Supreme Court Clarifies Limitation for Block Assessments in Search Cases: Anil Minda vs. Commissioner of Income Tax (24 March 2023)

Introduction

Date of the Judgment: 24 March 2023

Citation: 2023 INSC 287

Judges: M.R. Shah, J. and C.T. Ravikumar, J.

When does the clock start ticking for tax authorities to complete a block assessment after a search? The Supreme Court of India recently addressed this crucial question, clarifying whether the limitation period begins from the date of the last search authorization or the date the last search record (Panchnama) was created. This judgment in *Anil Minda vs. Commissioner of Income Tax* provides clarity on the timelines for completing block assessments under the Income Tax Act, 1961. The core issue revolved around interpreting Section 158BE of the Income Tax Act, 1961, which specifies the time limit for completing block assessments.

Case Background

The case involves multiple appeals by assessees against a judgment by the High Court of Delhi. The High Court had ruled in favor of the Revenue (Income Tax Department), setting aside the Income Tax Appellate Tribunal’s (ITAT) decision. The ITAT had previously held that the assessment orders were time-barred. The dispute arose from differing interpretations of when the limitation period for completing block assessments begins, specifically in cases involving multiple search authorizations.

In the case of Anil Minda, the Income Tax Department conducted searches at the assessee’s premises. Two search authorizations were issued: one on March 13, 2001, for the assessee’s office and residence, and another on March 26, 2001, for a bank locker. The first search authorization was executed over several days, concluding on April 11, 2001, while the second was executed on the same day it was issued, March 26, 2001. The assessment was completed in April 2003. The assessees contended that the limitation period should be calculated from March 26, 2001, the date of the last authorization, making the assessment time-barred. The Revenue argued that the limitation should start from April 11, 2001, the date of the last Panchnama (search record) related to the first authorization.

Timeline

Course of Proceedings

The assessees challenged the assessment orders, arguing that they were time-barred because the two-year limitation period under Section 158BE of the Income Tax Act, 1961, should be calculated from the date of the last authorization (March 26, 2001). The Commissioner of Income Tax (Appeals) [CIT(A)] dismissed the appeals. However, the ITAT ruled in favor of the assessees, holding that the assessment orders were indeed time-barred. The Revenue then appealed to the High Court, which overturned the ITAT’s decision, stating that the limitation period should be calculated from the date of the last Panchnama (April 11, 2001). The assessees then appealed to the Supreme Court.

Legal Framework

The core of the dispute lies in the interpretation of Section 158BE of the Income Tax Act, 1961, which sets the time limit for completing block assessments. The relevant portion of Section 158BE is:

“Section 158BE
Time Limit for Completion of Block Assessment
(1) The order under Section 158-BC shall be passed—
(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 132-A, 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.”

Explanation 2 to Section 158BE further clarifies:

“[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;”

This section stipulates that the assessment order must be passed within two years from the end of the month in which the last search authorization was executed. Explanation 2 clarifies that for search cases, the authorization is deemed executed when the search concludes, as recorded in the last Panchnama. The conflict arises from whether “last of the authorizations” refers to the last date of authorization or the last date of the Panchnama.

Arguments

Appellants’ (Assessees) Arguments:

• The assessees argued that the limitation period should be calculated from the date of the last search authorization, which was March 26, 2001. They contended that the date of the last Panchnama is irrelevant for determining the limitation period.
• They relied on the Karnataka High Court’s decision in *C.Ramaiah Reddy v. Assistant Commissioner of Income Tax*, (2011) 244 CTR 126 (Karn.), to support their argument that the last authorization date should be the starting point of limitation.
• The assessees submitted that Explanation 2 to Section 158BE of the Income Tax Act, 1961, should be interpreted to mean that the last authorization is the starting point of limitation and the execution of the first authorization on a later date is irrelevant.

Respondent’s (Revenue) Arguments:

• The Revenue argued that the limitation period should be calculated from the date of the last Panchnama, which was April 11, 2001. They contended that Explanation 2 to Section 158BE of the Income Tax Act, 1961, clearly states that the authorization is deemed executed upon the conclusion of the search, as recorded in the last Panchnama.
• The Revenue submitted that the last Panchnama is the relevant date for the purpose of block assessment because the assessment proceedings are based on the entire material collected during the search and recorded in the Panchnamas.
• The Revenue relied on the Supreme Court’s decision in *VLS Finance Limited & Another v. Commissioner of Income Tax & Another*, (2016) 12 SCC 32, to support their argument that the date of the last Panchnama is the relevant date for calculating the limitation period.
• The Revenue argued that if the assessees’ interpretation is accepted, Explanation 2 to Section 158BE of the Income Tax Act, 1961, would become redundant.

