143 r section 144 at any time after the expiry of a) two years from the end of the assessment year in which the income was first assessable; or b) one year from the end of the financial year in which a return or a revised return relating to the assessment year, is filed under sub section (4) or sub-section (5) of section 139 whichever is later:] Provided that in case the assessment year in which the income was first assessable is the assessment year commencing [on or after the 1st day of April 2004 b ut before the Ist day of April, 2010], the provisions of clause (a) shall have effect as if for the words “two years”, the words “twenty-one months” had been substituted:] 19 From the reading of the aforesaid section it is noted that no order of assessment shall be made u/s 143(3) or section 144 at any time after the expiry of two years from the end of the assessment year in which the income was first assessable. However proviso to the said sub section mandates that in case the assessment year in which the income was first assessable is the assessment year commencing on or after 1st day of April 2004 but before 1st day of April 2010 no order of assessment shall be made u/s 143(3) of the Act or section 144 at any time after the expiry of 21 months from the end of the assessment year in which the income was first assessable. In the instant appeal the assessment in the year under consideration is assessment year 2009-10 and therefore the time limit for completion of assessment is 21 months from the end of the assessment year in view of the specific provisions contained in section 153(1) of the Act read with proviso to the said section. Accordingly, the limitation for framing an order of assessment under

22 the aforesaid provison for the instant assessment year is 31.12.2011; whereas the instant assessment has been made on 1.8.2012. The learned counsel for the assessee contends that the limitation expired on 31.12.2011 and hence the impugned order of assessment is barred by limitation. On the other hand the learned counsel for the revenue opposes the submission of the appellant company on the ground that period of limitation stood extended in view of the directions for special audit u/s 142(2A) of the Act. Our attention has been drawn to clause (iii) of the Explanation 1 to Section 153(4) of the Act read with proviso to the aforesaid Explanation which mandates as under: “Explanation 1-In computing the period of limitation for the purposes of this section- (iii) the period commencing from the date on which the Assessing officer directs the assessee to get his accounts audited under sub-section (2A) of section 142 and ending with the last date on which the assessee is required to furnish a report of such audit under that sub section or Shall be excluded Provided that where immediately after the exclusion of the aforesaid time or period, the period of limitation referred to in sub-section (1), [(1A), (1B)] [(2)], (2A), and (4) available to the Assessing officer for making an order of assessment, reassessment or recomputation, as the case may be is less than sixty days, such remaining period shall be extended to sixty days and the aforesaid period of limitation shall be deemed to be extended accordingly:]” 20 A perusal of the aforesaid clause (iii) to Explanation 1 shows that in computing the period of limitation the period commencing from the date on which the AO directs the assessee to get his accounts audited under sub-section (2A) of section 142 and ending with the last date on which the assessee is required to furnish a report of such audit under that sub-section or shall be excluded. Further proviso provides that where immediately after the exclusion of the aforesaid time or period, the period of limitation referred to in sub sections (1), [(1A), (1B)] [(2)], (2A), and (4) available to the Assessing officer for making an order of assessment, is less than sixty days, such remaining period shall be extended to sixty days. The revenue has submitted that in the instant case it is a matter of record that on 9.12.2011 directions were issued by the Addl. CIT, Range-18, New Delhi to the appellant to get the accounts audited u/s 142(2A) of the Act and furnish a report of such audit in the prescribed proforma within a period of 120

23 days from the date of receipt of directions. Thereafter, it is also a matter of record that in pursuance to an application dated 19.3.2012 by the appellant the period to furnish the report u/s 142(2A) of the Act was extended for 60 days from the earlier time allowed upto 7.4.2012 (120 days from 9.12.2011) i.e. to 6.6.2012. Accordingly the special audit report was submitted by the appellant vide letter dated 4.6.2012 u/s 142(2A) of the Act. According to the revenue in computing the period of limitation the period commencing from 9.12.2011 i.e. the date on which the Assessing officer directed under sub-section (2A) of section 142 and till 6.6.2012 i.e. ending with the last date on which the assessee is required to furnish a report of such audit under that sub-section had to be excluded in terms of clause (iii) to Explanation 1 of section 153(4) of the Act. It was further submitted that since after the exclusion of the aforesaid period remaining period is less than sixty days, such remaining period shall be extended to sixty days and the aforesaid period of limitation shall be deemed to be extended by 60 days i.e. 6.6.2012 to 5.8.2012 and since the impugned order of assessment is dated 1.8.2012 therefore the order of assessment is not barred by limitation. The learned counsel of the assessee on the other hand opposes the aforesaid submission by contending that directions u/s 142(2A) were without jurisdiction and therefore such directions could not be a ground to extend the period of limitation. 21 The preliminary submission of the revenue viz-a-viz the aforesaid prayer of the appellant is that there can be no challenge to the directions u/s 142(2A) of the Act in this appeal and as such contention of the appellant company is misconceived. 22 To appreciate the above contention we seeks to notice the statutory provision contained in section 142(2A) of the Act. Section 142(2A) of the Act, as is relevant to the year under consideration, reads as under: “[(2A) If any stage of the proceedings before him, the [Assessing]; Officer having regard to the nature and complexity of the accounts of the assessee and the interest of the revenue, is of the opinion that it is necessary so to d, he may, with the previous approval of the [Principal Chief Commissioner or] Chief Commissioner or [Principal Commissioner of] Commissioner], direct the asessee 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

