THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1,, RAJAHMUNDRY vs. GOLDEN FEEDS LIMITED, BHIMAVARAM

PER BENCH :

All the captioned appeals are filed by the Revenue against

the orders of the Learned Commissioner of Income Tax (Appeals)-

3, Hyderabad [Ld. CIT (A)] in appeal Nos. 259, 260 & 261/10167,

10169/2019-20/CIT(A)-3/VSP/2020-21, dated 24/11/2020 &

27/11/2020 respectively in the case of M/s. Golden Feeds Ltd

(ITA Nos. 12, 13 & 93/Viz/2021) and appeal Nos. 266 &

263/10174/2019-20/CIT(A)-3/VSP/2020-21, dated 27/11/2020

respectively in the case of M/s. Risely Feeds Pvt Ltd (ITA No. 14

& 15/Viz/2021) arising out of the orders passed U/s. 143(3)

r.w.s 153C of the Income Tax Act, 1961 for the AYs 2011-12 to

2015-16.

are similar in nature, for the sake of convenience, these appeals

are clubbed, heard together and disposed off in this consolidated

order. Further, considering the similarity of the issue involved in

these appeals, we shall take up the ITA No.13/Viz/2021 as a

lead appeal.

3 3. Brief facts pertaining to the Revenue’s appeal in ITA No.

13/Viz/2021 (AY: 2012-13) are that the assessee is a firm

carrying out the business of trading of Fish Feeds and Prawn

Feeds filed its return of income for the AY 2012-13 [wrongly

mentioned in the assessment order as AY 2011-12] on 7/10/2014

admitting a loss of Rs. 24,09,551/-. Subsequently, a search and

seizure operation u/s. 132 of the Act was undertaken on

18/1/2017 in the case of Nexus Group. Order U/s. 127 for

centralization of the case was passed by the Ld. Principal

Commissioner of Income Tax, Rajahmundry vide his order in

F.No. 62/Juris.CIT/RJY/2017-18, dated 28/8/2017. During the

course of search proceedings in the case of M/s. Nexus Feeds

Limited, the Ld.AO claimed that certain incriminating documents

were found and seized pertaining to the assessee-firm. As per

the materials found and seized, the Ld. AO contended that the

assessee-firm has routed unaccounted money in the form of cash

deposits through real persons, who have denied that they have

invested money in the share capital of the assessee-firm. The Ld.

AO accordingly issued notice U/s. 153C of the Act dated

14/4/2018 which was served on the assessee on 16/4/2018. In

response the assessee filed the return of income on 15/6/2018

admitting a total income of Rs. NIL [wrongly mentioned by the Ld.

4 AO as Rs. 57,090/- in the assessment order], after adjusting the

brought forward loss. Subsequently, notice U/s. 143(2) and a

detailed questionnaire was issued U/s. 142(1) and served on the

assessee on 25/6/2018 and 17/08/2018 respectively. The Ld.

AO considering the nature and complexity of the accounts,

voluminous seized/impounded material, multiplicity of

transactions in the accounts and the specialized nature of the

business activity, proposed to Special Audit U/s. 142(2A) of the

Act with the consent of the assessee-firm. This proposal was

approved by the Ld. Pr. CIT (Central), Visakhapatnam vide letter

F.No.Pr.CIT(C)/142(2A)/57(1)2018-19, dated 26/12/2018

authorizing Sri K.S.S. Sarma, FCA of M/s. Sarma & Rao,

Visakhapatnam to conduct the Special Audit. The final audit

report was submitted by Sri K.S.S. Sarma vide letter dated

24/6/2019. The Ld. AO then issued a show cause notice along

with a copy of the Special Audit Report to the assessee-firm vide

letter dated 12/7/2019. In response, the assessee furnished

required information and necessary explanations and

clarifications before the Ld. AO. The Ld. AO identified certain

cash deposits in the assessee-firm which were not reflected in the

books of account of the assessee which were available in the

seized material. The Ld. AO found that these cash deposits in the

5 bank accounts of the assessee were made during the FY 2010-11

to FY 2013-14. The assessee submitted these deposits are made

in relation to purchase of machinery imported. The Ld. AO

aggregated the cash deposits in Union Bank of India,

Bhimavaram for Rs. 5,07,65,595/- (from 7/12/2011 to

20/02/2017) and in Syndicate Bank, Bhimavaram for Rs.

