1 ITA No. 2256 to 2261/Del/2005
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: `F' NEW DELHI
BEFORE SHRI J. S. REDDY, ACCOUNTANT MEMBER
AND
MS. SUCHITRA KAMBLE, JUDICIAL MEMBER
I.T.A .No.-2256/Del/2005(A.Y 1996-97)
I.T.A .No.- 2257/Del/2005(A.Y 1997-98)
I.T.A .No.- 2258/Del/2005 (A.Y 1998-99)
I.T.A .No.- 2259/Del/2005 (A.Y 1999-2000)
I.T.A .No.- 2260/Del/2005 (A.Y 2000-2001)
I.T.A .No.- 2261/Del/2005 (A.Y 2001-02)
PHI Seeds Ltd. vs Dy. Commissioner of Income
New Delhi Tax
(APPELLANT) Circle 14(1), New Delhi
(RESPONDENT)
Appellant by Sh S. D. Kapila & Sh. R. R.
Maurya, Advs.
Respondent by Smt. Sulekha Verma, CIT (DR)
& Shri Vikram Sahay, Sr. DR
Date of Hearing 15.09.2015
Date of Pronouncement
09.12.2015
ORDER
PER SUCHITRA KAMBLE, JM
These appeals are filed by the assessee against the order dated
04.03.2005 passed by CIT(A)-XVII, New Delhi.
2 ITA No. 2256 to 2261/Del/2005
2. The primary Grounds raised by the assessee on Section
142(2A) read with Section 142(2C) & Section 153 of the Income Tax
Act, 1961 in all these appeals are as follows:
"Ground No. 2 That, in law and on the facts of the case, the
Commissioner of Income Tax (Appeals)-XVII, erred in not
cancelling the impugned assessment order, as being without
jurisdiction and barred by limitation.
Ground No. 3 That, the Commissioner of Income Tax
(Appeals)-XVII, erred in law and on the facts of the case, by
holding that the Special Audit proceedings under Section
142(2A) of the Act were validly and properly initiated.
Ground No. 4 That, the Commissioner of Income Tax
(Appeals)-XVII, erred in law and on the facts of the case, by
holding that the extensions of time for completion of audit under
Section 142(2A) of the Act and for submission of the Special
Audit Report were proper and valid and that the Assessment
was not barred by limitation or without jurisdiction on account
of such illegal, unlawful and invalid extension of time.
Ground No. 5 That order of the Ld. CIT(A) has been passed in
violation of the Rule against Bias which is a principle of Natural
Justice which requires that the Appellate order is impartial,
judicious and fair, and as the order suffers from pro-Revenue
mind-set, it violates Natural Justice and hence needs to be set-
aside."
3 ITA No. 2256 to 2261/Del/2005
3. The assessee is an Indian Company [earlier a joint venture of
Southern Petro Chemicals India Ltd., SPIC and Pioneer Overseas
Corporation, USA (POC)]. Since 1993 it is a hundred percent
subsidiary of POC. It is engaged in the business of growing and
marketing `truthfully labeled' commercial hybrid seed under the
Seed Act, 1966. For producing the seed in commercial quantities,
the assessee purchases the basic input of parent seed from the
Indian Branch of POC in large quantities. The assessee company
claims that it had taken on lease, agricultural lands from over 6000
small and marginal farmers for a particular cropping season of 4-6
months. These lands are spread across various districts of Andhra
Pradesh and Karnataka. It claims that right from the inception the
practice followed by the assessee company has been that of taking
agricultural land on short-term lease and taking possession of such
land for a particular season. The company claims that it
customarily engages those very farmers who leased the lands, to
work on the land on its behalf and in accordance with the
agronomic procedures prescribed by the company for sowing of
parent seed, cultivating, irrigation and application of fertilizer,
pesticides and other modern agricultural technique for raising
healthy crop of hybrid seed of cereals. For this purpose, the
company employs experts for supervising the farmers and also for
giving them training. The most expensive input, parent seed, is
provided free of cost and the farmers are paid cost of fertilizer and
pesticide on a standardized basis. Token cost of supervision is
4 ITA No. 2256 to 2261/Del/2005
deducted from the wages for labour. The assessee has been
following the custom of using the output of the quantity of parent
seed as the measure for calculating the value of labour. The
company pays advances periodically during the pre-harvest period.
