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TMI Blog2023 (12) TMI 740X X X X Extracts X X X X X X X X Extracts X X X X ..... ] 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 in the two above-captioned appeals are identical, reference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 had granted the auditor, i.e., Messrs Dinesh Mehta and co, an extension of 60 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assessee has not been able to demonstrate any prejudice caused by the extension of the timeframe. Therefore this case would fall within the purview of Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aired 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 authority; it cannot be abdicated in favour of another authority even if he is higher in rank than the one in which the authority/jurisdiction is vested. An action contrary to this principle would be void ab initio an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [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 making an assessment under this Act, the Assessing Officer may serve on any person who has made a return under section 115WD or section 139 [or in whose case the time allowed under subsection (1) of section 139] for furnishing the return has expired] a notice requiring him, on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 specified by the Assessing Officer: Provided that the Assessing Officer] may, suo motu, or on an application made in this behalf by the assessee and for any good and sufficient reason, extend the said period by such further period or periods as he thinks fit; so, however, that the aggregate of the period originally fixed and the period or periods so extended shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. 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 get its accounts audited, having regard to the circumstances referred to in subsection (2A) of Section 142, keeping in mind the interests of the revenue. Once the specified authority grants its approval, it is obliged to nominate the accountant who would then proceed to audit the assessee's account and generate a report which would advert to the particulars indicated in the prescribed form and, more importantly, other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 appeared and filed the details. The same have been considered. After consideration, I am satisfied that it is necessary to get the accounts of the assessee M/s Soul Space Projects Ltd. for AY 2006-07 to 2008-09 audited having regard to the nature and complexity in [sic of] the accounts and in the interest of revenue as pointed out by you in your letter cited above. xxx xxx xxx" [Emphasis is ours] 17.1 As alluded to above, on the same date, i.e., 15.12.2009, the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 of the audit. 18.1 The record also shows that while the matter was pending adjudication with the Tribunal, internal communication was exchanged between departmental representatives to elicit the recommendation of the AO concerning the extension of time. The recommendation of the AO is part of the communication dated 11.02.2020 exchanged between the departmental representative tasked with canvassing the case of the appellant/revenue before the Tribunal and the ACIT. Since much emphasis is laid on this communication, the relevant part of the same is extracted hereafter "F.No. ACIT/CC-15/2019-20/1605 Date : 11.02.2020 To The Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assessee to provide the requisite information immediately under information to the undersigned so that special audit may be completed in a smooth manner. 4. On perusal of relevant records, it is ascertained that the Assessing Officer has applied his mind in the letter dated 08.04.2010 therein he has given the reasons for extension for furnish the special audit report. Consequently, the Ld. CIT has considered the facts (application of mind of AO) and directed to the AO to convey the extension of 60 days for the purpose of furnishing the special audit u/s 142(2A). Therefore, it is clear that the extension of period u/s 142(2C) was granted by the AO after applying his mind, not by the Ld. CIT, Central-II and the Ld. CIT, Cen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee, 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 the assessing officer, however, intends to pass an order of assessment, he may take recourse to such steps including the one of asking the assessee to disclose documents which are in his power or possession. He may also ask third parties to produce documents. Section 136 of the Act by reason of a legal fiction makes an assessment proceeding, a judicial proceeding. The assessment proceeding, therefore, is a part of judicial process. When a statutory power is exercised by the assessing authority in exercise of its judicial function which is detrimental to the assessee, the same is not and cannot be administrative in nature. It stricto sensu is also not quasi judicial. By way of example, although it may not be very apposite, we may state that orders pa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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