MAIN POINTS
Special audit being an integral step towards assessment proceedings, its stay would amount to stay of the assessment proceedings.
Limitation u/s 158BE would start from the date of conclusion of search operations.

JUDGMENT :

A.K. Sikri, J.

In this appeal, challenge is laid to that part of the judgment of High Court of Delhi dated 15th December, 2006 whereby 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 writ petition filed by the appellants were decided finally. Factual background leading to the present appeal is as under:

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.

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 This notice was withdrawn and another notice was issued on 26.07.1999. In response thereto, the appellants 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 132A, as the case may be. However, the assessing officer could not do so because of certain developments which took place and are narrated hereinafter.

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 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 clarificatory order dated 10th August, 2000 issued by respondent no. 2 with regard to special audit in respect of appellant no. 1 for the period from the Assessment Year 1994-95 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 158BC(c) 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 158BE 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 August, 1998 it was also contended that the order under Section 142(2A) of the Act was issued in violation of principles of natural 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 142(2A) of the Act.

7. The respondents filed their affidavit in reply to the show cause explaining that the order for special audit under Section 142(2A) of the Act was issued with proper authorization made by Commissioner of Income 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 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 5t