2007 (10) TMI 340 - AT - Income Tax

Summary

Issues Involved:
1. Legality of the appointment of a special auditor under Section 142(2A).
2. Barred by limitation as provided under Section 158BE.
3. Validity of the assessment order without providing an opportunity to the assessee.
4. Computation of undisclosed income on merits.

Detailed Analysis:

1. Legality of the Appointment of a Special Auditor under Section 142(2A):

Requisite Conditions of Section 142(2A):
- The section requires that a proceeding should be pending before the AO and the AO should be of the opinion that the nature and complexity of the accounts necessitate a special audit in the interest of the Revenue. The AO had examined the accounts and seized documents before making the reference for a special auditor.

Non-application of the Mind by the AO:
- The AO had applied his mind to the accounts and seized material before making the reference for a special auditor. The AO issued a detailed query letter and examined the accounts before forming an opinion on the complexity of the accounts.

Opportunity of Hearing:
- The assessee was given adequate opportunity to object to the appointment of a special auditor. The objections were considered by the CIT before granting approval for the special audit.

Appointment of Auditor to Gain Time:
- The appointment of the special auditor was not a device to gain time. The process was initiated well before the limitation period, and the AO had objectively considered the material before making the reference.

Jurisdiction of the Tribunal to Examine Validity of Section 142(2A) Order:
- The Tribunal is not competent to examine the validity of the order appointing a special auditor under Section 142(2A). The assessee could challenge such an appointment by way of a writ petition before the High Court.

Complexity of Accounts:
- The accounts of the assessee were complex due to various reasons, including incomplete books of account, benami transactions, and substantial investments in different businesses. The AO correctly ordered the appointment of a special auditor to determine the correct undisclosed income.

Miscellaneous Aspects:
- The direction for the special audit was specific and precise, covering all concerns in which the assessee was interested. The audit was to be conducted at the premises of the assessee, and the assessee was required to assist in the audit.

2. Barred by Limitation as Provided under Section 158BE:

- The time granted for conducting the special audit under Section 142(2A) should be excluded while computing the time-limit under Section 158BE. The appointment of the special auditor was valid, and the period of 120 days for completing the audit was within the stipulated period of 180 days. The block assessment order was passed within the limitation period.

3. Validity of the Assessment Order without Providing an Opportunity to the Assessee:

- The assessee was given several opportunities to co-operate with the special auditor and the AO. However, the assessee failed to extend co-operation and continuously raised objections. The AO was left with no option but to make the assessment under Section 144. The assessment cannot be annulled for want of proper opportunity of hearing as the assessee had failed to assist the AO.

4. Computation of Undisclosed Income on Merits:

- The assessee declared undisclosed income of Rs. 26.94 lakhs, while the AO computed it at Rs. 13.13 crores. The CIT(A) partly reduced the income. The assessment was made under Section 144 due to the non-cooperation of the assessee. The Tribunal set aside the impugned order and restored the matter to the AO for a fresh decision on merits, directing the assessee to extend co-operation.

Conclusion:
The appeals of the assessee are partly allowed, and those of the Revenue are allowed for statistical purposes. The matter is restored to the AO for a fresh decision on merits after allowing a reasonable opportunity of being heard to the assessee.