Income Tax Appellate Tribunal - Indore
Maya Spinners Ltd. vs Dy. Commissioner Of Income Tax ... on 28 September, 2007
ORDER
Bhavnesh Saini, Judicial Member
1. These cross appeals are directed against the order of ld. CIT(A)-I, Indore dated 31.3.1997 for AY 1993-94. Ld. Counsel for assessee did not press grounds No. A, 5, 6, 8, 16, 18, 19 and 20 of the appeal of the assessee. The same are dismissed.
2. Ld. Counsel for assessee raised preliminary objection to the passing of the assessment order on the grounds that the assessment order is time barred Under Section 153 of the IT Act and that no opportunity was given at the time of referring the books of account for special audit Under Section 142(2A) of the IT Act therefore same is bad in law and would not extend time limit for completion of the assessment and that exparte assessment order Under Section 144 is bad in law and invalid because books of accounts were impounded by the revenue department and assessee submitted proper reply before the AO at the assessment stage therefore there is no failure on the part of the assessee to comply with statutory notices. He has further submitted that ld. CIT(A) was not justified in upholding the findings of the AO. Ld. Counsel for assessee submitted that these issues are raised in grounds No. 1, 2, 3 in the assessee's appeal and go to the root of the matter and may be decided before considering the grounds on merit on which several lengthy grounds of appeals are taken in both the cross appeals. Ld. representatives of both parties are heard on these issues on question of law as well as on the remaining grounds on merits in both the cross appeals.
3. We have heard ld. representatives of both the parties and gone through the findings of the authorities below and material available on record in the light of the provisions of Section 153 of the IT Act as was applicable to the AY 1993-94 under appeal.
4 The grounds No. 1, 2, 3 in the assessee's appeal read as under:
1. That the learned CIT(A) erred in holding that the order passed by the AO is within times by ignoring the clear provisions of law and the decision of the Jurisdictional High Court. The order passed by the AO being clearly out of date, the same is illegal and nonest. The same therefore requires to be annulled.
2. That on the facts and in the circumstances of the case, the clear provisions of law and decided case, the Ld. AO erred in referring the appellant's case for special audit without having regard to the nature and complexity of the accounts and without allowing proper opportunity of being heard to the assessee. The Ld. CIT(A) therefore erred in not holding that reference to special audit was illegal. The assessment order so passed was therefore illegal and also out of date. The said order therefore requires to be cancelled.
3. That the learned CIT(A) also erred in holding that the order passed by the Ld. AO Under Section 144 was proper thereby clearly ignoring the facts that the delay in taking up the assessment by the AO was intentional and that there was no non-compliance on the part of the assessee considering the facts and circumstances of the case. The order passed Under Section 144 be therefore treated to have been passed Under Section 143(3).
5. The facts of the case as noted in the impugned order are that the assessee is a company and engaged in manufacturing and sale of cotton yarn in Pithampur, Distt. Dhar. Return was filed on 31.12.93 declaring NIL income claiming set off of unabsorbed depreciation and investment allowance of earlier years. A survey was conducted at the business premises of the assessee on 30.12.93 and certain books of accounts pertaining to AYs 1991-92 to 1994-95 were impounded by the AO and these were directed to get audited Under Section 142(2A) of the Act. Since the assessee during the course of assessment proceedings did not furnish details required by the AO from time to time. He has completed the assessment Under Section 144 on total income of Rs. 4,76,45,351/-.
5.1. The First ground of appeal before the ld. CIT(A) was to the illegality of the order passed by the AO. A notice Under Section 142(2A) dated 9.10.95 was served on the assessee on 14.10.95 to get its accounts audited by 31.10.95. Extension of time was sought from time to time and granted till 15.3.96. The assessee requested vide letter dated 15.3.96 for further time of 2 months which was not granted to the assessee. According to the ld. Representative of assessee, assessment for this year in usual course would have expired on 31.3.96 and since no audit report was submitted, AO would have got further time from 14.10.95 to the date of submission of the audit report as per Section 153(3) explanation (1) of Sub-clause (iii). In the instant case no audit report was submitted and further extension beyond 15.3.96 was not granted. It is the case of the assessee that as per version of the AO himself assessment should have been completed within 153 days from 12.3.96 i.e. by 12.8.96, however, since the order has been passed on 16.8.96 after issuing detailed notices upto 14.8.96. It is beyond limitation period.
