2017 (5) TMI 1402 - HC - Income Tax

Validity of special audit - whether special audit has been directed only to secure more time to pass an order of assessment is concerned? - Held that - There is nothing in the Act which prohibits the Assessing Officer from ordering/directing the special audit after a particular date before the last date of framing an assessment. An Assessing Officer can direct a special audit as and when he does come to the conclusion that the accounts of the assessee are required to be specially audited for any one of the reasons set out in section 142(2A) of the Act. Thus, this grievance is not sustainable. Not directing the special audit of the accounts of the petitioner s wife and family members - Held that - It is an irrelevant consideration while considering the necessity of special audit in the case of the petitioner. The exercise of jurisdiction under section 142(2A) of the Act by the Assessing Officer has to be examined merely on the basis of the material available before him in respect of the assessee concerned while exercising jurisdiction to direct special audit. Nothing has been shown to us that on the basis of the material available before the Assessing Officer, the direction for special audit is perverse. Thus, this grievance is also not justified. Assessing Officer did not examine the books of account before ordering/directing the special audit - Held that - We find that the show-cause notice as well as the impugned direction proceed on the basis that on verification of the books of account and vouchers that the issue of special audit arose. Thus, this grievance of non-examination of the books of account is without any substance. Moreover after the amendment to section 142(2A) of the Act with effect from 2013, a special audit is not restricted only to complexity of the accounts. The special audit can now be directed not only if the accounts are complicated but also if there is doubt to the correctness of the account or multiplicity of transactions or volume of transaction or specialised nature of the accounts. Other grievance that the notice did not indicate the reasons which led him to a prima facie view directing a special audit stands belied by the fact that the show-cause notice dated July 25, 2016, issued to the petitioner, in fact, indicated the basis for directing special audit on the basis of the volume of the total trades executed by the petitioner, multiplicity of transactions in the accounts, including the nature and complexity of the accounts and doubts about the correctness of the accounts. Therefore, this grievance is also without substance. The terms of reference indicates that the special auditor has also been asked to prepare accounts and therefore bad in law, is unjustified. Section 142(2A) of the Act empowers the Assessing Officer while directing a special audit to furnish audit report in the prescribed form and can also seek such other particulars from the special auditor which he may require to complete the assessment. The terms of reference indicate that the examination which had to be done by the special audit was to examine the accounts keeping in view the supporting evidence. Thus, this grievance is also without any substance. The argument that, entire direction for special audit is without jurisdiction as the Assessing Officer has no jurisdiction to assess the petitioner under section 153A of the Act in respect of three of the assessment years concerned as the assessment for those years had been completed under section 143(3) of the Act. At this stage, this submission on the part of the petitioner is premature. Presently, we are only concerned with the jurisdiction of the Assessing Officer to direct a special audit. The necessary conditions to be satisfied before the special audit is directed are listed/set out in section 142(2A) of the Act and these are satisfied. Thus the direction for special audit. The issue of framing/passing an assessment order would arise only after the special audit is completed. Thus there is no merit in this submission to challenge the direction of special audit by the impugned order. We find that the impugned order dated March 10, 2016 directing a special audit is not without jurisdiction. The procedural safeguards of notice, approval of the Chief Commissioner and hearing have undisputedly been complied with. Besides, the satisfaction recorded by the Assessing Officer before directing a special audit is his opinion on the basis of the facts before him and such opinion is not shown to be perverse.

Summary

Issues:
Challenge to order for special audit under section 142(2A) of the Income-tax Act, 1961 for assessment years 2008-09 to 2014-15.

Analysis:

1. Jurisdiction of Assessing Officer to Order Special Audit:
The petitioner challenged the order for special audit, claiming it was a ploy to extend the assessment time. The court held that the Assessing Officer can order a special audit when accounts are deemed necessary under section 142(2A) of the Act. The court found this grievance unsustainable.

2. Special Audit for Family Members:
The petitioner argued that special audit was not ordered for family members. The court ruled this consideration irrelevant as the necessity of special audit is based on material concerning the assessee. No evidence was presented to show the order was unjustified.

3. Examination of Books Before Special Audit:
The petitioner contended that the Assessing Officer did not examine the books before ordering the special audit. The court noted that the show-cause notice and direction were based on verification of accounts and vouchers. The amendment allows special audit for various reasons beyond complexity, and the notice indicated the basis for the special audit.

4. Terms of Reference for Special Audit:
The petitioner argued that the terms of reference indicated the special auditor was asked to prepare accounts, which was deemed unlawful. The court clarified that the Assessing Officer can seek audit reports and other particulars for assessment. The terms of reference were found to be in line with the Act.

5. Jurisdiction for Assessment under Section 153A:
The petitioner claimed the Assessing Officer lacked jurisdiction for assessment under section 153A for certain years. The court deemed this submission premature, as the focus was on the jurisdiction to order a special audit. The conditions for special audit under section 142(2A) were met, and the challenge to the order was dismissed.

6. Conclusion:
The court found the order for special audit valid, as procedural requirements were met, and the Assessing Officer's opinion was reasonable based on available facts. The challenge to the direction for special audit was dismissed, and the petition was consequently rejected without costs.