VLS FINANCE LTD. & ANR.versusCOMMISSIONER OF INCOME TAX & ANR.

                           [2016] 3 S.C.R. 390



A                     VLS FINANCE LTD. & ANR.
                                    v.
              COMMISSIONER OF INCOME TAX & ANR.
                      (Civil Appeal No. 2667 of2007)
B                            APRIL 28, 2016
        (A.K. SIKRI AND ROHINTON FALi NARIMAN, JJ.]
           Income Tax Act, 1961 - s. 158BE(2). explanation 1 -
    Completion of block assessment - Computation of two years period
    of limitation - Period during which assessment proceedings are
c   stayed by order of a court - Exclusion of - Held: Period during
    which interim stay of the order passed by the court is in operation
    has to be excluded while computing the period of two years as
    limitation period prescribed for completing the block assessment -
    On facts, special audit and its report was an integral step towards
D   assessment proceedings - Assessing officer formed an opinion that
    there was a need for special audit and the report of special audit
    was necessary for carrying out the assessment - Order directing
    special audit was challenged and interim order was granted staying
    the making of a special report, the assessing officer would not
    proceed with the assessment in the absence of the audit.
E
          Dismissing the appeal, the Court
          HELD: 1.1 The period during which interim stay of the order
    passed by the court is in operation has to be excluded while
    computing the period of two years as limitation period prescribed
F   for completing the block assessment. [Para 15] (398-F]
          1.2 The explanation 1 to s. 158BE(2) of the Income Tax
    Act, 1961 grants benefit of exclusion only for those cases where
    'the assessment proceeding is stayed by an order or injunction'
    of the court. On literal construction, it becomes clear from the
    reading of this provision that the period that is to be excluded
G
    while computing the period of limitation for completion of Block
    Assessments is the period during which assessment proceedings
    are stayed by an order of a court and this provision shall not
    apply if the stay of some other kind, i.e, other than staying the
    assessment proceedings, is passed. The provision relating to
H   limitation need to be strictly construed. [Para 19] [400-C-D]
                                   390
 VLS FINANCE LTD. & ANR. v. COMMISSIONER OF INCOME                         391
                     TAX&ANR.

       1.3 As a general rule, when there is no stay of the                 A
 assessment proceedings passed by the Court, Explanation 1 to
 Section 158BE of the Act may not be attracted. However, this
 general statement of legal principle has to be read subject to an
 exception in order to interpret it rationally and practically. In those
 cases where stay of some other nature is granted than the stay of
                                                                            B
 the assessment proceedings but the effect of such stay is to
 prevent the assessing officer from effectively passing assessment
 order, even that kind of stay order may be treated as stay of the
 assessment proceedings because of th_e rea__wJI that such stay
 order becomes an obstacle for the assessing officer to pass an
 assessment order thereby preventing the assessing officer to               c
 proceed with the assessinent proceedings and carry out
 appropriate assessment. The High Court, in the impugned
 judgment has propounded the correct and relevant test, viz.,
 whether the special audit is an integral part of the assessment
 proceedings, i.e., without special audit it is not possible for the
                                                                            D
 assessing officer to carry out the assessment? If it is so, then
 stay of the special audit may qualify as stay of assessment
 proceedings and, therefore, would be covered by the said
 explanation. [Para 20] [400-G-H; 401-A-D]
        1.4 The High Court rightly held that the special audit was,
  an integral step towards assessment proceedings. The submissioh : E
  of the appellants that the writ petition of the appellant was
  ultimately allowed and the Court had quashed the order directing
  special audit would mean that no special audit was needed and,
  therefore, it was not open to the respondent to wait for special ·
  audit, cannot be accepted. The assessing officer had, after going F
  through the matter, formed an opinion that there was a need for
  special audit and the report of special audit was necessary for
  carrying out the assessment. Once such an opinion was formed,
  naturally, the assessing officer would not proceed with the
  assessment till the time the special audit report is received,
  inasmuch as in his opinion, report of the special audit was G
  necessary. In a situation where the order of special audit is not
  challenged, the assessing officer would naturally wait for this report
  before proceeding further. Order of special audit followed by
· conducting special audit-a'lfd report thereof, thus, become part of
  assessment proceedings. If the order directing special audit is H
392            SUPREME COURT REPORTS                         [2016]3 S.C.R.


