Appointment of Special auditor U/s. 142(2A) at fag-end of expiry of limitation is illegal

M/s. Unitech Limited Vs DCIT (ITAT Delhi)

First proposition, which was contested before the Tribunal for the assessment year 2009-10 was that order passed under section 142(2A) of the Act was cryptic and non-speaking order, because no specific instance of complexity with regard to the books of accounts were pointed out in the said order. It was also contended that objections raised by the assessee against appointment of such auditor were not considered or discussed in the order passed under section 142(2A) of the Act. The AO while exercising power under section 142(2A) was required to assign reason and it should be based on objective criterion and not on the basis of subjective satisfaction. In the words, the AO ought to have visualized the complexity of accounts and compelling circumstances for exercising such power. It was also contended that though while making a proposal for approval, an opportunity was provided to the assessee, but after submitting explanation no opportunity was granted to the assessee, nor any reasons were assigned. The proposal was sent without communicating to  the assessee and the ld.Commissioner has approved the proposal. Thereafter, an order under section 142(2A ) was passed running into few lines. The question was also raised before the Tribunal that it has no jurisdiction to entertain objection of the assessee against appointment of special auditor. The Tribunal after taking into consideration time limit provided in section 153(1) of the Act for passing assessment order observed that the assessment order in assessment year 2009-10 was to be passed before 31.12.2011 whereas, it was passed on 1.82012. The special auditor was appointed on 8.12.2011 just 23 days prior to expiry of limitation for passing the assessment order. Thus, in this given factual matrix, the Tribunal has considered that had the case was not referred for special auditor, the assessment would have become time barred and in order to gain time, a reference for appointment of special auditor was made.

Thus, directions dated 26-3-2014 issued by Addl. CIT, for special audit under section 142(2A) were illegal, invalid and not in accordance with the law; therefore, assessment order impugned in present appeal was barred by limitation and thus, quashed.

FULL TEXT OF THE ITAT JUDGMENT

Revenue and the assessee are in cross appeal against order of the ld.AO dated 28.9.2015 passed under section 143(3) r.w.s 144C(4) of the Income tax Act, 1961. On receipt of notice on assessee’s appeal, the Revenue has also filed cross objection bearing no.376/Del/2015 in ITA No.6181/Del/2015.

2. Assessee-company at the relevant time was engaged in the business of civil engineering and development of real estate projects. It is noticed by the AO that the assessee company was established in 1971 as a public limited company having its registered office at 6, Community Centre, Saket, New Delhi. The assessee is in the business of construction and development of real estate projects in National Capital region, but is also fast establishing a pan India presence. It is further noticed that the assessee-company has the most diversified product mix comprising residential, commercial, IT Parks, retail, amusement parks and hotels. It was also into some major projects in India as well as overseas i.e. Libya wherein the company is in the construction of transmission lines, power houses etc.

3. Assessee has filed its return of income on 4.10.2010 declaring total income at Rs.704,98,86,354/-. A draft assessment order was prepared by the AO on 13.4.2011 which was served upon the assessee. It has filed its objection before the ld.DRP and the ld.DRP has passed its order under section 144C(4) of the Act on 10.8.2015. Thereafter, the AO has passed assessment order on 28.9.2015 determining income of the assessee at Rs.995,82,28,090/-. It is pertinent to take note that the ld.DRP has given part relief which is being challenged by the Revenue in its appeal.

4. The ld.counsel for the assessee, at the very outset, submitted that the assessee has preliminary jurisdictional ground in ground no.1.1 to 1.3 whereby it has pleaded that direction for special audit under section 142(2A) of the Act was not warranted and has been issued only for sake of extending time limit of time barred assessment. This 9issue is squarely covered in faovur of the assessee by the order of the ITAT passed in the immediately preceding year i.e. assessment year 2009-10 wherein under similar circumstances, the AO has made a proposal for appointment of special auditor which was approved by the ld.CIT. This special auditor was pointed and accounts were audited. However, when the assessee challenged such an action of the AO before the ITAT, its grounds were allowed and it was held that the assessment order is time barred. Accoridng to the ld.cousnel for the assessee, there is no change in the facts in the present assessement year. Therfore, arguments were advanced only on this preliminaryissue by the ld.representatives. In view of the above, at this stage, we deem it appropriate to take note of ground nos.1.1 to 1.3 raised by the assessee in its appeal as under:

Assessee’s Appeal:

“1.1 That the learned AO/DRP has failed to appreciate that since pre- conditions for invoking the provisions contained in section 142(2A) of the Act were not satisfied in the instant case and, the directions for issuance of special audit were with a mere motive to extend the period of limitation, therefore reference was without jurisdiction and order of assessment so made in pursuance thereto was barred by limitation.

1.2 That the learned AO/DRP ought to have appreciated that there was no complexity involved with regard to the books of accounts and the directions for special audit could not have been issued for drawing legal inferences particularly having regard to the fact that the method of accounting and manner and mode of business stood accepted by the revenue in the preceding assessment years in respect of assessments framed under section 143(3) of the Act.

1.3 That directions for special audit under section 142(2A) of the Act for special audit was not warranted and has been issued only for sake of extending the time limit of time barring assessment and the Ld. Special auditor has also erred by drawing legal inferences of the transactions undertaken by the Assessee Company. Thus, exceeded his scope of work under section 142(2A) of the Act.

Revenue’s appeal & CO

1. “On the facts and in the circumstances of the case, the DRP-2 erred in deleting addition of Rs.54,64,23,410/- as proposed by AO on account of deemed dividend without appreciating the provisions of section 2(18) of the Income Tax Act, 1961 and section 3(l)(iii) of the Companies Act, 1956.
2. “On the facts and in the circumstances of the case, the DRP-2 erred in deleting addition of Rs. 16,75,28,3797- as proposed by AO on account of interest paid to Tata Reality Infrastructure Ltd.”

5. The ld.counsel for the assessee while impugning order of the AO has contended that at the fag-end of expiry of limitation to pass assessment order, the ld.AO has made a proposal for appointment of special auditor which has been accepted by the ld.CIT and special auditor was appointed. Such exercise was carried out by the department in order to get the time extended for passing assessment order after expiry of limitation. He submitted that financial statement of the assessee-company for the impugned assessment year have been duly audited by the statutory auditors after verification of the books of accounts and other relevant documents maintained by the company. There is no adverse finding of the statutory auditors with respect to the books of accounts of the assessee. There are no complexities in the accounts. Similar exercise was done by the AO in the assessment year 2009-10 and the assessee has challenged such action of the AO in appeal before the Tribunal. The assessee took a preliminary ground in its appeal for the assessment year 2009-10 and contended that if it is demonstrated that pre-conditions for invoking provisions contained in section 142(2A) of the Act for appointment of special auditor were not available, then such an order would be vacated and the assessment order should be declared as time barred. This preliminary objection was entertained by the ITAT in ITA No.5180/Del/2013. The Tribunal after elaborate discussion on the issue accepted contention of the assessee and held that appointment of special auditor under section 142(2A) of the Act was not in consonance with the statutory provisions. Accordingly, the Tribunal has declared the assessment as time barred. The ld.counsel for the assessee contended that this order was pronounced on 8.4.2016. The department has accepted this order and did not challenge in further appeal. Therefore, according to him, the issue in dispute is squarely covered by the order of the ITAT passed in the assessment year 2009-10. For buttressing his contentions, he took us through the order of the Tribunal as well as other details i.e. chronology of events reproduced by the AO on page no.3 of the assessment order. He pointed out that in this chronology, the ld.AO failed to note replies given by the assessee. He has just noticed the events which are suitable to him and on which alleged questionnaire has been issued. He took us through the show cause notice of the AO dated 5.2.2014 vide which the assessee was confronted as to why his case should not be recommended for appointment of special auditor under section 142(2A) of the Act. Copy of this proposal has been placed on record in paper book at page no.244. On this proposal, the assessee has filed detailed reply vide letter dated 3.3.2014 which has been placed in the paper book at page nos.249 to 264. Thereafter, before granting approval, the ld.Commissioner has also issued show cause notice to the assessee. Copy of such show cause notice is available at page no.267 of the paper book. The assessee again filed detailed reply to the ld.Commissioner and copy of the same has been placed on page nos.262 to 278. He pointed out that without considering any of the explanations given by the assessee, special auditor was appointed, and copy of order to this effect is available at page no.280 of the paper book. He took us through the order dated 26.3.2014 vide which special auditor was appointed after taking prior approval from the Commissioner. All these pages have been referred by the ld.counsel for the assessee in order to demonstrate parity between the facts and circumstances in the assessment year 2009-10 to 2010-11. He pointed out that the order of appointment of special auditor is verbatim same. Thus, according to the ld.counsel for the assessee, it is to be declared that the order passed by the Addl. CIT dated 26.3.2014 for appointment of special auditor under section 142(2A) is illegal and invalid and not in accordance with law, and this assessment order so made after taking benefit of extended time period, be declared as time barred.

6. On the other hand, the ld.DR contended that appointment of special auditor cannot be challenged before the Tribunal. It is not an appealable order and remedy of assessee lies somewhere else. This aspect cannot be entertained in the appeal of the assessee. Otherwise, he was unable to controvert the finding of the Tribunal recorded in the assessment year 2009-10.

7. In rebuttal, the ld.cousnel for the assessee submitted that this aspect has elaborately been gone into by the Tribunal in the assessment year 2009-10, and after making reference to a large number of decisions, the Tribunal has recorded a finding that appointment of an auditor could be challenged in an appeal, and if it is unearthed that such exercise carried out was illegal, then such order can be declared invalid. Both aspects have been gone into by the Tribunal elaborately and only thereafter the order for appointment of special auditor was declared invalid. He took us through the order of the Tribunal in extenso.

8. We have duly considered rival contentions and gone through the record carefully. As observed earlier, the assessee has filed its return of income on 4.10.2010. Section 143(2) of the Income Tax Act contemplates that where return has been made under section 139, or in response to a notice under sub-section (1) of section 142, the AO or the prescribed income-tax authorities shall, as the case may, if consider it necessary to ensure that assessee has not understated income or has not computed excessive loss or has not under paid the tax in any manner, shall serve on the assessee a notice requiring him, on a date to be specified therein, either to attend his office of the AO or to produce any evidence on which the assessee may rely in support of the return. The provisio appended to this section further contemplates that no notice under this sub-section shall be served upon the assessee after expiry of six months from the end of the financial year in which the return is filed. Thus, it authorizes the AO to serve a notice under section 143(2) utpo 30.9.2011. The ld.AO has issued notice on 12.7.2011. The case of the assessee was selected for scrutiny assessment by issuing a valid notice under section 143(2). This is the notice whereby assessment machinery was put into a motion and opportunity was granted to the assessee for submitting any  evidence or explanation in support of the return. Thereafter, the AO would commence inquiry/investigation whereby he would issue questionnaire under section 142(1) of the Act. It is pertinent to observe that the questionnaire was also issued on 26.8.2011, but, thereafter, the AO again issued fresh notice 143(2) on 4.6.2012 along with questionnaire. He again issued a fresh notice on 24.9.2012 and 14.1.2013 under section 143(2) of the Income Tax Act. It is pertinent to observe that the assessee has filed reply to these show cause notices and submitted details. Index of the paper book submitted would indicate that the assessee has filed more than 1110 pages in the shape of reply and information. For the purpose of examining preliminary issue all these details are not relevant therefore, we desist from making reference to the replies submitted by the assessee during the course of assessment proceedings.

9. There is no dispute with regard to the proposition of time limit to pass assessment order upto 31.3.2014, as contemplated in section 153(1) of the Act. When this time limit is going to expire, the ld.AO on 5.2.2014 made a proposal for appointment of special auditor. He issued a show cause notice to the assessee inviting its explanation as to why its case be not referred to special auditor. Copy of such proposal is available at page no.244 to 248 which reads as under:

“F.No. DCIT-C-18/2013-14/AAACU1482H                                                                                            Dated:5.2.2014

The Principal Officer

M/s Unitech Ltd.,

Basement, 6-Community Centre, v

Saket, New Delhi-110017.
Dear Sir,

Sub: Asseesment proceedings in your case u/s 143(2) of I.T. Act, 1961 for AY 2010-11 ; show cause for special audit u/s. 142(2A) – reg.

Please refer to the above and to your reply dated 11-2-2013 to the questionnaire dated 31-1-2013.

