Direction for Special Audit (Audit by department) - Section 142(2A) to (2D) - Income Tax - Ready Reckoner - Income Tax

Direction for Special Audit (Audit by department) - Section 142(2A) 1. AO may at any stage of proceedings, require assessee to get the books of account audited by an accountant or to get the inventory valued by Cost Accountant [Amended by FA, 2023 ] under this section. AO can direct the assessee to get either or both of the books of account audited by an accountant [ i.e. Chartered Accountant defined in the Explanation below section 288(2) ] or inventory valuation by Cost Accountant [Amended by FA, 2023 ] and to furnish a report of such audit or such inventory valuation in the prescribed form duly signed and verified by such accountant and setting forth such particulars, as may be prescribed, and such other particulars as the Assessing Officer may require , Such a decision may be taken by the AO, if regard to the following :- The nature and complexities involved in accounts or Volume of the accounts; or Doubts about the correctness of the accounts; or Multiplicity of transactions in the accounts; or Specialized nature of business activity of the assessee; and It is in the interest of the revenue to get the special audit done. Such Direction can be issue with prior approval of Chief commissioner/Commissioner of Income-tax (CIT/CCIT/PCIT/PCCIT). An opportunity of being heard must be given before directing. [ Section 142(2A) ] 2. where any direction for audit or inventory valuation under section 142(2A) is issued by the Assessing Officer the Expenses and incidental ( including remuneration of Accountant or Cost accountant of any audit or inventory valuation On or Before 31 st May 2007:- shall be determined by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner ( which determination shall be final ) and paid by the assessee and in default of such payment, shall be recoverable from the assessee in the manner provided in Chapter XVII-D for the recovery of arrears of tax. On or after 1 st Jun 2007 :- shall be determined by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner in accordance with such guidelines as may be prescribed and the expenses so determined shall be paid by the Central Government. [ Section 142(2D) ] ​​ Guidelines for the purposes of determining expenses for audit or inventory valuation under section 142(2A) [ Rule 14B ] Every Chief Commissioner shall for the purposes of clause (i) and clause (ii) of section 142(2A) shall maintain a panel of (i) accountants, out of the persons referred to in the Explanation to section 288(2); and (ii) cost accountants, out of the persons referred to in the Explanation to section 142. [ Rule 14B(1) ] Where the Assessing Officer directs (i) for audit u/s 142(2A)(i) on or after the 1st day of June, 2007; or (ii) for inventory valuation u/s 142(2A)(ii) on or after the 1st day of April, 2023, Where the direction for special audit or inventory valuation is issued by the Assessing officer, the expenses of and incidental to such special audit or inventory valuation, including remuneration of the accountant or cost accountant shall be determined by the Principal chief commissioner or chief commissioner principal commissioner or commissioner in accordance prescribed guidelines. The expenses so determined shall be paid by the central Government. ​​​​​​ The expenses of, and incidental to, audit or inventory valuation (including the remuneration of the Accountant or Cost Accountant, qualified Assistants, semi-qualified and other Assistants who may be engaged by such Accountant or Cost Accountant) shall not be less than ₹ 3,750/- and not more than ₹7,500/- for every hour of the period as specified by the Assessing Officer under section 142(2C). [ Rule 14B(2) ] The period shall be specified in terms of the number of hours required for completing the report. The Accountant or Cost Accountant referred to in clause (i) or clause (ii) of section 142(2A) shall maintain a time-sheet and shall submit it to the Chief Commissioner or Commissioner, along with the bill. [ Rule 14B(3) (4) ] The Chief Commissioner or the Commissioner shall ensure that the number of hours claimed for billing purposes is commensurate with the size and quality of the report submitted by the Accountant or Cost Accountant. [ Rule 14B(5) ] 3. Special audit can be ordered even if tax audit has been conducted u/s 44AB . Special audit or inventory valuation [Amended by FA, 2023] can also be ordered so as to protect the interest of the revenue. Such object may or may not be achieved by the audit contemplated by section 44AB. 4. Direction can be given even if A/c s already audited u/s 44AB or any other law. [ Section 142(2B) ] Every report under sub-section (2A) shall be furnished by the assessee to the Assessing Officer within such period as may be specified by the Assessing Officer. [ Section 142(2C) ] 5. Time Limit - Audit report has to be submitted within time allowed by AO which can be extended by the AO may, suo motu , or on an application made in this behalf by the assessee but maximum time must not exceed 180 days from the date on which direction under section 142(2A) is received by the assessee. 6. Special audit can be directed for particular segment of A/c s i.e. sales, purchase etc. 7. CONSEQUENCES OF FAILURE TO GET BOOKS AUDITED Failure to comply with the direction under section 142(2A) to get books of account audited entails the best judgment assessment under section 144 . Besides, it attracts penalty under section 271 and prosecution under section 276D . These provisions are attracted only if there is a default by the assessee. If the accountant nominated by the Commissioner refuses to audit the accounts, the assessee cannot be held responsible- [Swadeshi Polytex Limited Versus Income-Tax Officer, Ghaziabad [1983 (7) TMI 2- Supreme Court] . 8. The assessee shall, except where the assessment is made under section 144 , be given an opportunity of being heard in respect of any material gathered on the basis of any inquiry under section 142(2) or any audit or inventory valuation under section 142(2A) and proposed to be utilised for the purposes of the assessment. [ Section 142(3) ] 9. The provisions of this section as they stood immediately before their amendment by the Direct Tax Laws (Amendment) Act, 1987, shall apply to and in relation to any assessment for the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year and references in this section to the other provisions of this Act shall be construed as references to those provisions as for the time being in force and applicable to the relevant assessment year. [ Section 142(4) ]