2013 (1) TMI 137 - HC - Income Tax

Bogus Purchase Block assessment had been made based on materials other than the seized materials - Assessee contended that the same cannot form part of an assessment relating to block assessment - Held that - As concluding from the affidavit and facts of the case the assessee s contention that the subject matter of assessment in respect of genuineness of the newsprint purchase has to be excluded from the block assessment procedure and it can only be considered under the regular assessment. To that extent we agree with the assessee s contention. In favour of assessee Block Assessment A.Y. 1987-88 to 1997-98 - Chapter XIV-B - Special Audit - Principles of natural justice - Opportunity to the assessee before appointing the Special Auditor Assessment made hurriedly - Without granting the assessee an opportunity to place the materials Held that - The Revenue had referred the matter to the Special Audit and the Special Audit report was submitted on 24.2.1998. In the background of the filing of the Special Audit Report on 24.2.1998 and the assessee filing his objection on 25.2.1998, when we look at the next date of hearing, it fell on 5.3.1998 and immediately on 13.3.1998 the assessment order was made. We do not find from the order that sufficient opportunity was granted to the assessee on the materials gathered. The Revenue should have afforded sufficient opportunity of hearing to the assessee to substantiate his case. In the absence of compliance of the principles of natural justice, setting aside the order of the Tribunal. Remand the matter back to the A.O.

Issues Involved:
1. Violation of principles of natural justice.
2. Legality of the special audit and its procedures.
3. Validity of the block assessment based on seized materials.
4. Specific contentions regarding various financial transactions and their treatment in the assessment.

Detailed Analysis:

1. Violation of Principles of Natural Justice:
The Tribunal held that the allegation on the violation of the principles of natural justice must be a matter of substance, not of mere form. The Assessing Officer followed the principle of audi alteram partem, providing more than twenty opportunities to the assessee to explain the case. However, the assessee contended that the materials collected behind their back were used against them without any indication, leading to a fundamental illegality in the assessment process. The High Court agreed with the assessee, noting that despite numerous hearings, the assessee was not given sufficient opportunity to counter the materials gathered and relied on for the assessment, especially after the special audit report was submitted.

2. Legality of the Special Audit and its Procedures:
The assessee argued that the failure to give an opportunity before appointing the Special Auditor was a violation of natural justice, citing decisions from the Apex Court. The High Court noted that the special audit report was submitted on 24.2.1998, and the assessee filed objections on 25.2.1998. However, the assessment order was made on 13.3.1998, indicating a hurried process without granting the assessee full opportunity to counter the special audit report and other materials.

3. Validity of the Block Assessment Based on Seized Materials:
The High Court examined whether the assessment of undisclosed income was based on evidence found during the search or requisition of books of accounts or other documents. It was noted that the rejection of the claim of purchase of newsprint as undisclosed income was not based on seized materials from the search. The Court agreed with the assessee that such assessment should be excluded from the block assessment procedure and considered under regular assessment.

4. Specific Contentions Regarding Various Financial Transactions:
The assessee raised several contentions regarding the treatment of various financial transactions, such as advances, fixed deposits, personal expenses, and investments. The Tribunal had not addressed these contentions in detail, focusing instead on the alleged violation of natural justice. The High Court noted that the assessment order recorded various dates of hearings and the submission of details by the assessee. However, the Court found that the enquiry on the seized materials and the special audit proceeded simultaneously, which was unfair to the assessee. The Court emphasized that sufficient opportunity should have been granted to the assessee to counter the materials gathered for the assessment.

Conclusion:
The High Court set aside the order of the Tribunal and the Assessing Officer, remanding the matter back to the Assessing Officer for a fresh decision after granting sufficient opportunity to the assessee to substantiate their case. The Court directed the assessee to extend full cooperation to enable the completion of the assessment within three months from the receipt of the order. The tax case appeal was allowed without costs.

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