2010 (1) TMI 788 - HC - Income Tax

Special audit - Assistant Commissioner of Income Tax (Central Circle), passed under Section 142(2A) of the Income Tax Act directed the petitioner to get its accounts audited for the financial years 2001-02 to 2007-08 - Held that - reasons must be recorded in the order to show that there is application of mind on the part of the officer concerned on the basis of the material available on record and in the absence of reasons in the order for the direction as contemplated under Section 142(2)(a), the order vitiates in law and is not sustainable, order set aside, appeal allowed.

Summary

Issues:
Challenge to order under Section 142(2A) of the Income Tax Act without providing reasons.

Analysis:
The petitioner challenged the order passed by the Assistant Commissioner of Income Tax (Central Circle), Meerut under Section 142(2A) of the Income Tax Act, directing the petitioner to get its accounts audited for specific financial years. The petitioner argued that no reasons were provided in the order, emphasizing the necessity for the officer to consider the reply and assign reasons, citing a Supreme Court decision. The Standing Counsel representing the respondent did not support the order, indicating a lack of justification for the directive.

Upon reviewing the impugned order, the High Court noted that it directed the audit of the petitioner's accounts without providing any reasons for the decision. The Court referenced a Supreme Court case to highlight the prerequisites for exercising power under Section 142(2A), emphasizing the importance of considering the nature and complexity of accounts and the interest of revenue. The Court further elaborated on the term "complexity" in the context of the provision, emphasizing the need for objective criteria and genuine understanding of the accounts to deem them complex.

The High Court reiterated the Supreme Court's stance that the assessing officer must genuinely attempt to understand the accounts, seek explanations if needed, and base their opinion on objective criteria rather than subjective satisfaction. The Court emphasized the significance of the Chief Commissioner or Commissioner granting approval based on material and application of mind. The Court stressed that the order for audit under Section 142(2A) must reflect reasoning, application of mind, and objective satisfaction based on material to withstand scrutiny under constitutional provisions.

Highlighting the necessity of a speaking order supported by reasons, the Court cited previous cases to underscore the importance of disclosing reasons for decisions. The Court emphasized that absence of reasons vitiates conclusions and that the order must demonstrate application of mind based on available material. Consequently, the High Court allowed the writ petition, setting aside the impugned order, but granted the Assistant Commissioner the opportunity to issue a fresh order in compliance with the law.