TaxTMI 
TaxTMI 
2013 (5) TMI 222
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....arned CIT (A) failed to appreciate that even otherwise the order dated 22.09.2003 is beyond the period of limitation and hence invalid. 2. The learned CIT (A) erred in upholding the addition of Rs. 56,92,873 made by AO as undisclosed income. 3. The learned CIT (A) erred in upholding the addition of Rs. 1,40,000 made by AO in respect of the donation receipts of the different parties. 4. The learned CIT (A) erred in upholding the addition of Rs. 27,58,178 made by AO on estimation basis in respect of the AYs 1994-95 to 2000-01. 5. The learned CIT (A) erred in upholding the addition of Rs. 27,94,695 made by AO out of the income returned and assessed in the regular assessment for the AY 2001-02. 5.1 The learned CIT (A) erred in upholding the addition of Rs. 81,000 out of the house property income returned and assessed in the regular assessment for the AY 2001-02. 5.2 learned CIT (A) erred in upholding the addition of Rs. 27,13,695 out of the business income returned and assessed in the regular assessment for the AY 2001-02". 2. Briefly stated, assessee is the proprietrex in the following concerns: i) M/s Shivsagar Restaurant & Bar, Nagin Mahal, Veer Nariman Road,....
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....s were opened on 16.3.2001 and panchnama of the contents of the lockers were prepared. In view of the fact that the search was in January, 2001 AO was required to complete the assessment and pass assessment order in January, 2003. However, the assessment order was not passed upto 31.01.2003. Instead the Commissioner of Income Tax has appointed M/s. Shankarlal Jain & Associates as Special Auditor in assessee's case. It was stated in the letter that appointment is made by virtue of the power vested with the Commissioner under section 142(2A) of the Act. The said letter also specified the auditor's fees which were exorbitantly high and prohibitive. The said letter is in the form of information and there was no direction requiring assessee to get the accounts audited as contemplated under section 142(2A) of the Act. Further, there was no reference to the time period within which the audit is required to be completed. 3.1 Under the circumstances, assessee vide her letter dated 25.02.2003 requested AO to furnish copy of the reasons recorded and to give fair opportunity of hearing before taking any further action. As there was no response from AO, assessee vide a letter dated 2....
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....uditors are requirested to submit the audit report to AO not later than 29.7.2003 (copy enclosed). Therefore, by virtue of section 158(3)(iii) read with proviso to said sub-section, the period of limitation in this case was extended to 27.9.2003 i.e. 60 days from 29.7.2003. The block assessment order was, however, passed on 22.9.2003 duly served on assessee on 23.9.2003". The materials and evidences available on record indicate (1) M/s Shankarlal Jain & Associates was appointed as Special Auditor vide letter No.CIT- XIV/Spl.Audit/U/s.142(2A)/14(2) 89/2002-03 dated 27.1.2003 by CIT-XIV Mumbai. (2) AO has communicated M/s Shankarlal Jain & Associates vide letter No.CIT-XIV/142(2A)/2002-03/904 dtd. 29.1.2003. (3) Under letter No.AA/ITD/NP/2002-03 of 4th February, 2003 M/s. Shankarlal Jain & Associates requested the appellant Smt. Anandiben B. Patel to make available books of account and other records so as to enable them to complete the audit within a period of three months. (4) The appellant vide letter dt. 25.2.2003 requested AO to furnish copy of the reasons recorded and give a fair opportunity of hearing before taking further action. Subsequently the appellant submitte....
