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CASE NO.: Appeal (civil)  4633 of 2006

PETITIONER: Rajesh Kumar & Ors.                                              

RESPONDENT: D.C.I.T. & Ors.                                                          

DATE OF JUDGMENT: 01/11/2006

BENCH: S.B. Sinha & Dalveer Bhandari

JUDGMENT: J U D G M E N T [Arising out of SLP (Civil) No. 9427-9430 of  2005]

S.B. SINHA, J :

       Leave granted.                  Appellant No. 1 is a proprietory concern.  It is an assessee under the  Income Tax Act, 1961 (for short "the Act").  A raid was conducted in their  premises on 18.12.2002.  Some documents including their books of accounts  were seized; a few of which were in the hard disk of the computer.  They  upon seizure all through remained in possession of the respondents.   Assessment was under the law required to be completed within a period of  two years.  A notice was issued under Section 158BC of the Act by the  Deputy Commissioner of Income Tax, Central Circle \026 18 requiring the  appellants to submit return of undisclosed income for the block period of ten  years pursuant whereto returns were filed.  A notice was issued under  Section 142(1) of the Act.  Questionnaire was issued on 1.11.2004.  On  22.11.2004, the Deputy Commissioner decided to proceed first with the  assessment proceedings under Section 158BC of the Act in the case of three  individuals, viz., Smt. Sushila Rani, Smt. Sunayana Prabhakar and Smt.  Sunanda Prabhakar as also two companies, viz., M/s. Daily Agro Milk Food  (P) Ltd. and M/s. Sushila Milk Specialities (P) Ltd.  The said questionnaire  was responded to.  Affidavits were also filed before the Deputy  Commissioner on behalf of M/s. Sushila Milk Specialities (P) Ltd.    

       By a letter dated 23.11.2004, the Deputy Commissioner mooted a  proposal for special audit in terms of Section 142(2A) of the Act to the  Commissioner of Income Tax stating:

"There is no link between the business conducted  by the assessee and books of account prepared for  the purpose of filing return of income.  Two sets of  books of accounts have been found for the same  concern for the same financial year in two separate  computers.

       There have been numerous instances of  transactions outside the books.  Few of them are  listed as under:..."

       Several instances thereafor were given.  It was furthermore stated:

"There are many more instances like these listed  above.  The above analysis makes it clear that the  account of the assessee involves complication and

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requires an expert audit to bring out the financial  results which can be relied upon at the time of  assessment"

       The Commissioner of Income Tax approved the said proposal of the  Deputy Commissioner of Income Tax by a letter dated 29th February, 2004  stating: "After carefully considering the matter and  discussing the same with the Assessing Officer at  length I am of the opinion that having regard to the  nature and complexity of the accounts of the  assessee and the interests of the revenue, it is  necessary to carry out special audit in this case u/s  142(2A).  In particular, it has been kept in mind  that a sizeable amount of the purchases and sales  of the assessee are outside the books of accounts.   Also the trading account and financial statements  of this concern would have to be prepared after  thoroughly analyzing the two sets of books of  accounts maintained by the assessee, as well as the  seized material, which shows clear evidence of  huge unaccounted transactions.  Keeping in view  the above you are required to have the special  audit of the assessee conducted u/s 142(2A) by  M/s Dhanesh Gupta & Co., CA, 1-1/16, Ansari  Road, Shanti Mohan House, Darya Ganj, New  Delhi.  He should be asked to furnish a report of  such audit in the prescribed manner, i.e., in Form  No. 6B, within 120 days of the order u/s 142(2A)  to be issued by the Assessing Officer.  The terms  of reference of this audit should include the  following:-

To prepare final accounts and draw-up a statement  of accounts for each assessment year falling within  the Block period, i.e., 1.4.96 to 18.12.2002, after  auditing the two sets of books of account  maintained by the assessee and after keeping in  view all the unaccounted transactions revealed by  the seized material, which are outside the books of  account.

       The fees to be paid to the Special Auditor by  the assessee will be determined subsequently, as  per norms."

       Pursuant thereto one M/s. Dhanesh Gupta & Co. was appointed as a  special auditor.  Only on 7.12.2004, Appellant Nos. 1 to 3 were informed by  a letter in regard to appointment of an auditor for special audit of their  accounts in terms of Section 142(2A) of the Act.  Indisputably, prior thereto  no opportunity of hearing was given to them.  The Deputy Commissioner  was requested by the appellants herein to supply a copy of the reasons  therefor by a letter dated 11.12.2004 which was refused by a letter dated  13.12.2004.  The Chartered Accountant submitted its audited report on  17.1.2005.   

