M/s Haryana State Industrial & Infrastructure Dev. Corp. Ltd., Panchkula V. ACIT, Circle, Panchkula

ITA 1369/CHANDI/2019

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 2835 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 year(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-10-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 29-07-2021
• Assessment Year: 2014-2015
• Appeal Filed On: 18-10-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C CHANDRAKANTA
• Assessee Lawyers: A K JINDAL; RATTAN KAUR
• Keywords: Reopening of assessment; Business income; Opportunity of being heard; Principle of natural justice; Period of limitation; Cost of acquisition; Time period of passing order; Revised return; Capital expenditure; Set aside
• Section: 143(3); 143(2); 142(2A); 13; 153; 22; 148

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH A, CHANDIGARH BEFORE: SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER AND SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER ./ ITA NO.1369 /CHD/2019 / ASSESSMENT YEAR : 2014-15 M/S HARYANA STATE INDUSTRIAL & INFRASTRUCTURE DEV. CORPN. LTD., PANCHKULA. THE A.C.I.T., CIRCLE PANCHKULA. ./ PAN NO: AAACH4114R / APPELLANT /RESPONDENT /ASSESSEE BY : SHRI A.K. JINDAL, CA & SMT.RATTAN KAUR, CA / REVENUE BY : SMT.C.CHANDRAKANTA, CIT ' /DATE OF HEARING : 29.07.2021 ' /DATE OF PRONOUNCEMENT : 26.10.2021 (HEARING THROUGH WEBEX) /ORDER PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER : THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSESS EE AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF IN COME TAX(APPEALS)-I, CHANDIGARH [(IN SHORT THE LD.CIT(A )] DATED 27.08.2019 RELATING TO ASSESSMENT YEAR 2014-15, PAS SED U/S ITA NO.1369/CH D/2019 A.Y. 2014-15 PAGE 2 OF 32 250(6) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REF ERRED TO AS ACT). 2. BRIEF BACKGROUND OF THE CASE IS THAT ASSESSMENT FOR THE IMPUGNED YEAR WAS COMPLETED U/S 143(3) OF THE ACT. DURING ASSESSMENT PROCEEDINGS A REFERENCE WAS MADE BY THE ASSESSING OFFICER (AO) FOR AUDIT OF ACCOUNTS OF THE ASSESSEE U/S 142(2A) OF THE ACT (HEREINAFTER REFERRED TO AS SPECIAL AUD IT)AND AFTER OBTAINING THE REPORT OF THE SPECIAL AUDITOR, ASSESS MENT WAS FRAMED BY MAKING VARIOUS ADDITIONS UNDER DIFFERENT HEADS AMOUNTING IN ALL TO RS.6889,06,69,100/-, AS DETAILE D IN PARA 2 OF THE CIT(A)S ORDER. 3. THE ASSESSEE CHALLENGED THE ORDER OF THE AO BEFO RE THE LD.CIT(A) ON VARIOUS GROUNDS, INCLUDING CHALLENGING THE REFERENCE MADE BY THE AO TO SPECIAL AUDIT. THE LD.C IT(A) THEREAFTER ADJUDICATED THE VARIOUS GROUNDS RAISED A ND PARTLY ALLOWED THE ASSESSEES APPEAL. THE GROUNDS RAISED R EGARDING THE CHALLENGE TO THE REFERENCE TO SPECIAL AUDIT WAS DIS MISSED BY THE LD.CIT(A) HOLDING THAT THE SAID REFERENCE WAS NOT A PPEALABLE BEFORE HIM. 4. AGGRIEVED BY THE ORDER OF THE LD.CIT(A) THE ASSE SSEE HAS NOW COME UP IN APPEAL BEFORE US. BESIDES THE GROUND S RAISED IN ITS APPEAL FILED BEFORE US IN FORM NO.36, THE ASSES SEE ALSO ITA NO.1369/CH D/2019 A.Y. 2014-15 PAGE 3 OF 32 RAISED AN ADDITIONAL GROUND VIDE ITS LETTER DATED 0 7.12.2020, WHICH READS AS UNDER: 'THAT THE ASSESSMENT ORDER PASSED U/S 143(3) IS PRI MA FACE ILLEGAL, BAD IN LAW, WITHOUT JURISDICTION, VOID AB- INITIO AND IS THUS BARRED BY TIME LIMITATION AS THE VERY REFERENCE TO THE SPECIAL AUDIT U/S 142(2A) OF THE ACT IS ILLEGAL AND BAD IN LAW.' 5. THE LD.COUNSEL FOR THE ASSESSEE PLEADED THAT THE GROUND RAISED BEING A LEGAL GROUND AND THE ENTIRE FACTS AN D DETAILS REQUIRED FOR ADJUDICATING THE SAME BEING A MATTER O F RECORD AND NO FURTHER INVESTIGATION BEING REQUIRED, THE SAME B E ADMITTED FOR ADJUDICATION. HE RELIED UPON THE ORDER OF THE H ON'BLE SUPREME COURT IN THE CASE OF NATIONAL THERMAL POWER CORPORATION VS. CIT, 229 ITR 383 (SC). 6. THE REVENUE ON THE OTHER VEHEMENTLY OPPOSED THE PRAYER FOR ADMISSION OF THE ADDITIONAL GROUND CONTENDING T HAT THE ADDITIONAL GROUNDS CHALLENGED THE REFERENCE TO SPE CIAL AUDIT WHICH IT WAS SETTLED LAW WAS NOT APPEALABLE. IN THI S REGARD LD.DR RELIED HEAVILY ON THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF RAJESH KUMAR & OTHERS VS. DCIT 287 I TR 91(SC). 7. TO THIS THE LD.COUNSEL FOR THE ASSESSEE COUNTERE D BY PLACING BEFORE US VARIOUS DECISIONS OF THE TRIBUNAL AND HIGH COURTS HOLDING TO THE CONTRARY. THE SUBMISSIONS IN WRITING TO ITA NO.1369/CH D/2019 A.Y. 2014-15 PAGE 4 OF 32 THIS EFFECT WERE ALSO FILED ALONGWITH THE COPIES OF THE CASE LAWS RELIED UPON BY THE LD.COUNSEL FOR THE ASSESSEE. 8. WE HAVE HEARD BOTH THE PARTIES. WE HAVE ALSO GON E THROUGH THE VARIOUS CASE LAWS RELIED UPON BY THEM. WE FIND THAT THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF RAJESH KUMAR(SUPRA), RELIED UPON BY THE LD.DR TO SU PPORT HER CONTENTION THAT THE REFERENCE TO SPECIAL AUDIT IS N OT APPEALABLE, HAS BEEN CONSIDERED IN VARIOUS DECISIONS OF THE TRI BUNAL AND HIGH COURTS WHERE THE REVENUE HAD IDENTICALLY OPPOS ED THE ADJUDICATION OF THIS ISSUE. WE FIND THAT TAKING NOT E OF THE SAID DECISION THIS ARGUMENT OF THE REVENUE HAS BEEN DISM ISSED BY THE ITAT, HOLDING THAT THOUGH ORDER DIRECTING SPECI AL AUDIT IS OTHERWISE NOT APPEALABLE BUT WHILE CHALLENGING THE ASSESSMENT ORDER AS BEING BARRED BY LIMITATION, THE VALIDITY O F THE ORDER DIRECTING SPECIAL AUDIT U/S 142(2A) CAN BE CHALLENG ED, ALBEIT FOR THIS LIMITED PURPOSE ALONE. IT HAS BEEN HELD THAT F OR COMING TO A CONCLUSION THAT THE ASSESSMENT ORDER IS BARRED BY LIMITATION, ALL ASPECTS INTEGRAL TO THE PROCESS AND ULTIMATE CO MPLETION OF ASSESSMENT CAN BE CHALLENGED AND CONSIDERED FOR DEC IDING THE SAME. THE RELEVANT DECISIONS ARE: 1) UNITECH LIMITED VS ACIT IN ITA NO.5180 /DEL/2013 DATED 08.04.2016: ITA NO.1369/CH D/2019 A.Y. 2014-15 PAGE 5 OF 32 FURTHERMORE, THE JUDGMENTS RELIED UPON BY THE REVE NUE 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 C IT (SUPRA). IN THIS CASE THE HON'BLE COURT HAS HELD IN PARA 34 THA T THE ORDER OF ASSESSMENT CAN BE SUBJECT MATTER OF AN APPEAL; AND NOT, A DIRECTION ISSUED U/S I42(2A) OF THE ACT. IN THIS AP PEAL 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 HON'BLE SUPREME COURT IN THE CASE OF SAHARA INDIA (FIRM) V CIT (SUP RA). THE CHALLENGING TO THE VALIDITY OF ORDER U/S 142(2A) OF THE ACT IS CONFINED TO THE EXTENT THAT ORDER IS BARRED BY LIMI TATION AND NOT TO THE EXTENT OF REFUNDING THE FEES OR ANY OTHER CONSE QUENCE FLOWING OUT OF THE ORDER U/S 142(2A) O F THE ACT. FURTHER O BSERVATION OF HON'BLE COURT THAT PRINCIPLES OF NATURAL JUSTICE AR C 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 DECID ED TO THE CONTRARY. THE LEARNED COUNSEL FOR THE REVENUE HAS N OT BEEN ABLE TO POINT OUT ANY MATERIAL SO AS TO ARRIVE AT DIFFERENT VIEW OF THE MATTER. 