2010 (11) TMI 339 - HC - Income Tax

Time limitation of assessment u/s 153 - sub-section (2A) of section 142 authorises the Assessing Officer with the previous approval of the Chief Commissioner or Commissioner to direct the assessee to get the accounts audited by an accountant nominated by the Chief Commissioner or Commissioner - it may so happen that the chartered accountant, for many reasons, may not be able to complete the audit or prepare the report within the time granted by the Assessing Officer and it is absolutely within his powers to request for extension of time from the Assessing Officer for completion of audit and for filing report - If the powers of the officer to fix time for filing audit report under sub-section (2C) were not left flexible or elastic, the very scheme of section 142(2A) would be frustrated and defeated, if the auditor fails to finish the work within the time originally granted by the officer under sub-section (2C) - Appeal is allowed by way of remand

Summary

Issues Involved
1. Whether the assessment was time-barred under section 153 of the Income-tax Act.
2. Interpretation of the provisions of section 142(2A) and (2C) regarding the extension of time for furnishing the audit report.
3. Applicability of the amended provisions introduced by the Finance (No. 2) Act of 1996 for the assessment year 1995-96.

Detailed Analysis

1. Whether the assessment was time-barred under section 153 of the Income-tax Act
The Revenue challenged the Tribunal's order declaring the assessment as time-barred under section 153 of the Income-tax Act. The key dates relevant to this issue were:
- Date of issue of assessment notice under section 143(2): March 19, 1996.
- Date on which auditor was appointed by the Assessing Officer under section 142(2A): September 9, 1997.
- Time granted by the Assessing Officer to the assessee to produce auditor's report: December 31, 1997.
- Date on which the chartered accountant requested for extension: December 24, 1997.
- Date on which the officer extended the time for filing report: January 29, 1998.
- Time extended by the Assessing Officer for filing the audit report: up to February 15, 1998.
- Date on which the assessee filed the audit report: February 17, 1998.
- Date on which assessment was finally completed: September 3, 1998.
- Time available for completion of assessment under Explanation 1(iii) to section 153(3): September 7, 1998.

The Tribunal and the first appellate authority had accepted the assessee's contention that the assessment should have been completed within two years from the end of the previous year as required under section 153(1)(a). The extension of time available was only the time granted by the Assessing Officer to the assessee to furnish audited accounts under section 142(2A).

2. Interpretation of the provisions of section 142(2A) and (2C) regarding the extension of time for furnishing the audit report
The court examined the provisions of section 142(2A) and (2C) to determine the validity of the extension of time for furnishing the audit report. Section 142(2A) authorizes the Assessing Officer to direct the assessee to get the accounts audited by an accountant, with the previous approval of the Chief Commissioner or Commissioner. Section 142(2C) allows the Assessing Officer to specify the period within which the audit report should be furnished and to extend this period on an application made by the assessee for good and sufficient reason.

The Revenue contended that the Assessing Officer could extend the time for furnishing the audit report based on the auditor's request without the involvement of the assessee. The assessee argued that the extension could only be granted on the assessee's request. The court found that the Assessing Officer has the authority to fix and extend the time for furnishing the audit report, including on the auditor's request, if the request is reasonable and justified.

3. Applicability of the amended provisions introduced by the Finance (No. 2) Act of 1996 for the assessment year 1995-96
The court noted the controversy regarding whether the amended provisions introduced by the Finance (No. 2) Act of 1996, effective from April 1, 1996, applied to the assessment year 1995-96. However, the court decided not to address this issue directly, as it concluded that the assessment was not time-barred even if the amended provisions were applied.

The court held that the authority of the Assessing Officer to specify the period for furnishing the audit report under section 142(2C) includes the authority to extend the period based on the auditor's request. The court emphasized that the legislative intent must be given full effect to ensure the projected object is achieved. The court concluded that the assessment was validly completed on September 3, 1998, within the extended period allowed by the Assessing Officer.

Conclusion
The court vacated the orders of the Tribunal and the first appellate authority, holding that the assessment was not time-barred. The appeal was allowed, and the case was restored to the first appellate authority for a decision on the merits.