Sri A.V. Krishna Kaundinya, Senior Counsel V. Income Tax Department

WP/423/2012

AI Insights

The case involves a writ petition filed by a cooperative society challenging a directive from the Income Tax Department requiring a special audit of its accounts for the assessment years 2005-06 to 2009-10 under Section 142(2A) of the Income Tax Act, 1961. The petitioner argued that the directive was unjustified as previous audits did not reveal any complexities in the accounts, and the directive was too sweeping without a specific basis. The court agreed with the petitioner, noting that the impugned order lacked reasons for the special audit, which is a fundamental requirement for such administrative actions. The court referenced several precedents emphasizing the necessity of reasons in administrative orders and quashed the directive, remitting the matter for a fresh decision with reasons.

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 678066 (HC-ANDHRA_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 11-02-2013
• Assessment Year: misc
• Other Referred Cases: Commissioner of Police, Bombay vs. Gordhandas Bhanji, Union of India vs. M.L. Capoor and others, Rajesh Kumar vs. DCIT, Sahara India (Firm) vs. CIT, Hind Samachar Ltd vs. ACIT
• Laws Referred To: A.P Cooperative Societies Act, 1964, Banking Regulation Act, 1949, Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: J V PRASAD
• Assessee Lawyers: A V SIVA KARTIKEYA
• Keywords: Assessment years; Banking Business; Co-operative Society; Income Tax; Special Audit
• Section: 22; 142(2A)

Judgement Text

"THE HON’BLE SRI JUSTICE GODA RAGHURAM AND THE HON’BLE SRI JUSTICE M.S.RAMACHANDRA RAO WRIT PETITION No.423 of 2012 ORDER (Per the Hon’ble Sri Justice Goda Raghuram): Heard Sri A.V.Krishna Kaundinya, the learned Senior Counsel instructed by Sri A.V. Siva Kartikeya, the learned counsel for the petitioner and Sri J.V. Prasad, the learned Senior Standing Counsel for Income Tax for the respondents. A communication dated 12.12.2011 by the first respondent directing the petitioner to get its accounts audited for the Assessment Years 2005-06 to 2009-10 by the specified Chartered Accountant at the earliest and in any event not beyond 31.01.2012 and submit a report, is challenged in the writ petition. The petitioner is a co-operative society registered under the A.P Cooperative Societies Act, 1964; licensed by the Reserve Bank of India to carry on banking business in terms of Section 22 of the Banking Regulation Act, 1949 and an assessee on the rolls of the first respondent. On 23.09.2011, the first respondent intimated the petitioner that on perusal of its accounts for the Assessment Years 2005-06 to 2009-10 and having regard to the “nature and complexity of the accounts” it is felt necessary to get the accounts audited under Section 142 (2A) of the Income Tax Act, 1961 (for short “the 1961 Act”) irrespective of whether these accounts were audited earlier; calling upon the petitioner to submit any objections for the proposal, within the time stipulated. On 07.10.2011, the petitioner submitted detailed objections to the calling for a special audit under Section 142 (2A) of the 1961 Act. The petitioner raised as many as 10 objections to the proposal for special audit; contending inter alia that books of accounts for the Assessment Years 2005-06, 2006-07 and 2007-08 were submitted to scrutiny by earlier incumbents, who despite scrutiny of the petitioner’s accounts had observed no complexity in the accounts; that for the Assessment Year 2007-08, no proceedings are pending, authorizing initiation of proceedings under Section 142 (2A) of the 1961 Act; and that the proposal to audit books of account for five Assessment Years is too sweeping apart from the fact that no basis is set out for such wide spread exercise. By the order impugned, the first respondent without specifying any reasons for rejecting the detailed objections of the petitioner has merely referred to an Instruction No.1076 dated 12.07.1977 issued by the Central Board of Direct Taxes, New Delhi and directions by the Commissioner of Income Tax, Vijayawada vide letter bearing Reference F.No. Special Audit/VJA/2011-12 as the bases for the impugned communication. Sri A.V. Krishna Kaundinya, the learned Senior Counsel submits that the impugned order is bereft of any reasons disclosing a basis for exercise of the special powers under Section 142 (2A) of the 1961 Act and that on this singular ground the impugned order cannot be sustained and must perish. Sri J.V. Prasad, the learned Senior Standing Counsel states that though no reasons are set out in the impugned order, the reasons for calling for special audit are mentioned in the communication of the first respondent to the Commissioner of Income Tax and also spelt out in the counter affidavit filed to this writ petition. The fact that the impugned communication dated 12.12.2011 does not contain any reasons recorded for exercise of the powers under Section 142 (2A) of the 1961 Act is demonstrable and was not seriously contested by the learned counsel. As pointed out by the Supreme Court in Commissioner of Police, Bombay vs. Gordhandas Bhanji[1], the administrative order qua which the power is exercised must contain the reasons and if that is bereft of reasons these cannot be supplemented by counter affidavits or subsequent pleadings. Reasons are the links between the facts on which the conclusions are based and the conclusions themselves, as pointed out in Union of India vs. M.L. Capoor and others[2]. See also – Rajesh Kumar vs. DCIT[3]; Sahara India (Firm) vs. CIT[4]; and Hind Samachar Ltd vs. ACIT[5]. The impugned order merely sets out the conclusion of the first respondent for exercise of the power under Section 142 (2A) of the 1961 Act namely calling for the special audit and that conclusions cannot be a substitute for reasons, for exercise of the power. On the aforesaid analysis, the impugned order is unsustainable and is accordingly quashed. The matter is remitted to the first respondent, who shall pass a fresh order duly recording reasons for exercise of the power, authority and jurisdiction under Section 142 (2A) of the 1961 Act. Till a fresh order, if any, is passed by the first respondent pursuant to our remit by this judgment, the respondents shall desist from proceeding with any pending Assessment Proceedings pertaining to Assessment Years 2005-06 to 2009-10. The writ petition is allowed as above at the stage of admission. In the circumstances however, no order as to costs. JUSTICE GODA RAGHURAM Date: 11.02.2013 JUSTICE M.S.RAMACHANDRA RAO va [1] AIR 1952 SC 16 [2] AIR 1974 SC 87 [3] (2006) 287 ITR 91 (SC) [4] (2008) 300 ITR 403 (SC) [5] (2011) 335 ITR 277 (P&H) "