Departmental audit scrutiny and show cause notice cannot be quashed absent jurisdictional error or recognised writ exception.

A departmental audit within the CAG's statutory audit domain did not become an audit of the taxpayer merely because the taxpayer's returns were examined, so a show cause notice based on revenue discrepancies from that scrutiny was not without jurisdiction. The Court also held that allegations of pre-determination did not justify quashing at the threshold where the notice reflected prima facie consideration of material, replies, and audit observations. Extended limitation could not be faulted at the notice stage where suppression and non-declaration were alleged, and no recognised exception to the alternate-remedy rule was shown. The writ challenge therefore failed and the notice was sustained.

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Issues: (i) whether the show cause notice could be quashed on the ground that it was based on an alleged CERA/CAG audit of a private company; (ii) whether the notice was liable to be interfered with at the threshold on grounds of pre-determined mindset, limitation, and availability of alternate remedies.

Issue (i): whether the show cause notice could be quashed on the ground that it was based on an alleged CERA/CAG audit of a private company.

Analysis: The record showed that the CERA/CAG had not audited the petitioner company. The audit was of the respondents' department, which was within the statutory audit domain of the CAG under the applicable law. The Court distinguished the earlier decision relied upon by the petitioner, holding that its ratio applied to a proposed audit of a private entity and not to a departmental audit from which revenue discrepancies were noticed. Merely because the petitioner's returns were examined in the course of the departmental audit did not mean that the petitioner itself had been audited. The notice was therefore not without jurisdiction on this ground.

Conclusion: The challenge based on alleged lack of audit jurisdiction failed and was rejected.

Issue (ii): whether the notice was liable to be interfered with at the threshold on grounds of pre-determined mindset, limitation, and availability of alternate remedies.

Analysis: The Court found that the notice reflected independent application of mind and that the material, replies, and audit observations had been considered for forming only a prima facie view. A mere allegation of pre-determination did not warrant quashing. On limitation, the notice contained allegations of suppression and non-declaration, and the Court held that the invocation of the extended period could not be faulted at the show cause stage. The Court also held that none of the recognised exceptions to the rule of alternate remedy were made out, since there was no violation of natural justice, no patent lack of jurisdiction, and no successful challenge to the vires of any provision.

Conclusion: Threshold interference was not warranted and the notice was allowed to stand.

Final Conclusion: The writ petition failed in substance, the impugned show cause notice was sustained, and the petitioner was left to respond in the adjudication proceedings in accordance with law.

Ratio Decidendi: A departmental audit within the statutory powers of the CAG does not become an audit of the taxpayer merely because the taxpayer's returns are examined during that process, and a show cause notice based on such departmental scrutiny is not liable to be quashed at the threshold absent a clear case of jurisdictional error or other recognised writ exception.

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