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TMI Blog2017 (3) TMI 1314X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 - MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM Assessee by : Shri Nikhil Pathak Revenue by : Shri Rajeev Kumar, CIT ORDER Per Sushma Chowla, JM The cross appeals filed by the assessee and the Revenue and other appeals filed by the assessee are against consolidated order of CIT(A)-Central, Pune, dated 23.12.2013 relating to assessment years 2004-05, 2005-06 2006- 07 against respective orders passed under section 143(3) r.w.s. 153A(b) of the Income Tax Act, 1961 (in short the Act ). 2. The cross appeals filed by the assessee and Revenue relating to assessment year 2004-05 and the appeals filed by the assessee relating to assessment years 2005-06 2006-07 on similar issue were heard together and are being disposed of by this consolidated order for the sake of convenience. However, in order to adjudicate the issue, the facts and issues raised in ITA No.543/PUN/2014 are being referred to. 3. The assessee in ITA No. 543/PUN/2014 has raised the following grounds of appeal :- 1] The learned CIT(A) erred in holding that the asst. order passed u/s 153A r.w.s. 143(3) was not barred by limitation and thus, the same was valid in law. 1.1 ] The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. 3.1 ] The learned CIT (A) erred in not appreciating that the various payments made by the assessee towards refund of fees to students were genuine in nature and therefore, there was no reason to make any disallowance in respect of the same. 3.2 ] The learned CIT (A) ought to have appreciated that most of the payments towards refund of fees were also noted in the documents seized during the course of search and hence, the disallowance made in respect of such payments was not warranted on facts of the case. 3.3 ] Without prejudice to the above grounds, the learned CIT(A) erred in not appreciating that the refund of fees to the students could not be considered as income of the assessee and thus, the addition made is not justified at all. 4] The learned CIT (A) erred in confirming the disallowance u/s 40A(2)(b) to the extent of ₹ 4,50,000/- out of the total disallowance of ₹ 6 lacs made by the learned A.O. in respect of director s remuneration paid to Shri Navinkumar Yadav. 4.1] The learned CIT (A) failed to appreciate that the payment made to Shri Navinkumar Yadav was quite reasonable considering the services rendered by him as a director of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... failed to give any opportunity of hearing to the assessee at pre-decisional stage and consequently, the time limit for completion of assessment could not be extended by the period of special audit allowed under section 153B of the Act. The learned Authorized Representative for the assessee further pointed out that the issue raised in the present appeal is squarely covered by the ratio laid down by the Pune Bench of Tribunal in ITO Vs. Vilsons Particle Board Industries Ltd. in ITA No.447/PN/2013, relating to assessment year 2004 - 05, in Vilsons Particle Board Industries Ltd. Vs. ITO in ITA Nos.309 310/PN/2013, relating to assessment years 2005-06 2006-07 and in ITO Vs. Vilsons Particle Board Industries Ltd. in ITA Nos.448 449/PN/2013, relating to assessment years 2005-06 2006-07, vide consolidated order dated 21.12.2016 and the copy of the said order was filed on record. 6. The learned Departmental Representative for the Revenue on the other hand, placed reliance on the order of CIT(A). 7. Briefly, in the facts of the case, the assessee had filed the return of income declaring total income of ₹ 21,52,360/- on 01.11.2004. Search and seizure action under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 142(2A) of the Act. The Assessing Officer vide letter dated 26.09.2007 sent a proposal for conduct of special audit under section 142(2A) of the Act in the case of assessee to the CIT, Central, Pune, who in turn, approved the proposal for conduct of special audit under section 142(2A) of the Act and granted approval vide order dated 22.11.2007. Thereafter, the Special Auditor was nominated who submitted his Special Audit Report on 13.06.2008, which was forwarded to the Assessing Officer on 16.06.2008 by the assessee. Subsequently, thereafter, assessment proceedings were taken up and the assessee stated that the assessment was time barred since the special audit was not in accordance with the provisions of section 142(2A) of the Act. The contention of assessee was rejected where the assessee was given due opportunity before ordering for audit under section 142(2A) of the Act. The Assessing Officer notes that after due satisfaction, recorded in writing, the CIT, Central, Pune ordered for the audit to be conducted under section 142(2A) of the Act. The Assessing Officer also noted that requisite information and records were called from the assessee. Several opportunities were given t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f CIT(A). 