2023 (2) TMI 584 - SCH - Income Tax

Special audit u/s 142(2A) - the order u/s 142(2A) was never communicated or even uploaded on the portal - HELD THAT - We dispose of the present appeal with a direction that the purported order directing special audit u/s 142(2A) will not be given effect to and will be treated as not passed, as it was never communicated to the appellant-assessee - with the consent of the learned counsel for the appellant-assessee, we extend the time for passing the assessment order till 31.12.2023. If the AO desires special audit u/s 142(2A) he can either rely upon the earlier notice or issue a fresh notice. In case the assessing officer relies upon the earlier notice, it will be so indicated and communicated to the appellant-assessee. In either case, hearing as per law will be given. An order u/s 142(2A) if passed, will be communicated to the appellant-assessee, who will be at liberty to challenge the order in accordance with law. If any special audit is directed or ordered to be conducted, will get extended as per the provisions of the 1961 Act.

Summary

Issues involved:
1. Challenge to the order for special audit under Section 142(2A) of the Income Tax Act, 1961.
2. Lack of communication of the order to the appellant-assessee.
3. Ambiguity regarding the special audit and assessment order.
4. Extension of time for passing the assessment order.
5. Procedure for conducting special audit if required.

Analysis:

1. The appellant, a university, challenged the order dated 11.11.2021 by the High Court rejecting their Writ Petition against a notice for special audit under Section 142(2A) of the Income Tax Act, 1961. The appellant contended they were not served with the order under Section 142(2A), which was overlooked by the High Court. The Supreme Court disagreed with the reasoning that only a hearing is required without passing the order, emphasizing the fundamental need for communication of such orders.

2. The Additional Solicitor General accepted that the order under Section 142(2A) was not communicated or uploaded, although he mentioned the written order was placed in the file. The Court stressed the importance of communicating the order to the appellant-assessee to understand the reasons and exercise the option to challenge it. The lack of communication was deemed a critical flaw in the process.

3. It was noted that the assessment order had not been passed within the time limit, raising ambiguity about the status of the special audit and assessment. The Court decided to dispose of the appeal by declaring the order for special audit as not passed, as it was never communicated. The time for passing the assessment order was extended until 31.12.2023, providing clarity on the timeline for further actions.

4. To address any potential future special audit under Section 142(2A), the Court directed that the assessing officer could rely on the earlier notice or issue a fresh one. The appellant would be informed accordingly, and a proper hearing would be conducted as per the law. Any subsequent order under Section 142(2A) would be communicated to the appellant for legal challenge, with the timeline extended if necessary as per the provisions of the Income Tax Act, 1961.

5. The appeal was allowed with no costs, and pending applications were disposed of. The judgment outlined a clear procedure for handling the special audit process, ensuring transparency, communication, and adherence to legal requirements for future actions related to the assessment order and special audit under the Income Tax Act, 1961.