Time limit for completion of Block Assessment of Search cases [Section 158BE of the Income Tax Act, 1961]

Section 158BE of the Income tax Act, 1961 provides the time-limit for completion of block assessment as 12 months from end of the month in which the last of the authorisations for search has been executed.

Order of block assessment to be passed within 12 months [Section 158BE(1)]

Sub-section (1) of Section 158BE provides that the time-limit for completion of block assessment will be 12 months from end of the quarter in which the last of the authorisations for search under section 132 was executed or requisition under section 132A was made.

§  Date of execution of last warrant of authorization: 10.11.2024

§  Last date for completion of Block Assessment: 31.12.2025

ILLUSTRATION:

Suppose a search is initiated against an assessee on 10.08.2025 and the last of the authorization for search is executed on 05.10.2025, the Assessing Officer shall be required to complete the block assessment by 31.12.2026 [i.e., 12 months from end of December 2025].

NOTE : Where in pursuance to fifth proviso to clause (a) of sub-section (1) of section 158BC, If an additional 30-day extension is granted for block return filing, the time limit extends to 13 months.

Excluded periods - Period (not exceeding 180 days) to excluded for computing the period of limitation under section 158BE(1) [Section 158BE(2)]

Section 158BE (2) provides that in computing the period of limitation of 12 months, the period (not exceeding 180 days) commencing from the date on which a search is initiated under section 132 or a requisition is made under section 132A and ending on the date on which the books of account, or other documents or money or bullion or jewellery or other valuable article or thing seized under section 132 or requisitioned under section 132A, as the case may be, are handed over to the Assessing Officer having jurisdiction over the assessee, in whose case such search is initiated under section 132 or such requisition is made under section 132A, as the case may be, shall be excluded.

Period of limitation for completion of assessment or reassessment for the block period in the case of the other person referred to in section 158BD [Section 158BE(3)]

The period of limitation for completion of assessment or reassessment for the block period in the case of the other person referred to in section 158BD shall be 12 months from the end of the quarter in which the notice under section 158BC in pursuance of section 158BD, was issued to such other person:

§  Date of issue of Notice u/s 158BC in pursuance of Section 158BD : 05.01.2025

§  Last date for completion of Block Assessment : 31.03.2026

Exclusion of certain period for computing period of limitation for block assessment under section 158BE [Section 158BE(4)]

(i)      Clause (i) of section 158BE(4) provides that the period commencing on the date on which stay on assessment proceedings was granted by an order or injunction of any court and ending on the date on which certified copy of the order vacating the stay was received by the jurisdictional Principal Commissioner or Commissioner; shall be excluded in computing the time limit for conclusion of the proceedings. or

(ii)     Clause (ii) of section 158BE(4) provides that the period commencing from the date on which a reference or first of the references for exchange of information is made by an authority competent under an agreement referred to in section 90 or section 90A and ending with the date on which the information requested is last received by the Principal Commissioner or Commissioner or a period of one year, whichever is less; or

(iii)    Clause (iii) of section 158BE(4) provides that the time taken in reopening the whole or any part of the proceeding or giving an opportunity to the assessee to be re-heard under the proviso to section 129; or

(iv)    Clause (iv) of section 158BE(4) provides that        the period commencing from the date on which the Assessing Officer directs the assessee to get his accounts audited or inventory valued under sub-section (2A) of section 142 and-

(a)  ending with the last date on which the assessee is required to furnish a report of such audit or inventory valuation under that sub-section; or

(b)  where such direction is challenged before a court, ending with the date on which the order setting aside such direction is received by the Principal Commissioner or Commissioner; or

(v)     Clause (v) of section 158BE(4) provides that the period commencing from the date on which the Assessing Officer makes a reference to the Valuation Officer under sub-section (1) of section 142A and ending with the date on which the report of the Valuation Officer is received by the Assessing Officer; or

(vi)    Clause (vi) of section 158BE(4) provides that the period commencing from the date on which the Assessing Officer intimates the Central Government or the prescribed authority, the contravention of the provisions of clause (21) or clause (22B) or clause (23A) or clause (23B) of section 10, under sub-clause (i) of the first proviso to sub-section (3) of section 143 and ending with the date on which the copy of the order withdrawing the approval or rescinding the notification, as the case may be, under those clauses is received by the Assessing Officer; or

