Full Judgment Text
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 2667 OF 2007
VLS FINANCE LTD. & ANR. .....APPELLANT(S)
VERSUS
COMMISSIONER OF INCOME TAX & ANR. .....RESPONDENT(S)
J U D G M E N T
A.K. SIKRI, J.
In this appeal, challenge is laid to that part of the judgment
th
of High Court of Delhi dated 15 December, 2006 whereby High
Court has held that the block assessment proceedings initiated by
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the respondent-Department against the appellants herein have
not become time barred, by giving the respondents benefit 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:
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2) Search and seizure took place in the business premises of the
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appellant companies on 22 June, 1998 on the strength of
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warrant of autorization dated 19 June, 1998 which went upto in
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the morning hours of 23 June, 1998. It was followed by further
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searches from time to time which went on till 5 August.
3) Notice under Section 158BC(c) of the Income Tax Act, 1961
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(hereinafter referred to as the “Act') was issued on 28 June,
1999 requiring the appellants to furnish return for the block period
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from April 1, 1988 to 22 June, 1998. This notice was withdrawn
and another notice was issued on 26.07.1999. In response
thereto, the appellants filed return for the aforesaid block period
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on 10 September, 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
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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,
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which was served to the appellants on 19 July, 2000 for
conducting special audit for the aforesaid block period.
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5) A Writ Petition (Civil) No. 4685 of 2000 was filed by the
appellants, wherein a challenge was laid to the aforesaid order
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dated 29 June, 2000 issued by respondent no. 2 directing a
special audit in respect of appellants under Section 142(2A) of the
Act. In the said writ petition, the appellants also challenged the
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clarificatory order dated 10 August, 2000 issued by respondent
no. 2 with regard to special audit in respect of appellant no. 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
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submitted that the time limit for completion of Block Assessment
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expired on 30 June, 2000 in terms of Section 158BE of the Act,
since 2 years period expired on that date. It was further
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submitted that the authorization executed on 22 June, 1998
could not have been utilized for conducting further search till
August, 1998. it was also contended that the order under Section
142(2A) of the Act was issued in violation of principles of natural
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justice as there was no complexity in the accounts of the
appellants and, therefore, there was no justification in law to order
special audit 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
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on 31 August, 2000 and not on 30 June, 2000 as claimed by the
appellants. As per the respondents, since seizure operation were
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conducted from 22 June, 1998 and these operations concluded
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only on 5 August, 1998, the time limit of two years for completion
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of “Block Assessment” was to expire only on 31 August, 2000.
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8) In Writ Petition (Civil) No. 4685 of 2000, interim order dated 24
August, 2000 was passed, which reads as under:
“C.W. No. 4685/2000
Notice to the respondents to show cause as
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to why petition by not admitted, returnable on 14
September, 2000.
Mr. R.D. Jolly, Advocate accepts notice on
behalf of respondents.
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Page 4
C.M. No. 7227/2000
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Notice for 14 September, 2000. Mr. Jolly
accepts notice.
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Counter be filed by 13 September, 2000.
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Interim stay of the orders dated 29 June,
2000.
Annexure-A read with Annexure-B dated
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10 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
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vide judgment dated 15 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
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and others Vs. Dy. Commissioner of Income Tax and others .
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11) However, the High Court decided the question of limitation in
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favour of the Department holding that the period between 24
August, 2000, i.e, date on which interim order was passed staying
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special audit direction under Section 142(2A) dated 29 June,
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2000 and 15 December, 2016, i.e., when the High Court has
passed the order setting aside the direction for special audit, be
1 (2007) 2 SCC 181
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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
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order dated 24 August, 2000, the direction to exclude the period
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between 24 August, 2000 to 15 December, 2006 was beyond
its jurisdiction. It was alternatively contended before the High
Court that the limitation for passing the block assessment having
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expired on 30 June, 2000 in terms of Section 158BE(1) of the
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Act, the direction to exclude the limitation period between 24
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August, 2000 to 15 December, 2006 would not, in any case,
save limitation. 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,
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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
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from 5 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
by this Court:
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(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
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between 24 August, 2000 to 15 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
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interim order dated 24 August, 2000 staying the direction for
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special audit contained in order dated 29 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
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expired on 31 August, 2000, instead of 30 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,
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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.
14) In effect the central issue is one of limitation, which has the
following two facets, viz.;
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(a) Whether the period of limitation expired on 31 August, 2000 or
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the last date for completing block assessment was 30 June,
2000?
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(b) Whether the period between 24 August, 2000 to 15 December,
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 for such
exclusion. For this, it would be necessary to scan through the
language of Explanation 1 to Section 158BE(2) of the Act. This
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provision makes the following reading:
“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; or
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(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
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was passed by the High Court on 24 August, 2000 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.
17) M/s. Ganesh and Vohra, learned senior counsel appearing for the
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appellants made a fervent plea to the effect that in the absence of
any stay of the assessment proceedings, there was no embargo
on the part of the assessing authority 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 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
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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 when
assessing officer directs the assessee to get his accounts audited
till the date when the assessee is required to furnish the report of
such audit. Such an amendment, it was pointed out, is made in
Clause (ii) of Explanation to Section 153B of the Finance Act,
st
2013, w.e.f. 1 June, 2013 to fill the lacunae that existed in the
statutory framework and this would also fortify the submissions of
the appellants that at the relevant time there was no such
provision for exclusion of the time period 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
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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
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Court order staying the orders dated 29 June, 2000 and 10
August, 2000 passed under Section 142(2A) of the Act which
meant that the Department was prevented from carrying out
special audit, it was not possible to proceed with the assessment
Civil Appeal No. 2 667 of 2007 Page 10 of 21
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as well as inasmuch as the assessing officer at the time of
passing the order under Section 142(2A) of the Act recorded his
satisfaction that in order to carry out the proper assessment,
special audit was essential. She, thus, submitted that the High
Court rightly held that special audit was integral part of the
assessment.
