Vildirect: IncomeTax-caselaws-2002-VIL-193-ITAT-NGR

2002-VIL-193-ITAT-NGR

Equivalent Citation: ITD 085, 267, TTJ 080, 247,

Income Tax Appellate Tribunal NAGPUR

Date: 13.09.2002

MAHAKOSHAL ENGINEERS & CONTRACTORS CO. (P.) LTD.

ASSISTANT COMMISSIONER OF INCOME-TAX

BENCH

Member(s) : P. M. JAGTAP., N. V. VASUDEVAN.

JUDGMENT

2-5. [These, paras are not reproduced here as they involve minor issues.]

6. [Part of Para 6 is not reproduced here as it involve minor issues.]

Ground No. 1 of the Grounds of appeal reads as follows:

That on facts and in law the assessment order dated 28-4-1997 passed under section 158BC(c) of the Income-tax Act, 1961 determining the undisclosed income of the assessee for the Block Period at Rs. 1,08,02,370 being barred by Limitation is liable to be quashed.

7. The facts that are relevant regarding this ground of appeal are as follows. The search in the business premises of the assessee was conducted on 20-10-1995 and concluded on the same day. The Assessing Officer found that the books of account of the assessee was not audited and he was of the opinion that the books of account of the assessee needs to be audited. For the said purpose after obtaining the necessary approval from the CIT, the Assessing Officer in exercise of power vested in him under the provisions of section 142(2A) of the Act, appointed one Shri P.P. Maitra, Chartered Accountant as Auditor to audit the accounts of the assessee for the block assessment years 1986-87 to 1995-96. This was done by the Assessing Officer vide his letter dated 1-10-1996 addressed to the auditor. The said letter further directs that the auditor shall audit and submit the audit report to the Assessing Officer by 20-2-1997 positively. The auditor however carried out the audit and gave his report dated 9-4-1997 to the Assessing Officer. The case of the assessee is that in terms of section 158BE(1)(a) the time limit for completion of block assessment is one year from the end of the month in which the last of the authorizations for search under section 132 was executed. It is not in dispute that the search was completed on 20-10-1995 which is the starting point of time for the purpose of computing the period of limitation. The terminal point in terms of section 158BE(1)(a) would be 1 year from the end of the month October, 1995, i.e. on or before 30-10-1996. The block assessment order had been passed on 28-4-1997. It is not in dispute that the period during which the assessee was directed to get his accounts audited under sub-section (2A) of section 142 has to be excluded in computing the period of limitation in terms of section 158BE(1)(a) of the Act. Explanation I to section 158BE provides for exclusion of this period. The case of the assessee in this regard is that the Assessing Officer vide his letter dated 11-10-1996 directed Mr. P.P. Maitra, auditor to carry out audit of the assessee's books of account and submit the report positively by 20-2-1997. According to the assessee only the period from 11-10-1996 till 20-2-1997 has to be excluded as period attributable to obtaining of audit report. According to the Revenue the Auditor furnished his report only on 9-4-1997 and therefore the period from 11-10-1996 till 9-4-1997 has to be excluded. According to the assessee under the provisions of section 142(2A) the period contemplated is the period originally fixed by the Assessing Officer and unless this period is extended in terms of section 142(2C) which extension is possible only up to 180 days, the original period fixed by the Assessing Officer alone needs to be excluded while computing the period of limitation. According to the revenue section 142(2c) contemplates a total period of 180 days for obtaining the audit report and the auditor had furnished his report on 9-4-1997 which was well within this period of 180 days. According to the revenue the date on which the Audit report was furnished alone is relevant and so long as this date is within 180 days from the date of direction to get books audited then the date on which the report is furnished will alone be relevant. Thus according to the Assessing Officer the block assessment order has been passed well within the period of limitation as envisaged by section 158BE(1)(a) of the Act.

