TaxTMI 
TaxTMI 
2011 (5) TMI 648
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.... Limited, covering residential and businesss premises belonging to Parekh family. Since the Assessee was also part of Parekh group, the business premises of the Assessee was also searched on 24/9/2002. 2. According to the AO, in the course of search and seizure action, voluminous incriminating documents were found and seized. Mainly Assessee's books of account were also seized in the form of C.D.'s and harddisk. The chronology of events thereafter was as follows: a) On 28.07.2003 a notice u/s.158-BC of the Act was issued calling upon the Assessee to file return of income for the Block Period viz., 1.4.96 to 24.9.2002. b) On 22.4.2004, the Assessee filed a nil return of income for the block period. c) On 11.6.2004 a notice u/s.143(2) & 142(1) of the Act was issued by the AO fixing the case for hearing on 13.7.2004. d) On 13.7.2004, the Assessee did not attend the proceedings. e) On 5.08.2004, the AO, sent a proposal to the Commissioner of Income Tax(CIT) for appointing a special auditor u/s.142(2A) of the Act to conduct special audit of the books of accounts of the Assessee. f) On 12.8.2004, the CIT gave his approval for....
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....ubject to a maximum of 80 days). Further an additional period of 60 days would also be available to the AO from the date of report of the special audit for completing the block assessment. j) On 30.8.2004, the Special Auditors informed the AO that the Assessee is not co-operated in carrying out the special audit. k) On 31.8.2004 another letter dated 31.8.2004 by the Authorized representative of the Assessee giving reply to some of the queries raised by the AO in his notice u/s.143(2) of the Act dated 11.6.2004. According to the AO, the Assessee promised to produce witnesses on 15.9.2004 but did not do so. l) On 16.9.2004 the AO extended the period for carrying out special audit u/s.142(2A) of the Act, which period would expire on 17.9.2004. The period was extended to 1.11.2004. m) On 16.9.2004, the Assessee addresses another letter to the CIT to withdraw the order for carrying out special audit u/s.142(2A) of the Act. n) On 8.10.2004, the AO wanted the Assessee to produce witnesses so that the seized CD and Hard disc can be opened in their presence. o) On 18.10.2004, the Assessee sent witnesses and on that date the Seized CD's and h....
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....erprises of a total amount of Rs.93,94,951/-. Since the assessee has failed to produce any supporting evidences and during the search also it was established that no actual stock was transferred from Sonal Enterprises to the assessee. Therefore, in view of the above and inspite of availing several opportunities the assessee failed to cooperate with the department and the special auditors to explain these anomalies. Hence the entire purchases from M/s. Sonal Enterprises totalling to Rs.93,94,951/- is being treated as bogus expenditure of the assessee for the block period and the entire amount is added as undisclosed income of the assessee for the block period." 5. Before the AO, the Assessee raised a plea that the assessment order dated 7.4.2005 passed by the AO would be barred by limitation of time as laid down in Sec.158BE of the Act. In this regard it would be appropriate to narrate those provisions. The provisions of Sec.158BE of the Act, reads as follows: "Sec.158BE : Time limit for completion of block assessment. (1) The order under section 158BC shall be passed- (a) ........ (b) within two years from the end of the month in....
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....ction (2A) of section 142 and ending on the day on which the assessee is required to furnish a report of such audit under that sub-section, shall be excluded. Now we shall refer to the provisions of section 142 in so far as they are material for the present case. "Sec.142: Enquiry before assessment. (1) For the purpose of making an assessment under this Act,... (2) For the purpose of ..... (2A) If, at any stage of the proceedings before him, the Assessing Officer, having regard to the nature and complexity of the accounts of the assessee and the interest of the revenue, is of the opinion that it is necessary so to do, he may, with the previous approval of the Chief Commissioner or Commissioner, direct the assessee to get the accounts audited by an accountant, as defined in the Explanation below sub-section (2) of section 288, nominated by the Chief Commissioner or Commissioner in this behalf and to furnish a report of such audit in the prescribed Form duly signed and verified by such accountant and setting forth such particulars as may be prescribed and such other particulars as the Assessing Officer may require. (2B) The provisions of sub....