In no case does the company actually recover such advances paid
to these labourer-farmers for any reason whatsoever including
negligence. Such advances and the cost of inputs are expensed out
by the company.
3.1 The details of original returns filed, income returned, income
originally assessed and the date of assessment order and date of
issue of notice u/s 148 are given as under:
Asstt. Date of Income Date of Date of Remarks
Year filing returned Asstt. issue of
Original (Rs.) /Income Notice u/s.
return assessed 148
(Rs.)
1996-97 19/11/1996 10374615 24.12.1998/ 21.03.2003 u/s.143(3)
(beyond 4
10439865/-
years)
1997-98 29.11.1997 18906373 2.12.1999/ 21.03.2003 -143(3)
(beyond 4
18906373/-
years)
5 ITA No. 2256 to 2261/Del/2005
1998-99 26.11.1998 12357390 22.12.2000/ 21.03.2003 u/s.143(3)
(within four
12357390/-
years)
1999- 27.12.1999 9954500 28.09.2000/ 21.03.2003 u/s.143(1)(a)
2000
9954500 (within four
years)
2000- 22.11.2000 16980790 13.07.2001/ 21.03.2003 u/s.143)1)(a)
2001
16980790 (within four
years)
2001- 30.10.2001 16446094 27.09.2004/ - (within four
2002 years)
150261571
3.2 For reopening the assessment for 1996-97 assessment year
the AO has recorded following reasons:
"On perusal of notes of the activities of the company submitted
on behalf of the company on 26.10.1998 during the course of
assessment proceedings for the A.Y 1996-97 it is noticed that the
company is engaged solely in multiplication production and sale of
hybrid seeds. The company is claiming exemption u/s 10(1) of the I.
T Act in respect of income derived from production and sales of
hybrid seeds in the A.Y 1996-97.
6 ITA No. 2256 to 2261/Del/2005
The Ld. ITAT in its judgment dated 3.1.2003 in the case of M/s
Proagro seeds P. Ltd for the A.Y 1994-95 and 1997-98 have upheld
the addition made by the AO on a/c of income from hybrid seeds,
which the assessee has claimed as exemption as agricultural income.
In view of the above judgment I have reason to believe that
income from production and the sale of hybrid seeds chargeable to
tax has escaped assessment."
For A.Y 1997-98 to 2000-01 the reasons recorded are similar
except the change in the assessment year, the date of filing the
return, the figures of income declared and the letters filed by the
assessee company.
3.3 The notice u/s. 148 for A.Y. 1998-99, 1999-2000 and 2000-01
was issued within four years from the end of the relevant
assessment year. The assessments for AY 1996-97 and 1997-98
was reopened after the expiry of four years from the end of the
relevant assessment year and as the original assessments was
completed u/s. 143(3) of the Income Tax Act, 1961 and reasons to
that effect was recorded by the AO. The said reasons were provided
to the assessee for reopening of the assessment for each year and
assessee filed its objections which was disposed off by AO vide order
dated 04.03.2004. The limitation date for completion of each
7 ITA No. 2256 to 2261/Del/2005
assessment for each year and the actual date of completion are
mentioned below:-
A.Y. Date of Period Last date Date of Extend Date of Limitation Date on
s receipt specif for extensi ed upto extensi date for which
of ied in submissi on on completion assessmen
order order on of order order of t was to be
u/s. in audit assessmen completed
142(2A) days report t if no
extension
is given for
submissio
n of audit
report
96- none none NA 28.6.04 24.7.04 9.8.04 31.3.04 27.9.04
97
97- 15.3.04 120 10.7.04 26.6.04 24.7.04 9.8.04 22.9.04 27.9.04
98 days
98- 9.3.04 120 7.7.04 26.6.04 24.7.04 9.8.04 22.9.04 27.9.04
99 days
99- 9.3.04 120 7.7.04 26.6.04 24.7.04 9.8.04 22.9.04 27.9.04
00 days
00- 9.3.04 120 7.7.04 26.6.04 24.7.04 9.8.04 22.9.04 27.9.04
01 days
01- 26.2.04 120 24.6.04 28.6.04 24.7.04 9.8.04 23.8.04 27.9.04
02 days
8 ITA No. 2256 to 2261/Del/2005
4. The Ld. Counsel for assessee submitted that the orders passed
by the Assessing Officer extending the last date of submission of the
audit report on 28/6/2004 for A. Y 1996-97 and on 26/6/2004 for
A.Y 1997-98 to A. Y 2000-01 & 2001-02 are suo motu and that the
same are illegal and without jurisdiction. Once the order granting
extension dated 28.06.2004 and 26.06.2004 are not in accordance
with law, then these extension orders dated 28.06.2004 and
26.06.2004 should not be considered for the purpose of
computation of the period of limitation. Therefore he argued that all
the six assessments made on 27/9/2004 are barred by limitation.
