TMI Blog2006 (12) TMI 77X X X X Extracts X X X X X X X X Extracts X X X X ..... larified that the special audit in respect of Petitioner No.1 covers the period from the assessment year 1994-95 to assessment year 1998-99 and in respect of Petitioner No.2 it covers the period from the assessment year 1994-95 to assessment year 1996-97. 3. Subsequently, the Petitioners sought to amend the writ petition by including a prayer challenging a notice dated August 28, 2000 issued under Section 143 (2) of the Act. That amendment application (CM No.10173/2000) has not yet been allowed although the writ petition was admitted for final hearing. We now allow the amendment application and dispense with the filing of a formal amended writ petition. 4. A further application for amendment (CM No.9305/2006) was made by the Petitioners seeking to add some additional grounds and also a prayer to the effect that the block assessment proceedings under Section 158 BC (c) of the Act may be held as time barred. This amendment was allowed by us on August 1, 2006 and the filing of a formal writ petition was dispensed with. 5. The Respondents have filed their affidavits in response to the various allegations made in the writ petition as also to the applications filed by the Pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is that the block assessment had become time barred on June 30, 2000 and that continued searches and seizures by the Respondents until August 5, 1998 were not only mala fide but were not authorized by law. These illegal searches and seizures could not extend the period of limitation and the Respondents have proceeded on a wrong understanding of the legal position in this regard. 12. The Respondents filed an affidavit in answer to show cause in which it is contended that the search and seizure proceedings that continued till August 5, 1998 were valid in law and that the period of completion of the block assessment was to expire on August 31, 2000 and not on June 30, 2000, as alleged by the Petitioners. 13. It is stated by the Respondents by way of background facts that on April 28, 2000 Respondent No.2 had sent a detailed proposal to the Commissioner of Income Tax, Delhi (Central)-II giving the reasons for seeking approval of a special audit under Section 142 (2A) of the Act. It was explained that the accounts maintained by the Petitioners were intricate and complex and involved huge revenue, which is why a special audit was necessary. Paraphrasing the reasons, it has been s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to have been sent by registered post on June 30, 2000. It is stated that the order was sent on July 17, 2000, after the period of limitation for making the block assessment had expired. 16. As can be seen from the above, the broad issues that need consideration, and this is what was argued before us, are whether the search of the premises could be conducted until August 5, 1998 on the basis of a single search authorization which was executed on 22 nd June, 1998 and whether the period of limitation for completing the block assessment had expired on June 30, 2000, as contended by learned counsel for the Petitioners or that the period of limitation was to expire on 31 August, 2000, as contended by the Respondents. The third issue in this case is whether the principles of natural justice were complied with and whether the accounts of the Petitioners were complex enough to justify the ordering of a special audit under Section 142 (2A) of the Act. 17. It may be mentioned that in the writ petition the Petitioners have also challenged the constitutional validity of Explanation 2 to Section 158BE of the Act but no arguments were addressed in this regard and indeed no such issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22. A perusal of these panchnamas clearly shows that a warrant of authorization was signed and shown each time the search was conducted and the contents thereof were explained to the person present at the premises to be searched. Therefore, it is not as if the officers of the Respondents conducted the search without any valid authorization. That it took several days for the search to be concluded is an indication of the fact, as contended by the learned Additional Solicitor General, that a large number of documents had to be gone through. In fact, we were told during the course of oral submissions that the Respondents had to go through as many as 5000 documents and this was not controverted by learned counsel for the Petitioners. Of course, we would have been much happier if this had been so stated by the Respondents on affidavit, but in the absence of any denial by learned counsel for the Petitioners, we will assume that what we are told at the Bar is correct and that the Respondents inspected as many as 5000 documents. 23. During the course of hearing we were also shown the search authorization. It has been 'revalidated', as it were, before conducting the search, althoug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on CIT v. Mrs. Sandhya P. Naik, [2002] 253 ITR 534 is misplaced. In that case, the Income Tax Appellate Tribunal found as a matter of fact that the search was concluded on October 20, 1996. It was in this context that the High Court observed that by merely stating in the panchnama that the search is temporarily suspended, the authorized officer could not keep the search proceedings alive by passing a restraint order under Section 132(3) of the Act. No doubt the assessee requested for the release of some articles for pooja etc. and this request was granted and on October 26, 1996 some articles were released. But the High Court held, agreeing with the Income Tax Appellate Tribunal that the proceedings on October 26, 1996 were not in continuation of the proceedings that had already concluded on October 20, 1996. 