Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Status: Live, central. Confers the Assessing Officer's pre-assessment inquiry powers — to call for a return (142(1)(i)), to require production of accounts and information (142(1)(ii)/(iii)), to make such inquiry as he considers necessary (142(2)), to direct a special audit by a nominated accountant (142(2A)-(2D)), and to give the assessee an opportunity on material gathered (142(3)).
FA 2026: No substantive amendment by the Finance Act, 2026 to section 142 itself; pre-assessment inquiry in faceless cases is routed through section 142B and the faceless scheme.
Key amendment: After Rajesh Kumar and Sahara India, the Finance Act, 2007 amended section 142(2A)/(2D) to statutorily require an opportunity of being heard before a special-audit direction and to provide for payment of the auditor's fees by the Central Government.
A. SECTION COMMENTARY
Section 142 equips the Assessing Officer to gather the material on which an assessment will rest. Under 142(1) he may compel a non-filer to file a return, and may require any assessee to produce accounts, documents and information (including a statement of assets and liabilities, subject to the proviso requiring prior approval of the Joint Commissioner for periods beyond three years and for a net-wealth-type statement). Under 142(2) he may make any inquiry he considers necessary.
The most consequential power is the special audit under section 142(2A): where, having regard to the nature and complexity of the accounts, the volume, doubts about correctness, multiplicity of transactions or specialised nature of the business, and the interests of the revenue, the AO (with the approval of the Principal Chief Commissioner/Chief Commissioner/Principal Commissioner/Commissioner) is of the opinion that a special audit is necessary, he may direct the assessee to get the accounts audited by a nominated chartered accountant. Because such a direction entails civil consequences (cost, intrusion, extension of limitation), the Supreme Court held that a pre-decisional opportunity of hearing is mandatory — a holding the Finance Act, 2007 then wrote into the statute.
Section 142(3) embodies natural justice at the assessment stage: the assessee must be given an opportunity to be heard in respect of any material gathered on an inquiry under 142(2) or a special audit under 142(2A) which is proposed to be used against him. Failure to do so vitiates the assessment to the extent it rests on un-confronted material.
B. STATUTORY POSITION (verbatim text)
Reproduced from the local Act (base text to the Finance Act, 2025). Includes the special-audit provisions in sub-sections (2A) to (2D) and the natural-justice provision in sub-section (3).
142. (1) For the purpose of making an assessment under this Act, the Assessing Officer may serve on any person who has made a return under section 115WD or section 139 or in whose case the time allowed under sub-section (1) of section 139 for furnishing the return has expired a notice requiring him, on a date to be therein specified,—
(i) where such person has not made a return within the time allowed under sub-section (1) of section 139 or before the end of the relevant assessment year, to furnish a return of his income or the income of any other person in respect of which he is assessable under this Act, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed, or :
Provided that where any notice has been served under this sub-section for the purposes of this clause after the end of the relevant assessment year commencing on or after the 1st day of April, 1990 to a person who has not made a return within the time allowed under sub-section (1) of section 139 or before the end of the relevant assessment year, any such notice issued to him shall be deemed to have been served in accordance with the provisions of this sub-section:
Provided further that a notice under this sub-section for the purposes of this clause may also be served by the prescribed income-tax authority,
(ii) to produce, or cause to be produced, such accounts or documents as the Assessing Officer may require, or
(iii) to furnish in writing and verified in the prescribed manner information in such form and on such points or matters (including a statement of all assets and liabilities of the assessee, whether included in the accounts or not) as the Assessing Officer may require :
Provided that—
(a) the previous approval of the Joint Commissioner shall be obtained before requiring the assessee to furnish a statement of all assets and liabilities not included in the accounts;
(b) the Assessing Officer shall not require the production of any accounts relating to a period more than three years prior to the previous year.
(2) For the purpose of obtaining full information in respect of the income or loss of any person, the Assessing Officer may make such inquiry as he considers necessary.