       A Writ Petition was filed by the appellants before the Delhi High  Court raising inter alia a question that the order impugned therein was  vitiated in law having been passed without giving an opportunity of hearing  to them as also on the ground that the same suffers from total non- application of mind.  Mala fide on the part of the Deputy Commissioner was  also alleged.  By the impugned judgment, the said writ petition has been  dismissed.

       Submissions of Mr. K. Sampath, learned counsel appearing on behalf

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of the appellants are:

(i)     Section 142(2A) of the Act having regard to the enormity of power  deserves a strict construction. (ii)    Principles of natural justice inhere in the said provisions. (iii)   Application of mind on the part of the assessing officer on three  relevant factors is imperative. (iv)    Statutory power contained in Section 142(2A) of the Act cannot be  used for collateral purposes.

       Submissions of Mr. Gopal Subramanium, learned Additional Solicitor  General, on the other hand, are:

(i)     As Section 142(2A) of the Act is juxtaposed between the  provisions for filing return and assessment, the said provision must  be interpreted to be in aid of assessment and not as a part of the  order of assessment.  (ii)    The proposal mooted by the assessing officer to the Deputy  Commissioner would show the nature of accounts as also the  complexity thereof, particularly, in view of the fact that the  assessee was said to have been maintaining two different sets of  accounts.  The complexity of the accounts was also evident as the  parties were associated with various firms and companies. (iii)   Section 142(2A) contains sufficient safeguards including the  approval to be granted by a high ranking officer and in the event an  order passed thereunder is subjected to judicial review the  authorities would place the entire records to satisfy the conscience  of the court that the same does not suffer from non-application of  mind. (iv)    If the principles of natural justice are held to be implicit in the said  provision, the extent thereof must be confined to the requirements  of the provisions only and not a detailed hearing. (v)     Giving an opportunity of hearing sometimes would lead to  assessment of reasons as the assessing officer is not required to go  into the correctness or otherwise of the accounts at that stage.

       Interpretation and application of Section 142(2A) of the Act, thus,  falls for our consideration.   

       We may at the outset notice that the following are the relevant factors  for invoking Section 142(2A) of the Act:

(i)     The nature of accounts (ii)    Complexity of accounts and (iii)   Interest of the revenue.

       The formation of opinion of the assessing officer must be on the  premise that while exercising his power regard must be had to the factors  enumerated therein.  The use of the word ’and’ shows that it is conjunctive  and not disjunctive.  All the aforementioned factors are conjunctively  required to be read.  The formation of opinion indisputably must be based on  objective consideration.

       The expression "complexity" would mean the state or quality of being  intricate or complex or that it is difficult to understand.  Difficulty in  understanding would, however, not lead to the conclusion that the accounts  are complex in nature.  No order can be passed on whims or caprice.

       It is also not in dispute that whereas the Calcutta High Court and the  Kerala High Court have taken a view that before issuance of a direction  under Section 142(2A) of the Act, it is necessary to comply with the  principles of natural justice, the Allahabad High Court, the Bombay High  Court and the Delhi High Court have thought it otherwise.

       When a raid is conducted on the premises of an assessee, block

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assessment is permissible, procedures wherefor have been laid down under  Section 158BC of the Act.   

       Section 158BE(b) of the Act contemplates that the order thereunder is  necessary to be passed within two years from the end of the month in which  the last of the authorizations for search under Section 132 or for requisition  under Section 132A, as the case may be, was executed in cases where a  search is initiated or books of accounts or other documents or any assets are  requisitioned.   

       Statute of limitation is a statute of repose.  Indisputably the same,  subject to the exceptions contained in the explanation appended to Section  158BE, is imperative.   

       Having regard to the aforementioned, we may have to construe Sub- section (2A) of Section 142 of the Act.  Before, however, we do so, it may  be noticed that the said provision is meant to be applied for passing an order  of assessment.  An order of assessment is to precede filing of a return in  terms of Section 139 of the Act.  Various other steps in that behalf are also  contemplated under Sections 139A, 140 and 141A of the Act.  An inquiry  may be made prior to passing of an order of assessment by the assessing  officer under Section 142 of the Act.  Section 136 raises a legal fiction that  proceeding under the Act shall be a judicial proceeding and every income  tax authority shall be deemed to be a civil court for the purposes of Section  195 of the Code of Criminal Procedure.  The power of inquiry conferred  upon the assessing authority is of wide amplitude.

