TMI Blog2007 (9) TMI 306X X X X Extracts X X X X X X X X Extracts X X X X ..... notices. He has further submitted that learned CIT(A) was not justified in upholding the findings of the AO. Learned counsel for assessee submitted that these issues are raised in ground Nos. 1, 2 and 3 in the assessee's appeal and go to the root of the matter and may be decided before considering the grounds on merit on which several lengthy grounds of appeals are taken in both the cross-appeals. Learned representatives of both parties are heard on these issues on question of law as well as on the remaining grounds on merits in both the cross-appeals. 3. We have heard learned representatives of both the parties and gone through the findings of the authorities below and material available on record in the light of the provisions of s. 153 of the IT Act as were applicable to the asst. yr. 1993-94 under appeal. 4. The ground Nos. 1, 2 and 3 in the assessee's appeal read as under: "1. That the learned CIT(A) erred in holding that the order passed by the AO is within time by ignoring the clear provisions of law and the decision of the jurisdictional High Court. The order passed by the AO being clearly out of date, the same is illegal and non est. The same therefore requires to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further time from 14th Oct., 1995 to the date of submission of the audit report as per s. 153(3), Expln. (1) of sub-cl. (iii). In the instant case no audit report was submitted and further extension beyond 15th March, 1996 was not granted. It is the case of the assessee that as per version of the AO himself assessment should have been completed within 153 days from 12th March, 1996, i.e., by 12th Aug., 1996, however, since the order has been passed on 16th Aug., 1996 after issuing detailed notices upto 14th Aug., 1996, it is beyond limitation period. 5.2 It is submitted that as per proviso to s. 153(3), Expln. (1) the time allowed in such a case is only 60 days from the date when the time allowed for filing of audit report expired, i.e., on 15th March, 1996 or in any case when the assessment became barred by limitation on 31st March, 1996. It is submitted that as per decision of Madhya Pradesh High Court in the case of CIT vs. Dhariwal Sales Enterprises (1997) 137 CTR (MP) 365 : (1996) 221 ITR 240 (MP), the AO should have completed the assessment immediately when he refused to grant further time for audit on 12th March, 1996 or in any case when the time allowed by him for audit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n referred to in sub-ss. (1), (2) and (2A) available to the AO for making an order of assessment, reassessment or recomputation, as the case may be, is less than 60 days and the aforesaid period of limitation shall be deemed to, be extended accordingly. 10. As per proviso, in a case where the extended period given to the assessee for getting its accounts audited, as excluded, had ended on say 20th of April, 1996 the AO would in any case, get time of 60 days from the usual period of limitation, ending 31st March, 1996, i.e., upto 30th May, 1996. 11. In this case since the excluded period of 150 days ended beyond 30th May, 1996, the proviso is not applicable to this case. 12. With regard to the above submissions we also rely on the Commentary on Income-tax Act by Sampath Ayanger, 9th Edition, Fourth Volume, p. 5604. While dealing with cl. (iii) of Expln. 1, the author states that the said Explanation provides for exclusion of the period commencing from the date on which the AO directs [as per proviso to s. 142(2A) served], the assessee to get his accounts audited under s. 142(2A) and ending with the date on which the assessee furnishes a report of such audit under that section. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment proceedings on receipt of the directions from the Dy. CIT and nothing more. The said period of six days in such a case will not be extended even if, the directions from the Dy. CIT are received earlier to the expiration of 180 days. 15. From the above it is more than clear that what is to be added is the period taken in audit proceedings from date of notice to the date on which the audit report is received and nothing more. 16. We now consider the amended cl. (iii) of Expln. (1) to s. 153, which has been introduced by the Finance (No. 2) Act, 1996 and effective from asst. yr. 1997-98. As per this amendment, the situation where no audit report is submitted has been covered by substituting the words 'the date in which the assessee furnished' to the words 'the assessee is required to furnish'. The learned author on p. 5605 has commented on this amendment also. He states that cl. (iii) of Exp1n. (1) to s. 153 has been amended to exclude from the period of limitation, the period commencing from the date on which the AO directs the assessee to get his accounts audited and ending with the date on which the assessee was required to furnish such report. Earlier the said period