2. On an examination of Return of Income, Final Accounts and reply submitted, the following aspects are observed :

a. Returned Income is Rs.704,98,92,290, Profit as per P&L A/c is Rs.715,43,52,024 and total turnover is Rs. 2221,71,45,986/-.

b. Project in the P&L A/c as under:

Ongoing projects	Rs.23,11,48,045/-
Completed projects	Rs. 11,09,70,346/-
Percentage of completion method	Rs.909,10,21,242/-

c. As per final accounts there is both secured & unsecured loans and project in progress amounting to Rs. 96,06,78,88,151/-. The interest paid/payable needs to allocated to business activities of the company including various projects etc. But this has not been done and query in this regard during assessment proceedings has not been satisfactorily replied to.

d. There was variation in selling prices of residential/Commercial units allotted/ booked in the immediately preceding year i.e. F.Y. 2008-09, which came to light during the special audit u/s. 142(2A). During the current year also there is sales of residential and commercial units.

e. As per enclosure-VII & VIII of 3 CD (Particulars of loans or deposit where amount is exceeding the limit specified in section 269SS and 269T taken or accepted during the previous year) attached with tax audit report, there is long list of parties from which the assessee has accepted, as well as repaid deposit and in the list provided there are many parties where the Income tax particulars as well as complete address are missing.

f. 335 Crores has been paid by assessee to the Companies of Sh Anand Kumar where reports indicate a premium of Rs. 1490/- share of Rs.10/- each. Purpose of this investment & valuation of the extraordinary premium needs a thorough check.

g.Foreign income from overseas projects is not reflected in P&L A/c but income, amounting to Rs.27,51,96,653/- from overseas projects is reduced in computation of total income. Besides, assessee is having 32 100% foreign subsidiaries ou of which 4 are appearing for the first time in the current year. Investments and transactions with these companies needs a thorough check.

h. In the assessee’s own case for FY 2008-09, it was observed that consolidated stock register was not being maintained and on contrary it was maintained in a piece-meal manner on a project wise basis, which are in large numbers. There were frequent transfers of material from one project to another without any justifiable reason or.basis:-ln the .absence of a master stock register, there exists complexity in examining and verifying the transaction involving huge and frequent transfer of material form one project to another, especially in the absence of sequential material issue.

i. Complex web of subsidiaries & inter-company transactions:

From the Annual Report of assessee company for F.Y. 2009-10, it is evident that there are 303 Indian Subsidiary Companies with same office address i.e. 6, Community Centre, Saket, New Delhi and common directors and share holders viz. Ramesh Chandra, Sanjay Chandra and Ajay Chandra.& 32 Foreign Subsidiary Companies. Besides, there are 30 Joint Ventures. Assessee company has several transactions, directly or indirectly, by/through its subsidiaries/joint ventures (including entity held by/owned by such subsidiaries whether by way of beneficial/substantial shareholding or through its direct or indirect interest therein). This aspect was also seen in assessee’s case for AY 2009-10. There are money movement between assessee company and its subsidiary companies and/or its associate group concerns and individuals on account of loans, advances and trade transactions, in a very intricate and complex manner. Assessee company has diverted huge interest bearing funds to subsidiary companies as interest free funds in the name of purchase of land/advances/ investment in shares/loan etc. All these transactions needs thorough investigation and verification w.r.t Business expediency or otherwise, for its effect on the total income and tax thereon.

j. The assessee company has transferred shares of its subsidiary companies at par value of Rs.10/- to both related and unrelated parties. In these subsidiary companies, share holders’ are same as that of Unitech Limited .viz. Ramesh Chandra, Sanjay Chandra and Ajay Ghandra having substantial interest inter-alia. By such transfer assessee has passed on 100% shareholding of these companies and no profit have been shown. These voluminous transactions heeds proper audit/ verification, for decidingion the taxability aspect.

k. Colourable device of transferring shares in subsidiaries instead of transfer of substantial interest in land held as asset by the said subsidiary cos.

In the Computation of Income, assessee has shown income of Rs. 671.50 Crore as profit from sale of Investment in Real estate projects and 25.06 Crore as profit from sale of shares. These profits has been offered to tax as ‘Capital Gain‘. It is pertinent from the records that the land was acquired in the name of subsidiaries companies from the funds given by the assessee company and the same are shown as Loans and advances by assessee company. To create owner’s rights, control and physical possession on land purchased in the name of land owning subsidiary companies, assessee has entered into agreement with these companies for development of land. As a consideration for holding the land in their name & acquiring development rights from land owning subsidiary companies, it has paid service charges to such subsidiary companies. Through payment of consideration in the form of land advance, transfer of developmental right and payment of service charges, it is evident that Land Owning Subsidiary Companies are just custodian and title holders of the land, only on paper. But in substance the actual ownership rights & possession lies with assessee. Thus these transactions form a colourable device of camouflaging transactions of sale of land as share transactions i.e. apparent transfer of shares in subsidiary companies in place of substantial transfer of landed properties and treating them as Capital Gain, needs through verification, for correct determination of Income with its effect on tax payable. In fact, in AY 2009-10, such income has been assessed as Income from Business, based on the report of Special Audit.

l. Assessee company has taken loan from its subsidiary companies to  the extent of Rs.325,98,89,588/-. These subsidiary companies do not have capacity to give such huge funds, as they are filing return with nil income or loss. They do not have any asset of their own for conducting business. Similarly, loans have also been advanced to subsidiary companies. These transactions will also have impact on assessee’s income and tax thereon. The sheer volume of transactions and the huge amount involved, renders thorough verification of the same inevitable to arrive at the correct amount of taxable income.

m. Advances of Rs. 5918.65 Crores have been shown to have been received from customers of 42 projects, but in details filed during assessment proceedings, income from percentage completion method there are only 21 projects. Similarly, Land in Balance Sheet is at Rs. 2834.85 Crores, but in reply to questionnaire it is stated to be around Rs.3100 Crores. These discrepancies needs thorough probe.

n. There are advances to subsidiaries amounting to Rs. 1953.12 Crores for purchase of land. But corresponding land right is not perceptible. Similarly, there are loans & advances from subsidiaries, but there are no details of interest or service charges etc. on these accounts. Therefore, nature of transaction along with Business expediency for these loans to decide on allowability of interest u/s. 36(1), needs thorough verification, as from ledger A/c furnished, no details emanate including whether corresponding interest have been received or not.

o. During the year the assessee company has issued 42,10,64,935 shares of Rs.2/-at a premium which were Rs.36.50 per share on 22-4-2009 & Rs.79 per share on 3-7-2009. The reason for difference in share premium which more than 100% in just a matter of 2 ¹/₂ Besides, the increase in share premium during the year in standalone Balance Sheet is Rs.4418,01,09,413/- whereas in consolidated Balance Sheet, it is Rs.4193,94,17,711/-. These aspects needs proper probing.

p. Information has been received from Investigation Wing of the Department on the complicity of assesses., in. the 2-G scam, as ultimate holding company of ail 8 Unitech Wireless companies which were granted UAS Licences by Dept. of Telecommunications. Transactions of assessee company with these wireless companies both on capital and revenue account needs to be thoroughly audited for identifying source & destination of such huge funds involved in the said scam.

3. The above aspects render the accounts of assessee company very complex with voluminous transactions, thereby necessitating thorough investigation, by special audit u/s 142(2A) of IT Act, 1961 for arriving at correct amount of total income. Accordingly, you are hereby given an opportunity to Show Cause, why your case should not be referred to Special Audit u/s 142(2A) of the IT. Act, 1961.
4. Your reply must reach this office within 10 days of receipt of this notice/letter i.e. latest by 15-02-2014, failing which it will be presumed that you have no explanation to offer with regard to the proposed special audit u/s.142(2A) of IT. Act, 1961 in your case for F.Y. 2009-10 relevant to A.Y. 2010-11.”

10. The assessee filed reply to this proposal and copy of that reply is available at page no.249 to 264. We deem it to take note of the reply also. It reads as under:

“Date : 03.03.2014

Before

Additional Commissioner of Income Tax

Range-18,

NewDelhi

In the matter of: M/s Unitech Limited

Subject: Assessment Proceedings for Assessment Year 2010-11

Respected Sir,

1 That a show cause notice u/s 142(2A) of the Act dated 05.02.2014 has been served on the assessee company for compliance on 15.02.2014.

1.1 The assessee in response, begs to respectfully submit that, the aforesaid show-cause notice is highly vague, unspecific, unsubstantiated, unwarranted and therefore not only ‘ arbitrary but also without jurisdiction. It is submitted that no basis much less any valid basis has been stated in the notice for the allegations leveled and, conclusion arrived in the notice. Infact, each of the allegations are hypothetical and are contrary to record and statutory provisions of law. It is submitted that, mere general observations without stating any basis thereof cannot be a ground to allege complexity in the books of accounts and thefeby issue directions for special audit u/s 142(2A) of the Act. The submission therefore is the assessee may kindly be confronted with the basis of the allegations/observations recorded in the said vague notice, so as to enable the assessee company to furnish a proper reply to such notice.

Moreover no reference has been made to various information obtained, which has not yet been confronted to the assessee company and thus, a notice issued by relying on information, which has not yet been confronted to the assessee is contrary to principles of natural justice and thus, without jurisdiction. It may added here that, assessee company has been regularly furnishing its returns of income and, has been assessed to tax u/s 143(3) of the Act, where identical manner of maintenance of accounts and method of accounting has been accepted and since there is no change in the manner of maintenance of accounts and method of accounting, thus there is no justification, in the year under consideration, to resort to section 142(2 A) of the Act.

1.2 It appears that, entire intent and, purport to prepare such a vague show-cause notice and thereafter give an inadequate time frame to file a reply is with a predetermined and, premeditated opinion of making an order u/s 142(2A) of the Act. It is submitted that, such an approach is not only contrary to the principles of natural justice but in excess of jurisdiction. It is a case of mere pretence so as to circumvent the period of limitation, particularly after finding that, assessee has furnished all replies to your questionnaire and, directions and also produced books of accounts. Infact, all what is happening is that, after having received and, examined all relevant information/evidence. Your goodself is now forming an opinion in respect of disallowances/ additions proposed to the returned income, you are now intending to issue directions for Special audit so as to extend to the period of limitation. It is a clear case of abdication of responsibility.

1.3 Without prejudice to the above, the assessee company in the shortest time made available and, without having all the information relied upon in the notice the assessee company, in response to the aforesaid show cause notice seeks to submit as under:

2 It is submitted, that aforesaid notice is in respect of invocation of provisions contain in section 142(2A) of the Act, which reads as under:

“(2A) If, at any stage of the proceedings before him, the Assessing Officer, having regard to the nature and complexity of the accounts of the assessee and the 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 accounts audited by an accountant, as defined in the Explanation below sub-section (2) of section 288, nominated by the Chief 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.” [Emphasis supplied]”

2.1 It is submitted that perusal of the aforesaid statutory provisions would show that it provides that if at any stage of proceedings, the Assessing Officer having regard to nature and complexity of accounts of the assessee and in the interest of the revenue is o’ the opinion that it is necessary to do so may direct to assessee to get the accounted audited by an accountant with the previous approval of the Commissioner or Chief Commissioner of Income Tax. It is thus submitted that statutory precondition for invoking section 142(2A) of the Act is that, there must be complexity in the accounts of the assessee. It is submitted until and unless there is a complexity in the accounts, no aid can be resorted to the provisions of section 142(2 A) of the Act.

2.2 The assessee company seeks to place reliance on the judgement of Hon’ble Calcutta High Court in the case of West Bengal State Co-operative Bank Ltd. Vs. JCIT reported in 267 ITR 345, wherein it was held as under:

“Voluminous and the numbers of books of account or the plea of impossibility are no ground to abdicate his duty. If it is possible for an auditor or his team to examine the books of account, then why is it impossible for an Assessing Officer, is not comprehensible, after all he is presumed to have workable skill and idea of accounting because the nature of the duty entrusted to him under-the statute reasonably demands such skill and knowledge of examining accounts.” [Emphasis Supplied] “

2.3 It is submitted that, formation of opinion by the learned Assessing Officer for conducting a special audit depends upon; the nature of the accounts, complexity of the accounts and, interest ,of the revenue. The. words “having- regard to” employed in. the provisions contained in section’ 142(2A) of the Act, assumes significance in the matter of construction of the said provision. The expression “having regard to” indicates that, in exercising the power, regard must be had to the factors enumerated in the provision with all factors relevant for exercise of the power. It is-submitted that no action u/s 142(2A) of the Act, can be initiated on whims or caprice, and on the ipse-dixit of an officer.

