2015 (4) TMI 1329 - HC - Income Tax

Special audit u/s 142 (2A) - Eligible reason for coming to the conclusion that it was necessary in the interest of revenue to direct special audit - HELD THAT - If cause is shown then there must be some reasons in the order directing special audit which may disclose application of mind to the explanation furnished. Reasons must be disclosed as to why it is appropriate in the facts of the case to direct special audit in exercise of power under Section 142 (2A) of the Income Tax Act. The conclusion drawn by us hereinabove is supported by a Division Bench judgment of the High Court in the case of A.T.S. Infrastructures Ltd. 2013 (6) TMI 276 - ALLAHABAD HIGH COURT . Reasons are hard beats of the order and in absence of reasons the order become life less. We have examined the order impugned and we found that it is not supported by cogent reasons that have been non consideration of the explanation submitted by the assessee. For the said reasons only the order impugned passed by the Assistant Commissioner along with approval order of the Commissioner dated 29th December, 2008 cannot be legally sustained and are hereby quashed.

Summary

Issues:
Challenge to order directing special audit under Section 142(2A) of the Income Tax Act for lack of reasons.

Analysis:

The High Court heard a writ petition filed by the Ghaziabad Development Authority challenging the order dated 30.12.2008, directing a special audit of the assessee's accounts under Section 142(2A) of the Income Tax Act. The petitioner contended that the order lacked reasons for the necessity of the special audit, citing the Supreme Court's ruling in Sahara India (Firm) v. CIT (2008) 300 ITR 403 (SC) that such orders must be preceded by a show cause notice. The Court emphasized the importance of reasons in the order directing a special audit, stating that they must demonstrate the application of mind to the explanation provided by the assessee.

The Court referred to a Division Bench judgment in A.T.S. Infrastructures Ltd. v. Assistant Commissioner of Income-Tax (2013) 350 ITR 563, highlighting that reasons are essential components of such orders, and without them, the order loses its validity. Upon examining the impugned order, the Court found it lacking in cogent reasons and consideration of the assessee's explanation, leading to the conclusion that the order could not be legally sustained. Consequently, the order directing the special audit, along with the approval order of the Commissioner, was quashed.

In line with the judgment in A.T.S. Infrastructures Ltd., the Court granted liberty to the Assessing Authority to pass a fresh order in compliance with the law and the referenced judgments. The Court also addressed the period of limitation, ensuring that it would be extended accordingly. Finally, the writ petition was disposed of, and certified copies of the order were directed to be issued to the respective counsels.