2) CONSULTING ENGINEERING SERVICES INDIA PVT. LIMITED VS ACIT (2019) 198 TTJ 0121 (DEL): 17. THE QUARREL BEFORE US IS AS TO WHETHER THE ASS ESSMENT ORDER FRAMED U/S 143(3) IS PASSED WITHIN THE PERIOD OF LIMITATION PERIOD PRESCRIBED UNDER THE ACT OR NOT. IN OUR CONS IDERED OPINION, FOR COMING TO SUCH A CONCLUSION, WE CAN EXAMINE WHE THER THE ORDER PASSED U/S 142(2A) OF THE ACT IS IN ACCORDANC E WITH LAW OR NOT. IT IS TRUE THAT THE ORDER PASSED U/S 142(2A) O F THE ACT IS NOT APPEALABLE BUT WHEN AN ASSESSMENT ORDER IS CHALLENG ED, THEN THE DIFFERENT ASPECTS, WHICH ARE INTEGRAL TO THE PROCES S AND ULTIMATE COMPLETION OF THE AMOUNT CAN BE CHALLENGED IN APPEA L AND SINCE THE GROUND BEFORE US IS CHALLENGED FOR ASSESSMENT B EING BARRED BY LIMITATION, WE ARE WELL WITHIN OUR RIGHTS TO CON SIDER ALL MATERIAL ITA NO.1369/CH D/2019 A.Y. 2014-15 PAGE 6 OF 32 ASPECTS WHICH WERE CONSIDERED WHILE FRAMING THE ASS ESSMENT ORDER U/S 143(3) OF THE ACT. 9. FURTHER, THE HONBLE DELHI HIGH COURT IN THE CAS E OF CONSULTING ENGINEERING SERVICES PRIVATE LIMITED VS. ITAT & ANOTHER IN WP(C)7734/2017 DATED 01.09.2017, HAS CATEGORICALLY HELD THAT IT IS WELL WITHIN THE JURIS DICTION OF THE ITAT TO ENTERTAIN THE GROUNDS RELATING TO VALIDITY OF REFERENCE TO SPECIAL AUDIT, AFTER NOTING THAT THE OBSERVATION TO THE CONTRARY BY THE APEX COURT IN THE CASE OF SAHARA IN DIA (SUPRA) WAS SPECIFIC TO THOSE CASES. THE RELEVANT F INDINGS ARE AS UNDER: 4. THE PETITIONER CHALLENGES AN INTERIM ORDER DATE D 8TH AUGUST, 2017 PASSED BY THE INCOME TAX APPELLATE TRI BUNAL (ITAT) IN PETITIONERS APPEAL BEING ITA NO.1443/D EL/2014 FOR THE ASSESSMENT YEAR (AY) 2008 2009. BY THE SAID IMPUGNED ORDER, THE ITAT HAS DECLINED TO PERMIT THE PETITIONER TO RAISE ADDITIONAL GROUND 22 WHICH RE ADS AS UNDER: '22. THAT THE ASSESSMENT ORDER PASSED ON 25.06.2012 IS ILLEGAL, BAD IN LAW, WITHOUT JURISDICTION & BARRED BY TIME LIMITATION AS THE REFERENCE & ORDER UNDER SECT ION 142(2A) OF THE ACT IS ILLEGAL AND BAD IN LAW.' 5. ACCORDING TO THE ITAT IN VIEW OF THE DECISION I N SAHARA INDIA (FIRM) V CIT (2008) 169 TAXMANN 328 (SC) , IT WAS IMPERMISSIBLE TO PERMIT THE ITAT TO EXAMINE THE VALIDITY OF ORDER PASSED UNDER SECTION 142(2A) OF T HE INCOME TAX ACT, 1961 (THE ACT) IN ORDER TO HOLD T HAT THE ASSESSMENT HAS BEEN BARRED BY LIMITATION. IN OTHER WORDS, THE SAID DECISION OF THE SUPREME COURT WAS UNDERSTO OD BY THE ITAT AS HOLDING THAT THE CHALLENGE TO THE ORDER UNDER SECTION 142(2A) OF THE ACT CANNOT BE RAISED BEFORE THE ITAT ITA NO.1369/CH D/2019 A.Y. 2014-15 PAGE 7 OF 32 WHILE EXAMINING WHETHER THE ASSESSMENT ORDER HAS BE EN BARRED BY LIMITATION. 6. THE COURT FINDS THAT THE ITAT ITSELF HAS BEEN T AKING A DIFFERENT POSITION IN MANY OTHER CASES, THE ORDERS IN WHICH HAVE BEEN ENCLOSED WITH THE PRESENT PETITION. FOR I NSTANCE, IN ITS ORDER DATED 9TH DECEMBER, 2015 PASSED IN ITA NO. 2256/DEL/2005 (PHI SEEDS LTD. NEW DELHI V. DY. COMMISSIONER OF INCOME TAX, CIRCLE 14(1), NEW DELHI ), THE ITAT AFTER NOTICING THE AFOREMENTIONED DECISION OF THE SUPREME COURT IN SAHARA INDIA (FIRM) V CIT (SUPRA) HELD: 7.4. IN THE PRESENT PROCEEDINGS WHAT WE ARE EXAMIN ING, IS WHETHER THE EXTENDED PERIOD OF LIMITATION AS PROVIDED UNDER EXPLANATION L (III) OF SECTION 153 I S AVAILABLE TO THE ASSESSING OFFICER FOR COMPLETION O F ASSESSMENT U/S 143(3), OR NOT. THE ASSESSEE CONTENDS THAT THE ORDER U/S 142(2C), EXTENDING THE PERIOD GRANTED FOR COMPLETION AND SUBMISSION OF AUDIT REPORT IS MADE WITHOUT AN APPLICATION BEING MADE FOR W.P.(C) 7734/2017 EXTENSION BY THE ASSESSEE AND FOR ANY GOOD AND SUFFICIENT REASON, AND HENCE THE EXTENSION IS BAD IN LAW AND HENCE THE AO WOULD NOT GET THE BENEFIT OF THE EXTENDED PERIOD OF TIME TO SPECIFIED IN EXPLANATION L(III) OF SECTI ON 153 OF THE ACT. IN OUR VIEW, THE TRIBUNAL HAS JURISDICT ION TO ADJUDICATE THE ISSUE AS TO WHETHER AN ORDER OF ASSESSMENT 143(3), IS PASSED WITHIN THE PERIOD OF LIMITATION PRESCRIBED UNDER THE ACT OR NOT. FOR COM ING TO SUCH A CONCLUSION, IN OUR VIEW THE TRIBUNAL CAN EXAMINE WHETHER THE ORDER PASSED U/S 142(2A) OR U/S 142(2C) IS IN ACCORDANCE WITH LAW OR NOT. THE ORDER PASSED U/S 142(2A) OR U/S 142(2C) CANNOT BE APPEALED SEPARATELY. BUT WHEN AN ASSESSMENT ORDER IS CHALLENGED, THEN THE DIFFERENT ASPECTS WHICH ARE INTEGRAL TO THE PROCESS AND ULTIMATE COMPLETION OF AMOUNT CAN BE CHALLENGED IN APPEAL. FOR EXAMPLE A NOTICE U/S 148 OR REASONS RECORDED BY THE A.0 PRIOR TO RE-OPENING OF ASSESSMENT CANNOT BE CHALLENGED SEPARATELY. BUT AN ASSESSMENT ORDER CAN BE CHALLENGED IN AN APPEAL BEFORE THE LD. CIT(A) OR TH E ITAT ON THE GROUND THAT THE RE-OPENING ITSELF IS BA D IN LAW, AS THE NOTICE IS ILLEGAL OR NOT SERVED OR THAT THERE IS NO MATERIAL BASED ON WHICH REASONS WERE RECORDED ETC. EVERY FACET OF AN ASSESSMENT CAN BE ITA NO.1369/CH D/2019 A.Y. 2014-15 PAGE 8 OF 32 CHALLENGED IN APPEAL TO DENY ONCE LIABILITY TO BE CHARGED TO TAX OR TO CHALLENGE THE QUANTUM OF TAX DEMANDED. IN THE CASE OF HAND, THE LEGALITY OF THE ORDERS PASSED U/S 142(2A) OR U/S 142(2C) CAN BE CHALLENGED TO DEMONSTRATE THAT THE ORDER OF ASSESSMENT HAS BEEN PASSED BEYOND THE PERIOD OF LIMITATION. THUS, WE REJECT THIS CONTENTION OF THE LD. CIT. DR. 7. A SIMILAR VIEW WAS TAKEN BY THE ITAT IN UNITECH LTD. V. ADDITIONAL COMMISSIONER OF INCOME-TAX, RANGE- [2016] 74 TAXMANN.COM 121 (DELHI-TRIB.) . THE ORDER OF THE ITAT ON THE SAME LINES WAS UPHELD BY THIS COURT IN PRINCIPAL COMMISSIONER OF INCOME-TAX V. NILKANTH CONCAST (P.) LTD. [2016] 70 TAXMANN.COM 157 (DEL) . 8. THE COURT NOTICES THAT THE OBSERVATION IN SAHARA INDIA (FIRM) V CIT (SUPRA) WAS IN THE PECULIAR FACTS OF THAT CASE AND WAS NOT MEANT TO BE A GENERAL OBSERVATION APPLI CABLE ACROSS THE BOARD FOR ALL CASES. THIS IS W.P.(C) APPARENT FROM THE OBSERVATIONS IN THE FOLLOWING PARAS: 24. THE UPSHOT OF THE ENTIRE DISCUSSION IS THAT TH E 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 AFFORD ING 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). ...... 