8,08,90,000/- (from 1/7/2010 to 22/2/2017). The Ld. AO found

that the same was not reflected in the books of account of the

assessee in any form. The Ld. AO also found that out of these

cash deposits, the assessee has invested in term deposits in bank

and found that the interest income accrued in these term

deposits has been disclosed in the P & L Account of the assessee.

The Ld. AO considering the cash deposits which would not have

been routed through the books of account of the assessee

considered the entire amount of Rs. 13,16,25,595/- to be added

to the total income of the assessee in the respective assessment

years as mentioned in the assessment order. The Ld. AO issued

a letter dated 12/7/2019 for which the assessee has replied not

up to the satisfaction of the Ld. AO. The Ld. AO therefore

proceeded to add an amount of Rs. 9,10,15,000/- being the cash

deposits made during the impugned assessment year and added

it to the income returned by the assessee for the AY 2012-13.

Further, the Ld. AO as per the Special Audit Report added a sum

of Rs. 6,88,974/- U/s. 40A(3) of the Act. Further, the Ld. AO

observed from the Special Audit Report that the assessee sold

machinery and has not disclosed the profit of Rs. 1,49,75,823/-

arrived at by the Special Auditor and added the same to the total

income of the assessee.

Aggrieved by the order of the Ld. AO, the assessee filed an

appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee

challenged the issue of notice U/s. 153C of the Act and also

challenged the Special Auditor’s Report submitted by the Special

Auditor beyond the due date prescribed u/s. 142(2A) of the Act.

The Ld.CIT(A) relying on various judicial pronouncements as

discussed in his detailed order, partly allowed the appeal of the

assessee. Aggrieved by the order of the Ld.CIT(A), the Revenue is

in appeal before us.

“1. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in holding the assessment void-ab-initio when the AO has extended the time limit for the special audit U/s. 142(2C) after application of his mind. 2. The Ld. CIT(A) failed to appreciate that since on substantial basis the requirement of proviso to section 142(2C) is met, obtaining administrative sanction from the Pr. CIT as per established practices of the office procedure does not vitiate the extension of time for special audit.

submission of special audit report as required U/s. 142(2C) of

the Act.

was ordered by the Ld. Principal Commissioner of Income Tax

(Central), Visakhapatnam on 27/12/2018. The Ld. AR submitted

that the Special Auditor was directed to submit his report within

a period of 90 days ie., on or before 27/3/2019. Further, the Ld.

AR submitted that the Special Auditor sought extension of time

limit and the Ld. AO vide letter dated 27/3/2019 merely

communicated the administrative permission taken by Ld.AO

from the Ld. Pr. CIT (Central), Visakhapatnam allowing of

extension of time limit for 60 days which is expiring on

25/5/2019, but has not passed any order u/s 142(2C) of the Act.

The Ld. AR further submitted that the Special Auditor requested

8 another extension of time limit by 30 days on 27/5/2019 ie.,

after the date of expiry of the original limitation period. The Ld.

AR submitted that the Ld. AO issued the order U/s. 142(2A) of

the Act instead of passing the order U/s. 142(2C) of the Act. The

Ld. AR further also submitted that the Ld. AO merely conveyed to

the assessee on 06/06/2019, the permission accorded by the Ld.

Pr. CIT (Central), Visakhapatnam but has not passed any order

U/s. 142(2C) of the Act for extending the time for another 30

days. The Ld. AR argued that the Special Auditor submitted an

undated report to the Ld. AO. The Ld. AO on 12/7/2019

communicated the receipt of Special Audit Report to the

assessee. The Ld. AR further submitted that since the report of

the Special Auditor is submitted beyond the period of 180 days

as specified U/s. 142(2A) of the Act, it is non-est and hence the

assessment order passed based on the Special Audit Report is

void-ab-initio. The Ld. AR relied on the Coordinate Bench of

Delhi in ACIT Vs Soul Space projects Limited [2020] 117 Taxmann.com

395 (Delhi) (Trib.). The Ld. AR also relied on the judgment of the Hon’ble

Supreme Court in the case of State of Punjab & Ors vs. M/s. Shreyans

Indus Ltd in Civil Appeal Nos. 2506 to 2511 of 2016 arising out of SLP

Nos. 21712 – 21717 of 2009. The Ld. AR also further submitted that

since the Ld. AO has not clearly mentioned in the assessment order

regarding the material seized belong to the assessee even though

satisfaction was recorded by the Ld. AO of the person searched. The Ld.

