Supreme Court settles the limitation period for block assessments in search cases: Anil Minda vs. Commissioner of Income Tax (24 March 2023)

Date of the Judgment: 24 March 2023
Citation: (2023) INSC 238
Judges: M.R. Shah, J. and C.T. Ravikumar, J.
Can the limitation period for block assessments under the Income Tax Act, 1961 be determined from the date of the last authorization for search, or from the date the last panchnama was drawn? The Supreme Court of India recently addressed this question in a batch of appeals concerning the computation of the limitation period for block assessments following search operations under Section 132 of the Income Tax Act, 1961. The Court clarified that the limitation period begins from the date the last panchnama was drawn, not the date of the last authorization for search. This judgment was delivered by a bench comprising Justices M.R. Shah and C.T. Ravikumar.

Case Background

The case involves multiple appeals filed by assessees against a common judgment of the High Court of Delhi. The core issue revolves around the correct interpretation of Section 158BE of the Income Tax Act, 1961, which deals with the time limit for completing block assessments. The Income Tax Department conducted searches at the premises of the assessees, issuing multiple authorizations for searches. The dispute arose when the assessees argued that the limitation period for completing the block assessment should be calculated from the date of the last authorization, while the department contended that it should be calculated from the date of the last panchnama (a record of the search proceedings).

In the case of Anil Minda, the first authorization for search was issued on March 13, 2001, and was executed on various dates, culminating on April 11, 2001. During the search, information about a bank locker belonging to the assessee was discovered, leading to a second authorization on March 26, 2001, which was executed on the same day. The assessee filed his return, and the assessment was completed in April 2003. The assessees challenged the assessment orders, arguing that they were time-barred because the two-year limitation period, as per Section 158BE of the Income Tax Act, 1961, should be calculated from March 26, 2001, the date of the second authorization. The Income Tax Department, however, argued that the limitation period should be calculated from April 11, 2001, the date of the last panchnama related to the first authorization.

Timeline:

Course of Proceedings

The Commissioner of Income Tax (Appeals) [CIT(A)] dismissed the appeals filed by the assessees. However, the Income Tax Appellate Tribunal (ITAT) allowed the appeals, holding that the assessment orders were time-barred since the panchnama with respect to the last authorization was drawn on March 26, 2001. The Revenue then appealed to the High Court of Delhi, which set aside the ITAT’s order, ruling that the limitation period should be computed from April 11, 2001, the date of the last panchnama related to the first authorization. The assessees then appealed to the Supreme Court.

Legal Framework

The core legal provision at the heart of this dispute is Section 158BE of the Income Tax Act, 1961, which specifies the time limit for completing block assessments. The relevant portion of the section states:

“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 when an authorization is deemed to be executed:

“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 explanation is crucial, as it specifies that the authorization is deemed executed upon the conclusion of the search, as recorded in the last panchnama. The dispute arises from the interpretation of “last of the authorisations” and whether it refers to the last authorization issued or the last panchnama drawn.

Arguments

Arguments by the Assessees:

• The assessees argued that the limitation period should be calculated from the date of the last authorization, which in this case was March 26, 2001. They contended that the execution of the first authorization on a later date (April 11, 2001) is irrelevant for calculating the limitation period.
• They submitted that the term “last of the authorizations” in Section 158BE of the Income Tax Act, 1961 refers to the last authorization issued, not the last panchnama drawn.
• The assessees relied on the decision of the Karnataka High Court in C.Ramaiah Reddy v. Assistant Commissioner of Income Tax, (2011) 244 CTR 126 (Karn.), which supported their interpretation.

Arguments by the Revenue:

• The Revenue argued that Explanation 2 to Section 158BE of the Income Tax Act, 1961 clearly states that the authorization is deemed to be executed on the conclusion of the search, as recorded in the last panchnama.
• They contended that the limitation period should be calculated from the date of the last panchnama, which in this case was April 11, 2001.
• The Revenue submitted that accepting the assessee’s argument would render Explanation 2 to Section 158BE of the Income Tax Act, 1961 redundant.
• The Revenue relied on the Supreme Court’s decision in VLS Finance Limited & Another v. Commissioner of Income Tax & Another, (2016) 12 SCC 32, which supported their interpretation that the relevant date is the date on which the last panchnama was drawn.

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

The following table demonstrates as to how the Court decided the issues

Authorities

The Court considered the following authorities:

Judgment

The Supreme Court held that the limitation period of two years for completing block assessments under Section 158BC/158BE of the Income Tax Act, 1961, commences from the date on which the last panchnama was drawn, not from the date of the last authorization. The Court reasoned that the block assessment proceedings are initiated based on the entire material collected during the search and on the basis of the respective panchnamas drawn. Therefore, the date of the last panchnama is the relevant date for determining the starting point of the limitation period.

The Court rejected the assessees’ argument that the date of the last authorization should be considered, stating that this would frustrate the purpose of Explanation 2 to Section 158BE of the Income Tax Act, 1961.

How each authority was viewed by the Court?

✓ The Supreme Court did not follow the decision of the Karnataka High Court in C.Ramaiah Reddy v. Assistant Commissioner of Income Tax, (2011) 244 CTR 126 (Karn.) because it contradicted the express language of Explanation 2 to Section 158BE of the Income Tax Act, 1961.

✓ The Supreme Court relied on its own decision in VLS Finance Limited & Another v. Commissioner of Income Tax & Another, (2016) 12 SCC 32 which held that the relevant date for the purpose of block assessment is the date on which the last panchnama was drawn.

✓ The Court interpreted Section 158BE of the Income Tax Act, 1961, particularly Explanation 2, to conclude that the limitation period begins from the date of the last panchnama drawn.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the need to give effect to the plain language of Explanation 2 to Section 158BE of the Income Tax Act, 1961. The Court emphasized that the block assessment proceedings are based on the entire material collected during the search, which is documented in the panchnamas. The last panchnama, therefore, signifies the conclusion of the search process and is the logical starting point for the limitation period. The Court also sought to avoid any interpretation that would render any part of the statute redundant, such as Explanation 2.

The Court’s reasoning was based on the following:

“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.”

“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.”

Key Takeaways

• The limitation period for completing block assessments under Section 158BC/158BE of the Income Tax Act, 1961, starts from the date the last panchnama is drawn.
• The date of the last authorization for search is not relevant for calculating the limitation period.
• This judgment clarifies that the conclusion of the search, as recorded in the last panchnama, is the key event for determining the start of the limitation period.
• Tax authorities must complete block assessments within two years from the end of the month in which the last panchnama was drawn.

Directions

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

Development of Law

The ratio decidendi of this case is that the limitation period for block assessments under Section 158BC/158BE of the Income Tax Act, 1961, commences from the date of the last panchnama drawn, not the date of the last authorization. This clarifies the interpretation of Explanation 2 to Section 158BE of the Income Tax Act, 1961, and provides a definitive rule for calculating the limitation period in search cases. This decision reaffirms the position established in VLS Finance Limited, solidifying the legal position on this issue.

Conclusion

The Supreme Court’s judgment in the case of Anil Minda vs. Commissioner of Income Tax settles the dispute regarding the commencement of the limitation period for block assessments. The Court has unequivocally held that the limitation period begins from the date of the last panchnama drawn, not from the date of the last authorization for search. This ruling provides clarity and certainty for both taxpayers and tax authorities in cases involving search operations under the Income Tax Act, 1961.