2023 (3) TMI 1313 - AT - Income Tax

Levying penalty u/s 272A(1)(d) - non-compliance of correspondences for special audit u/s 142(2A) - HELD THAT - CIT(A) has failed to appreciate the fact that the letters of communication of special audit in the present case were no direction u/s 142(2A) ever issued to the assessee during the course of assessment proceedings, containing particulars for which the exercise of special audit was to be undertaken and further, the Ld. AO has admitted in order u/s 154 that letters are not direction issued u/s 142(2A) but are letters in continuation of notice u/s 142(2A) issued on 24.02.2021. AO has written a letter to M/s Surendra Mahajan and Associates as above, for special audit of four case including the appellants but, the AO had never issue a specific notice with point of special audit to the appellant assessee u/s 142(2A) of the Act with the Approval of the PCIT. In view of the matter we hold that there was no failure on the part of the assessee to comply with a direction u/s 142(2A), and accordingly, penalty u/s 272(l)(d) vide order dated 31.07.2021 cannot be sustained. We accept the grievance of the assessee as genuine and justified. As such, the penalty levied u/s 272(1)(d) of the Act, is hereby deleted. Appeal of the assessee is allowed.

Issues Involved:
1. Levy of penalty under Section 272A(1)(d) of the Income Tax Act.
2. Validity of directions issued under Section 142(2A) for special audit.
3. Compliance with procedural requirements under Section 142(2A).

Summary of Judgment:

1. Levy of Penalty under Section 272A(1)(d):
The primary issue challenged by the appellant was the levy of a penalty amounting to Rs. 40,000/- under Section 272A(1)(d) by the Assessing Officer (AO) and confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)] for non-compliance with correspondences dated 06.05.2021, 25.05.2021, 11.06.2021, and 22.06.2021 regarding a special audit under Section 142(2A) of the Income Tax Act.

2. Validity of Directions Issued under Section 142(2A):
The appellant contended that the letters dated 06.05.2021, 25.05.2021, 11.06.2021, and 22.06.2021 were not "directions" issued under Section 142(2A) as required by law. It was argued that these letters did not contain specific particulars for the special audit, nor was there prior approval from the Principal Commissioner of Income Tax (PCIT). The AO had admitted in an order under Section 154 dated 09.11.2021 that these letters were not directions but rather continuations of a direction issued on 24.02.2021.

3. Compliance with Procedural Requirements under Section 142(2A):
The appellant argued that the AO failed to provide a reasonable opportunity of being heard before issuing the direction for a special audit, as mandated by Section 142(2A) and its proviso. The CIT(A) had upheld the penalty, stating that the communications from the AO were indeed directions under Section 142(2A) and that the statutory approval of the PCIT had been obtained. However, the Tribunal found that the AO had not issued a specific notice with points for special audit to the appellant with the approval of the PCIT.

Tribunal's Decision:
The Tribunal concluded that the letters written by the AO were not valid directions under Section 142(2A) as they did not contain specific points for the special audit and lacked prior approval from the PCIT. Consequently, the penalty of Rs. 40,000/- levied under Section 272A(1)(d) was deemed illegal and unjustified. The Tribunal held that there was no failure on the part of the assessee to comply with a valid direction under Section 142(2A) and thus deleted the penalty.

Result:
The appeal of the assessee was allowed, and the penalty of Rs. 40,000/- levied under Section 272A(1)(d) was deleted. The order was pronounced in the open court on 20.03.2023.

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