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TMI Blog2011 (3) TMI 1690X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee has taken multiple grounds. The first issue is whether the assessment order is bad in law and void ab initio as same is passed beyond a time limit fixed under sec. 158 BE of the Act and this issue arises from ground nos.1.0 to.3.2 in assessee s appeal. The effective grounds on above issue are as under:- 1.0 That on the facts and circumstances of the case the Ld. Commissioner of Income-tax (Appeals) erred in rejecting the appellant s claim that the assessment made under section 158BC of the Act was barred by limitation. 2.0 That on the facts and circumstances of the case the Ld. Commissioner of Income-tax (Appeals) erred in ignoring the decision of the Hon ble Delhi High Court in the case of B.K. Nowlakh and Others v. Union of India and Others (192 ITR 436) and also the decision of the Hon ble Bombay High Court in the case of Commissioner of Income-tax v. Mrs. Sandhya P. Naik and Others (253 ITR 534), and rejecting the appellants plea that the search stood concluded on 31.12.2002 and not on 07.02.2003 when the prohibitory order under section 132(3) of the Act placed on one wooden cabinet was lifted. 3.1 That on the facts and circumstances of the case the Ld. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mahatex, Police Uniform/Woolen Jersys and Miscellaneous material to the Police Department and other Govt. organizations and depts..etc. In consequence of the search action, the A.O. issued notice to the assessee to file the returns u/s.158BC dated 14.7.2003 and assessee filed the returns of income on 31.5.2004. The assessment order in the case of the assessee was finally passed on 6.7.2007 consisting of the block period from 1.4.1996 to 30.12.2002. For deciding the issue of the legality and validity of the assessment order for allegedly passed beyond the period of the limitation specified in section 158BE, we have to take into consideration different dates as well as the events took place from the date of search to the passing of the assessment order. In the present case, the assessee has approached the Settlement Commission under sec. 245C and the A.O. has also directed the assessee to get the Special Audit Report u/s.142(2A) of the Act in respect of the books of accounts found during the search operation. 5. The Ld. Counsel vehemently argued that as per the search warrant as well as Panchnama on record, the search started at residence of the assessee on 30.12.2002 which was e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rections for reference to the Special Audit by the A.O. and time taken for furnishing the audit report are not material because all the events after the statutory time limit prescribed u/s.158BE(1)(b) of the Act and hence, the benefit for further extension of the time as per Explanation-1 below sec. 158BE cannot be given to the A.O. 6. He further submits that probably the revenue may argue that in respect of the M/s. N.A. Fabrics P. Ltd. the last panchanama was drawn on 7.2.2003 and hence, the assessee being Director of the said company, the A.O. had a time limit to pass the order upto 28th February 2005 and hence, the benefit of the extension of the time in view of the Explanation 1 to section 158BE is available to the A.O. cannot be accepted. He further submitted that the A.O. passed the directions for the Special Audit u/s.142(2A) of the Act in gross violation of principles of natural justice as before passing the order the assessee was not given an opportunity of being heard. Moreover, for taking benefit of further extention of time limit under Expl.-1(b) to Sec. 158BE the A.O. used said provision and it can not be said to be bona fide act of the A.O. It is argued that hence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ashed and cancelled. 7. The Ld. CIT D.R. vehemently submits that even if in the case of the assessee, the search at the residence was concluded on 31.12.2002, but as far as business premises are concerned, the search was only concluded on 7th February, 2003. He submits that the assessee is a Director of N.A. Fabrics P. Ltd. and as per the warrant of authorization dated 30.12.2002 the assessee was also subjected to the search seizure and last of the Panchnama thus drawn on 7.2.2003 when the prohibitory order dated 31.12.2002 was lifted. He, therefore, pleaded that the A.O. has time upto 20th February, 2005 to complete the assessment. The assessee filed application to the Settlement Commission on 18.1.2005 and order rejecting the application passed by the Settlement Commission was received by the Ld. CIT, Mumbai on 29.08.2006. He submits that in view of the explanation 1 to section 158BE the A.O. was further entitled to minimum 60 days time. He further submits that considering the complexity of the books of accounts seized during the search operation, the A.O. decided to refer the matter for the Special Audit u/s.142(2A) of the Act and the Special Audit Report was furnished on 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... original file of search operation more particularly to examine the warrant of authorization as well as the Panchnamas. As per the directions of the Bench, the Ld. CIT D.R. has produced the said file, which was perused and also took into consideration during the course of the hearing. The Ld. CIT D.R. has filed Xerox copies of Warrant of Authorization as well as Panchnamas which were available in the original file. The assessee has raised objection by taking the contention that in case of the assessee the search was concluded on 31.12.2002 and assessment order passed by the A.O. on 06/07/2007 is beyond time limit prescribed under sec.158BE