2013 (7) TMI 174 - HC - Income Tax

Special Audit u/s 142(2A) - Personal appearance - whether requirement of hearing envisaged under Section 142 (2A)includes personal hearing - Held that - it is required for the Assessing Officer to give a reasonable opportunity of being heard to the assessee before passing an order to get the accounts audited under section 142 (2A) - opportunity of hearing does not always include personal hearing - The same must depend on the statutory provisions from which such right flows; the nature of the proceedings and the consequences likely to follow from such proceedings - when complex and technical questions of law and facts are involved, such hearing would be necessary - the Assessing Officer had issued notices to the assessee under section 142 (1) - When there was no compliance, notice for appointment of special auditor came to be issued. Petitioner s objections were considered, approval from the Commissioner was sought. On the strength of such approval so granted by the Commissioner, the Assessing Officer on the basis of his opinion that the accounts of the assessee were complex and in the interest of the Revenue, it was so required, directed that the accounts be audited by the special auditor - proviso to Section 142(2A) does not envisage any personal hearing before an order under sub-section (2A) can be passed - Following decisions of F.N Roy v. Collector of Customs, Calcutta & Ors. 1957 (5) TMI 1 - SUPREME COURT OF INDIA , Union of India v. Jyoti Prakash Mitter 1971 (1) TMI 108 - SUPREME COURT and Smt. Ambeydevi v. State of Bihar & Anr. - Decided in favour of Revenue. Special audit - 142(2A) - Complexity of accounts and complexity of the question whether accounts are complex or not - Held that - petitioner had been given previous notices under section 142 (1) of the Act with respect to its accounts but for a long time, the petitioner did not comply with such notices - Assessing Officer, therefore, issued notice why considering the complexities in the accounts, the same may not be audited by the special auditor - authorities have highlighted several aspects of the matter to indicate that the accounts were complex and that interest of revenue would be served if the special audit report is obtained - notice was issued in December 2012 where admittedly, the proceedings were getting time barred on 31st March 2012. There was thus sufficient time to complete the assessment even without the extended time limit - according to the own showing of the petitioner, when it was asked to give explanation/reply to the various points raised in the notice dated January 29, 1999, it had taken a stand that it would take several months in compiling the information - Commissioner of income-tax had applied his mind and had also come to the conclusion that it is essential to know the actual state of affairs of the Corporation as the books of account are complex and enormous anomalies and discrepancies have also been pointed out by the statutory auditors in their audit report - it cannot be said that the preconditions for appointment of the special auditor, as envisaged under section 142 (2A) of the Act, have not been fulfilled - Following decision of U.P Financial Corporation v. Joint Commissioner of Income Tax & Ors. 2004 (10) TMI 22 - ALLAHABAD High Court , Jhunjhuwala Vanaspati Ltd. Versus Assistant Commissioner of Income-Tax And Another 2004 (2) TMI 56 - ALLAHABAD High Court and Uttaranchal Welfare Society Versus Commissioner Of Income-Tax And Others 2004 (4) TMI 60 - ALLAHABAD High Court - Decided in favour of revenue.

Issues:
1. Whether the requirement of personal hearing is included under Section 142(2A) of the Income Tax Act.
2. Validity of the order directing special audit under Section 142(2A) based on the complexity of accounts and interest of revenue.
3. Adequacy of the reasons provided by the Assessing Officer for directing a special audit.
4. Compliance with principles of natural justice in the context of special audit orders.

Analysis:

1. Requirement of Personal Hearing under Section 142(2A):
The court examined whether the requirement of personal hearing is implicit under Section 142(2A) of the Income Tax Act. The proviso to Section 142(2A) requires that the assessee be given a reasonable opportunity of being heard before directing a special audit. The court noted that while the Supreme Court in Rajesh Kumar & Ors. v. DCIT (287 ITR 91) and Sahara India [Firm] v. CIT (300 ITR 403) acknowledged the need for a hearing, they did not mandate a personal hearing. The court concluded that a reasonable opportunity of being heard does not necessarily include a personal hearing. It may depend on the complexity and technicality of the issues involved, but it is not a statutory requirement under Section 142(2A).

2. Validity of the Special Audit Order:
The court evaluated the validity of the special audit order based on the complexity of the accounts and the interest of revenue. The Assessing Officer had issued multiple notices under Section 142(1) which the petitioner did not comply with. The Assessing Officer believed that the accounts were complex and in the interest of revenue, a special audit was necessary. The court found that the reasons provided by the Assessing Officer were adequate and justified the need for a special audit. The approval from the Commissioner was also obtained after considering the objections raised by the petitioner.

3. Adequacy of Reasons for Special Audit:
The court scrutinized the reasons provided by the Assessing Officer for directing a special audit. The Assessing Officer highlighted several discrepancies and complexities in the petitioner's accounts, such as differences in digital data and audited accounts, unexplained credits, and transactions requiring further investigation. The court found that these reasons were sufficient to form an opinion that the accounts were complex and that a special audit was necessary in the interest of revenue.

4. Compliance with Principles of Natural Justice:
The court addressed the compliance with principles of natural justice in the context of special audit orders. The petitioner argued that the lack of personal hearing violated principles of natural justice. The court, however, held that the requirement of reasonable opportunity of being heard does not necessarily include a personal hearing. The court found that the petitioner was given multiple opportunities to respond to the notices and that the Assessing Officer and the Commissioner had considered the petitioner's objections before passing the final order. Therefore, the principles of natural justice were not violated.

Conclusion:
The petition was dismissed. The court held that a reasonable opportunity of being heard under Section 142(2A) does not necessarily include a personal hearing. The special audit order was valid as the Assessing Officer had sufficient reasons to believe that the accounts were complex and that a special audit was necessary in the interest of revenue. The principles of natural justice were complied with as the petitioner was given multiple opportunities to respond to the notices.

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