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2019 (3) TMI 18 - HC - Income TaxSpecial audit u/s 142(2A) - amendment in Section 142(2A) w.e.f. 1.6.2013 - complexity doubts about correctness of the accounts, multiplicity of transactions - specialized nature of business activities - scope of AO's exercising powers u/s 142(2A) - Transfer pricing issues - honest attempt on the part of the AO to understand the books of accounts of the assessee company or application of mind - HELD THAT - In the present case, we have already noted that the detail grounds on which the Assessing Officer formed an opinion that special audit was necessary and the final order that he passed calling for such special audit. As noted, final audit proceeds on various grounds of genuineness of the transactions and payments by the assessee. We may recall, doubts about correctness of the accounts, multiplicity of transactions and specialized nature of business activities are some of the additional grounds, now recognized by the legislative for special audit. We do not find that the order requires any interference. Merely because some of the transactions were subjected to transfer pricing mechanism, would not debar the Assessing Officer from exercising powers under Section 142(2A) of the Act, if the conditions for exercising such powers were otherwise satisfied. The Transfer Pricing Officer would be essentially concerned with the assessment of the arm's length price of the specified transactions with an associated enterprise. Reference to the judgment of this Court in case of this very assessee 2018 (10) TMI 376 - BOMBAY HIGH COURT would also be of no avail. It was a case in which the assessee had challenged the orders passed by the Assessing Officer calling upon for special audit of the petitioner's accounts for several assessment years. However, the decision of the Court was not on merits. the Court did not decide the petitioner's objection to the special audit on merits, instead proceeded on consensus. Secondly, the assessment years involved in the said orders besides others were 2010-11, 2011-12 and 2014-15. For the assessment years 2010-11 and 2011-12 unamended provisions of Section 142(2A) would apply. In the result, we do not find merit in this petition - Decided against assessee.
Issues Involved
1. Validity of the order directing special audit under Section 142(2A) of the Income Tax Act, 1961. 2. Compliance with procedural requirements and principles of natural justice. 3. Examination of the necessity and correctness of the special audit order. 4. Impact of prior transfer pricing assessments on the necessity of special audit. 5. Applicability of amendments to Section 142(2A) and their effect on the case. Detailed Analysis 1. Validity of the Order Directing Special Audit under Section 142(2A) The petitioner challenged the orders dated 12.11.2018 and 9.11.2018, under which the Revenue Authorities ordered a special audit for the assessment year 2015-16. The Deputy Commissioner of Income Tax issued a show cause notice on 5.9.2018, highlighting discrepancies such as payments to related concerns and the correctness of accounts, leading to the proposal for a special audit under Section 142(2A). The Principal Commissioner of Income Tax approved this proposal, and the Deputy Commissioner passed the impugned order on 12.11.2018. 2. Compliance with Procedural Requirements and Principles of Natural Justice The petitioner argued that the requirements of Section 142(2A) were not satisfied, and there was no honest attempt to understand the books of accounts. They contended that the Deputy Commissioner failed to apply his mind and that the special audit order was based on erroneous grounds. The Court noted that the Deputy Commissioner issued a show cause notice, considered the objections, and obtained necessary approval before passing the order, thereby complying with procedural safeguards and principles of natural justice. 3. Examination of the Necessity and Correctness of the Special Audit Order The Court examined the grounds on which the Deputy Commissioner formed the opinion that a special audit was necessary. These included the complexity of the petitioner’s accounts, voluminous transactions, and doubts about the correctness of the accounts. The Court observed that the amendments to Section 142(2A) w.e.f. 1.6.2013 had widened the scope for special audit, including factors like multiplicity of transactions and specialized nature of business activities. The Court found that the Deputy Commissioner’s decision was based on a reasonable and possible view, and the order did not require interference. 4. Impact of Prior Transfer Pricing Assessments on the Necessity of Special Audit The petitioner contended that several transactions had already been examined by the Transfer Pricing Officer (TPO), and no useful purpose would be served by a special audit. However, the Court held that this did not debar the Assessing Officer from exercising powers under Section 142(2A) if the conditions for such powers were otherwise satisfied. The TPO's role is primarily concerned with assessing the arm's length price of specified transactions, which does not preclude the necessity of a special audit for other aspects. 5. Applicability of Amendments to Section 142(2A) and Their Effect on the Case The Court noted that the amendments to Section 142(2A) had expanded the grounds for ordering a special audit, including volume of accounts, doubts about correctness, and multiplicity of transactions. The Court referred to several judgments post-amendment, which supported the view that the Assessing Officer could order a special audit based on these expanded grounds. The Court found that the Deputy Commissioner’s order was in line with the amended provisions and did not find merit in the petitioner’s objections. Conclusion The Court dismissed the petition, upholding the Deputy Commissioner’s order for a special audit under Section 142(2A). The procedural requirements and principles of natural justice were deemed satisfied, and the expanded grounds for special audit under the amended Section 142(2A) justified the necessity of the special audit. The prior transfer pricing assessments did not preclude the special audit, and the Court found no reason to interfere with the impugned order.
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