Dishman Infrastructure Limited vs The Assistant Commissioner of Income Tax, Central Circle

C/SCA/7618/2021 CAV JUDGMENT DATED: 19/08/2021

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

R/SPECIAL CIVIL APPLICATION NO. 7618 of 2021

With

R/SPECIAL CIVIL APPLICATION NO. 7620 of 2021

FOR APPROVAL AND SIGNATURE:

HONOURABLE MS. JUSTICE BELA M. TRIVEDI Sd/-

and

HONOURABLE DR. JUSTICE ASHOKKUMAR C. JOSHI Sd/- ==========================================================

1 Whether Reporters of Local Papers may be allowed to see the judgment ? NO

2 To be referred to the Reporter or not ? YES 3 Whether their Lordships wish to see the fair copy of the judgment ? NO

4 Whether this case involves a substantial question of law as to the interpretation of the Constitution NO of India or any order made thereunder ?

========================================================== DISHMAN INFRASTRUCTURE LIMITED

Versus

THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE (2) ========================================================== Appearance:

MR SN SOPARKAR, LD. SR. ADVOCATE WITH MRS SWATI SOPARKAR(870) for the Petitioner(s) No. 1 MR MR BHATT, LD. STANDING COUNSEL WITH MRS MAUNA M BHATT(174) for the Respondent(s) No. 1 ==========================================================

CORAM:HONOURABLE MS. JUSTICE BELA M. TRIVEDI and

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HONOURABLE DR. JUSTICE ASHOKKUMAR C. JOSHI

Date : 19/08/2021

CAV JUDGMENT

(PER : HONOURABLE MS. JUSTICE BELA M. TRIVEDI)

1 Both the petitions, being inter-connected

with each other, involving similar questions of

law and facts, were heard together finally at

the admission stage with the consent of the

learned Advocates for the parties, and hence are

being decided by this common judgement.

2 Initially, the petitioners in both the

petitions had challenged the order dated

8.4.2021 passed by the respondent, disposing of

the objections raised by the respective

petitioners against the proposed referral for

special audit within the meaning of Section

142(2A) of the Income Tax Act, 1961 (hereinafter

referred to as the "said Act"), and had also

challenged the impugned directions given by the

respondent to the petitioners vide the

communication dated 22.4.2021 under the said

provisions. To be precise, following prayers

were sought in both the petitions:-

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C/SCA/7618/2021 CAV JUDGMENT DATED: 19/08/2021

7. ... that this Hon'ble Court be pleased to issue a writ of mandamus or a writ in the nature of mandamus or a writ of certiorari or a writ in the nature of certiorari or any other appropriate writ, direction or order and be pleased to:

(a) quash and set aside the impugned order dated 8.4.2021 at Annexure-A to this petition;

(b) quash and set aside the impugned directions of 22.4.2021 at Annexure-A to this petition;

(c) pending the admission, hearing and final disposal of this petition, to stay implementation and operation of the notices at Annexure-A to this petition;"

3 However, at the time of hearing, the learned

Sr. Advocate Mr. S. N. Soparkar did not press

for the challenge to the impugned order dated

8.4.2021 and confined himself to the challenge

to the impugned directions dated 22.4.2021. The

Court, therefore, while issuing "notice" to the

respondent in both the petitions, had passed the

following order on 14.6.2021:-

"1. The Petitioner by way of present petition has sought to challenge the impugned order dated 8.4.2021 at Annexure-A as well as the impugned directions dated 22.4.2021, which are also part of Annexure-A.

2. After arguing for some time, learned Senior Advocate Mr. S.N.Soparkar for the petitioner confines himself to the challenge to the

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impugned directions dated 22.4.2021 (Annexure- A) and does not press for the challenge to the impugned order dated 8.4.2021 (Annexure-A).

3. Issue Notice as regards the challenge to the impugned directions dated 22.4.2021 (Annexure-A), returnable on 28.6.2021.

4. In the meantime, it is needless to say that the Special Auditor shall confine himself to the scope of Section 142 (2A) of the Income Tax Act read with Rule 14A and Form 6B of the Income Tax Rules."

4 In view of the above order, the prayer

contained in Paragraph 7(a) with regard to the

challenge to the impugned order dated 8.4.2021

has stood rejected, as not pressed for in both

the petitions. As regards the remaining

challenge to the impugned directions dated

22.4.2021, the factual matrix as stated in the

Special Civil Application No.7618 of 2021 is

taken into consideration for the sake of

convenience.

4.1 The petitioner is a limited Company of

which most of its shareholders are citizens of

India. The petitioner is in the business of

development of Special Economic Zone (SEZ) at

Village Bhamsara, Kalyanghadh, and Ghangad,

Near Bagodara. On 19.12.2019 and on

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subsequent dates, a search/seizure and survey

actions were conducted in "Dishman Group" and

voluminous data/materials/documents were

seized from the various premises, including

the residential premises of the petitioner.

Consequent to the search action, the

proceedings under Section 153A of the Act have

been initiated in case of the petitioner -

assessee.

4.2 On 23.2.2021 the respondent issued a

notice under Section 142(1) of the said Act,

calling upon the petitioner to furnish the

details as mentioned therein. According to

the petitioner, since the respondent had

called for the numerous details spanning

across 10 years and since Covid-19 Pandemic

situation was prevailing, the petitioner took

time to compile all the details and submit

the same.

4.3 On 19.3.2021, the respondent issued a

notice under Section 142(2A) of the said Act

and also supplied the Satisfaction Note drawn

for referring the case for an independent

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audit. The petitioner objected to the said

notice and sought the copies of the statements

of Bharatbhai Padia and Chiragbhai Thakkar and

also sought personal hearing vide the letters

dated 27.3.2021 and 30.3.2021.

4.4 The petitioner was communicated vide

letter dated 31.3.2021 to collect the

requisite statements on 1.4.2021. The

petitioner was also granted an opportunity of

hearing by fixing the hearing on 5.4.2021,

however, petitioner neither collected the

statements, nor remained present for personal

hearing.

4.5 The petitioner instead challenged the

said notice dated 19.3.2021 before this Court

by filing a petition being SCA No.6033 of

2021, which subsequently came to be withdrawn

as per the order dated 5.4.2021.

4.6 On 5.4.2021, the petitioner intimated

the respondent that the copies of the

statements were not provided. On 6.4.2021 the

petitioner was provided with the copies of the

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statements of Mr.Bharat Padiya and Mr.Chirag

Thakkar. On 7.4.2021, the petitioner wrote a

letter, seeking copies of the seized material

from Mr.Rajiv Shah and the findings of the

Investigation Wing.

4.7 The respondent after considering the

objections of the petitioner contained in the

letter dated 27.3.2021 passed the impugned

order on 8.4.2021 disposing of the said

objections. Thereafter, the respondent issued

the impugned directions on 22.3.2021 under

Section 142(2A) of the said Act.

5 Both the petitions containing almost

identical facts have been resisted by the

respondent by filing the affidavits-in-reply, to

which the respective petitioners have filed

their affidavit-in-rejoinder.