29. THERE IS NO DENYING THE FACT THAT THE LAW ON TH E SUBJECT WAS IN A FLUX IN THE SENSE THAT TILL THE JUDGMENT IN RAJESH KUMAR (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 14TH DECEMBER, 2006, THIS COUR T ITA NO.1369/CH D/2019 A.Y. 2014-15 PAGE 9 OF 32 HAD DECLINED TO STAY THE ASSESSMENT PROCEEDINGS, WE ARE OF THE OPINION THAT THIS COURT SHOULD BE LOA THE 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 APPELL ANTS 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 OP EN 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 TH E ACT. 9. IN THE CONSIDERED VIEW OF THE COURT, THE ITAT OU GHT TO HAVE PERMITTED THE PETITIONER TO RAISE THE AFOREMENTIONE D ADDITIONAL GROUND AND OUGHT TO HAVE DECIDED THE SAI D ADDITIONAL GROUND ON ITS MERITS IN ACCORDANCE WITH LAW. 10. THE WRIT PETITION IS ALLOWED AND THE IMPUGNED ORDER DATED 8TH AUGUST, 2017 PASSED BY THE ITAT IS SET ASIDE. T HE PETITIONER IS PERMITTED TO URGE THE ADDITIONAL GROU ND NO.22 BEFORE THE ITAT, WHICH WOULD DECIDE THE PETITIONER S APPEAL INCLUDING THE ABOVE ADDITIONAL GROUND, IN ACCORDANC E WITH LAW, WHILE PASSING THE FINAL ORDER . 9.1 IT IS, THEREFORE, EVIDENT FROM THE ABOVE THAT THE VALIDITY OF REFERENCE U/S 142(2A) OF THE ACT IS APPEALABLE WHEN IT HAS BEEN SO CHALLENGED FOR THE PURPOSE THAT THE ASSESSMENT O RDER SO PASSED, IN CONSEQUENCE TO THE EXTENDED TIME AVAILAB LE ON ACCOUNT OF THE SAID REFERENCE, WAS TIME BARRED. IN THE PRESENT CASE THE ADDITIONAL GROUND RAISED BEFORE US IS TO T HIS EFFECT ONLY THAT THE ASSESSMENT ORDER WAS BARRED BY LIMITA TION, ON ACCOUNT OF THE REFERENCE TO SPECIAL AUDIT BEING ILL EGAL. THE ITA NO.1369/CH D/2019 A.Y. 2014-15 PAGE 10 OF 32 OBJECTION OF THE LD.DR THEREFORE TO THE ADMISSION O F THE ADDITIONAL GROUNDS RAISED BY THE ASSESSEE, ARE DISM ISSED. 10. FURTHER CONSIDERING THAT THE ADDITIONAL GROUND RAISED BEFORE US CHALLENGES THE VALIDITY OF THE ASSESSMENT ORDER PASSED ON ACCOUNT OF IT BEING BARRED BY LIMITATION, THE SAID ADDITIONAL GROUND IS A LEGAL GROUND AND CONSIDERING THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF N ATIONAL THERMAL POWER CORPORATION (SUPRA) THE SAME IS BEING ADMITTED FOR ADJUDICATION. 11. WE SHALL NOW PROCEED TO ADJUDICATE THE ADDITION AL GROUND RAISED, MORE SPECIFICALLY WHETHER REFERENCE MADE FO R SPECIAL AUDIT U/S 142(2A) OF THE ACT WAS IN ACCORDANCE WITH LAW OR NOT. DETAILED ARGUMENTS WERE MADE BY THE ASSESSEE BOTH O RALLY AND IN WRITING BEFORE US ON THE ADDITIONAL GROUND RAISE D, REFERRING TO VARIOUS DOCUMENTS PLACED BEFORE US IN A PAPER BO OK COMPILATION OF 444 PAGES AND ALSO RELYING UPON VARI OUS CASE LAWS. THE LD.COUNSEL FOR THE ASSESSEE CONTENDED THA T THE INGREDIENTS/PRECONDITIONS FOR INVOKING THE PROVISIO NS OF SECTION 142(2A) WERE NOT SATISFIED, NO COMPLEXITY IN THE AC COUNTS WAS POINTED OUT, ORDER WAS PASSED WITHOUT GIVING DUE OP PORTUNITY OF HEARING TO THE ASSESSEE, THE APPROVAL OF THE PCI T TO THE ITA NO.1369/CH D/2019 A.Y. 2014-15 PAGE 11 OF 32 SPECIAL AUDIT WAS MECHANICAL, THAT THE ENTIRE EFFOR T WAS ONLY WITH THE MOTIVE TO EXTEND THE PERIOD OF LIMITATION. 12. THE LD.DR VEHEMENTLY CONTESTED ALL THE CHARGES AND CONTENTIONS OF THE LD.COUNSEL FOR THE ASSESSEE. 13. WE HAVE HEARD BOTH THE PARTIES AND HAVE ALSO CA REFULLY GONE THROUGH THE DOCUMENTS REFERRED TO BEFORE US AS ALSO THE CASE LAWS RELIED UPON. 14. AS PER THE PROVISIONS OF LAW RELATING TO REFER ENCE BY AO TO SPECIAL AUDIT OF ACCOUNTS OF AN ASSESSEE, AS P ART OF THE PROCESS OF INQUIRY CONDUCTED DURING ASSESSMENT, CON TAINED U/S 142(2A) OF THE ACT, THE SAME CAN BE REFERRED ONLY IF THE AO IS OF THE OPINION THAT THE SPECIAL AUDIT IS NECESSARY AFTER TAKING INTO CONSIDERATION THE NATURE AND COMPLEXITY OF THE ACCOUNTS AND THE INTEREST OF THE REVENUE. THIS IS EVIDENT FR OM A BARE PERUSAL OF SECTION 142(2A) OF THE ACT ITSELF WHICH IS BEING REPRODUCED HEREUNDER: SECTION 142(2A) (2A) IF, AT ANY STAGE OF THE PROCEEDINGS BEFORE HIM , THE ASSESSING] OFFICER, HAVING REGARD TO THE NATURE AN D 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 PREVIOUS APPROVAL OF THE CHIEF COMMISSIONER OR COMMISSIONER], DIRECT THE ASSESSEE TO GET THE ACCOU NTS AUDITED BY AN ACCOUNTANT AS DEFINED IN THE EXPLANATION BELOW S UB- SECTION ITA NO.1369/CH D/2019 A.Y. 2014-15 PAGE 12 OF 32 (2) OF SECTION 288, NOMINATED BY THE CHIEF COMMISSIONER OR COMMISSIONER] IN THIS BEHALF AND TO FURNISH A REPOR T OF SUCH AUDIT IN THE PRESCRIBED FORM DULY SIGNED AND VERIFIED BY SUCH ACCOUNTANT AND SETTING FORTH SUCH PARTICULARS AS MA Y BE PRESCRIBED AND SUCH OTHER PARTICULARS AS THE ASSESSING] OFFICER MAY REQUIRE. 15. THE HONBLE APEX COURT HAS INTERPRETED THE SAID PROVISION IN TWO DECISIONS, REPEATEDLY EMPHASIZING THEREIN TH AT THE AOS OPINION HAS TO BE BASED ON FULFILLMENT OF THE TWIN CONDITIONS OF THE(I)NATURE AND COMPLEXITY OF ACCOUNTS, AND (II) T HE INTEREST OF REVENUE, AND HAS INTERPRETED THE TERM COMPLEXITY TO MEAN STATE OF BEING INTRICATE OR COMPLEX. IT WENT ON TO HOLD THAT WHAT IS COMPLEX DEPENDS ON EACH PERSONS UNDERSTANDING AN D WHAT IS COMPLEX FOR ONE MAY BE SIMPLE FOR ANOTHER. IT WAS H ELD THEREFORE, THAT THE OPINION OF THE AO MUST BE BASE D ON OBJECTIVE CRITERIA AND NOT JUST A SUBJECTIVE SATISF ACTION. THAT THE REFERENCE CANNOT BE MADE MERELY FOR SHIFTING HI S RESPONSIBILITY OF SCRUTINIZING THE ACCOUNTS TO A SP ECIAL AUDITOR. IN THE CASE OF SAHARA INDIA(FIRM) VS CIT 300 ITR 40 3(SC) THE APEX COURT ANALYZED AND INTERPRETED THE PROVISIONS OF SECTION 142(2A) TO THE ABOVE EFFECT AS UNDER: A BARE PERUSAL OF THE PROVISIONS OF SUB-S. (2A) OF THE ACT WOULD SHOW THAT THE OPINION OF THE AO THAT IT IS NECESSAR Y TO GET THE ACCOUNTS OF ASSESSEE AUDITED BY AN ACCOUNTANT HAS T O BE FORMED ONLY BY HAVING REGARD TO : (I) THE NATURE AND COMPL EXITY OF THE ACCOUNTS OF THE ASSESSEE; AND (II) THE INTERESTS OF THE REVENUE. THE WORD 'AND' SIGNIFIES CONJUNCTION AND NOT DISJUN CTION. IN OTHER WORDS, THE TWIN CONDITIONS OF 'NATURE AND COMPLEXIT Y OF THE ITA NO.1369/CH D/2019 A.Y. 2014-15 PAGE 13 OF 32 ACCOUNTS' AND 'THE INTERESTS OF THE REVENUE' ARE TH E PREREQUISITES FOR EXERCISE OF POWER UNDER S. 142(2A) OF THE ACT. UNDOUBTEDLY, THE OBJECT BEHIND ENACTING THE SAID PROVISION IS TO ASSIST THE AO IN FRAMING A CORRECT AND PROPER