5.2. It is submitted that as per proviso to Section 153(3) explanation (1) the time allowed in such a case is only 60 days from the date when the time allowed for filing of audit report expired i.e. on 15.3.96 or in any case when the assessment became barred by limitation on 31.3.96. It is submitted that as per decision of M.P. High Court in the case of CIT v. Dhariwal Sales Enterprises 221 ITR 240 the AO should have completed the assessment immediately when he refused to grant further time for audit on 12.3.96 or in any case when the time allowed by him for audit expired on 15.3.96.
5.3. The Counsel for assessee has also challenged the reference for special audit and the reasons and circumstances for special audit according to him have been discussed elaborately by the Allhabad High Court in Swadeshi Cotton Mills Co. Ltd. v. CIT 171 ITR 634. As per the above decision the satisfaction of the AO to refer the case for special audit should not be subjective satisfaction only, rather it should be passed on objective assessment considering the nature of accounts. The word complexity has also to be considered in its right perspective and to treat certain accounts as complex for the purposes of special audit, there should be an honest attempt to understand the accounts of the assessee by the AO, who had failed in the case of the assessee. It is elaborated that accounts of the assessee are subjected to statutory audit under the Companies Act and it is the case of Textile Mill whose methods of accounting is very well known to the Deptt. and this was not the first year of assessment of the assessee company. Account books were already available with the AO from 30.12.93 to 9.10.95 the date when notice Under Section 142(1) was issued till 10.4.96. Hence it was rather surprising as to how the AO had come to the conclusion that there was complexity in the accounts of the assessee so as to give him an objective satisfaction for the said reference. Reference is also made to ITAT Indore Bench, Inodre decision in the case of Vijay Kumar Rajendrakumar & Co. in which the Tribunal has held that a previous notice has to be given to the assessee for making a reference to special audit and had relied on the Supreme Court decision in C.B. Gautam v. Union of India 199 ITR 530.
5.4. Further submission in this regard were filed vide letter dated 13.1.97 on 14.1.97 reiterating the earlier stand that the period of 150 days when added to 12.3.96 ends on 9.8.96 on which date the period of limitation for passing the assessment order had expired. For justifying his stand the ld. Representative of the assessee submits as under:
9. The proviso Section 153(3) explanation (1) states that where immediately after the exclusion of the aforesaid time or period, the period of limitation referred to in Sub-section (1), (2) and (2A) available to the AO for making an order of assessment, re-assessment or re-computation, as the case may be, is less than 60 days and the aforesaid period of limitation shall be deemed to be extended accordingly.
10. As per proviso, in a case where the extended period given to the assessee for getting its accounts audited, as excluded, had ended on say 20th of April '96 the A.O. would in any case, get time of 60 days from the usual period of limitation, ending 31st March, '96 i.e. upto 30th May, 1996.
11. In this case since the excluded period of 150 days ended beyond 30.5.96, the proviso is not applicable to this case.
12. With regard to the above submissions we also rely on the commentary on Income-tax Act by Sampath Ayanger, 9th Edition, Fourth Volume, page 5604. While dealing with Clause (iii) of explanation 1, the author states that the said explanation provides for exclusion of the period commencing from the date on which the AO directs (as per proviso to Section 142(2A) served) the assessee to get his accounts audited Under Section 142(2A) and ending with the date on which the assessee furnishes a report of such audit under that Section These comments clearly support the submission which we have made in para-8 above i.e. the exclusion of 150 days and the same to be added on the day the assessee inform the AO about its inability to get the accounts audited.
13. The proviso to the above explanation inserted by the Finance (No. 2) Act, 1991, has been discussed by the same author on page-5606. He states that the said proviso has been inserted w.e.f. 27th September, 1991. It provides that where immediately after the exclusion or the time or period mentioned in Clause (i) to (v) of the explanation (1) to the section, the remaining period of limitation referred to in Sub-section (1), (2) and (2A) for completing assessments or re-assessments, etc. is less than 60 days, such remaining period shall be extended to 60 days and the aforesaid period of limitation shall be extended accordingly. In this case also the Ld. Author agrees to what we have stated in paras 9 and 10 above.
