Direction for Special Audit u/s 142(2A) of CA firm quashed by ITAT as without meeting prerequisite of section 142(2A)
ABCAUS Case Law Citation
ABCAUS 3651 (2023) (02) ITAT
Important Case Laws relied upon:
Sahara India Firm vs. Commissioner of Income Tax (2008) 300 ITR 403(SC)
Rajesh Kumar vs. PCIT (2006) 287 ITR 491 (SC)
Delhi Development Authority vs UOI (2013)350 ITR 432 (Del)
Kaka Carpets vs. CIT (2014) 43 Taxmann.com 198 (Alld)
Prateek Resorts and Builders Pvt. Ltd. vs. ACIT (2011) 9 taxmann.com 144 (All.)
Gauri Pati Udyog vs. ITO
Smt. Srilekha Damani vs. DCIT
Yum Restaurants India Pvt. Ltd. vs. CIT (2005) 196 CTR 435 (Del.)
In the instant case, the assessee had challenged the order passed by the CIT(A) in rejecting the challenge made for action of the Assessing Officer (AO) in directing Special Audit u/s 142(2A) of the Income Tax Act, 1961 (the Act).
The appellant assessee was a Chartered Accountant by profession and was also a director/ partner/proprietor in certain companies. The return filed by the assessee was subjected to the scrutiny assessment.
Approximately one month prior to the date when the assessment was to become time barred, he was called upon to file details and information which was followed by more enquires.
After going through the details, information and audit report filed by the assessee, the Assessing Officer (AO) felt having regard to the nature, complexity of accounts, it would be difficult to deduce his correct income.
Therefore, the AO issued a show cause notice u/s 142(1) to the assessee as to why not his accounts be subjected to special audit under section 142(2A) of the Act. The date for hearing in response to the notice was fixed just one day before the time barring deadline.
The assessee filed his objection to the proposed special audit on various grounds. However, the AO rejected the grounds taken by the assessee as unjustified and proceeded to take approval of the CIT for referring the case for Special Audit.
Consequently, the special auditor was appointed and intimation of such appointment was communicated to the assessee by the AO on the last day when the assessment was to become time barred.
As a result of the appointment of the Special Auditor u/s 142(2A), the limitation period for completion of the assessment stood extended by operation of section 153 of the Act.
Based on the observations of the Special Auditor, the assessment was completed with the extended limitation period by making additions u/s 68 and section 56(2)(vii) of the Act to the income of the assessee.
The CIT(A) gave only token relief to the assessee but upheld the exercise of power conferred under section 142(2A).
Before the Tribunal, the assessee took strong exception to the legitimacy of exercise of power u/s 142(2A). It was contended that the special audit was forced upon the assessee on the last day of expiry of limitation with a sole intention to unlawfully obtain extention of the limitation period for framing the assessment. It was alleged that the exercise of the power for directing special audit was without meeting the prerequisite of section 142(2A).
On the issue of appealability of the order directing special audit u/s 142(2A), the ITAT opined that one can not loose sight of the fact that subsequent proceedings and consequential aspects viz. extension of limitation period were inextricably linked to very existence and validity of the assessment order under challenge.
The ITAT opined having regard to the wide spectrum of the powers conferred upon the Tribunal u/s 254(1) of the Act, the propriety of such aspects are capable of examination for determination of issues emanating from such assessment order.
The Tribunal from the entries in the order sheet noted that the assessee had filed all details and particulars called for and made umpteen visits to the Department for the sake of compliances.
The Tribunal observed that The AO never examined the accounts but merely called for certain details as considered expedient. No complexity in the accounts was demonstrated at any stage of the proceedings nor could have been as the AO did not call for books of account.
The Tribunal further observed that the AO was satisfied with the details filed on various issues and recorded, “case discussed”, However a complete contrary stand was taken as an ipse dixit, a few days later by expressing doubt on accounts and making a general and extraneous comment as a with hunt without any sound basis.
The Tribunal further observed that the on the record, the approval for special audit did not bear the signature of the CIT concerned except a communication from ITO(Hqtr).
The Tribunal opined that the directions for Special Audit could not be countenanced for more than one reasons namely:
(i) The AO had himself conceded that all details and information called for were provided.
(ii) The AO had no occasion to have even a glimpse of accounts maintained by the assessee nor he claimed to have looked into.
(iii) The show cause did not embody any complexity in the accounts.
(iv) In the absence of any comments on the objection raised by the assessee to the show cause opportunity provided was merely and empty formality resulting In the instant appeal, the assessee had challenged the order of CIT(A) in confirming non compliance of section 142(2A).
(v) The so called approval of CIT did not show any independent application of mind.
(vi) Communication of ITO(Hqtr) is no substitute for approval of CIT
(vii) The order of approval of CIT was never communicated to the assessee.
The Tribunal found that impugned assessment was passed beyond the limitation period and was not est and void ab initio in the eys of law.
Accordingly, the appeal of the assessee was allowed.
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