Neeraj Gupta vs. ITO, ITA No. 997/Del/2021
ITAT Delhi in the case of Neeraj Gupta vs. ITO (ITA No. 997/Del/2021), held that an assessment order passed after the limitation period is non-est in law where the extension of time relied solely on an invalid reference to special audit under Section 142(2A) of the Income Tax Act, 1961. The Tribunal found that no opportunity of hearing was provided to the assessee prior to the issuance of the audit direction, thus violating the principles of natural justice.
Background of the Case
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Assessee: Neeraj Gupta
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Assessment Year: 2003–04
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Assessment Method: Best judgment under Section 144
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AO’s Action: Referred the case for special audit under Section 142(2A) on 29.03.2006, just two days before the limitation period expired.
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Assessment Order Date: 08.09.2006
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Dispute: Whether the assessment order is time-barred since the special audit direction was made without affording an opportunity to the assessee.
Key Issue Before the Tribunal
Can the extension of time for completion of assessment under Section 153 be valid when the direction for special audit under Section 142(2A) was issued without giving the assessee an opportunity to be heard?
Observations of the CIT(A)
The Commissioner of Income Tax (Appeals) quashed the assessment order based on the following:
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No show-cause notice or hearing was provided to the assessee prior to invoking Section 142(2A).
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The direction for the special audit was issued on 29.03.2006, dispatched on 30.03.2006, just before the limitation expired.
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The AO did not examine books of accounts or establish complexity of accounts to justify a special audit.
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The audit direction was seemingly issued only to gain more time, violating Section 153.
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No compliance with procedural safeguards or obtaining proper prior approval from the CIT with due hearing.
The CIT(A) relied on several judgments including:
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Rajesh Kumar vs. DCIT [(2006) 157 Taxman 168 (SC)] — which established that a pre-decisional hearing is mandatory.
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PCIT vs. Vilson Particle Board Industries Ltd [(2020) 116 taxmann.com 12 (Bom HC)] — procedural lapse voids the audit direction.
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VLS Finance Ltd. vs. CIT [(2005) 277 ITR 307 (Del)] — opportunity of being heard is a sine qua non for invoking 142(2A).
ITAT’s Findings
The Tribunal upheld the CIT(A)’s order and rejected the Revenue’s appeal, making the following observations:
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Section 142(2A) is a power with civil consequences — it imposes obligations on the assessee.
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No opportunity of hearing was given to the assessee before the special audit was ordered.
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Therefore, the extension of time under Section 153 was not valid.
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As a result, the assessment order dated 08.09.2006 was held to be time-barred and thus null and void in law.
Legal Takeaways
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Mandatory hearing under Section 142(2A): The AO must give the assessee a chance to be heard before ordering a special audit.
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Violation of natural justice: Denial of hearing invalidates the audit order and the extended time frame.
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Assessment becomes time-barred: Without valid extension, assessment made after the limitation period under Section 153 is void ab initio.
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Procedural compliance is critical: Even technical lapses in statutory procedures can lead to annulment of assessment orders.
📝 Conclusion
This ruling reiterates that Section 142(2A) cannot be used as a tool to extend deadlines without following due process. The ITAT rightly emphasized that the principles of natural justice must be adhered to and that civil consequences arising from audit directions cannot be imposed arbitrarily. For tax practitioners and assessees, this case serves as a reminder that procedural lapses can render entire proceedings invalid.