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TMI Blog2020 (2) TMI 131X X X X Extracts X X X X X X X X Extracts X X X X ..... ng that in the absence of pre-decisional hearing, the decision to have special audit was invalid and consequentially, all the proceedings conducted thereafter stood vitiated. - Decided in favour of assessee. - INCOME TAX APPEAL NO. 1329 OF 2017 WITH INCOME TAX APPEAL NO. 1188 OF 2017 WITH INCOME TAX APPEAL NO. 1321 OF 2017 - - - Dated:- 27-1-2020 - UJJAL BHUYAN MILIND N. JADHAV, JJ. Mr. M.N. Singh for the Appellant Mr. P.J. Pardiwala, Sr. Advocate a/w Ms. Aarti Sathe for the Respondent ORAL ORDER [Per Ujjal Bhuyan, J.] : 1. This order will dispose of Income Tax Appeal Nos. 1188 of 2017, 1321 of 2017 and 1329 of 2017 as the issue arising in all these appeals is identical. 2. Heard Mr. M.N. Singh., learned standing counsel, revenue for the appellant and Mr. Pardiwala learned senior counsel along with Ms. Aarti Sathe, learned counsel for the respondent - assessee. 3. Income Tax Appeal No. 1329 of 2017 pertains to assessment year 2005-06, Income Tax Appeal No. 1188 of 2017 pertains to assessment year 2006-07 and Income Tax Appeal No. 1321 of 2017 pertains to assessment year 2007- 08. However, for the sake of convenience, we take up Income Tax Appeal No. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion given to special audit need to be looked into. The learned Departmental Representative for the Revenue has filed on record copy of order sheet entries, wherein the assessee was asked to file English translation of the seized note books after assignment of case upon the DCIT, Central Circle, the order sheet entry is dated 16.05.2008. Thereafter, there was proposal to centralize Patel group cases with Addl. CIT, Circle-1, Pune. Vide order sheet entry dated 11.09.2008 itself, a proposal for audit under section 142(2A) of the Act in the case of Patel was submitted to CIT, Central, Pune through proper channel. The cases of Patel group were assigned to the ITO, Central-I, Pune on 13.10.2008. On 22.10.2008, a proposal for audit under section 142(2A) of the Act in the case of Patel group was submitted to CIT(C), Pune through proper channel. Thereafter, letter dated 21.11.2008 in respect of special audit under section 142(2A) of the Act was served upon the assessee as per order sheet entry dated 25.11.2008. On 16.12.2008, the Counsel filed a letter requesting for copies of seized note books and diaries which were supplied to him on 17.12.2008. On 30.03.2009, the cases were assigned to I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10.2008. Pursuant thereto, the administrative Commissioner granted approval on 4.11.2008. 8. Tribunal posed a question to itself as to whether the Assessing Officer before sending a proposal for conducting special audit under Section 142(2A) of the Act, was required to provide an opportunity of hearing to the assessee and in absence of the same, can the proceedings conducted thereafter be held to be vitiated in law. Tribunal answered the question in the following manner:- 40. The question which arises for adjudication before us is that in the present set of facts, where the Assessing Officer before sending a proposal for conducting special audit under section 142(2A) of the Act has not given an opportunity of being heard to the assessee and in view of the proviso to section 142(2A) of the Act, is the said proposal made without affording pre-decisional hearing to the assessee valid and can the proceedings conducted thereafter be held to be vitiated in law. The Hon ble Supreme Court in Three Judge decision in Sahara India (Firm) Vs. CIT and Another (supra) had decided the issue of show cause notice to be given on pre-decisional stage and post-decisional stage of starting th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see. The requirement of the Act is that the Assessing Officer has to give finding that there is complexity of accounts and the interests of revenue would be affected, and in such circumstances, show cause notice needs to be given to the assessee to explain its case. Where the assessee was able to explain the nature of entries and also justify that the same are not complex, then there is no need to put the assessee to such hardship of conducting special audit. The Assessing Officer having failed to give any opportunity of hearing to the assessee before making the proposal for conducting special audit under section 142(2A) of the Act at the pre-decisional stage, then such proposal made by the Assessing Officer to the CIT(C), Pune is against the principles of natural justice and suffers from infirmity. The case of Revenue before us is that the CIT(C), Pune before passing his order of giving permission to the Assessing Officer to ask the assessee to get the special audit conducted had given fair opportunity of hearing to the assessee. The role of CIT(C) is the role of approving authority. The role is not that of adjudicating authority which had to be carried out by the Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness of the accounts, multiplicity of transactions in the accounts or specialised nature of business activity of the assessee, and the interests of the revenue, is of the opinion that it is necessary so to do, he may, with the previous approval of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, direct the assessee to get the accounts audited by an accountant, as defined in the Explanation below sub-section (2) of section 288, nominated by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner in this behalf and to furnish a report of such audit 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. 9.1. Thus, sub-section (2A) of Section 142 provides that in the course of the assessment proceedings, if the Assessing Officer forms an opinion that the accounts of the assessee is required to be audited by an accountant as defined under the Act as the accounts are complex, voluminous, questionable etc and in the interest of the revenue, he may direct the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irement that the Assessing Officer has to provide reasonable opportunity of hearing to the assessee before directing the assessee to get the accounts audited under the said provision. 14. Reverting back to Sahara India (supra), Supreme Court held that special audit is more or less in the nature of an investigation and in some cases, may even turn out to be stigmatic. Therefore, even after the obligation to pay the auditor's fees by the assessee, civil consequences would still ensue on the passing of an order for special audit. Finally, Supreme Court held as under:- 24. The upshot of the entire discussion is that the exercise of power under section 142(2A) of the Act leads to serious civil consequences and, therefore, even in the absence of express provision for affording an opportunity of pre-decisional hearing to an assessee and in the absence of any express provision in Section 142(2A) barring the giving of reasonable opportunity to an assessee, the requirement of observance of principles of natural justice is to be read into the said provision. Accordingly, we reiterate the view expressed in Rajesh Kumar's case (supra). 25. It is pertinent to note that b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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