or] 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] (2B) (2B) The provisions of sub-section (2A) shall have effect notwithstanding that the accounts of the assessee have been audited under any other law for the time being in force or otherwise. (2C) Every report under sub-section (2A) shall be furnished by the assessee to the [Assessing] Officer within such period as may be specified by the [Assessing] Officer : Provided that the [Assessing] Officer may, [suo motu, or] on an application made in this behalf by the assessee and for any good and sufficient reason, extend the said period by such further period or periods as he thinks fit; so, however, that the aggregate of the period originally fixed and the period or periods so extended shall not, in any case, exceed one hundred and eighty days from the date on which the direction under sub-section (2A) is received by the assessee. (2D) The expenses of, and incidental to, any audit under sub-section (2A) (including the remuneration of the accountant) shall be determined by the [Principal Chief Commissioner or] Chief Commissioner or 6[Principal Commissioner or] Commissioner] (which determination shall be final) and paid by the assessee and in default of such payment, shall be recoverable from the assessee in the manner provided in Chapter XVII-D for the recovery of arrears of tax :] [Provided that where any direction for audit under sub-section (2A) is issued by the Assessing Officer on or after the 1st day of June, 2007, the expenses of, and incidental to, such audit (including the remuneration of the Accountant) shall be determined by the 6[Principal Chief Commissioner or] Chief Commissioner or 6[Principal Commissioner or] Commissioner in accordance with such guidelines as may be prescribed8 and the expenses so determined shall be paid by the Central Government.] (3) The assessee shall, except where the assessment is made under section 144, be given an opportunity of being heard in respect of any material gathered on the basis of any inquiry under sub-section (2) [or any audit under sub-section (2A)] and proposed to be utilized for the purposes of the assessment.” 23 The aforesaid provision was subject matter of consideration in a judgment of three judges Bench of Hon’ble Supreme Court in the case of Sahara India (Firm) (supra). In that case the matter was placed before Bench in view of a common order dated 14.12.2006 passed by a two judges Bench to examine whether it is necessary to afford an opportunity of hearing to an assessee

25 before ordering special audit in terms of section 142(2A) of the Act in view of the earlier judgment of Hon'ble Supreme Court in the case of Rajesh Kumar and Ors. vs. DCIT (supra). Their Lordships noted that in the case of Rajesh Kumar and Ors. vs. DCIT it has been held that principles of natural justice must be held to be implicit in section 142(2A) of the Act. It was noted that in the aforesaid judgment it was held as under: "The hearing given, however, need not be elaborate. The notice issued may only contain briefly the issues which the Assessing Officer thinks to be necessary. The reasons assigned therefor need not be detailed ones. But, that would not mean that the principles of natural justice are not required to be complied with. Only because certain consequences would ensue if the principles of natural justice are required to be complied with, the same by itself would not mean that the court would not insist on complying with the fundamental principles of law. If the principles of natural justice are to be excluded, the Parliament could have said so expressly."[Underlined by us) 24 Having regard to the above, Their Lordships interpreted section 142(2A) of the Act to conclude that the twin conditions of “nature and complexity of the accounts” and “the interests of the revenue” are the pre-requisites for exercise of power under section 142(2A) of the Act. It was held that the word “complexity” used in section 142(2A) is not “defined” or “explained” in the Act and therefore approving the interpretation of the Hon’ble Allahabad High Court in the case of Swadeshi Cotton Mills Co. Ltd. vs. CIT 171 ITR 634 (All.), it was held that dictionary meaning of complex is “The state or quality of being intricate or complex or that is difficulty to understand. However all that is difficult to understand should not be regarded as complex. What is complex to one, may be simple to another. It depends upon one’s level of understanding or comprehension. Sometimes, what appears to be complex on the face of it, may not be really so if one tries to understand it carefully”. It was further held that before dubbing the accounts to be complex or difficult to understand, there has to be a genuine and honest attempt on the part of the AO to understand accounts maintained by the assessee; appreciate the entries made therein and in the event of any doubt, seek explanation from the assessee. It was further held that opinion required to be formed by the AO for exercise of power under the said provision

26 must be based on objective criteria and not on the basis of subjective satisfaction. It was specifically observed that recourse to the said provision cannot be had by the AO merely to shift his responsibility of scrutinizing the accounts of an assessee and pass on the buck to the special auditor. In regard to the approval of CIT it was held that such an approval is an inbuilt protection and is not an empty ritual. It was thus observed before granting approval the Chief Commissioner or the Commissioner, as the case may be, must have before him the material on the basis whereof an opinion in this behalf has been formed by the AO and the approval must reflect the application of mind to the facts of the case. Thereafter the question whether the principles of natural justice demand that an opportunity of hearing should be afforded to an assessee before an order under section 142(2A) of the Act was examined. Their Lordships concurring with the decision in Rajesh Kumar (supra) held that an order under section 142(2A) does entail civil consequences and therefore the rule of audi alteram partem is required to be observed. It was concluded with regard to the question posed as under: “24. The upshot of the entire discussion is that the exercise of power under section 142(2A) of the Act leads to serious civil consequences and, therefore, even in the absence of express provision for affording an opportunity of pre-decisional hearing to an assessee and in the absence of any express provision in section 142(2A) barring the giving of reasonable opportunity to an assessee, the requirement of observance of principles of natural justice is to be read into the said provision. Accordingly, we reiterate the view expressed in Rajesh Kumar’s case (supra). 25. It is pertinent to note that by the Finance Act, 2007, a proviso to sub-section (2A) has been inserted with effect from 1-6-2007, which provides that no direction for special audit shall be issued without affording a reasonable opportunity of hearing to the assessee.” 25 Thereafter on application of the legal position to the facts their Lordships concluded that the order dated 14.3.2006 u/s 142(2A) of the Act was vitiated as neither AO had occasion to have a glimpse of the accounts and nor any show cause notice was issued to the assessee and thus the same did not satisfy the principle of audi alteram partem. Concluding the above discussion, it was held as under:

