2016 (4) TMI 581 - AT - Income Tax

Assessment invalidated for time limit breach under Income Tax Act.

The assessment made by the AO on 14.9.2006 was held to be barred by limitation under section 153(1) of the Income Tax Act, 1961. The CIT(A) and Tribunal ... Validity of assessment u/s 153 - period of limitation - extension of period of audit - Held that:- There was no application for extension of period of audit and therefore order u/s 142(2C) of the Act dated 13.7.2006 granting extension till 17.7.2006 was not a valid order. In view of the above the only conclusion emerges that audit was to be completed by 7th of July’2006 and, as such the period from 17.02.2006 to 07.07.2006 is to be excluded in terms of Explanation to section 153 of the Act. Further, after considering the period of 60 days, as provided in the proviso to Explanation 1 to section 153(1) of the Act, the period of limitation expired on 6.09.2006; whereas the instant assessment had been framed on 14.09.2006 and therefore, the assessment order is barred by the limitation - Decided in favour of assessee. Issues Involved:1. Whether the assessment made by the AO on 14.9.2006 is barred by limitation under section 153(1) of the Income Tax Act, 1961.2. Various grounds of cross objection raised by the assessee regarding additions and disallowances made by the AO.Issue 1: Limitation of AssessmentThe revenue contended that the assessment made on 14.9.2006 was within the statutory limit, arguing that the limitation period expired on 15.9.2006, considering the extensions granted under section 142(2C) and explanation 1(iii) to section 153(3) of the Act. The CIT(A) quashed the assessment, holding it barred by limitation, stating that the period of limitation expired on 6.9.2006.The CIT(A) observed that the assessment for AY 2003-04 had to be completed by 31.3.2006. However, since the AO directed the assessee to get its accounts audited under section 142(2A), the period of limitation was extended. The AO extended the audit period multiple times, with the final extension stating the audit was to be completed by 7.7.2006. Thus, the period from 17.2.2006 to 7.7.2006 was excluded, making the limitation period expire on 6.9.2006. The assessment order dated 14.9.2006 was therefore held to be barred by limitation.The Tribunal upheld the CIT(A)'s decision, agreeing that the period to be excluded is from the date of direction to audit to the last date the assessee is required to furnish the audit report, which was 7.7.2006. The Tribunal rejected the revenue's contention that the period should end on 17.7.2006, the date the audit report was received. The Tribunal noted that the interpretation of the AO was based on pre-amendment law, which was not applicable to the relevant assessment year. The Tribunal also referenced the judgment of the Hon'ble Delhi High Court in CIT v. Bishan Saroop Ram Kishan Agro (P) Ltd., which clarified that the AO could not extend the audit period suo motu before the amendment effective from 1.4.2008.The Tribunal concluded that the assessment order dated 14.9.2006 was barred by limitation, as the period of limitation expired on 6.9.2006.Issue 2: Cross Objections by the AssesseeThe cross objections raised by the assessee included various additions and disallowances made by the AO, such as unrecorded cash sales, foreign travel expenses, unexplained investments, undisclosed investment in stock, adjustments under section 92C, business promotion expenses, unrecorded sales of silver, and personal travel expenses.However, since the Tribunal upheld the order of the CIT(A) in annulling the assessment on the ground of limitation, the cross objections filed by the assessee became infructuous and were dismissed.Order pronounced in open court on this 23rd day of February, 2016.