TaxTMI 
TaxTMI 
2023 (12) TMI 740
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....42(2A) of the Income Tax Act, 1961 [in short, "Act"] for submission of the audit report was in consonance with the proviso appended to Section 142(2C) of the Act? 2.1 ITA 568/2023, concerning AY 2008-09, was admitted on 09.10.2023 when the Court noted that the same issues arise in both appeals. 3. It is relevant to note at this stage that the Tribunal, via the impugned order, disposed of not only the appeals filed by the appellant/revenue vis-àvis the two AYs referred to hereinabove [i.e., AYs 2007-08 and 2008-09], but also ruled on the cross-objections filed by the respondent/assessee qua the aforementioned AYs. Besides this, via a separate order dated 30.09.2020, the Tribunal has dealt with the issue which arises for consideration in the instant appeal, albeit concerning a group company, namely, B.L. Kashyap and Sons Ltd [in short, "BLK"]. 4. Thus, having regard to the aforesaid, counsel for the parties agreed that the decision the Court would take vis-à-vis the present appeals concerning the question of law framed would also apply to appeals filed by the appellant/revenue in matters concerning BLK. Background 5. Since the facts and issues which arise....
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....a Special Auditor was appointed, the end date for framing the assessment order was extended to 14.04.2010 by virtue of the provisions of Section 153B Explanation (ii), read with the first proviso appended to the said provision. 5.7 The record shows that the Assessment Order was framed on 10.08.2010. In the interregnum, the initial timeframe granted for completion of the audit, which was 120 days as noted above, was extended by another 60 days, i.e., up to 13.06.2010, at the request of the Special Auditor. The Special Auditor made a request in this behalf via communication dated 25.03.2010. 5.8 The AO forwarded the request for an extension of time via communication dated 07.04.2010 to the ACIT, who in turn forwarded it to the CIT via letter dated 08.04.2010. On 12.04.2010, the DCIT headquarters conveyed to the AO that the CIT had considered the request and had conveyed that an extension of 60 days for furnishing the audit report, as requested by the concerned auditor via the letter dated 26.03.2010, had been granted, with a caveat though that no further extension would be allowed. The AO on the very next day, i.e., 13.04.2012, conveyed to the respondent/assessee that the CIT h....
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.... exists and the officer concerned has satisfied himself as to the need for exercising power, the language of the communication cannot vitiate the exercise of power. Thus, a mere reference to an incorrect provision of the statute cannot invalidate an order that was otherwise within the power of the authority making the order. A similar analogy can be drawn in this case: merely because administrative approval was sought from the PCIT, it would not impact the satisfaction arrived at by the AO under the proviso appended to Section 142(2C) of the Act non-est in law. [See State of Karnataka v Munniyalla, (1985) 1 SCC 196]. (vii) No person can benefit from his own mistake. The record shows that the timeframe for the conduct of the audit had to be extended because of a lack of cooperation by the assessee. Therefore, to knock off the entire assessment order based on a technicality would be wholly incorrect. (viii) Assuming that the AO made a mistake by seeking approval of the PCIT, it would not be fatal to the assessment proceedings. The defect can be cured by having recourse to Section 292B of the Act. (ix) The prejudice test would have to be applied. The assesse....
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....meframe. (iii) It is on this account that the Tribunal concluded that further extension of 60 days granted by the CIT for completion of the audit was illegal and invalid and thus impaired the viability of the assessment order framed under Section 153A/143(3) of the Act, on a day beyond the prescribed period of limitation, which ended on 13.06.2010. (iv) The power to grant extension is invested only in the AO, albeit to be exercised at his discretion. Before the AO exercises his discretion, he must ascertain whether good and sufficient reasons exist for granting an extension of time to complete the audit. (v) It is well established that when a power or jurisdiction is conferred to do something in a certain way, it must be done that way or not at all, and thus all other performance methods are necessarily excluded. [See Nazir v King Emperor, AIR 1975 SC 985; Babu Varghese v. Bar Council of Kerala, [1999] 3 SCL 422 (SC); Dharani Sugars and Chemicals Ltd. v. Union of India, [2019] 153 SCL 224 (SC); Dipak Babaria v. State of Gujarat, [2014] 3 SCC 502]. (vi) The power/jurisdiction conferred upon a specific authority must be exercised only by such autho....
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....administrative, as contended on behalf of the appellant/revenue. (xii) Significantly, extension of time impacts limitation and thus affects a substantive and valuable right conferred on the respondent for completion of assessment proceedings. [See State of Punjab v. Shreyans Industries Ltd., (2016) 4 SCC 769; State of UP v. Hari Shanker Dubey, 2002 All LJ 570]. Therefore, the argument advanced on behalf of the appellant/revenue that no prejudice is caused by an extension of time is wholly misconceived. (xiii) Pertinently, nothing has been brought on record which would suggest that an extension of time for the conduct of the audit was granted for good and sufficient reason, as mandated by the proviso appended to subsection (2C) of section 142 of the Act. Thus, the Tribunal rightly concluded that the extension of time granted in the matter did not align with the provisions of Section 142(2C) of the Act. Therefore, the assessment order dated 10.08.2010 was barred by limitation. Analysis and Reasons 10. Before we proceed further, reference to the relevant provisions would be in order. "142. Inquiry before assessment.- (1) For the purpose of mak....