A     challenged and an interim order is granted staying the making of a
      special report, the assessing officer would not proceed with the
      assessment in the absence of the audit as he thought, in his wisdom,
      that special audit report is needed. That would be the normal and
      natural approach of the assessing officer at that time. In the
      estimation of the assessing officer special audit was essential for
B     passing proper assessment order. If the court, while undertaking
      judicial review of such an order of the assessing officer directing
      special audit ultimately holds that such an order is wrong (for whatever
      reason) that event happens at a later date and would not mean that
      the benefit of exclusion of the period during which there was a stay
c     order is not to be given to the Revenue. Explanation 1 which permits
      exclusion of such a time is not dependent upon the final outcome of
      the proceedings in which interim stay was granted. (Para 23) (403-B-
      G]
              1.5 As regards, from which date the period of limitation is to
D     be counted, i.e. from 22nd June, 1998 when the respondent
      authorities visited the premises of the appellants on the basis of
      Warrant of Authorisation dated 19th June, 1998 or 5th August, 1998,
      on which date the Revenue authorities last visited the premises of
      the appellants on the basis of the same Warrant of Authorisati.on
      and conducted the search of the appellants premises. If the period is
E     to be counted from 19th June, 1998, the last date by which the
      assessment was to be carried would be 30th June, 2000. If it is to be
      counted from 5th August, 1998, then the limitation period was to
      expire on 31st August, 2000. In the event the last date for completing
      the block assessment is held to be 30th June, 2000, then the
      assessment became time barred even before the interim stay was
 F
      granted by the High Court as it was granted on 24th August, 2000,
      i.e. after the supposed limitation period was over and, therefore, the
      conclusion recorded in answering the other question, would not come
      to the rescue of the Department. On the other hand, if the period of
      limitation was to expire on 31st August, 2000, then the period of
G     limitation for block assessment has not expired inasmuch as this
      Court has passed an order dated 5th February, 2007 that audit may
      go on but no final assessment order be passed. [Para 25) (403-H;
      404-A-D)
            1.6 The appellants neyer challenged subsequent visits and
H     searches of ttleir premises by the respondents on the ground that in
VLS FINANCE LTD. & ANR. v. COMMISSIONER OF INCOME                      393
                    TAX &ANR.

the absence of a fresh authorisation those searches were illegal,      A
null and void. Notwithstanding the same, it was submitted that at
least for the purpose of limitation the subsequent searches could
not be taken into consideration, as the legal position was that the
authorisation dated 19th June, 1998, was executed on 22nd June,
1998 and the search came to an end with that when the search
                                                                        B
party left the premises on 23rd June, 1998 after making seizure
of certain documents etc and issuing restraint order under Section
132(3) of the Act in respect of certain items which they allegedly
could not seize due to impracticability on that day. It was also
argued that there was no concept of 'revalidation of authorisation'
provided under the Act, which was applied by the High Court in          c
the impugned judgment, which according to the appellants,
amounts to legislating a new concept which is contrary to law.
The Revenue refuting the these, submitted that as per explanation
(2) to Section 158BE, when it is a case of search, period of
limitation is to be counted 'on the conclusion of search as recorded
                                                                        D
in the last panchnama drawn; and that last panchnama was
admittedly drawn o_n 5th August, 1998 and, thus, period of
limitation is to be counted from that date. [Paras 27, 28] [404-G-
H; 405-A-C]
      1. 7 The revenue authorities visited and searched the
premises of the appellants for the first time on 22nd June, 1998.       E
In the panchnama drawn on that date, it was remarked
'temporarily concluded', meaning th.ereby, according to the
revenue authorities, search had not been concluded. For this
reason, the respondent authorities visited many times on
subsequent occasions and every time panchnama was drawn with            F
the same remarks, i.e. 'temporarily concluded'. It is only on 5th
August, 1998 when the premises were searched last, the
panchnama drawn on that date recorded the remarks that the
search was 'finally concluded'. Thus, according to the
respondents, the search had finally been completed only on 5th
August, 1998 and panchnama was duly drawn on the said date as           G
well. The appellants, in the writ petition filed, had no where
~hallenged the validity of searches on the subsequent dates raising
a plea that the same was illegal in the absence of any fresh and
valid authorisation. On the contrary, the appellants proceeded
on the basis that search was conduced from 22nd June, 1998 and          H
394            SUPREME COURT REPORTS                          [2016] 3 S.C.R.



