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of <h1>Special audit direction under s. 142(2A) without examining accounts or hearing assessee struck down; fresh decision allowed</h1> The dominant issue was whether a direction for special audit under s. 142(2A) could be issued without first examining the records and without affording a ... Compulsory Audit of Accounts - procedure prescribed by section 142(2A) - Condition Precedent - No opportunity for hearing - principles of natural justice - challenged an order passed by the Deputy Commissioner of Income-tax u/s 142(2A) - HELD THAT:- Only if the records are produced and the accounts examined, the complexity or otherwise of the accounts would have become apparent, and not before. Even if there was difficulty in appreciating the entries in every case, it was not healthy to refer the matter to a chartered accountant as an explanation could have been obtained from the assessee or from his authorised representative under section 142(1) of the Act. This sufficiently safeguards the interests of the assessee and it is in evidence that the Assessing Officer was aware of it and notice was served on the assessee, and according to him, only because there was no response he had come to the conclusion that permission from the Commissioner of Income-tax has to be obtained for a fresh audit. This in fact shows that it was not because of the complexity of accounts that such a decision was taken. And it is not a contingency referred to in section 142(2A) of the Act. Even though it was suggested, as regards the remuneration element, that the petitioner can make a representation to the Commissioner, it has been pointed out that the decision of the Commissioner is final and it is not liable to be reviewed or reopened. The petitioner has substantial grievance in this region also. He has to spend a sizable amount for such an audit and it was overlooking the circumstance that he was prepared to explain the accounts to an officer who was expected to be competent to deal with such matters. The expressions used in section 142(2A) indeed show that there should be sufficient reasons and this itself posulates a right of hearing. The proceedings leading to exhibit P-7 were not justified and a decision could have been taken only after hearing the petitioner in the matter. Thus, set aside exhibit P-7. The Assessing Officer will be free to hear the petitioner on every point of doubt and come to a fresh decision, as authorised by the statute. The original petition is allowed. Issues Involved: Challenge to an order passed by the Deputy Commissioner of Income-tax u/s 142(2A) of the Income-tax Act, 1961 regarding audit of accounts of a partnership firm engaged in chitty business.Summary:The petitioner, a partnership firm engaged in chitty business, challenged an order (Exhibit P-7) passed by the Deputy Commissioner of Income-tax u/s 142(2A) of the Income-tax Act, 1961. The order required the petitioner to get their accounts audited by a chartered accountant nominated by the Commissioner of Income-tax. The petitioner contended that the order was not in line with natural justice principles and the circumstances did not warrant such an audit. The petitioner argued that their accounts were not complex and had been properly maintained, supported by profit and loss accounts. The petitioner also raised concerns about the high expenses directed to be paid for the audit.The Income-tax Department highlighted that the petitioner had not cooperated in past assessments and crucial details were missing from the submitted accounts. The Department justified the need for the audit based on the complexity of the accounts and the interests of the Revenue. The Department argued that the Assessing Officer was justified in passing Exhibit P-7 as the petitioner's returns did not provide a clear picture of their business operations.After hearing both sides, the Court held that the order passed u/s 142(2A) was unjustified as the Assessing Officer did not have proper justification for ordering the audit without a thorough examination of the accounts. The Court emphasized the importance of a fair hearing before such decisions are made. The Court set aside Exhibit P-7 and directed the Assessing Officer to hear the petitioner and make a fresh decision in accordance with the law.In conclusion, the original petition was allowed, and each party was directed to bear their respective costs.
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