2009 (3) TMI 74 - HC - Income Tax

AO ordered special audit u/s 142(2A) All the four Assessees allowed the said audit to be completed on the basis of audit report AO made addition u/s 143 - the present petition has been filed which is clearly an after thought On scrutiny of the records it was found that AO has granted opportunity of being heard to two assessee company only held that audit u/s 142(2A) is valid in case of two company only and not valid in case of other two companies where no opportunity of being heard granted.

Summary

Issues:
- Jurisdiction of respondent authority under Section 142(2A) of the Income Tax Act, 1961
- Inclusion of companies in special audit proceedings without prima facie observations
- Allegation of malafide exercise by respondent authority
- Timeliness of filing petitions challenging audit proceedings

Jurisdiction under Section 142(2A):
The judgment addresses the issue of the respondent authority's jurisdiction under Section 142(2A) of the Income Tax Act, 1961. It highlights that the showcause notice dated 24/12/2007 and subsequent assessment orders were challenged by the petitioners on the grounds of lack of jurisdiction. The court observed that the assessing officer failed to establish the complexity of accounts for two of the companies, leading to a conclusion that the actions of the respondent authority were without jurisdiction.

Inclusion of Companies in Audit Proceedings:
The judgment distinguishes between two classes of petitioners based on the inclusion of companies in the special audit proceedings without prima facie observations against them. It notes that the assessing officer did not form an opinion regarding the complexity of accounts for two companies, questioning the validity of their inclusion in the audit process. This issue was crucial in determining the legality of the audit proceedings for the respective companies.

Allegation of Malafide Exercise:
The petitioners alleged a malafide exercise by the respondent authority to gain time for completing assessments due to impending limitations. The judgment acknowledges the contentions raised by the petitioners regarding the malafide intent behind invoking powers under Section 142(2A) of the Act. However, the court's decision was not based on these allegations but rather on the lack of jurisdiction and procedural irregularities.

Timeliness of Petitions:
Regarding the timeliness of filing petitions challenging the audit proceedings, the judgment highlights that some petitioners approached the court after the audit process had concluded, leading to a dismissal of their petitions on procedural grounds. The court emphasized the importance of timely legal action and declined to entertain petitions solely based on delays in approaching the court post-audit process completion.

Conclusion:
The judgment quashed the showcause notice and consequential order under Section 142(2A) for two companies due to lack of jurisdiction, rendering the audit reports and assessment orders invalid. These petitions were allowed. However, for the other two companies, the petitions were rejected based on the timing of filing post-audit completion. The court differentiated between the companies based on jurisdictional issues and procedural considerations, ultimately providing a detailed analysis and resolution for each issue raised in the legal proceedings.