AI Drafter 
TaxTMI 
TaxTMI 
2017 (12) TMI 1405
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....ince the issues involved in these appeals are identical, therefore, these appeals were clubbed and adjudicated in this composite order. 3. We shall take up the first seven bunch of appeals (M/s. P.N. Gadgil & Co. (Gold) and refer to facts and issues in ITA No.1196/PUN/2015. The grounds of appeal raised by the assessee are extracted as under : "The following grounds are taken without prejudice to each other - On facts and in law, 1] The learned CIT(A) erred in holding that the search action u/s. 132 was conducted on the assessee firm and hence, the learned A.O. was justified in assuming jurisdiction u/s. 153A and completing the asst. accordingly. 1.1] The learned CIT(A) erred in not appreciating that the proceedings u/s 153A are wrongly initiated- in the case of the assessee as there was no search conducted but only a survey operation was conducted on the assessee and the provision u/s.153A were not applicable and hence, the asst. completed u/s. 153A was null and void. 2] The learned CIT(A) erred in holding that the reference made by the learned A.O. for special audit was valid and accordingly, the assessment completed was within the limitation....
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....d quantity in the hands of the appellant and hence, there was no justification in making addition on account of the same. d. There was no justification for holding that the alleged unaccounted purity gain was introduced in the form of bogus URD purchases. e. The appellant for a few years from A.Y. 2000 - 01 to A.Y. 2006 - 07 had reported higher quantum of income than what was worked out by the special auditor and the over all effect also for all these seven years together was that the appellant had shown higher amount of income than what was worked out by the special auditor. f. The special auditor while working out the additions on account of purity gain/stock quantity had not considered the correct facts. g. If there was resultant addition to the stock further on account of the alleged purity gain as reported by the auditor, the stock at the time of survey was not found in excess of the stock as per books implying thereby that there was no such unaccounted purity gain available to the appellant. h. The special auditor had erred in computing the addition on account of the purity gain 1 excess stock by incorrectly holding that the closin....
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....wance u/s. 40A(3) can be made when the books of the assessee are rejected and accordingly, the disallowance made u/s. 40A(3) should have been deleted. 7] The appellant craves leave to add, alter, amend or delete any of the above grounds of appeal." 4. At the outset, Ld. Counsel for the assessee submitted that adjudication of the Revenue's appeal-ITA No.1539/PUN/2015 becomes an academic exercise, in case the appeals of the assessee are allowed on legal issue relating to the limitation. Assessee raised legal grounds in this regard. 5. Additional Ground - AO's failure to grant reasonable opportunity of being heard to the assessee - Proviso to section 142(2A) of the Act - Bringing our attention to the grounds of each of the appeals of the assessee, Ld. Counsel for the assessee submitted the background facts relating to raising of the legal and other grounds. It is the legal ground of the assessee that the assessments made u/s.153A of the Act are time-barred. For specifying the reasoning for such an arguments, Ld. Counsel filed an additional ground in case of both the assessees, i.e. M/s. P.N. Gadgil & Co. (Gold) as well as M/s. P.N. Gadgil & Co. (Silver) and submitted....
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....was submitted on 16-06-2008. The assessments were completed on 12-08-2008. 9. Before us, Ld. Counsel for the assessee submitted that the assessment made by the AO u/s.153A of the Act is barred by limitation of time. Justifying the same, Ld. Counsel submitted that the period relating to Special Audit is required to be excluded for determining the due date for completion of the assessment. In this regard, Ld. Counsel mentioned that the order of the AO for referring the Special Audit u/s.142(2A) of the Act is illegal and in unsustainable in law as the contents of the proviso to sub section (2A) of section 142 of the Act is not applied by the AO qua the granting of reasonable opportunity of being heard to the assessee. AO failed to grant reasonable opportunity of being heard to the assessee before the order for Special Audit is issued. In this regard, Ld. Counsel brought our attention to the event chart of the dates and read out the same which is as under : "According to the Department search was conducted on 26/10/2005 Notice U/s 153A issued on 06/03/2006 Return of Income filed in response to notice u/s 153A on 07/04/2006 Normal time barring date for all assess....
