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TMI Blog2017 (12) TMI 1405X X X X Extracts X X X X X X X X Extracts X X X X ..... R BENCH : There are total 15 appeals under consideration filed by two different assessees involving Assessment Years 2000-01 to 2006-07. Seven appeals bearing ITA Nos. 1196 to 1202/PUN/2015 pertains to M/s. P.N. Gadgil Co. (Gold); whereas another set of seven appeals bearing ITA Nos. 1626 to 1632/PUN/2015 pertains to M/s. P.N. Gadgil Co. (Silver). All these appeals are filed against the separate orders of CIT(A)-11, Pune dated 29-05-2015 28-09-2015 respectively. Further, the ITA No.1539/PUN/2015 is the only appeal filed by the Revenue for A.Y. 2006-07 and the same constitutes cross appeal against the appeal of the assessee pertaining to M/s. P.N. Gadgil Co. (Gold). 2. Since the issues involved in these appeals are identical, therefore, these appeals were clubbed and adjudicated in this composite order. 3. We shall take up the first seven bunch of appeals (M/s. P.N. Gadgil Co. (Gold) and refer to facts and issues in ITA No.1196/PUN/2015. The grounds of appeal raised by the assessee are extracted as under : The following grounds are taken without prejudice to each other - On facts and in law, 1] The learned CIT(A) erred in holding that the search acti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; considering the assessee's submissions on this issue. 4.4] The learned CIT(A) failed to appreciate that a. The special auditor had not considered the correct facts of the case in drawing a fresh quantitative trading account. b. The appellant's daily stock register on the computer had already included the purity gain in the day to day closing stock and accordingly, the purity gain as worked out by the special auditor was embedded in the closing stock shown by the assessee and making an addition of purity gains amounted to double addition in the hands of the assessee. c. The entire purity gain did not constitute accretion in the gold quantity in the hands of the appellant and hence, there was no justification in making addition on account of the same. d. There was no justification for holding that the alleged unaccounted purity gain was introduced in the form of bogus URD purchases. e. The appellant for a few years from A.Y. 2000 - 01 to A.Y. 2006 - 07 had reported higher quantum of income than what was worked out by the special auditor and the over all effect also for all these seven years together was that the appellant had shown higher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned CIT(A) erred in confirming an addition of ₹ 57,535/- u/s. 40A(3) of the Act valuation without appreciating that the no incriminating evidence was found in the course of search in respect of the said issue and hence, no such addition could be made in the asst. completed u/s. 153A. 6.1] The learned CIT(A) failed to appreciate that the disallowance made u/s. 40A(3) was on presumptions and surmises without any concrete evidence that the assessee had made payments in excess of ₹ 20,000/- and hence, the disallowance made should have been deleted. 6.2] Without prejudice, the assessee submits that no disallowance u/s. 40A(3) can be made when the books of the assessee are rejected and accordingly, the disallowance made u/s. 40A(3) should have been deleted. 7] The appellant craves leave to add, alter, amend or delete any of the above grounds of appeal. 4. At the outset, Ld. Counsel for the assessee submitted that adjudication of the Revenue s appeal-ITA No.1539/PUN/2015 becomes an academic exercise, in case the appeals of the assessee are allowed on legal issue relating to the limitation. Assessee raised legal grounds in this regard. 5. Addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Assessee also filed return of income u/s.139 of the Act for A.Y. 2006-07 on 31-10-2006 declaring total income of ₹ 5,27,79,520/-. During the course of assessment proceedings on 01-11-2007, AO sent a proposal to the CIT (Central), Pune u/s.142(2A) for Special Audit of the assessee on the ground that voluminous incriminating documents were seized/impounded. On the basis of said proposal of AO, CIT Central, Pune issued a show cause notice dated 01-11-2007 and finally accorded his approval for carrying out Special Audit of the assessee on 19-11-2007 for the A.Yrs. 2000-01 to 2006-07. Eventually, the report of the Special Audit was submitted on 16-06-2008. The assessments were completed on 12-08-2008. 9. Before us, Ld. Counsel for the assessee submitted that the assessment made by the AO u/s.153A of the Act is barred by limitation of time. Justifying the same, Ld. Counsel submitted that the period relating to Special Audit is required to be excluded for determining the due date for completion of the assessment. In this regard, Ld. Counsel mentioned that the order of the AO for referring the Special Audit u/s.142(2A) of the Act is illegal and in unsustainable in law as the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... G Jewellery and Gems, 693, Narayan Peth, Kunte Chowk, Laxmi Road, Pune-30. Sir, Sub : Compulsory Audit for A.Y. 2000-01 to 2006-07- reg. I have received a proposal from the A.O. recommending compulsory audit in your case. You are hereby given an opportunity in view of proviso to Section 142(2A) to show-cause why compulsory audit should not be ordered in your case. 2. In this regard your kind attention is also invited to proviso to Section 142(2D) of the I.T. Act, 1961, as per which the expenses for compulsory audit are to be paid by the Central Government. The compulsory Audit therefore shall not cause any financial burden on you. 3. The gist of the proposal received from the A.O. is enclosed. 4. The hearing is fixed for 12.11.2007 at 11.00 a.m. Yours faithfully, Sd/- ( ARUN KUMAR) Commissioner of Income Tax (Central) Pune. 11. The above letter is self-evident that it was the CIT (Central), Pune who granted the opportunity to the assessee in view of the proviso to section 142(2A) of the Act. There is no dispute on this fact of the matter and it is not the case both the AO as well as the CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could not invalidate the proceedings. However, he fairly submitted that the irregularities, if any, noted in the said case does not relate to the granting of opportunity by the AO to the assessee at the time of order referring to the Special Audit. He also submitted that the assessee cooperated with the Special Audit as well as the assessment proceedings and raising of such a ground at this point of time need not be entertained. Decision of the Tribunal - Legal issue 15. We shall now take up the legal issue for adjudication considering the above arguments and citations by both the parties. To start with we extract the relevant provisions of section 