2023 (1) TMI 1121 - AT - Income Tax

Time-limit for completion of assessment under section 153A - limitation to pass the assessment order - appointment of special auditor u/s. 142(2A) - whether the AO was justified to order the appointment of special auditor u/s. 142(2A) of the Act, and thereby getting additional time to frame the assessment in terms of explanation 1 (iii) to sub-section (3) of Section 153 of the Act? - HELD THAT - As considering the relevant aspects that the reference by the AO to special auditor being bereft of plausible reasons for holding about the complexity of accounts and forming such opinion even without examining such accounts and the principals of natural justice being violated, the assessee being given no proper opportunity to object to such reference and even mechanical approval by the CIT, therefore, in the light of the legal proposition laid down by the Hon'ble Supreme Court in the case of Sahara India (Firm) 2008 (4) TMI 4 - SUPREME COURT , we hold that the order appointing Special Auditor u/s 142(2A) of the Act passed by the AO as bad in law. Since the extended period was taken by the AO under the guise of Special audit, hence the same cannot be counted for computing the period of limitation to pass the assessment order. As held by the Hon'ble Supreme Court in the case of Harsha Dhingra Vs. State of Haryana 2001 (9) TMI 1171 - SUPREME COURT the subordinate Forums including this Tribunal is bound to apply law declared by the Hon'ble Supreme Court and is duty bound to apply such dictum to case which would arise in future. The original limitation to pass the assessment order expired on 31.12.2008 in these cases and the impugned assessment order passed thereafter on 21.08.2009 are therefore held to be barred by limitation, hence, the impugned assessment orders passed u/s 153A in respect of the quantum appeals are hereby quashed and the consequential additions made by virtue of such invalid assessment orders stand deleted. Appeal of assessee allowed.

Summary

Issues Involved:
1. Legality of the appointment of a special auditor under section 142(2A) of the Income Tax Act.
2. Validity of the assessment orders passed beyond the limitation period prescribed under section 153.
3. Legality of the penalty levied under section 271(1)(c) of the Income Tax Act.

Detailed Analysis:

1. Legality of the Appointment of Special Auditor:
The assessees contended that the appointment of the special auditor under section 142(2A) was illegal as it was done without examining the books of accounts and without providing a reasonable opportunity of being heard. The Tribunal admitted this legal ground for adjudication, noting that all facts relevant to decide the grounds were already on record. The Tribunal referred to the Supreme Court's decision in "National Thermal Power Co. vs. CIT" and "Consulting Engineering Services (India) Ltd. vs ITAT," which support the admissibility of such legal grounds.

The Tribunal examined whether the Assessing Officer (AO) was justified in ordering the appointment of a special auditor under section 142(2A), thereby extending the time to frame the assessment. The Tribunal cited the Supreme Court's decision in "Rajesh Kumar vs. DCIT," which held that the principles of natural justice must be followed, and the assessee must be given an opportunity of hearing before appointing a special auditor. The Tribunal further referred to the Supreme Court's decision in "Sahara India (Firm) vs. CIT," which reaffirmed the need for pre-decisional hearing and the civil consequences of such an order.

The Tribunal found that the AO did not examine the accounts before forming the opinion that they were complex, and the assessee was not given a proper opportunity to object to the appointment of the special auditor. The service of notice was defective, and the approval by the Commissioner was mechanical. Therefore, the Tribunal held that the appointment of the special auditor was bad in law.

2. Validity of the Assessment Orders Passed Beyond the Limitation Period:
The Tribunal held that since the appointment of the special auditor was invalid, the extended period for passing the assessment order was not available to the AO. The original limitation period expired on 31.12.2008, and the assessment orders passed on 21.08.2009 were therefore barred by limitation. The Tribunal quashed the assessment orders and deleted the consequential additions.

3. Legality of the Penalty Levied Under Section 271(1)(c):
Since the quantum assessment orders were quashed, the basis for the penalty under section 271(1)(c) ceased to exist. The Tribunal set aside the penalty levied under section 271(1)(c).

Conclusion:
The Tribunal allowed the appeals of the assessees, quashing the assessment orders and setting aside the penalties. The appeal of the Revenue was dismissed.