JUDICIARY ON GST AUDIT

JUDICIARY ON GST AUDIT

Abhay Kumar and Company and Others Vs. Union of India and Others [1986] 063 STC 0203

The petitioners by a writ petition challenged the validity of sections 44AB and 271B of the Income-tax Act, 1961, providing for auditing of accounts by chartered accountant for businessmen and professionals having turnover and gross receipts more than Rs. 40 lacs and Rs. 10 lacs respectively.

The grounds placed by petitioners were:

• This provision is arbitrary and discriminatory and violative of article 14 of the Constitution,
• the obligation of submission of audit report imposed unreasonable restriction on the petitioners' business and thus violative of article 19(1)(g),
• Submission of audit report would amount to abdication of the discretion exercised by the ITO to the chartered accountant

Rajasthan High Court held that submission of audit report of the accounts of the persons whose turnover is more than Rs. 40 lacs and professional income is Rs. 10 lacs is reasonable restriction and as such cannot be said to be violative of article 19(1)(g) of the Constitution.

The discretion of the Income-tax Officer will not be abdicated simply because the assessee is required to submit audit report rather on the contrary it will be more useful and it will assist the Income-tax Officer in order to arrive at his decision expeditiously and that will be for the benefit of the administration.

Nayak Variety Store Vs. Commissioner of Sales Tax, Orissa [2008] 018 VST 0500

Notice dated July 16, 2008 was issued under rule 44(2) of the Orissa Goods and Service tax Rules, 2005 for the purpose of conducting tax audit under the Orissa Goods and Service tax Act, 2004 for the period from April 1, 2005 till the date of audit visit. Writ petition was filed challenging the notice on the ground that the audit assessments for the period from April 1, 2005 to March 31, 2006 and April 1, 2006 to October 31, 2006 were already completed earlier under section 42 of the Goods and Service tax Act by assessment orders dated December 2, 2006.

Orissa High Court stated that Orissa Goods and Service tax Act and the Orissa Goods and Service tax Rules framed thereunder have taken care of the situation where a dealer is under-assessed or its turnover has escaped assessment while making audit assessment under section 42 of the Act. The interest of the Revenue is well protected under section 43 which provides a longer period of limitation of five years to take action under that section, where audit assessment under section 42 of the Act had been completed. Thus there being adequate safeguard provided in the statute for assessing the undisclosed/escaped turnover/under-assessments for different reasons as contained in section 43, resorting to repeated tax audits and audit assessments is wholly unjustified, arbitrary and illegal. The Legislature never intended to have repeated tax audits and audit assessments for the same tax period(s) because such an interpretation would render the provisions contained in sub-sections (6) and (7) of section 42 redundant, as the Department in case of failure to complete an audit assessment within the time prescribed can always start a new audit for fresh audit assessment and thereby it will become a never-ending process.

Orissa High Court held that “        Besides, once audit assessment under section 42 is completed for a particular period, the assessing officer becomes functus officio for the same period so far second and subsequent assessment under that section is concerned. But there is no embargo for reopening the audit assessment earlier made, under section 43 of the OGST Act.

               In view of the above, the present notice issued vide annexure 1 for tax audit for the period from April 1, 2005 till the date of audit visit is bad in law and liable to be quashed.

               With the above obserGSTion, the writ petition is allowed and the notice under annexure 1 is quashed.”

Follow Us on