A     finally concluded on 5th August, 1998. [Para 30] [405-E-G)
            1.8 On the said facts and in the absence of any challenge
      laid by the appellants to the subsequent 'Searches, the submission
      of the appellant that limitation period is not to be counted from
      the last date of search when the search operation completed, i.e.
B     5th August, 1998, cannot be accepted. [Para 31] i405-H; 406-A]
            Rajesh Kumar and Ors. v. Dy. Commissioner of Income
            Tax and Ors. (2007) 2 SCC 181:2006 (8) Suppl. SCR
            284; K.M Sharma v. ITO (2002) 254 ITR 772 (SC);
            Auto and Metal Engineers and other v. Union of India
c           and Ors. (1998) 229 ITR 399; Commissioner of Income
            Tax v. Dhariwal Sales Enterprises (1996) 221 ITR 240
            - referred to.
                               Case Law Reference
            2006 (8) Suppl. SCR 284             referred to      Para 10
D           (2002) 254 ITR 772 (SC)             referred to      Para 19
            (1998) 229 ITR 399                  referred to      Para 21
            (1996) 221 ITR 240                  referred to      Para 22
           CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2667
      of2007.
 E          From the Judgment and Order dated 15.12.2006 of the High Court
      of Delhi at New Delhi in W. P. 4685 of2000.
            S. Ganesh, Ajay Vohra, Sr. Advs., Shashwat Bajpai, Vaibhav
      Kulkarni;Y. N; Raghupathy, Ashok K. Sharma, Advs. for the Appellants.
          . Ms. Pinky Anand, ASG, Ms. Sridhar Mehra, B. V. Bairam Das,
 F    Sudhir Walia, Akash Jindal, Atulesh Kumar, Ms. Sumita Hazarika,
      NiharikaAhl1:1}Valia, Advs. for the Respondents.
            The Judgment of the Court was delivered by
             A.K. SIKRI, J. I. In this appeal, challenge is laid to that part of
      the judgment of High Court of Delhi dated 15th December, 2006 whereby
 G
      High Court has held that the block assessment proceedings initiated by
      the respondent-Department against the appellants herein have not become
      time barred, by giving the respondents benefit of the period during which
      proceedings were pending in the High Court, in view of some interim
      orders passed in those proceedings which remained operative till the
 H    writ petition filed by the appellants were decided finally. Factual
VLS FINANCE LTD. & ANR. v. COMMISSIONER OF INCOME                              395
             TAX & ANR. [A. K. SIKRI, J.]

background leading to the present appeal is as under:                          A
     · 2. Search and seizure took place in the business premises of the
appellant companies on 22nd June, 1998 on the strength of warrant of
autorization dated 19th June, 1998 which went upto in the morning hours
of 23rd June, 1998. It was followed by further searches from time to
time which went on till 5th August.                                             B
       3. Notice under Section 158BC(c) of the Income Tax Act, 1961
(hereinafter referred to as the "Act') was issued on 28th June, 1999
requiring the appellants to furnish return for the block period from April
1, 1988 to 22nd June, 1998. This notice was withdrawi1 and another
notice was issued on 26.07.1999. In response thereto, the appellants            c
filed return for the aforesaid block period on 10th September, 1999. As
per Section 158BE of the Act, assessment is to be completed within two
years from the end of the month in which the last of the authorisation for
search under Section 132 or for requisition under Section l 32A, as the
case may be. However, the assessing officer could not do so because
of certain developments which took place and are narrated hereinafter.          D

      4. A direction under Section 142(2A) was issued on 29.06.2000,
which was served to the appellants on 19th July, 2000 for conducting
special audit for the aforesaid block period.
       5. A Writ Petition (Civil) No. 4685 of 2000 was filed by the             E
appellants, wherein a challenge was laid to the aforesaid order dated
29th June, 2000 issued by respondent no. 2 directing a special audit in
respect of appellants under Section 142(2A) of the Act. In the said writ
petition, the appellants also challenged the clarifieatory order dated I 0th
August, 2000 issued by respondent no. 2 with regard to special audit in
respect of appellant no. I for the period from the Assessment Year 1994-        F
95 to Assessment Year 1998-99 and insofar as appellant no. 2-the period
for Assessment Year 1994-95 to Assessment Year 1996-97.
       6. During the pendency of the writ petition, as amendment
application was filed being CM No. 9305/2006, seeking to add additional
ground that the Block Assessment Proceedings under Section l 58BC(c)            G
of the Act were time barred. The appellants submitted that the time
limit for completion of Block Assessment expired on 30th June, 2000 in
terms of Section I 58BE of the Act, since 2 years period expired on that
date. It was further submitted that the authorization executed on 22nd
June, 1998 could not have been utilized for conducting further search till      H
396           · SUPREME COURT REPORTS                          [2016] 3 S.C.R.