(2A) If, at any stage of the proceedings before him, the Assessing Officer, having regard to the nature and complexity of the accounts, volume of the accounts, doubts about the correctness of the accounts, multiplicity of transactions in the accounts or specialised nature of business activity of the assessee, and the interests of the revenue, is of the opinion that it is necessary so to do, he may, with the previous approval of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, direct the assessee to get either or both of the following, namely:—
(i) to get the accounts audited by an accountant, as defined in the Explanation below sub-section (2) of section 288, nominated by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner in this behalf and to furnish a report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars, as may be prescribed, and such other particulars as the Assessing Officer may require;
(ii) to get the inventory valued by a cost accountant, nominated by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner in this behalf and to furnish a report of such inventory valuation in the prescribed form duly signed and verified by such cost accountant and setting forth such particulars, as may be prescribed, and such other particulars as the Assessing Officer may require:
Provided that the Assessing Officer shall not direct the assessee to get the accounts so audited or inventory so valued unless the assessee has been given a reasonable opportunity of being heard.
(2B) The provisions of sub-section (2A) shall have effect notwithstanding that the accounts of the assessee have been audited under any other law for the time being in force or otherwise.
(2C) Every report under sub-section (2A) shall be furnished by the assessee to the Assessing Officer within such period as may be specified by the Assessing Officer:
Provided that the Assessing Officer may, suo motu, or on an application made in this behalf by the assessee and for any good and sufficient reason, extend the said period by such further period or periods as he thinks fit; so, however, that the aggregate of the period originally fixed and the period or periods so extended shall not, in any case, exceed one hundred and eighty days from the date on which the direction under sub-section
(2A) is received by the assessee.
(2D) The expenses of, and incidental to, any audit or inventory valuation under sub-section (2A) (including the remuneration of the accountant or the cost accountant, as the case may be) shall be determined by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner (which determination shall be final) and paid by the assessee and in default of such payment, shall be recoverable from the assessee in the manner provided in Chapter XVII-D for the recovery of arrears of tax :
Provided that where any direction for audit 95-or inventory valuation under sub-section (2A) is issued by the Assessing Officer on or after the 1st day of June, 2007, the expenses of, and incidental to, such audit or inventory valuation (including the remuneration of the accountant or the cost accountant, as the case may be) shall be determined by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner in accordance with such guidelines as may be prescribed and the expenses so determined shall be paid by the Central Government.
(3) The assessee shall, except where the assessment is made under section 144, be given an opportunity of being heard in respect of any material gathered on the basis of any inquiry under sub-section (2) or any audit 95-or inventory valuation under sub-section (2A) and proposed to be utilised for the purposes of the assessment.
(4) The provisions of this section as they stood immediately before their amendment by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), shall apply to and in relation to any assessment for the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year and references in this section to the other provisions of this Act shall be construed as references to those provisions as for the time being in force and applicable to the relevant assessment year. 95-Explanation.--For the purposes of this section, "cost accountant" means a cost accountant as defined in clause (b) of sub-section (1) of section 2 of the Cost and Works Accountants Act, 1959 (23 of 1959) and who holds a valid certificate of practice under sub-section (1) of section 6 of the said Act. 1-4-2023.
C. AUTHORITIES
The leading authorities concern the natural-justice requirement preceding a special-audit direction under section 142(2A) and the scope of the inquiry power.
Court / Bench: Supreme Court of India (three-Judge Bench).
Held: A direction for special audit under section 142(2A) visits the assessee with civil consequences; the principles of natural justice are therefore implicit, and an opportunity of being heard must be afforded before such a direction is issued. The hearing need not be elaborate, but it cannot be dispensed with.
Significance: First definitive Supreme Court ruling that audi alteram partem governs a 142(2A) direction; the foundation later affirmed by a larger Bench in Sahara India.
Sahara India (Firm) v. CIT (2008) 300 ITR 403 (SC)
Court / Bench: Supreme Court of India (three-Judge Bench), affirming and clarifying Rajesh Kumar.
Held: An order under section 142(2A) does entail civil consequences and therefore the rule audi alteram partem must be observed; a pre-decisional opportunity of hearing is mandatory before directing a special audit. The Court clarified that the absence of an express provision for hearing (as the section then stood) did not exclude natural justice. The requirement is not an empty formality. The Court also held that the exercise of power must be preceded by genuine application of mind to the statutory pre-conditions (complexity, etc.).
