Income Tax Dept Cannot Order Special Audit Without Valid DIN Based Approval: Bombay HC Holds Proceedings Void Ab Initio [Read Order]

In a recent ruling, the Bombay High Court held that the Income Tax Department cannot order a special audit without a valid prior approval carrying a Document Identification Number (DIN) and that proceedings initiated based on such invalid approval are void ab initio.

Sanjay Nathalal Shah, the petitioner challenged an order passed by the Assistant Commissioner of Income Tax directing a special audit of his accounts for the assessment year 2023-24 and also challenged the consequential special audit report dated 6 June 2025.

The petitioner argued that under Section 142(2A), a special audit can be directed only after obtaining prior approval of the Principal Commissioner of Income Tax. In the present case, although the department relied on an approval dated 6 February 2025, that approval did not contain a DIN.

The petitioner’s counsel argued that this was a clear violation of CBDT Circular No. 19/2019 dated 14 August 2019 which mandates that all communications including approvals, must carry a DIN and that any communication issued without a DIN is deemed to have never been issued.

They further argued that the requirement of a DIN is not a procedural formality but a mandatory condition. Since the approval itself was invalid, the entire proceedings for special audit lacked jurisdiction and could not survive in law.

On the other hand, the Income Tax Department argued that the approval was an internal document and did not amount to a “communication” under the Circular. They also argued that the special audit order itself carried a valid DIN which amounted to sufficient compliance with the Circular. The department relied on a Gujarat High Court judgment to contend that absence of DIN was a curable defect.

After examining the record, the Division Bench comprising Justice B.P. Colabawalla and Justice Firdosh P. Pooniwalla observed that CBDT Circular No. 19/2019 clearly includes “approval” within the scope of communications requiring a DIN. The court observed that the approval dated 6 February 2025 admittedly did not carry a DIN and also did not mention any exceptional circumstances permitting manual issuance.

The court explained that the Circular was issued to ensure transparency and maintain a proper audit trail, and its provisions are binding on the Income Tax Department. It pointed out that failure to comply with the Circular cannot be treated as a minor procedural lapse or cured under Section 292B of the Act.

The court also observed that prior approval under Section 142(2A) is a jurisdictional requirement; if such approval is invalid, any order based on it is without lawful authority. The court declined to follow the Gujarat High Court's view and followed binding precedents of the Bombay High Court and other High Courts.

In view of these findings, the court quashed and set aside the special audit order dated 10 February 2025 and the consequential special audit report dated 6 June 2025. The court clarified that the department was at liberty to proceed afresh in accordance with law, subject to limitation. The writ petition was allowed.

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