2.4 The conditions of nature and complexity of the accounts’ and ‘the interests of the revenue’ are the pre-requisites for exercise of power under section 142(2A). The assessee company submits that in the instant case it is evident that the pre-requisites for exercise of power u/s 142(2 A) of the Act have not been fulfilled. It is further submitted that in instant case it is evident that your good self is seeking to exercise the power u/s 142(2A) of the Income Tax Act merely to shift your responsibility to an auditor. The assessee also seek to place reliance on the judgement of the Hon’ble Delhi High Court in the case of Gurunanak Enterprises v. CIT [2003] 259 ITR 637 where the Hon’ble Court held that there should be formation of an opinion by the Assessing Officer in regard to nature and complexity of accounts of assessee and interest of revenue. In this regard there should be a proper application of mind by the Assessing Officer. In that case, the Court had dismissed the writ petition filed by the assessee, but it will be useful to refer to the law laid down by the Bench in that case, which reads as under:

“A bare perusal of the provision would show that the opinion of the Assessing Officer has to be formed only by having regard to: (i) the nature and complexity of the accounts of the assessee; and (ii) the interests of the revenue. The word ‘and’ signifies conjunction and not disjunction. In other words, the twin conditions of ‘nature and complexity of the accounts’ and ‘the interests of the revenue’ are the pre-requisites for exercise of power under section 142(2A). Although the object behind enacting the said provision is to assist the Assessing Officer in framing the assessment when he finds the accounts of the assessee to be complex and is to protect the interests of the revenue recourse to the said provision cannot be had by the Assessing Officer merely to shift his responsibility of scrutinising the accounts of an assessee to determine his true and correct income, on to an auditor. True that an order under the said provision cannot be passed on the ipse dixit of the Assessing Officer merely because he finds some difficulty in understanding the accounts. There has to be a genuine and honest attempt on his part to understand the accounts of the assessee, appreciate the entries therein and if in doubt, seek explanation from the assessee or his representative, rather than pass on the buck to the special auditor. A cursory look at the books of account is not sufficient. It needs little emphasis that the opinion required to be formed by the Assessing Officer for exercise of power . under. section 142(2A) must be based on objective consideration and not on the basis of subjective satisfaction. _ Similarly, the requirement of the previous approval of the against any arbitrary or unjust exercise of power by the Assessing Officer, casts a very heavy duty on the said high ranking authority to see to it that the requirement of the previous approval, envisaged in the section, is not turned into an empty ritual. Needless to add that. before granting approval, the Chief Commissioner or the Commissioner, as the ease may be, must have before him. the , material on the basis whereof an opinion in this behalf has been formed by the Assessing Officer. The approval must reflect the application of mind to the facts of the case. A bare endorsement of the proposal Would not be sufficient. Peerless General Finance and Investment Co. Ltd. v. Dy. CIT [1999] 236 ITR 671 (Cal.) and Muthoottu Mini Kuries v. Dy. CIT[2001 ] 250 ITR 455 (Ker.) hold so.” [Emphasis Supplied]

2.5 It is trite that in order to invoke provisions of Section 142 (2A), two conditions have to be fulfilled i.e.

• Nature and Complexity of the Accounts; and
• Interest of the revenue

In absence of both these ingredients, provisions of Section 142(2A) cannot be invoked.

Therefore, it is incumbent upon the Assessing Officer to first examine the books of account and form his opinion regarding the nature and complexity of accounts.

The hon’ble Supreme Court in the case of Rajesh Kumar v DCIT (287 ITR 91) held that the satisfaction of the authorities should not be a subjective satisfaction. It should be based on objective assessment regard being to the nature of the accounts. The nature of the accounts must indeed be a complex nature. That is the primary requirement for directing a special audit. What is complex to one may be simple to another. It depends upon one’s level of understanding or comprehension. Sometimes, what appears to be complex on the face of it, may not be really so if one tries to understand it carefully. Therefore, special audit should not be directed on a cursory look at the accounts. There should be an honest attempt to understand the accounts of the assesse.

In the instant case, your goodself have yet to examine the books. The assessee company has always co-operated during the assessment proceedings and would be happy to supply any information which may be desired by your goodself for the purpose of timely completion of the assessment. However, there is no sagacity in invoking section 142 (2A) without examining the books of account of the assessee company.

It is axiomatic that power under section 142 (2A) is not to be used in a perfunctory manner, it is only after an honest and objective attempt is made to understand the accounts; this section can be invoked.

It is respectfully submitted that section 142 (2A) of the Act requires complexity of accounts and not complexity of investigation.. (Peerless General Finance & Investment Co. ITO [313 ITR 206(Cal)]

In the present case, where the business of the assessee has been carried on in the same manner as in the preceding years; there is no cause to invoke provisions of Section 142(2 A) as the assessments of earlier years itself are exculpatory and now in the year under review special audit cannot be ordered without emasculating the principle laid down by the Apex Court and several High Courts.

However without prejudice to above we submit hereunder the para wise replies to querries raised in your show cause notice dated 05.02.2014 for referring the case of company to Special Audit U/s 142(2A) of the Income Tax Act, 1961.

Reply to Para 2 (a)

There is no specific query in this para. However computation of income showing a taxable income of Rs.704,98,92,290/- as against Profit of Rs.715,43,52,024/- shown in Profit & Loss Account has been enclosed with return of income. The copy of statement of Taxable Income is again enclosed for your perusal and records (Annexure 1). In view of the aforesaid it is evident that the observation are based on factual misconception and thus cannot be taken as the basis to regard that there is any complexity in the books of account of assessee company.

Reply to Para 2 (b)

There is no specific query and moreover the figures shown in notice are the same as shown in Company’s Audited Accounts in Schedule 13. The detailed information of Income from various projects have been filed with your goodself earlier and now hereby enclosed for your reference (Annexure 2). In view of the aforesaid it is evident that the observation are based on factual misconception and thus cannot be taken as the basis to regard that there is any complexity in the books of account of assessee company.

Reply to Para 2 (c )

With regards to allocation of interest to Project in Progress amounting to Rs.9606,78,88,151/- we may place “on records that the allocation of interest to these projects is being done constantly as per earlier years and as per Accounting Policy with regards to Borrowing Cost adopted by the company. We would also like to bring to your kind notice that the allocation of interest to projects was also verified by the Special Auditor appointed for A.Y 2009-10 and no adverse opinion on the same was drawn by them. They’hM made detailed analysis of “revenue arid expenditure booked .under real estate projects in broad heads l.ike POCM, Ongoing project and completed projects. The assessee company has followed the same method of accounting of borrowing cost to the projects and revenue i.e capitalization as well as-charging of the same to P&L account in the year under consideration. In view of the aforesaid it is evident that the observation are based on. factual misconception and thus cannot be taken as the basis to regard that there is any complexity in the books of account of assessee company.

Reply to Para 2 (d)

With regards to variation in selling prices of residential / commercial units allotted / booked, it is submitted that your kind honour is raising the query on the basis of findings in previous year i.e. Assessment Year 2009-10 and there is no specific observation by your kind honour.

In this regard its submitted that discount in the real estate business varies with various reasons such as location of the flats, payment schedules such down payment or installments, employee discounts, inaugural or festival discounts, size of the flats etc. the aggregate of all such discounts depending on viability of the projects and timing could vary from 25% to 35% of the average price, and that would be higher if it is compare with highest price. The price of any transaction depends upon various things including future business expectation, relationship with customer, negotiation with the customer, market condition, competition etc. and it would be completely wrong to say that if two transaction are taking place in same time period the price of the transaction should same-. It is appellant’s own commercial expediency to deal with the customer which cannot be questioned. It is submitted that the assessee has receives the sale considerations as per the agreements with the customers and no extra payment is received by the assessee and the same is received as mentioned in the sale deed. We may further submit that Learned CIT (Appeal)-XXI, New Delhi vide his order dated 16.08.2013 has deleted the notional additions made in Assessment Year 2009-2010. In view of the aforesaid it is evident that the observation are based on factual misconception and thus cannot be taken as the basis to regard that there is any complexity in the books of account of assessee company.

Reply to Para 2 (e)

With regards to enclosures, VII and VIII of 3CD (Particulars of Loans or deposit as required under section 269SS and 269T), we may submit that except one party we have submitted the full address and PAN of all the accounts/parties mentioned therein except one party i.e. M/s Unibuild Associates, The full details of Unibuild Associates is given hereunder:

Unibuild Assocaites
A-67, Lajpat Nagar-II,
New Delhi II0024 ”
ADZPG0852E

With regards to annexure VIII of Form 3CD also the details of one single party i.e. of HDFC Ltd. has not been provided that to also unintentionally omit to mention there as the party is not unknown or uncommon to any person. The same is. also given hereunder:

HDFC Ltd. .

The Capital Court
Outer Ring Road
Munirka

New Delhi -110067
AAACH0997E

Therefore the unintentional omission of information would not be construed as basis to allege complexity of books of accounts. In view of the aforesaid it is evident that the observation are based on factual misconception and thus cannot be taken as the basis to regard that there is any complexity in the books of account of assessee company.

Reply to Para 2 (f)

Regarding your observation of payment to the companies of Sh.Anand Kumar, we would like to bring into your kind notice that the company have not made any payment to Mr.Anand Kumar or companies of Sh.Anand Kumar, therefore the purpose and valuation of the same is never arise. Infact it is apparent that no honest attempt has been made by the Income Tax Department to understand the accounts of the Assessee (Unitech Ltd.) and the special audit is being proposed without looking into its accounts, without any proper investigations and merely on the basis of incorrect assumptions. In view of the aforesaid it is evident that the observation are based on factual misconception and thus cannot be taken as the basis to regard that there is any complexity in the books of account of assessee company.

Reply to Para 2 (g)

At the outset it is submitted your observation that foreign income from overseas projects have not been shown in the P & L account is factually incorrect. We may submit that income from overseas projects at Libya, assessee has duly disclosed income of Rs.27.52 crores in computation of income filed earlier. –

It is further submitted that though income from Libya i.e. R.27.52 Crores was initially reduced in the computation of income but thereafter the same has been offered for tax separately as would be evident from computation of income enclosed(Annexure 3).

Further to your observation with regard to “assessee is having 32 100% foreign subsidiaries out of which 4 are appearing for the first time in the current year, investment and transactions with these companies needs a thorough check”, we would like to bring into your kind attention that to assess the transaction with these foreign entities your honour have already referred the case to the Transfer Pricing officer and the report of Transfer pricing officer has already been submitted to your honour for consideration. The transfer princing authority was setup to see these kind of transactions, only and you have already exercised the reference in due time. In view of the aforesaid it is evident that the observation are based on factual misconception and thus cannot be taken as the basis to regard that there is any complexity in the books of account of assessee company.

Reply to Para 2 (h)

It is submitted that the assessee company is maintaining site wise stock registers and consolidating the same annually. Further, there is no frequent transfer of material from one project to another without any justifiable reason or basis and as per Company’s consistent policy the material purchased is shown as ‘IN’ and immediately shown as ‘OUT’ to the contractors in Real Estate Projects company is not keeping stock in hand. Besides, the assessee company has a Pan India presence with number of projects across India. It is not possible to prepare consolidated stores/inventory register on daily basis as there is no such legal requirement. However, the company is duly maintaining stores/inventory registers at all of its sites/projects and thus meeting all the statutory compliances. There is no complexity in accounts regarding the same. Further, the assessee company also get audited physical verification certificate for stock/inventory from an independent chartered Accountant for each financial year which itself is a proof of keeping proper accounting records. The company undertakes large number of projects under execution resulting in huge volumes cannot be construed as making the accounting complex when there are proper records for each individual projects/sites. In view of the aforesaid it is evident that the observation are based on factual misconception and thus cannot be taken as the basis to regard that there is any complexity in the books of account of assessee company.

Reply to Para 2 (i)

With regards to your query regarding complex web of subsidiaries & inter-company transactions it is submitted that assessee company does not dispute that it has 335 Indian & Foreign Subsidiaries, 30 joint ventures / associates having a common office address..

In this regard we submit that, each of the subsidiaries are regularly assessed to tax and particular of assessment of such subsidiaries has already been placed on record and the list is again enclosed (Annexure 4) herewith depicting therein name of subsidiary paid up capital, turnover and profit/loss during the year alongwith their; Permanent Account Numbers. We may also submit though the registered office of the subsidiaries is same but there are different directors in each subsidiary.

It is also, placed, on records that as per Accounting. Policy, followed, .consistently mentioned at S. No. 12 of Significant Accounting Policy of the Audited Accounts, which states that interest is charged- to / from subsidiary companies (other than wholly owned subsidiary companies) at average borrowing cost on the loan advanced. In case of Inter Corporate Deposits to wholly owned subsidiaries, interest is charged considering commercial expediency and agreed stipulations. The details of Interest Income of Rs.251.80 Crores has-been received from subsidiaries during the year under assessment for which company wise details have already been placed on records (Annexure 5).

With regards to .your query for diversion of huge funds to these subsidiaries in this connection we have to draw your attention to S. No.8 of Notes to Accounts part of Audited Accounts wherein it has been stated that:

“In pursuance of real estate activities undertaken, the company has given advances, to -its. wholly-Owned subsidiaries for -purchase of land. The said lands are being developed by the company as per Memorandum of Understanding executed between the parties.”

We may further submit that all the subsidiaries are audited separately and any amount received by subsidiary either for purchase of land on behalf of the company or for approvals thereafter are duly disclosed as Unsecured loan for purchase of land. Moreover these transactions does not affect tax revenue as any consideration from sale of land as well use of land parcel for development of project is accounted for by Unitech Limited in its revenue and subsidiaries are not taking any income from these land parcels, in turns receiving the service charges from Unitech Limited to hold these land parcels and showing the same as revenue only. In view of the aforesaid it is evident that the observation are based on factual misconception and thus cannot be taken as the basis to regard that there is any complexity in the books of account of assessee company.

Reply to Para 2 (j)

With regards to your query for transfer of share of its subsidiary companies to related and unrelated parties at Par value. In this connection, we would like to bring to your kind notice that the company has not transferred share of any subsidiary company to any of the unrelated party at cost or face value. We are enclosing the chart/detail showing the transfer of shares of subsidiaries to related & unrelated parties separately, which shows our contention mentioned above (Annexure 6 & 6a). Further in case of transfer of shares to the related party i.e to another subsidiary company was made to liquidate or merge the NIL companies into one of the subsidiary company to scale down the no. of  of the aforesaid it is evident that the observation are based on factual misconception and thus cannot be taken as the basis to regard that there is any complexity in the books of account of assessee company.