(vii)   Clause (vii) of section 158BE(4) provides that the period commencing from the date on which the Assessing Officer makes a reference to the Principal Commissioner or Commissioner under the second proviso to sub-section (3) of section 143 and ending with the date on which the copy of the order under clause (ii) or clause (iii) of the fifteenth proviso to clause (23C) of section 10 or clause (ii) or clause (iii) of sub-section (4) of section 12AB, as the case may be, is received by the Assessing Officer; or

(viii)  Clause (viii) of section 158BE(4) provides that the period commencing from the date on which a reference for declaration of an arrangement to be an impermissible avoidance arrangement is received by the Principal Commissioner or Commissioner under sub-section (1) of section 144BA and ending on the date on which a direction under sub-section (3) or sub-section (6) or an order under sub-section (5) of the said section is received by the Assessing Officer; or

(ix)    Clause (ix) of section 158BE(4) provides that the period commencing from the date on which an application is made before the Authority for Advance Rulings or before the Board for Advance Rulings under sub-section (1) of section 245Q and ending with the date on which the order rejecting the application is received by the Principal Commissioner or Commissioner under sub-section (3) of section 245R; or

(x)      Clause (x) of section 158BE(4) provides that the period commencing from the date on which an application is made before the Authority for Advance Rulings or before the Board for Advance Rulings under sub-section (1) of section 245Q and ending with the date on which the advance ruling pronounced by it is received by the Principal Commissioner or Commissioner under sub-section (7) of section 245R:

PROVIDED that where immediately after the exclusion of the aforesaid period, the period of limitation referred to in sub-section (1) or sub-section (3) available to the Assessing Officer for making an order under clause (c) of sub-section (1) of section 158BC is less than 60 days, such remaining period shall be extended to sixty days and the aforesaid period of limitation shall be deemed to be extended accordingly:

PROVIDED FURTHER that where after extension of the period referred to in the first proviso, the period of limitation for making an order of assessment or reassessment, as the case may be, expires before the end of a month, such period shall be extended to the end of such month.

Block assessment within limitation period valid as search not concluded until ‘Restraint Orders’ lifted under section 132

Madras High Court holds that the block assessment order passed under Section 143(3) r.w. Section 158BC in Vedanta Ltd. (Assessee) case was within the stipulated period; High Court opines that for the purpose of computation of limitation what is relevant is not the date of initial search but the actual date of completion of search under Section 132; Highlighting the provisions of Section 132, High Court observes that there is a difference between “deemed seizure” as contemplated under the second proviso to Section 132(1) and the “Restraint Order or Prohibitory Order” as contemplated under Section 132(3); Outlining the explanation of “Restraint Order or Prohibitory Order” in Search and Seizure Manual 2007, High Court states that provisions of Section 132(3) stands exercised where it is not practicable to seize any books of accounts etc., and can be invoked only for reason other than those mentioned in the second proviso to Section 132(1), given it is not a deemed seizure; High Court emphasizes that the Search and Seizure Manual clarifies that as far as possible search of premises once started should continue till it is concluded; High Court reiterates that “Restraint Order or Prohibitory Order” under Section 132(3) will not tantamount to “deemed seizure”; Highlighting Supreme Court decision in VLS Finance Ltd. and others v. CIT and others (2016) 384 ITR 1 (SC), High Court observes that initiation and conclusion of search need not necessarily be concluded on the same day; States that the CBDT has also issued instruction that the search and seizure should be completed as early as possible and “Restraint Order or Prohibitory Order” should be lifted within the aforesaid period from the date of passing such orders; High Court opines that as long as the investigation is incomplete it cannot said that the search was completed for the purpose of limitation under Section 158BE; High Court states that the search of documents will be complete only after “Restraint Orders or Prohibitory Orders” passed are vacated after the search is complete; Examining the provisions of Section 158BC and Explanation 1 & 2 to Section 158BE, High Court opines that Section 158BE(1)(b) has to be read harmoniously with Section 132(3) which is fortified by the Supreme Court decision in VLS Finance Ltd.. [In favour of revenue] – [CIT, Mumbai v. Vedanta Ltd. [TS-698-HC-2025(MAD)] – Date of Judgement : 09.05.2025 (Mad.)]

Period of limitation of two years for block assessment under section 158BC/158BE would commence from date of Panchnama last drawn and not from date of last authorization

The short question which is posed for the consideration of this Court is, whether the period of limitation of two years for the block assessment under Section 158BC/158BE would commence from the date of the Panchnama last drawn or the date of the last authorization?

Dr. Rakesh Gupta, Learned counsel appearing on behalf of the respective assessees has vehemently submitted that in the facts and circumstances of the case, the High Court has erred in holding that the respective assessment orders were within the period of two years and therefore not barred by limitation.

