Non-Delegability of Discretionary Powers in Income Tax Assessments: Administrative Discretion in Special Tax Audit Procedures u/s 142

Deciphering Legal Judgments: A Comprehensive Analysis of Case Law

Reported as:

2023 (12) TMI 740 - DELHI HIGH COURT

Overview

This case, adjudicated by the Delhi High Court, revolves around the interpretation of provisions of the Income Tax Act, 1961 (the Act), specifically related to the extension of time for submitting an audit report under Section 142(2A) and its impact on the assessment order's validity. The central legal issue pertains to whether the extension granted to a Chartered Accountant for audit report submission was in consonance with the proviso to Section 142(2C) of the Act.

Factual Matrix

• Background: The case concerns Assessment Years (AYs) 2007-08 and 2008-09. The Income Tax Appellate Tribunal (Tribunal) had disposed of appeals filed by the appellant/revenue and the cross-objections by the respondent/assessee, Soul Space Projects Ltd.
• Key Events:
  • A search action was conducted on the respondent/assessee, leading to the issue of a notice under Section 153A of the Act.
  • Subsequently, a special audit was proposed under Section 142(2A), to which the assessee objected. However, these objections were rejected, and a special audit was ordered.
  • An extension of the timeframe for submitting the audit report was sought and granted, which is at the crux of the legal debate.

Legal Issues and Analysis

1. Grant of Extension under Section 142(2C): The primary legal contention revolves around the extension of time for audit report submission. The provisions of Section 142(2A) and 142(2C) are central to this discussion.

   • The Assessing Officer (AO) has the power to direct an audit and extend the timeframe for submitting the audit report. This power must be exercised considering the nature and complexity of the accounts, doubts about the correctness of the accounts, and the revenue's interests.
   • The legal debate centers on whether this extension can be granted by an authority other than the AO, notably the Commissioner of Income Tax (CIT).

2. Nature of Power under Section 142(2C): The appellant/revenue argued that the power to grant an extension is administrative, not judicial or quasi-judicial. In contrast, the respondent/assessee contended that this power is quasi-judicial due to its substantive civil consequences.

3. Exercise of Discretion and Delegation:

   • The AO's recommendation for extension, processed and granted by the CIT, raises the issue of whether such delegation is permissible.
   • The Court noted that while administrative convenience is a valid concern, discretionary power vested in a specific authority (here, the AO) should be exercised by that authority alone.

4. Assessment Order's Validity:

   • The legal validity of the assessment order hinges on whether the extension was lawfully granted.
   • If the extension granted was not in line with the provisions, the assessment order would be barred by limitation, rendering it invalid.

Conclusions and Implications

• The High Court concluded that the power to extend the audit report submission timeframe is vested solely with the AO and cannot be delegated to the CIT. Therefore, the extension granted by the CIT, instead of the AO, was not in line with the statutory provisions, affecting the legality of the subsequent assessment order.

• This decision underscores the importance of adhering to the statutory mandate regarding the exercise of discretion and the non-delegability of certain powers. It emphasizes the significance of administrative actions conforming to legal requirements, especially when they have substantial civil consequences.

Full Text:

2023 (12) TMI 740 - DELHI HIGH COURT