Reassessment u/s 147 - Period of Limitation
In the estimation of the assessing officer special audit was essential for passing proper assessment order. If the court, while undertaking judicial review of such an order of the assessing officer directing special audit ultimately holds that such an order is wrong (for whatever reason) that event happens at a later date and would not mean that the benefit of exclusion of the period during which there was a stay order is not to be given to the Revenue. Explanation 1 which permits exclusion of such a time is not dependent upon the final outcome of the proceedings in which interim stay was granted
1. Search and seizure took place in the business premises of the appellant companies on 22nd June, 1998 on the strength of warrant of autorization dated 19th June, 1998 which went upto in the morning hours of 23rd June, 1998. It was followed by further searches from time to time which went on till 5th August
2. Notice under Section 158BC(c) of the Income Tax Act, 1961 (hereinafter referred to as the “Act') was issued on 28th June, 1999 requiring the appellants to furnish return for the block period from April 1, 1988 to 22nd June, 1998. This notice was withdrawn and another notice was issued on 26.07.1999
3. In response thereto, the appellants filed return for the aforesaid block period on 10th September, 1999
4. As per Section 158BE of the Act, assessment is to be completed within two years from the end of the month in which the last of the authorisation for search under Section 132 or for requisition under Section 132A, as the case may be
5. However, the assessing officer could not do so because of certain developments which took place
6. A direction under Section 142(2A) was issued on 29.06.2000, which was served to the appellants on 19th July, 2000 for conducting special audit for the aforesaid block period
7. A Writ Petition (Civil) No. 4685 of 2000 was filed by the appellants, wherein a challenge was laid to the aforesaid order dated 29th June, 2000 issued by respondent no. 2 directing a special audit in respect of appellants under Section 142(2A) of the Act
8. During the pendency of the writ petition, as amendment application was filed being CM No. 9305/2006, seeking to add additional ground that the Block Assessment Proceedings under Section 158BC(c) of the Act were time barred
9. The appellants submitted that the time limit for completion of Block Assessment expired on 30th June, 2000 in terms of Section 158BE of the Act, since 2 years period expired on that date
10. As per the respondents, since seizure operation were conducted from 22nd June, 1998 and these operations concluded only on 5th August, 1998, the time limit of two years for completion of “Block Assessment” was to expire only on 31st August, 2000
11. The matter was finally heard and decided by the Delhi High Court vide judgment dated 15th December, 2006. It has quashed the direction for special audit in view of the fact that no hearing was afforded to the appellant before issuing such direction, which was necessary as per the law laid down in the case of Rajesh Kumar and others Vs. Dy. Commissioner of Income Tax and others
12. However, the High Court decided the question of limitation in favour of the Department holding that the period between 24th August, 2000, i.e, date on which interim order was passed staying special audit direction under Section 142(2A) dated 29th June, 2000 and 15th December, 2016, i.e., when the High Court has passed the order setting aside the direction for special audit, be excluded in counting limitation for concluding block assessment
13. The appellants contended before the High Court that since there was no stay on block assessment proceedings in terms of interim order dated 24th August, 2000, the direction to exclude the period between 24th August, 2000 to 15th December, 2006 was beyond its jurisdiction
14. It was alternatively contended before the High Court that the limitation for passing the block assessment having expired on 30th June, 2000 in terms of Section 158BE(1) of the Act, the direction to exclude the limitation period between 24th August, 2000 to 15th December, 2006 would not, in any case, save limitation
15. While rejecting the aforesaid contentions raised by the appellants, the High Court held that since special audit was an 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. The High Court rejected the assessee's second alternative argument holding that limitation period of two years was to be calculated from 5th August, 1998, on which date last panchnama was drawn
16. In the instant appeal, impugning the decision of the High Court, following substantial questions of law are raised for consideration by this Court:
(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.
17. Honb. Supreme Court decided the issue in favour of Revenue
1. Whether the period of limitation expired on 31st August, 2000 or the last date for completing block assessment was 30th June, 2000?