AR therefore pleaded that notice issued U/s. 153C of Act has to be

treated as invalid.

in accordance with Rule 27 of the ITAT Rules as follows:

“1. On the facts and circumstances of the case, assessment is invalid as the assessment proceedings on the basis of return already filed terminated/culminated by operation of law. 2. On the facts and circumstances of the case, issue of notice U/s. 153C is invalid without proper satisfaction note. Further the Assessing Officer recorded satisfaction which was mentioned in the Assessment Order with respect to share capital and issue notice U/s. 153C, but no share capital is being introduced by the firm. Hence notice U/s. 153C is invalid in the eyes of law. 3. On the facts and circumstances of the case, the Assessment is void because as per the provisions of section 153C, incriminating material which was seized had to pertain to the assessment years in question and the Assessing Officer failed to prove that the documents which were seized establish any co-relation, document wise, with these assessment year in consideration.”

Per contra, the Ld. DR relied on the Explanation to section 153B of

the Act. The Ld. DR further relied on the order of the Ld. AO.

on record. As per section 142(2A) of the Act, the Special Auditor is

expected to provide his Special Audit Report within a period of 180 days.

With respect to Ground No.1 & 2 regarding the time limit prescribed U/s.

10 142(2A) for submission of Special Audit Report, we find that the Special

Auditor has sought first extension on 26/03/2019 for another 90 days.

However, the Ld. Assessing Officer on 27th March, 2019 has merely

communicated the permission accorded to him by the Ld. Pr. CIT

(Central), Visakhapatnam for extension of time limit by another 60 days

which will expire on 25/5/2019. Further, another extension was applied

by the Special Auditor on 27/5/2019. The Ld. AO once again has not

applied his mind in giving the extension as provided U/s. 142(2C) of the

Act but has once again merely communicated the permission accorded to

him by the Ld. Pr. CIT (Central), Visakhapatnam. Even though it is not

required to obtain the permission from the Ld. Pr. CIT under the

provisions of the Act, since the permission to grant extension time for the

purpose of Special Audit Report are vested with the Ld. AO and

accordingly the Ld. AO is mandated to pass an order U/s. 142(2C) of the

Act with respect to the extension of time limit sought by the Special

Auditor. In the instant case, the Ld. AO failed to pass such order in both

the circumstances to extend the time limit. The Ld. AO merely

communicated the decision of the Ld. Pr. CIT (Central), Visakhapatnam

on 6/6/2019 which is beyond the limitation period of the second

extended time. Even assuming a moment that it is a valid extension, we

find that the extension as per the Limitation Act should have been

granted before the expiry of the time limit permitted in the earlier

11 extension ie., on 25/5/2019. We find force in the arguments of the Ld.

AR that mere communication of extension by the Ld. AO instead of

passing an order U/s. 142(2C) is not valid in law. The case law relied on

by the Ld. AR, the judgment of the Hon’ble Supreme Court in the case of

State of Punjab & Ors vs. M/s. Shreyans Indus Ltd in Civil Appeal Nos.

2506 to 2511 of 2016 arising out of SLP © Nos. 21712 – 21717 of 2009 is

pertinent to mention here with respect to grant /order of extension of

time limit should be given before the time for passing any order expires

as prescribed under the Act or before the expiry of the original period of

limitation prescribed in the original order. On this issue, the Hon’ble

Apex Court observed that once the period of limitation expires, the

immunity against being subject to assessment sets in and the right to

make assessment gets extinguished. The Hon’ble Supreme Court further

observed that “there would no question of extending the time for

assessment when the assessment has already become time barred. A

valuable right has also accrued in favour of the assessee when the period

of limitation expires. If the Commissioner is permitted to grant the

extension even after the expiry of original period of limitation prescribed

under the Act, it will give him right to exercise such a power at any time

even much after the last of assessment………when the last date of

assessment in respect of these assessment years expire, it vested a

valuable right in the assessee which cannot be lightly taken away…..”.