142(2A) of the Act. [(2A) If, at any stage of the proceedings before him, the [Assessing] Officer, having regard to [the nature and complexity of the accounts, volume of the accounts, doubts about the correctness of the accounts, multiplicity of transactions in the accounts or specialized nature of business activity of the assessee, and ] the interests of the revenue, is of the opinion that it is necessary so to do, he may, with the previous approval of the [Principal Chief Commissioner or ] Chief Commissioner or [Principal Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... audit is totally illegal. The ld. A.R. stressed that when law gives authority to the A.O. to decide whether to refer the matter to the auditor or not, there is no reason for some other officer, even if senior to the A.O. to give an opportunity to the assessee, while pointing out that section 2(7A) defines the term A.O. which does not include CIT and therefore, even if opportunity is granted by the CIT, the same does not amount to compliance of the requirement laid down in the provisions .. The above extracts prove that there was arguments and detailed discussion on the issue raised in the additional ground (supra). 17. We also examined the finding of the CIT(A) dismissing the objections raised by the assessee against granting such opportunity by the AO alone. Contents of Para No.5.5.4 are relevant and relevant lines are extracted as under : 5.5.4 In the present case, the appellant has not essentially questioned the sufficiency of existence of the circumstances under which the Assessing Officer made the reference for special audit u/s.142(2A), but the grievance of the appellant is that it was not afforded an opportunity of being heard by the Assessing Officer. Acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the period of limitation. We extract the relevant paragraphs of the said order of the Tribunal hereunder : 40. The question which arises for adjudication before us is that in the present set of facts, where the Assessing Officer before sending a proposal for conducting special audit under section 142(2A) of the Act has not given an opportunity of being heard to the assessee and in view of the proviso to section 142(2A) of the Act, is the said proposal made without affording pre-decisional hearing to the assessee valid and can the proceedings conducted thereafter be held to be vitiated in law. The Hon'ble Supreme Court in Three Judge decision in Sahara India (Firm) Vs. CIT and Another (supra) had decided the issue of show cause notice to be given on pre-decisional stage and postdecisional stage of starting the proceedings under section 142(2A) of the Act and had also referred to the earlier decision of Apex Court in Rajesh Kumar and Others Vs. DCIT (supra). The principles laid down by the Hon'ble Supreme Court are that the principle of audi alteram partem cannot be ignored even at the stage of pre-decisional hearing. In other words, in case the Assessing Officer is of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is no need to put the assessee to such hardship of conducting special audit. The Assessing Officer having failed to give any opportunity of hearing to the assessee before making the proposal for conducting special audit under section 142(2A) of the Act at the pre-decisional stage, then such proposal made by the Assessing Officer to the CIT(C), Pune is against the principles of natural justice and suffers from infirmity. The case of Revenue before us is that the CIT(C), Pune before passing his order of giving permission to the Assessing Officer to ask the assessee to get the special audit conducted had given fair opportunity of hearing to the assessee. The role of CIT(C) is the role of approving authority. The role is not that of adjudicating authority which had to be carried out by the Assessing Officer. The adjudicating authority in the present set of facts has failed to give any opportunity to the assessee before making proposal for special audit and the opportunity allowed by the approving authority, who in any case is enshrined with the duties of checking whether there is no arbitrariness in functioning of adjudicating authority, has to be satisfied before giving approval ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be extended in view of the illegal order u/s.142(2A). It is also his submission that the assessments for A.Yrs. 1999-2000, 2000-01 and 2005-06 were getting time barred in view of second proviso to section 153(2) on 31-12-2007 whereas the assessment order is dated 08-08-2008. Therefore, such assessment orders are time barred and therefore are void. 117. We find merit in the above argument of the Ld. Counsel for the assessee. It is an admitted fact that the assessment order for A.Y. 2000-01 is dated 08-08-2008. It is also an admitted fact that the Assessing Officer while directing for special audit u/s.142(2A) has not given any opportunity of being heard to the assessee and the opportunity of being heard was granted only by the Ld. CIT Central who has passed a detailed order dated 05-12-2007 granting approval on the reference by the Assessing Officer for special audit u/s.142(2A). Under these circumstances we have to see where the Assessing Officer before sending a proposal for conducting special audit u/s.142(2A) of the Act has not given an opportunity of being heard to the assessee and in view of the proviso to section 142(2A) of the Act, whether the said proposal made with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Since the assessee succeeds on this technical ground, the other grounds for A.Y. 2000-01 have become academic in nature and therefore, they are dismissed as academic. The appeal filed by the assessee for A.Y. 2000-01 is accordingly partly allowed. 24. In the result, the appeal of the assessee for A.Y. 2000-01 is partly allowed. 25. The additional ground raised by the present assessee (i.e. M/s. P.N. Gadgil Co. (Gold)) is identical for the remaining A.Yrs. 2001-02 to 2006-07 and as well as the assessee M/s. P.N. Gadgil Co. (Silver) for the A.Yrs. 2000-01 to 2006-07. Since we have already decided the said additional ground in favour of the assessee, we follow the same parity of reasoning and allow the additional ground raised by both the assessees in favour of the assessees. Rest of the grounds raised in all the remaining appeals by the assessee stand dismissed as academic. Therefore, all these appeals of the assessee are partly allowed. ITA No.1539/PUN/2015 (By Revenue A.Y. 2006-07) : 26. As mentioned by the Ld. Counsel for the assessee, since we have allowed the appeal of the assessee on the issue of validity of the assessment for A.Y. 2006-07 too, adjudicat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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