       Sub-sections (2A), (2B), (2C), (2D) and (3) of Section 142 of the Act  read 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. (2B) The provisions of sub-section (2 A) 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 (2 A) 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, 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

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under sub-section (2A) (including the  remuneration of the accountant) shall be  determined by the Chief 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. (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 (2  A) and proposed to be utilised for the purposes of  the assessment."

       Principles of natural justice are based on two basic pillars: (i)     Nobody shall be condemned unheard (audi alteram partem) (ii)    Nobody shall be judge of his own cause (nemo debet esse judex in  propria sua causa)

       Duty to assign reasons is, however, a judge made law.  There is  dispute as to whether it comprises of a third pillar of natural justice.  [See  S.N. Mukherjee v. Union of India, (1990) 4 SCC 594 and Reliance  Industries Ltd. v. Designated Authority and Others, 2006 AIR SCW 4911]   

       However, the other view is that the question as to whether reasons are  required to be assigned is a matter of legislative policy which should be left  to the decision of Parliament.  In Raipur Development Authority and Others  v. M/s. Chokhamal Contractors and Others [(1989) 2 SCC 721], a  Constitution Bench opined:

"It is no doubt true that in the decisions pertaining  to Administrative Law, this Court in some cases  has observed that the giving of reasons in an  administrative decision is a rule of natural justice  by an extension of the prevailing rule. It would be  in the interest of the world of commerce that the  said rule is confined to the area of Administrative  Law. We do appreciate the contention, urged on  behalf of the parties who contend that it should be  made obligatory on the part of the arbitrator to  give reasons for the award, that there is no  justification to leave the small area covered by the  law of arbitration out of the general rule that the  decision of every judicial and quasi-judicial body  should be supported by reasons. But at the same  time it has to be borne in mind that what applies  generally to settlement of disputes by authorities  governed by public law need not be extended to all  cases arising under private law such as those  arising under the law of arbitration which is  intended for settlement of private disputes. As  stated elsewhere in the course of this judgment if  the parties to the dispute feel that reasons should  be given by the arbitrators for the awards it is  within their power to insist upon such reasons  being given at the time when they enter into  arbitration agreement or sign the deed of  submission. It is significant that although nearly a  decade ago the Indian Law Commission submitted  its report on the law of arbitration specifically  mentioning therein that there was no necessity to  amend the law of arbitration requiring the  arbitrators to give reasons, Parliament has not

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chosen to take any step in the direction of the  amendment of the law of arbitration. Even after the  passing of the English Arbitration Act, 1979 unless  a court requires the arbitrator to give reasons for  the award [vide sub-sections (5) and (6) of Section  1 of the English Arbitration Act, 1979], an award  is not liable to be set aside merely on the ground  that no reasons have been given in support of it."

       [See also Rajendra Construction Co. v. Maharashtra Housing & Area  Development Authority and Others, (2005) 6 SCC 678]

       We, however, need not dilate on the said question being not very  necessary for the purpose of this case.  But it is beyond any cavil that  ordinarily unless excluded by operation of a statute, the superior courts  while exercising power of judicial review shall proceed on the basis that  assignment of reasons is imperative in character.  When an authority be it  administrative or quasi-judicial adjudicates on a dispute and if its order is  appealable or subject to judicial review, it would be necessary to spell out  the reasons therefor.  While, however, applying the principles of natural  justice, however, the court must also bear in mind the theory of useless  formality and the prejudice doctrine.

