THE COMMISSIONER OF INCOME TAX, NEW DELHI versus RAM KISHAN DASS on 26 March 2019

[2019] 5 S.C.R. 25

THE COMMISSIONER OF INCOME TAX, NEW DELHI

v.

RAM KISHAN DASS

(Civil Appeal No. 3211 of 2019)

MARCH 26, 2019

[DR. DHANANJAYA Y CHANDRACHUD ANDHEMANT GUPTA, JJ.]

Income Tax Act, 1961 – s. 142(2A) – Inquiry beforeassessment – Special audit – Extension of time for submission ofthe audit report of the auditor appointed under the provisions ofs. 142(2A) – Jurisdiction of the assessing officer – Order by thetribunal that prior to the insertion of the expression ‘suo motu’ w.e.f.01.04.2008 in s. 142(2C), the assessing officer had no jurisdictionto extend time for the submission of the report of an auditorappointed u/s.142(2A), of his own accord, and as a result, theassessment made u/s. 153A, in respect of the assessment years wasbarred by limitation – Upheld by the High Court – On appeal, held:Provisions of s. 142(2C), as they stood prior to the amendment didnot preclude the exercise of jurisdiction and authority by theassessing officer to extend time for the submission of the auditreport directed under sub-section (2A), without an application bythe assessee – Amendment was intended to remove ambiguity and isclarificatory in nature .

Allowing the appeals, the Court

HELD: 1.1 Sub-section (2A) of Section 142 of the IncomeTax Act, 1961 empowers the assessing officer to direct theassessee to get the accounts audited by an accountant, on theformation of an opinion that the conditions specified in theprovision for recourse to the power are fulfilled. The power toorder an audit is vested with the assessing officer. As anecessary incident of this power, sub-section (2C) imposes anobligation on the assessee to furnish the report to the assessingofficer within the period which is specified by the assessingofficer. The substantive part of sub-section (2C) places anobligation on the assessee to comply with the time schedule which

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Ais prescribed by the assessing officer. The overall ceiling of timeappears in the proviso to sub-section (2C), which mandates thatthe aggregate of the time fixed and the extended period cannotexceed 180 days, after which there can be no further extensionof time. [Para 15] [38-C-E]

B1.2 The proviso was intended to deal with a situation wherean assessee, for valid reasons, may not be able to furnish theaudit report within the period that was fixed by the assessingofficer. The enactment of the proviso was necessary to give aremedy to an assessee who, for genuine reasons, is unable tocomply with the direction issued in the first instance by theCassessing officer. Hence, the proviso stipulates that for good andsufficient reason, the assessing officer may extend time on anapplication submitted by the assessee. The “good and sufficientreason” requirement is intended to ensure that an extension oftime cannot be demanded by the assessee as a matter of right.DIndeed, the use of the expression ‘may’ indicates that whetheror not time should be extended is discretionary. [Para 17][38-G-H; 39-A-B]

1.3 In determining whether the power to extend time vestsin the assessing officer in a situation where the assessee has notEmade an application for extension, it is well to remember thatunder the substantive part of sub-section (2C), the assessingofficer can fix time for the submission of the audit report. Subjectto an overall limit of 180 days, the assessing officer is fully clothedwith the authority to determine the time within which the auditreport should be submitted. For instance, the assessing officerFmay in a given case consider the grant of 90 days as adequate forthe completion of the exercise. Though the assessing officer hasthe power, in the first instance, to fix an even longer periodsubject to the overall ceiling of time, she may fix a particularperiod within the limit. To then postulate that while theGassessing officer could in the first instance have fixed a longertime limit but, having fixed a limit of time, is precluded fromextending time thereafter would be an absurd course ofinterpretation. The assessing officer while fixing time in the firstinstance will do so on an estimate of the reasonable time which islikely to be taken in completing the exercise and submitting anH

audit report. The exigencies of the situation may howeverrequire an extension of time for genuine reasons or, as thestatute calls it, “for any good and sufficient reason”. [Para 18][39-B-E]

1.4 The proviso to sub-section (2C) creates a remedy foran assessee to apply for extension where, for a good andsufficient reason, the audit report could not be submitted.Otherwise, the assessee may face a penalty under Section 271apart from being subjected to a best judgment assessment underSection 144. By extending time at the behest of the assessee,the assessing officer allows the original order calling for an auditreport to be duly implemented. The creation of a remedy underthe proviso in favour of the assessee cannot be construed todetract from the authority which vests in the assessing officer,who has specified the time limit for the submission of an auditreport in the first instance, to extend time without an applicationby the assessee. To hold otherwise, and to construe the provisoto sub-section (2C) as foreclosing the authority of the assessingofficer to extend time without a request by the assessee, wouldlead to an absurd consequence. The assessee would then be incontrol of whether or not to seek an extension of time, where theaudit report has not been finalized. Even if the auditor, forgenuine reasons (not bearing on the default of the assessee),was unable to comply with the time schedule, having regard tothe nature or complexity of the accounts, the assessee wouldthen have a sole and unrestricted power to determine whetheran extension should be sought. Not seeking an extension wouldin effect defeat the underlying purpose and object of directingthe 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 underlyingsub-section (2A) must be avoided. The assessing officer who hasfixed the time in the first instance must necessarily, as anincident of the authority to fix time, be entitled to extend timewithout an application by the assessee. While extending time,the assessing officer will be subject to the overall ceiling of timefixed under the proviso to sub section 2C. Secondly, thealternate construction of the proviso is that the expression “and A