Significance: The leading authority on section 142(2A). It prompted the Finance Act, 2007 to insert the statutory opportunity of hearing in the proviso to 142(2A). A special-audit direction passed without hearing, or mechanically, is liable to be quashed.
On the pre-conditions and 'complexity' — principle
Position: 'Nature and complexity of the accounts' and the allied grounds are jurisdictional facts; the AO's opinion must be formed honestly on the material and with the prior approval of the specified authority, which approval must itself reflect application of mind and not be mechanical. The direction extends limitation, so courts scrutinise it strictly.
Candour note: A large body of High Court authority elaborates the 'complexity' requirement and the need for a reasoned approval; these are fact-specific. Sahara India and Rajesh Kumar remain the controlling Supreme Court authorities.
2. Scope of the inquiry power and use of gathered material
Section 142(3) — opportunity on material gathered
Principle: Material collected on an inquiry under section 142(2) or through a special audit under 142(2A) cannot be used against the assessee unless he has been given an opportunity to rebut it (section 142(3)). This codifies natural justice at the assessment stage and is read with the general rule against reliance on un-confronted third-party material.
Cognate authority: Kishinchand Chellaram v. CIT (1980) 125 ITR 713 (SC) — material/evidence gathered behind the assessee's back cannot be used without confronting him; the assessee must have an opportunity to meet it. Applied to section 142(3).
CIT v. Jai Prakash Singh (1996) 219 ITR 737 (SC) — procedural irregularity
Held: Non-compliance with a procedural requirement in the assessment process is generally a curable irregularity, not a nullity, unless the statute makes it jurisdictional.
Relevance: Bears on the consequence of defects in the conduct of inquiries under section 142 — distinguishing curable irregularities from jurisdictional defects.
3. Special audit — reasoned approval; extension of limitation
Application of mind in the section 142(2A) approval — settled position
Position: Following Rajesh Kumar and Sahara India, and after the Finance Act, 2007 wrote the hearing into the statute, the High Courts require both the Assessing Officer's proposal and the specified authority's approval for a special audit to reflect genuine application of mind to the statutory pre-conditions (nature/complexity/volume/doubts/multiplicity/specialised nature and the interests of the revenue); a mechanical approval, or a direction that does not disclose the complexity relied on, is liable to be quashed. Because a 142(2A) direction extends limitation (Explanation to section 153), courts scrutinise it strictly.
Cognate authority: Sahara India (Firm) v. CIT (2008) 300 ITR 403 (SC) and Rajesh Kumar v. Dy. CIT (2006) 287 ITR 91 (SC) remain the controlling Supreme Court authorities; the High Court decisions elaborating 'complexity' and the reasoned-approval requirement are fact-specific and are summarised as the settled working rule.
Relevance: Material gathered on a section 142(2)/(2A) inquiry cannot be used against the assessee unless confronted to him (section 142(3)); evidence collected behind the assessee's back is inadmissible. The natural-justice safeguard of section 142(3).
4. Special audit — a genuine attempt to understand the accounts is a pre-condition
DLF Ltd. / DLF Commercial Projects Corpn. v. ACIT (Delhi High Court)
Court: Delhi High Court.
Held: The power under section 142(2A) must be exercised within the legislative limits; before directing a special audit the Assessing Officer must make a genuine attempt to understand the accounts and entries, and may resort to 142(2A) only where, questions having been raised on the accounts, the explanation is unsatisfactory or verification is not possible without specialised assistance. The 'complexity' must be real and recorded, and the approval reasoned.
Significance: Applies Sahara India / Rajesh Kumar at the High Court level: a special audit is not a device to outsource the assessment or to extend limitation; it requires a genuine, recorded difficulty with the accounts. (Confirm the precise reported citation/year for the DLF order relied on.)