ASSESSMENT BASED ON TH E ACCOUNTS MAINTAINED BY THE ASSESSEE AND WHEN HE FINDS THE AC COUNTS OF THE ASSESSEE TO BE COMPLEX, IN ORDER TO PROTECT THE INTERESTS OF THE REVENUE, RECOURSE TO THE SAID PROVISION CAN BE HAD. THE WORD 'COMPLEXITY' USED IN S. 142(2A) IS NOT DEFINED OR E XPLAINED IN THE ACT. AS OBSERVED IN SWADESHI COTTON MILLS CO. LTD. VS. CIT (1987) 63 CTR (ALL) 335 : (1988) 171 ITR 634 (ALL), IT IS A NEBULOUS WORD. ITS DICTIONARY MEANING IS : 'THE STA TE OR QUALITY OF BEING INTRICATE OR COMPLEX OR THAT IS DIFFICULT 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 ONES LEVEL OF UNDERSTANDI NG OR COMPREHENSION. SOMETIMES, WHAT APPEARS TO BE COMPLE X ON THE FACE OF IT, MAY NOT BE REALLY SO IF ONE TRIES TO UN DERSTAND IT CAREFULLY.' THUS, 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 ACCOUNT S MAINTAINED BY THE ASSESSEE; APPRECIATE THE ENTRIES MADE THEREI N AND IN THE EVENT OF ANY DOUBT, SEEK EXPLANATION FROM THE ASSES SEE. BUT OPINION REQUIRED TO BE FORMED BY THE AO FOR EXERCIS E OF POWER UNDER THE SAID PROVISION MUST BE BASED ON OBJECTIVE CRITERIA AND NOT ON THE BASIS OF SUBJECTIVE SATISFACTION. THERE IS NO GAINSAYING THAT RECOURSE TO THE SAID PROVISION CANNOT BE HAD B Y THE AO MERELY TO SHIFT HIS RESPONSIBILITY OF SCRUTINIZING THE ACCOUNTS OF AN ASSESSEE AND PASS ON THE BUCK TO THE SPECIAL AUDITO R. SIMILARLY, THE REQUIREMENT OF PREVIOUS APPROVAL OF THE CHIEF C IT OR THE CIT IN TERMS OF THE SAID PROVISION BEING AN INBUILT PROTEC TION AGAINST ANY ARBITRARY OR UNJUST EXERCISE OF POWER BY THE AO, CA STS A VERY HEAVY DUTY ON THE SAID HIGH RANKING AUTHORITY TO SE E TO IT THAT THE REQUIREMENT OF THE PREVIOUS APPROVAL, ENVISAGED IN THE SECTION IS NOT TURNED INTO AN EMPTY RITUAL. NEEDLESS TO EMPHAS ISE THAT BEFORE GRANTING APPROVAL, THE CHIEF CIT OR THE CIT, AS THE CASE MAY BE, MUST HAVE BEFORE HIM THE MATERIAL ON THE BA SIS WHEREOF AN OPINION IN THIS BEHALF HAS BEEN FORMED BY THE AO . THE APPROVAL MUST REFLECT THE APPLICATION OF MIND TO TH E FACTS OF THE CASE. 16. IN THE CASE OF RAJESH KUMAR & ORS VS DCIT & ORS 287 ITR 91(SC), THE SECTION WAS INTERPRETED LIKEWISE AS UND ER: ITA NO.1369/CH D/2019 A.Y. 2014-15 PAGE 14 OF 32 INTERPRETATION AND APPLICATION OF S. 142(2A) OF TH E ACT, THUS, FALLS FOR OUR CONSIDERATION. 10. WE MAY AT THE OUTSET NOTICE THAT THE FOLLOWING ARE THE RELEVANT FACTORS FOR INVOKING S. 142(2A) OF THE ACT : (I) THE NATURE OF ACCOUNTS (II) COMPLEXITY OF ACCOUNTS AND (III) INTEREST OF THE REVENUE. THE FORMATION OF OPINION OF THE AO MUST BE ON THE P REMISE THAT WHILE EXERCISING HIS POWER REGARD MUST BE HAD TO TH E FACTORS ENUMERATED THEREIN. THE USE OF THE WORD 'AND SHOWS THAT IT IS CONJUNCTIVE AND NOT DISJUNCTIVE. ALL THE AFOREMENTI ONED FACTORS ARE CONJUNCTIVELY REQUIRED TO BE READ. THE FORMATION OF OPINION INDISPUTABLY MUST BE BASED ON OBJECTIVE CONSIDERATI ON. 11. THE EXPRESSION 'COMPLEXITY' WOULD MEAN THE STAT E OR QUALITY OF BEING INTRICATE OR COMPLEX OR THAT IT IS DIFFICU LT TO UNDERSTAND. DIFFICULTY IN UNDERSTANDING WOULD, HOWEVER, NOT LEA D TO THE CONCLUSION THAT THE ACCOUNTS ARE COMPLEX IN NATURE. NO ORDER CAN BE PASSED ON WHIMS OR CAPRICE. 17. IN THE FACTS OF THE PRESENT CASE, AFTER PERUSIN G ALL THE DOCUMENTS REFERRED TO BEFORE US, WE ARE IN AGREEMEN T WITH THE LD.COUNSEL FOR THE ASSESSEE THAT THE AO HAS NOT PO INTED OUT ANY COMPLEXITY IN THE ACCOUNTS OF THE ASSESSEE WHIL E REFERRING FOR SPECIAL AUDIT AND THE SOLE PURPOSE OF THE AO FO R THE REFERENCE WAS ONLY TO BUY EXTENDED TIME TO COVE R UP HIS SHORT COMING OF COMMENCING INQUIRY AT THE FAG END O F THE TIME PERIOD STATUTORILY PROVIDED FOR COMPLETING ASSESSME NT, AND SHIFT HIS RESPONSIBILITY OF SCRUTINIZING THE ACCOUN TS TO THE SPECIAL AUDITOR. THE FACTS OF THE CASE CLEARLY BRIN G OUT THE AFORESAID. ITA NO.1369/CH D/2019 A.Y. 2014-15 PAGE 15 OF 32 18. THE IMPUGNED ASSESSMENT YEAR BEFORE US IS A.Y. 2014-15. AS PER SECTION 153 OF THE ACT, THE LIMITATION FOR P ASSING ASSESSMENT ORDER IN THIS CASE WAS 31.12.2016. THERE IS NO QUARREL WITH RESPECT TO THE AFORESAID. THE ORDER SH EET ENTRIES MADE BY THE AO DURING ASSESSMENT PROCEEDINGS, FILED BEFORE US AT P.B 254-279, REVEAL THAT WHILE THE ASSESSMENT PR OCEEDINGS COMMENCED ON 31.08.2015 WITH THE ISSUANCE OF NOTICE U/S 143(2) OF THE ACT, EXCEPT FOR A STANDARD QUESTIONNA IRE ISSUED TO THE ASSESSEE ON 26.10.2015, TO WHICH DUE REPLY WAS FILED BY ,NO SUBSTANTIAL QUERIES WERE RAISED TILL 16.12.2016, I. E. ALMOST THE FAG END OF THE PERIOD FOR PASSING ASSESSMENT ORDER U/S 143(3) OF THE ACT, I.E. 31.12.2016.THE ASSESSEE IN THE INT ERVENING PERIOD, WE HAVE NOTED FROM THE ORDER SHEET ,WAS ASK ED TO FURNISH REASONS FOR REVISING HIS RETURN AND FURNISH DETAILS OF COMPUTATION OF INCOME FROM INDUSTRIAL AND FINANCE A CTIVITY, WHICH REPLY WAS FILED ON 11.07.2016. ON 16.12.2016, WHEN THE ASSESSMENT WAS GETTING TIME BARRED ON 31.12.2016 TH E ASSESSEE WAS ASKED TO ANSWER A SLEW OF QUERIES, IN ALL 9 AS UNDER, THE REPLY BEING REQUIRED TO BE FILED WITHIN 4 DAYS BY 2 0/12/16. THE QUERIES RAISED, AS NOTED IN THE ORDER SHEET ARE AS UNDER: 16/12/16 SH.AK JINDAL, CA/AR ATTENDED. HE IS ASKED TO FURNISH FOLLOWING DETAILS:- (1) EXPLAIN HOW FIGURES OF INDUSTRIAL ITA NO.1369/CH D/2019 A.Y. 2014-15 PAGE 16 OF 32 AREA ACTIVITY SHOWN TILL 31/3/13 HAVE BEEN INCORPORATED IN BALANCE SHEET & P/L AC FOR 31/3/14. (2) DETAILED CALCULATION WITH YEAR WISE BIFURCATION OF EXPENSES AND RECOVERIES ON INDUSTRIAL AREA ACTIVITY. (3) WHY COMPANY FROM INDUSTRIAL AREA ACTIVITY SHOULD NOT BE COMPUTED IN A MANNER ADOPTED IN EARLIER ASST YEARS. (4) DETAILED OF UNCLAIMED REFUNDS AND WHY SAME BE NOT DISALLOWED. (5) WHY PROFIT ON SALE OF SHARES MAY NOT BE TREATED AS BUSINESS INCOME. (6) DETAILS OF HOW INVENTORY DETERMINED AS ON 31/3/14 VIS-A-VIS PREVIOUS YEAR. (7) HOW POCM METHOD APPEALABLE TO ASSESSEE ON MEETS CRITERIA UNDER POCM. (8) BAIS OF ASCERTAINING REVENUE FROM OPERATIONS. (9) SHOWCAUSE WHY NOT AN AMOUNT OF RS.1050.40 CR BE ADDED BACK TO THE RETURNED INCOME AS SAME HAS BEEN REDUCED IN REVISED RETURN. ADJOURNED TO 20/12/16 AT A.M. SD/- 19. ON THE SAID DATE THE ASSESSEE FILED REPLY AND T HE ORDER SHEET ENTRY NOTES CASE ADJOURNED TO 23/12/16. BUT ANOTHER ENTRY ON THE SAME DATE SUBSEQUENTLY RECORDS ISSUANC E OF SHOW CAUSE NOTICE TO THE ASSESSEE U/S 142(2A) OF THE ACT . ON 26/12/2016 THE ASSESSEE FILES REPLY TO THE SHOW CAU SE NOTICE WHICH, THE ORDER SHEET ENTRY NOTES AS DISCUSSED WI TH THE COUNSEL AND THEREAFTER ON 29/12/2016 THE SPECIAL A UDITOR IS ISSUED LETTER OF APPOINTMENT. SUBSEQUENTLY THE PROC EEDINGS ARE ITA NO.1369/CH D/2019 A.Y. 2014-15 PAGE 17 OF 32 COMPLETED AFTER CONSIDERING THE REPORT OF THE SPECI AL AUDITOR, ON 21/06/2017, I.E. THE EXTENDED TIME PERIOD STATUT ORILY PROVIDED ON ACCOUNT OF REFERENCE MADE OF THE ACCOUN TS OF THE ASSESSEE TO SPECIAL AUDIT. 