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Afor any good and sufficient reason” should be read to mean “orfor any good and sufficient reason”, as a matter of statutoryinterpretation. [Para 19, 20] [39-F-H; 40-A-E]

1.5 The Notes on Clauses as well as the Memorandum tothe Finance Act do not indicate a contrary hypothesis. TheBreason for the introduction of the amendment arose because ofthe element of ambiguity inherent in the erstwhile position as itstood before 1 April 2008. The ambiguity was precisely on thequestion as to whether the assessing officer was precluded fromgranting an extension of time of his own accord merely becausethe assessee was permitted to apply for an extension. Since theCpurpose of the amendment was to remove this ambiguity, by theFinance Act, Parliament essentially clarified the position as itexisted prior to the amendment. Moreover, there exists apresumption of retrospective application in regard to amendmentswhich are of a procedural nature. [Para 22, 23] [42-D-G]

DInterpretation of Statutes by Maxwell 11[th ]Edn,Sweet and Maxwell (1962) p 217 - referred to.

1.6 It cannot be said that to adopt an interpretation whichis placed on the provisions of Section 142(2C) would enable theassessing officer to extend the period of limitation for making anEassessment under Section 153B. Explanation (iii) as it stood atthe material time, provided for the exclusion of the period com-mencing from the date on which the assessing officer had directedthe assessee to get his accounts audited under sub-section (2A)and ending on the day on which the assesee is required to fur-Fnish a report under that sub-section. The day on which theassessee is required to furnish a report of the audit undersub-section (2A) marks the culmination of the period of exclu-sion for the purpose of limitation. Where the assessing officerhad extended the time, the period, commencing from the date onwhich the audit was ordered and ending with the date on whichGthe assessee is required to furnish a report, would be excludedin computing the period of limitation for framing the assessmentu/s.153B. The principle governing the exclusion of time remainsthe same. The act on which the exclusion culminates is the datewhich the assessing officer fixes originally, or on extension forHsubmission of the report. [Para 24] [43-F-H; 44-A-B]

1.7 The issue as to whether the amendment which has beenbrought about by the legislature is intended to be clarificatory orto remove an ambiguity in the law must depend upon thecontext. The Court would have due regard to the general scopeand purview of the statute; the remedy sought to be applied; theformer state of the law; and what power that the legislaturecontemplated. Interpretation is a matter of determining the pathon the basis of statutory context and legislative history.[Para 25] [44-B-C, E]

1.8 The provisions of Section 142(2C), as they stood priorto the amendment which was enacted with effect from 1.04.2008by the Finance Act, 2008 did not preclude the exercise ofjurisdiction and authority by the assessing officer to extend timefor the submission of the audit report directed under sub-section(2A), without an application by the assessee. The amendmentwas intended to remove an ambiguity and is clarificatory innature.[Para 26][44-G; 45-A-B]

Zile Singh v State of Haryana(2004) 8 SCC 1 : [2004]5 Suppl. SCR 272 ; Sedco Forex International DrillInc.v Commissioner of Income Tax[2005] 279 ITR 310(SC) ; (2005) 12 SCC 717 : [2005] 5 Suppl. SCR 302– relied on.

Jagatjit Sugar Mills Co Ltd v Commissioner of IncomeTax (1994) 74 Taxman 8 (Pun.&Har.): [1994] 210 ITR468;Commissioner of Income Tax, Cochin v PopularAutomobiles(2011) 333 ITR 308;GhaziabadDevelopment Authority v Commissioner of Income Tax,Ghaziabad (UP)(2011) 12 Taxman.com 334–(Allahabad): 2011 SCC On Line All 1151 approved.

Commissioner of Income Tax v Bishan Swaroop RamKishan Agro Pvt. Ltd. [2011] 203 Taxman 326 (Delhi): 2011 SCC Online Del 2463 – disapproved.

