Facts of the Case

The petitioner, G.K. Choksi and Co., was appointed as an auditor by the Assessing Officer under Section 142(2A) of the Income Tax Act, 1961. The petitioner conducted audits for three entities:

  • Futurz Next Services Limited
  • Jaypee Financial Services Limited
  • Sahara India (Firm)

Although the audit fees were determined between 2015 and 2016, the payments were made only between December 2019 and February 2020, resulting in a delay of approximately four years in each case.

The grievance of the petitioner was limited to claiming interest on delayed payment of audit fees.

Issues Involved

  1. Whether an auditor appointed under Section 142(2A) is entitled to interest on delayed payment of audit fees?
  2. Whether interest can be granted in the absence of an express statutory provision?
  3. Whether equitable jurisdiction of the Court can be invoked to compensate for delay in payment?

Petitioner’s Arguments

  • The petitioner contended that the delay in payment was excessive and unjustified.
  • It was argued that such delay entitled the petitioner to compensation in the form of interest.
  • Reliance was placed on:
    • SC & Associates, Chartered Accountants vs Union of India
    • Sandvik Asia Ltd. vs Commissioner of Income Tax-I, Pune & Others
  • The petitioner emphasized that denial of interest would result in financial prejudice due to deprivation of the use of money.

Respondent’s Arguments

  • The Revenue contended that no statutory provision exists under the Income Tax Act granting interest on delayed payment of audit fees.
  • It was argued that in absence of a statutory mandate, the petitioner had no enforceable right to claim interest.

Court’s Findings / Order

  • The Court acknowledged that:
    • There was undisputed and substantial delay of nearly four years in payment.
  • The Court held:
    • Interest is generally payable when:
      • Provided by statute, OR
      • Based on agreement, trade usage, or custom, OR
      • Granted under equitable jurisdiction
  • The Court invoked equitable jurisdiction and observed that:
    • Delay of four years is unreasonable
    • The petitioner was deprived of the use of money without justification
  • Final Order:
    • Interest awarded at 7% per annum
    • Interest payable from date of determination of audit fee till actual payment
    • Payment to be made within 8 weeks

Important Clarification

  • Even in absence of a statutory provision, Courts can award interest on equitable grounds to preserve the real value of money.
  • The judgment reinforces that unreasonable delay by authorities can attract compensatory relief.

Link to download the order -https://delhihighcourt.nic.in/app/showFileJudgment/RAS18012023CW117542019_145621.pdf

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