26. The question that therefore arises for our consideration is whether the search, subject matter of this writ petition, had concluded on June 22, 1998 or not. If it did not, was it unreasonably prolonged for some collateral reason? If it did, (as contended by learned counsel for the Petitioners), then the limitation period for making the assessment order would end on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Flex Finance Ltd. Thus the money originally spent by M/s VLS Finance Ltd. has again circulated back to it only." 29. The Respondents could have, on the very first day of the search, seized all relevant and irrelevant documents and books of the Petitioners, but they did not do so. We are of the view that their decision on this (in favour of the Petitioners) cannot be used against them. We have also kept in mind two facts, namely, that even by adopting this procedure, the Respondents did not exceed the 60 day limit as provided by Section 132(8A) of the Act and that for making the assessment order the Respondents had still more than adequate time available, making it unnecessary for them to resort to any subterfuge so early on. Consequently, we are of the opinion that the Respondents did not complete the search on June 22, 1998 as alleged by the Petitioners, nor did they unduly prolong it. The search concluded on August 5, 1998 and so in terms of Explanation 2 to Section 158 BE of the Act the period of limitation would begin from the end of August, 1998, that is, August 31, 1998 onwards. (See M.B. Lal [2005] 279 ITR 298 (Delhi)). The second issue raised by learned counsel f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fundamental principles of law. If the principles of natural justice are to be excluded, Parliament could have said so expressly. The hearing given is only in terms of section 142(3) which is limited only to the findings of the special auditor. The order of assessment would be based upon the findings of the special auditor subject of course to their acceptance by the Assessing Officer. Even at that stage the assessee cannot (can?) put forward a case that power under section 142(2A) of the Act had wrongly been exercised and he has unnecessarily been saddled with a heavy expenditure. An appeal against the order of assessment, as noticed hereinbefore, would not serve any real purpose as the appellate authority would not go into such a question since the direction issued under section 142(2A) of the Act is not an appealable order." 34. In view of the decision rendered by the Supreme Court, it must be held that the order dated June 29, 2000 passed under Section 142(2A) of the Act could have been passed only after a notice was issued to the Petitioner which has not been done in this case. Consequently, the order dated 29 th June, 2000 must be, and is, set aside. We propose to conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the passing of the order which has been quashed. The stay of operation of an order does not, however, lead to such a result. It only means that the order which has been stayed would not be operative from the date of the passing of the stay order and it does not mean that the said order has been wiped out from existence." 38. In a slightly different context, the Supreme Court considered the issue in BPL Ltd. v. R. Sudhakar, [2004] 7 SCC 219 and observed (page 228) : "If in a pending proceeding operation of order is stayed pending disposal of the main matter such as an appeal or revision, obviously the impugned order does not get quashed or wiped out. It only remains suspended." 39. In Raj Kumar Dey v. Tarapada Dey AIR 1987 SC 2195, the Supreme Court examined the scope of a stay order on calculation of time/limitation. In this case, an award could not be registered within the time stipulated by the Registration Act owing to an interim injunction and an order directing the award to be deposited in Court. The Supreme Court allowed the entire period during which the stay order was in operation to be excluded while applying the maxim lex non cogit ad impossibilia o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urn under section 142 (1) and it culminates with the issuance of the notice of demand under section 156. The making of the order of assessment is, therefore, an integral part of the process of assessment. Having regard to the fact that the object underlying the Explanation is to extend the period prescribed for making the order of assessment, 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. Since the making of the order of assessment under section 143 (3) or section 144 of the Act is an integral part of the assessment proceeding, it is not possible to split the assessment proceeding and confine it up to the stage of inquiry under sections 142 and 143 and exclude the making of the order of assessment from its ambit. An order staying the passing of the final order of assessment is nothing but an order staying the assessment proceeding. Since the passing of the final order of assessment had been stayed by the Delhi High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment was permissible in law, it does not matter at all if a special audit is ordered for that particular year as well. 47. Having quashed the order dated June 29, 2000, it is not for us to say what the consequence of this will be. All that we can say is that for all practical purposes, the period from August 24, 2000 until today shall be excluded for any calculations that the Respondents wish to make in respect of the period of limitation. If after exclusion of this period the Respondents are still entitled, in law, to issue a notice to the Petitioners for passing an order under Section 142(2A) of the Act, then of course they may do so. On the other hand, if they are not now entitled to issue a notice for whatever reason, then the result thereof will follow. We are not commenting on this one way or the other since no submissions were made before us in this regard one way or the other. 48. With these observations, we dispose of the writ petition making it clear that the period spent in litigation, that is, from August 24, 2000 till today will inure to the benefits of the Respondents and will not be included for calculation of time. 49. Dasti. - - TaxTMI - TMITax - ..... 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