ITA No.582 of 2009 with ITA No.527 of 2009,ITA No.593 of 2009, Page 1 of 20 ITA No.605 of 2009,ITA No.618 of 2009 & ITA No.772 of 2009 Reportable * IN THE HIGH COURT OF DELHI AT NEW DELHI ITA No.582 of 2009 with ITA No.527 of 2009,ITA No.593 of 2009 ITA No.605 of 2009,ITA No.618 of 2009 ITA No.772 of 2009 Reserved On: August 19,2010 % Date of Decision: September 14, 2010 (1) ITA No.582 of 2009 The Commissioner of Income Tax . . . Appellant Through : Mr. Sanjeev Sabharwal, Sr. Standing Counsel with Mr. Utpal Saha, Advocate. VERSUS Sh. Anil Minda . . .Respondent Through: Dr. Rakesh Gupta, Advocate with Mr. Ashwani Taneja and Ms. Rani Kiyala, Advocates. (2) ITA No.527 of 2009 The Commissioner of Income Tax . . . Appellant Through : Mr. Sanjeev Sabharwal, Sr. Standing Counsel with Mr. Utpal Saha, Advocate. VERSUS Sh. Anil Minda . . .Respondent Through: Dr. Rakesh Gupta, Advocate with Mr. Ashwani Taneja and Ms. Rani Kiyala, Advocates. (3) ITA No.593 of 2009 The Commissioner of Income Tax . . . Appellant ITA No.582 of 2009 with ITA No.527 of 2009,ITA No.593 of 2009, Page 2 of 20 ITA No.605 of 2009,ITA No.618 of 2009 & ITA No.772 of 2009 Through : Mr. Sanjeev Sabharwal, Sr. Standing Counsel with Mr. Utpal Saha, Advocate. VERSUS Sh. Vandana Minda . . .Respondent Through: Dr. Rakesh Gupta, Advocate with Mr. Ashwani Taneja and Ms. Rani Kiyala, Advocates. (4) ITA No.605 of 2009 The Commissioner of Income Tax . . . Appellant Through : Mr. Sanjeev Sabharwal, Sr. Standing Counsel with Mr. Utpal Saha, Advocate. VERSUS Sh. J.P. Minda . . .Respondent Through: Dr. Rakesh Gupta, Advocate with Mr. Ashwani Taneja and Ms. Rani Kiyala, Advocates. (5) ITA No.618 of 2009 The Commissioner of Income Tax . . . Appellant Through : Mr. Sanjeev Sabharwal, Sr. Standing Counsel with Mr. Utpal Saha, Advocate. VERSUS Sh.J.P. Minda . . .Respondent Through: Dr. Rakesh Gupta, Advocate with Mr. Ashwani Taneja and Ms. Rani Kiyala, Advocates. (6) ITA No.772 of 2009 The Commissioner of Income Tax . . . Appellant Through : Mr. Sanjeev Sabharwal, Sr. Standing Counsel with Mr. Utpal Saha, Advocate. VERSUS ITA No.582 of 2009 with ITA No.527 of 2009,ITA No.593 of 2009, Page 3 of 20 ITA No.605 of 2009,ITA No.618 of 2009 & ITA No.772 of 2009 Ms. Gayatri Minda . . .Respondent Through: Dr. Rakesh Gupta, Advocate with Mr. Ashwani Taneja and Ms. Rani Kiyala, Advocates. CORAM :- HON‟BLE MR. JUSTICE A.K. SIKRI HON‟BLE MS. JUSTICE REVA KHETRAPAL 1. Whether Reporters of Local newspapers may be allowed to see the Judgment? 2. To be referred to the Reporter or not? 3. Whether the Judgment should be reported in the Digest? A.K. SIKRI, J. 1. In all these appeals, an interesting question of law arises relating to the interpretation that needs to be given to the provisions of Section 132(1) of the Income Tax Act (hereinafter referred to as ‗the Act‘) touching upon the limitation aspect contained therein. Following common question of law, in this behalf, is raised by the Revenue in all these appeals: ―Whether the learned Income Tax Appellate Tribunal erred in holding that the assessment framed by the Assessing Officer is barred by limitation?‖ 2. The Income Tax Appellate Tribunal (hereinafter referred to as ‗the Tribunal‘) has held that the assessment orders passed in the case of all these assessees were time barred, as the assessments were not completed within two years from the end of month in which the last authorization for search under Section 132 of the Act was issued. To appreciate this controversy, we have taken note of the ITA No.582 of 2009 with ITA No.527 of 2009,ITA No.593 of 2009, Page 4 of 20 ITA No.605 of 2009,ITA No.618 of 2009 & ITA No.772 of 2009 dates as they appear in ITA No.582 of 2009. The assessee is the son of J.P. Minda, who is in the Minda Group of business, engaged in manufacturing of various automobiles components. The 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 13.03.2001 and 26.03.2001. Warrants which were executed on 13.03.2001 were executed on various dates, which are as under: 1. 13.03.2001 1st Authorization/search warrant issued 2. 