A · August, 1998. it was also contended thatthe orderunder Section l 42(2A)
    of the Act was issued in violation of principles ofnatural justice as there
    was no complexity in the accounts of the appellants and, therefore, there
    was no justification in law to order special audit under Section l 42(2A)
    of the Act.
B           7. The respondents filed their affidavit in reply to the show cause
      explaining that the order for special audit under Section l 42(2A) of the
      Act was issued with proper authorization made by Commissioner of
      lncome Tax after due deliberation and on the basis of the report of the
      Assessing Officer viz. Assistant Commissioner of Income Tax, New
      Delhi. It was further submitted that the period of completion of block
c     assessment was to expire on 31st August, 2000 and not on 30th June,
      2000 as claimed by the appellants. As per the respondents, since seizure
      operation were conducted from 22nd June, 1998 and these operations
      concluded only on 5th August, 1998, the time limit of two years for
      completion of"Block Assessment" was to expire only on 31st August,
 D    2000.
            8. In Writ Petition (Civil) No. 4685 of2000, interim order dated
      24th August, 2000 was passed, which reads as under:
            "C.W. No. 4685/2000
                                                                                  '
 E                  Notice to the respondents to show cause as to why
             petition by not admitted, returnable on 14th September, 2000.
                   Mr. R.D. Jolly, Advocate accepts notice on behalf
             of respondents.
             C.M. No. 7227/2000
 F
                  Notice for 14th September, 2000. Mr. Jolly accepts
             notice.
                 Counter be filed by 13th September, 2000.
                 Interim stay of the orders dated 29th June, 2000.
 G
                 Annexure-A read with Annexure-B dated 10th August,
             2000."
             9. This stay remained in operation during the pendency of the
      writ petition.
 H           I 0. The matter was finally heard and decided by the Delhi High
    VLS FINANCE LTD. & ANR. v. COMMISSIONER OF INCOME                               397
                 TAX & ANR. [A. K. SIKRI, J.]

    Court vide judgment dated 15th December, 2006. It has quashed the               A
    direction for special audit in view of the fact that no hearing was afforded
    to the appellant before issuing such direction, which was necessary as
    per the law laid down in the case of Rajeslt Kumar and otlters Vs. Dy.
    Commissio11er of Income Tax and others'.
           J J. However, the High Court decided the question oflimitation in         B
    favour of the Department holding that the period between 24th August,
    2000, i.e, date on which interim order was passed staying special audit
    direction under Section l 42(2A) dated 29th June, 2000 and 15th
    December, 2016, i.e., when the High Court has passed the order setting
    aside the direction for special audit, be excluded in counting limitation
    for concluding block assessment.
                                                                                     c
           12. The appellants contended before the High Court that since
    there was no stay on block asse·ssment proceedings in terms of interim
    order dated 24th August, 2000, the direction to exclude the period between
    24th August, 2000 to 15th December, 2006 was beyond its jurisdiction.
                                                                                     D
    It was alternatively contended before the High Court that the limitation
    for passing the block assessment having expired on 30th June, 2000 in
    terms of Section 158BE( 1) of the Act, the direction to exclude the
    limitation period between 24th August, 2000 to 15th December, 2006
    would not, in any case, save limitation. While rejecting the aforesaid
    contentions raised by the appellants, the High Court held that since special     E
    audit was an important and integral step in the assessment proceedin"gs,
    once the direction for special audit was stayed by the High Court,
    assessment proceedings ipso facto could not go on. The High Court
    rejected the assessee's second alternative argument holding that limitation
    period of two years was to be calculated from 5th August, 1998, on
                                                                                     F
    which date last panchnama was drawn.
           13. In the instant appeal, impugning the decision of the High
    Court, following substantial questions oflaw are raised for consideration
    by this Court:
          (a) Whether on the facts and circumstances of the case, the High           G
             Court having quashed the direction under Section I 42(2A) of the
              Act was justified in law in directing to exclude the period between
              24th August, 2000 to 15th December, 2006 in counting the period
              oflimitation for passing the block assessment order?
·   1   (2007) 2 sec 181                                                             H
398            SUPREME COURT REPORTS                          [2016] 3 S.C.R.


