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VLS Finance Ltd. & Another Versus Commissioner of Income Tax & Another

2016 (4) TMI 1133 - SUPREME COURT

Period of limitation for passing the block assessment order - 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? - Held 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 a .....

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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 5th August, 1998 when the premises were searched last, .....

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d 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. - Civil Appeal No. 2 .....

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efit of the period during which proceedings were pending in the High Court, in view of some interim orders passed in those proceedings which remained operative till the writ petition filed by the appellants were decided finally. Factual background leading to the present appeal is as under: 2) 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 .....

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tember, 1999. 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. However, the assessing officer could not do so because of certain developments which took place and are narrated hereinafter. 4) A direction under Section 142(2A) was issued on 29.06.2000, which was served to the appellants on 19th July, 2000 for conduc .....

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1 for the period from the Assessment Year 1994-95 to Assessment Year 1998-99 and insofar as appellant no. 2-the period for Assessment Year 1994-95 to Assessment Year 1996-97. 6) 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. The appellants submitted that the time limit for completion of Block Assessment expired on 30th Ju .....

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udit under Section 142(2A) of the Act. 7) The respondents filed their affidavit in reply to the show cause explaining that the order for special audit under Section 142(2A) of the Act was issued with proper authorization made by Commissioner of Income Tax after due deliberation and on the basis of the report of the Assessing Officer viz. Assistant Commissioner of Income Tax, New Delhi. It was further submitted that the period of completion of block assessment was to expire on 31st August, 2000 a .....

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not admitted, returnable on 14th September, 2000. Mr. R.D. Jolly, Advocate accepts notice on behalf of respondents. C.M. No. 7227/2000 Notice for 14th September, 2000. Mr. Jolly accepts notice. Counter be filed by 13th September, 2000. Interim stay of the orders dated 29th June, 2000. Annexure-A read with Annexure-B dated 10th August, 2000. 9) This stay remained in operation during the pendency of the writ petition. 10) The matter was finally heard and decided by the Delhi High Court vide judgme .....

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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. 12) 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 1 .....

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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. 13) In the instant appeal, impugning the decision of the High Court, following substantial questions of law are raised for consideration b .....

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e, 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 re .....

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r, 2006, when interim stay was in operation, required to be excluded for the purposes of counting limitation period? 15) First, we shall take up the second issue for discussion. 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 .....

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b-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; or (iii) & (iv) xxx xxx xxx shall be excluded: Provided xxx xxx xxx 16) The plea of the appellants is that only that period can be excluded in computing the period of limitation, during which assessment proceedings were stayed. A certain distinction was tried to be drawn in the instant case by referring to the interim order which was passed by the Hi .....

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t even when the order directing special audit was stayed, and therefore, benefit of the aforesaid explanation would not be available to the respondents. It was argued that the High Court had committed an error in giving the benefit of the exclusion of the said period on a wrong premise that special audit was an integral part of the assessment proceedings. It was also argued that Explanation 1, as it existed at the relevant time, did not make any provision for excluding the period from the date w .....

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d during which there was a stay of special audit but no stay assessment proceedings. It was also argued that insofar as the provision relating to limitation is concerned it needs strict interpretation, and certain judgments were referred to, by the learned counsel, in this behalf. 18) Ms. Pinky Anand, learned ASG, on the other hand, supported the order of the High Court by arguing that with the passing of High Court order staying the orders dated 29th June, 2000 and 10th August, 2000 passed unde .....

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eady reproduced the language of Explanation 1. 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 .....

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on must receive strict construction. The law of limitation is intended to give certainty and finality to legal proceedings and to avoid exposure to risk of litigation to litigant for indefinite period on future unforeseen events. Proceedings, which have attained finality under existing law due to bar of limitation cannot be held to be open for revival unless the amended provision is clearly given retrospective operation so as to allow upsetting of proceedings, which had already been concluded an .....

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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 o .....

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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. 21) The question, therefore, is as to whether, in the given case, the High Court was right in holding that the special audit was not only a step in the assessment proceedings, but an important and integral step, in the absence of which an assessment order could not be made. In support of the aforesaid conclusion, .....

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er of assessment could be passed. For the assessment years in question the last date for making the order of assessment under the said provision was March 31, 1972. By Explanation 1 to section 153 the period of limitation prescribed under sub-section (1) for making the order of assessment was extended by the period during which the assessment proceeding was stayed by an order or injunction of any court. The object of the Explanation seems to be that if the Assessing Officer was unable to complet .....

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e 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 noti .....

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nothing but an order staying the assessment proceeding. Since the passing of the final order of assessment had been stayed by the Delhi High Court by its order dated November 23, 1971, in the writ petitions, it must be held that there was a stay of assessment proceedings for the purpose of Explanation 1 to section 153. 22) The aforesaid judgment applies on all force, as rightly held by the High Court. We may also refer to the judgment of the Madhya Pradesh High Court in Commissioner of Income Ta .....

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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 .....

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eedings. 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 p .....

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im stay was granted. 24) We, therefore, answer this question in favour of Revenue. 25) With this, we revert to the other question, viz. from which date the period of limitation is to be counted, i.e. from 22nd June, 1998 when the respondent authorities visited the premises of the appellants on the basis of Warrant of Authorisation dated 19th June, 1998 or 5th August, 1998, on which date the Revenue authorities last visited the premises of the appellants on the basis of the same Warrant of Author .....

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by the High Court as it was granted on 24th August, 2000, i.e. after the supposed limitation period was over and, therefore, the conclusion which we have recorded in answering the other question, as above, would not come to the rescue of the Department. On the other hand, if the period of limitation was to expire on 31st August, 2000, then by virtue of our answer to the first issue, the period of limitation for block assessment has not expired inasmuch as this Court has passed an order dated 5t .....

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said warrant of authorisation. It was argued that for subsequent visits, fresh authorisation was required and no such authorisation was taken and, therefore, subsequent searches are illegal and no benefit thereof should enure to be respondent. 27) We may point out that the appellants never challenged subsequent visits and searches of their premises by the respondents on the ground that in the absence of a fresh authorisation those searches were illegal, null and void. Notwithstanding the same, .....

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ey allegedly could not seize due to impracticability on that day. Some judgments of various High Courts are relied upon to support this proposition. It was also argued that there was no concept of 'revalidation of authorisation' provided under the Act, which has been applied by the High Court in the impugned judgment, which according to the learned counsel for the appellants, amounts to legislating a new concept which is contrary to law. 28) The learned Additional Solicitor General, refu .....

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