SAHARA INDIA (FIRM), LUCKNOWversusCOMMISSIONER OF INCOME TAX, CENTRAL-I & ANR.

                         [2008) 6 S.C.R. 427

>
                SAHARA INDIA (FIRM), LUCKNOW                        A
                                  v
     COMMISSIONER OF INCOME TAX, CENTRAL-I & ANR.
              (Civil Appeal No. 2783 of 2008)
                          APRIL 11, 2008
                                                                    B
      [8.N. AGRAWAL, P.P. NAOLEKAR & D.K. JAIN, JJ.]

        Income tax Act, 1961 - s. 142(2A) - Special audit of
    accounts - Pre-decisional hearing - Requirement of - Held:
    Even in absence of express provision for affording or barring C
    an opportunity of pre-decisional hearing to assessee, the
    requirement of observance of principles of natural justice to
    be read into s. 142(2A) since the order entails civil
    consequences - It would apply prospectively - However, it 0
    would be open to assessee to question the correctness of
    material gathered on basis of audit report.

          Principles of natural justice - Concept and applicability
    of - Held: Rules of 'natural justice' implies duty to act fairly E
    - It is to secure justice or to prevent miscarriage of justice
    - Unless statutory provision either specifically or by
    necessary implication excludes its applicability,
    requirement of giving reasonable opportunity of hearing F
    before an order is made, is generally read into the
    provisions, particularly when the order has adverse civil
    consequences - Power conferred on a statutory body or
    tribunal may be administrative or quasi-judicial - However,
    there is no general rule of universal application as to its G
    ~pplicability - With regard to its application express
    language, basic scheme of the provision conferring the
    power, nature of power conferred, its purpose and final effect
                                 427                                H
    428      SUPREME COURT REPORTS                 [2008] 6 S.C.R.


A of the exercise of that power are to be considered.

       The two Judge Bench which heard the matter earlier,
  doubted the correctness of Rajesh Kumar's case on the
  ground that it may not be necessary to afford opportunity
B of hearing to assessee before ordering Special audit in
                                                                     +
  terms of S.142(2A) and referred the matter to larger Bench.
  Hence, the present appeals are before the three-judge
    Bench.
c         Partly allowing the appeals, the Court

       HELD: 1. The exercise of power under Section 142
  (2A) of the ·Income Tax Act, 1961 leads to serious civil
  consequences and, therefore, even in the absence of
D
  express provision for affording an opportunity of pre-
  decisional hearing to an assessee and in the absence
  of any express provision in Section 142 (2A) barring
  the giving of reasonable opportunity to an assessee,
E the requirement of observance of principles of natural
  justice is to be read into the said provision. (Para 24)
  [453-E-F]

          Rajesh Kumar and Ors. Vs. Deputy Commissioner of
F
    Income- Tax and Ors 2006 (287) ITR 91 (SC) - explained and
    reiterated.

       2.1 A bare perusal of the provisions of sub-section
  (2A) of s. 142 of the Income Tax Act, 1961 Act would show
G
  that the opinion of the Assessing Officer that it is
  necessary to get the accounts of assessee audited by an
  Accountant has to be formed only by having regard to: (i)
  the nature and complexity of the accounts of the
H
SAHARA INDIA (FIRM), LUCKNOW v. COMMISSIONER           429
      OF INCOME TAX, CENTRAL-I & ANR.

assessee; and (ii) the interests of the Revenue. The word A
'and' signifies conjunction and not disjunction. In other
words, the twin conditions of 'nature and complexity of
the accounts' and 'the interests of the Revenue'; are
the prerequisites for exercise of power under section 8
142 (2A) of the Act. Undoubtedly, the object behind
enacting the said provision is to assist the Assessing
Officer in framing a correct and proper assessment
based on the accounts maintained by the assessee and
when he finds the accounts of the assessee to be C
complex, in order to protect the interests of the
Revenue, recourse to the said provision can be had.
[Para 6) [440-F, G; 441-A, B]
                                                             D
     2.2 The word 'complexity' used in Section 142 (2A) is
not defined or explained in the Act. Complexity it is a
nebulous word. Its dictionary meaning is: "The state or
quality of being intricate or complex or that is difficult to
understand. However, all that is difficult to understand E
should not be regarded as complex. What is complex to
one may be simple to another. It depends upon one's level
of understanding or comprehension. Sometimes, what
appears to be complex on the face of it, may not be really F
so if one tries to understand it carefully." Thus, before
dubbing the accounts to be complex or difficult to
understand, there has to be a genuine and honest attempt
on the part of the Assessing Officer to understand
                                                              G
accounts maintained by the assessee; appreciate the
entries made therein and in the event of any doubt, seek
explanation from the assessee. But opinion required to
be formed by the Assessing Officer for exercise of power
under the said provision must be based on objective H
    430      SUPREME COURT REPORTS                [2008) 6 S.C.R.


A criteria and not on the basis of subjective satisfaction.
  There is no gainsaying that recourse to the said provision
  cannot be had by the Assessing Officer merely to shift
  his responsibility of scrutinizing the accounts of an
B assessee and pass on the buck to the special auditor.
  Similarly, the requirement of previous approval of the Chief
  Commissioner or the Commissioner in terms of the said
  provision being an inbuilt protection against any arbitrary
  or unjust exercise of power by the Assessing Officer, casts
c a very heavy duty on the said high ranking authority to
  see to it that the requirement of the previous approval,
  envisaged in the Section is not turned into an empty ritual.
  Needless to emphasise that before granting approval, the
D Chief Commissioner or the Commissioner, as the case
  may be; must have before him the material on the basis             •
  whereof an opinion in this behalf has been formed by the
  Assessing Officer. The approval must reflect the
  application of mind to the facts of the case. (Para 6)
E
  [441-8-G; 442-A]

         Swadeshi Cotton Mills Co. Ltd. vs. C./. T 1988 (171) ITR
    634 (All) - approved.
F      3.1 Rules of 'natural justice' are not embodied rules.
  The phrase 'natural justice' is also not capable of a precise
  definition. The underlying principle of natural justice,
  evolved under the common law, is to check arbitrary
G exercise of power by the State or its functionaries.
  Therefore, the principle implies a duty to act fairly, i.e. fair
  play in action. [Para 11] [444-C, D]

        3.2 The aim of rules of natural justice is to secure
H justice or to put it negatively to prevent miscarriage of
SAHARA INDIA (FIRM), LUCKNOW v. COMMISSIONER            431
      OF INCOME TAX, CENTRAL-I & ANR.

justice. These rules can operate only in areas not covered A
by any law validly made. They do not supplant the law
but supplement it. (Para 11) [444-E]

      A.K. Kraipak and Ors. Vs. Union of India and Ors. 1969
(2) SCC 262 Income Tax Officer and Ors. Vs. Mis Madnani        B
Engineering Works Ltd., Calcutta 1979 (2) SCC 455 - relied
on.

