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Facts
Patanjali Ayurved Ltd. (assessee) filed its return for AY 2016-17. Its case was selected for scrutiny, and a special audit under Section 142(2A) was ordered by the AO with approval from Pr. CIT. Extensions for completing the special audit were granted, and the audit report was submitted, leading to an assessment under Section 143(3). The CIT(A) subsequently held the assessment order void ab-initio due to multiple infirmities in the special audit procedure.
Held
The tribunal, relying on jurisdictional High Court precedents, affirmed that the power to extend time for a special audit under Section 142(2C) is non-delegable and solely vested with the Assessing Officer. It found that the extensions were procedurally flawed, specifically noting involvement of the Pr. CIT beyond statutory powers, which rendered the entire special audit process defective and the subsequent assessment order void ab-initio.
Key Issues
Whether the extensions granted for completing the special audit under Section 142(2A) were legally valid, and if not, whether the assessment order passed under Section 143(3) based on such audit is void ab-initio.
Sections Cited
Section 142(2A), Section 142(2C), Section 143(3), Section 115JB, Section 153(1)
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Income Tax Appellate Tribunal, DELHI BENCH ‘H’, NEW DELHI
Before: Dr. B. R. R. KumarSh. Yogesh Kumar US
ORDER
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeal and Cross Objection have been filed by the Revenue and the assessee against the order of ld. CIT(A)- 24, New Delhi dated 08.10.2021.
2. Following grounds have been raised by the Revenue:
“1. Whether on the facts and in law, ld.CIT(A) has erred in arriving to a conclusion based on erroneous and suppressed facts that the case is barred by limitation of time ignoring the relevant material, facts and without considering the further extension of time allowed for Special Audit by the Department vide letter dated 28.03.2019, 13.05.2019 and 17.05.2019, respectively.
2 CO No. 75/Del/2023 Patanjali Ayurved Ltd.
2. Whether on the facts and in law, Ld.CIT(A) has erred in observing that the time for Special Audit was allowed by the CIT whereas it was allowed by the Assessing Officer and further extended by the AO, from time to time within the limits available u/s 142(2C).
3. Whether on the facts and in law, ld.CIT(A) has erred in only considering the erroneous and suppressed facts put forward by the assessee and not getting it verified from the records of the Department or through remand.
4. Whether on facts and in law, Id. CIT(A) has erred in considering the technical issue leaving other substantial issue on which additions/disallowances have been made.”
In Cross Objection 75/Del/2023, the assessee has raised following additional grounds:
“1. That on the facts and circumstances of the case, the Ld. CIT-(A) has passed the order as per the provisions of tire Act and hence the appeal filed by the department is not maintainable.
2. That on the facts and circumstances of the case, ground no. 2 raised by the department is not correct and therefore liable to be quashed. Additional Ground No. 1- 3. That on the facts and circumstances of the case, that extension of time was granted by Pr. CIT in getting books audited u/s 142(2A) was illegal thus vitiating the proceedings thereof and hence order passed u/s 143(3) is bad in law and need to be quashed.
That on the facts and circumstances of the case, there is delay in filing the cross objection since the respondent was allowed inspection of the assessment records/documents on 22-06-2023.”
3 CO No. 75/Del/2023 Patanjali Ayurved Ltd.
4. Significant grounds: Ground No. 1 of the Revenue appeal “1. Whether on the facts and in law, ld.CIT(A) has erred in arriving to a conclusion based on erroneous and suppressed facts that the case is barred by limitation of time ignoring the relevant material, facts and without considering the further extension of time allowed for Special Audit by the Department vide letter dated 28.03.2019, 13.05.2019 and 17.05.2019, respectively.” Ground No. 3 of the Cross Objection “3. That on the facts and circumstances of the case, that extension of time was granted by Pr. CIT in getting books audited u/s 142(2A) was illegal thus vitiating the proceedings thereof and hence order passed u/s 143(3) is bad in law and need to be quashed.”
