2018 (2) TMI 1650 - HC - Income Tax

Special Audit u/s 142(2A) - Inquiry before assessment - breach of principles of natural justice - Held that - This Court cannot go into the sufficiency of reasons assigned by the Assessing Authority for directing such Special Audit. Only if there were no reasons assigned and objections of the petitioner assessee were not considered perhaps the breach of principles of natural justice as required under Section 142(2A) of the Act and Proviso thereto could be so contended by the assessee but from the record it does not appear to be either absence of an opportunity of hearing altogether or the absence of any reasons at all. Thus this Court cannot draw any inference of breach of principles of natural justice or arbitrariness in the impugned order passed by the respondent Authority. Accordingly the requirement of Section 142(2A) of the said Act cannot be said to have been not complied by the respondent Authority. The same requires no interference under Article 226 of the Constitution of India. Therefore the Writ Petition is liable to be dismissed

Summary

Issues:
Challenge to Special Audit under Section 142(2A) of the Income Tax Act, 1961 for Assessment Year 2015-2016.

Analysis:
The petitioner, a private limited company, challenged the Income Tax Department's direction for a Special Audit under Section 142(2A) of the Income Tax Act, 1961 for the Assessment Year 2015-2016. The petitioner argued that the Authority did not follow the principles of natural justice as objections raised were not considered before issuing the impugned order for the Special Audit. The petitioner contended that the assessment was getting time-barred, and the Special Audit would unnecessarily prolong the proceedings. Additionally, the petitioner highlighted that they were paying Presumptive Tax and should not be subjected to the Special Audit.

The Court examined the reasons provided by the Authority for the Special Audit, which indicated discrepancies in the accounting practices of the petitioner for different real estate projects. The Court found the reasons to be relevant for directing the Special Audit under Section 142(2A) of the Act. The Authority's reasons pointed out issues with revenue recognition, agreements, and accounting practices for various projects, justifying the need for a detailed audit to ensure consistent and accurate tax assessment.

The Court rejected the petitioner's argument of a breach of natural justice, stating that the objections were considered during the assessment proceedings. The Court noted that the Managing Director of the petitioner company attended the hearing, and the objections raised were addressed in the final directions for the Special Audit. The Court emphasized that the sufficiency of reasons provided by the Authority for the Special Audit cannot be questioned unless there was a complete absence of reasons or denial of a hearing opportunity, which was not the case here.

Ultimately, the Court concluded that there was no breach of natural justice or arbitrariness in the Authority's decision to conduct a Special Audit. The Court held that the requirements of Section 142(2A) of the Act were duly complied with by the Authority, and thus, the Writ Petition challenging the Special Audit was dismissed.