Hon'ble Subhash Chandra Nigam,J.
Heard Shri Anurag Khanna, learned counsel for the petitioner and Shri Dhananjay Awasthi, learned Standing Counsel appearing on behalf of the respondents.
By means of the present writ petition, the petitioner is challenging the order passed by the Assistant Commissioner of Income Tax (Central Circle), Meerut dated 18.12.2009 passed under Section 142(2A) of the Income Tax Act by which he has directed the petitioner to get its accounts audited for the financial years 2001-02 to 2007-08 relevant to the assessment years 2002-03 to 2008-09 by M/s Tandon Seth & Co., Kanpur, who have been nominated by the Commissioner of Income Tax (Central), Kanpur in this behalf.
Learned counsel for the petitioner submitted that no reason whatsoever has been given in the impugned order. He submitted that for the aforesaid direction, it is imperative and obligatory on the part of the officer concerned to consider the reply and to assign reasons. In support of the contention, he relied upon the decision of the Apex Court in the case of Sahara India (Firm), Lucknow Versus Commissioner of Income Tax, Central-I and another, (2008) 14 Supreme Court Cases 151.
Shri A.N. Mahajan, learned Standing Counsel is not able to support the order passed by the Assistant Commissioner of Income Tax (Central Circle), Meerut.
We have perused the impugned order, which reads as follows:
Having regard to the nature and complexity of your accounts and in the interest of revenue, I hereby direct you to get your accounts audited u/s 142(2A) of the IT Act for the F.Ys.01-02 to 07-08 relevant to A.Ys. 02-03 to 08-09 by M/s Tandon Seth & Co., Kanpur, who have been nominated by the Commissioner of Income Tax (Central ), Kanpur in this behalf and to furnish a report of such audit in the prescribed form duly signed and verified by such Auditor.
The direction to get your accounts audited u/s 142(2A) of the IT Act is being issued with the previous approval of the Commissioner of Income Tax (Central), Kanpur communicated vide his letter F.No. CIT(C)/KNP/Misc./09-10/2087 dated 18/12/09.
The audit report u/s 142(2A) of the IT Act should be furnished by you to the undersigned within a period of 90 days from date of receipt of this direction.
Perusal of the impugned order reveals that no reason whatsoever has been given. The Apex Court in the case of Sahara India (Firm), Lucknow Versus Commissioner of Income Tax, Central-I and another, (2008) 14 Supreme Court Cases 151 while dealing with the provisions of Section 142(2A) has held as follows:
"6. A bare perusal of the provision of sub-section (2-A) of the Act would show that the opinion of the assessing officer that it is necessary to get the accounts of the assessee audited by an accountant has to be formed only by having regard to: (i) the nature and complexity of the accounts of the assessee; and (ii) the interest 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 interest of the Revenue" are the prerequisites for exercise of power under Section 142(2-A) of the Act. Undoubtedly, the object behind enacting the said provision is to assist the assessing officer in framing a correct and proper assessment based on the accounts maintained by the assessee and when he finds the accounts of the assessee to be complex, in order to protect the interests of the Revenue, recourse to the said provision can be had.
7. The word "complexity" used in Section 142(2-A) is not defined or explained in the Act. As observed in Swadeshi Cotton Mills Co. Ltd. v. CIT it is a nebulous word. Its dictionary meaning is: (ITR p. 637) " 'The state or quality of being intricate or complex "or" that is difficult to understand.' However, all that is difficult to understand should not be regarded as complex. What is complex to one may be simple to another. It depends upon 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."
(emphasis supplied) Thus before dubbing the accounts to be complex or difficult to understand, there has to be a genuine and honest attempt on the part of the assessing officer to understand accounts maintained by the assessee; appreciate the entries made therein and in the event of any doubt, seek explanation from the assessee. But opinion required to be formed by the assessing officer for exercise of power under the said provision must be based on objective criteria and not on the basis of subjective satisfaction.
8. There is no gainsaying that recourse to the said provision cannot be had by the assessing officer merely to shift his responsibility of scrutinising the accounts of an assessee and pass on the buck to the special auditor. Similarly, the requirement of previous approval of the Chief Commissioner or the Commissioner in terms of the said provision being an inbuilt 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 emphasise 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."
The apex Court in the aforesaid case has held that before dubbing the account to be complex or difficult to understand there has to be a genuine and honest attempt on the part of the assessing officer to understand the accounts maintained by the assessee; appreciate the entries made therein and in the event of any doubt, seek explanation from the assessee. But opinion required to be formed by the assessing officer for exercising of power under the said provision must be based on objective criteria and not on the basis of subjective satisfaction. Apex Court further held 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 authority. The approval must reflect the application of mind to the facts of case.
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 Article 136 and 226 of the Constitution. The order as such must be a speaking order, and the decision given must be supported by reasons, so that the superior Court is assured that it is in accordance with law and is not a result of caprice, whim, fancy, or reached on the basis of policy or expediency. Absence of reasons vitiates the conclusions. (See M/s. Mahabir Prasad Santosh Kumar v. State of U.P., AIR 1970 SC 1302; M/s. 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."
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 depricated the practice of one word order of the type "rejected" or "dismissed". Similarly, in case of Dhondi Ba Gundu Proma Je and others v. State of Maharastra, 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.
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.
We accordingly allow the writ petition and set aside the impugned order dated18.12.2009 passed by the Assistant Commissioner of Income Tax (Central Circle), Meerut.
However, it will be open for the the Assistant Commissioner of Income Tax (Central Circle), Meerut to pass a fresh order in accordance to law.
18.01.2010 OP