Supreme Court: Panchnama Last Drawn Date is the Starting Point of Limitation of Two Years for Completing Block Assessment Under Income Tax Act

Supreme Court: Panchnama Last Drawn Date is the Starting Point of Limitation of Two Years for Completing Block Assessment Under Income Tax Act

The Supreme Court by its coram comprising of Justices M.R. Shah and C.T. Ravikumar observed that the date of the Panchnama last drawn is the relevant date for considering the period of limitation of two years and not the last date of authorization, for completing the block assessment proceedings under Income Tax Act, 1961 (the Act).

The factual matrix of the case that, two warrants of authorization under section 132(1) of the Act for carrying out the search at bank locker with Canara Bank, Kamla Nagar were issued on 13 March, 2001 and 26 March, 2001. Warrants which were executed on 13 March, 2001 were executed on various dates.

During the execution of the search warrants dated 13 March, 2001, the Income Tax authorities got the information about a locker belonging to the assessee in a bank. Thereafter, on 26 March, 2001, second authorization was issued for searching the said locker and the same was executed on 26 March, 2001 itself.

Therefore, the first authorization came on 13 March, 2001 was for search at the office and residence of the assessee and it continued for some time and culminated only on 11 April, 2001 and the second search authorization dated 26 March, 2001 came to be executed on the same date and the Panchnama was drawn on 26 March, 2001.

The notice under Section 158 BC for filing block assessments was issued. The assessee filed his return, and the assessment was completed by passing an assessment order in April 2003.

The assessees filed appeals against the assessment orders, claiming that they were time barred.

According to the assessees, limitation of two years as prescribed under section 158BE of the Act, which was to be computed when Panchnama in respect of the second authorization was executed, i.e., on 26 March, 2001. Since that Panchnama was drawn on 26 March, 2001, two years period as prescribed under Section 158BE(b) of the Act came to an end by March, 2003 and the assessment order was passed in April, 2003, which according to the assessee was thus time barred.

On the other hand, the plea of the department was that since the last Panchnama through related to search authorization dated 13 March, 2001 was executed on 11 April, 2001, limitation of two years was to be computed from that date and therefore the assessment was passed was well within the prescribed limitation.

The Commissioner of Income Tax (Appeals) (CIT[A]) dismissed the appeals. However, the Income Tax Appellate Tribunal (ITAT) allowed the appeals and held that the respective assessment orders were barred by limitation since the Panchnama with respect to last authorization was drawn on 26 March, 2001.

The Revenue preferred appeals before the Delhi High Court. By the impugned common judgment and order, the Division Bench of the High Court allowed the said appeals and set aside the order passed by the ITAT by holding that as the last Panchnama though related to search authorization dated 13 March, 2001 was executed on 11 April, 2001, limitation of two years was to be computed from 11 April, 2001.

The question which came up for consideration before the Apex Court was 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?

The bench referred the observation held by the Supreme Court in the case of VLS Finance Limited & Another vs. Commissioner of Income Tax & Another, (2016), the relevant date would be the date on which the Panchnama is drawn and not the date on which the authorization/s is/are issued.

The Court observed, “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.”

The Court rejected the submission of the assessees that the that the date of the last authorization is to be considered for the purpose of starting point of limitation of two years, and said that would frustrate the entire object and purpose of Explanation 2 to Section 158BE of the Act.

Thus, the Court held that 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, was correct and accordingly dismissed the appeals.