Income Tax: High Court Held Section 142 Special Audit Proceedings Void in Absence of DIN

Bombay High Court quashed the special audit order, holding that approval without a mandatory DIN under CBDT Circular 19/2019 is invalid. Absence of DIN is not a curable procedural defect, making the entire special audit proceedings void.

The present appeal has been filed in the Bombay High Court by a taxpayer named Sanjay Nathalal Shah against the Income Tax Department, challenging an order dated February 10, 2025, passed by the tax authorities. The impugned order directed tax authorities to conduct a special audit of the petitioner’s accounts for the year for the Assessment Year 2023-24, under Section 142(2A) of the Income-tax Act, 1961.

The key ground raised by the petitioner is that the complete proceedings begun for special audit were entirely invalid and void, as the pre-condition of obtaining a valid approval from the Principal Commissioner of Income Tax (Central)-3, Mumbai, was not fulfilled yet. The petitioner further argued that the copy of approval dated February 06, 2025, did not possess any Document Identification Number (DIN). Ultimately, the said approval becomes invalid in the absence of a DIN.

As per CBDT Circular No. 19/2019, every communication, including approvals, issued by the Income Tax Department after October 01, 2019, must bear a DIN. If it does not, the communication is treated as invalid and is treated as never having been issued. To support the argument raised by him, the petitioner cited several earlier judgments titled Ashok Commercial Enterprises v. ACIT, Hardik Deepak Salot v. ACIT, Siemens Limited v. DCIT, and CIT v. Sutherland Global Services Inc.

On this claim, the tax department argued that the approval was just an internal document and does not fall under the scope of “communication” as per the said CBDT circular, hence does not require DIN. Further argued that since the final order directing the special audit had a valid DIN, it was sufficient as per the circular.

The Bombay High Court, when analysing the facts of the case, held the arguments raised by the tax department as invalid, as the CBDT Circular No. 19/2019 explicitly mandates approvals to have DIN on them. Relying on the earlier judgments based on the similar issue, the Court held that absence of a DIN is not a mere procedural defect and cannot be cured later. In conclusion, the court quashed both the special audit order dated 10.02.2025 and the audit report dated 06.06.2025.