THE ISSUE IS – Whether such period during which the special audit u/s 142(2A) was stayed by an interim order of the High Court, can be excluded while computing the period of limitation for ‘carrying out block assessment’. YES is the answer.
Facts of the case:
The assessee is engaged in the business of rendering Investment Banking, Corporate Consulting & Advisory Services, Stock Broking, Proprietary Investments & Equity Research. During relevant period, its business premises were searched, resulting in issuance of notice u/s 158BC(c) requiring the assessees to furnish its return for the block period from April 1, 1988 to 22nd June, 1998. In response thereto, the assessee filed its return for the aforesaid block period. However, the AO did not complete the block assessment during stipulated period. Thereafter, a direction u/s 142(2A) was issued, which was served to the assessee for conducting special audit for the aforesaid block period. Aggreived, the assessee preferred petition before High Court. During the pendency of the writ petition, as amendment application was filed, seeking to add additional ground that the Block Assessment Proceedings u/s 158BC(c) were time barred. The Revenue filed their affidavit in reply to the show cause explaining that the order for special audit u/s 142(2A) was issued with proper authorization made by CIT after due deliberation and on the basis of the report of the AO. As per the Revenue, 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. Thereafter, the writ petition was disposed of by passing an interim stay order. This stay remained in operation during the pendency of the writ petition. The matter was thereafter finally heard and decided by the Delhi High Court quashing the direction for special audit in view of the fact that no hearing was afforded to the assessee before issuing such direction. However, the High Court decided the question of limitation in favour of the Department holding that the period between the date on which interim order was passed staying special audit direction u/s 142(2A) and the date when the High Court has passed the order setting aside the direction for special audit, be excluded in counting limitation for concluding block assessment. The High Court finally 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.
After hearing the parties, the Supreme Court had held:
++ 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. The plea of the assessee 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 High Court which has stayed the order of the Department directing compulsory audit. It was, thus, argued that stay was limited only to conducting compulsory audit and there was no stay of the assessment proceedings. The assessee’s counsel contended that in the absence of any stay of the assessment proceedings, there was no embargo on the part of the AO to proceed with the assessment even when the order directing special audit was stayed, and therefore, benefit of the aforesaid explanation would not be available to the Revenue. 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 is not in doubt that the 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;
++ as a general rule, therefore, when there is no stay of the assessment proceedings passed by the Court, Explanation 1 to Section 158BE 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 AO 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 AO to pass an assessment order. 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 AO 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. 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. We, therefore, agree with the High Court that the special audit was an integral step towards assessment proceedings. The AO 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 AO 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. We, therefore, answer this question in favour of Revenue.
++ now 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 Revenue visited the premises of the assessee on the basis of Warrant of Authorisatio, or, on which date the Revenue authorities last visited the premises of the assessee on the basis of the same Warrant of Authorisation and conducted the search of the appellants premises. The argument of the assessee’s counsel on this issue is that there was only one warrant of authorisation which empowered the Revenue authorities to carry out search and visit of the revenue officials on the basis of said Warrant of Authorisation, would end in exhausting the 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 Revenue. We may point out that the assessee never challenged subsequent visits and searches of their premises by the Revenue on the ground that in the absence of a fresh authorisation those searches were illegal, null and void. Notwithstanding the same, it was argued that at least for the purpose of limitation the subsequent searches could not be taken into consideration. After considering the respective submissions, we are of the opinion that on the facts of this case, the issue also has to be answered in favour of the Revenue without going into the legal niceties. As noticed, the revenue authorities visited and searched the premises of the assessee 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 Revenue 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, the panchnama drawn on that date recorded the remarks that the search was ‘finally concluded’. The assessee, 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 aforesaid facts and in the absence of any challenge to the subsequent searches, we cannot countenance the arguments of the assessee that limitation period is not to be counted from the last date of search when the search operation completed.
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