2011 (5) TMI 648 - AT - Income Tax

Period of limitation Block assessment pre requisite for Special audit A.O. suo-moto extended the period of audit on non-co-operation of assessee A.O. passed ex-parte Block assessment order validity of invokation of revisionary powers u/s 263 - Held that - In view of the decision given by Punjab & Haryana High Court in the case of Jagjit Sugar Mills & Co. A.O. may, either on the application made by the assessee and/or for any good and sufficient reasons, extend the said period. However, the order u/s.142(2A) of the Act was itself not valid since special audit was ordered on 13.08.04 and CD s(accounts) were opened only on 18.10.2004 resulting into non satisfaction of the condition regarding existence of complexity of accounts and loss of revenue as a consequence of the same. Consequently, the extended time available for passing the order of assessment in terms of Sec.158BE of the Act cannot also be availed by the AO. The order of assessment is therefore held to be barred by limitation. The order of assessment is therefore invalid and the consequent action u/s.263 of the Act setting aside such invalid assessment cannot also be sustained.- Decided in favor of assessee.

Summary

Issues Involved:
1. Validity of the Special Audit Order under Section 142(2A) of the Income Tax Act.
2. Whether the assessment order passed was barred by limitation under Section 158BE of the Income Tax Act.
3. Validity of the order under Section 263 of the Income Tax Act.

Detailed Analysis:
1. Validity of the Special Audit Order under Section 142(2A) of the Income Tax Act:
The Assessee challenged the special audit order on the grounds that the conditions precedent for invoking Section 142(2A) were not satisfied, specifically the complexity of accounts and the interest of revenue. The Assessee argued that the books of accounts were seized in CD format and not opened until after the special audit order was passed, making it impossible for the Assessing Officer (AO) to have formed an opinion on the complexity of the accounts. The Tribunal found merit in this argument, noting that the AO could not have assessed the complexity of the accounts without examining them. Consequently, the Tribunal held that the order for special audit was invalid as it did not meet the necessary conditions under Section 142(2A).

2. Whether the Assessment Order Passed was Barred by Limitation under Section 158BE of the Income Tax Act:
The Assessee contended that the assessment order dated April 7, 2005, was barred by limitation. According to Section 158BE, the period of limitation for completing a block assessment is two years from the end of the month in which the last of the authorizations for search was executed. The search in this case was conducted on September 24, 2002, making the deadline October 31, 2004. The AO extended the period for completing the special audit multiple times suo moto. The Tribunal held that the AO did not have the power to extend the period for special audit suo moto without an application from the Assessee. Consequently, the Tribunal concluded that the assessment order was barred by limitation and invalid.

3. Validity of the Order under Section 263 of the Income Tax Act:
The Commissioner of Income Tax (CIT) invoked Section 263 to revise the AO's assessment order, arguing that it was erroneous and prejudicial to the interests of the revenue. The CIT contended that the AO failed to verify substantial purchases from M/s. Sonal Enterprises. However, the Tribunal found that since the original assessment order was invalid due to being barred by limitation, the subsequent order under Section 263 was also invalid. The Tribunal quashed the order under Section 263, holding that it could not stand if the original assessment order was invalid.

Conclusion:
The Tribunal allowed the appeals by the Assessee, quashing the orders under Section 263 and holding that the assessment orders were barred by limitation. The Tribunal emphasized that the conditions for invoking a special audit under Section 142(2A) were not met and that the AO did not have the authority to extend the audit period suo moto. Consequently, the assessment orders were deemed invalid, and the subsequent revision orders under Section 263 were also quashed.