Facts of the case: 5. Apropos the ground before us, that the assessee is a Limited Company, engaged in the business of trading and manufacturing of Fast Moving Consumer Goods (FMCG). The assessee had filed its return of income on 29.11.2016 declaring total income at Rs. 645,44,60,180/-. The case of the assessee was selected for scrutiny assessment. During the course of assessment proceeding, the Assessing Officer having doubts about the correctness of accounts maintained by the assessee, issued a show cause notice dated 05-12-2018 to the assessee to explain, keeping in view the nature and complexity of accounts, why special Audit u/s. 142(2A) of the Act, should not be conducted and accordingly a Show cause notice dated 05-12- 2018 was issued to the assessee.
After consideration of the submissions of the assessee, the Assessing Officer vide letter dated 20.12.2018 has requested 4 CO No. 75/Del/2023 Patanjali Ayurved Ltd. the Additional CIT for obtaining the approval for Special Audit. The Additional CIT, then on the request of the Assessing Officer vide letter dated 21-12-2018 has further requested the Principal Commissioner of Income Tax for obtaining the approval for special Audit. The Pr. CIT vide letter dated 26.12.2018 accorded approval for conducting the Special Audit in the case of the Assessee Company and directed the Addl. CIT to appoint M/s Dhanesh Gupta & Co. as a Special Auditor u/s 142(2A) of the Income Tax Act. Copy of letter by Pr. CIT to Addl. CIT dated 26.12.2018 for appointment of special auditor is on record.
The Additional CIT then directed the Assessing Officer for the said approval received from Pr. CIT and appointment of special auditor. Copy of letter directing the Assessing Officer dated 26-12-2018 is on record. Further, the Assessing Officer has passed an order u/s 142(2A) dated 29.12.2018 of the Act for the appointment of Special Auditor. Copy of the order is on record. The same has been communicated to the special auditor by the Assessing Officer vide his letter dated 30.12.2018. Copy of the said letter is on record.
Thereafter, the special auditor has sought for an extension of period for furnishing the Special Audit report for a period of 90 days. The Assessing Officer upon request of the special auditor has extended the period for furnishing the special audit report for further 45 days. Copy of extension letter by AO to Special Auditor is on record.
After getting the Special Audit completed, the Special Auditor filed the copy of Special Audit Report on 28.05.2019 in 5 CO No. 75/Del/2023 Patanjali Ayurved Ltd. terms of section 142(2C) of the Act with the assessee company which was later on submitted to the Assessing Officer. Copy of letter for submission of Special Audit Report to the assessee is on record. Thereafter the Assessing Officer completed the assessment u/s 143(3) of the Act on 26.07.2019 assessing the total income of the assessee at Rs. 882,25,24,960/-.
Aggrieved with the order dated 26.07.2019, the assessee has filed appeal before the ld. CIT(A). The core issue: 11. The ld. CIT(A) after considering the totality of facts and circumstances of the case, judicial position held that the order of the Assessing Officer and the procedure adopted for getting the special audit done u/s 142(2A) suffers from multiple infirmities and therefore, the Assessment Order is held to be void ab-initio.
Aggrieved, the Revenue filed appeal before us. Arguments of the ld. DR: 13. The ld. CIT DR argued eloquently referring to the provisions of Section 142(2A) and Section 142(2C) of the Income Tax Act, 1961 and argued that the due procedure has been followed while approving the Special Audit and granting extensions for completion of the Special Audit. Giving the sequence of proceedings, the ld. CIT DR argued that due procedure has been followed for the time limits as was allowed by the Principal CIT within the time limit available u/s 144(2C) of the Act.
