Holding

An order under Section 142(2A) is a judicial order subject to judicial review, and the principles of natural justice, including notice and a limited hearing, are implicit in its exercise.

Summary

The appellants, assessees under the Income Tax Act, were subjected to a raid that uncovered two separate sets of books of accounts, prompting the Deputy Commissioner to propose a special audit under Section 142(2A). The Commissioner approved the proposal without giving the appellants any notice or opportunity to be heard, and the special auditor's fees were to be borne by the appellants. The appellants challenged the appointment, alleging violation of natural justice and that the order was administrative and not subject to judicial review. The Supreme Court held that an order under Section 142(2A) is a judicial order, not merely administrative, and therefore the principles of natural justice—notice and a limited hearing—are implicit. It further ruled that such orders are subject to judicial review and cannot be insulated from scrutiny merely because they are not appealable. Consequently, the Court allowed the appeal, setting aside the special audit appointment and directing that the principles of natural justice be observed in future exercises of the power.

Issues considered

The applicability of the principles of natural justice to orders passed under Section 142(2A) of the Income Tax Act, 1961.
Whether an order directing a special audit under Section 142(2A) is administrative, quasi‑judicial or judicial in nature.
Whether such an order is appealable or amenable to judicial review.
The requirement of giving reasons and a hearing before appointing a special auditor.
The extent of the assessing officer’s discretion and the need for objective satisfaction of the factors in Section 142(2A).

Legislation cited

Chartered Accountants Act, 1949
Income Tax Act, 1961s. 136, s. 142(2A), s. 142(3), s. 158BC, s. 158BE, s. 288, s. 44AB

Subjects

Income TaxSection 142(2A)Special auditNatural justiceJudicial reviewHearingPrejudice doctrineAssessment proceedings

Judgment

A RAJESH KUMAR AND ORS.
v.
D.C.I.T. AND ORS.

NOVEMBER l, 2006
,
B [S.B SINHA AND DALVEER BHANDARI, JJ.]

Income Tax Act, 1961--Section 142(2A)--Special audit-Proposed by
Deputy Commissioner of Income Tax to Commissioner on grounds that for
C same financial year, two sets of books of accounts found for same concern
and numerous instances of transactions outside the books-Approval by
Commissioner having regard to nature and complexity of accounts and
interests ofrevenue, and firm ofauditors appointed whose fees was to be paid
by assessee-Assessee 's request for supply ofa copy ofreasons/or appointment
of auditor refused, and their Writ Petition challenging the appointment,
D dismissed-Correctness of-Held-As prejudice of assessee is apparent on
face of order under Section 142(2A) and assessee suffers civil consequences
thereby, principles of natural justice must be held to be implicit in it-It was
more so as that order was not an appealable order, 'no internal remedy was
prescribed, and judicial review was not an appropriate remedy-If assessee
is put to notice, he could show that nature of accounts was not complex, and
E appointment of auditor was not in interest of Revenue-However, hearing
given to assessee need not be elaborate, notice issued may only contain
briefly issues which assessing officer thinks necessary, and reasons assigned
therefor need not be detailed ones-Also, approval by Commissioner was not
to be mechanically granted, and same should be done having regard to
F materials on record and explanation given by assessee-Order under Section
142(2A) found to be neither administrative nor quasi judicial, but judicial
in nature and subject to order by higher courts.

Adjudication-Reasons-Necessity of-Held-Where an authority is
administrative or quasi-judicial and its orders are appeal/able or subject to
G judicial review, it should be necessary for it to spell out reasons therefor-
However, while applying principles of natural justice, theory of useless
formality and prejudice doctrine should be· borne in mind

Words and phrases- 'Complexity' 'having regard to '-Meaning of in
context of Section 142(2A) of Income Tax Act, 1961.
H 284

...
RAJESH KUMAR v. D.C.I.T 285
Appellants are assessees under the Income Tax Act, 1961. A raid was A
. conducted in their premises by respondents, Income Tax department Deputy
Commissioner of Income Tax, mooted a proposal for special audit in terms of
Section 142(2A) of the Act to the Commissioner of Income Tax on the grounds
that for the same financial year, two sets of books of accounts have been found
for the same concern in two separate computers, and that there have been
numerous instances of transactions outside the books. The Commissioner of B
Income Tax approved the said proposal having regard to the nature and
complexity of the accounts and the interests of revenue. Thereupon, for
purposes of special audit, a firm of auditors was appointed whose fees was to
be paid by the appellants, and they were informed accordingly. Appellants
requested for supply of a copy of the reasons for appointment of special auditor, C
but that was refused. Thereupon, appellants challenged the appointment by
way of Writ Petition before High Court, however, it was dismissed. Hence the
present appeal.

