Special audit under tax law excludes audit time from limitation where the direction remains operative and unchallenged.

A subsisting special audit direction under section 142(2A), issued with competent approval and not set aside in writ proceedings, could not be reopened by appellate authorities on the factual satisfaction for invoking audit where no statutory appeal lay. As the audit remained operative, the time spent in completing it was required to be excluded while computing the limitation period for assessment. The related extensions of time were also treated as permissible because the statute did not require the extension request to be made before expiry of the earlier period, and the assessment was completed within the extended statutory period after the audit report was received.

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Issues: Whether the direction for special audit under section 142(2A) could be invalidated in appellate proceedings and, if not, whether the time spent in such audit had to be excluded while computing limitation for completion of assessment.

Analysis: The direction for special audit was issued with the approval of the competent authority and remained unchallenged in writ proceedings. The appellate authorities could not examine the factual satisfaction for invoking special audit where no statutory appeal lay against the direction. The order directing audit was not wiped out merely because it was alleged to have been passed without prior hearing. Since the special audit was carried out pursuant to a subsisting direction, the period consumed by that audit had to be excluded under the limitation provisions. The further extensions of time were also held to be permissible because the statute did not require the application for extension to be filed before expiry of the earlier period, and the assessment was completed within the extended statutory period after receipt of the audit report.

Conclusion: The challenge to the special audit direction and the plea of limitation were rejected, and the assessment was held to be within time.

Final Conclusion: The appeal failed in entirety and the assessment based on the special audit report was sustained.

Ratio Decidendi: Where a special audit direction remains operative and is not set aside, the period consumed by that audit is excluded in computing limitation, and in the absence of a statutory appeal the appellate forum cannot re-examine the merits of the conditions for invoking the special audit.

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