19) We have already 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 order of a
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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
2
strictly construed. In the case of K.M. Sharma Vs. ITO , this
principle is laid down in the following words:
“13. Fiscal statute, more particularly a provision
such as the present one regulating period of
2 (2002) 254 ITR 772 (SC)
Civil Appeal No. 2 667 of 2007 Page 11 of 21
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limitation 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
and attained finality.”
20) 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
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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
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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.
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
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integral step, in the absence of which an assessment order could
not be made. In support of the aforesaid conclusion, the High
Court referred to the judgment in Auto and Metal Engineers and
3
other Vs. Union of India and Others wherein this Court
examined in detail as to what constitutes assessment
proceedings. The Court in that case was interpreting Explanation
1 to Section 153 of the Act, which is pari materia to Explanation 1
3 (1998) 229 ITR 399
Civil Appeal No. 2 667 of 2007 Page 13 of 21
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of 158BE of the Act. The said provision was interpreted in the
following manner:
“Sub-section (1) of section 153 prescribed the
period of limitation within which an order 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
complete the assessment on account of an order or
injunction staying the assessment proceeding
passed by a court the period during which such
order or injunction was in operation should be
excluded for the purpose of computing the period
of limitation for making the assessment order. The
process of assessment thus commences with the
filing of the return or where the return is not filed,
by the issuance by the Assessing Officer of notice
to file the return 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
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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 Tax Vs.
4
Dhariwal Sales Enterprises . That was a case where special
audit report under Section 142(2A) of the Act was called for but
could not be submitted. The High Court held that time period
spent for obtaining a copy of the report upto the time when
intimation of non-submission was given by the assessee would be
excluded.
23) We, therefore, agree with the High Court that the special audit
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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
4 (1996) 221 ITR 240
Civil Appeal No. 2 667 of 2007 Page 15 of 21
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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
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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
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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.
24) We, therefore, answer this question in favour of Revenue.
25) With this, we revert to the other question, viz. from which date the
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period of limitation is to be counted, i.e. from 22 June, 1998
when the respondent authorities visited the premises of the
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appellants on the basis of Warrant of Authorisation dated 19
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June, 1998 or 5 August, 1998, on which date the Revenue
authorities last visited the premises of the appellants on the basis
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of the same Warrant of Authorisation dated 19 June, 1998 and
conducted the search of the appellants premises. If the period is
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to be counted from 19 June, 1998, the last date by which the
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th
assessment was to be carried would be 30 June, 2000. If it is to
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be counted from 5 August, 1998, then the limitation period was
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to expire on 31 August, 2000. In the event the last date for
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completing the block assessment is held to be 30 June, 2000,
then the assessment became time barred even before the interim
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stay was granted by the High Court as it was granted on 24
August, 2000, i.e. after the supposed limitation period was over
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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
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limitation was to expire on 31 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
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an order dated 5 February, 2007 that audit may go on but no
final assessment order be passed. Because of this reason, it
becomes necessary to decide this aspect of the matter as well.
26) The argument of learned counsel for the appellants on this issue
is that there was only one warrant of authorisation which
empowered the Revenue authorities to carry out search and visit
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of the revenue officials on 22 June, 1998 on the basis of said
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Warrant of Authorisation dated 19 June, 1998, would end in
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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
respondent.
27) We may point out that the appellants never challenged
subsequent visits and searches of their premises by the
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respondents 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, as according to the learned counsel, the legal
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position was that the authorisation dated 19 June, 1998, was
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executed on 22 June, 1998 and the search came to an end with
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that when the search party left the premises on 23 June, 1998
after making seizure of certain documents etc and issuing
restraint order under Section 132(3) of the Act in respect of
certain items which they 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'
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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, refuting the aforesaid
contention, submitted that as per explanation (2) to Section
158BE, when it is a case of search, period of limitation is to be
Civil Appeal No. 2 667 of 2007 Page 19 of 21
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counted 'on the conclusion of search as recorded in the last
panchnama drawn.....' It was argued that last panchnama was
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admittedly drawn on 5 August, 1998 and, therefore, period of
limitation is to be counted from that date.
29) 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.
30) As noticed above, the revenue authorities visited and searched
nd
the premises of the appellants for the first time on 22 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
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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
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5 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
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respondents, the search had finally been completed only on 5
August, 1998 and panchnama was duly drawn on the said date as
Civil Appeal No. 2 667 of 2007 Page 20 of 21
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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
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proceeded on the basis that search was conduced from 22
th
June, 1998 and finally concluded on 5 August, 1998.
31) 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
th
operation completed, i.e. 5 August, 1998. Therefore, this issue
is also decided in favour of the respondents.
32) In view of the foregoing, this appeal is liable to be dismissed and
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is, accordingly, dismissed with costs.
.............................................J.
(A.K. SIKRI)
.............................................J.
(ROHINTON FALI NARIMAN)
NEW DELHI;
APRIL 28, 2016.
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