Co-operate With I-T Dept For Special Audit: Delhi High Court Directs Patanjali




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The Delhi High Court has directed Patanjali Ayurveda Ltd. to cooperate with the Income Tax Department for the special audit proposed by the latter.

A bench comprising Justice S. Ravindra Bhat and Justice Prateek Jalan opined that “far from showing non-application of mind” the Assessment Officer (AO) had carefully looked into all aspects before passing the impugned order.

Patanjali had challenged the initiation of special audit for assessment year (AY) 2010-2011, contending that the AO was trying to take “scrutiny through special auditor as an easy route to escape his primary duty to examine the books and returns and complete the assessments in time.”

The IT department has  on the other hand submitted that the AO was justified in directing special audit,in view of the complexity in the accounts of the assessee. It had referred to the three segments or sources of revenue of the petitioner and had held that it is required to identify the method and the relevant accounting standard applicable for recognition of income from these revenues.It had further pointed out that it had to ascertain the correctness of the income recognized.

The court agreed with the stad taken by the AO, observing, “Undoubtedly, the AO has a duty to apply his (or her) mind and not fall back upon the provision of special audit in all routine cases. However, when the AO does feel that information is not forthcoming in a timely manner (as appears to have occurred in this case), her choices are limited-to let go of the stage of inquiry, and completed the assessment, or, disallow what is considered appropriate. The AO quite correctly felt that the latter course would not be appropriate; he therefore ordered special audit, which was quite reasonable…”

The court therefore therefore upheld the impugned order, vacating the interim relief that had been operating in Patanjali’s favour for the past five years.

“The assesse is directed to co-operate with the Special Auditor.The period during which the interim order operated shall be excluded for the purpose of calculation the period for completion of such special audit.The writ petition is dismissed, but subject to the above observations, “it ordered.

You can read the copy of the judgement and original story here.