REPORTABLE IN 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) JUDGMENT A.K. SIKRI, J. In this appeal, challenge is laid to that part of judgment of High Court of Delhi dated 15th December, 2006 whereby High Court has held that block assessment proceedings initiated by respondent-Department against appellants herein have not become time barred, by giving respondents benefit of period during which proceedings were pending in High Court, in view of some interim orders passed in those proceedings which remained operative till writ petition filed by appellants were decided finally. Factual background leading to present appeal is as under: Civil Appeal No. 2667 of 2007 Page 1 of 21 Page 1 2) Search and seizure took place in business premises of appellant companies on 22nd June, 1998 on strength of warrant of autorization dated 19th June, 1998 which went upto in morning hours of 23rd June, 1998. It was followed by further searches from time to time which went on till 5th August. 3) Notice under Section 158BC(c) of Income Tax Act, 1961 (hereinafter referred to as Act') was issued on 28 th June, 1999 requiring appellants to furnish return for block period from April 1, 1988 to 22nd June, 1998. This notice was withdrawn and another notice was issued on 26.07.1999. In response thereto, appellants filed return for aforesaid block period on 10th September, 1999. As per Section 158BE of Act, assessment is to be completed within two years from end of month in which last of authorisation for search under Section 132 or for requisition under Section 132A, as case may be. However, assessing officer could not do so because of certain developments which took place and are narrated hereinafter. 4) direction under Section 142(2A) was issued on 29.06.2000, which was served to appellants on 19 th July, 2000 for conducting special audit for aforesaid block period. Civil Appeal No. 2667 of 2007 Page 2 of 21 Page 2 5) Writ Petition (Civil) No. 4685 of 2000 was filed by appellants, wherein challenge was laid to aforesaid order dated 29th June, 2000 issued by respondent no. 2 directing special audit in respect of appellants under Section 142(2A) of Act. In said writ petition, appellants also challenged clarificatory order dated 10th August, 2000 issued by respondent no. 2 with regard to special audit in respect of appellant no. 1 for period from 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 pendency of writ petition, as amendment application was filed being CM No. 9305/2006, seeking to add additional ground that Block Assessment Proceedings under Section 158BC(c) of Act were time barred. appellants submitted that time limit for completion of Block Assessment expired on 30th June, 2000 in terms of Section 158BE of Act, since 2 years period expired on that date. It was further submitted that authorization executed on 22 nd June, 1998 could not have been utilized for conducting further search till August, 1998. it was also contended that order under Section 142(2A) of Act was issued in violation of principles of natural Civil Appeal No. 2667 of 2007 Page 3 of 21 Page 3 justice as there was no complexity in accounts of appellants and, therefore, there was no justification in law to order special audit under Section 142(2A) of Act. 7) respondents filed their affidavit in reply to show cause explaining that order for special audit under Section 142(2A) of Act was issued with proper authorization made by Commissioner of Income Tax after due deliberation and on basis of report of Assessing Officer viz. Assistant Commissioner of Income Tax, New Delhi. It was further submitted that period of completion of block assessment was to expire on 31st August, 2000 and not on 30th June, 2000 as claimed by appellants. As per respondents, since seizure operation were conducted from 22nd June, 1998 and these operations concluded only on 5th August, 1998, time limit of two years for completion of Block Assessment was to expire only on 31st August, 2000. 8) In Writ Petition (Civil) No. 4685 of 2000, interim order dated 24 th August, 2000 was passed, which reads as under: C.W. No. 4685/2000 Notice to respondents to show cause as to why petition by not admitted, returnable on 14th September, 2000. Mr. R.D. Jolly, Advocate accepts notice on behalf of respondents. Civil Appeal No. 2667 of 2007 Page 4 of 21 Page 4 C.M. No. 7227/2000 Notice for 14th September, 2000. Mr. Jolly accepts notice. Counter be filed by 13th September, 2000. Interim stay of orders dated 29th June, 2000. Annexure-A read with Annexure-B dated th 10 August, 2000. 9) This stay remained in operation during pendency of writ petition. 10) matter was finally heard and decided by Delhi High Court vide judgment dated 15th December, 2006. It has quashed direction for special audit in view of fact that no hearing was afforded to appellant before issuing such direction, which was necessary as per law laid down in case of Rajesh Kumar and others Vs. Dy. Commissioner of Income Tax and others 1. 