6 During course of the arguments, the learned

Sr. Advocate Mr.Soparkar for the petitioners in

both the petitions made the following

submissions:-

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6.1 The Assessing Officer before making the

reference under Section 142(2A), is required

to peruse the accounts, make a genuine and

honest attempt to understand the accounts,

appreciate the entries made therein and in the

event of any doubt, seek explanation from the

assessee. If the Assessing Officer is still

not able to understand, then he may make

reference to the special auditor, after

providing an opportunity of hearing to the

assessee, as observed by the Supreme Court in

case Sahara India (Firm) Vs. Commissioner of

Income-tax & Anr., reported in 300 ITR 403.

However, in the present case, the respondent

had not undertaken any of such exercises and

sought voluminous account and data from the

petitioners on 23.2.2021.

6.2 The show-cause notices under Section

142(2A) were issued on 19.3.2021 to the

petitioners in utter disregard of the

provisions contained in Section 142(2A),

delegating his adjudicatory function to the

auditor.

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6.3 As held by the Supreme Court in case of

Rajesh Kumar & Ors., Vs. Deputy Commissioner

of Income-tax & Ors., reported in 287 ITR 91

(SC), the assessment proceedings are part of a

judicial process and are not administrative in

nature. The opinion of the Assessing Officer

is required to be based on an objective

criteria and not on subjective satisfaction,

as held by the Supreme Court in case of Sahara

India (Firm) Vs. Commissioner of Income-tax &

Anr., (supra).

6.4 The special auditor cannot go into and

examine the legal issues or question regarding

the taxability, which otherwise is required to

be done by the Assessing Officer himself.

However, in the instant case, the respondent

has delegated upon the auditor, the

investigation into the affairs of the

petitioners, including the social functions,

analysis of the seized documents and forming

an adjudicatory opinion of the impact and the

consequences of the same, not only on the

income of the petitioners for the current

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year, but for the other years and other laws

and other assessees. In this regard, reliance

is placed on the decisions of the Delhi High

Court and Calcutta High Court.

6.5 An appraisal report was made by the

investigating team after a search, to the

concerned Assessing Officer and such report

encompassed complete and thorough analysis

done on the seized documents by the

investigating team, and therefore, the

Assessing Officer had sufficient assistance to

understand the seized documents. Therefore,

the delegation of the work of both - the

investigating officer as well as of the

Assessing Officer upon the Special Auditor is

bad and illegal.

6.6 As regards the voluminous 50 TB of data

and 22000 plus loose papers found during the

search operation, it is submitted that during

the post-search investigation proceedings,

personal hearings were granted and exhaustive

submissions were filed by the petitioners. On

the basis of the same, the DDIT(Inv), Unit

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1(3), Ahmedabad had quantified the undisclosed

income to the tune of Rs.3,959 crore, as

reflected in the satisfaction note of the

respondent. However, disregarding the said

report, the respondent again intends to repeat

the same exercise.

6.7 The respondent cannot make a reference

under Section 142(2A) solely "in the interest

of revenue". The condition of interest of

revenue is a joint condition with any one of

the previous conditions.

6.8 Many queries raised in the terms of

reference have no bearing on the seized

documents but are related to the assessment of

the income as such. As observed in case of

Principal Commissioner of Income-tax Vs.Saumya

Construction (P) Limited, reported in (2016)

387 ITR 529 (Gujarat), the assessments

pursuant to search and seizure have to be

limited to only incriminating materials found

during the search, and no normal additions can

be made in the assessment, by making a rowing

inquiry.

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6.9 In case of Vodafone Mobile Services

Limited Vs. Dy. Commissioner of Income Tax

(W.P. (c) No.4081/2016), it has been held that

the special auditor must confine himself to

the accounts. The special auditor has limited

scope and is not an adjudicator.

6.10 As regards the issue of international

transactions, the respondent has already

referred the issues of international

transactions to the Transfer Pricing

department on 13.4.2021 and now in the

impugned directions again has referred the

issues of cross border transactions to the

special auditor.

6.11 The information which refers to the

violation of section 269SS/T or dis-

allowability of expenses under Section 37(1)

is already certified by the Tax Auditor and

verified by the Assessing Officer during the

assessment proceedings which are completed

till A.Y. 2015-16.

6.12 As regards the applicability of other

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laws, the auditor is not expected to do roving

and fishing inquiries and he cannot be

expected to do the work of the Assessing

Officer. The said work has to be done by the

respondent Assessing Officer himself by

examining the legal position and decided in

accordance with law.

7 Per contra, the learned Sr. Standing Counsel

Mr.M.R. Bhatt for the respondent made the

following submissions:-

7.1 The petitioners having not challenged

the orders dated 8.4.2021 disposing of the

objections of the respective petitioners

against the proposed referral for special

audit under Section 142(2A) of the Act, the

Court is required to examine the challenge to

directions dated 22.4.2021 only.

7.2 Section 142(1)(ii) and (iii) entitles

the Assessing Officer to call upon the

assessee to produce such account or document

as the Assessing Officer may require or to

give information as the Assessing Officer may

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require.

7.3 Section 142(2),(2A) also requires the

assessee to furnish a report of such audit in

the prescribed form (Form 6B) setting forth

such particulars as may be prescribed and such

other particulars as may be required by the

Assessing Officer.

7.4 Form 6B is in three parts. The first

part requires the special auditor to examine

balance sheet, profit and loss account etc.,

the second part requires the special auditor

to obtain all the information necessary for

the purpose of audit, and the third part

requires the opinion of the special auditor.

It is submitted that the report by the special

auditor in the form 6B is not restricted to

the Annexure stated in the said form but would

also contain such other particulars as were

required by the Assessing Officer. This can

also be culled out from the guidance notes of

tax audit, issued by the institute of

Chartered Accountant.

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7.5 Insofar as the terms of reference are

concerned, for each and every direction,

respondent has offered comments in tabular

form, in an excel sheet, separately filed.

The directions issued by the Assessing Officer

are strictly in consonance with Section

142(2A) read with Form 6B.

7.6 The arguments made by the petitioner

during the course of hearing essentially

pertained to the order dated 8.4.2021

directing the special audit, which as such has

not been pressed into service as per the order

passed by the Court on 14.6.2021.

7.7 The respondent has issued the impugned

directions under Section 142(2A) after issuing

summons to the assessee under Section 142(1),

after pursuing the record available, after

recording the satisfaction, after considering

and disposing of the objections raised by the

petitioner.

7.8 During the search proceedings several

documents and digital evidence in the form of

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hard drives, mobile data, laptop data and

other storage device were found and seized

from the petitioner's premises, including the

residential premises. The total volume of

digital data runs into more than 50 plus HD

drives of 1 TB each i.e. more than 50 TB size

data. There is SAP software data also seized

from the petitioners' premises. The loose

material seized by the department during the

course of search proceedings runs into more

than 22000 pages. Hence, from the said seized

material, it was gathered that the petitioner

was running an organized activity of providing

accommodation entries along with the other

unaccounted transactions resulting into tax

evasion.

7.9 Placing reliance on the affidavit-in-

reply, filed on behalf of the respondent, it

has been submitted that the petitioners were

involved in providing accommodation entries,

money laundering, as there were transactions

with almost 290 parties having no business

relations with the petitioners for giving

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loans and advances. There were complex issues

relating to the accommodation entries with

around 300 people involving an amount of about

Rs.1,500 crore. There were bogus claims of

expenditure, higher income shown through

inflated sales and commission income, sale of

unaccounted scraps, transactions with foreign

subsidiaries and the sales routed through them

without availing any actual services, etc.