“28. The next crucial question is that keeping in view the fact that the time to frame fresh assessment for the relevant assessment year by ignoring the extended period of limitation in terms of Explanation 1( iii) to sub-section (3) of section 153 of the Act is already over, what appropriate order should be passed. As noted above, the learned Additional Solicitor General had pleaded that if we were not inclined to agree with him, the interpretation of the provision by us may be given prospective effect, otherwise the interest of the revenue will be greatly prejudiced. 29. There is no denying the fact that the law on the subject was in a flux in the sense that till the judgment in Rajesh Kumar’s case (supra) was rendered, there was divergence of opinion amongst various High Courts. Additionally, even after the said judgment, another two-Judge Bench of this Court had expressed reservation about its correctness. Having regard to all these peculiar circumstances and the fact that on 14-12-2006, this Court had declined to stay the assessment proceedings, we are of the opinion that this Court should be loathe to quash the impugned orders. Accordingly, we hold that the law on the subject, clarified by us, will apply prospectively and it will not be open to the appellants to urge before the Appellate Authority that the extended period of limitation under Explanation 1(iii ) to section 153(3) of the Act was not available to the Assessing Officer because of an invalid order under section 142(2A) of the Act. However, it will be open to the appellants to question before the appellate authority, if so advised, the correctness of the material gathered on the basis of the audit report submitted under sub-section (2A) of section 142 of the Act. 30. In the result, both the appeals are allowed to the extent indicated above leaving the parties to bear their own costs.” 26 A reading of the aforesaid makes it apparent that Their Lordships agreed with the submission of the learned Additional Solicitor General that interpretation be given prospective effect as otherwise the interest of revenue will be greatly prejudiced because the time to frame fresh assessment for the relevant assessment year by ignoring the extended period of limitation in terms of Explanation 1(iii) to sub-section (3) of section 153 of the Act was already over. It was thus directed that petitioners will not be entitled to urge before the appellate authorities that the extended period of limitation under Explanation 1(iii) to section 153(3) of the Act was not available to the Assessing Officer because of an invalid order u/s 142(2A) of the Act. It has been specifically clarified that it will be open to the appellants to question before the appellate authority, if so advised, the correctness of the material gathered on the basis of the audit report submitted under sub-section (2A) of section 142 of the Act.

27 In other words it is quite apparent that the challenge to the validity of the orders u/s 142(2A) of the Act is maintainable before the appellate authority and it is opened to the appellant to urge before any appellate authority that the extended period of limitation is not maintainable because of an invalid order u/s 142(2A) of the Act. The above view finds support also from the judgment of Hon’ble Karnataka High Court in the case of CIT v Subboji Rao C.H (supra). In the said case the Tribunal held that there was no complexity in accounts requiring an audit u/s 142(A) of the Act and the same had been taken to avail of further time to complete the assessment, the assessment was hopelessly barred by limitation. On appeal by the revenue, the decision of ITAT was upheld by observing as under: “6. The Apex Court in the case of Rajesh Kumar v. Dy. CIT [2006] 157 Taxman 168 (SC) held that the assessee suffers civil consequences, as a result of an order under Section1 42(2A) of the Act and the same is prejudicial to him and therefore the principles of natural justice must be held to be implicit in the provisions of Section 142(2A) of the Act and an opportunity of hearing has to be given before issuing a direction under Section 142(2A) of the Act. When the matter was referred to a larger Bench of the Supreme Court, the larger Bench upheld the aforesaid judgment in Rajesh Kumar's case. However, in the meanwhile, the legislature amended Section 142(2A) of the Act by expressly providing for such an opportunity being given before an order is passed, which of course held prospective. A resultant position is expressed the provisions in the statute. The Supreme Court has ruled that the principles of natural justice has to be followed as it is not expressly excluded. Now the law has been amended expressly providing for an opportunity The position continues to be the same. In that view of the matter, admittedly, in the instant case, the assessee was not heard before the order passed under Section 142(2A) of the Act. As rightly held by the Tribunal that, such a procedure was resorted to extend the period of limitation. Therefore viewed from any angle, the assessment order passed is void as being barred by limitation and the, Tribunal was justified in setting aside the order of the Appellate Authority”.[underlined by us] 28 Further even in the case of CIT v Vijay Kumar Rajendra Kumar and Co. (MP) (supra), the ITAT quashed direction u/s 142(2A) of the Act since no opportunity of hearing was afforded to the assessee before issuing the direction for getting the audit done and since the accounts did not involve any complexity and held therefore the assessment made is barred by limitation. However though the Hon’ble High Court reversed the decision of Tribunal on the ground that the direction u/s 142(2A) of the Act was legal, proper and valid and legally