11) However, High Court decided question of limitation in favour of Department holding that period between 24 th August, 2000, i.e, date on which interim order was passed staying special audit direction under Section 142(2A) dated 29 th June, 2000 and 15th December, 2016, i.e., when High Court has passed order setting aside direction for special audit, be 1 (2007) 2 SCC 181 Civil Appeal No. 2667 of 2007 Page 5 of 21 Page 5 excluded in counting limitation for concluding block assessment. 12) appellants contended before High Court that since there was no stay on block assessment proceedings in terms of interim order dated 24th August, 2000, direction to exclude period between 24th August, 2000 to 15th December, 2006 was beyond its jurisdiction. It was alternatively contended before High Court that limitation for passing block assessment having expired on 30th June, 2000 in terms of Section 158BE(1) of Act, direction to exclude limitation period between 24 th August, 2000 to 15th December, 2006 would not, in any case, save limitation. While rejecting aforesaid contentions raised by appellants, High Court held that since special audit was important and integral step in assessment proceedings, once direction for special audit was stayed by High Court, assessment proceedings ipso facto could not go on. High Court rejected 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 instant appeal, impugning decision of High Court, following substantial questions of law are raised for consideration by this Court: Civil Appeal No. 2667 of 2007 Page 6 of 21 Page 6 (a) Whether on facts and circumstances of case, High Court having quashed direction under Section 142(2A) of Act was justified in law in directing to exclude period between 24th August, 2000 to 15th December, 2006 in counting period of limitation for passing block assessment order? (b) Whether on facts and circumstances of case, interim order dated 24th August, 2000 staying direction for special audit contained in order dated 29 th June, 2000, could be construed as amounting to stay of assessment proceedings? (c) Whether on facts and circumstances of case, High Court erred in law in holding that period of limitation expired on 31st August, 2000, instead of 30 th June, 2000, in terms of Section 158BE(1) read with Explanation 2 thereto? (d) Whether on facts and in circumstances of case, it is permissible under Section 132 of Act that 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 revalidation as in present case. 14) In effect central issue is one of limitation, which has following two facets, viz.; Civil Appeal No. 2667 of 2007 Page 7 of 21 Page 7 (a) Whether period of limitation expired on 31 st August, 2000 or last date for completing block assessment was 30 th June, 2000? (b) Whether period between 24 th August, 2000 to 15th December, 2006, when interim stay was in operation, required to be excluded for purposes of counting limitation period? 15) First, we shall take up second issue for discussion. It is not in dispute that period during which interim stay of order passed by court is in operation has to be excluded while computing period of two years as limitation period prescribed for completing block assessment. parties have, however, joined issue on nature of stay order which qualify for such exclusion. For this, it would be necessary to scan through language of Explanation 1 to Section 158BE(2) of Act. This provision makes following reading: Explanation 1. - In computing period of limitation for purposes of this section, - (i) period during which assessment proceeding is stayed by order or injunction of any court; or (ii) period commencing from day on which Assessing Officer directs assessee to get his accounts audited under sub-section (2A) of section 142 and ending on day on which assessee is required to furnish report of such audit under that sub-section; or Civil Appeal No. 2667 of 2007 Page 8 of 21 Page 8 (iii) & (iv) xxx xxx xxx shall be excluded: Provided xxx xxx xxx 16) plea of appellants is that only that period can be excluded in computing period of limitation, during which assessment proceedings were stayed. certain distinction was tried to be drawn in instant case by referring to interim order which was passed by High Court on 24th August, 2000 which has stayed order of Department directing compulsory audit. It was, thus, argued that stay was limited only to conducting compulsory audit and there was no stay of assessment proceedings. 