S. 158BC: A stay on the conduct of a "special audit" u/s 142(2A) amounts to a "stay of the assessment proceedings" and extends limitation u/s 158BE. One warrant of authorisation can be used for multiple visits and searches and limitation commences only after the panchnama records the conclusion of the search
The Supreme Court had to consider two questions arising from the judgement of the Delhi High Court V.L.S. Finance Ltd vs. CIT 289 ITR 286 (Del):
(i) Whether an interim order staying the direction for special audit could be construed as amounting to stay of assessment proceedings?
(ii) Whether 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.
HELD by the Supreme Court:
(i) It is not in doubt that Explanation 1 to Section 158BE(2) of the Act 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. The provision relating to limitation need to be strictly construed.
(ii) 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 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 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. 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 and so, stay of the special audit may qualify as stay of assessment proceedings and, therefore, would be covered by the said explanation.
(ii) The argument of the appellants that there was only one warrant of authorisation which empowered the Revenue authorities to carry out search and visit of the revenue officials on 22nd June, 1998 on the basis of said Warrant of Authorisation dated 19th June, 1998, would end in exhausting the said warrant of authorization and 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 cannot be accepted.
(iii) 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. The revenue authorities 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, the panchnama drawn on that date recorded the remarks that the search was ‘finally concluded’. Thus, according to the respondents, the search had finally been completed only on 5th August, 1998 and panchnama was duly drawn on the said date as 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 proceeded 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.