A        (b) Whether on the facts and circumstances of the case, the interim
            order dated 24th August, 2000 staying the direction for special
            audit contained in order dated 29th June, 2000, could be construed
             as amounting to stay of assessment proceedings?
         (c) Whether on the facts and circumstances of the case, the High
B            Court erred in law in holding that the period of limitation expired
             on 31st August, 2000, instead of 30th June, 2000, in terms of
             Section l 58BE( 1) read with Explanation 2 thereto?
         ( d) Whether on the facts and in the circumstances of the case, it is
             permissible under Section 132 of the Act that the same warrant
c            of authorization be executed 16 times and be revalidated again
             and again instead of issuing fresh authorization for each visit and
             whether such revalidation can be done without recording any
             reasons justifying the revalidation as in the present case.
            14. In effect the central issue is one of limitation, which has the
o     following two facets, viz.;
         (a)Whether the period of limitation expired on 31st August, 2000 or
            the last date for completing block assessment was 30th June, 2000?
         (b)Whether the period between 24th August, 2000 to 15th December,
            2006, when interim stay was in operation, required to be excluded
 E          for the purposes of counting limitation period?
             15. First, we shall take up the second issue for discussion. It is
      not in dispute that the period during which interim stay of the order
      passed by the court is in operation has to be excluded while computing
      the period of two years as limitation period prescribed for completing
 F    the block assessment. The parties have, however, joined issue on the
      nature of stay order which qualify for such exclusion. For this, it would
      be necessary to scan through the language of Explanation 1 to Section
       l 58BE(2) of the Act. This provision makes the following reading:
            "Explanation I. - In computing the period oflimitation for
 G          the purposes of this section, -
             (i) the period during which the assessment proceeding is
             stayed by an order or injunction of any court; or
             (ii) the period commencing from the day on which the
             Assessing Officer directs the assessee to get his accounts
 H           audited under sub-section (2A) of section 142 and ending
 VLS FINANCE LTD. & ANR. v. COMMISSIONER OF INCOME                              399
              TAX & ANR. [A. K. SIKRI, J.]

        on the day on which the assessee is required to furnish a                A
        report of such audit under that sub-section; or
        (iii) & (iv) xxx xxx xxx
        shall be excluded:
        Provided xxx xxx xxx"                                                    B
        16. The plea of the appellants is that only that period can be
 excluded in computing the period oflimitation, during which assessment
 proceedings were stayed. A certain distinction was tried to be drawn in
 the instant case by referring to the interim order which was passed by
 the High Court on 24th August, 2000 which has stayed the order of the           c
 Department directing compulsory audit. It was, thus, argued that stay
 was limited only to conducting compulsory audit and there was no stay
 of the assessment proceedings.
         17. M/s. Ganesh and Vohra, learned senior counsel appearing for
. the appellants made a fervent plea to the effect that in the absence of        D
  any stay of the assessment proceedings, there was no embargo on the
  part of the assessing authority to proceed with the assessment even
  when the order directing special audit was stayed, and therefore, benefit
  of the aforesaid explanation would not be available to the respondents.
  It was argued that the High Court had committed an error in giving the
  benefit of the exclusion of the said period on a wrong premise that special    E
  audit was an integral part of the assessment proceedings. It was also
  argued that Explanation 1, as it existed at the relevant time, did not make
  any provision for excluding the period from the date when assessing
  officer directs the assessee to get his accounts audited till the date when
  the assessee is required to furnish -the report of such audit. Such an
                                                                                 F
  amendment, it was pointed out, is made in Clause (ii) of Explanation to
  Section 1538 of the Finance Act, 20I3, w.e.f. 1st June, 2013 to fill the
  lacunae that existed in the statutory framework and this would also fortify
  the submissions of the appellants that at the relevant time there was no
  such provision for exclusion of the time period during which there was a
  stay of special audit but no stay assessment proceedings. It was also          G
  argued that insofar as the provision relating to limitation is concerned it
  needs strict interpretation, and certain judgments were referred to, by
  the learned counsel, in this behalf.
       18. Ms. Pinky Anand, learned ASG, on the other hand, supported
 the order of the High Court by arguing that with the passing of High            H
400             SUPREME COURT REPORTS                           (2016] 3 S.C.R.


