Section 142(2C) of Income Tax Act: Time Limits and Extensions for Special Audit Reports

Tax law in India has several provisions designed to ensure that income is assessed fairly and correctly. One of these is the special audit mechanism under Section 142(2A). However, conducting such an audit takes time, and the law must specify how long taxpayers get to submit their audit reports. This is where Section 142(2C) of the Income Tax Act comes into play.

The section deals with the time frame for furnishing a special audit report to the Assessing Officer (AO). It also clarifies the power of the AO to grant extensions. This ensures that while taxpayers get sufficient time to comply, the tax department can still maintain discipline in assessments.

Understanding Section 142(2C)

At its core, Section 142(2C) says:

• Every report under sub-section (2A) shall be furnished by the assessee to the Assessing Officer within such period as may be specified by the AO.
• The AO can also grant extensions if justified.
• These provisions ensure that special audits don’t become endless processes & that assessments conclude on time.

Thus, Section 142(2C) is a procedural safeguard — balancing the need for thorough audits with timely compliance.

Link with Section 142(2A)

To fully appreciate Section 142(2C), we must connect it with Section 142(2A).

• Section 142(2A) provides for special audit u/s 142(2A) if the AO believes accounts are complex or unclear."
• Section 142(2) empowers the AO to get full information of income or loss for fair assessment.
• Once such an audit is directed, the report must be filed within a deadline. That deadline is governed by Section 142(2C).

So, Section 142(2A) creates the audit requirement, while Section 142(2C) ensures the audit is completed within a fixed timeframe.

Amendment to Section 142(2C)

Over time, amendments have been made to Section 142(2C) to make it more flexible. The most important update:

• Amendment to sec. 142(2C) empowering AO to extend time limit to submit audit report.

This means if an assessee cannot complete the audit due to genuine difficulties, they can seek an extension. However, extensions are not unlimited & must be justified with reasons.

This amendment helps balance the interests of both taxpayers and the department.

Also Read: Faceless Assessments, Powers, and Best Judgment

Timeline for Furnishing Audit Reports

Initial Deadline

When the AO orders a special audit under Section 142(2A), they also specify the time within which the report must be submitted. This is usually a fixed number of days.

Extensions

If the assessee cannot complete the audit in that time, the AO may extend the deadline. However:

• The assessee must apply for the extension.
• Valid reasons, such as complexity of accounts, delays in data gathering, or auditor workload, must be provided."
• The AO’s approval is mandatory for extension.

Thus, Section 142(2C) gives structure to the process, ensuring fairness but avoiding unnecessary delays.

Importance of Section 142(2C)

1. Ensures Timely Assessments – Tax assessments cannot remain pending indefinitely; deadlines ensure finality.
2. Protects Assessee’s Rights – By allowing extensions, it gives genuine taxpayers breathing space.
3. Reduces Litigation – A clear framework for timelines minimizes disputes between taxpayers & the department.
4. Promotes Fairness – The provision ensures taxpayers are not penalized for delays beyond their control.

Practical Example

Let’s say a company is ordered for a special audit u/s 142(2A) because its international transactions seem complex.

• The AO directs the company to submit the audit report within 90 days.
• Due to extensive data across multiple branches, the auditor needs more time.
• The company applies for an extension citing genuine reasons.
• Thanks to the amendment to Section 142(2C), the AO extends the deadline by another 60 days.

This ensures the company has enough time to prepare, while the department maintains control over the process.

Also Read: Income Tax Reassessment under Section 148: What Every Taxpayer Must Know

Challenges in Compliance

Even though Section 142(2C) is designed to simplify things, taxpayers may face challenges like:

• Tight deadlines – Sometimes the initial timeline may not be practical.
• Coordination issues – Large businesses with multiple entities may find it tough to consolidate data.
• Fear of penalties – Assessees worry about missing deadlines despite genuine reasons.

In such cases, it’s crucial to communicate proactively with the AO & seek extensions in writing.

Judicial Interpretations

Indian courts have clarified aspects of Section 142(2C):

• Natural Justice – Courts have held that assessees must be given fair opportunity to comply before adverse action is taken.
• Reasonable Extensions – Judges have emphasized that AO should grant extensions when genuine difficulties are shown."
• No Unlimited Delays – At the same time, taxpayers cannot misuse the provision to endlessly delay assessments.

These interpretations strengthen the fairness of the provision.

Section 142(2C) vs Other Procedural Provisions

This shows how Section 142(2C) fits into the larger compliance framework.

FAQs on Section 142(2C)

Q1. What is Section 142(2C) of Income Tax Act?
It specifies the time limit for submitting special audit reports ordered under Section 142(2A).

Q2. Can the Assessing Officer extend the deadline?
Yes, the amendment to Section 142(2C) empowers the AO to extend time limits if genuine reasons are provided.

Q3. Who bears the cost of special audit?
Generally, the government pays for special audit costs, not the assessee.

Q4. What happens if audit report is not submitted on time?
If deadlines are missed without approval, the AO may proceed with best judgment assessment under Section 144.

Also Read: Everything You Need to Know About Special Audit

Conclusion

Section 142(2C) of the Income Tax Act plays a crucial role in the special audit process. It ensures that every report under sub-section (2A) shall be furnished by the assessee to the Assessing Officer within a specified time. It also recognizes real-world difficulties by allowing extensions, thanks to the amendment to Section 142(2C).

By balancing deadlines with flexibility, this provision ensures transparency, fairness, and efficiency in tax administration.

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