Sahara India (Firm), Lucknow v Commissioner ofIncome Tax, Central-I (2008) 14 SCC 151 : [2008] 6SCR 427 ; Ishwar Singh Bindra v State of UP [1969] 1SCR 219 ;Commissioner of Income Tax-1, Ahmedabadv Gold Coin Health Food Pvt Ltd 2008 (9) SCC 622:

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A[2008] 12 SCR 179 ; Commissioner of Income Tax(Central-I) v Vatika Township (P) Ltd. [2014] 31 ITR–466 (SC) ; 2015 1 SCC 1 : [2014] 12 SCR 1037 referred to.

Principles of Statutory Interpretation 11[th] Edn (2008)B– referred to.

Case Law Reference

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CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3211 of2019.

From the Judgment and Order dated 27.05.2011 of the High Courtof Delhi at New Delhi in ITA No. 237 of 2011

With

Civil Appeal Nos. 3214, 3212, 3213, 3228, 3230, 3215, 3229, 3216,3219, 3220, 3217, 3221, 3218, 3222, 3223, 3225, 3226, 3224, 3227, 3231,3232 and 3233 of 2019.

Civil Appeal Nos. 4334, 4599, 5305 and 7076 of 2017.

Civil Appeal No. 2951 of 2012.

V. Giri, Sr. Adv., Arijit Prasad, A. K. Srivastava, T. M. Singh,Pranay Ranjan, Ms. Kirti Dua, Mrs. Anil Katiyar, V. Balaji, M. S. M.Asaithanbi, Atul Sharma, C. Kannan, Rakesh K. Sharma, Advs. for theAppellant.

Ajay Vohra, Sr. Adv., Ms. Kavita Jha, Vaibhav Kulkari, UditNaresh, Rr-ex-parte, Ms. Shashi Kapila, Vikas Mehta, Parvesh, SiddharthKapila, Ved Jain, Ms. Kislaya Parashar, Subodh S. Patil, Salil Kapoor,Sumit Lalchandani, Ms. Soumya Singh, Praveen Swarup, Advs. for theRespondent.

The Judgment of the Court was delivered by DR DHANANJAYA Y CHANDRACHUD, J. 1. Leavegranted in the Special Leave Petitions.

2. This batch of appeals involves the interpretation of a cluster ofprovisions of the Income Tax Act 1961[1], particularly Section 142(2C). ADivision Bench of the Delhi High Court by its judgment dated 27 May2011 dismissed a batch of appeals filed by the Revenue against an orderdated 18 September 2009 of the Income Tax Appellate Tribunal[2]. TheTribunal came to the conclusion that prior to the insertion of theexpression “suo motu” with effect from 1 April 2008 in Section 142(2C),the assessing officer had no jurisdiction to extend time for thesubmission of the report of an auditor appointed under sub section (2A),of his own accord. As a consequence, it was held that the assessmentwhich was made under Section 153A, in respect of the assessment yearsin question, was barred by limitation.

3. In the present batch of cases, the submission of the assesseesis that the assessing officer had no jurisdiction or authority under Section142 (2C), as it stood prior to 1 April 2008, to extend time for thesubmission of the audit report of the auditor appointed under theprovisions of sub section (2A). In essence, the submission is that theassessing officer was authorized to extend time (not exceeding 180 days)from the date on which a direction under sub section (2A) was receivedby the assessee, only on an application made by the assessee and forany good and sufficient reason. If the assessee made no application, theassessing officer would have no jurisdiction – according to theassessees – to extend time.

4. The Revenue adopted a contrary position, submitting that evenbefore 1 April 2008, the jurisdiction of the assessing officer to extendtime for the submission of the audit report was not confined to asituation in which the assessee had made an application for extension.

1 “IT Act 1961"

2 “Tribunal”

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AConsequently, the incorporation of a provision for a suo motu exerciseof power by the assessing officer, with effect from 1 April 2008 by theFinance Act, 2008[3], was only intended to remove an ambiguity and wasclarificatory in nature.

5. Section 142(2A) as it stood at the material time, provided as Bfollows:

“(2A) – If, at any stage of the proceedings before him, theAssessing Officer, having regard to the nature and complexity ofthe accounts of the assessee and the interests of the revenue, isof the opinion that it is necessary so to do, he may, with theCprevious approval of the Chief Commissioner of Commissioner,direct the assessee to get the accounts audited by an accountant,as defined in the Explanation below sub-section (2) of section288, nominated by the Chief Commissioner or Commissioner inthis behalf and to furnish a report of such audit in the prescribedform - duly signed and verified by such accountant and settingDforth such particulars as may prescribed and such otherparticulars as the Assessing Officer may require:

Provided that the Assessing Officer shall not direct the assesseeto get the accounts so audited unless the assessee has been givena reasonable opportunity of being heard.”