       If an assessee files a return the same is not presumed to be incorrect.   When the assessing officer, however, intends to pass an order of assessment,  he may take recourse to such steps including the one of asking the assessee  to disclose documents which are in his power or possession.  He may also  ask third parties to produce documents.  Section 136 of the Act by reason of  a legal fiction makes an assessment proceeding, a judicial proceeding.  The  assessment proceeding, therefore, is a part of judicial process.  When a  statutory power is exercised by the assessing authority in exercise of its  judicial function which is detrimental to the assessee, the same is not and  cannot be administrative in nature.  It stricto sensu is also not quasi judicial.   By way of example, although it may not be very apposite, we may state that  orders passed under Order XII of the Code of Civil Procedure by a court  cannot be held to be administrative in nature.  They are judicial orders and  subject to the order which may be passed by higher courts in regard thereto.   Indisputably, the prejudice of the assessee, if an order is passed under  Section 142(2A) of the Act, is apparent on the face of the statutory  provision.  He has to undergo the process of further accounting despite the  fact that his accounts have been audited by a qualified auditor in terms of  Section 44AB of the Act.  An auditor is a professional person.  He has to  function independently.  He is not an employee of the assessee.  In case of a  misconduct, he may become liable to be proceeded against by a statutory  authority under the Chartered Accountants Act, 1949.

       In this case, the fee of the special auditor has been fixed at Rs. 1.5  lakhs.  The assessee during the audit of the account by the special auditor  had to answer large number of questions.  Whether he defaulted therein or  not is a matter of little or no consequence for the purpose of construction of  the said provision.  We may, however, notice that whereas according to the  Revenue the assessee was not cooperating, according to the assessee, as all  the books of accounts having been seized, there was nothing it could do in  the matter.

       Effect of civil consequences arising out of determination of lis under a  statute is stated in State of Orissa v. Dr. (Miss) Binapani Dei and Others  [AIR 1967 SC 1269: (1967) 2 SCR 625].  It is an authority for the  proposition when by reason of an action on the part of a statutory authority,  civil or evil consequences ensue, principles of natural justice are required to  be followed.  In such an event, although no express provision is laid down in  this behalf compliance of principles of natural justice would be implicit.  In  case of denial of principles of natural justice in a statute, the same may also  be held ultra vires Article 14 of the Constitution.  

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       K.J. Shetty, J. in Swadeshi Cotton Mills Company Limited v.  Commissioner of Income-Tax and Another [171 ITR 634] succinctly laid  down the import of the said provision in the following terms:

"The exercise of power to direct special audit  depends upon the satisfaction of the Income-tax  Officer with the added approval of the  Commissioner. But he must be satisfied that the  accounts of the assessee are of a complex nature,  and, in the interests of the Revenue, the accounts  should be audited by a special auditor. The special  auditor is also an auditor like the company’s  auditor, but he has to be nominated by the  Commissioner and not by the company. The  accounts are again to be audited at the cost of the  company.         This is the substance of the statutory  provisions. The power thereunder cannot, in our  opinion, be lightly exercised. The satisfaction of  the authorities should not be subjective  satisfaction. It should be based on objective  assessment regard being had to the nature of the  accounts. The nature of the accounts must indeed  be of a complex nature. That is the primary  requirement for directing a special audit. But the  word " complexity " used in Sub-section (2A) is a  nebulous word. Its dictionary meaning is : " The state or quality of being intricate or complex  ’ or ’ that is difficult to understand."         However, all that are 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. 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."

       We may, however, notice that the learned Judge referred to the  guidelines of the Central Board of Direct Taxes and having regard to the  facts and circumstances of the case opined that the exercise of the power was  not arbitrary.

       The applicability of the principles of natural justice, on the other hand,  has been highlighted in Peerless General Finance & Investment Co. Ltd.  (supra), West Bengal Co-Op. Bank Ltd (supra) Bata India Limited v. CIT  [2002 (257) ITR 622], Joint Commissioner of Income Tax v. I.T.C. Ltd. and  Another [239 ITR 921] and Muthootu Mini Kuries v. Deputy Commissioner  of Income-Tax and Another [250 ITR 455].

       In Swadeshi Cotton Mills v. Union of India  [(1981) 1 SCC 664],  Chinnappa Reddy, J., in his dissenting judgment summarized the legal  position in the following terms:

"The principles of natural justice have taken deep  root in the judicial conscience of our people,  nurtured by Binapani, Kraipak, Mohinder Singh  Gill, Maneka Gandhi etc. etc. They are now  considered so fundamental as to be ’implicit in the  concept of ordered liberty’ and, therefore, implicit