Appellants contended that principles of natural justice were inherent
to Section 142(2A) of the Act, and application of mind on part of the assessing 'D
officer on the factors enumerated therein was imperative.

Respondents contended that (i) if the principles of natural justice are '
held to be implicit in Section 142(2A) of the Act, the extent thereof must be
confined to the requirements of the provisions only and not a detailed hearing
(ii) the complexity of accounts was evident in view of the fact that appellants ,E
were maintaining two differ~nt sets of accounts and the parties being
associated with various firms and companies (iii) Section 142(2A) contains
sufficient safeguards including 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 p
of the court that same does not suffer from non-application of mind.

Allowing the appeal, the Court

HELD I.I. The following are relevant factors for invoking Section 142
(2A) of the Income Tax Act, 1961 : (i) nature of accounts (ii) complexity of G
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
H
286 SUPREME COURT REPORTS [2006) SUPP. 8 S.C.R.

A indisputably must be based on objective consideration. (294-C-E]
1.2. 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.
B (294-E-FJ
Swadeshi Cotton Mills Company Limited v. Commissioner of Income-
Tax and Anr., 171 ITR 634, approved
!
1.3. The expression "having regard to" in this context assumes some
si.gnificance. An opinion must be formed strictly in terms of the factors
C 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. (306-D-E)

1.4. The factors enumerated in Section 142(2A) of the Act, thus, are
not exhaustive. (307-B)
D
India Cement Ltd and Ors. v. Union of India and Ors., [ 1990) 4 SCC
356 and Delhi Farming and Construction (P.) Ltd v. Commissioner ofIncome
Tax, Delhi [2003) 5 SCC 36, relied on.

2.1. The prejudice of the assesses, if an order is passed under Section
E 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 mis-conduct, he may become
F liable to be proceeded against by a statutory authority under the Chartered
Accountants Act, 1949. (298-D-E)

2.2. In this case, the fee of the special auditor has been fixed at Rs. 1.5
lakhs. The assessee during the audit of the accGunt by the speciaJ auditor
had to answer large number of questions. Whether he defaulted therein or
G not is a matter of little or no consequence for the purpose of construction of
the said provision. It may, however, be noticed 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. [298-F.-G)

H 2.3. Once it is held that the assessee suffers civil consequences and
RAJESH I<UMAR v. D.C.I.T 287
, any order passed by it would be prejudicial to him, principles of natural justice A
must be held to be implicit. The principles of natural justice are required to
be applied inter alia to minimize arbitrariness. [307-B)

Swadeshi Cotton Mills v. Union of India, (1981] I SCC 664, Delhi
Transport Corporation v. D. T.C. Mazdoor Congress and Ors., [1991] Supp. I
SCC 600; Basudeo Tiwary v. Sido Kanhu University and Ors., [1998) 8 SCC B
194 and Uptron India ltd. v. Shammi Bhan (1998] 6 SCC 538, relied on.

State ofOrissa v. Dr. (Miss Binapani Dei and Ors., AIR (1967) SC 1269:
[1967) 2 SCR 625 and Haji Abdul Shakoor & Co. v. Union ofIndia and Ors.,
(2002) 9 sec 760, referred to.
c
Jagdish Swarup 's Constitution ofIndia, 2nd Edition, page 289 referred
to

3.1. 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 D
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 th~ Revenue. (307-DI
3.2. The hearing given, however, need not be elaborate. The notice issued
may only contain briefly the issues which is assessing Gfficer thinks to be E
necessary. The reasons assigned therefor need not be detailed ones.
[308-G-H)
3.3. 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 F
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 G
the special auditor subject of course to its acceptance by the assessing officer.
Even at that stage of the assessee cannot put forward a case that power un~er
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 would not serve any real purpose as .the appellate
authority would not go into such a question since the direction issued under H
288 SUPREME COURT REPORTS [2006] SUPP. 8 S.C.R.