Therefore in our considered opinion, the ratio laid down by the Hon’ble

Supreme Court squarely applies to the instant case also. In the instant

case on hand, the Ld. AO ought to have pass an order U/s. 142(2C) of

the Act on or before 25/5/2019 ie., expiry of the first extension. The

case law relied on by the Ld. AR in ACIT Vs Soul Space projects Limited

[2020] 117 Taxmann.com 395 (Delhi) (Trib.) (supra) is relevant to the

issue which was also considered by the Ld. CIT(A). The Ld. CIT(A) in

para 7 of his order held as under:

“7. During the course of appellate proceedings, the Authorised Representative of the appellant relied on the decision of the Hon'ble Income Tax Appellate Tribunal, Delhi Bench 'G' in the case of Assistant Commissioner of Income tax vs. M/s. Soul Space Projects Ltd., reported in 177 Taxman, 395 (Delhi Tribunal) wherein similar issue was involved and the Hon'ble Tribunal, while passing the order held as under: "Heard the arguments of both the parties and perused the material available on record 15. The case lows quoted by the ld. AR as rebutted by the Id. DR have been closely perused while the Id. DR argued that the relevance of the case laws with regard to the Sections for which the case laws emanated, the ld. AR stressed on the ratio of the case laws as to the statutory discretion of the powers of the various authorities. The Id. DR's contention was that the "administrative approval" of the CIT for sanctioning extension of the period should not vitiate the conduct of special audit. It was argued that the letter of the CIT, Central-II should construed only as an administrative direction whereas the real extension has been granted by the DCIT, Central Cirecle-17 vide letter dated 13-4-2010. It was also argued that while approval of the CIT, is required for ordering fresh audit u/s 142(2A), no such approval for extension it is not required. It is the administrative permission sought by the DCIT for the CIT, hence the action cannot be said to be illegal. The undisputed facts are,

statutorily that power is vested with the Assessing Officer. On going through the established judgment, it cannot be disputed that the statutory powers vested with one specified authority cannot be exercised by another authority unless and until the statute provides for the same. And we find that the extension has not been given by the Assessing Officer.

“7.5. Thus the proviso sec.142(2C) is very clear that the authority who is competent to extend the time limit is only the Assessing Officer but not any other superior authority of law. The Statute has rendered the power for extension of time lies with the Assessing Officer. As per Section 2(7A) under the definition of Assessing Officer, Includes only ACIT/DCIT or Income Tax Officer and not Principal Commissioner of Income Tax. Hence, In the instant case under appeal, the approval for extension was given by Principal Commissioner of Income Tax, which was against the statute. On a careful examination of the letter given by the Assessing Officer to the appellant, it can be seen that the extension of time limit for submission of Special Audit report has not given by the Assessing Officer as enunciated in the Act. Instead it was given by the Principal Commissioner of Income Tax (Central) and the same was conveyed to the appellant through a letter, which is beyond the powers vested as per the statute. The extension could have been valid only if it had been given by the assessing Officer himself as stipulated in the proviso to section 142(2C) of the Act. Hence, the Assessing Officer has not utilized the powers as prescribed in the statute for extension of time for submission of special Audit report. Under the circumstances, it can be clearly construed that the Assessing Officer has not extended the time limit for submission of special audit report as provided in Section 142(2C). Thus, it is clear that the Assessing Officer has not exercised the Jurisdiction in a proper way. As there is no valid extension as on 27.03.2019, the assessment has to be completed within 60 days U/s 153B from the end of the day in which the last date i.e.27.03.2019 for submission of Special Audit report. By taking into cognizance the above stipulated period, the assessment has to be completed by 25.05.2019. Whereas, the assessment in the instant case under appeal was completed by the Assessing Officer u/s 143(3) 153C of the IT Act, on 21.08.2019 which is bad in the eyes of law and is barred by limitation.