Reply to Para 2 (k)

In this para, it has been observed that colourable device of transferring share in place of substantial transfer of landed properties, it is submitted most respectfully that, there is no device much less colourable device of transferring share in place of substantial transfer of landed properties. It is submitted that there is no basis to arriving at such an observation. It is submitted that sale of shares of company is a valid, legal method of transfer of ownership of a company and, if as a result, assets of the company including land held therein is transferred, it cannot be alleged that, this a colourable device. It is submitted that, sale of shares of a company is the only mode and, manner of transfer of ownership in a company and as such suggestion that, this is a colourable device is nothing misguided attempt to direct special audit u/s 142(2 A) of the Act.

In earlier para, we have already clarified that capital gain on sale of shares of subsidiaries has been duly declared in the ROI filed for the concerned assessment year. It is a question of law whether it is treated as business income or income under head of capital gain. In view of the aforesaid it is evident that the observation are based on factual misconception and thus cannot be taken as the basis to regard that there is any complexity in the books of account of assessee company.

Reply to Para 2 (1)

With regards to your query regarding loan of Rs.325.99 Crores taken by the company from its subsidiaries and stating that these companies do not have capacity to give such huge funds and are filing nil income return.

In this connection we enclose herewith a chart of 19 companies from which the above loan of Rs.325.99 crores has been taken. The company wise profit and tax paid by these companies amounting to Rs.126.24 crores (Profit) and Rs.44.07 Crores (Tax) is also depicted in this chart (Annexure 7). In view of the aforesaid it is evident that the observation are based on factual misconception and thus cannot be taken as the basis to regard that there is any complexity in the books of account of assessee company.

Reply to Para 2 (m)

As per accounting policy with regards to recognition of Income, it is submitted that in Real Estate Projects which have been undertaken before 31st March, 2004, the revenue is .estimated. @ 20% of actual receipts and projects undertaken on or after 1st April, 2004 the revenue is recognized on “Percentage of Completion Method” when the actual .cost as stipulated in Accounting Policy is 20% or more.

In view of above we may explain with regards to your observation that the company may have launched 42 projects but as per policy of Percentage of Completion Method the is income recognized in the year under consideration is of only in 21 projects. Therefore the advance received from customers for the projects just lunched or not achieved 20% construction level shows the difference in your calculation as well as in detail submitted by the company The detail chart showing all the 42 projects status of revenue and advances is enclosed for your reference (Annexure 8).

With regards to difference in land value it is placed on records that in reply to your questionnaire no. ACIT-C(18)72012-13 dated 31st January, 2013 we have submitted a reply on 13th February, 2013 wherein at Point No.26 we filed a detailed chart of land showing opening balance, addition / deletion and final balance at the close of year which also reflect a figure 2834.85 Crores which is as per Balance Sheet (Annexure 9). Therefore we would request your goodself to please provide the information/documents you have relied upon having difference with the audited balance sheet of the company. In view of the aforesaid it is evident that the observation are based on factual misconception and thus cannot be taken as the basis to regard that there is any complexity in the books of account of assessee company.

Reply to Para 2 (n)

As mentioned earlier in pursuance of real estate activities the company is purchasing land in the name of its subsidiaries and all the money for purchase of land is advanced by the company. The income from these land is also accounted for in company’s books as and when these land parcel are sold to other third party or project developed by Unitech Limited. Unitech Limited has entered into agreement with these companies for development of land and as a consideration for holding the land in their name and acquiring the development rights from original land owning subsidiary companies, the Unitech Limited has paid to the subsidiaries companies an amount @ Rs. 10000 per acre payable in five year as service charges. As far as detail of interest on these accounts, as mentioned that these companies never book any profit on the land sale and transferring the same to Unitech Limited to offer for tax as they are custodian of land on behalf of Unitech Limited. In view of the aforesaid it is evident that the observation are based on factual misconception and thus-cannot be taken as the basis to regard that there is any complexity in the books of account of assessee company.

Reply to Para 2 (o)

In response to query no. O, it is submitted that the facts mentioned in the first part of the query regarding difference in premium on issue of 42,10,64,935 shares of Unitech Limited, are in correct for the following reason:

On April 22, 2009, Unitech Limited issued 42,10,64,935 equity shares of face value of Rs.2/-each at a price of Rs. 38.50 per equity share including a premium of Rs. 36.50 equity share, to qualified institutional buyers pursuant to chapter XIII-A of the Securities and Exchange Board of India (Disclosure & Investor Protection) Guidelines, 2000 (“April Issue”).

It is further submitted that on July 3, 2009, Unitech-Limited issued 34,43,61,112 equity shares of face value of Rs.2/- each at a price of Rs. 817- per equity share including a premium of Rs. 191- per equity share, to qualified institutional buyers pursuant to chapter Xiri-A of the Securities and Exchange Board of India (Disclosure & Investor Protection) Guidelines, 2000 (“July Issue”).

So, there was no difference in the amount of premium on issue of 42,10,64,935 equity shares by Unitech Limited. The amount of premium per share for this issue was Rs.36.50.

It appears that your actual query is on basis of difference of premium of issue of 42,10,64,935 equity shares on April 22, 2009 and premium on issue of 34,43,61,112 equity shares on July 3, 2009.

Assuming that is the query, we reply as under:

The pricing of shares to be issued pursuant to chapter XIII-A of the Securities Exchange Board of India (Disclosure & Investor Protection) Guidelines, 2000, was governed by the pricing formula specified in the said guidelines which is being reproduced here under for your ready reference:

“An issue of specified securities made under this Chapter shall be made at a price not less than the average of the weekly high and low of the closing prices of the related shares quoted on the stock exchange during the two weeks preceding the relevant date.

Explanation:

a) “relevant date” for the purpose of this clause means the date of the meeting in which the Board of the company or the Committee of Directors duly authorised by the Board of the company decides to open the proposed issue.

b) “stock exchange” for the purpose of this clause means any of the recognised stock .. exchanges in which the equity shares of the issuer, of the same class are listed and in. which the highest trading volume in such shares has been recorded during the two weeks immediately: preceding the relevant date.

So, by application of the aforesaid formula, the price for issue of shares in the April Issue and July Issue came out to be different since the aforesaid formula is based on the market price of the equity shares of the issuer on the stock exchanges.

The calculation of base price for the April Issue is as under:

Symbol	Series	Date	Close Price (in Rs.) onNSE	Weekly High/ Low (in Rs.)	Average of weekly High and Low (in Rs.)	Avg. of Weekly averages for 2 weeks (in Rs.)
UNITECH	EQ	31 -Mar-09	34.90	37.50
UNITECH	EQ	01 -Apr-09	37.35
UNITECH	EQ	02-Apr-09	37.50
UNITECH	EQ	03-Apr-09	–		36.20
UNITECH	EQ	04-Apr-09	.
UNITECH	EQ	05-Apr-09	.
UNITECH	EQ	06-Apr-09	36.75	34.90
UNITECH	EQ	07-Apr-09	_	42.10		38.46
UNITECH	EQ	08-Apr-09	39.35
UNITECH	EQ	09-Apr-09	42.10
UNITECH	EQ	10-Apr-09	_		40.725
UNITECH	EQ	11 -Apr-09	_
UNITECH	EQ	12-Apr-09	–
UNITECH	EQ	13-Apr-09	41.75	39.35

In view of the base price of Rs. 38.46 per share calculated pursuant to pricing guidelines specified in chapter XIII-A of the Securities Exchange Board of India (Disclosure & Investor Protection) Guidelines, 2000, the issue price was fixed at Rs. 38.50 per share. Relevant Date for the April Issue was April 14, 2009.

The calculation of base price for the July Issue is as under: 

Symbol	Series	Date	Close Price (in Rs.) on NSE	Weekly High / Low (in Rs.)	Average of weekly High and Low (in Rs.)	Avg. of Weekly averages for 2 weeks (in Rs.)
UNITECH	EQ	12-Jun-OS	86.45	88.90
UNITECH	EQ	13-Jun-09	–
UNITECH	EQ	14-Jun-09	–
UNITECH	EQ	15-Jun-09	86.95		82.50
UNITECH	EQ	16-Jun-09	88.90
UNITECH	EQ	17-Jun-09	84.40
UNITECH	EQ	18-Jun-09	76.10	76.10
UNITECH	EQ	19-Jun-09	80.25	82.00		81.00
UNITECH	EQ	20-Jun-09	.
UNITECH	EQ	21-Jun-09	–
UNITECH	EQ	22-Jun-09	77.65		79.50
UNITECH	EQ	23-Jun-09	77.00
UNITECH	EQ	24-Jun-09	77.95
UNITECH	EQ	25-Jun-09	82.00	77.00

In view of the base price of Rs. 81.00 per share calculated pursuant to pricing guidelines specified in chapter XIII-A of the Securities and Exchange Board of India (Disclosure & Investor Protection) Guidelines, 2000, the issue price was fixed at Rs. 81.00 per share. Relevant Date for the April Issue was June 26,2009.

Regarding your observation in respect of share premium in standalone balance sheet vi a viz consolidated balance sheet, we have earlier informed and urged to your good sel that the consolidated accounts are being prepared for the requirement of SEBI applied on listed companies, whereas the taxation issue only related to the standalone balance sheet of the company. In view of the aforesaid it is evident that the observation are based on factual misconception and thus cannot be taken as the basis to regard that there is any complexity in the books of account of assessee company.

Reply to Para 2 (p)

From a plain reading of Para (P) of the aforesaid notice, it is apparent that no honest attempt has been made by the Income Tax Department to understand the accounts of the Assessee (Unitech Ltd.) and the special audit is being proposed without looking into its accounts, without any proper investigations and merely on the basis of incorrect assumptions, some of which are as under:

Even before the Ld. Special Court dealing with the 2G Spectrum Case could finally decide the matter, the Income Tax Department has already pre.-judged the matter and formed an opinion that the 2G Spectrum Case was the “2-G Scam”.

Though the Assessee has not been named in the chargesheet filed-before the Ld. Special Court (2G Spectrum Case) by the Central Bureau of Investigation (CBI), the Income Tax Department has on its own assumed the involvement of the Assessee in the alleged 2-G Scam by using the words “complicity of assessee in the 2-G scam”. No documentary evidence has been furnished’ by the Income Tax Department in support of this assumption.

In the aforesaid Notice, the Income Tax Department has wrongly assumed the Assessee as the ultimate holding company of all 8 Unitech Wireless companies which were granted UAS Licenses by Dept. of Telecommunications, ;This notice has been issued for the Assessment Year 2010-11 and during this Assessment Year, the Assessee was not the holding company of any of the 8 Unitech Wireless Companies. .

In the aforesaid Notice, the Income Tax Department has made a general and vague statement, without any supporting document, that “Transactions of assessee company with these wireless companies both on capital and revenue account needs to be thoroughly ‘audited for. identifying source .& destination of such huge funds, involved in the said scam”. The Income Tax Department has not specified in the aforesaid notice even a single transaction of the Assessee with any of the 8 Unitech Wireless Companies relating to Assessment Year 201O-11, which created complexity of the accounts and was not in the interest of the Revenue.

There is no allegation in the aforesaid notice that the Assessee has not furnished any information or explanation sought by the Assessing Officer during the course of assessment proceedings for the Assessment Year 2010-11. It is clear from the above submission that the aforesaid notice has been issued based on mere suspicion, and fishing and roving inquiry is being made to order the special audit of the Assessee. It is pertinent to mention that fishing or roving inquiry is not contemplated under Section 142(2A) of the Income Tax Act, 1961. No specific or cogent material has been provided along with the notice, and no specific transaction has been disclosed in the notice, which shows complexity of accounts of the Assessee.

In Swadeshi Cotton Mills Co. Ltd. vs Commissioner of Income-Tax [1998 233 ITR 199 SC], the Hon ‘ble Supreme Court held that honest attempt to understand the accounts must first be made. Special Audit should not be directed upon a cursory look at the accounts. For an order of special audit, the Assessing Officer must scrutinize accounts and be satisfied about the complexity of the accounts. This decision would have to be made after looking into the accounts. Even if there was  difficulty in appreciating entries, an explanation would have to be obtained from the assessee.

In Bata India Ltd. vs. Commissioner of Income Tax [(2002) 257 ITR 622], the Hon’ble High Court of Calcutta held that the power to order special audit must be based on proper investigations and reasons. The two pre-conditions justifying action under Section 142(2A) are the nature and complexity of the accounts and the interests of the Revenue. There can be no doubt that before an approval is sought for, the Assessing Officer must form an opinion as regards the said two conditions. The satisfaction is to be based on objective considerations. There has to be an application of. mind on the part of the Assessing Officer. If any vital information cannot be ascertained from the , accounts the Assessing Officer should call for particulars from the assessee, which he is entitled to do. There should be an honest attempt to understand the accounts of the assessee. The power to appoint a Special Auditor cannot be lightly exercised. Complexity of the accounts cannot be equated with doubts being entertained by the Assessing Officer, either with regard to the correctness, or the need to obtain certain vital information not ascertainable from the accounts. In the absence of reasons based on which it can be said that the accounts are complex or not, mere assumption that they are complex would not satisfy the test, nor would the appointment of Special Auditor merely for the purpose of examination of related supporting vouchers, bring the matter within ambit of Section 142(2 A).