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....ly concluded on 25.1.2001. b).Search action conducted in business premises as per warrant of authorization dated 24.1.2001 at Shivsagar Restaurant & Bar, Churchgate - Finally concluded on 25.1.2001. c).Search action conducted in business premises as per warrant of authorization dated 23.1.2001 - Finally concluded on 25.1.2001. 16.03.2001 Search action at Union Bank of India, Locker No.A-180, Kalbadevi Branch as per warrant of authorization dated 02.02.2001 - Finally concluded on 16.03.201. 16.03.2001 Search action at Bank of Baroda, Locker No.25 V.P. Road, Branch as per warrant of authorization dated 02.02.2001 - Finally concluded on 16.3.2001. 29.01.2003 Letter to assessee from ACIT informing CIT appointed auditor under section 142(2A) received on 30.1.2003. 29.01.2003 Letter to Auditor from CIT informing approval of auditor and determination of remuneration - however, letter is typed on letterhead of CIT and signed by ACIT. 31.01.2003 Block assessment order to be passed on or before 31.01.2003. 25.02.2003 Letter requesting AO to give reasons for 142(2A) audit (AO did not respond). 04.04.2003 Letter from auditor to ACIT stating that ....
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.... of Auditor under section 142(2A): Proposition: (C) Opportunity of hearing before appointment of auditor under section 142(2A) to be given, else order bad in law: Case law: i) India Aluminium Co. Ltd vs. DCIT 329 ITR 550 (Cal.) - Section 142(2A) order bad in law if opportunity of hearing not given. ii) Meenakshi Sundaram & A.S. Rajashekhar (Mum.) Bench order dated 29.6.2011. iii) A.S. Rajasekhar Pro. ASR Caterers v. ACIT (Mum) Bench, order dated 4.1.2012. Proposition: (D) Special audit under section 142(2A) issued 2 days prior to expiry of limitation period and hence, the same is issued merely to extend the limitation period/circumvent the time barring date. Case law: i) CIT vs. Bajrang Textiles (294 ITR 561 (Raj.) - Held Block assessment bad in law since direction for special audit issued 1 day before limitation period. ii) Meenakshi Sundaram & A.S. Rajashekhar (Mum.) Bench order dated 29.6.2011. iii) A.S. Rajasekhar Pro. ASR Caterers v. ACIT (Mum) Bench, order dated 4.1.2012. Proposition: (E) AO has no power for extension of time period for Audit on suo-moto - proviso to section 142(2C) amended granting power to AO inserted by Finance Act....
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....ees, AO has not verified the same from third parties. ix) If assessee wanted to give donation from unaccounted source without revealing her identify, assessee could have simply made such donation in one go and that too either without taking any receipt for the same or even if the receipt was given, would have destroyed the same and not kept with her. x) Assessee submits that the donation receipts relate to the AY 1994-95 and the donors might not have collected their receipts and hence lying with assessee else there is no reason for assessee to keep such receipts with her for such a long period of time since the search action was conducted on 24.1.2001. xi) Assessee submits that since the receipts were relating to AY 1994-95, assessee was not able to remember as to why and how one receipt of donation amounting to Rs. 15,000 related to her husband that too after the date of decease of her husband and the same could have been same error while issuing the donation receipt. xii) However, assessee submits that the donation receipts does not pertain to her and hence the addition made in her hands is without any justification and liable to be deleted. Ground No.4: Addition o....
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....under section 142(2A) no order was prescribed. However, an order passed by the CIT in this regard has been placed on record during the hearing by the learned CIT (DR). It was further submitted that no reasonable opportunity was required under the law before entrusting the special audit and this is being followed only after the decision of the Hon'ble Supreme Court in the case of Rajesh Kumar vs. Deputy Commissioner of Income-tax 287 ITR 91 (SC). It was further submitted that in view of the 2nd warrant/Panchnama executed, legally the period for completion of the assessment was upto 31.03.2003 and since the audit was ordered in January 2003 and extended upto July 2003, AO gets further sixty days under Explanation to proviso to section 153, which expires on 30.09.2003, therefore the order was passed within the time. It was further submitted that assessee was not cooperating, therefore, AO has no option than to refer to the Special Audit. The learned CIT(DR) further contested that the direction issued under section 142(2A) cannot be the subject matter of appeal as held by the Hon'ble Supreme Court in the case of Rajesh Kumar vs. Deputy Commissioner of Income-tax 287 ITR 91 (SC)....
