By TIOL News Service

AHMEDABAD, MAR 31, 2017: THE ISSUE IS - Whether the AO is authorised to pass an order for special audit in exercise of powers conferred u/s 142(2A), in case of multiplicity of the transactions in accounts and specialized nature of business activities of the assessee. YES is the verdict.

Facts of the case:

Pursuent to an order passed by Gujarat High Court during the subject years, the assessee companies came to be amalgamated with Takshashila Gruh Nirman Private Limited. Messrs. Takshashila Gruh Nirman Private Limited is subsequently named as Takshashila Realities Limited. Consequent to the same, reassessment proceedings came to be initiated in case of transferre companies for A.Y 2009-2010 and notices u/s 148 came to be issued. Thought the same was challenged before this court, however it was dismissed. Thereafter, the assessee i.e., Takshashila Realities Private Limited was served with a Notice u/s 142[2A] and as the successor of the earstwhile firms, was called upon to show cause as to why an order for special audit u/s 142 [2A] may not be passed, as the accounts were required to be got audited by a Special Auditor from the point of view of taxation of capital gains and accounting of stock-in-trade at each stage of transfer so that there was no loss to the Revenue out of the complex web of transactions involved. After disposing of the objections filed by assessee, the AO sent a proposal to the Pr CIT, who granted his approval and appointed a Special Auditor.

On appeal, the HC held that,

++ it is required to be noted that the impugned orders have been passed by the AO of Special Audit in exercise of powers u/s 142[2A]. Therefore, considering the amended Section 142 [2A], if at any stage of the proceedings before him, the AO, having regard to [a] the nature and complexity of the accounts; [b] volume of the accounts; [c] doubts about the correctness of the accounts; [iv] multiplicity of transactions in the accounts; or [v] specialized nature of business activity of the assessee and the interests of the Revenue, is of the opinion that it is necessary so to do, he may, with the previous approval of the Pr CIT, direct the assessee to get the accounts audited by Special Auditor. As per the proviso to Section 142 [2A], before passing an order of Special Audit and prior to directing the assessee to get the accounts so audited, the AO is required to give a reasonable opportunity of being heard to the assessee. In the present case, before passing the impugned Orders u/s 142[2A], opportunity of being heard has been duly given to the assessee and show cause notices were issued calling upon the assessee 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 assessee raised objections in detail, which have been disposed of by the AO by speaking order and only thereafter, after seeking approval from the Pr CIT, as required under the Act, the AO passed the impugned orders u/s 142 [2A]. Therefore, as such, the procedure which is required to be followed, while passing the order u/s 142[2A], has been duly followed by the AO. Now so far as submission made on behalf of the assessee that the AO cannot direct special audit u/s 142 [2A] before calling for the accounts from the assessee 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], 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 AO can pass an order for special audit in exercise of powers conferred u/s 142 [2A];

++ the decision for audit of the assessees' account is backed by proper material on record and reasons recorded by the AO. His formation of belief that looking to the multiplicity of the transactions in the accounts and specialized nature of business activities of the assessee, a special audit is called for, and therefore, it cannot be faulted. At this stage, decision of Delhi High Court in the case of DLF Limited & Anr. vs. Additional Commissioner of Income-tax & Anr. 2014-TIOL-413-HC-DEL-IT is required to be referred to and considered. In the said decision, Delhi High Court has considered scope, ambit and powers of the AO, while passing order u/s 142. In the said decision, it is observed that Section 142 [2A] is an enabling provision to help and assist the AO to complete the scrutiny assessment with the assistance of an accountant. In view of the above and for the reasons stated hereinabove, more particularly considering the scope and ambit of Section 142 [2A] of the Act, it cannot be said that in the facts and circumstances of the case, the Dy CIT has committed any error and/or any illegality while passing the order u/s 142 [2A] of the Act.

(See 2017-TIOL-635-HC-AHM-IT)