2011 (5) TMI 540 - HC - Income Tax

Assessment order - whether was barred by limitation? - Whether the amendment to the proviso to Section 142(2C) with effect from 01.04.2008 was clarificatory and thus retrospective in nature? - Held that - As per Clause 27.3 of the Circular dated 27th March, 2009 it is noticed that sub section (2C) before the amendment did not empower the AO to extend the time for submissions of special audit report under sub Section (2A) - Further, the power of extension of time for submission of special audit report is also subject to limitation of a period of 180 days from the date on which the directions under section 142(2A) for the audit was received by the Assessee - It is an admitted fact that in the present case, the assessee had not made any application for extension of period of audit report therefore, the extension which was granted by AO on the request of the Auditor could be taken to be a suo motu action of AO which power, was not available with the him prior to the amendment with effect from 1st April, 2008 - Clause 27.4 of the Circular also clarifies that this amendment has been made applicable with effect from 1st April, 2008 and it is from this date onwards that the AO shall have power to extend the period of furnishing of special audit report suo motu - the proviso as is existed before or after the amendment and the legislative intent behind the amendment as gathered from the memorandum and the circular not persuaded to agree with the interpretation as given in the case of Jagjit Sugar Mills Company Limited (1993 (9) TMI 19 - PUNJAB AND HARYANA High Court). Thus it comes to be concluded that the Tribunal was correct in holding that the Assessment Order was barred by limitation. Thus the amendment whereby the word suo motu were inserted in sub section (2C) of Section 142 was to be applicable with effect from 1st April, 2008 only, the amendment cannot be said to be clarificatory or retrospective in nature. The amendment was prospective and was to be applicable with effect from 1st April, 2008 only - decided against the revenue.

Summary

Issues Involved:
1. Whether the ITAT erred in law in holding that the assessment order was barred by limitation.
2. Whether the amendment to the proviso to Section 142(2C) of the Income Tax Act, 1961 with effect from 01.04.2008 was clarificatory and thus retrospective in nature.

Detailed Analysis:

Issue 1: Whether the ITAT erred in law in holding that the assessment order was barred by limitation.

The High Court examined the provisions of Section 142(2A), (2C), and 153B(1) Explanation (ii) of the Income Tax Act. The court noted that the Assessing Officer (AO) had ordered a special audit and extended the time for the audit report multiple times without an application from the Assessee. It was contended by the Assessee that the AO did not have the power to extend the time suo motu before the amendment effective from 1st April 2008. The court emphasized that the word "and" in the proviso to Section 142(2C) could not be read as "or," and the AO's power to extend the audit period suo motu was only granted by the amendment effective from 1st April 2008. Therefore, the assessment order passed on 3rd August 2007 was barred by limitation as the AO did not have the power to extend the audit period suo motu prior to the amendment.

Issue 2: Whether the amendment to the proviso to Section 142(2C) of the Income Tax Act, 1961 with effect from 01.04.2008 was clarificatory and thus retrospective in nature.

The court referred to the Memorandum explaining the provisions of the Finance Bill, 2008, and Circular No.1 dated 27th March 2009 from the CBDT, which clarified that the amendment allowing the AO to extend the audit period suo motu was applicable from 1st April 2008 onwards. The court held that the amendment was prospective and not retrospective. The legislative intent was clear that the AO did not have the power to extend the audit period suo motu before 1st April 2008. Therefore, the amendment could not be considered clarificatory or retrospective in nature.

Conclusion:

The High Court concluded that the ITAT was correct in holding that the assessment order was barred by limitation. The amendment to Section 142(2C) was prospective and applicable only from 1st April 2008. Consequently, both issues were decided in favor of the Assessee and against the Revenue, leading to the dismissal of all the appeals.