17) M/s. Ganesh and Vohra, learned senior counsel appearing for appellants made fervent plea to effect that in absence of any stay of assessment proceedings, there was no embargo on part of assessing authority to proceed with assessment even when order directing special audit was stayed, and therefore, benefit of aforesaid explanation would not be available to respondents. It was argued that High Court had committed error in giving benefit of exclusion of said period on wrong premise that special audit was Civil Appeal No. 2667 of 2007 Page 9 of 21 Page 9 integral part of assessment proceedings. It was also argued that Explanation 1, as it existed at relevant time, did not make any provision for excluding period from date when assessing officer directs assessee to get his accounts audited till date when assessee is required to furnish report of such audit. Such amendment, it was pointed out, is made in Clause (ii) of Explanation to Section 153B of Finance Act, 2013, w.e.f. 1st June, 2013 to fill lacunae that existed in statutory framework and this would also fortify submissions of appellants that at relevant time there was no such provision for exclusion of time period during which there was stay of special audit but no stay assessment proceedings. It was also argued that insofar as provision relating to limitation is concerned it needs strict interpretation, and certain judgments were referred to, by learned counsel, in this behalf. 18) Ms. Pinky Anand, learned ASG, on other hand, supported order of High Court by arguing that with passing of High Court order staying orders dated 29 th June, 2000 and 10th August, 2000 passed under Section 142(2A) of Act which meant that Department was prevented from carrying out special audit, it was not possible to proceed with assessment Civil Appeal No. 2667 of 2007 Page 10 of 21 Page 10 as well as inasmuch as assessing officer at time of passing order under Section 142(2A) of Act recorded his satisfaction that in order to carry out proper assessment, special audit was essential. She, thus, submitted that High Court rightly held that special audit was integral part of assessment. 19) We have already reproduced 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 order or injunction' of court. On literal construction, therefore, it becomes clear from reading of this provision that period that is to be excluded while computing period of limitation for completion of Block Assessments is period during which assessment proceedings are stayed by order of court and this provision shall not apply if stay of some other kind, i.e, other than staying assessment proceedings, is passed. counsel for appellants are justified in their contention that provision relating to limitation need to be strictly construed. In case of K.M. Sharma Vs. ITO2, this principle is laid down in following words: 13. Fiscal statute, more particularly provision such as present one regulating period of 2 (2002) 254 ITR 772 (SC) Civil Appeal No. 2667 of 2007 Page 11 of 21 Page 11 limitation must receive strict construction. 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 amended provision is clearly given retrospective operation so as to allow upsetting of proceedings, which had already been concluded and attained finality. 20) As general rule, therefore, when there is no stay of assessment proceedings passed by Court, Explanation 1 to Section 158BE of Act may not be attracted. However, this general statement of legal principle has to be read subject to exception in order to interpret it rationally and practically. In those cases where stay of some other nature is granted than stay of assessment proceedings but effect of such stay is to prevent assessing officer from effectively passing assessment order, even that kind of stay order may be treated as stay of assessment proceedings because of reason that such stay order becomes obstacle for assessing officer to pass assessment order thereby preventing assessing officer to proceed with assessment proceedings and carry out appropriate assessment. For example, if court passes order injuncting assessing officer from summoning certain records either from assessee or even from third party and Civil Appeal No. 2667 of 2007 Page 12 of 21 Page 12 without those records it is not possible to proceed with assessment proceedings and pass assessment order, even such type of order may amount to staying assessment proceedings. In that context, we would like to comment that High Court, in impugned judgment has propounded correct and relevant test, viz., whether special audit is integral part of assessment proceedings, i.e., without special audit it is not possible for assessing officer to carry out assessment? If it is so, then stay of special audit may qualify as stay of assessment proceedings and, therefore, would be covered by said explanation. 