A Section 142(2A) of the Act is not an appellate order. [308-H; 309-A-C)
Peerless General Finance and 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 and Muthootu Mini Kuries 'v. Deputy
Commissioner ofIncome-Tax and Anr., 250 ITR 455, approved.
B
3.4. 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. [308-F-G)
c
K.l Shephard and Ors. v. Union of India and Ors., (1987) 4 SCC 431:
AIR (1988) SC 686, H.L. Trehan and Ors. v. Union ofIndia and Ors., [1989)
I SCC 764, L.N. Mishra Institute of Economic Development and Social
Change, Patna v. State ofBihar and Ors., (1988) 2 SCC 764 and VC. Banaras
Hindu University and Ors. v. Shrikant, (2006) 6 SCALE 66, Jhunjhuwala
D Vanas,nati Ltd v. Assistant Commissioner ofIncome-Tax andAnr., (No. 1), 266
ITR 657, U.P. State lndustri.al Development Corporation Limited v.
Commissioner of Income-Tax and Ors., 171 ITR 640, referred to.

4.1. An order of approval is also not to be mechanically granted. The
E 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 author:ity
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
F within the specified time so as to save the Revenue from suffering any loss.
The same purpose might have been achfoved upon production of some
materials for understanding the bo.>ks 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
G Commissioner or the Commissioner, as the case may be. It is only at that
stage he is requi'red to consider the matter and not at a subsequent stage,
viz., after the approval is given. (307-H; 308-A-C.I

4.2. 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
H including the ones mentioned in Section 142(2A) of the Act are satisfied. If
RAJESH KUMAR v. D.C.I.T 289
even one of them was not satisfied, no order could be passed. If the attention A
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. (307-E-F]

4.3. 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 B
have furthermore not been shown that the power is SQught to be exercised
only for an unauthorized purpose, viz., for the purpose of extension of the
period oflimitation as provided for under Explanation 2 to section 158 BE of
the AcL [307-G]

5.1. Direction issued under Section 142(2A) of the Act is not
c
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 D
have be produced and examined, the assessing officer would be proceeding to
make ultimate order of assessment. (305-F-G)

Peerless General Finance & Investment Co. Ltd. v. Dy. CIT and Ors.,
(1999) 236 ITR 671, West Bengal Co-Op. Bank Ltd. v. Commissioner Income-
tax and Ors., (2004) 267 ITR 345 and Muthootu Mi>zi Kuries v. Deputy E
Commissioner ofIncome-Tax and Anr., [250 ITR 455, approved.

V.S. Samuel, Assistant Commissioner of Income-Tax and Ors., (2006)
283 ITR 56, Yum Restaurants India Pvt. Ltd. v. Commissioner ofIncome-Tax,
(2005) 278 ITR 401 (Delhi)) overruled.
F
5.2. 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 G
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. They are judicial orders and subject to the order which may passed H
290 SUPRE.ME COURT REPORTS [2006] SUPP. 8 S.C.R.

A by higher courts in regard thereto. (298-B-D)
A.K. Kraipak and Ors. v. Union of India and Ors., [1969) 2 SCC 262
and Chandra Bhawan Boarding and Lodging, Bangalore v. State of Mysore
and Anr., AIR (1970) SC 2042 and S.L. Kapoor v. Jagmohan and Ors., AIR
(1981) SC 136 and V.C Banaras Hindu University v. Shrikant, (2006) 6
B SCALE 66, referred to

6. 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 ifits order is
C appealable or subject to judicial review, it would be necessary to spell out the
reasons therefor. While applying the principles of natural justice, however,
the court must also bear in mind the theory of useless formality and the
prejudice doctrine. [297-G-H; 298-A)

D S.N Mukherjee v. Union ofIndia, [1990) 4 SCC 594, Reliance Industries
Ltd. v. Designated Authority and Ors., 2006 AIR SCW 4911); Raipur
Development Authority and Ors. v. Mis. Chokhamal Contractors and Ors.,
[1989) 2 SCC 721; Rajendra Construction Co. v. Maharashtra Housing and
Area Development Authority and Ors., [2005) 6 SCC 678; Bala India Limited
v. CIT, (2002) 257 ITR 622; Joint Commissioner ofIncome Tax v. /. T. C. Ltd
E and Anr., 239 ITR 921 and Muthootu Mini Kuries v. Deputy Commissioner of
Income - Tax and Anr., [250 ITR 455), referred to.

