2017 (4) TMI 1356 - HC - Income Tax

Validity of special audit under Section 142(2A) - no single circumstance / reason which leads to an opinion that account of the petitioner is required to be audited under Section 142(2A) - 40,000 papers in 45 gunny bags, which were found during the search conducted of the premises of Asharam Bapu and others and the Trust - Held that - accounts are required to be audited by the Special Auditor under Section 142(2A) of the IT Act with a view to facilitate the Assessing Officer in passing the Assessment order and to arrive at a right conclusion. When large number of papers are required to be considered / verified vis-a-vis the assessee and other persons whose names figured in the requisitioned papers, and when considering section 142(2A) when the the Assessing Officer has thought it fit to exercise powers under Section 142(2A) it cannot be said that the Assessing Officer has committed any error and/or illegality. Multiplicity and complexity in the transactions support the need to special audit here. Specific reasons are given so mentioned in the showcause notice as to why and for what purpose the special audit is required. Therefore, in the facts and circumstances of the case, it cannot be said that the Assessing Officer has committed any error and/or illegality in passing the impugned order of special audit, in exercise of powers under Section 142(2A) of the IT Act. No reason to interfere with the impugned order passed by the Assessing Officer ordering special audit under Section 142(2A) of the IT Act in exercise of powers under Article 226 of the Constitution of India. - Decided against assessee

Summary

Issues Involved:
1. Insufficient opportunity.
2. Conditions for appointment of Special Auditor under Section 142(2A) not satisfied.
3. Special Auditor appointment aimed at extending the period of limitation for block assessment.

Detailed Analysis:

1. Insufficient Opportunity:
The petitioner argued that the impugned order breached principles of natural justice due to insufficient opportunity provided to respond. The petitioner received the notice on 17.11.2016 and requested 15 days to respond, but was granted only 10 days. The Assessing Officer disposed of objections on 08.12.2016 and made a proposal on 09.12.2016, leading to the impugned order on 21.12.2016. The court noted that the Assessing Officer had given multiple opportunities to the petitioner to respond and found that the principles of natural justice were not violated.

2. Conditions for Appointment of Special Auditor:
The petitioner contended that the conditions under Section 142(2A) of the IT Act were not satisfied. The court examined the amended Section 142(2A) which allows for a special audit considering the nature and complexity of accounts, volume of accounts, doubts about correctness, multiplicity of transactions, or specialized nature of business activity. The court found that the Assessing Officer had a valid reason to order a special audit due to the complexity and multiplicity of transactions, as evidenced by the 40,000 papers found in 45 gunny bags related to the petitioner and other entities. The court held that the Assessing Officer had appropriately exercised his powers under Section 142(2A).

3. Special Auditor Appointment Aimed at Extending Limitation Period:
The petitioner argued that the special audit was directed to extend the period of limitation for finalizing the assessment. The court rejected this argument, stating that the purpose of the special audit under Section 142(2A) is to facilitate the Assessing Officer in arriving at the correct taxable income. The court found that the Assessing Officer had followed due process, including obtaining approval from the Principal Commissioner of Income Tax, who had recorded a detailed satisfaction note.

Conclusion:
The court dismissed the petition, upholding the impugned order of special audit under Section 142(2A) of the IT Act. It concluded that the Assessing Officer had acted within his powers and followed the necessary procedures, and that the petitioner had been given sufficient opportunity to respond. The court emphasized that the special audit was necessary due to the complexity and multiplicity of transactions and was in the interest of revenue.