The Ld. Counsel for assessee further submitted that second
extension order dated 9/8/2004 passed "suo-motu" by the
Assessing Officer u/s 142 (2C) of the Act, was incorrectly held to be
valid by the Ld. CIT(A). The Ld. Counsel for assessee also made
supplementary submission that in absence of any order u/s
142(2A) for either the Assessment Year 1996-97 or the Assessment
Year 1998-99 depending on the validity of corrigendum order dated
9/8/2004 passed by the assessing officer, are without jurisdiction
and barred by limitation. This is because if the order u/s 142(2A)
for assessment year 1996-97 is valid, then there is no order u/s
142 (2A) subsisting for the Financial Year 1997-98, and the
reassessment order for Assessment Year 1998-99 is barred by
limitation. He further submitted that there is breach of principle of
natural justice because all the order u/s 142 (2A) have been passed
by the Assessing Officer without giving the assessee an opportunity
of being heard. Hence on this ground also he submits that the
9 ITA No. 2256 to 2261/Del/2005
extended period provided under Clause (iii) to explanation 1 of
Section 153 is not available o the A.O for computation the period of
limitation.
4.1. The Ld. Counsel for the assessee submitted the case law of CIT
Vs. Bishan Saroop Ram Kishan Agro (P.) Ltd. [2011] 15
taxmann.com 221 (Delhi), the Hon'ble Delhi High Court held that
(para 15) "...the provisions as existing in sub-section (2C) of Section
142 before 1.4.2008 did not empower the Assessing Officer to "suo
motu" extend the time for submission of audit report under sub-
section (2A). This is also clear from the memorandum explaining the
provisions of granting power to the Assessing Officer to extend time
for completion of special audit under sub-section (2A) of Section 142."
The Hon'ble High Court further held that (para 21) "..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. ...." Thus the Ld. Counsel for the assessee submitted that the
extension granted was "suo motu" in assessee's case as assessee
company has never asked for extension at any time. The letters
which were addressed by the Auditor's and Advocate's or by the
assessee company was not an extension application. The second
case law relied upon by the Ld. AR is Asstt. CIT Vs. Sushila Milk
10 ITA No. 2256 to 2261/Del/2005
Specialties (P) Ltd. (DEL) (SB) 126 TTJ 289 (Del.) (SB) wherein the
assessee company was an intervener which is clearly set out in para
4 of the said judgment. The said para 4 of the judgment is
reproduced herein below:
"4. Shri S. D. Kapila represented on of the intervener in this
appeal namely PHI Seeds Pvt. Ltd. The Counsel for intervener
fairly admitted that since the decision of Tribunal in the case of
Rajesh Kumar (supra) has been carried in further appeal before
the High Court and the Hon'ble Delhi High Court in the case of
Rajesh Kumar vs. CIT while deciding the appeal in IT Appeal
No. 184 of 2009 by order dt. 9th April, 2009 have upheld the
order of Tribunal. Therefore, in view of the decision of
jurisdictional high Court, the issue no longer survives and is
required to be decided against the assessee."
Para 15 of the said order held as "15. All irregular or erroneous or
even illegal orders cannot be held to be null and void as there is fine
distinction between the orders which are null and void and orders
which are irregular, wrong or illegal. Where an authority making
order lacks inherent jurisdiction, such order would be without
jurisdiction, null, non est and void ab initio as defect of jurisdiction of
an authority goes to the root of the matter and strikes at its very
authority to pass any order and such a defect cannot be cured even
by consent of the parties." Thus the AR submitted that the
Assessing Officer does not have any jurisdiction/power to grant
extension on his own, the suo motu extension order are not legal for
11 ITA No. 2256 to 2261/Del/2005
these assessment years. Thus the order is null, non-est and void ab
initio.