5. zIt is therefore respectfully submitted that there is no case for directing the special audit of the Assessee and any such direction, if passed, would only result in unnecessary and unwarranted financial burden on the Assessee. It is submitted that your action seeking reference to Special Auditor u/s 142(2A) of the Income Tax Act for conducting special audit purportedly by invoking the provisions of section 142(2A) of the Act are invalid, obliterate and, without jurisdiction and, as such your good self is requested to withdraw the aforesaid initiation as well as the show cause letter dated 05.02.2014.

Thanking you,

Yours sincerely,

For Untech Limited

Sd/-

(Authorised Signatory)”

11. Thereafter, the ld.Commissioner has also confronted the assessee as to why approval for special auditor be not granted. The show cause notice dated 13.3.2014 has been placed on page no.267. The assessee again filed a detailed reply which is available at page no.268 to 278. The reply reads as under:

“Dated: 18.03.2014

Before

Hon’ble Commissioner of Income Tax -VI
New Delhi .

In the matter of: M/s Unitech Limited

Subject: Assessment Proceedings for Assessment Year 2010-11

Respected Madam,

1. Kindly refer to your notice dated 13.03.2014 served on 14.3.2014 wherein it has been stated as under:

“2 A reference has been received from DCIT, Circle-18 through Additional CIT, Range-18, New Delhi seeking approval for Special Audit u/s 142(2A) in the case of M/s Unitech Ltd. in the A. Y. 2010-11

3 You are hereby allowed an opportunity to appear before undersigned on 18.3.2014 at 11:00 AM in Room No. 243, C.R. Building, I.P. Estates, New Delhi. Please note that if you fail to take this opportunity it will be presumed that the assessee company has nothing to say I the matter and the reference will be decided on merits.”

1.1 The assessee, in response to the above, respectfully submits as under:

2. At the outset, it is most respectfully submitted that, the assessee had been served with a show cause notice dated 05.02.2014 and 26.02.2014 for reference to the special auditor and in response there to, assessee has furnished reply dated 03.03.2014 submitting that, show cause notice is highly vague, unspecific, unsubstantiated, unwarranted and therefore not only arbitrary but also without jurisdiction. It was submitted that mere general observations without stating any basis thereof cannot be a ground to allege complexity in the books of accounts. The assessee thus prayed that, it may kindly be confronted with the basis of the allegations/observations recorded in the said vague notice, so as to enable the assessee company to furnish a proper reply to such notice. Without prejudice to above, the assessee furnished parawise reply to the show cause notice establishing that there is no specific or cogent material to allege complexity in the books of accounts of the assessee. It was further submitted that notice has, been, issued based on mere suspicion and fishing and roving inquiry is being made to order the special audit, of the assessee, which not contemplated under section 142(2A) of the Act, 1961. It was submitted that the proposed action seeking reference to special auditor u/s 142(2A) of the Act for conducting special audit Ts invalid, obliterate and, without jurisdiction. A copy of the reply furnished is enclosed as Annexure “A” to this reply.

2.1 Apart from above, books of accounts were produced on 3.3.2014. The said books of accounts were impounded on 03.03.2014 and thereafter released on’ 13.03.2014.

2.2 The assessee has now been directed to appear before your goodself. The instant hearing is as a result of proposal forwarded by the learned Assessing Officer for reference to special auditor to your goodself.

2.3 It is submitted that the aforesaid proposal has not been supplied to the assessee. It is submitted the show cause notice as issued by the learned Assessing Officer has already been replied by the assessee company. However, it is not known as on what basis and for what reasons the reply has not been found to be acceptable. It is thus submitted until and unless the proposal is confronted to the assessee specifying the reason for rejecting the reply filed by the assessee, the assessee would not be in the position to furnish a complete reply. Your goodself will appreciate that no person can expected to reply without knowing the basis on which the learned Assessing Officer was not satisfied with the reason of the assessee stating that there is no complexity in the books of accounts of the assessee. The assessee seeks to rely upon the case of Full Bench of Delhi High Court in the case of J.T. (India) Exports and Anr. vs. UOI reported in 262ITR 269 wherein it has been held as under:

“5. The adherence to principle of natural justice as recognised by all civilized states is of supreme importance . – when a quasi judicial body embarks on determining disputes between the parties. These principles are well-settled. The first and foremost principle is what is commonly known as audi alteram pattern rule. It says that none should be condemned unheard. Notice is the first limb of this principle- It must be precise and unambiguous. It should appraise the party determinatively the case he has to meet. Time given for the purpose should be adequate so as to enable him to make his representation. In the absence of a notice of the kind and such reasonable opportunity, the order passed against the person in absentia becomes wholly vitiated. Thus, it is but essential that a party should be put on notice of the case before any adverse order is passed against him. This is one of the most important principles of natural justice. It is after all an approved rule of fair-play.

13. How then have the principles of natural justice been interpreted in the Courts and within what limits are they to be confined ? Over the years by a process of judicial interpretation two rules have been evolved as representing the principles of natural justice in judicial process, including therein quasi judicial and administrative process. They constitute the basic elements of fair hearing, having their roots in the innate sense of man for fairplay and justice which is not the preserve of any particular race or country but is shared in common by all men. The first rule is ‘nemo judex in causa sua’ or ‘nemo debet esse judex in propria causa sua1 as stated in (1605) 12 Co. Rep. 114, that is, ‘no man shall be a judge in his own cause’. Coke used the form ‘aliquis non debet esse judex in propria causa quia non potest esse Judex at pars’ (Co. Litt. 1418), that is, no man ought to be a judge in his own cause, because he cannot act as Judge and at the same time be a party’. The form nemo potest esse simul actor et judex’, that is, no one can be at once suitor and judge’ is also at time used. The second rule and that is the rule with which we are concerned in this case is Audi alteram partem’, that is, ‘hear the other side’. At times and particularly in continental countries, the form ‘audietur at altera pars’ is used, meaning very much the same thing. A corollary has been deduced from the above two rules and particularly the Audi alteram partem rule, namely ‘qui aliquid statuerit parte inaudita alteram actquam licet dixerit, baud accum facerit, that is, ‘he who shall decide anything -without the other side having been heard, although he may have said what is right, will not have been what is right’ (See Bosewell’s case (1605) 6 C6.~Rep. 48-b, 52-a) or in other words, as it is now .expressed, ‘justice should not only be done but should manifestly be seen to be done’.”

3. Without prejudice to the aforesaid, it is most respectfully submitted that the proposed reference to the special auditor is an attempt to extent the period of limitation and also to outsource the role and job of an Assessing Officer. In otherwords, the attempt is to not only abdicate his responsibility but also extend the period of limitation. At this juncture, the assessee reiterates that the show cause notice notice had been issued on 05.02.2014 without examining the books of account of the assessee company. . It is submitted that, the necessary and statutory pre-condition for invoking section 142(2A) of the Act is that Assessing Officer must necessarily examine the books of accounts before issuing a show cause notice to direct the assessee to get his accounts audited by the special auditor. The assessee in support seek to refer following judgments as under:-

i) 233 ITR 199 (SC) Swadeshi Cotton Mills Co. Ltd. vs CIT

the Hon’ble Supreme Court held that honest attempt to understand the accounts must first be made. Special Audit should not be directed upon a cursory look at the accounts. For an order of special audit, the Assessing Officer must scrutinize accounts and be satisfied about the complexity of the accounts. This decision would have to be made after looking into the accounts. Even if there was difficulty in appreciating entries, an explanation would have to be obtained from the assessee.

1. ii) 257 ITR 622 (Ca) Bata India Ltd. vs. CIT

the Hon’ble High Court of Calcutta held that the power to order special audit must be based on proper investigations and reasons. The two pre-conditions justifying action under Section 142(2A) are the nature and complexity of the accounts and the interests of the Revenue. There can be no doubt that before an approval is sought for, the Assessing Officer must form an opinion as regards the said two conditions. The satisfaction is to be based on objective considerations. There has to be an application of mind on the part of the Assessing Officer. If any vital information cannot be ascertained from the accounts the Assessing Officer should call for particulars from the assessee, which he is entitled to do. There should be an honest attempt to understand the accounts of the assessee. The power to appoint a Special Auditor cannot be lightly exercised. Complexity of the accounts cannot be equated with doubts’ being entertained by the Assessing Officer, either with regard . to the correctness, or the need to obtain certain vital information not ascertainable from the accounts. In the absence of reasons based on “which it can be “said that the accounts are complex or not, mere . assumption that they are complex would not satisfy the test, nor would the appointment of Special Auditor merely for the purpose of examination of related supporting vouchers, bring the matter within ambit of Section 142(2A).

3.1 Infact, jurisdictional High Court in the case of PDA vs. Union of India reported in 350 ITR 432 after noting the judgment of Allahabad High Court in Swadeshi Cotton Mills Co. Ltd. v. CIT 1988 (171) ITR 634 his held as under:

“11. What is complex to one may be simple to another. It depends upon one’s level of understanding or comprehension. Sometimes, what appears to be complex on the face of it, may not be really so if one tries to understand it carefully. Therefore, special audit should not be directed on a cursory look at the accounts. There should be an honest attempt to understand the accounts of the assessee.”

It is further been held that:-

“9. The aforesaid reasoning and ratio has been approved by the Supreme Court in Rajesh 300/403 (SC) Lucknow’s case (supra).”

3.2 Thus from the aforesaid it is evident that books of accounts must necessarily be examined and not even cursorily but honestly and only than reference would be valid. It is submitted that the learned Assessing Officer in the Show Cause Notice dated 05.02.2014 has proposed reference by observing as under:

“The above aspects render the accounts of assessee company very complex with voluminous transactions, thereby necessitating thorough investigation, by special audit u/s 142(2A) of the IT Act, 1961 for arriving at correct amount of total income. Accordingly, you are hereby given an opportunity to Show Cause, why your case should not be referred to Special Audit u/s 142(2A) of the I.T Act, 1961.”

3.3 It is submitted that, since the proposal is based on allegedly complexity in accounts, it is apparent that the said proposal has not been made after making an honest attempt to examine the book of accounts, since books of accounts had neither been produced and nor examined by the Assessing Officer .prior to issue of show cause notice dated 5.02.2014.

3.4 It may be added and clarified that subsequent to the show cause notice and reply of the assessee, books of accounts were produced and compounded on 3.3.2014. Thereafter on 10.3.2014, the learned Assessing Officer has already prepared a printed order sheet which had his observations on few of the entries in books of accounts. The learned Assessing Officer did not grant any time to reply to the said observations. He obtained a general response to the said observations despite the fact that assessee sought further time to satisfy him that such observations are based on misconception. The central idea of the aforesaid approach of the learned Assessing officer was to overcome the inherent defect in the show cause notice and, not to make an honest attempt to examine the books of accounts. Madam, the assessee is a public limited company with a turnover of Rs. 2,000 crores approximately, and therefore it is absolutely unfathomable to comprehend that any person can respond to observations on a real time basis after a gap of more than four years. The number of transactions in the case of assessee would be close to 1 lakh and, in such a situation, vague observation on approximately 70 transaction at the fag end period of limitations and that too by riot granting time to respond to said observations reflects the mid-set of learned Assessing Officer. The cursory attempt to examine burden was with a premeditated and preconceived opinion to direct the accounts for special audit. Madam, volume per se is not and, cannot be a ground for special audit. For in such a case, every assessee with a turnover of sufficient magnitude (which magnitude is also undefined) would have to get his accounts audited, which is not the mandate of law, despite the books already having been audited under Income Tax Act not Companies Act. The volume can be a consideration only having regard to interest of revenue, which is absent in the instant case. No material to the said effect has been confronted and in absence thereof, even otherwise, the proposal is without jurisdiction. This submission is supported by chart hereunder:

(Rs. in Crores)

Assessmen t Year	Date of filing of return	Turnover	Income Declared	Percentage	Assessed under section
2004-05	30.10.2004	382.05	17.73	4.64%	143(3)
2005-06	31.10.2005	527.18	35.76	6.78%	143(1)
2006-07	28.11.2006	674.75	106.68	15.81%	143(3)
2007-08	31.10.2007	2,599.65	1,218.53	46.87%	143(3)
2008-09	31.03.2009	2,969.73	1,334.88	44.95%	143(3)
2009-10	29.09.2009	2,454.91	922.30	37.57%	143(3)
2010-11	04.10.2010	2,221.71	704.99	31.73%	–

It is submitted having regard to the aforesaid principle laid down by the Hon’ble Court, the proposed reference apparently and evidently does not satisfy the statutory preconditions u/s 142(2A) of the Act. It is evident from the above, that the assessee has been maintaining the accounts in the same manner year after year, which have been accepted. The department has not found the same to be complex in the earlier years even though scrutiny assessments were made other than for the A.Y 2009-10, whereto after Special Audit books of accounts were found to be correct and complete and as such, the reference thereto was invalid. A chart in support of the above is enclosed as Annexure “B”. The assessee carried on the same business activity and maintained the accounts in the exactly similar manner in the current year as it had maintained in the earlier year. The financial statements of assessee company for the impugned assessment year have been duly audited by the statutory auditors after verification of the books of account and other relevant documents maintained by the assessee company. The provisions of section 142(2A) of the Act were invoked only to extend the period of limitation for framing of assessment under section 143(3) of the Act. The perusal of the notice issued for special audit would show that there is no complexity in the accounts of the assessee. It is thus submitted that there is no complexity in the books of accounts of the assessee company. All what has been done by learned Assessing Officer is to draw adverse legal inferences on the facts as stated by the assessee company and recorded in the books of the assessee company. It is thus, submitted that the reference for special audit is proposed to abdicate his own responsibility and to overcome the period of limitation and proposed reference is without jurisdiction.