14. While we are on this issue we will like to refer to the limitations prescribed for exclusion of time in case of assessment under Section 144-B. In the years in which these provisions of Section 144-B were on the statute book, the AO was required to make reference to Dy. Commissioner where the additions made by him exceeded Rs. 1,00,000/-. In such cases the AO was required to serve the draft order to the assessee. The assessee was required to file his objections against the additions made in the order within seven to fifteen days. On receipt of the objections the AO was required to forward the draft order together with the objections filed by the assessee to the Dy. Commissioner. A period of 180 days starting from the date of service of the draft order to the assessee and ending with the date of which the AO received the directions from the Dy. Commissioner were to be excluded. While commenting on this Section on page-5605 the Ld. Author writes that the said Clause (iv) of explanation (1) provides for a period not exceeding 180 days to the AO to complete an assessment, in addition to the normal period if action Under Section 144-B is taken by the AO. The period excluded is the period between the date on which the AO forwards the draft order to the assessee and the date on which the directions are received form the Dy. Commissioner. This means, that if the AO served the Draft order on the assessee say on 25th March, he will be allowed only 6 days (26th March to 31st March) to complete the assessment proceedings on receipt of the directors from the Dy. Commissioner and nothing more. The said period of six days in such a case will not be extended even if, the directions from the Dy. Commissioner are received earlier to the expiration of 180 days.
15. From the above it is more than clear that what is to be added is the period taken in audit proceedings from date of notice to the date on which the audit report is received and nothing more.
16. We now consider the amended Clause (iii) of explanation (1) to Section 153, which has been introduced by the Finance Act (No. 2), 1996 and effective from AY 1997-98. As per this amendment, the situation where no audit report is submitted has been covered by substituting the words 'the date in which the assessee furnished' to the words 'the assessee is required to furnish'. The Ld. author on page 05605 has commented on this amendment also. He states that Clause (iii) of explanation (i) to Section 153 has been amended to exclude from the period of limitation, the period commencing from the date on which the AO directs the assessee to get his accounts audited and ending with the date on which the assessee was required to furnish such report. Earlier the said period ended with the date on which the assessee actually furnished the audit report. This amendment takes effect from 1st April, 1997.
17. What emerges from this amendment is that the lacuna in respect of non-furnishing of report has been plugged, like in the present case. But, it will be seen that the said amendment has not been made retrospective but will be effective after 1.4.97. Therefore, in the present case, the AO should have completed the assessment by 31.3.96being the usual time allowed under Section 153(1) and (2), since there was no provision in the Act for extension of time in a case where no audit report was submitted. Even if, recourse is made to the proviso to explanation (1), to Section 153(3), the AO would have got a extended period of 60 days to the remaining period of limitation. In this case since the AO was informed that it was not possible to file the audit report on 12.3.96 and since the remaining period of limitation was of 19 days only, which was less than 60 days as per the said proviso the AO should have completed the assessment within 60 days of such intimation dated 12.3.96 i.e. by 11.5.96.
18. From the above submissions, as per the clear provisions of law, the decision of the ITAT, Indore Bench in the case of Vijaykumar Rajendrakumar & Co. and the decision of M.P. High Court in the case of CIT v. Dhariwal Sales Enterprises 221 ITR 240 and thus looked from any angle, the order passed by the Ld. AO is out of date, illegal and bad in law.
19. That as per the decision of ITAT Indore Bench in the case of Vijaykumar Rajendrakumar it was incumbant on the AO to have allowed proper opportunity of being heard before issuing the notice for referring the matter for special audit Under Section 142(2A). For this preposition the Hon'ble Tribunal relied on the decision of the Supreme Court in the case of C.B. Gautam v. Union of India 199 ITR 530. This basic requirement having not been complied with by the AO the assessment should have been completed in ordinary course by 31.3.96. This was not done by him and therefore, for this reason also the order passed by the AO is out of date, illegal and bad in law.
20. Section 142(2A) requires that a reference for special audit can be made only after having regard to the nature and complexity of the accounts of the assessee and the interest of revenue. In this case, as submitted earlier, the Ld. AO did not touch the books and other papers illegally seized and illegally retained by him on 30.12.93 till 9.10.95. On that day, considering the volume of papers seized by him and any how to gain time for completion of assessment, he just issued the notice Under Section 142(2A). The Allahabad High Court in the case of Swadeshi Cotton Mills Co. Ltd. v. CIT 171 ITR 634 has clearly held that a case cannot be referred for special audit on the subjective satisfaction of the AO. In this case this is exactly what has happened. The Ld. AO without even going through the return of total income filed by the assessee and other material available with him and also without applying his mind to the facts of the present case issued the notice Under Section 142(2A). There was therefore, neither the satisfaction of the AO nor was a case made out by him of complexity in the accounts of the assessee. Further not a single notice Under Section 142(1) was issued after the filing of the return on 31.12.93 till 10.4.96 but that too after the usual limitation period for completion of assessment was over. For all these reasons and as per the decisions of various High Courts on this issue in addition to that of Allahabad High Court mentioned above and the clear requirement of Section 142(2A), the Ld. AO in the garb of seeking the protection of extended time allowable Under Section 142(2A) issued the said notice for special audit, which was patently illegal. Thus, the order passed by the AO is illegal, bad in law and out of date.