8. Before us the learned counsel for the assessee reiterated his submissions as made before the Assessing Officer. He further submitted that the period fixed under section 142(2A) is alone is to be excluded. In case the period has to be extended it has to be on an application by the assessee and only on showing good and sufficient cause the period of fixed earlier is extended subject to upper limit of 180 days. Since there was no extension of time under section 142(2C) the original time fixed alone has to be excluded. His submission in this regard is that the provisions of section 142(2C) are mandatory and nothing can be inferred or left to the discretion of the Assessing Officer.

9. The learned D.R. while relying on the order of the Assessing Officer also drew out attention to the provisions of section 153 of the Act which prescribes the period of limitation for completion of assessments and reassessments. She referred to Explanation 1(iii) of the said section which excludes the period during which the assessee was directed to obtain audit report in terms of section 142(2A) is to be excluded. Explanation 1(iii) reads as follows :

'the period commencing from the date on which the Assessing Officer directs the assessee to get his accounts audited under sub-section (2A) of section 142 and ending with the last date on which the assessee is required to furnish a report of such audit under that sub-section.'

10. Her submission was that the use of the word 'last day on which the assessee is required to furnish a report of such audit' only refers to the period of 180 days as contemplated under sub-section (2C) of section 142. She submitted that on the same principles Explanation 1 of section 158BE is to be interpreted, as the wordings of the said explanation are almost similar. She further submitted that the object of Explanation 1 to section 158BE is to exclude the time actually taken in obtaining the audit report while computing the period of limitation for making order of block assessment. In the light of the provisions in sub-section (2C) of section 142 contemplating a total period of 180 days in this regard any delay within the period of 180 days has to be ignored and the period actually taken for performing the audit has to be excluded. Her submission in this regard is that the formality of extending the period of limitation as contemplated by sub-section 2C of section 142 is directory and not mandatory.

11. We have considered the rival submissions. We shall refer to the various provisions of the Income-tax Act, 1961 in this regard. Section 158BE prescribes the period of limitation for completion of block assessment and the said section reads as follows :

158BE TIME LIMIT FOR COMPLETION OF BLOCK ASSESSMENT.

(1) The order under section 158BC shall be passed -

(a) within one year from the end of the month in which the last of the authorisations for search under section 132 or for requisition under section 132A, as the case may be, was executed in cases where a search is initiated or books of account or other documents or any assets are requisitioned after the 30th day of June, 1995 but before the 1st day of January, 1997;

(b) within two years from the end of the month in which the last of the authorisations for search under section 132 or for requisition under section 132A, as the case may be, was executed in cases where a search is initiated or books of account or other documents or any assets are requisitioned on or after the 1st day of January, 1997.

(2) The period of limitation for completion of block assessment in the case of the other person referred to in section 158BD shall be -

(a) one year from the end of the month in which the notice under this Chapter was served on such other person in respect of search initiated or books of account or other documents or any assets requisitioned after the 30th day of June, 1995 but before the 1st day of January, 1997; and

(b) two years from the end of the month in which notice under this Chapter was served on such other person in respect of search initiated or books of account or other documents or any assets are requisitioned on or after the 1st day of January, 1997.

Explanation 1 : In computing the period of limitation for the purposes of this section, the period -

(i) during which the assessment proceeding is stayed by an order or injunction of any court, or

(ii) 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, shall be excluded.

Explanation 2 : For the removal of doubts, it is hereby declared that the authorisation referred to in sub-section (1) shall be deemed to have been executed,

(a) in the case of search, on the conclusion of search as recorded in the last panchnama drawn in relation to any person in whose case the warrant of authorisation has been issued;

(b) in the case of requisition under section 132A, on the actual receipts of the books of account or other documents or assets by the Authorised Officer.

12. It is not in dispute that the provisions of section 158BE(1)(a) applies to the present case as the search was conducted on 20-10-1995. The period to be excluded as per Explanation 1(ii) of section 158BE is the day from 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, shall be excluded. Now we shall refer to the provisions of section 142 in so far as they are material for the present case.

142 Enquiry before assessment.

(1) For the purpose of making an assessment under this Act....

