Delhi High Court Closes Long-Pending Challenge To Special Audit Order, Directs Centre To Bear Audit Cost

The Delhi High Court has closed a 19-year-old writ petition challenging an order directing a special audit under Section 142(2A) of the Income Tax Act, holding that the proceedings had become infructuous since the audit had already been completed.

Petitioner had challenged an order dated March 30, 2006, by which the assessing officer had directed a special audit.

The writ petition was instituted in 2007, and notices were issued on May 30 that year, without any interim stay.

The division bench of Justices Dinesh Mehta and Rajneesh Kumar Gupta recalled that on March 4, 2008, after noting that the respondents had failed to file a counter affidavit despite repeated opportunities, it had stayed the recovery of the special auditor's fee, which exceeded ₹20 lakh.

At the same time, it had clarified that the special auditor could recover the fee from the Income Tax Department, while leaving open the question of whether the Department could subsequently recover the amount from the Petitioner.

While disposing of the matter, the Bench observed that the audit had already been conducted and, therefore, the challenge to the special audit order had, for all practical purposes, become infructuous.

So far as liability to pay the audit fee is concerned, the Court took note of the proviso to Section 142(2D) of the Income Tax Act, inserted with effect from June 1, 2007, under which the fee of the special auditor is required to be borne by the Principal Chief Commissioner, Chief Commissioner, Principal Commissioner or Commissioner, as prescribed by the Government.

Since the auditor in the present case had been appointed prior to the amendment, the Court observed that the legal position regarding liability for the audit cost required examination.

However, taking note of Petitioner's absence despite service of notice, the spirit of the statutory amendment and the fact that the audit had already been completed pursuant to the Assessing Officer's order, the Court closed the proceedings and held that the audit fee would be borne by the Union of India.

For Respondents: SPC Shoumendu Mukherji with Advocates Megha Sharma, Aniruddha Ghosh and Kaveri for UOI. SSC Ruchir Bhatia with JSCs Pratyaksh Gupta and Anant Kann, and Advocate L. Mahapatra.