2017 (5) TMI 981 - HC - Income Tax

Validity of order passed u/s 142(2A) for special audit - reasonable opportunity should have been given to the petitioner - Held that - Notice Annexure-AC issued to the petitioner on 20th March 2015 asking to appear on 23rd March 2015. In that case, the petitioner is left with only two days for preparing itself for answer. Since, 20th March 2015 is the date on which the communication addressed and the petitioner to report before the respondent on 23rd March, 2015, the petitioner was left with only two days, i.e. 21st and 22nd March, 2015 to get itself prepared. That cannot be said to be a reasonable opportunity that is provided to the petitioner, as it is stated by the petitioner that the matter is of complex nature and it would be reasonable on behalf of the respondent to grant some more time. As in the case of SAHARA INDIA (2008 (4) TMI 4 - Supreme Court ) observed that an order under Section 142(2A) entail civil consequences, even after the obligation to pay auditor s fees and incidental expenses has been taken over by the Central Government, and therefore the rule of audi alteram partem, is required to be observed and assessee has to be provided a reasonable opportunity of being heard. In the light of the above judgment, it is very clear that unless the aggrieved party is provided fullest opportunity in compliance of principle audi alteram partem, it would not make the fullest opportunity as provided under Section 142(2A) of the Act. Though proviso is silent about reasonable opportunity, it refers opportunity to both the petitioner as well as the respondent, depending upon the complexity of the cases to provide reasonable opportunity. Reasonable opportunity is to be exercised by the respondent depending upon the case and also on the basis of the request made by the party considering the above aspect. In the case on hand, thus feel what has been given to the petitioner is contrary to the principles of audi alteram partem and has not followed the principles of natural justice. - Decided in favour of assessee.

Summary

Issues:
Challenging validity of order under Section 142(2A) of the Income Tax Act, 1961 due to lack of reasonable opportunity provided to the petitioner.

Analysis:
The petitioner challenged the validity of the order passed under Section 142(2A) of the Income Tax Act, 1961, arguing that the respondents did not provide a reasonable opportunity as required under the proviso to Section 142(2A). The petitioner was issued a notice on 20th March 2015 to appear on 23rd March 2015, allowing only two days for preparation. The petitioner contended that the issue was complex, making it practically impossible to respond effectively within such a short notice period. The petitioner emphasized that the purpose of the notice was to grant a reasonable opportunity, not just an opportunity, as mandated by the law.

The petitioner relied on the judgment of the Hon'ble Supreme Court in the case of SAHARA INDIA (FIRM) v. COMMISSIONER OF INCOME TAX AND ANOTHER, highlighting paragraphs 23 and 24 of the judgment. On the other hand, the respondent-revenue argued that the petitioner was given additional time upon request but further extensions were denied. The respondent defended the impugned order, stating that the actions were not erroneous.

Upon hearing the arguments, the court examined the proviso to Section 142(2A) of the Act, emphasizing the requirement of providing a "reasonable opportunity" to the assessee before directing an audit. The court noted that the term "reasonable opportunity" signifies more than just an opportunity and should consider the complexity of each case. In this instance, the notice issued to the petitioner allowed only two days for preparation, which the court deemed inadequate given the complexity of the matter. Referring to the SAHARA INDIA case, the court stressed the importance of observing the principle of audi alteram partem and providing a full opportunity for the party to be heard.

The court concluded that the petitioner was not granted a reasonable opportunity as required by law, violating the principles of natural justice and audi alteram partem. Consequently, the court set aside the relevant orders and directed the respondent to restore the notice, instructing the petitioner to appear without further notice on a specified date. The court clarified that if limitations arose, the petitioner should file an application, and the respondent should take appropriate action. The petition was disposed of accordingly.