Commissioner of Income Tax vs Subboji Rao C.H.

N. Kumar, J.—These appeals are filed by the Revenue against the order of the Tribunal dismissing the appeal filed by the, Revenue by holding that the assessment is hopelessly barred by limitation and allowing the appeal filed by the assessee. The assessee, an individual, was working in Life Insurance Corporation. He resigned from service in 1986 and later he started business as property developer and formation of layouts. He was assessed up to assessment year 1996-97. On 27.2.1998, a search was conducted at his premises u/s 138 of the income tax Act, 1961 (for short Act). Thereafter a notice u/s 158BC was issued on 15.5.1998. The assessee had disclosed the income on the basis of accretion to capital. The assessee declared the undisclosed income of Rs. 24,18,360/-. However, the Assessing Authority did not accept the said calculation. He computed the undisclosed income at Rs. 70,00,246/-. Aggrieved by the said order, the assessee preferred an appeal before the Commissioner of income tax (Appeals), Bangalore. The Appellate Authority partly allowed the appeal and gave certain deductions, but the Appellate Authority negatived the contentions of the assessee that he was not given an opportunity before seeking approval of the Commissioner to order for special audit.

Aggrieved by the aforesaid order, both the assessee as well as the Revenue preferred appeals before the Tribunal. The Tribunal held that there was no complexity in accounts requiring an audit u/s 142(2A) of the Act. The same appears to have taken to avail further time to complete the assessment. Therefore, the Tribunal was of the view that invoking of provisions of Section 142(2A) of the Act as directed by the Additional Commissioner of income tax is bad in law. Therefore, the assessment is hopelessly barred by limitation. Hence, the Tribunal allowed the appeal of the assessee and dismissed the appeal of the Revenue. ITA No. 271/2009 came to be admitted on 20.4.2010 to consider the following substantial question of law:

(a) Whether the Tribunal was correct in holding that invoking of provisions of Section 142(2A) as directed by the Additional Commissioner is bad in law, in view of the fact that section 2(28C) states Joint Commissioner means a person having the designation of Addl. Commissioner also and that the Addl. Commissioner is the final Assessing Officer in the case of block assessments, who has directed for accounts to be audited u/s. 142(2A) of the Act?

After hearing the learned counsel for the appellants, we have also noticed that one more substantial question of law requires to be considered viz:

Whether the assessment order is bad for not giving an opportunity of hearing to the assessee before an order is passed u/s 142(2A) of the Act?

We have heard the learned counsel for the Revenue. The Apex Court in the case of Rajesh Kumar and Others Vs. D.Commissioner of Income Tax and Others, held that the assessee suffers civil consequences, as a result of an order u/s 142(2A) of the Act and the same is prejudicial to him and therefore the principles of natural justice must be held to be implicit in the provisions of Section 142(2A) of the Act and an opportunity of hearing has to be given before issuing a direction u/s 142(2A) of the Act. When the matter was referred to a larger Bench of the Supreme Court, the larger Bench upheld the aforesaid judgment in Rajesh Kumar''s case. However, in the meanwhile, the legislature amended Section 142(2A) of the Act by expressly providing for such an opportunity being given before an order is passed, which of course held prospective. A resultant position is expressed the provisions in the statute. The Supreme Court has ruled that the principles of natural justice has to be followed as it is not expressly excluded. Now the law has been amended expressly providing for an opportunity. The position continues to be the same. In that view of the matter, admittedly, in the instant case, the assessee was not heard before the order passed u/s 142(2A) of the Act. As rightly held by the Tribunal that such a procedure was resorted to extend the period of limitation. Therefore viewed from any angle, the assessment order passed is void as being barred by limitation and the Tribunal was justified in setting aside the order of the Appellate Authority. In the light of the said findings recorded by us, both the substantial questions of law are in favour of the assessee and against the Revenue.

The appeals are dismissed accordingly.