Case Law Details
Relevant Sections:
Section 158BC(c): Where any search has been conducted under section 132 or books of account, other documents or assets are requisitioned under section 132A, in the case of any person, then,—
(c) the Assessing Officer, on determination of the undisclosed income of the block period in accordance with this Chapter, shall pass an order of assessment and determine the tax payable by him on the basis of such assessment;[RELEVANT EXTRACT]
Section 158BE: (1) The order under section 158BC shall be passed—
(b) within two years from the end of the month in which the last of the authorisations for search under section 132 or for requisition under section 132A, as the case may be, was executed in cases where a search is initiated or books of account or other documents or any assets are requisitioned on or after the 1st day of January, 1997.
Explanation 1.—In computing the period of limitation for the purposes of this section,—
(i) the period during which the assessment proceeding is stayed by an order or injunction of any court; or
(ii) the period commencing from the day on which the Assessing Officer directs the assessee to get his accounts audited under sub-section (2A) of section 142 and ending on the day on which the assessee is required to furnish a report of such audit under that sub-section; XXX
shall be excluded
[RELEVANT EXTRACT]
Brief Facts:
1. Search & Seizure was conducted in the assessee company’s business premises on the strength of warrant of authorization dated 19.06.1998, on 22.06.1998. The same was followed by further searches from time to time that went on till 05.08.1998.
2. The assessee company was after that required to file income tax return for the block period from April 1, 1998 to June 22, 1998 vide notice under section 158BC(c) of the Income Tax Act, 1961. In response thereto, the appellants filed return for the aforesaid block period on 10th September, 1999. However, the AO was unable to complete the assessment within the period u/s 158BE due to certain circumstances.
3. A direction under Section 142(2A) to conduct special audit, was issued on 29.06.2000, which was served to the assessee company, for the aforesaid block period. The same was challenged by the assessee, through a Writ Petition.
DETAILS OF WRIT PETITION:
Appellant’s Contentions:
a) According to the assessee, the time limit for completion of block assessment expired on 30.06.2000 as per section 158BE of the Act & thus, the proceedings carried on were time barred.
b) It was further submitted that the authorization executed on 22nd June, 1998 could not have been utilized for conducting further search till August, 1998.
c) Special Audit so ordered was in violation of principles of natural justice in case of absence of complexity in appellant’s accounts
Revenue’s Contentions:
a) Order for special audit was issued with proper authorizations as required by the Income Tax Act, 1961 after due deliberations and on the basis of the report of AO.
b) The period of completion of block assessment was to expire on August, 31st 2000 as seizure operations continued from June 22nd 1998 to August 5th, 1998.
Delhi High Court’s Order:
a) The matter was decided by the Delhi High Court vide judgment dated 15th December, 2006 wherein it quashed the direction for special audit in view of the fact that the opportunity of being heard was not afforded to the appellant before issuing such direction, which was necessary as per the law laid down in case of Rajesh Kumar and others Vs. Dy. Commissioner of Income Tax and others.
b) High Court further held that the period from August 24th, 2000 to December 15th, 2006 i.e. period between date of grant of interim stay & disposal of writ petition was to be excluded for the purpose of calculating time period for concluding block assessment.
c) It was held that since special audit wasan important and integral step in the assessment proceedings,once the direction for special audit was stayed by the High Court, assessment proceedings ipso facto could not go on.
d) Limitation period for block assessment, as envisaged u/s 158BC(c) is to be calculated from August 5th, 1998 on which date last panchnama was drawn.
ON APPEAL TO SUPREME COURT
Questions of Law Raised
(a) Whether on the facts and circumstances of the case, the High Court having quashed the direction under Section 142(2A) of the Act was justified in law in directing to exclude the period between 24th August, 2000 to 15th December, 2006 in counting the period of limitation for passing the block assessment order?
(b) Whether on the facts and circumstances of the case, the interim order dated 24th August, 2000 staying the direction for special audit contained in order dated 29th June, 2000, could be construed as amounting to stay of assessment proceedings?
(c) Whether on the facts and circumstances of the case, the High Court erred in law in holding that the period of limitation expired on 31st August, 2000, instead of 30th June, 2000, in terms of Section 158BE(1) read with Explanation 2 thereto?