6. The ld. CIT(A) considering the submission of assessee rejected the. appeal of assesee on these issues. The findings of ld. CIT(A) in paras 6, 7, 7 are reproduced as under:
6. The matter was discussed with the AO who was apprised of the decision of the Hon'bie M.P. High Court reported in 221 ITR page-240. According to his calculation there is no dispute that the date of letter of reference for audit was 9.10.95 which was served on the appellant on 14.10.95 requiring the appellant to file the Audit Report by 31.10.95 and further time also was extended as per request of the appellant upto 15.3.96. In the mean while letter of refusal was filed on 12.3.96 and as per interpretation of Hon'bie M.P. High Court decision period to be excluded would be 14.10.95 to 12.3.96 i.e. in all 150 days, normal time-barring date was 31.3.96and thus period excluded for 150 days must start from 1.4.96 and with this calculation time-barring date would be 150 days later than 1.4.96 which is 28.8.96 and since assessment order had been passed and served on the appellant on 16.8.96 the order is not nullity or barred by limitation. The interpretation of the appellant that proviso to Section 142(2A) deals with 'received' by an assessee and not referral, therefore, from that reckoning order passed by the AO was well before the limitation period.
7. I have perused the copies of correspondence and it is seen that order authorizing reference Under Section 142(2A) of the Act was served on the appellant on 14.10.95. Therefore, there is no merit in the explanation tendered by the ld. Representative that the assessment order has been passed by the AO beyond the prescribed period. If there was any delay at all it was on account of the appellant itself who had been requesting for extension of time and liberally granted by the AO therefore, there should not have been any grudge on this count. The complexity of the appellant cannot be ignored in delayed taking up the assessment though within time allowed by the statute. Thus, the decisions relied on by the Ld. Representative are not on all force to the facts of the case and this ground is rejected. It may be pointed out here that objection taken by the appellant that there were no complexity in accounts necessitating special audit Under Section 142(2A) and without allowing an opportunity of being heard before reference for special audit it was an administrative matter and special audit has been authorized by the concerned authority, is without any merit and I decline to interfere in the above administrative matter.
7. Next point is against completing the assessment order Under Section 144 of the Act. It is contended that the appellant had been making proper compliance in respect of all the requirements and last notice issued between 7.8.96 to 14.8.96 required a lot of compliance and the details could be furnished on 16.8.96. It is rather impossible for the AO to go through voluminous papers and get the order typed and served on the appellant running into about 100 pages. Therefore, natural justice had been denied to the appellant in so far as assessment order Under Section 144 was concerned for noncompliance of directions issued Under Section 142(2A) of the Act. If there was any noncompliance it was explainable as all the books of accounts were impounded by the AO and necessary information could have been gathered from those impounded books of accounts. The above argument of the Ld. Representative falls flat because the appellant had requested for extension of time upto 15.3.96 for submitting the audit report but in the mean time it had filed a refusal letter on 15.3.96. Therefore, knowing-fully well that as per reference for getting the audit done Under Section 142(2A) details will have to be submitted, the appellant deliberately had not submitted the details and on unexplainable grounds the AO had no alternative but to adhere to the time schedule. It is none of the business of the appellant to have questioned the availability of time with the AO and staff members who had put in extra labour for completing the assessment. If there are limitation matters one has to put in extra effort and the AO realizing this had finalised the assessment. This ground of appeal is rejected.
7. Ld. Counsel for assessee reiterated the submission made before authorities below. He has submitted that no opportunity was given to the assessee while making a reference for special audit Under Section 142(2A) and that there is no approval of CIT/CCIT to the proposed action of the AO. The reference Under Section 142(2A) is therefore invalid and bad in law. He has relied upon the decision of the Supreme Court in the case of Rajesh Kumar and Others 287 ITR 91 in which it was held (Head Note):
Assessment-Special Audit of Accounts-Nature of Direction for Special Audit-Not Administrative-Is of Quasi-Judicial Nature-Notice to Assessee to be given-Income-Tax Act, 1961, Sections 136, 142(2A), (3), 158BC.