4.2. The submissions of Shri S.D. Kapila, Ld. Counsel for the
assessee can be summarized as below:-
(a) Ground No. 10, 11 of the assessment year1996-97 not
pressed.
(b) Ground No. 11 & 10 A. Y 1996-97 not pressed.
(c) Ground No. 11 & 12 A.Y 1997-98 not pressed.
(d) Ground . 11 & 12 A.Y 1998-99 not pressed.
(e) Ground 11 & 12 A. Y 1999-2000 not pressed.
(f) Ground No. 11 & 13 A. Y 2000-01 not pressed.
(g) Ground No. 7 & 9 A. Y 2001-02 not pressed.
And Ground No. 3 (A. Y 1996-97) Ground No. 8 (A. Y 1997-98,
98-99, 99-2000) Ground No. 9 (A. Y 2000-01) Ground Nos. 5
(A. Y 2001-02) is modified as under
"the order of the Ld. CIT(A) has been passed in violation of the
principle of natural justice."
(b) The Additional ground filed by the assessee for the assessment
years 1996-97 to the Assessment Year 2001-02 under Rule 11 of
the ITAT Rules is withdrawn.
(c) The additional ground filed for the Assessment Year 1998-99
that no order u/s 142 (2A) was passed for Assessment Year 1998-
99 is withdrawn.
12 ITA No. 2256 to 2261/Del/2005
(d) The initiation of special audit was bad in law, as no
opportunity was given to the assessee by the Assessing Officer
before appointment of special auditor and consequently the order is
bad in law and the assessments barred by limitation.
(e) Extension of time for completion of special audit u/s 142(2A)
was made u/s 142 (2C), without an application or request from the
assessee and hence the extension granted "suo motu" is bad in law
and consequently the assessment framed is beyond the period of
limitation.
The paper book coming into 76 pages was filed and detailed
arguments were made which we would be taking into consideration
as and when necessary during the course of our findings.
5. The Ld. DR submitted that the assessee sought extension for
submission of the Audit Report. Therefore, the extension given by
the Assessing Officer is not "suo moto" and was a proper extension.
Therefore, the assessments are not barred by limitation. The Ld. DR
further submitted that the order for Special Audit passed under
Section 142 (2A) cannot be challenged before the CIT(A) and ITAT.
The DR further pointed out that before CIT(A) only the second
extension was challenged by the Assessee. The extension was given
by the Assessing Officer for the benefit of the assessee, as the time
was expiring on 24.07.2004 as hence such extension cannot be
found fault with by the assessee. As per the Ld. DR, letters written
by the assessee to the A.O expresses its problems and issues and
when read in the context would be extension of time for
13 ITA No. 2256 to 2261/Del/2005
submission of audit report sought by the assessee. The Ld. DR
submitted that in case of Sahara India (firm) vs. CIT [2008] 300 ITR
403 SC held in para 29 that "....this Court had declined to stay the
assessment proceedings, we are of the opinion that this Court should
be loathe to quash the impugned orders. Accordingly, we hold that
the law on the subject, clarified by us, will apply prospectively and it
will not be open to the appellants to urge before the Appellate
Authority that the extended period of limitation under Explanation 1
(iii) to Section 153 (3) of the Act was not available to the Assessing
Officer because of an invalid order under Section 142 (2A) of the Act.
However, it will be open to the appellants to question before the
appellate authority, if so advised, the correctness of the material
gathered on the basis of the audit report submitted under sub-section
2A of Section 142 of the Act." The Ld.CIT(A) DR submitted that
hence the validity of the order passed u/s 142(2A) of the Act on the
ground of Natural Justice cannot be questioned by the assessee as
the Hon'ble Supreme Court held that the prepositions in the
judgment apply separately. The Ld. DR submitted that in this case
the extension was granted only for the benefit of the assessee which
had, the duty cast on it, for submission of a special audit report.
The Ld. DR further relied upon the case of Rajesh Kumar Vs. CIT,
Central (3) New Delhi of the Hon'ble Delhi High Court. The Ld. DR
submitted that the question of validity of the order of the assessing
officer should have been contested before the Ld. CIT(A) by the
assessee, but was not done by the Assessee. Hence, in light of these
14 ITA No. 2256 to 2261/Del/2005
two judgments, the Ld. DR submitted that the Assessment Orders
were rightly passed and Ld. CIT(A) is correct in upholding the same.