7.5 Accordingly, the assessment order for the Asst. Year 2012-13 passed by the Assessing Officer after completion of due date is therefore held as void ab initio. Thus, the appeal made by the appellant on these grounds stands.”

rightly concluded the matter and therefore we are of the considered view

that no interference is required in the order of the Ld. CIT(A) on this

issue. The grounds raised by the Revenue are therefore dismissed.

16 11. Ground No.3 and the petition raised by way of legal ground under

Rule 27 of the ITAT Rules is with respect to the issuance of notice U/s.

153C of the Act. Even though the Ld. AR has raised this ground but has

not argued before us on this ground, we are of the considered opinion

that this ground is considered as not pressed by the Ld. AR and hence dismiss the legal ground raised by the assessee.

completed by the Ld. AO u/s. 143(3) r.w.s 153C of the Act. As

this issue has been decided in favour of the assessee on merits

while adjudicating the Grounds No. 1 & 2 in the above

paragraphs of this order and also on the legal ground raised by

the assessee in accordance with Rule 27 of the ITAT Rules, we

are of the considered view that no separate adjudication is

required on this ground.

adjudicated.

(AY: 2013-14) in the case of ACIT vs. M/s. Golden Feeds Ltd;

ITA No.14/Viz/2021 (AY: 2014-15) & ITA No.15/Viz/2021 (AY:

2015-16) in the case of ACIT vs. M/s. Risely Feeds Limited, the

Revenue has raised the identical grounds to that of the grounds

raised in their appeal ITA No.13/Viz/2021 (AY: 2012-13) which

we have disposed off as a lead appeal in the above paragraphs of

this order. Since the grounds raised by the Revenue in the

appeals for the AYs 2013-14, 2014-15 and 2015-16 are similar to

that of the grounds raised for the AY: 2012-13, our decision given

therein while adjudicating the appeal for the AY 2012-13 mutatis

mutandis applies to these appeals also. Accordingly, the appeals

of the Revenue for the AYs 2013-14, 2014-15 and 2015-16 are

dismissed.

Revenue has raised only four grounds which are as under:

“1. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in holding the assessment void-ab-initio when the AO has extended the time limit for the special audit U/s. 142(2C) after application of his mind. 2. The Ld. CIT(A) failed to appreciate that since on substantial basis the requirement of proviso to section 142(2C) is met, obtaining administrative sanction from the Pr. CIT as per established practices of the office procedure does not vitiate the extension of time for special audit. 3. The Ld. CIT(A) erred in quashing the assessments completed by the AO u/s. 143(3) of the IT Act, 1961, as barred by limitation. Any other ground urged at the time of hearing.” 4.

18 17. The issues raised by the Revenue in this appeal are identical to that of the grounds raised in the Revenue’s appeal for the AY 2012-13. Therefore, our decision given therein on these issues while adjudicating the respective grounds mutatis mutandis applies to this appeal for the AY 2011-12 also. Accordingly, the above four grounds raised by the Revenue are dismissed.

Sd/- Sd/- (दु�वू� आर.एल रे�डी) (एस बालाकृ�णन) (DUVVURU RL REDDY) (S.BALAKRISHNAN) �या�यकसद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER Dated : 23.01.2023 OKK - SPS

आदेश क� ��त�ल�प अ�े�षत/Copy of the order forwarded to:- �नधा�रती/ The Assessee – M/s. Golden Feeds Ltd, D.No.26-8-28, F- 1. 8, Shiridi Sai Apartments, Balusumudi, Bhimavaram, W.G Dist, Andhra Padesh. (ii) m/S. Raisely Feeds Limited, D.No.4-35-525, Madhavarao Nagar, Kukatpally, Hyderabad, Telangana.

19 राज�व/The Revenue – O/o. ACIT, Central Circle-1, Shiva Towers, 5th 2. Floor, Danavaipeta, Rajahmundry, Andhra Pradesh-533103. 3. The Principal Commissioner of Income Tax (Central), Visakhapatnam. आयकर आयु�त (अपील)/ The Commissioner of Income Tax (Appeals)-3, 4. Visakhapatnam. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, �वशाखापटणम/ DR, ITAT, 5. Visakhapatnam गाड� फ़ाईल / Guard file 6. आदेशानुसार / BY ORDER

Sr. Private Secretary ITAT, Visakhapatnam