Audit under section 142 :
Sub-sections (2A), (2B), (2C), and (2D), of section 142 contain the statutory provisions relating to the conduct of audit. Students may note that the audit envisaged under this provision is different from the compulsory tax audit under section 44AB.
(1) If at any stage of the proceedings before him, the Assessing Officer, having regard to the nature and complexity of the accounts, volume of the accounts, doubts about the correctness of the accounts, multiplicity of transactions in the accounts or 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 Principal Chief Commissioner or Chief Commissioner or the Principal Commissioner or Commissioner, direct the assessee to get his accounts audited by an accountant and to furnish a report of such audit.
The expression ‘accountant‘ for this purpose means a ‘chartered accountant‘ within the meaning of the Chartered Accountants Act, 1949.
(2) The auditor by whom the audit should be carried out would be nominated by the Commissioner of Income-tax specifically for the purpose and the auditor is required to furnish the report of his audit in the prescribed form duly signed and verified by him and setting forth such other particulars as may be prescribed and also giving details in regard to such additional particulars as the Assessing Officer may require in respect of each individual case. The report of the auditor should be furnished in Form No.6B prescribed under Rule 14A of the Income-tax Rules, 1962. The auditor appointed for carrying out the audit becomes liable to carry out the requirements of audit as directed by Assessing Officer and it is the Principal Commissioner or Commissioner and not the assessee who would be his client for this purpose.
(3) The Supreme Court in Rajesh Kumar & Ors. v. DCIT (2006) 287 ITR 91 observed that the order under section 142(2A) is a quasi judicial order. Therefore, the principles of natural justice have to be applied and the assessee has to be given an opportunity of being heard before directing the special audit. The principles of natural justice are based on two principles, namely, (i) nobody shall be condemned unheard; (ii) nobody shall be a judge of his own cause. Once it is held that the assessee suffers civil consequences and any order passed would be prejudicial to him, the principles of natural justice must be held to be implicit. If the principles of natural justice were to be excluded, the Parliament could have said so expressly.
Accordingly, to give effect to the observation of the Supreme Court, is has been provided that the Assessing Officer is required to give the assessee an opportunity of being heard before issuing directions for special audit under section 142(2A).
(4) The Assessing Officer is empowered to direct the audit to be carried out in the case of any particular assessee even if the accounts of the assessee have already been audited under any other law for the time being in force or otherwise.
(5) The report of the auditor after conducting the audit must be furnished to Assessing Officer by the assessee within the period specified by the Assessing Officer in his order. The Assessing Officer is, however, entitled, suo motu on receipt of an application made in this behalf by the assessee for any good any sufficient reason to extend the time-limit by such further period or periods as he deems fit. Further, the aggregate of the period originally fixed and the period or periods so extended should not exceed 180 days in any case. This time of 180 days must be reckoned from the date on which the Assessing Officer‘s direction to get the accounts audited is received by the assessee.
(6) Where the direction for special audit is issued by the Assessing Officer, the expenses of, and incidental to, such special audit, including remuneration of the Accountant, shall be determined by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner in accordance with the prescribed guidelines. The expenses so determined shall be paid by the Central Government.
Rule 14B lays down the guidelines for the purposes of determining expenses for audit under section 142(2A). The said Rule is applicable when the audit under section 142(2A) is directed by an Assessing Officer on or after 1st June, 2007. The expenses of, and incidental to, audit (including the remuneration of the accountant, qualified assistants, semi -qualified and other assistants who may be engaged by such Accountant) should not be less than Rs 3,750 and not more than Rs 7,500 for every hour of the period as specified by the Assessing Officer under section 142(2C). Such period shall be specified in terms of the number of hours required for completing the report.
(7) The assessee should, however, be given an opportunity of being heard in respect of any material gathered on the basis of –
(i) any inquiry under section 142(2); or
(ii) any audit under section 142(2A)
which is proposed to be utilized for the purposes of the assessment. If, however, the assessment is in nature of a best judgment assessment under section 144, it is not obligatory for the Assessing Officer to give the assessee an opportunity to be heard, before passing the assessment order on the basis of the report of the auditor.
(8) In any case, where the assessee is directed to get audi t done and the assessee fails to do so, the Assessing Officer is entitled to make a best judgment assessment under section 144 in addition to imposing penalty or taking such steps as may be necessary under the law.