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2009 (10) TMI 77 - AT - Income TaxAnnulling the block assessment order - The issue involved before this Hon ble Special Bench is keeping in view the two judgments of the Hon ble Supreme Court in the case of Rajesh Kumar Ors. vs. Dy. CIT and in the case of Sahara India (Firm) vs. CIT assessment framed in the instant case is required to be set aside to the AO to pass a fresh assessment or the assessment framed is held to be time-barred. HELD THAT - the present assessee i.e. M/s Sushila Milk Specialities (P) Ltd. was also a party before the Hon ble Supreme Court in the judgment delivered in the case of Rajesh Kumar Ors. vs. Dy. CIT and as such the judgment dt. 1st Nov. 2008 rendered by the Hon ble Supreme Court is also a judgment rendered in assessee s own case. In the said case their Lordships have held that before passing an order u/s. 142(2A) directing the assessee to obtain a special audit of its accounts principles of natural justice are required to be observed. The Larger Bench of Supreme Court decided the matter in Sahara India (Firm) vs. CIT and agreed with the decision of the Supreme Court in the case of Rajesh Kumar Ors. vs. Dy. CIT. Firstly it is to be noted that the Supreme Court itself has earlier raised a doubt about the correctness of its decision in the case of Rajesh Kumar Ors. therefore Larger Bench was constituted. Hon ble Supreme Court while referring the matter to Larger Bench observed as under A close reading of the decision shows that the observation in this regard appears to have been made in the context of the assessment in terms of s. 158BC (block assessment). Such assessments are relatable to a case when raid has been conducted at the premises of an assessee. Had that being so limited to the facts involved in that case we would have negatived the contentions of the learned counsel for the petitioner. But certain observations of general nature have been made. The effect of these observations appears to be that in every case where the AO issued a direction in terms of s. 142(2A) the assessee has to be heard before such an order is passed. This does not appear to be the correct position of the law. Since the assessee herein is one of the parties before the Supreme Court in the case of Rajesh Kumar Ors. the decision of Larger Bench of Supreme Court in the case of Sahara India (Firm) should not be applied. This contention is also unacceptable to us. Under Art. 141 of the Constitution of India the law as laid down by the Hon ble Supreme Court is binding on all. If a Larger Bench does not agree with the earlier view of Division Bench of Supreme Court the law to be applied will be that as propounded by Larger Bench and not the Division Bench. In the present case apart from the fact that on a plain reading of s. 29(8)(b) it is manifestly clear that fresh assessment for the asst. yr. 1995-96 framed pursuant to the order passed by the appellate authority on 8th June 2000 was well within the prescribed time even otherwise in the light of the aforestated settled law the assessment orders in question could not be held to be null and void on account of the stated irregularities committed by the AO during the course of assessment proceedings. Applying the decisions of Hon ble Supreme Court in the case of Guduthur Bros. 1960 (7) TMI 5 - SUPREME COURT as also in the case of Deepak Agro Food 2008 (7) TMI 553 - SUPREME COURT and in View of the observations of the Hon ble Delhi High Court in the case of Rajesh Kumar us. CIT 2009 (4) TMI 306 - DELHI HIGH COURT We answer the question referred for the opinion of Special Bench as under In view of the two decisions of the Hon ble Supreme Court namely Rajesh Kumar Ors. vs. Dy. CIT 2006 (11) TMI 135 - SUPREME COURT and Sahara India (Firm) 2008 (4) TMI 4 - SUPREME COURT the assessment is required to be set aside to the file of the AO to pass a fresh assessment as held in the case of Rajesh Kumar vs. Dy. CIT by Tribunal in its order dt. 3rd (sic-30th) June 2008 and do not hold the assessment as time barred as held in the case of Asstt. CIT vs. Rakesh Kumar. We therefore approve the view taken by the Tribunal in the case of Rajesh Kumar and do not approve the decision of Tribunal in the case of Asstt. CIT vs. Rakesh Kumar 2008 (6) TMI 239 - ITAT DELHI-I . In view of the findings above the learned CIT(A) erred in annulling the block assessment order passed by the AO. Therefore we hold that the assessment cannot be annulled in the present case but is required to be restored back to the file of the AO for framing an assessment afresh after affording reasonable opportunity of being heard to the assessee. In the result the appeal of the Revenue is allowed
Issues Involved:
1. Whether the assessment should be set aside for fresh assessment or held as time-barred. 2. Validity of assessment orders under Section 142(2A) without observing principles of natural justice. 3. Applicability of Supreme Court judgments in Rajesh Kumar & Ors. vs. Dy. CIT and Sahara India (Firm) vs. CIT. 4. Jurisdiction and authority of the Assessing Officer (AO) in the context of special audits and extended limitation periods. Issue-wise Detailed Analysis: 1. Whether the assessment should be set aside for fresh assessment or held as time-barred: The Tribunal faced conflicting decisions in similar cases. In Rajesh Kumar vs. Dy. CIT, the Tribunal, considering Supreme Court judgments, held that the assessment should not be annulled but restored to the AO for a fresh assessment. Conversely, in Asstt. CIT vs. Rakesh Kumar, the Tribunal annulled the assessment due to the invalid order under Section 142(2A). The Special Bench concluded that the assessment should be set aside for fresh assessment, aligning with the Rajesh Kumar decision. 2. Validity of assessment orders under Section 142(2A) without observing principles of natural justice: The Supreme Court in Rajesh Kumar & Ors. vs. Dy. CIT and Sahara India (Firm) vs. CIT emphasized that orders under Section 142(2A) entail civil consequences, requiring adherence to the principles of natural justice. The Tribunal noted that failing to provide an opportunity of being heard before directing a special audit is an irregularity, not an illegality. Therefore, the assessment should be restored to the AO for rectification rather than annulled. 3. Applicability of Supreme Court judgments in Rajesh Kumar & Ors. vs. Dy. CIT and Sahara India (Firm) vs. CIT: The Special Bench acknowledged that the Supreme Court's decision in Rajesh Kumar was not overruled but clarified by the Larger Bench in Sahara India (Firm). The law on the subject was to be applied prospectively, meaning the extended period of limitation under Explanation 1(iii) to Section 153(3) was valid despite the procedural irregularity. The Tribunal's decision in Rajesh Kumar, upheld by the Delhi High Court, was deemed applicable. 4. Jurisdiction and authority of the Assessing Officer (AO) in the context of special audits and extended limitation periods: The Tribunal held that the AO's jurisdiction to frame assessments remains intact despite procedural irregularities in ordering special audits. Citing the Supreme Court's decision in Deepak Agro Food vs. State of Rajasthan & Ors., the Tribunal emphasized that irregularities do not nullify the AO's authority. The assessment should be corrected by providing the assessee an opportunity of being heard, not annulled. Conclusion: The Special Bench concluded that the assessment should be set aside to the AO for a fresh assessment, aligning with the Tribunal's decision in Rajesh Kumar vs. Dy. CIT. The assessment was not time-barred, and the procedural irregularity in ordering the special audit did not nullify the AO's jurisdiction. The appeal of the Revenue was allowed, and the matter was restored to the AO for fresh assessment after affording the assessee a reasonable opportunity of being heard.
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