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.... of time limit laid down therein except to the extent stated in section 142(2C). Therefore, section 142(2A) should be applied in its undiluted form, disregarding the consequences. The Assessee further submitted that a reading of provisions of section 142(2C) would also suggest that the assessee shall obtain the audit report within the period originally fixed. Extension of time is allowed only on an application by the assessee in this regard and only when the assessee shows good and sufficient cause. Even under such circumstance the maximum period including the originally period and the extended period cannot extend beyond 180 days from the date on which the assessee receives direction in this regard from the Assessing Officer. According to the Assessee, a plain reading of the above provision makes it clear that firstly it is the AO who fixes the time limit for obtaining and furnishing of the report of Special Audit by the assessee. Secondly, it is only the AO who can extend the time limit for furnishing the report of Special Audit by the assessee. The AO can do so, only on an application by the assessee and on the assessee showing good and sufficient cause. Thirdly, even the AO can....
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....mitation because the AO has no such powers to extend the period for completion of the audit suo motto. 11. The stand of the revenue that the period from 13.8.2004 till 7.2.2005, viz., the date on which the final extension of time for furnishing audit report expired has to be excluded and further a period of 60 days has to be added in terms of the proviso below Expln.1 to Sec.158BE of the Act. In that event the period of limitation would expire on 7.4.2005 and the order of assessment has been passed within the period of limitation. 12. Without prejudice the above contention, the Assessee also submitted that the AO did not record any satisfaction regarding the complexity of the accounts of the Assessee which is a condition precedent for appointment of a special audit u/s.142(2A) of the Act. According to the Assessee, the provisions of section 142(2A) are only to enable the Assessing Officer to obtain report of an auditor where owing to complex nature of the accounts there is a possibility of a loss to the revenue. 13. Before we deal with the order of the AO on this issue, we have to make it clear that the Assessee never filed any application for extensio....
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....ut the required audit. The assessee's case was getting barred by limitation of time on 31/10/2004. As per proviso to section 142(2C) of the I.T. Act, the time limit was extended twice, so as to submit the audit report on 7/2/2005 before the Assessing Officer as the assessee's application, citing reasons, for cancellation of special audit was pending with the higher authorities. However, the aggregate of the period originally fixed and the periods so extended did not exceed one hundred and eight days from the date on which the direction under sub section (2A) is received by the assessee. 9.3 However, as per Explanation 1(ii) to section 158 BE of the I.T. Act the period commencing from the day on which the Assessing Officer directs the assessee to get its accounts audited u/s. 142(2A) and ending on the day on which the assessee is required to furnish a report of such audit under that sub section shall be excluded. Accordingly the period from 13/8/2004 to 7/2/2005 i.e. 180 days needs to be excluded. Accordingly, the time limit gets extended from 13/08/2004 by 180 days i.e. on 7/2/2005. As per proviso to section 158BE of the I.T. Act 1961, "where immediately after the exclusi....
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....eir powers under section 142(2A) of the I.T. Act. It further held that a person cannot be permitted to gain, on account of his own fault. If the assessee deliberately, knowing the consequences, refuses to produce the books of accounts, the assessee cannot be permitted to raise a hue and cry that the account books were not perused by the AO before passing the order u/s. 142(2A) of the I.T. Act." 17. Against the order of the AO dated 7.4.2005, the Assessee filed appeal before CIT(A) on 6.5.2005(wrongly mentioned as 6.5.2008 in the order of CIT(A)). In the grounds of appeal among other grounds the Assessee also challenged the direction to conduct special audit u/s.142(2A) of the Act and also the validity of the order of assessment on the ground that it is barred by limitation of time as laid down in Sec.158 BE of the Act. 18. On 18.1.2008, the CIT(Central)-IV. Mumbai, in exercise of his powers of revision u/s.263 of the Act issued a show cause notice to the Assessee calling upon the Assessee to show cause as to why the order of assessment dated 7.4.2005 passed in the Assessee's case should not be revised as the same was erroneous and prejudicial to the interest of ....