ESub section (2C) of Section 142 was in the following terms:

“(2C) Every report under sub-section (2A) shall be furnished bythe assessee to the Assessing Officer within such period as maybe specified by the Assessing Officer:

FProvided that the Assessing Officer may, on an application madein this behalf by the assessee and for any good and sufficientreason, extend the said period by such further period or periodsas he thinks fit; so, however, that the aggregate of the periodoriginally fixed and the period or periods so extended shall not, inany case, exceed one hundred and eighty days from the date onGwhich the direction under sub-section (2A) is received by theassessee.”

3 “Finance Act”

6. Consequent to the Finance Act, sub section (2C) was amendedto read as follows:

“(2C) Every report under sub-section (2A) shall be furnished bythe assessee to the Assessing Officer within such period as maybe specified by the Assessing Officer:

Provided that the – Assessing Officer may, suo motu, or on anapplication made in this behalf by the assessee and for any goodand sufficient reason, extend the said period by such furtherperiod or periods as he thinks fit; so, however, that the aggregateof the period originally fixed and the period or periods so extendedshall not, in any case, exceed one hundred and eighty days fromthe date on which the direction under sub-section (2A) is receivedby the assessee.”

7. Section 153B prescribes time limits for the completion ofassessments under Section 153A. Explanation (ii), as it stood at thematerial time, provided that in computing the period of limitation for thepurposes of the Section, “the period commencing from the day on whichthe Assessing Officer directs the assessee to get his accounts auditedunder sub-section (2A) of Section 142 and ending on the day on whichthe assesse is required to furnish a report of such audit under thatsub-section” shall be excluded. While issuing a direction under subsection (2A) of Section 142, the assessing officer was vested with theauthority to require the assessee to furnish a report of the audit in theprescribed form, signed and verified by the accountant, and setting forthsuch particulars as may be prescribed and as may be required by him.The substantive part of sub section (2C) mandates that the report undersub section (2A) shall be furnished by the assessee to the assessingofficer within the period that is specified by the assessing officer underthe proviso, as it stood prior to its amendment by the Finance Act. Theassessing officer was further empowered, on an application made bythe assessee and for any good and sufficient reason, to extend theperiod further, subject to the stipulation that it shall not exceed anaggregate of 180 days from the date on which the direction under subsection (2A) has been received by the assessee.

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A8. The crucial words which fall for interpretation are “On anapplication made in this behalf by the assessee and for any good andsufficient reason…”

9. Simply stated, the contention of the assessees is that the abovewords indicate that the assessing officer may extend the period, whichBhas been specified under the substantive part of sub section (2C), onlyon an application made by the assessee and for good and sufficientreason. Contrariwise, according to the Revenue, the assessing officer,who issues a direction to the assessee under sub section (2A) to get hisaccounts audited, is vested with the authority to specify the period forthe submission of the report, and within the overall limit of 180 days it isCopen to the assessing officer to extend the time which has been fixed inthe first instance. The Revenue posits that the authority conferred uponthe assessing officer to extend time, on an application made by the as-sessee, does not take away the authority of the assessing officer, whohas prescribed the time for the submission of the report in the first in-Dstance, to extend time without an application for extension being madeby the assessee, subject to the overall ceiling of 180 days. In the submis-sion of the Revenue, the expression “and for any good and sufficientreason” must be construed logically to mean “or for any good and suffi-cient reason”.

E10. The submission which has been urged on behalf of theassessees is sought to be buttressed by adverting to the legislative intentbehind the insertion of the term “suo motu” in the provisions of Section142(2C) by the Finance Act. Circular No 1/2009 dated 27 March 2009contains the following explanation for the amendments made to Section142(2C):F

“27. Granting of power to the Assessing Officer to extendthe time for completion of special audit under sub-section(2A) of section 142

27.1 Sub-sections (2A) to (2D) of section 142 deal with power ofGAssessing Officer to order a special audit. Such power isrequired to be exercised by the Assessing Officer having regardto the nature and complexity of the accounts of the assessee andthe interest of the revenue.

27.2 Sub-section (2C) of the said section specifies the periodwithin which the audit reports is to be furnished. The proviso tosaid sub-section empowers the Assessing Officer to extend thisperiod of furnishing of audit report. Further, it is also providedthat the aggregate of the originally fixed period and the period(s)so extended shall not exceed 180 days from the date of issuanceof direction of special audit. Further, such extension can be madeonly when an application is made in this behalf by the assesseeand there are good and sufficient reasons for such extension.

27.3 With a view to rationalise the said proviso so as to also allowthe Assessing Officer to extend this period of furnishing of auditreport suo motu, the said proviso has been amended. Hence, whilethe Assessing Officer shall continue to have power to grantextension on an application made in this behalf by the assesseeand when there are good and sufficient reasons for suchextension, he can also grant such extension on his own.

27.4 Applicability – This amendment has been made applicablewith effect from 1-4-2008. Hence, from this date and onwards,the Assessing Officer shall also have power to extend the periodof furnishing of audit report suo motu.”