7.10 The petitioners being in the business

of specialized activity of developing the

molecules on behalf of third parties, and the

technology transfer getting involved into the

transactions required specialized skill and

knowledge.

7.11 As regards the correctness of books of

accounts, it was found from the impounded

material that numerous transactions reflected

in the bank statements were recorded in some

other names. The said facts were duly

accepted by Shri Harshil Dalal, Group CFO of

the assessee company during the course of

recording his statement.

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7.12 Thus, the ingredients of Section

142(2A) with regard to the nature and

complexity, volume, doubts about the

correctness and multiplicity of transactions

being found in existence and since it was in

the interest of revenue, the special audit has

been directed after complying with the

requirement of principles of natural justice.

Reliance is placed on the decisions in case of

Ulhas Securities (P) Ltd. Vs. DCIT, reported

in 393 ITR 514 (Guj), in case Cama Hotels Ltd.

Vs. Samir Vakil for His Successor DCIT (OSD) &

Anr., reported in 418 ITR 109 and in case of

Tehmul Burjor Sethna Vs. ACIT, reported in 418

ITR 596.

7.13 As per the proviso to Section 142(2C),

the special auditor is required to give his

report within 180 days, however, due to

absolute non-cooperation by the petitioner -

assessee coupled with voluminous record as

referred, and taking note of Supreme Court's

decision in case of VLS Finance Ltd. & Anr.

Vs. CIT & Anr., reported in (2016) 384 ITR 1

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(SC), the period during which the petition

remained pending be excluded for the purpose

of calculating the limitation.

8 At the outset, it may be noted that though

there is voluminous record produced and lengthy

arguments advanced by the learned Advocates for

the parties, the issue involved in the present

petitions runs in a very narrow compass. As

stated earlier, the petitioners had initially

challenged the legality and validity of the

order dated 8.4.2021 disposing of the objections

raised against the proposed referral for special

audit and also challenged the legality of the

directions issued under Section 142(2A) of the

said Act vide the order dated 22.4.2021,

however, at the initial hearing of the petitions

on 14.6.2021, the learned Sr. Advocate

Mr.Soparkar for the petitioners in both the

petitions had confined himself to the challenge

to the impugned directions dated 22.4.2021 and

had not pressed for the challenge to the

impugned order dated 8.4.2021. Ergo, the Court

is required to examine the legality of the

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impugned directions dated 22.4.2021 only,

whereby the respondent has directed the

petitioners to get their books of accounts

audited by the Accountant nominated by the

Principal, CIT (Central-1), Ahmedabad, and

directed the nominated Accountant to submit the

report as per Rule 14A of the Income-Tax Rules

in the prescribed Form No.6B, and further

directed the nominated Accountant to go through

the XLV issues/points mentioned therein. The

petitioners have been directed to submit the

report of the Accountant within 90 days from the

date of the said directions. It may be

pertinent to note that the necessary corollary

of not challenging the order dated 8.4.2021

would be that the petitioners in both the

petitions do not challenge the powers of the

respondent to pass the order for special audit

as contemplated under Section 142(2A) of the

said Act, nor do they challenge the decision-

making process followed by the respondent while

passing the said order dated 8.4.2021.

9 In the backdrop of the aforesaid, and for

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the better appreciation of the rival contentions

raised by the learned Advocates for the parties,

it would be germane to reproduce the relevant

provisions contained in Section 142(2A) of the

Act, the Rule 14A of the Income-Tax Rules, as

also the Form No.6B annexed to the Rules:-

"Inquiry before assessment.

142. (1) xxx

(2) xxx

(2A) If, at any stage of the proceedings before him, the Assessing Officer, having regard to the nature and complexity of the accounts, volume of the accounts, doubts about the correctness of the accounts, multiplicity of transactions in the accounts or specialised nature of business activity of the assessee, and the interests of the revenue, is of the opinion that it is necessary so to do, he may, with the previous approval of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, direct the assessee to get the accounts audited by an accountant, as defined in the Explanation below sub-section (2) of section 288, nominated by the Principal Chief Commissioner 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.

Rule 14A

Form of audit report under section 142(2A) 14A The report of audit of the accounts of an

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assessee which is required to be furnished under sub-section (2A) of section 142 shall be in Form No.6B

FORM 6B

FORM NO. 6B

[See rule 14A] Audit report under section 142(2A) of the Income -tax Act, 1961

I/We have examined the balance sheet of ...........................................[name and address of the assessee] Permanent Account No........... as at ............and the profit and loss account for the year ended on that date which are in agreement with the books of account maintained at the head office at .... and branches at ......

I/We have obtained all the information and explanations which to the best of * my/our knowledge and belief were necessary for the purposes of the audit. In * my/our opinion, proper books of account have been kept by the head office and the branches of the assessee visited by * me/us so far as appears from * my/our examination of books, and proper returns adequate for the purposes of audit have been received from branches not visited by * me/us subject to the comments given below :

............................................................ ............................................................ ................................. In * my/our opinion and to the best of * my/our information and according to explanations given to * me/us, the said accounts give a true and fair view. -

(i) in the case of the balance sheet, of the state of the abovenamed assessee's affairs as at ...., and

(ii) in the case of the profit and loss account, of the profit or loss of the abovenamed assessee for the accounting year ending on .......

The prescribed particulars and such other particulars as were required by the Assessing Officer ...... by his order No........ dated ..... are annexed hereto. In * my/our opinion and to the best of * my/our information and according to explanations given to * me/us, these are true and correct.

Place ..

Date ... Signed Accountant **

Notes :

1.*Delete whichever is not applicable.

2.**This report has to be given by the accountant nominated

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by the Chief Commissioner or Commissioner of Income-tax under section 142(2A)

3. Where any of the matters stated in this report is answered in the negative or with a qualification, the report shall state the reasons therefor.

ANNEXURE Statement of particulars

1. Books of account maintained

2. Method of accounting employed. Indicate whether there is any change from the method of accounting employed in the immediately preceding previous year

3. (i) Method of valuation of opening and closing stock of

(a) Raw materials

(b) Stores

(c) Work-in-progress

(d) Stock-in-trade

(ii) State whether there is any change in the method of valuation of any of the aforesaid items as compared to the method employed in the immediately preceding previous year

(iii) If the answer to (ii) above is in the affirmative, specify the amount by which the profit or loss for the year has been affected by such change

4. In respect of items manufactured full quantitative details of raw materials and finished products as indicated below: Raw materials

(a) Opening stock

(b) Purchases during the year

(c) Consumption during the year

(d) Sales during the year

(e) Closing stock

(f) Yield of finished products

(g) Percentage of yield

(h) Shortage

Finished products

(a) Opening stock

(b) Purchases during the year

(c) Quantity manufactured during the year

(d) Sales during the year

(e) Closing stock at the end of the year

(f) Shortage and percentage thereof

Notes :

1. Separate quantitative details on the above lines should be given in respect of by -products, if any.

2. Where the assessee is a dealer in goods, quantitative details on the above lines should be given in respect of the goods dealt in?

5. (i) Has the assessee conducted physical verification of raw materials, stores and finished products, or the goods dealt in?

