2017 (2) TMI 921 - AT - Income Tax

Validity of special audit - non providing reasonable opportunity of being heard to assessee - Held that - We find that the issue raised in the present appeal is squarely covered by the ratio laid down by the Tribunal in the case of ITO Vs. Vilsons Particle Board Industries Ltd. 2017 (1) TMI 263 - ITAT PUNE and in the absence of any opportunity given to the assessee to show cause as to why special audit under section 142(2A) of the Act should not be carried out in the case of assessee i.e. at the pre-decisional stage, the special audit conducted in the case is without jurisdiction and consequently, the assessment order passed is beyond the stipulated date, because of time taken for special audit, is invalid and since it is passed beyond period of limitation and hence, is invalid and bad in law. Accordingly, we hold so. - Decided in favour of assessee

Issues Involved:
1. Addition of ?6,30,000 on account of difference in closing balance between Hotel Division and Construction Division.
2. Addition of ?5,00,000 on account of difference in cash balance.
3. Addition of ?50,000 on account of cash purchases.
4. Addition of ?6,70,000 on account of other contract receipts.
5. Addition of ?20,54,754 on account of negative cash balance on various dates under section 68.
6. Addition of ?1,00,000 on account of disallowance of expenses out of ?3,53,350.
7. Validity of assessment order based on the limitation period as per Section 153 of the Act with reference to special audit under section 142(2A).

Issue-wise Detailed Analysis:

1. Addition of ?6,30,000 on account of difference in closing balance between Hotel Division and Construction Division:
The assessee contested the addition of ?6,30,000 due to discrepancies in the closing balance of the Hotel and Construction Divisions. The Tribunal did not provide a specific ruling on this issue as the primary focus was on the validity of the assessment order.

2. Addition of ?5,00,000 on account of difference in cash balance:
Similarly, the addition of ?5,00,000 for differences in cash balance was contested. However, detailed analysis or judgment on this specific issue was not provided due to the overarching decision on the validity of the assessment.

3. Addition of ?50,000 on account of cash purchases:
The assessee challenged the addition of ?50,000 for cash purchases. The Tribunal did not delve into the merits of this issue due to the primary concern regarding the legality of the assessment process.

4. Addition of ?6,70,000 on account of other contract receipts:
The addition of ?6,70,000 relating to other contract receipts was contested. Again, the Tribunal did not address this specific issue directly, focusing instead on the procedural validity of the assessment.

5. Addition of ?20,54,754 on account of negative cash balance on various dates under section 68:
The assessee disputed the addition of ?20,54,754 for negative cash balances. The Tribunal's decision did not specifically address this issue but focused on the procedural aspects of the assessment.

6. Addition of ?1,00,000 on account of disallowance of expenses out of ?3,53,350:
The addition of ?1,00,000 due to disallowance of expenses was also contested. The Tribunal did not provide a detailed ruling on this issue due to the primary focus on the validity of the assessment order.

7. Validity of assessment order based on the limitation period as per Section 153 of the Act with reference to special audit under section 142(2A):
The primary issue addressed was whether the assessment order was within the limitation period as per Section 153, considering the special audit under section 142(2A). The Tribunal found that the Assessing Officer (AO) did not provide a pre-decisional hearing to the assessee before making a reference for a special audit. This was a violation of the principles of natural justice as established by the Supreme Court in the cases of Rajesh Kumar and Others Vs. DCIT and Sahara India (Firm) Vs. CIT and Another. The Tribunal held that the special audit conducted without giving the assessee an opportunity to be heard was invalid. Consequently, the assessment order passed beyond the stipulated date, due to the time taken for the special audit, was deemed invalid and bad in law.

Conclusion:
The Tribunal allowed the additional ground of appeal raised by the assessee regarding the invalidity of the assessment order due to procedural lapses in conducting the special audit. As a result, the grounds of appeal on merits became academic and were dismissed. The appeal of the assessee was allowed, and the assessment order was declared invalid and bad in law due to being passed beyond the period of limitation.

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