3.6 It is also pertinent to add here that Hon’ble Delhi High Court in the case of Gurunanak Enterprises vs. CIT reported in 259 ITR 637 has held as under:

“A bare perusal of the provision would show that the opinion of the Assessing Officer has to be formed only by having regard to:

(i) the nature and complexity of the accounts of the assessed and

(ii) the interests of the Revenue. The word “and” signifies conjunction and not disjunction. In other words, the twin conditions of “nature and complexity of the accounts” and “the interests of Revenue” are the pre-requisites for exercise of power under Section 142(2A). Although the object behind enacting the said provision is to assist the Assessing Officer in framing the assessment when he finds the accounts of the assessed to be complex and is to protect the interests of Revenue but recourse to the said provision cannot be had by the Assessing Officer merely to shift his responsibility of scrutinising the accounts of an assessed to determine his true and correct income, on to an auditor. True that an order under the said provision cannot be passed on the ipse dixit of the Assessing Officer merely because he finds some difficulty in understanding the accounts. There has to be a genuine and honest attempt on his part to understand the accounts of the assessed, appreciate the entries therein and if in doubt, seek Explanation from the assessed or his representative, rather than pass on the buck to the special auditor. A cursory look on the books of accounts is not sufficient. It needs little emphasis that the opinion required to be formed by the Assessing Officer for exercise of power under Section 142(2A) must be based on objective consideration and not on the basis of subjective satisfaction. Similarly, the requirement of the previous approval of the Chief commissioner or the Commissioner, being an in-built protection against any arbitrary or unjust exercise of power by the Assessing Officer, casts a very heavy duty on the said high ranking authority to see to it that the requirement of the previous approval, envisaged in the Section, is not turned into an empty ritual. Needless to add that before granting approval, the Chief Commissioner or the Commissioner, as the case may be, must have before him the material on the basis whereof an opinion in this behalf has been formed by the Assessing Officer. The approval must reflect the application of mind to the facts of the case. A bare endorsement of the proposal would not be sufficient. Peerless General Finance and Investment Co. Ltd. v. Dy. CIT (1999] 236 ITR 671 (Cal) and and Muthoottu Mini Kuries v. Dy. CIT [2001] 250 ITR 455 (Ker) hold so.” (Emphasis supplied)

3.7 Infact follow the aforesaid judgment the Hon’ble le Delhi High Court in DDA vs. Union of India reported in 350 ITR 432 has held as under:

“13…. In the present case, we are not concerned with an assessee who does not maintain books of accounts as per law or has duplicate books of account. It is a case of a statutory authority which is maintaining books of accounts. Notes of accounts may be the basis for the Assessing Officer to ask for queries and examine the accounts but, before an order under Section 142(2A) was passed and keeping in mind the consequences and the ratio expounded by the Supreme Court and this Court, we feel that it was necessary and required that the Assessing Officer should have examined the books of accounts or the relevant accounting entries himself before forming an opinion. Non-examination of books of account would show that there was haste and hurry and that the Assessing Officer not fully appreciate the consequences and the harassment/inconvenience which the assessee may suffer if a wrong order directing special audit was passed or directed.

24…. 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, 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,

25…. It is an easy and convenient manner to transfer the obligation of scrutiny and examination to the special auditor. It may be true and correct that certain aspects mentioned in the Notes of Accounts may, if required and necessary and after in depth examination, justify appointment of a special auditor but the Assessing Officer has to be cautious and careful to .segregate them from others while recording the reasons. If such an exercise is undertaken, it will show due and proper application of mind and not exercise of power under Section 142(2A) on the pretend or on the pretext that such power exists and, therefore, should be exercised. Existence of the power is not in dispute; it is the exercise of power, which is in dispute and question. The exercise of power must withstand and meet the requirements prescribed. Failure to exclude irrelevant and extraneous matters negates the “opinion” as the said matters should not cloud or dent formation of opinion. Reasons recorded must be genuine and have a nexus with the twin statutory requirements i.e. complexity of accounts and interest of the Revenue.”

3.8 Reliance is also placed on the judgment of the Apex Court in the case of CIT vs. Excel Industries reported in 358 ITR 295 wherein it has been held as under:

“28. In Radhasoami Satsang Saomi Bagh v. Commissioner ‘of Income Tax, [1992] 193 ITR 321 (SC) this Court did not think it appropriate to allow the “reconsideration of an issue for a subsequent assessment year if the same “fundamental aspect” permeates in different assessment years. In arriving at this conclusion, this Court referred to an interesting passage from Hoysteadv. Commissioner of Taxation, 1926 AC 155 (PC) wherein it was said:

“Parties are not permitted to begin fresh litigation because of new views they may entertain of the law of the case, or new versions which they present as to what should be a proper apprehension-by the court of the legal result either of the construction of the documents or the weight of certain circumstances. If this were permitted, litigation would have no end, except when legal ingenuity is exhausted. It is a “principle of law that this cannot be permitted and there is abundant authority reiterating that principle. Thirdly, the same principle, namely, that of setting to rest rights of litigants, applies to the case where a point, fundamental to the decision, taken or assumed by the plaintiff and traversable by the defendant, has not been traversed. In that case also a defendant is bound by the judgment, although it may be true enough that subsequent light or ingenuity might suggest some traverse which had not been taken.” [Emphasis supplied]

3.9 In view of the aforesaid, it is submitted that there is no complexity in the books of accounts. The attempt is to create complexity, when there is none. It is submitted that an action of assessing officer seeking reference to Special Auditor u/s 142(2A) of the Act for conducting special audit purportedly by invoking the provisions of section 142 (2A) of the Act is invalid, obliterate and, without jurisdiction and, as such you are. requested not to accept the aforesaid proposal for initiation as well as the show cause letter dated 05.02.2014. Should your goodself, require any further information other than stated above, the assessee may also be provided opportunity by specifying time/items/documents, which you may further require. In any case and without prejudice and in the alternative, a specific notice after confronting all the information relied upon may be issued so as to enable the assessee company to furnish a detailed reply.

Yours sincerley,

M/s.Unitech Ltd.

Sd/-

(Authorised Signatory)”

12. It emerges out that both the ld. revenue authorities have not taken into consideration the objection submitted by the assessee and proceed to appoint the special auditor. The assessee raised a specific objection before the ld.DRP. The ld.DRP took cognizance of the assessee’s contentions on page no.3 of the impugned order, which was rejected by recording the following finding:

“The issue has been dealt with in details in the draft order. The objections raised by the Assessee are on many aspects and it has been attempted to show as if the Auditors have exceeded the jurisdiction also. Section 142(2A) is an enabling provision to help and assist the Assessing Officer to complete scrutiny assessment with the help of assistance of an accountant. Powers under Section 1 42(2A) emanate from and in terms of the legislative provisions. The object and purpose behind Section 142 (2A) is to facilitate investigation and proper determination of the tax liability. Accounts ought be accurate for providing real time information on the financial transactions of the assessee. Enterprises resort to internal audit and an external audit which can be a statutory audit for fair and correct picture. Chartered Accountants are specialists who have trained for such audit work. Financial statements and accounts of big enterprises are coming under increasing scrutiny and investigation on account of multi layering and couching of transactions in order to prevent rivals from accessing and also to obfuscate the taxman. The matter is more or less settled per Hon’ble Delhi High Court in 360 1TR 390 where the Writ by M/s DLF against Special Audit reference was dismissed – “In view of the aforesaid we do not find any merit in the present Writ Petition. Stay order is vacated and the assessment proceedings will continue as per law. There will be no order as to costs.”

13. Before adverting to the above facts, in order to find out whether the facts in the present year is similar to that of assessment year 2009-10 and order of the Tribunal which has been accepted by the department deserves to be followed or not. We deem it appropriate to take note of the finding of the Tribunal in the assessment year 2009-10. First proposition, which was contested before the Tribunal for the assessment year 2009-10 was that order passed under section 142(2A) of the Act was cryptic and non-speaking order, because no specific instance of complexity with regard to the books of accounts were pointed out in the said order. It was also contended that objections raised by the assessee against appointment of such auditor were not considered or discussed in the order passed under section 142(2A) of the Act. The AO while exercising power under section 142(2A) was required to assign reason and it should be based on objective criterion and not on the basis of subjective satisfaction. In the words, the AO ought to have visualized the complexity of accounts and compelling circumstances for exercising such power. It was also contended that though while making a proposal for approval, an opportunity was provided to the assessee, but after submitting explanation no opportunity was granted to the assessee, nor any reasons were assigned. The proposal was sent without communicating to  the assessee and the ld.Commissioner has approved the proposal. Thereafter, an order under section 142(2A ) was passed running into few lines. The question was also raised before the Tribunal that it has no jurisdiction to entertain objection of the assessee against appointment of special auditor. The Tribunal after taking into consideration time limit provided in section 153(1) of the Act for passing assessment order observed that the assessment order in assessment year 2009-10 was to be passed before 31.12.2011 whereas, it was passed on 1.82012. The special auditor was appointed on 8.12.2011 just 23 days prior to expiry of limitation for passing the assessment order. Thus, in this given factual matrix, the Tribunal has considered that had the case was not referred for special auditor, the assessment would have become time barred and in order to gain time, a reference for appointment of special auditor was made. Let us take note of relevant finding of the Tribunal on this issue:

“21. The preliminary submission of the revenue viz-a-viz the aforesaid prayer of the appellant is that there can be no challenge to the directions u/s 142(2A) of the Act in this appeal and as such contention of the appellant company is misconceived.

22. To appreciate the above contention we seeks to notice the statutory provision contained in section 142(2A) of the Act. Section 142(2A) of the Act, as is relevant to the year under consideration, reads as under: “[(2A) If any stage of the proceedings before him, the [Assessing]; Officer having regard to the nature and complexity of the accounts of the assessee and the interest of the revenue, is of the opinion that it is necessary so to d, he may, with the previous approval of the [Principal Chief Commissioner or] Chief Commissioner or [Principal Commissioner of] Commissioner], direct the asessee to get the accounts audited by an accountant, as defined in the Explanation below sub-section (2) of section 288, nominated by the [Principal Chief Commissioner or] Chief Commissioner or [Principal Commissioner or] Commissioner] in this behalf and to furnish a report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed and such other particulars as the [Assessing] Officer may require: [Provided that the Assessing Officer shall not direct the assessee to get the accounts so audited unless the assessee has been given a reasonable opportunity of being heard]

(2B) (2B) The provisions of sub-section (2A) shall have effect notwithstanding that the accounts of the assessee have been audited under any other law for the time being in force or otherwise.

(2C) Every report under sub-section (2A) shall be furnished by the assessee to the [Assessing] Officer within such period as may be specified by the [Assessing] Officer

Provided that the [Assessing] Officer may, [suo motu, or] on an application made in this behalf by the assessee and for any good and sufficient reason, extend the said period by such further period or periods as he thinks fit; so, however, that the aggregate of the period originally fixed and the period or periods so extended shall not, in any case, exceed one hundred and eighty days from the date on which the direction under sub-section (2A) is received by the assessee.

(2D) The expenses of, and incidental to, any audit under sub-section (2A) (including the remuneration of the accountant) shall be determined by the [Principal Chief Commissioner or] Chief Commissioner or [Principal Commissioner or] Commissioner] (which determination shall be final) and paid by the assessee and in default of such payment, shall be recoverable from the assessee in the manner provided in Chapter XVII-D for the recovery of arrears of tax :]

[Provided that where any direction for audit under sub-section (2A) is issued by the Assessing Officer on or after the 1st day of June, 2007, the expenses of, and incidental to, such audit (including the remuneration of the Accountant) shall be determined by the Principal Chief Commissioner or] Chief Commissioner or [Principal Commissioner or] Commissioner in accordance with such guidelines as may be prescribed8 and the expenses so determined shall be paid by the Central Government.]

(3) The assessee shall, except where the assessment is made under section 144, be given an opportunity of being heard in respect of any material gathered on the basis of any inquiry under sub-section (2) [or any audit under sub-section (2A)] and proposed to be utilized for the purposes of the assessment.”

