In a major setback to M/s Nokia India Private Ltd, the Delhi High Court recently upheld special audit against the Company and ruled that the special audit can be initiated when the assessment proceedings of a Company had remained dormant and the same has communicated by proper letter with terms of reference.
The assessee in the present case is a private limited company incorporated under the Companies Act 1956 and engaged in manufacture and sale of telecommunication handsets has filed its return of income for the relevant assessment year and declared its total income of Rs.826.92 crores.
During the course of assessment proceedings, the Assessing Officer (AO) has noticed that the assessment proceedings had remained dormant for nearly 28 months. Therefore the Assessee was required to furnish its books of accounts in a manner that could be easily examined. Accordingly, the Assessee has submitted its books of accounts in Systems Applications and Products (SAP) format along with Trial Balance in soft and hard copies.
However, Assessee’s request to specify ledger accounts required to be produced was rejected by the Assessing Officer with the direction to produce all accounts at the time. Thereafter, the Assessee had submitted a soft copy of the books of accounts in Excel sheet format, including trial balance and general ledger accounts etc.
Before the completion of the assessment proceedings, the AO issued notice under section 142(2A) of the Income Tax Act 1961 for non-auditing of the books of accounts properly by the Assessee for the assessment year. As per the direction of the Income Tax Officer, the AO has initiated an order for special audit and the same was informed to the Assessee by letter.
However, the Assessee objected the special audit and contended that there was neither a failure to submit details nor incorrect details were furnished and also argued that the time and opportunity had not been given to the Assessee for respond to the show cause notice and did not communicate the information properly.
After considering the facts and circumstances of the case the High Court Justice Sanjiv Khanna and Justice Prathibha.M.Singh observed that it is an admitted fact that the assessment proceedings of the Assessee firm had remained dormant for a long period. In such circumstances, it is the responsibility of the Revenue authority for initiating the special audit and the Revenue has correctly initiated such proceedings within the stipulated time limit.
The Court further observed that the AO has been given enough time to the Assessee for responding to the show cause notice but the Assessee did not respond to the order within the stipulated time limit. Further, the AO had properly communicated regarding the initiation of the special audit by letter with terms of reference. Therefore there is no relevance in the submissions of the Assessee. While concluding the issue the Court also held that service of the letter with terms of reference would be effective communication even if it is presumed that the order under Section 142(2A) was not enclosed with the letter. Further, the order under Section 142(2A) of the Act was certainly dispatched and sent within the prescribed period remains valid.
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