By TIOL News Service

NEW DELHI, MARCH 14, 2018: THE issue is - Whether the clock for the period of Special Audit u/s 142(2A) starts ticking from the date on which AO directs the assessee to get his accounts audited and not the date on which the said order is received by the assessee. YES is the verdict.

Facts of the case

The assessee Company is engaged in manufacture and sale of telecommunication handsets. The assessee had filed return for AY 2009-10. The case was selected for scrutiny and notice u/s 143(2) of the Act was issued. According to assessee, assessment proceedings had remained dormant for nearly twenty eight months till notice dated 17th January, 2013 was issued. The assessee was required to produce books of accounts for the first time on 28th February, 2013, barely a month before the expiry of time limit for passing the assessment order on 31st March, 2013. The assessee submitted that books of accounts and vouchers were voluminous and accordingly, the AO had asked the assessee to furnish books of account in a manner they could be easily examined. On 8th March, 2013, books were submitted in Systems Applications and Products (SAP) format. Trial balance in soft and hard copies was also provided. Assessee's request to specify ledger accounts required to be produced was rejected by the AO with the direction to produce all accounts by 11th March, 2013. The assessee on 11th March, 2013 had submitted a soft copy of the books of accounts in Excel sheet format, including trial balance and more than 600 pages of general ledger accounts etc. In the proceedings held on 14th March, 2013 numerous queries were raised and answered by the assessee. On 21st March, 2013, ten days before expiry of time for completing assessment, the AO issued notice u/s 142(2A) of the Act to show cause as to why accounts for the AY 2009-10 should not be audited by a special auditor. The assessee protested, vide submissions on 25th March, 2013, asserting that there was neither a failure to submit details nor incorrect details were furnished. It was highlighted and stressed that adequate time and opportunity had not been given to respond to the show cause notice.

The assessee asserts that at 6 p.m. on 26th March, 2013, opportunity notice was received by fax from the office of the CIT. By letter dated 28th March, 2013, the assessee informed the Revenue that due to paucity of time it was not possible to submit detailed objections. Request for extension of time by 3 to 5 working days was made. The extention was granted to submit reply by 30th March, 2013. The assessee eiterated that due to paucity of time it was not possible to file a detailed reply to the draft order. However, preliminary objections were raised against initiation of special audit proceedings. But AO was not satisfied with reply and drawn the proposal for special audit. Aggrieved assessee filed writ petition.

As per the Revenue, the order u/s 142(2A) dated 30th March, 2013 and the Terms of Reference were sent by speed post to Price Water House Cooper and assessee. The assessee however, vehemently deny having received the order u/s 142(2A) of the Act by any of the aforesaid modes on or before 31st March, 2013. It was stated that only 5 pages, i.e. covering letter of two pages and Terms of Reference of three pages, were sent by two fax messages on 30th March, 2013, and not the entire order of 22 pages under Section 142(2A) of the Act. The assessee's legal assertion was that the order u/s 142(2A) should have been physically and actually served or delivered on or before 31st March, 2013.

In writ, the High Court held that,

++ the two fax messages transmitted on 31st March, 2013 and by speed post receipts ED867855480IN and ED867855493IN, the order under Section 142(2A) of 22 pages was not transmitted or enclosed. However, order under Section 142(2A) of the Act was enclosed in the post addressed to Nokia India, Gurgaon sent vide postal receipt ED86785578IN on 31st March, 2013 at 1819 hours, weighing 60 grams. The assessee also accepts that on 1st April, 2013, the Special Auditor had visited the premises of the assessee and an employee of the assessee had made a noting that the assessee company was aware of the appointment of the Special Auditor and they would like to explore legal options and respond within seven days. The assessee in the written replies dated 6th April, 2013 and 10th April, 2013, had not stated or claimed that the order u/s 142(2A) of the Act was not communicated/served on them within the limitation period;

++ it would completely reject the argument of the assessee that the Assessing Officer had not received the approval from the office of the Commissioner of Income Tax, Delhi-V on 30th March, 2013. The contention of the assessee with regard to interpolation and over-writing of the date in the receipt register is far-fetched and has to be rejected. The receipt register records receipt of several communications and letters received by the AO. The assessee unequivocally accepts service of Terms of Reference for special audit on 31st March, 2013 with the covering letter dated 30th March, 2013. Fax of five pages on two occasions consisting of the covering letter and Terms of Reference is also accepted;

