2022 (6) TMI 904 - HC - Income Tax

Natural justice upheld in Section 142(2A) order, no hearing granted. Court rules in favor of Petitioner (2A)

The Court held that principles of natural justice apply to Section 142(2A) orders, emphasizing the importance of providing an opportunity for the assessee ... Special audit - validity of Order under section 142(2A) - the order passed under Section 142(2A) of the Act was passed without giving an opportunity of hearing to the Petitioner - whether the observations made in the case of Rajesh Kumar would apply in every case where the Assessing Officer issues a direction under Section 142(2A)? - HELD THAT:- Reference was considered by the bench of three judges of the Supreme Court in the case of Sahara India (Firm) [2008 (4) TMI 4 - SUPREME COURT] - The Bench in the case of Sahara India confirmed the law laid down in the case of Rajesh Kumar. It was held that the assessee has to be given the opportunity of being heard before passing the order u/s 142(2A) of the Act. The Supreme Court thus held that if no show cause notice is given to the Assessee before passing orders under Section 142(2A) of the Act, the orders were vitiated by failure to observe the principles of natural justice. As held by the Supreme Court in the case of Rajesh Kumar, on account of the special audit, the assessee has to undergo the process of further accounting despite the fact that a qualified auditor has audited accounts in terms of section 44AB of the Act, who is a professional person and in case of misconduct liable to be proceeded against. The assessee has to pay the fees of the special auditor. During the audit of the accounts, again by the special auditor, the Assessee has to answer a large number of questions. The Supreme Court held that by virtue of an order under section 142(2A) of the Act, the assessee suffers civil consequences, and the order passed would be prejudicial to him; therefore, the principles of natural justice were held to be implicit. Also, if the assessee was put to notice, it can be shown that the accounts do not require special auditors. In the present case, as stated earlier, it is an admitted position that no hearing was given, and in the light of the law laid down by the Supreme Court as above, the Petitioner is entitled to succeed. Issues:Challenge to order under Section 142(2A) of the Income Tax Act, 1961 without opportunity of hearing.Analysis:1. The Petitioner, a Partnership Firm engaged in manufacturing, filed its return for the assessment year 2002-03, which was accepted. Subsequently, Respondent No.1 issued a notice under Section 142(2A) directing the accounts to be audited by a Special Auditor, without providing an opportunity of hearing to the Petitioner.2. The Petitioner's main grievance was the lack of opportunity of hearing before the order under Section 142(2A) was passed. The Respondents argued that there is no legal requirement to provide a hearing under this section, as it is based on the subjective satisfaction of the Assessing Officer and the Commissioner of Income Tax.3. Section 142(2A) was amended with a proviso effective from 1 June 2007, stating that the Assessing Officer must give the assessee a reasonable opportunity of being heard before directing an audit. However, the Supreme Court in the case of Rajesh Kumar clarified that the requirement of hearing was implicit even before the amendment.4. The Supreme Court held in the case of Rajesh Kumar that the principles of natural justice apply to Section 142(2A) orders, as they have civil consequences for the assessee. The Court emphasized the importance of providing an opportunity for the assessee to be heard before passing such orders.5. In the present case, as no hearing was provided to the Petitioner before the order under Section 142(2A) was issued, the Court held that the Petitioner is entitled to succeed. Consequently, the Writ Petition was allowed, and the Rule was made absolute in favor of the Petitioner without costs.