Plea dismissed! Court directs Patanjali to cooperate with Income Tax department

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Published: December 19, 2018 12:50:26 AM

The Delhi High Court has dismissed Patanjali Ayurveda’s plea with a warning that it should cooperate with the income tax authorities in the special audit initiated by them for assessment year 2010-2011.

Plea dismissed! Court directs Patanjali to cooperate with Income Tax department

The Delhi High Court has dismissed Patanjali Ayurveda’s plea with a warning that it should cooperate with the income tax authorities in the special audit initiated by them for assessment year 2010-2011.

A bench comprising justice S Ravindra Bhat and justice Prateek Jalan while ruling in favour of the department vacated the interim relief that had restrained the former from proceedings against Patanjali for the last five years.

“The assessee (Patanjali) is directed to co-operate with the special auditor. The period during which the interim order operated shall be excluded for the purpose of calculation of the period for completion of such special audit. The writ petition is dismissed…,” it said.

The ayurveda firm had moved the HC in 2013 after the company’s tax returns filed in July 2011 were picked up for scrutiny. The revenue authorities had issued a showcause notice asking it to respond why special audit should not be carried out for AY 2010-11.

The assessee had resisted the show-cause notice, contending that there were no complexities in its accounts, and that the proposal outlining the nine points on which special audit was proposed, had been adequately explained during course of the assessment proceedings.

Patanjali further contended that the the AO was trying to take “scrutiny through special auditor as an easy route to escape his primary duty to examine the books and the returns and complete the assessments in time”.

However, the tax department opposed the petition arguing that the AO was justified in directing special audit in view of the complexity in the accounts of Patanjali. The company had “failed to justify the maintenance of such a large number of accounts” and “in the return of income the assessee had mentioned the system of accounting followed as cash whereas the Tax Audit Report mentioned it to be mercantile.”

The cash flow statement was not commensurate with accounting standard and even the books of account were incomplete and not correctly maintained in normal course of business activities, the I-T department said.

Accepting the department’s stand, the judges said: “Undoubtedly, the AO has a duty to apply his (or her) mind and not fall back upon the provision of special audit in all routine cases.

“However, when the AO does feel that information is not forthcoming in a timely manner (as appears to have occurred occurred in this case) her choices are limited — to let go of the stage of inquiry, and complete the assessment, or, disallow what is considered appropriate.

“The AO quite correctly felt that the latter course would not be appropriate; he, therefore, ordered special audit, which was quite reasonable…”

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