2023 (12) TMI 776 - HC - Income Tax

Section 142(2C) power to extend audit report time is procedural, non-delegable by Assessing Officer to CIT(A)

Delhi HC held that the power to extend time under Section 142(2C) proviso for audit report submission is not administrative but procedural with civil ... Extension of the time for submission of audit report - extension of time under the proviso to Section 142(2C) - Whether the power of extension of time under the proviso to Section 142(2C) is procedural/administrative in nature and can be exercised by an authority superior to the Assessing Officer? - Whether the extension given to the Chartered Accountant appointed under the provisions of Section 142(2A) for submission of the audit report was in consonance with the proviso appended to Section 142(2C) of the Act?” HELD THAT:- As per The relevant parts of the judgment [2023 (12) TMI 740 - DELHI HIGH COURT] as has been correctly submitted on behalf of the respondent/assessee, the decision taken to get an audit conducted under Section 142(2A) of the Act is a step in the process of assessment proceedings and, therefore, is clearly not an administrative power; as the appointment of a special auditor entails civil consequences Given that the initial exercise of the power has been explicated as one that is not administrative, the CIT(A) could not have extended the time based on the recommendation of the AO. However, the enunciation of this legal principle does not derogate from our observation above that since the discretionary power was vested in the AO (which was non-delegable), it could not have been exercised by the CIT, irrespective of the nature of the power. Thus, for the preceding reasons, the question of law, as framed, is answered against the revenue and in favour of the assessee. Issues Involved:The judgment concerns the extension of time under Section 142(2C) of the Income Tax Act, 1961, and the authority empowered to grant such extensions. Additionally, it addresses the validity of actions taken by the Assessing Officer and the Commissioner of Income Tax in relation to assessment proceedings.Extension of Time under Section 142(2C):The appellant/revenue challenged a common order passed by the Income Tax Appellate Tribunal regarding Assessment Years 2004-05 to 2008-09. The Tribunal disposed of appeals concerning AYs 2002-03 and 2003-04, which were not contested. A separate order dealt with issues related to Soul Space Projects Ltd (SSPL), focusing on the extension granted to the Chartered Accountant for submitting the audit report under Section 142(2A) of the Act. The Tribunal emphasized that the power to extend the timeframe solely rested with the Assessing Officer (AO) and could not be delegated to the Commissioner of Income Tax (CIT). The appointment of a special auditor under Section 142(2A) was deemed a step in the assessment process, not an administrative power, as it had civil consequences. The judgment cited legal principles and precedents to establish that the AO's discretion could not be usurped by the CIT, regardless of the nature of the power. Consequently, the questions of law were answered against the appellant/revenue and in favor of the respondent/assessee.Authority to Grant Extensions and Validity of Actions:The judgment clarified that the discretion to extend time under Section 142(2C) of the Act should be exercised by the designated authority, i.e., the AO. It emphasized that administrative inconvenience could not justify deviating from this principle. The decision highlighted the judicial nature of assessment proceedings and the importance of adhering to natural justice principles, especially when actions have civil consequences. The judgment rejected the argument that the CIT could extend time based on the AO's recommendation, reiterating that the non-delegable discretionary power vested in the AO must be respected. Ultimately, the questions of law were decided against the revenue and in favor of the assessee, leading to the disposal of the appeals accordingly.