21) question, therefore, is as to whether, in given case, High Court was right in holding that special audit was not only step in assessment proceedings, but important and integral step, in absence of which assessment order could not be made. In support of aforesaid conclusion, High Court referred to judgment in Auto and Metal Engineers and other Vs. Union of India and Others 3 wherein this Court examined in detail as to what constitutes assessment proceedings. Court in that case was interpreting Explanation 1 to Section 153 of Act, which is pari materia to Explanation 1 3 (1998) 229 ITR 399 Civil Appeal No. 2667 of 2007 Page 13 of 21 Page 13 of 158BE of Act. said provision was interpreted in following manner: Sub-section (1) of section 153 prescribed period of limitation within which order of assessment could be passed. For assessment years in question last date for making order of assessment under said provision was March 31, 1972. By Explanation 1 to section 153 period of limitation prescribed under sub-section (1) for making order of assessment was extended by period during which assessment proceeding was stayed by order or injunction of any court. object of Explanation seems to be that if Assessing Officer was unable to complete assessment on account of order or injunction staying assessment proceeding passed by court period during which such order or injunction was in operation should be excluded for purpose of computing period of limitation for making assessment order. process of assessment thus commences with filing of return or where return is not filed, by issuance by Assessing Officer of notice to file return under section 142 (1) and it culminates with issuance of notice of demand under section 156. making of order of assessment is, therefore, integral part of process of assessment. Having regard to fact that object underlying Explanation is to extend period prescribed for making order of assessment, expression assessment proceeding in Explanation must be construed to comprehend entire process of assessment starting from stage of filing of return under section 139 or issuance of notice under section 142(1) till making of order of assessment under section 143(3) or section 144. Since making of order of assessment under section 143 (3) or section 144 of Act is integral part of assessment proceeding, it is not possible to split assessment proceeding and confine it up to stage of inquiry under sections 142 and 143 and exclude making of order of assessment from its ambit. order staying passing of final order of assessment is nothing but order Civil Appeal No. 2667 of 2007 Page 14 of 21 Page 14 staying assessment proceeding. Since passing of final order of assessment had been stayed by Delhi High Court by its order dated November 23, 1971, in writ petitions, it must be held that there was stay of assessment proceedings for purpose of Explanation 1 to section 153. 22) aforesaid judgment applies on all force, as rightly held by High Court. We may also refer to judgment of Madhya Pradesh High Court in Commissioner of Income Tax Vs. Dhariwal Sales Enterprises4. That was case where special audit report under Section 142(2A) of Act was called for but could not be submitted. High Court held that time period spent for obtaining copy of report upto time when intimation of non-submission was given by assessee would be excluded. 23) We, therefore, agree with High Court that special audit was integral step towards assessment proceedings. argument of appellants that writ petition of appellant was ultimately allowed and Court had quashed order directing special audit would mean that no special audit was needed and, therefore, it was not open to respondent to wait for special audit, may not be valid argument to issue that is being dealt with. assessing officer had, after going through 4 (1996) 221 ITR 240 Civil Appeal No. 2667 of 2007 Page 15 of 21 Page 15 matter, formed opinion that there was need for special audit and report of special audit was necessary for carrying out assessment. Once such opinion was formed, naturally, assessing officer would not proceed with assessment till time special audit report is received, inasmuch as in his opinion, report of special audit was necessary. Take situation where order of special audit is not challenged. 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 order directing special audit is challenged and interim order is granted staying making of special report, assessing officer would not proceed with assessment in absence of audit as he thought, in his wisdom, that special audit report is needed. That would be normal and natural approach of assessing officer at that time. It is stated at cost of repetition that in estimation of assessing officer special audit was essential for passing proper assessment order. If court, while undertaking judicial review of such order of assessing officer directing special audit ultimately holds that such order is wrong (for whatever reason) that event happens at later date and would not mean that benefit of exclusion of Civil Appeal No. 2667 of 2007 Page 16 of 21 Page 16 period during which there was stay order is not to be given to Revenue. Explanation 1 which permits exclusion of such time is not dependent upon final outcome of proceedings in which interim stay was granted. 24) We, therefore, answer this question in favour of Revenue. 