5.1. The submissions of the Ld. DR can be summarized as follows:
(a) The validity of an order u/s 142(2A) cannot be questioned by
way of appeal before the Ld. CIT(A) and the Tribunal, as there is no
provision for such appeal under the Act. Similarly, the extension
orders passed by the A.O granting further time for completion and
submissions of audit u/s 142(2C) of the Act cannot be questioned
in appellate proceedings before the Ld. CIT(A) or the Tribunal (ITAT).
That it is open for the assessee to question the issue by way of a
writ petition before the High Court and not having done so, it is not
open to take the plea in this proceedings.
(b). The Ld. CIT(A) has explained and given the detailed
background and circumstances in which the Assessing Officer had
to extend the time granted for the submission of audit report u/s
142(2C) in the interest of Revenue and hence these orders for the
extension are validly passed.
(c). The Assessing Officer did not pass the order for
extension u/s 142(2C) dated 9/8/2014, "suo motu" for the reason
that, he had taken into account the assessee's letter dated
31/7/2004 to special auditor and the Assessing Officer 's letter
dated 2/8/2004 addressed to the assessee company and the reply
thereon. In fact the entire correspondence is relied upon to infer
that the assessee had in fact requested an extension of time for
submission of audit report. Keeping in view the intention of
15 ITA No. 2256 to 2261/Del/2005
legislature and with a view to avoid making a best judgment
assessment u/s 144(1) (b), for the benefit of the assessee, the
extension was granted and hence the judgment of the Hon'ble
Delhi High Court in the case of Bishan Saroop Ram Kishan Agro (P).
Ltd. supra is distinguishable on facts.
(d). The issue whether the Revenue should not be given
opportunity to the assessee before appointing special auditors u/s
142(2A) is no more res integra in view of the judgment of the larger
Bench of the Hon'ble Supreme Court in the case of Sahara India,
where it was held that the requirement would prospective and that
it would not be open to the assessee to urge before the appellate
authority that the extended period of limitation under Explanation
1 (iii) to Section 153(3) was not available to the Assessing Officer
because of an invalid order u/s 142(2A). The plea of the assessee to
restore the matter back to the file of the A.O in the light of the
Special Bench decision in the case of Sushila Milk Specialities 126
TTJ 289 Delhi Special Bench, cannot be considered as sufficient
opportunity was granted to the assessee and the Assessing Officer
has issued numerous show cause letters for which the Assessee has
submitted his replies.
(e). The technical meaning of term "suo motu" is "on his own
motion" meaning thereby that no other external influence should be
there on the A.O in taking a decision. The plea that the A.O has
"suo motu" extended the time of special audit is factually incorrect
and that this is clear from the various communications between the
16 ITA No. 2256 to 2261/Del/2005
auditor, the assessee, as well as the Assessing Officer. The wording
in the order dated 28/6/2004 extending the time limit for
submission of special audit was relied upon and submitted that it
was because of the difficulties faced by the assessee, which is
evident from the correspondence, that the extension was granted
and this cannot be termed as "suo motu" action of the A.O
(f). The A.O had extended the time of special audit for the second
time, based only on the circumstances which the assessee company
made him aware of, from time to time, by way of correspondence
and this is a good and sufficient reason for grant of extension of
time for special audit.
(g). In case of Bishan Saroop Ram Kishan Agro (P) Ltd., (supra) the
A.O extended the period of special audit for the first time on the
basis of auditors request and the second and third time on his own
and hence the Hon'ble High Court held that, the extension was bad
in law and that such circumstance is not prevalent in the present
case.
(h). The Ld. DR repeated that the Tribunal has no jurisdiction to
examine the validity of the orders passed u/s 142(2A) and order u/s
142(2C).