Ld. Counsel for assessee further submitted that no audit report was filed because the auditor refused to audit the accounts which were impounded by the deptt. He has submitted that explanation 1 (iii) of Section 153 has been amended w.e.f. 1.4.97 which is also clarified by CBDT in its circular No. 2486 (copy filed). He therefore submityted that since the AY in appeal is 93-94 therefore amended explanation is not applicable to this case. He has submitted that assessee filed application before AO on 12.3.96 intimating that special auditor refused to audit the accounts therefore AO should have passed the assessment order within 60 days from 12.3.96 however AO has passed the order on 16.8.96 therefore same is barred by time as provide Under Section 153 of the IT Act. He has relied upon order of ITAT, Indore Bench in the case of DCIT v. Laxmi Trading Co. 2 ITJ 266 in which it was held [Head Note]:
Assessment - Under Section 153 of the Income-tax Act, 1961 -whether the assessment barred by the limitation of time is valid under the law? - Held - No. direction for audit was issued on 11.3.97 and last date for submission of audit report was 12.4.97, therefore, asstt. Should have been completed within 60 days of such last date for submission of the report as extended by Section 153(3) i.e. 11.6.97 which was beyond the time allowed under the Act and, therefore, same has been correctly annulled by the CIT(A).
Ld. Counsel for assesee further submitted that there was no need to get the accounts audited from special auditor because the accounts of the assessee were not of complex in nature. He has relied upon certain decisions. List of which is filed on record. Ld. Counsel for assessee further submitted that since books of accounts were already impounded by the deptt. and assessee filed reply time to time before AO therefore exparte assessment order Under Section 144 was not justified.
8. ON the other hand, ld. DR relied upon orders of the authorities below and submitted that CIT, Bhopal gave approval Under Section 142(2A) vide letter dated 10.11.94 (copy filed). Ld. DR further submitted that AO applied his mind and was of the view that the accounts of the assessee are of complex in nature which require to be audited by special auditor in the interest of revenue therefore AO proposed to take action Under Section 142(2A) which was approved by the CIT, Bhopal. Ld. DR relied upon decision of Allhabad High Court in the case of Ghaziabad Urban Cooperative Bank Ltd. 287 ITR 473 in which it was held "that books of accounts examined and found to be complex. Appointment of special auditor Under Section 142(2A) justified." Ld. DR further submitted that no opportunity is provided to be given to the assessee before making a reference to the special auditor Under Section 142(2A) before amendment of the Act. Ld. DR further submitted that according to Section 153(3) read with explanation 1 the period during which direction to get the accounts audited was extended will be excluded for the purpose of counting the limitation therefore AO was entitled to pass the order up to 2.9.96 while assessment is passed on 16.8.96 therefore assessment order was passed within time. Ld. DR submitted that assessee did not file proper details before AO therefore exparte assessment order was correctly made.
9. We have considered rival submissions and material on record. Section 153 of IT Act as was applicable to the AY in appeal reads as under:
Time limit for completion of assessment and reassessments (1) No order of assessment shall be made under Section 143 or Section 144 at any time after the expiry of-
(a) two years from the end of the assessment year in which the income was first assessable; or
(b) one year from the end of the financial year in which a return or a revised return relating to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year, is filed under Sub-section (4) or Sub-section (5) of Section 139, whichever is later.
(2) No order of assessment, reassessment or re- computation shall be made under Section 147 after the expiry of two years from the end of the financial year in which the notice under Section 148 was served:
Provided that where the notice under Section 148 was served on or before the 31st day of March, 1987, such assessment, reassessment or re-computation may be made at any time up to the 31st day of March, 1990.
(2A) Notwithstanding anything contained in Sub-section (1) and (2), in relation to the assessment year commencing on the 1st day of April, 1971, and any subsequent assessment year, an order of fresh assessment under Section 146 or in pursuance of an order, under Section 250, Section 254, Section 263 or Section 264, setting aside or cancelling an assessment, may be made at any time before the expiry of two years from the end of the financial year in which the order under Section 146 cancelling the assessment is passed by the Assessing Officer or the order under Section 250 or Section 254 is received by the [Chief Commissioner or Commissioner] or, as the case may be, the order under Section 263 or Section 264 is passed by the [Chief Commissioner or Commissioner].