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....e AO had taken a conscious decision in determining the assessee's undisclosed income of the block period at Rs.93,94,951/- and no more. 20. The CIT by his order dated 12.3.2008 passed u/s.263 of the Act, however rejected the stand of the Assessee and he set aside the order dated 7.4.2005 and directed the AO to frame a fresh assessment, for the following reasons: "4.1 The contentions of the assessee have been duly considered. It is noticed that the question of limitation was raised by the assessee before the AO in the course of the block assessment proceedings and the AO had dealt with that question elaborately in the block assessment order dated 07/4/2005 passed by him. In my considered view, the AO was rightly persuaded by the decision of the Hon'ble Punjab and Haryana High Court in the case of Jagjit Sugar Mills Co. Ltd. vs. CIT and others, (1994) 210 ITR 468, and the decision of the Hon'ble Allahabad High Court in the case of Sahara India Mutual Benefit Co. Ltd. vs. CIT (2004) 269 ITR 563 to come to the conclusion that the time limit for completion of the block assessment in the present case was upto 27/4/2005. In that view of the matter, the assessee's plea ....
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....1. Aggrieved by the order of the CIT passed under Sec. 263 of the Act, the Assessee has filed IT (SS) A. No.62/mum/08. 22. The appeal of the Assessee filed against the order of the AO dated 7.4.2005 was pending and in the meantime the proceedings u/s.263 of the Act were initiated. On 22.8.2008, the CIT(A) dismissed the appeal of the Assessee against the order of the AO dated 7.4.2005 for the reason that by virtue of the order of the CIT u/s.263 of the Act, the order of assessment dated 7.4.2005 no longer existed and therefore the appeal of the Assessee becomes infructuous. 23. Aggrieved by this order of the CIT(A), the Assessee has filed IT(SS) A.No.111/Mum/08. 24. We will first consider the appeal against the order u/s.263 viz., IT(SS) A.No.111/Mum/08. 25. The issues that have to be decided in this appeal would be: 1. Whether the order of assessment passed u/s.263 is barred by limitation for the reason that a) The AO extended the time suo motto for completion of the special audit u/s.142(2A) of the Act and whether he has powers to extend the time suo motto? b) The order u/s.142(2A) of the Act was itself not valid because of the non satisfa....
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.....R. and proceed to decide the validity of the order of assessment dated 7.4.2005 on the ground that it is barred by time. 28. On the issue of limitation we have already seen that the on 13.8.2004, the AO passed the order u/s.142(2A) of the Act, directed the Assessee to get its books of Accounts audited by the special auditor by 17.9.2004. On 16.9.2004 the AO extended the period for carrying out special audit u/s.142(2A) of the Act, which period would expire on 17.9.2004. The period was extended to 1.11.2004. On 1.11.2004, the AO extended the period for completion of the special audit u/s.142(2A) of the Act, to 31.12.2004. On 31.12.2004, the AO again extended the period for completion of special audit u/s.142(2A) of the Act, to 7.2.2005. On 10.2.2005, the Special Auditors informed the AO that the Assessee has not co-operated or rendered any assistance nor produced books of accounts to carry out special audit u/s.142(2A) of the Act and therefore they are unable to complete the special audit. On 7.4.2005, the AO passes an ex-parte Block assessment order u/s.144(1)(b) of the Act read with Sec.158BC of the Act. We have already held that the Assessee did not make any applicatio....
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....by the Assessing Officer for the report under sub-section (1) was three months and this period could not be extended until and unless an application was filed by the assessee for extension of the period. It was contended that the assessee did not file any such application and, therefore, the Assessing Officer erred in extending the period for submission of the report of the special audit under section 142(2A) of the Act. The Hon'ble Court rejected this argument holding that the proviso to sub-section (2C) of section 142 of the Act makes it clear that the Assessing Officer may, either on the application made by the assessee and/or for any good and sufficient reasons, extend the said period which cannot extend to more than 180 days from the date on which the direction under section 142(2A) is received by the assessee. 30. The learned counsel for the Assessee relied on decision of Bangalore Tribunal in the case of Madhuvana House Building Co-operative Society Vs. ACIT 76 TTJ (Bang) 948 and Delhi Tribunal in the case of Sunder Exports Vs. DCIT 120 TTJ (Del) 853 wherein after consider the decision of the Hon'ble Punjab & Haryana High Court in the case of Jagjit Sugar Mills Co.....
