Auto & Metal Engineers And Others v. Union Of India And Others

Order

1. The short question that falls for consideration in these appeals relates to the interpretation of the expression “assessment proceeding” in Explanation I in Section 153 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”).

2. Civil Appeals Nos. 2739-41 of 1981 have been filed by M/s Auto & Metal Engineers, a partnership firm, and its partners while Civil Appeals Nos. 2742-44 of 1981 and Civil Appeals Nos. 2745-47 of 1981 have been filed by Sunanda Rani Jain and Karuna Rani Jain, the two partners of the assessee-firm in their individual capacity. The appeals relate to Assessment Years 1967-68, 1968-69 and 1969-70. On 24-4-1971 a search was conducted at the business premises of the assessee-firm as well as at the residential premises of the partners and certain documents and papers were seized during the course of the search. The partners of the assessee-firm filed writ petitions in the Delhi High Court wherein they challenged the validity of the said search and seizure. The said writ petitions were admitted by the High Court on 26-10-1971. In the said writ petitions an interim order was passed on 23-11-1971 by Rajinder Sachar, J. (as he then was) in the following terms:

“After hearing the counsel of the parties I direct that the respondents may proceed on in pursuance of the notice but no final order be passed till the pendency of this writ petition. Mr Sharma, counsel for the respondents, informed me that the matter is urgent as the assessment is liable to be time-barred by March 1972. I am informed that the case is complete inasmuch as the return of the respondents and rejoinder by the petitioner have already been filed. Let the matter be heard in the second week of January 1972.”

3. The said interim order was continued till 12-8-1974 when the writ petitions were dismissed by the Delhi High Court. Thereafter, the Income Tax Officer issued notices to the assessee-firm as well as its partners under Sections 142(1), 143(2) and 143(3) of the Act in respect of the assessment years mentioned above. The reply to the said notices was submitted by the assessees on 21-11-1974. Soon thereafter the writ petitions, which have given rise to these appeals, were filed by the appellants in the High Court of Punjab and Haryana. In the said writ petitions the case of the appellants was that under the interim order dated 23-11-1971 passed by the Delhi High Court there was no stay of the assessment proceedings and that Explanation I in Section 153 of the Act could not be invoked and that after the expiry of the period prescribed under Section 153 the Income Tax Officer was not competent to issue the notice in the assessment proceedings against the appellants. The said contention of the appellants was rejected by the learned Single Judge on the view that expression “assessment proceeding” in Explanation I in Section 153 would include the passing of the order of assessment and since the passing of the order of assessment had been stayed by the Delhi High Court, there was a stay of assessment proceedings by the High Court. The learned Single Judge held that in view of the stay order passed by the Delhi High Court the period from 23-11-1971 to 31-3-1972 (the last date for completing the assessment), i.e, the period of four months and eight days, was available to the Income Tax Officer to complete the assessment after the dismissal of the writ petition by the Delhi High Court on 12-8-1974 and that the assessments could be completed up to 20-12-1974. The learned Single Judge, therefore, dismissed the writ petitions filed by the appellants. Letters patent appeals filed by the appellants against the judgment of the learned Single Judge were dismissed by the Division Bench of the High Court by order dated 11-12-1980. Feeling aggrieved by the said order of the Division Bench, the appellants have filed these appeals by special leave.

4. Shri Puneet Bali, the learned counsel appearing for the appellants, has submitted that the High Court was in error in holding that there was a stay of assessment proceedings by the Delhi High Court under order dated 23-11-1971. The submission of the learned counsel is that by the said order, only the passing of the final order of assessment had been stayed but assessment proceedings had not been stayed and it was open to the Income Tax Officer to proceed with the assessment proceedings during the pendency of the writ petitions and that since he failed to do so he could not take any step in the assessment proceedings by issuing notice under Sections 142 and 143 of the Act after 31-3-1972. In our opinion, there is no merit in the said contention urged by the learned counsel.

5. The relevant provisions of Section 153 of the Act as it stood at that time may be reproduced as under:

“153. (1) No order of assessment shall be made under Section 143 or Section 144 at any time after—

(a) the expiry of—

(i) four years from the end of the assessment year in which the income was first assessable, where such assessment year is an assessment year commencing on or being the Ist day of April, 1967;

(ii) three years from the end of the assessment year in which the income was first assessable, where such assessment year is the assessment year commencing on the Ist day of April, 1968;

(iii) two years from the end of the assessment year in which the income was first assessable, where such assessment year is an assessment year commencing on or after the Ist day of April, 1969; or

(b)-(c) ***

(2)-(3) ***

Explanation 1.—In computing the period of limitation for the purposes of this section, the time taken in reopening the whole or any part of the proceeding or in giving an opportunity to the assessee to be reheard under the proviso to Section 129 or any period during which the assessment proceeding is stayed by an order or injunction of any court, shall be excluded.”

6. Sub-section (1) of Section 153 prescribed the period of limitation within which an order of assessment could be passed. For the assessment years in question the last date for making the order of assessment under the said provision was 31-3-1972. By Explanation I in Section 153 the period of limitation prescribed under sub-section (1) for making the order of assessment was extended by the period during which the assessment proceeding was stayed by an order or injunction of any court. The object of the explanation seems to be that if the 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 of limitation for making the assessment order.

7. In the Act the provisions regarding procedure for assessment are contained in Chapter XIV (Sections 139 to 158). Under the said provisions the process of assessment involves (i) filing of the return of income under Section 139 or under Section 142 in response to a notice issued under Section 142(1); (ii) inquiry by the Assessing Officer in accordance with the provisions of Sections 142 and 143; (iii) making of the order of assessment by the Assessing Officer under Section 143(3) or Section 144; and (iv) issuing of the notice of demand under Section 156 on the basis of the order of assessment. The process of assessment thus commences with the filing of the return or when the return is not filed by the issuance by the Assessing Officer of the notice to file the return under Section 142(1) and it culminates with the issuance of the notice of demand under Section 156. The making of the order of assessment 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, the expression “assessment proceeding” in the explanation must be construed to comprehend the entire process of assessment starting from the stage of filing of the return under Section 139 or issuance of notice under Section 142(1) till the making of the order of assessment under Section 143(3) or Section 144. Since the making of the order of assessment 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 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 23-11-1971 in the writ petitions, it must be held that there was a stay of assessment proceedings for the purpose of Explanation I in Section 153. The High Court, in our opinion, was right in holding that the period during which the said stay order passed by the Delhi High Court was in operation has to be excluded for the purpose of computing the period of limitation for making the order of assessment and the appeals are liable to be dismissed.

8. Keeping in view the fact that after the judgment of the learned Single Judge dismissing the writ petitions the appellants had obtained a stay order from the High Court in the letters patent appeals that were filed by them and after the dismissal of the said appeals stay order was obtained from this Court which order has been in operation during the pendency of these appeals, we grant four months' time to the Assessing Officer to complete the assessment proceedings and pass the orders of assessment on the basis of the impugned notices issued by him. The appeals are dismissed with these directions. No orders as to costs.