(3) The provisions of Sub-section (1) and (2) shall not apply to the following classes of assessments, reassessments and re-computations which may [subject to the provisions of Sub-section (2A),] be completed at any time-
(i) where a fresh assessment is made under Section 146;
(ii) where the assessment, reassessment or re-computation is made on the assessee or any person in consequence or to give effect to any finding or direction contained in an order under Section 250, 254, 260, 262, 263 or 264 [or in an order of any court in a proceeding otherwise than by way of appeal or reference under this Act].
(iii) where, in the case of a firm, an assessment is made on a partner of the firm in consequence of an assessment made on the firm under Section 147.
Explanation 1. - In computing the period of limitation for the purposes of this Section-
(i) the time taken in reopening the whole or any part of the proceeding or in giving an opportunity to the assessee to be reheard under the proviso to Section 129, or
(ii) the period during which the assessment proceeding is stayed by an order or injunction of any court, or
(iii) the period commencing from the date on which the Assessing Officer directs the assessee to get this accounts audited under Sub-section (2A) of Section 142 and ending with the date on which the assessee furnishes a report of such audit under that sub-section, or
(iv) Omitted by the Direct Tax Law (Amendment) - Act, 1987, w.e.f. 1.4.1989 (iva) the period (not exceeding sixty days) commencing from the date on which the Assessing Officer received the declaration under Sub-section (1) of Section 158A and ending with the date on which the order under Sub-section (3) of that Section is made by him, or
(v) in a case where an application made before the Income-tax Settlement Commission under Section 245C is rejected by it or is not allowed to be proceeded with by it, the period commencing from the date on which such application is made and ending with the date on which the order under Sub-section (1) of Section 245D is received by the Commissioner under Sub-section (2) of that section, shall be excluded.
Provided that where immediately after the exclusion of the aforesaid time or period, the period of limitation referred to in Sub-section (1), (2) and (2A) available to the Assessing Officer for making an order of assessment, reassessment or re-computation, as the case may be, is less than sixty days, such remaining period shall be extended to sixty days and the aforesaid period of limitation shall be deemed to be extended accordingly.
Explanation 2. - Where, by an order [referred to in Clause (ii) of Sub-section(3)], any income is excluded from the total income of the assessee for an assessment year shall, for the purposes of Section 150 and this section, be deemed to be one made in consequence of or to give effect to any finding or direction contained in the said order.
Explanation 3. - Where, by an order [referred to in Clause (ii) of Sub-section (3)], any income is excluded from the total income of one person and held to be the income of another person, then, an assessment of such income on such other person shall, for the purposes of Section 150 and this section, be deemed to be one made in consequence of or to give effect to any finding or direction contained in the said order, provided such other person was given an opportunity of being heard before the said order was passed.
10. Section 142(2A) reads as under:
(2A) If, at any stage of the proceedings before him, the Assessing Officer, having regard to the nature and complexity of the accounts of the assessee and the interests of the revenue, is of the opinion that it is necessary so to do, he may, with the previous approval of the [Chief Commissioner or Commissioner], direct the assessee to get the accounts audited by an accountant, as defined in the Explanation below Sub-section (2) of Section 288, nominated by the [Chief 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.
11. Explanation 1 - (iii) to Section 153 as is amended w.e.f. 1.4.97 reads as under:
The period commencing from the date on which AO directs the assessee to get his accounts audited under Sub-section (2A) of Section 142 and ending with [the last date on which the assessee is required to furnish] a report of such audit under that sub-section.
12. Ld. Counsel for assessee submitted that the above provision is applicable from 1.4.97 even as per CBDT circular. Copy of same is filed which reads as under:
[2486] Amendment of time limit of completion of assessments and reassessments [The Finance (No. 2) Act, 1996] 49.1 Under the existing provisions of Income-tax Act, the time limit for making an order of assessment is tow years from the end of the assessment year in which the income was first assessable. However, in certain circumstances the time is extended, or certain periods are excluded from the period of limitation.
49.2 In cases where special audit is ordered, the Assessing Officer is of the opinion that, having regard to the nature and complexity of the accounts of the assessee and the interests of the Revenue, it is necessary so to do, he may, with the previous approval of the Chief Commissioner or Commissioner, direct the assessee to get the accounts audited by an accountant nominated by the Chief Commissioner or the Commissioner in this behalf. The assessee is required to furnish a report of such audit in the prescribed form duly signed and verified by the prescribed accountant. In such cases, the period commencing from the date on which the Assessing Officer directs the assessee to get his accounts audited under Section 142(2A) and ending with the date on which the assessee furnishes a report of such audit is excluded while reckoning the period of limitation for completion of the assessment. As per the existing provisions, the special audit report is to be submitted within the time allowed by the Assessing Officer subject to a maximum of 180 days.
