Tribunal directs fresh assessment, emphasizes reasons for special audit, and grants hearing opportunity.

The tribunal set aside the assessment, directing the Assessing Officer to pass a fresh assessment order in accordance with the law, emphasizing the importance of recording reasons for directing a special audit and providing a reasonable opportunity for the assessee to be heard. The appeal of the assessee was allowed for statistical purposes.

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Issues Involved:

1. Legality of ex parte assessment under section 144(b) of the I.T. Act.
2. Validity and process of directing a special audit under section 142(2A) of the I.T. Act.
3. Requirement of providing an opportunity of being heard to the assessee before directing a special audit.
4. Reasonableness and fairness in fixing the audit fees.
5. Justification for non-compliance with the special audit direction due to impounding of books of account.
6. Proper consideration of material on record for making the assessment.

Issue-wise Detailed Analysis:

1. Legality of Ex Parte Assessment under Section 144(b):

The assessee contended that the ex parte assessment under section 144(b) was bad in law and against the material available on record. The CIT(A) upheld the Assessing Officer's action, rejecting the assessee's claim that the non-cooperation was due to the seizure of books of account. The tribunal found that the procedure adopted by the Assessing Officer was not authorized by law, leading to the setting aside of the assessment and remitting the matter back for fresh assessment.

2. Validity and Process of Directing a Special Audit under Section 142(2A):

The assessee challenged the direction for a special audit under section 142(2A), arguing that it was quasi-judicial and required objective consideration of the material on record. The tribunal agreed that the Assessing Officer should objectively consider the material and reach a bona fide conclusion that the accounts are complex and a special audit is necessary. The tribunal found that the Assessing Officer and CIT(A) failed to record reasons for directing the special audit, merely quoting the provision without showing material or reasons for its applicability.

3. Requirement of Providing an Opportunity of Being Heard:

The assessee argued that the principle of natural justice required an opportunity of being heard before directing a special audit. The tribunal held that while it is proper for revenue authorities to hear the assessee before directing a special audit, it is not compulsory. The tribunal emphasized that the legislative wisdom cannot be questioned and the assessee has no right to have a say in the procedure chosen for his assessment.

4. Reasonableness and Fairness in Fixing the Audit Fees:

The assessee contended that the audit fees were arbitrarily raised to Rs. 20,000 from Rs. 5,000 in the previous year. The tribunal noted that while the determination of remuneration is final under sub-section (2D) of section 142, the authorities must ensure that the fees are reasonable and do not place an onerous burden on the assessee. The tribunal refrained from commenting on the fee fixed but highlighted the need for reasonableness and fairness.

5. Justification for Non-compliance with the Special Audit Direction:

The assessee argued that non-compliance with the special audit direction was due to the impounding of books of account and the illness of the Accounts Manager. The tribunal found that the impounding of books was responsible for non-compliance and that the failure to get the audit was not without a reasonable cause. The tribunal noted that the special audit was directed close to the expiry of the assessment period, suggesting it was to gain time.

6. Proper Consideration of Material on Record for Making the Assessment:

The assessee contended that the assessment was not made with reference to the material available on record, with the Assessing Officer blindly repeating additions from the previous year. The tribunal found some force in these submissions but decided to remit the matter back to the Assessing Officer for fresh assessment, ensuring proper consideration of the material on record.

Conclusion:

The tribunal set aside the assessment, directing the Assessing Officer to pass a fresh assessment order in accordance with the law, considering the observations made. The tribunal emphasized the need for recording reasons for directing a special audit and providing a reasonable opportunity of being heard to the assessee. The assessee's appeal was allowed for statistical purposes.

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