2024 (1) TMI 1410 - AT - Income Tax

Extension of time for Special Audit under Section 142(2A) by PCIT invalid as discretionary power vests solely with AO

ITAT Delhi held that extension of time for Special Audit under Section 142(2A) granted by PCIT upon AO's recommendation was legally invalid. The tribunal ... Special Audit passed u/s 142(2A) - extension of time allowed for Special Audit by the Department - HELD THAT:- The extension has not been granted in terms of provisions of Section 142(2C) of the Income Tax Act, 1961 but time for extension has been sought by the ACIT through range head Addl. CIT from PCIT. The ld. PCIT approved the proposal of the AO and only after that the approval has been granted by the ACIT vide letter dated 17.05.2019. The para 12 of the letter of the Assessing Officer is not an administrative intimation but it sought the approval of the ld. PCIT who as per the statute do not have the power of granting extension for Special Audit. PCIT-07, Delhi has granted the extension saying “approved as proposed” vide order sheet dated 16.05.2019.The said approval has been intimated to the assessee by the ACIT vide letter dated 17.05.2019. Whether the approval sought by the Assessing Officer from the ld. PCIT and granting extension by the AO after receiving of the approval from the ld. PCIT is legally tenable or not? - We are guided by the judgment of Soul Space Projects Ltd. [2023 (12) TMI 740 - DELHI HIGH COURT] held that the initial exercise of the power has been explicated as one that is not administrative, the ld. PCIT could not have extended the time for Special Audit based on recommendation of the Assessing Officer. The enunciation of the legal principle does not derogate the observation that since the discretionary power was vested with the Assessing Officer which is non-delegable, it could not have been exercised by the Pr. CIT irrespective of the nature of the power. Thus we hold that the extension given for getting the special audit done u/s 142(2A) suffers from multiple infirmities and therefore, the assessment order is held to be void ab-initio. 1. ISSUES PRESENTED and CONSIDEREDThe legal judgment presented revolves around the following core issues:Whether the extension of time for conducting a Special Audit under Section 142(2A) of the Income Tax Act was legally valid, given the procedural steps taken by the Assessing Officer (AO) and the Principal Commissioner of Income Tax (Pr. CIT).Whether the assessment order passed by the AO was void ab initio due to procedural infirmities in the extension of time for the Special Audit.Whether the appeal filed by the Revenue against the decision of the CIT(A) was maintainable.Whether the cross-objection filed by the assessee challenging the legality of the extension of time for the Special Audit was valid.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Legality of the Extension of Time for Special AuditRelevant Legal Framework and Precedents: The extension of time for Special Audit is governed by Section 142(2C) of the Income Tax Act, which allows the AO to extend the audit period suo motu or on an application by the assessee, but not exceeding 180 days in total.Court's Interpretation and Reasoning: The court examined whether the extension granted by the AO, upon the recommendation of the Pr. CIT, was in compliance with the statutory provisions. It was found that the extension was improperly sought and granted, as the Pr. CIT does not have the authority to extend the audit period.Key Evidence and Findings: The court noted that the extension was based on requests from the Special Auditor and approvals from the Pr. CIT, which were beyond the statutory authority provided to the Pr. CIT.Application of Law to Facts: The court applied the legal provisions and found that the extension process was flawed, leading to the conclusion that the assessment order was void ab initio.Treatment of Competing Arguments: The Revenue argued that the extensions were validly granted within the time limits, while the assessee contended that the extensions were illegal. The court sided with the assessee, emphasizing the non-delegable nature of the AO's power to extend the audit period.Conclusions: The court concluded that the procedural steps taken for the extension of the Special Audit were legally untenable, rendering the assessment order void.Issue 2: Maintainability of the Revenue's AppealRelevant Legal Framework and Precedents: The appeal's maintainability was assessed based on whether the grounds raised were substantial and legally valid.Court's Interpretation and Reasoning: The court observed that the Revenue did not raise specific grounds challenging the procedural aspects that led to the CIT(A)'s decision.Key Evidence and Findings: The court noted the absence of substantial grounds in the Revenue's appeal, particularly concerning the procedural irregularities identified by the CIT(A).Application of Law to Facts: The court applied legal principles to determine that the Revenue's appeal lacked substantial grounds and was therefore not maintainable.Treatment of Competing Arguments: The court considered the Revenue's arguments but found them insufficient to overturn the CIT(A)'s decision.Conclusions: The court dismissed the Revenue's appeal as it lacked substantial grounds for consideration.Issue 3: Validity of the Assessee's Cross-ObjectionRelevant Legal Framework and Precedents: The cross-objection was evaluated based on its alignment with the procedural and legal standards for challenging the assessment order.Court's Interpretation and Reasoning: The court found that the cross-objection was valid, as it raised substantial issues regarding the legality of the audit extension process.Key Evidence and Findings: The court acknowledged the procedural flaws highlighted by the assessee, particularly the improper involvement of the Pr. CIT in the audit extension process.Application of Law to Facts: The court applied the relevant legal provisions and found the cross-objection to be meritorious.Treatment of Competing Arguments: The court considered the Revenue's counterarguments but upheld the validity of the cross-objection based on the procedural irregularities identified.Conclusions: The court allowed the cross-objection, affirming the procedural flaws in the audit extension process.3. SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal Reasoning: The court held that 'the extension given for getting the special audit done u/s 142(2A) suffers from multiple infirmities and therefore, the assessment order is held to be void ab-initio.'Core Principles Established: The judgment reinforced the principle that the power to extend the audit period under Section 142(2C) is non-delegable and must be exercised by the AO alone, without external influence from the Pr. CIT.Final Determinations on Each Issue: The court concluded that the assessment order was void due to procedural flaws, dismissed the Revenue's appeal for lack of substantial grounds, and allowed the assessee's cross-objection, emphasizing the invalidity of the audit extension process.