11. The Notes on clauses to the Finance Bill, 2008 contain thefollowing explanation:

“Clause 28 seeks to amend section 142 of the Income-tax Act,which relates to enquiry before assessment.

Sub-sections (2A) to (2D) of the said section deal with power ofAssessing Officer to order special audit, where the nature andcomplexity of the accounts requires such audit, to seek theassistance of a chartered accountant.

Sub-section (2C) of the said section specifies the period withinwhich the audit report is to be furnished. The Proviso to the saidsub-section provides that the Assessing Officer may extend thesaid period of furnishing of audit report, on an application made inthis behalf, by the assessee and for any good and sufficientreason.

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It is proposed to amend the said proviso so as to provide that theAssessing Officer may, suo motu, or on an application made inthis behalf by the assessee, and for any good and sufficientreason, extend the said period by such further period or periodsas he thinks fit.

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BThis amendment will take effect from 1[st] April, 2008.”

The Memorandum accompanying the Finance Act similarlyprovides:

“Granting of power to the Assessing Officer to extend thetime for completion of special audit under sub-section (2A)Cof section 142

Sub-sections (2A) to (2D) of section 142 deal with power ofAssessing Officer to order a special audit. Such power isrequired to be exercised by the Assessing Officer having regardto the nature and complexity of the accounts of the assessee andthe interest of the revenue.

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Sub-section (2C) of the said section specifies the period withinwhich the audit report is to be furnished. The proviso to saidsub-section empowers the Assessing Officer to extend thisperiod of furnishing of audit report. Further, it is also providedthat the aggregate of the originally fixed period and the period(s)so extended shall not exceed 180 days from the date of issuanceof direction of special audit. Further, such extension can be madeonly when an application is made in this behalf by the assesseeand there are good and sufficient reasons for such extension.

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FIt is proposed to amend the said proviso so as to also allow theAssessing Officer to extend this period of furnishing of auditreport suo motu. Hence, while the Assessing Officer shallcontinue to have power to grant extension on an application madein this behalf by the assessee and when there are good andsufficient reasons for such extension, he can also grant suchGextension on his own.

The amendment will take effect from 1[st] April, 2008.”

12. In the context of the above background, it has been submittedthat the purpose of the amendment was to “also allow the assessing H

officer to extend the period for furnishing of an audit report, suo motu”.The amendment to Section 142(2C) preserves the jurisdiction of theassessing officer to grant an extension on an application made by theassessee and for any good and sufficient reasons. In addition, theamendment allows the assessing officer to extend the period suo motu.The amendment having taken effect from 1 April 2008, it has been urgedon behalf of the assessees that this power was not vested in theassessing officer prior to that date. Moreover, learned counselappearing on behalf of the assessee urged that:

(i) The consequence of the exercise of the jurisdiction to extendtime for submission of the audit report under the proviso to subsection (2C) is the extension of the period of limitation for thecompletion of an assessment under Explanation (ii) to Section153B. This is indicative of the fact that the provision forextension is not procedural in nature;

(ii) The consequence of the failure of the assessee to comply withthe direction of submitting the audit report by the dateprescribed by the assessing officer is that under Section144(1)(b), the assessing officer is empowered to frame abest judgment assessment;

(iii) The expression in Explanation (ii) to Section 153B “ending onthe date on which the assesse is required to furnish a report ofsuch audit” signifies the end of the period of exclusion of timefor the framing of an assessment under Section 153B;

(iv) Section 142(2C) must consequently be interpreted in thecontext of the provisions of Sections 153B and 144; and

(v) The expression ‘and’ in the substantive part of Section 142(2A)has been held to be conjunctive by the decision of this Court inSahara India (Firm), Lucknow v Commissioner of IncomeTax, Central-I[4]. The expression ‘and’ in the proviso tosub-section 2C must be given the same meaning.

13. On the other hand, it has been submitted on behalf of theRevenue that:(i) In construing the proviso to Section 142(2C), it is primarily thelanguage of the statutory provision which must be construed; 4(2008) 14 SCC 151

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A(ii) The amendment to sub section (2C) was necessitated byreason of the ambiguity in the provision as it stood prior to 1April 2008;

(iii) The legislature having stepped in to remove an ambiguity, theamendment brought about by the Finance Act must necessarilyBbe regarded as clarificatory in nature; and

(iv) The amendment is purely procedural and must beretrospective in character.

14. The rival submissions now fall for consideration.

C15. Sub-section (2A) of Section 142 empowers the assessingofficer to direct the assessee to get the accounts audited by anaccountant, on the formation of an opinion that the conditions specifiedin the provision for recourse to the power are fulfilled. The power toorder an audit is vested with the assessing officer. As a necessaryincident of this power, sub-section (2C) imposes an obligation on theDassessee to furnish the report to the assessing officer within the periodwhich is specified by the assessing officer. The substantive part ofsub-section (2C) places an obligation on the assessee to comply with thetime schedule which is prescribed by the assessing officer. The overallceiling of time appears in the proviso to sub-section (2C), whichEmandates that the aggregate of the time fixed and the extended periodcannot exceed 180 days, after which there can be no further extensionof time.