sustainable and therefore the order of assessment within the period of limitation but hereto it was neither challenged nor disputed that validly of directions cannot be challenged before the appellate authority so as to contend the assessment order is barred by limitation. 29 Similar view was expressed by Jodhpur Bench in the case of Bajrang Textiles v DCIT (supra). It was concluded in the said decision that accounts were not complex as required u/s 142(2A) of the Act and reference has been made with a sole motive to enhance the limit for making of the assessment. It was thus concluded reference made by the AO for special audit is without proper jurisdiction and assessment so made is barred by limitation. The aforesaid decision stands affirmed by the Rajahstan High Court in the case of CTT v Bajrang Textiles (supra) wherein it has been observed as under: “The Tribunal after taking into consideration the record of proceedings and material on record has come to the conclusion that reference to the special audit under section 142(2A) of the Income-tax Act in the circumstances was not for the purpose for which the provision was enacted but merely for getting the extended period for completing assessment, which is not permissible under law. On the basis of this finding, the reference to the special audit was held to be illegal and consequently, the assessment order was held to be barred by time. There is no dispute about it that if the period reckoned for special audit which was directed to be conducted a day before the expiry of period of completing the block assessment, is not taken into account, the assessment order is clearly barred by time. The Tribunal found that merely because accounts and documents were voluminous, it is not taken to assume complexity so as to invoke the provisions of section 142(2A) of the Income-tax Act as a matter of course. The Tribunal also noticed that the Assessing Officer has not merely referred the accounts to be audited under special audit by an auditor named by him, but he has directed the special auditor to prepare the books of account in the form of cash book, ledger, on the basis of documents/papers seized during the course of search as per his directions. The auditor was also required to prepare trading, profit and loss account, which were recorded in the regular books of account and further to determine the undisclosed income of the block period. Apparently the order was for preparing fresh books rather than to conduct a special audit. This was on the face of it beyond the scope of provisions of section 142(2A) of the Income-tax Act. No authority has been given to the Assessing Officer to direct the preparation of fresh books by referring the matter to an auditor under special audit. Audit is for the purpose of satisfying one about authenticity and credibility of accounts prepared by the assessee but not for preparing new account books as per directions of Assessing Officers. Apparently,

the Tribunal found that it was abuse of process by the Assessing Officer. The findings given by the Tribunal are findings of fact based upon the relevant material.” 30 Having regard to the above discussion we have no doubt in our mind that the contention raised by the appellant is maintainable in this appeal. In otherwords, the appellants are entitled to urge, argue and plead that order of assessment is barred by limitation on the ground that direction u/s 142(2A) of the Act were invalid and not legally sustainable. 31 Having held so, we now examine the validity of the direction issued u/s 142(2A) of the Act. In the instant case, directions dated 9.12.2011 signed by Addl. Commissioner of Income Tax, Range-18, New Delhi read as under: “F. No. Addl. CIT R-18/Spl.Audit-Unitech Ltgd.,11-12/1093 Dated: 9.12.2011 To, M/s Unitech Ltd. 6, Community Centre, Saket, New Delhi Subject: Special Audit u/s 142(2A) of the I.T. Act 1961 in the case of M/s Unitech Limited. A.Y 2009-10-regarding Sir, Please refer to the subject cited above Having regard to the nature and complexity of your accounts and interest of the revenue and being of the opinion, it is necessary so to do I hereby direct you to get your accounts audited u/s 142(2A) of the Income Tax Act 1961 for f.Y. 2008-09 pertaining to A.y. 2009-10 by M/s Dass Gupta and Associates, B-4, Gulmohar Park, New Delhi and to furnish a report on such audit in the prescribed performa duly signed and verified by the CA. The audit report u/s 142(2A) should be furnished by you to the undersigned within a period of 120 days from the date of receipt of this direction. This direction u/s 142(2A) is issued with the prior approval of Commissionier of Income Tax, Delhi-VI, New Delhi vide letter F.No. CIT/Delhi-VI/Spl..Audit/2011- 12/2233 dated 9.12.2011 Yours faithfully (Addl. Commissioner of Income Tax Range-18, New Delhi Copy to: 1 The Commissioner of Income Tax, Delhi-VI, New Delhi 2 M/s Dass Gupta and Associates, B-4, Gulmohar Park, New Delhi with a direction to carry out the audit as per the terms of reference attached herewith.

Yours faithfully (Addl. Commissioner of Income Tax Range-18, New Delhi” 32 It is not denied and disputed that the aforesaid directions is the only document communicated to the assessee u/s 142(2A) of the Act. According to the appellant the aforesaid direction is an order without recording reasons and therefore is a non speaking order u/s 142(2A) of the Act vitiated in the eyes of law and thus, deserves to be quashed. 33 The Hon’ble Punjab and Haryana High court in the case of Hind Samachar Ltd. (supra) testing the aforesaid plea held that order u/s 142(2A) of the Act must show consideration of legal requirements and reasons on which the opinion may have been formed for directing special audit. It was held that though grant of approval by the Commissioner has been mentioned, it has not been mentioned as to why it was considered necessary having regard to nature and complexity of accounts and interest of the revenue that special audit was necessary. It was concluded that once reasons are conspicuous by their absence in the impugned order u/s 142(2A) of the Act, the same does not meet the requirements of law. In the said case, the Hon’ble Court held that subsequent production of file containing a letter written to the Commissioner giving reasons for necessity of special audit and defect in the accounts found during the course of special audit for the preceding assessment years 2003-04 to 2006-07 does not mitigate the requirement of speaking order u/s 142(2A) of the Act. 34 Also the Hon’ble Allahabad High Court in the case of Prateek Resorts & Builders (P) Ltd. v. DCIT (supra) following the judgment of Hon'ble Supreme Court in the case of Sahara India (Firm) v CIT has held as under: “6.2 In view of the above, it is clear that for the issue of direction for audit under section 142(2)(a) there should be application of mind and objective satisfaction on the basis of material. The application of mind and objective satisfaction can only be examined when order reflects so by recording the reasoning. 7. The order is subject to scrutiny under Articles 136 and 226 of the Constitution. The order as such must be a speaking order, and the decision given must be