e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he nature and complexity of the accounts of the assessee and the interest of Revenue. In this case, as submitted earlier, the learned AO did not touch the books and other papers illegally seized and illegally retained by him on 30th Dec., 1993 till 9th Oct., 1995. On that day, considering the volume of papers seized by him and anyhow to gain time for completion of assessment, he just issued the notice under s. 142(2A). The Allahabad High Court in the case of Swadeshi Cotton Mills Co. Ltd. vs. CIT (1987) 63 CTR (All) 335 : (1988) I71 ITR 634 (All) has clearly held that a case cannot be referred for special audit on the subjective satisfaction of the AO. In this case this is exactly what has happened. The learned AO without even going through the return of total income filed by the assessee and other material available with him and also without applying his mind to the facts of the present case issued the notice under s. 142(2A). There was therefore, neither the satisfaction of the AO nor was a case made out by him of complexity in the accounts of the assessee. Further, not a single notice under s. 142(1) was issued after the filing of the return on 31st Dec., 1993 till 10th April, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... delay at all it was on account of the appellant itself who had been requesting for extension of time and liberally granted by the AO therefore, there should not have been any grudge on this count. The complexity of the appellant cannot be ignored in delayed taking up the assessment though within time allowed by the statute. Thus, the decisions relied on by the learned representative are not on all force to the facts of the case and this ground is rejected. It may be pointed out here that objection taken by the appellant that there were no complexity in accounts necessitating special audit under s. 142(2A) and without allowing an opportunity of being heard, before reference for special audit it was an administrative matter and special audit has been authorized by the concerned authority, is without any merit and I decline to interfere in the above administrative matter. 8. Next point is against completing the assessment order under s. 144 of the Act. It is contended that the appellant had been making proper compliance in respect of all the requirements and last notice issued between 7th Aug., 1996 and 14th Aug., 1996 required a lot of compliance and the details could be furnished ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l; 1997 which is also clarified by CBDT in its Circular No. 2486 (copy filed). He therefore submitted that since the assessment year in appeal is 1993-94 therefore, amended, Explanation is not applicable to this case. He has submitted that assessee filed application before AO on 12th March, 1996 intimating that special auditor refused to audit the accounts therefore, AO should have passed the assessment order within 60 days from 12th March, 1996, however AO has passed the order on 16th Aug., 1996 therefore same is barred by time as provided under s. 153 of the IT Act. He has relied upon order of Tribunal, Indore Bench in the case of Dy. CIT vs. Laxmi Trading Co. 2 ITJ 266 (Ind) in which it was held; "Assessment-Under s. 153 of the IT Act, 1961-Whether the assessment barred by the limitation of time is valid under the law?-Held-No, direction for audit was issued on 11th March, 1997 and last date for submission of audit report was 12th April, 1997, therefore, assessment should have been completed within 60 days of such last date for submission of the report as extended by s. 153(3), i.e., 11th June, 1997 which was beyond the time allowed under the Act and, therefore, same has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be made under s. 143 or s. 144 at any time after the expiry of- (a) two years from the end of the assessment year in which the income was first assessable; or (b) one year from the end of the financial year in which a return or a revised return relating to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year, is filed under sub-s. (4) or sub-s. (5) of s. 139, whichever is later. (2) No order of assessment, reassessment or recomputation shall be made under s. 147 after the expiry of two years from the end of the financial year in which the notice under s. 148 was served: Provided that where the notice under s. 148 was served on or before the 31st day of March, 1987, such assessment, reassessment or recomputation may be made at any time upto the 31st day of March, 1990. (2A) Notwithstanding anything contained in sub-ss. (1) and (2), in relation to the assessment year commencing on the 1st day of April, 1971, and any subsequent assessment year, an order of fresh assessment under s. 146 or in pursuance of an order under s. 250, s. 254, s. 263 or s. 264, setting aside or cancelling an assessment, may be made at any time before the expir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the aforesaid time or