Special Audit is Valid If Its Approval Considers Assessee’s Response, Revenue Comments, and Includes Hearing Opportunity

Case Details: Jabalpur Development Authority v. PCIT - [2023] 157 taxmann.com 52 (Madhya Pradesh)

Judiciary and Counsel Details

• • Sheel Nagu & Hirdesh, JJ.
  • Abhishek Oswal, Adv. for the Petitioner.
  • Harshvardhan Topre, Adv. for the Respondent.

Facts of the Case

The approval for special audit under section 142(2A) was accorded for auditing the assessee – Jabalpur Development Authority’s account. On writ, the assessee challenged the said order and submitted that the same was based on subjective satisfaction, was non-speaking and had been mechanically passed.

High Court Held

The High Court held that the competent authority, vide note sheet 18-12-2018, concluded that the assessee maintains ‘cash system’ of accounting and, hence, the balance sheet cannot be prepared.

Based on this, the comments of the AO were sought, which were received online that the requisite audit would be in the interest of the revenue. Thereafter, the approval by the competent authority was granted on 20-12-2018 for special audit under section 142(2A).

It is vivid that due and sufficient opportunity was afforded to the assessee before the sanction was granted for a special audit. So far as the application of mind is concerned, it was evident from the material on record, especially the note sheet, that the competent authority has duly applied its mind by taking into account the response of the assessee and comments of the revenue.

Therefore, there was no illegality in approval for special audit.

List of Cases Reviewed

• • Sahara India (Firm) v. CIT [2008] 169 Taxman 328/300 ITR 403 (SC) (para 10)
  • Delhi Development Authority v. Union of India [2012] 25 taxmann.com 234/214 Taxman 130 (Delhi) (paras 10 and 10.1) distinguished.

List of Cases Referred to

• • Sahara India (Firm) v. CIT [2008] 169 Taxman 328/300 ITR 403 (SC) (para 5)
  • Delhi Development Authority v. Union of India [2012] 25 taxmann.com 234/214 Taxman 130 (Delhi) (para 5)
  • H.P. State Forest Corpn. v. Jt. CIT [2001] 118 Taxman 127/252 ITR 833 (HP) (para 5)
  • Dhanpati Marketiers (P.) Ltd. v. Dy. CIT [2017] 82 taxmann.com 263 (Guj.) (para 6).