2017 (4) TMI 1626 - HC - Income Tax

Special audit u/s 142(2A) - Asharam Bapu and Narayan Sai Group - breach of principles of natural justice as sufficient opportunity has not been given to the petitioner-assessee - scope, ambit and powers of the AO while passing order u/s 142(2A) before and after amendment - HELD THAT - As object and purpose of special audit u/s 142(2A) and considering the object and purpose of amending section 142(2A) and looking to the multiplicity and complexity of transactions found from 40000 papers / material requisitioned from 42 gunny bags, it cannot be said that the impugned order is absolutely illegal and/or contrary to section 142(2A) of the IT Act. As required to be noted that the impugned order has been passed on 15.12.2016 and the present petition has been filed on 20.02.2017 - there is a non-cooperation on the part of the petitioner again and even he has not cooperated the Special Auditor also. It is reported that on the basis of the material available, the Special Auditor has as such prepared a report. However, because of the pendency of the petition, no further steps are taken. In any case as observed hereinabove, there is no illegality committed by the Assessing Officer in ordering the special audit under section 142(2A) of the IT Act. AO cannot direct special audit u/s 142(2A) before calling for the accounts from the petitioner in the assessment proceedings and without doubting the accounts and/or considering the complexity in the accounts - As per amended Section 142(2A) of the IT Act, apart from the nature and complexity of the accounts, etc., even in case of multiplicity of transactions or otherwise nature of the business activity of the assessee and in the interests of the Revenue, the AO can pass an order for special audit, in exercise of powers under Section 142(2A) - Therefore, while forming an opinion to get the accounts audited by Special Auditor; considering the specialized nature of business activities of the assessee, and/or while considering the multiplicity of transactions, there need not be any books of account before the AO. In the present case AO has thought it fit to get the account audited by the Special Auditor as requisitioned material are to the extent of 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. When large number of papers are required to be considered / verified visavis the assessee and other persons whose names figured in the requisitioned papers, and when considering section 142(2A) when the vis- -vis Assessing Officer has thought it fit to exercise powers u/s 142(2A) it cannot be said that the AO has committed any error and/or illegality. Specific reasons are given so mentioned in the show cause notice as to why and for what purpose the special audit is required. Therefore it cannot be said that the AO has committed any error and/or illegality in passing the impugned order of special audit, in exercise of powers u/s 142(2A) of the IT Act. At this stage it is required to be noted that with respect to other assessees who are alleged to be connected with Asharam Bapu and Narayan Sai Group, on the very ground order under Section 142(2A) has been passed by the concerned AO and the petitions challenging the order of Special Audit u/s 142(2A) of the IT Act have been dismissed by this Court.

Summary

Issues Involved:
1. Insufficient opportunity.
2. Conditions for appointment of Special Auditor under Section 142(2A) of the IT Act.
3. Allegation that the Special Auditor appointment was intended to extend the period of limitation for block assessment.

Issue-Wise Detailed Analysis:

Insufficient Opportunity:
The petitioner argued that they were not given sufficient time to respond to the show-cause notice for the appointment of a Special Auditor. The show-cause notice dated 11.11.2016 was served on 17.11.2016, and the petitioner requested 15 days to respond but was granted only 10 days. The petitioner contended that this was a breach of the principles of natural justice. However, the court found that reasonable opportunity was provided, as the petitioner did respond within the given timeframe, and the Assessing Officer considered their reply before passing the order.

Conditions for Appointment of Special Auditor under Section 142(2A) of the IT Act:
The petitioner argued that the conditions under Section 142(2A) were not satisfied, claiming there was no complexity or multiplicity in their accounts that warranted a special audit. They also contended that the regular audits already conducted should suffice. The court, however, held that the Assessing Officer had valid reasons for ordering a special audit due to the complexity and multiplicity of transactions, especially given the 40,000 papers found in 45 gunny bags during the search of Asaram Bapu and Narayansai Group. The court noted that the Assessing Officer had followed due process, including obtaining approval from the Principal Commissioner of Income Tax, and had provided a detailed show-cause notice explaining the need for a special audit.

Allegation that the Special Auditor Appointment was Intended to Extend the Period of Limitation for Block Assessment:
The petitioner claimed that the appointment of the Special Auditor was a tactic to extend the period of limitation for completing the block assessment. The court dismissed this argument, stating that the primary objective of the special audit was to facilitate the Assessing Officer in arriving at the correct taxable income. The court emphasized that the special audit was necessary due to the complexity and volume of transactions and was not merely a tool to extend the assessment period.

Conclusion:
The court concluded that the Assessing Officer had acted within the legal framework of Section 142(2A) of the IT Act, and all necessary conditions for the appointment of a Special Auditor were met. The court found no breach of natural justice, as reasonable opportunity was provided to the petitioner. The court also dismissed the claim that the special audit was intended to extend the assessment period, affirming that it was necessary due to the complexity and multiplicity of transactions. Consequently, the petition was dismissed, and the notice for a special audit was upheld.