16. The submission of the assessee would have this Courtinterpret the proviso to mean that the assessing officer can extend theFperiod which was originally fixed only on the request of the assessee.Besides leading to absurd consequences, such a construction of theproviso is patently contrary to its language, purpose and intendment.

17. The proviso was intended to deal with a situation where anassessee, for valid reasons, may not be able to furnish the audit reportwithin the period that was fixed by the assessing officer. The enactmentGof the proviso was necessary to give a remedy to an assessee who, forgenuine reasons, is unable to comply with the direction issued in the firstinstance by the assessing officer. Hence, the proviso stipulates that forgood and sufficient reason, the assessing officer may extend time on anapplication submitted by the assessee. The “good and sufficientH

reason” requirement is intended to ensure that an extension of time can-not be demanded by the assessee as a matter of right. Indeed, the useof the expression ‘may’ indicates that whether or not time should beextended is discretionary. The discretion is intimated to the Assessingofficer.

18. In determining whether the power to extend time vests in theassessing officer in a situation where the assessee has not made anapplication for extension, it is well to remember that under thesubstantive part of sub-section (2C), the assessing officer can fix timefor the submission of the audit report. Subject to an overall limit of 180days, the assessing officer is fully clothed with the authority todetermine the time within which the audit report should be submitted.For instance, the assessing officer may in a given case consider thegrant of 90 days as adequate for the completion of the exercise. Thoughthe assessing officer has the power, in the first instance, to fix an evenlonger period subject to the overall ceiling of time, she may fix aparticular period within the limit. To then postulate that while theassessing officer could in the first instance have fixed a longer time limitbut, having fixed a limit of time, is precluded from extending timethereafter would be an absurd course of interpretation. The assessingofficer while fixing time in the first instance will do so on an estimate ofthe reasonable time which is likely to be taken in completing theexercise and submitting an audit report. The exigencies of the situationmay however require an extension of time for genuine reasons or, as thestatute calls it, “for any good and sufficient reason”.

19. There are two ways of looking at the situation. Firstly, theproviso to sub-section (2C) creates a remedy for an assessee to applyfor extension where, for a good and sufficient reason, the audit reportcould not be submitted. Otherwise, the assessee may face a penaltyunder Section 271 apart from being subjected to a best judgmentassessment under Section 144. By extending time at the behest of theassessee, the assessing officer allows the original order calling for anaudit report to be duly implemented. The creation of a remedy under theproviso in favour of the assessee cannot be construed to detract fromthe authority which vests in the assessing officer, who has specified thetime limit for the submission of an audit report in the first instance, toextend time without an application by the assessee. To hold otherwise,and to construe the proviso to sub-section (2C) as foreclosing the A

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Aauthority of the assessing officer to extend time without a request by theassessee, would lead to an absurd consequence. The assessee wouldthen be in control of whether or not to seek an extension of time, wherethe audit report has not been finalized. Even if the auditor, for genuinereasons (not bearing on the default of the assessee), was unable tocomply with the time schedule, having regard to the nature orBcomplexity of the accounts, the assessee would then have a sole andunrestricted power to determine whether an extension should be sought.Not seeking an extension would in effect defeat the underlying purposeand object of directing the assessee to obtain a report of an auditorunder sub-section (2A). The legislature could not have intended thisCconsequence. An interpretation which would defeat the purposeunderlying sub-section (2A) must be avoided. The assessing officerwho has fixed the time in the first instance must necessarily, as anincident of the authority to fix time, be entitled to extend time without anapplication by the assessee. While extending time, the assessing officerwill be subject to the overall ceiling of time fixed under the proviso to subDsection 2C.

20. Secondly, the alternate construction of the proviso is that theexpression “and for any good and sufficient reason” should be read tomean “or for any good and sufficient reason”. As a matter of statutoryinterpretation, it is well settled that the expression “and” can in a givenEcontext be read as “or” (see in this context Ishwar Singh Bindra vState of UP[5]). This submission was opposed on behalf of the assesseesby urging that in the context of sub-section (2A), it has been held by thisCourt in Sahara India (Firm), Lucknow v CIT (supra) that the word“and” is used in the conjunctive sense. Undoubtedly the expression “and”Fin sub-section (2A) has been held to the conjunctive, while delineatingthe circumstances on the basis of which an opinion can be arrived at bythe assessing officer. This would not necessarily furnish an index to howthe expression “and” in the proviso to sub-section (2C) should beconstrued. The interpretation of the expression must be based on thecontext in which it is used. In the proviso to sub-section (2C), theGexpression “and” is used in connection with the grant of an extension oftime and not in the context of the formation of an opinion for ordering aspecial audit. The power is of a procedural nature.

