Court emphasizes right to be heard before tax audit order

Deputy Commissioner of Income-Tax And Another Versus Muthoottu Mini Kuries.

Deputy Commissioner of Income-Tax And Another Versus Muthoottu Mini Kuries. - [2004] 266 ITR 213, 182 CTR 315, 128 TAXMANN 240 Issues:
Whether the assessing authority should hear the assessee before passing an order under section 142(2A) of the Income-tax Act, 1961.

Analysis:
The case involved a firm engaged in the business of chitty, which filed income tax returns for certain assessment years. The assessing authority issued an order under section 142(2A) directing the assessee to get its accounts audited without hearing the assessee. The original petition filed by the assessee challenging this order was allowed by the single judge, emphasizing the right of the assessee to be heard before such an order is passed.

The Revenue filed a writ appeal arguing that the statutory provision does not mandate a hearing before issuing an order under section 142(2A). The court analyzed the relevant statutory provision, which requires the assessing officer to form an opinion based on the nature and complexity of the accounts and the interests of revenue before directing an audit. The court emphasized the principle of natural justice that "No one shall be condemned unheard," highlighting the need for a hearing before passing orders affecting the rights of a person.

The court referred to various legal principles and precedents emphasizing the importance of hearing before administrative decisions affecting civil consequences are made. It cited cases where courts have upheld the right to a minimal hearing even in the absence of a statutory requirement. The court concluded that in the present case, the assessee should have been given an opportunity to explain that a separate audit was unnecessary, as there was no complexity in the accounts.

The court rejected the Revenue's argument that a post-decisional hearing could cure the absence of a pre-decisional hearing, stating that in this case, there was no emergency warranting the audit without hearing the assessee. The court found that the decision to quash the order under section 142(2A) was correct, as the assessing authority should have heard the assessee before issuing such an order. Despite the assessment being completed without the special audit due to a stay order, the court decided to address the issue on its merits to guide future assessing officers.

In conclusion, the court upheld the decision of the learned single judge, dismissing the appeal and affirming the importance of hearing the assessee before passing orders under section 142(2A) of the Income-tax Act, 1961.