AIR 2007 SUPREME COURT 181 ::2006 AIR SCW 5685 ::2007 TAX. L. R. 1 ::(2006) 206 CurTaxRep 175 ::(2007) 77 CorLA 92 ::MANU/SC/4779/2006 ::2007 (2) SCC 181 ::2006 (11) Scale 409 ::2006 (287) ITR 91 ::(2006) 157 Taxman 168 ::2007 (196) Taxation 717

Supreme Court Of India

(From : 2005 Tax LR 510 (Delhi))

Hon'ble Judge(s): Satya Brata Sinha, Dalveer Bhandari , JJ

Special audit - Direction is not merely administrative in nature - It involves civil consequences - Hence, principles of natural justice shall be applied to minimize arbitrariness. Income-Tax Act (43 of 1961) , S.142(2A)— Constitution of India , Art.14— 2005 Tax LR 510 (Del), Reversed.(2005) 278 ITR 401 (Delhi) and 2006 Tax LR 608 (Bom), Overruled. The prejudice of the assessee, if an order is passed under S. 142(2-A) of the Income-tax Act, is apparent on the face of the statutory provision. He has to undergo the process of further accounting despite the fact that his accounts have been audited by a qualified Auditor in terms of Section 44-AB of the Act. An Auditor is a professional person. He has to function independently. He is not an employee of the assessee. In case of a misconduct, he may become liable to be proceeded against by a statutory authority under the Chartered Accountants Act, 1949. Once it is held that the assessee suffers civil consequences and any order passed would be prejudicial to him, principles of natural justice must be held to be implicit. The principles of natural justice are required to be applied inter alia to minimize arbitrariness. It is trite, even if there is a possibility that the Tribunal would correctly follow the statutory provisions, still compliance of principles of natural justice would be required. In this case itself ....