10. We have heard the rival contentions and perused the record. The sequence of events relating to assessment completed in the case of assessee is as under:- Date of search 20.07.2005 FY in which the last of the authorizations for search was executed 2005-06 Normal limitation period under section 153B(1)(a) r.w. Proviso to section 153B(1) 31.12.2007 Date of issue of direction under section 142(2A) by the AO 17.12.2007 Date on which the Special Auditor was required to furnish the audit report (original period 150 days + extended period30 days vide AO's Letter No.PN/DCIT/C.Cir.1(2)/142(2A)/ Yadav Group/2008-09 dtd.01.05.2008] 16.06.2008[15.06.2008, being Sunday excluded) Limitation period under the 5th Proviso to S. 153B (16.06.2008 + 60 days) 15.08.2008 Order actually passed 12.08.2008 11. The issue which arises in the present appeal is against the reference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but this opportunity is not as per proviso to section 142(2A) of the Act, wherein the Assessing Officer at pre-decisional stage has to give show cause notice to the assessee, since the accounts were not reconcilable why his case should not be referred to for special audit under section 142(2A) of the Act. Thereafter, the designated Commissioner has to give an opportunity to the assessee and further pass an order as to whether the special audit needs to be undertaken in the case of assessee. As pointed out, the exercise of power by the Assessing Officer at pre-decisional stage is missing in the case of assessee. 12. We find that similar issue of non-granting of pre-decisional hearing on pre- decisional stage to the assessee before making reference under section 142(2A) of the Act arose before the Pune Bench of Tribunal in the case of ITO Vs. Vilsons Particle Board Industries Ltd. (supra) and wherein it was held as under:- 20. We have heard the rival contentions and perused the record. The issue arising in the present appeal is in relation to the provisions of section 142(2A) of the Act i.e. looking at the nature and complexity of the accounts and volume and multiplicity of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee have been audited under any other law for the time being in force. Sub-section (2C) provides the time limit i.e. 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. The proviso under section 142 (2C) of the Act reads as under:- Provided that the Assessing Officer may, suo motu, or 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. 23. The proviso deals with the extension of period for completion of special audit and it is provided that the Assessing Officer may suo motu, which is inserted by the Finance Act, 2008 w.e.f. 01.04.2008, or on an application made by the assessee and for any good and sufficient reason, extend the period for such further period or periods as he thinks fit. However, there i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, is to be excluded. This is as per Explanation under section 153B clause (ii). The provisions of section 142(2A) of the Act have been the subject matter of various judicial rulings . 26. The Apex Court in Rajesh Kumar and Others Vs. DCIT (supra) vide judgment dated 01.11.2006 has laid the proposition that direction issued under section 142(2A) of the Act for special audit of the accounts of assessee was not administrative in nature but was quasi-judicial order. Referring to the expression having regard to in section 142(2A) of the Act, the Apex Court held that the same was significant and the opinion must be formed strictly in terms of factors enumerated therein. The Apex Court held that where once it is held that the assessee suffers civil consequences and any order passed would be prejudicial to him, then the principles natural justice must be held to be implicit, which was required to be applied inter-alia to minimize arbitrariness. It was further observed by the Apex Court that if the assessee is put to notice he could show that the nature of accounts was not such as would require appointment of special auditor. He could also show that what the Assessing Officer considers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2(2A) of the Act is not. No internal remedy is prescribed. Judicial review cannot be said to be an appropriate remedy in this behalf. The appellate power under the Act does not contain any provision like section 105 of the Code of Civil Procedure. The power of judicial review is limited. It is discretionary. The court may not interfere with a statutory power. 