TMI Blog2016 (4) TMI 581X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue : Shri A.K. Saroha, CIT DR and Shri Anil Jain, Senior DR ORDER PER A.T. VARKEY, JUDICIAL MEMBER : The appeal filed by the revenue and cross objection filed by the assessee are directed against the order of the CIT (Appeals)-VII, New Delhi dated 26.9.2007 for assessment year 2003-04. 2 The grounds taken by the revenue in ITA No.4809/Del/2007 are as under; 1 The order of the ld. CIT(A) is erroneous and contrary to facts and law. 2 The ld. CIT(A) erred in law and on the facts in holding the assessment made by the AO on 14.9.2006 as barred by limitation u/s 153(1) of the I.T.Act, 1961 without considering the fact that in pursuance to proviso to section 142(2C) and proviso to explanation 1(iii) to section 153(3) of the I.T. Act, 1961 the limitation for completion of assessment expired on 15.9.2006. Thus the order passed u/s 143(3) of I.T. Act, 1961 passed on 14.9.2006 is within the statutory limit. 3 The ld. CIT(A) erred in law and on the facts in relying on the arguments based on incorrect submission of the assessee while ignoring the facts on records as under:- a) The date of filing audit had been extended to 17.7.2006 b) Even on that date th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not deleting the disallowance of sum of ₹ 5,06,150/- out of expenditure incurred on business promotion claimed by the appellant company. 7. That the Commissioner of Income Tax (Appeals) has erred both in law and on facts in not deleting the addition of ₹ 5,76,521/- on account of alleged unrecorded sales of silver by the appellant company. 8. That the learned Commissioner of Income Tax (Appeals) has also erred both in law and on facts in not deleting the disallowing a sum of ₹ 73,604/- out of expenditure claimed on travelling by the appellant company on an erroneous assumption that such expenditure incurred was personal in nature and, in disregard of the fact that, the assessee company has any claimed ₹ 32,000.50/- as expenditure in the return of income. 9 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that, the appellant company, under misconception of law had offered an income of ₹ 1,50,00,000/- on the date of survey u/s 133A of the Act erroneously and, as such he ought to have also deleted the addition of said sum, while disposing off the appeal. 10. That the learned Commissioner of Income Tax (Appeals) ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that subsection . .. shall be excluded: Provided that where immediately after the exclusion of the aforesaid time or period, the period of limitation referred to in sub-section (1), [1A), (1B)} (2) and (2A) available to the Assessing officer for making an order of assessment, reassessment or re-computation, 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 6.2 From the perusal of the aforesaid provisions, it will be seen that, an order of assessment has to be made within a period of two years from the end of the assessment year in which, the income was first assessable. It has been further provided in the Explanation that in computing the period of limitation, the period commencing from the date on which, the A.O. directs the assessee to get his accounts audited under sub section (2A) of section 142 of the Act and end with the last date on which the assessee is required to furnish the report of Special Audit under that section is to be excluded. In other words, the period from the date of direction of the audit to the last date on which the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 142(2A) the Income Tax Act, 1961 for the assessment year 2003-04. After seeking certain extension (by the assessee company), a report from Special Auditor dated 7.7.2006 was received by AO on 17.7.2006. It was stated that report was received within statutory time limit of 180 days provided proviso to section 142(2C) of the Act. It was further submitted that after exclusion of period under section 142(2C) and proviso to Explanation 1(iii) to section 153(3) of the Act, the limitation for completion of assessment was to expire on 15.9.2006. It was submitted that order passed under section 143(3) of the Act on 14.9.2006 was therefore within the statutory limit and CIT(A) was in error in holding the assessment is barred by limitation. 6. The learned counsel for assessee however submitted that in the instant case, in normal course, the instant assessment could have been framed till 31.3.2006 i.e. within a period of two years from the end of the assessment year. The Assessing officer vide his order dated 16/17.2.2006, directed the assessee to get his accounts audited u/s 142(2A) of the Act, within a period of 35 days. He further extended this period subsequently through directions d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed: Provided that where immediately after the exclusion of the aforesaid time or period, the period of limitation referred to in sub-section (1), [1A), (1B)} (2) and (2A) available to the Assessing officer for making an order of assessment, reassessment or re-computation, 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 8. A plain reading of the above would make it apparent that an order of assessment has to be made within a period of two years from the end of the assessment year. According to the Explanation the period commencing from the date on which, the AO directs the assessee to get his accounts audited under sub-section (2A) of section 142 of the Act and the last date on which the assessee is required to furnish the report of special auditor is to be excluded in computing period of limitation. The proviso further provides that, where immediately after the exclusion of the aforesaid period, the period of limitation available to the AO for making an order of assessment is less than 60 days, such remaining period shall be extended to 60 da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of time allowed to the special auditor for filing his report by one week. It had earlier been undertaken that no further extension will be sought after one week. 2 Your application has been considered. The time allowed for completion of the special audit is further extended by one week i.e. upto 7.7.2006, as requested in your letter under reference in view of the powers conferred by the proviso to section 142(2A) of Income Tax Act, 1961. You are