By TIOL News Service

NEW DELHI, MAR 27, 2019: THE issue at hand before the Apex Court is whether the AO who prescribes the time limit for filing auditor's report u/s 142(2A), is empowered to extend such limit even if the assessee does not seek an extension. YES is the verdict. However, the court also held that the AO is bound by the overall ceiling of time limit as prescribed under proviso to Section 142(2C), when granting such extension. It was further clarified that it is necessary to examine the context behind an amendment in any law, so as to determine whether such amendment was clarificatory in nature or sought to remove any ambiguity and that for such purpose, due regard must be given to general scope of such statute, the remedy sought to be given, the former state of law and the new powers that the legislature sought to endow in such statute.

Facts of the case

During the relevant AYs, the AO passed an assessment order u/s 153A. Thereafter, there was a difference of opinion between the assessee and the AO regarding the interpretation of Section 142(2C). In this regard, the Tribunal had held that before the insertion of the expression suo motu in the provisions of Section 142(2C) w.e.f. 01.04.2008, the AO was not vested with jurisdiction to extend the time limit for submission of a report furnished by an auditor appointed u/s 142(2A). Hence the Tribunal held that the assessment order passed u/s 153A was barred by limitation. On further appeal, the High Court dismissed the appeals filed by the Revenue against such order.

On appeal, the Apex Court was of the view that,

++ the proviso to subsection (2C) creates a remedy for an assessee to apply for extension where, for a good and sufficient reason, the audit report could not be submitted. Otherwise, the assessee may face a penalty under Section 271 apart from being subjected to a best judgment assessment under Section 144. By extending time at the behest of the assessee, the AO allows the original order calling for an audit report to be duly implemented. The creation of a remedy under the proviso in favour of the assessee cannot be construed to detract from the authority which vests in the AO, who has specified the time limit for the submission of an audit report in the first instance, to extend time without an application by the assessee. To hold otherwise and to construe the proviso to sub-section (2C) as foreclosing the authority of the AO to extend time without a request by the assessee, would lead to an absurd consequence. The assessee would then be in control of whether or not to seek an extension of time, where the audit report has not been finalized. Even if the auditor, for genuine reasons (not bearing on the default of the assessee), was unable to comply with the time schedule, having regard to the nature or complexity of the accounts, the assessee would then have a sole and unrestricted power to determine whether an extension should be sought. Not seeking an extension would in effect defeat the underlying purpose and object of directing the assessee to obtain a report of an auditor under sub-section (2A). The legislature could not have intended this consequence. An interpretation which would defeat the purpose underlying sub-section (2A) must be avoided. The AO who has fixed the time in the first instance must necessarily, as an incident of the authority to fix time, be entitled to extend time without an application by the assessee. While extending time, the AO will be subject to the overall ceiling of time fixed under the proviso to sub section 2C;

++ the issue as to whether the amendment which has been brought about by the legislature is intended to be clarificatory or to remove an ambiguity in the law must depend upon the context. The Court would have due regard to (i) the general scope and purview of the statute; (ii) the remedy sought to be applied; (iii) the former state of the law; and (iv) what power that the legislature contemplated. Interpretation is a matter of determining the path on the basis of statutory context and legislative history;

++ thus the provisions of Section 142(2C) of the Income Tax Act 1961, as they stood prior to the amendment which was enacted with effect from 1 April 2008 by the Finance Act, 2008 did not preclude the exercise of jurisdiction and authority by the AO to extend time for the submission of the audit report directed under subsection (2A), without an application by the assessee. It is held that the amendment was intended to remove an ambiguity and is clarificatory in nature. As a consequence of this decision, the judgment of a Division Bench of the Delhi High Court in Commissioner of Income Tax v Bishan Swaroop Ram Kishan Agro Pvt. Ltd. dated 27 May 2011. , is over-ruled. Thus, the matter is remanded back to the lower authorities for fresh disposal.

(See 2019-TIOL-126-SC-IT)