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TaxTMI 
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TaxTMI 
2017 (3) TMI 1314
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.... assessee in ITA No. 543/PUN/2014 has raised the following grounds of appeal :- 1] The learned CIT(A) erred in holding that the asst. order passed u/s 153A r.w.s. 143(3) was not barred by limitation and thus, the same was valid in law. 1.1 ] The learned CIT(A) erred in holding that the reference for special audit u/s 142(2A) made in the case of the assessee was valid in law without appreciating the correct facts of the case. 1.2 ] The learned CIT(A) failed to appreciate that the reference for compulsory audit u/s 142(2A) was not valid in view of the Rajasthan H.C. decision in the case of Bajarang Textiles [294 ITR 561] and hence, the time limit for completion of asst. could not be extended by the period of special audit allowed u/s 153B of the Act and thus, the asst. was time barred and void. 1.3 ] The learned CIT(A) ought to have appreciated that the reference u/s 142(2A) for special audit was an illegal one as the A.O had not given an opportunity of hearing to the assessee as required under proviso to section 142(2A) and hence, the time limit for completion of asst. could not be extended by the period of special audit allowed u/s 153B of the Act and thus, the asst. was ti....
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....aid to Shri Navinkumar Yadav. 4.1] The learned CIT (A) failed to appreciate that the payment made to Shri Navinkumar Yadav was quite reasonable considering the services rendered by him as a director of the appellant company and therefore, the disallowance made u/s 40A(2)(b) was not justified on facts of the case. 5] The learned CIT (A) erred in confirming the disallowance of Rs. 1,35,279/- made in respect of various expenses on the ground that the assessee could not establish that the said expenses were incurred for business purposes of the assessee and thus, the addition made was justified. 5.1 ] The learned CIT (A) further erred in holding that there was no reasonable cause on part of the assessee for furnishing additional details in respect of the said expenses in the course of appellate proceedings and hence, the same could not be admitted as additional evidence u/r 46A and therefore, the said addition was justified. 5.2 ] The learned CIT (A) failed to appreciate that all the said expenses were incurred for business purposes of the assessee and most of the payments were paid through bank and therefore, the disallowance made was not warranted on facts of the case. 5.3 ....
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....fly, in the facts of the case, the assessee had filed the return of income declaring total income of Rs. 21,52,360/- on 01.11.2004. Search and seizure action under section 132 of the Act was conducted in Yadav group of cases on 20.07.2005 and the assessee was member of Yadav group; the assessee was also searched. In response to notice issued under section 153A of the Act, the assessee filed return of income declaring total income at Rs. 21,52,855/-. The assessee was rendering consultancy services and was also deriving income from consultancy charges and commission. The case of the assessee was selected for scrutiny. The Assessing Officer noted the modus operandi of services provided by the assessee for securing seats in colleges for students and also noted various aspects of the assessee's business and the reasons for Investigation Wing of the Income Tax Department, Pune to conduct search and seizure operation against the assessee group. Various books of account and documents were seized, wherein it was observed that the assessee had arranged admissions in different colleges. During the course of assessment proceedings, the DCIT, Central Circle 1(2), Pune noted that certain data wh....
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....er section 142(2A) of the Act. The Assessing Officer also noted that requisite information and records were called from the assessee. Several opportunities were given to the assessee to reply. However, the assessee failed to comply with the notices satisfactorily and fully and in view thereof, the Assessing Officer went through the records and submitted the proposal under section 142(2A) of the Act. The Assessing Officer further notes that in order to be fair, the assessee was asked to produce books of account along with bills and vouchers for examination by him and the Addl. CIT, CR-1, Pune and explained all the complexities to them, so that doubts could be cleared. It was further pointed out to the representative of the assessee that in case the assessee fails to clear the doubts, compulsory audit shall be ordered. However, the assessee did produce the books only, without any supporting documents before the Assessing Officer. On this basis, the Assessing Officer prepared note and submitted it for perusal of CIT(Central) which proves the lot of complexities in the books of account, when compared with the seized material. The opportunity was given by the CIT (Central) to the assess....
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....pleting assessment under section 143(3) r.w.s. 153A of the Act in such case was 31.12.2007 . Even for search year i.e. where the assessment had to be completed under section 143(3) of the Act, the time limit for completion of assessment was 31.12.2007. The assessment order for all the years was passed by the Assessing Officer on 12.08.2008. The case of assessee before us is that the said order passed by the Assessing Officer was time barred since the reference made for special audit under section 142(2A) of the Act was incorrect as no opportunity of hearing was given at the pre-decisional stage. The perusal of record reflects that the show cause notice was issued on 02.11.2007 by the CIT (Central), Pune after receiving proposal from the Assessing Officer recommending compulsory audit under section 142(2A) of the Act. The said notice itself mentioned that the assessee was being given an opportunity in view of proviso to section 142(2A) of the Act as to why compulsory audit should not be ordered in the case. Thereafter, the Assessing Officer no doubt, had made proposal under section 142(2A) of the Act which is placed at pages 45 and 46 of the Paper Book, wherein the assessee was aske....
