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Sahara India (Firm), Lucknow v. Commissioner Of Income Tax, Central-I And Another
Factual and Procedural Background
This order arises from a petition in which the petitioner challenged the legal basis for issuing a direction for a “special audit” under Section 142(2-A) of the Income Tax Act, 1961. When the matter was taken up, the petitioner’s counsel relied on a prior decision of the Supreme Court in Rajesh Kumar v. CIT, contending that a pre-decisional hearing is mandatory before any direction for special audit is issued.
The Court, after examining the reliance placed on Rajesh Kumar, considered that the relevant observations in that decision appeared to have been made in the context of block assessments under Section 158-BC (relatable to cases involving a raid). However, the Court noted that the decision also contained general observations that could be read as requiring a hearing in every case of special audit under Section 142(2-A). Finding that such a broad reading did not appear to reflect the correct legal position, the Court referred the matter to a larger Bench, directing that records be placed before the Chief Justice of India for constitution of an appropriate Bench.
Pending the larger Bench’s consideration, the order directing special audit was kept operative and any assessment proceedings were allowed to continue, subject to the outcome of the petition.
Legal Issues Presented
- Whether, before issuing a direction for special audit under Section 142(2-A) of the Income Tax Act, 1961, the assessing officer is required to grant the assessee a pre-decisional hearing/opportunity of being heard.
Arguments of the Parties
Petitioner's Arguments
- Relying on Rajesh Kumar v. CIT, the petitioner argued that prior to issuing any direction under Section 142(2-A) for special audit, a pre-decisional hearing is mandatory and an opportunity must be granted to the assessee.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Rajesh Kumar v. CIT (2007) 2 SCC 181, (2006) 287 ITR 91 | Cited by the petitioner for the proposition that a pre-decisional hearing/opportunity is required before issuing a direction for special audit under Section 142(2-A). | The Court observed that the relevant remarks in Rajesh Kumar appeared to be made in the context of Section 158-BC (block assessment) cases, but noted that the judgment contained general observations that could be read to mandate a hearing in every Section 142(2-A) case; the Court stated that this broad position did not appear correct and therefore referred the question to a larger Bench. |
Court's Reasoning and Analysis
The Court examined the petitioner’s reliance on Rajesh Kumar v. CIT and noted that the observations regarding pre-decisional hearing appeared to have been made in the context of assessments under Section 158-BC, i.e., block assessments related to cases involving raids at an assessee’s premises. The Court indicated that, if the requirement of hearing were confined to that factual and statutory context, it would have rejected the petitioner’s contention in the present case.
However, the Court highlighted that Rajesh Kumar also contained “observations of general nature,” whose effect appeared to be that the assessee must be heard in every case where an assessing officer issues a direction under Section 142(2-A). The Court stated that such an across-the-board requirement did not appear to represent the correct legal position. On that basis, the Court considered it appropriate to refer the matter to a larger Bench for authoritative resolution.
As an interim measure, the Court ordered that the special audit direction would remain operative and that assessment proceedings, if any, would continue, but made them subject to the final outcome of the petition.
Holding and Implications
REFERRED TO LARGER BENCH: The Court referred the matter to a larger Bench and directed that the records be placed before the Chief Justice of India for constitution of an appropriate Bench.
Interim effect: The order directing special audit under Section 142(2-A) remains operative, and any assessment proceedings may continue, but they will be subject to the outcome of the present petition. The order does not finally decide the legal question and does not, on its own terms, set out any broader implications beyond maintaining the interim operation of the special audit direction pending the larger Bench’s decision.
Order
1. When the matter was taken up, learned counsel for the petitioner placed reliance on a decision of this Court in Rajesh Kumar v. CIT (2007) 2 SCC 181, (2006) 287 ITR 91. According to the learned counsel for the petitioner, before any direction can be issued under Section 142(2-A) of the Income Tax Act, 1961 (in short “the Act”) for special audit of the accounts of the assessee, there has to be a pre-decisional hearing and an opportunity has to be granted to the assessee for the purpose. A close reading of the decision shows that the observations in this regard appear to have been made in the context of the assessments in terms of Section 158-BC (block assessment) of the Act. Such assessments are relatable to a case when raid has been conducted at the premises of an assessee. Had that been so, limited to the facts involved in that case, we would have negatived the contentions of the learned counsel for the petitioner. But, certain observations of general nature have been made. The effect of these observations appears to be that in every case where the assessing officer issues a direction in terms of Section 142(2-A) of the Act, the assessee has to be heard before such order is passed. This does not appear to us to be the correct position of law. Therefore, we refer the matter to a larger Bench. The records be placed before the Hon'ble the Chief Justice of India for constituting an appropriate Bench.
2. In the meantime, however, the order directing special audit shall be operative and assessment proceedings, if any, shall continue, subject to the outcome of the present petition.
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