1. By this petition under article 226 of the Constitution of India, the petitioner challenges the communication dated December 4, 1996, by the Assistant Commissioner of Income-tax to the assessee communicating the observation of the Commissioner, i.e, “I agree with the view of the Deputy Commissioner that special audit under section 142(2A) be done”.
2. Counter and rejoinder affidavits have been exchanged and we have heard Sri R.S Agarwal, learned counsel for the petitioner, and Sri A.N Mahajan, learned counsel for the respondents.
3. The petitioner is a public sector undertaking of the Government of Uttar Pradesh and the proceedings relate to the assessment year 1983-84. Since the petitioner could not get its accounts audited by the Government auditors as required by its constitution, the Assessing Officer directed that special audit be done in terms of sub-section (2A) of section 142.
4. The petitioner then came to this court in Writ Petition No. 832 of 1986 which was decided by this court after a lapse of about a decade on August 8, 1996. In the meantime, the accounts of the petitioner had been audited by the Government auditors and this court held that in view of the audit and the lapse of a long time, the desirability of getting the special audit done under the provisions of section 142(2A) of the Income-tax Act, 1961, be reconsidered. In pursuance of this court's order dated August 8, 1996, the Assessing Officer reconsidered the matter and through a letter dated October 8, 1996, he sought the approval of the Commissioner to withdraw the order of audit because he was of the opinion that since the statutory auditors have completed the audit, the order under section 142(2A) can be withdrawn. Since this letter was forwarded through the Deputy Commissioner, the latter forwarded the same to the Commissioner with the following comments:
“Forwarded to the Commissioner of Income-tax, Kanpur. I do not agree with the recommendations of the Assistant Commissioner of Income-tax, Circle-3(1), Kanpur, because on the perusal of the facts and circumstances of the case it is clear that no prejudice will be caused to the assessee if the accounts are audited under section 142(2A). In fact, the assessee should not have any problem in getting the accounts audited under section 142(2A) if the accounts are true, correct and complete. In fact, there is a letter on record of Shri Pradeep Seth, Chartered Accountant, addressed to the managing director, U.P Handloom Corporation, pointing out that the closing balances of the assessment year 1982-83 cannot be reconciled with the opening balance of the assessment year 1983-84.
Keeping in view, the entire facts and circumstances of the case, I am of the opinion that an audit under section 142(2A) should be conducted.
Submitted for kind consideration of the Commissioner of Income-tax, Kanpur.”
5. It is on the consideration of the aforesaid note that the Commissioner has passed the aforesaid non-speaking order.
6. Having heard learned counsel for the parties, we are of the view that the Deputy Commissioner as well as the Commissioner have not given the objective consideration to the facts and circumstances of the case. The Deputy Commissioner has not noted the fact that the statutory auditors had already audited the accounts of the petitioner which is a public sector undertaking. His observation that no prejudice will be caused if the accounts are audited, is misconceived. An audit places a very heavy burden on the person whose accounts are to be audited, particularly on a same organisation like the U.P State Hardloom Corporation. Its employees and officers have to assist the auditors who have to dig out the old records for the purpose. Further, in terms of section 142(2D) the expenses of the audit have to be borne by the assessee. Therefore, the audit is likely to place substantial financial burden on the assessee. The Deputy Commissioner has merely referred to a letter of Sri Pradeep Seth, Chartered Accountant. The date of that letter has not been mentioned and it has also not been mentioned that the statutory auditors have not looked into that aspect of the matter. In any case, the mere fact that the stocks could not be reconciled by the then auditors, cannot be a justification for ordering an audit when the audit has subsequently been completed and the Assessing Officer can examine the accounts and ask for necessary information. In our view, therefore, the order passed by the Commissioner is mechanical and perfunctory and is hereby quashed. The Commissioner will reconsider the matter in the light of the Assessing Officer's recommendation and pass appropriate orders.