TMI Blog2008 (6) TMI 239X X X X Extracts X X X X X X X X Extracts X X X X ..... barred by limitation in view of judgment of Hon'ble Supreme Court dated 1-11-2006 in assessee's own case RajeshKumar v. Dy. CIT [2006] 287 ITR 91. The facts of the case stated in brief are that a search and seizure operation was carried out on 18-12-2002 and as such in view of the provisions contained in section 158BE (1)(b), an assessment under section 158BC was required to be made by 31-12-2004. During the course of assessment proceedings the Assessing Officer came to the conclusion that the trading and financial statements of the assessee were required to be prepared from two sets of accounts and other material involving huge unaccounted transactions found and seized. He, therefore, vide his order dated 7-12-2004 directed the assessee to get the accounts audited under section 142(2A) within 60 days of the date of order. The assessee by his letter dated 13-12-2004 sought reasons for arriving at the conclusion that there existed "complexity in the accounts" maintained by him. The assessee also required the justification for issuance of direction for getting the accounts audited under section 142(2A) of the Act. This request of the assessee was turned down by the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the said Explanation, the Assessing Officer passed order under section 158BC read with section 144 of the Act on 3-6-2005. 5. Aggrieved by the order of Assessing Officer the assessee appealed to CIT(A)-III, New Delhi wherein one of the issues relating to directing the assessee to get his books of account audited under section 142(2A) from a nominated auditor was also raised. Ld. CIT(A) in view of the facts that Hon'ble Delhi High Court dismissed the writ petition on 3-2-2005 and grounds of appeal taken by the assessee had also not been substantiated by furnishing necessary supporting evidence, dismissed the grounds of appeal relating to the account to be audited under section 142(2A) of the Act. Ld. CIT(A), however, decided the grounds of appeal relating to various additions on merits vide his order dated 10-11-2006. 6. Hon'ble Supreme Court by their judgment dated 1-11-2006 Rajesh Kumar's case allowed the appeal of assessee by holding that order under section 142(2A) dated 7-12-2004 without giving opportunity to assessee was bad in law. 7. Aggrieved by the order of CIT(A), both the assessee as well the Revenue are in appeal before this Tribunal. The assessee has taken as m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed under section 142(2A) without adhering to principles of natural justice were held invalid. Sh. Anil Sharma, the ld. counsel for the assessee submitted that the decision in the case of Sahara India (Firm) has not laid down any law applicable universally. The observations made by the Hon'ble Supreme Court regarding the plea of limitation would not affect the decision in the case of Rajesh Kumar to which Their Lordships of the Larger Bench have given their consent. The observations made by Hon'ble Supreme Court cannot be regarded more than general in nature. They are not even obiter dicta much less they could be treated as ratio decidendi of the case and hence such observations do not have a binding effect. Moreover, the Assessing Officer had passed assessment order much prior to judgment rendered by the Hon'ble Supreme Court and there was no stay of assessment proceedings either by the High Court or Supreme Court. Thus in the absence of any stay of assessment proceedings and in the absence of observations or directions with regard to limitation in assessee's own case, as has been made in the case of Sahara India Firm in the light of Explanation 1 (iii) to section 153(3) of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial audit under section 142(2A) will not affect the period of limitation which got extended by six months by virtue of provisions of clause (ii) of Explanation 1 to section 158BE. He placed reliance on the decision of Hon'ble Gujarat High Court in the case of CIT v. Santosh Industries [1974] 93 ITR 563 for the proposition that decision rendered in one context cannot be applied in other context. Placing reliance on the decision of Hon'ble Supreme Court in the case of Union of India v. British India Corpn. [2004] 268 ITR 481 it has been submitted that "the question of limitation is a mandate to the forum and, irrespective of the fact whether it was raised or not, the forum must consider and apply it". Hon'ble Supreme Court in assessee's own case even after considering the limitation provisions of section 158BE has refrained from declaring the assessment barred by limitation. Ld. CIT (DR) further submitted that the issue before Hon'ble Supreme Court in the case of assessee Rajesh Kumar's case was restricted to the opportunity to be provided before ordering the special audit under section 142(2A) of the Act. Therefore, the decision of the Hon'ble Supreme Court cannot be extended to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, 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. Thus in deciding the issue relating to limitation the provisions of the Explanation 1 have to be considered wherever applicable which will depend on facts of individual case. 12. Hon'ble Supreme Court in assessee's own case as Rajesh Kumar in a writ petition, has held that the power under section 142(2A) cannot be lightly exercised. The satisfaction of authorities should not be subjected satisfaction. It should be based on objective assessment having regard to the nature of accounts. The nature of accounts must indeed be of a complex nature. This is the primary requirement for directing a special audit. Hon'ble Supreme Court held that the factors enumerated in section 142(2A) of the Act, were not exhaustive. Once it is held that the assessee suffers civil consequences and any order passed by Assessing Officer would be prejudicial to him, principles of natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titled to issue a notice to the petitioners for passing an order under section 142(2A), then it would be permissible for them to do so. This decision of Hon'ble Delhi High Court does not support the case of assessee that in all cases where order under section 142(2A) has been held to be invalid; the assessment framed in those cases will be barred by limitation. The decision rather provided fresh opportunity to Revenue to pass order under section 142(2A) after giving an opportunity of being heard, if time was available to do so. Thus it supports the contention of the Revenue that order passed under section 142(2A) without giving opportunity suffers from curable defect which can be set right by providing opportunity of being heard. 