2020 (11) TMI 488 - HC - Income Tax

Compulsory audit u/s 142(2A) - seeking its quashment on the ground that the petitioner was not given an effective opportunity of hearing - HELD THAT - A questionnaire was issued under sub-section (1) of Section 142. The reply was not found satisfactory for the reasons that the petitioner was not maintaining its books of account accurately and has not followed the accounting principles correctly and the nature of accounts being complex and bulky led the department to take recourse to compulsory audit. Though the impugned action is questioned on the ground that effective opportunity of hearing was not given. However, the record reveals that before taking decision on 31.12.2019 a notice was issued on 30.12.2019 to the petitioner vide DIN Letter No. ITBA/COM/F/17/2019-20/1023245419(1) dated 27.12.2019 was given the opportunity of hearing. Facts nullify the contention of the petitioner that they had no effective opportunity of hearing. In the case at hand, the petitioner was afforded an opportunity of hearing before taking recourse to sub-section (2A) of Section 142 directing the petitioner to get the accounts audited by an accountant. Petition fails.

Summary

Issues:
Petitioner challenges decision for compulsory audit under Section 142(2A) of IT Act due to lack of effective hearing.

Analysis:
The petitioner, a State Public sector undertaking, contested a decision to audit its Books of Account under Section 142(2A) of the Income Tax Act, 1961. The petitioner argued that it was not given a proper opportunity of hearing. However, it was evident from the communication that scrutiny assessment proceedings under Section 143 of the IT Act were pending against the petitioner. The department issued a notice under Section 143(2) citing various discrepancies in the petitioner's financial records, leading to doubts about the accuracy of accounts and necessitating a compulsory audit.

A questionnaire was issued under Section 142(1) which the petitioner's reply failed to satisfy, indicating inaccuracies in maintaining books of account and non-adherence to accounting principles. Despite the petitioner's claim of lack of hearing, records showed that a notice was issued providing an opportunity of hearing before the decision on compulsory audit was made. The communication highlighted the necessity of a special audit due to the complexity of accounts, doubts about correctness, and the specialized nature of the petitioner's business activities.

The court referred to Section 142(2A) of the IT Act, which allows the Assessing Officer to direct an audit if deemed necessary, with a prior opportunity of hearing. Citing the case of Rajesh Kumar vs. Dy.CIT & others, the court emphasized that the hearing need not be elaborate but must comply with principles of natural justice. In the present case, the petitioner was given a hearing before the direction for a special audit under Section 142(2A) was issued.

Consequently, the court found no grounds for interference, leading to the dismissal of the petition. The judgment highlighted the importance of providing an opportunity for hearing before initiating a compulsory audit under Section 142(2A) of the Income Tax Act, ensuring procedural fairness and adherence to legal principles.