2020 (1) TMI 655 - HC - Income Tax

Special audit u/s 142(2A) - scope of satisfaction recorded by the AO - reasonable opportunity provided to assessee or not? - HELD THAT - We cannot hold that there is no application of mind on the part of the respondent No.1 for issuing the impugned directions. In our opinion, the satisfaction recorded by the AO is in consonance with the principles enunciated in Section 142(2A) of the Act. The doubts expressed by the AO are on the basis of the complexity of the accounts recorded upon objective considerations mentioned in the impugned order on each query. Though the petitioner has sought to explain all the queries so raised in the present petition, however, we feel that it is not in our jurisdiction to go into the accounts and the audit report and discuss the same. Respondent No.1 has applied his mind and the anomalies and discrepancies that have been pointed out in the impugned order, to our mind are sufficient to meet the test of judicial review while questioning the subjective satisfaction for appointment of special auditor. In our opinion, the aforesaid reasons are sufficient to sustain the action of the respondent to order a special audit in view of the limited and guarded scope of judicial review. AO has given several other opportunities to the petitioner by calling upon them to furnish their response along with documentary evidence. After issuing statutory notice dated 13.09.2019, another opportunity was given on 27.09.2019, when there was a change of the incumbent in office of the respondent No.1. Also, notices u/s 142(1) along with questionnaire were issued to the assessee on 02.08.2019, followed by a reminder on 26.08.2019. Despite aforesaid opportunities, the assessee was unable to answer the queries raised by the respondent to the satisfaction of the AO. In the impugned order, the AO has threadbare considered each response to the queries raised and concluded that the accounts of the petitioner are voluminous and complex. No substance in the petitioner s submission that the action of respondent No.1 is mala fide or is an outcome of failure to pay the advance tax to the lacking of respondents authority. Such submissions are based on conjectures and surmises and in absence of any cogent material to support this assumption, we refuse to entertain such a plea. Equally, we find no merit in the submissions of the petitioner that the respondent No.1 has interpolated the record. The essential mandate of Section 142(2A) requires an opportunity of hearing, which in the present case has been met for the reasons discussed in detail hereinbefore. Petitioner does not dispute that notice dated 13.09.2019 was served upon the petitioner. Resultantly, it had an opportunity to put forth its case and objections for ordering special audit. Once this requirement is fulfilled and the petitioner tendered its reply thereto, the prerequisite under the Act was met. - Decided against assessee

Summary

Issues Involved:
1. Validity of the notice under Section 142(2A) of the Income Tax Act.
2. Compliance with the principles of natural justice.
3. Justification for ordering a special audit under Section 142(2A).
4. Allegations of mala fide action by the Assessing Officer (AO).
5. Allegations of interpolation of records by the respondents.

Issue-wise Detailed Analysis:

1. Validity of the Notice under Section 142(2A) of the Income Tax Act:
The petitioner contended that no notice under Section 142(2A) was issued, and the notices dated 13.09.2019 and 27.09.2019 were under Section 142(1), which cannot sustain proceedings under Section 142(2A). The court found this argument meritless, stating that the notice dated 13.09.2019, despite its subject line, was intended to afford an opportunity to the petitioner to show cause why a special audit should not be ordered, thus meeting the statutory requirement under Section 142(2A).

2. Compliance with the Principles of Natural Justice:
The petitioner argued that they were denied a personal hearing. The court held that the reasonable opportunity of being heard under Section 142(2A) does not necessarily include a personal hearing. The court cited the Gujarat High Court's decision in Neesa Leisure Limited vs. DCIT, which clarified that an opportunity of being heard does not always include personal hearing, and the statutory requirement was fulfilled by the show cause notice and the opportunity to respond.

3. Justification for Ordering a Special Audit under Section 142(2A):
The court examined the reasons provided by the AO for ordering a special audit, which included complexities and anomalies in the petitioner’s accounts, such as discrepancies in interest passed on to clients, TDS claims, profit margins, trade payables, and inventory details. The court found that the AO had formed a subjective satisfaction based on objective considerations and that the reasons were sufficient to meet the test of judicial review. The court emphasized that it is not within its jurisdiction to go into the accounts and audit report in detail, as the AO had applied his mind and pointed out sufficient anomalies and discrepancies.

4. Allegations of Mala Fide Action by the Assessing Officer (AO):
The petitioner alleged that the special audit was ordered as an act of vengeance for not complying with the AO’s direction to pay the correct amount of advance tax. The court found no merit in this argument, stating that such submissions were based on conjectures and surmises without any cogent material to support this assumption.

5. Allegations of Interpolation of Records by the Respondents:
The petitioner claimed that the respondents had interpolated the online interface to create a record of a non-existent notice. The court dismissed this argument, stating that the essential mandate of Section 142(2A) was met, as the petitioner had received the notice dated 13.09.2019 and had the opportunity to respond, thus fulfilling the statutory requirement.

Conclusion:
The court concluded that the impugned order for a special audit did not call for any interference on merits. The AO had provided sufficient reasons for ordering the audit, and the principles of natural justice were complied with. The petition and the application were dismissed, with no order as to costs.