Legal opinions from Special Auditor can be sought by Assessing officer u/s 142(2A) of the Income Tax Act

In Dishman Infrastructure Limited v. The Assistant Commissioner of Income Tax, Central Circle (2) [R/SPECIAL CIVIL APPLICATION NO. 7618 of 2021 With R/SPECIAL CIVIL APPLICATION NO. 7620 of 2021 dated August 19, 2021], Dishman Infrastructure Limited (Petitioner) has challenged the Order dated April 22, 2021 passed by the Assistant Commissioner of Income Tax (Respondent) wherein the Respondent has directed the Petitioner to get their books of accounts audited by the Chartered Accountant nominated by the Principal, CIT (Central-1), Ahmedabad.

Special Auditor on blackboard with businessman in a suit on side

After a search/ seizure and survey actions were conducted against the Petitioner, proceedings under Section 153A of the Income Tax Act, 1995 (IT Act) were initiated. The Respondent after the search and following of due procedure, giving the Petitioner a hearing opportunity directed the Petitioner to get the accounts audited by the nominated Chartered Accountant under Section 142(2A) of the IT Act.

The Petitioner contended some of the directions issued by the Respondent are bad in law because the Respondent has delegated upon a special auditor the work which he himself was required to do thereby is in the nature of investigation. Such directions cannot be segregated from the other directions and therefore submitted that the entire order containing the directions be quashed and set aside.

The Hon’ble Gujarat High Court while analyzing the scope and ambit of Section 142(2A) of the IT Act relied on the case of Sahara India (Firm) Vs. Commissioner of Income-tax & Anr. [300 ITR 403. dated August 23, 2018] and Rajesh Kumar v DCIT [Appeal (civil) 4633 of 2006 dated November 1, 2006] which held that “the special audit under Section 142(2A) of the IT Act is not limited to mere production of the books and vouchers before an auditor and verification thereof. It would involve submission of explanation and clarification, which may be required by the special auditor on various issues. Therefore, the special audit is more or less in the nature of an investigation.”

Further noted, that as per the amendment in Section 142(2A) of the IT Act, the Assessing Officer (“the AO”) can exercise the powers under the Section 142(2A) by directing the assessee to get his accounts audited by a special auditor, if in his opinion it is necessary to do so considering not only the nature, complexity, volume or correctness of the accounts but also considering the specialized nature of business activity of the assessee.

Held the final decision on all the issues has to be taken by the AO, being a quasi-judicial authority, he cannot be restrained from calling for the opinion of the special auditor on the particulars which he may require having regard to the facts and circumstances of the case, which even otherwise is permissible under Section 142(2A) of the IT Act.

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September 2021