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* IN THE HIGH COURT OF DELHI AT NEW DELHI
11
+ ITA 668/2016
PR.COMMISSINOR OF INCOME TAX-5 ..... Appellant
Through: Mr. Rahul Chaudhary, Senior Standing
counsel.
versus
JINDAL DYECHEM INDUSTRIES PVT. LTD. ..... Respondent
Through: Mr. Salil Aggarwal with Mr. Madhur
Aggarwal, Advocates.
CORAM:
JUSTICE S. MURALIDHAR
JUSTICE CHANDER SHEKHAR
ORDER
% 05.05.2017
Dr. S. Muralidhar, J.:
1. The Revenue has filed the present appeal under Section 260A of the
Income Tax Act, 1961 (,,Act) against the impugned order dated 23 rd
February 2016 passed by the Income Tax Appellate Tribunal (,,ITAT) in
ITA No. 4809/Del/2007 for the Assessment Year (,,AY) 2003-04.
2. While admitting this appeal on 5th October 2016, the following question
of law was framed for consideration:
"Did the ITAT fell into error in holding that the assessment order for
AY 2003-04 was time barred given the pre-condition Clause (iii) of
Explanation (i) to Section 153 (1) of the Income Tax Act which led to
the amendment to that provision by Finance Act No. 2 Act of 1996?"
ITA 668/2016 Page 1 of 7
3. The Assessee is dealing primarily in Bullion (gold and silver) having
operation in various states. The Assessee is a subsidiary of M/s. Jindal
Export and Import Private Limited. For the AY in question, the Assessee
filed its return on 2nd December 2003 showing total income at Rs.
2,04,84,373 from ,,business and profession and ,,income from house
property. The return was picked up for scrutiny and notice was issued to the
Assessee under Section 143 (2) of the Act on 10th November 2004.
4. By an order dated 17th February 2006 the Assessing Officer (,,AO)
directed the Assessee to get its accounts audited under Section 142 (2A) of
the Act within a period of 35 days. Thereafter, several extensions were
granted by the AO; for 45 days (by direction dated 24 th March 2006), further
30 days (on 10th May 2006), for further 10 days (on 9th June 2006) and
further 7 days (by direction dated 28th June 2006). As a result of these
extensions, the special audit report was required to be furnished to the AO
by order dated 7th July 2006. As it transpired, the special audit report was
unable to be submitted by 7th July 2006. The report of the Special Auditor
dated 7th July 2006 was sent under covering letter dated 12th July 2006 to the
Commissioner of Income Tax-II and received by the AO on 13th July 2006.
On 14th September 2006 the AO framed the assessment order for AY 2003-
04. The AO did not accept all the recommendations in the report of the
Special Auditor. Nevertheless certain additions were made to the taxable
income.
5. Aggrieved by the assessment order, the Assessee filed an appeal before
the Commissioner of Income Tax (Appeals) [,,CIT (A)] who by his order
ITA 668/2016 Page 2 of 7
dated 26th September 2007 allowed the appeal. It was noted that the audit
report was required to be furnished by 7th July 2006. The limitation for
framing the assessment expired on 6th September 2006. Accordingly, the
assessment made on 14th September 2006 was clearly barred by limitation in
terms of Section 153 (1) of the Act. The assessment was held to be invalid
and annulled.
6. Aggrieved by the above order, the Revenue went in appeal before the
ITAT. The Assessee filed cross-objections. The Assessee was aggrieved by
the CIT (A) not deleting some of the additions made by the AO.
7. The ITAT has, in the impugned order, dismissed the Revenues appeal.
After analysing Section 153 (1) of the Act in light of the facts of the case,
the ITAT concluded that CIT (A) was justified in holding that the
assessment was barred by limitation. The ITAT placed reliance on the
decision of this Court in CIT v. Bishan Saroop Ram Kishan Agro (P)
Limited (2011) 203 Taxman 326 (Del) and held that the proviso to sub-
section 2C to Section 142 of the Act was prospective. There was no
application by the Assessee for extension of time for submission of the audit
report. Therefore, the ITAT held that the order dated 13th July 2006 of the
AO purportedly under Section 142 (2C) of the Act granting extension till
17th July 2006 was not valid. The Assessee's cross-objections were
dismissed by the ITAT as having become infructuous.
8. This Court has heard the submissions of Mr. Rahul Chaudhary, learned
Senior standing counsel for the Revenue and Mr. Salil Aggarwal, learned
counsel for the Respondent-Assessee.
ITA 668/2016 Page 3 of 7
9. Mr. Chaudhary, urged that given the purpose and object behind the
insertion of sub-sections 2A, 2B and 2C of Section 142 of the Act , the
period between 7th July 2006 and 17th July 2006 the date when the audit
report was actually made available should be excluded for the purpose of
computation of limitation. Mr. Chaudhary submitted that when there was
failure by the Assessee to submit the audit report within the stipulated time,
the Assessee should not be allowed to take advantage of its own lapse and
claim that the assessment order was barred by limitation.