period, the period of limitation referred to in sub-ss. (1), (2) and (2A) available to the AO for making an order of assessment, reassessment or recomputation, as the case may be, is less than sixty days. such remaining period shall be extended to sixty days and the aforesaid period of limitation shall be deemed to be extended accordingly. Explanation 2-Where. by an order referred to in cl. (ii) of sub-s. (3), any income is excluded from the total income of the assessee for an assessment year shall, for the purposes of s. 150 and this section, be deemed to be one made in consequence of or to give effect to any finding or direction contained in the said order. Explanation 3-Where, by an order referred to in cl. (ii) of sub-s. (3), any income is excluded from the total income of one person and held to be the income of another person, then, an assessment of such income on such other person shall, for the purposes of s. 150 and this section, be deemed to be one made in consequence of or to give effect to any finding or direction contained in the said order, provided such other person was given an opportunity of being heard before the said order was passed." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oning the period of limitation for completion of the assessment. As per the existing provisions, the special audit report is to be submitted within the time allowed by the AO subject to a maximum of 180 days. 49.3 It has been the experience of the Department that in a few cases where special audit is ordered, the assessees do not co-operate with the accountant as a result of which the report is not prepared and, therefore, not furnished. In such cases the normal time-limit of two years is operative and the AO does not get any additional time for the purpose of making an assessment because the time taken for furnishing the audit report is excluded only if the report of such audit is furnished. In order to overcome this problem, the Finance (No. 2) Act, 1996, provides that the period commencing from the date on which the AO directs the assessee to get his accounts audited and ending on the date on which the report of such audit was required to be furnished, shall be excluded from the period of limitation. 49.4 The amendment will take effect from 1st April, 1997, and will, accordingly, apply in relation to the asst. yr. 1997-98 and subsequent years. (s. 44)" ( Source : Excerpts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ention of learned counsel for assessee is rejected. The record further shows that AO issued notice under s. 142(2A) to the assessee for audit of the accounts by the special auditor on 9th Oct., 1995 and directed the assessee to get the accounts audited from M/s S.S. Deshpande Co., special auditor and to obtain and furnish the said report before him by 31st Oct., 1995. The record further revealed that assessee has been making request time-to-time for extension of the period of obtaining the audit report and the AO extended the same period and lastly vide order dt. 14th Dec., 1995 extended the time to get the accounts audited positively by 15th March, 1996 and directed that no further extension of time will be granted. Learned Departmental Representative admitted before us that the assessee intimated the AO vide letter dt. 12th March, 1996 that the special auditor appointed by him intimated that it was not possible for them to start the audit in the month of March, 1996. Accordingly, the audit work will be starting only in the month of May, 1996. Learned Departmental Representative submitted that the AO did not extend further period for obtaining the audit report on receipt of lett ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et out such situation where audit report is not filed and the language of sub-cl. (iii) of Expln. 1 to s. 153 was extended and amended to the cases upto the last date on which assessee is required to, furnish the report of the auditor. Such amendment in Expln. 1 (iii) is also reproduced above which is not retrospective in nature and is not applicable to the assessment year under appeal, i.e., 1993-94. The CBDT Circular No. 762, dt. 18th Feb., 1998 explaining the above amendment is also reproduced above and would not support the findings of the authorities below as well as the arguments of learned Departmental Representative seeking extension of 155 days as noted above. The decision of Hon'ble Madhya Pradesh High Court in the case of Dhariwal Sales Enterprises is therefore directly applicable to this case in favour of the assessee and against the Revenue. Learned counsel for assessee relied upon decision of Tribunal, Indore Bench, in the case of Laxmi Trading Co. and according to said decision at the most the period of 60 days is allowable to the AO from the time when AO was intimated that special audit report would not be filed in the case. Even if the last date given by the AO for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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