advised to extend full cooperation to the special auditor so as to enable him to file the report within stipulated time. It may be noted that no further extension will be granted after 7.7.2006 11. The above conclusion is also strengthened from the fact that the interpretation of AO is based on the law as stood prior to amendment by Finance No. 2 Act, 1996 w.e.f. 1.4.1997 and, not on the law relevant to the instant year. The findings of CIT(A) in this regard are as under: 6.5 Infact, I may hasten to add here that, the interpretation of the learned office is otherwise not in accordance with law since it is based on the interpretation of the statutory provisions of the Act as they stood prior to amendment by Finance No. 2 Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while reckoning 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 Assessing Officer subject to a maximum of 180 days. It has been the experience of the Department that in a few cases where special audit is ordered, the assessees to 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 Assessing Officer 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, it is proposed to provide that the period commencing from the date on which the assessing officer 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 The proposed amendment will take effect from 1st April 1997and will accordingly, apply in relation to assessment year 1997-98 and subsequen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, 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 assessment year 1997-98 and subsequent years. 6.8 Infact, even in the decision of Nagpur Bench of Hon ble Tribunal in the case of Mahakoshal Engineers Contractors Co. (P) Ltd. vs. ACIT reported in 85 ITD 267, it has been held as under; The conclusion that one can draw on a plain reading of section 153 Explanation 1(iii) in our view is that the period as fixed under section 142(2A) alone needs to be excluded and not a period of 180 days referred to in section 142(2C) 6.9 It is thus evident that, the period required to be excluded is the period from which the assessee is directed to gets his accounts audited and ends with the date on which the assessee is required to furnish his report u/s 142(2A) of the Act and, therefore, since in the present case, the assessee was required to furnish its report u/s 142(2A) of the Act by 7.7.2006 and, not by 17.7.2006 the limitation for the various reasons as discussed hereinabove, for framing assessment expired on 6.9.2006. Accordingly, the assessment made on 14.9.2006 is clea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich makes the provisions workable. The only interpretation in such circumstances would be to that the AO has inherent power to increase date of compliance, suomotto in the circumstances of non-co-operation by the assessee of course within over all limit of six months provided by the Act. 6 The assessment was made in pursuance to proviso to section 142(2C) and proviso to explanation 1(iii) to section 153(3) of the I.T. Act, 1961. The Special Audit was granted vide order u/s 142(2A) vide order dated 17.2.2006, hence the number of days remaining for making assessment were 42 days till 31.3.2006. The extended date by which Special Audit Report was required to be furnished is 17.7.2006. The period of limitation of 60 days (as per proviso to explanation to section 153) starts from 17.7.2006 and the limitation to complete the assessment falls on 15.9.2006. The assessment order was passed on 14.9.2006 within 60 days period as stipulated. In view of these facts, the assessment order passed is not barred by limitation. 14. The learned counsel for the assessee rebutting the above contention submitted that the aforesaid contention has been raised before the Tribunal for the first time. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where the learned AO had been allowing extension albeit without jurisdiction, yet he had specifically passed such orders dated 24.03.2006 (page 6), 10.05.2006 (page 7- 8), 9.06.2006 (page 9), 21.06.2006 (page 10), 28.06.2006 (page 11 12). Thus, it is more than vocal that the alleged endorsement which is a manipulated endorsement and is unquestionably afterthought cannot be read as an order granting extension within the meaning of proviso to section 142(2C) of the Act; e) It was never even whispered much less contended till 12.02.2009, that the period to furnish a report was extended till 17.7.2006 as would be evident from order of assessment and, remand report of AO dated 11.06.2007 (pages 1015 to 1022 of PB- E ), wherein too no such allegation was even made; f) Lastly, it is submitted that, the alleged endorsement on the aforesaid letter is an act of manipulation and has been made later for collateral purpose. 15. The ld Advocate further contended that since there was no application for extension of period of audit, there was no order u/s 142(2C) of the Act dated 13.07.2006 and, as such, the purported order dated 13.07.2006 granting extension till 17.07.2006 was otherw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 08 and it is from this date onwards that the Assessing Officer shall have power to extend the period of furnishing of special audit report suo motu. 20. In the light of interpretation of the proviso as is existed before or after the amendment and the legislative intent behind the amendment as gathered from the memorandum and the circular noted above, we are not persuaded to agree with the interpretation as given by the Punjab and Haryana High Court in the case of Jagjit Sugar Mills Company Limited (supra). Further in view of our above discussion, it comes to be concluded that the Tribunal was correct in holding that the Assessment Order was barred by limitation. That being so, we answer Question No.1 in affirmative in favour of the Assessee and against the revenue. 21. In view of foregoing discussion that the amendment whereby the word 'suo motu' were inserted in sub-section (2C) of Section 142 of the Act was to be applicable with effect from 1st April, 2008 only, the amendment cannot be said to be clarificatory or retrospective in nature. The amendment was prospective and was to be applicable with effect from 1st April, 2008 only. Accordingly, we answer Question No.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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