2010 (1) TMI 850 - HC - Income Tax

Order - order 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 - order must be a speaking order Absence of reasons vitiates the conclusions - 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.

Summary

Issues:
Challenge to order passed under section 142(2A) of the Income-tax Act based on lack of reasons provided.

Analysis:
The petitioner challenged an order directing the auditing of accounts for multiple financial years by a specific firm, arguing that no reasons were given in the order. The petitioner contended that it is essential for the officer to consider the reply and provide reasons, citing the decision of the Apex Court in a relevant case. The Standing Counsel could not support the order, leading the Court to examine the impugned order which lacked any stated reasons for the audit directive. The Court referred to the provisions of section 142(2A) of the Income-tax Act, emphasizing that the Assessing Officer must consider the nature and complexity of accounts, as well as the interest of revenue, before ordering an audit. The Court highlighted that the term "complexity" is not clearly defined, cautioning that the officer must genuinely attempt to understand the accounts and base decisions on objective criteria rather than subjective satisfaction.

The Court further elaborated that the Assessing Officer should not use the audit provision to shift responsibilities or engage in arbitrary actions, emphasizing the importance of prior approval by high-ranking authorities based on relevant material. The Court stressed that the approval process should demonstrate a thoughtful consideration of the facts. Notably, the Court emphasized that the order must be a "speaking order" supported by reasons to ensure it aligns with the law and is not arbitrary. The absence of reasons was deemed detrimental to the validity of the order, citing previous legal precedents where orders lacking reasons were struck down. The Court concluded that without recorded reasons, the order under section 142(2)(a) is legally flawed and unsustainable. Consequently, the Court allowed the writ petition, setting aside the impugned order, while allowing the possibility of a fresh order in compliance with the law.

In summary, the judgment focused on the necessity of providing reasons in orders related to auditing under section 142(2A) of the Income-tax Act. It underscored the importance of objective criteria, genuine assessment of complexity, and the requirement for reasoned decisions to ensure legal validity and prevent arbitrary actions by Assessing Officers.