It is submitted that in the present case the last authorization was on 26.03.2001 and therefore as per Explanation 2 to Section 158BE of the Act the last authorization would be the starting point of limitation. It is submitted that therefore even if the first authorization dated 13.03.2001 was executed on a later date i.e., on 11.04.2001, that would be of no consequence and for the purpose of reckoning the limitation period, the first authorization is irrelevant and it is the “last of the authorization” which has to be kept in mind. It is submitted that in the present case, the last authorization is dated 26.03.2001 which was executed on the same date and therefore the period of two years is to be counted from that date.

Shri Balbir Singh, learned ASG appearing on behalf of the Revenue has vehemently submitted that as per Explanation 2 of Section 158BE of the Act, when it is a case of search, period of limitation is to be counted from the date on which the last Panchnama was drawn. It is submitted that in the present case, the last Panchnama on conclusion of the search was drawn on 11.04.2001 and therefore the limitation period of two years would start from 11.04.2001. It is submitted that if the submission on behalf of the assessees is accepted, in that case, the Explanation 2 to Section 158BE would become nugatory and redundant.

It is further submitted by the learned ASG appearing on behalf of the Revenue that Explanation 2 to Section 158BE has been specifically inserted with a view to give last of the Panchnama as the starting point of limitation. It is submitted that the time for completion of the block assessment under Section 158BC/158BE is the conclusion of search/drawing of last Panchnama which will be relevant and not the dates of issuance of various authorizations. It is submitted that in a given case where number of authorizations are issued and relevant material/s is/are collected during the search on different dates on the basis of the different authorizations, ultimately the assessment proceedings would be on the basis of the entire material collected during the search and on the basis of the Panchnama drawn. It is submitted that therefore the date on which the last Panchnama was drawn is the relevant date for the purpose of block assessment. In support of his submission, Shri Balbir Singh, learned ASG has heavily relied upon the decision of this Court in the case of VLS Finance Ltd. & Another v. CIT & Another (2016) 12 SCC 32 (paragraphs 26 to 28).

Supreme Court upholds Delhi High Court ruling on interpretation of Explanation 2 to Section 158BE with respect to limitation period for completion of assessment under Section 158BC; Delhi High Court had set aside ITAT order by holding that the limitation period shall be reckoned from the date of last Panchnama though related to first search authorisation out of the two search authorisations; Assessee-Individual was subjected to search operation by authorisation dated 13.03.2001 for which the Panchnama was drawn on 11.04.2001 whereas prior to this on 26.03.2001 another search authorisation was issued for which Panchnama was drawn on the same day while the assessment was completed in April 2003; ITAT held that limitation period of two years from the end of the month shall be reckoned as per 26.03.2001, thus, held the assessment as time-barred whereas Delhi High Court held that the same shall be reckoned as per the date of last Panchnama i.e., 11.04.2001; Supreme Court relies on coordinate bench ruling in VLS Finance Ltd. & Another v. CIT & Another (2016) 12 SCC 32 wherein it was held that the relevant date for calculating limitation period would be the date on which the Panchnama is drawn and not the date on which the authorisation is issued; Supreme Court also observes that the date of Panchnama is relevant because the block assessment proceedings are initiated on the entire material seized during search operation recorded in the Panchnama; Supreme Court approves Delhi High Court’s view that the date of the Panchnama last drawn would be the relevant date for considering the period of limitation of two years and not the last date of authorisation; Rejects Assessee’s submission that the date of the last authorisation is to be considered for the purpose of reckoning limitation of two years by holding that it would frustrate the entire object and purpose of Explanation 2 to Section 158BE; Supreme Court, thus, dismisses Assessee’s appeals. [In favour of revenue] – [Anil Minda and Others v. CIT (2023) 453 ITR 1 : 292 Taxman 407 : 148 taxmann.com 407 : [TS-138-SC-2023] (SC)]

Second Panchnama prepared one year after authorisation, merely for extending limitation period; Quashes block assessment

