The main legal principle established in the judgment is that the period for conducting special audit must be excluded for the computation of the time limit for completion of assessment proceedings, and the first proviso applies when the time left for completion of the assessment is less than sixty days.

SANJIV KHANNA, J.

The present appeal by the Revenue under Section 260A of the Income Tax Act, 1961 (the Act, for short) in the case of AT & T Global Network Services (India) Pvt. Ltd. arises from the order dated 18.09.2017 of the Income Tax Appellate Tribunal (the Tribunal, for short) deciding cross appeals, ITA Nos. 4882/Del/2013 and 4870/Del/2013 relating to the Assessment Year 2008-09.

2. The impugned order holds that the draft assessment order dated 09.08.2012, passed by the Assessing Officer under Section 144C read with Section 143 (3) of the Act, was invalid as it was passed beyond the prescribed statutory period. Accordingly, the final assessment order dated 17.06.2013 passed by the Assessing Officer on the directions of the Dispute Resolution Panel has been held to be void and invalid.

3. By order dated 12.03.2018, the following substantial question of law was framed in the present appeal:-

“Did the ITAT fall into error in interpretation of the proviso to Explanation I (iii) {sic. (iv)} to Section 153 of the Income Tax Act in concluding that the search (sic. draft) assessment framed in the present case was time barred?

4. Relevant facts may be noticed. For the Assessment year 2008-09, the respondent assessee in its return filed on 30.09.2008 had declared taxable income of Rs.36,35,27,736/-. The return was taken for scrutiny/regular assessment. Accordingly, the regular/draft assessment order was required to be passed by the assessing Officer on or before 31.12.2011. During the course of the assessment proceedings, the Assessing Officer vide order dated 26.12.2011 had directed the respondent-assessee to get his accounts audited under Section 142(2A) of the Act. Report of the special audit was received by the Assessing Officer on 22.06.2012. Thereafter, the draft assessment order was passed by the Assessing Officer on 09.08.2012. Objections raised by the respondent assessee to the draft assessment order were considered and decided by the Dispute Resolution Panel vide order dated 27.05.2013 under section 144C(8) of the Act. Consequent to the said order, the final assessment order was passed on 17.06.2013.

5. The issue raised in the present appeal is whether draft assessment order dated 09.08.2012 was passed within the prescribed time.

6. Revenue relies on clause (iv) to Explanation 1 to Section 153 of the Act for exclusion of period of special audit between 26.12.2011 and 22.06.2012. Further on exclusion of this period as the time left for passing of the draft assessment order was 6 days, the Assessing Officer was entitled to pass the draft assessment order on or before 21.08.2012 in terms of first proviso of Explanation 1 to Section 153 of the Act. Accordingly, it is submitted that the draft assessment order passed on 09.08.2012 was within limitation.

7. The Tribunal vide the impugned order on interpretation of the said provisions has held that the clause (iv) to Explanation 1 and the first proviso would not apply as the special audit report was received after 31.12.2011. The Tribunal observed that "the time limits under section 153 are sacrosanct and are to be strictly followed unless an exception has been provided in the section for the extension of the same. Meaning thereby that even in cases where a report under 142(2A) is to be issued, the same should be issued and received within the time limit prescribed under 153(1) of the Act. The intention of legislature is also evidenced from the fact that the period of 180 days has been made part of section 142- Inquiry before assessment and not time limit for completion of assessment under section 153 (1) of the Act." The Tribunal further held that "With regard to the protection of the interest of the Revenue where the report or information called under the explanation is received beyond time and the time limit for completion of assessment has expired, the court held that the AO should complete the assessment keeping in mind the limitation as per the provisions of the Act."