High Court quashes flawed special audit order under Income Tax Act, stresses due process and fair evaluation

The High Court quashed the impugned order for special audit under Section 142 (2A) of the Income Tax Act due to a procedural flaw that compromised the petitioner's right to respond adequately. The matter was remanded back to the Assessing Officer for a fresh decision, emphasizing the importance of following due process and considering objections raised before making a decision on special audit. The Assessing Officer was directed to reevaluate the matter, excluding the period from the original order till the present date for calculating the limitation for passing the assessment order, with no costs imposed on the petitioner.

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Issues:
Challenge to impugned order of special audit under Section 142 (2A) of the Income Tax Act on the grounds of breach of principles of natural justice.

Analysis:
The petitioner sought to quash the impugned order dated 28/11/2016 for a special audit of their books of accounts under Section 142 (2A) of the Income Tax Act, alleging a violation of natural justice principles. The petitioner argued that despite requesting extensions to respond to show cause notices, the Assessing Officer proceeded with the special audit without considering the objections raised. The petitioner contended that the approval granted by the Commissioner and the subsequent order for special audit were unjust due to the failure to provide adequate opportunity to respond.

The respondent, representing the revenue, defended the actions by stating that objections raised by the petitioner were discussed with the Commissioner before approval was granted. However, it was acknowledged that the petitioner did not receive sufficient time to respond adequately, as the final opportunity granted was received late, thus compromising the due process. The Court recognized this procedural flaw as sufficient grounds to quash the impugned order and remand the matter back to the Assessing Officer for a fresh decision. The Court emphasized the importance of following due procedure and considering the objections raised by the petitioner before making a decision on special audit.

Consequently, the High Court quashed the impugned order dated 28/11/2016 for special audit under Section 142 (2A) of the Income Tax Act and directed the Assessing Officer to reevaluate the matter, taking into account the objections submitted by the petitioner on 25/11/2016. The Court instructed the Assessing Officer to exclude the period from the original order till the present date for calculating the limitation for passing the assessment order. The Court stressed the necessity of completing this process promptly and ruled in favor of the petitioner on the grounds of breach of natural justice principles, without imposing any costs.

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