Writ Court not to interfere if Petitioner has no defence to object special audit u/s 142(2A)

Writ Court not to interfere if Petitioner has no defence to object to a special audit u/s 142(2A)

In a recent judgment, Hon’ble High Court of Jharkhand has held that in a proceeding under Article 226 of the Constitution, the writ Court shall not exercise its discretionary jurisdiction where the records reveal that the petitioner has, in fact, no defence to object to a special audit under sub-section (2A) to section 142.

ABCAUS Case Law Citation:
ABCAUS 4172 (2024) (07) HC

In a batch of writ petitions, the order passed under section 142(2A) of the Income Tax Act, 1961 (the Act) for a special audit u/s 142(2A) of the Act of its Books of Account by a nominated Chartered Accountant was challenged. The orders passed by the Principal Commissioner of Income Tax granting the approval for special audit were also challenged.

In all the Petitions, the orders passed were challenged only on the ground of violation of natural justice contending that said order had been passed in utter violation of the principles of natural justice and without even considering the show cause reply filed by the Petitioners.

The Hon’ble High Court observed that a plain reading of the provisions under sub-section (2A) of Section 142 of the Act, it is clear that the Assessing Officer can exercise the powers thereunder at any stage of the proceedings before him.

The Hon’ble High Court further observed that sub-section (2A) provides that if the Assessing Officer thinks that it is necessary to cause a special audit he may with the previous approval of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner direct the assessee to get the accounts audited by a nominated Accountant. The opinion so formed by the Assessing Officer shall be based on (i) the nature and complexity of accounts, (ii) the volume of the accounts, (iii) doubts about the correctness of the accounts, (iv) multiplicity of transactions in the accounts or (v) specialized nature of business activity of the assessee. While forming an opinion for the special audit by a nominated Accountant, the Assessing Officer is also required to have regard to the interests of the Revenue.

The Hon’ble High Court stated that apparently, this cannot be a requirement in law that the Assessing Officer must refer to each of the aforementioned factors separately and narrate the supporting facts thereof while exercising the power under sub-section (2A).

The Hon’ble High Court observed that in its earlier order, it was held that the satisfaction indicated under sub-section (2A) for forming an opinion by the Assessing Officer shall not be open to judicial scrutiny and wherever it is shown to the Court that there are materials for arriving at satisfaction for the special audit of the accounts of an assessee by an Accountant as defined in explanation to sub-section (2) of section 288, the writ Court shall be denuded of its power of judicial review under Article 226 of the Constitution of India. This would evince no doubt that at this stage, the statutory Authority is required to form a prima facie opinion and not to render a conclusive finding.

The Hon’ble High Court further observed that under a similar situation, even though five days’ time to respond to the notice under section 142(2A) was not sufficient, it was held that Court shall not interfere in the matter.

The Hon’ble High Court stated that there is no law of universal application that every order passed in breach of natural justice must be interfered by the Court. The requirement in law that every order that ensues civil consequence must be passed following the rules of natural justice shall vary from case to case and no strait-jacket formula can be prescribed.

The Hon’ble High Court expressed disagreement with the petitioner-Company that serious prejudice was caused to the petitioner-Company on account of violation of the rules of natural justice. A notice under section 142(2A) of the Income Tax Act is only a step towards the assessment of income tax and the nominated Auditor’s report is not the final decision.

In a proceeding under Article 226 of the Constitution, the Writ Court shall not exercise its discretionary jurisdiction where the records reveal that the petitioner- Company has, in fact, no defence to object to a special audit under sub-section (2A) to section 142.

Accordingly, Writ Petitions were dismissed. 

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