19.03.2001, 20.03.2001, 26.03.2001, 27.03.2001, 28.03.2001 & 11.04.2001 Panchnama drawn/executed and search completed in regard to 1st search warrant 3. During the execution of the search warrants dated 13.03.2001, the Income Tax authorities got the information about a locker belonging to the assessee in a bank. Further, on 26.03.2001, second authorization was issued for searching this locker and this was executed on 26.03.2001 itself. It is, thus, clear from the aforesaid that in respect of first authorization given on 13.03.2001, which was for search at the office and residence of the assessee, it continued for some time and culminated only on 11.04.2001. However, as far as second search authorization is concerned, which was given on 26.03.2001, that was executed on the same day and Panchnama drawn on 26.03.2001. ITA No.582 of 2009 with ITA No.527 of 2009,ITA No.593 of 2009, Page 5 of 20 ITA No.605 of 2009,ITA No.618 of 2009 & ITA No.772 of 2009 4. Thereafter the notice under Section 158BC for filing block return was issued. The assessee had filed his return and the assessment was completed by passing assessment orders in April 2003. The position was similar with all other assessees. The assessees filed appeal challenging the assessment, inter alia, on the ground that the assessment was time barred. According to the assessees, limitation was of two years as prescribed under Section 158BE of the Act, which was to be computed when Panchnama in respect of second authorization, i.e., on 26.03.2001 was executed. Since that Panchnama was drawn on 26.03.2001, two years period as provided under Section 158BE (b) come to an end by March 2003 and the assessment order in April 2003 was thus time barred. On the other hand, the plea of the Department was that since the last Panchnama, though related to search authorization dated 13.03.2001 was executed on 11.04.2001, limitation of two years was to be computed from this date and therefore, the assessment order passed was well within the limitation prescribed. In order to appreciate the controversy, we may reproduce the provisions of Section 158BE of the Act, which reads as under: ―Section 158BE TIME LIMIT FOR COMPLETION OF BLOCK ASSESSMENT. (1) The order under section 158BC shall be passed - (a) Within one year from the end of the month in which the last of the authorisations for search under section 132 or for requisition under section 132A, 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 ITA No.582 of 2009 with ITA No.527 of 2009,ITA No.593 of 2009, Page 6 of 20 ITA No.605 of 2009,ITA No.618 of 2009 & ITA No.772 of 2009 after the 30th day of June, 1995 but before the 1st day of January, 1997; (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 132A, 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. (2) The period of limitation for completion of block assessment in the case of the other person referred to in section 158BD shall be - (a) One year from the end of the month in which the notice under this Chapter was served on such other person in respect of search initiated or books of account or other documents or any assets requisitioned after the 30th day of June, 1995 but before the 1st day of January, 1997; and (b) Two years from the end of the month in which notice under this Chapter was served on such other person in respect of search initiated or books of account or other documents or any assets are requisitioned on or after the 1st day of January, 1997. Explanation : In computing the period of limitation for the purposes of this section, the period - (i) During which the assessment proceeding is stayed by an order or injunction of any court, or (ii) Commencing from the day on which the Assessing Officer directs the assessee to get his accounts audited under sub-section (2A) of section 142 and ending on the day on which the assessee is required to furnish a report of such audit under that sub-section, shall be excluded. 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; (b) In the case of requisition under section 132A, on the actual receipts of the books of account or other documents or assets by the Authorised Officer.