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TMI Blog2013 (5) TMI 222X X X X Extracts X X X X X X X X Extracts X X X X ..... indisputably must be based on objective consideration. The factors enumerated in section 142(2A) are not exhaustive. Once it is held that the assessee suffers civil consequences and any order passed by it would be prejudicial to him, principles of natural justice must be held to be implicit. In the instant case itself, the assessees were not made known as to what led the Deputy Commissioner to form an opinion that all relevant factors including the ones mentioned in section 142(2A) were satisfied. If even one of them was not satisfied, no order could be passed. If the attention of the Commissioner could be drawn to the fact that the underlined purpose for appointment of the special auditor was not bona fide he might not have approved the same. Assuming that two sets of accounts were being maintained, the same would not mean that the nature of accounts was difficult to understand. It could have furthermore not been shown that the power was sought to be exercised only for an unauthorised purpose, viz., for the purpose of extension of the period of limitation as provided for under Explanation 2 to section 158BE. Thus, the order passed by the Deputy Commissioner under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Per B. Ramakotaiah, A. M. This is an appeal against the order of the CIT(A)-XIV, Mumbai, dated 19.01.2006. Assessee raised the following grounds:- 1. The assessment order dated 22.09.2003 is invalid being passed beyohd the period of limitation. 1.1. The learned CIT (A) erred in upholding the order dated 22.09.2003 passed by the learned AO as valid and not beyond the period of limtiation. 1.2 The learned CIT (A) failed to appreciate that the assessment order dated 22.09.2003 is invalid being passed beyond the period of limitation, the last date of passing the valid order being 31.01.2003. 1.3 The learned CIT (A) failed to appreciate that there was no valid order under section 142(2A) of the Income Tax Act, 1961 and there is no extension for the period of limitation. 1.4 The learned CIT (A) failed to appreciate that even otherwise the order dated 22.09.2003 is beyond the period of limitation and hence invalid. 2. The learned CIT (A) erred in upholding the addition of ₹ 56,92,873 made by AO as undisclosed income. 3. The learned CIT (A) erred in upholding the addition of ₹ 1,40,000 made by AO in respect of the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... portunities of being heard to assessee and on the basis of examination of various seized documents, books of account and relevant details and explanation furnished by assessee, AO completed the assessment for the Block Period determining the undisclosed income at ₹ 56,92,870 under section 158BC (c) of the I.T. Act vide order dated 22.09.2003. 3. Assessee contested the issue before the CIT on the reason that the assessment order dated 22.09.2003 is invalid being passed beyond the period of limitation and AO failed to appreciate that there was no valid reason for referring to special audit under section 142A and the time period was extended with out any request from assessee. The gist of submissions before the CIT (A) on the issue of jurisdiction are that a Panchnama was prepared on 24.01.2001 and 25.01.2001. Prohibitory orders were passed on 24.01.2001 in respect of two lockers in the Bank. The lockers were opened on 16.3.2001 and panchnama of the contents of the lockers were prepared. In view of the fact that the search was in January, 2001 AO was required to complete the assessment and pass assessment order in January, 2003. However, the assessment order was not passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is legal provision the last date of completion of this block assessment is 31.3.2003 and not 31.1.2003 as the appellant insisted. However, the last date of completion of block assessment in this case stands extended on the strength of direction for special audit under section 142(2A) of the I.T. Act read with clause (ii) of Explanation of section 158BE and proviso thereto. In this respect AO in his remand report stated assessee has stated in Para 3(3) of letter dated 6.4.2004 that even assuming that the said letter dated 29.1.2003 was an order under section 142(2A), there would be no extension of time for passing block assessment order. This was because, the period of extension was the time specified in the order under section 142(2A) for special audit. It may not be out of place to mention that in the letter No.ACIT 14(2)/Spl.Audit/2003-04 dated 11.4.2003 addressed to the auditors and copy marked to assessee, the auditors are requirested to submit the audit report to AO not later than 29.7.2003 (copy enclosed). Therefore, by virtue of section 158(3)(iii) read with proviso to said sub-section, the period of limitation in this case was extended to 27.9.2003 i.e. 60 days from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lal Jain Associates dt. 4.2.2003 it can well be seen that the special audit is to be completed within 3 months. As the appellant objected to such special audit ad refrained from allowing the special auditor to examine the accounts, the work got delayed and subsequently AO had to extent the time for completion of special audit by 27.7.2003. From these facts, the appellant's objection that the assessment is barred by limitation cannot stand the test of truth . He also upheld the various additions made and ultimately dismissed in the appeal on all counts. 6. Assessee is aggrieved by the above order of the CIT (A) and the action of AO and the grounds were raised contesting the issues on jurisdiction and on merits. 