2013 (5) TMI 222 - AT - Income Tax

Tribunal overturns assessment order citing procedural violations, undisclosed income, and lack of evidence.

The tribunal allowed the appeal, holding the assessment order as invalid and time-barred due to procedural violations. The additions of undisclosed ... Addition on undisclosed income - search u/s 132 - time limit for completion of Block assessment - whether 31-01-03 or 31-03-03 - addition of donations, estimation of income for the entire block period - Held that:- In spite of repeated requests by assessee, the order of the CIT on special audit was never furnished to assessee and it has been placed on record only in the present appeal proceedings - there is no reference to the period under which the audit was to be completed either in the order or in the communication by AO. This comes out only from the letter written by the said auditor to assessee and to the ACIT for extension of period. It is a fact that assessee was not given any opportunity before preferring to the Special Audit, as seen from the notices issued in the course of block assessment proceedings before referring to the special audit by AO, assessee/ AR was attending before AO and was furnishing various information as required. As decided in Rajesh Kumar vs. Deputy Commissioner of Income-tax (2006 (11) TMI 135 - SUPREME Court) formation of opinion before invoking section 142(2A) indisputably must be based on objective consideration. The factors enumerated in section 142(2A) are not exhaustive. Once it is held that the assessee suffers civil consequences and any order passed by it would be prejudicial to him, principles of natural justice must be held to be implicit. In the instant case itself, the assessees were not made known as to what led the Deputy Commissioner to form an opinion that all relevant factors including the ones mentioned in section 142(2A) were satisfied. If even one of them was not satisfied, no order could be passed. If the attention of the Commissioner could be drawn to the fact that the underlined purpose for appointment of the special auditor was not bona fide he might not have approved the same. Assuming that two sets of accounts were being maintained, the same would not mean that the nature of accounts was difficult to understand. It could have furthermore not been shown that the power was sought to be exercised only for an unauthorised purpose, viz., for the purpose of extension of the period of limitation as provided for under Explanation 2 to section 158BE. Thus, the order passed by the Deputy Commissioner under section 142(2A) without giving opportunity of hearing to the assessee and refusing the assessee's request for supplying reasons for passing such order, could not be sustained'. As AO has only power to extend the time limit originally granted only when the assessee makes an application. He has no suo motu powers which were subsequently inserted with effect from April 1, 2008. Case of B.N. Amarnath v. CIT (2002 (10) TMI 81 - KARNATAKA High Court) will equally apply to the facts of this case. Since the assessee had not made any request for extension of time, the action of the Assessing Officer in extending the period by another three months was not according to the provisions of the law. AO has no jurisdiction to extend the period granted originally for completion of audit which was up to end of April 2003. Therefore, the time period to be counted, even if the reference was considered valid, for the extension of time barring period can only be upto 30.04.03. In view of these two reasons ie. assessee was not given an opportunity before ordering special audit and further extended the time from April 03 to July 03 being bad in law the orders so passed in September 2003 is beyond the time limit permitted under the Act and therefore, order so passed becomes bad in law. Since the period from Feb 2003 to Sep. 03 was taken under the guise of Special audit, which is held without proper jurisdiction, the time so taken can not be counted and the period does not get extended. The order at best could have been completed by 31-01-03 or by 31-03-03. Since the order was passed on 22-09-03, the same has to considered, as time barred. Therefore, the order passed by AO suffers from legal jurisdiction and is therefore, bad in law. Even on merits assessee's contentions seems to be prima facie correct as the addition of donations, estimation of income for the entire block period without there being any evidence for that period on the limited material for the year of search and further bringing to tax the entire amount which was already offered in the regular return cannot be sustained in the block assessment - appeal filed by assessee allowed. Issues Involved:1. Validity of the assessment order dated 22.09.2003 being passed beyond the period of limitation.2. Legitimacy of the addition of Rs. 56,92,873 as undisclosed income.3. Validity of the addition of Rs. 1,40,000 in respect of donation receipts.4. Justification of the addition of Rs. 27,58,178 on an estimation basis for AYs 1994-95 to 2000-01.5. Appropriateness of the addition of Rs. 27,94,695 out of the income returned and assessed for AY 2001-02.Detailed Analysis:1. Validity of the Assessment Order:The primary issue was whether the assessment order dated 22.09.2003 was passed beyond the period of limitation. The assessee argued that the assessment order was invalid as it was passed after the statutory period, which should have ended on 31.01.2003. The CIT (A) and AO extended the period based on a special audit under section 142(2A) of the Income Tax Act, 1961. The tribunal found that the special audit was ordered without giving the assessee an opportunity to be heard, thus violating principles of natural justice as established in the Supreme Court case Rajesh Kumar vs. Deputy Commissioner of Income-tax 287 ITR 91 (SC). Additionally, the AO extended the audit period suo moto without any request from the assessee, which was not permissible under the law at that time. Consequently, the assessment order was deemed invalid and time-barred.2. Addition of Rs. 56,92,873 as Undisclosed Income:The CIT (A) upheld the addition of Rs. 56,92,873 made by the AO as undisclosed income. However, the tribunal found that the special audit, which formed the basis for this addition, was invalid. Therefore, the addition could not be sustained.3. Addition of Rs. 1,40,000 in Respect of Donation Receipts:The assessee contested the addition of Rs. 1,40,000 towards donation receipts found during the search. The assessee argued that these receipts were donations collected on behalf of a trust and not her own income. The tribunal noted that the AO did not verify the third-party names on the donation receipts, and there was no evidence to suggest that the donations were unaccounted income of the assessee. Therefore, the addition was not justified.4. Addition of Rs. 27,58,178 on Estimation Basis for AYs 1994-95 to 2000-01:The CIT (A) upheld the addition of Rs. 27,58,178 on an estimation basis for the AYs 1994-95 to 2000-01. The tribunal found that additions could only be made based on evidence found during the search, and estimated additions without any supporting evidence were not justified. The tribunal referred to various case laws, including NR Paper & Board Ltd vs. DCIT 234 ITR 733 (Guj.) and CIT vs. Ravi Kant Jain, 250 ITR 141 (Del.), which supported the assessee's contention.5. Addition of Rs. 27,94,695 Out of the Income Returned and Assessed for AY 2001-02:The CIT (A) upheld the addition of Rs. 27,94,695 out of the income returned and assessed for AY 2001-02. This included Rs. 81,000 from house property income and Rs. 27,13,695 from business income. The tribunal noted that the house property income was notional and had already been offered to tax in earlier years. The business income had also been included in the regular return for AY 2001-02. Therefore, these additions were not justified.Conclusion:The tribunal allowed the appeal filed by the assessee, holding that the assessment order dated 22.09.2003 was invalid and time-barred. The various additions made by the AO were also found to be unjustified. The appeal was allowed on all counts.