25) With this, we revert to other question, viz. from which date period of limitation is to be counted, i.e. from 22 nd June, 1998 when respondent authorities visited premises of appellants on basis of Warrant of Authorisation dated 19 th June, 1998 or 5th August, 1998, on which date Revenue authorities last visited premises of appellants on basis of same Warrant of Authorisation dated 19 th June, 1998 and conducted search of appellants premises. If period is to be counted from 19th June, 1998, last date by which assessment was to be carried would be 30 th June, 2000. If it is to be counted from 5th August, 1998, then limitation period was to expire on 31st August, 2000. In event last date for completing block assessment is held to be 30 th June, 2000, then assessment became time barred even before interim stay was granted by High Court as it was granted on 24 th August, 2000, i.e. after supposed limitation period was over Civil Appeal No. 2667 of 2007 Page 17 of 21 Page 17 and, therefore, conclusion which we have recorded in answering other question, as above, would not come to rescue of Department. On other hand, if period of limitation was to expire on 31st August, 2000, then by virtue of our answer to first issue, period of limitation for block assessment has not expired inasmuch as this Court has passed order dated 5th 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 matter as well. 26) argument of learned counsel for appellants on this issue is that there was only one warrant of authorisation which empowered Revenue authorities to carry out search and visit of revenue officials on 22nd June, 1998 on basis of said Warrant of Authorisation dated 19th June, 1998, would end in exhausting 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 appellants never challenged subsequent visits and searches of their premises by Civil Appeal No. 2667 of 2007 Page 18 of 21 Page 18 respondents on ground that in absence of fresh authorisation those searches were illegal, null and void. Notwithstanding same, it was argued that at least for purpose of limitation subsequent searches could not be taken into consideration, as according to learned counsel, legal position was that authorisation dated 19 th June, 1998, was executed on 22nd June, 1998 and search came to end with that when search party left premises on 23 rd June, 1998 after making seizure of certain documents etc and issuing restraint order under Section 132(3) of 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' provided under Act, which has been applied by High Court in impugned judgment, which according to learned counsel for appellants, amounts to legislating new concept which is contrary to law. 28) learned Additional Solicitor General, refuting aforesaid contention, submitted that as per explanation (2) to Section 158BE, when it is case of search, period of limitation is to be Civil Appeal No. 2667 of 2007 Page 19 of 21 Page 19 counted 'on conclusion of search as recorded in last panchnama drawn.....' It was argued that last panchnama was admittedly drawn on 5th August, 1998 and, therefore, period of limitation is to be counted from that date. 29) After considering respective submissions, we are of opinion that on facts of this case, issue also has to be answered in favour of Revenue without going into legal niceties. 30) As noticed above, revenue authorities visited and searched premises of appellants for first time on 22 nd June, 1998. In panchnama drawn on that date, it was remarked 'temporarily concluded', meaning thereby, according to revenue authorities, search had not been concluded. For this reason, respondent authorities visited many times on subsequent occasions and every time panchnama was drawn with same remarks, i.e. 'temporarily concluded'. It is only on 5th August, 1998 when premises were searched last, panchnama drawn on that date recorded remarks that search was 'finally concluded'. Thus, according to respondents, search had finally been completed only on 5 th August, 1998 and panchnama was duly drawn on said date as Civil Appeal No. 2667 of 2007 Page 20 of 21 Page 20 well. appellants, in writ petition filed, had no where challenged validity of searches on subsequent dates raising plea that same was illegal in absence of any fresh and valid authorisation. On contrary, appellants proceeded on basis that search was conduced from 22 nd June, 1998 and finally concluded on 5th August, 1998. 31) On aforesaid facts and in absence of any challenge laid by appellants to subsequent searches, we cannot countenance arguments of appellants that limitation period is not to be counted from last date of search when search operation completed, i.e. 5th August, 1998. Therefore, this issue is also decided in favour of respondents. 32) In view of foregoing, this appeal is liable to be dismissed and is, accordingly, dismissed with costs. .............................................J. (A.K. SIKRI) .............................................J. (ROHINTON FALI NARIMAN) NEW DELHI; APRIL 28, 2016. Civil Appeal No. 2667 of 2007 Page 21 of 21 Page 21 VLS Finance Ltd. & Anr. v. Commissioner of Income-tax & Anr