2014 (2) TMI 467 - HC - Income Tax

Special Audit u/s 142(2A) of the Act It was noticed that the account so maintained were not correct and complete and single account pertaining to three engineering colleges was being maintained without any distinction to the engineering colleges run by separate societies. - Held that - The arguments on behalf of petitioners rejected - the orders do not suffer from any legal infirmity Relying upon Sahara India (Firm) Vs. CIT 2008 (4) TMI 4 - Supreme Court - the object behind Section 142(2A) is to assist the assessing officer in framing a correct and proper assessment based on the accounts maintained by the assessee, and when he finds the accounts of the assessee to be complex, in order to protect the interest of the revenue, recourse to the said provision can be had the twin conditions, i.e, nature of nature of accounts, complexity of accounts and interest of the revenue exist in the present set of facts - the Assessing Officer has lawfully invoked the provisions of Section 142(2A) of the Act so as to frame a correct and proper assessment and to protect the interests of the revenue, in view of the fact that he found the accounts of the Assessee to be complex on the basis of objective criteria - the conditions prescribed for invoking Section 142(2A), i.e., nature of accounts, complexity of accounts and interest of the revenue are fulfilled and therefore the proposal for special audit under Section 142(2A) of the Act was approved Decided against Assessee.

Issues Involved:
1. Legality of the order for special audit under Section 142(2A) of the Income Tax Act, 1961.
2. Alleged violation of principles of natural justice.
3. Complexity and nature of accounts.
4. Interest of revenue.

Issue-wise Detailed Analysis:

1. Legality of the order for special audit under Section 142(2A) of the Income Tax Act, 1961:

The petitioner challenged the orders dated 30.12.2011 and 29.12.2011 passed by the Assistant Commissioner Income Tax (ACIT) and Chief Commissioner Income Tax (CCIT) respectively, directing a special audit under Section 142(2A) of the Income Tax Act, 1961. The court examined whether the conditions for invoking Section 142(2A) were met, including the nature and complexity of accounts and the interest of revenue. The court found that the authorities had complied with the proviso to Section 142(2A) and that the principles of natural justice had not been violated. The court concluded that the orders were valid and did not suffer from any legal infirmity.

2. Alleged violation of principles of natural justice:

The petitioners argued that the impugned orders were passed without giving them a fair opportunity to present their case, thus violating the principles of natural justice. However, the court found that the ACIT issued a detailed show cause notice on 7.12.2011, and the petitioners submitted a reply on 14.12.2011. The CCIT also issued a notice on 22.12.2011, and the petitioners were given an opportunity to present their case on 27.12.2011. The court held that the authorities had provided sufficient opportunity to the petitioners and had considered their replies before passing the orders, thereby complying with the principles of natural justice.

3. Complexity and nature of accounts:

The court noted that during a survey conducted on 3.3.2009, it was found that the petitioners were maintaining a single set of accounts for three societies under the name "Bhabha Group of Institutions." The accounts were not correct and complete, and the receipts and payments of each society could not be ascertained. The court found that the accounts of the three societies were mixed up, and the petitioners were unable to produce any basis or evidence to separate them. The court held that the nature and complexity of the accounts justified the need for a special audit under Section 142(2A).

4. Interest of revenue:

The court observed that the survey revealed that the petitioners had introduced huge un-accounted money in the development of their infrastructure and were running the institution commercially with a profit motive. The financial affairs recorded in a day book were not identifiable with reference to each of the three societies. The court found that the interest of revenue was at stake, and the special audit was necessary to protect the revenue's interest. The court held that the conditions prescribed for invoking Section 142(2A), i.e., nature of accounts, complexity of accounts, and interest of revenue, were fulfilled.

Conclusion:

The court dismissed the writ petitions, holding that the impugned orders dated 30.12.2011 and 29.12.2011 were valid and did not suffer from any legal infirmity. The court found that the authorities had complied with the principles of natural justice and that the conditions for invoking Section 142(2A) were met. The court emphasized that the special audit was necessary due to the complexity of the accounts and the interest of revenue.

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