A ·court order staying the orders dated 29th June, 2000 and 10th August,
   2000 passed under Section 142(2A) of the Act which meant that the
   Department was prevented from carrying out special audit, it was not
   possible to proceed with the assessment as well as inasmuch as the
   assessing officer at the time of passing the order under Section I42(2A)
   of the Act recorded his satisfaction that in order to carry out the proper
B
   assessment, special audit was essential. She, thus, submitted that the
   High Court rightly held that special audit was integral part of the
   assessment.
            19. We have already reproduced the language of Explanation I.
    it is not in doubt that this explanation grants benefit of exclusion only for
c those cases where 'the assessment proceeding is stayed by an order or
  . injunction' of the court. On literal construction, therefore, it becomes
    clear from the reading of this provision that the period that is to be
    excluded while computing the period oft imitation for completion of Block
    Assessments is the period during which assessment proceedings are
D stayed by an order of a court and this provision shall not apply ifthe stay
    of some other kind, i.e, other than staying the assessment proceedings,
    is passed. The counsel for the appel Iants are justified in their contention
    that the provision relating to limitation need to be strictly construed. In
    the case of K.M. Sharma Vs. ITO\ this principle is laid down in the
    followin_g words:
E
            "13. Fiscal statute, more particularly a provision such as
            the present one regulating period oflimitation must receive
            strict construction. The law oft imitation is intended to give
            certainty and finality to legal proceedings and to avoid
            exposure to risk oflitigation to litigant for indefinite period
F           on future unforeseen events. Proceedings, which have
            attained finality under existing law due to bar oft imitation
            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 been
G           concluded and attained finality."
            20. As a general rule, therefore, when there is no stay of the
      assessment proceedings passed by the Court, Explanation I to Section
      I 58BE of the Act may not be attracted. However, this general statement
      oflegal principle has to be read subjectto an exception in order to interpret
 H    '(2002) 254 !TR 772 (SC)
VLS FINANCE LTD. & ANR. v. COMMISSIONER OF INCOME                               401
             TAX & ANR. [A. K. SIKRI, J.]

it rationally and practically. In those cases where sttiy of some other          A
nature is granted than the stay of the assessment proceedings but the
effect of such stay is to prevent the assessing officer from effectively
passing assessment order, even that kind of stay order may be treated
as stay of the assessment proceedings because of the reason that such
stay order becomes an obstacle for the assessing officer to pass an
                                                                                 B
assessment order thereby preventing the assessing officer to proceed
with the assessment proceedings and carry out appropriate assessment.
For an example, if the court passes an order injuncting the assessing
officer from summoning certain records either from the assessee or
even from a third party and without those records it is not possible to
proceed with the assessment proceedings and pass the assessment order,           c
even such type of order may amount to staying the assessment
proceedings. In that context, we would like to comment that the High
Court, in the impugned judgment has propounded the correct and relevant
test, viz., whether the special audit is an integral part of the assessment
proceedings, i.e., without special audit it is not possible for the assessing
                                                                                 D
officer to carry out the assessment? If it is so, then stay of the special
audit may qualify as stay of assessment proceedings and, therefore,
would be covered by the said explanation.
        21. The question, therefore, is as to whether, in the given case,
the High Court was right in holding that the special audit was not only a
step in the assessment proceedings, but an important and integral step,
                                                                                 E
in the absence of which an assessment order could not be made. In
support of the aforesaid conclusion, the High Court referred to the
judgment in Auto (md Metal Engineers mu/ other Vs. Union of India
and Others 3 wherein th is Court examined in detai I as to what constitutes
assessment proceedings. The Court in that case was interpreting                  F
Explanation I to Section 153 of the Act, which is pari materia to
Explanation I of l 58BE of the Act. The said provision was interpreted
in the following manner:
       "Sub-section (I) of section 153 prescribed the period of
       limitation within which an order of assessment could be                   G
       passed. For the assessment years in question the last date
       for making the order of assessment under the said provision
       was March 31, 1972. By Explanation 1 to section 153 the
       period of limitation prescribed under sub-section (I) for
       making the order of assessment was extended by the period
-----
3(I 998) 229 !TR 399                                                             H
40'2            SUPREME COURT REPORTS                          (2016] 3 S.C.R.


