2005 (5) TMI 46 - HC - Income Tax

Order under section 142 audit - complexity of the accounts - Assessing Officer had discussed the matters with the petitioner before passing the impugned order. Further no prejudice has been suffered by the petitioner because of impugned order - In fact, in the representations as well as the replies submitted by the assessee itself, no ground was raised in regard to the violation of the principles of audi alteram partem - no averments have been made which could ex facie show that the opinion or satisfaction recorded by the Assessing Officer lacks objectivity and is not in consonance with the principles enunciated in section 142(2A) of the Act. In the impugned order, the Assessing Officer, has clearly stated the complexity in the accounts, the points which the special auditor should deal with in his report specifically and that the order was being passed in the interest of the Revenue. Thus petition is dismissed

Issues Involved:
1. Exemption of income under section 10(29) of the Income-tax Act, 1961.
2. Legality and justification of the special audit order under section 142(2A) of the Income-tax Act, 1961.
3. Complexity of accounts and interest of the Revenue.
4. Compliance with principles of natural justice.

Detailed Analysis:

1. Exemption of Income under Section 10(29) of the Income-tax Act, 1961:
The Central Warehousing Corporation claimed that its income was exempted under section 10(29) of the Income-tax Act, 1961, up to the assessment year 2002-03. The Corporation's primary activities included warehousing agricultural produce and other commodities, which were subject to statutory audit and parliamentary scrutiny. The petitioner argued that their income from activities such as CFSs (container freight stations) and ICDs (inland clearance depots) should be exempt from tax, and thus, there was no need for further orders from tax authorities, including an audit under section 142(2A).

2. Legality and Justification of the Special Audit Order under Section 142(2A):
The Joint Commissioner of Income-tax directed a special audit of the Corporation's accounts for the assessment year 1998-99, citing the complexity of the accounts and the interest of the Revenue. The Corporation contested this order, arguing that their accounts were not complex enough to warrant a special audit and that their income was exempt under section 10(29). The respondents countered by stating that the extent of exemption was disputed and required examination, especially given the Corporation's involvement in various commodities, including taxable items like alcohol and cigarettes.

3. Complexity of Accounts and Interest of the Revenue:
The court held that the nature and complexity of the Corporation's accounts justified the special audit. The Assessing Officer is vested with the power to direct a special audit if the accounts are complex and it is in the interest of the Revenue. The court emphasized that the expression "accounts" includes not just books of account but also balance sheets and other records available during assessment proceedings. The court cited previous cases to support the view that the complexity of accounts and the interest of the Revenue are valid grounds for a special audit.

4. Compliance with Principles of Natural Justice:
The petitioner argued that the special audit order violated principles of natural justice. However, the court found no merit in this argument, noting that the Assessing Officer had discussed the matter with the petitioner before passing the order. The court also observed that the petitioner had not raised this issue in their representations and replies. The court concluded that the Assessing Officer had recorded his opinion objectively and the order was in the interest of the Revenue.

Conclusion:
The court dismissed the writ petition, upholding the legality and justification of the special audit order under section 142(2A) of the Income-tax Act, 1961. The court found that the complexity of the Corporation's accounts and the interest of the Revenue warranted the special audit, and there was no violation of natural justice principles. The petitioner's arguments regarding the exemption under section 10(29) and the non-complexity of accounts were not sufficient to overturn the special audit order.

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