(d) Whether on the facts and in the circumstances of the case, it is permissible under Section 132 of the Act that the same warrant of authorization be executed 16 times and be revalidated again and again instead of issuing fresh authorization for each visit and whether such revalidation can be done without recording any reasons justifying the revalidation as in the present case?[RELEVANT EXTRACT FROM SUPREME COURT ORDER]
Revenue Contention
1. The High Court rightly held that special audit was integral part of the assessment.
2. Passing of orders granting stay u/s 142(2A) meant that the Department was prevented from carrying out special audit and thus, it was not possible to carry out the assessment proceedings by the AO as the authority was satisfied that carrying out special audit was necessary for the conduct of assessment proceedings.
3. As per Explanation 2 of section 158BE of the Act when it is a case of search, period of limitation is to be counted ‘on the conclusion of search as recorded in the last panchnama drawn…..‘. As the last panchnama was drawn on August 5th 1998, the period for assessment is to be reckoned from August 5th, 1998 only. [EMPHASIS ADDED]
Assessee Contention
1. In the absence of any stay of the assessment proceedings, the assessing authority could not proceed with the assessment even when the order directing special audit was stayed, and thus, benefit of Explanation 1 to section 158BE would not be available to the Department.
2. High Court’s view that special audit was integral part of the assessment was erroneous.
3. For the period under consideration, there was no such provision in the Act for the exclusion of time period when there was a stay on special audit but no stay on assessment proceedings.
4. The single warrant that authorized the Revenue to search the premises exhausted when the premises of the appellant were first searched. Fresh Authorizations were required for subsequent searches, in the absence of which such subsequent searches were illegal and thus, period for assessment is to be reckoned from June 22nd 1998 only. There was no legal concept of “revalidation of authorization” as per the Income Tax Act, 1961
Supreme Court Judgement
1. To answer Questions of Law (a) and (b), The Hon’ble Supreme Court held that as a general rule, when there is no stay of the assessment proceedings passed by the Court, Explanation 1 to Section 158BE of the Act may not be attracted. But when this general legal principle is read & is to be interpreted practically and rationally, in the cases where a stay other than in the nature of stay of assessment proceedings is granted with the consequences that the AO is prevented from passing assessment order, even that kind of order may be treated as stay of assessment proceedings. This is for the reason that such order becomes an obstacle for AO to pass the assessment order & carry out appropriate assessment.
2. The Delhi High Court has correctly and rationally propounded the relevant test that whether special audit was an integral part of the assessment proceedings. The High Court has further referred to the case of Auto and Metal Engineers and other Vs. Union of India and Others (1998) 229 ITR 399 in its judgment for examining that what constitutes assessment proceedings, wherein it was held that the expression ““assessment proceeding” in the Explanation must be construed to comprehend the entire process of assessment starting from the stage of filing of the return under section 139 or issuance of notice under section 142(1) till the making of the order of assessment under section 143(3) or section 144”.[RELEVANT EXTRACT]
3. Hon’ble Madhya Pradesh High Court in case of Commissioner of Income Tax Vs. Dhariwal Sales Enterprises (1996) 221 ITR 240 held that time period spent for obtaining a copy of the special audit report u/s 142(2A) upto the time when intimation of non-submission was given by the assessee would be excluded. In the instant case, it is thus agreed that special audit was an important and necessary part of the assessment proceedings.
4. Once the AO had formed the opinion that the special audit was necessary for carrying out the assessment, he naturally would not proceed with the assessment without the receipt of special audit report. Thus, the argument of the appellant that the High Court has quashed the order of special audit and would not be a valid argument to the issue.Explanation 1 which permits exclusion of such atime is not dependent upon the final outcome of the proceedings in which interim stay was granted.
5. Thus, stay on special audit would amount to stay of assessment proceedings, special audit being an integral and important part for conducting the assessment, and this period of stay stands excluded for calculating period of limitation u/s 158BC(c) of the Act.
6. As far as Questions of Law (c) and (d) are concerned, appellants never challenged the subsequent searches made by the Department on the grounds of them being illegal, null and void at the time when the same were actually conducted.
7. Further, the date of drawing last panchnama is to be taken as August 5th, 1998 because of the fact that in the panchnamas drawn from June 22nd, 1998 were remarked as “temporarily concluded” and only panchnama dated August 5th, 1998 was remarked as finally concluded. Thus, the search operations had actually concluded on August 5th, 1998 and consequently the period of limitation for carrying out the assessment proceedings has not expired as per the provisions of Section 158BC(c) of the Act.
8. Therefore, the period of limitation expired on August, 31st in terms of Explanation 2 to section 158BE(1) and accordingly it is permissible that the same warrant of authorization u/s 132 be executed more than once, until the search operation is remarked as “finally concluded”.
9. Thus, the appeal of the appellant assessee company is dismissed.