(ii) Details of discrepancies, if any

6. (a) Amount of expenditure incurred by the assessee in

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respect of :

(i) Advertisement

(ii) Maintenance of accommodation in the nature of guest house

(iii) Travelling

(iv) Entertainment [including the amount of entertainment allowance paid to any employee or other person]

(b) Whether the expenditure incurred by the assessee in respect of any of the items referred to in (a) above exceeds the amount admissible under the Income-tax Act/Rules? If so, give details.

7. Where the assessee is a firm, details of payments by way of interest, salary, bonus, commission or remuneration to the partners of the firm

8. Where the assessee is a company, give details of-

(i) Any expenditure which has resulted directly or indirectly in the provision of any remuneration, benefit or amenity to (a) a director ; (b) a person who has a substantial interest in the company ; and (c) a relative of the director or of such person

(ii) Any expenditure or allowance in respect of assets of the company used wholly or partly for the purposes or benefit of any of the persons referred to in (i) above [state whether any such person is an employee of the assessee or not]

9. Details of amounts not deductible under section 40A :

(a) Particulars of payments which appear to be excessive or unreasonable in terms of section 40A(2)(a)

(b) Particulars of payments in excess of Rs. 2,500 * made otherwise than by a crossed cheque or draft - section 40A(3)

(c) Particulars of expenditure or allowance in excess of the limits specified in section 40A(5)(c) **

(d) Particulars of expenditure incurred by way of fees and salary to an ex-employee in excess of Rs. 60,000 - section 40A(6) **

(e) Provisions for payment of gratuity not allowable - section 40A(7)

(f) Where the assessee is a company, the amount of interest on deposits not allowable under section 40A(8) †

10. Whether any amount is borrowed on a hundi from, or any amount due thereon (including interest on the amount borrowed) is repaid to, any person otherwise than through an account payee cheque? If so, give details.

11. (a) Particulars of proforma credits/drawback/refund of duties of customs or excise or both/refund of sales tax. Whether they have been credited to the profit and loss account? (b) Particulars of expenditure/income of any earlier year debited/credited to the profit and loss account of the relevant previous year (c) Particulars of any liability of a contingent nature debited to the profit and loss account

12. Particulars of each loan taken by the assessee (other than any loan taken from a bank or financial institution) in the following form : (i) Name, address and permanent account number of the lender Printed from (ii) Whether amount

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borrowed on hundi? (iii) Whether loan account squared up during the year? (iv) Maximum amount outstanding at any time during the year and rate of interest paid (v) Details of security including collateral security offered, if any (vi) Name and address of the guarantor, if any

13. Particulars of each loan/overdraft taken from a bank or financial institution in the following form : (i) Maximum amount outstanding at any time during the year (ii) Details of security including collateral security offered, if any

(iii) Name and address of the guarantor, if any

14. Whether the assessee has deducted tax at source and paid the amount so deducted to the credit of the Central Government in accordance with the provisions of Chapter XVIIB? If not, give details of defaults committed

15. (a) Details of taxes, duties, etc., paid by the assessee during the previous year

(b) Whether any discrepancy has been noticed in the respective dates of payments and the entries in the books of account? If so, give particulars thereof."

10 Now, adverting to the first and foremost

submission of the learned Sr. Advocate

Mr.Soparkar that the impugned directions given

by the respondent Assessing Officer are bad in

law as the respondent has delegated upon the

special auditor the work, which he himself is

required to do and which otherwise is in the

nature of investigation, it may be noted that

the observations made by a three-Judge Bench of

the Supreme Court in case of Sahara India (Firm)

Vs. Commissioner of Income-tax & Anr. (supra)

clinch the issue. In the said case, the Supreme

Court has elaborately discussed the scope of

Section 142(2A), while dealing with the issue as

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to whether in every case, where the Assessing

officer issues a direction under Section 142(2A)

of the IT Act, 1961, the assessee has to be

heard before such an order is passed? In the

said case, the Supreme Court while agreeing with

the decision of the Two-Judge Bench in case of

Rajesh Kumar Vs. DCIT (Supra) held that the

exercise of power under Section 142(2A) of the

said Act leads to serious civil consequences,

and therefore, even in absence of express

provision for affording an opportunity of pre-

decisional hearing to an assessee, and in

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. The

observations made in the said case of Sahara

India (Firm) with regard to the consequences

that would follow to the order of special audit

passed in exercise of the powers conferred under

Section 142(2A) being relevant, they deserve to

be reproduced and the same read as under:-

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C/SCA/7618/2021 CAV JUDGMENT DATED: 19/08/2021

"21. In the light of the aforenoted legal position, we are in respectful agreement with the decision of this Court in Rajesh Kumar (supra) that an order under Section 142 (2A) does entail civil consequences. At this juncture, it would be relevant to take note of the insertion of proviso to Section 142 (2D) with effect from 1st June, 2007. The proviso provides that the expenses of the auditor appointed in terms of the said provision shall, henceforth, be paid by the Central Government. In view of the said amendment, it can be argued that the main plank of the judgment in Rajesh Kumar (supra) to the effect that direction under Section 142 (2A) entails civil consequences because the assessee has to pay substantial fee to the special auditor is knocked off. True it is that the payment of auditor's fee is a major civil consequence, but it cannot be said to be the sole civil or evil consequence flowing from directions under Section 142 (2A). We are convinced that special audit has an altogether different connotation and implications from the audit under Section 44AB. Unlike the compulsory audit under Section 44AB, it is not limited to mere production of the books and vouchers before an auditor and verification thereof. It would involve submission of explanation and clarification which may be required by the special auditor on various issues with relevant data, document etc., which, in the normal course, an assessee is required to explain before the Assessing Officer.

Therefore, special audit is more or less in the nature of an investigation and in some cases may even turn out to be stigmatic. We are, therefore, of the view that even after the obligation to pay auditor's fees and incidental expenses has been taken over by the Central Government, civil consequences would still ensue on the passing of an order for special audit."

11 Thus, the Supreme Court has categorically

observed that unlike compulsory audit under

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Section 44AB, the special audit under Section

142(2A) is not limited to mere production of the

books and vouchers before an auditor and

verification thereof. It would involve

submission of explanation and clarification,

which may be required by the special auditor on

various issues with relevant data, documents

etc., which in normal course an assessee is

required to explain before the assessing

officer. Therefore, the special audit is more or

less in the nature of an investigation and in

some cases may even turn out to be stigmatic.

Thus, the special auditor may not only be

required to do the work which the Assessing

Officer would do in normal course but may also

be required to do the work which could be in the

nature of investigation.

12 It may further be noted that Section 142(2A)

was amended w.e.f. 1.6.2013, whereby the words

"the nature and complexity of the accounts,

volume of accounts, doubts about the

correctness of the accounts, multiplicity of

transactions in the accounts or specialized

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nature on business activities of the assessee,

and", have been substituted for the words "the

nature and complexity of the accounts of the

assessee". The Division Bench of this Court in

case of Tehmul Burjor Shethna Vs. ACIT (supra),

considering the said amendment, has observed the

following -

"17. At this juncture, it may be germane to refer to the explanatory notes to the provisions of the Finance Act, 2013 issued by the Central Board of Direct Taxes vide Circular No.03/2014 dated 24th January, 2013, which to the extent the same are relevant for the present purpose, read thus:

"35. Direction for special audit under sub- section (2A) of section 142 35.1 Sub-section (2A) of section 142 of the Income-tax Act, before its amendment by the Act, inter-alia, provided that if at any stage of the proceedings, the Assessing Officer having regard to the nature and complexity of the accounts of the assessee and the interests of the revenue, is of the opinion that it is necessary so to do, he may, with the approval of the Chief Commissioner or Commissioner, direct the assessee to get his accounts audited by an accountant and to furnish a report of such audit in the prescribed form. The expression "nature and complexity of the accounts" has been interpreted in a very restrictive manner by various courts.

