2013 (8) TMI 524 - HC - Income Tax

Special audit u/s 142(2A) of the Income Tax Act On the ground of complexity of accounts - The assessee has submitted copy of ledger account in 5 volumes but supporting vouchers of receipts and payment has not been submitted on the ground that there are voluminous records - In view of the petitioner s audit report that the accounts of the petitioner is not complex or the special audit report has been called for either just for extension of time to complete the assessment or otherwise Held that - In absence of vouchers, the correctness of state of affairs could not be verified and looking to the complexities and enormity and assessee s inability to substantiate its income and expenditure by producing supporting vouchers, it is in the interest of revenue, justice and fair play to make a reference u/s 142 (2A) of the Act to get the accounts of the assessee audited Decided against the Assessee.

Summary

Issues Involved:
1. Legality and validity of the order passed under section 142(2A) of the Income Tax Act.
2. Alleged non-cooperation of the petitioner with the assessment proceedings.
3. Complexity of the petitioner's accounts and necessity for a special audit.
4. Opportunity of hearing before passing the impugned order.
5. Allegation of the special audit being used to extend the period of limitation.

Issue-wise Detailed Analysis:

1. Legality and Validity of the Order Passed Under Section 142(2A):
The petitioner, an authority under the U.P. Urban Planning and Development Act, 1973, challenged the order for a special audit under section 142(2A) for the Assessment Year 2005-2006. The petitioner claimed exemption under section 11 read with section 12 of the Income Tax Act, supported by an audited statement and tax audit report. However, due to partial compliance and unresolved queries during assessment, the Assessing Authority referred the matter to the Commissioner, who approved the special audit citing complexities in the accounts.

2. Alleged Non-Cooperation of the Petitioner:
The Department argued that the writ petition was filed to avoid the special audit proceedings. The petitioner failed to cooperate with the assessment proceedings and did not appear before the Special Auditor. The Department highlighted that the petitioner's own auditor pointed out complexities in the accounts, which were crucial for determining the income.

3. Complexity of the Petitioner's Accounts and Necessity for a Special Audit:
The court examined the remarks made by the petitioner's auditor, which indicated issues such as incomplete asset valuation and deviations from accounting standards. The Assessing Authority found these complexities significant enough to warrant a special audit. The court referenced the case of Swadeshi Cotton Mills Limited v. Commissioner of Income Tax, emphasizing that the complexity must be objectively assessed and not based on subjective satisfaction.

4. Opportunity of Hearing Before Passing the Impugned Order:
The petitioner argued that proper opportunity of hearing was not afforded before the impugned order was passed. The court found this argument unsubstantial, noting that the petitioner was given a chance to show cause via a notice dated 12th November 2007, to which they responded. The court concluded that the petitioner had ample opportunity to present their case before the special audit was ordered.

5. Allegation of the Special Audit Being Used to Extend the Period of Limitation:
The petitioner claimed that the special audit was ordered to extend the assessment period. The court dismissed this argument, stating that the Assessing Authority's decision was based on objective considerations, including the petitioner's inability to provide complete information and the qualifying remarks in the audit report. The court found that the special audit was justified and not merely a tactic to extend the limitation period.

Conclusion:
The court dismissed the writ petition, upholding the order for a special audit under section 142(2A). The court found that the Assessing Authority and the Commissioner acted within their powers, based on objective assessments of the complexities in the petitioner's accounts and the necessity for a special audit to determine the correct income. The arguments regarding non-cooperation, lack of hearing opportunity, and misuse of special audit provisions were rejected.