supported by reasons, so that the superior Court is assured that it is in accordance with law and is not a result of caprice, whim, fancy, or reached on the basis of policy or expediency. Absence of reasons vitiates the conclusions. (See Mahabir Prasad Santosh Kumar v. State of U.P. AIR 1970 SC 1302; Travancore Rayons Ltd. v. Union of India AIR 1971 SC 862. In the Travancore Rayons case the order passed by the Government of India ran as under :— "Government of India have carefully considered the points made by the applicants, but see no justification for interfering with the order under appeal" 8. The order was struck down on the ground that reasons for rejecting the points in appeal had not been disclosed in Bhagat Raja v. Union of India AIR 1967 SC 1606 the Supreme Court deprecated the practice of one word order of the type "rejected" or "dismissed". Similarly, in case of Dhondi Ba Gundu Proma Je v. State of MaharashtraAIR 1976 SC 1151, the High Court had dismissed a criminal appeal summarily under section 421 of the Code of Criminal Procedure by one word order "dismissed", it was held that some reasons should have been given by the High Court why no arguable case was made out on a perusal of the record. There is a vital difference between the conclusions and reasons. Reasons are the links between the material on which conclusions are based. The actual conclusion should disclose how the mind is applied to the subject matter for a decision, and should reveal a rational nexus between the facts considered and the conclusion reached See Union of India v. M.L. Capoor AIR 1974 SC 87 on p. 98. 9. Therefore, we are of the view that reasons must be recorded in the order to show that there is application of mind on the part of the officer concerned on the basis of the material available on record and in the absence of reasons in the order for the direction as contemplated under section 142(2)(a), the order vitiates in law and is not sustainable.”[underlined by us] 35 The Hon’ble Punjab and Haryana High Court in the case of Bal Kishan Dhawan (HUF) vs. UOI (supra) dealing with requirements of passing a reasoned order has relied upon the judgment of Hon’ble Supreme Court in the case of Kranti Associates (P) Ltd. vs. Masood (supra) which had laid down as under: “51. Summarizing the above discussion, this Court holds: a. In India the judicial trend has always been to record reasons, even in administrative decisions, if such decisions affect anyone prejudicially. b. A quasi-judicial authority must record reasons in support of its conclusions. c. Insistence on recording of reasons is meant to serve the wider principle of justice that justice must not only be done it must also appear to be done as well. d. Recording of reasons also operates as a valid restraint on any possible arbitrary exercise of judicial and quasi-judicial or even administrative power. e. Reasons reassure that discretion has been exercised by the decision maker on relevant grounds and by disregarding extraneous considerations.

f. Reasons have virtually become as indispensable a component of a decision making process as observing principles of natural justice by judicial, quasi-judicial and even by administrative bodies. g. Reasons facilitate the process of judicial review by superior Courts. h. The ongoing judicial trend in all countries committed to rule of law and constitutional governance is in favour of reasoned decisions based on relevant facts. This is virtually the life blood of judicial decision making justifying the principle that reason is the soul of justice. i. Judicial or even quasi-judicial opinions these days can be as different as the judges and authorities who deliver them. All these decisions serve one common purpose which is to demonstrate by reason that the relevant factors have been objectively considered. This is important for sustaining the litigants' faith in the justice delivery system. j. Insistence on reason is a requirement for both judicial accountability and transparency. k. If a Judge or a quasi-judicial authority is not candid enough about his/her decision making process then it is impossible to know whether the person deciding is faithful to the doctrine of precedent or to principles of incrementalism. l. Reasons in support of decisions must be cogent, clear and succinct. A pretence of reasons or `rubber-stamp reasons' is not to be equated with a valid decision making process. m. It cannot be doubted that transparency is the sine qua non of restraint on abuse of judicial powers. Transparency in decision making not only makes the judges and decision makers less prone to errors but also makes them subject to broader scrutiny. (See David Shapiro in Defence of Judicial Candor (1987) 100 Harward Law Review 731-737). n. Since the requirement to record reasons emanates from the broad doctrine of fairness in decision making, the said requirement is now virtually a component of human rights and was considered part of Strasbourg Jurisprudence. See (1994) 19 EHRR 553, at 562 para 29 and Anya vs. University of Oxford, 2001 EWCA Civ 405, wherein the Court referred to Article 6 of European Convention of Human Rights which requires, "adequate and intelligent reasons must be given for judicial decisions". o. In all common law jurisdictions judgments play a vital role in setting up precedents for the future. Therefore, for development of law, requirement of giving reasons for the decision is of the essence and is virtually a part of "Due Process". 36 Examining the impugned order in the present case, it is apparent that the order is non speaking order and gives no reasons for arriving at the conclusion that having regard to the nature and complexity of assessee’s accounts and interest of the revenue, the AO was of the opinion that accounts are to be audited u/s 142(2A) of the Act. The order is silent as to on what basis and on what grounds, the accounts proposed to audit under section 142(2A) were considered complex and on what

34 considerations it was arrived that it is in the interest of revenue to direct audit of accounts. Mere reference to a prior approval of CIT does not satisfy the precondition of a “speaking order” containing reasons for invoking the provision of section 142(2A) of the Act. There is no reference to detailed replied furnished by the assessee during the proceedings 37 Having regard to the above it is held that in the impugned order reasons are clearly invisible and conspicuous by their absence. In other words, order is bereft of any reason. It is stated here that reasons are heart and soul of an order, as they facilitate the process of judicial review and therefore in absence of any reason much less cogent, clear and succinct reasons order u/s 142(2A) of the Act is held to be bad in law and without proper jurisdiction. 38 Also, even the approval u/s 142(2A) by learned CIT should reflect application of mind and should not be mechanical as held by the judgment of Hon’ble Supreme Court in the case of Sahara India (Firm) vs. CIT (supra). The Hon’ble Allahabad High Court in the case of Kaka Carpets v ACIT (supra) following the above judgment has held as under: “26. In view of the above discussion, the pleadings of the parties, the provisions of section 142(2A) of the Act and the principles of law laid down by the Division Bench of this Court in the case of Swadeshi Cottons Mills Company Ltd. (supra), and by Hon'ble Supreme Court in the case of Rajesh Kumar (supra) and Sahara India (Firm) (supra) and the conclusions reached by us in paras 15,16, 17, 18, 19 and 21 above, we are of the view that A.O. should reconsider the issue as to whether a direction should be issued under Section 142(2A) of the Act after considering the objections of the assessee and affording a reasonable opportunity of being heard, in terms of Section 142 (2A) of the Act. It is only after the A.O. reaches to a fair conclusion after considering the reply given by the petitioner, and affording an opportunity of hearing, the CIT as approving authority will consider whether the special audit is required to be carried out for the purposes of understanding the accounts maintained by the assessee. The opinion must be formed reflecting the application of mind based on objective criteria and not on the basis of subjective satisfaction.” 39 Also in the case of United Electricals Co. (P) Ltd. vs. CIT (supra), it has been held as under: “19. What disturbs us more is that even the Additional Commissioner has accorded his approval for action under section 147 mechanically. We feel that if the Additional Commissioner had cared to go through the state-ment of said V.K.