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....t and applying the report of special auditor for carrying out the assessment in the case of concerned assessee. Section 142(2A) of the Act reads as under:- "142..... (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 interests 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: Provided 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." 21. As per provisions of said section if at any stage during the course of assessment proceedings, the Assessing O....
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....ion (2A) is received by the assessee. Reading the above said provisions, it is clear that where the Assessing Officer has sought special audit report, then it is incumbent upon the assessee to submit the said report within such period which is specified by the Assessing Officer. However, if the said audit has not been completed within such fixed period, then the Assessing Officer has power on his own motion or on an application moved by the assessee or for any other reasons, to extend the period for furnishing the special audit report within such extended period. 24. Section 142(2A) of the Act in the first instance talks about the period which is specified by the Assessing Officer i.e. the period given to assessee to conduct special audit by issue of notice in this behalf. When the period is extended then, the cap is placed on aggregate period in which the report is to be given wherein, it is provided that the same shall not exceed 180 days from the date on which the direction under sub-section (2A) is received by the assessee. If we consider the main provisions of sub-section (2C) and proviso thereunder, then the reference is made to different periods. In the main provision, the....
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....t should indisputably be based on objective considerations and no order can be passed on whims or caprice. The Hon'ble Supreme Court concluded by holding as under:- "55. The factors enumerated in section 142(2A) of the Act, thus, are not exhaustive. Once it is held that the assessee suffers civil consequences and any order passed by it would be prejudicial to him, principles of natural justice must be held to be implicit. The principles of natural justice are required to be applied, inter alia, to minimize arbitrariness. 56. It is trite, even if there is a possibility that the Tribunal would correctly follow the statutory provisions, still compliance with principles of natural justice would be required. [See R. v. Kensington and Chelsea Rent Tribunal, Ex p. MacFarlane [1974] 1 WLR 1486 (QB)]. 57. Justice, as is well known, is not only to be done but manifestly seem to be done. If the assessee is put to notice, he could show that the nature of accounts is not such which would require appointment of special auditors. He could further show that what the Assessing Officer considers to be complex is in fact not so. It was also open to him to show that the same would not be in the ....
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....the assessee, the requirement of observance of principles of natural justice is to be read into said provisions. The Apex Court re-affirmed earlier decision of Apex Court in Rajesh Kumar and Others Vs. DCIT (supra). It may be pointed out herein itself that pursuant to decision in Rajesh Kumar and Others Vs. DCIT (supra) by the Apex Court, Larger Bench was affirmed on the point that whether in every case where the Assessing Officer issued directions in terms of section 142(2A) of the Act, the assessee has to be heard before such order is passed. The Division Bench was of the view that it does not appear to be correct position of law. The Three Judge Bench thereafter, took note of the provisions of section 142(2A) to (2D) of the Act and section 142(3) of the Act and observed that the twin conditions of the nature and complexity of accounts and interest of revenue were the pre-requisite for exercise of power under section 142(2A) of the Act. It was further observed the word 'complexity' used in section 142(2A) of the Act was not defined or explained in the Act but what may be complex to one, may not be complex as far as the understanding of other. So, there has to be genuine and hones....
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....questions. Referring to the decision of this court in Binapani Dei wherein it was observed that when by reason of an action on the part of a statutory authority, civil or evil consequences ensue, the principles of natural justice are required to be followed and in such an event, although no express provision is laid down in this behalf, compliance with the principles of natural justice would be implicit, the learned judges held {1.[2006] 287 ITR 91 (SC) 2.[1967] AIR 1967 SC 1269.} that by virtue of an order under section 142(2A) of the Act, the assessee suffers civil consequences and the order passed would be prejudicial to him and, therefore, the principles of natural justice must be held to be implicit. The court has further observed that if the assessee was put to notice, he could show that the nature of accounts is not such which would require appointment of special auditors. He could further show that what the Assessing Officer considers to be complex is, in fact, not so. It was also open to him to show that the same would not be in the interests of the Revenue. 21. In the light of the aforenoted legal position, we are in respectful agreement with the decision of this court ....
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....be judicial proceedings. Section 136 of the Act stipulates that any proceeding before an income-tax authority shall be deemed to be judicial proceeding within the meaning of sections 193 and 228 of the Indian Penal Code, 1860, and also for the purpose of section 196 of the Indian Penal Code and every income-tax authority is a court for the purpose of section 195 of the Code of Criminal Procedure, 1973. Though having regard to the language of the provision, we have some reservations on the said view expressed in Rajesh Kumar's case, but having held that when civil consequences ensue, no distinction between quasi-judicial and administrative order survives, we deem it unnecessary to dilate on the scope of section 136 of the Act. It is the civil consequence which obliterates the distinction between quasi-judicial and administrative function. Moreover, with the growth of the administrative law, the old distinction between a judicial act and an administrative act has withered away. Therefore, it hardly needs reiteration that even a purely administrative order which entails civil consequences, must be consistent with the rules of natural justice. (Also see : Mrs. Maneka Gandhi v. Unio....