A            during which the assessment proceeding was stayed by an
             order or injunction of any court. The object of the
             Explanation seems to be that ifthe Assessing Officer was
             unable to complete the assessment on account of an order
             or injunction staying the assessment proceeding passed by
             a court the period during which such order or injunction
             was in operation should be excluded for the purpose of
             computing the period oflimitation for making the assessment
             order. The process of assessment thus commences with
             the filing of the return or where the return is not filed, by
             the issuance by the Assessing Officer of notice to file the
c            return under section 142 (I) and it culminates with the
             issuance of the notice of demand under section 156. The
             making of the order ofassessment is, therefore, an integral
             part of the process of assessment. Having regard to the
             fact that the object underlying the Explanation is to extend
             the period prescribed for making the order of assessment,
 D
             the expression "assessment proceeding" in the Explanation
             must be construed to comprehend the entire process of
             assessment starting froni the stage of filing of the return
             under section 139 or issuance of notice under section 142( 1)
             or section 144. Since the making of the orderof assessment
 E           under section 143 (3) or section 144 of the Act is an integral
             part of the assessment proceeding, it is not possible to split
             the assessment proceeding and confine it up to the stage of
             inquiry under sections 142 and 143 and exclude the making
             of the order of assessment from its ambit. An order staying
             the passing of the final order of assessment is nothing but
 F
             an order staying the assessment proceeding. Since the
             passing of the final order of assessment had been stayed
             by the Delhi High Court by its order dated November 23,
              1971, in the writ petitions, it must be held that there was a
              stay of assessment proceedings for the purpose of
 G           Explanation 1 to section 153."
             22. The aforesaid judgment applies on all force, as rightly held by
       the High Court. We may also refer to the judgment of the Madhya
       Pradesh High Court in Commissioner of Income Tax Vs. Dlwriwal
       Sales Enterprises•. That was a case where special audit report under
 H     '(1996) 221!TR240
VLS FINANCE LTD. & ANR. v. COMMISSIONER OF INCOME                                403
             TAX & ANR. [A. K. SIKRI, J.]

Section 142(2A) of the Act was called for but could not be submitted.            A
The High Court held that time period spent for obtaining a copy of the
report upto the time when intimation of non-submission was given by the
assessee would be excluded.
       23. We, therefore, agree with the High Court that the special
audit was an integral step towards assessment proceedings.. The                   B
argument of the appellants that the writ petition of the appellant was
ultimately allowed and the Court had quashed the order directing special
audit would mean that no special audit was needed and, therefore, it
was not open to the respondent to wait for. special audit, may not be a
valid argument to the issue that is being dealt with. The assessing officer
had, after going through the matter, formed an opinion that them was a            c
need for special audit and the report of special audit was necessary for
carrying out the assessment. Once such an opinion was formed, naturally,
the assessing officer would not proceed with the assessment till the time
the special audit report is received, inasmuch as in his opinion, repo1t of
the special audit was necessary. Take a situation where the order of              D
special audit is not challenged. The assessing officer would naturally
wait for this report before proceeding further. Order of special audit
followed by conducting special audit and report thereof, thus, become
part of assessment proceedings. If the order directing special audit is
challenged and an interim order is granted staying the making of a special
report, the assessing officer would not proceed with the assessment in            E
the absence of the audit as he thought, in his wisdom, that special audit
report is needed. That would be the normal and natural approach of the
assessing officer at that time. It is stated at the cost of repetition that in
the estimation of the assessing officer special audit was essential for
passing proper assessment order. If the court, while undertakingjudicial          F
review of such an order of the assessing officer directing special audit
ultimately holds that such an order is wrong (for whatever reason) that
event happens at a later date and would not mean that the benefit of
exclusion of the period during which there was a stay order is not to be
given to the Revenue. Explanation I which permits exc.lusion of such a
time is not dependent upon the final outcome of the proceedings in which          G
interim stay was granted.
       24. We, therefore, answer this question in favour of Revenue.
       25. With this, we revert to the other question, viz. from which
date the period of limitation is to be counted, i.e. from 22nd June, 1998         H
404             SUPREME COURT REPORTS                           [2016] 3 S.C.R.



