TMI Blog2008 (3) TMI 354X X X X Extracts X X X X X X X X Extracts X X X X ..... unal is directed against the said order of the Commissioner of Income-tax (Appeals). The assessee in this appeal has raised several grounds including the legal ground relating to special audit under section 142(2A) and the legal validity of the assessment made by the Assessing Officer. All these grounds have been dealt with in the succeeding paras. Grounds Nos. 1, 2 and 3 relate to the direction of the Assessing Officer for special audit of the accounts of the assessee. Under the provisions of sub-sections (2A) and (2B) of section 142, the Assessing Officer having regard to the nature and complexity of the accounts of the assessee may with the previous approval of the Chief Commissioner/Commissioner direct the assessee to get its accounts audited and submit report in a prescribed form, notwithstanding the fact that the accounts have already been audited under any other law for the time being in force or otherwise. Sub-section (2C) of section 142 provides that the period within which the audit report is to be submitted may be extended by the Assessing Officer for good and sufficient reasons. The relevant provisions are reproduced below for the sake of clarity. "142. (2A) If, at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer further noted that though the sales had come down during the year to Rs. 25.77 crores compared to Rs. 27.46 crores in the immediate preceding years but freight and cartage outward had increased from Rs. 47.22 lakhs to Rs. 72.9 lakhs. Similarly, though the purchases had increased for the year to Rs. 21.82 crores compared to Rs. 15.96 crores in the immediate preceding year, but the cartage inward had decreased to Rs. 16.82 lakhs compared to Rs. 22.13 lakhs in the immediate preceding year. The Assessing Officer also noted that the accounts of the assessee were intricately intertwined with the accounts of the sister concerns. The Assessing Officer, therefore, vide letter dated March 24, 2005, directed the assessee to get the accounts audited under the provisions of section 142(2A) and submit report within 120 days from the date of service of the order. The said order was served on the assessee on March 28,2005, and, therefore, audit report was required to be obtained by the assessee by July 26, 2005. The aforesaid period was extended by the Assessing Officer vide order dated July 29, 2005, to September 10, 2005, on an application dated July 29, 2005 made by the assessee. Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to hold that accounts were complex particularly when the assessee had filed reconciliation statement of TDS before the Assessing Officer. As regards the discrepancy in the accounts of M/s. Vimal Kumar Adhish Kumar, it was submitted that the same was due to the fact that certain transactions pertaining to the sister concern of the assessee, had been shown by the said party in the statement. The assessee had reconciled the position before the Assessing Officer. Learned counsel further submitted that there was no inter-twining of the accounts of the assessee with that of the sister concern as alleged by the Assessing Officer. There was, therefore, no case for the special audit and the direction of the Assessing Officer was legally not valid. The direction was also legally not tenable on the ground, as the same had been given without providing any opportunity of hearing to the assessee. To support his arguments, learned counsel placed reliance on the judgment of the honourable Supreme Court in the case of Rajesh Kumar v. Dy. CIT [2006] 287 ITR 91, in which it was held that direction for the special audit under section 142(2A) without granting any opportunity of being heard to the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n held that validity of direction under section 142(2A) can be examined in the appellate proceedings. In case, the direction is found to be invalid, the provisions contained in clause (iii) of Explanation (1) to section 153 regarding extension of period of the special audit in computing the limitation period for completion of assessment are inapplicable and limitation has to be seen in the light of the provisions contained in section 153(1). Reference was also made to the decision of the Special Bench of the Tribunal in the case of Promain Ltd. v. Dy. CIT [2005] 281 ITR (AT) 107 (Delhi), which had taken a similar view. It was submitted that since the direction for special audit without giving opportunity to the assessee was invalid in view of the judgment of the honourable Supreme Court in the case of Rajesh Kumar [2006] 287 ITR 91, the period of limitation would not be extended on this ground and assessment was required to be completed by March 31, 2005 under the normal provisions of law. The assessment in this case had been completed on November 14, 2005, which was clearly barred by limitation and should be quashed. Continuing his arguments further, learned counsel for the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the case of Rajesh Kumar [2006] 287 ITR 91. If aggrieved, the assessee could have challenged the direction for special audit by filing a writ petition before the honourable High Court, which was not done. The direction was, therefore, in forced and the special audit had already been conducted in pursuance of the said direction. Therefore, the period as per the statutory provision has