$ * IN HIGH COURT OF DELHI AT NEW DELHI 11 + ITA 668/2016 PR.COMMISSINOR OF INCOME TAX-5 Appellant Through: Mr. Rahul Chaudhary, Senior Standing counsel. versus JINDAL DYECHEM INDUSTRIES PVT. LTD. Respondent Through: Mr. Salil Aggarwal with Mr. Madhur Aggarwal, Advocates. CORAM: JUSTICE S. MURALIDHAR JUSTICE CHANDER SHEKHAR ORDER % 05.05.2017 Dr. S. Muralidhar, J.: 1. Revenue has filed present appeal under Section 260A of Income Tax Act, 1961 (Act) against impugned order dated 23 rd February 2016 passed by Income Tax Appellate Tribunal (ITAT) in ITA No. 4809/Del/2007 for Assessment Year ( AY ) 2003-04. 2. While admitting this appeal on 5th October 2016, following question of law was framed for consideration: Did ITAT fell into error in holding that assessment order for AY 2003-04 was time barred given pre-condition Clause (iii) of Explanation (i) to Section 153 (1) of Income Tax Act which led to amendment to that provision by Finance Act No. 2 Act of 1996? ITA 668/2016 Page 1 of 7 3. Assessee is dealing primarily in Bullion (gold and silver) having operation in various states. Assessee is subsidiary of M/s. Jindal Export and Import Private Limited. For AY in question, Assessee filed its return on 2nd December 2003 showing total income at Rs. 2,04,84,373 from business and profession and income from house property . return was picked up for scrutiny and notice was issued to Assessee under Section 143 (2) of Act on 10th November 2004. 4. By order dated 17th February 2006 Assessing Officer ( AO ) directed Assessee to get its accounts audited under Section 142 (2A) of Act within period of 35 days. Thereafter, several extensions were granted by AO; for 45 days (by direction dated 24 th March 2006), further 30 days (on 10th May 2006), for further 10 days (on 9th June 2006) and further 7 days (by direction dated 28th June 2006). As result of these extensions, special audit report was required to be furnished to AO by order dated 7th July 2006. As it transpired, special audit report was unable to be submitted by 7th July 2006. report of Special Auditor dated 7th July 2006 was sent under covering letter dated 12th July 2006 to Commissioner of Income Tax-II and received by AO on 13th July 2006. On 14th September 2006 AO framed assessment order for AY 2003- 04. AO did not accept all recommendations in report of Special Auditor. Nevertheless certain additions were made to taxable income. 5. Aggrieved by assessment order, Assessee filed appeal before Commissioner of Income Tax (Appeals) [ CIT (A) ] who by his order ITA 668/2016 Page 2 of 7 dated 26th September 2007 allowed appeal. It was noted that audit report was required to be furnished by 7th July 2006. limitation for framing assessment expired on 6th September 2006. Accordingly, assessment made on 14th September 2006 was clearly barred by limitation in terms of Section 153 (1) of Act. assessment was held to be invalid and annulled. 6. Aggrieved by above order, Revenue went in appeal before ITAT. Assessee filed cross-objections. Assessee was aggrieved by CIT (A) not deleting some of additions made by AO. 7. ITAT has, in impugned order, dismissed Revenue s appeal. After analysing Section 153 (1) of Act in light of facts of case, ITAT concluded that CIT (A) was justified in holding that assessment was barred by limitation. ITAT placed reliance on decision of this Court in CIT v. Bishan Saroop Ram Kishan Agro (P) Limited (2011) 203 Taxman 326 (Del) and held that proviso to sub- section 2C to Section 142 of Act was prospective. There was no application by Assessee for extension of time for submission of audit report. Therefore, ITAT held that order dated 13th July 2006 of AO purportedly under Section 142 (2C) of Act granting extension till 17th July 2006 was not valid. Assessee's cross-objections were dismissed by ITAT as having become infructuous. 8. This Court has heard submissions of Mr. Rahul Chaudhary, learned Senior standing counsel for Revenue and Mr. Salil Aggarwal, learned counsel for Respondent-Assessee. ITA 668/2016 Page 3 of 7 9. Mr. Chaudhary, urged that given purpose and object behind insertion of sub-sections 2A, 2B and 2C of Section 142 of Act , period between 7th July 2006 and 17th July 2006 date when audit report was actually made available should be excluded for purpose of computation of limitation. Mr. Chaudhary submitted that when there was failure by Assessee to submit audit report within stipulated time, Assessee should not be allowed to take advantage of its own lapse and claim that assessment order was barred by limitation. 