A     when the respondent authorities visited the premises of the appellants
      on the basis of Warrant of Authorisation dated 19th June, 1998 or 5th
      August, 1998, on which date the Revenue authorities last visited the
      premises of the appellants on the basis of the same Warrant of
      Authorisation dated 19th June, 1998 and conducted the search of the
      appellants premises. If the period is to be counted from 19th June, 1998,
8
      the last date by which the assessment was to be carried would be 30th
      June, 2000. If it is to be counted from 5th August, 1998, then the limitation
      period was to expire on 31st August, 2000. In the event the last date for
      completing the block assessment is held to be 30th June, 2000, then the
      assessment became time barred even before the interim stay was granted
c     by the High Court as it was granted on 24th August, 2000, i.e. after the
      supposed limitation period was over and, therefore, the conclusion which
      we have recorded in answering the other question, as above, wou Id not
      come to the rescue of the Department. On the other hand, ifthe period
      of limitation was to expire on 31st August, 2000, then by virtue of our
      answer to the first issue, the period of limitation for block assessment
D
      has not expired inasmuch as this Court has passed an order dated 5th
      February, 2007 that audit may go on but no final assessment order be
      passed. Because of this reason, it becomes necessary to decide this
      aspect of the matter as well.
              26. The argument of learned counsel for the appellants on this
E     issue is that there was only one warrant of authorisation which empowered
      the Revenue authorities to carry out search and visit of the revenue
      officials on 22nd June, 1998 on the basis of said Warrant ofAuthorisation
      dated 19th June, 1998, would end in exhausting the said warrant of
      authorisation. It was argued that for subsequent visits, fresh authorisation
F     was required and no such authorisation was taken and, therefore,
      subsequent searches are illegal and no benefit thereof should enure to
      be respondent.
             27. We may point out that the appellants never challenged
      subsequent visits and searches of their premises by the respondents on
G     the ground that in the absence of a fresh authorisation those searches
      were illegal, null and void. Notwithstanding the same, it was argued that
      at least for the purpose of limitation the subsequent searches could not
      be taken into consideration, as according to the learned counsel, the
      legal position was that the authorisation dated 19th June, 1998, was
      executed on 22nd June, 1998 and the search came to an end with that
H     when the search party left the premises on 23rd June, 1998 after making
VLS FINANCE LTD. & ANR. v. COMMISSIONER ·oF INCOME                            405
             TAX & ANR. [A. K. SIKRI, J.]

seizure of certain documents etc and issuing restraint order under Section    A
132(3) of the Act in respect of certain items which they allegedly could
not seize due to impracticability on that day. Some judgments of various
High Courts are relied upon to support this proposition. It was also
argued that there was no concept of 'revalidation of authorisation'
provided under the Act, which has been applied by the High Com1 in the
                                                                               B
impugned judgment, which according to the learned counsel for the
appellants, amounts to legislating a new concept which is contrary to
law.
       28. The learned Additional Solicitor General, refuting the aforesaid
contention, submitted that as per explanation (2) to Section I 58BE, when
it is a case of search, period of limitation is to be counted 'on the
                                                                               c
conclusion of search as recorded in the last panchnama drawn ..... ' It
was argued that last panchnama was admittedly drawn on 5th August,
1998 and, therefore, period oflimitation is to be counted from that date.
       29. After considering the respective submissions, we are of the
opinion that on the facts of this case, the issue also has to be answered      D
in favour of the Revenue without going into the legal niceties.
       30. As noticed above, the revenue authorities visited and searched
the premises of the appellants for the first time on 22nd June, 1998. In
the panchnama drawn on that date, it was remarked 'temporarily
concluded', meaning thereby, according to the revenue authorities, search      E
had not been concluded. For this reason, the respon_dent authorities
visited many times on subsequent occasions and every time panchnama
was drawn with the same remarks, i.e. 'temporarily concluded'. It is
only on 5th August, 1998 when the premises were searched last, the
panchnama drawn on that date recorded the remarks that the search              F
was 'finally concluded'. Thus, according to the respondents, the search
had finally been completed only on 5th August, I 998 and panchnama
was duly drawn on the said date as well. The appellants, in the writ
petition filed, had no where challenged the validity of searches on the
subsequent dates raising a plea that the same was illegal in the absence
of any fresh and valid authorisation. On the contrary, the appellants          G
proceeded on the basis that search was conduced from 22nd June, 1998
and finally concluded on 5th August, 1998.
       31 . On the aforesaid facts and in the absence of any challenge
laid by the appellants to the subsequent searches, we cannot countenance
the arguments of the appellants that limitation period is not to be counted    H
406                SUPREME COURT REPORTS                      [2016] 3 S.C.R.



A     from the last date of search when the search operation completed, i.e.
      5th August, 1998. Therefore, this issue is also decided in favour of the
      respondents.
             32. In view of the foregoing, this appeal is liable to be dismissed
      and is, accordingly, dismissed with costs.
B
      Nidhi Jain                                                Appeal dismissed.