23 The aforesaid provision was subject matter of consideration in a judgment of three judges Bench of Hon’ble Supreme Court in the case of Sahara India (Firm) (supra). In that case the matter was placed before Bench in view of a common order dated 14.12.2006 passed by a two judges Bench to examine whether it is necessary to afford an opportunity of hearing to an assessee before ordering special audit in terms of section 142(2A) of the Act in view of the earlier judgment of Hon’ble Supreme Court in the case of Rajesh Kumar and Ors. vs. DCIT (supra). Their Lordships noted that in the case of Rajesh Kumar and Ors. vs. DCIT it has been held that principles of natural justice must be held to be implicit in section 142(2A) of the Act. It was noted that in the aforesaid judgment it was held as under:

“The hearing given, however, need not be elaborate. The notice issued may only contain briefly the issues which the Assessing Officer thinks to be necessary. The reasons assigned therefor need not be detailed ones. But, that would not mean that the principles of natural justice are not required to be complied with. Only because certain consequences would ensue if the principles of natural justice are required to be complied with, the same by itself would not mean that the court would not insist on complying with the fundamental principles of law. If the principles of natural justice are to be excluded, the Parliament could have said so expressly.” [Underlined by us)

24. Having regard to the above, Their Lordships interpreted section 142(2A) of the Act to conclude that the twin conditions of “nature and complexity of the accounts” and “the interests of the revenue” are the prerequisites for exercise of power under section 142(2A) of the Act. It was held that the word “complexity” used in section 142(2A) is not “defined” or “explained” in the Act and therefore approving the interpretation of the Hon’ble Allahabad High Court in the case of Swadeshi Cotton Mills Co. Ltd. vs. CIT 171 ITR 634 (All.), it was held that dictionary meaning of complex is “The state or quality of being intricate or complex or that is difficulty to understand. However all that is difficult to understand should not be regarded as complex. What is complex to one, may be simple to another. It depends upon one’s level of understanding or comprehension. Sometimes, what appears to be complex on the face of it, may not be really so if one tries to understand it carefully”. It was further held that before dubbing the accounts to be complex or difficult to understand, there has to be a genuine and honest attempt on the part of the AO to understand accounts maintained by the assessee; appreciate the entries made therein and in the event of any doubt, seek explanation from the assessee. It was further held that opinion required to be formed by the AO for exercise of power under the said provision 26 must be based on objective criteria and not on the basis of subjective satisfaction. It was specifically observed that recourse to the said provision cannot be had by the AO merely to shift his responsibility of scrutinizing the accounts of an assessee and pass on the buck to the special auditor. In regard to the approval of CIT it was held that such an approval is an inbuilt protection and is not an empty ritual. It was thus observed before granting approval the Chief Commissioner or the Commissioner, as the case may be, must have before him the material on the basis whereof an opinion in this behalf has been formed by the AO and the approval must reflect the application of mind to the facts of the case. Thereafter the question whether the principles of natural justice demand that an opportunity of hearing should be afforded to an assessee before an order under section 142(2A) of the Act was examined. Their Lordships concurring with the decision in Rajesh Kumar (supra) held that an order under section 142(2A) does entail civil consequences and therefore the rule of audi alteram partem is required to be observed. It was concluded with regard to the question posed as under:

“24. The upshot of the entire discussion is that the exercise of power under section 142(2A) of the Act leads to serious civil consequences and, therefore, even in the absence of express provision for affording an opportunity of pre-decisional hearing to an assessee and in the absence of any express provision in section 142(2A) barring the giving of reasonable opportunity to an assessee, the requirement of observance of principles of natural justice is to be read into the said provision. Accordingly, we reiterate the view expressed in Rajesh Kumar’s case (supra).

25. It is pertinent to note that by the Finance Act, 2007, a proviso to sub-section (2A) has been inserted with effect from 1-6-2007, which provides that no direction for special audit shall be issued without affording a reasonable opportunity of hearing to the assessee.”

25. Thereafter on application of the legal position to the facts their Lordships concluded that the order dated 14.3.2006 u/s 142(2A) of the Act was vitiated as neither AO had occasion to have a glimpse of the accounts and nor any show cause notice was issued to the assessee and thus the same did not satisfy the principle of audi alteram partem. Concluding the above discussion, it was held as under:

“28. The next crucial question is that keeping in view the fact that the time to frame fresh assessment for the relevant assessment year by ignoring the extended period of limitation in terms of Explanation 1( iii) to sub-section (3) of section 153 of the Act is already over, what appropriate order should be passed. As noted above, the learned Additional Solicitor General had pleaded that if we were not inclined to agree with him, the interpretation of the provision by us may be given prospective effect, otherwise the interest of the revenue will be greatly prejudiced.

29.There is no denying the fact that the law on the subject was in a flux in the sense that till the judgment in Rajesh Kumar’s case (supra) was rendered, there was divergence of opinion amongst various High Courts. Additionally, even after the said judgment, another two-Judge Bench of this Court had expressed reservation about its correctness. Having regard to all these peculiar circumstances and the fact that on 14-12-2006, this Court had declined to stay the assessment proceedings, we are of the opinion that this Court should be loathe to quash the impugned orders. Accordingly, we hold that the law on the subject, clarified by us, will apply prospectively and it will not be open to the appellants to urge before the Appellate Authority that the extended period of limitation under Explanation 1(iii ) to section 153(3) of the Act was not available to the Assessing Officer because of an invalid order under section 142(2A) of the Act. However, it will be open to the appellants to question before the appellate authority, if so advised, the correctness of the material gathered on the basis of the audit report submitted under sub-section (2A) of section 142 of the Act. 30. In the result, both the appeals are allowed to the extent indicated above leaving the parties to bear their own costs.”

26. A reading of the aforesaid makes it apparent that Their Lordships agreed with the submission of the learned Additional Solicitor General that interpretation be given prospective effect as otherwise the interest of revenue will be greatly prejudiced because the time to frame fresh assessment for the relevant assessment year by ignoring the extended period of limitation in terms of Explanation 1(iii) to sub-section (3) of section 153 of the Act was already over. It was thus directed that petitioners will not be entitled to urge before the appellate authorities that the extended period of limitation under Explanation 1(iii) to section 153(3) of the Act was not available to the Assessing Officer because of an invalid order u/s 142(2A) of the Act. It has been specifically clarified that it will be open to the appellants to question before the appellate authority, if so advised, the correctness of the material gathered on the basis of the audit report submitted under sub-section (2A) of section 142 of the Act.

27. In other words it is quite apparent that the challenge to the validity of the orders u/s 142(2A) of the Act is maintainable before the appellate authority and it is opened to the appellant to urge before any appellate authority that the extended period of limitation is not maintainable because of an invalid order u/s 142(2A) of the Act. The above view finds support also from the judgment of Hon’ble Karnataka High Court in the case of CIT v Subboji Rao C.H (supra). In the said case the Tribunal held that there was no complexity in accounts requiring an audit u/s 142(A) of the Act and the same had been taken to avail of further time to complete the assessment, the assessment was hopelessly barred by limitation. On appeal by the revenue, the decision of ITAT was upheld by observing as under:

“6. The Apex Court in the case of Rajesh Kumar v. Dy. CIT [2006] 157 Taxman 168 (SC) held that the assessee suffers civil consequences, as a result of an order under Section1 42(2A) of the Act and the same is prejudicial to him and therefore the principles of natural justice must be held to be implicit in the provisions of Section 142(2A) of the Act and an opportunity of hearing has to be given before issuing a direction under Section 142(2A) of the Act. When the matter was referred to a larger Bench of the Supreme Court, the larger Bench upheld the aforesaid judgment in Rajesh Kumar’s case. However, in the meanwhile, the legislature amended Section 142(2A) of the Act by expressly providing for such an opportunity being given before an order is passed, which of course held prospective. A resultant position is expressed the provisions in the statute. The Supreme Court has ruled that the principles of natural justice has to be followed as it is not expressly excluded. Now the law has been amended expressly providing for an opportunity The position continues to be the same. In that view of the matter, admittedly, in the instant case, the assessee was not heard before the order passed under Section 142(2A) of the Act. As rightly held by the Tribunal that, such a procedure was resorted to extend the period of limitation. Therefore viewed from any angle, the assessment order passed is void as being barred by limitation and the, Tribunal was justified in setting aside the order of the Appellate Authority”.[underlined by us].

28. Further even in the case of CIT v Vijay Kumar Rajendra Kumar and Co. (MP) (supra), the ITAT quashed direction u/s 142(2A) of the Act since no opportunity of hearing was afforded to the assessee before issuing the direction for getting the audit done and since the accounts did not involve any complexity and held therefore the assessment made is barred by limitation. However though the Hon’ble High Court reversed the decision of Tribunal on the ground that the direction u/s 142(2A) of the Act was legal, proper and valid and legally sustainable and therefore the orader assessment within the period of limitation but hereto it was neither challenged nor disputed that validly of directions cannot be challenged before the appellate authority so as to contend the assessment order is barred by limitation.

29. Similar view was expressed by Jodhpur Bench in the case of Bajrang Textiles v D CIT (supra). It was concluded in the said decision that accounts were not complex as required u/s 142(2A) of the Act and reference has been made with a sole motive to enhance the limit for making of the assessment. It was thus concluded reference made by the AO for special audit is without proper jurisdiction and assessment so made is barred by limitation. The aforesaid decision stands affirmed by the Rajahstan High Court in the case of CTT v Bajrang Textiles (supra) wherein it has been observed as under:

“The Tribunal after taking into consideration the record of proceedings and material on record has come to the conclusion that reference to the special audit under section 142(2A) of the Income-tax Act in the circumstances was not for the purpose for which the provision was enacted but merely for getting the extended period for completing assessment, which is not permissible under law. On the basis of this finding, the reference to the special audit was held to be illegal and 30 the Tribunal found that it was abuse of process by the Assessing Officer. The findings given by the Tribunal are findings of fact based upon the relevant material.”

30. Having regard to the above discussion we have no doubt in our mind that the contention raised by the appellant is maintainable in this appeal. In otherwords, the appellants are entitled to urge, argue and plead that order of assessment is barred by limitation on the ground that direction u/s 142(2A) of the Act were invalid and not legally sustainable.

31 Having held so, we now examine the validity of the direction issued u/s 142(2A) of the Act. In the instant case, directions dated 9.12.2011 signed by Addl. Commissioner of Income Tax, Range-18, New Delhi read as under:

“F. No. Addl. CIT R-18/Spl.Audit-Unitech Ltgd.,11-12/1093 Dated: 9.12.2011

To, M/s Unitech Ltd. 6,
Community Centre,
Saket, New Delhi

Subject: Special Audit u/s 142(2A) of the I.T. Act 1961 in the case of M/s Unitech Limited. A.Y 2009-10-regarding

Sir,

Please refer to the subject cited above Having regard to the nature and complexity of your accounts and interest of the revenue and being of the opinion, it is necessary so to do I hereby direct you to get your accounts audited u/s 142(2A) of the Income Tax Act 1961 for f.Y. 2008-09 pertaining to A.y. 2009-10 by M/s Dass Gupta and Associates, B-4, Gulmohar Park, New Delhi and to furnish a report on such audit in the prescribed performa duly signed and verified by the CA. The audit report u/s 142(2A) should be furnished by you to the undersigned within a period of 120 days from the date of receipt of this direction. This direction u/s 142(2A) is issued with the prior approval of Commissionier of Income Tax, Delhi-VI, New Delhi vide letter F.No. CIT/Delhi-VI/Spl..Audit/2011- 12/2233 dated 9.12.2011

Yours faithfully

(Addl. Commissioner of Income Tax

Range-18, New Delhi

Copy to:

1 The Commissioner of Income Tax, Delhi-VI, New Delhi

2 M/s Dass Gupta and Associates, B-4, Gulmohar Park, New Delhi with a direction to carry out the audit as per the terms of reference attached herewith.

Yours faithfully

(Addl. Commissioner of Income Tax Range-18, New Delhi”

32. It is not denied and disputed that the aforesaid directions is the only document communicated to the assessee u/s 142(2A) of the Act. According to the appellant the aforesaid direction is an order without recording reasons and therefore is a non speaking order u/s 142(2A) of the Act vitiated in the eyes of law and thus, deserves to be quashed.

33. The Hon’ble Punjab and Haryana High court in the case of Hind Samachar Ltd. (supra) testing the aforesaid plea held that order u/s 142(2A) of the Act must show consideration of legal requirements and reasons on which the opinion may have been formed for directing special audit. It was held that though grant of approval by the Commissioner has been mentioned, it has not been mentioned as to why it was considered necessary having regard to nature and complexity of accounts and interest of the revenue that special audit was

necessary. It was concluded that once reasons are conspicuous by their absence in the impugned order u/s 142(2A) of the Act, the same does not meet the requirements of law. In the said case, the Hon’ble Court held that subsequent production of file containing a letter written to the Commissioner giving reasons for necessity of special audit and defect in the accounts found during the course of special audit for the preceding assessment years 2003-04 to 2006-07 does not mitigate the requirement of speaking order u/s 142(2A) of the Act.

34. Also the Hon’ble Allahabad High Court in the case of Prateek Resorts & Builders (P) Ltd. v. DCIT (supra) following the judgment of Hon’ble Supreme Court in the case of Sahara India (Firm) v CIT has held as under:

“6.2 In view of the above, it is clear that for the issue of direction for audit under section 142(2)(a) there should be application of mind and objective satisfaction on the basis of material. The application of mind and objective satisfaction can only be examined when order reflects so by recording the reasoning.