6. The Ld. Counsel for the assessee on the other hand in his
rejoinder submitted that (a) a combined reading of Clause (a) & (b)
of Section 246 A (i) makes it clear that an order of assessment or re-
assessment can be challenged in Appeal before the Ld. CIT(A)
17 ITA No. 2256 to 2261/Del/2005
denying an assessee's liability to be assessed to tax or disputing the
amount of income tax demanded. (b) That the provisions of u/s
142(2A) and 142(2C) read with Explanation 1(iii)of Section 153 are
integral to the process of making an assessment and it is open for
the assessee to challenge the assessment on the ground that the
period of limitation prescribed has expired on these orders were
erroneous or passed without jurisdiction. (c) That the A.O as well as
the Ld. CIT(A) have stated that power to grant time for submission
of audit report u/s 142 (2C), "suo motu" is available to the A.O
which is not the correct position of law. (d) That the assessee has
not made any application seeking extension of time for submission
of audit report.
6.1. Reliance was also placed on the judgment of the Hon'ble
Delhi High Court in the case of CIT Vs. M/s Kashyap Motors Pvt.
Ltd. judgment dated 23rd August 2011.
7. After hearing the rival contentions, perusing the papers on
records as well as the orders of the authorities below and case laws
cited we hold as follows. At the outset the following grounds by the
assessee are dismissed as not pressed. The grounds are as follows:
(a) Ground No. 10, 11 of the assessment year1996-97 not
pressed.
(b) Ground No. 11 & 10 A. Y 1996-97 not pressed.
(c) Ground No. 11 & 12 A.Y 1997-98 not pressed.
(d) Ground . 11 & 12 A.Y 1998-99 not pressed.
18 ITA No. 2256 to 2261/Del/2005
(e) Ground 11 & 12 A. Y 1999-2000 not pressed.
(f) Ground No. 11 & 13 A. Y 2000-01 not pressed.
(g) Ground No. 7 & 9 A. Y 2001-02 not pressed.
(h) Ground No. 3 (A. Y 1996-97) Ground No. 8 (A. Y 1997-98,
98-99, 99-2000) Ground No. 9 (A. Y 2000-01) Ground Nos. 5
(A. Y 2001-02) is modified as under
"the order of the Ld. CIT(A) has been passed in violation of the
principle of natural justice.".
These grounds are also dismissed as not pressed.
7.1. The additional grounds by the assessee under Rule 11 of the
ITAT Rules for the A.Y 1996-97 to 2000-01 stands dismissed as
withdrawn. Similarly, the additional ground filed for the A. Y
1998-99, with respect to passing of an order u/s 142(2A) is also
dismissed as withdrawn.
7.2. The only question which we adjudicate in this order is
"whether the assessment orders for all the six assessment years are
barred by limitation, in view of provisions of Section u/s 142(2A)
142(2C) read with Explanation 1 (iii) of Section 153 of the Act." In
other words the issue which is to be adjudicated is, "whether on the
facts and circumstances of this case, the extended period of
limitation is available to the Assessing Officer as for the provisions
of Explanation 1 (iii) of Section 153.
19 ITA No. 2256 to 2261/Del/2005
7.3. We first consider the argument of the Ld. DR that issue as to
whether the order u/s 142 (2A) is valid or not it cannot be appealed
before the Tribunal and that the Tribunal has no jurisdiction to
adjudicate such issues of validity of orders passed u/s 142(2A) and
Section 142(2C).
7.4. In the present proceedings what we are examining, is whether
the extended period of limitation as provided under Explanation
1(iii) of Section 153 is available to the Assessing Officer for
completion of assessment u/s 143(3), or not. The assessee
contends that the order u/s 142(2C), extending the period granted
for completion and submission of audit report is made without an
application being made for extension by the assessee and for any
good and sufficient reason, and hence the extension is bad in law
and hence the A.O would not get the benefit of the extended period
of time to specified in Explanation 1(iii) of Section 153 of the Act. In
our view, the Tribunal has jurisdiction to adjudicate the issue as to
whether an order of assessment 143(3), is passed within the period
of limitation prescribed under the Act or not. For coming to such a
conclusion, in our view the Tribunal can examine whether the order
passed u/s 142(2A) or u/s 142(2C) is in accordance with law or not.