20. THE ABOVE FACTS REVEAL THAT IT WAS ONLY AT THE FAG END OF THE LIMITATION PERIOD FOR FRAMING THE ASSESSMENT TH AT SUBSTANTIAL QUERIES WERE RAISED FOR THE ASSESSEE TO RESPOND TO. AND AFTER THE ASSESSEE HAD RESPONDED TO THE SAME, P ROCEEDINGS FOR INITIATING REFERENCE FOR SPECIAL AUDIT OF ACCOU NTS WERE COMMENCED BEGINNING WITH ISSUANCE OF SHOW CAUSE NOT ICE . 21. GOING FURTHER, A PERUSAL OF THIS SHOW CAUSE NOT ICE(P.B 214-221) REVEALS THAT THERE IS NO COMPLEXITY WORTH ITS WHILE POINTED OUT BY THE AO IN THE ACCOUNTS OF THE ASSESS EE BUT ON THE CONTRARY POINTS OUT CERTAIN DEFICIENCY /SHORTCO MINGS IN THE REPLY OF THE ASSESSEE TO THE QUERIES RAISED ON 16.1 2.2016, WHICH WE FIND ARE PRIMARILY TO THE EFFECT THAT CERT AIN INFORMATION/EXPLANATION REMAINED TO BE FILED BY TH E ASSESSEE. 22. THE CONTENTS OF THE NOTICE CLEARLY REVEALING TH E SAID FACTS AS UNDER: ITA NO.1369/CH D/2019 A.Y. 2014-15 PAGE 18 OF 32 GOVERNMENT OF INDIA MINISTRY OF FINANCE INCOME TAX DEPARTMENT OFFICE OF THE DEPUTY COMMISSIONER OF INCOME-TAX PANCHKULA CIRCLE, AAYAKAR BHAWAN, SECTOR 2, PANCHKU LA 134 112 F.NO.DCIT/PKL/CIR/PKL/2016-17/ DATED: 20/12/2016 TO M/S HARYANA STATE INFRASTRUCTURE DEVELOPMENT CORPOR ATION LTD., C-13 & 14, SECTOR 06, PANCHKULA. SUB:- NOTICE U/S 142(2A) OF THE I T ACT 1961 FOR THE ASSE SSMENT FOR THE A.Y. 2014-15 REG. ******* PLEASE REFER TO THE ASSESSMENT PROCEEDINGS FOR THE A.Y. 2014-15 PENDING IN THIS OFFICE. 2. IN THIS REGARD, DURING THE COURSE OF ASSESSMENT PROCEEDINGS YOU WERE ASKED TO PROVIDE THE INFORMATION AS PER NOTING SHEE T ENTRY DATED 16.12.2016 VIDE YOUR REPLY DATED 20.12.2016 YOU HAVE PROVIDE T HE FOLLOWING EXPLANATION:- SR.NO. INFORMATION DESIRED REPLY/EXPLANATION 1. EXPLAIN HOW FIGURES OF IA ACTIVITY SHOWN TILL 31.03.2013 HAVE BEEN INCORPORATED IN THE BALANCE SHEET AND STATEMENT OF PROFIT & LOSS FOR 31.03.2014. IT IS SUBMITTED THAT THE CORPORATION HAS CHANGED ITS SYSTEM OF ACCOUNTING FROM CASH TO ACCRUAL W.E.F. FINANCIAL YEAR 2013-14 RELEVANT TO THE ASSESSMENT YEAR 2014-15 AND THE CUMULATIVE EFFECT OF ALL THE HEADS OF REVENUE, EXPENDITURE, INVENTORIES, FIXED ASSETS ETC., HAVE BEEN ACCOUNTED FOR IN THE SAID ASSESSMENT YEAR. IT IS STATED AS UNDER: THE BOOKS OF THE ACCOUNTS OF THE CORPORATION WERE BEING MAINTAINED UNDER 'CASH SYSTEM OF ACCOUNTING' AND ALL THE COST OF THE PROJECT & OTHER EXPENDITURE INCURRED THEREON WERE ACCOUNTED FOR IN ONE CONTROL ACCOUNT I.E. INFRASTRUCTURE AND INDUSTRIAL AREA DEVELOPMENT EXPENSES RECOVERABLE' AND RECOVERIES FROM THE ALLOTTEES WERE NETTED IN SAID CONTROL ITA NO.1369/CH D/2019 A.Y. 2014-15 PAGE 19 OF 32 ACCOUNT. SAID CONTROL ACCOUNT REFLECTS EXCESS OF DEVELOPMENTAL EXPENDITURE OVER RECOVERIES AND IS DISCLOSED IN THE FINANCIAL STATEMENTS UNDER 'OTHER CURRENT ASSETS'. A SUM OF RS.5671.59 CRORE (NET OF RECOVERIES] WAS PARKED IN THE CONTROL ACCOUNT AS AT 31 ST MARCH, 2013. AFTER REVIEW OF THE CONTROL ACCOUNT I.E. 'INFRASTRUCTURE AND INDUSTRIAL AREA DEVELOPMENT EXP. RECOVERABLE', IT HAS BEEN BIFURCATED INTO VARIOUS FUNCTIONAL HEADS OF ACCOUNTING E.G. - INVENTORIES IN THE FORM OF UNSOLD LAND/PLOTS - COST OF THE LAND ACQUIRED FOR EXISTING PROJECTS AS WELL AS FUTURE PROJECTS. -DEVELOPMENTAL EXPENDITURE OF THE SITE E.G. ROAD CONSTRUCTION, ELECTRIFICATION COST, PUBLIC UTILITIES WORK, SEWERAGE TREATMENT PLANT, CETP AND OTHER DIRECT CAPITAL EXPENDITURE. -COST OF THE UNSOLD PLOTS I.E. INVENTORIES. -ENHANCEMENT COST PAID TO LAND OWNERS. -ANNUITY PAYMENT TO LAND OWNER. -FIXED ASSETS LIKE OFFICE BUILDING, FURNITURE & FIXTURE, OFFICE EQUIPMENT ETC. -EXPENDITURES INCURRED ON DEVELOPMENTAL ACTIVITIES OUT OF MATCHING GRANT RECEIVED FROM STATE GOVT. -RECOVERIES FROM ALLOTTEES NETTED IN CONTROL ACCOUNT BIFURCATED INTO RELEVANT HEADS OF ACCOUNTING E.G. O RECOVERIES OF THE COST OF THE PLOT, ENHANCEMENT COST AND MAINTENANCE CHARGES. O INTEREST RECEIVED ON DEFERRED INSTALLMENT OF COST OF LOT/ENHANCEMENT COST ETC. O OTHER RECOVERIES E.G. PROCESSING FEES ITA NO.1369/CH D/2019 A.Y. 2014-15 PAGE 20 OF 32 TRANSFER FEES. EXTENSION CHARGES, LEASING FEES, SURRENDER/RESUMPTION CHARGES WATER AND SEWERAGE CHARGES, MISC. INCOME ETC. 2. DETAILED CALCULATION WITH YEAR-WISE BIFURCATION OF EXPENSES AND RECOVERIES OF IA ACTIVITY. THE BIFURCATION OF EXPENSES AND RECOVERIES OF IA ACTIVIITY AS ON 31.03.,2013 IS GIVEN AS PER ANNEXURE- 1. 3. WHY INCOME FROM IA ACTIVITY SHOULD NOT BE COMPUTED IN A MANNER ADOPTED IN EARLIER ASSESSMENT YEAR(S). WE SUBMIT THAT THE CORPORATION WAS FOLLOWING CASH SYSTEM OF ACCOUNTING FOR MAINTAINING ITS ACCOUNTS TILL F.Y. 2012-13 AND HAD BEEN SHOWING CERTAIN INCOME FROM INDUSTRIAL AREA ACTIVITY BY ALLOCATING EXPENSES BETWEEN INDUSTRIAL AREA ACTIVITY AND FINANCE ACTIVITY. HOWEVER, THE CORPORATION HAS CHANGED ITS SYSTEM OF ACCOUNTING FROM CASH BASIS TO ACCRUAL BASIS W.E.F. 01.04.2013 I.E. F.Y.2013- 14. ACCORDINGLY, THE FINANCE STATEMENTS FOR THE F.Y. 2013-14 HAVE BEEN PREPARED ON ACCRUAL BASIS, IN ACCORDANCE WITH THE GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN INDIA AND TO COMPLY WITH THE ACCOUNTING STANDARDS PRESCRIBED IN THE COMPANIES ACT AND ALSO IN ACCORDANCE WITH THE GOVERNMENT NOTIFICATION NO.GSR 550 (E) DATED 16.05.1989 AND 770 (E) DATED 10.09.1990 WHICH PROVIDE FOR ACCOUNTING OF INTEREST INCOME ON LOANS FINANCED TO INDUSTRIAL PROJECTS AND INTEREST ON INSTALMENTS DUE ON THE COST OF INDUSTRIAL PLOTS/SHEDS ETC., ON CASH BASIS. IN ASSESSMENT YEAR 2014-15, THE CORPORATION HAS COMPUTED THE INCOME FROM INDUSTRIAL AREA ACTIVITY EARNED TILL 31.03.2014 IN A.Y. 2014-15. DUE TO CHANGE IN THE SYSTEM OF ACCOUNTING FROM CASH BASIS TO ACCRUAL BASIS, THE INCOME FROM IA ACTIVITY SHOULD NOT BE COMPUTED IN A MANNER ADOPTED IN EARLIER ASSESSMENT YEAR(S). 