49.3 It has been the experience of the Department that in a few cases where special audit is ordered, the assessees do not co-operate with the accountant as a result of which the report is not prepared and, therefore, not furnished. In such cases the normal time limit of two years is operative and the Assessing Officer does not get any additional time for the purpose of making an assessment because the time taken for furnishing the audit report is excluded only if the report of such audit is furnished. In order to overcome this problem, the Finance (No. 2) Act, 1996, provides that the period commencing from the date on which the Assessing Officer directs the assessee to get his accounts audited and ending on the date on which the report of such audit was required to be furnished, shall be excluded from the period of limitation.
49.4 The amendment will take effect from 1st April, 1997, and will, accordingly, apply in relation to the assessment year 1997-98 and subsequent years. [Section 44] [Source: Excerpts from Department Circular No. 762, dated 18th February, 1998.]
13. Hon'ble M.P. High Court in the case of CIT v. Dhariwal Sales Enterprises reported in 221 ITR 240 has held as under:
The assessee firm's original assessment for the assessment year 1978-79 was completed on September, 29, 1981. On appeal by the assessee, the Commissioner of Income Tax (Appeals) directed the Income-tax Officer to do the assessment de novo. The Income-tax Officer while making the assessment de novo invoking Section 142(2A) directed the assessee on March, 30, 1985, to get its accounts audited and submit a report by June 30, 1985. This was extended up to August 31, 1985, on the assessee's request. But on August 21, 1985, the assessee informed the Income-tax Officer that the chartered accountant had expressed his inability to finalise the audit and, therefore, the report could not be submitted. Then the assessment was completed by the Income-tax Officer on September 3, 1985. On appeal before the Commissioner of Income-tax (Appeals), the assessee contended that the assessment was barred by limitation. The Commissioner of Income-tax negatived the assessee's claim but the Tribunal accepting the same, cancelled the assessment order. On a reference:
Held, that the Income-tax Officer has a maximum period specified for obtaining the report of the audit up to 180 days under Section 142(2C) as provided in the proviso to the sub-section. That period stood automatically curtailed when the Income-tax Officer was informed that the report was not likely to be received and the Income-tax Officer could have legitimately taken the period spent for obtaining a copy of the report up to the time when the intimation was given by the assessee. The assessee's letter regarding the non-availability of the audit report was received by the Income-tax Officer on August 22, 1985. Therefore, on that date the Income-tax Officer should have completed the assessment. Instead of that he completed the assessment on September 3, 1985. Therefore, the assessment was barred by limitation.
14. Ld. DR produced the record before us showing that CIT, Bhopal approved action of the AO Under Section 142(2A) vide letter dt. 10.11.94 therefore submission of ld. Counsel for asessee is rejected that there is no approval of CIT as required Under Section 142(2A). Ld. Counsel for assessee also did not produce any material before us to show that the accounts of the assessee were not of complex in nature. No material is produced before us that the AO had not applied his mind before taking action Under Section 142(2A) of the IT Act. Therefore, contention of ld. Counsel for assessee is rejected. The record further shows that AO issued notice Under Section 142(2A) to the assessee for audit of the accounts by the special auditor on 9.10.95 directed the assessee to get the accounts audited from M/s. S.S. Deshpande & Co., special auditor and to obtain and furnish the said report before him by 31.10.95. The record further revealed that assessee has been making request time to time for extension of the period of obtaining the audit report and the AO extended the same period and lastly vide order dated 14.12.95 extended the time to get the accounts audited positively by 15.3.96 and directed that no further extension of time will be granted. Ld. DR admitted before us that the assessee intimated the AO vide letter dt. 12.3.96 that the special auditor appointed by him intimated that it was not possible for them to start the audit in the month of March, 1996. Accordingly the audit work will be starting only in the month of May, 1996. Ld. DR submitted that the AO did not extend further period for obtaining the audit report on receipt letter dated 12.3.96.
15. It is an admitted fact that the previous year ended on 31.3.93. The original time limit for completion of assessment was up to 31.3.96. Ld. DR referred to the brief written submission of Addl. Commissioner of Income Tax, Range-5, Indore dated 7.12.2004 and submitted that 155 days have to be added i.e. from 10.10.95 to 12.3.96 after 31.3.96 and the assessment could be framed up to 2.9.96. The AO however passed the order on 16.8.96 therefore it was passed within limitation.
