Facts of the Case

The present appeal was filed by the Revenue under Section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal (ITAT) concerning Assessment Year 2008–09.

The assessee, AT & T Global Network Services (India) Pvt. Ltd., filed its return declaring taxable income of ₹36.35 crores. The case was selected for scrutiny, and the Assessing Officer (AO) was required to complete the assessment by 31.12.2011.

During assessment proceedings, the AO directed a special audit under Section 142(2A) on 26.12.2011. The audit report was received on 22.06.2012. Subsequently, a draft assessment order was passed on 09.08.2012, followed by a final order on 17.06.2013 after directions from the Dispute Resolution Panel (DRP).

However, the ITAT held that the draft assessment order was time-barred, rendering the final assessment invalid.

Issues Involved

  1. Whether the draft assessment order dated 09.08.2012 was barred by limitation under Section 153 of the Income Tax Act.
  2. Whether the period consumed in conducting a special audit under Section 142(2A) should be excluded while computing limitation.
  3. Whether the benefit of the proviso to Explanation 1 of Section 153 (extension to 60 days) applies in such circumstances.

Petitioner’s Arguments (Revenue)

  • The Revenue contended that the period from 26.12.2011 to 22.06.2012 (special audit period) must be excluded under Explanation 1(iv) to Section 153.
  • After such exclusion, only six days remained for completing the assessment; therefore, the first proviso extended the limitation period to 60 days.
  • Accordingly, the draft assessment order dated 09.08.2012 was within the extended limitation period.

Respondent’s Arguments (Assessee)

  • The assessee argued that the benefit of exclusion should not apply because the special audit report was received after the original limitation period expired.
  • It was contended that time limits under Section 153 are strict and cannot be extended unless explicitly permitted.
  • The assessee also suggested that special audit provisions could be misused to extend limitation.

Court Findings / Judgment

The Delhi High Court held:

  • The period during which the special audit was conducted must be excluded while computing limitation under Explanation 1(iv) to Section 153.
  • The first proviso to Explanation 1 clearly provides that if the remaining period after exclusion is less than 60 days, it shall be extended to 60 days.
  • Even if the special audit report is received after the original limitation period, the exclusion still applies.
  • The draft assessment order dated 09.08.2012 was therefore within limitation and valid.

The Court answered the substantial question of law in favour of the Revenue and against the assessee.

Important Clarifications by the Court

  • Receipt of the special audit report beyond the original limitation period does not invalidate exclusion.
  • The statute permits both exclusion of time and extension of limitation, and both must be applied harmoniously.
  • The Assessing Officer must be given a minimum 60-day period post-exclusion to complete the assessment.
  • The Court relied on precedents including:
    • CIT vs Ulike Promoters Pvt. Ltd. (2013) 356 ITR 507 (Delhi)
    • VLS Finance Ltd. vs CIT (2016) 384 ITR 1 (SC)

Sections Involved

  • Section 260A – Appeal to High Court
  • Section 153 – Time limit for completion of assessment
  • Explanation 1(iv) to Section 153 – Exclusion of special audit period
  • Proviso to Explanation 1 – Extension to 60 days
  • Section 142(2A) – Special Audit
  • Section 144C – DRP Proceedings
  • Section 143(3) – Assessment

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2018:DHC:5245-DB/CSH20082018ITA2922018.pdf

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