28. The Three Judge decision of Hon ble Supreme Court in Sahara India (Firm) Vs. CIT and Another (supra) while deciding the issue of scope and nature of Assessing Officer s and Commissioner s responsibility held that the order entails civil consequences and the assessee has to be given a reasonable opportunity of being heard before passing the order. The Hon ble Supreme Court took note of insertion of proviso to section 142(2A) of the Act w.e.f. 01.04.2007, under which it is provided that the Assessing Officer shall not direct the assessee to get the accounts so audited, unless the assessee has been given reasonable opportunity of being heard. The Court observed that exercise of power under section 142(2A) of the Act leads to serious civil consequences and therefore, even in the absence of any express provision for affor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... formed by the Assessing Officer and the approval must reflect the application of mind to the facts of the case. Then the requirement of hearing or not before the order for special audit was taken up by the Hon ble Supreme Court and the concept of natural justice and the principles governing the said application were referred to. The Apex Court referred to the earlier decision of the Court in Rajesh Kumar and Others Vs. DCIT (supra) observed as under:- 20. Dealing with the question whether the requirement of affording an opportunity of hearing is to be read into section 142(2A), in Rajesh Kumar(1) it has been held that prejudice to the assessee is apparent on the face of the said statutory provision. It has been observed that on account of the special audit, the assessee 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 of the Act. An auditor is a professional person. He has to function independently. He is not an employee of the assessee. In case of misconduct, he may become liable to be proceeded against by a statutory authority under the Chartered Accountants Act, 1949. Besi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to mere production of the books and vouchers before an auditor and verification thereof. It would involve submission of explanation and clarification which may be required by the special auditor on various issues with relevant data, document, etc., which, in the normal course, an assessee is required to explain before the Assessing Officer. Therefore, special audit is more or less in the nature of an investigation and in some cases may even turn out to be stigmatic. We are, therefore, of the view that even after the obligation to pay auditor's fees and incidental expenses has been taken over by the Central Government, civil consequences would still ensue on the passing of an order for special audit. (Emphasis supplied by us) 29. Then dealing with the issue at hand that whether the pre-decisional hearing is required or not, the Apex Court held as under:- 22. We shall now deal with the submission of learned counsel appearing for the Revenue that the order of special audit is only a step towards assessment and being in the nature of an inquiry before assessment, is purely an administrative act giving rise to no civil consequence and, therefore, at that stage a pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... athered on the basis of the audit report submitted under sub-section (2A) and not on the validity of the original order directing the special audit. It is well settled that the principle of audi alteram partem can be excluded only when a statute contemplates a post decisional hearing amounting to a full review of the original order on merit, which, as explained above, is not the case here. (Emphasis supplied by us) 30. The Apex Court thus, laid down that the principles of audi alteram partem could be excluded only when the Statute contemplates a post decisional hearing amounting to a full review of the original order on merit i.e. the decision to make a reference for getting special audit done under section 142(2A) of the Act. Where they recognized the procedure that after the special audit report is submitted under section 142(2A) of the Act, the assessment proceedings would give an opportunity of hearing to the assessee on the said findings of the said auditor and the pre- decisional hearing i.e. whether said audit is required in the facts and circumstances of the case, is not open for discussion. Upholding the views expressed in Rajesh Kumar and Others Vs. DCIT (supra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 142(2A) of the Act. However, it would be open to the assessee to question before appellate authorities if so advised the correctness of material gathered on the basis of audit report submitted under section 142(2A) of the Act. 33. Both the learned Authorized Representatives have relied on several decisions of different courts and the Tribunals on the issue which have been taken note and the proposition laid down by the Apex Court is being applied to decide the present issue. The learned Departmental Representative for the Revenue and CIT(A) placed reliance on ACIT Vs. Sushila Milk Specialties (P.) Ltd. (supra), which related to pre-amended provisions and hence, the said issue cannot be applied to the present set of facts. However, we find that the Mumbai Bench of Tribunal in ACIT Vs. Claridges Investments Finances (P) Ltd. (supra) on similar facts, wherein the order initiating special audit was passed without allowing the assessee an opportunity of being heard was held to be vitiated in law. It was further held that the extended time limit laid down in Explanation (1)(iii) to section 153A of the Act was not available to him for want of validity and proper reference u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Bombay High Court, the Assessing Officer had given notice to the assessee but had not dealt with submissions made by the assessee in this behalf and hence, the Assessing Officer was directed to consider the objections raised by the assessee. 