‖ ITA No.582 of 2009 with ITA No.527 of 2009,ITA No.593 of 2009, Page 7 of 20 ITA No.605 of 2009,ITA No.618 of 2009 & ITA No.772 of 2009 5. The case of the assessee is predicated on the expression ―last of authorization‖ and it is the date on which warrants in respect of this ―last of authorization‖ would be the starting point of limitation. On this basis, it was argued that even if the first authorization dated 13.03.2001 was executed on a later date, i.e., 11.04.2001 that would be of no consequence and for the purpose of reckoning the limitation period, the first authorization is irrelevant and it is the ―last of authorization‖, which has to be kept in mind. Last authorization in this case is dated 26.03.2001, which was executed on the same date and, therefore, the period of two years is to be counted from that date. 6. Learned counsel for the assessee had submitted that it is settled law that while construing taxation laws, more particularly relating to limitation; a strict and literal interpretation has to be made. This was so held in the case of K.M. Sharma vs. Income Tax Officer [254 ITR 772 (SC) in the following words:- ―The provisions of a fiscal statute, more particularly one regulating the period of limitation, must receive a strict construction. The law of limitation is intended to give certainty and finality to legal proceedings and to avoid exposure to risk of litigation of litigants for an indefinite period on future unforeseen events. Proceedings which had attained finality under existing law due to bar of limitation cannot be held to be open for revival unless the amended provision is clearly given retrospective operation so as to allow upsetting of proceedings which had already concluded and attained finality.‖ ITA No.582 of 2009 with ITA No.527 of 2009,ITA No.593 of 2009, Page 8 of 20 ITA No.605 of 2009,ITA No.618 of 2009 & ITA No.772 of 2009 7. He has also referred to another judgment of the Supreme Court in the case of Nasiruddin and Ors. Vs. Sita Ram Agarwal [AIR 2003 SC 1543]. It was also submitted that when the period of limitation is statutorily prescribed, it has to be strictly adhered to and cannot be relaxed or departed from for equitable considerations. In support of this submission, the learned counsel relied upon the cases of Apex Court in India House vs. Kishan N. Lalwani [AIR 2003 SC 2084] and Municipal Board vs. State Transport Authority, Rajasthan [AIR 1965 SC 458]. In the latter case, the following passage was specifically read out: ―In interpreting the provisions of limitation equitable considerations are out of place and the strict grammatical meaning of the words is the only safe guide. The words should not be read as ‗from the date of the knowledge of the order‘ in the absence of clear indication to that effect. If the legislature had intended that an application may be made within 30 days from the date of intimation or knowledge of the order, it would have said so as it did in Sections 13, 15, 16 and 35. In the absence of any such thing the Court is bound to hold that the application will be barred unless made within 30 days from the date of the order by which the person is aggrieved.‖ 8. It was also argued that when there is a conflict between law and equity, it is the law which has to prevail, in accordance with the Latin maxim “dura lex sed lex”, which means “the law is hard, but it is the law”. Equity can only supplement the law, but it cannot supplant or override it. [Raghunath Rai Bareja vs. Punjab National Bank, 2007 (2) SCC 230.] ITA No.582 of 2009 with ITA No.527 of 2009,ITA No.593 of 2009, Page 9 of 20 ITA No.605 of 2009,ITA No.618 of 2009 & ITA No.772 of 2009 9. The thrust of the submission made by the learned counsel for the Revenue was altogether different. He submitted that the aforesaid provision contained in clause (b) of Section 158BE of the Act was not to be read in isolation, but along with the Explanation 2 thereto, which had been inserted by Finance (No.2) Act, 1998 with effect from 01.07.1995 and which reads as under: ―Explanation – 2 for the removal of doubts, it is hereby declared that the authorization referred to in sub-Section (I) 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 authorization has been issued; (b) In the case of requisition under Section 132A, on the actual receipt of the books of accounts or other documents or assets by the Authorized officer.‖ 10. The submission of Mr. Sabharwal based on the aforesaid Explanation was that it was specifically inserted with a view to give last of the Panchnama as the starting point of limitation. He argued that the aforesaid Explanation makes it clear that the time for completion of Block Assessment under Section 158BC/158BE, is the conclusion of search/drawing of last Panchnama, which will be relevant and not the dates of issuance of various authorizations. The linkage is withdrawing of last of Panchnama and not to issuance of authorizations. The aforesaid was also made clear by the Memorandum explaining the Amendment in 231 ITR 202 (St.) which reads as under:- ITA