Sahara India vs. CIT (Supreme Court) (Larger Bench)

(i) Before dubbing the accounts to be complex or difficult to understand, there has to be a genuine and honest attempt on the part of the AO to understand accounts maintained by the assessee; appreciate the entries made therein and in the event of any doubt, seek explanation from the assessee. The opinion must be based on objective criteria and not on the basis of subjective satisfaction. Recourse to s. 142 (2A) cannot be had by the AO merely to shift his responsibility of scrutinizing the accounts of an assessee and pass on the buck to the special auditor.

(ii) The CIT has a very heavy duty to see that the requirement of the previous approval is not an empty ritual. Before granting approval, the CIT must have the material on the basis whereof an opinion has been formed by the AO. The approval must reflect application of mind.

(iii) While there is no general rule of universal application as to the applicability of the principle of natural justice the requirement of giving reasonable opportunity of being heard before an order is made, is generally read into the provisions of a statute, particularly when the order has adverse civil consequences for the party affected unless a statutory provision either specifically or by necessary implication excludes the application of principles of natural justice. This principle holds good irrespective of whether the power conferred on a statutory body or tribunal is administrative or quasi-judicial.

(iv) The exercise of power under S.142 (2A) leads to serious civil consequences and, therefore, even in the absence of express provision for affording an opportunity of pre-decisional hearing to an assessee the requirement of observance of principles of natural justice is to be read into the said provision.

Note: Rajesh Kumar 287 ITR 91 (SC) was affirmed.