and hence is bad in law and void ab initio. It is to put on record that the original warrant of authorization issued in the name of the assessee was not found in the file and only the copy of the Panchnama was available in case of search of assessee s residence. As per the Panchnama drawn dated 31.12.2002 it is seen that warrant of authorization is dated 30.12.2002 issued u/s.132 of the Act in the case of the assessee for search of his residence. It appears that the said warrant of authorization was in respect of his residence at B-509, Pearl Apa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but to seize the item if he is of the view that it represented the undisclosed income. (iii) Simply stating in the Panchnama that the search is temporarily suspended, authorized officer cannot keep such proceedings in operation by passing prohibitory order technically extended time limit cannot be used for passing the assessment order. 12. In the case of Ms. Sandhya Naik (supra) after completion of the search, prohibitory order u/s.132(3) of the Act was passed covering one cupboard in which all the silver articles which were found were placed in a seal. On 26.10.1996 6 Kgs of the silver vessels from the said cupboard were released and further order was passed u/s.132(3) of the Act and the said cupboard was put to seal once again. On the same day, Panchnama was also drawn. On 13.12.1997, one Asstt. Commissioner removed the seal and made further order u/s.132(3) releasing the said silver vessels and articles and again the Panchnama was drawn. The assessee contended that the search concluded on 20.8.1996 and prohibitory order was nothing to do with the conclusion of the search. In the said case also there was only one search warrant and search was concluded on 20.10.1996 and Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion also, as the application filed by the assessee before the Settlement Commission was finally disposed off vide dt. 29.08.06 and said order was received by the Ld. CIT on 15.0.9.2006, hence, the A.O. was entitled to get further minimum time limit of 60 days from 15.09.06. As per Ld. CIT DR, the A.O. passed the directions/order u/s.142(2A) of the Act, as the A.O. has further time limit for passing the assessment order by 6o days from date on which special audit report was furnished. Ld. Counsel vehemently argued that the assessee was not given an opportunity of being heard before passing the said directions/order. Moreover, as contended by Ld. Counsel, action of the A.O. using powers under sec. 142(2A) was not bona fide but only to get benefit of extention of time limit and hence, the said order is bad in law and period between dates of passing of the said directions/order till furnishing of the Special Audit report i.e. 9.11.2006 to 7.5.2007 cannot be excluded for giving benefit of further time limit for passing the assessment order. In support of his argument, the Ld. Counsel relied on the decision of the Hon ble supreme Court in the case of Rajesh Kumar (supra). He further sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ired to furnish a report of such audit under that sub-section; or (iii) the time taken in reopening the whole or any part of the proceeding or giving an opportunity to the assessee to be re-heard under the proviso to section 129; or (iv) in a case where an application made before the Settlement Commission under section 245C is rejected by it or is not allowed to be proceeded with by it, the period commencing on the date on which such application is made and ending with the date on which the order under sub-section (1) of section 245D is received by the Commissioner under sub-section (2) of that section, shall be excluded: Provided that where immediately after the exclusion of the aforesaid period, the period of limitation referred to in sub-section (1) or sub-section (2) available to the Assessing Officer for making an order under clause (c) of section 158BC is less than sixty days, such remaining period shall be extended to sixty days and the aforesaid period of limitation shall be deemed to be extended accordingly. Explanation 2.-For the removal of doubts, it is hereby declared that the authorization referred to in sub-section (1) shall be deemed to have bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act, thus, 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. 56. It is trite, even if there is a possibility that the Tribunal would correctly follow the statutory provisions, still compliance with principles of natural justice would be required. (see R. Kensigntonm and Chelsea Rent Tribunal, Ex.p MacFarlane(1974)1WLR 1486(QB). 57. Justice, as is well known, is not only to be done but manifestly seem to be done. If the assessee is put to notice, he could show that the nature of accounts is not such which would require appointment of special auditors. He could further show that what the Assessing Officer considers to be complex is in fact not so. It was also open to him to show that the same would not be in the interest of the Revenue. 58. In this case itself the appellants 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 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The order of Assessment would be based upon the findings of the special auditor subject of course to their acceptance by the Assessing Officer. Even at that stage the assessee cannot put forward a case that power under section 142(2A) of the Act had wrongly been exercised and he has unnecessarily been saddled with a heavy expenditure. An appeal against the order of assessment, as noticed hereinbefore, would not serve any real purpose as the appellate authority would not go into such a question since the direction issued under section 142(2A) of the Act is not an appealable order. 