     3.3 It is trite that unless a statutory provision either
specifically or by necessary implication excludes the
                                                               c
application of principles of natural justice, because in that
event the Court would not ignore the legislative
mandate, the requirement of giving reasonable
opportunity of being heard before an order is made, is D
generally read into the provisions of a statute,
particularly when the order has adverse civil
consequences for the party affected. The principle will
hold good irrespective of whether the power conferred E
on a statutory body or tribunal is administrative or
quasi-judicial. However, no general rule of universal
application can be laid down as to the applicability of
the principle audi alteram partem, in addition to the
language of the provision. Undoubtedly, there can be F
exceptions to the said doctrine. The question whether the
principle has to be applied or not is to be considered
bearing in mind the express language and the basic
scheme of the provision conferring the power; the nature G
of the power conferred and the purpose for which the
power is conferred and the final effect of the exercis~ of
that power. It is only upon a consideration of all these
matters that the question of application of the said H
    432      SUPREME COURT REPORTS                [2008] 6 S.C.R.


A principle can be properly determined. (Paras 15 and 16)
  [447-C-G]

       Swadeshi Cotton Mills Vs. Union of India 1981 (1) SCC
  664; State ofOrissa Vs. Binapani Dei and Ors. 1967 (2) S.C.R.
B 625; Canara Bank vs. VK. Awasthy 2005 (6) SCC 321; Union

  oflndia Vs. Col. J. N. Sinha and Ors. 1970 (2) SCC 458 - relied
  on.

          Mohinder Singh Gill and Anr. Vs. The Chief Election
c Commissioner, New Delhi and Ors. 1978 (1) SCC 405; Olga
    Tellis and Ors. vs. Bombay Municipal Corporation and Ors.
    1985 (3) SCC 545; C.B. Gautam vs. Union of India and Ors.
    1993 (1) sec 78 - referred to.
D
       4.1 With regard to the question whether the
  requirement of affording an opportunity of hearing is to
  be read into section 142(2A) of the Act, in Rajesh Kumar's
  case it has been held that prejudice to the assessee is
E apparent on the face of the said statutory provision. It was
  observed that on account of the special audit, the
  assessee has to undergo the process of further
  accounting despite the fact that his accounts have been
F audited by a qualified auditor in terms of Section 44AB of
  the Act. An auditor is a professional person. He has to
  function independently. He is not an employee of the
  assessee. In case of mis-conduct, he may become liable
  to be proceeded against by a statutory authority under
G
  the Chartered Accountants Act, 1949. Besides, the
  assessee has to pay a hefty amount as fee of the special
                                                                    ~
  auditor. Moreover, during the audit of the accounts again
  by the special auditor, he has to answer a large number
H
SAHARA INDIA (FIRM), LUCKNOW v. COMMISSIONER             433
      OF INCOME TAX, CENTRAL-I & ANR.

of questions. It was held that by virtue of an order under      A
Section 142 (2A) of the Act, the assessee suffers civil
consequences and the order passed would be prejudicial
to him and, therefore, principles of natural justice must
be held to be implicit. It was further observed that if the     8
assessee was put to notice, he could show that the
nature of accounts is not such which would require
appointment of special auditors. He could further show
that what the Assessing Officer considers to be complex
is, in fact, not so. It was also open to him to show that the   C
same would not be in the interest of the revenue. Thus,
the decision of this Court in Rajesh Kumar's case that an
order under Section 142 (2A) does entail civil
consequences is concurred with. (Paras 20 and 21)               D
[450-D-G; 451-C-E]

     State ofOrissa Vs. Binapani Dei and Ors. 1967 (2) S.C.R.
625 - referred to.
                                                            E
     4.2 The proviso to section 142 (20) inserted with
effect from 1•1 June, 2007, provides that the expenses of
the auditor appointed in terms of the said provision shall,
henceforth, be paid by the Central Government. It is true
that the payment of auditor's fee is a major civil F
consequence, but it cannot be said to be the sole civil or
evil consequence flowing from directions under Section
142 (2A). Special audit has an altogether different
connotation and implications from the audit under G
Section 44AB. Unlike the compulsory audit under
Section 44AB, it is not limited to mere production of the
books and vouchers before an auditor and verification
thereof. It would involve submission of explanation and H


                                                        .,.
    434      SUPREME COURT REPORTS             [2008] 6 S.C.R.


A clarification which may be required by the special
  auditor on various issues with relevant data, document
  etc., which, in the normal course, an assessee is required
  to explain before the Assessing Officer. Therefore, special
B audit is more or less in the nature of an investigation and
  in some cases may even turn out to be stigmatic.
  Therefore, even after the obligation to pay auditor's fees
  and incidental expenses has been taken over by the
  Central Government, civil consequences would still
C ensue on the passing of an order for special audit.
  (Para 21) [451-D-H; 452-A]

         4.3 In Rajesh Kumar it has been held that in view of
    Section 136 of the Act, proceedings before an Assessing
0
    Officer are deemed to be judicial proceedings. Though
    having regard to the language of the provision, there are
    some reservations on the said view expressed in Rajesh
    Kumar's case, but having held that when civil
E   consequences ensue, no distinction between quasi
    judicial and administrative order survives, it is
    unnecessary to dilate on the scope of Section 136 of the
    Act. It is the civil consequence which obliterates the
F   distinction between quasi judicial and administrative
    function. Moreover, with the growth of the administrative
    law, the old distinction between a judicial act and an
    administrative act has withered away. Therefore, even a
    purely administrative order which entails civil
G   consequences, must be consistent with the rules of
    natural justice. (Para 22) [452-C, D, E, F]

      Mrs. Maneka Gandhi vs. Union of India and Anr. AIR 1978    ,
H SC 597; S.L. Kapoor vs. Jagmohan and Ors. 1980 (4) SCC
          SAHARA !NOIA (FIRM), LUCKNOW v. COMMISSIONER         435
                OF INCOME TAX, CENTRAL-I & ANR.

