2006 (3) TMI 78 - HC - Income Tax

Whether before passing the order under section 142(2A) an opportunity of hearing needs to be given to the assessee or not and as in the present writ petition the said issue is also raised this writ petition be also admitted - petitioner seeks to challenge the order passed by the Assistant Commissioner of Income-tax Range 4(1) Mumbai whereby he issued direction to the petitioner for a special audit under section 142(2A) - We have no hesitation in concluding that the order dated November 11 2005 giving direction to the petitioner for special audit under section 142(2A) for the assessment year 2003-04 does not suffer from lack of jurisdiction or error of law.

Issues Involved:
1. Jurisdiction of the Assistant Commissioner of Income-tax, Range 4(1), Mumbai.
2. Requirement of a hearing before passing an order under section 142(2A).
3. Allegation of abdication of duty by the Assessing Officer and scope of section 142(2A).

Detailed Analysis:

Issue 1: Jurisdiction of the Assistant Commissioner of Income-tax, Range 4(1), Mumbai
The petitioner contended that the Assistant Commissioner of Income-tax, Range 4(1), Mumbai, lacked jurisdiction over the petitioner's case for the assessment year 2003-2004. The court noted that the petitioner filed its return of income for the assessment year 2003-2004 with the Assistant Commissioner of Income-tax, Range 4(1), Mumbai, and had been appearing before this officer without challenging his jurisdiction. The court emphasized that under section 124(3)(a) of the Income-tax Act, any challenge to the jurisdiction must be made within one month from the date of service of the notice under section 143(2), which the petitioner failed to do. Consequently, the court found no merit in the petitioner's submission and overruled the contention regarding jurisdiction.

Issue 2: Requirement of a Hearing Before Passing an Order under Section 142(2A)
The petitioner argued that an opportunity of hearing should have been provided before the order for a special audit under section 142(2A) was passed. The petitioner relied on various judgments, including those from the Calcutta and Kerala High Courts, which supported the need for a hearing based on principles of natural justice. However, the court referred to the Division Bench judgment of the Allahabad High Court in Jhunjhunwala Vanaspati Ltd. v. Asst. CIT, which held that an order under section 142(2A) is administrative in nature and does not entail civil consequences, thus not requiring a hearing. The court agreed with this view, stating that the direction for a special audit is to ensure a correct assessment order and does not affect the assessee's rights or create any liability. The court concluded that the assessee is not required to be heard before passing an order under section 142(2A).

Issue 3: Allegation of Abdication of Duty by the Assessing Officer and Scope of Section 142(2A)
The petitioner contended that by directing a special audit, the Assessing Officer had abdicated his duty and that the directions exceeded the scope of section 142(2A). The court found that the complexity of the petitioner's accounts justified the need for a special audit. The court noted that the petitioner had failed to provide complete details during the assessment proceedings and that the accounts involved complicated transactions, substantial deductions, and various business activities. The court held that the special audit would assist the Assessing Officer in understanding the complex accounts and correctly assessing the income. The court dismissed the concern about disclosing confidential documents to a third party, stating that the special auditor's findings would facilitate the assessment process without finality. Therefore, the court found no substance in the petitioner's submissions and concluded that the order for a special audit did not suffer from lack of jurisdiction or error of law.

Conclusion:
The court dismissed the writ petition, upholding the order for a special audit under section 142(2A) for the assessment year 2003-2004, and ruled that no costs were to be awarded.

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