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in every decision making function, call it judicial,  quasi-judicial or administrative. Where authority  functions under a statute and the statute provides  for the observance of the principles of natural  justice in a particular manner, natural justice will  have to be observed in that manner and in no other.  No wider right than that provided by statute can be  claimed nor can the right be narrowed. Where the  statute is silent about the observance of the  principles of natural justice, such statutory silence  is taken to imply compliance with the principles of  natural justice. The implication of natural justice  being presumptive it may be excluded by express  words of statute or by necessary intendment.  Where the conflict is between the public interest  and the private interest, the presumption must  necessarily be weak and may, therefore, be readily  displaced."                In Delhi Transport Corporation v. D.T.C. Mazdoor Congress and  Others [1991 Supp (1) SCC 600], Ray, J. opined:

"\005It is now well settled that the ’audi alteram  partem’ rule which in essence, enforces the  equality clause in Article 14 of the Constitution is  applicable not only to quasi-judicial orders but to  administrative orders affecting prejudicially the  party-in-question unless the application of the rule  has been expressly excluded by the Act or  Regulation or Rule which is not the case here.  Rules of natural justice do not supplant but  supplement the Rules and Regulations. Moreover,  the Rule of Law which permeates our Constitution  demands that it has to be observed both  substantially and procedurally\005"

       [See also Basudeo Tiwary v. Sido Kanhu University and Others,  (1998) 8 SCC 194 and Uptron India Ltd. v. Shammi Bhan, (1998) 6 SCC  538]

       Some exceptions to the applicability of the principle is stated in  Jagdish Swarup’s Constitution of India, 2nd Edition, page 289 in the  following terms: "Not only, therefore, can the principles of natural  justice be modified but in exceptional cases they  can even be excluded.  There are well-defined  exceptions to the nemo judex in causa sua rule as  also to the audi alteram partem rule.  The nemo  judex in causa sua rule is subject to the doctrine of  necessity and yields to it as pointed out by the  Apex Court in J. Mohapatra and Co. v. State of  Orissa.  So far as the audi alteram partem rule is  concerned, both in England and in India, it is well  established that where a right to a prior notice and  an opportunity to be heard before an order is  passed would obstruct the taking of prompt action,  such a right can be excluded.  This right can also  be excluded where the nature of the action to be  taken, its object and purpose and the scheme of the  relevant statutory provisions warrant its exclusion,  nor can the audi alteram partem rule be invoked if  importing it would have the effect of paralyising  the administrative process or where the need for  promptitude or the urgency of taking action so

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demands, as pointed out in Maneka Gandhi’s  case."

       [See also Haji Abdul Shakoor & Co. v. Union of India and Others,  (2002) 9 SCC 760]

       Exceptions, therefore, are required to be provided for either expressly  or by necessary implication.                  We may at this stage notice the views of the Delhi, Bombay and  Allahabad High Courts where it was held that principles of natural justice  are not required to be complied with in appointment of a special auditor.  

       A Division Bench of the Delhi High Court considered the question at  some length in Yum Restaurants India Pvt. Ltd. V. Commissioner of  Income-Tax [2005 (278) ITR 401 (Delhi)].

       The ratio of the judgment, however, is not very clear.  Same  inconsistencies appear to have crept therein, which would be noticed a little  later.  While holding that, as a proposition of law, the distinction between an  administrative order and a quasi-judicial order is a very fine one, it had been  observed that the same would not mean that the principles of natural justice  would be mandatorily required to be complied with only because the  consequence of an order passed thereunder would be adverse to the interest  of the party or it prejudically affects the person.  It was stated that the  functions of the statutory authority under Section 142(2A) are more of an  administrative action than a quasi-judicial function.  Relying on or on the  basis of a decision of this Court in Canara Bank and Ors. v. Debasis Das and  Ors., [(2003) 4 SCC 557], the learned Judges opined that although principles  of natural justice are integral part of the procedure but one must notice that  the concept of natural justice has undergone a great deal of change.  But,  then while observing that Section 142(2A) of the Act do not exclude the  application of principles of natural justice, it was opined that interaction with  and confrontation of the assessee would serve the purpose.