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....al of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, direct the assessee to get either or both of the following, namely:- (i) to get the accounts audited by an accountant, as defined in the Explanation below sub-section (2) of section 288, nominated by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner in this behalf and to furnish a report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed and such other particulars as the Assessing Officer may require. xxx xxx xxx [Provided that the Assessing Officer shall not direct the assessee to get the accounts so audited unless the assessee has been given a reasonable opportunity of being heard.] (2B) The provisions of sub-section (2A) shall have effect notwithstanding that the accounts of the assessee have been audited under any other law for the time being in force or otherwise. (2C) Every report under sub-section (2A) shall be furnished by the assessee to the Assessing Officer within such period as may be specifie....
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....sion can be granted only if good and sufficient reasons subsist. 10.8 The extension can be for one or more periods, as is deemed fit by the AO, with a caveat that the aggregate timeframe, which includes the original period and the extended period or periods, does not exceed 180 days, commencing from the date on which the assessee received a direction under sub-section (2A) of section 142 to get its accounts audited. 11. Thus, it is evident from a plain reading of the provisions mentioned above that both the discretion to trigger the process for issuance of a direction to the assessee for getting the accounts audited within a specified timeframe and the extensions, if any, that are granted is that of the AO. Both sub-sections (2A) and (2C) read with the proviso appended to the latter make that abundantly clear. 12. The only role envisaged for the specified authority in triggering an audit of the assessee's account is to grant approval to the proposal framed by the AO for getting the accounts audited and nominate the accountant to audit the account. 13. As noticed above, it is the AO who, in his proposal, sets up a case for issuance of a direction to the assessee to g....
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....is reposed. In sum, the discretionary power invested in the specified authority should be exercised by that authority alone and none else, even if it causes administrative inconvenience, except in those cases where it is reasonably inferred to be a delegable power. [See Administrative Law (10th Edition) H.W.R. Wade & C.F. Farsyth, Page 259-260.] 17. The facts on record disclose that for the reasons given in the objections dated 04.12.2009, the respondent/assessee had asserted that the circumstances outlined in the show cause notice dated 27.11.2009 did not exist. The AO rejected the objections via an order dated 08.12.2009, and consequentially, the discretion exercised by the AO to trigger an audit received the approval of the CIT on 14.12.2009, which he communicated to the ACIT on 15.12.2009. The relevant parts of this communication are captured hereafter: "To Asst. Commissioner of Income Tax Central Circle - 17 New Delhi. xxx xxx xxx 2. Based on your proposal containing the facts an opportunity of being heard was granted to the assessee on 9/12/2009. The matter was fixed for 14/12/2009. On the said date, Sh. Raj Kumar Gupta CA appea....
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....04/2010 To, The Principal Officer, M/s Soul Space Projects Ltd. A-21/B-1 Extn., Mohan Co-operative Industrial Area, Mathura Road, New Delhi. Sub: In the matter of M/s Soul Space Projects Ltd. - Assessment Year 2006-07 to 2008-09 - Special Audit under section 142(2A) of the Income Tax Act, 1961 - regarding. Sir, Please refer to the above. In this connection you are hereby informed that the Commissioner of Income Tax (Central) - II, New Delhi vide his office letter F.No. CIT/(C)-II/10-11/24 dated 12/04/2010 has granted extension of 60 days to the special auditors M/s Dinesh Mehta & Co., Chartered Accountants, for furnishing the audit report u/s 142(2A) in your case. Please acknowledge the receipt of this letter. Yours faithfully, s/d (B.L. Sharma) Deputy Commissioner of Income Tax, Central Circle-17, New Delhi." 18. A perusal of the aforesaid documents would show that the CIT, in fact, granted the extension of time. The AO simply transmitted the request received by the auditors to his superiors, who then processed the matter and directed a grant of extension of time for completion....
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....en forwarded to your good self on 07.04.2010 for favourable consideration. Since, M/s Soul Space Projects Ltd. has large numbers of intergroup transactions with M/s B.L. Kashyap & Sons Ltd., it is necessary that both the auditors should work in close cooperation with each other and should exchange one other's finding(s) before reaching any conclusion. Hence, it is recommended that the extension of time may also be granted to M/s Dinesh Mehta & Co. if [the] extension of time is granted by your good self to M/s Sanjay Satpal & Associates." 3. Further, the Ld. CIT, Central - II, New Delhi, vide letter No. CIT/(C)II/10-11/24 dated 12.04.2010 has conveyed the extension of 60 days for the purpose of furnishing the audit report and directed "No further extension will be allowed and the auditors may be asked to adhere to the extended time limit for the purpose". Accordingly, the assessing officer vide letter F.No. DCITCC-17/Special Audit/2010-11/40 dated 13.04.2010 has informed that the extension of further 60 days granted to the Special Auditors M/s Dinesh Mehta & Co., Chartered Accountants, for furnishing the audit report u/s 142(2A) in the case and also requested to the ass....
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....letter dated 11.02.2020, needed to demonstrate that there was good and sufficient cause for extending the timeframe. 20. Having noted the diametrically opposite assertions made on the aspect of delay, in our opinion, the legal tenability of the decision taken in the matter depends on which specified authority was invested with the power to extend the timeframe. As discussed above, since the legislature vested the discretion to extend the timeframe solely in the AO, he could not have abdicated that function and confined his role to only making a recommendation to the CIT. The CIT had no role in extending the timeframe as the AO was in seisin of the assessment proceedings. 21. 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. In this context, the following observations made in Rajesh Kumar's case are extracted hereafter: "24. If an assessee files a return the same is not presumed to be incorrect. When....