Jain, perhaps he would not have granted his approval, which was mandatory in terms of proviso to sub-section (1) of section 151 of the Act as the action under section 147 was being initiated after the expiry of four years from the end of the relevant assessment year. As highlighted above, the Legislature has provided certain safeguards to prevent arbitrary exercise of powers by an Assessing Officer, particularly after a lapse of substantial time from completion of assessment. The power vested in the Commissioner to grant or not to grant approval is coupled with a duty. The Commissioner is required to apply his mind to the proposal put up to him for approval in the light of the material relied upon by the Assessing Officer. The said power cannot be exercised casually and in a routine manner. We are constrained to observe that in the present case there has been no application of mind by the Additional Commissioner before granting the approval.” 40 From the facts on record and material available with us, it is noted that in the instant case return was filed by the appellant company on 29.9.2009 declaring an income of Rs. 922.30 crores. Subsequent to the said return of income notice was issued on 23.8.2010 u/s 143(2) selecting the case for scrutiny. A reply enclosing the audited financial statements and other documents including tax audit report was furnished on 14.9.2010. Thereafter notices u/s 142(1)/143(2) dated 18.10.2010 along with questionnaire was served on the appellant company. Also, another questionnaire dated 3.11.2010 was issued to the appellant company. It is noted that replies dated 18.10.2010, 28.10.2010, 3.11.2010, 23.11.2010, 29.11.2010 and 6.12.2010 were furnished in compliance to the questionnaire issued to the appellant company. Subsequently on 3.3.2011 another questionnaires was issued to the appellant company for compliance on 8.4.2011. The appellant furnished replies dated 7.4.2011 and 8.4.2011 in compliance to the aforesaid questionnaire dated 27.4.2011 issued to the appellant company and assessee after seeking an adjournment on 4.5.2011 furnished another reply dated 16.5.2011. . At this stage it is noted that there was change in incumbent occupying the position of Addl. CIT, Range -18, New Delhi. A questionnaire was issued on 24.6.2011 and a reply thereto was furnished on 29.6.2011 by appellant company. Subsequently another questionnaire dated 1.8.2011 was issued and incompliance thereto reply was furnished on 9.8.2011 by the appellant company. Further questionnaires dated 23.8.2011, 30.8.2011, 8.9.2011 and 27.9.2011 were issued for compliance by the appellant company; replies dated 20.9.2011 and

36 27.9.2011 were furnished by the appellant company. Later an another questionnaire dated 12.10.2011 was issued and two replies dated 18.10.2011 were furnished by the appellant company. Another, questionnaire dated 20.10.2011 alongwith notice u/s 142(1) was issued and served on the appellant company. On the said date the appellant produced books of account and since they were not properly numbered therefore the appellant was directed to produce all books of accounts with original voucher on 28.10.2011. The assessee in compliance produced books of accounts on 28.10.2011 which were impounded by the AO. It is noticed thereafter on 31.10.2011 the appellant company furnished further information in the course of assessment proceedings. Later, replies dated 1.11.2011, 2.11.2011, 4.11.2011 were furnished by the appellant company. Another questionnaire dated 8.11.2011 was again issued to the appellant company and the appellant furnished reply dated 9.11.2011 and 16.11.12011 in the course of assessment proceedings. On 16.11.2011 the Addl. CIT, Range-18, New Delhi issued a show cause notice u/s 142(2A) of the Act for compliance on 23.11.2011. In compliance to the said show cause notice, assessee furnished its detailed objections on 23.11.2011, 23.8.2011, 1.12.2011 and 5.12.2011. We notice that the appellant in the reply dated 23.11.2011 specifically averred that general observations cannot be a ground to allege complexity in books of accounts of the appellant company. It was stated that appellant company has been regularly furnishing its returns of income and, has been assessed to tax u/s 143(3) of the Act, where identical manner of maintenance of accounts and method of accounting has been accepted and since there is no change in the manner of maintenance of accounts and method of accounting, there is no justification to resort to section 142(2A) of the Act. It was submitted that a show cause notice is a pretence to circumvent the period of limitation. It was submitted that after having received and, examined all relevant information/evidence including books of accounts over a period of 15 months running into at least 30 replies supported by enclosures and, forming an opinion in respect of disallowances/additions proposed to the returned income, the proposal to issue directions for special audit is to extend the period of limitation and is thus clear case of abdication of