“On detailed analysis of the appellate order, it is noticed that the assessee has raised 19 grounds of appeal, out of which the Id. CIT(A) only dealt with ground Nos. 1 and 3 only, which are basically based upon technical issues. The Id. CIT(A) has not dealt with any other issues on merits. The Id. CIT(A) has relied upon the order passed by the Id. CIT(A)-7, vide his order dated 23.09.2020 in this case for the A.Y. 2010-11. It is pertinent to mention here that the Id. CIT(A) has arrived to a faulty conclusion which was based on suppressed fact put forward by the assessee and accepted by the Id. CIT(A) without making further inquiries/verification which he was bound to comply with. The Id. CIT(A) has arrived at a conclusion that initial time was allowed for completion of Special Audit for 90 days and thereafter 45 days were allowed by the AO. Based on above information/fact, the Id. CIT(A) reached to a finding of fact the period originally fixed and the period further extended in this case was 135 days (90days + 45 days) and therefore the time limit to furnish the Special Audit Report in this case expired on 14.05.2019. However, the Audit Report was furnished on 28.05.2019 and therefore appears to be time barred. It was further pointed out by the Id. CIT(A) that the assessment order passed was time barred as the limitation period expired on 13.07.2019, however the order in the case of the appellant was passed on 26.07.2019. It is relevant to state that this conclusion of Id. CIT(A) is factual wrong as the same is based on erroneous and suppressed fact. In this case, the extension for time was allowed 3 times from the original time allowed in this case, The time limit in this case approved to conduct Special Audit and further extension granted from time to time, are tabulated as under:
7 CO No. 75/Del/2023 Patanjali Ayurved Ltd. S. No. Description of proceedings Relevant date Remarks 01 Approval of Pr. CIT for Special 26.12.2018 Audit u/s 142(2A) of the Act 02 Date of letter of the AO directing 30.12.2018 Special Audit u/s 142(2A) of the Act 03 Due date to submit Special Audit 30.03.2019 report 04 Date for granting further extension 28.03.2019 of 45 days 05 Due date to submit Special Audit 14.05.2019 report after extension of 45 days 06 Date for granting further extension 13.05.2019 of 10 days 07 Due date to submit Special Audit 24.05.2019 report after extension of 10 days 08 Date for granting further extension 17.05.2019 of 10 days 09 Due date to submit Special Audit 03.06.2019 Total time report after extension of 10 days allowed (original + extended) in this case was 155 days 10 Date of Special Audit report 28.05.2019 Relevant date submitted for counting of time for completion of assessment as per section 153(1) of the Act. 11 Due date for passing of assessment 02.08.2019 order 12 Actual date for passing of 26.07.2019 assessment order
MAY IT PLEASE YOUR HONORS Subject: Written submission in the above case- regarding As directed on the last day of hearing by the Hon’ble Bench, a written submission is being made as under. In this case, after special audit u/s 142(2A), assessment was completed on the total income of Rs. 882.25 crore under normal provisions and at Rs. 1023.09 crore under 115JB of the Income-tax Act, 1961. The CIT(Appeal) has deleted the addition by holding the assessment to be time barred in view of the facts as mentioned in para 4.2.18 and 4.2.19. 4.2.18 It is further noticed that the provisions of sections 142(2C) uses the word “shall” and not “may" and therefore the AO was obliged to furnish the audit report latest by 30.02.2019. The extension for another 45 days was granted only on 28.03.2019 after expiry of 8 days of the original days of 90 days. The aforesaid action of the AO appears to be patently wrong as the extension, if any, has to be granted before expiry of the original period and not 7 days beyond that. 4.2.19 Without prejudice to the above and even assuming that such action of the AO can be condoned, still the aggregate period of 135 days (original + extended) for completion of Special Audit in the case of the appellant expired on 14.05.2019 (i.e. 135 days from 30.12.2018). However, the Special Audit Report was furnished to the AO on 28.05.2019 i.e. beyond the stipulated limit of 14.05.2019 and therefore the audit appears to be time barred and the order passed by the AO relying on such order may be considered as void.