(2) For the purpose of obtaining full information in respect of the income or loss of any person, the Assessing Officer may make such enquiry as he considers necessary.

(2A) If, at any stage of the proceedings before him, the Assessing Officer, having regard to the nature and complexity of the accounts of the assessee and the interest of the revenue, is of the opinion that it is necessary so to do, he may, with the previous approval of the Chief Commissioner or Commissioner, direct the assessee to get the accounts audited by an accountant, as defined in the Explanation below sub section (2) of section 288, nominated by the Chief Commissioner or Commissioner in this behalf and to furnish a report of such audit in the prescribed Form duly signed and verified by such accountant and setting forth such particulars as may be prescribed and such other particulars as the Assessing Officer may require.

(2B) The provisions of sub-section (2A) shall have effect notwithstanding that the accounts of the assessee have been audited under any other law for the time being in force or otherwise.

(2C) Every report under sub-section (2A) shall be furnished by the assessee to the Assessing Officer within such period as may be specified by the Assessing Officer:

Provided that the Assessing Officer may, on an application made in this behalf by the assessee and for any good and sufficient reason, extend the said period by such further period or periods as he thinks fit; so, however, that the aggregate of the period originally fixed and the period or periods so extended shall not, in any case, exceed one hundred and eighty days from the date on which the direction under sub-section (2A) is received by the assessee.

(2D) The expenses of, and incidental to, any audit under sub-section (2A) (including the remuneration of the accountant) shall be determined by the Chief Commissioner or Commissioner (which determination shall be final) and paid by the assessee and in default of such payment, shall be recoverable from the assessee in the manner provided in Chapter XVII-D for the recovery of arrears of tax.

(3) The assessee shall, except where the assessment is made under section 144, be given an opportunity of being heard in respect of any material gathered on the basis of any enquiry under sub-section (2) or any audit under sub-section (2A) and proposed to be utilised for the purpose of the assessment.

(4) The provisions of this section as they stood immediately before their amendment by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), shall apply to and in relation to any assessment for the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year and references in this section to the other provisions of this Act shall be construed as references to those provisions as for the time being in force and applicable to the relevant assessment year.

13. A reading of sub-section (2A) would show that the Assessing Officer is required to direct the assessee to obtain an audit report within a specified time having regard to the nature and complexity of the accounts of the assessee and having regard to the interest of the revenue. The satisfaction of the Assessing Officer in this regard is not in challenge before us. We do not find any satisfaction having been recorded in this behalf by the Assessing Officer. Even the order of assessment only refers to the fact that the books of account have not been audited by the assessee and hence an auditor is appointed under the provisions of section 142(2A). Be that as it may, we shall now refer to the letter dated 11-10-1996 of the Assessing Officer directing Mr. P.P. Maitra, auditor to carry out the audit of the books of account of the assessee. The said letter is not in conformity with the provisions of section 142(2A) of the Act. The Assessing Officer in terms of section 142(2A) can only direct the assessee to get his accounts audited and the Assessing Officer on the other hand has directed the Auditor to carry out audit of the books of the assessee directly. The provisions of section 142(2A) are only to enable the Assessing Officer to obtain report of an auditor where owing to complex nature of the accounts there is a possibility of a loss to the revenue. The consequences of the assessee not adhering to the time limit fixed by the Assessing Officer under section 142(2A) is that the Assessing Officer can proceed to make a best judgment assessment in terms of section 144(i)(b) which reads as follows :

144 Best judgment assessment.

(1) If any person (a) ...................

(b) fails to comply with all the terms of a notice issued under sub section (1) of section 142 or fails to comply with a direction issued under sub-section (2A) of that section, or

the Assessing Officer, after taking into account all relevant material which the Assessing Officer has gathered, shall, after giving the assessee an opportunity of being heard, make the assessment of the total income or loss to the best of his judgment and determine the sum payable by the assessee on the basis of such assessment.

