2024 (6) TMI 1424 - AT - Income Tax

CIT exceeded jurisdiction granting extension approval instead of AO, making special audit order void under Section 142(2A)

ITAT Delhi affirmed CIT(A)'s decision holding AO's special audit order void ab-initio under Section 142(2A). The tribunal found CIT exceeded jurisdiction ... Special Audit passed u/s 142(2A) - CIT exceeding jurisdiction in granting approval for the extension of the time limit for conducting special audit - HELD THAT:- CIT (A) wholly relied on the judgment of ITAT in the case of Soul Space Projects Ltd. [2020 (6) TMI 696 - ITAT DELHI] wherein it was held that 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. CIT (A) held that in terms of Section 142(2C) of the Act, the extension of time period for furnishing the Special Audit Report has to be specified by the AO and not by the CIT. CIT (A) held in the present case, it is clear from the letters dated 27.03.2018 addressed to the AO by the Addl. CIT and letter dated 27.03.2018 addressed by the AO to the assessee, that the approval for granting extension of the time limit for conducting special audit was sought from and granted by the Pr. CIT only. AO has not extended the said time limit suo-moto. The ld. CIT (A) has also examined, the assessee’s own case for AY 201213 wherein vide order dated 21.09.2020 in Appeal No. CIT(A), Delhi -7/10162/2019-20 on identical facts & circumstances, it was held that the order of the AO as void ab-initio since due procedure as mandated under the provisions of Sec. 142(2A) & Sec. 142(2C) has not been followed. The order of the AO and the procedure adopted for getting the special audit done u/s 142(2A) of the Act suffers from multiple infirmities. Accordingly, order of the Assessing Officer is held to be void ab-initio and the order of the ld. CIT (A) is hereby affirmed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are:Whether the Principal Commissioner of Income Tax (Pr. CIT) exceeded jurisdiction by granting approval for the extension of the time limit for conducting a special audit under Section 142(2A) of the Income Tax ActRs.Whether the order for the special audit was merely a tool for extending the time limit, and if the Ld. CIT(A) erred in considering only the technical issue while leaving other substantial issues unaddressedRs.Whether the assessment order was void ab initio due to being time-barred by limitationRs.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Jurisdiction of Pr. CIT for Extension ApprovalRelevant Legal Framework and Precedents: The judgment examines Section 142(2A) and Section 142(2C) of the Income Tax Act, which delineate the powers of the Assessing Officer (AO) and the Pr. CIT concerning special audits. The case law cited includes ACIT vs. Soul Space Projects Ltd. and CIT vs. SPL's Siddhartha Ltd., which emphasize the distinct roles of tax authorities.Court's Interpretation and Reasoning: The court held that the statute clearly assigns the power to extend the period for a special audit to the AO alone, not the Pr. CIT. The court relied on precedents that stress the importance of statutory authorities exercising their powers independently and not substituting their satisfaction with that of another authority.Key Evidence and Findings: The court found that the extension for the special audit was granted by the Pr. CIT, contrary to the statutory requirement that the AO should extend the period. This was evidenced by letters indicating that the extension approval was sought and granted by the Pr. CIT.Application of Law to Facts: The court applied the legal principles from the cited cases to determine that the Pr. CIT's involvement in granting the extension was beyond the scope of the statutory provisions, rendering the extension and subsequent assessment void.Treatment of Competing Arguments: The court considered the Revenue's argument that the extension was a mere administrative formality but rejected it based on the statutory mandate and precedents that require the AO to exercise discretion independently.Conclusions: The court concluded that the extension of the special audit period was not valid as it was not granted by the AO, leading to the assessment being declared void ab initio.Issue 2: Use of Special Audit as a Tool for ExtensionRelevant Legal Framework and Precedents: The judgment refers to the principles established in the case of Unitech Limited vs. Addl. CIT, where the use of special audits as a tool for extending time limits was scrutinized.Court's Interpretation and Reasoning: The court found that the special audit was ordered within the statutory time frame, but the extension granted by the Pr. CIT was not in accordance with the law, thus invalidating the process.Key Evidence and Findings: The court noted that the special audit was ordered before the time-barring period, but the extension was improperly granted, which affected the validity of the audit and assessment.Application of Law to Facts: By applying the legal principles, the court determined that the special audit's timing was not the issue, but the improper extension rendered the audit and assessment process flawed.Treatment of Competing Arguments: The court addressed the Revenue's argument about the necessity of the audit and the timing, but ultimately the procedural flaw in the extension was decisive.Conclusions: The court concluded that the procedural errors in extending the audit period invalidated the assessment, despite the audit being initially ordered within the correct timeframe.Issue 3: Time-Barred AssessmentRelevant Legal Framework and Precedents: The judgment considers the statutory time limits for completing assessments under the Income Tax Act and the implications of exceeding these limits.Court's Interpretation and Reasoning: The court found that the assessment was time-barred due to the invalid extension of the special audit period, which affected the timeline for completing the assessment.Key Evidence and Findings: The evidence showed that the special audit report was filed after the extended period, which was not validly granted, leading to a time-barred assessment.Application of Law to Facts: The court applied the statutory provisions and precedents to conclude that the assessment was void due to being completed beyond the permissible period.Treatment of Competing Arguments: The court considered the Revenue's position but found that the procedural lapse in extending the audit period was decisive in rendering the assessment void.Conclusions: The court concluded that the assessment was void ab initio due to being time-barred, as the extension of the audit period was not validly granted.3. SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal Reasoning: '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.'Core Principles Established: The judgment reinforces the principle that statutory powers must be exercised by the designated authority, and any deviation from this requirement renders the actions void.Final Determinations on Each Issue: The court affirmed the decision of the CIT(A) that the assessment order was void ab initio due to the improper extension of the special audit period, which was not granted by the AO as required by law.