35.2 Sub-section (2A) of section 142 has been amended to provide that if at any stage of the proceedings before him, the Assessing Officer, having regard to the nature and complexity of the accounts, volume of the accounts, doubts about the correctness of the accounts,

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multiplicity of transactions in the accounts or specialized nature of business activity of the assessee, and the interests of the revenue, is of the opinion that it is necessary so to do, he may, with the previous approval of the Chief Commissioner or the Commissioner, direct the assessee to get his accounts audited by an accountant and to furnish a report of such audit in the prescribed form.

35.3 Applicability: - This amendment takes effect from 1st June, 2013."

18. Thus, it is the restrictive interpretation of the expression "nature and complexity of the accounts" by various courts that has occasioned the amendment, evidently, therefore, the intention of the legislature was to widen the scope and ambit of sub-section (2A) of section 142 of the Act. The scope and ambit of sub-section (2A) of section 142 of the Act has, therefore, become wider upon its amendment with effect from 1 st June, 2013 and cannot be construed in the same restrictive manner as it was prior to its amendment.

19. As noted hereinabove, sub-section (2A) of section 142 of the Act can be invoked having regard to the nature and complexity of the accounts, volume of the accounts, doubts about the correctness of the accounts, multiplicity of transactions in the accounts or specialised nature of business activity of the assessee. Thus, four contingencies in which section 142(2A) of the Act can be invoked, relate to accounts.

20. The question that then arises for consideration is what meaning has to be assigned to the expression "accounts". The expression "account" has been defined in the Black's Law Dictionary to mean thus: "A detailed statement of the mutual demands in the nature of debit and credit between parties, arising out of contracts or some fiduciary relation. A statement in writing, of debits and credits, or of receipts and payments, a list of items of debits and credits, with their respective dates. A statement of pecuniary transactions; a record or course of business dealings with parties; a list or statement of monetary transactions, payable, accounts receivable, etc. in most cases showing a

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balance or result of comparison between items of an opposite nature". In P. Ramanatha Aiyar's Law Lexicon, "account" has inter alia been defined to mean: (i) a statement of moneys received and paid with calculation and balance, (ii) a formal record of debts and credits relating to the person named or caption placed at the head of the ledger account, (iii) computation, and (iv) a statement of fact or occurrence. Thus, the expression "account" also takes within its ambit a statement of pecuniary transactions, a record or course of dealings with parties as well as computation. The expression "accounts"cannot be read to mean 'books of account' which are statutorily required to be maintained by certain classes of assessees, but has to be given a wider meaning.

21. It is the case of the petitioner that he does not maintain any personal books of account as he is statutorily not required to maintain the same. In effect and substance, therefore, the petitioner seeks to equate the expression "accounts" with "books or books of account" as contemplated under section 2(12A) of the Act. However, as rightly submitted by the learned counsel for the respondents, the expression used in the sub- section is "accounts" and not "books of account", and had the legislature so intended, it would have employed the expression "books of account" instead of "accounts".

22. In CBI v. V.C. Shukla (supra), the Supreme Court though dealing with a case relating to section 34 of the Indian Evidence Act, had occasion to construe the scope and ambit of the expression "account". The Court held thus: "20. Mr Sibal, the learned counsel for the Jains, did not dispute that the spiral notebooks and the small pads are "books" within the meaning of Section 34. He, however, strongly disputed the admissibility of those books in evidence under the aforesaid section on the ground that they were neither books of account nor were they regularly kept in the course of business. He submitted that at best it could be said that those books were memoranda kept by a person for his own benefit. According to Mr Sibal, in business parlance "account" means a formal statement of money transactions between parties arising out of contractual or fiduciary relationship. Since the books in question did not reflect any such relationship and, on the

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contrary, only contained entries of monies received from one set of persons and payment thereof to another set of persons it could not be said, by any stretch of imagination that they were books of account, argued Mr Sibal. He next contended that even if it was assumed for argument's sake that the above books were books of account relating to a business still they would not be admissible under Section 34 as they were not regularly kept. It was urged by him that the words "regularly kept" mean that the entries in the books were contemporaneously made at the time the transactions took place but a cursory glance of the books would show that the entries were made therein long after the purported transactions took place. In support of his contentions he also relied upon the dictionary meanings of the words "account" and "regularly kept". 21. The word "account" has been defined in Words and Phrases, Permanent Edn., Vol. I-A at pp. 336 to 338 to mean

(i) a claim or demand by one person against another creating a debtor-creditor relation; (ii) a formal statement in detail of transactions between two parties arising out of contracts or some fiduciary relation. At p. 343 of the same book the word has also been defined to mean the preparation of record or statement of transactions or the like; a statement and explanation of one's administration or conduct in money affairs; a statement or record of financial transactions, a reckoning or computation; a registry of pecuniary transactions or a reckoning of money transactions; a written or printed statement of business dealing or debits and credits; or a certain class of them. It is thus seen that while the former definitions give the word "account" a restrictive meaning the latter give it a comprehensive meaning. Similarly is the above word defined, both restrictively and expansively, in Black's Law Dictionary (Sixth Edn.) to mean: "A detailed statement of the mutual demands in the nature of debit and credit between parties, arising out of contracts or some fiduciary relation. A statement in writing, of debits and credits, or of receipts and payments; a list of items of debits and credits, with their respective dates. A statement of pecuniary transactions; a record or course of business dealings between parties; a list of statement of monetary transactions, such as payments, losses, sales, debits, credits, accounts payable, accounts receivable, etc., in most cases showing a balance

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or result of comparison between items of an opposite nature."

22. Mr Altaf Ahmed relied upon the wider definition of the word "account" as mentioned above to contend that MR 71/91 fulfils the requirements of "account" as it records a statement of monetary transactions -- such as receipts and payments -- duly reckoned. Mr Sibal on the other hand urged that business accounts must necessarily mean only those accounts which record transactions between two parties, arising out of a contract or some fiduciary relations (a meaning accepted by the High Court). He submitted, relying upon the definition of "memorandum" as appearing in Words and Phrases, that MR 71/91 could at best be described as a memorandum of some transactions kept by a person for his own benefit to look into the same if and when the occasion would arise. 23. From the above definitions of "account" it is evident that if it has to be narrowly construed to mean a formal statement of transactions between two parties including debtor-creditor relation and arising out of contract, or some fiduciary relations, undoubtedly the book MR 71/91, would not come within the purview of Section 34. Conversely, if the word "account" is to be given wider meaning to include a record of financial transactions properly reckoned the above book would Page 68 of 94 Downloaded on : Mon Aug 09 15:46:58 IST 2021 C/SCA/6632/2019 JUDGMENT attract the definition of "book of account". 24. It cannot be gainsaid that the words "account", "books of account", "business" and "regularly kept"

appearing in Section 34 are of general import. Necessarily, therefore, such words must receive a general construction unless there is something in the Act itself, such as the subject-matter with which the Act is dealing, or the context in which the words are used, to show the intention of the legislature that they must be given a restrictive meaning. Thus, if the word "account"is to be given a wider meaning, it would include a record of financial transactions and not merely a formal statement of transactions.

