2017 (3) TMI 1314 - AT - Income Tax

Reference made u/s 142(2A) - special audit - non-granting of pre-decisional hearing on pre- decisional stage to the assessee before making reference u/s 142(2A) - Held that - We find that the issue raised in the present appeal is squarely covered by the ratio laid down by the Tribunal in the case of ITO Vs. Vilsons Particle Board Industries Ltd. (2017 (1) TMI 263 - ITAT PUNE ) and in the absence of any opportunity given to the assessee to show cause as to why special audit under section 142(2A) of the Act should not be carried out in the case of assessee i.e. at the pre-decisional stage, by the Assessing Officer, the special audit conducted in the case is without jurisdiction and consequently, the assessment order passed is beyond the stipulated date, because time taken for special audit, is invalid. Since assessment order is passed beyond period of limitation and hence, is invalid and bad in law. Accordingly, we hold so - Decided in favour of assessee

Issues Involved:
1. Validity of assessment order under section 153A r.w.s. 143(3) of the Income Tax Act, 1961.
2. Validity of reference for special audit under section 142(2A).
3. Disallowance of admission and tuition fees.
4. Disallowance on account of refund of fees to students.
5. Disallowance under section 40A(2)(b) regarding director’s remuneration.
6. Disallowance of various business expenses.
7. Deletion of addition by the Assessing Officer on account of negative cash balance.

Issue-wise Detailed Analysis:

1. Validity of Assessment Order under Section 153A r.w.s. 143(3):
The assessee contended that the assessment order passed under section 153A r.w.s. 143(3) was barred by limitation. The Tribunal noted that the search was conducted on 20.07.2005, and the time limit for completing the assessment was 31.12.2007. The assessment order was passed on 12.08.2008. The Tribunal concluded that the assessment order was time-barred as the reference for special audit under section 142(2A) was not validly made, thus invalidating the extension of the assessment period.

2. Validity of Reference for Special Audit under Section 142(2A):
The assessee argued that the reference for special audit was invalid as no opportunity of hearing was given at the pre-decisional stage by the Assessing Officer. The Tribunal observed that the Assessing Officer had failed to give a show cause notice to the assessee before making the proposal for special audit. The Tribunal held that the principles of natural justice were violated, rendering the special audit and subsequent assessment order invalid and beyond the period of limitation.

3. Disallowance of Admission and Tuition Fees:
The CIT(A) directed the Assessing Officer to disallow admission and tuition fees where the payee could not be identified. The assessee contended that all payments were genuine and not in the nature of capitation fees. The Tribunal did not delve into this issue as the primary grounds regarding the validity of the assessment order were allowed, making this issue academic.

4. Disallowance on Account of Refund of Fees to Students:
The CIT(A) confirmed part disallowance on account of refund of fees, citing failure to establish the genuineness of payments. The assessee argued that the refunds were genuine and noted in documents seized during the search. Similar to the previous issue, the Tribunal did not address this due to the primary grounds being allowed.

5. Disallowance under Section 40A(2)(b) Regarding Director’s Remuneration:
The CIT(A) confirmed a partial disallowance of director’s remuneration under section 40A(2)(b). The assessee argued that the payment was reasonable for the services rendered. This issue was not addressed by the Tribunal due to the primary grounds being allowed.

6. Disallowance of Various Business Expenses:
The CIT(A) confirmed the disallowance of certain business expenses, citing the assessee’s failure to establish that the expenses were incurred for business purposes. The Tribunal did not address this issue as the primary grounds were allowed.

7. Deletion of Addition by the Assessing Officer on Account of Negative Cash Balance:
The Revenue appealed against the CIT(A)'s deletion of addition on account of negative cash balance. The Tribunal dismissed the Revenue's appeal as it became infructuous due to the primary grounds regarding the validity of the assessment order being allowed.

Conclusion:
The Tribunal allowed the appeals of the assessee, holding that the assessment orders were invalid and bad in law due to the improper reference for special audit under section 142(2A) without giving a pre-decisional hearing. Consequently, the Tribunal dismissed the Revenue's appeal as infructuous.

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