2018 (9) TMI 115 - HC - Income Tax

Assessment u/s 153A - time barred assessment - Held that - It was not necessary that the special audit report should be received within the period of limitation to avail the benefit of clause (iv) to Explanation 1 and the first proviso to Section 153, rather receipt of the special audit report beyond the original time prescribed would not matter in view of the exclusion under clause (iv) to Explanation 1. Time or period excluded is not counted and accordingly the period of limitation is to be computed. Further, benefit of the first proviso cannot be denied when upon exclusion, the time left for passing an order is less than sixty days. Clause (iv) to Explanation 1 and the first proviso would certainly apply in the present case as special audit was directed by the Assessing Officer before the expiry of prescribed period and only six days were left to complete the assessment. Statutory time period is fixed by the Act. The same enactment can also provide for exclusion of period, and extension of time. We must abide by the legislative enactment. Substantial question of law is answered in favour of the appellant-revenue and against the respondent-assessee. The draft assessment order was passed within the prescribed time and was not barred by limitation.

Summary

Issues:
1. Validity of draft assessment order passed by the Assessing Officer.
2. Interpretation of the proviso to Explanation I (iv) to Section 153 of the Income Tax Act.

Issue 1: Validity of draft assessment order passed by the Assessing Officer:
The appeal by the Revenue under Section 260A of the Income Tax Act challenged the order of the Income Tax Appellate Tribunal (ITAT) regarding the Assessment Year 2008-09. The ITAT had held the draft assessment order passed by the Assessing Officer as invalid due to being beyond the prescribed statutory period. The final assessment order was also deemed void and invalid.

Issue 2: Interpretation of the proviso to Explanation I (iv) to Section 153 of the Income Tax Act:
The key question was whether the draft assessment order dated 09.08.2012 was passed within the prescribed time. The Revenue argued that the period of special audit should be excluded for computing the limitation period, and thus, the draft assessment order was within the limitation. However, the ITAT held that the special audit report received after 31.12.2011 could not be excluded, emphasizing the strict adherence to time limits under section 153 of the Act.

The court analyzed the Explanation 1 (iv) and the first proviso to Section 153, which provide for the exclusion of the special audit period and extension of the limitation period if less than sixty days are left. Referring to a similar case, the court highlighted that the Assessing Officer should have a minimum of 60 days to complete the assessment if the time left is less than 60 days after exclusions. The court emphasized that the exclusion clause and the proviso serve the same purpose and should be applied accordingly.

The court held that the special audit report's receipt beyond the original time prescribed does not affect the exclusion under clause (iv) to Explanation 1. It concluded that the draft assessment order was passed within the prescribed time and not barred by limitation. The court refrained from expressing any opinion on the assessment's merits and remanded the case to the Tribunal for a fresh decision on merits.

In conclusion, the court answered the substantial question of law in favor of the appellant - revenue, clarifying that the draft assessment order was passed within the prescribed time. The parties were directed to appear before the Tribunal for further proceedings without any order as to costs.