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2011 (8) TMI 800 - HC - Income TaxSpecial audit u/s 142(2A) - Search and seizure - Time limitation - twin conditions of complexity of accounts and the interests of the revenue - held that - The complexity may vary from person to person and depends on satisfaction of person; a simple matter may be complex for another, but there should be an attempt as held in Rajesh Kumar and others (2006 -TMI - 6548 - SUPREME Court) and Sahara India (Firm) (2008 -TMI - 3592 - Supreme Court) to examine the accounts to find out whether they are complex to the persons on his examination to arrive at conclusion that the special audit under Section 142(2A) is necessary. - The proposal sent by the Assessing Officer to the Income Tax Commissioner, for giving approval for special audit has not been brought on record, nor there is any assertion that the proposal contained the opinion of the assessing authority with regard to the complexity in accounts - Decided in favor of the assessee.
Issues:
Challenge to orders for special audit under Section 142(2A) of the Income Tax Act, 1961 without following requisite conditions. Analysis: The High Court considered two connected writ petitions challenging orders for special audit under Section 142(2A) of the Income Tax Act, 1961. The petitioners contended that the orders were passed without meeting the necessary conditions, such as the complexity of accounts seized and lack of opportunity for a hearing. The court noted that the petitioners did not cooperate in the special audit, leading the Income Tax Officer to proceed with assessment under Section 144. Subsequently, revisions were filed against the assessment orders, which were partly allowed with directions for a fresh inquiry. These orders were stayed in certain writ petitions. The court referenced Supreme Court judgments in Rajesh Kumar vs. Deputy Commissioner of Income Tax and Sahara India (Firm) vs. Commissioner of Income Tax to establish the legal principles governing special audits under Section 142(2A). The Supreme Court rulings emphasized that the power under Section 142(2A) must be exercised with due regard to the complexity of accounts and the interests of revenue. The court highlighted that the expression "complexity" entails intricacy or difficulty in understanding, requiring objective considerations and not arbitrary decisions. The judgments stressed the importance of natural justice principles, including providing the assessee with an opportunity to contest the need for a special audit. Additionally, the court noted the significance of the proviso added to Section 142(2A) by the Finance Act 2007, mandating a reasonable opportunity for the assessee before directing a special audit. In the specific case of one petitioner, the court examined the circumstances of a search conducted under Section 132, leading to the requirement for a block assessment. The petitioner's claim of not maintaining proper accounts was considered in light of the order issued under Section 142(2A), which lacked explicit references to the complexity of seized accounts. The court scrutinized the absence of approval for special audit and the necessity to establish the complexity of accounts before invoking Section 142(2A). The judgment highlighted the need for a thorough examination of accounts to determine their complexity, as subjectivity may vary among individuals. The court distinguished the legal position on special audits under Section 142(2A as clarified by the Supreme Court, rendering other cited judgments irrelevant to the present case. Consequently, the writ petitions were allowed, setting aside the impugned orders for special audit issued by the Commissioner of Income Tax. The court's decision aligned with the established legal principles and requirements for conducting special audits under the Income Tax Act, emphasizing the importance of procedural fairness and objective assessment of account complexity.
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