  .>     379 - relied on.                                            A

               4.4 The expression 'civil consequences'
         encompasses infraction of not merely property or
         personal rights but of civil liberties, material deprivations
         and non pecuniary damages. Anything which affects a B
         citizen in his civil life comes under its wide umbrella.
         Accordingly, an order under Section 142 (2A) does entail
         civil consequences, the rule audi alteram partem is required
         to be observed. (Para 22) [452-G; 453-A, 8]                 c
               4.5 It cannot be said that since a post-decisional
          hearing in terms of sub-section (3) of Section 142 is
          contemplated, the requirement of natural justice is fully
          met. Apart from the fact that ordinarily a post-decisional D
         .hearing is no substitute for pre-decisional hearing, even
..,       from the language of the said provision it is plain that the
          opportunity of being heard is only in respect of the
          material gathered on the basis of the audit report E
          submitted under sub-section (2A) and not on the validity
          of the original order directing the special audit. It is well
          settled that the principle audi alteram partem can be
          excluded only when a statute contemplates a post
          decisional hearing amounting to a full review of the F
          original order on merit, which, is not the case here.
          (Para 23) [453-8, C, D, E]

              4.6 There is no denying the fact that the law on the
         subject was in a flux in the sense that till the judgment G
         in Rajesh Kumar was rendered, there was divergence
         of opinion amongst various High Courts. Additionally,
       ~ even after the said judgment, another two-Judge Bench
         of this Court had expressed reservation about its H
    436        SUPREME COURT REPORTS                 [2008) 6 S.C.R.


A correctness. Having regard to all these peculiar
  circumstances and the fact that on 141h December, 2006,
  this Court had declined to stay the assessment
  proceedings, it is opined that this Court should be loathe
8 to quash the impugned orders. Hence, the law on the
  subject, as clarified will apply prospectively and it will not
  be open to the appellants to urge before the Appellate
  Authority that the extended period of limitation under
  Explanation 1 (iii) to Section 153 (3) of the Act was not
C available to the Assessing Officer because of an invalid
  order under Section 142 (2A) of the Act. However, it will
  be open to the appellants to question before the appellate
  authority, if so advised, the correctness of the material
D gathered on the basis of the audit report submitted
  under sub-section 2A of Section 142 of the Act. (Para 29)
  [454-G-H; 455-A, 8, C, D]

        Rajesh Kumar and Ors. Vs. Deputy Commissioner of
E Income-Tax and Ors 2006 (287) ITR 91 (SC) - explained and
  reiterated.

          CIVILAPPELLATE JURISDICTION: Civil Appeal No. 2783
    of 2008.
F
          From the Judgment and Order dated 17 .10.2006 of the
    High Court of Delhi at New Delhi in W.P. (Civil) No. 9545/
    2006.

G                                WITH

          Civil Appeal No. 2784 of 2008.

          P.P. Malhotra, A.S.G., Soli J. Sorabjee, Mukul Rohatgi,
H   Dr. R.G. Padia, Aarohi Bhalla, Satyen Sethi, Pritesh Kapur, Sunil
          SAHARA INDIA (FIRM), LUCKNOW v. COMMISSIONER               437
           OF INCOME TAX, CENTRAL-I & ANR. [D.K. JAIN, J.]

          Kumar Singh, Sujata Kurdukar, T. Srinivasan Murthy, Rahul          A
          Kaushik, Deb Kumar, B.V. Balaram Das for the appearing
          parties.
               The Judgment of the Court was delivered by
               D.K. JAIN, J. 1. Leave granted.                               B
     if
                2. These matters have been placed before the three-Judge
          Bench in view of a common order dated 14th December, 2006,
          passed by a two-Judge Bench of this Court. The Order reads
          as follows:
                                                                             c
               "When the matter was taken up, learned counsel for the
               petitioner placed reliance on a decision of this Court in
               Rajesh Kr. & Ors. Vs. Deputy Commissioner of
               Income Tax & Ors. According to learned counsel forthe
               petitioner, before any direction can be issued under          D
               Section 142 (2A) of the Income Tax Act, 1961 (in short 'the
'i
               Act') for special audit of the accounts of the assessee,
               there has to be a pre-decisional hearing and an
               opportunity has to be granted to the assessee for the
               purpose. A close reading of the decision shows that the       E
               observations in this regard appear to have been made in
               the context of the assessments in terms of Section 158
               BC (Block Assessment) of the Act. Such assessments
               are relatable to a case when raid has been conducted at
               the premises of an assessee. Had that been so, limited        F
               to the facts involved in that case, we would have negatived
               the contentions of learned counsel for the petitioner. But,
               certain observations of general nature have been made.
               The effect of these observations appear to be that in every
               case where the Assessing Officer issues a direction in        G
               terms of Section 142 (2A) of the Act, the assessee has to
               be heard before such order is passed. This does not
               appear to us to be the correct position of law. Therefore,
               we refer the matter to a larger Bench. The records be
               placed before Hon'ble the Chief Justice of India for          H
    438          SUPREME COURT REPORTS                  [2008] 6 S.C.R.


A           constituting an appropriate Bench."
         3. Although no specific question has been formulated for
  determination by the larger Bench but from the afore-extracted
  order it is discernible that the Bench had doubted the correctness
  of the decision of this Court in Rajesh Kumar & Ors. Vs.
B Deputy Commissioner of Income-Tax & Ors. 1 , to the extent
  that it tends to lay down as an absolute proposition of law that in      ...
  every case where the Assessing Officer issues a direction under
  Section 142 (2A) of the Income Tax Act, 1961 (for short the Act),
  the assessee has to be heard before such an order is passed.
c In other words, the Bench of two learned Judges have felt that it
  may 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. This is the short controversy before us.
            4. As a common question of law is involved in both the
D cases and even the background facts are identical, these are
  being disposed of by this judgment. However, before adverting
  to the factual matrix, we propose to address ourselves on the
  afore-noted question of law on which the latter Bench has
  expressed its reseNations. At the outset, we may also note that
E in Rajesh Kumar (supra), while obseNing that the principles
  of natural justice must be held to be implicit in Section 142 (2A)
  of the Act, learned Judges finally held as under:
            "The hearing given, however, need not be elaborate. The
            notice issued may only contain briefly the issues which the
F           Assessing Officer thinks to be necessary. The reasons
            assigned therefor need not be detailed ones. But, that
            would not mean that the principles of natural justice are
            not required to be complied with. Only because certain
            consequences would ensue if the principles of natural
G           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, Parliament
    1
H       [2006] .287 ITR 91 (SC)
SAHARA INDIA (FIRM), LUCKNOW v. COMMISSIONER                    439
 OF INCOME TAX, CENTRAL-I & ANR. [D.K. JAIN, J.]

