2006 (10) TMI 76 - HC - Income Tax

Direction for special audit u/s 142(2A) - Article 226 of the constitution cannot be invoked all that is to be consider is whether the decision making process is vitiated - Direction u/s 142(2A) are unexceptionable and valid

Summary

Issues Involved:
1. Compliance with principles of natural justice.
2. Application of mind by the Assessing Officer before issuing the impugned orders under Section 142(2A) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Compliance with Principles of Natural Justice:
The Petitioner contended that the principles of natural justice were not followed as there was no interaction between the Petitioner and the Assessing Officer before the order under Section 142(2A) was passed. The court acknowledged that while purposeful interaction is generally required (as held in Yum Restaurants India Pvt. Ltd. v. CIT), the application of natural justice principles depends on the facts and circumstances of each case. The court cited several Supreme Court judgments emphasizing the flexibility of natural justice rules, such as R.S. Dass v. Union of India and Union of India v. Anand Kumar Pandey. The court found that the complexity of the Petitioner's accounts, evidenced by the need for special audits in previous years and the nature of the business activities, justified the lack of detailed interaction. Thus, the court concluded that even if there was a violation of natural justice, it would not interfere given the specific facts of the case.

2. Application of Mind by the Assessing Officer:
The Petitioner argued that there was no application of mind by the Assessing Officer before issuing the impugned orders, based on the assumption that the case records were received only in the first fortnight of March 2006. The court found this assumption factually incorrect, noting that the records were received on February 20, 2006. The court reviewed the detailed proposal prepared by the Assistant Commissioner of Income Tax, which highlighted issues such as intermingling of accounts among Sahara group entities, incomplete and unreliable statutory audit reports, and non-compliance with the mercantile system of accounting. The Commissioner of Income Tax's approval for the special audit was based on these detailed observations. The court emphasized that its role under Article 226 of the Constitution is limited to reviewing the decision-making process, not the merits of the decision itself. Given the thorough examination and detailed proposal by the statutory authorities, the court found no reason to interfere with the order for a special audit.

Conclusion:
The court dismissed both writ petitions, stating that the decision to order a special audit under Section 142(2A) was justified given the complexity of the Petitioner's accounts and the detailed examination by the statutory authorities. The time spent in litigation would not be included for the purposes of assessment proceedings or completion of the special audit. The Respondents were awarded costs of Rs.5,000/- for each writ petition.