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....l in another State and the Tribunal did not go into constitutionality of provision of I.T. Act and only decided the case in accordance with decision of High Court. The learned D.R. submitted that the law declared by the Hon'ble Punjab & Haryana High Court in the case of Jagjit Sugar Mills Co. (supra) should be followed because it was the only decision of High Court (though it is decision of non-Jurisdictional High court) on the issue. The learned Counsel for the Assessee on the other hand submitted that the decisions of the High Court are binding on the subordinate courts and authorities or Tribunals under its superintendence throughout the territories in relation to which it exercises jurisdiction. It does not extend beyond its territorial jurisdiction. Therefore the non jurisdictional High Court decision is not binding on the Tribunal and in this regard relied on the decision of the Hon'ble Bombay High Court in the case of CIT Vs. Thana Electricity Supply Ltd.206 ITR 727 (Bom). 32. We have considered the submission and are of the view that where there is only one view taken on a particular issue by any of the High Court/s, for the sake of uniformity and judicial discipl....
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....me Court rendered its decision in the case of Rajesh Kumar's (supra). The Finance Act, 2007, has inserted a proviso to Sec.142(2A) of the Act, w.e.f 1.6.2007 whereby it is mandatory to issue of show-cause notice before ordering special audit. Therefore the invalidity of the order u/s.142(2A) of the Act on the ground that no notice was given to the Assessee before passing the order for special audit u/s.142(2A) of the Act, cannot be raised in this case. 34. The next argument of the ld.counsel for assessee was that direction to get the books of accounts of the assessee subjected to a Special Audit was not valid because the conditions necessary for invoking such powers u/s 142(2A) viz., (a) nature of accounts, (b) complexity of accounts, and (c ) Interests of the Revenue are not fulfilled in the present case. Consequently the extended period of limitation was also not available to the AO. In this regard, the learned counsel for the Assessee placed reliance on the decision of the Hon'ble Gujarat High Court in the case of Alidhara Texpro Engineering P.Ltd. Vs. DCIT 332 ITR 115 (Guj), wherein the Hon'ble Gujarat quashed the order of assessment which was based on the special ord....
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....s and C.Ds. It was duly analysed in the proposal that the assessee was indulging into booking of bogus purchases from its own associate concerns so as to reduce its taxable income. It was also discovered from the seized documents that the assessee entered into circular transactions with it associate concerns so as to book losses. Special audit was required to unveil the multiple entries of circulation of various products amongst its associate concerns and to trade the ultimate beneficiary. Therefore, in view of the referred anomalies, detailed proposal was forwarded to the Commissioner of Income Tax, Central IV, Mumbai for the sanction of special audit u/s. 142(2A) of the I.T. Act. The proposal for special audit was sent due to nature and complexity of the instant assessee's accounts and to protect the interest of Revenue." 36. We have already seen that the Assessee's accounts were in the form of CD's and were seized during the search and put on seal. These CD's were opened only on 18.10.2004 in the presence of witnesses on behalf of the Assessee. In such circumstances we fail to understand as to how the AO on 5.8.2004 when he sent a proposal for special audit t....
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.... merits. We have while deciding the appeal against the order u/s.263 of the Act, already held that the order of the AO was barred by limitation. Therefore there would no useful purpose in setting aside the order of CIT(A) and directing him to decide the appeal on merits afresh. We therefore allow the appeal of the Assessee against the order of the CIT(A) challenging the order of the AO, holding that the order of assessment is barred by time. 41. Consequently, both the appeals by the Assessee are allowed. 42. IT(SS) A No.61/Mum/08 is an appeal by the Assessee against the order dated 12.3.2008 of CIT(A), Central-IV, Mumbai, passed under Sec. 263 of the Act. 43. IT(SS) A.No.112/Mum/08 is also an appeal filed by the Assessee against the order dated 22.8.2008 of CIT(A), Central-III, dismissing the appeal of the Assessee against the order of the AO 44. The Assessee is a partnership firm. It deals in bullion and precious metals. The Partners of the Assessee firm are (1) M/S.Novice Investments Pvt. Ltd. (2) M/S.Semantez Investments Pvt.Ltd. and (3) M/S. Fancier Investments Pvt.Ltd. All the partners of the Assessee firm were group companies of Parekh group in which....