2002 (9) TMI 100 - HC - Income Tax

Summary

Issues Involved:
1. Legality of the order for special audit u/s 142(2A) of the Income-tax Act, 1961.
2. Compliance with principles of natural justice.
3. Complexity of accounts and necessity for special audit.

Summary:

1. Legality of the order for special audit u/s 142(2A):
The petitioner-assessee challenged the order dated November 8, 2001, approving a special audit u/s 142(2A) of the Income-tax Act, 1961. The petitioner argued that there was no warrant for a special audit as the tax audit report u/s 44AB and statutory audit report under the Companies Act, 1956, were already furnished and found faultless by the assessing authorities. The petitioner contended that the impugned order was made on extraneous, irrelevant, and collateral considerations without proper application of mind or satisfaction of the conditions precedent for forming the requisite opinion.

2. Compliance with principles of natural justice:
The petitioner-company was previously informed on February 27, 1991, about the proposed special audit for the assessment year 1988-89, which was challenged and quashed by the court on July 12, 2001, with liberty to the respondent authorities to give a hearing if they wished to take steps u/s 142(2A). The Commissioner of Income-tax (CIT) afforded a hearing to the petitioner on October 19, 2001, and the petitioner submitted objections on November 6, 2001. The impugned order recorded that the CIT discussed with the petitioner's representatives and reviewed their submissions. However, the petitioner argued that the opportunity of hearing was a mere formality as the CIT had a predetermined mind.

3. Complexity of accounts and necessity for special audit:
The CIT's impugned order stated that the accounts were complex and some vital information was not ascertainable, necessitating a special audit. The petitioner contended that all requisitions by the Assessing Officer were complied with, and no fault was found with the audit reports submitted. The court observed that the power to direct a special audit should be based on objective criteria and not exercised lightly. The court found that the Assessing Officer did not make an honest attempt to understand the accounts and could have called for additional particulars if needed. The court held that the grounds for the special audit were not justified as the complexity of the accounts was not established.

Conclusion:
The court quashed and set aside the impugned order dated November 8, 2001, for special audit u/s 142(2A) for the assessment year 1988-89, allowing the respondent authorities to proceed with the finalization of the assessment in accordance with the law. The writ application was disposed of without any order as to costs.