++ matter of concern is that the direction for special audit, which has the effect of extension of time for completion of the assessment proceedings, was initiated about ten days before the last date for passing of the assessment order vide show cause notice dated 21st March, 2013. The order for special audit u/s 142(2A) was passed on 30th March, 2013, whereas the time for passing of the assessment order was to expire on 31st March, 2013. Directions for special audit when issued just before the limitation period, invariably supports and impels accusations and doubts whether the direction was a mere ruse for extension of time. In the facts of the present case, the assessee asserts that the Commissioner had no option and was bound to accord approval for special audit, for the Assessing Officer could not have passed the assessment order on or before 31st March, 2013, given the issues involved and the details which had to be examined and adjudicated. Proposal for special audit was initiated right at the end, about 10 days before the limitation period for passing of the assessment order was to expire;

++ on the issue of reasonable or sufficient opportunity, the question cannot be answered by applying a strait-jacket test and would depend upon factual situation of each case. The yard-stick to judge any grievance whether reasonable opportunity was afforded or denied would be primarily a question of fact. Having examined the facts Court was not inclined to accept the submission of lack and absence of fair, adequate and reasonable opportunity, though there was delay and the proposal for special audit was initiated about 10 days before the limitation period for passing of the order. The petitioner had the opportunity to reply and make oral submissions. Notwithstanding the time constraint, the assessee could have responded and made written and oral submission, whether or not there were holidays or weekends. The assessee was conscious and aware of the tight time schedule, and had made it difficult and did try to obstruct. To this extent the assessee is also to be blamed. Having considered the contents of the order sheets, queries raised and issues relating to accounts, which have been fairly elaborately explained and elucidated in the order and counter affidavit, court was satisfied that a case for special audit was made out. To be fair to the Revenue, it was deemed appropriate to record that the assessee did not in the oral arguments specifically question and challenge the order under Section 142(2A) on merits, though plea in this regard is somewhat raised in the written submissions;

++ in the present case limitation period for passing of the assessment order was to end on 31st March, 2013. It was submitted by assesse that receipt of the order under Section 142(2A) by the assessee was mandatory and a must for an effective and valid order under section 142(2A) of the Act. The date of passing of the order, therefore, was not of consequence but date of communication and service on the assessee as a corollary was of consequence. But court found no merit in the said contention raised and the interpretation placed by the assessee. Section 142(2A) of the Act empowers the Assessing Officer to pass an order directing special audit. Clause (iii) to Explanation 1 to Section 153 refers to the period commencing from the date when the Assessing Officer directs the assessee to get his accounts audited under sub-section (2A) to Section 142 ending with the date on which the assessee is required to furnish report of such audit, and states that this period is to be excluded. The starting point is the date on which the Assessing Officer directs the assessee to get his accounts audited and not the date on which the said order is received by the assessee. The period of exclusion under clause (iii) to Explanation 1 of Section 153 ends on the last date on which the assessee is required to furnish his report of special audit. This is the end point and not the beginning;

++ proviso to sub-section (2C) to Section 142 serves a different purpose and stipulates the outer time limit within which the special audit must be completed. It postulates and states that the Assessing Officer cannot grant extension for a period exceeding 180 days. This period would commence not on the date when the order is passed, but from the date on which direction under sub-section (2A) to Section 142 is received by the assessee. The reason is obvious. There could be some time gap between the date of passing of the order for special audit and the date when the order is communicated to the assessee;

++ the case of Kumar Jagdish Chandra Sinha interprets Section 153 (1) of the Act. The assessee relies upon paragraph 15 of the judgment which refers to the expression 'communication' and states that the same should be understood as explained in Khemi Ram. Khemi Ram rather than supporting the assessee, supports the case of the Revenue that the expression “communication” need not be interpreted as actual receipt and can be meaningfully understood as dispatch, i.e., when the order is sent out and goes out of control of the authority;

++ service of the letter dated 30th March, 2013 with the "Terms of Reference" would be effective communication even if it is presumed that the order under Section 142(2A) was not enclosed with the letter. Further, order under Section 142(2A) of the Act was certainly dispatched and sent by speed post vide postal receipt ED86785578IN on 31st March, 2013 at 1819 hours, i.e. within the prescribed period. Hence it was concluded that the writ petition has no merit. Assessment proceedings have not abated Accordingly, the writ petition was dismissed.

(See 2018-TIOL-449-HC-DEL-IT)