Yashoda Nandan, J. - (1.) The petitioner, Swadeshi Polytex Ltd., is a public limited company incorporated under the Indian Companies Act and having its registered office at Ghaziabad in the State of Uttar Pradesh. It is engaged in the business of manufacturing, processing, distributing and dealing in polyester fibre, organic and inorganic heavy chemicals, etc. It follows the mercantile system of accounting and the financial year of the company ends on the last day of September every year. In respect of the financial year ending 30th September, 1973, relating to the assessment year 1974-75, it submitted its return on the 22nd February, 1975, showing a loss of Rs. 5,47,44,770. Subsequently, it submitted a revised return on the 31st December, 1976, showing a loss of Rs. 6,09,42,720. Another revised return was filed by the petitioner on the 26th November, 1977, showing a loss of Rs. 6,37,49,940. In regard to the aforesaid returns and revised returns pursuant to notices issued under Section 142(1) of the I.T. Act (hereinafter referred to as "the Act") requiring it to produce accounts, documents and information, etc., it claims to have furnished all such records, accounts and documents as were required from time to time by the respondent-ITO, Special Ward, Ghaziabad. By means of a communication dated 17th December, 1977, addressed to the principal officer of the petitioner-company, the respondent intimated to him that "having regard to the nature and complexity of the accounts of M/s. Swadeshi Polytex Ltd., Ghaziabad, and in the interest of revenue I am of the opinion that it is necessary to do so, I direct you under Section 142(2A) of the I.T. Act, 1961, with the previous approval of the Commissioner of Income-tax, Meerut, to get the accounts audited by Sri K. Annadhanam of M/s. Khanna and Annadhanam, Chartered Accountants, New Delhi, who has been approved by the Commissioner of Income-tax, Meerut, to conduct the audit of your company, vide Ms order dated December 15, 1977,...a copy of which has already been sent to you..." By means of this very letter, the respondent-ITO further directed the petitioner to furnish "a report of said audit within 60 days in the prescribed Form No. 6B as given in Rule 14A of the I.T. Rules, 1962, duly signed and verified by the said accountant..." A copy of this order was endorsed and forwarded to the chartered accountants mentioned therein. By means of a letter dated 19th December, 1977, Sri K. Annadhanam, the chartered accountant nominated by the Commissioner, required the petitioner to supply to him copies of profit and loss accounts and balance-sheets for the three years ending 30th September, 1973, 30th September, 1974, and 30th September, 1975, relevant to the assessment years 1974-75, 1975-76 and 1976-77, names of various officers of the company with powers vested in them, etc. It is asserted, and has not been disputed, that the petitioner did supply the relevant information to the chartered accountant nominated by the Commissioner. Subsequently, the chartered accountant asked the petitioner to supply him certain other papers including a copy of the company petition which had been filed by M/s. Swadeshi Cotton Mills Co. Ltd. against the petitioner-company in this court, being Company Petition No. 21 of 1976. It appears that a copy of the company petition mentioned above was supplied by the petitioner-company to the chartered accountant. By means of a letter dated 19th January, 1978, a true copy of which has been filed as annexure V to the petition, addressed to the Commissioner, Meerut, the chartered accountant intimated to him that when he had a talk with the Deputy Secretary of Inspection (Inv.), Special Cell, he was under the impression that it was going to be purely an audit of the accounts of the company as envisaged by Section 142(2A) of the Act and under that impression had written to the company on 19th December, 1977, for lists of books and other particulars. The chartered accountant went on to state : "During the course of discussion, it came out that Swadeshi Cotton Mills Ltd. have filed suits against Swadeshi Polytex Ltd., its managing directors and others, in the Allahabad High Court. The company's official gave a copy of the petition that was filed against the company and also the replies. On going through the matter, I found that several allegations of serious nature have been made against the managing director and have completely doubted the veracity of the accounts. The allegations are too many as contained in paragraphs 20 and 21 of the petition filed against the company in the Allahabad High Court. If an audit is to be conducted, necessarily these matters are to be kept in view and cannot be brushed aside. If I start dealing with these matters, it will be, apart from the fact that it is an investigation, interfering with the matter which is now sub judice being before the High Court for their decision. It is certainly not proper for me to conduct the audit or an investigation into the company's affairs when these very matters are the subject-matter of the litigation before the High Court. In view of the position, you will appreciate that it is not proper to undertake the audit under Section 142(2A) of the Act and I, therefore, submit that I will not be in a position to conduct the audit of the accounts of Swadeshi Polytex Ltd. You will appreciate that when a matter is before the High Court, no person other than the High Court can give a decision on the point and it would not be proper for any outsider to give a verdict or a decision or investigate into a matter which is before the High Court. Please note that my disinclination to conduct the audit is because of the special circumstances over which I have no control and I do not think it would be proper for me to do an act which is not permitted."
(2.) Copies of this letter, extracts from which have been quoted above, were forwarded by the chartered accountant to the Deputy Director of Inspection (Inv.), Special Cell, New Delhi, the respondent-ITO as well as to the petitioner.
(3.) After receipt of the above letter from the chartered accountant, no other chartered accountant was nominated to carry out the audit of the petitioner-company. A letter dated 14th February, 1978, was addressed by the assistant secretary of the petitioner-company to the respondent inviting his attention to the above-mentioned letter of the chartered accountant addressed to the Commissioner, Meerut, and intimating to him that, "in the view of the said letter, the question of compliance of your notice dated December 17, 1977, and January 6, 1978, for the assessment years 1974-75 to 1976-77 do not arise". It may be mentioned here that the letter dated January 6, 1978, was one addressed by the respondent to the principal officer of the petitioner-company similar to that dated December 17, 1977, relating to the assessment year 1976-77. In response to the letter of the 14th February, 1978, of the petitioner, the respondent issued a letter dated 18th February, 1978, a true copy of which has been filed as annex. VIII to the petition. The relevant part of this letter is in the following terms : "The time limit of 60 days will be expiring on or around 20-2-78. Your above letter dt. 14-2-78 was filed before me on 16-2-78. In case you had any difficulty whatsoever, you should have come up to me much earlier which, however, you have not done...";