Special Audit justified if no book before AO and Specialized nature of business activities and multiplicity of transactions

In the present case, before passing the impugned Orders under section 142(2A) of the Act, opportunity of being heard has been duly given to the assessee and show cause notices were issued and served upon the petitioner calling upon the petitioner to show cause why, for the reasons stated in the said notice, the books of account may not be subject to audit by a special auditor. It is required to be noted that in the show cause notice, reasons were specifically mentioned pointing out the necessity to get accounts audited by the Special Auditor. That thereafter, the petitioner-assessee raised objections in detail, which have been disposed of by the assessing officer by speaking order and only thereafter, after seeking approval from the Principal Commissioner of Income Tax; as required under the Act, the assessing officer passed the impugned orders under section 142(2A) of the Act. Therefore, as such, the procedure which is required to be followed, while passing the order under section 142(2A) of the Act, has been duly followed by the assessing officer.

Now so far as submission made on behalf of the petitioner that the assessing officer cannot direct special audit under section 142(2A) of the Act before calling for the accounts from the petitioner in the assessment proceedings and without doubting the accounts and/or considering the complexity in the accounts is concerned, it is required to be noted that as per amended section 142(2A) of the Act, apart from the nature and complexity of the accounts, etc., even in case of multiplicity of transactions in the accounts or specialized nature of business activity of the assessee and the interests of the Revenue, the assessing officer can pass an order for special audit in exercise of powers conferred under section 142(2A) of the Act. Therefore, while forming an opinion to get the accounts audited by special auditor; considering the specialized nature of business activities of the assessee, there need not be any books of account before the assessing officer. In the present case, having found that there are complex issues relating to introduction of land by the partners into the firms; revaluation of land; credit of partners in capital account equal to revalued amount of land; conversion of capital account to loan account of shareholders and issues relating to issuance of equity shares against the balances of revaluation credits at an unreasonable premium, and after having been satisfied that considering the specialized nature of business activities of the assessee, the assessing officer has passed an order of special audit in exercise of powers under section 142(2A) of the Act.

Full Text of the High Court Judgment / Order is as follows:-