Peerless General Finance and Investme1:t 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, approved.
F
R. v. Kensington and Chelsea Rent Tribunal, exp. MacFarlane, (1974)
1WLR1486, referred to.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4633 of2006.

G From the Judgment and Final Order dated ii2005 of the High Court of
Delhi in W.P. (C) Nos. 921-924/2005. ·

K. Sampath, Lakshmi Iyengar and Rani Chhabra for the Appellant.

Gopal Subramanium, A.S.G., Asheesh Jain, Arijit Prasad and B.V.
H Balaramdas for the Respondents and Dhanesh Chander-Respondent No. 3 in
RAJESHKUMAR v. D.C.I.T [S.B. SINHA, J.) · 291
Person. A
The Judgment of the Court was delivered by

S.B. SINHA, J. Leave granted.

Appellant No. 1 is a proprietory concern. It is an assessee under the B
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 l 58BC of the Act by the Deputy Commissioner C
of Income Tax, Central Circle - 18 requiring the appellants to submit return of
undisclosed income for the block period often years pursuant whereto returns
were filed. A notice was issued under Section 142(1) of the Act. Questionnaire
was issul!d on 1.11.2004. On 22.11.2004, the Deputy Commissioner decided to
proceed first with the assessment pn,ceedings under Section 158BC of the D
Act in the case of three individuals, viz., Smt. Sushila Rani, Smt. Sunayana
Prabhakar and Smt Sunanda Prabhakar as also two companies, viz., Mis.
Daily Agro Milk Food (P) Ltd. and Mis. Sushila Milk Specialities (P) Ltd. The
said questionnaire was responded to. Affidavits were also filed before the
Deputy Commissioner on behalf of Mis. Sushila Milk Specialities (P) Ltd.
E
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
• 1·
F'
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: ... "
G
Several instances therefor were given. It was furthennore 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 requires an expert audit to bring out the financial
results which can be relied upon at the time of assessment" H
292 SUPREME COURT REPORTS [2006) SUPP. 8 S.C.R.

A 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
B 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
c 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
l42(2A) by Mis Dhanesh Gupta & Co., CA, 1-1/16, Ansari Road,
D 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 ofreference of this audit should include
the following:-

E 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.
F
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. l to 3 were informed by a
G Jetter 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.
H The Chartered Accountant submitted its audited report on 17. l.2005.
RAJESH KUMAR v. D.C.I.T [S.B. SINHA, J.] 293
A Writ Petition was filed by the appellants before the Delhi High Court A
raising inter a/ia a question that the order impugned therein was vitiated in
Jaw 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.
B
Submissions of Mr. K. Sam path, learned counsel appearing on behalf 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.
c
(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. D
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 E
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
F
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
G
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
H
294 SUPREME COURT REPORTS'(2(}06] SUPP. 8 S.C.R.

A said provision, the extent thereof must be confined to the
requirements of the provisions only and not a detailed hearing.
(v) Giving a~ opportunity of hearing sometimes would lead to
assess1J1ent of reasons as the assessing officer is not required to
go into the correctness or otherwise of the accounts at that
B stage.

Interpretation a:nd 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
C for invoking Section 142(2A) of the Act:

(i) The nature of accounts
(ii) Complexity of accounts and
(iii) Interest of the revenue.
D 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
E 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.
F
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 I 42(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.
G
When a raid is conducted on the premises of an assessee, block
assessment is pennissible, procedures wherefor have been laid down under
Section I 58BC of the Act.

Section I 58BE(b) of the Act contemplates that the order thereunder is
H
RAJESHKUMAR v. D.C.l.T [S.B. SINHA, J.) 295
,-· necessary to be passed within two years from the end of the month in whi~h A
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, B
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 C
of assessment. An order of assessment is to precede filing of a return in,
terms of Section 139 ofthe Act. Various other steps in that behalf are also,
. contemplated under Sections 139 A, 140 and 141 A 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' D
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 th~
assessing authority is of wide amplitude.

Sub-sections (2A), (28), (2C), (2D) and (3) of Section 142 of the Act E
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 'F
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 p
accountant and setting forth such particulars as may be prescribed
and such other particulars as the Assessing Officer may require.