Section 158BE, read with section 132, of the Income-tax Act, 1961 - Block assessment in search cases - Time limit for completion of (Computation of limitation period) - A search under section 132 was conducted upon premises of assessee-company on 07.11.2000 based on authorisation dated 04.11.2000. Said authorisation was executed on 08.11.2000 when search was completed and panchnama was made. On 10.11.2000 a search was conducted on basis of fresh authorisation dated 10.11.2000, On 04.12.2000, investigation team again conducted search upon assessee under same old authorisation dated 10.11.2000 and passed prohibitory order under section 132(3) and items were inventorised. On 07.11.2001, i.e., almost after a period close to one year, investigation team again visited premises under same old authorisation dated 10.11.2000 for conducting search and prohibitory order passed on 04.12.2000 was converted into deemed seizure under section 132(1)(iii). There was nothing searched on this day except passing of conversion order from section 132(3) to 132(1)(iii). Later on, A block assessment order was passed on 28.11.2003. Assessee submitted that revenue could not conduct search after almost one year on basis of an old authorisation dated 10.11.2000 and draw a panchnama concluding search. It contended that limitation under section 158BE should begin from date of last drawn panchnama i.e., 08.11.2000, and, thus, impugned assessment order passed on 28.11.2003 was barred by limitation. According to revenue, limitation would start from 07.11.2001 when order of deemed seizure was passed under section 132(iii) by virtue of Explanation 2 read with section 158BE and, hence, block assessment framed vide order dated 28.11.2003 was within limitation period. Mumbai ITAT quashes block assessment order passed in case of assessee-company, holds that the assessment order is barred by limitation; Search & seizure action was conducted on the assessee-company under the authorisation dated 04.11.2000 and subsequently on 07.11.2001, i.e. almost after a period of close to one year, the investigation team visited the premises of the assessee under the same old authorisation and stated that the search is finally concluded; Rejects Assessing Officer’s contention that the limitation as per explanation 1 to Section 158BE will start from the date of last panchnama dated 7-11-2001 and thus the order passed on 28.11.2003 was not barred by limitation, states that The Explanation cannot override the main section as it refers to authorisation” and the panchnama cannot be looked at in isolation but the same has to be read along with the authorisation pursuant to which the panchnama is prepared.”; Explains that every fresh entry after a gap of many days would require a fresh authorisation so as to enable the search party to enter the premises for conducting search, holds that Search based on one authorisation issued one year back, the department cannot conduct search after one year and draw a panchnama stating conclusion of search and thereby contend that limitation under section 158BE of the Act r/w Explanation 2 thereto should begin from such last drawn panchnama.”; Remarks that Department could not keep search action in abeyance for a long period of almost one year from date of last authorisation more so when after a period of one year nothing was searched but only prohibitory order passed one year back was converted into deemed seizure. Therefore, panchnama dated 07.11.2001 drawn based on authorisation dated 10.11.2000 was bad in law and, therefore, limitation could not be counted from 07.11.2001 but it was ought to be counted from 10.11.2000 or at most from 04.12.2000. Therefore, assessment order dated 28.11.2003 was barred by limitation. [In favour of assessee] (Block period 01.04.1990 to 07.11.2000) - [Narang International Hotels (P) Ltd. v. DCIT (2020) 185 ITD 324 : 118 taxmann.com 454 : [TS-417-ITAT-2020(Mum)] (ITAT Mumbai]

For purpose of limitation under section 158BE, period is to be counted from date on which direction under section 142(2A) is served on assessee and not from date of issue of direction by Assessing Officer under section 142(2A)

Notice was issued under section 158BC on 29.10.1999 according to the provisions of section 158BE, the period of two years would start from 28.02.1999 from the end of the month in which the search was carried out. Therefore, assessment ought to have been passed before 28.02.2001. However, in the interregnum period, the Assessing Officer had ordered to furnish the audit report as required under sub-section (2A) of section 142 on 18.01.2001 which was required by the assessee on 23.01.2001. The audit report was submitted by the assessee on 17.07.2001.

Therefore, the questions which came for the consideration is as to whether the order of the assessment which has been passed on 24.08.2001 is time barred or not.

Held : In terms of section 158BE Explanation 1 clause (ii), the period of exclusion will commence from the day on which the Assessing Officer gives a direction under section 142(2A) and would end on the day when the assessee furnishes such audit report. The date of issuance of the notice is the day on which the Assessing Officer takes a decision to get the books audited, when such decision is conveyed to the assessee then only it results into direction. A purpose of interpretation of clause (ii) above, would mean, the date on which the decision/notice is served on the assessee and not the date of issue of direction. In that view of the matter, January 23, 2001 will be the crucial date from which the period to be excluded is to be reckoned, and therefore, the period which is required to be excluded in the period from 23.01.2001 to 17.07.2001 from 18.01.2001 to 23.01.2001 it was only decision, and not the direction. The learned ITAT has thus committed no error of law in holding the assessment order to be time barred. In that view of the matter, the issue is required to be answered in favour of the assessee and against the Department. [In favour of assessee] – [CIT v. Amar Nath Arora (2017) 398 ITR 108 : (2018) 99 taxmann.com 428 (Raj.)]

