2015 (6) TMI 292 - HC - Income Tax

Supreme Court quashes order for special audit under Income Tax Act, stresses need for valid reasons

The Supreme Court quashed the Assessing Officer's order directing a special audit under Section 142(2A) of the Income Tax Act for the assessment year ... Validity of assessment audited under Secion 142(2A) - Held that:- Issuance of order of re-assessment under Section 142 (2A) of the Act, the Assessing Officer had issued notices to the assessee but in none of them the opinion formed by the Assessing Officer for special audit of petitioner's accounts for the assessment year 2012-13, in regard to the nature and complexity of the accounts and the interest of revenue has been disclosed. Hon'ble Supreme Court in Sahara India's case (supra) held that the Assessing Officer has to be formed opinion having regard to the nature and complexity of the accounts of the assessee and the interest of the revenue. The order impugned passed by the Assessing Officer does not disclose the consideration of aforesaid ingredients before issuing the order impugned. Therefore, we are of the view that the order impugned dated 11.03.2015 passed by the Income Tax Officer, Hardoi is not in consonance with the requirement of Section 142 (2A) of the Act and, therefore, it is not sustainable. In the result, the order dated 11.03.2015 is hereby quashed with the liberty to the Assessing Officer to pass a fresh order in terms of the provisions of Section 142(2A) of the Act. Issues:Challenge to order directing special audit under Section 142(2A) of the Income Tax Act, 1961 for assessment year 2012-13.Analysis:The petitioner contested the order for special audit, claiming it was issued without examining the accounts, violating natural justice principles. They argued the order was beyond the limitation period and lacked inspection of accounts before approval. The Assessing Officer's opinion was challenged for not meeting Section 142(2A) criteria. Citing the Sahara India case, the Supreme Court emphasized forming an opinion based on the nature and complexity of accounts and revenue interests. The order under Section 142(2A) was deemed to have civil consequences, necessitating adherence to natural justice principles.In contrast, the revenue's counsel contended that the petitioner received a show cause notice, complying with natural justice principles. Section 142(2A) criteria were outlined, emphasizing the need for Assessing Officer's opinion based on account complexity and revenue interests. The Supreme Court's stance highlighted the objective basis for forming opinions and the significance of previous approval to prevent arbitrary use of power.The judgment found the Assessing Officer's order lacking disclosure of reasons for special audit based on account complexity and revenue interests. Consequently, the order was deemed unsustainable and quashed. The court directed the Assessing Officer to issue a fresh order adhering to Section 142(2A) requirements. The writ petition was disposed of accordingly.