Income Tax Act - Date Of Panchnama Last Drawn Starting Point Of Limitation For Completing Block Assessment Proceedings: Supreme Court

The Supreme Court has held that the date on which the Panchnama was last drawn is the starting point of the two-year limitation for completing the block assessment proceedings under the Income Tax Act 1961.

The division bench of Justice M.R. Shah and Justice C.T. Ravikumar has upheld the order of the Delhi High Court in which it was held 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.

The two warrants of authorization under Section 132(1) for carrying out the search at the bank locker with Canara Bank, Kamla Nagar, were issued on March 13 and March 26, 2001.

During the execution of the search warrants dated March 13, 2001, the Income Tax authorities got information about a locker belonging to the appellant or assessee in a bank. As a result, on March 26, 2001, a second authorization for searching the locker was issued, and it was carried out on March 26, 2001.

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

The assessee contended that the limitation of two years as prescribed under section 158BE was to be computed when Panchnama in respect of the second authorization was executed, i.e. on 26.03.2001. Since the Punchnama was drawn on March 26, 2001, the two-year period prescribed under Section 158BE(b) expired in March 2003, and the assessment order was issued in April 2003, which the assessee claimed was time barred.

The department contended that since the last Punchnama through related to search authorization dated 13.03.2001 was executed on 11.04.2001, a limitation of two years was to be computed from that date, and therefore the assessment that was passed was well within the prescribed limitation.

The ITAT allowed the appeals and held that the assessment orders were barred by limitation since the Panchnama with respect to the last authorization was drawn on March 26, 2001.

The department preferred the appeal against the order passed by the ITAT before the High Court.

The Division Bench of the Delhi High Court has allowed the appeals and has set aside the order passed by the ITAT. The High Court held that as the last Punchnama, though related to search authorization dated 13.03.2001, was executed on 11.04.2001, the limitation of two years was to be computed from 11.04.2001.

The department appealed against the order of the Delhi High Court.

The department contended that as per Explanation 2 of Section 158BE of the Act when it is a case of search, the period of limitation is to be counted from the date on which the last Punchnama was drawn. In the present case, the last Punchnama at the conclusion of the search was drawn on April 11, 2001, and therefore the limitation period of two years would start on April 11, 2001. It is submitted that if the submission on behalf of the assessees is accepted, Explanation 2 to Section 158BE would become nugatory and redundant.

The issue raised was whether the period of limitation of two years for the block assessment under Section 158BC or 158BE would commence from the date the panchnama was last drawn or the date of the last authorization.

The Apex Court held that the date of the last authorization is to be considered for the purpose of determining the starting point of the limitation of two years; in that case, the entire object and purpose of Explanation 2 to Section 158 BE would be frustrated.

Case Title: Anil Minda and Others Versus Commissioner of Income Tax

Citation: 2023 LiveLaw (SC) 246

Income Tax Act 1961-  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.

Click Here To Read/Download Order