2018 (1) TMI 545 - HC - Income Tax

Correctness of the Special Audit u/s 142(2A) ordered by the Respondent Authority - Held that - The reasons recorded and communicated to the assessee for such Special Audit prima facie indicate that the Assessing Authority has merely quoted the observations and objections of the Comptroller and Auditor General of India, its Audit Paras and its explanation and reply by the petitioner assessee Board and adding a few lines of his own as Assessing Authority s observations, the said Respondent has directed the Special Audit . The orders impugned before this Court neither disclose the discussion on the objections of the assessee for there being no justification for Special Audit and at least in one case for assessment year 2013-14, the said Respondent Assessing Authority did not even wait for the objections to be placed on record and before they were furnished on 29/03/2016, the said Respondent had already passed the impugned order on 28/03/2016 while the limitation for passing the assessment order was expiring on 31/03/2016. The hot-haste, the casual and cavalier attitude of the Respondent Assessing Authority in which he is invoking a serious provision of the Act against an assessee which is a Government Undertaking engaged in a public purpose of Industrial Development and being exempt from Income Tax under the KIADB Act itself, are very telling facts, in the perspective of which, invoking of these provisions of Section 142 (2-A) of the Act in this manner was absolutely not called for. This Court is, therefore, of the opinion that the impugned orders under Section 142(2-A) of the Act cannot be sustained. While quashing the two orders under Section 142 (2-A) of the Act for the Assessment Years 2013-14 and 2014-15, this Court would however give one more opportunity to the Respondent Assessing Authority to reconsider the matter in the light of the aforesaid at its own level and consider the objections and written submissions filed by the petitioner assessee Board in the correct perspective and pass fresh orders.

Summary

Issues:
Challenge to orders for 'Special Audit' by Deputy Commissioner of Income Tax for Assessment Years 2013-14 and 2014-15 under Section 142(2-A) of the Income Tax Act, 1961.

Analysis:
1. The petitioner, a Government undertaking, contested the 'Special Audit' orders by the Deputy Commissioner of Income Tax. The petitioner argued that the orders were issued at the last minute without a fair hearing opportunity, violating the provisions of Section 142(2-A) of the Income Tax Act, 1961.

2. The petitioner highlighted that as a Government undertaking, it was already audited by the Comptroller and Auditor General of India and an independent Chartered Accountant, as mandated by the KIADB Act. The petitioner contended that the Assessing Authority did not consider the objections raised before ordering the 'Special Audit.'

3. The Court observed that the Assessing Authority's orders lacked detailed reasoning and independent application of mind. It noted that the Authority relied on audit objections without proper assessment, leading to a mechanical issuance of 'Special Audit' orders, especially towards the end of the limitation period.

4. The Court emphasized that the purpose of Section 142(2-A) was to ensure a genuine assessment for potential tax revenue, not a mere formality. It criticized the hasty and irresponsible manner in which the Assessing Authority treated the petitioner, a Government undertaking, and directed a fresh consideration of the matter.

5. The Court quashed the 'Special Audit' orders for both assessment years but granted the Assessing Authority the chance to reassess the situation. If the Authority decides to proceed with a 'Special Audit,' detailed justifications must be provided, considering the petitioner's objections and submissions properly.

6. The Court stressed that any future orders must be made after affording the petitioner a reasonable opportunity for a fair hearing. No costs were awarded in the matter.

This detailed analysis of the judgment provides a comprehensive overview of the issues raised, arguments presented, and the Court's reasoning and directives in response to the challenge against the 'Special Audit' orders.