Submissions Table

Issues Framed by the Supreme Court

The Supreme Court framed the following issue for consideration:

1. Whether the period of limitation of two years for the block assessment under Section 158BC/158BE of the Income Tax Act, 1961, would commence from the date of the Panchnama last drawn or the date of the last authorization?

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Judgment

The Supreme Court held that the limitation period for completing block assessments under Section 158BE of the Income Tax Act, 1961, commences from the date of the last Panchnama drawn. The court rejected the assessees’ argument that the limitation period should start from the date of the last authorization.

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

✓ *C.Ramaiah Reddy v. Assistant Commissioner of Income Tax*, (2011) 244 CTR 126 (Karnataka High Court): The Court rejected the view of the Karnataka High Court, stating that the last authorization date is not the starting point of limitation.

✓ *VLS Finance Limited & Another v. Commissioner of Income Tax & Another*, (2016) 12 SCC 32 (Supreme Court of India): The Court followed this precedent and held that the relevant date is the date on which the Panchnama is drawn.

✓ Section 158BE of the Income Tax Act, 1961: The Court interpreted this provision and Explanation 2 to conclude that the limitation period for block assessments starts from the date of the last Panchnama.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the interpretation of Explanation 2 to Section 158BE of the Income Tax Act, 1961. The Court emphasized that the provision clearly states that the authorization is deemed executed on the conclusion of the search as recorded in the last Panchnama. The Court also highlighted that the block assessment proceedings are based on the entire material collected during the search, which is recorded in the Panchnamas. Therefore, the date of the last Panchnama is the relevant date for determining the limitation period.

The Court’s reasoning was heavily based on the legal interpretation of the relevant provisions and the precedent set in *VLS Finance Limited*. The factual aspects of the case were considered to a lesser extent.

Logical Reasoning

Judgment

The Supreme Court dismissed the appeals, upholding the High Court’s decision. The Court reasoned that:

• The relevant date for determining the limitation period is the date on which the last Panchnama was drawn, not the date of the last authorization.
• Explanation 2 to Section 158BE of the Income Tax Act, 1961, clearly specifies that the authorization is deemed executed on the conclusion of the search as recorded in the last Panchnama.
• The block assessment proceedings are based on the entire material collected during the search and recorded in the Panchnamas.
• Accepting the assessees’ argument would render Explanation 2 to Section 158BE of the Income Tax Act, 1961, redundant.

The Court quoted from the judgment:

“It cannot be disputed that the block assessment proceedings are initiated on the basis of the entire material collected during the search/s and on the basis of the respective Panchnama/s drawn. Therefore, the date of the Panchnama last drawn can be said to be the relevant date and can be said to be the starting point of limitation of two years for completing the block assessment proceedings.”

“If the submission on behalf of the respective assessees that the date of the last authorization is to be considered for the purpose of starting point of limitation of two years, in that case, the entire object and purpose of Explanation 2 to Section 158BE would be frustrated.”

“Thus, the view taken by the High Court 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 authorization, we are in complete agreement with the view taken by the High Court.”

There were no dissenting opinions; the decision was unanimous.

Key Takeaways

• The limitation period for completing block assessments following a search under Section 132 of the Income Tax Act, 1961, starts from the date of the last Panchnama drawn, not the date of the last authorization.
• Tax authorities must complete block assessments within two years from the end of the month in which the last Panchnama was drawn.
• This judgment clarifies the interpretation of Section 158BE and Explanation 2, providing certainty for both taxpayers and tax authorities.

Directions

There were no specific directions given by the Supreme Court in this judgment.

Development of Law

The ratio decidendi of this case is that the limitation period for completing block assessments under Section 158BE of the Income Tax Act, 1961, commences from the date of the last Panchnama drawn. This clarifies the interpretation of the law and reinforces the position established in the *VLS Finance Limited* case. There is no change in the previous position of law, but rather a reaffirmation of the existing legal position.

Conclusion

The Supreme Court’s judgment in *Anil Minda vs. Commissioner of Income Tax* clarifies that the limitation period for completing block assessments begins from the date of the last Panchnama. This ruling provides much-needed clarity on the interpretation of Section 158BE of the Income Tax Act, 1961, and ensures that assessment proceedings are conducted within the prescribed legal framework. This decision reinforces the importance of the last Panchnama as the concluding event of a search, which triggers the limitation period.