    could have said so expressly."                                      A
     5. Sub-sections (2A), (28), (2C), (20) and 3 of Section
142 of the Act run as follows:
     "(2A) - If, at any stage of the proceedings before him, the
     Assessing Officer having regard to the nature and                  B
     complexity of the accounts of the assessee and the
     interests of the revenue, is of the opinion that it is necessary
     so to do, he may, with the previous approval of the Chief
     Commissioner or Commissioner, direct the assessee to
     get the accounts audited by an accountant, as defined in           c
     the Explanation below sub-section (2) of Section 288,
     nominated by the Chief Commissioneror Commissioner
     in this behalf and to furnish a report of such audit in the
     prescribed form duly signed and verified by such
     accountant and setting forth such particulars as may be
                                                                        0
     prescribed and such other particulars as the Assessing
     Officer may require.
     *[Provided that the Assessing Officer shall not direct the
     assessee to get the accounts so audited unless the
     assessee has been given a reasonable opportunity of                E
     being heard.]
     (28) - The provisions of sub-section (2A) shall have effect
     notwithstanding that the accounts of the assessee have
     been audited under any other law for the time being in
     force or otherwise.                                                F
     (2C) - Every report under sub-section (2A) shall be
     furnished by the assessee to the Assessing Officer within
     such period as may be specified by the Assessing Officer.
     [Provided that the Assessing Officer may, on an G
     application made in this behalf by the assessee and for
     any good and sufficient reason, extend the said period by
     such further period or periods as he thinks fit; so, however,
     that the aggregate of the period originally fixed and the
     period or periods so extended shall not, in any case, H
    440       SUPREME COURT REPORTS                    (2008] 6 S.C.R.


A         exceed one hundred and eighty days from the date on
          which the direction under sub-section (2A) is received by
          the assessee.]
          (20) - The expenses of, and incidental to, any audit under
          sub-section (2A} (including the remuneration of the
B         accountant) shall be determined by the Chief
          Commissioner or Commissioner (which determination
          shall be final) and paid by the assessee and in default of
          such payment, shall be recoverable from the assessee in
          the manner provided in Chapter XVll-D for the recovery of
c         arrears of tax.
           *[Provided that where any direction for audit under sub-
          section (2A) is issued by the Assessing Officer on or after
          the 151 day of June, 2007, the expenses of, and incidental
          to; such audit (including the remuneration of the Accountant)
D
          shall be determined by the Chief Commissioner or
          Commissioner in accordance with such guidelines as may
          be prescribed and the expenses so determined shall be
          paid by the Central Government.]

E         (3) The assessee shall, except where the assessment is
          made under Section 144, be given an opportunity of being
          heard in respect of any material gathered on the basis of
          any inquiry under sub-section (2) or any audit under sub-·
          section (2A) and proposed to be utilized for the purposes
F         of the assessment.
          [* Inserted by the Finance Act, 2007 w.e.f. 1-6-2007]."
         6. A bare perusal of the provisions of sub-section (2A) of
  the Act would show that the opinion of the Assessing Officer
G that it is necessary to get the accounts of assessee audited by
  an Accountant has to be formed only by having regard to: (i) the
  nature and complexity of the accounts of the assessee; and (ii)
  the interests of the revenue. The word "and" signifies conjunction
  and not disjunction. In other words, the twin conditions of "nature
H and complexity of the accounts" and "the interests of the revenue"
            SAHARA INDIA (FIRM), LUCKNOW v. COMMISSIONER                     441
             OF INCOME TAX, CENTRAL-I & ANR. [D.K. JAIN, J.]
      '
            are the prerequisites for exercise of power under Section 142            A
            (2A) of the Act. Undoubtedly, the object behind enacting the said
            provision is to assist the Assessing Officer in framing a correct
            and proper assessment based on the accounts maintained by
            the assessee and when he finds the accounts of the assessee
            to be complex, in order to protect the interests of the revenue,         B
 )
            recourse to the said provision can be had. The word "complexity"
            used in Section 142 (2A) is not defined or explained in the Act.
            As observed in Swadeshi Cotton Mills Co. Ltd. Vs. C.l.T. 2 , it
            is a nebulous word. Its dictionary meaning is: "The state or
            quality of being intricate or complex or that is difficult to            c
            understand. However, all that is difficult to understand should
            not be regarded as complex. What is complex to one may be
            simple to another. It depends upon one's level of understanding
             or comprehension. Sometimes, what appears to be complex
             on the face of it, may not be really so if one tries to understand it
                                                                                     D
             carefully." Thus, before dubbing the accounts to be complex or
             difficult to understand, there has to be a genuine and honest
             attempt on the part of the Assessing Officer to understand
             accounts maintained by the assessee; appreciate the entries
             made therein and in the event of any doubt, seek explanation
             from the assessee. But opinion required to be formed by the             E
             Assessing Officer for exercise of power under the said provision
             must be based on objective criteria and not on the basis of
             subjective satisfaction. There is no gainsaying that recourse to
             the said provision cannot be had by the Assessing Officer merely
.,.          to shift his responsibility of scrutinizing the accounts of an          F
             assessee and pass on the buck to the special auditor. Similarly,
             the requirement of previous approval of the Chief Commissioner
             or the Commissioner in terms of the said provision being an
             inbuilt protection against any arbitrary or unjust exercise of power
             by the Assessing Officer, casts a very heavy duty on the said           G
             high ranking authority to see to it that the requirement of the
      ..'    previous approval, envisaged in the Section is not turned into
             an empty ritual. Needless to emphasise that before granting

