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M/s. Karnataka Industrial Area Development Board Versus The Assistant Commissioner of Income Tax (Exemptions) , The Commissioner of Income Tax (Exemptions)

2018 (1) TMI 545 - KARNATAKA HIGH COURT

Correctness of the ‘Special Audit’ u/s 142(2A) ordered by the Respondent Authority - Held that:- The reasons recorded and communicated to the assessee for such ‘Special Audit’ prima facie indicate that the Assessing Authority has merely quoted the observations and objections of the Comptroller and Auditor General of India, its Audit Paras and its explanation and reply by the petitioner assessee Board and adding a few lines of his own as Assessing Authority’s observations, the said Respondent has .....

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essment order was expiring on 31/03/2016. - The hot-haste, the casual and cavalier attitude of the Respondent Assessing Authority in which he is invoking a serious provision of the Act against an assessee which is a Government Undertaking engaged in a public purpose of Industrial Development and being exempt from Income Tax under the KIADB Act itself, are very telling facts, in the perspective of which, invoking of these provisions of Section 142 (2-A) of the Act in this manner was absolutel .....

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ee Board in the correct perspective and pass fresh orders. - WRIT PETITION No.1863/2017 C/W WRIT PETITION No.25223/2016 (T-IT) WRIT PETITION No.1863/2017 - Dated:- 2-1-2018 - Vineet Kothari, J. For the Petitioner : Mr. Chythanya K.K, Advocate For the Respondent : Mr. E.R. Indrakumar, Senior counsel for Mr. E.I. Sanmathi, Advocate ORDER 1. The petitioner - M/s. Karnataka Industrial Area Development Board (KIADB), a Government of Karnataka Undertaking has challenged before this Court the orders pa .....

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subject to Audit at the hands of the Comptroller and Auditor General of India (C & AG) as well as the independent Chartered Accountant, also under the provisions of the KIADB Act itself and has already produced these two Audit Reports for the said two years before the Respondent - Income Tax Authority. 3. The core contention raised before this Court by the petitioner KIADB, while assailing the correctness of the Special Audit ordered by the Respondent Authority, by the learned counsel for t .....

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requires the Assessing Authority to give a reasonable opportunity of hearing to the assessee against a Notice for directing the Special Audit under Section 142 (2-A) of the Act. However, in the present case, the Notice to the petitioner assessee Board in Writ Petition No.25223/2016 was given on 18/03/2016 giving only one day s time to show cause against such Notice for which the assessee Board prayed for some reasonable time to submit its objections and it did so submit its objections on 29/03/ .....

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ard had given its due reply and explanations to the said Comptroller and Auditor General of India and it was for their consideration and there was no independent application of mind and formation of reasonable belief by the Assessing Authority himself to direct such Special Audit under the Income Tax Act in the case of the petitioner assessee Board, which is exempt from payment of Income Tax under the provisions of Section 11 of the Act. 6. Similar are the facts in the connected Writ Petition No .....

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nt Department, this Court passed a detailed interim order in one of the connected petitions, on 05/07/2016, in Writ Petition No.25223/2016 which was as follows:- 1. Heard for Admission. 2. The learned counsel for the petitioner - KIADB, submits that at the fag end of the limitation expiring of the Assessment Year 2013-14, the learned Deputy Commissioner of Income Tax, Circle-1, Bengaluru, has mechanically ordered a Special Audit under Section 142(2A) of the Income Tax Act, 1961, for the petition .....

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been directed the petitioner -KIADB just to get the period of limitation to complete the assessment for Assessment Year 2013-14 of the petitioner which is in the nature of charitable trust/institution without any object of profit. 3. The learned Counsel submitted that the proceedings seeking to cancel the registration of the petitioner s Institution, for the earlier Assessment year 2003-04 and 2004-05, has already reached up to the Hon ble Apex Court. He also urged that the alleged reasons expre .....

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s Court is of the opinion that the petitioner-KIADB is working as a public authority of developing the industrial lands within the State and being a Government of Karnataka undertaking, the reasons available for directing Special Audit under Section 142(2A) of the Act, may not be available to the respondent-Income Tax Department. In this case, as the petitioner- KIADB has already undertaken the process of two audits by independent auditors, Comptroller and Auditor General and Chartered Accounts .....

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rs like the one impugned in the present case. 5. The matter would therefore require further consideration by this Court. Let the notices be issued to the respondents. A copy of the writ petition along with Annexures may be served upon them and also upon Mr.E.I.Sanmathi, learned standing counsel for Income Tax Department. Both the respondents 1 & 2 (Commissioner of Income Tax and Deputy Commissioner of Income Tax) are directed to positively file their personal affidavits in response to the no .....

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however, submitted before the Court that the Respondent Authority has considered the Audit objections raised by the Comptroller and Auditor General of India and its reply and explanation furnished by the assessee Board and on the basis of the said material, the Respondent - Assessing Authority has given his own observations and formed an opinion that a Special Audit was required in the circumstances of the case. 9. He also urged before the Court that the exemption given to the petitioner Board .....

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rt is of the opinion that the impugned orders passed by the Respondent Assessing Authority are rather mechanically passed without due application of mind particularly in the case of an assessee, which is a Government Undertaking engaged in the activity of a public purpose namely development of Industrial Areas within the State of Karnataka and it is exempt from Income Tax as such even though exemption given to it under Section 11 of the Act, may be conditional. 12. The purpose of Section 142 (2- .....

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Section 142(2-A) of the Act itself. 13. From the facts narrated above, it prima facie appears that the Assessing Authority has not only directed the Special Audit in the case of the petitioner assessee Board rather mechanically, but at the fag-end of the limitation period, perhaps just to buy more time to pass the assessment orders in the case of the assessee Board, which admittedly for the period in question enjoyed the exemption from Income Tax under Section 11 of the Act. 14. It is not in dis .....

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assessee Board and adding a few lines of his own as Assessing Authority s observations, the said Respondent has directed the Special Audit . The orders impugned before this Court neither disclose the discussion on the objections of the assessee for there being no justification for Special Audit and at least in one case for assessment year 2013-14, the said Respondent Assessing Authority did not even wait for the objections to be placed on record and before they were furnished on 29/03/2016, the .....

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