TaxTMI 
TaxTMI 
2017 (2) TMI 921
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....of Cash Purchases. 4. The Learned Commissioner of Income Tax (Appeals) 7, Pune is not justified on conforming addition of Rs. 6,70,000/- on account of other contract receipts. 5. The Learned Commissioner of Income Tax (Appeals) 7, Pune is not justified on conforming addition of Rs. 20,54,754/- on account of negative cash balance on various dates added by Assessing officer u/s 68. 6. The Learned Commissioner of Income Tax (Appeals) 7, Pune is not justified on conforming addition of Rs. 1,00,000/- on account of disallowance of expenses out of Rs. 3,53,350/- disallowing by Assessing Officer. 3. The assessee has also raised an additional ground of appeal which reads as under:- "Whether on the facts and in the circumstances of the case, the Assessing Officer passed on 24.08.2011 was within the limitation period as provided in Section 153 of the Act read with Explanation 1 clause (iii)(a). The impugned assessment having being made after the expiry of the period of limitation, is time barred and may be cancelled." 4. The learned Authorized Representative for the assessee pointed out that the issue raised by way of additional ground of appeal is purely legal issue with reference ....
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....d out that the assessee was served letter dated 25.12.2010 asking for clarification, in reply to which the assessee filed reply on 27.12.2010. The Assessing Officer passed an order under section 142(2A) of the Act on 30.12.2010, under which the assessee was directed to get his books of account audited from the special auditor within 45 days therefrom. The sequence of events in the present case reflects that the Assessing Officer first made reference to the Commissioner vide letter dated 24.12.2010, pursuant to which, approval was received on 25.12.2010. The Assessing Officer thereafter, gave an opportunity to the assessee vide letter served on 25.12.2010, thereafter, passed an order under section 142(2A) of the Act on 30.12.2010. The sequence of events in the case of assessee reflects that the Assessing Officer before making reference to the Commissioner for conducting special audit on the pre-decisional stage i.e. before 24.12.2010 had not confronted the assessee as to whether the special audit under section 142(2A) of the Act merits to be conducted. The letter which was issued to the assessee, to which the assessee filed reply on 27.12.2010 was after making reference to the Commi....
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....the accounts or specialized nature of business activity of assessee and the interests of revenue, is of the opinion that it is necessary to do so, he may, with previous approval of Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner as the case may be, direct the assessee to get the accounts audited by an accountant, and to furnish a report of such data in the prescribed form duly signed and verified by such accountant setting forth such particulars as may be prescribed, and such other particulars as may be required. The proviso thereunder stipulates that the Assessing Officer shall not direct the assessee to get the accounts so audited unless the assessee has been given reasonable opportunity of being heard. 22. Sub-section (2B) thereunder provides that the provisions of sub-section (2A) shall have effect notwithstanding that the accounts of the assessee have been audited under any other law for the time being in force. Sub-section (2C) provides the time limit i.e. every report under sub-section (2A) shall be furnished by the assessee to the Assessing Officer within such period as may be specified by the Assessing Officer. The proviso und....
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.... the period of 180 days, then from the date on which direction under sub- section (2A) is received by the assessee. 25. The relevance of dates and the time period within which special audit is to be taken note of is to be applied while calculating the time limit for completion of assessment under section 153A of the Act. The provisions at the relevant time provided that while computing the period of limitation for the purpose of completion of assessment, the period commencing from the date on which the Assessing Officer direct the assessee to get his accounts audited under section 142(2A) of the Act and ending with last date on which the assessee is required to furnish report of such audit under that sub-section or where such direction is challenged before the Court ending with date on which the order setting aside the order is received, by the Principal Commissioner or Commissioner, is to be excluded. This is as per Explanation under section 153B clause (ii). The provisions of section 142(2A) of the Act have been the subject matter of various judicial rulings. 26. The Apex Court in Rajesh Kumar and Others Vs. DCIT (supra) vide judgment dated 01.11.2006 has laid the proposition....
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....t all relevant factors including the ones mentioned in section 142(2A) of the Act are 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 underlying purpose for appointment of the special auditor is not bona fide it might not have approved the same." 27. The Hon'ble Supreme Court further held as under:- "60.........While exercising its power, the Assessing Officer has to form an opinion. It is final so far as he is concerned albeit subject to approval of the Chief Commissioner or the Commissioner, as the case may be. It is only at that stage he is required to consider the matter and not at a subsequent stage, viz., after the approval is given. 61...... 62. Whereas the order of assessment can be the subject matter of an appeal, a direction issued under section 142(2A) of the Act is not. No internal remedy is prescribed. Judicial review cannot be said to be an appropriate remedy in this behalf. The appellate power under the Act does not contain any provision like section 105 of the Code of Civil Procedure. The power of judicial review is limited. It is discretionary. The court may....
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....lanation from the assessee. But opinion required to be formed by the Assessing Officer for exercise of power under the said provision must be based on objective criteria and not on the basis of subjective satisfaction, was the proposition laid down by the Hon'ble Supreme Court. Further, even the requirement of previous approval of Chief Commissioner or Commissioner was held to be an inbuilt protection against arbitrary and unjust exercise of power by the Assessing Officer. It also casted a heavy duty on the high ranking authority, to say that the requirement of previous approval, envisaged in section is not turned into empty ritual. It was further laid down by the Hon'ble Supreme Court that before granting the approval, the Chief Commissioner or Commissioner as the case may, must have before him the material on the basis whereof an opinion in this behalf has been formed by the Assessing Officer and the approval must reflect the application of mind to the facts of the case. Then the requirement of hearing or not before the order for special audit was taken up by the Hon'ble Supreme Court and the concept of natural justice and the principles governing the said application were referr....
