Court justifies special audit order under Section 142(2A) and upholds natural justice principles

The court held that the order for special audit under Section 142(2A) was justified and complied with the principles of natural justice. The writ-application was rejected, and the interim order earlier granted was vacated. The court emphasized that it should not disturb the order passed by the Assessing Officer, as the complexity of the accounts warranted the special audit in the interest of the revenue.

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Issues Involved:
1. Maintainability of the writ-application under Article 226 by a company.
2. Legality and validity of the order for special audit under Section 142(2A) of the Income Tax Act.
3. Compliance with principles of natural justice in issuing the order for special audit.
4. Justification for the special audit based on the complexity of accounts.

Issue-wise Analysis:

1. Maintainability of the writ-application under Article 226 by a company:
The court noted that a juristic person such as a company is not entitled to the fundamental rights guaranteed by the Constitution of India. The petitioner, being a company, is not entitled to complain of breach or violation of any fundamental rights. However, the court decided to examine the matter on merits without delving into this technicality.

2. Legality and validity of the order for special audit under Section 142(2A) of the Income Tax Act:
The petitioner challenged the order dated 11th May 2007 directing a special audit under Section 142(2A) of the Income Tax Act. The court examined whether the conditions precedent for invoking Section 142(2A) were fulfilled, which include the nature and complexity of the accounts and the interest of the revenue. The court referenced several judgments, including the Supreme Court's rulings, to elucidate the scope and requirements of Section 142(2A). It was emphasized that the satisfaction of the Assessing Officer must be based on objective criteria and not purely on subjective satisfaction.

3. Compliance with principles of natural justice in issuing the order for special audit:
The petitioner argued that the respondent failed to provide a reasonable opportunity to be heard before passing the order for special audit. The court reviewed the procedural history, including the issuance of a show-cause notice and the petitioner's response. It was noted that the principles of natural justice require that the assessee be given a reasonable opportunity to explain before an order for special audit is made. The court found that the Assessing Officer had complied with these principles by issuing a show-cause notice and considering the petitioner's reply before passing the order.

4. Justification for the special audit based on the complexity of accounts:
The petitioner contended that the grounds for special audit were not justified and were based on surmises and conjectures. The court examined the reasons provided by the Assessing Officer, which included the inability to furnish head-wise income, mixed purchases under a single head, and improper maintenance of accounts. The court noted that the Assessing Officer had applied his mind to various aspects such as the nature of accounts, method of maintaining accounts, and entries recorded. The court concluded that the satisfaction recorded by the Assessing Officer was not just an eyewash and that the accounts were indeed complex, justifying the special audit.

Conclusion:
The court held that the order for special audit under Section 142(2A) was justified and complied with the principles of natural justice. The writ-application was rejected, and the interim order earlier granted was vacated. The court emphasized that it should not disturb the order passed by the Assessing Officer, as the complexity of the accounts warranted the special audit in the interest of the revenue.

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