16. it is admitted fact that notice Under Section 142(2A) for special audit was issued by the AO to assessee to furnish report by 31.10.95. However, the time to file the special audit report was extended on various dates and ultimately it was directed to file special audit report by 15.3.96. The assessee intimated the AO on 12.3.96 that special auditor intimated the assessee that it was not possible to start the work of audit in March, 1996. The assessee therefore requested the AO to extend the period further, however the AO did not extend the period. The books of accounts were impounded by the department and were not in the control of the assessee. The special auditor was also not in control of the assessee because he was appointed by the AO on the approval of the CIT, Bhopal. There is thus no fault of assessee in not filing special audit report on 12.3.96. The special audit report Under Section 142(2A) could be filed within 180 days on the date on which direction Under Section 142(2A) is received by assessee which date would expire on 11.4.96. Sub-clause (iii) of Explanation 1 to Section 153 as was applicable to the AY 1993-94 under appeal as reproduced above would not be applicable in this case because the assessee could not get audit report and as such did not furnish any such report and thus the period during which time was extended by the AO for special audit would not be available to the AO to get extension of period of 150 or 155 'days as argued by ld. DR. The assessee intimated the AO on 12.3.96 that no audit report could be filed because of inability shown by special auditor to file the report in March, 1996. In order to overcome this difficulty, Section 153 Explanation 1(iii) was amended accordingly w.e.f. 1.4.97 to meet out such situation where audit report is not filed and the language of Sub-clause (iii) to Explanation 1 of Section 153 was extended and amended to the cases up to the last date on which assessee is required to furnish the report of the auditor. Such amendment in Explanation 1(iii) is also reproduced above which is not retrospective in nature and is not applicable to the AY under appeal i.e. 1993-94. The CBDT circular No. 762 dated 18.2.98 explaining the above amendment is also reproduced above and would not support the findings of the authorities below as well as the arguments of ld. DR seeking extension of 155 days as noted above. The decision of Hon'ble MP High Court in the case of Dhariwal Sales Enterprises is therefore directly applicable to this case in favour of the assessee and against the revenue. Ld. Counsel for assessee relied upon decision of ITAT, Indore Bench in the case of Laxmi Trading Co. (supra) and according to said decision at the most the period of 60 days is allowable to the AO from the time when AO was intimated that special audit report would not be filed in this case. Even if, the last date given by the AO for filing audit report i.e. 15.3.96 is taken and 60 days are added to this date (instead of 12.3.96 on the day when the AO was intimated that no special audit report would be filed by the special auditor), the last date along with extended period would come to an end on 14.5.96. However, the assessment order is of on 16.8.96 and as such the same is passed beyond the period of limitation. The reliance of ld. CIT(A) on the decision of Hon'ble MP High Court in favour of the revenue as referred to above is clearly misplaced because it is in favour of the assessee and no time of 150 or 155 days could be extended in this case. The arguments of ld. DR have thus no force and are accordingly rejected because the assessment order passed on 16.8.96 is clearly barred by limitation.
17. It is also admitted fact that no notice Under Section 142(2A) as per the decision of Hon'ble Supreme Court in the case of Rajesh Kumar and Ors. (supra) was given to the assessee therefore the extended period as per Section 142(2A) would not be available to the revenue in continuation of Explanation 1(iii) of Section 153. As discussed above at the most if 60 days benefit is given to the revenue as per proviso to Explanation 1 as mentioned above, the period to be counted from 12.3.96 and by adding 60 days, limitation would expire on 11.5.96. Even if the end of month is taken i.e. 31.5.96, by which the assessment order shall have to be passed, still the order passed on 16.8.96 is clearly barred by limitation.
18. In view of above discussion and by examining the issue from every possible angle, we have no hesitation in holding that the assesseement order passed by the AO on 16.8.96 is clearly time barred as per Section 153 of the IT Act. Thus AO is also not justified in passing exparte assessment order. The grounds No. 1, 2, 3 in the appeal of the assessee are accordingly allowed.
19. In view of the above finding on grounds No. 1, 2, 3 in the appeal of the assessee, we set aside the orders of authorities below and quash the same.
20. In view of above findings on the question of law, we do not find it necessary to decide the remaining grounds on merits in both the cross appeals.
As a result, the appeal of the assessee is partly allowed and departmental appeal is dismissed.
Order pronounced in the open Court on 28th September, 2007.