            2
                (1988)171 ITR634 (All)                                               H
    442          SUPREME COURT REPORTS                (2008] 6 S.C.R.
                                                                         ..
A approval, the Chief Commissioner or the Commissioner, as the
  case may be, must have before him the material on the basis
  whereof an opinion in this behalf has been formed by the
  Assessing Officer. The approval must reflect the application of
  mind to the facts of the case.
B         7. However, the question for adjudication is whether in view
    of the fact that the said provision does not postulate the
    requirement of a hearing before an order for special audit is
    passed, a pre-decisional hearing is required to be given to the
    assessee or not?
c
           8. Mr. Soli J. Sorabjee, learned senior counsel appearing
    on behalf of the appellants vehemently submitted that the
    decision of this Court in Rajesh Kumar (supra) lays down the
    correct proposition of law and, therefore, does not require
    reconsideration. In support of the proposition that previous
D
    pronouncements should not be lightly dissented from, learned
    counsel placed reliance on the decisions of this Court in
    Magan/al Chhaganla/ (P) Ltd. Vs. Municipal Corporation
    of Greater Bombay & Ors. 3 ; Kattite Valappil Pathumma &
    Ors. Vs. Ta/uk Land Board & Ors. 4 ; Mishri Lal Vs. Dhirendra
E   Nath & Ors. 5 • It was contended that even an administrative
    order, assuming one under Section 142 (2A) of the Act to be
    so, if it operates to the prejudice of an assessee and entails
    civil consequences, the elementary principles of natural justice
    and fair play have to be applied and consequently, an opportunity
F   of hearing has to be afforded to the assessee before an order
    under the said provision is passed. Learned counsel, however,
    conceded that the extent and ambit of the opportunity of hearing
    may not require a complete comprehensive hearing or inquiry
    but the bare modicum of natural justice has to be observed. It
G   was contended that an order requiring special audit does affect
    a person because of the pecuniary prejudice as also on account
                                                                         ~

             sec 402 at 427
    3 (1974) 2

  4 (1997) 4 sec 114 at 120


H s (1999) 4 sec 11 a120
    SAHARA INDIA (FIRM), LUCKNOW v. COMMISSIONER                443
     OF INCOME TAX, CENTRAL-I & ANR. [D.K. JAIN, J]

    of severe inconvenience caused in his business by virtue of the    A
    intrusion of the special auditor. Besides, even the vested right
    of limitation is affected by the appointment of special auditor
    inasmuch as the period of limitation thereby stands extended.
    In this behalf, reference is made to the decisions of this Court
    in Ram/a/ Motila/ & Chhotelal Vs. Rewa Coalfields Ltd. 6           B
)
    and M.K. Prasad Vs. P. Arumugam 7 . In nutshell, the stand of
    the learned counsel was that an order under Section 142 (2A)
    of the Act entails serious civil consequence and, therefore, the
    principles of natural justice have to be complied with before an
    order under the said provision is made.                            c
          9. Mr. P.P. Malhotra, learned Additional Solicitor General
    of India appearing on behalf of the respondent/revenue, on the
    other hand, has contended that the power under the said
    provision, which is found in Chapter XIV of the Act, prescribing
    procedure for assessment, relates to the inquiry before the D
    assessment and the special audit is to facilitate the assessment
    to protect the interests of the revenue, which is of paramount
    consideration and cannot be defeated or delayed by affording
    a hearing to the assessee to decide the question whether there
    should be a special audit or not. The stand of the learned senior E
    counsel is that since order of special audit is only a step towards
    the assessment and is an inquiry before assessment, no liability
    in terms of the said order is created and, therefore, such an
    order does not lead to any civil consequences. Learned counsel
)
    submitted that the assumption of prejudice and civil F
    consequence to the assessee on account of an order for special
    audit, on the basis whereof the case of Rajesh Kumar (supra)
    has been decided, is erroneous and, therefore, the said decision
    requires reconsideration. Lastly, it was submitted that any
    interpretation which may now be given by this Court should be
                                                                        G
    prospective in nature as the interests of the revenue will be
    seriously prejudiced by a retrospective interpretation. It is

    6
        1962 (2) S.C.R. 762
    7
        (2001) 6 sec 176                                               H
    444       SUPREME COURT REPORTS                  [2008] 6 S.C.R.


A   pleaded that while interpreting the said provision, the decided
    cases should not be disturbed. In support of the plea, reliance
    has been placed on the decisions of this Court in Steel
  Authority of India Ltd. & Ors. Vs. National Union Waterfront
  Workers & Ors. 8 , P. II. George & Ors. Vs. State of Kera/a &
B Ors. 9 , M.A. Murthy Vs. State of Karnataka & Ors. 10 , Ram
  Lal, Moti Lal & Chhotelal Vs. Rewa Coalfields Ltd. 11 .
       10. Before dealing with the rival submissions to determine
  whether the principles of natural justice demand that an
  opportunity of hearing should be afforded to an assessee before
C an order under Section 142 (2A) of the Act is made, we may
  appreciate the concept of "natural justice" and the principles
  governing its application.
          11. Rules of "natural justice" are not embodied rules. The
  phrase "natural justice" is also not capable of a precise
0
  definition. The underlying principle of natural justice, evolved
  under the common law, is to check arbitrary exercise of power
  by the State or its functionaries. Therefore, the principle implies
  a duty to act fairly, i.e. fair play in action. As observed by this
  Court in A.K. Kraipak & Ors. Vs. Union of India & Ors. 12 , the
E aim of rules of natural justice is to secure justice or to put it
  negatively to prevent miscarriage of justice. These rules can
  operate only in areas not covered by any law validly made. They
  do not supplant the law but supplement it. (Also see: Income
  Tax Officer & Ors. Vs. Mis Madnani Engineering Works Ltd.,
F Ca/cutta 13 ).
          12. In Swadeshi Cotton Mills Vs. Union of/ndia 14 , R.S.
    Sarkaria, J., speaking for the majority in a three-Judge Bench,

    a (2001) 7 sec 1
G   9 (2007) 3 sec 557
    10 (2003) 7 sec 517
    11 (1962) 2 S.C.R. 762
    12 (1969) 2 sec 262

