Case Note & Summary
The petitioner, Karnataka Industrial Area Development Board (KIADB), a statutory board constituted under the Karnataka Industrial Area Development Act, 1966, challenged two orders passed by the Income Tax Department directing special audit of its accounts under Section 142(2A) of the Income Tax Act, 1961. The first order dated 28-03-2016 was passed by the Deputy Commissioner of Income Tax (Exemptions), and the second order dated 15-12-2016 was passed by the Assistant Commissioner of Income Tax (Exemptions). The petitioner contended that the orders were passed without application of mind, without recording proper satisfaction, and without granting any opportunity of hearing. The court examined the provisions of Section 142(2A) and the precedents, including the Supreme Court decision in Sahara India (Firm) v. CIT and the Delhi High Court decision in Citi Financial Consumer Finance India Ltd. v. CIT. The court held that the Assessing Officer must record satisfaction that the nature and complexity of accounts and the interests of revenue necessitate a special audit, and such satisfaction must be based on objective material. The court found that the impugned orders merely reproduced the statutory language without any application of mind, and no opportunity of hearing was given to the petitioner. Consequently, the court quashed both orders and directed the Assessing Officer to pass fresh orders after giving the petitioner an opportunity of hearing and recording proper satisfaction.
Headnote
A) Income Tax - Special Audit under Section 142(2A) - Requirement of Recording Satisfaction - The Assessing Officer must record satisfaction that the nature and complexity of accounts and interests of revenue necessitate special audit, and such satisfaction must be based on objective material and not be a mechanical reproduction of statutory language. (Paras 7-10) B) Income Tax - Special Audit under Section 142(2A) - Opportunity of Hearing - The assessee must be given an opportunity of hearing before an order for special audit is passed, as the order has serious civil consequences including cost burden on the assessee. (Paras 11-12) C) Income Tax - Special Audit under Section 142(2A) - Speaking Order - The order directing special audit must be a speaking order containing reasons, and mere reproduction of statutory language without application of mind renders the order invalid. (Paras 13-15) D) Income Tax - Special Audit under Section 142(2A) - Approval of Commissioner - The order must be passed with the prior approval of the Principal Commissioner or Commissioner, and such approval must be meaningful and not mechanical. (Para 16)
Issue of Consideration
Whether the orders passed by the Assessing Officer under Section 142(2A) of the Income Tax Act, 1961 directing special audit of the petitioner's accounts are valid and sustainable in law.
Final Decision
The court quashed both impugned orders and directed the Assessing Officer to pass fresh orders after giving the petitioner an opportunity of hearing and recording proper satisfaction as required under Section 142(2A).
Law Points
- Special audit under Section 142(2A) requires recording of satisfaction by Assessing Officer
- opportunity of hearing to assessee
- and approval of Principal Commissioner or Commissioner
- order must be a speaking order with reasons
- non-application of mind vitiates the order.