5(1969) 1 SCR 219 = AIR 1968 SC 1450H

21. The learned counsel for the assessees sought to urge that thelegislative history surrounding the amendment to the proviso tosub-section (2C) by the Finance Act would indicate that the amendmentwas intended to be prospective with effect from 1 April 2008 and, thatprior to this date, the assessing officer had no jurisdiction to grant anextension of time, save on the application by the assessee. Circular1/2009 dated 27 March 2009 indicates that the amendment was broughtabout “with a view to rationalize the said proviso”. Learned counselargued that the expression in Circular 1/2009 that the amendment wasto also allow the assessing officer to extend the period for furnishing ofthe audit report suo motu, indicates that such a power did not exist priorto the amendment. The submission cannot be accepted. The mere factthat the amendment has been made with effect from 1 April 2008 doesnot detract from it being clarificatory in nature or that it was designed toobviate an ambiguity. In Justice GP Singh’s Principles of StatutoryInterpretation[6] the issue of whether a statutory provision isretrospective has been analysed thus:

“”The presumption against retrospective operation is notapplicable to declaratory statutes. As stated in Craies andapproved by the Supreme Court: ‘For modern purposes adeclaratory Act may be defined as an Act to remove doubtsexisting as to the common law, or the meaning or effect of anystatute. Such Acts are usually held to be retrospective. The usualreason for passing a declaratory Act is to set aside whatParliament deems to have been a judicial error, whether in thestatement of the common law or in the interpretation of statutes.Usually, if not invariably, such an Act contains a preamble, andalso the word “declared” as well as the word “enacted”.’ But theuse of the words ‘it is declared’ is not conclusive that the Act isdeclaratory for these words may, at times, be used to introducenew rules of law and the Act in the latter case will only beamending the law and will not necessarily be retrospective. Indetermining, therefore, the nature of the Act, regard must be hadto the substance rather than to the form. If a new Act is ‘toexplain’ an earlier Act, it would be without object unlessconstrued retrospective. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts AB

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as to the meaning of the previous Act. It is well settled that ifa statute is curative or merely declaratory of the previous lawretrospective operation is generally intended. The language ‘shallbe deemed always to have meant’ or ‘shall be deemed never tohave included’ is declaratory, and is in plain termsretrospective. In the absence of clear words indicating that theamending Act is declaratory, it would not be so construed whenthe amended provision was clear and unambiguous. An amendingAct may be purely clarificatory to clear a meaning of a provisionof the principal Act which was already implicit. A clarificatoryamendment of this nature will have retrospective effect ….”

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(emphasis supplied)

The above extract was cited by this Court in Commissioner ofIncome Tax-1, Ahmedabad v Gold Coin Health Food Pvt Ltd[7]. AConstitution Bench of this Court also cited the above extract withapproval in Commissioner of Income Tax (Central – I) v VatikaDTownship (P) Ltd.[8].

22. The Notes on Clauses as well as the Memorandum to theFinance Act do not indicate a contrary hypothesis. The reason for theintroduction of the amendment arose because of the element ofambiguity inherent in the erstwhile position as it stood before 1 AprilE2008. The ambiguity was precisely on the question as to whether theassessing officer was precluded from granting an extension of time ofhis own accord merely because the assessee was permitted to apply foran extension. Since the purpose of the amendment was to remove thisambiguity, we are clearly of the view that by the Finance Act,FParliament essentially clarified the position as it existed prior to theamendment.

23. Moreover, there exists a presumption of retrospectiveapplication in regard to amendments which are of a procedural nature.This position was stated in Maxwell on The Interpretation ofStatutes[9]:G

“The general principle, however, seems to be that alterations inprocedure are retrospective, unless there be some good reasonagainst it.”

7 2008 (9)SCC 622H8 [2014] 31 ITR 466 (SC); 2015 1 SCC 1911th Edition, Sweet and Maxwell (1962) at pg 217

In Commissioner of Income Tax (Central – I) v VatikaTownship (P) Ltd. (supra),this Court held thus:

“30. We would also like to point out, for the sake of completeness,that where a benefit is conferred by a legislation, the rule againsta retrospective construction is different. If a legislation confersa benefit on some persons but without inflicting acorresponding detriment on some other person or on thepublic generally, and where to confer such benefit appearsto have been the legislators’ object, then the presumptionwould be that such a legislation, giving it a purposiveconstruction, would warrant it to be given a retrospectiveeffect. This exactly is the justification to treat proceduralprovisions as retrospective…

31… Thus, the rule against retrospective operation is afundamental rule of law that no statute shall be construed to havea retrospective operation unless such a construction appears veryclearly in the terms of the Act, or arises by necessary and distinctimplication. Dogmatically framed, the rule is no more than apresumption, and thus could be displaced by outweighing factors.”

