Facts of the Case

The present matter arose from appeals filed by the Revenue against a common order of the Income Tax Appellate Tribunal concerning Assessment Years 2007–08 and 2008–09.

The assessee, engaged in construction activities, was subjected to a search under Section 132 of the Income Tax Act, 1961, following which proceedings under Section 153A were initiated.

During assessment, the Assessing Officer (AO) directed a special audit under Section 142(2A) after obtaining approval from the Commissioner of Income Tax (CIT). Initially, a period of 120 days was granted for submission of the audit report.

Subsequently, on the request of the auditor, an extension of 60 days was granted. However, this extension was granted by the CIT and merely communicated by the AO.

The assessment order was ultimately passed beyond the original limitation period, relying on the extended audit timeline. The Tribunal held the extension invalid and quashed the assessment as time-barred.

 

Issues Involved

  1. Whether the extension of time for submission of the special audit report under Section 142(2C) was validly granted.
  2. Whether the power to extend time lies exclusively with the Assessing Officer or can be exercised by the Commissioner.
  3. Whether the assessment order passed after such extension is within limitation under Section 153B.

 

Petitioner’s Arguments (Revenue)

  • The extension of time is an administrative act, and therefore, can be exercised by a superior authority like the CIT.
  • The AO had applied his mind and merely sought administrative approval from the CIT.
  • Even if there was a procedural defect, the same is curable under Section 292B.
  • No prejudice was caused to the assessee due to the extension.
  • The power to grant extension is implicit in the approval granted under Section 142(2A).
  • Procedural lapses should not defeat substantive justice.

 

Respondent’s Arguments (Assessee)

  • The statute clearly vests the power to extend time only with the Assessing Officer under the proviso to Section 142(2C).
  • The CIT has no jurisdiction to grant such extension.
  • The AO abdicated his statutory discretion by merely forwarding the request.
  • Extension of time affects limitation and has serious civil consequences, hence cannot be treated as administrative.
  • Any action by an unauthorized authority is void ab initio.
  • Since the extension was invalid, the assessment order was barred by limitation.

 

Court’s Findings / Order

  • The statutory scheme of Sections 142(2A) and 142(2C) clearly shows that both initiation of audit and extension of time are AO-centric powers.
  • The proviso to Section 142(2C) specifically vests discretion in the Assessing Officer to extend time.
  • This power is non-delegable and cannot be exercised by the CIT.
  • In the present case, the CIT granted the extension, and the AO merely communicated it—this amounted to abdication of statutory power.
  • Since the extension was invalid, the assessment order passed beyond limitation was time-barred and unsustainable.

Final Decision:
The question of law was answered in favour of the assessee and against the Revenue, and the appeals were dismissed.

 

Important Clarification

  • The power to extend time under Section 142(2C) is exclusive to the Assessing Officer.
  • Even a higher authority like the CIT cannot exercise or substitute this discretion.
  • Extension of audit time impacts limitation and is therefore a substantive legal right, not a mere procedural formality.
  • Any deviation from the prescribed statutory procedure renders the assessment invalid.

 

Sections Involved

  • Section 132 – Search and Seizure
  • Section 153A – Assessment in case of search
  • Section 153B – Time limit for completion of assessment
  • Section 142(2A) – Special Audit
  • Section 142(2C) – Time limit and extension for audit report
  • Section 292B – Return of income, etc., not to be invalid on technical grounds


Link to download the order - https://delhihighcourt.nic.in/app/showFileJudgment/RAS11122023ITA5262023_182409.pdf

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