Facts of the Case

The Revenue filed appeals before the Delhi High Court challenging a common order passed by the Income Tax Appellate Tribunal (ITAT) in favour of the assessees, namely Deepak Aggarwal and Mangla Marbles & Granite Pvt. Ltd.

A search operation under Section 132 of the Income Tax Act, 1961 was conducted pursuant to a warrant dated 31.10.2000. During the search proceedings, a prohibitory order under Section 132(3) was issued concerning certain stock inventory.

Under Section 158BE(1)(b), the block assessment under Section 158BC was required to be completed within two years from the end of the month in which the last authorisation for search was executed.

The Revenue contended that a subsequent panchnama dated 23.12.2000, drawn at the time of revocation of the prohibitory order, constituted the last panchnama, thereby extending the limitation period up to 31.12.2002. Consequently, according to the Revenue, the assessment order passed on 27.12.2002 was within time.

The assessees argued that the search had effectively concluded on 31.10.2000, and therefore the assessment should have been completed by 31.10.2002. Since the assessment order was passed on 27.12.2002, it was barred by limitation.

 

Issues Involved

  1. Whether the panchnama drawn on 23.12.2000 upon revocation of the prohibitory order under Section 132(3) could be treated as the last panchnama for the purpose of computing limitation under Section 158BE?
  2. Whether the block assessment order dated 27.12.2002 was within the prescribed limitation period under Section 158BE of the Income Tax Act, 1961?
  3. Whether mere continuation of a prohibitory order without any actual search or seizure extends the period of limitation for block assessment proceedings?

 

Petitioner’s Arguments (Revenue)

The Revenue submitted that:

  • A panchnama was prepared on 23.12.2000 when the prohibitory order under Section 132(3) was revoked.
  • The panchnama dated 23.12.2000 represented the last execution of the search warrant.
  • Under Explanation 2 to Section 158BE, the limitation period should be calculated from the end of December 2000.
  • Therefore, the Department had time until 31.12.2002 to complete the block assessment.
  • Since the assessment order was passed on 27.12.2002, it was within the statutory period of limitation.

 

Respondent’s Arguments (Assessees)

The assessees contended that:

  • The actual search operation had concluded on 31.10.2000.
  • No search activity, seizure, or investigative action was carried out on 23.12.2000.
  • The proceedings on 23.12.2000 merely involved revocation of the prohibitory order.
  • Such revocation could not be treated as execution or continuation of a search.
  • Consequently, the limitation period commenced from the end of October 2000.
  • The assessment order dated 27.12.2002 was therefore time-barred and invalid.

 

Court Findings

The Delhi High Court upheld the decision of the Income Tax Appellate Tribunal and observed that:

  • The revocation order dated 23.12.2000 merely lifted the restraint imposed under Section 132(3).
  • No assets were seized and no substantive search operation was conducted on that date.
  • Revocation of a prohibitory order does not amount to execution or continuation of a search.
  • There was an unexplained gap of approximately 53 days between the original search conducted on 31.10.2000 and the purported continuation on 23.12.2000.
  • The Revenue failed to provide any justification for treating the proceedings on 23.12.2000 as a valid continuation of the search.
  • The Court relied upon its earlier judgment in CIT v. Sarb Consulate Marine Products Pvt. Ltd. (294 ITR 444), which held that a search under Section 132 must be continuous and any interruption must be properly explained.
  • The facts indicated that all search and seizure activities had effectively concluded on 31.10.2000 itself.

 

Court Order

The Delhi High Court held that:

  • The panchnama dated 23.12.2000 could not be regarded as the last panchnama for purposes of Section 158BE.
  • The search stood concluded on 31.10.2000.
  • The block assessment should have been completed on or before 31.10.2002.
  • The assessment order dated 27.12.2002 was beyond the prescribed limitation period.
  • No substantial question of law arose for consideration.
  • Both appeals filed by the Revenue were dismissed.

 

Important Clarification

The Court clarified that:

  • Mere issuance or revocation of a prohibitory order under Section 132(3) does not automatically extend the limitation period for block assessment.
  • For computing limitation under Section 158BE, there must be actual execution of search proceedings.
  • A panchnama prepared solely for revocation of restraint orders, without any search or seizure activity, cannot be treated as the final panchnama.
  • Artificial extension of limitation through procedural formalities is impermissible under the Income Tax Act.

 

Sections Involved

Income Tax Act, 1961

  • Section 132 – Search and Seizure
  • Section 132(3) – Prohibitory/Restraint Order
  • Section 158BC – Procedure for Block Assessment
  • Section 158BE – Time Limit for Completion of Block Assessment
  • Explanation 2 to Section 158BE – Determination of Execution of Search Authorization


Link to download the order -

https://delhihighcourt.nic.in/app/case_number_pdf/2008:DHC:2331-DB/BDA12082008ITA9532008.pdf

 

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