15. Now question arises as to whether the reversal of decision of Hon'ble Delhi High Court in assessee's case by Hon'ble Apex Court will make the assessment barred by limitation? Hon'ble Delhi High Court while deciding the writ petition filed by the assessee was satisfied that about the twin conditions of section 142(2A) namely (i) nature and complexity of accounts (ii) the interests of revenue were satisfied. The contention of the assessee that special ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... various years out of the block period. For example, cash amounting to Rs. 3,60,000 was found from the residence of one of the assessees and the assessee was called upon to explain the same in relation to the books of account for the financial year 2002-03. A sum of Rs. 10,81,000 was stated to be seized from the assessee by the Director of Investigation under section 132 of the Act on 31-10-2002, which was not shown in the books of account and the assessee was required to show why the same be not treated as unexplained income for the financial year 2001-02. A large number of amounts were referred to, in the same manner in this questionnaire. Thereafter the answer to the questionnaire was not found to be satisfactory by the Assessing Officer and thereupon he issued the impugned direction for special audit. In these circumstances, we cannot hold that there was no application of mind by the concerned officer before issuing the impugned direction. We also find no merit in the contention raised on behalf of the petitioner that the expression "accounts of the assessee" can only refer to the books of account of the assessee and not the other records available before the Assessing Officer f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tate industrial Development Corporation Limited v. Commissioner of Income-tax 171 ITR 640]. 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 therefor need not be detailed ones. But, that would not mean that the principles of 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) of the Act had wrongly been exercised and he has unnecessarily been saddled with a heavy expenditure. An appeal ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the correct position of law. Therefore, we refer the matter to a Larger Bench. The records be placed before the Hon'ble Chief Justice of India, for constituting an appropriate Bench. In the meantime, however, the order directing special audit shall be operative and assessment proceedings, if any, shall continue subject to the outcome of the present petition." Thus from above-mentioned observation of Hon'ble Supreme Court it is clear that there were certain doubts about the correctness of decision in the case of Rajesh Kumar because which Larger Bench was constituted in the case of Sahara India (Firm). 18. The short controversy before the Larger Bench was that the Divisional Bench had felt that it might not be necessary to afford an opportunity of hearing to an assessee before ordering special audit in terms of section 142(2A) of the Act. The decision by the Larger Bench in the case of Sahara India (Firm). The Hon'ble Supreme Court has held that an order under section 142(2A) entails civil consequences, even after the obligation to pay auditors fee and incidental expenses has been taken over by the Central Government, and, therefore, the rule of audi alteram partem is required ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en in the cases where order passed under section 142(2A) were vitiated by failure to observe the rule of audi alteram partem the law governing it will apply prospectively i.e., from the date of judgment in the case of Sahara India (Firm). The decision in the case of Sahara India (Firm). Therefore the law relating to principles of natural justice pronounced in the case of Rajesh Kumar and reaffirmed by the Larger Bench of Supreme Court in the case of Sahara India (Firm) will apply from 11-4-2008. It is a settled law that decision of Larger Bench will prevail over on the decision of Divisional Bench. Though the rule of audi alteram partem as laid down in the case of Rajesh Kumar has been reaffirmed in the case of Sahara India (Firm) but the same has been made applicable from the date of Larger Bench of Hon'ble Supreme Court. If the contention of ld. Counsel for the assessee that the law laid down by the Supreme Court in the case of Rajesh Kumar would be applicable from the date when section 142(2A) was brought on the statute is accepted, it make the law declared by the Supreme Court in the case of Sahara India (Firm) on operation of rule of audi alteram partem prospectively as redund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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 (l) 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." From the plain reading of Explanation 1 it is clear that not only the cases where stay is granted by the courts but the cases in which time taken by the assessee from the period commencing from the day on which the Assessing Officer directs the assessee to get his accounts audited under sub-section (2A) of section 142 and ending on the day on which the assessee is required to furnish a report of such audit under that sub-section is also to be excluded in computing the period of limitation for the purposes of section 158BE. As already stated that completion of special audit as well as assessment under section 158BC was complete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of justice require that any undeserved or unfair advantage gained by a party invoking the jurisdiction of the court, by the mere circumstance that it has initiated a proceeding in the court, must be neutralised. The simple fact of the institution of litigation by itself should not be permitted to confer an advantage on the party responsible for it." In the case before us the Assessing Officer enjoyed the advantage of the bar of limitation under clause (ii) of Explanation 1 of section 158BE by virtue of decision of Hon'ble Delhi High Court dismissing the writ petition filed by the assessee. If in case the writ petition was allowed in favour of assessee, as held by Hon'ble Supreme Court in the case of Grindlays Bank Ltd. only the offending part of the order was to be quashed and the remaining part of the order will stand automatically revived before the inferior court or Tribunal. In the case before us what has been held invalid by Hon'ble Supreme Court in Rajesh Kumar's case is the order passed under section 142(2A) and not the assessment order passed under section 158BC of the Act. Therefore the assessee cannot be permitted to take an advantage of limitation provisions. 22. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment to the file of Assessing Officer with the direction to frame assessment de novo after affording the assessee an opportunity of being heard. The assessee is also directed to render full assistance and co-operation with the department in getting the assessment completed. 24. We may like to deal with the contention of ld. CIT (DR) that decision in the case of Sahara India (Firm) is also in the case of assessee because of the fact that last line of para 30 the expression "Appellants" has been employed. We are unable to agree with the revenue for the simple reason that the Rajesh Kumar was not a party with Sahara India (Firm). Hence, this contention of revenue fails. 25. Since we have set aside assessment to the file of Assessing Officer to pass assessment order afresh, we do not feel it proper to decide the other issues on merits. IT(SS)No. 17/Delhi/2007: 26. In cross appeals the revenue has raised four grounds relating to deletion of various additions. Since we have set aside the matter to the file Assessing Officer to decide afresh, the appeal filed by the revenue is allowed for statistical purposes. 27. In the result, the appeals filed by the assessee and the re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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