9 CO No. 75/Del/2023 Patanjali Ayurved Ltd. The findings of CIT (Appeal) in both the paras are factually incorrect in view of the report of the AO submitted before the Hon’ble Bench on 01.11.2023. The report encloses letters dated 13.05.2019 & 17.05.2019 vide which the time period for submitting the report of special audit was extended by 10 days each. In view of these extensions, the due date for submission of report by the auditor was 03.06.2019. The report was actually submitted on 28.05.2019 and due date for completion of assessment was 02.08.2019. Accordingly, the assessment order passed on 26.07.2019 was within time. A copy of the report received from AO and statement of facts is enclosed herewith. In view of the same it is submitted that the findings of CIT(Appeal) are factually incorrect. During the course of hearing, the AR has also referred to the findings of CIT(Appeal) in para 4.1.10 on page 27 of his order on the issue of ‘Extension of further time limit for furnishing special audit report is not made by Ld. AO suo motu or by an application made by the appellant’. The Ld CIT (A) has held the extension granted on 28.03.2019 to be void-ab-initio on the ground that the same has not been granted suo-motu or on a request of assessee, but on a request received from the Special Auditor. During the course of hearing it was submitted by the undersigned that the intimation received from Special Auditor stating that some more time is needed to complete the special audit can form the basis of extension of time by the AO suo-motu. The Special Auditor has been entrusted with the task of completing special audit. In situations where Audit could not be completed within the stipulated time, the Auditor can inform the assessee/AO, the amount of further time needed for completion of the report. In a case where no application is received from the assessee, the AO can suo-motu extend time on the basis of this information from the Auditor. The Hon’ble Supreme Court in its 10 CO No. 75/Del/2023 Patanjali Ayurved Ltd. decision in the case of CIT, New Delhi vs. Ram Kishan Dass (413 ITR 337) while holding the amendment to proviso to section 142(2C) to be retrospective, explained the reason for amendment envisaging a pre amendment situation where the auditor for genuine reasons was unable to comply with time schedule and the assessee had sole and unrestricted power to determine whether an extension should be sought. The Hon’ble Apex Court held that the Legislature could not have intended this consequence. The amendment introducing suo- motu extension by the AO was intended to cover such situations where the auditor is not able to complete the audit in time and no intimation is received from the assessee. Facts of the present case mirror such a situation. The same is evident from a letter of the auditor (on pages 45-46 of the Paper Book submitted by the assessee), where the auditor has highlighted the non cooperative attitude of the assessee and submission of documents at the last moment hampering the timely completion of audit. No attempt has been made by the assessee to inform the AO for extension of time considering the fact that voluminous documents were submitted by it to the Auditor just 2 days before the deadline. Another argument relied upon by the assessee and upheld by the CIT (Appeal) is that the ‘Approval for appointment of special auditor sought by Addl. CIT from Pr. CIT and not by the Ld. AO’. The Ld CIT(A) in para 4.1.20 (page 32) held that as the approval has been sought by Addl. CIT and approval has been accorded by PCIT to Addl. CIT, the order is liable to be held void ab-initio. In this regard, kind attention is drawn to page 29 of CIT (A) order where a copy of the letter sent to Pr CIT by Addl. CIT is enclosed. Evidently, a proposal was sent by the AO to Pr CIT for conduct of special audit, which was forwarded by the Addl. CIT. The assessment proceedings were pending with the assessing officer and the role of Addl. CIT is that of 11 CO No. 75/Del/2023 Patanjali Ayurved Ltd. a supervisory authority. The Addl. CIT serves as a link between the approving authority, that is, the Pr. CIT and the Assessing Officer. The letter of Addl. CIT (on page 3 of the Paper Book submitted by the assessee) to the AO, conveying the approval of Pr. CIT on his proposal, confirms the genesis of the proposal to be from the AO. During the course of hearing, the AR also raised the issue of grant of approval for extension of period of special audit by Pr. CIT. It was alleged that the extension of period for audit granted by the AO was given after taking approval from Pr. CIT. In this regard, it is submitted that copy of letters granting extension were submitted before the Hon’ble Bench during the course of hearing. A perusal of these letters would show that no mention of any approval taken from Pr. CIT for extension of time was made by the AO. The extensions have been given on account of volume and complexity of issues involved and considering that the assessee could not provide substantial details to the auditor till that period. The AR has relied on the Hon’ble ITAT decision in the case of BL Kashyap & Sons Ltd vs. DCIT (ITA No. 4897 to 4903/Del/2014) and Soul Space Projects Ltd. (183 ITD 281). However, facts in these cases are different as in them the AO only communicated to the auditor the approval for extension of time granted by the Pr. CIT. However, it is also submitted that within the hierarchy of the Department, an assessing officer comes under the administrative control of Pr. CIT. The Pr. CIT has to play the dual role of a supervisory authority along with the statutory roles assigned to him under the Act. Any internal correspondence intimating the present status of the case must be seen as part of this hierarchical set up and role. It may be noted that all internal correspondences submitted by the AR with regard to extension of time have originated from the AO and the satisfaction of the AO is inherent within them.