    13 (1979) 2 sec 455
H   ' 4 (1981)1sec664
    SAHARA INDIA (FIRM), LUCKNOW v. COMMISSIONER                445
     OF INCOME TAX, CENTRAL-I & ANR. [D.K. JAIN. J)

    lucidly explained the meaning and scope of the concept of         A
    "natural justice". Referring to several decisions, his Lordship
    observed thus (SCC p.666; Headnote):
         "Rules of natural justice are not embodied rules. Being
         means to an end and not an end in themselves, it is not
         possible to make an exhaustive catalogue of such rules. B
         But there are two fundamental maxims of natural justice
         viz. (i) audi alteram partem and (ii) nemo judex in re sua.
         The audi alteram partem rule has many facets, two of
         them being (a) notice of the case to be met; and (b)
         opportunity to explain. This rule cannot be sacrificed at C
         the altar of administrative convenience or celerity. The
'        general principle - as distinguished from an absolute rule
         of uniform application - seems to be that where a statute
         does not, in terms, exclude this rule of prior hearing but
         contemplates a post-decisional hearing amounting to a D
         full review of the original order on merits, then such a
         statute would be construed as excluding the audi alteram
         partem rule at the pre-decisional stage. Conversely if the
         statute conferring the power is silent with regard to the
         giving of a pre-decisional hearing to the person affected E
         and the administrative decision taken by the authority
         involves civil consequences of a grave nature, and no full
         review or appeal on merits against that decision is
         provided, courts will be extremely reluctant to construe
         such a statute as excluding the duty of affording even a F
         minimal hearing, shorn of all its formal trappings and
         dilatory features at the pre-decisional stage, unless, viewed
         pragmatically, it would paralyse the administrative process
         or frustrate the need for utmost promptitude. In short, this
         rule of fair play must not be jettisoned save in very G
         exceptional circumstances where compulsive necessity
         so demands. The court must make every effort to salvage
         this cardinal rule to the maximum extent possible, with
         situational modifications. But, the core of it must, however,
         remain, namely, that the person affected must have
                                                                       H
    446        SUPRE:,\l!E COURT REPORTS               [2008] 6 S.C.R.


h         reasonable opportunity of being heard and the hearing
          must be a genuine hearing and not an empty public
          relations exercise."
        13. Initially, it was the general view that the rules of natural
  justice would apply only to judicial or quasi-judicial proceedings
8 and not to an administrative action. However, in State ofOrissa
   Vs. Binapani Dei & Ors. 15 , the distinction between quasi-
  judicial and administrative decisions was perceptively mitigated
  and it was held that even an administrative order or decision in
  matters involving civil consequences, has to be made
C consistently with the rules of natural justice. Since then the
  concept of natural justice has made great strides and is
  invariably read into administrative actions involving civil
  consequences, unless the statute, conferring power, excludes
  its application by express language.
D
        14. Recently, in Canara Bank Vs. V.K. Awasthy 16 , the
  concept, scope, history of development and significance of
  principles of natural justice have been discussed in extenso,
  with reference to earlier cases on the subject. Inter alia,
  observing that the principles of natural justice are those rules
E which have been laid down by the Courts as being the minimum
  protection of the rights of the individual against the arbitrary
  procedure that may be adopted by a judicial, quasi-judicial and
  administrative authority while making an order affecting those
  rights, the Court said :
F
                                                                           t
        "Concept of natural justice has undergone a great deal of
        change in recent years. Rules of natural justice are not
        rules embodied always expressly in a statute or in rules
        framed thereunder. They may be implied from the nature
        of the duty to be performed under a statute. What particular
G
        rule of natural justice should be implied and what its context
        should be in a given case must depend to a great extent

    • 5 (1967) 2 S.C.R. 625

H ·s (2005) 6 sec 321
    SAHARA !NOIA (FIRM), LUCKNOW v. COMMISSIONER                  447
     OF INCOME TAX, CENTRAL-! & ANR [D.K JAIN, J.j

           on the fact and circumstances of that case. the frame- A
           work of the statute under which the enquiry is held. The old
           distinction between a judicial act and an administrative
           ad has withered away. Even an administrative order which
           involves civil consequences must be consistent with the
           rules of natural justice. Expression 'civil consequences' B
           encompasses infraction of not merely property or personal
           rights but of civil 'liberties, material deprivations, and non-
           pecuniary damages. In its wide umbrella comes everything
           that affects a citizen in his civil life."

          15. Thus, it is trite that unless a statutory provision either C
    specifically or by necessary implication excludes the application
    of principles of natural justice, because in that event the Court
    would not .ignore the legislative mandate, the requirement of
    giving reasonable opportunity of being heard before an order
    is made, is generally read into the provisions of a statute, D
    particularly when the order has adverse civil consequences for
    the party affected. The principle will hold good irrespective of
    whether the power conferred on a statutory body or tribunal is
    administrative or quasi-judicial.
          16. We may, however, hasten to add that no general rule       E
    of universal application can be laid down as to the applicability
    of the principle audi alteram partem, in addition to the language
    of the provision. Undoubtedly, there can be exceptions to the
    said doctrine. Therefore, we refrain from giving an exhaustive
    catalogue of the cases where the said principle should be           F
'   applied. The question whether the principle has to be applied
    or not is to be considered bearing in mind the express language
    and the basic scheme of the provision conferring the power;
    the nature of the power conferred and the purpose for which the
    power is conferred and the final effect of the exercise of that     G
    power. It is only upon a consideration of all these matters that
    the question of application of the said principle can be properly
    determined. (See: Union of India Vs. Col. J.N. Sinha & Ors. 17)

    11
         (1970)2 sec 458                                                H
    448         SUPREME COURT REPORTS                   [2008] 6 S.C.R.


A       17. In Mohinder Singh Gill &Anr. Vs. The Chief Election
    Commissioner, New Delhi & Ors. 18 , explaining as to what is
    meant by expression 'civil consequence', Krishna Iyer, J.,
    speaking for the majority said:
            "'Civil Consequences' undoubtedly cover infraction of not
B           merely property or personal rights but of civil liberties,
            material deprivations and non-pecuniary damages. In its
            comprehensive connotation, everything that affects a
            citizen in his civil life inflicts a civil consequence."
                                                (emphasis supplied)
c
       18. The question in regard to the requirement of opportunity
  of being heard in a particular case, even in the absence of
  provision for such hearing, has been considered by this Court
  on a number of occasions. In Olga Tellis & Ors. Vs. Bombay
D Municipal Corporation & Ors. 19 while dealing with the
  provisions of Section 314 of the Bombay Municipal Corporation
  Act, 1888, which confers discretion on the Commissioner to
  get any encroachment removed with or without notice, a
  Constitution Bench of this Court observed as follows:
E           "It must further be presumed that, while vesting in the
            Commissioner the power to act without notice, the
            Legislature intended that the power should be exercised
            sparingly and in cases of urgency which brook no delay.
            In all other cases, no departure from the audi alteram
F           partem rule ('Hear the other side') could be presumed to
            have been intended. Section 314 is so designed as to
            exclude the principles of natural justice by way of exemption
            and not as a general rule. There are situations which
            demand the exclusion of the rules of natural justice by
G           reason of diverse factors like time, place the apprehended
            danger and so on. The ordinary rule which regulates all
            procedure is that persons who are likely to be affected by

    18
         (1978) ,1sec405
    19
H        (1985) 3 sec 545
            SAHARA !NOIA (FIRM), LUCKNOW v. COMMISSIONER                    449
             OF INCOME TAX, CENTRAL-I & ANR. [D.K. JAIN, J.]
       ;)
                    the proposed action must be afforded an opportunity of         A
                    being heard as to why that action should not be taken. The
                    hearing may be given individually or collectively, depending
                    upon the facts of each situation. A departure from this
                    fundamental rule of natural justice may be presumed to
                    have been intended by the Legislature only in                  B
                    circumstances which warrant it. Such circumstances must
                    be shown to exist, when so required, the burden being
                    upon those who affirm their existence."