23. It has been oft repeated by the learned counsel for the petitioner that the petitioner being an individual, is not under any statutory obligation to maintain any books of account and has not been maintaining any books of account and

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that in the absence of any accounts, the question of complexity in the accounts does not arise and hence, it is not permissible for the Assessing Officer to invoke the said provision. It has also been contended that even if the amended provision talks of audit for specialised nature of business activities of assessee, the prerequisite condition of maintenance of books of account as per statutory requirement is a must. Besides, the petitioner has consistently taken a stand in the proceedings under section 153A of the Act and pursuant to the notice for referring the matter for special audit that he does not maintain books of account. However, a perusal of the statement of the petitioner as recorded under section 132(4) of the Act, a copy whereof has been annexed by the petitioner along with his affidavit-inrejoinder, shows that at item No.12, the following question has been posed to the petitioner: "Please state where do you maintain and keep your books of accounts?" In reply to which, the petitioner has stated "All the books of accounts are maintained in TALLY program as is available at my office at 304, Akanksha Building, Opp. Vadilal House, Navrangpura, Ahmedabad." At item No.18, the question put to the petitioner is: "During the course of search action under section 132 of the I.T. Act, 1961, cash of Rs.7,14,700/- has been found from your residence. Please furnish whether the same has been reflected in your regular books of accounts?" In response thereto, the petitioner's answer is: "I do acknowledge that during the course of search action under section 132 of the I.T. Act, 1961, cash of Rs.7,14,700/- has been found from my residence. In this regard, I want to state that this cash is duly reflected in my books of accounts and in fact as date i.e. on 29.11.2016 I am having a cash balance of Rs.2 crores less approx. Rs.40 to 50 lakhs deposited in bank. Therefore, the same is duly reflected in my books of account." Thus, in his statement under section 132(4) of the Act, the petitioner has referred to his books of account; whereas subsequently, he has taken a stand that he does not maintain books of account.

24. Be that as it may, assuming that the petitioner does not maintain books of account as he is statutorily not mandated to do so, does it mean that merely by dint of this reason, subsection (2A) of section 142 of the Act cannot

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be invoked in his case? In the opinion of this court, such an intention cannot be attributed to the legislature while enacting the amended subsection (2A) of section 142 of the Act. As noted hereinabove, the sub-section came to be amended because of the restrictive meaning assigned to it by the court. The legislature, therefore, obviously intended to give it a wider meaning.

25 to 29 xxx

30. Besides, as pointed out by the learned counsel for the revenue, reference to special audit can also be made having regard to the specialised nature of the business activity of the assessee. In this case, the Assessing Officer is of the opinion that the petitioner is involved in the business of providing accommodation entries and money laundering. While such business may not be legal, even then it is a specialised business activity and the Assessing Officer may not have the wherewithal to decipher the documentary evidence. Under the circumstances, when the Assessing Officer finds that having regard to the specialised nature of business activities of the assessee, the accounts are required to be audited by an accountant as contemplated under sub-section (2A) of section 142 of the Act, it is permissible for the Assessing Officer to do so. Therefore, even if for the sake of argument the petitioner's contention that as he is not required to maintain accounts statutorily the question of complexity and volume of accounts would not arise were to be accepted, even then the petition would fail on the count that a direction to get the accounts audited by an accountant can also be given if the Assessing Officer having regard to the specialised nature of business of the petitioner is of the opinion that it is necessary to do so."

13 Having regard to the amended provision of

Section 142(2A) in the light of the afore-stated

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observations, there remains no shadow of doubt

that the Assessing Officer can exercise the

powers under Section 142(2A) by directing the

assessee to get his accounts audited by a

special auditor, if in his opinion it is

necessary to do so considering not only the

nature, complexity, volume or correctness of the

accounts but also considering the specialized

nature of business activity of the assessee. As

such, Section 142(2A) as amended w.e.f.

1.6.2013, could be broadly divided into three

parts;

(i) If, at any stage of the proceedings

before him, the Assessing Officer, having

regard to the nature and complexity of the

accounts, volume of the accounts, doubts

about the correctness of the accounts,

multiplicity of transactions in the

accounts or specialised nature of business

activity of the assessee, and the interests

of the revenue, is of the opinion that it

is necessary so to do, he may, with the

previous approval of the Principal Chief

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Commissioner or Chief Commissioner or

Principal Commissioner or Commissioner,

(ii) direct the assessee to get the

accounts audited by an accountant, as

defined in the Explanation below sub-

section (2) of section 288, nominated by

the Principal Chief Commissioner 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;

(iii) 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.

14 The first part of Section 142(2A) empowers

the Assessing officer to direct the assessee to

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get his accounts audited by a nominated

accountant, under the circumstances mentioned

therein; the second part pertains to the manner

in which such report and other particulars as

may be prescribed or as the assessing officer

may require should be furnished ; and the third

part obliges the assessing officer to give a

reasonable opportunity of being heard to the

assessee before directing him to get the

accounts so audited. Now, the second part can

further be divided into two parts namely; (i)

the assessing officer may direct the assessee to

furnish a report of such audit in the prescribed

form duly signed and verified by such

accountant; and (ii)setting forth such

particulars as may be prescribed and other

particulars as the assessing officer may

require. The prescribed form mentioned in the

said provision is the Form No.6B as stated in

Rule 14A of the said Rules, which requires that

the report of the audit of the accounts of the

assessee required to be furnished under Section

142(2A) shall be in Form No.6B.

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15 The Form No.6B reproduced earlier, for the

proper understanding may also be divided into

three parts. The first part of the Form

requires the auditor to examine the balance

sheet and profit and loss account, etc., and to

obtain the information and explanation necessary

for the purpose of the audit. The second part

pertains to the opinion of the auditor on the

information and explanation given to him by the

assessee and the third part pertains to the

furnishing of the prescribed particulars and

other particulars as were required by the

assessing officer. For the purpose of

furnishing prescribed particulars, there is an

Annexure below the said Form No.6B, i.e. the

statement of particulars.

16 So far as the facts of the present case are

concerned, the Court is not required to deal

with the first and third part of Sub-Section

(2A) of Section 142, inasmuch as the petitioners

have not challenged the orders dated 8.4.2021

disposing of their respective objections raised

against the proposed referral for special audit.

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Thus, the orders rejecting the objections of the

petitioners with regard to the nature and

complexity of the accounts, volume of accounts,

doubts about the correctness of the accounts,

multiplicity of transactions in the accounts, or

specialized nature of business activities of the

assessee and with regard to the interest of the

revenue, having not been challenged, the

decision making process also remain

unchallenged. Even otherwise, the petitioners

were afforded the opportunity of hearing by the

respondent by issuing the show-cause notices

dated 19.3.2021 and also by supplying the note

of satisfaction recorded for referring the case

to an independent auditor. The said show-cause

notices were sought to be challenged by the

petitioners by filing the Special Civil

Application No.6033 of 2021, and Special Civil

Application No.5940 of 2021 respectively but in

vain. Thereafter, the petitioners raised

objections vide letter dated 27.3.2021 and the

said objections came to be rejected vide order

dated 8.4.2021, which have become final.

