2010 (8) TMI 586 - HC - Income Tax

Special audit - Non speaking order - Undisclosed income - Time barred - Though no notice has been issued in this writ petition learned counsel for the Revenue has assisted the court on the issue involved in this petition also with reference to the averments in the reply already filed in other petitions - Though grant of approval by the Commissioner has been mentioned it has not been mentioned as to why it was considered necessary having regard to nature and complexity of accounts and interest of the Revenue that special audit was necessary - The order does not show consideration of legal requirements and reasons on which the opinion may have been formed for directing special audit. Though grant of approval by the Commissioner has been mentioned it has not been mentioned as to why it was considered necessary having regard to nature and complexity of accounts and interest of the Revenue that special audit was necessary - Appeal is allowed by way of remand to AO

Issues involved:
1. Special audit order under section 142(2A) of the Income-tax Act, 1961 for the assessment year 2007-08.
2. Compliance with legal requirements for special audit.
3. Time-barred assessment proceedings for the assessment year 2007-08.

Special Audit Order under Section 142(2A):
The judgment addressed challenges to the special audit order issued by the Assistant Commissioner of Income-tax for the assessment year 2007-08. The petitioner, engaged in printing and publication of newspapers, argued that a speaking order was not passed under section 142(2A) of the Act, and the order lacked justification for special audit due to the complexity of accounts. The court noted that the order did not meet the legal requirements as it failed to consider the reasons and legal criteria for directing special audit. The absence of approval reasons and legal considerations rendered the order non-compliant with section 142(2A) of the Act. The court quashed the impugned order but allowed the Assessing Officer to pass a fresh order if necessary and permissible under the law.

Compliance with Legal Requirements:
The petitioner contended that the Assessing Officer did not objectively satisfy the necessity for special audit based on the nature and complexity of accounts and the interest of the Revenue. The court agreed, emphasizing the importance of giving the assessee an opportunity to be heard before passing the order. The judgment highlighted that the approval by the Chief Commissioner should not be mechanical and must be based on objective criteria. It was noted that the order lacked consideration of legal requirements and reasons for directing special audit, leading to the conclusion that the impugned order did not meet the legal standards under section 142(2A) of the Act.

Time-barred Assessment Proceedings:
Regarding the time-barred assessment proceedings for the assessment year 2007-08, the court clarified the exclusion of the period from filing the writ petition to the expected date of availability of the court's order. The judgment explained the provisions of Explanation 1 to the proviso to section 153 of the Act, extending the limitation to 60 days if the period of limitation is less than 60 days after excluding specific time periods. Consequently, one writ petition was allowed to be withdrawn, while two others were allowed under specific terms, directing the assessee to appear before the Assessing Officer for further proceedings on a specified date.

In conclusion, the judgment resolved issues related to the special audit order, compliance with legal requirements, and time-barred assessment proceedings for the assessment year 2007-08, providing detailed analysis and directives for each issue involved.

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