The Assessing Officer with the prior approval of the Principal Commissioner of Income-tax directed M/s. Greenfield Textiles Ltd. to get its accounts…

As per section 142(2A) of the Income-tax Act, 1961, the Assessing Officer, with the prior approval of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, may direct the assessee to get the accounts audited by a Chartered Accountant nominated by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, if he is of the opinion that it is necessary in view of the complexity of the accounts. Further, as per section 144 (1) (b), if the assessee fails to comply with the directions issued under section 142(2A), the Assessing Officer is empowered to make a best judgment assessment. In the present case, the Assessing Officer with prior approval of Principal Commissioner of Income-tax directed M/s. Greenfield Textiles Ltd. to get its accounts audited by a Chartered Accountant under section 142(2A). The assessee expressed its willingness to cooperate and produce the necessary records. However, the nominated Chartered Accountant, without valid reasons, refused to undertake the audit. The issue under consideration is whether the assessee can be held liable for non-compliance of the direction and whether the Assessing Officer was justified in making a best judgment assessment. The Supreme Court in Swadeshi Polytex Ltd. v. ITO [1983] 144 ITR 171 held that if, for a frivolous reason, the nominated Chartered Accountant declines to audit the accounts, the assessee cannot be held responsible for non-compliance. The assessee cannot be penalized for something beyond its control. Consequently, there is no default on the part of the assessee so as to attract section 144 (1) (b). The Court, therefore, set aside the best judgment assessment and directed the authority to appoint another Chartered Accountant within one month to carry out the audit. Applying the rationale of the above ruling on the case in hand, M/s Greenfield Textiles Ltd. cannot be said to have defaulted in complying with the direction issued under section 142(2A). Hence, the action of the Assessing Officer in making a best judgment assessment under section 144 (1) (b) is not valid.