Centre, IT to reply on Vodafone plea against special audit notice

Delhi High Court today sought the Centre’s response on Vodafone’s plea challenging an Income Tax notice asking the company to show cause why its 2011-12 financial records not be subjected to special audit, to arrive at the total income for assessment year 2012-13.

A bench of justices S. Muralidhar and Vibhu Bakhru issued notice to the government and the IT department seeking their replies by March 21 to the plea, which also challenges the amendment to section 142(2A) of IT Act that says the assessing officer can seek a special audit in certain circumstances.

Vodafone Mobile Services Ltd has contended that referring a company for special audit is akin to a stigma on it and this power ought to be exercised only after satisfying the twin conditions of “complexity in the accounts and protecting interests of the revenue”.

Senior advocate P. Chidambaram, appearing for Vodafone, contended that issuance of show cause notice to refer their accounts to special audit was done to “save” the department from “limitation” and to pass an assessment order by March 31.

He said the company was willing to waive defence of limitation and the IT department can take its own time to assess their accounts without referring it for special audit.

The court then asked the government to take instructions on Vodafone’s submission and listed the matter for hearing on March 21.

In its show cause notice of March 11, the IT department had said, “During course of assessment proceeding, the information and details asked have not been submitted till date and you yourself submitting the reasons that due to extreme voluminous of records the specific information cannot be furnished or requesting to grant some more time to furnish details, which itself is concrete evidence that records of assessee are voluminous and accordingly need thorough investigation by special audit.”

It had further said “the above aspects render the accounts of assessee company very complex with voluminous transaction, thereby necessitating thorough investigation, by special audit for arriving at correct amount of total income. Accordingly, you are hereby given an opportunity to show cause why your case should not be referred to special audit.”

During the hearing, central government standing counsel Manish Mohan, appearing for the Finance Ministry, objected to the appearance of P. Chidambaram in the matter, saying he used to be the Finance Minister when the 2013 amendment was made in section 142(2A) and was now challenging this provision on behalf of the company.

The court, however, asked the lawyer to come with a “better argument” on next date of hearing.