4. DETAIL OF HOW INVENTORY DETERMINED AS ON WE SUBMIT THAT THE CORPORATION WAS FOLLOWING CASH SYSTEM OF ACCOUNTING ITA NO.1369/CH D/2019 A.Y. 2014-15 PAGE 21 OF 32 31.03.2014 VIZ-A-VIZ 31.03.2013. FOR MAINTAINING ITS ACCOUNTS TILL F.Y. 2012-13, THEREFORE, NO INVENTORY WAS RECOGNIZED IN THE BOOKS OF ACCOUNTS TILL 31.03.2013. HOWEVER,, THE CORPORATION CHANGED ITS SYSTEM OF ACCOUNTING FROM CASH BASIS TO ACCRUAL BASIS W.E.F. 01.04.2013 I.E. F.Y. 2013-14 AND ACCORDINGLY, INVENTORY HAS BEEN DETERMINED AND ACCOUNTED FOR IN THE BOOKS OF ACCOUNTS ON THE BASIS OF PERCENTAGE OF COMPLETION METHOD (POCM) READ WITH GUIDANCE NOTE ON ACCOUNTING FOR REAL ESTATE TRANSACTIONS ISSUED BY INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI). CLOSING STOCK OF LAND/WORK IN PROGRESS IS VALUED AT LOWER OF COST (WEIGHTED AVERAGE METHOD) OR NET REALIZABLE VALUE. COST INCLUDES ACQUISITION COST, ENHANCEMENT COMPENSATION COST, ANNUITY COST AND INTERNAL AND EXTERNAL DEVELOPMENT EXPENDITURE ETC. INCURRED AND OTHER DIRECTLY IDENTIFIED ATTRIBUTABLE EXPENSES PERTAINING TO PROJECTS. 5. HOW POCM IS APPLICABLE TO ASSESSEE I.E. HOW MEETS CRITERIA UNDER POCM. THE CORPORATION IS A WHOLLY OWNED GOVERNMENT COMPANY (AS DEFINED UNDER SECTION 617 OF THE COMPANIES ACT, 1956) AND WAS INCORPORATED IN 1967 WITH AN OBJECTIVE OF PROMOTING INDUSTRIES IN THE STATE OF HARYANA GOVERNMENT. THE CORPORATION HAS BEEN GIVEN THE MANDATE TO DEVELOP INDUSTRIAL INFRASTRUCTURE AND THEREBY FACILITATE DEVELOPMENT AND GROWTH OF INDUSTRY IN THE STATE OF HARYANA. THE CORPORATION HAS DEVELOPED INDUSTRIAL ESTATES/IMTS THROUGHOUT THE STATE IN THIS PROCESS. THE PROCESS OF DEVELOPMENT OF INDUSTRIAL INFRASTRUCTURE NECESSARILY INVOLVES ACQUISITION OF LAND, PLANNING, EXCLUSION OF DEVELOPMENT WORKS E.G. ROADS, WATER SUPPLY AND ELECTRICAL INFRASTRUCTURE. THIS IS FOLLOWED BY PROVISION OF SECONDARY LEVEL OF FACILITIES SUCH AS THE STP/CETP, DEVELOPMENT OF PLANTATION/GREEN BELTS, COMMERCIAL AND INSTITUTIONAL SITES COMMON PARKING FACILITIES, ETC. THE INCOME FROM INDUSTRIAL AREA ACTIVITY HAS BEEN COMPUTED IN ITA NO.1369/CH D/2019 A.Y. 2014-15 PAGE 22 OF 32 ACCORDANCE WITH THE GUIDANCE NOTE ON ACCOUNTING FOR REAL ESTATE TRANSACTIONS ISSUED BY ICAI WHICH COVERS ALL FORMS OF TRANSACTIONS IN REAL ESTATE. THE TRANSACTIONS WHICH ARE COVERED BY THIS GUIDANCE NOTE ARE AS UNDER: (A) SALE OF PLOTS OF LAND (INCLUDING LONG TERM SALE TYPE LEASES) WITHOUT ANY DEVELOPMENT (B) SALE OF PLOTS OF LAND (INCLUDING LONG TERM SALE TYPE LEASES) WITH DEVELOPMENT IN THE FORM OF COMMON FACILITIES LIKE LAYING OF ROADS, DRAINAGE LINES AND WATER PIPELINES, ELECTRICAL LINES, SEWAGE TANKS, WATER STORAGE TANKS, SPORTS FACILITIES, GYMNASIUM, CLUB HOUSE, LANDSCAPING ETC. (C) DEVELOPMENT AND SALE OF RESIDENTIAL AND COMMERCIAL UNITS, ROW HOUSES, INDEPENDENT HOUSES, WITH OR WITHOUT AN UNDIVIDED SHARE IN LAND. (D) ACQUISITION, UTILISATION AND TRANSFER OF DEVELOPMENT RIGHTS. (E) REDEVELOPMENT OF EXISTING BUILDINGS AND STRUCTURES. (F) JOINT DEVELOPMENT AGREEMENTS FOR ANY OF THE ABOVE ACTIVITIES. SINCE THE ACTIVITIES UNDERTAKEN BY THE CORPORATION FALL UNDER THE SCOPE OF TRANSACTIONS COVERED UNDER THE GUIDANCE NOTE ON ACCOUNTING FOR REAL ESTATE TRANSACTIONS, THEREFORE, THE POCM IS APPLICABLE TO THE CORPORATION. 6. BASIS OF ASCERTAINING REVENUE FROM OPERATIONS. REVENUE FROM INDUSTRIAL INFRASTRUCTURE ACTIVITIES IS RECOGNIZED IN ACCORDANCE WITH THE PROVISIONS OF ACCOUNTING STANDARD (AS) 9 ON REVENUE RECOGNITION, READ WITH GUIDANCE NOTE ON RECOGNITION OF REVENUE BY REAL ESTATE DEVELOPERS (REVISED 2012). REVENUE IS COMPUTED BASED ON THE PERCENTAGE OF COMPLETION METHOD (POCM) WHEN FOLLOWING CONDITIONS ARE SATISFIED: - ALL CRITICAL APPROVALS SUCH AS ENVIRONMENTAL CLEARANCES, APPROVALS OF PLAN AND DESIGN, TITLE TO LAND OR OTHER DEVELOPMENT RIGHT HAVE BEEN OBTAINED. - THE STAGE OF COMPLETION OF THE PROJECT HAS REACHED REASONABLE LEVEL. A REASONABLE LEVEL OF DEVELOPMENT IS ACHIEVED IF ITA NO.1369/CH D/2019 A.Y. 2014-15 PAGE 23 OF 32 EXPENDITURE INCURRED ON CONSTRUCTION AND DEVELOPMENT COST (EXCLUDING COST OF LAND COST) IS NOT LESS THAN 25% OF THE ESTIMATED CONSTRUCTION AND DEVELOPMENT COST AND - AT LEAST 25% OF THE SALEABLE PROJECT AREA IS SECURED BY THE AGREEMENT OR THE ALLOTMENT LETTER AND - AT LEASE 10% OF THE TOTAL REVENUE AS PER AGREEMENT/ALLOTMENT LETTER ARE REALIZED IN RESPECT OF THESE CASES. IN CASE OF SALE/AUCTION OF SITES OF NON- INDUSTRIAL AREA/INFRASTRUCTURE ACTIVITY, THE REVENUE IS RECOGNIZED WHEN AL THE SIGNIFICANT RISKS AND REWARDS ARE TRANSFERRED AND ALSO WHEN ALL THE REQUISITE APPROVALS ARE OBTAINED BY THE CORPORATION AS REQUIRED UNDER THE AGREEMENT. INTEREST ON NON-INDUSTRIAL AREA PROJECTS IS ACCOUNTED FOR ON ACCRUAL BASIS. 7. SHOW CAUSE WHY NOT AN AMOUNT OF RS.1050 CRORE BE NOT ADDED AS THE SAME HAS BEEN REDUCED IN REVISED RETURN OF INCOME. IT IS SUBMITTED THAT THE ACCOUNTS OF THE CORPORATION WERE BEING MAINTAINED ON CASH BASIS TILL ASSESSMENT YEAR 2013- 14. THE CORPORATION HAD BEEN SHOWING CERTAIN INCOME FROM INDUSTRIAL AREA ACTIVITY BY ALLOCATING EXPENSES BETWEEN INDUSTRIAL AREA ACTIVITY AND FINANCE ACTIVITY. THE METHOD OF ACCOUNTING HAD BEEN ACCEPTED BY THE INCOME TAX DEPARTMENT TILL A.Y. 2004- 05. AFTER THAT, THE DEPARTMENT HAS COMPUTED INCOME FROM INDUSTRIAL AREA ACTIVITY, THE DETAIL OF WHICH AS UNDER: ASSESSMENT YEAR AMOUNT(RS.) 2005-06 354587944/- 2006-07 329359489/- 2007-08 1187882027/- 2008-09 2548011251/- 2009-10 1525532251/- 2010-11 1801666232/- 2011-12 1364170957/- 2012-13 351339526/- 2013-14 1041425872/- ITA NO.1369/CH D/2019 A.Y. 2014-15 PAGE 24 OF 32 TOTAL 10503975549/- THUS, THE DEPARTMENT HAS ALREADY IMPOSED TAX ON INCOME OF RS.1050.40 CRORE BETWEEN A.Y.2005-06 TO A.Y. 2013-14. THE APPEALS OF THE CORPORATION HAVE BEEN DISMISSED BY CIT(A) AND THE CORPORATION IS IN APPEAL BEFORE ITAT. IN ASSESSMENT YEAR 2014-15, THE CORPORATION HAS CHANGED ITS METHOD OF ACCOUNTING FROM CASH TO ACCRUAL AND HAS COMPUTED THE INCOME FROM INDUSTRIAL AREA ACTIVITY EARNED SINCE INCEPTION TILL 31.03.2014 (INCLUDING THE YEARS DURING WHICH INCOME HAS BEEN COMPUTED AT RS.1,050.40 CRORE) IN ASSESSMENT YEAR 2014-15 AND THE ORIGINAL RETURN WAS FILED SHOWING ENTIRE INCOME OF INDUSTRIAL AREA ACTIVITY EARNED TILL 31.03.2014. THE CORPORATION HAS REVISED THE RETURN BY REDUCING INCOME OF RS.1,050.40 CRORE OUT OF TOTAL INCOME FOR ASSESSMENT YEAR 2014-15 BECAUSE TAX HAS ALREADY BEEN LEVIED BY THE DEPARTMENT ON THE AMOUNT OF RS.1,050.40 CRORE. IN CASE, THE SAID INCOME IS NOT REDUCED OUT OF TAXABLE INCOME OF ASSESSMENT YEAR 2014-15 IT WOULD AMOUNT TO DOUBLE TAXATION I.E. ONCE PAYING TAX IN ASSESSMENT YEAR 2005-06 TO ASSESSMENT YEAR 2013-14 ON THE BASIS OF ASSESSMENT MADE BY THE DEPARTMENT AND AGAIN PAYING TAX IN ASSESSMENT YEAR 2014-15 ON THE BASIS OF INCOME DECLARED IN ACCOUNTS. IN CASE AT A LATER STAGE, THE APPEALS OF THE ASSESSEE ARE ALLOWED BY ITAT AND INCOME ASSESSED FROM INDUSTRIAL AREA ACTIVITY IS DELETED, IN THAT CASE, ASSESSEE CORPORATION AGREES TO PAY THE TAX IN ASSESSMENT YEAR 2014-15 AS THE SAME CAN BE DONE U/S 154/155 WHILE GIVING APPEAL EFFECT TO THE ORDERS OF ITAT FOR YEARS IN APPEAL. THE ABOVE EXPLANATION HAS BEEN CONSIDERED AND EXAMI NED AND IS DISCUSSED AS UNDER ITA NO.1369/CH D/2019 A.Y. 2014-15 PAGE 25 OF 32 REGARDING EXPLANATION NO.1&2, I) YOU HAVE EXPLAINED THAT CUMULATIVE EFFECT OF ALL HEAD OF REVENUE, EXPENDITURE, INVENTORIES, FIXED ASSETS ETC. HAVE BEEN ACCOUNTED FOR A.Y.2014-15. BUT NO EXPLANATION WAS GIVEN AS TO HOW CUMULATIVE CALCULATIONS WERE MADE II) YOU HAVE SHOWN A SUM OF RS.5671.59 CRORE WAS PA RKED IN THE CONTROL ACCOUNT AS ON 31.03.2016, FURTHER FOR DETER MINATION OF THIS AMOUNT VARIOUS HEADS/DETAILS OF EXPENDITURE AND REC OVERY UPTO 31.03.2013 HAS BEEN SHOWN AS UNDER: DETAILS OF EXPENDITURE UPTO 31.03.2013 S.NO. PARTICULARS AMOUNTS 1. LAND COST (INCLUDING ENHANCED COMPENSATION 1,11,66,13,67,007.00 2. IA DEVELOPMENT EXPENDITURE 23,52,39,15,541.00 3. DEVELOPMENT WORKS(OLD) 7,77,90,292.00 4. VILLAGE DEVELOPMENT 7,46,08,195.00 5. DEVELOPMENT UDYOG KUND 2,92,68,338.00 6. DETAILS OF FIXED ASSETS 11,95,92,404.00 7. DEPOSIT WORKS 44,33,66,599.00 8. ANNUITY LAND 76,73,92,038.00 9. DETAILS OF CONTRIBUTION 1,97,11,26,275.00 10. DETAILS OF INCENTIVE TO ALLOTTEES 11,34,21980.0 0 11. EXPENSES TO BE ALLOCATED 67,69,79,591.00 12. ADVANCES TO PARTIES 12,96,95,537.00 13. DETAILS OF SME R/FUNDS ACCOUNTS 1,00,00,000.00 GRAND TOTAL(A) 1,39,59,85,23,797.00 DETAILS OF RECOVERY UPTO 31.03.2013 S.NO. PARTICULARS AMOUNTS 1. ALLOTTEES ACCOUNT 65,23,39,11,006.00 2. ENHANCED COST RECOVERY 5,26,99,81,180.00 3. INTEREST ON ALLOTTEES 5,39,94,85,248.00 4. RENT 10,08,845.00 5. MISC. INCOME 5,87,50,28,173.00 6. SURRENDER/RESUMPTION 21,67,66,905.00 7. LEASE RENT 49,19,306.00 8. PROCESSING CHARGES 17,13,22,463.00 9. EDC CHARGES (DATED & P-HR) 680935032 10. INTERNAL DEVELOPMENT CHARGES 19351482 11. LICENCE FEE KARNAL 6092.00 12. CONTRACTOR ACCOUNTS 98,81,231.00 13. GRAND TOTAL 1,00,00,000.00 GRAND TOTAL(A) 82,88,25,96,963.00 A TOTAL EXPENDITURE CONTROL ACCOUNT 1,39,59,85,23,797.00 ITA NO.1369/CH D/2019 A.Y. 2014-15 PAGE 26 OF 32 RECOVERY FROM ALLOTTEES 82,88,25,96,963.00 NET EXPENDITURE AS ON 31.03.2013 (A-B) 56,71,59,26,834.00 NO DETAILED BREAKUP OF EXPENSES RECOVERABLE AND RECOVERIES FROM ALLOTTEES IS PROVED. HOWEVER NO WORKING/CALCU LATION OF THESE AMOUNTS HAVE BEEN EXPLAINED. SUCH AS RS.1,11,66,13, 67,007. 00/- LAND COST, YEAR WHEN THE LAND WAS ACQUIRED, AMOUNT OF ENHANCED COMPENSATION, YEAR-WISE, SITE-WISE BREAKUP OF THE SAME IS NOT FURNISHED. INFRASTRUCTURE AND INDUSTRIAL AREA DEVELOPMENT E XPENSES RECOVERABLE HAS BEEN BIFURCATED INTO VARIOUS HEAD O F ACCOUNTING EG. COST OF LAND ACQUIRED FOR EXISTING PROJECTS AS WELL AS FUTURE PROJECTS, INFRASTRUCTURE AND INDUSTRIAL AREA DEVELO PMENT EXPENSES RECOVERABLE. THE BIFURCATION OF EXPENSES AND RECOVERIES OF IND. AREA ACTIVITY WAS GIVEN AS ANNEXURE-I. BU T NO YEAR- WISE, SITE-WISE, HEAD WISE BREAKUP IS GIVEN E.G AS PER DETAILS OF EXPENDITURE OF GURGAON SITE THE COST OF LAND IS SHOWN AS 529,242, 907/-, BUT FROM THIS AMOUNT IT IS NOT VERIFIABLE THAT WHEN THE LAND WAS ACQUIRED, WHEN THE CONSTRUCTION W AS BEGUN AND HOW MUCH WORK IS PENDING. NO WORKING AND BREAKUP HAS BEEN PROVIDED ON THIS POINT ALSO. REGARDING EXPLANATION NO. 3, NO TENABLE REPLY REGARDING THE REASON OF CHANGE OF METHOD OF ACCOUNTING BY HSIIDC HAS BEEN PROVIDED. REGARDING EXPLANATION NO. 4 , YOU HAVE REPLIED THAT VALUATION OF CLOSING STOCK/WORK IN PROGRESS IS VALUED AT LOWE R OF COST OR NET RELIZABLE VALUE. NO DETAILED CALCULATION/WORKIN G HAS BEEN GIVEN IN SUPPORT OF AMOUNTS SHOWN AND WHERE SHOWN I T IS NOT SUBSTANTIVE. FOR EXAMPLE THE WORK IN PROGRESS, THE EXPLANATION OF THE SAME WAS NOT PROVIDED. REGARDING EXPLANATION NO. 5, AS THE CORPORATION WAS ESTABLISHED IN 1967 AND IT IS DEVELOPING INDL. E STATES AND IMTS THROUGHOUT THE STATE AND THE ACTIVITIES HAVE BEEN C OMPUTED IN ACCORDANCE WITH THE GUIDANCE NOTE, THEN WHY THE SAM E METHOD WAS NOT APPLIED IN THE EARLIER YEARS. YOU HAVE ALS O NOT EXPLAINED TREATMENT OF BOOKS OF PREVIOUS YEARS UNDE R POCM. REGARDING EXPLANATION NO. 6, REVENUE FROM OPERATIONS IS NOT VERIFIABLE AS THE PROJECTS PASSES FROM VARIOUS STAG ES AND NO SPECIFIC INFORMATION/NO DETAILED WORKING IN THIS RE GARD IS PROVIDED. REGARDING EXPLANATION NO. 7, YOU HAVE REPLIED THAT THE CORPORATION REVISED ITS RETURN BY REDUCING INCOME O F ITA NO.1369/CH D/2019 A.Y. 2014-15 PAGE 27 OF 32 RS.1050.40 CR. BECAUSE TAX HAS ALREADY BEEN LEVIED BY THE DEPARTMENT ON THIS AMOUNT IT WOULD BE DOUBLE TAXATI ON. IN CASE AT LATER STAGE THE APPEALS OF THE ASSESSEE A RE ALLOWED BY ITAT THE ASSESSEE AGREES TO PAY TAX IN A.Y.201 4-15, THE EXPLANATION PROVIDE BY YOU NOT SEEMS TO BE CONTRADI CTORY ON ONE SIDE YOU ARE REDUCING THE AMOUNT AND OTHER SIDE THE APPEALS ALSO BEING CONTESTED. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF YO UR CASE AND CONSIDERING THE NATURE AND COMPLEXITY OF ACCOUN TS, VOLUMES OF ACCOUNTS AND MULTIPLICITY OF TRANSACTION S, YOUR CASE IS PROPOSED FOR AUDIT U/S 142(2A) OF THE IT AC T, 1961. YOU ARE HEREBY GIVEN AN OPPORTUNITY OF BEING HEARD IN THIS REGARD AND YOUR CASE IS FIXED FOR 26.12.2016 AT 11. 00 AM. 23. A PERUSAL OF THE ABOVE SHOW CAUSE NOTICE REVEAL S THAT ON THE QUERY RAISED ASKING EXPLANATION OF HOW FIGURES OF INDUSTRIAL ACTIVITY UPTO 31.03.2013 WERE INCORPORATED IN THE I MPUGNED YEARS BALANCE SHEET, THE ASSESSEE HAD EXPLAINED THA T IT HAD SWITCHED OVER FROM CASH SYSTEM OF ACCOUNTING DONE U PTO 31/03/13 TO ACCRUAL SYSTEM AND HAD ALSO EXPLAINED T HE MANNER OF DOING SO AS ALSO FURNISHING YEAR WISE BIFURCATIO N OF EXPENSES AND RECOVERIES IN THE IA ACCOUNT AS ON 31.03.2013. TO THIS THE AO NOTES THAT NO EXPLANATION HAS BEEN FURNISHED AS TO HOW CUMULATIVE CALCULATIONS WERE MADE NO BREAK UP OF CE RTAIN DETAILS PROVIDED AND SITE WISE BREAK ALSO NOT PROVIDED . 