(emphasis supplied)

24. We find no substance in the submission urged on behalf of theassessees that to adopt an interpretation which we have placed on theprovisions of Section 142(2C) would enable the assessing officer toextend the period of limitation for making an assessment under Section153B. Explanation (iii) to Section 153B(1), as it stood at the materialtime, provided for the exclusion of the period commencing from the dateon which the assessing officer had directed the assessee to get hisaccounts audited under sub-section (2A) of Section 142 and ending onthe day on which the assesee is required to furnish a report under thatsub-section. The day on which the assessee is required to furnish areport of the audit under sub-section (2A) marks the culmination of theperiod of exclusion for the purpose of limitation. Where the assessingofficer had extended the time, the period, commencing from the date onwhich the audit was ordered and ending with the date on which theassessee is required to furnish a report, would be excluded in computing

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Athe period of limitation for framing the assessment under Section 153B.The principle governing the exclusion of time remains the same. Theact on which the exclusion culminates is the date which the assessingofficer fixes originally, or on extension for submission of the report.

25. The issue as to whether the amendment which has beenBbrought about by the legislature is intended to be clarificatory or toremove an ambiguity in the law must depend upon the context. TheCourt would have due regard to (i) the general scope and purview of thestatute; (ii) the remedy sought to be applied; (iii) the former state of thelaw; and (iv) what power that the legislature contemplated (See ZileSingh v State of Haryana[10]). The decision in Sedco ForexCInternational Drill Inc. v Commissioner of Income Tax[11 ]on whichlearned counsel for the assesses relied involved a substitution of theExplanation to Section 9(1)(ii) of the IT Act, 1961 with effect from1 April 2000. A two Judge Bench of this Court held that given thelegislative history of Section 9(1)(ii), it can only be assumed that it wasDdeliberately introduced with effect from 1 April 2000 and was thereforeintended to be prospective. This was also so construed by the CBDT,and in the explanatory notes to the provisions of the Finance Act, 1999.As we have indicated, interpretation is a matter of determining the pathon the basis of statutory context and legislative history. In taking the view that we have, we have also taken note of the fact that the sameEview was adopted by several High Courts. Among them are (i) the Punjaband Haryana High Court in Jagatjit Sugar Mills Co Ltd vCommissioner of Income Tax[12]; (ii) the Kerala High Court inCommissioner of Income Tax, Cochinv PopularAutomobiles[13];and (iii) the Allahabad High Court in GhaziabadFDevelopment Authority v Commissioner of Income Tax,Ghaziabad (UP)[14].The decision of the Kerala High Court in PopularAutomobiles (supra) is the subject matter of Civil Appeal No 2951 of2012 in these proceedings.

26. For the reasons we have adduced, we have come to theGconclusion that the provisions of Section 142(2C) of the Income Tax Act 10 (2004) 8 SCC 1

11 [2005] 279 ITR 310 (SC); (2005) 12 SCC 717

12 (1994) 74 Taxman 8 (Pun.&Har.); [1994] 210 ITR 468

13 (2011) 333 ITR 308

14(2011) 12 Taxman.com 334 (Allahabad); 2011 SCC On Line All 1151H

1961, as they stood prior to the amendment which was enacted witheffect from 1 April 2008 by the Finance Act, 2008 did not preclude theexercise of jurisdiction and authority by the assessing officer to extendtime for the submission of the audit report directed under sub-section(2A), without an application by the assessee. We hold and declare thatthe amendment was intended to remove an ambiguity and is clarificatoryin nature. As a consequence of our decision, we specifically overrulethe judgment of a Division Bench of the Delhi High Court inCommissioner of Income Tax v Bishan Swaroop Ram Kishan AgroPvt. Ltd.[15 ]dated 27 May 2011.

27. Accordingly, Civil Appeals @ SLP (C) Nos 6082, 7573,8761 and C.A. No. 2951 of 2012 are restored to the file of theCommissioner of Income Tax (Appeals) for decision on merits. CivilAppeals @ SLP(C) Nos 2808, 2811, 36496, 6680, 36495, 11869, 12026,12027, 10191, 10190, 9720, 8512, 2810, 7660, 9463, 16130, 27681 of2012; Civil Appeal Nos 4599, 4334, 7076 of 2017; Civil Appeals @ SLP(C)Nos 17500, 10248, 10247 of 2017 and C.A. No. 5305 of 2017 arerestored to the file of the Income Tax Appellate Tribunal for decision onmerits.

28. There shall be no order as to costs.

Nidhi Jain

Appeals allowed.

15 [2011] 203 TAXMAN 326 (Delhi) - ITA No.1775/2010 - 2011 SCC Online Del 2463

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