       Distinguishing the judgment of Calcutta High court in the cases of  Peerless General Finance & Investment Co. Ltd. v. Dy. CIT and Ors., (1999)  236 ITR 671 and West Bengal Co-Op. Bank Ltd. v. Commissioner Income- tax and Ors., (2004) 267 ITR 345, the High Court observed:

"\005However, the scope of the kind of hearing that  an assessee would be entitled to, was not discussed  even in these judgments, primarily for the reason  that in one case the Assessing Officer had taken  into consideration irrelevant material like litigation  pending between the Reserve Bank of India and  the assessee while in other cases, the Assessing  Officer had not even asked for books of accounts  of the assessee before passing an order of special  audit under section 142(2A). These judgments  have no application to the facts of the case in hand  on any known canon of ratio decidendi.  Respectfully we would differ with the view taken  by the Calcutta High Court in the above noticed  judgment only with regard to the extent of  application of principles of natural justice at a pre- decisional stage in exercise of powers under  section 142(2A) by the Assessing Officer. The  expression used in these judgments "reasonable  opportunity of hearing and also to meet the cause  against him’ cannot apply in stricto senso to a  direction for a special audit during the pendency of  the assessment proceedings. Pre-decisional hearing  in this regard would fall within a very restricted  and limited scope. The purpose would be

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sufficiently achieved if the assessee is questioned  or confronted with his accounts in relation to  nature and complexity thereof."

       The court, however, considered the question as regards post- decisional hearing in regard to a report received by the assessing authority in  furtherance of an order passed under Section 142(2A) of the Act opining:

"\005Equally true is that the provisions do not  indicate complete exclusion of the principles of  natural justice as well. It is difficult to provide any  straight-jacket formula which without variations  can be applied to the cases universally. Every case  would have to be decided on its own merits and  with reference to the judgments which are squarely  applicable to that case."

       The learned Judges concluded:

"a) Provisions of Section 142 (2A) of the Act do  not contemplate by specific language or necessary  implication, issuance of a show cause notice or  grant of comprehensive hearing to the assessee by  the Assessing Officer. b) Limited to the extent indicated hereinafter,  principles of natural justice would be read into the  principles of Section 142 (2A) of the Act. It is for  the reason that the directions issued under this  provision are bound to vest the assessee with civil  consequences of compulsive expenditure and audit  of its books by an accountant, who but for such a  direction would have no right to such examination.  This would, to some extent, be an interference in  the internal management of a company related to  its accounts. c) Before the Assessing Officer seeks an approval  of the competent authority under Section 142 (2A)  of the Act, it would be obligatory upon him to call  upon the assessee during the course of assessment  proceedings for a ’purposeful interaction and  confrontation’ in regard to nature and complexity  of the assessee’s accounts. d) Such interaction with and confrontation of, the  assessee with his account books should be with an  object to attain better clarity and understanding of  the accounts by the Assessing Officer. There has to  be serious attempt on the part of the Assessing  Officer to seek clarification of his doubts in regard  to nature and complexity of assessee’s accounts for  better comprehension."

               [Highlighting is ours for showing the inconsistencies in the  judgment]

       In any event, the learned judges did not exclude the application of the  principle altogether.

       A Division Bench of the Bombay High Court in V.S. Samuel,  Assistant Commissioner of Income-Tax and Others [2006 (283) ITR 56],  however, disagreed with the decisions of the Calcutta High court and the  Kerala High Court stating that the order passed under Section 142(2A) of the  Act is purely administrative in nature.  It was opined:

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"\005Such order, in our opinion, does not entail any  civil consequences. No decision is given. Merely  because the assessee is required to pay the auditor’s  fee, that does not mean that any liability is created  against the assessee and that such order entails any  civil consequences. The issuance of direction for  special audit facilitates the AO to have the  complex accounts of the assessee examined by an  independent auditor. That helps and assists him in  assessing the income of the assessee..."

       We would consider the reasonings of the learned judges at an  appropriate stage.                  In Gurunanak Enterprises v. Commissioner of Income-tax and  Another [259 ITR 637], a Division Bench of the Delhi High Court observed:

"It is, thus, clear from the decisions referred to  supra that before exercising the power to direct  special audit under Section 142(2A) the Assessing  officer must form an opinion with regard to the  twin conditions, namely, the nature and complexity  of the accounts and the interests of the revenue,  with added approval of the Chief Commissioner or  the Commissioner, as the case may be. Both these  conditions would of course depend upon the facts  of each case. Further, power under the Section is  not to be lightly exercised and has to be based on  objective criteria and an honest and sincere effort  should be made to understand the accounts of the  assessee since an order under the provision not  only entails heavy monetary burden on an  assessee, it causes a lot of inconvenience to him as  well."

