2020 (6) TMI 696 - AT - Income Tax

Revenue appeals dismissed, assessment void ab initio for special audit extension breach.

The appeals of the revenue were dismissed, and the cross objections of the assessee were allowed, declaring the assessment order void ab initio due to the ... Special Audit u/s.142 (2A) - whether the action of the ld. CIT, Central-II for granting extension for the further period is legally valid are not? - HELD THAT:- As carefully gone through the entire events and the verbatim of the letters. We also tried to dwell whether the intention of the AO is to” extend the period” or conveying the” approval of the CIT”. While it may be an administrative phenomenon to intimate, inform the CIT about the fact of the special audit party appointed seeking extension, but statutorily that power is vested with the AO. On going through the established judgment, it cannot be disputed that the statutory powers vested with one specified authority cannot be exercised by another authority unless and until the statute provides for the same. And we find that the extension has not been given by the AO. The powers and the jurisdiction of the various authorities to implement the Income Tax Act stands clearly defined in the statute. For example, the power to approve the accounts audited u/s 142(2A) lies with CIT/PCIT/CCIT or PCCIT. The powers u/s 144A are to be exercised by the Joint Commissioner or Additional Commissioner. The powers u/s 251 are specific to the Commissioner (Appeals). Similarly, the powers u/s 263 and 264 are to be exercised by the PCIT/CIT. Further, in exercise of the powers conferred under clause (a) of sub-section (2) of section 119 of Income-tax Act, 1961, Central Board of Direct Taxes, may direct that the Chief Commissioner of Income-tax and Director General of Income- tax may reduce or waive interest charged under section 234A or section 234B. While levy of the penalty u/s 271AAB is the power of the Assessing Officer, the provisions u/s 274(2) mandates that the prior approval of the JCIT is required before levy of such penalty. Thus, we find that the statute has accorded implementation of the various provisions to specified authorities which cannot be interchanged. A power which has been given to a specified authority has to be discharged only by him. Substitution of that officer/authority by any other officer, may be of higher rank, cannot validate the said order/ action. The extension could have been valid only if it had been given by the Assessing Officer after due application of mind and after examining the existence of circumstances as provided in proviso below Sec. 142 (2C), since, it has to be given only by competent authority. In this case, the extension has not been given by the AO but by the CIT, Central-II and the AO has only conveyed the approval, therefore, we hold that the extension given by the CIT, Central-II is beyond the powers vested as per the statute and accordingly the assessment completed after the due date is held to be void ab initio. Appeal of revenue dismissed. Issues Involved:1. Deletion of additions under various sections of the Income Tax Act by the Commissioner of Income Tax (Appeals) [CIT(A)].2. Validity of the assessment order under Section 153A.3. Legality of the extension granted for special audit under Section 142(2A).Detailed Analysis:1. Deletion of Additions by CIT(A):The revenue raised multiple grounds challenging the CIT(A)'s decision to delete various additions made by the Assessing Officer (AO) under different sections of the Income Tax Act, including:- Section 40(A)(3): Deletion of disallowance related to cash payments exceeding the prescribed limit.- Section 40(a)(ia): Deletion of disallowance for non-deduction of tax at source.- Section 14A read with Rule 8D: Deletion of disallowance related to expenditure incurred in relation to income not includible in the total income.- Disallowance of Brokerage Expenses: Deletion of disallowance related to brokerage expenses.- Section 40A(2)(b): Deletion of disallowance related to payments to specified persons.- Disallowance of Depreciation: Deletion of disallowance related to depreciation.- Bikaner Project: Deletion of addition related to profits from the Bikaner project.2. Validity of the Assessment Order under Section 153A:The assessee raised legal grounds challenging the validity of the assessment order under Section 153A, arguing that:- The audit conducted under Section 142(2A) was not required as no complexity was pointed out in the books of accounts.- The extension of time for the special audit was invalid as it was granted by the CIT instead of the AO, thus violating Section 142(2C).3. Legality of the Extension Granted for Special Audit under Section 142(2A):The core issue was whether the extension of time for the special audit granted by the CIT, Central-II, was legally valid. The statute mandates that the extension should be granted by the AO, not the CIT. The relevant provisions are:- Section 142(2A): Requires the AO to direct a special audit with the previous approval of the CIT.- Section 142(2C): Specifies that the AO may extend the period for the audit, not exceeding 180 days in total.The tribunal examined the following:- The sequence of events leading to the extension request.- The statutory provisions and the respective authorities' powers.- The argument that the CIT's involvement was merely administrative and not a substitution of the AO's statutory power.Tribunal's Findings:- The tribunal found that the extension of time for the special audit was granted by the CIT, not the AO, which is beyond the statutory powers vested by the Act.- The extension should have been granted by the AO after due application of mind and examination of the circumstances.- The extension granted by the CIT was invalid, rendering the assessment completed after the due date void ab initio.Conclusion:- The appeals of the revenue were dismissed.- The cross objections of the assessee were allowed, declaring the assessment order void ab initio due to the invalid extension of the special audit period.This judgment emphasizes the importance of adhering to statutory provisions and the specific authorities' powers in tax proceedings. The tribunal's decision underscores that any deviation from the prescribed statutory framework can render the proceedings invalid.