                  19. Again in C.B. Gautam Vs. Union of India & Ors. 20 a
            question arose whether in the absence of a provision for giving        c
            the concerned parties an opportunity of being heard before an
            order is passed under the provisions of Section 269 -UD of the
            Act, for purchase by the Central Government of an immovable
            property agreed to be sold on an agreement to sell, an
            opportunity of being heard before such an order could be passed        D
            should be given or not. Relying on the decision of this Court in
'.'(
            Union of India Vs. Col. J.N. Sinha 21 and Olga Tellis (supra)
            it was held that:
                     "Although Chapter XX-C does not contain any express
                     provision for the affected parties being given an opportunity E
                     to be heard before an order for purchase is made under
                     Section 269-UD, not to read the requirement of such an
                     opportunity would be to give too literal and strict an
                     interpretation to the provisions of Chapter XX-C and in
                     the words of Judge Learned Hand of the United States of F
                     America "to make a fortress out of the dictionary." Again,
                 · . there is no express provision in Chapter XX-C barring the
                     giving of a show cause notice or reasonable opportunity
                     to show cause nor is there anything in the language of
                     Chapter XX-C which could lead to such an implication. G
                     The observance of principles of natural justice is the
                     pragmatic requirement of fair play in action. In our view,
       -l
            20 (1993) 1
                           sec 78
            21
                 (1970)2   sec 458                                                 H
    450       SUPREME COURT REPORTS                  [2008] 6 S.C.R.


A         therefore, the requirement of an opportunity to show cause
          being given before an order for purchase by the Central
          Government is made by an appropriate authority under
          Section 269-UD must be read into the provisions of
          Chapter XX-C. There is nothing in the language of Section
B         269-UD or any other provision in the said Chapter which
          would negate such an opportunity being given. Moreover,
          if such a requirement were not read into the provisions of
          the said Chapter, they would be seriously open to challenge
          on the ground of violations of the provisions of Article 14
          on the ground of non-compliance with principles of natural
c         justice. The provision that when an order for purchase is
          made under Section 269-UD-reasons must be recorded
          in writing is no substitute for a provision requiring a
          reasonable opportunity of being heard before such an
          order is made."
D
        20. Dealing with the question whether the requirement of
  affording an opportunity of hearing is to be read into Section
  142 (2A), in Rajesh Kumar (supra) it has been held that
  prejudice to the assessee is apparent on the face of the said
E statutory provision. It has been observed that on account of the
  special audit, the assessee has to undergo the process of
  further accounting despite the fact that his accounts have been
  audited by a qualified auditor in terms of Section 44AB of the
  Act. An auditor is a professional person. He has to function
  independently. He is not an employee of the assessee. In case
F of mis-conduct, he may become liable to be proceeded against
  by a statutory authority under the Chartered Accountants Act,
  1949. Besides, the assessee has to pay a hefty amount as fee
  of the special auditor. Moreover, during the audit of the accounts
  again by the special auditor, he has to answer a large number
G of questions. Referring to the decision of this Court in Binapani
  Dei (supra) wherein it was observed that when by reason of an
  action on the part of a statutory authority, civil or evil
  consequences ensue, the principles of natural justice are
  required to be followed and in such an event, although no express
H provision is laid down in this behalf, compliance with the
SAHARA INDIA (FIRM), LUCKNOW v. COMMISSIONER                   451
 OF INCOME TAX, CENTRAL-I &ANR. [D.K. JAIN, J.]

principles of natural justice would be implicit, the learned Judges   A
held that by virtue of an order under Section 142 (2A) of the Act,
the assessee suffers civil consequences and the order passed
would be prejudicial to him and, therefore, principles of natural
justice must be held to be implicit. The Court has further
observed that if the assessee was put to notice, he could show        B
that the nature of accounts is not such which would require
appointment of special auditors. He could further show that what
the Assessing Officer considers to be complex is, in fact, not
so. It was also open to him to show that the same would not be
in the interest of the revenue.
                                                                      c
     21. In the light of the aforenoted legal position, we are in
respectful agreement with the decision of this Court in Rajesh
Kumar (supra) that an order under Section 142 (2A) does entail
civil consequences. At this juncture, it would be relevant to take
note of the insertion of proviso to Section 142 (20) with effect      o
from 1st June, 2007. The proviso provides that the expenses of
the auditor appointed in terms of the said provision shall,
henceforth, be paid by the Central Government. In view of the
said amendment, it can be argued that the main plank of the
judgment in Rajesh Kumar (supra) to the effect that direction E
under Section 142 (2A) entails civil consequences because the
assessee has to pay substantial fee to the special auditor is
knocked off. True it is that the payment of auditor's fee is a major
civil consequence, but it cannot be said to be the sole civil or
evil consequence flowing from directions under Section 142
(2A). We are convinced that special audit has an altogether F
different connotation and implications from the audit under
Section 44AB. Unlike the compulsory audit under Section 44AB,
it is not limited to mere production of the books and vouchers
before an auditor and verification thereof. It would involve
submission of explanation and clarification which may be G
required by the special auditor on various issues with relevant
data, document etc., which, in the normal course, an assessee
is required to explain before the Assessing Officer. Therefore,
special audit is more or less in the nature of an investigation
and in some cases may even turn out to be stigmatic. We are, H
    452         SUPREME COURT REPORTS                [2008] 6 S.C.R.