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....absence of express provision for affording an opportunity of pre-decisional hearing to an assessee and in the absence of any express provision in section 142(2A) barring the giving of reasonable opportunity to an assessee, the requirement of observance of the principles of natural justice is to be read into the said provision. Accordingly, we reiterate the view expressed in Rajesh Kumar's (1) case." 31. The Apex Court further recognized the insertion of proviso under section 142(2A) of the Act w.e.f. 01.06.2007 which provided that no direction for special audit shall be issued without affording reasonable opportunity of hearing to the assessee. In the facts of the case before the Apex Court before passing the order requiring the assessee to have their accounts audited by Chartered Accountant, no show cause notice was given to the assessee. The assessee in the said case was required to furnish by March 20, 2006 the detailed explanation in respect of queries raised vide order sheet entries but in the meantime impugned order asking the assessee to get the accounts audited by the special auditor were passed on 14.03.2006. The Apex Court held that It is manifestly clear that when ....
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....s. CIT (supra) vide judgment dated 17.01.2014 had also held as under:- "23. Thus, A.O. should reconsider the issue as to whether a direction should be issued under section 142(2A) of the Act after considering the objections of the assessee and affording a reasonable opportunity of being heard, in terms of Section 142(2A) of the Act. It is only after the A.O. reaches to a fair conclusion after considering the reply given by the petitioner, and affording an opportunity of hearing, the CIT as approving authority will consider whether the special audit is required to be carried out for the purposes of understanding the accounts maintained by the assessee. The opinion must be formed reflecting the application of mind based on objective criteria and not on the basis of subjective satisfaction." 35. The Hon'ble High Court of Allahabad in Kaka Carpets Vs. CIT (supra) thus, has distinguished between the adjudicating authority and approving authority and held that the first decision is to be made by the Assessing Officer, the adjudicating authority of giving the approval after considering the objections of assessee and affording reasonable opportunity of hearing in terms of provisions of....
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....sed in the case is within time frame as reference was made for special audit and time allowed for getting the special audit under section 142(2A) of the Act is to be excluded for working out the limitation period for passing the assessment order. In this regard, the communication and correspondence before permission given to special audit need to be looked into. The learned Departmental Representative for the Revenue has filed on record copy of order sheet entries, wherein the assessee was asked to file English translation of the seized note books after assignment of case upon the DCIT, Central Circle, the order sheet entry is dated 16.05.2008. Thereafter, there was proposal to centralize Patel group cases with Addl. CIT, Circle-1, Pune. Vide order sheet entry dated 11.09.2008 itself, a proposal for audit under section 142(2A) of the Act in the case of Patel was submitted to CIT, Central, Pune through proper channel. The cases of Patel group were assigned to the ITO, Central-I, Pune on 13.10.2008. On 22.10.2008, a proposal for audit under section 142(2A) of the Act in the case of Patel group was submitted to CIT(C), Pune through proper channel. Thereafter, letter dated 21.11.2008 i....
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....k. Thereafter, special auditor was appointed and he conducted the special audit. 40. The question which arises for adjudication before us is that in the present set of facts, where the Assessing Officer before sending a proposal for conducting special audit under section 142(2A) of the Act has not given an opportunity of being heard to the assessee and in view of the proviso to section 142(2A) of the Act, is the said proposal made without affording pre-decisional hearing to the assessee valid and can the proceedings conducted thereafter be held to be vitiated in law. The Hon'ble Supreme Court in Three Judge decision in Sahara India (Firm) Vs. CIT and Another (supra) had decided the issue of show cause notice to be given on pre-decisional stage and post-decisional stage of starting the proceedings under section 142(2A) of the Act and had also referred to the earlier decision of Apex Court in Rajesh Kumar and Others Vs. DCIT (supra). The principles laid down by the Hon'ble Supreme Court are that the principle of audi alteram partem cannot be ignored even at the stage of pre-decisional hearing. In other words, in case the Assessing Officer is of the view that having regard to the na....
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.... such hardship of conducting special audit. The Assessing Officer having failed to give any opportunity of hearing to the assessee before making the proposal for conducting special audit under section 142(2A) of the Act at the pre-decisional stage, then such proposal made by the Assessing Officer to the CIT(C), Pune is against the principles of natural justice and suffers from infirmity. The case of Revenue before us is that the CIT(C), Pune before passing his order of giving permission to the Assessing Officer to ask the assessee to get the special audit conducted had given fair opportunity of hearing to the assessee. The role of CIT(C) is the role of approving authority. The role is not that of adjudicating authority which had to be carried out by the Assessing Officer. The adjudicating authority in the present set of facts has failed to give any opportunity to the assessee before making proposal for special audit and the opportunity allowed by the approving authority, who in any case is enshrined with the duties of checking whether there is no arbitrariness in functioning of adjudicating authority, has to be satisfied before giving approval. Hence, the opportunity allowed by the....