Facts of the Case

The present appeals were filed by the Revenue before the Delhi High Court challenging a common order passed by the Income Tax Appellate Tribunal (ITAT) dated 30.09.2020 concerning Assessment Years 2004–05 to 2008–09.

The core issue arose from the extension of time granted for submission of a special audit report under Section 142(2A) read with Section 142(2C) of the Income Tax Act, 1961.

The Revenue contended that such extension of time was validly granted, whereas the assessee challenged the legality of such extension, particularly on the ground of lack of jurisdiction.

Issues Involved

  1. Whether the Assessing Officer (AO) had validly granted extension of time under the proviso to Section 142(2C) of the Income Tax Act, 1961.
  2. Whether the power to extend time under Section 142(2C) is administrative/procedural and can be exercised by a superior authority such as the Commissioner of Income Tax (CIT).
  3. Whether, in light of Section 292B, the extension granted could still be considered valid despite procedural irregularities.

Petitioner’s (Revenue’s) Arguments

  • The Revenue argued that the extension of time for submission of the audit report was valid and in accordance with the statutory provisions.
  • It was contended that the extension power under Section 142(2C) is procedural in nature and can be exercised by a superior authority such as the CIT.
  • The Revenue further submitted that even if there was any procedural defect, Section 292B would cure such defect since the action was in substance in conformity with the intent of the Act 

Respondent’s (Assessee’s) Arguments

  • The assessee argued that the statutory power to extend time under Section 142(2C) is vested exclusively in the Assessing Officer and cannot be delegated or exercised by any other authority.
  • It was contended that extension granted by the Commissioner of Income Tax was without jurisdiction and hence invalid.
  • The assessee emphasized that the process of special audit under Section 142(2A) has civil consequences and therefore cannot be treated as a mere administrative function.

Court’s Findings / Order

  • The Delhi High Court held that the power to extend time under Section 142(2C) is vested solely in the Assessing Officer and cannot be exercised by any superior authority such as the CIT.
  • The Court clarified that:
    • The discretionary power given by statute must be exercised by the authority to whom it is entrusted.
    • Such power is non-delegable in nature.
  • It was further held that:
    • The process of ordering a special audit under Section 142(2A) is not administrative, but part of the assessment proceedings and has civil consequences.
    • Therefore, strict adherence to statutory provisions is required.
  • The Court rejected the applicability of Section 292B in curing such jurisdictional defect.
  • Accordingly, all questions of law were answered in favour of the assessee and against the Revenue, and the appeals were dismissed.

Important Clarifications

  • Power under Section 142(2C) is non-delegable and must be exercised only by the Assessing Officer.
  • Special audit proceedings under Section 142(2A):
    • Are part of judicial/assessment process
    • Have civil consequences
    • Cannot be treated as administrative actions
  • Even procedural provisions cannot override jurisdictional requirements.
  • Section 292B cannot validate actions taken by an authority lacking jurisdiction.

Sections Involved

  • Section 142(2A) – Special Audit
  • Section 142(2C) – Extension of Time 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/RAS11122023ITA4552022_182209.pdf

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