2013 (5) TMI 108 - HC - Income Tax

Special audit - nature of the accounts - complexities - in the interest of the Revenue - Held that - It reflects from the report that Auditor have pointed out many infirmities in the Assessee s account. In Purvanchal Vidyut Vitran Nigam Ltd. Versus UOI reported in 2010 (2) TMI 625 - Allahabad High Court it has been held that the object behind enacting Section 142 (2A) is to assessed the A.O. in framing a correct and proper assessment based on the accounts maintained by the assessee and when the assessing officer finds the accounts of the assessee to be complex, in order to protect the interest of the revenue. Further it was held that where the opportunity has been given to the assessee and their proper reason for framing the opinion that the nature of the accounts is complex and in the interest of the revenue, special audit is necessary and the direction for special audit cannot be said to be without material and the approval granted by the Commissioner of Income Tax cannot be said to be mechanical and without application of mind. Furthermore, the proceedings under Section 142 (2A) of the Act is not strictly a judicial proceeding and, therefore, the elaborate reasoning is not required to be given. In the instant case, notice issued to the petitioner has contained issues in brief, which the A.O. thinks to be necessary and the reasons assigned therein is perfectly justified and opportunity has also been provided to the petitioner prior to impugned order. - Decided against the assessee.

Issues Involved:
1. Validity of the order dated 28.03.2013 for the appointment of a Special Auditor under Section 142(2A) of the Income Tax Act, 1961.
2. Whether the Assessing Officer applied objective consideration and provided sufficient reasoning for the Special Audit.
3. Compliance with principles of natural justice in issuing the order for Special Audit.
4. Interpretation and application of Section 142(2A) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Validity of the order dated 28.03.2013 for the appointment of a Special Auditor under Section 142(2A) of the Income Tax Act, 1961:
The petitioner challenged the order dated 28.03.2013, which appointed a Special Auditor to audit the accounts for the Assessment Year 2010-11. The petitioner argued that the accounts were not complex or difficult to understand, thus not justifying a special audit under Section 142(2A) of the Income Tax Act, 1961. The Court, however, found that the order did not suffer from patent illegality or lack of jurisdiction. The Assessing Officer had the authority to direct a special audit if the conditions of Section 142(2A) were met, which included the complexity of accounts and the interest of the Revenue.

2. Whether the Assessing Officer applied objective consideration and provided sufficient reasoning for the Special Audit:
The petitioner contended that the Assessing Officer's decision was based on subjective satisfaction rather than objective consideration. The Court referred to the principles laid out in various judgments, emphasizing that the Assessing Officer must base his opinion on objective consideration, not subjective satisfaction. The Court found that the Assessing Officer had issued a detailed questionnaire and show cause notice, and upon finding the petitioner's replies unsatisfactory, formed a reasoned opinion that a special audit was necessary. The Court concluded that there was due application of mind by the Assessing Officer.

3. Compliance with principles of natural justice in issuing the order for Special Audit:
The petitioner argued that no opportunity was given before ordering the special audit, thus violating the principles of natural justice. The Court noted that the petitioner was issued a show cause notice and given an opportunity to reply, which they did. The Court found that the Assessing Officer had considered the replies but found them unsatisfactory, leading to the decision for a special audit. Therefore, the Court held that the principles of natural justice were complied with.

4. Interpretation and application of Section 142(2A) of the Income Tax Act, 1961:
The Court examined the provisions of Section 142(2A), which allow the Assessing Officer to direct a special audit if the accounts are complex and in the interest of the Revenue. The Court cited various judgments to interpret the provision, emphasizing that the Assessing Officer's discretion must be exercised with due application of mind and based on objective consideration. The Court found that the Assessing Officer had considered the complexity of the accounts and the interest of the Revenue, and had obtained the necessary approval from the Commissioner of Income Tax. The Court also noted discrepancies pointed out by the statutory Auditor, which justified the special audit.

Conclusion:
The Court dismissed the writ petition, upholding the order dated 28.03.2013 for the appointment of a Special Auditor under Section 142(2A) of the Income Tax Act, 1961. The Court found that there was no patent illegality or lack of jurisdiction, the Assessing Officer had applied objective consideration, complied with principles of natural justice, and correctly interpreted and applied Section 142(2A). No order as to costs was made.

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