2007 (9) TMI 306 - AT - Income Tax

Summary

Issues Involved:
1. Time-barred assessment under Section 153 of the IT Act.
2. Legality of the special audit reference under Section 142(2A) of the IT Act.
3. Validity of the ex parte assessment order under Section 144 of the IT Act.

Detailed Analysis:

1. Time-barred Assessment under Section 153 of the IT Act:
The assessee contended that the assessment order was time-barred under Section 153 of the IT Act. The original time-limit for completing the assessment was 31st March 1996. The assessee argued that the assessment should have been completed within 153 days from 12th March 1996, i.e., by 12th August 1996. However, the order was passed on 16th August 1996, making it beyond the limitation period. The Tribunal concluded that the assessment order passed on 16th August 1996 was clearly barred by limitation, as the extended period for special audit did not apply retroactively to the assessment year in question (1993-94). The Tribunal relied on the Madhya Pradesh High Court's decision in CIT vs. Dhariwal Sales Enterprises and the Tribunal's own decision in Laxmi Trading Co., which supported the assessee's claim that the assessment should have been completed within the statutory period.

2. Legality of the Special Audit Reference under Section 142(2A) of the IT Act:
The assessee challenged the reference for a special audit, arguing that it was made without considering the nature and complexity of the accounts and without providing a proper opportunity to be heard. The Tribunal noted that the AO issued a notice for a special audit on 9th October 1995 and extended the time for submission of the audit report several times, ultimately until 15th March 1996. The assessee informed the AO on 12th March 1996 that the special auditor could not start the audit until May 1996. The Tribunal found that the AO did not extend the period further and that the books of accounts were impounded by the Department, making it impossible for the assessee to comply. The Tribunal concluded that the AO's reference for a special audit under Section 142(2A) was invalid as it was not based on an objective assessment of the accounts' complexity and was made without providing an opportunity for the assessee to be heard.

3. Validity of the Ex Parte Assessment Order under Section 144 of the IT Act:
The assessee argued that the ex parte assessment order under Section 144 was invalid because the books of accounts were impounded by the Revenue Department, and the assessee had submitted proper replies. The Tribunal agreed with the assessee, noting that the AO did not provide a proper opportunity for compliance and that the assessment order was passed beyond the statutory period. The Tribunal found that the AO's action was not justified, and the ex parte assessment order was invalid.

Conclusion:
The Tribunal allowed the assessee's appeal on grounds 1, 2, and 3, quashing the orders of the authorities below. The Department's appeal was dismissed. The Tribunal did not find it necessary to decide the remaining grounds on merits in both the cross-appeals due to the findings on the question of law.