(28) 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. B
296 SUPREME COURT REPORTS (2006] SUPP. 8 S.C.R.

A (2C) No. 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,
B 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.

C (2D) The expenses of, and incidental to, any audit 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
D 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
E 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
F 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 SN.
Mukherjee v. Union of India, [1990] 4 SCC 594 and Reliance Industries Ltd.
v. Designated Authority and Ors, (2006) AIR SCW 4911]
G
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 Ors. v.
Mis. Chokhama/ Contractors and Ors., [1989] 2 SCC 721, a Constitution
Bench opined:
H
RAJESH KUMAR v. D.C.I.T [S.B. SINHA, J.] 297
"It is no doubt true that in the decisions pertaining to Administrative A
Law, this Court in some cases has observed that the giving o~
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 B
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 C
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 D
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 E
arbitrators to give reasons, Parliament has not 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 [vi de 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 F
reasons have been given in support of it."

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

We, however, need not dilate on the said question being not very G
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 H
298 SUPREME COURT REPORTS [2006] SUPP. 8 S.C.R.

A 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.
B 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 proce~ding. The
C 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
D 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 l42(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
E 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 ofa misconduct,
he may become liable to be proceeded against by a statutory authority under
the Chartered Accountants Act, 1949.

F In this case, the fee of the special auditor has been fixed at Rs. l.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
G 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 Orissµ v. Dr. (Miss) Binapani Dei and Ors., AIR
(1967) SC 1269: [1967] 2 SCR 625]. It is an authority for the proposition when
H by reason of an action on the part of a statutory authority, civil or evil
RAJESH KUMAR v. D.C.I. T [S.B. SINHA, J.] 299
consequences ensue, principles of natural justice are required to be followed. A
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.

K.J. Shetty, J. in Swadeshi Cotton Mills Company Limited v .. B
Commissioner ofIncome-Tax and Anr., 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 C
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. D
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 E
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." F
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 0
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 H
300 SUPREME COURT REPORTS [2006] SUPP. 8 S.C.R.

A 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,
B (2002) 257 ITR 622,Joint Commissioner ofIncome Tax v. I.T.C. Ltd andAnr.,
[239 ITR 921] andMuthootu Mini Kuries v. Deputy Commissioner ofIncome-
Tax and Anr., 250 ITR 455.

In Swadeshi Cotton Mills v. Union ofIndia, [1981] 1 SCC 664, Chinnappa
C 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
coRscience 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,
D
therefore, implicit 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 prir.ciples
ofnatural justice in a particular manner, natural justice wil! have to be
observed in that manner and in no other. No wider right than that
E provided by statute can be claimed nor can the right be narrowed.
Where the statute is silent about the observance of the principles of
nattn:al 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
F 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 Ors.,
[1991] Supp 1SCC600, Ray, J. opined:

G " ... It 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
H Regulation or Rule which is not the case here. Rules of natura! justice
RAJESH KUMAR v. D.C.l.T [S.B. SINHA, J.) 301
do not supplant but supplement the Rules and Regulations. Moreover, A
the Rule of Law which permeates our Constitution demands that it has
to be observed both substantially and procedurally ... "

[See also Basudeo Tiwary v. Sido Kanhu University and Ors., [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
B
Swamp'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 C
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 D
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 E
process or where the need for promptitude or the urgency of taking
action so demands, as pointed out in Maneka Gandhi's case."

[See also Haji Abdul Shakoor & Co. v. Union oflndia and Ors., [2002]
9 sec 760]
Exceptions, therefore, are required to be provided for either expressly F
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.
G
A Division Bench of the Delhi High Court considered the question at
some length in Yum Restaurants India Pvt. Ltd. v. Commissioner of Jncome-
Tax, (2005) 278 ITR 40 I Delhi.

The ratio of the judgment, however, is not very clear. Same
inconsistencies appear to have crept therein, which would be noticed a little H.
302 SUPREME COURT REPORTS [2006] SUPP. 8 S.C.R.

A 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
B 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 sec 557, the learned Judges opined that although principles of
natural justice are integral part of the procedure but one must notice that the
C 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.

