Invalid Special Auditor Appointment Leads to Quashed Assessment Orders and Penalty Set Aside

The Tribunal found the appointment of a special auditor under section 142(2A) of the Income Tax Act to be illegal due to lack of examination of accounts and proper opportunity for the assessee to be heard. Consequently, the assessment orders passed beyond the limitation period were deemed invalid, leading to the quashing of the assessment orders and deletion of consequential additions. As a result, the penalty levied under section 271(1)(c) was set aside, and the appeals of the assessees were allowed, while the Revenue's appeal was dismissed.

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Issues Involved:
1. Legality of the appointment of a special auditor under section 142(2A) of the Income Tax Act.
2. Validity of the assessment orders passed beyond the limitation period prescribed under section 153.
3. Legality of the penalty levied under section 271(1)(c) of the Income Tax Act.

Detailed Analysis:

1. Legality of the Appointment of Special Auditor:
The assessees contended that the appointment of the special auditor under section 142(2A) was illegal as it was done without examining the books of accounts and without providing a reasonable opportunity of being heard. The Tribunal admitted this legal ground for adjudication, noting that all facts relevant to decide the grounds were already on record. The Tribunal referred to the Supreme Court's decision in "National Thermal Power Co. vs. CIT" and "Consulting Engineering Services (India) Ltd. vs ITAT," which support the admissibility of such legal grounds.

The Tribunal examined whether the Assessing Officer (AO) was justified in ordering the appointment of a special auditor under section 142(2A), thereby extending the time to frame the assessment. The Tribunal cited the Supreme Court's decision in "Rajesh Kumar vs. DCIT," which held that the principles of natural justice must be followed, and the assessee must be given an opportunity of hearing before appointing a special auditor. The Tribunal further referred to the Supreme Court's decision in "Sahara India (Firm) vs. CIT," which reaffirmed the need for pre-decisional hearing and the civil consequences of such an order.

The Tribunal found that the AO did not examine the accounts before forming the opinion that they were complex, and the assessee was not given a proper opportunity to object to the appointment of the special auditor. The service of notice was defective, and the approval by the Commissioner was mechanical. Therefore, the Tribunal held that the appointment of the special auditor was bad in law.

2. Validity of the Assessment Orders Passed Beyond the Limitation Period:
The Tribunal held that since the appointment of the special auditor was invalid, the extended period for passing the assessment order was not available to the AO. The original limitation period expired on 31.12.2008, and the assessment orders passed on 21.08.2009 were therefore barred by limitation. The Tribunal quashed the assessment orders and deleted the consequential additions.

3. Legality of the Penalty Levied Under Section 271(1)(c):
Since the quantum assessment orders were quashed, the basis for the penalty under section 271(1)(c) ceased to exist. The Tribunal set aside the penalty levied under section 271(1)(c).

Conclusion:
The Tribunal allowed the appeals of the assessees, quashing the assessment orders and setting aside the penalties. The appeal of the Revenue was dismissed.

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