CIT Can’t Extend Time Limit to Submit Special Audit Report u/s 142(2A) As Power Vests With AO Only | HC

Case Details: PCIT vs. Soul Space Projects Ltd. - [2023] 157 taxmann.com 272 (Delhi)

Judiciary and Counsel Details

• • Rajiv Shakdher & Girish Kathpalia, JJ.
  • Sanjeev Menon, Standing Counsel for the Appellant.
  • Rohit Jain, Abhishek Singhvi, Deepesh Jain & Aniket D. Agrawal, Advocates for the Respondent.

Facts of the Case

Assessee-company is engaged in the construction and allied services business. It was subjected to a search under Section 132 of the Income Tax Act, 1961. Subsequently, the Assessing Officer (AO) informed the assessee to have a special audit under Section 142(2A).

Subsequently, CIT approved conducting a special audit of the assessee’s accounts and appointed a Chartered Accountancy firm. The timeframe for completion of the audit was fixed as 120 days. However, at the request of the special auditor, CIT provided an extension of 60 days for furnishing the audit report.

Against such an extention, the matter reached before the Delhi High Court.

High Court Held

The High Court held that since the initial timeframe for the conduct of the audit was mandatorily required to be fixed by the AO as per section 142(2C), the power to vary the original timeframe by way of extension under the proviso appended to it has been consciously conferred by the legislature only on the AO.

The answer to whether the power conferred on the AO can be exercised by an authority other than the AO lies in ascertaining the authority in which the legislature has invested statutory discretion. As long as the authority retains the power to exercise the discretion vested in it by the statute, no fault can be found if it employs ministerial means in effectuating the exercise of discretionary power by the authority in which such power is reposed.

Accordingly, the discretionary power invested in the specified authority should be exercised by that authority alone and none else, even if it causes administrative inconvenience, except in those cases where it is reasonably inferred to be a delegable power.

In the instant case, the AO transmitted the request received by the auditors to his superiors, who then processed the matter and directed a grant of extension of time for completion of the audit. The decision to get an audit conducted under Section 142(2A) is a step in the process of assessment proceedings and, therefore, is clearly not an administrative power; the appointment of a special auditor entails civil consequences.

Therefore, the initial exercise of the power has been explicated as one that is not administrative. The CIT could not have extended the time based on the AO’s recommendation.