2008 (6) TMI 239 - AT - Income Tax

Summary

Issues Involved:
1. Limitation of the assessment order.
2. Validity of the special audit under section 142(2A).
3. Compliance with principles of natural justice.
4. Deletion of various additions by CIT(A).

Detailed Analysis:

Limitation of the Assessment Order:
The primary issue raised by the assessee was that the assessment order passed by the Assessing Officer (AO) was barred by limitation. The search and seizure operation occurred on 18-12-2002, necessitating the assessment under section 158BC to be completed by 31-12-2004. The AO directed a special audit under section 142(2A) on 7-12-2004, which extended the time for completion. The Supreme Court in Rajesh Kumar's case held that the special audit order without giving the assessee an opportunity was bad in law. The Tribunal concluded that the assessment completed on 3-6-2005 was within the extended time allowed under Explanation 1(ii) to section 158BE, despite the invalidation of the special audit order.

Validity of the Special Audit under Section 142(2A):
The assessee contended that the direction for a special audit was issued without proper justification and without giving an opportunity to be heard, making it invalid. The Supreme Court in Rajesh Kumar's case confirmed that the special audit directed without affording an opportunity was bad in law. However, the Tribunal noted that the invalidation of the special audit did not automatically nullify the extended period for completing the assessment.

Compliance with Principles of Natural Justice:
The Tribunal addressed the necessity of adhering to the principles of natural justice, particularly the rule of audi alteram partem, before directing a special audit under section 142(2A). The Supreme Court's judgment in Sahara India (Firm) reaffirmed the requirement of providing a reasonable opportunity to the assessee before passing such an order. The Tribunal concluded that the law on audi alteram partem, as laid down in Rajesh Kumar's case and reaffirmed in Sahara India (Firm), would apply prospectively from 11-4-2008.

Deletion of Various Additions by CIT(A):
The revenue's cross-appeal challenged the deletion of various additions by CIT(A). Since the Tribunal set aside the assessment order to the AO for a fresh assessment, the revenue's appeal was allowed for statistical purposes.

Conclusion:
The Tribunal set aside the assessment to the file of the AO to frame the assessment de novo after affording the assessee an opportunity of being heard, emphasizing the need for compliance with principles of natural justice. Both the appeals filed by the assessee and the revenue were allowed for statistical purposes.