A therefore, of the view that even after the obligation to pay
    auditor's fees and incidental expenses has been taken over by
    the Central Government, civil consequences would still ensue
  . on the passing of an order for special audit.
        22. We shall now deal with the submission of learned
8 counsel appearing for the revenue that the order of special audit
  is only a step towards assessment and being in the nature of an
  inquiry before assessment, is purely an administrative act giving
  rise to no civil consequence and, therefore, at that stage a pre-
  decisional hearing is not required. In Rajesh Kumar (supra) it
C has been held that in view of Section 136 of the Act, proceedings
  before an Assessing Officer are deemed to be judicial
  proceedings. Section 136 of the Act, stipulates that any
  proceeding before an Income Tax Authority shall be deemed to
  be judicial proceedings within the meaning of Sections 193 and
D 228 of Indian Penal Code, 1860 and also for the purpose of
  Section 196 of l.P.C. and every Income Tax Authority is a court
  for the purpose of Section 195 of Code of Criminal Procedure,
  1973. Though having regard to the language of the provision,
  we have some reservations on the said view expressed in
E Rajesh Kumar's case (supra), but having held that when civil
  consequences ensue, no distinction between quasi judicial and
  administrative order survives, we deem it unnecessary to dilate
  on the scope of Section 136 of the Act. It is the civil consequence
  which obliterates the distinction between quasi judicial and
F administrative function. Moreover, with the growth of the
  administrative law, the old distinction between a judicial act and
  an administrative act has withered away. Therefore, it hardly
   needs reiteration that even a purely administrative order which
  entails civil consequences, must be consistent with the rules of
G natural justice. (Also see: Mrs. Maneka Gandhi Vs. Union of
  India & Anr. 22 and S.L Kapoor Vs. Jagmohan & Ors. 23 • As
    already noted above, the expression "civil consequences"

    22
         AIR 1978 SC 597
H   23
         (1980) 4 sec 379
    SAHARA INDIA (FIRM), LUCKNOW v. COMMISSIONER                   453
     OF INCOME TAX, CENTRAL-I & ANR. [D.K. JAIN, J.]
j
    encompasses infraction of not merely property or personal rights A
    but of civil liberties, material deprivations and non pecuniary
    damages. Anything which affects a citizen in his civil life comes
    under its wide umbrella. Accordingly, we reject the argument
    and hold that since an order under Section 142 (2A) does entail
    civil consequences, the rule audi a/teram partem is required to B
    be observed.
          23. We are also unable to persuade ourselves to agree
    with the proposition canvassed by learned counsel for the
    revenue that since a post-decisional hearing in terms of sub-
    section (3) of Section 142 is contemplated, the requirement of c
    natural justice is fully met. Apart from the fact that ordinarily a
    post-decisional hearing is no substitute for pre-decisional
    hearing, even from the language of the said provision it is plain
    that the opportunity of being heard is only in respect of the
    material gathered on the basis of the audit report submitted D
    under sub-section (2A) and not on the validity of the original
    order directing the special audit. It is well settled that the principle
    audi alteram partem can be excluded only when a statute
    contemplates a post decisional hearing amounting to a full review
    of the original order on merit, which, as explained above, is not E
    the case here.
          24. The upshot of the entire discussion is that the exercise
    of power under Section 142 (2A) of the Act leads to serious
    civil consequences and, therefore, even in the absence of
    express provision for affording an opportunity of pre-decisional F
    hearing to an assessee and in the absence of any express
"   provision in Section 142 (2A) barring the giving of reasonable
    opportunity to an assessee, the requirement of observance of
    principles of natural justice is to be read into the said provision.
    Accordingly, we reiterate the view expressed in Rajesh G
    Kumar's case (supra).
         25. It is pertinent to note that by the Finance Act, 2007, a
    proviso to Section (2A) has been inserted with effect from 1st
    June, 2007, which provides that no direction for special audit
                                                                          H
    454      SUPREME COURT REPORTS                   [2008] 6 S.C.R.

                                                                        {'
A   shall be issued without affording a reasonable opportunity of
    hearing to the assessee.

       26. In the light of the afore-noted lega! position, we may
  now advert to the facts of both the cases to consider the validity
  of orders dated 14th March. '<006, requiring the appellants to
B have their accounts for the assessment year 2003-04 audited
  by a chartered accountant. named in the order.

        27. Indubitably, before passing the said orders, no show
  cause notice was given to the appellants. On the contrary, it
c appears from the record that on gth March, 2006, the appellants
  were required to furnish by 20th March, 2006 details/explanation
  in respect of queries raised vide order sheet entry dated 15th
  February, 2006 but in the meanwhile, the impugned orders were
  passed on 14th March, 2006 itself. It is manifestly clear that when
  the impugned orders were made, the Assessing Officer had no
D
  occasion to have even a glimpse of the accounts maintained
  by the appellants. Therefore, in the light of the legal position
  noted above, we have no option but to hold that the impugned
  orders dated 14th March, 2006, are vitiated by the failure to
  observe the principle audi alteram partem.
E
        28. The next crucial question is that keeping in view the
  fact that the time to frame fresh assessment for the relevant
  assessment year by ignoring the extended period of limitation
  in terms of explanation 1 (iii) to sub-section (3) of Section 153
F of the Act is already over, what appropriate order should be
  passed. As noted above, the learned Additional Solicitor
  General had pleaded that if we were not inclined to agree with
  him, the interpretation of the provision by us may be given
  prospective effect, otherwise the interest of the revenue will be
  greatly prejudiced.
G
        29. There is no denying the fact that the law on the subject
  was in a flux in the sense that till the judgment in Rajesh Kumar
  (supra) was rendered, there was divergence of opinion amongst
  various High Courts. Additionally, even after the said judgment,
H another two-Judge Bench of this Court had expressed
SAHARA INDIA (FIRM), LUCKNOW v. COMMISSIONER                  455
 OF INCOME TAX, CENTRAL-I & ANR. [D.K. JAIN, J.]

reservation about its correctness. Having regard to all these         A
peculiar circumstances and the fact that on 14th December,
2006, this Court had declined to stay the assessment
proceedings, we are of the opinion that this Court should be
loathe to quash the impugned orders. Accordingly, we hold that
the law on the subject, clarified by us, will apply prospectively     B
and it will not be open to the appellants to urge before the
Appellate Authority that the extended period of limitation under
Explanation 1 (iii) to Section 153 (3) of the Act was not available
to the Assessing Officer because of an invalid order under
Section 142 (2A) of the Act. However, it will be open to the          c
appellants to question before the appellate authority, if so
advised, the correctness of the material gathered on the basis
of the audit report submitted under sub-section 2A of Section
142 of the Act.

     30. In the result, both the appeals are allowed to the extent    D
indicated above leaving the parties to bear their own costs.
N.J.                                     Appeals partly allowed.