2021 (11) TMI 637 - HC - Income Tax

Validity of appointing Special Audit under section 142(2A) pending assessment proceedings and consequently, direction to complete the scrutiny assessment under Section 143(3) for the Assessment Year 2009-10 based on the regular audit report filed by the petitioner - HELD THAT - In the present case, at the time of issuing proceedings dated 09.12.2011, the assessing officer had not formed an opinion however, he had some reasons to appoint an auditor in the case of the petitioner. Therefore, this Court is of an opinion that the very contention that the respondent has pre-determined the issue while issuing the order dated 09.12.2011, is doubtful. The assessing officer at the time of issuance of proceedings dated 09.12.2011 had not obtained the prior approval as at that point of time, he has not received the objections of the petitioner/assessee. Only after receiving the objections from the petitioner, on 15.12.2011, the assessing officer formed an opinion that the case of the petitioner is a fit case for appointment of an auditor by invoking Section 142(2A) of the Income Tax Act and accordingly, obtained the prior permission from the Commissioner of Income Tax and disposed of the objection in proceedings dated 16.12.2011. In the present case, the proceedings dated 09.12.2011 was treated as a show cause notice for all purposes both by the Assessing Officer and by the Assessee/petitioner and the petitioner submitted his objections in detail on 15.12.2011 and thereafter, the approval from the Commissioner of Income Tax was obtained and the objections were disposed of on 16.12.2011. The further objections raised on 23.12.2011, were also disposed of by the Assessing Officer on 26.12.2011. This being the admitted facts between the parties, there is no reason to disbelieve the proceedings dated 09.12.2011, though it was not aptly worded, as rightly stated by the learned Senior counsel appearing on behalf of the respondents. In respect of the impugned order, the petitioner is bound to cooperate for the earlier completion of the Special Audit, enabling the authority to proceed in accordance with law. Accordingly, writ petition stands dismissed.

Summary

Issues Involved:
1. Legal validity of the order dated 16.12.2011 appointing a Special Audit under Section 142(2A) of the Income Tax Act, 1961.
2. Compliance with principles of natural justice.
3. Requirement and adequacy of a show cause notice under Section 142(2A).
4. Pre-decisional versus post-decisional hearing rights.

Detailed Analysis:

1. Legal Validity of the Order Appointing Special Audit:
The petitioner challenged the order dated 16.12.2011, which appointed a Special Audit under Section 142(2A) of the Income Tax Act, 1961, during the pending assessment proceedings for the Assessment Year 2009-10. The petitioner sought the completion of the scrutiny assessment based on the regular audit report already filed.

2. Compliance with Principles of Natural Justice:
The petitioner argued that the order dated 09.12.2011, which led to the appointment of the Special Audit, violated the principles of natural justice. It was contended that the order did not serve as a proper show cause notice, as required under Section 142(2A), and that the authority had pre-determined the issues without hearing the petitioner.

3. Requirement and Adequacy of a Show Cause Notice:
The petitioner claimed that the proceedings dated 09.12.2011 could not be considered a show cause notice because it lacked an explicit invitation for objections or explanations. However, the court noted that the petitioner had treated the 09.12.2011 proceedings as a show cause notice by submitting objections on 15.12.2011. The court also emphasized that a provisional decision based on available materials is necessary to enable the assessee to submit objections effectively.

4. Pre-decisional versus Post-decisional Hearing Rights:
The petitioner relied on the Supreme Court judgment in Sahara India (Firm) Vs. Commissioner of Income-tax, which highlighted the necessity of pre-decisional hearings. The Supreme Court had ruled that post-decisional hearings cannot substitute pre-decisional hearings. The court distinguished the present case from Sahara India, noting that the petitioner was given an opportunity to object to the provisional decision before the final order was passed.

Court's Conclusion:
The court concluded that the proceedings dated 09.12.2011, although not explicitly termed as a show cause notice, were effectively treated as such by both parties. The petitioner was provided with opportunities to submit objections, which were considered before the final order dated 16.12.2011 was issued. The court found no violation of natural justice principles and upheld the legality of the order appointing the Special Audit. The writ petition was dismissed, and the petitioner was directed to cooperate with the Special Audit for the timely completion of the assessment process.