automatically to be excluded for the purpose of assessment because audit had already been done in pursuance of the direction, which remained unchallenged. The action already done cannot be undone and the period has to be excluded. It was pointed out that judgments relied upon by learned counsel for the assessee related to writ petitions and, therefore, will not be applicable to the facts of the case. He referred to the judgment of the honourable Delhi High Court in the case of VLS Finance Ltd. v. CIT [2007] 289 ITR 286 to point out that only if direction for special audit was quashed, the matter would get restored to the original position and not otherwise. As regards the argument of learned counsel that the period of special audit could not be extended beyond 120 days as no application for extens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le Supreme Court in the case of Rajesh Kumar [2006] 287 ITR 91, the direction for special audit without providing any opportunity to the assessee was not in accordance with law and, therefore, such direction was non est and did not exist in the eye of law. Reliance was also placed on the judgment of the honourable Supreme Court in the case of R.B. Shreeram Durga Prasad and Fatechand Nursing Das [1989] 176 ITR 169, in which it was held that the order passed in violation of the principles of natural justice was a nullity. The judgment of the honourable Supreme Court in the case of Rajesh Kumar [2006] 287 ITR 91, was still in force though the issue decided in the said judgment has been referred to a Larger Bench in the case of Sahara India (Firm) [2008] 300 ITR 403 (SC), it was pointed out. It was thus argued that the direction has to be ignored while computing the limitation period, which in the normal course expired on March 31, 2005. Learned counsel further submitted that even if the direction for special audit under section 142(2A) was treated as valid, the 120 days period allowed by the Assessing Officer for audit expired on July 26, 2007, and no application for condonation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer extended the said date to September 10, 2005, vide order dated July 29, 2005, on an application dated July 29, 2005, made by the assessee. The date was further extended to September 14, 2005, vide order dated September 8, 2005, of the Assessing Officer on application received by the assessee on September 8, 2005. The assessee submitted the special audit report on September 14, 2005. Under the provisions of Explanation (1) to section 153, a further period of 60 days is allowed to the Assessing Officer for completing the assessment from the date of receipt of audit report. The Assessing Officer completed the assessment in this case under section 143(3) on November 10, 2005. As the audit report was received on September 14,2005, the case of the Revenue is that the assessment was completed well in time as the same was made within 60 days from the date of receipt of audit report. The assessee challenged the direction of the Assessing Officer for special audit as well as the validity of assessment based on such report before the Commissioner of Income-tax (Appeals). The latter rejected the plea of the assessee and held that the appeal of the assessee on this point was not mai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een considered by the Special Bench of the Tribunal in the case of Promain Ltd. [2005] 281 ITR (AT) 107 (Delhi). The issue raised before the Special Bench was whether the validity of authorization for search under section 132 of the Income-tax Act against which there was no specific provision for appeal, could be gone into by the appellate authorities. The Special Bench held that the Tribunal had no power either express or by implication to adjudicate the issue relating to validity of search under section 132 of the Income-tax Act while disposing of an appeal relating to block assessment. The view taken by the Special Bench was subsequently upheld by the honourable jurisdictional High Court of Delhi in the case of M.B. Lal v. CIT [2005] 279 ITR 298. The honourable High Court held that it was no longer open to the assessee to re-agitate the question of validity of authorization and the legality of search proceedings either before the Commissioner or before the Tribunal. Whether or not the conditions precedent for the search conducted as mentioned in clauses (a), (b), (c) of section 132(1) of the Act were satisfied in a given case fully, is beyond the scope of the assessment proceedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere is complexity in the accounts or not. The judgment related to a search case in which certain documents had been found. The Assessing Officer just one day before the limitation period for completion of assessment, had directed the auditor to prepare the books of account in the form of cash book and ledger on the basis of documents seized during the course of search and to prepare a trading account, profit and loss account and to determine the undisclosed income. The Tribunal noted that under the provisions of section 142(2A), the Assessing Officer could give direction for special audit of the books of account and not for preparing books of account and computation of undisclosed income. The direction was, therefore, invalid and the Assessing Officer would not, therefore, get extended period for completion of assessment which was