2017 (4) TMI 1014 - HC - Income Tax

Special audit - validity of order of the AO in exercise of powers u/s 142(2A) - Held that - Before recording the satisfaction requiring special audit and before making proposal to the Commissioner for its approval, the petitioner has not been given an opportunity inasmuch as the communication dated 07/11/2016 granting final opportunity to the petitioner up to 11/11/2016 was received by the petitioner assessee only on 15/11/2016. Under the circumstances, on the aforesaid ground alone and without further entering into other questions on merits, the impugned order deserves to be quashed and set aside and the matter is to be remanded to the Assessing Officer to pass a fresh order in accordance with law and on its own merits and after considering the objections raised by the petitioner dated 25/11/2016 and after following the due procedure as required. - Matter remanded back.

Summary

Issues:
Challenge to impugned order of special audit under Section 142 (2A) of the Income Tax Act on the grounds of breach of principles of natural justice.

Analysis:
The petitioner sought to quash the impugned order dated 28/11/2016 for a special audit of their books of accounts under Section 142 (2A) of the Income Tax Act, alleging a violation of natural justice principles. The petitioner argued that despite requesting extensions to respond to show cause notices, the Assessing Officer proceeded with the special audit without considering the objections raised. The petitioner contended that the approval granted by the Commissioner and the subsequent order for special audit were unjust due to the failure to provide adequate opportunity to respond.

The respondent, representing the revenue, defended the actions by stating that objections raised by the petitioner were discussed with the Commissioner before approval was granted. However, it was acknowledged that the petitioner did not receive sufficient time to respond adequately, as the final opportunity granted was received late, thus compromising the due process. The Court recognized this procedural flaw as sufficient grounds to quash the impugned order and remand the matter back to the Assessing Officer for a fresh decision. The Court emphasized the importance of following due procedure and considering the objections raised by the petitioner before making a decision on special audit.

Consequently, the High Court quashed the impugned order dated 28/11/2016 for special audit under Section 142 (2A) of the Income Tax Act and directed the Assessing Officer to reevaluate the matter, taking into account the objections submitted by the petitioner on 25/11/2016. The Court instructed the Assessing Officer to exclude the period from the original order till the present date for calculating the limitation for passing the assessment order. The Court stressed the necessity of completing this process promptly and ruled in favor of the petitioner on the grounds of breach of natural justice principles, without imposing any costs.