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17 As regards the challenge to the terms of

reference dated 22.4.2021, the learned Sr.

Advocate Mr.S.N. Soparkar for the petitioners

has pressed into service the Annexure to the

Form No.6B prescribed under Rule 14A of the said

Rules to submit that the respondent - Assessing

officer had to confine himself to the said

statement of particulars prescribed in the said

Annexure. We are afraid, such submission

limiting the powers of the Assessing officer to

call for only those particulars which are

prescribed in the said Annexure to Form No.6B,

would be in derogation of the very purpose and

intent of the provisions contained in Section

142(2A) of the said Act and cannot be accepted.

When Section 142(2A) itself empowers the

Assessing Officer to direct the assessee to get

the accounts audited by the nominated accountant

and to furnish the audit report in the

prescribed form, setting forth the prescribed

particulars and the other particulars as the

Assessing Officer may require, and when the last

paragraph of the Form No.6B, also requires the

nominated accountant to furnish such prescribed

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and other particulars as the Assessing Officer

may require, his powers to call for the

particulars can not be restricted to only those

particulars as are stated in the Annexure i.e.

the statement of particulars annexed to the said

Form No.6B. The legislature having used the two

phrases i.e. "such particulars as may be

prescribed" and "such other particulars as the

Assessing officer may require", in Section

142(2A), it would mean that the Assessing

officer could ask the Accountant to set forth in

his report the prescribed particulars as well

as the other particulars as he may require

considering the facts and circumstances of the

case. If the submission of Mr.Soparkar that

only those particulars could be furnished as are

prescribed in the statement of particulars

contained in the annexure to the Form 6B is

accepted, the words "and such other particulars

as the assessing officer may require" in Section

142(2A) would become redundant and otiose.

18 Even in the case of Sahara India (Firm)

(supra) relied upon by Mr.Soparkar, it has been

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clearly observed while considering the

consequences which would follow to the order of

special audit that the special audit is not

limited to the production of the books and

vouchers before the auditor and verification

thereof. It would involve submission of

explanation and clarification which may be

required by the special auditor on various

issues with relevant data, documents etc. It is

more or less in the nature of an investigation.

If the incriminating material seized during the

search operations required some further

information or particulars, the Assessing

Officer can certainly direct the special auditor

to examine the same and call for the explanation

of the assessee as may be necessary to do.

19 This takes us to the next submission of

Mr.Soparkar to the effect that the assessment

proceedings being part of judicial process and

not an administrative in nature, the Assessing

officer cannot delegate his judicial functions

to the Auditor. According to him, the special

auditor cannot go into and examine the legal

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issues as has been directed by the respondent in

some of the questions. In this regard,

Mr.Soparkar has relied upon the observations

made by the Delhi High Court in case of Delhi

Development Authority & Anr. Vs. Union of India

& Anr., reported in 350 ITR 432. The relevant

observations contained in paragraph 24 thereof

read as under:-

"24. We have referred to the aforesaid note in detail for two reasons. Firstly, the note reveals that the Assessing Officer felt that the case required detailed scrutiny or monitoring, verification of entries, which were substantial in number. Detailed scrutiny of large number of entries by itself, on standalone basis, will not amount to complexity of accounts. The accounts do not become complex because merely there are large number of entries, e.g., a petrol pump may have substantial sales, to thousands of customers daily at prices fixed under law/Rules, but this by itself will not be the accounts complex.

Similarly, an Assessing Officer is required to scrutinize the entries and verify them, but this does not require services of a special auditor or a Chartered Accountant to undertake the said exercise. Section 142(2A) is not a provision by which the Assessing Officer delegates his powers and functions, which he can perform to the special auditor. The said provision has been enacted to enable the Assessing Officer to take help of a specialist, who understands accounts and accounting practices to examine the accounts when they are complex and the Assessing Officer feels that he cannot understand them and comprehend them fully,

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till he has help and assistance of a special auditor. Interest of the Revenue being the other consideration. In the present case, the Revenue has not submitted that test check of entries was undertaken, but anomalies or mistakes were detected. For proceeding further, and to compute the taxable income, help and assistance of an accounting expert was required. Secondly, we notice that the Assessing Officer felt that special auditor is required for determining and deciding certain legal issues, i.e., nature and character of Nazul I and Nazul II land, payments received and the treatment of the said payments, receipts or expenditure in the books for the purposes of taxation. The special auditor cannot go into and examine the said legal issue or question regarding taxability. This has to be determined and decided by the Assessing Officer."

20 It may be noted that the aforesaid decision

was rendered by the Delhi High Court considering

the Section 142(2A) as it stood prior to its

amendment in 2013. After the amendment on

1.6.2013, the scope of Section 142(2A) has been

widened, whereunder, the Assessing officer is

empowered to direct the assessee to get the

accounts audited by a nominated accountant,

having regard to not only the nature and

complexity of the accounts, but also to the

volume of the accounts, doubts about the

correctness of the accounts, multiplicity of the

transactions in the accounts or specialized

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nature of business activities of the assessee

coupled with the interest of the revenue and

furnish a report of such audit in the prescribed

form, setting forth the prescribed particulars

and such other particulars as he i.e. the

Assessing Officer may require. There cannot be

any disagreement to the proposition that the

assessment proceedings are in the nature of

quasi judicial proceedings and not

administrative proceeding, and therefore, it is

the Assessing officer, who has to decide the

legal issues or questions involved in the case,

nonetheless the Assessing officer cannot be

restrained from calling for the particulars

which may involve legal issues. There may be

certain particulars or queries, involving legal

issues, like the particulars with regard to the

cash-credit under Section 68, unexplained

investments under Section 69, unexplained money

under Section 69A, amount of investments not

fully disclosed in the books of accounts under

Section 69B, unexplained expenditure etc. under

Section 69C, amount borrowed or repaid on

hundies under Section 69D etc. which the

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Assessing Officer may require the special

auditor to look into them and opine. Even the

prescribed particulars contained in the Annexure

to the Form No.6B permit the auditor to call for

the details of the issues like the amounts not

deductible under Section 40A of the Act, the

particulars of the loans taken by the assessee,

the particulars as to whether the assessee has

deducted the tax at source in accordance with

the provisions of Chapter-XVII-B of the Act or

not etc. These are some of the instances stated

in the Form 6B itself, which indicate that the

Assessing officer can call for the opinion of

the special auditor with regard to the issues,

including the legal issues. As stated earlier,

the final decision on all the issues has to be

taken by the Assessing officer, being a quasi

judicial authority, nonetheless, he can not be

restrained from calling for the opinion of the

special auditor on the particulars which he may

require having regard to the facts and

circumstances of the case, which even otherwise

is permissible under Section 142(2A) read with

the Form 6B prescribed under Rule 14A of the

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Rules.