10. The Court is unable to accept the above submission. The language of the
statute is plain. Section 142 (2A) of the Act anticipates timely submission of
the report of the Special Auditor. The Auditor who is to conduct special
audit in terms of Section 142 (2) of the Act is not an auditor of the choice of
the Assessee. The auditor is nominated by the Revenue and his work is not
controlled by the Assessee. Where the special audit report is unable to be
furnished within the time stipulated by the AO, extension of time can be
granted by the AO on an application made by the Assessee. The extension
has to be for good and sufficient reasons.
11. From 1st April 2008 a proviso to Section 142 (2C) of the Act was
inserted to provide that the AO may ,,suo motu extend the period provided
that the aggregate period originally fixed and extended period would not
exceed 180 days from the date on which a direction was first issued to the
Assessee for submission of report of the Special Auditor. It is an admitted
position that in the present case all the extensions granted, except the last
one, were on the application of the Assessee. The last date for submission of
ITA 668/2016 Page 4 of 7
the report in terms of these extensions was 7th July 2006. There was no
application by the Assessee after 7th July 2006 for extension of time.
12. On the letter dated 12th July 2006 of the Auditor, the AO made an
endorsement dated 13th July 2006 extending the time for submission upto the
date on which the auditors report was actually received i.e. 17th July 2006.
13. It was explained by this Court in Commissioner of Income Tax v.
Bishan Saroop Ram Kishan Agro (P) Limited (supra) that insertion of the
expression ,,suo motu in the proviso to Section 142 (2C) of the Act was
only with effect 1st April 2008. Therefore, in the present case, when the AO
on his own extended the period of submission of audit report to 17 th July
2006, he had no power to do so under Section 142 (2C) of the Act.
Consequently, the Court finds no error in the orders of both the CIT (A) as
well as the ITAT holding that the submission of audit report on 17 th July
2006 was barred by limitation.
14. It was contended by Mr. Chaudhary that the time taken in submission of
the audit report dated 7th July 2006 to the Department, i.e., the period
between 7th July 2006 and 17th July 2006 should stand excluded. Mr.
Chaudhary referred to the decision of the Madhya Pradesh High Court in
CIT v. Dhariwal Sales Enterprises (1996) 221 ITR 240. He also referred to
the decision of this Court in VLS Finance Limited v. Commissioner of
Income Tax (2016) 68 Taxman.com 368 (SC). It is pointed out that under
Section 153 (1) of the Act, the period of limitation for making an order of
assessment to be extended during which the said proceeding stands excluded
for the purpose of computing the period of limitation for making an
ITA 668/2016 Page 5 of 7
assessment order.
15. The Court is unable to accept any of the above submissions. The
Explanation-1 to clause (iii) of Section 153 (1) as it stood at the relevant
point in time, reads as under:
"(iii) the period of commencing from the date on which the Assessing
Officer directs the Assessee to get his accounts audited under sub-
section (2A) of Section 142 and
(a) ending with the last date on which the Assessee is required to
furnish a report of such audit under that sub-section, or
(b) where such direction is challenged before a court, ending with the
date on which the order setting aside such direction is received by the
Principal Commissioner or Commissioner , or" shall stand excluded.
16. In the present case, the last date on which the Assessee was required to
furnish the report was 7th July 2006 in terms of Section 153 (1) of the Act.
The time for passing the assessment order expired on 6th September 2006
whereas it was passed only on 14th September 2006.
17. The decision in Dhariwal Sales Enterprises (supra) concerns the
execution of time spent "for obtaining a copy of the report". Here there was
no such occasion for granting of extension of time by the AO. In fact, the
AO had no such power to do so. There was no question of excluding the
time taken for obtaining a report. On the other hand the decision of this
Court in CIT v. Bishan Saroop Ram Kishan Agro (P) Limited (supra)
squarely covers the issue and is in favour of the Assessee. In the said
decision, the Court took note of the Circular dated 27 th March 2009 of the
ITA 668/2016 Page 6 of 7
Central Board of Direct Taxes (CBDT) regarding prospective application for
amendment to the proviso to Section 142 (2C) of the Act which gave the AO
,,suo motu power to extend time for furnishing the audit report.
18. For all the aforementioned reasons, the Court finds no error having been
committed by the CIT (A) or the ITAT in holding that the assessment order
in the present is barred by limitation. The question as framed in the negative,
is answered i.e., in favour of the Assessee and against the Revenue.
19. The appeal is accordingly dismissed but, in the circumstances of the
case, with no order as to costs.
S. MURALIDHAR, J
CHANDER SHEKHAR, J
MAY 05, 2017
Rm
ITA 668/2016 Page 7 of 7
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