The revenue authorities visited and searched the premises of the appellants for the first time on 22nd June, 1998. In the panchnama drawn on that date, it was remarked 'temporarily concluded', meaning thereby, according to the revenue authorities, search had not been concluded. For this reason, the respondent authorities visited many times on subsequent occasions and every time panchnama was drawn with the same remarks, i.e. 'temporarily concluded'. It is only on 5 th August, 1998 when the premises were searched last, the panchnama drawn on that date recorded the remarks that the search was 'finally concluded'. Thus, according to the respondents, the search had finally been completed only on 5th August, 1998 and panchnama was duly drawn on the said date as well. The appellants, in the writ petition filed, had no where challenged the validity of searches on the subsequent dates raising a plea that the same was illegal in the absence of any fresh and valid authorisation. On the contrary, the appellants proceeded on the basis that search was conduced from 22nd June, 1998 and finally concluded on 5th August, 1998.
On the aforesaid facts and in the absence of any challenge laid by the appellants to the subsequent searches, we cannot countenance the arguments of the appellants that limitation period is not to be counted from the last date of search when the search operation completed, i.e. 5th August, 1998. Therefore, this issue is also decided in favour of the respondents.
2. Whether the period between 24th August, 2000 to 15th December, 2006, when interim stay was in operation, required to be excluded for the purposes of counting limitation period?
It is not in dispute that the period during which interim stay of the order passed by the court is in operation has to be excluded while computing the period of two years as limitation period prescribed for completing the block assessment. The parties have, however, joined issue on the nature of stay order which qualify for such exclusion.
it is not in doubt that this explanation grants benefit of exclusion only for those cases where 'the assessment proceeding is stayed by an order or injunction' of the court. On literal construction, therefore, it becomes clear from the reading of this provision that the period that is to be excluded while computing the period of limitation for completion of Block Assessments is the period during which assessment proceedings are stayed by an order of a court and this provision shall not apply if the stay of some other kind, i.e, other than staying the assessment proceedings, is passed. The counsel for the appellants are justified in their contention that the provision relating to limitation need to be strictly construed.
As a general rule, therefore, 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. However, this general statement of legal principle has to be read subject to an exception in order to interpret it rationally and practically. In those cases where stay of some other nature is granted than the stay of the assessment proceedings but the effect of such stay is to prevent the assessing officer from effectively passing assessment order, even that kind of stay order may be treated as stay of the assessment proceedings because of the reason that such stay order becomes an obstacle for the assessing officer to pass an assessment order thereby preventing the assessing officer to proceed with the assessment proceedings and carry out appropriate assessment. For an example, if the court passes an order injuncting the assessing officer from summoning certain records either from the assessee or even from a third party and without those records it is not possible to proceed with the assessment proceedings and pass the assessment order, even such type of order may amount to staying the assessment proceedings. In that context, we would like to comment that the High Court, in the impugned judgment has propounded the correct and relevant test, viz., whether the special audit is an integral part of the assessment proceedings, i.e., without special audit it is not possible for the assessing officer to carry out the assessment? If it is so, then stay of the special audit may qualify as stay of assessment proceedings and, therefore, would be covered by the said explanation.
We, therefore, agree with the High Court that the special audit was an integral step towards assessment proceedings. The argument of the appellants that the writ petition of the appellant was ultimately allowed and the Court had quashed the order directing special audit would mean that no special audit was needed and, therefore, it was not open to the respondent to wait for special audit, may not be a valid argument to the issue that is being dealt with. The assessing officer had, after going through the matter, formed an opinion that there was a need for special audit and the report of special audit was necessary for carrying out the assessment. Once such an opinion was formed, naturally, the assessing officer would not proceed with the assessment till the time the special audit report is received, inasmuch as in his opinion, report of the special audit was necessary. Take a situation where the order of special audit is not challenged. The assessing officer would naturally wait for this report before proceeding further. Order of special audit followed by conducting special audit and report thereof, thus, become part of assessment proceedings. If the order directing special audit is challenged and an interim order is granted staying the making of a special report, the assessing officer would not proceed with the assessment in the absence of the audit as he thought, in his wisdom, that special audit report is needed. That would be the normal and natural approach of the assessing officer at that time. It is stated at the cost of repetition that in the estimation of the assessing officer special audit was essential for passing proper assessment order. If the court, while undertaking judicial review of such an order of the assessing officer directing special audit ultimately holds that such an order is wrong (for whatever reason) that event happens at a later date and would not mean that the benefit of exclusion of the period during which there was a stay order is not to be given to the Revenue. Explanation 1 which permits exclusion of such a time is not dependent upon the final outcome of the proceedings in which interim stay was granted.
We, therefore, answer this question in favour of Revenue.
Cases referred to