7. The learned Counsel submitted the chronology of events which are as under:- 24.01.2001 a).Search action conducted in business premises as per warrant of authorization dated 24.1.2001 at Shivsagar Fast Food, Churchgate, finally concluded on 25.1.2001. b).Search action conducted in business premises as per warrant of authorization dated 24.1.2001 at Shivsagar Restaurant Bar, Churchgate - Finally concluded on 25.1.2001. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per application of mind. B) In the case of assessee, there is no order passed under section 142(2A), hence time limit does not get extended and the block assessment order thus passed is beyond limitation period under section 158BE and therefore, bad in law and liable to be quashed. Case law relied: i) Prateek Resorts Builders (P) Ltd v. ACIT (2011) 199 Taxman 140 (Mag.)(All. - Held order bad in law in absence of reasons showing application of mind for issuing direction for audit under section 142(2A). ii) Hind Samachar Ltd. V. ACIT (2011) 335 ITR 277 (P H)- Held, order bad in law in absence of reasons for audit under section 142(2A). iii) Yum Restaurants India Pvt. Ltd vs. CIT (278 ITR 401 Delhi)- Nature complexity of accounts to be first satisfied and without any such finding, special audit cannot be directed. iv) Swadeshi Cotton Mills Co. Ltd vs. Commissioner of Income Tax 9171 ITR 634 All.) v) Meenakshi Sundaram A.S. Rajashekhar (Mum) Bench, order dated 29.6.2011. vi) A.S. Rajasekhar Prop. ASR Caterers v. ACIT (Mum) Bench, order dated 4.1.2012. 2. Appointment of Auditor under section 142(2A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Corporation Ltd vs. CIT 245 ITR 192 (All.) ii) Rakesh Sarin v. DCIT (2011) 333 ITR 451 (Mad.) iii) Even otherwise, time limit does not get extended by passing restraint order - CIT v. White White Mineral (P) Ltd 330 ITR 172 (Raj.). 9. On merits, the learned Counsel's submissions are as under: Ground No.3: Addition of ₹ 1,40,000 towards donation receipts found: i) Assessee regularly attends Swami Sree Prempuriji Ashram Trust, Mumbai as a devotee, ii) Assessee gives donation on her own account for which original receipt was found in course of search action and this is shown as out of her withdrawals. iii) Assessee as a devotee also volunteers for collection of donation from public on behalf of Trust. iv) In search, original receipts were found for donation made by other people with their name and address on the donation receipts. v) AO treated the entire donation receipts standing on third party names as if made by assessee in the name of different people. vi) Assessee submits that whatever donation is made by her is duly reflected in her regular books out of personal withdrawals. vii) There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vs. CJ Shah Co. (2000) 246 ITR 671 (Bom.) iii) CIT vs. Rajendra Prasad Gupta 248 ITR 350 (Raj.) iv) ACIT vs. Ambica Food Industries 110 TTJ 680 (Hyd.) v) Samrat Beer Bar vs ACIT 75 ITD 19 (Pune) vi) Hotel Vrindavan vs. ACIT 67 TTJ 139 (Pune) vii) Bajrang Textiles v. DCIT 83 TTJ 563 (Jodh.) viii) DCIT vs. Royal Marwar Tobacco Products Pvt. Ltd 29 SOT 53 With regard to undisclosed income from:- a) M/s Shivsagar Fast Food, Kemps Corner of ₹ 3,64,317 already included in regular return of income for AY 2001-02. b) M/s Shivsagar Lodge of ₹ 16,14,980 already included in regular return of income for AY 2001-02. c) House property income of ₹ 81,000 is notional income offered to tax under section 23 and not actual rent received and hence this notional income could not be forming part of regular books of account, however, this notional rental income is offered to tax even in the earlier years before the date of search action for earlier AYs and hence cannot be treated as undisclosed income. It was submitted that survey cannot form part of block period and relied on the following case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The first contention was about the time limit for completion of Block assessment - whether 31-01-03 or 31-03-03. If one consider the later panchanama of opening the locker, the time limit was 31-03-03. However one need not consider this issue as the AO referred the matter for Special Audit on 27-01-03 itself before expiry of time on 31-01-03. So to that extent issue becomes academic in nature. However, the contentions of assessee on reference to Special Audit, extension of time for completion of audit suo motto by another three months and completion of assessment with out audit report are valid. Firstly, in spite of repeated requests by assessee, the order of the CIT on special audit was never furnished to assessee and it has been placed on record only in the present appeal proceedings which however indicate that the learned CIT had indeed passed an order for special audit on the recommendations of the ACIT. However, there is no reference to the period under which the audit was to be completed either in the order or in the communication by AO. This comes out only from the letter written by the said auditor to assessee and to the ACIT for extension of period. It is a fact that asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y take recourse to such steps including the one of asking the assessee to disclose documents which are in his power or possession. He may also ask third parties to produce documents. Section 136 by reason of a legal fiction makes an assessment proceeding a judicial proceeding. The assessment proceeding, therefore, is a part of judicial process. When a statutory power is exercised by the assessing authority in exercise of its judicial function which is detrimental to the assessee, the same is not and cannot be