Facts of the Case

The petitioner, a chartered accountant firm, was appointed as a special auditor by the Assessing Officer under Section 142(2A) of the Income Tax Act, 1961. The firm 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 actual payments were made only between December 2019 and February 2020, resulting in a delay of nearly four years in each case.

The grievance of the petitioner was not regarding non-payment, but inordinate delay in payment, and therefore, a claim for interest on the delayed audit fees.

Issues Involved

  1. Whether a special auditor appointed under Section 142(2A) is entitled to interest on delayed payment of audit fees?
  2. Whether absence of statutory provision bars the grant of interest?
  3. Whether the Court can award interest under equitable jurisdiction for delayed payments?

Petitioner’s Arguments

  • The petitioner contended that the delay of nearly four years was unreasonable and unjustified.
  • It was argued that such delay effectively deprived the petitioner of the use of money, and therefore, compensation in the form of interest must be granted.
  • Reliance was placed on:
    • SC & Associates, Chartered Accountants vs Union of India (Delhi High Court)
    • Sandvik Asia Ltd. vs Commissioner of Income Tax (Supreme Court)

Respondent’s Arguments

  • The Revenue argued that no statutory provision exists under the Income Tax Act granting interest on delayed audit fees.
  • Therefore, in absence of express statutory backing, no interest can be awarded to the petitioner.

Court’s Findings / Analysis

  • The Court acknowledged that:
    • There was no dispute regarding delay, which extended up to four years.
    • Normally, interest is payable only when:
      • Provided by statute, or
      • Based on agreement, trade usage, or enforceable practice.
  • However, the Court emphasized that:
    • Interest can also be granted under equitable jurisdiction to preserve the real value of money.
    • The delay was inordinate and without justification, making it unfair to deny compensation.
  • The Court relied on principles laid down in:
    • Secretary, Irrigation Department, Government of Orissa vs G.C. Roy (1992) 1 SCC 508

Court Order / Final Decision

  • The Court held that the petitioner is entitled to interest on delayed payment of audit fees.
  • Interest was awarded at the rate of:
    7% per annum
  • Interest shall be calculated:
    • From the date of determination of audit fees
    • Till the date of actual payment
  • The respondents were directed to make payment within eight weeks.

Important Clarifications

  • Even in the absence of a statutory provision, courts can award interest:
    • To ensure fairness and equity
    • To compensate for loss of use of money
  • Delay of four years is not considered a reasonable timeframe for payment by government authorities.
  • The judgment reinforces that equitable relief can override statutory silence in appropriate cases.

Sections Involved

  • Section 142(2A), Income Tax Act, 1961
  • Principles relating to interest on delayed payments (equitable jurisdiction)

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

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