2004 (9) TMI 637 - HC - Income Tax

Limitation for completing the assessment for the block period in terms of Section 158BE -authorisation of search​​​​​​​ - mandatory approval of the CIT for special audit u/s 142(2A) - Power of CIT to extend time u/s 142(2C) - HELD THAT - A comparison of two provisions shows that under Expln. 1 to Section 158BE originally the period to be excluded from computing the period of limitation under its Clause (i) and (ii) were the same as were to be excluded so under Clause (II) and (III) of Explanation to Section 153. No other provisions of Expln. 1 to Section 153 was included in Expln. 1 to Section 158BE. This was a legislative policy manifested by making specific and independent provisions for assessment under Chapter XIV-B. If any provisions of Expln. 1 to Section 153 were to apply as it were, in terms of Section 158BH, to proceedings under Chapter XIV-B, there was hardly any reason which could have led to enactment of Expln. 1 to Section 158BE independently and differently from existing other provisions of the same enactment. Legislature is not presumed to indulge in any academic exercise and that too in truncated manner. There being a clear provision made to cover the field of computation of limitation provided under Chapter XIV-B and expressly provided taking into account the conditions which also were part of above-referred provision of Section 153, but were not completely in accordance with the Section 153. The part of Section 153 which was expressly not included in the provisions cannot by any stretch of imagination be said that the provision has been made applicable in regard to computing limitation u/s 158BH. The fact that different periods had been provided for cases depending on the date search warrant is executed, a legal fiction defining the term is also enacted under Expln. 2. Thus, on the interpretation of provisions of Section 158BE, if the contention of the learned counsel for the appellant is to be accepted, then insertion of original Expln. 1 firstly by inserting it retrospectively vide Finance Act, 1996 providing for exclusion of period only in two events and then again amending it by substituting Expln. 1 with prospective effect specifically w.e.f. 1st June, 2002 extending the exclusion of period in some more contingencies, also commensurate with some of the provisions of Section 153, would have been wholly unnecessarily intended to be clarificatory in nature. Such intention cannot be attributed to the legislature. In fact, Section 158BE provides a complete code prescribing limitation and mode for computing such period of limitation for assessment for block period. It provides for commencement of period of limitation, it provides specific circumstance or condition in which time is to be excluded. It also prescribes the maximum extent upto which time is to be excluded in computing period of prescribed limitation. Thus, Section 158BE, being a complete code in itself on the subject of prescribing and computing limitation for completing block assessment, which itself is a special provision, other provisions of the Act outside the provisions are necessarily excluded. We may notice that by the amending provisions Clause (3) and (4) have been added for additional exclusion of period in computing limitation for completing block assessment u/s 158BE and proviso has also been added for computing limitation period in case time left after extension of time taken for the proceedings is less than 60 days, then the period for computing the assessment is extended upto 60 days. It does not make any provisions to indicate its operation to be retrospective in any sense like it was indicated while inserting Explanation later on renumbered as Expln. 1 for the first time vide Finance Act, 1996, or while Expln. 2 was inserted vide Finance Act, 1998, making it effective w.e.f. 1st July, 1995. Thus, not making it specifically retrospective in operation and making it explicitly operative w.e.f. 1st June, 2002 only, the substituted Expln. 1 vide Finance Act, 2002 can have no application to the present case on its own force. Nor any provision has been made validating assessments made prior to substitution of new Expln. 1 w.e.f. 1st June, 2002, which otherwise might fall within the ambit of proviso, if it were then in operation. In the absence of such saving/validating provisions the assessment made on 8th March, 2001 was clearly barred by time when made as per extant provisions and were not validated by subsequent amendment of the Act through substitution of Expln, 1 to Section 158BE w.e.f. 1st June, 2002. Since excluding the entire period of 180 days, the assessment order does not fall within the period of limitation and the assessment order in question fails on that ground alone, we do not deem it appropriate to consider the contention of learned counsel for the respondent that even otherwise the appellant is not entitled for any benefit of exclusion of period for having special audit u/s 142(2A) of the Act or at any rate beyond 120 days as has been found by the Tribunal. The appeal fails and is hereby dismissed.

Summary

Issues Involved:

1. Validity of dismissal of Department's appeal by ITAT regarding time period allowed u/s 153(3) Expln. 1(iii) r/w Section 158BH of the IT Act.
2. Justification of ITAT's holding about the violation of mandatory rules due to lack of CIT's approval for special audit u/s 142(2A).
3. Justification of ITAT's holding that CIT has no power to extend time for special audit u/s 142(2C).

Summary:

I. Validity of dismissal of Department's appeal by ITAT regarding time period allowed u/s 153(3) Expln. 1(iii) r/w Section 158BH of the IT Act:

The Tribunal found the assessment of the block period 1988-89 framed on 8th March, 2001 to be barred by time in view of the existing provisions as on the date the assessment was made. The Tribunal held that even by excluding the entire period of 180 days for conducting special audit u/s 142(2A), the assessments framed on 8th March, 2001, were barred by time. The Revenue claimed exclusion of 180 days in computing the period of limitation of 2 years u/s 158BE and relied on the proviso to Expln. 1 for further extending the remaining period. However, the court found that the substituted provision by Finance Act, 2002 w.e.f. 1st June, 2002, has not been given retrospective effect and no benefit can be derived by the Revenue on account of such proviso. The court emphasized that the limitation period acts as repose unless a clear mandate of statute reopens closed transactions.

II. Justification of ITAT's holding about the violation of mandatory rules due to lack of CIT's approval for special audit u/s 142(2A):

The Tribunal found that the extension of the period for submitting the report of special audit at the request of the auditor from 120 days to 180 days u/s 142(2A) was invalid and contrary to the provisions of the Act. It was held that the direction to get the special audit conducted was not bona fide and was only an attempt to extend the period of limitation for completing the assessment. The court did not find it necessary to consider the contention of the respondent that the appellant is not entitled to any benefit of exclusion of the period for having a special audit u/s 142(2A) or beyond 120 days as found by the Tribunal.

III. Justification of ITAT's holding that CIT has no power to extend time for special audit u/s 142(2C):

The Tribunal held that CIT has no power under the Act to extend the time and only the AO is competent to extend time upon the application of the assessee by virtue of the proviso to Section 142(2C) of the IT Act. The court found that Section 158BE provides a complete code prescribing limitation and mode for computing such period of limitation for assessment for the block period. The court dismissed the appeal, finding that the assessment order was clearly barred by time as per the extant provisions and was not validated by the subsequent amendment of the Act through substitution of Expln. 1 to Section 158BE w.e.f. 1st June, 2002.