The order passed u/s 142(2A) or u/s 142(2C) cannot be appealed
separately. But when an assessment order is challenged, then the
different aspects which are integral to the process and ultimate
completion of amount can be challenged in Appeal. For example a
notice u/s 148 or reasons recorded by the A.O prior to re-opening of
assessment cannot be challenged separately. But an assessment
20 ITA No. 2256 to 2261/Del/2005
order can be challenged in an Appeal before the Ld. CIT(A) or the
ITAT on the ground that the re-opening itself is bad in law, as the
notice is illegal or not served or that there is no material based on
which reasons were recorded etc. Every facet of an assessment can
be challenged in appeal to deny once liability to be charged to tax
or to challeng the quantum of tax demanded. In the case of hand,
the legality of the orders passed u/s 142(2A) or u/s 142(2C) can be
challenged to demonstrate that the order of assessment has been
passed beyond the period of limitation. Thus, we reject this
contention of the Ld. CIT. DR.
7.5. We, now consider the issue whether the order passed by the
A.O extending time granted for submission of special audit report
dated 28th June 2004, is in accordance with law or not. For the
ready reference, we extract the order as follows:
Office of the
Assistant Commissioner of Income Tax,
Circle 14(1), C.R. Building,
I.P. Estate, New Delhi
Pin: 110002
Date: June 28, 2004
Order
Whereas, in exercise of the powers conferred in terms of the
provisions of Section u/s 142(2A) of the Income Tax Act, 1961,
the assessee M/s PHI Seeds Ltd., B-4, G. K. Enclave Part II,
New Delhi was directed vide order dated 21/2/2004 to 2000-
01 audited by the Accountant M/s S. K. Mittal & C., E-29, South
Extension, Part-II, New Delhi and to furnish a report of such
audit in prescribed form setting forth required particulars with
in 120 days.
21 ITA No. 2256 to 2261/Del/2005
Now, since, it is understood that the audit work is yet to be
completed and assessee company needs further time to comply
with the directions, the time limit for submission of the required
audit report for the assessment years 1996-97 to 2001-02 is
being extended to 24/7/2004.
7.6 In response to the above order, the assessee on 5th July 2004,
has written to the Assessing Officer on the above issue seeking
rectification u/s 154. This letter is extracted for ready reference:-
July 5, 2004
The Assistant Commissioner of Income Tax
Circle 14(1),
New Delhi
Ref: Audit u/s 142(2A) your order No. F No/ACIT Cir
14(1)/2004-05 u/s 142(2A)/362 dated June 28, 2004.
Application for rectification under section 154 of the Income
Tax Act 1961.
Dear Sir,
With reference to your captioned order received by us on
June 29, 2004, it is submitted that the said order is factually
incorrect as in paragraph 2 it erroneously states that "and the
assessee company needs further time to comply with the
directions."
It is respectfully submitted that the company has at no
time, as erroneously alleged in the order, made any submission,
request or application to the effect that it needs further time to
comply with the directions. In fact, vide letter dated June 3,
2004 duly filed in your office, it was clearly explained that the
22 ITA No. 2256 to 2261/Del/2005
company had duly complied with the directions and fully
cooperated in this regard and that the delay in the starting or
completing the audit was not attributable to the company in any
manner whatsoever.
It is accordingly prayed that the order referred above may
kindly be rectified u/s 154 of the Income Tax Act 1961 by
deleting/expunging the words " and the assessee company
needs further time to comply with the directions" in paragraph 2
of the said order.
Thanking You,
Yours faithfully,
For PHI Seeds Limited.
Thus from the above correspondence it is clear that the assessee
company denies that it applied or regenerated for the time to
comply with the order passed u/s 142(2A)
7.7 Section 142(2C), read as follows:-
"(2C) Every report under sub-section (2A) shall be furnished by
the assessee to the 3[Assessing] Officer within such period as
may be specified by the 3[Assessing] Officer:
Provided that the 3[Assessing] Officer may, 4[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
23 ITA No. 2256 to 2261/Del/2005
aggregate of the period originally fixed and the period or periods
so extended shall not, in any case, exceed one hundred and
eighty days from the date on which the direction under sub-
section (2A) is received by the assessee.
(4 . Inserted by the Finance Act, 2008 w.e.f.1-4-2008)
The term suo motu was inserted by the Finance Act, 2008
w.e.f. 1/4/2008. Thus prior to that, the requirement of the Act is
very clear that the periods for furnishing the audit report can be
extended only by an application made in this behalf by the assessee
and not otherwise. The judgment in the case of Bishan Saroop
Ram Kishan Agro (P) Ltd. (supra) in this regard is clear.