No.582 of 2009 with ITA No.527 of 2009,ITA No.593 of 2009, Page 10 of 20 ITA No.605 of 2009,ITA No.618 of 2009 & ITA No.772 of 2009 ―Clause-48 seeks to amend Section 158BE of the Income Tax Act relating to limit for completion of Block Assessment. The proposed amendment seeks to renumber the existing Explanation of sub-Section (2) of Section 158BE and to insert a new Explanation—2 thereafter to provide that the execution of an authorization for search under Section 132 or for requisition under Section 132A will mean the date of conclusion of the search in respect of the authorization as recorded in the last Panchnama in the case of a person in whose case the warrant has been issued. In the case of requisition under Section 132A, the execution of an authorization will mean the date when the authorized officer receives books, document or assets. The amendment proposed is of a clarificatory in nature. The proposed amendment will take effect form 1st July, 1995.‖ 11. According to Mr. Sabharwal, if the contention of the assessee is accepted, the very purpose of introducing the Explanation would become redundant. His argument was that the linkage of time/limitation of the completion of search in the context of Block Assessment is logical and rational. It is rational for the reason that unless Assessing Officer has completed search, obtained all the material, has custody of relevant material and has overall picture, he cannot frame Block Assessment. Therefore, it is only when all material is made available to the Assessing Officer (on completion of last search) that the limitation would run against the Assessing Officer and it surely cannot run from a date interior to the same as he is under disability to initiate Assessment. The issuance of ITA No.582 of 2009 with ITA No.527 of 2009,ITA No.593 of 2009, Page 11 of 20 ITA No.605 of 2009,ITA No.618 of 2009 & ITA No.772 of 2009 authorization, execution of said authorization by drawing last Panchnama and making available complete search material to the AO for Block Assessment cannot be completed as Chapter XIVA beginning with authorization under Section 132(1) and framing of Block Assessment is sequential and unless the first stage of collecting material is completed the next stage of framing block assessment cannot begin or time to frame assessment begin to run. Since the Block Assessment is a single continuous and homogenous process [State of Maharashtra vs. NC Bajaj, 201 ITR 315 (Bombay)] what is to be looked at is not a particular authorization (which will not lead to obtaining complete material for Block Assessment) but all authorization(s) together as common and determining the limitation from the conclusion of search by drawing of last of Panchnama on any of the authorizations. 12. The logic of the above in the context of Block Assessment is obvious as before the said time neither search is concluded nor all material can be made available to the Assessing Officer. 13. We have given our utmost consideration to the submissions made by the counsel for the parties. No doubt, the provisions of Sub Section (1) of Section 158 BE if read in isolation, it gives an indication that the period of two years is to be counted from the end of the month in which ―last of the authorization‖ for search under Section 123 was executed. Here the world ‗last‘ is relatable to authorization and not to the execution. Therefore, if we have to ITA No.582 of 2009 with ITA No.527 of 2009,ITA No.593 of 2009, Page 12 of 20 ITA No.605 of 2009,ITA No.618 of 2009 & ITA No.772 of 2009 interpret clause (b) of sub Section (1) of Section 158 BE of the Act, one may be inclined to conclude that two years period is to be counted from the date when last authorization was executed. The question, however is, whether explanation which was inserted by Finance Act, 1998 effective from 1st July, 1995 makes any difference? To put it otherwise, whether such an explanation clarifies the position contained in clause (b) of sub Section (1) of Section 158 B? 14. By means of this Explanation-2, a deeming provision is added. Therefore, it creates a fiction in so far as the authorization referred to in sub section (1) is to be treated as executed. 