24. SIMILARLY THE ASSESSEE EXPLANATION REGARDING WHY INCOME BE NOT COMPUTED AS IN EARLIER YEARS THE ASSESSEE JU STIFIED THE CHANGE IN SYSTEM OF ACCOUNTING AS BEING IN COMPLIAN CE WITH ACCOUNTING STANDARD ISSUED BY THE ICAI AND ALSO IN ACCORDANCE WITH GOVERNMENT NOTIFICATIONS, TO WHICH THE AO MERELY BRUSHES ITA NO.1369/CH D/2019 A.Y. 2014-15 PAGE 28 OF 32 ASIDE THE EXPLANATION AS NOT BEING TENABLE WITHOUT ASSIGNING ANY REASON FOR STATING SO . 25. ON THE QUERY REGARDING METHOD VALUATION OF CLOS ING STOCK FOR YEAR ENDING 31/03/2013 AND 31/03/2014 THE ASSE SSEE REPLIED THAT UPTO 31/03/13 SINCE IT WAS FOLLOWING CASH SYSTEM OF ACCOUNTING NO STOCK WAS ACCOUNTED FOR WHILE THER EAFTER IT FOLLOWED THE PERCENTAGE COMPLETION METHOD (PCOM) FO R ACCOUNTING FOR INVENTORY, VALUING IT AT COST OR NET REALIZABLE VALUE WHICH EVER WAS LESS. TO THIS THE AO NOTES THAT NO CALCULATION OF WORKING OF INVENTORY HAS BEEN PROVID ED BY THE ASSESSEE. 26. TO THE QUERY RAISED REGARDING HOW PCOM METHOD W AS APPLICABLE TO THE ASSESSEE, THE ASSESSEE REPLIED TH AT ITS ACTIVITIES FELL UNDER THE SCOPE OF TRANSACTIONS COV ERED BY THE GUIDANCE NOTE ISSUED BY ICAI ON ACCOUNTING FOR REAL ESTATE TRANSACTIONS WHICH RECOMMENDED PCOM METHOD. IT WAS ALSO EXPLAINED AS TO HOW ITS ACTIVITIES FELL UNDER THE S AID GUIDANCE NOTE. TO THIS THE AO NOTED THAT WHY THIS METHOD WAS NOT ADOPTED IN EARLIER YEARS ALSO . 27. ON BEING ASKED TO EXPLAIN BASIS OF ASCERTAINING REVENUE FROM OPERATIONS, DUE REPLY EXPLAINING THE SAME WAS FILED. TO THIS THE AO NOTES SIMPLY THAT IT IS NOT VERIFIABLE SINCE ASSESSEE ITA NO.1369/CH D/2019 A.Y. 2014-15 PAGE 29 OF 32 PASSES THROUGH VARIOUS STAGES AND NO SPECIFIC INFOR MATION/NO DETAILED WORKING HAS BEEN PROVIDED BY THE ASSESSEE. 28. TO THE QUERY AS TO WHY RS.1050 CRORES HAS BEEN REDUCED FROM THE INCOME OF THE ASSESSEE IN THE REVISED RETU RN FILED .THE ASSESSEE EXPLAINED IN DETAIL THAT THE DEPARTMENT HA D ALREADY COLLECTED TAXES ON THE SAME IN EARLIER YEARS WHEN I T HAD REJECTED ITS CASH BASIS OF ACCOUNTING AND TAXED INC OME ON ACCRUAL BASIS. TO THIS THE AO NOTES THAT THE ASSESSEE HAS FILED APPEAL AGAINST THE SAID ADDITIONS MADE BY THE DEPAR TMENT AND THEREFORE BY REVERSING THE INCOME IN THE IMPUGNED Y EAR IT WAS TAKING A CONTRADICTORY STAND. 29. AFTER SO STATING THE AO NOTES THAT CONSIDERING THE FACTS AND CIRCUMSTANCES AND THE NATURE AND COMPLEXITY OF ACCOUNTS OF THE ASSESSEE, VOLUME OF TRANSACTIONS AND MULTIPL ICITY OF TRANSACTIONS, SPECIAL AUDIT U/S 142(2A) OF THE ACT IS PROPOSED. 30. AS IS EVIDENT FROM THE ABOVE THE REASON FOR REF ERRING THE ACCOUNTS OF THE ASSESSEE TO SPECIAL AUDIT, HIGHLIGH TED ABOVE IN ITALICS BY US, BY THE AO DOES NOT POINT OUT A SINGL E COMPLEXITY IN THE ACCOUNTS OF THE ASSESSEE. ON THE CONTRARY HE HAS ONLY POINTED OUT CERTAIN INFORMATION STILL LACKING IN TH E REPLY SUBMITTED BY THE ASSESSEE. WITH REGARD TO EACH EXPL ANATION HE HAS STATED THAT THE ASSESSEE HAS EITHER NOT GIVEN C ERTAIN ITA NO.1369/CH D/2019 A.Y. 2014-15 PAGE 30 OF 32 EXPLANATION REQUIRED BY HIM OR CERTAIN WORKING OR C ALCULATIONS HAD NOT BEEN EXPLAINED. IT IS NOT COMING OUT FROM T HE NOTICE, THEREFORE, THAT THERE WAS ANY COMPLEXITY IN THE NAT URE OF THE ACCOUNTS OF THE ASSESSEE WHICH HAD COME TO THE NOTI CE OF THE AO. NOR HAS THE LD.DR BEEN ABLE TO ENLIGHTEN US AS TO WHAT COMPLEXITY WAS POINTED OUT BY THE AO IN THE ACCOUNT S OF THE ASSESSEE FOR ENABLING REFERENCE TO A SPECIAL AUDIT. 31. WHAT IS CLEARLY EVIDENT IS THAT THE REFERENCE F OR SPECIAL AUDIT WAS MERELY MADE FOR OBTAINING CERTAIN EXPLANA TION AND INFORMATION WHICH WERE FURTHER REQUIRED BY THE AO FOR THE PURPOSES OF ASSESSMENT OF INCOME OF THE ASSESSEE. I N EFFECT ,THE AO ,WAS SHIFTING HIS RESPONSIBILITY TO THE SPECIAL AUDITOR. THIS IS SURELY NOT THE PURPOSE FOR WHICH SPECIAL AUDIT C AN BE REFERRED TO UNDER LAW. 32. FURTHER, WE FIND, THE ASSESSEE FILED A DETAILED REPLY TO THE SHOW CAUSE NOTICE EXPLAINING AT LENGTH ALL DOUBTS A ND QUERIES RAISED BY THE AO IN ITS PREVIOUS REPLY AND FURNISHI NG ALL INFORMATION WHICH HE FOUND LACKING (P.B 222-252), B UT DESPITE THE SAME, THE AO SOUGHT APPROVAL OF THE PCIT FOR SP ECIAL AUDIT ON THE SAME DAY THE REPLY WAS FILED BY THE ASSESSEE AND AFTER OBTAINING THE SAME ORDERED SPECIAL AUDIT ON THE VER Y SAME DAY. ITA NO.1369/CH D/2019 A.Y. 2014-15 PAGE 31 OF 32 33. THE ONLY INFERENCE WHICH CAN POSSIBLY BE DRAWN IN THE FACTS OF THE PRESENT CASE AS NARRATED ABOVE, IS THA T THE REFERENCE TO SPECIAL AUDIT WAS MADE ONLY TO BUY FUR THER TIME FOR COMPLETING THE ASSESSMENT, HAVING BEEN MADE AT THE FAG END OF THE PERIOD FOR COMPLETION OF ASSESSMENT THAT TOO ME RELY FOR OBTAINING FURTHER DETAILS AND INFORMATION AND NOT B ECAUSE ANY COMPLEXITY WAS NOTED IN THE ACCOUNTS OF THE ASSE SSEE. THE REFERENCE TO SPECIAL AUDIT, THEREFORE WE HOLD, IS A N INVALID REFERENCE, CONTRARY TO LAW. 34. THE ASSESSMENT ORDER PASSED THEREFORE IN THE EX TENDED PERIOD, AS A CONSEQUENCE OF THE INVALID REFERENCE, WE HOLD, IS BARRED BY LIMITATION AND HENCE VOID. 35. SINCE WE HAVE HELD THE ASSESSMENT ORDER TO BE V OID ON ACCOUNT OF AN INVALID REFERENCE TO SPECIAL AUDIT FO R THE AFORESAID REASONS, THE REMAINING ARGUMENTS WITH RES PECT TO THE SAME ARE NOT BEING DEALT WITH BY US. THE ADDITIONAL GROUND OF APPEAL RAISED BY THE ASS ESSEE IS, THEREFORE, ALLOWED. 36. BOTH THE PARTIES WERE HEARD ONLY ON THE ADDITIO NAL GROUND RAISED WHICH HAS BEEN ALLOWED BY US AND THE ASSESSM ENT ORDER PASSED HAS BEEN HELD TO BE VOID. THE REMAINING GROU NDS, ITA NO.1369/CH D/2019 A.Y. 2014-15 PAGE 32 OF 32 RELATING TO MERITS OF THE CASE, THEREFORE, ARE REND ERED ACADEMIC IN NATURE. 37. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS, T HEREFORE, ALLOWED IN ABOVE TERMS. ORDER PRONOUNCED ON 26 TH OCTOBER, 2021. SD/- SD/- (SATBEER SINGH GODARA) (ANNAPURNA GUPTA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER /DATED: 26 TH OCTOBER, 2021 * * ()* +*/ COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. (?/ THE RESPONDENT 3. C/ CIT 4. C ()/ THE CIT(A) 5. *IJ (K, ' K, MNOJP/ DR, I TAT, CHANDIGARH 6. JO / GUARD FILE / BY ORDER, / ASSISTANT REGISTRAR