The Supreme Court in an appeal filed by VLS FINANCE LTD against the Commissioner of Income Tax held that for the purpose of computation of limitation under section 158BE(2) of the Income Tax Act, the operative period of Interim Stay Order which affects the passing of Assessment Order must be excluded. The appeal challenged a part of the judgment of High Court of Delhi dated 15th December 2006 whereby High Court has held that the block assessment proceedings initiated by 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 was decided finally.
Inconsequent to a search conducted by the Department in the premises of the business place of the assessee, Notice under Section 158BC(c) of the Income tax Act, 1961 was issued requiring them to furnish return for the block period from April 1, 1988 to 22nd June, 1998. The assessee filed the return in response to the said notice. As per S. 158BE of the Act, assessment is to be completed within two years from the end of the month in which the last of the authorization for search under S. 132 or for requisition under Section 132A, as the case may be. However, the assessing officer could not do so because of certain developments.
In the year 2000, a direction u/s 142(2A) was issued to the assessee for conducting special audit for the aforesaid block period. The assessee challenged the said direction through a writ petition in consequent to which it was stayed by the Court. In the said writ petition, the appellants also challenged the clarificatory order dated 10th 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.
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 June, 2000 in terms of Section 158BE of the income tax Act, since 2 years period expired on that date. It was further submitted that the authorization executed on 22nd 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 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 Income Tax Act.
The High Court, during the pendency of the Writ petition granted stay order which remained in operation during the pendency of the writ petition.
In December 2006, the High through its order quashed the direction on the ground of violation of natural justice. However, the High Court decided the question of limitation in favor 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.
The appellants contended before the High Court that since there was no stay on block assessment proceedings in terms of the interim order dated 24th August 2000, the direction to exclude the period between 24th August, 2000 to 15th December 2006 was beyond its jurisdiction. 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 24thAugust, 2000 to 15th December, 2006 would not, in any case, save limitation. However, these contentions were refuted by the High Court.
The following were the issues raised before the Court to decide.
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.It was further pointed out that the stay of the special audit may qualify as stay of assessment proceedings and, therefore, would be covered by the said explanation.
By allowing the contention of the appellant 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 which was an integral step towards assessment proceedings. All the other issues were decided in favour of the Department.
Read the Judgment here.
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