37. It may be pointed out herein itself that the learned Departmental Representative for the Revenue has placed reliance on the ratio laid down by the Hon ble Bombay High Court in earlier decision dated 07.03.2006 in Atlas Copco (India) Ltd. Vs. ACIT (supra), wherein it was held that before passing an order under section 142(2A) of the Act whether an opportunity of hearing is to be given to the assessee and it was held that the said decision of Hon ble Bombay High Court is prior to the amendment in the Act and also prior to the decision passed by the Apex Court in Rajesh Kumar and Others Vs. DCIT (supra) and Three Judge Decision in Sahara India (Firm) Vs. CIT and Another (supra) and also later decision of Hon ble Bombay High Court in Nickunj Eximp Enterprises Pvt. Ltd. Vs. ACIT (supra). 38. Now, coming to the facts of the present case, search and seizure on the premises of group concerns was carried out on 23.08.2006. As per prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etter is placed at pages 251 to 252 of the Paper Book. The assessee has also placed on record the order granting permission under section 142(2A) of the Act by the CIT (Central), Pune which is dated 04.11.2008, under which it is mentioned that proposal dated 11.09.2008 for conducting special audit in the group cases of Patel group was received. The detailed reasons for special audit as given in the proposal are mentioned which were forwarded to the Addl. CIT, Pune. Further, show cause notice was issued to the assessee on 12.09.2008 by the CIT and he was asked to explain as to why special audit should not be ordered. The CIT in the said order mentions that along with notice of hearing, detailed proposal as received from the DCIT, Central, Kolhapur was also enclosed. The assessee was again sent another show cause notice and the assessee appeared thereafter. The CIT(C) noted that notices were inadvertently issued for compulsory audit for assessment year 2008-09 while the cases to be audited were for assessment years 2001-02 to 2007-08, hence, therefore, notices were issued to the assessee and the CIT passed the order granting permission for special audit under section 142(2A) of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucted under section 142(2A) of the Act. The Apex Court in Sahara India (Firm) Vs. CIT and Another (supra) have upheld the said proposition laid down by the Hon ble Supreme Court and has also taken note of the amendment w.e.f. 01.06.2007 and have held that the principles of natural justice have to be fulfilled even at the pre-decisional stage. In conclusion, the Apex Court directed that the said proposition would be applicable prospectively. The case of the assessee before us relates to the period which is prospective to the decision of the Apex Court and is also after insertion by the Finance Act, 2007 w.e.f. 01.06.2007. Reasonable opportunity of being heard on pre-decisional stage to be allowed by the Assessing Officer to the assessee was on Statute when the proceedings were taken up against the assessee. However, as the facts reveal before submitting the proposal dated 11.09.2008 for conducting special audit under section 142(2A) of the Act to the CIT(C), no opportunity of hearing was given to the assessee. The requirement of the Act is that the Assessing Officer has to give finding that there is complexity of accounts and the interests of revenue would be affected, and in such c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndustries Ltd. (supra) 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, by the Assessing Officer, the special audit conducted in the case is without jurisdiction and consequently, the assessment order passed is beyond the stipulated date, because time taken for special audit, is invalid. Since assessment order is passed beyond period of limitation and hence, is invalid and bad in law. Accordingly, we hold so. We allow the grounds of appeal No.1, 1.1 and 1.3 raised by the assessee and the grounds of appeal raised on merits in this regard become academic and the same are dismissed. Consequently, the appeal of Revenue becomes infructuous. 14. The facts and issues in ITA Nos.544/PUN/2014 545/PUN/2014 are similar to the facts and issues in ITA No.543/PUN/2014 and our decision in ITA No.543/PUN/2014 shall apply mutatis mutandis to ITA Nos.544/PUN/2014 545/PUN/2014. 15. In the result, all the appeals of assessee are allowed and the appeal of Revenue is dismissed. Order pronounced on this 3rd day of March, 2017. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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