2006 (10) TMI 191 - AT - Income Tax

Summary

Issues Involved:
1. Validity of notice under section 148.
2. Material evidence suggesting escapement of income.
3. Jurisdiction of CIT(A) in quashing the assessment order.
4. Validity of proceedings under section 142(2A) of the IT Act, 1961.
5. Assessment barred by limitation.

Detailed Analysis:

1. Validity of Notice under Section 148:
- Facts: A notice under section 148 was issued on 18th March 2002, served on 26th March 2002, requiring the assessee to furnish a return of income. The assessee filed returns for some years but not for others.
- Arguments: The Revenue argued that the notice was within the six-year time limit prescribed under section 149(1)(b) due to the alleged escapement of income exceeding Rs. 1,00,000. The assessee contended that the reasons recorded for issuing the notice were vague and did not specify any amount of escaped income.
- Judgment: The Tribunal upheld the CIT(A)'s finding that the notice under section 148 was barred by limitation. The reasons recorded by the AO did not indicate any specific amount of income that had escaped assessment, which is a prerequisite for issuing such a notice. The notice was found to be issued on mere suspicion rather than on reasonable grounds for believing that income had escaped assessment.

2. Material Evidence Suggesting Escapement of Income:
- Facts: The AO alleged that deposits found in undisclosed bank accounts and payment slips were irrefutable evidence of income having escaped assessment.
- Arguments: The Revenue claimed that the deposits found during the survey were sufficient to form a belief of escapement of income. The assessee argued that mere deposits could not be automatically converted into income without further material evidence.
- Judgment: The Tribunal agreed with the CIT(A) that there was no material evidence before the AO to suggest escapement of income. The mere fact of deposits did not constitute sufficient grounds for forming a belief of escapement of income. The AO's belief was based on suspicion rather than concrete evidence.

3. Jurisdiction of CIT(A) in Quashing the Assessment Order:
- Arguments: The Revenue argued that the CIT(A) acted beyond his jurisdiction in quashing the assessment order, citing the Supreme Court decisions in Phool Chand Bajrang Lal and Selected Dalurband Coal Co. (P) Ltd., which held that the sufficiency of reasons and belief of the AO is not for the appellate authority to judge.
- Judgment: The Tribunal held that the CIT(A) did not question the sufficiency of the reasons but rather the lack of any specific mention of the likely amount of escaped income. The CIT(A) was within his jurisdiction to examine whether the reasons recorded by the AO were based on reasonable grounds.

4. Validity of Proceedings under Section 142(2A):
- Facts: The AO directed the assessee to get his books of account audited under section 142(2A) from M/s Kalani & Co., Jaipur.
- Arguments: The Revenue argued that the special audit was necessary due to the complexity of the accounts. The assessee contended that the direction for special audit was not given within the limitation period and that the audit was conducted without proper directions.
- Judgment: The Tribunal upheld the CIT(A)'s finding that the proceedings under section 142(2A) were not as per law. The direction for special audit was served on the assessee after the limitation period, and the audit report did not comply with the mandatory requirements under section 142(2A).

5. Assessment Barred by Limitation:
- Arguments: The Revenue contended that the assessment was completed within the extended period allowed due to the special audit. The assessee argued that even if the special audit was valid, the assessment was still time-barred.
- Judgment: The Tribunal agreed with the CIT(A) that the assessment was barred by limitation. The notice under section 148 was served on 26th March 2002, and the assessment should have been completed by 31st March 2003. The assessment order dated 28th August 2003 was beyond the prescribed time limit.

Conclusion:
The Tribunal dismissed the appeals by the Revenue, upholding the CIT(A)'s order on all grounds. The notices under section 148 were found to be barred by limitation, and the proceedings under section 142(2A) were not in accordance with the law. The assessment was also held to be time-barred.