2003 (5) TMI 225 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the assessment order under Section 158BC of the IT Act.
2. Whether the assessment order is barred by limitation.
3. Legality of the reference to audit under Section 142(2A).
4. Complexity of the accounts and the necessity of a special audit.
5. Awarding of costs to the assessee.

Detailed Analysis:

1. Validity of the Assessment Order under Section 158BC:
The Revenue's appeal contested the CIT(A)'s decision that the assessment order under Section 158BC was time-barred. The Department argued that the assessment was within time as per the provisions of Section 158BE, Explanation (i) sub-clause (ii) read with Section 142(2A) and Section 158BH read with Section 153(3), Explanation (1)(iii) of the IT Act. The Department contended that the complexity of the accounts justified the referral to an auditor, and the assessment was completed within the extended period allowed by the Finance Act, 2002.

2. Whether the Assessment Order is Barred by Limitation:
The Tribunal examined the timeline of the search and seizure operations, the issuance of prohibitory orders, and the subsequent audit referral. The search concluded on 17th July 1998, and the prohibitory order was lifted on 28th August 1998. The notice under Section 158BC was issued on 29th October 1998, and the assessee filed returns on 15th February 1999. The assessment order was passed on 8th March 2001. The Tribunal found that the assessment should have been completed by 31st July 2000, making the order passed on 8th March 2001 time-barred.

3. Legality of the Reference to Audit under Section 142(2A):
The Tribunal scrutinized the reference to audit under Section 142(2A) made on 2nd August 2000. The Tribunal noted that the AO did not specify a completion date for the audit, which is crucial for determining the limitation period. The Tribunal found that the reference was made to extend the limitation period artificially and was not justified by the complexity of the accounts. The Tribunal also noted that the CIT's approval for the audit was not properly documented, and the extension of the audit period from 120 to 180 days by the CIT was not legally valid as per the proviso to Section 142(2A).

4. Complexity of the Accounts and the Necessity of a Special Audit:
The Tribunal agreed with the assessee that the accounts were not complex, and the AO did not point out any specific complexities. The Tribunal referred to the Kerala High Court decision in Dy. CIT vs. Muthoottu Mini Kuries, which held that the assessee should be heard before passing an order under Section 142(2A). The Tribunal found that the Department's actions were aimed at extending the limitation period rather than addressing any genuine complexity in the accounts.

5. Awarding of Costs to the Assessee:
The assessee's request for costs was not accepted. The Tribunal found that the assessee's counsel did not provide sufficient grounds for awarding costs. The Tribunal dismissed this ground of appeal.

Conclusion:
The Tribunal dismissed the Department's appeal, holding that the assessment order was barred by limitation. The Tribunal partly allowed the assessee's cross-objection, accepting the grounds related to the limitation issue but dismissing the request for costs and other general grounds.