37 responsibility. It was submitted that in the notice there is no specific allegation which either alleges or establish that there is complexity in books of accounts of the appellant company. A reference was drawn to the reply dated 16.11.2011 wherein the assessee had pointed out that books of accounts were already examined and verified and during the course of discussion either no explanation was sought or any adverse comments were made, since there was no complexity noted in the accounts maintained. It was pointed out that Shri Kaushal Nagpal, Deputy General Manager (Finance and Accounts) along with Sh. Shyam Porwal Manager (Accounts) had appeared for verification of the books of accounts and providing all clarification as considered appropriate in respect of such books of accounts. It was submitted that show cause was issued only for collateral purposes. A further detailed reply to each of the observation of show cause notice was also furnished by the appellant company. Subsequently the appellant furnished a letter dated 5.12.2011 to the learned CIT praying that an opportunity may be granted to the assessee company by confronting the basis on which directions for special audit are proposed to be issued so as to enable the assessee company to furnish its reply and grant a personal hearing. It appears that no further communication or any notice was issued to the appellant company other than a hearing by the CIT on 8.12.2011 disposing of the objection raised by the appellant company to the show cause notice u/s 142(2A) of the Act. The only communication subsequent to the above response is the order dated 9.12.2011 which is completely silent as stated above to the objections taken by the appellant company for invocation of power u/s 142(2A) of the Act. Also it is noticed that appellant in the assessment proceedings had submitted as under: “Apart from the above, it will be seen that, your goodself has proposed various additions/disallowances in the notice which itself suggest that, your goodself is able to determine the income of the assessee company. However just to overcome the period of limitation, a directioin is being issued for special audit u/s 142(2A) of the Act. It may be also relevant to state here that, each of the additions/disallowances proposed in the notice are otherwise too based on factual misconception and, misconstruction of statutory provision of law and thus, untenable. In any case, the submission is short that, there is no complexity in the books of accounts of assessee company and, entire effort is to circumvent the period of limitation by issue of a direction for special audit on mere ipse-dixit,

whims and fancies, subjective and fanciful assumptions and, without satisfying statutory provisions contained in sectin 142(2A) of the Act, as has also been demonstrated in the chart enclosed as Annexure ‘B’ to this Reply. Lastly, the assessee also submits that, in the course of assessment proceedings the assessee company had appeared and got the entries in the books of accounts verified. The details of such entries in the books of accounts, as verified by you in the course of assessment proceedings have been separately stated as Annexure’C’ to this Reply. Infact, it may be stated here that, one of the ledger account examined was of M/s CIG Unitech Properties (P) Ltd.. A copy of the ledger account is enclosed as Annexure ‘D’ to this Reply. It is submitted that, a reading of the same will show that, it is clear and specific i.e. Rs. 75 crores had been received and out of which Rs. 22.40 crores have been repaid and balance of Rs. 52.60 crores is outstanding at the close of the year. Hence, it is evident that, there are complete narrations as to the nature of payment. However, your goodself since wanted to verify the above receipts and, payments from the bank statements, it was stated that, name of the bank is not stated in the narration and same can only be known from the books of accounts maintained in the computer and also from the vouchers of the assessee company. Accordingly, from the books of accounts, the bank account from which the the payment was either made or received was noted and, thereafter reconciled with the ledger and, the bank statements. No discrepancy was either then found on this ground or has now been stated in the notice. It is thus submitted that, your observation that, not even single entry could be cross checked is factually incorrect and, contrary to material on record. Infact, the ledger accounts, vouchers whose accounts have been cross checked by your goodself and, the inspectors deputed by you are also part of assessment records, details of which have been tabulated as Annexure’C’ to this Reply. It may be stated here that, in the course of assessment proceedings Shri Kaushal Nagpal, Deputy General Manager, Accounts had also shown the entries from the books of accounts maintained in the computer. It is therefore submitted that, your observation that, ledger accounts are maintained with no narration of entries is erroneous and is attempt to merely make arbitrary observations which, are contrary to record, so as to issue direction on willy-nilly basis u/s 142(2A) of the Act. Madam, you may please confront the assessee, the specific ledger accounts where either there is no narration and, details of which cannot be verified in ordinary manner. It may be stated here that, you may kind confront the assessee as to what you mean by ordinary manner. You may also further let us know, on what basis it has been alleged that, bank name and accounts are not maintained through which payments are received or paid. The observation is highly preposterous and in the most humble submission absurd. It is submitted that, your goodself has failed to appreciate that, method of maintaining accounts was the same in the earlier years when no such allegation was ever made. This itself demonstrates that, the observation in the notice apart from being vague have been made for simply extending the period of limitation. It is submitted that, you may kindly let the assessee know, which of the ledger accounts have been allegedly manufactured or fabricated. Mere general and vague observations are neither here and nor there.

