2004 (7) TMI 11 - HC - Income Tax

Validity of Income-tax Order Upheld Under Section 142(2A) - Benami Transactions

The court upheld the validity of the order under section 142(2A) of the Income-tax Act, citing the complex nature of the accounts, allegations of benami ... This writ petition has been filed by the petitioner-cooperative bank as against the order passed by the Assistant Commissioner in exercise of power under section 142(2A) directing the petitioner to get the accounts audited by an auditor - The petitioner has also prayed for quashment of order refusing to withdraw the directions under section 142(2A). - A notice was issued under section 158BC by respondent for furnishing a return for the block period - In the facts and circumstances of the case, I find that the order is proper and it cannot be said that the power has been arbitrarily exercised. Consequently, I find no merit in the petition. The same is dismissed Issues:1. Validity of the order under section 142(2A) of the Income-tax Act.2. Allegation of benami transactions and non-filing of return for the block period.3. Complex nature of accounts and appointment of auditor.4. Compliance with legal provisions and objective exercise of power.Issue 1: Validity of the order under section 142(2A) of the Income-tax Act:The petitioner, a cooperative bank, challenged the order passed by the Assistant Commissioner, Income-tax under section 142(2A), directing the petitioner to get the accounts audited. The petitioner contended that the order was illegal as the account books were not examined before issuing the direction. The court analyzed the provisions of section 142(2A) which allow the Assessing Officer to direct audit if necessary due to the complexity of accounts. The court found that in this case, the nature of the investigation required close scrutiny of transactions, justifying the appointment of an auditor. Citing precedent cases, the court held that the order was based on objective considerations and not arbitrary.Issue 2: Allegation of benami transactions and non-filing of return for the block period:Search operations were conducted due to allegations of benami transactions involving the petitioner bank. The petitioner failed to file the return for the block period within the specified time, leading to the direction for audit under section 142(2A). The court noted that the failure to file the return and produce account books indicated the complexity of the case. The court found that the order was not aimed at gaining time for assessment under section 158BC but was a result of the complex nature of the accounts and the need for scrutiny.Issue 3: Complex nature of accounts and appointment of auditor:The court examined the seized documents and the allegations of benami transactions to determine the complexity of the accounts. It was found that the accounts of the head office and branches were intricate, requiring detailed scrutiny. The court concluded that the appointment of an auditor under section 142(2A) was justified based on the seized material and the need for a thorough investigation. The court rejected the petitioner's argument that the order lacked objective consideration.Issue 4: Compliance with legal provisions and objective exercise of power:The court emphasized the importance of exercising power under section 142(2A) objectively, considering the nature and complexity of accounts. It was noted that the Assessing Officer must form an opinion based on objective considerations before directing an audit. In this case, the court found that the order was proper and not arbitrarily exercised. The court dismissed the petition, stating that the order was in compliance with legal provisions and the interests of the Revenue.In conclusion, the court upheld the validity of the order under section 142(2A) of the Income-tax Act, considering the complex nature of the accounts, allegations of benami transactions, and the failure to file the return for the block period. The court found that the appointment of an auditor was justified, and the exercise of power was objective and in accordance with legal provisions.