2011 (3) TMI 1690 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the assessment order under section 158BC of the Act.
2. Computation of the time limit for passing the assessment order under section 158BE of the Act.
3. Legality of the special audit directed under section 142(2A) of the Act.

Issue-wise Detailed Analysis:

1. Validity of the Assessment Order:
The primary issue was whether the assessment order was invalid as it was allegedly passed beyond the statutory time limit prescribed under section 158BE of the Act. The assessee argued that the assessment order was time-barred, as the search concluded on 31.12.2002, and the assessment order should have been passed by 31.12.2004. However, the order was passed on 06.07.2007. The Tribunal concluded that the assessment order was indeed passed beyond the prescribed time limit, and thus, the assessment was quashed and canceled.

2. Computation of the Time Limit for Passing the Assessment Order:
The Tribunal examined the computation of the time limit for passing the assessment order under section 158BE. The Tribunal noted that the search operation commenced on 30.12.2002 and concluded on 31.12.2002. Although a prohibitory order under section 132(3) was placed on a wooden cabinet and lifted on 07.02.2003, the Tribunal held that the search effectively concluded on 31.12.2002. The Tribunal relied on the case of Sandhya P. Naik (253 ITR 534) to emphasize that the mere issuance of a prohibitory order does not extend the search period. Thus, the assessment should have been completed by 31.12.2004.

3. Legality of the Special Audit Directed under Section 142(2A):
The Tribunal addressed the legality of the special audit directed under section 142(2A). The assessee contended that the special audit was directed without giving an opportunity of being heard, violating principles of natural justice. The Tribunal referred to the Supreme Court decision in Rajesh Kumar (287 ITR 97), which mandates that the principles of natural justice must be adhered to before directing a special audit. The Tribunal found that the Assessing Officer (A.O.) did not provide an opportunity to the assessee before directing the special audit, rendering the direction void ab initio. Consequently, the period taken for the special audit could not be excluded for extending the time limit for passing the assessment order.

Conclusion:
The Tribunal concluded that the assessment orders passed in both cases were beyond the period of limitation specified under section 158BE and were thus invalid. The Tribunal allowed the appeals of the assessees and quashed the assessment orders. Consequently, the cross-appeals filed by the revenue challenging the orders of the Commissioner of Income Tax (Appeals) were dismissed as infructuous. The judgment emphasized adherence to statutory time limits and principles of natural justice in tax assessments.