TEHMUL BURJOR SETHNA vs. ASST. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 1(1)

Facts

The petitioner, a practicing chartered accountant, challenged notices issued under Section 142(1), 142(2A), and an order rejecting his objections, along with subsequent proceedings. A search operation was conducted on his premises on November 29, 2016, leading to notices under Section 153A for assessment years 2011-12 to 2016-17. The petitioner filed returns, and notices under Section 143(2) were issued. For assessment year 2017-18, returns were filed, and notices under Sections 143(2) and 142(1) were issued. The petitioner received a common notice under Section 142(1) for assessment years 2011-12 to 2017-18. Subsequently, a notice for special audit under Section 142(2A) was issued, to which the petitioner raised objections. The Assessing Officer rejected these objections and appointed a Special Auditor. The petitioner contended that the Special Auditor's queries exceeded their jurisdiction and that the basis for the special audit was flawed, citing assessment orders of a Trust and his own assessment for AY 2010-11.

Held

The High Court held that there was no infirmity in the procedure for initiating proceedings under Section 142(2A) of the Income Tax Act, 1961, or in the directions issued by the Assessing Officer for the special audit. The court found that the petitioner was given an opportunity of hearing by both the Assessing Officer and the Principal Commissioner of Income Tax, and that the objections raised by the petitioner were duly considered. The court also observed that while some directions in the terms of reference to the Special Auditors might not have been germane, they appeared to be issued in a standard format and did not vitiate the entire process, as the Special Auditors would confine their inquiry to relevant directions. The court found no fault with the Assessing Officer invoking Section 142(2A) considering the nature of seized material, volume of transactions, and specialized business. The court did not find any infirmity in the directions issued by the Assessing Officer so as to warrant interference. The petition was dismissed.

Key Issues

1. Whether the direction to get the petitioner's accounts audited by an accountant under Section 142(2A) of the Income Tax Act, 1961, is vitiated due to procedural infirmities or lack of application of mind by the Assessing Officer and Principal Commissioner of Income Tax. Assessee's Contention: The petitioner argued that the special audit was not warranted, that the terms of reference contained irrelevant directions, and that the basis for referring the matter to a Special Auditor was flawed, citing assessment orders of a Trust where no such reference was made and his own assessment for AY 2010-11. The petitioner also contended that the Special Auditor was exceeding their scope and jurisdiction. Revenue's Contention: The revenue contended that the special audit was necessary due to the nature of documents and material seized, the multiplicity of transactions, and the specialized nature of the petitioner's business. The revenue argued that the procedure for invoking Section 142(2A) was followed, with opportunities for hearing and consideration of objections.