administrative in nature. It stricto sensu is also not quasi-judicial. By way of example, although it may not be very apposite, orders, passed under Order XII of the Code of Civil Procedure by a court cannot be held to be administrative in nature. They are judicial orders and subject to the order which may be passed by higher courts in regard thereto. Indisputably, the prejudice of the assessee, if an order is passed under section 142(2A), is apparent on the face of the statutory provision. He has to undergo the process of further accounting despite the fact that his accounts have been audited by a qualified auditor in terms of section 44AB. An auditor is a professional person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 142(2A) in this context assumes some significance. An opinion must be formed strictly in terms of the factors enumerated therein. The expression indicates that in exercising the power regard must be had also to the factors enumerated therein together with all factors relevant to exercise of that power. The factors enumerated in section 142(2A) are not exhaustive. Once it is held that the assessee suffers civil consequences and any order passed by it would be prejudicial to him, principles of natural justice must be held to be implicit. The principles of natural justice are required to be applied, inter alia, to minimize arbitrariness. It is trite that, even if there is a possibility that the Tribunal would correctly follow the statutory provisions, still compliance of the principles of natural justice would be required. Justice, as is well known, is not only done but manifestly seem to be done. If the assessee was put to notice, he could show that the nature of accounts was not such which would require appointment of special auditors. He could further show that what the Assessing Officer considered to be complex was in fact not so. It was also open to him to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imited. It is discretionary. The court may not interfere with a statutory power. The hearing given, however, need not be elaborate. The notice issued may only contain briefly the issues which the Assessing Officer thinks to be necessary. The reasons assigned therefore need not be detailed ones. But, that would not mean that the principles of natural justice are not required to be complied with. Only because certain consequences would ensue if the principles of natural justice are required to be complied with, the same by itself would not mean that the court would not insist on complying with the fundamental principles of law. If the principles of natural justice are to be excluded, the Parliament could have said so expressly. The hearing given is only in terms of section 142(3) which is limited only to the findings of the special auditor. The order of assessment would be based upon the findings of the special auditor subject of course to its acceptance by the Assessing Officer. Even at that stage the assessee cannot put forward a case that power under section 142(2A) had wrongly been exercised and he has unnecessarily been saddled with a heavy expenditure. An appeal against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the period originally granted from April 28, 2005 with effect from April 30, 2005 to another 60 days. First of all, there was already a lapse of two days before the period was extended. Secondly, the Assessing Officer has no suo motto power to extend the time limit, unless the assessee applies as per section 142(2C), which is as under : (2C) Every report under sub-section (2A) shall be furnished by the assessee to the Assessing Officer within such period as may be specified by the Assessing Officer: Provided that the Assessing Officer may, on an application made in this behalf by the assessee and for any good and sufficient reason, extend the said period by such further period or periods as he thinks fit ; so, however, that the aggregate of the period originally fixed and the period or periods so extended shall not, in any case, exceed one hundred and eighty days from the date on which the direction under sub-section (2A) is received by the assessee. 12. As can be seen, the Assessing Officer has only power to extend the time limit originally granted only when the assessee makes an application. He has no suo motu powers which were subsequently inserted with e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the months of Aug and Sep 2003, again relied on the material already available with him without there being any special audit report. In view of that also the order becomes bad in law as the decision to refer to the audit itself prima facie not tenable, as the block assessment was completed without there being any special audit report. Since there is no complexity of the accounts, in our view AO might have exercised the powers to refer to the special audit only to gain time at the time barring stage. Since the period from Feb 2003 to Sep. 03 was taken under the guise of Special audit, which is held without proper jurisdiction, the time so taken can not be counted and the period does not get extended. The order at best could have been completed by 31-01-03 or by 31-03-03. Since the order was passed on 22-09-03, the same has to considered, as time barred. Therefore, we are of the opinion that the order passed by AO suffers from legal jurisdiction and is therefore, bad in law. 19. Even on merits, which are not required to be adjudicated, assessee's contentions seems to be prima facie correct. The addition of donations, estimation of income for the entire block period with ..... X X X X Extracts X X X X X X X X Extracts X X X X
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