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....view of the proviso to section 142(2A) of the Act. There is no dispute on this fact of the matter and it is not the case both the AO as well as the CIT granted such an opportunity to the assessee. 12. Ld. Counsel for the assessee further submitted that completion of assessment on 12-08-2008 against the due date of 31- 12-2007 constitutes time barred ones. The period of Special Audit is required to be excluded due to the illegality of it and explaining the same, Ld. Counsel for the assessee brought our attention to the provisions of section 142(2A) of the Act and read out the same to demonstrate the legal requirement of granting reasonable opportunity to the assessee by the AO as per the proviso to said section 142(2A) of the Act. Ld. Counsel submitted that the CIT (Central) erred in issuing such show cause notice instead of the AO. 13. Legal Precedents on the issue of granting of opportunity by the AO - Further, Ld. Counsel for the assessee also brought our attention to the judgmental precedents on this issue and submitted that identical issue came up for adjudication by the Pune Bench of the Tribunal in the case of ITO (Central), Kolhapur Vs. Vilsons Particle Board Industrie....
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....the opinion that it is necessary so to do, he may, with the previous approval of the [Principal Chief Commissioner or ] Chief Commissioner or [Principal 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 [Principal Chief Commissioner or] Chief Commissioner or [Principal 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.] The above proviso is categorical in expressly providing for the legal requirement of granting opportunity by the AO before directing the assessee to get the accounts audited. 16. We shall now proceed to examine the facts relating to granting of such opportunity by the AO. In this regard, we perused the contents of Para No.5.5, 5.5.1, ....
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....ssing Officer made the reference for special audit u/s.142(2A), but the grievance of the appellant is that it was not afforded an opportunity of being heard by the Assessing Officer. According to the ld. A.R., such an opportunity of being heard has to be given by the Assessing Officer alone which has not been done and therefore, the directions by the Assessing Officer under the said provisions are illegal. This argument of the appellant is devoid of merit and contrary to the provisions of Sec.142(2A). What the proviso to Sec.142(2A) says is 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'. Nowhere has it said that such an opportunity has to be given by the Assessing Officer alone..........." 18. From the above extracts, it is evident that the AO never granted opportunity as required under the provisions of section 142(2A) of the Act. It is the CIT who has actually granted the opportunity. CIT(A) (Central) justified the above stand of the AO. In the light of the above factual matrix, we need to decide if the above understanding of the officers on the provisions of l....
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....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 nature and complexity of the accounts and interests of revenue, it is necessary to get the accounts audited by an accountant, with previous approval 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 und....
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....pproving 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 CIT(C), Pune after proposal was made by the adjudicating authority does not absolve the non-allowance of reasonable opportunity of hearing by the Assessing Officer. 41. Applying the principles laid down by the Apex Court in Sahara India (Firm) Vs. CIT and Another (supra), we hold that where no show cause notice was given to the assessee before making the order proposing conduct of special audit under section 142(2A) of the Act, in the present case and the CIT having approved the said proposal though after giving opportunity of hearing to the assessee is vitiated because of non-compliance with the principles of natural justice. Accordingly, the assessment order passed in the facts of present case is beyond the period of limitation and hence, the same is invalid and bad in law." 21. Further, the above order of the Tribunal was followed by subsequent order of this Bench in the case of Maharashtra Academy of Engineering and Educational Researc....
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....l for conducting special audit u/s.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, whether the said proposal made without affording predecisional hearing to the assessee was valid and can the proceedings conducted thereafter be held to be vitiated. 118. We find an identical issue had come up before the Pune Bench of the Tribunal in the case of ITO Vs. Vilsons Particle Board Industries Ltd. and vice versa. We find the Tribunal in ITA No.447/PN/2013, ITA Nos. 309 & 310/PN/2013 and ITA Nos. 448 & 449/PN/2013 vide order dated 21-12-2016 after considering the decision of Hon'ble Supreme Court in the case of Rajesh Kumar and others (supra) and various other decisions has held that where no show cause notice was given to the assessee before making the order proposing conduct of special audit u/s.142(2A) of the Act and such opportunity was given only by the CIT before approval for such special audit, such assessment is vitiated because of non-compliance of principle of natural justice. Hence the limitation for conclusion of assessment cannot be extended for such illegal order u/s.142(2A). The ....