15. The Supreme Court in the case of G. Viswanathan Vs. The Hon’ble Speaker, Tamil Nadu Legislative Assembly, Madras and another, AIR 1996 SC 1060 held as under:- ―The scope of the legal fiction enacted in the explanation (a) to paragraph 2(1) of the Tenth Schedule assumes importance in this context. By the decision of this Court it is fairly well settled that a deeming provision is an admission of the non-existence of the fact deemed. The Legislature is competent to enact a deeming provision for the purpose of assuming the existence of a fact which does not even exist. It means that the Courts must assume that such a state of affairs exists as real, and should imagine as real the consequences and incidents which inevitably flow there from, and give effect to the same. The deeming provision may be intended to enlarge the meaning of a particular word or to include matters which otherwise may or may not fall within the main provision. The law laid down in this regard in East End Dwellings Co. Ltd. case (1952) AC 109 : (1951) 2 All. E.R. 587 has been followed by this Court in a number of cases, ITA No.582 of 2009 with ITA No.527 of 2009,ITA No.593 of 2009, Page 13 of 20 ITA No.605 of 2009,ITA No.618 of 2009 & ITA No.772 of 2009 beginning from State of Bombay v. 1953CriLJ1049 and ending with a recent decision of a three Judge Bench in M. Venugopal v. (1994)ILLJ597SC . N.P. singh, J., speaking for the Bench stated the law thus at page 329 : The effect of a deeming clause is well-known. Legislature can introduce a statutory fiction and courts have to proceed on the assumption that such state of affairs exists on the relevant date. In this connection, one is often reminded of what was said by Lord Asquith in the case of East End Dwellings Co. Ltd. v. Finsbury Borough Council that when one is bidden to treat an imaginary state of affairs as real, he must surely, unless, prohibited from doing so, also imagine as real the consequences and incidents which inevitably have flowed from it one must not permit his "imagination to boggle" when it comes to the inevitably corollaries of that state of affairs.‖ 16. The Apex Court in the case of Ashok Leyland Ltd. v. State of T.N. (2004) 3 SCC 1) held that legal fiction must be given its full effect when the conditions precedent therefore are satisfied and not otherwise. In the case of Mancheri Puthusseri Ahmed v. Kuthiravattam Estate Receiver (1996) 6SCC 185, it was held as under:- ―Rule of construction of provisions creating legal fictions is well settled. In interpreting a provision creating a legal fiction the court is to ascertain for what purpose the fiction is created, and after ascertaining this, the court is to assume all those facts and consequences which are incidental or inevitable corollaries to the giving effect to the fiction. But in so construing the fiction it is not to be extended beyond the purpose for which it is created, or beyond the language of the section by which it is created. It cannot also be extended by importing another fiction. In this connection we may profitably refer to two decisions of this Court. ITA No.582 of 2009 with ITA No.527 of 2009,ITA No.593 of 2009, Page 14 of 20 ITA No.605 of 2009,ITA No.618 of 2009 & ITA No.772 of 2009 In the case of CIT v. Shakuntala [1961] 43ITR 352(SC) a three-Judge Bench of this Court speaking through S.K. Das, J., made the following pertinent observation in paragraph 8 of the Report: The question here is one of interpretation only and that interpretation must be based on the terms of the section. The fiction enacted by the legislature must be restricted by the plain terms of the statute.‖ 17. Thus, when we look into the matter in that context and find that there was a definite purpose of inserting the said Explanation-2, we have to give an interpretation which sub-serves the purpose and shall not defeat the same. No doubt, in taxing statutes, literal interpretation is to be preferred more particularly when the language is clear and capable of one meaning and while giving effect to literal interpretation, one has not to see the consequences it would lead to. However, in the present case, application of this very rule is conditioned by the explanation contained in the same provision, and, therefore, sub Section (1) is to be read in accordance with the intention expressed in Explanation-2. Moreover, the Explanation-2 categorically states that authorization referred to in sub Section (1) shall be deemed to have been executed, in the case of search, on the conclusion such as recorded in the last panchnama drawn in relation to any person in whose case, warrants of authorization was issued. By this