21 Of course, there could not be any roving or

fishing inquiry under the guise of special

audit, however, whether a particular term of

reference could be termed as a rowing or fishing

inquiry or not would be a highly disputed

question of fact. Apart from the fact that the

learned Sr. Advocate Mr. M. R. Bhatt for the

Revenue has furnished in the Excel Format the

comments of the respondent justifying each of

the directions issued by the respondent -

Assessing Officer in the impugned order, this

Court exercising an extraordinary jurisdiction

under Article 226 of the Constitution of India

cannot be expected to examine each and every

question contained in the impugned directions,

and opine as to which part of which question is

required to be construed as a roving or fishing

inquiry for being discarded. Even otherwise as

transpiring from the show-cause notice dated

19.3.2021 along with the satisfaction note drawn

by the Assessing officer and the order dated

8.4.2021, voluminous material was seized during

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the course of search proceedings and post search

proceedings, by the DDIT, INB Unit-1(Ahmedabad),

conducted at various premises of Dishman Group

including the residential premises of the

petitioners. It was detected from the seized

material that the key persons of Dishman Group

identified were Shri Janmejay Vyas, Chairman;

his son Shri Arpit Vyas, Global CMD, Shri Bharat

Padiya, Executive Director and Shri Harshil

Dalal, Global CFO of the Group, and Smt.

Deohooti Vyas and the said persons were

connected with each other through various

companies, firms/LLPs in a web-manner and that

the said group had unaccounted transactions to

the tune of Rs.3949 crore. The seized material

included voluminous record running into 50 plus

HD drive of 1 TB each i.e. more than 50 TB plus

SAP software data and loose material running

into more than 22000 papers. The seized material

including the loose paper files contained the

details of about 76 properties i.e. plots at

various places purchased by the petitioners.

There were bogus claims of expenditures, higher

income shown through inflated sales and

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commission income, sale of unaccounted scraps,

transactions with foreign subsidiaries and the

sales routed through them without availing

actual services, over and above the following

bogus and unaccounted transactions pertaining to

the Dishman Group -

Sr. Nature of Transactions Amount No. involved (in Crores) 1 Undisclosed seized assets 04 2 Bogus Loans & advances (Debit) 795 3 Bogus Loans & advances (Credit) 671 4 Bogus Trading Purchases 38 5 Bogus Capex 25 6 Bogus Raw Material Purchases 02 7 Bogus Sales 53 8 Bogus Commission Income 105 9 Unsubstantiated claim of 959 Goodwill depreciation 10 Unaccounted scrap sale 04 11 On money in plot sale: 03 DishmanGroup Total 2659

22 The respondent - Assessing officer after

going through the said material seized during

the search operations and after following the

due procedure of giving reasonable opportunity

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of hearing to the petitioners and after

obtaining necessary approval of the Principal

Commissioner of the Income Tax as contemplated

in Sub-section (2A) of Section 142 has directed

the respective petitioners vide the impugned

directions to get their accounts audited by the

nominated accountant, and to furnish the report

in the prescribed form, also setting forth the

requisite particulars as prescribed in the

questionnaire. Such directions could neither be

said to be arbitrary, illegal nor beyond the

scope of the said provision. It is neither

permissible to the Court exercising the

jurisdiction under Article 226 of the

Constitution to enter into the disputed

questions of facts, nor is it possible for the

Court to analyse each and every direction and

come to the conclusion whether it is bad in law

or not. The submission of Mr.Soparkar that if

some of the questions, which seem to be bad in

law cannot be segregated, the entire impugned

order containing the directions be quashed and

set aside, also cannot be accepted.

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23 It is axiomatic that when an authority has a

jurisdiction to pass an order, the exercise of

jurisdiction in wrongful manner in certain cases

even though held to be illegal, would not

necessarily render the order a nullity. All

irregular or erroneous or illegal orders cannot

be held to be null and void. The Supreme Court

in case of Deepak Agro Foods Vs. State of

Rajasthan & Ors., reported in (2008) 7 SCC 748

drawing a fine distinction between the orders

which are null and void and the orders which are

irregular, wrong or illegal, has observed as

under:-

"17.All irregular or erroneous or even illegal orders cannot be held to be null and void as there is a fine distinction between the orders which are null and void and orders which are irregular, wrong or illegal. Where an authority making order lacks inherent jurisdiction, such order would be without jurisdiction, null, non est and void ab initio as defect of jurisdiction of an authority goes to the root of the matter and strikes at its very authority to pass any order and such a defect cannot be cured even by consent of the parties. (See: Kiran Singh & Ors. Vs. Chaman Paswan & Ors.1). However, exercise of jurisdiction in a wrongful manner cannot result in a nullity - it is an illegality, capable of being cured in a duly constituted legal proceedings."

24 In the instant case, as set out herein above

the Assessing Officer does have the

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jurisdiction to give directions for a special

audit under Section 142(2A). Even the impugned

directions also do not suffer from any

illegality or infirmity. In any case, even if

two-three queries out of forty five queries are

found to be unwarranted, as sought to be

submitted by Mr.Soparkar, the entire order

giving directions can not be set aside treating

it to be a nullity. In that view of the matter,

both the petitions being devoid of merits

deserve to be dismissed.

25 At this stage, the request made by the

learned Sr. Advocate Mr.M. R. Bhatt for the

respondent to exclude the period during which

the present petition remained pending in the

High Court after issuance of the notice i.e.

from 14.6.20201 till this date, deserves to be

considered for the purpose of Section 142(2C) of

the Act. The Supreme Court in case of VLS

Finance Ltd. & Anr. Vs. CIT & Anr. (supra),

dealing with similar issue observed as under:-

"23. We, therefore, agree with the High Court that the special audit was an integral step towards

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assessment proceedings. The argument of the appellants that the writ petition of the appellant was ultimately allowed and the Court had quashed the order directing special audit would mean that no special audit was needed and, therefore, it was not open to the respondent to wait for special audit, may not be a valid argument to the issue that is being dealt with. The assessing officer had, after going through the matter, formed an opinion that there was a need for special audit and the report of special audit was necessary for carrying out the assessment. Once such an opinion was formed, naturally, the assessing officer would not proceed with the assessment till the time the special audit report is received, inasmuch as in his opinion, report of the special audit was necessary. Take a situation where the order of special audit is not challenged. The assessing officer would naturally wait for this report before proceeding further. Order of special audit followed by conducting special audit and report thereof, thus, become part of assessment proceedings. If the order directing special audit is challenged and an interim order is granted staying the making of a special report, the assessing officer would not proceed with the assessment in the absence of the audit as he thought, in his wisdom, that special audit report is needed. That would be the normal and natural approach of the assessing officer at that time. It is stated at the cost of repetition that in the estimation of the assessing officer special audit was essential for passing proper assessment order. If the court, while undertaking judicial review of such an order of the assessing officer directing special audit ultimately holds that such an order is wrong (for whatever reason) that event happens at a later date and would not mean that the benefit of exclusion of the period during which there was a stay order is not to be given to the Revenue. Explanation 1 which permits exclusion of such a time is not dependent upon the final outcome of the proceedings in which interim stay was granted."

26 Applying the ratio of the afore-stated

judgement to the facts of the present petitions,

it is directed that the period during which both

the petitions remained pending i.e. from the

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date of issuance of notice on 14.6.2021 till the

date of pronouncement of judgement, shall be

excluded while counting the period prescribed in

the proviso to Sub-section (2C) of Section 142

of the said Act. Subject to the said direction,

the petitions are dismissed.

27 At the request of the learned Sr. Advocate

Mr.Soparkar, the interim relief granted vide

order dated 14.6.2021 in both petitions is

extended till 7.9.2021, with a view to enable

the petitioners to approach the higher forum.

Sd/-

(BELA M. TRIVEDI, J)

Sd/-

(A. C. JOSHI,J) V.V.P. PODUVAL

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