Special audit 142(2A) period is excluded from limitation period in terms of clause (iv) to Explanation 1 of section 153(1). High Court Reverses ITAT Order
ABCAUS Case Law Citation:
ABCAUS 2501 (2018) 09 HC
Important Case Laws Cited/relied upon by the parties:
Commissioner of Income Tax vs. Ulike Promoters P. Ltd., (2013) 356 ITR 507
VLS Finance Limited and Another vs. Commissioner of Income Tax and Another
The present appeal was filed by the Revenue under Section 260A of the Income Tax Act, 1961 (the Act) against the order of the Income Tax Appellate Tribunal (the Tribunal) in cross appeals. The impugned order had held that the draft assessment order passed by the Assessing Officer (AO) under Section 144C read with Section 143(3) of the Act, was invalid as it was passed beyond the prescribed statutory period prescribed u/s 153 of the Act.
Accordingly, the Tribunal had held that the final assessment order passed by the Assessing Officer on the directions of the Dispute Resolution Panel (DRP) was void and invalid.
The return of the respondent assessee was taken for scrutiny/regular assessment. The regular/draft assessment order was to be made u/s 144C by the AO within the time prescribed by the limitation u/s 153. However, just two days before the expiry of the limitation, the AO directed the assessee to get his accounts audited under Section 142(2A) of the Act. Report of the special audit was received by the Assessing Officer after expiry of the limitation.
The AO passed the draft assessment order after receipt of the special tax audit report. Thereafter, the DRP considered and decided the objections raised by the assessee to the draft assessment order and passed its order under section 144C(8) of the Act. Consequent to the said order, the final assessment order was passed.
Thus, the issue was whether the draft assessment order passed within the prescribed time?
The Revenue contended that the clause (iv) to Explanation 1 to Section 153 of the Act provide for the exclusion of period of special audit. Therefore, the Assessing Officer was entitled to pass the draft assessment order in terms of first proviso of Explanation 1 to Section 153 of the Act. Accordingly, it was submitted that the draft assessment order passed was within limitation.
The Hon’ble High Court observed that the Tribunal had interpreted the said exclusion to hold that the clause (iv) to Explanation 1 and the first proviso would not apply as the special audit report was received after the expiry of the prescribed time limitation u/s 153(1).
In other words, the Tribunal observed that even in cases where a report under 142(2A) is to be issued, the same should be issued and received within the time limit prescribed under 153(1) of the Act.
The Hon’ble High Court observed that clause (iv) to Explanation 1 clearly states that the period from the date when the Assessing Officer directs the special audit till the last date of furnishing such report under Section 142 (2A) of the Act shall be excluded and not counted for limitation. Accordingly, in the instant case, the period or time taken for conduct of special audit had to be excluded.
The Hon’ble High Court further observed that the First proviso to Explanation 1 is equally clear and categoric. It provides that where ever after exclusion of the time or period, the period of limitation for passing of an assessment order is less than sixty day, the limitation period for passing of the assessment order shall be extended to sixty days. Accordingly, as the period for passing of the draft assessment order on report of special audit was six days, by virtue of the first proviso it was extended to sixty days.
The Hon’ble High Court opined that in view of the statutory exclusion under clause (iv) to the Explanation 1 and statutory extension vide first proviso, the draft assessment order passed was within limitation and not void or invalid.