AO had inherent powers u/s 142(2C) to suo moto extend time for submission of special audit report directed u/s 142(2A), without an application by assessee – SC
ABCAUS Case Law Citation:
ABCAUS 2860 (2019) (04) SC
Important Case Laws Cited/relied upon by the parties
Sahara India v Commissioner of Income Tax (2008) 14 SCC 151
Ishwar Singh Bindra v State of UP (1969) 1 SCR 219 = AIR 1968 SC 1450
Commissioner of Income Tax v Gold Coin Health Food Pvt Ltd 2008 (9) SCC 622
Commissioner of Income Tax (Central – I) v Vatika Township (P) Ltd [2014] 31 ITR 466 (SC); 2015 1 SCC 1
Sedco Forex International Drill Inc. v Commissioner of Income Tax (2004) 8 SCC 1
Commissioner of Income Tax v Bishan Swaroop Ram Kishan Agro Pvt. Ltd
The instant judgment deals with the batch of appeals on the question whether under the provisions of section 142(2C) as it stood at the material time, Assessing Officer (AO) had inherent power to extend the time limit for submission of the special tax audit report u/s 142(2A).
A Division Bench of the Delhi High Court had dismissed a batch of appeals filed by the Revenue against the order of the Income Tax Appellate Tribunal which held that that prior to the insertion of the expression “suo motu” with effect from 1 April 2008 in Section 142(2C), the assessing officer had no jurisdiction to extend time for the submission of the report of the special auditor appointed u/s 142(2A), of his own accord.
As a consequence, it was held that the assessment which was made under Section 153A, in respect of the assessment years in question, was barred by limitation.
Contesting the decision of the Delhi High Court, it was the case of the Revenue that even before 1 April 2008, the jurisdiction of the Assessing Officer (AO) to extend time for the submission of the audit report was not confined to a situation in which the assessee had made an application for extension. Consequently, the incorporation of a provision for a suo motu exercise of power by the assessing officer, with effect from 1 April 2008 by the Finance Act, 2008, was only intended to remove an ambiguity and was clarificatory in nature.
The Hon’ble Supreme Court observed that section 142(2A) as it stood at the material time authorised AO to appoint a special tax auditor and sub section (2C) further authorised him to extend the time limit, on an application made by the assessee, for furnishing the audit report.
Also under Section 153B which prescribes time limits for the completion of assessments under Section 153A, the period commencing from the day on which the Assessing Officer directs the assessee to get his accounts audited under sub-section (2A) of Section 142 and ending on the day on which the assesse is required to furnish a report of such audit under that sub-section is to be excluded.
Quoting the words used in sub-section (2C) namely “….. on an application made in this behalf by the assessee and for any good and sufficient reason…” the assessee contended that it indicated that the AO may extend the period, which has been specified under the substantive part of sub section (2C), only on an application made by the assessee and for good and sufficient reason.
Contrariwise, according to the Revenue, the AO, who issues a direction to the assessee under sub section (2A) to get his accounts audited, is vested with the authority to specify the period for the submission of the report, and within the overall limit of 180 days it is open to the assessing officer to extend the time which has been fixed in the first instance.
The assessees pointed out to the legislative intent behind the insertion of the term “suo motu” in the provisions of Section 142(2C) by the Finance Act and relied upon the CBDT Circular No 1/2009 dated 27 March 2009, notes on clauses to the Finance Bill, 2008, the memorandum accompanying the Finance Act.
It was contended that the purpose of the amendment was to “also allow the assessing officer to extend the period for furnishing of an audit report, suo motu”.
The Hon’ble Supreme Court pointed out that under the substantive part of sub-section (2C), the AO could fix time for the submission of the audit report. Subject to an overall limit of 180 days, the assessing officer was fully clothed with the authority to determine the time within which the audit report should be submitted. For instance, the assessing officer may in a given case consider the grant of 90 days as adequate for the completion of the exercise. Though the assessing officer has the power, in the first instance, to fix an even longer period subject to the overall ceiling of time, she may fix a particular period within the limit. To then postulate that while the assessing officer could in the first instance have fixed a longer time limit but, having fixed a limit of time, is precluded from extending time thereafter would be an absurd course of interpretation.
The Hon’ble Supreme Court opined that the proviso to subsection (2C) creates a remedy for an assessee to apply for extension where, for a good and sufficient reason, the audit report could not be submitted. The creation of a remedy under the proviso in favour of the assessee cannot be construed to detract from the authority which vests in the assessing officer, who has specified the time limit for the submission of an audit report in the first instance, to extend time without an application by the assessee.
The Hon’ble Supreme Court stated that the alternate construction of the proviso is that the expression “and for any good and sufficient reason” should be read to mean “or for any good and sufficient reason”. As a matter of statutory interpretation, it is well settled that the expression “and” can in a given context be read as “or”. The interpretation of the expression must be based on the context in which it is used. In the proviso to sub-section (2C), the expression “and” is used in connection with the grant of an extension of time and not in the context of the formation of an opinion for ordering a special audit.
The Hon’ble Supreme Court opined that the reason for the introduction of the amendment arose because of the element of ambiguity inherent in the erstwhile position as it stood before 1 April 2008. The ambiguity was precisely on the question as to whether the assessing officer was precluded from granting an extension of time of his own accord merely because the assessee was permitted to apply for an extension. Since the purpose of the amendment was to remove this ambiguity, the Parliament essentially clarified the position as it existed prior to the amendment.
The Hon’ble Supreme Court stated that in deciding the issue as to whether an amendment is intended to be clarificatory or to remove an ambiguity in the law must depend upon the context and the Court would have due regard to
(i) the general scope and purview of the statute;
(ii) the remedy sought to be applied;
(iii) the former state of the law; and
(iv) what power that the legislature contemplated
The Hon’ble Supreme Court held that the provisions of Section 142(2C) of the Act, as they stood prior to 1 April 2008 did not preclude the exercise of jurisdiction and authority by the assessing officer to extend time for the submission of the audit report directed under subsection (2A), without an application by the assessee.
The Hon’ble Supreme Court also declared that the amendment made by the Finance Act, 2008 was intended to remove an ambiguity and was clarificatory in nature.
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