The number of bank account are the same in the earlier years and therefore the mere volume of bank accounts and alleged difficulty in verification of such bank accounts cannot be a basis to invoke the section 142(2A) of the Act It has next been observed that assessee has failed to produce stock register/investment register. It is submitted that, as regards investments register assessee has already produced share certificate for your perusal on 4.11.2011 and which were duly reconciled with the details of investments furnished by assessee company. It is submitted that details so furnished along-with annual report are at pages 31 to 154 of Annexure 1 to Reply dated 23.11.2011. Apart from the above, details of investment furnished vide reply dated 18.10.2011 are comprehensive detail giving complete particular as to the name of company, no. of shares, opening and, closing balance, purchase price, sale price, profit/loss thereon, Thus all necessary details as recorded in investment registers has already been furnished and on which there is no adverse observation. Infact in the entire show cause notice not a word has been stated in respect of detail, so maintained and furnished and yet adverse inference has been drawn for collateral purposes. In any case, the investment register duly certified by the company secretary is being furnished at pages 1 to 77 of Annexure 3 to Reply dated 23.11.2011. Lastly, even the observation that, assessee is filing irrelevant and voluminious detail is also misconceived. Madam, firstly you call for information without appreciating the nature and scope of the information and, once the assessee furnishes the same, it is branded as irrelevant and volumious. It is submitted that, the assessee is a public limited company having a turnover of Rs. 1837.08 crores, which has declared income of Rs. 956.44 crores and paid tax of Rs. 214.47 crores. The details of income declared and tax paid in the precedings five years is also tabulated hereunder: Amount (In Rupees Crores) S.No Assessment Turnover Declared Tax Assessed Year Income Paid Under (before Tax) section 1. 2008-09 2,802.28 1,365.50 327.31 143(3) 2. 2007-08 2,443.97 1,344.83 376.32 143(3) 3. 2006-07 674.75 108.12 35.91 143(3) 4. 2005-06 527.18 43.37 12.56 143(1) 5. 2004-05 382.05 20.53 5.62 143(3) It will be evident, from the above that, volume is inherent in the size of operation of the company and therefore, the obvservation are farfetched, remote and entirely irrelevant consideration for alleging complexity in the books of accounts of the assessee company.” 41 The revenue however has drawn our attention on two documents one is dated 5.12.2011 which is a reference sent by Addl. CIT, Range-18, New Delhi to CIT-VI, New Delhi. This reference has not been confronted to the appellant before the issue of the order u/s 142(2A) of the Act. Also none of the reasons as

40 stated therein form part of the directions dated 9.12.2011 u/s 142(2A) of the Act and thus the said reasons cannot be now read into the order dated 9.12.2011 which as held above do not certain any reasons for issue of directions for special audit u/s 142(2A) of the Act. 42 The revenue has also placed on record approval dated 8.12.2011 granted by learned CIT -V, New Delhi wherein the learned CIT has granted approval for special audit u/s 142(2A) of the Act. As per the reasons for according approval enclosed with the said approval it is noticed that it has been stated as under: “The assessee has made written submission before me on 5.12.2011 anticipating that proposal for special audit in terms of section 142(2A) would be sent to the CIT for approval. It was prayed that, an opportunity may kindly be granted to the assessee company by confronting the basis on which directions for special audits are proposed to be issued, so as to enable the assessee company to furnish its reply and grant personal hearing. Since, the AO has already issued show cause notice in this respect to the assessee, it was not necessary to disclose the same to the assessee again. However personal hearing was granted, Shri Gautam Jain and Shri Ajay Rastogi, CAs appeared on behalf of the assessee on 8.12.2011. they were heard.” 43 From the above it is apparent that despite the appellant seeking the basis on which directions for special audit is proposed to be issued, the learned CIT dispensed with that precondition and granted approval which itself vitiates the whole process of granting approval. It is thus apparent that neither the AO nor the learned CIT disclosed the basis of approval after the objection as raised by the appellant to the show cause notice u/s 142(2A) of the Act and hence the order dated 9.12.2011 is a vitiated order. 44 Furthermore, the judgments relied upon by the revenue also do not lead us to take different view of the matter The first judgment relied upon is the case of Rajesh Kumar and Ors v CIT (supra). In this case the Hon’ble Court has held in para 34 that the order of assessment can be subject matter of an appeal; and not, a direction issued u/s 142(2A) of the Act. In this appeal there is no challenge to the directions u/s 142(2A) of the Act. The challenge is that order of assessment is barred by limitation which is a valid contention supported by the judgment of

41 Hon’ble Supreme Court in the case of Sahara India (Firm) v CIT (supra). The challenging to the validity of order u/s 142(2A) of the Act is confined to the extent that order is barred by limitation and not to the extent of refunding the fees or any other consequence flowing out of the order u/s 142(2A) of the Act. Further observation of Hon’ble Court that principles of natural justice are required to be complied with has also been reaffirmed in the case of Sahara India (Firm) (supra). The judgment of AT&T Communication Services India (P) Ltd. v CIT (supra) is on facts and has no application to the case of appellant company. Also the judgment in the case of DLF Ltd. v Addl. CIT (supra), has no application as hereto none of the contentions raised before us have been decided to the contrary. The learned counsel for the revenue has not been able to point out any material so as to arrive at different view of the matter. 45 In view of the above discussion and conclusion we hold that directions dated 9.12.2011 by the learned Addl. CIT, Range-18, New Delhi for special audit u/s 142(2A) of the Act were illegal, invalid and not in accordance with law and thus the assessment so made is barred by limitation and is thus quashed as such. Grounds 1 to 1.3 are therefore allowed. 46 Since we have quashed the very assessment order itself, the issues raised by way of other grounds of appeal in both the appeals i.e. in ITA No. 5180/D/2013 and ITA No.5817/D/2013 do not survive, and, therefore, do not require any adjudication.. 47 In the result, assessee’s appeals is allowed and revenue’s appeal is dismissed. Order pronounced in the open court on 08.04.2016 SD/- SD/- ( L.P. SAHU ) ( I.C. UDHIR ) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 08 /04/2016 Mohan Lal

42 Copy forwarded to: 1) Appellant 2) Respondent 3) CIT 4) CIT(Appeals) 5) DR:ITAT ASSISTANT REGISTRAR

Date Draft dictated directly on computer 04.04.2016,05.04.2016 & 08.04.2016 Draft placed before author 08.04.2016 Draft proposed & placed before the second member Draft discussed/approved by Second Member. 08.04.2016 Approved Draft comes to the Sr.PS/PS 08.04.2016 Kept for pronouncement on 08.04.2016 File sent to the Bench Clerk 08.04.2016 Date on which file goes to the AR Date on which file goes to the Head Clerk. Date of dispatch of Order.