5. Natural justice in pre-assessment action — cognate
Swadeshi Cotton Mills v. Union of India (1981) 1 SCC 664 (SC) — cognate
Held: Audi alteram partem is, ordinarily, an implied ingredient of fair procedure where an order entails civil consequences; a pre-decisional hearing is the rule, and it can be excluded only where the statute expressly or by necessary implication so provides (a post-decisional hearing being, at best, a limited substitute in urgent situations). Administrative action must rest on relevant material and bear a rational nexus to the statutory purpose.
Relevance: The general administrative-law foundation for the natural-justice safeguards in section 142 — the pre-decisional hearing before a special audit (section 142(2A), per Rajesh Kumar and Sahara India) and the opportunity on gathered material (section 142(3)).
6. Complexity is primarily for the Assessing Officer — the Revenue-side balance
AT&T Communication Services India (P) Ltd. v. ACIT (ITAT, Delhi) (2018)
Held: Whether the accounts and related records present 'complexity' for the purposes of section 142(2A) is essentially for the Assessing Officer to determine; the power of the court/Tribunal to intrude in that area should be used sparingly, and the direction will not be interfered with unless it is shown to be perverse, absolutely arbitrary or mala fide. The approving authority is not required to record separate elaborate reasons where the satisfaction is otherwise borne out.
Significance: Balances the assessee-protective line (Sahara India / Rajesh Kumar): once natural justice is observed and the statutory pre-conditions are genuinely considered, the AO's opinion on complexity is given latitude. (Confirm the exact ITA No./date before reliance.)
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text reproduced from the local Act (base text amended up to the Finance Act, 2025), with the publisher footnote apparatus and amendment-marker brackets removed; Finance Act, 2026 changes are flagged in the commentary. Citations are stated as reported; Tribunal / AAR / High Court orders are flagged. Where a section has not been judicially construed, that is stated candidly and the nearest governing authority is given. This material is for professional reference and is not legal advice.
CHAPTER XIV — PROCEDURE FOR ASSESSMENT
Section 142 — Inquiry before Assessment
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Status: Live, central. Confers the Assessing Officer's pre-assessment inquiry powers — to call for a return (142(1)(i)), to require production of accounts and information (142(1)(ii)/(iii)), to make such inquiry as he considers necessary (142(2)), to direct a special audit by a nominated accountant (142(2A)-(2D)), and to give the assessee an opportunity on material gathered (142(3)).
FA 2026: No substantive amendment by the Finance Act, 2026 to section 142 itself; pre-assessment inquiry in faceless cases is routed through section 142B and the faceless scheme.
Key amendment: After Rajesh Kumar and Sahara India, the Finance Act, 2007 amended section 142(2A)/(2D) to statutorily require an opportunity of being heard before a special-audit direction and to provide for payment of the auditor's fees by the Central Government.
A. SECTION COMMENTARY
Section 142 equips the Assessing Officer to gather the material on which an assessment will rest. Under 142(1) he may compel a non-filer to file a return, and may require any assessee to produce accounts, documents and information (including a statement of assets and liabilities, subject to the proviso requiring prior approval of the Joint Commissioner for periods beyond three years and for a net-wealth-type statement). Under 142(2) he may make any inquiry he considers necessary.
The most consequential power is the special audit under section 142(2A): where, having regard to the nature and complexity of the accounts, the volume, doubts about correctness, multiplicity of transactions or specialised nature of the business, and the interests of the revenue, the AO (with the approval of the Principal Chief Commissioner/Chief Commissioner/Principal Commissioner/Commissioner) is of the opinion that a special audit is necessary, he may direct the assessee to get the accounts audited by a nominated chartered accountant. Because such a direction entails civil consequences (cost, intrusion, extension of limitation), the Supreme Court held that a pre-decisional opportunity of hearing is mandatory — a holding the Finance Act, 2007 then wrote into the statute.
Section 142(3) embodies natural justice at the assessment stage: the assessee must be given an opportunity to be heard in respect of any material gathered on an inquiry under 142(2) or a special audit under 142(2A) which is proposed to be used against him. Failure to do so vitiates the assessment to the extent it rests on un-confronted material.