Period between date on which interim order was passed by High Court staying direction for special audit under section 142(2A), and date when High Court set aside direction for special audit, should be excluded in counting period of limitation for concluding block assessment

A search was conducted at the premises of the assessee on different dates in following manner: 

On 22.06.1998, first search was conducted. It was followed by further searches from time to time. On 05.08.1998, last search was conducted. Consequently, a notice was sent, in response of which, the assessee filed its return for block period in question. Thereafter, a direction was issued to conduct special audit. On petition before the High Court, the assessee challenged said direction for special audit. The High Court granted interim stay on said direction. On final hearing, the High Court quashed said direction, however, it was held that period for which stay operated would be excluded in counting limitation period for block assessment. On appeal before the Supreme Court:

Held : Explanation 1 to section 158BE 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. Provision relating to limitation need to be strictly construed.

As a general rule, therefore, when there is no stay of the assessment proceedings passed by the Court, Explanation 1 to section 158BE 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. In that context, the High Court, in the impugned judgment has propounded the correct and relevant test, viz., whether 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? If it is so, then stay of the special audit may qualify as stay of assessment proceedings and, therefore, would be covered by the said explanation.

The question, therefore, is as to whether, in the given case, the High Court was right in holding that the special audit was not only a step in the assessment proceedings, but an important and integral step, in the absence of which an assessment order could not be made. In support of the aforesaid conclusion, the High Court referred to the judgment in Auto and Metal Engineers v. Union of India [1998] 229 ITR 399/97 Taxman 363 (SC) wherein this Court examined in detail as to what constitutes assessment proceedings. The Court in that case was interpreting Explanation 1 to section 153, which is pari materia to Explanation 1 to section 158BE which is relevant for instant case. The said provision was interpreted thus - the object of the Explanation seems to be that if the Assessing Officer was unable to complete the assessment on account of an order or injunction staying the assessment proceeding passed by a court the period during which such order or injunction was in operation should be excluded for the purpose of computing the period of limitation for making the assessment order. The process of assessment thus commences with the filing of the return or where the return is not filed, by the issuance by the Assessing Officer of notice to file the return and it culminates with the issuance of the notice of demand. The making of the order of assessment is, therefore, an integral part of the process of assessment. Having regard to the fact that the object underlying the Explanation is to extend the period prescribed for making the order of assessment, the expression 'assessment proceeding' in the Explanation must be construed to comprehend the entire process of assessment starting from the stage of filing of the return or issuance of notice under section 142(1) till the making of the order of assessment. Since the making of the order of assessment is an integral part of the assessment proceeding, it is not possible to split the assessment proceeding and confine it upto the stage of inquiry and exclude the making of the order of assessment from its ambit. An order staying the passing of the final order of assessment is nothing but an order staying the assessment proceeding.

Therefore, the High Court was correct in holding that the special audit was an integral step towards assessment proceedings. The argument of the assessee that 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 revenue to wait for special audit, may not be a valid argument to the issue that is being dealt with. The Assessing Officer had, after going through the matter, formed an opinion that there was a need for special audit and the report of special audit was necessary for carrying out the assessment. Once such an opinion was formed, naturally, the Assessing Officer would not proceed with the assessment till the time the special audit report is received, inasmuch as in his opinion, report of the special audit was necessary. Take a situation where the order of special audit is not challenged. The 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 the order directing special audit is challenged and an interim order is granted staying the making of a special report, the Assessing Officer would not proceed with the assessment in the absence of the audit as he thought, in his wisdom, that special audit report is needed. That would be the normal and natural approach of the assessing officer at that time. It is stated at the cost of repetition that in the estimation of the Assessing Officer special audit was essential for passing proper assessment order. If the court, while undertaking judicial review of such an order of the Assessing Officer directing special audit ultimately holds that such an order is wrong (for whatever reason) that event happens at a later date and would not mean that the benefit of exclusion of the period during which there was a stay order is not to be given to the revenue. Explanation 1 which permits exclusion of such a time is not dependent upon the final outcome of the proceedings in which interim stay was granted. [In favour of revenue] – [VLS Finance Ltd. v. CIT (2016) 386 ITR 407 : 289 CTR 256 : (2017) 81 taxmann.com 358 (SC)]