Invalid Special Audit Reference Renders Assessment Order Void; Tribunal Holds Extension Barred

The Tribunal held that the reference to the special audit under Section 142(2A) was invalid, rendering the subsequent assessment order passed in the extended period barred by limitation and void. The Tribunal emphasized that an invalid special audit reference cannot extend the statutory assessment period. Consequently, the appeal was allowed in favor of the assessee, with the assessment order being deemed void due to the invalid special audit reference.

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Issues Involved:
1. Validity of the reference to special audit under Section 142(2A) of the Income Tax Act.
2. Whether the assessment order passed was barred by limitation.

Issue-wise Detailed Analysis:

1. Validity of the Reference to Special Audit Under Section 142(2A):

The assessee challenged the reference made by the Assessing Officer (AO) for a special audit under Section 142(2A) of the Income Tax Act, arguing that the preconditions for invoking this section were not satisfied. The AO must form an opinion that a special audit is necessary, considering the nature and complexity of the accounts and the interest of the Revenue. The AO's opinion must be based on objective criteria and not just subjective satisfaction.

The Tribunal found that the AO did not point out any complexity in the accounts of the assessee. Instead, the AO noted certain deficiencies and shortcomings in the information provided by the assessee. The AO's reasons for the special audit were primarily to obtain further explanations and information, which is not the purpose of a special audit. The Tribunal also noted that the AO initiated the special audit at the fag end of the assessment period, indicating that the reference was made to extend the time for completing the assessment.

2. Whether the Assessment Order Passed Was Barred by Limitation:

The Tribunal held that the reference to the special audit was invalid. Consequently, the assessment order passed in the extended period, due to the invalid reference, was barred by limitation and hence void. The Tribunal emphasized that an invalid reference to a special audit cannot extend the statutory period for completing the assessment.

Conclusion:

The Tribunal allowed the additional ground raised by the assessee, holding that the assessment order was void due to the invalid reference to the special audit. The remaining grounds relating to the merits of the case were rendered academic and not addressed. The appeal of the assessee was allowed in these terms. The order was pronounced on October 26, 2021.

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