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....sertion of the proviso to section 142(2D) with effect from June 1, 2007. The proviso provides that the expenses of the auditor appointed in terms of the said provision shall, henceforth, be paid by the Central Government. In view of the said amendment, it can be argued that the main plank of the judgment in Rajesh Kumar to the effect that direction under section 142(2A) entails civil consequences because the assessee has to pay substantial fee to the special auditor is knocked off. True it is that the payment of auditor's fee is a major civil consequence, but it cannot be said to be the sole civil or evil consequence flowing from directions under section 142(2A). We are convinced that special audit has an altogether different connotation and implications from the audit under section 44AB. Unlike the compulsory audit under section 44AB, it is not limited to mere production of the books and vouchers before an auditor and verification thereof. It would involve submission of explanation and clarification which may be required by the special auditor on various issues with relevant data, document, etc., which, in the normal course, an assessee is required to explain before the Assess....
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....y or personal rights but of civil liberties, material deprivations and non- pecuniary damages. Anything which affects a citizen in his civil life comes under its wide umbrella. Accordingly, we reject the argument and hold that since an order under section 142(2A) does entail civil consequences, the rule audi alteram partem is required to be observed. 23. We are also unable to persuade ourselves to agree with the proposition canvassed by learned counsel for the Revenue that since a post decisional hearing in terms of sub-section (3) of section 142 is contemplated, the requirement of natural justice is fully met. Apart from the fact that ordinarily a post decisional hearing is no substitute for pre- decisional hearing, even from the language of the said provision it is plain that the opportunity of being heard is only in respect of the material gathered on the basis of the audit report submitted under sub- section (2A) and not on the validity of the original order directing the special audit. It is well settled that the principle of audi alteram partem can be excluded only when a statute contemplates a post decisional hearing amounting to a full review of the original order on meri....
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....ore, in the light of the legal position noted above, we have no option but to hold that the impugned orders dated March 14, 2006, are vitiated by the failure to observe the principle of audi alteram partem. 32. The next question which was decided by the Apex Court was whether the assessment order passed in the case is barred by limitation. The Apex Court admitted that the law on subject was not clear till the judgment in Rajesh Kumar and Others Vs. DCIT (supra) was rendered and there was divergent opinions amongst various High Courts. The Apex Court held that the law on the subject clarified by the Apex Court would apply prospectively and it would be open to the assessee to urge before appellate authorities that the extended period of limitation was not available to the Assessing Officer because an invalid order was passed under section 142(2A) of the Act. However, it would be open to the assessee to question before appellate authorities if so advised the correctness of material gathered on the basis of audit report submitted under section 142(2A) of the Act. 33. Both the learned Authorized Representatives have relied on several decisions of different courts and the Tribunals o....
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.... to the facts of the case and the reply given by the assessee. 36. The Hon'ble Bombay High Court in Nickunj Eximp Enterprises Pvt. Ltd. (supra) taking note of amended provisions of insertion of proviso to section 142(2A) of the Act w.e.f. 01.06.2007 held that the Assessing Officer shall not direct the assessee to get the accounts so audited unless the assessee has been given a reasonable opportunity of being heard. Where the Parliament had specifically incorporated requirement of reasonable opportunity of being heard, the said requirement could not be a meaningless formality and the whole object and purpose of such opportunity was to be applicable to the assessee to demonstrate before the Assessing Officer that the ingredients of section 142(2A) of the Act were not fulfilled. In the facts of the case before the Hon'ble Bombay High Court, the Assessing Officer had given notice to the assessee but had not dealt with submissions made by the assessee in this behalf and hence, the Assessing Officer was directed to consider the objections raised by the assessee. 37. It may be pointed out herein itself that the learned Departmental Representative for the Revenue has placed reliance on....
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....8, the Counsel filed a letter requesting for copies of seized note books and diaries which were supplied to him on 17.12.2008. On 30.03.2009, the cases were assigned to ITO, Central, Kolhapur and the records were handed over on 17.04.2009. Thereafter, the assessment proceedings were taken. 39. The first communication of Assessing Officer to the assessee is vide letter dated 21.11.2008, under which reference is made to the CIT (Central), Pune's order granting approval under section 142(2A) of the Act dated 01.11.2008, wherein the assessee was asked to get the accounts audited through nominated auditor within period of sixty days and submit the audited accounts along with audit report. He was also asked to get additional particulars as verified by the nominated auditor and submit the same; copy of the said letter is placed at pages 251 to 252 of the Paper Book. The assessee has also placed on record the order granting permission under section 142(2A) of the Act by the CIT (Central), Pune which is dated 04.11.2008, under which it is mentioned that proposal dated 11.09.2008 for conducting special audit in the group cases of Patel group was received. The detailed reasons for special a....
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....val of Principal Chief Commissioner, then he can do so. However, the proviso inserted by the Finance Act, 2007 w.e.f. 01.06.2007 has very categorically provided that the Assessing Officer shall not direct the assessee to get the accounts so audited unless the assessee has been given an opportunity of being heard. In other words, the principles of natural justice that a person could not be condemned unheard, have been incorporated in section itself w.e.f. 01.06.2007. The Apex Court in Rajesh Kumar and Others Vs. DCIT (supra) had deliberated on the provisions of the Act before insertion of said proviso but had laid down the proposition that nobody could be unheard even at the stage of forming an opinion that in view of the nature and complexity of accounts and interest of revenue, special audit is to be conducted under section 142(2A) of the Act. The Apex Court in Sahara India (Firm) Vs. CIT and Another (supra) have upheld the said proposition laid down by the Hon'ble Supreme Court and has also taken note of the amendment w.e.f. 01.06.2007 and have held that the principles of natural justice have to be fulfilled even at the pre-decisional stage. In conclusion, the Apex Court directed....