17. In the present case, nothing is on record to show that the A.O. has given opportunity to the assessee before passing the direction/order u/s.142(2A) of the Act and in our opinion, there is a clear violation of the principles of natural justice and hence, the order passed by the A.O. u/s.142(2A) is void ab initio. It is pertinent to take note of the fact that the Parliament has accepted the principles laid down by the Hon ble Supreme Court in the case of Rajesh Kumar(supra) and by the Finance Act, 2007 amendment is made by inserting proviso is to sub-section (2A) to section 142 making it mandatory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... That on the facts and circumstances of the case the ld. Commissioner of Income-tax (Appeals) erred in rejecting the appellant s contention that the time taken for special audit u/s.142(2A) of the Act should not be excluded for the purposes of calculating the time limit for completion of assessment as the special audit was directed at the fag end of the time-barring limit. 3.2 That on the facts and circumstances of the case the ld. Commissioner of Income-tax (Appeals) erred in rejecting the appellant s contention that the direction for special audit under section 142(2A) of the Act was issued without giving an opportunity to the appellant of being heard. 3.3 That on the facts and circumstances of the case the ld. Commissioner of Income-tax (Appeals) erred in rejecting the judgment of the Hon ble Supreme Court in the case of Rajesh Kumar Others vs. DCIT (287 ITR 91) and also the decision of the Hon ble ITAT, Mumbai Bench in the case of ACIT vs. Claridges Investment Finance Pvt. Ltd. (ITA no.3475/Mum/2006 dt. 09.08.2007). 20. The facts are almost identical as in the case of another assessee i.e. Shri Nirmal Banwani. The assessee was subjected to search seizure op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It is argued that while executing the common Search warrant against M/S. N.A. Fabrics P. Ltd. and M/S. MKT Sales etc. a prohibitory order was issued which was lifted on 7.2.2003, in respect of the wooden cupboard as said prohibitory order was nothing to do with the assessee as admittedly the file seized from the shelve/wooden cupboard was in respect of M/S. N.A. Fabrics Pvt. Ltd and not of the assessee. He further pleaded that even assuming for the sake of argument that the A.O. has time upto 28.2.2005 for passing the assessment order but, the benefit of the extension of the period under clause (ii) to Explanation-1 to Sec. 158BE cannot be given as the direction passed u/s.142(2A) for the Special Audit was bad in law and void ab initio as the assessee was not given any opportunity before passing the said order. It is argued that in this case also just get benefit of further extention of time, the A.O. exercised his power under sec. 142(2A) and his said action was not bona fide. He further submits that as held in the case of Rajesh Kumar (supra) by the Hon ble Supreme Court the A.O. has not specified the reasons how there was a complexity in the accounts and why there was a necess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all his submissions made in case of Shri Nirmal Banwani and also on all the decisions and precedents which were cited and relied in the said case 23. We have heard the rival submissions of the parties and also carefully considered all the written submissions filed by the assessee as well as the Department and all the relevant case law cited at Bar by both the parties. The assessee was partner in M/s. MKT Sales and he was also doing the business in his individual capacity. As per the folder containing the search document produced by the Ld. CIT D.R., it is seen that in the common search warrant (Serial no.Mum/C./2813) dated 30.12.2002, the name of the assessee is mentioned. It appears that the assessee was carrying on the business from the common premises of M/s. N.A. Fabrics P. Ltd. in the 3/14-15, Mohatta Market, Faltan Road, Mumbai 400 001. Though the search was concluded on 31.12.2002 but the prohibitory order in respect of one wooden shelve/cupboard passed u/s.132(3) was lifted on 7.2.2003. One additional aspect in the case of the assessee is that another warrant was issued on 23.1.2003 but that was in respect of locker No.64 in the United Western Bank Ltd., Dadar (East), M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 7.5.2007. As argued by the Ld. CIT D.R the A.O. was got the further extension of the 60 days from 7.5.2007 to pass the assessment order before 6.7.2007 and hence, the assessment order passed on 6.7.2007 cannot be said to be passed beyond the time limit as specified u/s.158BE. In the case of the present assessee, admittedly, no opportunity was given by the A.O. before passing the order/directions u/s.142(2A) and hence, as held by us in the case of Nirmal A. Banwani following the principles laid down in the case of Rajesh Kumar (supra) the said directions/order are to be held as bad in law and void ab initio. We, therefore, following our reasons given in the case of Shri Nirmal A. Banwani hold that the A.O. cannot be given the benefit of the further extension of time by excluding the period from the date of passing the directions u/s.142(2A) on 9.11.2006 to the date of furnishing the Special Audit report on 7.5.2007 and at the most the A.O. should have passed the assessment order within 60 days from 15.9.2006 i.e. the date on which the order of the Settlement Commission was received by the Ld. CIT Mumbai. In the case of the present assessee, the assessment order is passed on 6.7.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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