Facts of the Case

The petitioner was appointed as a Special Auditor at the instance of the Assessing Officer in December 2006. Upon completion of the Special Audit, the petitioner submitted the audit report and raised its remuneration/fee bill on 03.07.2007 before the Commissioner of Income Tax.

Under Section 142(2D) of the Income-tax Act, the remuneration and expenses of the Special Auditor are required to be determined by the Chief Commissioner or Commissioner of Income Tax. After such determination, the amount becomes payable by the assessee. In the event of default, the amount can be recovered in accordance with the provisions relating to recovery of tax arrears.

Despite submission of the fee claim, no determination of fees or processing of the claim was undertaken for more than two years, leading the petitioner to approach the Delhi High Court seeking appropriate directions.

Issues Involved

  1. Whether the Commissioner of Income Tax could indefinitely delay determination of remuneration and expenses payable to a Special Auditor under Section 142(2D) of the Income-tax Act.
  2. Whether non-availability of the Special Audit Report with the Commissioner justified prolonged inaction in processing the fee claim.
  3. Whether the Income Tax Department was obligated to take necessary steps for recovery of the determined amount from the assessee in case of default.

Petitioner’s Arguments

  • The petitioner had duly completed the Special Audit assignment and submitted the remuneration claim in July 2007.
  • Section 142(2D) mandates determination of audit fees and expenses by the Commissioner.
  • Despite repeated lapse of time, no decision had been taken on the fee claim.
  • The delay was arbitrary and deprived the petitioner of remuneration for professional services already rendered.
  • The Department could not avoid its statutory responsibility by citing procedural difficulties.

Respondent’s Arguments

  • The Commissioner of Income Tax submitted that the Special Audit Report had not been furnished to the department.
  • In the absence of the audit report, the fee payable to the auditor could not be determined.
  • Consequently, the fee bill remained pending for processing and determination.

Court Findings

The Delhi High Court observed that the explanation offered by the Commissioner was unsatisfactory.

The Court noted that under the prescribed procedure, the audit report is supplied by the auditor to the concerned assessee. Therefore, it was incumbent upon the Commissioner to obtain the report from the assessee and process the matter accordingly.

The Court further held that even if the assessee was not cooperating, the Commissioner was not without remedies and could have called upon the petitioner to furnish a copy of the audit report.

The Court expressed its inability to appreciate the conduct of the Commissioner in allowing the matter to remain unattended for more than two years.

The Court recorded that during the hearing, the petitioner supplied complete copies of the audit reports to the counsel representing the Commissioner, thereby removing the stated impediment.

Court Order

The Delhi High Court directed the Commissioner of Income Tax to:

  1. Finalize and determine the petitioner’s fee bill/remuneration claim within two months.
  2. Direct the concerned assessee to make payment of the determined amount to the petitioner.
  3. Initiate recovery proceedings in accordance with Chapter XVII-B of the Income-tax Act if the assessee failed to make payment.

Accordingly, the writ petitions were disposed of with the above directions.

Important Clarification

The judgment clarifies that:

  • The statutory obligation to determine remuneration of a Special Auditor under Section 142(2D) cannot be indefinitely postponed.
  • Administrative inaction cannot be justified merely on the ground that the audit report was not readily available with the Commissioner.
  • The Income Tax Department must actively obtain necessary records and process fee claims within a reasonable time.
  • Upon determination of fees, the Department must ensure recovery from the assessee in accordance with the statutory mechanism where payment is not voluntarily made.

Relevant Sections Involved

  • Section 142(2A), Income-tax Act, 1961
  • Section 142(2D), Income-tax Act, 1961
  • Chapter XVII-B of the Income-tax Act, 1961 (Recovery Mechanism)

Link to download the order -

https://delhihighcourt.nic.in/app/case_number_pdf/2009:DHC:7452-DB/AKS18082009CW4972009_120918.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared.