2013 (10) TMI 151 - HC - Income Tax

Direction u/s 142(2A) - special audit - principal of natural justice Held that - The assessee was not heard before the order passed under Section 142(2A) of the Act - Such a procedure was resorted to extend the period of limitation. Therefore viewed from any angle, the assessment order passed is void as being barred by limitation and the, Tribunal was justified in setting aside the order of the Appellate Authority - The Supreme Court in the case of Rajesh Kumar Others -vs- Deputy Commissioner of Income Tax others reported in 2006 (11) TMI 135 - SUPREME Court has ruled that the principles of natural justice has to be followed as it is not expressly excluded. Now the law has been amended expressly providing for an opportunity The position continues to be the same assessee was not heard before the order passed under Section 142(2A) of the Act - Decided against the Revenue.

Summary

Issues:
1. Assessment barred by limitation under Section 142(2A) of the Income-tax Act, 1961.
2. Opportunity of hearing not provided to the assessee before passing an order under Section 142(2A) of the Act.

Analysis:

Issue 1: Assessment Barred by Limitation under Section 142(2A) of the Income-tax Act, 1961:
The case involved an appeal filed by the Revenue against the Tribunal's order dismissing the appeal filed by the Revenue and allowing the appeal filed by the assessee. The assessee, an individual, was previously assessed up to the assessment year 1996-97. Subsequently, a search was conducted at the assessee's premises under Section 138 of the Income-tax Act, 1961, and a notice under Section 158BC was issued. The Assessing Authority computed the undisclosed income at a higher amount than declared by the assessee. Both the assessee and the Revenue appealed before the Tribunal. The Tribunal held that invoking provisions of Section 142(2A) of the Act was unjustified, as there was no complexity in accounts requiring an audit under that section. Consequently, the Tribunal found the assessment to be hopelessly barred by limitation, leading to the dismissal of the Revenue's appeal and the allowance of the assessee's appeal.

Issue 2: Opportunity of Hearing not Provided to the Assessee before Passing an Order under Section 142(2A) of the Act:
The judgment referred to the Supreme Court's decision in Rajesh Kumar's case, emphasizing that an opportunity of hearing must be given to the assessee before issuing a direction under Section 142(2A) of the Act. The legislative amendment to Section 142(2A) explicitly provided for such an opportunity but applied prospectively. In the present case, the assessee was not heard before the order passed under Section 142(2A). The Tribunal correctly concluded that this procedural deficiency was utilized to extend the period of limitation, rendering the assessment order void due to being time-barred. The High Court upheld the Tribunal's decision, emphasizing the importance of following principles of natural justice and the need for an opportunity of hearing. Consequently, both substantial questions of law were decided in favor of the assessee and against the Revenue, leading to the dismissal of the appeals.

In conclusion, the High Court affirmed the Tribunal's decision, highlighting the significance of providing an opportunity of hearing to the assessee before passing an order under Section 142(2A) of the Income-tax Act, 1961. The judgment underscored the implications of the procedural fairness and adherence to statutory provisions, ultimately resulting in the dismissal of the Revenue's appeals.