12 CO No. 75/Del/2023 Patanjali Ayurved Ltd. It is also submitted that, no prejudice has been caused to the assessee by such correspondence. In view of discussion above, it is humbly requested that the matter may be remanded to the file of CIT (A) to decide the case of merits. Sd/- (Sapna Bhatia) CIT(DR)-4, ITAT, New Delhi 15. On the other hand, the ld. AR reiterated the arguments taken up before the ld. CIT(A) which have been mentioned at page no. 24 & 25 of the order of the ld. CIT(A). The ld. AR has also relied on the letter dated 28.03.2019 of the ACIT, letter dated 21.12.2018 of the Addl. CIT and letter dated 24.12.2018 of the Pr. CIT which are being reproduced in this order in the subsequent paragraphs. Examination of the facts, law and the decision: 16. In terms of proviso of Sec. 142(2C), the extension of further time period the Special Audit Report u/s 142(2A) can be done by the Assessing Officer suo-moto or on an application made in this behalf by the assessee.
Relevant provisions of Section 142(2C) of the Income Tax Act, 1961 is as under: “The Assessing officer may 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 aggregate of the period originally fixed and the period or periods so extended shall not, in any case, exceed one
In the present case, the extension of time period for furnishing the Special Audit Report u/s 142(2A) has been provided by the Assessing Officer on an application made by the Special Auditor. The letter of the Assessing Officer dated 28.03.2019 granting the extension of period by 45 days is as under:
Office of the Assistant Commissioner of Income Tax, Circle-19(2) Room No. 221, Central Revenue Building, I.P. Estate, New Delhi-110002 Email: delhi.dcit19.2&incometax.gov.in Ph: 011-23370790 F.No. ACIT, Circle-19(2)/Patanjali/2018-19/1017 dated: 28.03.2019 To, M/s Dhanesh Gupta & Co. Chartered Accountants. 1-1/16, Ansari Road, Shanti Mohan House, Darya Ganj, New Delhi-110002 Sub. : Approval for the extension of period for special audit u/s 142(2A) of the I.T, Act, 961 by further 45 days in the case of M/s Patanjali Ayurved Ltd., PAN: AAECP4424C for the Assessment Year 2016-17-reg Ref: This office letter dated 30.12.2018 and your letter for further extension of time received on 27.03.2019.
Please refer to your letter dated 27.03.2019, wherein you have requested to extend the period of completion of Audit for another 90 days to complete the Special Audit u/s 142(2A) of the Income Tax Act relating to assessment year 2016-17 in the case of M/s Patanjali Ayurved Limited.