B. STATUTORY POSITION (verbatim text)
Reproduced from the local Act (base text to the Finance Act, 2025). Includes the special-audit provisions in sub-sections (2A) to (2D) and the natural-justice provision in sub-section (3).
142. (1) For the purpose of making an assessment under this Act, the Assessing Officer may serve on any person who has made a return under section 115WD or section 139 or in whose case the time allowed under sub-section (1) of section 139 for furnishing the return has expired a notice requiring him, on a date to be therein specified,—
(i) where such person has not made a return within the time allowed under sub-section (1) of section 139 or before the end of the relevant assessment year, to furnish a return of his income or the income of any other person in respect of which he is assessable under this Act, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed, or :
Provided that where any notice has been served under this sub-section for the purposes of this clause after the end of the relevant assessment year commencing on or after the 1st day of April, 1990 to a person who has not made a return within the time allowed under sub-section (1) of section 139 or before the end of the relevant assessment year, any such notice issued to him shall be deemed to have been served in accordance with the provisions of this sub-section:
Provided further that a notice under this sub-section for the purposes of this clause may also be served by the prescribed income-tax authority,
(ii) to produce, or cause to be produced, such accounts or documents as the Assessing Officer may require, or
(iii) to furnish in writing and verified in the prescribed manner information in such form and on such points or matters (including a statement of all assets and liabilities of the assessee, whether included in the accounts or not) as the Assessing Officer may require :
Provided that—
(a) the previous approval of the Joint Commissioner shall be obtained before requiring the assessee to furnish a statement of all assets and liabilities not included in the accounts;
(b) the Assessing Officer shall not require the production of any accounts relating to a period more than three years prior to the previous year.
(2) For the purpose of obtaining full information in respect of the income or loss of any person, the Assessing Officer may make such inquiry as he considers necessary.
(2A) If, at any stage of the proceedings before him, the Assessing Officer, having regard to the nature and complexity of the accounts, volume of the accounts, doubts about the correctness of the accounts, multiplicity of transactions in the accounts or specialised nature of business activity of the assessee, and the interests of the revenue, is of the opinion that it is necessary so to do, he may, with the previous approval of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, direct the assessee to get either or both of the following, namely:—
(i) to get the accounts audited by an accountant, as defined in the Explanation below sub-section (2) of section 288, nominated by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner in this behalf and to furnish a report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars, as may be prescribed, and such other particulars as the Assessing Officer may require;
(ii) to get the inventory valued by a cost accountant, nominated by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner in this behalf and to furnish a report of such inventory valuation in the prescribed form duly signed and verified by such cost accountant and setting forth such particulars, as may be prescribed, and such other particulars as the Assessing Officer may require:
Provided that the Assessing Officer shall not direct the assessee to get the accounts so audited or inventory so valued unless the assessee has been given a reasonable opportunity of being heard.
(2B) The provisions of sub-section (2A) shall have effect notwithstanding that the accounts of the assessee have been audited under any other law for the time being in force or otherwise.
(2C) Every report under sub-section (2A) shall be furnished by the assessee to the Assessing Officer within such period as may be specified by the Assessing Officer:
Provided that the Assessing Officer may, suo motu, or on an application made in this behalf by the assessee and for any good and sufficient reason, extend the said period by such further period or periods as he thinks fit; so, however, that the aggregate of the period originally fixed and the period or periods so extended shall not, in any case, exceed one hundred and eighty days from the date on which the direction under sub-section
(2A) is received by the assessee.
(2D) The expenses of, and incidental to, any audit or inventory valuation under sub-section (2A) (including the remuneration of the accountant or the cost accountant, as the case may be) shall be determined by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner (which determination shall be final) and paid by the assessee and in default of such payment, shall be recoverable from the assessee in the manner provided in Chapter XVII-D for the recovery of arrears of tax :
Provided that where any direction for audit 95-or inventory valuation under sub-section (2A) is issued by the Assessing Officer on or after the 1st day of June, 2007, the expenses of, and incidental to, such audit or inventory valuation (including the remuneration of the accountant or the cost accountant, as the case may be) shall be determined by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner in accordance with such guidelines as may be prescribed and the expenses so determined shall be paid by the Central Government.
