The Delhi High Court rules that the Income Tax Act is the Special Act and the MSMED Act a general act while dealing with MSME disputes relating to fees payable to CA firms for special audits

IN THE HIGH COURT OF DELHI AT NEW DELHI

Reserved on: 9th May, 2023

Date of decision: 6th July, 2023

PR. COMMISSIONER OF INCOME TAX                                                                                                                                                                            …..Petitioner

Through: Mr. Ruchir Bhatia, Sr. Standing

Counsel, Mr. Shlok Chandra, Jr.

Standing Counsel with Mr. Keshav

Garg, Advocate,

versus

MICRO AND SMALL ENTERPRISE FACILITATION COUNCIL AND ANR.                                                                                                                           ….. Respondents

Through: Mr. Jitendra Kumar Singh, Advocate

for R-2.

Mr. S.B. Gupta in person.WITH

PR. COMMISSIONER OF INCOME TAX CENTRAL-1                                                                                                                                                               .. Petitioner

Through: Mr. Ruchir Bhatia, Sr. Standing

Counsel, Mr. Shlok Chandra, Jr.

Standing Counsel with Mr. Keshav Garg, Advocate,

versus

MICRO AND SMALL ENTERPRISE FACILITATION COUNCIL& ANR.                                                                                                                                ….. Respondents

Through: Mr Avishkar Singhvi Advocate with

Mr Naved and Mr Vivek Kumar

Advocates for R-1

Mr. Jitendra Kumar Singh, Adv. for R-2. Mr. S.B. Gupta in person.

CORAM:

JUSTICE PRATHIBA M. SINGH

JUDGMENT

Prathiba M. Singh, J.

Background

1. Both the present petitions raise interesting legal issues relating to the interplay between the Income Tax Act, 1961 (hereinafter ‘IT Act’) and the Micro, Small and Medium Enterprises Development Act, 2006 (hereinafter ‘MSMED Act’) relating to fee payable to CA Firms, for Special Audits directed under Section 142(2A) of the IT Act.

2. The Petitioner i.e., the Principal Commissioner of Income Tax, Central-1, has filed the present writ petitions challenging the directions for reference to arbitration passed by the Respondent No. 1 i.e., the Micro & Small Enterprise Facilitation Council (hereinafter ‘MSEFC’) - an authority established under Section 20 of the MSMED Act. Respondent No. 2 i.e., M/s SBG & Co. is a partnership firm of Chartered Accountants (hereinafter ‘CA Firm’) of which Mr. S.B. Gupta is a Partner. The said CA Firm is also registered as a `Micro Enterprise’ under the provisions of the MSMED Act.

3. The CA Firm, being on the panel of the Income Tax Department (hereinafter ‘IT Department’), was nominated as a Special Auditor by the IT Department in four cases for carrying out Special Audit in terms of Section 142(2A) of the IT Act.

4. After the completion of the said Special Audit assignments and the submission of the final audit reports, the CA Firm raised four invoices in respect of the said audits. The grievance of the Special Auditor- CA Firm is that qua the invoices raised, the full payment has not been made. Further, in respect of one of the assignments the payment has not been received at all.

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