Court sets aside approval & directs special audit reconsideration under Section 142(2A) with opportunity to be heard

The court allowed the writ petition, setting aside the approval dated 23.12.2011 and the letter dated 29.12.2011. The Assessing Officer and Commissioner of Income Tax were directed to reconsider the matter for special audit under Section 142(2A) after considering the petitioner's objections and providing a reasonable opportunity to be heard, ensuring that the decision is based on objective criteria. The court did not award any costs and directed a reconsideration of the matter in accordance with the law.

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Issues Involved:
1. Validity of proceedings under Section 142(2A) of the Income Tax Act, 1961.
2. Whether the assessment for AY 2009-10 became time-barred.
3. Legality of the letter dated 29.12.2011 requiring the petitioner to furnish an audit report.
4. Prohibition against further proceedings under Section 142(2A).
5. Costs awarded.

Detailed Analysis:

1. Validity of Proceedings under Section 142(2A):
The petitioner argued that the proceedings under Section 142(2A) were initiated merely to extend the limitation period, which was set to expire on 31.12.2011. The petitioner contended that no order was passed or served under Section 142(2A) and that the complexity of accounts, a prerequisite for invoking Section 142(2A), did not exist. The court noted that the Assessing Officer (A.O.) issued a show cause notice on 16.12.2011, but there was no evidence of an order being served on the petitioner before the limitation period expired. The court emphasized that the formation of opinion under Section 142(2A) must be based on objective criteria and not subjective satisfaction. The approval by the Commissioner of Income Tax (CIT) on 23.12.2011 lacked consideration of the petitioner's replies, indicating a mechanical approval process.

2. Whether the Assessment for AY 2009-10 Became Time-barred:
The petitioner claimed that the assessment for AY 2009-10 became time-barred as no order under Section 142(2A) was served before 31.12.2011. The court found that even if the letter dated 28.12.2011 from the A.O. to the Special Auditor was considered an order, it was served on the petitioner only on 09.01.2012, after the limitation period had expired. Thus, the proceedings were indeed time-barred.

3. Legality of the Letter Dated 29.12.2011:
The letter from the Special Auditor dated 29.12.2011, informing the petitioner of their appointment, was received on 09.01.2012. The court observed that the CIT's approval and the subsequent letter did not reflect an application of mind or consideration of the petitioner's objections. The court reiterated that any order under Section 142(2A) must be communicated and served on the assessee, which was not done in this case.

4. Prohibition Against Further Proceedings under Section 142(2A):
The court directed that the A.O. should reconsider the issue of directing a special audit under Section 142(2A) after giving the petitioner a reasonable opportunity to be heard. The CIT, as the approving authority, must ensure that the approval reflects an objective assessment of the facts and the petitioner's objections.

5. Costs Awarded:
The court did not award any costs and directed the A.O. and CIT to reconsider the matter in accordance with the law.

Conclusion:
The court allowed the writ petition, setting aside the approval dated 23.12.2011 and the letter dated 29.12.2011. The A.O. and CIT were directed to reconsider the matter for special audit under Section 142(2A) after considering the petitioner's objections and providing a reasonable opportunity to be heard, ensuring that the decision is based on objective criteria.

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