(3) The assessee shall, except where the assessment is made under section 144, be given an opportunity of being heard in respect of any material gathered on the basis of any inquiry under sub-section (2) or any audit 95-or inventory valuation under sub-section (2A) and proposed to be utilised for the purposes of the assessment.
(4) The provisions of this section as they stood immediately before their amendment by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), shall apply to and in relation to any assessment for the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year and references in this section to the other provisions of this Act shall be construed as references to those provisions as for the time being in force and applicable to the relevant assessment year. 95-Explanation.--For the purposes of this section, "cost accountant" means a cost accountant as defined in clause (b) of sub-section (1) of section 2 of the Cost and Works Accountants Act, 1959 (23 of 1959) and who holds a valid certificate of practice under sub-section (1) of section 6 of the said Act. 1-4-2023.
C. AUTHORITIES
The leading authorities concern the natural-justice requirement preceding a special-audit direction under section 142(2A) and the scope of the inquiry power.
1. Special audit under section 142(2A) and natural justice
Rajesh Kumar v. Dy. CIT (2006) 287 ITR 91 (SC)
Court / Bench: Supreme Court of India (three-Judge Bench).
Held: A direction for special audit under section 142(2A) visits the assessee with civil consequences; the principles of natural justice are therefore implicit, and an opportunity of being heard must be afforded before such a direction is issued. The hearing need not be elaborate, but it cannot be dispensed with.
Significance: First definitive Supreme Court ruling that audi alteram partem governs a 142(2A) direction; the foundation later affirmed by a larger Bench in Sahara India.
Sahara India (Firm) v. CIT (2008) 300 ITR 403 (SC)
Court / Bench: Supreme Court of India (three-Judge Bench), affirming and clarifying Rajesh Kumar.
Held: An order under section 142(2A) does entail civil consequences and therefore the rule audi alteram partem must be observed; a pre-decisional opportunity of hearing is mandatory before directing a special audit. The Court clarified that the absence of an express provision for hearing (as the section then stood) did not exclude natural justice. The requirement is not an empty formality. The Court also held that the exercise of power must be preceded by genuine application of mind to the statutory pre-conditions (complexity, etc.).
Significance: The leading authority on section 142(2A). It prompted the Finance Act, 2007 to insert the statutory opportunity of hearing in the proviso to 142(2A). A special-audit direction passed without hearing, or mechanically, is liable to be quashed.
On the pre-conditions and 'complexity' — principle
Position: 'Nature and complexity of the accounts' and the allied grounds are jurisdictional facts; the AO's opinion must be formed honestly on the material and with the prior approval of the specified authority, which approval must itself reflect application of mind and not be mechanical. The direction extends limitation, so courts scrutinise it strictly.
Candour note: A large body of High Court authority elaborates the 'complexity' requirement and the need for a reasoned approval; these are fact-specific. Sahara India and Rajesh Kumar remain the controlling Supreme Court authorities.
2. Scope of the inquiry power and use of gathered material
Section 142(3) — opportunity on material gathered
Principle: Material collected on an inquiry under section 142(2) or through a special audit under 142(2A) cannot be used against the assessee unless he has been given an opportunity to rebut it (section 142(3)). This codifies natural justice at the assessment stage and is read with the general rule against reliance on un-confronted third-party material.
Cognate authority: Kishinchand Chellaram v. CIT (1980) 125 ITR 713 (SC) — material/evidence gathered behind the assessee's back cannot be used without confronting him; the assessee must have an opportunity to meet it. Applied to section 142(3).
CIT v. Jai Prakash Singh (1996) 219 ITR 737 (SC) — procedural irregularity
Held: Non-compliance with a procedural requirement in the assessment process is generally a curable irregularity, not a nullity, unless the statute makes it jurisdictional.
Relevance: Bears on the consequence of defects in the conduct of inquiries under section 142 — distinguishing curable irregularities from jurisdictional defects.