In this regard, considering request for extension of time for completion of special audit ordered u/s 142(2A) of the I.T. Act, 1961 relating to Assessment Year 2016-17, as the assessee could not able to 14 CO No. 75/Del/2023 Patanjali Ayurved Ltd. provide substantial details till date and also considering the volume of work and complexity involved in the case and multiplicity of special audits, the approval for the extension of period for special audit u/s 142(2A) of the I.T. Act is hereby extended for further 45 days. You are requested to complete the special audit within the stipulated time without fail. Yours faithfully, Sd/- (Sanjay Kumar Pandey) Assistant Commissioner of Income Tax, Circle-19(2), New Delhi 19. The central argument of the ld. AR was that the extension has not been granted in terms of provisions of Sec. 142(2C) and therefore the extension so granted is beyond jurisdiction and is time barred owing to the fact that the Assessing Officer suo- moto has not extended the time nor has he acted upon the application of the assessee for the same. To buttress this fact, the ld. AR brought to our notice that the extension as approved by the ld. PCIT.
From the above, it can be found that the extension has not been granted in terms of provisions of Section 142(2C) of the Income Tax Act, 1961 but time for extension has been sought by the ACIT through range head Addl. CIT from PCIT. The ld. PCIT approved the proposal of the AO and only after that the approval has been granted by the ACIT vide letter dated 17.05.2019. The para 12 of the letter of the Assessing Officer is 17 CO No. 75/Del/2023 Patanjali Ayurved Ltd. not an administrative intimation but it sought the approval of the ld. PCIT who as per the statute do not have the power of granting extension for Special Audit.
The para is as under:
12. However, further considering the state of special audit for the Assessment Year 2016-17 and request made by the Special Auditor as well as interest of revenue, extension of further 10 days may be granted.
The ld. PCIT-07, Delhi has granted the extension saying “approved as proposed” vide order sheet dated 16.05.2019.
The said approval has been intimated to the assessee by the ACIT vide letter dated 17.05.2019.
Legal Proposition:
The question arose was “whether the approval sought by the Assessing Officer from the ld. PCIT and granting extension by the AO after receiving of the approval from the ld. PCIT is legally tenable or not”?
On this issue, we are guided by the judgment of Hon’ble jurisdictional High Court in the case of Pr. CIT, Central Vs. Soul Space Projects Ltd. in of 2023 dated 11.12.2023. The Hon’ble High Court held that the initial exercise of the power has been explicated as one that is not administrative, the ld. PCIT could not have extended the time for Special Audit based on recommendation of the Assessing Officer. The Hon’ble
18 CO No. 75/Del/2023 Patanjali Ayurved Ltd. Jurisdictional High Court observed that the enunciation of the legal principle does not derogate the observation that since the discretionary power was vested with the Assessing Officer which is non-delegable, it could not have been exercised by the Pr. CIT irrespective of the nature of the power.
Keeping in view, the totality of facts and circumstances of the case, judicial position with reference to the jurisdictional High Court, entire facts and the legal proposition, we hold that the extension given for getting the special audit done u/s 142(2A) suffers from multiple infirmities and therefore, the assessment order is held to be void ab-initio.
The Cross Objection is allowed. Since, the CO is allowed, any adjudication on the grounds taken up by the Revenue would be academic in nature and hence not resorted to.
We also find that the revenue has not raised any ground pertaining to issue of direction of special audit at fag end and extension of special audit not made by the Assessing Officer suo-moto and on these count, the department has accepted the ld. CIT(A) order. Surprisingly, the revenue choose not to raise all the grounds which are against them in the order of the ld. CIT(A). It is also worthwhile to refer the judgment of Hon’ble Delhi High Court in the case of Pr. CIT s. M/s Clix Finance India Pvt. Ltd. in TA No. 946/2019 order dated 02.11.2023 wherein it has been held that “the appellant has not proposed any question of law to the effect that this finding is perverse. Therefore, on this score as well, we are not inclined to entertain the appeal and the appeal is accordingly closed”.
In the result, the appeal of the Revenue is dismissed and the Cross Objection of the assessee is allowed. Order Pronounced in the Open Court on 30/01/2024.