2016 (5) TMI 802 - HC - Income Tax

Power of AO for extension of time for filing of special audit report u/s 142(2A) - relationship of auditor (CA) with the assessee - Held that - the Court is unable to agree with the counsel for the Revenue that in the present case the ITAT exceeded its jurisdiction in examining the question whether the AO was justified in extending the time for the auditor nominated under Section 142 (2A) to submit the audit report. The Court accordingly declines to frame any question on this issue. In terms of Section 142(2A), special audit is conducted under an order passed by the AO, by an accountant as defined in Explanation below Section 288(2) of the Act who is nominated either by the Commissioner and such nominated auditor is permitted to furnish an audit report in the prescribed form. When the said provision is read with Explanation below Section 288(2) of the Act, it is apparent that the said nominated auditor is not expected to be in a relationship of an agent of the Assessee or in any other capacity except as a nominee of the Commissioner. It is perhaps for this reason the proviso to sub-Section 2C of Section 142 specifically states that the extension of time for submitting the audit report can be made by the AO on an application made in this behalf by the Assessee If the legislative intent was to permit the application to be made by the auditor nominated by the Commissioner, that would have been expressly provided for in the proviso to Section 142 (2C) of the Act. If the submissions of learned counsel for the Revenue were to be accepted, then it would mean that the application can be made not only by the Assessee but by a Chartered Accountant of the Assessee nominated by the Commissioner in terms of Section 142 (2A) of the Act. The Court declines to do so. Consequently, the Court declines to frame a question on this issue as well.

Summary

Issues:
1. Competency of ITAT to adjudicate the order of the Assessing Officer under Section 142(2C) of the Income Tax Act.
2. Competency of ITAT to admit an issue for the first time.
3. Competency of AO to extend the period for filing the audit report.

Analysis:

Issue 1:
The first issue revolved around the ITAT's competence to adjudicate the order of the Assessing Officer under Section 142(2C) of the Income Tax Act. The Revenue contended that the ITAT should not have examined the extension of time granted by the AO for filing the audit report since it was not a specific ground raised by the Assessee. However, the Court disagreed, emphasizing that the question of extension of time was crucial as it impacted the assessment's limitation period. The Court held that this issue could have been raised by the Assessee before the ITAT.

Issue 2:
Regarding the second issue, the Court noted that the ITAT addressed whether the assessment order passed by the AO was barred by limitation, which was linked to the extension of the audit report submission date under Section 142(2C) of the Act. The Court highlighted that the ITAT has the authority to consider issues not raised before the CIT(A) if it serves the interest of justice. Consequently, the Court rejected the Revenue's argument that the ITAT exceeded its jurisdiction in examining the AO's decision to extend the audit report submission time.

Issue 3:
The final issue centered on the competency of the AO to extend the period for filing the audit report. The Court highlighted that prior to April 1, 2008, the AO did not possess the power to extend the time suo motu. The amendment granting this power was deemed prospective. The Revenue argued that the request made by the nominated auditor should be considered as the Assessee's request. However, the Court disagreed, emphasizing that the nominated auditor acts on behalf of the Commissioner, not the Assessee. The Court declined to accept the Revenue's submission, stating that the application for extension should be made by the Assessee as specified in the Act.

In conclusion, the Court dismissed the appeal by the Revenue, maintaining its stance on the issues raised regarding the ITAT's jurisdiction, the extension of time for filing the audit report, and the roles of the Assessee and the nominated auditor in the process.