2014 (9) TMI 750 - HC - Income Tax

High Court overturns Special Auditor appointment under Income Tax Act, citing lack of personal hearing.

The High Court of Bombay set aside an order appointing a Special Auditor without a personal hearing under Section 142(2A) of the Income Tax Act, 1961. The ... Appointment of special auditor by AO – Opportunity of being heard not provided – Held that:- The appointment of Special Auditor without granting personal hearing is contrary to and in defiance of the statutory provisions as provided u/s 142(2A) – thus, the order is set aside and the matter is remitted back to the AO for fresh adjudication after granting personal hearing to the assessee – Decided in favour of assessee. Issues:Challenge to order appointing Special Auditor without personal hearing under Section 142(2A) of the Income Tax Act, 1961.Analysis:The High Court of Bombay heard a petition challenging an order dated 28th March, 2013, in which the Assessing Officer appointed a Special Auditor to audit the Petitioner's Books of Account for the Assessment Year 2010-11 under Section 142(2A) of the Income Tax Act, 1961. The Petitioner contended that the order was passed without granting them a personal hearing, as required by law. The RespondentRevenue did not dispute this fact. The Court observed that the appointment of a Special Auditor without a personal hearing is against the statutory provisions of the Act, specifically the proviso to subsection (2A) of Section 142, which mandates that the assessee must be given a reasonable opportunity of being heard before such direction is given. Therefore, the Court held that the impugned order was in breach of statutory provisions and, consequently, invalid.The Court set aside the impugned order and directed the Assessing Officer to pass a fresh order after providing a personal hearing to the Petitioner and considering their submissions. Additionally, the Court ordered that if the Assessing Officer issues an adverse order, it should not be acted upon for two weeks from the date of communication to the Petitioner. To prevent any limitation issues, the Court granted a stay of assessment proceedings for six weeks to allow the Assessing Officer to pass a fresh order after granting a personal hearing to the Petitioner. The stay of assessment proceedings ended with the disposal of the petition. The Court disposed of the petition with the aforementioned directions, ensuring compliance with the statutory provisions and principles of natural justice.