10. Court is unable to accept above submission. language of statute is plain. Section 142 (2A) of Act anticipates timely submission of report of Special Auditor. Auditor who is to conduct special audit in terms of Section 142 (2) of Act is not auditor of choice of Assessee. auditor is nominated by Revenue and his work is not controlled by Assessee. Where special audit report is unable to be furnished within time stipulated by AO, extension of time can be granted by AO on application made by Assessee. extension has to be for good and sufficient reasons. 11. From 1st April 2008 proviso to Section 142 (2C) of Act was inserted to provide that AO may suo motu extend period provided that aggregate period originally fixed and extended period would not exceed 180 days from date on which direction was first issued to Assessee for submission of report of Special Auditor. It is admitted position that in present case all extensions granted, except last one, were on application of Assessee. last date for submission of ITA 668/2016 Page 4 of 7 report in terms of these extensions was 7th July 2006. There was no application by Assessee after 7th July 2006 for extension of time. 12. On letter dated 12th July 2006 of Auditor, AO made endorsement dated 13th July 2006 extending time for submission upto date on which auditor s report was actually received i.e. 17th July 2006. 13. It was explained by this Court in Commissioner of Income Tax v. Bishan Saroop Ram Kishan Agro (P) Limited (supra) that insertion of expression suo motu in proviso to Section 142 (2C) of Act was only with effect 1st April 2008. Therefore, in present case, when AO on his own extended period of submission of audit report to 17 th July 2006, he had no power to do so under Section 142 (2C) of Act. Consequently, Court finds no error in orders of both CIT (A) as well as ITAT holding that submission of audit report on 17 th July 2006 was barred by limitation. 14. It was contended by Mr. Chaudhary that time taken in submission of audit report dated 7th July 2006 to Department, i.e., period between 7th July 2006 and 17th July 2006 should stand excluded. Mr. Chaudhary referred to decision of Madhya Pradesh High Court in CIT v. Dhariwal Sales Enterprises (1996) 221 ITR 240. He also referred to decision of this Court in VLS Finance Limited v. Commissioner of Income Tax (2016) 68 Taxman.com 368 (SC). It is pointed out that under Section 153 (1) of Act, period of limitation for making order of assessment to be extended during which said proceeding stands excluded for purpose of computing period of limitation for making ITA 668/2016 Page 5 of 7 assessment order. 15. Court is unable to accept any of above submissions. Explanation-1 to clause (iii) of Section 153 (1) as it stood at relevant point in time, reads as under: (iii) period of commencing from date on which Assessing Officer directs Assessee to get his accounts audited under sub- section (2A) of Section 142 and (a) ending with last date on which Assessee is required to furnish report of such audit under that sub-section, or (b) where such direction is challenged before court, ending with date on which order setting aside such direction is received by Principal Commissioner or Commissioner , or shall stand excluded. 16. In present case, last date on which Assessee was required to furnish report was 7th July 2006 in terms of Section 153 (1) of Act. time for passing assessment order expired on 6th September 2006 whereas it was passed only on 14th September 2006. 17. decision in Dhariwal Sales Enterprises (supra) concerns execution of time spent for obtaining copy of report . Here there was no such occasion for granting of extension of time by AO. In fact, AO had no such power to do so. There was no question of excluding time taken for obtaining report. On other hand decision of this Court in CIT v. Bishan Saroop Ram Kishan Agro (P) Limited (supra) squarely covers issue and is in favour of Assessee. In said decision, Court took note of Circular dated 27 th March 2009 of ITA 668/2016 Page 6 of 7 Central Board of Direct Taxes (CBDT) regarding prospective application for amendment to proviso to Section 142 (2C) of Act which gave AO suo motu power to extend time for furnishing audit report. 18. For all aforementioned reasons, Court finds no error having been committed by CIT (A) or ITAT in holding that assessment order in present is barred by limitation. question as framed in negative, is answered i.e., in favour of Assessee and against Revenue. 19. appeal is accordingly dismissed but, in circumstances of case, with no order as to costs. S. MURALIDHAR, J CHANDER SHEKHAR, J MAY 05, 2017 Rm ITA 668/2016 Page 7 of 7 Pr. Commissinor of Income-tax-5 v. Jindal Dyechem Industries Pvt. Ltd