       It was, however, stated:

"It is not within the province of judicial review to  minutely analyse the materials on which the  opinion of the Assessing Officer is rested to find  out whether the same is sufficient for the authority  concerned to come to the conclusion that the  accounts of the assessee need to be subjected to  special audit. As noticed above, what is complex to  one may be simple to another and, therefore, the  issue has to be examined from the view point of  the Assessing Officer concerned. The Court is not  expected to substitute its own understanding and  comprehension of the accounts of an assessee."

       The decisions of the Calcutta High Court and the Kerala High Court  were held to have been decided on their own facts.

       It is significant to note that except the Bombay High Court, the views  taken by the Calcutta and Delhi High Court had not been explicitly dissented  from.  The learned Judges of the Delhi High Court in Yum Restaurants India  Pvt. Ltd. (supra) and Gurunanak Enterprises (supra) did not hold that the  decisions have been incorrectly rendered.  They were, however, held to be  inapplicable to the facts of the cases.   

       We may place on record that even the learned Additional Solicitor  General categorically stated before us that the doctrine of procedural  safeguards applied by the Calcutta High Court and the Kerala High Court  cannot be faulted with having regard to the peculiar fact situation obtaining

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therein.  The fact, thus, remains that there may be a situation when provision  would be misused.  An order may be passed not only without any  application of mind but also in ignorance of the requirements of law.   

       The Bombay High Court and the Delhi High Court, with respect, in  our opinion, are not correct in stating that a direction issued under Section  142(2A) of the Act to be administrative in nature.  In view of Section 136 of  the Act, the entire proceedings of assessment before the Assessing Officer  being judicial, it is difficult to understand how a part thereof, which  indisputably is resorted to in aid of the ultimate order of assessment, without  any statutory interdict would be called to be an administrative order.  When  the books of accounts have been produced and examined, the assessing  officer would be proceeding to make ultimate order of assessment.   

       In SBP & Co. v. Patel Engineering Ltd. and Another [(2005) 8 SCC  618], a Seven-Judge Bench of this Court opined that an order of the Chief  Justice or the Designated Judge being final in nature, an order passed  thereunder would be a judicial order and not an administrative order stating:

"The power exercised by the Chief Justice of the  High Court or the Chief Justice of India under  Section 11(6) of the Act is not an administrative  power.  It is a judicial power."

       In any event, when civil consequences ensue, there is hardly any  distinction between an administrative order and a quasi judicial order.  There  might have been difference of opinions at one point of time, but it is now  well-settled that a thin demarcated line between an administrative order and  quasi-judicial order now stands obliterated [See A.K. Kraipak and Others v.  Union of India and Others - (1969) 2 SCC 262 and Chandra Bhawan  Boarding and Lodging, Bangalore v. State of Mysore and Another \026 AIR  1970 SC 2042 and S.L. Kapoor v. Jagmohan and Others - AIR 1981 SC  136].

       Recently, in V.C. Banaras Hindu University v. Shrikant [2006 (6)  SCALE 66], this Court stated the law, thus:

"An order passed by a statutory authority,  particularly when by reason whereof a citizen of  India would be visited with civil or evil  consequences must meet the test of  reasonableness\005"

       The expression "having regard to" in this context assumes some  significance.  An opinion must be formed strictly in terms of the factors  enumerated therein.  The expression indicates that in exercising the power  regard must be had also to the factors enumerated therein together with all  factors relevant for exercise of that power.

       In India Cement Ltd. and Others v. Union of India and Others [(1990)  4 SCC 356], it was stated:

"The meaning of the expression ’having regard to’  is well settled. It indicates that in exercising the  power, regard must be had also to the factors  enumerated together with all factors relevant for  exercise of that power."

       In Delhi Farming & Construction (P) Ltd. v. Commissioner of Income  Tax, Delhi [(2003) 5 SCC 36], it is stated:

"The words "having regard to" used in the section  do not restrict the consideration only to two  matters indicated in the section as it is impossible

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to arrive at a conclusion as to reasonableness by  considering only the two matters mentioned  isolated from other relevant factors. It is neither  possible nor advisable to lay down any decisive  tests for the guidance of the Income Tax Officer.  The satisfaction depends upon the facts of each  case. The only guidance is his capacity to put  himself in the position of a prudent businessman or  the director of a company and his sympathetic and  objective approach to the difficult problem that  arises in each case."