available only in case of special audit, the Tribunal held. The honourable High Court upheld the view of the Tribunal that the direction was for preparing fresh books rather than to conduct a special audit, which was beyond the scope of the provisions of section 142(2A). The honourable High Court also observed that audit was for the purpose of satisfying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken place before the judgment of the honourable Supreme Court, cannot be undone and the period already taken in the special audit has to be excluded. Even if the opportunity of hearing is required before giving direction for special audit, as held by the honourable Supreme Court in the case of Rajesh Kumar [2006] 287 ITR 91 and the order is passed without giving opportunity, such order unless challenged and quashed, does not get wiped out automatically. The order passed by a statutory authority even if the same has been passed without following the principles of natural justice, does not get wiped out automatically. It does not get wiped out even during the period of stay in case the order had been stayed. The order is wiped out only if it is quashed when challenged in a writ petition or is quashed by the appellate authorities in case the same is appealable. The direction for special audit as we have held earlier, is not appealable and the assessee had not challenged the direction by way of a writ petition. In fact the assessee was carrying out the direction. The assessee was getting the accounts audited, applied for extension of time twice and finally submitted the audit rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate jurisdiction that the order passed without providing opportunity of hearing was held to be non est. The honourable Supreme Court, however, set aside the order of the Settlement Commission and remanded the matter back to it for disposing of the settlement petition after hearing the assessee. The case of Rajesh Kumar [2006] 287 ITR 91 on which heavy reliance has been placed by learned counsel is also distinguishable. In that case, the direction for special audit had been challenged in a writ petition and was accordingly quashed, which is not so in this case. Learned counsel has also referred to the judgment of the honourable High Court of Delhi in the case of VLS Finance Ltd. [2007] 289 ITR 286 in which case, the judgment of the honourable Supreme Court in the case of Rajesh Kumar [2006] 287 ITR 91 had been followed. But we find that this case was also in relation to a writ petition filed by the assessee against the direction for special audit. Even in that case, the honourable High Court clearly held that the order got wiped out only after it was quashed and not before. In that case, the Assessing Officer had given direction for special audit vide order dated June 29, 2000, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he limitation period is regarding extension of audit period. It was submitted that even if the direction for special audit was valid, the Assessing Officer had allowed only 120 days for completion of audit, which expired on July 26, 2005. The assessee did not file any application for extension of time before the expiry of 120 days period and therefore, no extension of time could be allowed. In other words, as per learned counsel, further extension of time could be allowed only if the application for extension is filed before the expiry of period already allowed. As the Assessing Officer could not allow extension and the audit report had not been received by July 26, 2005, further 60 days period for completion of assessment was not available to the Assessing Officer as the same is available only when the audit report is received. Therefore, on July 26, 2005, the Assessing Officer was left with only 3 days time for completing the assessment, i.e., by July 29, 2005, which was not done. The assessment order passed on November 14, 2005, was, therefore, barred by limitation. In support of the argument that for extending the period for special audit, the application for extension of time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Electricals [1995] 215 ITR 114 and the judgment of the honourable High Court of Delhi in case of Smt. Satwant Narang [1991] 188 ITR 656. On a careful perusal of these judgments, we find that these do not help the case of the assessee. The judgment of the Delhi High Court in case of Smt. Satwant Narang [1991] 188 ITR 656 related to the jurisdiction of appropriate authority. The honourable High Court had held in that case that the appropriate authority had no jurisdiction to go into the object and purpose of transactions relating to immovable property and to club one property with another. The said judgment is not applicable in case of the assessee. The judgment of the honourable Supreme Court in the case of Ajanta Electricals [1995] 215 ITR 114, related to extension of time for filing return of income and is relevant but this does not help the case of the assessee and in fact is in favour of the Revenue. In the said case, the honourable Supreme Court held that there was no specific provision in proviso to section 139(2), which put any limitation as to when the application could be filed for extension of time. The honourable Supreme Court held, after examination of relevant provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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