3. Special audit — reasoned approval; extension of limitation
Application of mind in the section 142(2A) approval — settled position
Position: Following Rajesh Kumar and Sahara India, and after the Finance Act, 2007 wrote the hearing into the statute, the High Courts require both the Assessing Officer's proposal and the specified authority's approval for a special audit to reflect genuine application of mind to the statutory pre-conditions (nature/complexity/volume/doubts/multiplicity/specialised nature and the interests of the revenue); a mechanical approval, or a direction that does not disclose the complexity relied on, is liable to be quashed. Because a 142(2A) direction extends limitation (Explanation to section 153), courts scrutinise it strictly.
Cognate authority: Sahara India (Firm) v. CIT (2008) 300 ITR 403 (SC) and Rajesh Kumar v. Dy. CIT (2006) 287 ITR 91 (SC) remain the controlling Supreme Court authorities; the High Court decisions elaborating 'complexity' and the reasoned-approval requirement are fact-specific and are summarised as the settled working rule.
Kishinchand Chellaram v. CIT (1980) 125 ITR 713 (SC) — cross-reference
Relevance: Material gathered on a section 142(2)/(2A) inquiry cannot be used against the assessee unless confronted to him (section 142(3)); evidence collected behind the assessee's back is inadmissible. The natural-justice safeguard of section 142(3).
4. Special audit — a genuine attempt to understand the accounts is a pre-condition
DLF Ltd. / DLF Commercial Projects Corpn. v. ACIT (Delhi High Court)
Court: Delhi High Court.
Held: The power under section 142(2A) must be exercised within the legislative limits; before directing a special audit the Assessing Officer must make a genuine attempt to understand the accounts and entries, and may resort to 142(2A) only where, questions having been raised on the accounts, the explanation is unsatisfactory or verification is not possible without specialised assistance. The 'complexity' must be real and recorded, and the approval reasoned.
Significance: Applies Sahara India / Rajesh Kumar at the High Court level: a special audit is not a device to outsource the assessment or to extend limitation; it requires a genuine, recorded difficulty with the accounts. (Confirm the precise reported citation/year for the DLF order relied on.)
5. Natural justice in pre-assessment action — cognate
Swadeshi Cotton Mills v. Union of India (1981) 1 SCC 664 (SC) — cognate
Held: Audi alteram partem is, ordinarily, an implied ingredient of fair procedure where an order entails civil consequences; a pre-decisional hearing is the rule, and it can be excluded only where the statute expressly or by necessary implication so provides (a post-decisional hearing being, at best, a limited substitute in urgent situations). Administrative action must rest on relevant material and bear a rational nexus to the statutory purpose.
Relevance: The general administrative-law foundation for the natural-justice safeguards in section 142 — the pre-decisional hearing before a special audit (section 142(2A), per Rajesh Kumar and Sahara India) and the opportunity on gathered material (section 142(3)).
6. Complexity is primarily for the Assessing Officer — the Revenue-side balance
AT&T Communication Services India (P) Ltd. v. ACIT (ITAT, Delhi) (2018)
Tribunal / Bench: Income-tax Appellate Tribunal, Delhi.
Held: Whether the accounts and related records present 'complexity' for the purposes of section 142(2A) is essentially for the Assessing Officer to determine; the power of the court/Tribunal to intrude in that area should be used sparingly, and the direction will not be interfered with unless it is shown to be perverse, absolutely arbitrary or mala fide. The approving authority is not required to record separate elaborate reasons where the satisfaction is otherwise borne out.
Significance: Balances the assessee-protective line (Sahara India / Rajesh Kumar): once natural justice is observed and the statutory pre-conditions are genuinely considered, the AO's opinion on complexity is given latitude. (Confirm the exact ITA No./date before reliance.)
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text reproduced from the local Act (base text amended up to the Finance Act, 2025), with the publisher footnote apparatus and amendment-marker brackets removed; Finance Act, 2026 changes are flagged in the commentary. Citations are stated as reported; Tribunal / AAR / High Court orders are flagged. Where a section has not been judicially construed, that is stated candidly and the nearest governing authority is given. This material is for professional reference and is not legal advice.