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2018 (10) TMI 376 - HC - Income TaxSpecial audit notice u/s 142 (2A) - Held that - With all the proceedings, we put it to both counsel, for the Petitioner as also the Respondents as to why the whole gamut of a special audit and thereafter further legal proceedings under the I. T. Act. Instead, during the course of the assessment which will be undertaken pursuant to the resort by Respondent No.1 to Section 148 of the I. T. Act and when the Petitioner is possessed of a copy of the report of PWC, all contentions in relation to the said proceedings can be raised and orders thereafter can be passed on hearing the Petitioner. The Petitioner stated that they would make appropriate submissions on the report of the PWC. They would also raise other contentions. These Writ Petitions can be conveniently disposed off without examining the larger issue. The Petitions can be disposed off with a direction that the special audit in terms of the impugned notice and the approval need not be undertaken for all the materials in relation to the Petitioner s transactions, their share holdings, are already referred to in the PWC report as also the pending proceedings under Section 148 of the I. T. Act. There is a return of income filed under protest by the Petitioners on 26th April, 2017 and that is under assessment. If during the course of assessment and pursuant to this return, the Petitioner desires to raise objections with regard to the contents of the PWC report and to be relied upon by the Assessing Officer, then, the Assessing Officer shall allow the Petitioner to raise the necessary contentions and after dealing with them, he shall pass an order in accordance with law.
Issues Involved:
1. Challenge to the approval granted for a special audit under Section 142 (2A) of the Income Tax Act, 1961. 2. Allegations of financial irregularities and embezzlement against key management personnel. 3. Compliance with directions from the Forward Market Commission regarding special audit and legal actions. 4. Issuance of notice under Section 148 of the Income Tax Act and filing of return under protest. 5. Dispute regarding the necessity of a special audit in light of ongoing assessment proceedings. Issue 1: Challenge to the approval for a special audit The petitioner, a Public Limited Company claiming to be a National Commodity Exchange, challenged the approval granted by Respondent No.2 for a special audit under Section 142 (2A) of the Income Tax Act. The petitioner contended that the special audit was unnecessary as the company's transactions and shareholdings were already covered in a previous audit report by Price Water-House Coopers Pvt. Ltd. (PWC) and ongoing assessment proceedings under Section 148 of the Act. The High Court, after detailed hearings, held that the special audit need not be undertaken, and the impugned actions were quashed. Issue 2: Allegations of financial irregularities and embezzlement The petitioner detailed allegations of financial irregularities and embezzlement against key management personnel associated with Financial Technologies (India) Ltd. and the petitioner company. The Forward Market Commission directed a special audit, which revealed a large-scale economic scam allegedly committed at the expense of the petitioner and its shareholders. The Commission declared certain individuals unfit to hold positions in any Commodity Exchange, leading to a complete change in the petitioner company's management. Criminal complaints were filed based on the findings of the special audit report by PWC. Issue 3: Compliance with directions from the Forward Market Commission The petitioner complied with the Forward Market Commission's directions by appointing PWC to conduct a special audit and taking legal actions against the individuals implicated in the financial irregularities. The Commission monitored the progress of the audit and directed the petitioner to pursue criminal complaints against entities involved in the alleged financial fraud. The petitioner followed these directives and initiated legal actions as instructed. Issue 4: Issuance of notice under Section 148 and filing of return under protest Respondent No.1 issued a notice under Section 148 of the Income Tax Act based on the special audit report by PWC. The petitioner filed a return under protest, declaring its total income. However, within two days of filing the return, the impugned notice for a special audit was issued, leading to the challenge in the High Court. Issue 5: Dispute regarding the necessity of a special audit The High Court raised concerns about the necessity of conducting a special audit alongside ongoing assessment proceedings under Section 148 of the Income Tax Act. After considering the arguments from both sides, the Court concluded that the special audit was redundant as the matters were already covered in the PWC report and ongoing assessment. The Court directed that the special audit need not be undertaken, and the petitions were disposed of with this decision. This comprehensive analysis of the judgment highlights the key issues involved, the arguments presented by the parties, and the final decision rendered by the High Court in each aspect of the case.
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