7.8. Inference drawn by the Assessing Officer, while extending the
period granted vide order dated 28th July 2004 cannot in our view
replace an application made by the assessee for grant of extension
of time, which is a requirement of the Act. When the assessee has
not made a specific application for extents or sought for the time to
set the audit completes, the A.O cannot based on correspondence
draw an inference and grant an extension of time. He should write
to the assessee in case of doubt.
7.9. Even otherwise, the assessee has specifically in its letter
dated 5th July 2004, submitted before the Assessing Officer that he
is factually wrong in coming to a conclusion that the assessee needs
further time to comply with the directions. Thus the inference or
presumption drawn by the A.O has been rebutted by the assessee.
24 ITA No. 2256 to 2261/Del/2005
Under such circumstances, the Assessing Officer was duty bound
to complete the assessment, without granting further time to the
assessee for furnishing of audit report, even if he had to invoke the
provisions of Section 144 of the Act. When the assessee does not
ask for time and specifically states so, the A.O cannot thrust an
extension on it.
7.10. The Ld. DR had submitted that the terms suo motu
means on its own motion and that Assessing Officer has not acted
on his own. The requirement of the Act does not speak of suo
motu. It speaks of extension being granted on an application being
made by the assessee and also for good and sufficient reason. In
this case, there is no specific application by the assessee for the
extension of time. Hence, in our view, the order passed u/s
142(2C) dated 28th June 2004, is not in accordance with the
provisions of law. The Hon'ble Jurisdictional High Court in the case
of Bishan Saroop Ram Kishan Agro (P) Ltd. Supra held that the
term "suo motu" inserted in the provisions of Section 142(2C) w.e.f
1/4/2008 is prospective in nature and that prior to the amendment
the Assessing Officer did not have the inherent power to extend the
time limit for the audit report without an application by the
assessee. Recently, the Hon'ble Jurisdictional High Court in the
CIT Vs. M/s Kashyap Motors Pvt. Ltd judgment dated 23rd August
2011 in ITAT 582/2011 followed the judgment of the Hon'ble High
Court in the case of Bishan Saroop Ram Kishan Agro (P) Ltd. supra
and held that
25 ITA No. 2256 to 2261/Del/2005
"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 against the
revenue."
8. In view of the above, discussion, we have no hesitation in
holding to hold that the extension of time framed by the A.O for
submission of audit report u/s 142 (2C) of the Act vide order dated
28th June, 2004 is bad in law. Consequently the Assessing Officer
would not get extension of time for completion of assessment in
terms of Explanation 1 (iii) to Section 153 for the purpose of
computation of limits. Hence, the assessments are barred by
limitation as per the table given at Para 7 of the order. The
Assessment for the A.Y 1996-97 was to be complete on or before
31/3/2004 and the assessment order for the Assessment Year
1997-98 to 2000-01 had to be completed on or before 22/9/2004
and the assessment for the A. Y 2001-02 had to be completes on or
before 23/8/2004, but all these assessments were completed on
27/9/2004, which is beyond the period of limitation specific in the
Act. Hence they are bad in law.
8.1. As we have held that all these assessments are barred by
limitation, we do not adjudicate the other arguments and legal
26 ITA No. 2256 to 2261/Del/2005
issues raised by both the parties, as it would be an academic
exercise.
9. In result, all the appeals of the assessee are allowed.
The order is pronounced in the open court on 9th of December 2015.
Sd/- Sd/-
(J. S. REDDY) (SUCHITRA KAMBLE)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 09/12/2015
*R. Naheed*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT ASSISTANT REGISTRAR
ITAT NEW DELHI
Date
1. Draft dictated on 17.09.2015 PS
&
30/11/2015
2. Draft placed before author 17.09.2015 PS
3. Draft proposed & placed before 18.09.2015 JM/AM
the second member
4. Draft discussed/approved by JM/AM
Second Member.
27 ITA No. 2256 to 2261/Del/2005
5. Approved Draft comes to the 08.12.2015 PS/PS
Sr.PS/PS
6. Kept for pronouncement on PS
7. File sent to the Bench Clerk PS
09.09.2015
8. Date on which file goes to the AR
9. Date on which file goes to the
Head Clerk.
10. Date of dispatch of Order.
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