2005 (2) TMI 55 - HC - Income Tax

Special audit - Petitioners have invoked the jurisdiction of this court under articles 226 and 227 of the Constitution of India praying for issuance of appropriate writ order; particularly the writ of certiorari quashing the direction/order passed by the Deputy Commissioner of Income-tax directing special audit under section 142(2A) for the block period - In the case at hand the books of account as well as other records seized during the search and seizure on December 18 2002 have rightly been considered by the Assessing Officer before issuing the impugned direction - The mere fact that the petitioners have submitted audited accounts and therefore there is no occasion for directing special audit is of no help to the petitioners - We see no merit in this writ petition and the same is dismissed accordingly

Issues:
Challenge to the validity of direction for special audit under section 142(2A) of the Income-tax Act, 1961.

Detailed Analysis:

1. Jurisdiction of Court and Validity of Direction:
The petitioners challenged the direction for special audit under section 142(2A) of the Income-tax Act, 1961, issued by the Deputy Commissioner of Income-tax. They contended that the direction lacked application of mind and reasons, making it beyond the scope of the relevant provision and without jurisdiction. The High Court clarified that while exercising jurisdiction under Article 226 of the Constitution, it does not act as a court of appeal, and a clear illegality or lack of jurisdiction is necessary for intervention. After examining the facts, the Court found that the direction did not suffer from patent illegality or lack of jurisdiction.

2. Provisions of Section 142(2A) and Assessing Officer's Discretion:
The Court highlighted that the Assessing Officer has the authority to direct special audit under section 142(2A) if certain conditions are met. The officer must consider the nature and complexity of the accounts of the assessee and the interests of the Revenue. The discretion given to the Assessing Officer is broad but must be exercised in line with the provisions of the section and based on objective considerations. The Court referred to previous judgments emphasizing the need for genuine effort by the officer to understand the accounts before resorting to special audit.

3. Application of Mind by Assessing Officer:
In this case, search and seizure were conducted, leading to the issuance of a notice for undisclosed income for a specific block period. The Assessing Officer found the return unsatisfactory after examining the seized documents and books of account. Subsequently, a detailed questionnaire was issued to the petitioners, and upon unsatisfactory responses, the special audit direction was given. The Court noted that the officer had applied his mind adequately before issuing the direction, considering the seized records and questionnaire responses.

4. Interpretation of "Accounts of the Assessee":
The petitioners argued that the term "accounts of the assessee" should only refer to the books of account and not other records available to the Assessing Officer. However, the Court disagreed, stating that the complexity of accounts can be assessed not just from the books of account but also from other relevant documents. The submission of audited accounts does not automatically prevent the Assessing Officer from ordering a special audit, as long as the decision is made after proper consideration of all relevant materials.

Conclusion:
The High Court dismissed the writ petition, finding no merit in the challenges raised by the petitioners regarding the validity of the special audit direction. The Court emphasized the importance of the Assessing Officer's objective consideration and application of mind in determining the necessity for a special audit under section 142(2A) of the Income-tax Act, 1961.

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