14. Thus the time limit fixed by the Assessing Officer under section 142(2A) cannot be said to be only directory. Section 142(2A) speaks in terms imperative and the language permits of no relaxation of the rigidity of the rule of time limit laid down therein except to the extent stated in section 142(2C). Therefore, section 142(2A) should be applied in its undiluted form, disregarding the consequences. A reading of provisions of section 142(2C) would also suggest that the assessee shall obtain the audit report within the period originally fixed. Extension of time is allowed only on an application by the assessee in this regard and only when the assessee shows good and sufficient cause. Even under such circumstance the maximum period including the originally period and the extended period cannot extend beyond 180 days from the date on which the assessee receives direction in this regard from the Assessing Officer. Admittedly in this case the audit report was originally directed to be filed on or before 20-2-1997 but no extension of time was either sought by the assessee or the Assessing Officer had not extended the period within which the audit report was to be furnished. Now we shall revert to the provisions of section 158BE Explanation 1(ii) under which the period to be excluded is only the commencing from the date on which the Assessing Officer directs the assessee to get his accounts audited and the ending on the day on which the assessee is required to furnish a report of such audit. As we have already observed the assessee in the present case was never directed to get his accounts audited. If the letter dated 11-10-1996 is to be construed as a direction in this regard then the last day on which the audit report is required to be furnished is 20-2-1997. Thus the period to be excluded is only from 11-10-1996 to 20-2-1997 viz., 102 days. The stand of the revenue that the period from 11-10-1996 till 9-4-1997 viz., the date on which the auditor actually furnished his report has to be excluded cannot be accepted. The further argument of the learned D.R. that the period within which the assessee is required to furnish a report under sub-section 2A of section 142 referred to in Explanation 1(ii) of section 158BE is 180 days irrespective of the date fixed by the Assessing Officer, cannot be accepted. Thus the period of limitation for the passing the block assessment order would be 1 year from the end of the month on which the search was completed (search completed on 20-10-1995) i.e., one year from 1-11-1995. This period will end on 31-10-1996. A period of 102 days viz., the period to be excluded in obtaining the special audit is to be added then the block assessment ought to have been completed on or before 10-2-1997. The block assessment in the present case was made on 28-4-1997. Thus the same is made beyond the time limit contemplated under section 158BE(1)(a) of the Act. The entire block assessment order has therefore to be annulled. We accordingly hold that the block assessment order passed is beyond the time limit and hence the same is annulled.

15. The Learned D.R. referred to Explanation 1(iii) to section 153 which lays down that the period commencing from the date on which the assessee is directed to get his accounts audited under section 142(2A) and ending with last day on which the assessee is required to furnish a report under section 142(2A) has to be excluded in computing the period of limitation for making assessment or reassessment. Her submission in this regard is that the use of the word last day on which the assessee is required to furnish a report under section 142(2A) can only indicate the intention of the Legislature to exclude a period of 180 days in all cases where there is a direction to obtain audit of accounts of an assessee. This argument of the learned D.R. cannot be accepted for the reason that the period of limitation has to be decided only on the express provisions as contained in Chapter XIV-B of the Act relating to block assessments. Section 158BA(1) contains a non obstante clause which states that notwithstanding anything contained in any other provision of the Act, the Assessing Officer shall proceed to assess the undisclosed income in accordance with the provisions of Chapter XIV-B. Due to the operation of the non obstante clause, this exclusion of time by extending the Analogy of section 153 Explanation 1(iii) is not possible in cases of block assessment. The wordings of Explanation 1(ii) of section 158BE and Explanation 1(iii) of section 153 are also not in pari materia the same. The conclusion that one can draw on a plain reading of section 153 Explanation 1(iii) in our view is that the period as fixed under section 142(2A) alone needs to be excluded and not a period of 180 days referred to in section 142(2C). For all these reasons we are unable to accept the argument of the learned D.R. For the reasons stated above the appeal of the assessee is allowed on this ground of appeal.

[Part of para 15 and para 16 are not reproduced here as it involve minor issues.]

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