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....y Commissioner of Income-tax 287 ITR 91 (SC) considered the issue of giving opportunity to assessee before invoking section 142(2A) and held as under: "Following are the relevant factors for invoking section 142(2A) : (i)The nature of accounts (ii)Complexity of accounts and (iii)Interest of the revenue. The formation of opinion of the Assessing Officer must be on the premise that while exercising his power regard must be had to the factors enumerated therein. The use of the word 'and' in section 142(2A) shows that it is conjunctive and not disjunctive. All the aforementioned factors are conjunctively required to be read. The formation of opinion indisputably must be based on objective consideration. The expression 'complexity' would mean the state or quality of being intricate or complex or that it is difficult to understand. Difficulty in understanding would, however, not lead to the conclusion that the accounts are complex in nature. No order can be passed on whims or caprice. Principles of natural justice are based on two basic pillars: (i) Nobody shall be condemned unheard (audi alteram partem) (ii) Nobody shall be judge of his own cau....
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....ions. Whether he defaulted therein or not is a matter of little or no consequence for the purpose of construction of the said provision. Whereas, according to the revenue, the assessee was not cooperating, according to the assessee, as all the books of account had been seized, there was nothing it could do in the matter. It is an authority for the proposition that when by reason of an action on the part of a statutory authority, civil or evil consequences ensue, principles of natural justice are required to be followed. In such an event, although no express provision is laid down in this behalf, compliance of the principles of natural justice would be implicit. In case of denial of the principles of natural justice in a statute, the same may also be held ultra vires article 14 of the Constitution. [Para 22] The Division Bench of Delhi High Court in Yam Restaurants India (P.) Ltd. v. CIT [2005] 278 ITR 401 and Bombay High Court in Atlas Copco (India) Ltd. v. V.S. Sanuel, Asstt. CIT [2006] 283 ITR 56 are not correct in stating that a direction issued under section 142(2A) to be administrative in notice. In view of section 136, the entire proceedings of assessment before the Ass....
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....tment 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. An order of approval is also not to be mechanically granted. The same should be done having regard to the materials on record. The explanation given by the assessee, if any, would be a relevant factor. The approving authority was required to go through it. He could have arrived at a different opinion. He in a situation of that nature could have corrected the Assessing Officer if he was found to have adopted a wrong approach or posed a wrong question unto himself. He could have been asked to complete the process of the assessment within the specified time so as to save the revenue from suffering any loss. The same purpose might have been achieved upon production of some materials for understanding the books of account and/or the....
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....ciples laid down by the Hon'ble Supreme Court, since assessee was not given an opportunity before referring to Special Audit under section 142(2A), the entire reference becomes invalid in the eyes of law. 15. Not only that, once the audit was referred and time limit was prescribed for completion of audit and submission of report, AO had no power to extend the period originally granted suo motto, at the relevant point of time, without the application or request from assessee. This issue was considered elaborately by the Coordinate Bench in the case of Deputy Commissioner of Income-tax vs. Ramachandra Dashrath Hande & Co.10 ITR (Trib.)117 (Mum) wherein it was held:- "Held, that the Income-tax Act being a specific Act, the General Clauses Act may not generally apply to the limitation period. Apart from that it could also be seen that AO suo moto extended the period originally granted from April 28, 2005 w.e.f. April 30,2005 to another 60 days. First of all, there was already a lapse of two days before the period was extended. Secondly, AO had no suo moto power to extend the time limit, unless assessee applied under section 142C. Since assessee had not made any request for ex....
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....tion 275 that the assessee is entitled to seek an opportunity for rehearing under the proviso to section 129. From this it is clear that if there is any application or a request is made by the assessee to provide him an opportunity for rehearing and if such rehearing is given by the authorities, then the time taken in giving opportunity to the assessee can be excluded for computing the period of limitation for the purposes of section 275. When there is no request by the petitioner-assessee, the Department on its own cannot take shelter to condone the lapses of the Department and levy penalty beyond the prescribed time limit. In other words, clause (i) of the Explanation to section 275 cannot be invoked by the Department unilaterally to compute the period of limitation on its own without there being any request for rehearing by the assessee." 17. The above decision 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 completi....