D 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:

" ... However, the scope of the kind of hearing that an assessee would
be entitled to, was not discussed even in these judgments, primarily
E
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
F 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 l 42(2A) by the Assessing Officer. The
G 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·!imited scope. The purpose would be sufficiently
H achieved if the assessee is questioned or confronted with his acc'.)untS
RAJESH KUMAR v. D.C.I.T [S.B. SINHA, J.] 303
in relation to nature and complexity thereof." A;
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:

" ... Equally true is that the provisions do not indicate complete exclusion ', B
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: c
"(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.
p
(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 E
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 asses.see during the co~rse of assessment F
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 G
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 inc"onsistencies in the judgment) H
304 SUPREME COURT REPORTS [2006] SUPP. 8 S.C.R.

A 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 Ors. (2006) 283 ITR 56, however, disagreed
with the decisions of the Calcutta High court and the Kerala High Court
B stating that the order passed under Section 142(2A) of the Act is purely
administrative in nature. It was opined:

" ... Such 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.
c 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 incomt of the
assessee ... "
D We would consider the reasonings of the learned judges at an appropriate
stage.

In Gurunanak Enterprises v. Commissioner of Income-tax and Anr.,
259 ITR 637, a Division Bench of the Delhi High Court observed:
E "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
F 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 t:J understand the accounts of the assessee since an
order under the provision not only entails heavy monetary burden on
G 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
H to find out whether the same is sufficient for the authority concerned
RAJESH KUMAR v. D.C.l. T [S.B. SINHA, J.] 305
to come to the conclusion that the accounts of the assessee need to A
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."
B
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 C
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 b
General categorically stated before us that the doctrine of procedural safeguards
applied by the Calcutta High Court and the Kerala High Court cannot be
fault~d with having regard to the peculiar fact situation obtaining 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. E
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 b!!ing F
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
proceeqing to make ultimate order of assessment.
G
In SBP & Co. v. Patel Engineering Ltd. and Anr., [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 H
306 SUPREME COURT REPORTS (2006) SUPP. 8 S.C.R.

A 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
B well-settled that a thin demarcated line between an administrative order and
quasi-judicial order now stands obliterated [See A.K. Kraipak and Ors. v.
Union of India and Ors., [1969] 2 SCC 262 and Chandra Bhawan Boarding
and Lodging, Bangalore v. State of Mysore and Anr., AIR (1970) SC 2042
and S.L. Kapoor v. Jagmohan and Ors., AIR (1?81) SC 136.
c 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
D consequences must meet the test of reasonableness"

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
E factors relevant for exercise of that power. "

In India Cement. Ltd. and Ors. v. Union of India and Ors., [1990] 4
sec 356, it was state!J:
"The meaning of the expr~ssion 'having regard to' is well settled. It
F 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:
G
"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 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 ·
H the guidance of the Income Tax Officer. The satisfaction depends·
RAJESH KUMAR v. D.C.I.T [S.B. SINHA, J.] 307
upon the facts of each case. The only guidance is his capacity to put A
himself in the position of a prudent businessman or the director of a
company and his sympathetic and objective approach to the difficuli
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 B
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 minim.ize 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 C
would be required. [See R. v. Kensington and Chelsea Rent Tribunal, exp.
MacFarlane (1974) l 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 D
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 E
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. F
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 l 58BE of
G
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 relev<!llt t:<tctor. The approving H
308 SUPREME COURT REPORTS [2006) SUPP. 8 S.C.R.

A 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
B 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
C subsequent stage, viz., after the approval is given.

In K.l Shephard and Ors. v. Union of India and Ors., [1987] 4 SCC
431 : AIR (1988) SC 686, this Court observed:

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

[See also HL. Trehan and Ors. v. Union of India and Ors., [1989]
SCC 764, L.N. Mishra Institute of Economic Development and Social Change,
Patna v. State of Bihar and Ors., [1988] 2 SCC 764 and V.C. Banaras Hindu
E 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
F like Section l 05 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 Anr., (No. I), 266 ITR 657, see, however,
U.P. State Industrial Development Corporation Limited v. Commissioner of
G Income-Tax and Ors., 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
H with. Only because. certain consequences would ensue if the principles of
RAJESH KUMAR v. D.C.I.T [S.B. SINHA, J.] 309
natural justice are required to be complied with, the same by itself would not A
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 B
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
l42(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 C
issued under Section 142(2A) of the Act is not an appellate order.

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

v.s. Appeal allowed.