10 Section 142(2A) – Special audit – Direction for special audit without application of mind – Objection of assessee not considered – Order for special audit not valid

1.      
(2018) 401 ITR 74 (Kar)

Karnataka
Industrial Area Development Board vs. ACIT

A.Ys.:
2013-14 & 2014-15,

Date
of Order: 02^nd January, 2018

The
petitioner is a Government of Karnataka undertaking, engaged in the activities
of development of industrial areas within the State of Karnataka. The relevant
period is A. Ys. 2013-14 and 2014-15. The petitioner is already subject to
audit at the hands of the Controller and Auditor General of India (C & AG)
as well as the independent chartered accountant, and also under the provisions
of the KIADB Act itself and had already produced these two audit reports for
the said two years before the Assessing Officer. For the relevant years, the
petitioner assessee had raised its objections for the proposal for special
audit u/s. 142(2A) of the Income-tax Act, 1961. However, without application of
mind the Assessing Officer issued directions for the special audit.  

The
petitioner assessee filed writ petition and challenged the said directions for
special audit. The Karnataka High Court allowed the writ petition and held as
under:

“i)   The purpose of section 142(2A) of the
Income-tax Act, 1961 is to get a true and fair view of the accounts produced by
the assessee so that the special audit conducted at the instance of the Revenue
may yield more revenue in the form of income-tax and it is not expected to be a
mere paper exercise or a repetitive audit exercise. Therefore, the special
circumstances must exist to direct the “special audit” u/s. 142(2A) of the Act
and such special circumstances or the special reasons must be discussed in
detail in the order u/s. 142(2A) itself.

ii)    It prima facie appeared that the assessing
authority had not only directed the special audit in the case of the assessee,
a Government undertaking already subject to audit at the hands of the C &
AG as well as the independent chartered accountant under the provisions of the
Act under which it was constituted, rather mechanically, but at the fag end of
the limitation period, perhaps just to buy more time to pass the assessment
order in the case of the assessee, which admittedly for the period in question
enjoyed exemption from income-tax under section 11.

iii)  The orders neither disclosed the discussion on the
objections of the assessee to the special audit and at least in one case for
the A. Y. 2013-14, the assessing authority did not even wait for the objections
to be placed on record and before they were furnished on 29/03/2016,he had already passed the order on 28/03/2016 while the limitation for passing the
assessment order was expiring on 31/03/2016. The orders u/s. 142(2A) could not be sustained.