Facts of the Case

The present appeals were filed by the Revenue challenging a common order passed by the Income Tax Appellate Tribunal concerning multiple assessment years (AY 2004–05 to AY 2008–09).

The core issue arose from the extension of time granted for submission of a special audit report under Section 142(2A) of the Income Tax Act, 1961. The extension was not granted directly by the Assessing Officer (AO), but by the Commissioner of Income Tax (CIT), based on the recommendation of the AO.

The Tribunal ruled in favour of the assessee, holding that such extension was not valid. The Revenue challenged this before the High Court.

Issues Involved

  1. Whether the extension of time under the proviso to Section 142(2C) was validly granted.
  2. Whether such power of extension is administrative/procedural and can be exercised by a superior authority like CIT.
  3. Whether such defect, if any, can be cured under Section 292B of the Income Tax Act.

Petitioner’s (Revenue) Arguments

  • The Revenue contended that:
    • The extension of time was procedural in nature.
    • Even if granted by a superior authority (CIT), it should be considered valid.
    • Any irregularity should be protected under Section 292B, as the action was in substance aligned with the intent of the Act.
  • It was argued that the extension did not prejudice the assessee and hence should not invalidate the proceedings.

Respondent’s (Assessee) Arguments

  • The assessee argued that:
    • The statute specifically vests the power of extension only with the Assessing Officer.
    • Such power is not administrative but quasi-judicial, as it has civil consequences.
    • Delegation of such power to the CIT is impermissible.
    • The defect is substantive and cannot be cured under Section 292B.

Court’s Findings / Order

  • The power to extend time under Section 142(2C) is vested exclusively in the Assessing Officer.
  • Such power cannot be delegated or exercised by a superior authority like the CIT.
  • The extension of time granted by the CIT was invalid in law.
  • The function is not administrative, as it entails civil consequences and impacts the assessee’s rights.
  • Therefore, the action of the Revenue was unsustainable.

Important Clarifications by the Court

  • The Court emphasized that:
    • Discretionary statutory powers must be exercised by the authority in whom they are vested.
    • Even administrative inconvenience cannot justify delegation.
    • Special audit under Section 142(2A) affects civil rights; hence, principles of natural justice apply.
  • Reliance was placed on landmark rulings:
    • Rajesh Kumar vs DCIT
    • Sahara India (Firm) vs CIT

Sections Involved

  • Section 142(2A) – Special Audit
  • Section 142(2C) – Time limit for submission of audit report
  • Section 292B – Return of income, etc., not to be invalid on certain grounds

Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/RAS11122023ITA4552022_182209.pdf

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