The order is subject to scrutiny under Articles 136 and 226 of the Constitution. The order as such must be a speaking order, and the decision given must be 32 supported by reasons, so that the superior Court is assured that it is in accordance with law and is not a result of caprice, whim, fancy, or reached on the basis of policy or expediency. Absence of reasons vitiates the conclusions. (See Mahabir Prasad Santosh Kumar v. State of U.P. AIR 1970 SC 1302; Travancore Rayons Ltd. v. Union of India AIR 1971 SC 862. In the Travancore Rayons case the order passed by the Government of India ran as under :—

“Government of India have carefully considered the points made by the applicants, but see no justification for interfering with the order under appeal” 8. The order was struck down on the ground that reasons for rejecting the points in appeal had not been disclosed in Bhagat Raja v. Union of India AIR 1967 SC 1606 the Supreme Court deprecated the practice of one word order of the type “rejected” or “dismissed”. Similarly, in case of Dhondi Ba Gundu Proma Je v. State of Maharashtra AIR 1976 SC 1151, the High Court had dismissed a criminal appeal summarily under section 421 of the Code of Criminal Procedure by one word order “dismissed”, it was held that some reasons should have been given by the High Court why no arguable case was made out on a perusal of the record. There is a vital difference between the conclusions and reasons. Reasons are the links between the material on which conclusions are based. The actual conclusion should disclose how the mind is applied to the subject matter for a decision, and should reveal a rational nexus between the facts considered and the conclusion reached See Union of India v. M.L. Capoor AIR 1974 SC 87 on p. 98.

9. Therefore, we are of the view that reasons must be recorded in the order to show that there is application of mind on the part of the officer concerned on the basis of the material available on record and in the absence of reasons in the order for the direction as contemplated under section 142(2)(a), the order vitiates in law and is not sustainable.”[underlined by us]

35. The Hon’ble Punjab and Haryana High Court in the case of Bal Kishan Dhawan (HUF) vs. UOI (supra) dealing with requirements of passing a reasoned order has relied upon the judgment of Hon’ble Supreme Court in the case of Kranti Associates (P) Ltd. vs. Masood (supra) which had laid down as under:

“51. Summarizing the above discussion, this Court holds:

a. In India the judicial trend has always been to record reasons, even in administrative decisions, if such decisions affect anyone prejudicially.

b. A quasi-judicial authority must record reasons in support of its conclusions.

c. Insistence on recording of reasons is meant to serve the wider principle of justice that justice must not only be done it must also appear to be done as well.

d. Recording of reasons also operates as a valid restraint on any possible arbitrary exercise of judicial and quasi-judicial or even administrative power.

e. Reasons reassure that discretion has been exercised by the decision maker on relevant grounds and by disregarding extraneous considerations.

f. Reasons have virtually become as indispensable a component of a decision making process as observing principles of natural justice by judicial, quasi-judicial and even by administrative bodies.

g. Reasons facilitate the process of judicial review by superior Courts.

h. The ongoing judicial trend in all countries committed to rule of law and constitutional governance is in favour of reasoned decisions based on relevant facts. This is virtually the life blood of judicial decision making justifying the principle that reason is the soul of justice.

i. Judicial or even quasi-judicial opinions these days can be as different as the judges and authorities who deliver them. All these decisions serve one common purpose which is to demonstrate by reason that the relevant factors have been objectively considered. This is important for sustaining the litigants’ faith in the justice delivery system.

j. Insistence on reason is a requirement for both judicial accountability and transparency.

k. If a Judge or a quasi-judicial authority is not candid enough about his/her decision making process then it is impossible to know whether the person deciding is faithful to the doctrine of precedent or to principles of incrementalism.

l. Reasons in support of decisions must be cogent, clear and succinct. A pretence of reasons or `rubber-stamp reasons’ is not to be equated with a valid decision making process.

m. It cannot be doubted that transparency is the sine qua non of restraint on abuse of judicial powers. Transparency in decision making not only makes the judges and decision makers less prone to errors but also makes them subject to broader scrutiny. (See David Shapiro in Defence of Judicial Candor (1987) 100 Harward Law Review 731-737).

n. Since the requirement to record reasons emanates from the broad doctrine of fairness in decision making, the said requirement is now virtually a component of human rights and was considered part of Strasbourg Jurisprudence. See (1994) 19 EHRR 553, at 562 para 29 and Anya vs. University of Oxford, 2001 EWCA Civ 405, wherein the Court referred to Article 6 of European Convention of Human Rights which requires, “adequate and intelligent reasons must be given for judicial decisions”.

o. In all common law jurisdictions judgments play a vital role in setting up precedents for the future. Therefore, for development of law, requirement of giving reasons for the decision is of the essence and is virtually a part of “Due Process”.

36. Examining the impugned order in the present case, it is apparent that the order is non speaking order and gives no reasons for arriving at the conclusion that having regard to the nature and complexity of assessee’s accounts and interest of the revenue, the AO was of the opinion that accounts are to be audited u/s 142(2A) of the Act. The order is silent as to on what basis and on what grounds, the accounts proposed to audit under section 142(2A) were considered complex and on what considerations it was arrived that it is in the interest of revenue to direct audit of accounts. Mere reference to a prior approval of CIT does not satisfy the precondition of a “speaking order” containing reasons for invoking the provision of section 142(2A) of the Act. There is no reference to detailed replied furnished by the assessee during the proceedings.

37. Having regard to the above it is held that in the impugned order reasons are clearly invisible and conspicuous by their absence. In other words, order is bereft of any reason. It is stated here that reasons are heart and soul of an order, as they facilitate the process of judicial review and therefore in absence of any reason much less cogent, clear and succinct reasons order u/s 142(2A) of the Act is held to be bad in law and without proper jurisdiction.

38. Also, even the approval u/s 142(2A) by learned CIT should reflect application of mind and should not be mechanical as held by the judgment of Hon’ble Supreme Court in the case of Sahara India (Firm) vs. CIT (supra). The Hon’ble Allahabad High Court in the case of Kaka Carpets v ACIT (supra) following the above judgment has held as under:

“26. In view of the above discussion, the pleadings of the parties, the provisions of section 142(2A) of the Act and the principles of law laid down by the Division Bench of this Court in the case of Swadeshi Cottons Mills Company Ltd. (supra), and by Hon’ble Supreme Court in the case of Rajesh Kumar (supra) and Sahara India (Firm) (supra) and the conclusions reached by us in paras 15,16, 17, 18, 19 and 21 above, we are of the view that A.O. should reconsider the issue as to whether a direction should be issued under Section 142(2A) of the Act after considering the objections of the assessee and affording a reasonable opportunity of being heard, in terms of Section 142 (2A) of the Act. It is only after the A.O. reaches to a fair conclusion after considering the reply given by the petitioner, and affording an opportunity of hearing, the CIT as approving authority will consider whether the special audit is required to be carried out for the purposes of understanding the accounts maintained by the assessee. The opinion must be formed reflecting the application of mind based on objective criteria and not on the basis of subjective satisfaction.”

39. Also in the case of United Electricals Co. (P) Ltd. vs. CIT (supra), it has been held as under:

“19. What disturbs us more is that even the Additional Commissioner has accorded his approval for action under section 147 mechanically. We feel that if the Additional Commissioner had cared to go through the state-ment of said V.K. 35 Jain, perhaps he would not have granted his approval, which was mandatory in terms of proviso to sub-section (1) of section 151 of the Act as the action under section 147 was being initiated after the expiry of four years from the end of the relevant assessment year. As highlighted above, the Legislature has provided certain safeguards to prevent arbitrary exercise of powers by an Assessing Officer, particularly after a lapse of substantial time from completion of assessment. The power vested in the Commissioner to grant or not to grant approval is coupled with a duty. The Commissioner is required to apply his mind to the proposal put up to him for approval in the light of the material relied upon by the Assessing Officer. The said power cannot be exercised casually and in a routine manner. We are constrained to observe that in the present case there has been no application of mind by the Additional Commissioner before granting the approval.”

14. In the light of the above, let us examine the parity of facts between both the years. In para-31 ITAT has reproduced the order of the Addl. Commissioner dated 8.12.2011 vide which special auditor was appointed. At the cost of repetition we would like to take note of this order along with order dated 26.3.2014 passed in present assessment years. Both the orders are passed as under:

Asstt.Year 2009-10

Asstt.Year 2010-11

“F. No. Addl. CIT R-18/Spl.Audit- Unitech Ltgd.,11-12/1093 Dated: 9.12.2011    To, M/s Unitech Ltd. 6, Community Centre, Saket, New Delhi   Subject: Special Audit u/s 142(2A) of the I.T. Act 1961 in the case of M/s Unitech Limited. A. 2009-10-regarding   Sir, Please refer to the subject cited Above   Having regard to the nature and complexity of your accounts and interest of the revenue and being of the opinion, it is necessary so to do I hereby direct you to get your accounts audited u/s 142(2A) ofthe Income Tax Act 1961 for f.Y. 2008-09 pertaining to A.y. 2009-10 by M/s Dass Gupta and Associates, B-4, Gulmohar Park, New Delhi and to furnish a report on such audit in the prescribed performa duly signed and verified by the CA. The audit report u/s 142(2A) should be furnished by you to the undersigned within a period of 120 days from the date of receipt of this direction. This direction u/s 142(2A) is issued with the prior approval of Commissionier of Income Tax, Delhi-VI, New Delhi vide letter F.No. CIT/Delhi-VI/Spl..Audit/2011- 12/2233 dated 9.12.2011   Yours faithfully (Addl. Commissioner of Income Tax, Range-18, New Delhi   Copy to: 1 The Commissioner of Income Tax, Delhi-VI, New Delhi 3 M/s Dass Gupta and Associates, B-4, Gulmohar Park, New Delhi with a direction to carry out the audit as per the terms of reference attached herewith.

“F. No.DCIT C-8/2013- 14/AAACU1482H/142(2A)/951 Dated: 26.3.2014  To, Principal Officer M/s.Unitech Ltd. Basement, 6-Community Centre, Saket, New Delhi 110 017.   Subject: Assessment proceedings in your case u/s.143(2) of the Income Tax Act, 1961 for the A.Y 2010-11-regarding   Sir, Please refer to the subject cited above  2. Considering the following aspects w.r.t. to your accounts for F.Y.2009- 10(relevant to A.Y.2010-11) i.e. Nature & Complexity, Volume, Doubts about the correctness, Multiplicity of transactions and Sepcialised nature of business activity of the assessee with a direct bearing on the interest of Revenue, I hereby direct you to get your accounts audited u/s.142(2A) of the |Income Tax Act, 1961 for the said F.Y.2009-10 by:  M/s Dass Gupta and Associates, B-4, Gulmohar Park, New Delhi and to furnish a report on such audit in the prescribed performa duly signed and verified by the said special auditor.  3. The audit report u/s 142(2A) should be furnished by you to the undersigned within a period of 120 days from the date of receipt of this direction.  4. This direction u/s 142(2A) is issued with the prior approval of Commissioner of Income Tax, Delhi-VI, New Delhi vide letter F.No. IT/Delhi-VI/Spl..Audit/2013- 14/2968 dated 25.3.2014 Yours faithfully  (Deputy Commissioner of Income Tax, Range-18(1), New Delhi  Copy to:  1 The Commissioner of Income Tax, Delhi-VI, New Delhi 4 M/s Dass Gupta and Associates,B-4, Gulmohar Park, New Delhi with a direction to carry out the audit as per the terms of reference attached herewith.

15.  A perusal of the above would indicate that as far as the order appointing special auditor is concerned, there is no disparity on facts. Both orders are identically worded without taking cognizance of any of the submissions made by the assessee. The order passed by the learned Additional Commissioner does not spell out any reasons exhibiting complexity of the accounts and what prevented him for passing assessment order. This aspect has been elaborately considered by the ITAT in the assessment year 2009-10. It is also pertinent to note that after making an analysis of this order, ITAT took into consideration objection filed by the assessee on the alleged proposal for appointment of special auditor. We have taken cognizance of such objection in the present assessment year in para-10 of the order. In the light of the ITAT’s finding in the assessment year 2009-10, we have analysed the objection of the assessee in the present assessment year and find that these objections were also similar to that of the assessment year 2009-10. Revenue took an objection to the Tribunal in the assessment year 2009-10 that when a proposal for appointment of special auditor was made then the ld. Commissioner has assigned reasons which we have taken into consideration in the present assessment year in paragraph 9. But the Tribunal was of the view that there was no application of mind on such grounds while passing final order appointing special auditors i.e. 9.12.2011 in the assessment year 2009-10 and in present assessment years it is the order dated 26.3.2014. Considering from all possible angle, there is no disparity of facts between both the years. Department has accepted order of the Tribunal in the assessment year 2009-10 and not file further appeal. Therefore, we do not find any reasons to deviate from finding of the Tribunal in the assessment year 2090-10. We allow the preliminary objection raised by the assessee and concur with the following direction of the Tribunal in the assessment year 2009-10.

“45. In view of the above discussion and conclusion we hold that directions dated 9.12.2011 by the learned Addl.CIT, Range-18, New Delhi for special audit u/s.142(2A) of the Act were illegal, in valid and not in accordance with law and thus the assessment so made is barred by limitation and is thus quashed as such. Ground no.1 to 1.3. are therefore allowed.”

16.Respectfully following the order of ITAT in assessment year 2009-10, we allow the preliminary grounds of appeal raised by the assessee and hold that directions dated 26.03.2014 by the learned Addl. CIT, Range-18, New Delhi for special audit under section 142(2A) of the Act were illegal, invalid and not in accordance with the law; therefore, the assessment order impugned in the present appeal is barred by limitation and thus quashed. Since we have allowed preliminary ground of appeal in assessee’s appeal and quashed the assessment order, the CO and appeal of Revenue would become redundant and accordingly dismissed.

17. In the result, appeal of the assessee is allowed on preliminary ground, appeal of Revenue and its CO are dismissed.