Bom HC | Decision to have special audit under S. 142(2-A) of IT Act held invalid in absence of pre-decisional hearing

Bombay High Court: A Division Bench of Ujjal Bhuyan and Milind N. Jadhav, JJ., dismissed an appeal filed against the order of the Income-tax Appellate Tribunal, Pune, whereby it had set aside the decision of the Assessing Officer proposing to conduct special audit of the respondent-assessee under Section 142(2-A) of the Income Tax Act, 1961.

The assessing officer had submitted a proposal for a special audit under Section 142(2-A) to the administrative Commissioner. Pursuant thereto, the administrative Commissioner granted approval. The ITAT set aside the said decision holding that a show-cause notice was required to be given to the assessee by the Assessing Officer before making the order proposing conduct of special audit under Section 142(2-A). Aggrieved thereby, the Commissioner of Income Tax filed the instant appeal.

The High Court relied on the Supreme Court decisions in Rajesh Kumar v. CIT, (2007) 2 SCC 181 and Sahara India v. CIT, (2008) 14 SCC 151 and observed that before forming an opinion as to the need for a special audit, having regard to the requirement of Section 142(2-A), a pre-decisional hearing has to be given by the Assessing Officer to the assessee. Even thereafter when the question of approval is before the approving authority. The latter is also required to comply with the principles of natural justice. Therefore, in both the stages contemplated under Section 142(2-A), principles of natural justice are required to be followed.

Moreover, vide the Finance Act, 2007 (w.e.f. 1-6-2007), a proviso was added to Section 142(2-A), and following the said amendment, it is now a statutory requirement that the Assessing Officer has to provide reasonable opportunity of hearing to the assessee before directing the assessee to get the accounts audited under the said provision.

In such view of the matter, the High Court held that in the absence of pre-decisional hearing, the decision to have special audit was invalid and consequentially, all the proceedings conducted thereafter stood vitiated. The Court found no infirmity in the order of the ITAT and the appeal was held devoid of merits. [CIT v. Vilson Particle Board Industries Ltd., 2020 SCC OnLine Bom 183, decided on 27-1-2020]

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