The petitioner challenged an order passed under Section 142(2A) of the Income-tax Act, 1961, whereby the Assessing Officer directed a special audit of the petitioner’s accounts for Assessment Year 2023–24, along with the consequential special audit report. 

While multiple grounds were raised, the principal contention was jurisdictional in nature, namely that the mandatory prior approval of the Principal Commissioner of Income Tax, which formed the very foundation of the special audit order, did not bear a DIN as required under CBDT Circular No. 19/2019 dated 14 August 2019.

It was argued on behalf of the petitioner that the Circular expressly mandates that no communication, including approvals, shall be issued without a computer-generated DIN on or after 1 October 2019. 

It was further contended that paragraph 4 of the Circular unequivocally provides that any communication issued in violation of this requirement shall be treated as invalid and deemed never to have been issued. Since the approval dated 6 February 2025 lacked a DIN and did not fall within any of the exceptional circumstances carved out under the Circular, the entire special audit proceedings were asserted to be void ab initio.

Reliance was placed on a consistent line of judicial precedents, including Ashok Commercial Enterprises v. ACIT, Hardik Deepak Salot v. ACIT, Siemens Limited v. DCIT, and CIT v. Sutherland Global Services Inc.

On the other hand, the Income Tax Department contended that the approval was merely an internal document and did not amount to a “communication” requiring a DIN. It was further submitted that the special audit order itself carried a valid DIN, which constituted sufficient compliance with the Circular. 

The Revenue also relied on the decision of the Gujarat HC in Rameshkumar Tulsidas Kaneriya v. ACIT, wherein it was held that internal satisfaction notes do not require DIN.

The Bombay High Court decisively rejected the contentions of the Revenue. The Court held that an approval under Section 142(2A) is not a mere internal note but a formal jurisdictional prerequisite, and CBDT Circular No. 19/2019 specifically includes “approval” within its scope. 

The absence of a DIN on such approval was held not to be a procedural irregularity curable under Section 292B of the Act, but a fatal defect rendering the approval invalid.

The Court further held that since the very basis for directing the special audit was invalid, the special audit order and the consequential audit report could not survive.

 The Gujarat High Court ruling relied upon by the Revenue was distinguished on the ground that the Bombay High Court was bound by its own earlier decisions, which clearly hold that even internal communications fall within the ambit of the Circular. The Court also reiterated that a stay granted by the Supreme Court does not obliterate the precedential value of a High Court judgment.

In conclusion, the Bombay High Court quashed and set aside the order directing a special audit under Section 142(2A) of the Act, as well as the consequential special audit report.

This ruling reaffirms that strict compliance with CBDT Circular No. 19/2019 is non-negotiable, and that the DIN requirement is not a mere technicality but goes to the root of jurisdiction. The judgment strengthens procedural safeguards for taxpayers and underscores that transparency and accountability mechanisms introduced by the CBDT cannot be diluted under the guise of internal administrative processes.

To download official order, click here.

To download CBDT Circular No. 19/2019, click here.

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Ms. Ila Jitendra Mehta, vs. Revenue [I.T.A. No. 5219 of 2024]

Background of the Case

The appellant, who faced a penalty imposed by the Assessing Officer (AO) under section 271(1)(c) of the Income Tax Act for allegedly furnishing inaccurate particulars of income. The penalty amount was substantial, exceeding Rs. 2.28 crores. The issue arose from the appellant’s claim of exemption under section 54F of the Income Tax Act for the assessment year 2013-14, which was later found to be erroneous. During the assessment proceedings, the appellant acknowledged this mistake and submitted a revised computation of income. Additionally, the original income tax return was filed belatedly by the appellant’s accountant using a digital signature. The AO initiated penalty proceedings on the grounds of concealment of income but subsequently levied the penalty for furnishing inaccurate particulars, which became a point of contention in this case.

Arguments by the Appellant

The Appellant contended that the claim under section 54F was made inadvertently and was a bona fide mistake that was promptly rectified during the assessment proceedings by submitting a revised computation along with an explanation for not filing a revised return due to the belated original filing. She maintained that the penalty under section 271(1)(c) should not apply in her case, as there was no deliberate attempt to conceal income or provide inaccurate information. The appellant relied on precedents and emphasized that there was a possible legal interpretation supporting her claim, especially since the Tribunal had previously passed orders favorable to her during the assessment process. She further argued that the penalty proceedings were initiated for concealment but the penalty was imposed for inaccurate particulars, a mismatch that rendered the penalty unsustainable.

Respondent’s Response

The Revenue contested the appellant’s plea by emphasizing that a rigorous application of penalty provisions was necessary and that the exemption claimed was incorrect. They argued that the penalty was rightly imposed due to the furnishing of inaccurate particulars and that the difference between concealment and inaccurate particulars did not absolve the appellant of liability. The AO also pointed to the fact that the penalty proceedings were initiated properly, and the claim of inadvertent mistake did not constitute a valid defense against penalty imposition. The Revenue highlighted that since only a small number of cases are picked up for scrutiny, strict enforcement of penalty provisions should act as a deterrent and prevent misuse of exemptions.

Court Findings and Decision

The ITAT carefully examined the facts and the legal position, noting the clear distinction between concealment of income and furnishing inaccurate particulars, as upheld by higher courts in previous judgments. It observed that the AO initiated penalty proceedings on concealment but levied the penalty on inaccurate particulars without proper satisfaction or notice for the latter. This procedural irregularity was a crucial flaw. The Tribunal accepted the appellant’s explanation that the error was inadvertent and corrected during the assessment, demonstrating bona fide conduct. It rejected the Revenue’s arguments about dilution of penalty provisions due to selective scrutiny, emphasizing that penalties must be based on facts and intention, not the number of cases scrutinized. Ultimately, the penalty was held to be unsustainable both on merit and legal grounds and was accordingly deleted, allowing the appellant’s appeal in full.

Concealment vs Inaccurate Particulars

To download official order, Click Here

“The site is for information purposes only and does not provide legal advice of any sort. Viewing this site, receipt of information contained on this site, or the transmission of information from or to this site does not constitute an attorney-client relationship. The information on this site is not intended to be a substitute for professional advice.”

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