       The factors enumerated in Section 142(2A) of the Act, thus, are not  exhaustive.  Once it is held that the assessee suffers civil consequences and  any order passed by it would be prejudicial to him, principles of natural  justice must be held to be implicit.  The principles of natural justice are  required to be applied inter alia to minimize arbitrariness.   

       It is trite, even if there is a possibility that the Tribunal would  correctly follow the statutory provisions, still compliance of principles of  natural justice would be required.  [See R. v. Kensington and Chelsea Rent  Tribunal, ex p. MacFarlane (1974) 1 WLR 1486]

       Justice, as is well known, is not only be done but manifestly seem to  be done.  If the assessee is put to notice, he could show that the nature of  accounts is not such which would require appointment of special auditors.   He could further show that what the assessing officer considers to be  complex is in fact not so.  It was also open to him to show that the same  would not be in the interest of the Revenue.   

       In this case itself the appellants were not made known as to what led  the Deputy Commissioner to form an opinion that all relevant factors  including the ones mentioned in Section 142(2A) of the Act are satisfied.  If  even one of them was not satisfied, no order could be passed.  If the  attention of the Commissioner could be drawn to the fact that the underlined  purpose for appointment of the special auditor is not bona fide it might not  have approved the same.

       Assuming that two sets of accounts were being maintained the same  would not mean that the nature of accounts is difficult to understand.  It  could have furthermore not been shown that the power is sought to be  exercised only for an unauthorised purpose, viz., for the purpose of  extension of the period of limitation as provided for under Explanation 2 to  section 158BE of the Act.

       An order of approval is also not to be mechanically granted.  The  same should be done having regard to the materials on record.  The  explanation given by the assessee, if any, would be a relevant factor.  The  approving authority was required to go through it.  He could have arrived at  a different opinion.  He in a situation of this nature could have corrected the  assessing officer if he was found to have adopted a wrong approach or posed  a wrong question unto himself.  He could have been asked to complete the  process of the assessment within the specified time so as to save the  Revenue from suffering any loss.  The same purpose might have been  achieved upon production of some materials for understanding the books of  accounts and/ or the entries made therein.  While exercising its power, the  assessing officer has to form an opinion.  It is final so far he is concerned  albeit subject to approval of the Chief Commissioner or the Commissioner,  as the case may be.  It is only at that stage he is required to consider the  matter and not at a subsequent stage, viz., after the approval is given.                  In K.I. Shephard and Others v. Union of India and Others  [(1987) 4  SCC 431 : AIR 1988 SC 686], this Court observed:

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"It is common experience that once a decision has  been taken, there is a tendency to uphold it and a  representation may not really yield any fruitful  purpose."

       [See also H.L. Trehan and Others v. Union of India and Others   (1989) 1 SCC 764, L.N. Mishra Institute of Economic Development and  Social Change, Patna  v. State of Bihar and Others (1988) 2 SCC 764 and  V.C. Banaras Hindu University and Ors. v. Shrikant, 2006 (6) SCALE 66]

       Whereas the order of assessment can be subject matter of an appeal, a  direction issued under Section 142(2A) of the Act is not.  No internal  remedy is prescribed.  Judicial review cannot be said to be an appropriate  remedy in this behalf.  The appellate power under the Act does not contain  any provision like Section 105 of the Code of Civil Procedure.  The power  of judicial review is limited.  It is discretionary.  The court may not interfere  with a statutory power.  [See for example Jhunjhuwala Vanaspati Ltd. v.  Assistant Commissioner of Income-Tax and Another (No. 1),  266 ITR 657,  see, however,  U.P. State Industrial Development Corporation Limited v.  Commissioner of Income-Tax and Others, 171 ITR 640]

       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 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.  The hearing given is  only in terms of Section 142 (3) which is limited only to the findings of the  special auditor.  The order of assessment would be based upon the findings  of the special auditor subject of course to its acceptance by the assessing  officer.  Even at that stage the assessee cannot put forward a case that power  under Section 142(2A) of the Act had wrongly been exercised and he has  unnecessarily been saddled with a heavy expenditure.  An appeal against the  order of assessment, as noticed hereinbefore, would not serve any real  purpose as the appellate authority would not go into such a question since  the direction issued under Section 142(2A) of the Act is not an appellate  order.

       For the reasons aforementioned, the appeal is allowed.  No costs.