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Rajendra Kumar Verma v. Director General (Investigation) Of Income-Tax And Others

Allahabad High Court

Aug 20, 2010

Judgment

CaseIQ

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Factual and Procedural Background

The petitioner, an assessee under the Income-tax Act, challenged a search and seizure by the Income-tax Department conducted on February 9, 2000, and sought release of seized assets plus refund and return of two bank guarantees (Rs. 11,60,000 and Rs. 8,00,000) furnished for release of some seized jewellery pursuant to orders of the Income-tax Settlement Commission.

Key procedural events in the opinion:

Return under section 158BC for the block period April 1, 1989 to February 9, 2000, was filed on July 18, 2001.
An application under section 245C was filed before the Income-tax Settlement Commission on August 17, 2001 (Application No. 7/23/2001/3-IT).
Settlement Commission directed a report and ordered staged release of jewellery; the petitioner deposited Rs. 24 lakhs and obtained release of jewellery in boxes 1–7 (released between March 15, 2002 and June 15, 2002).
Petitioner later sought release of jewellery in boxes 8–10 and offered a bank guarantee of Rs. 20 lakhs; on April 26, 2007 the Settlement Commission ordered release on furnishing Rs. 20 lakh guarantee, whereupon two guarantees of Rs. 11,60,000 and Rs. 8,00,000 were furnished.
An amendment by the Finance Act, 2007 introduced clause (iv) in section 245HA(1), providing that proceedings before the Settlement Commission would abate if the final order under section 245D(4) was not passed on or before March 31, 2008.
Proceedings before the Settlement Commission abated on March 31, 2008 as no final orders had been passed by then; the second proviso to section 153(4) (added by Finance Act, 2007) extended the period for completing assessments by one year from March 31, 2008 (i.e., to March 31, 2009) where proceedings before the Settlement Commission abated.
Despite the extension, the Assessing Officer did not pass any assessment order by March 31, 2009.
The petitioner applied to respondents 2 and 3 for release of the remaining seized jewellery, refund of Rs. 24 lakhs deposited, and return of the two bank guarantees under section 132B(3); these requests remained ungranted at the time of the opinion.

Legal Issues Presented

Whether, following the abatement of proceedings before the Settlement Commission by operation of law (Finance Act, 2007), the Assessing Officer was obliged to pass the assessment under section 158BC within the extended period provided by the second proviso to section 153(4) (i.e., by March 31, 2009).
Whether the failure of the Assessing Officer to pass an assessment within the prescribed/extended limitation period rendered the assessment proceedings void/nullity and thereby required release/refund of seized assets, bank guarantees and the deposited amount under section 132B(3).
Whether lack of knowledge by the Assessing Officer about the abatement of Settlement Commission proceedings could justify missing the statutory period for completing assessments.

Arguments of the Parties

Petitioner's Arguments

The Assessing Officer was legally bound to pass the assessment by March 31, 2009 because the Settlement Commission proceedings abated on March 31, 2008 by operation of the Finance Act, 2007; the second proviso to section 153(4) extended time by one year to March 31, 2009.
Because the Assessing Officer failed to pass the assessment within that period, the assessment proceedings became barred by time and therefore all consequent proceedings were vitiated.
The petitioner relied on the Delhi High Court judgment in Commissioner of Income-Tax, Delhi, Central-I v. Escorts Farms P. Ltd. (1989) 180 ITR 280 (Delhi) to support the proposition that if the assessment is barred by time, further proceedings pursuant to that decision are infructuous.
The petitioner sought release of seized jewellery, refund of Rs. 24 lakhs deposited in pursuance of the Settlement Commission orders, and return of the two bank guarantees, invoking section 132B(3).

Respondent's (Revenue) Arguments

The Revenue conceded the legal effect of the statutory provisions but contended that, as a matter of fact, the Assessing Officer could not have known that proceedings before the Settlement Commission had abated because no final order of abatement was passed by the Settlement Commission; therefore the Assessing Officer could not pass the assessment within the limitation period.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Commissioner Of Income-Tax, Delhi, Central-I v. Escorts Farms P. Ltd., [1989] 180 ITR 280 (Delhi)	Principle that where an assessment is barred by time, further proceedings pursuant to that assessment are infructuous and any decision on merits becomes of no consequence.	The court relied on the principle to support the conclusion that assessments not completed within the statutory/extended limitation period are a nullity and that subsequent proceedings based on such time-barred assessments cannot be given effect to.

Court's Reasoning and Analysis

The court's analysis proceeded in logical steps tied closely to the statutory amendments and the limitation scheme in the Income-tax Act:

It noted the Finance Act, 2007 amendment which inserted clause (iv) in section 245HA(1), causing proceedings before the Settlement Commission to abate by operation of law on March 31, 2008 if final orders under section 245D(4) were not passed by that date. This abatement was automatic and required no separate order of abatement by the Settlement Commission.
The court observed that the Finance Act, 2007 also added the second proviso to section 153(4), which provided an additional one-year period (up to March 31, 2009) for completing assessments in cases where Settlement Commission proceedings abated. That proviso was interpreted as a statutory extension limited to one year and not permissive of further extensions.
On the undisputed facts, the Assessing Officer did not pass any assessment under section 158BC by March 31, 2009. The court therefore treated the returns for the block period as barred by limitation and held that subsequent assessment proceedings could not be continued.
The court rejected the Revenue's factual contention that the Assessing Officer's lack of knowledge of the abatement excused the failure to act. The court reasoned that statutory limitation is prohibitive, leaves no room for extending the period on grounds of ignorance, and that amendments to the statute are to be treated as known to the Revenue. Therefore lack of knowledge could not justify ignoring or extending the time limit.
The court relied on established precedent (Escorts Farms) for the legal consequence that time-barred assessments render subsequent proceedings infructuous. Applying that principle, the court concluded the assessment proceedings arising out of the February 9, 2000 search were a nullity.
As a direct consequence of treating the assessments as void, the court applied section 132B(3), ordering release of the seized jewellery and return of any assets or proceeds remaining after liabilities—specifically directing refund of the Rs. 24 lakhs deposited and release of the two bank guarantees furnished for release of part of the jewellery.

Holding and Implications

Holding:

The court's core ruling was: All assessment proceedings initiated in pursuance of the search and seizure conducted on February 9, 2000, are a nullity and are hereby set aside/quashed.

Specific directives consequential to the holding:

The seized jewellery mentioned in the panchnama dated February 9, 2000, shall be released forthwith to the petitioner.
The two bank guarantees of Rs. 11,60,000 and Rs. 8,00,000 furnished by the petitioner for release of a portion of the seized jewellery shall be returned to the petitioner.
The amount of Rs. 24 lakhs deposited in pursuance of orders of the Settlement Commission shall be refunded to the petitioner.
The writ petition was allowed; no order as to costs.

Implications:

The decision's immediate effect is to terminate the assessment proceedings related to the specified search and to mandate return of the jewellery, the bank guarantees and refund of the deposited amount to the petitioner pursuant to section 132B(3). The opinion does not purport to lay down a new general legal principle beyond applying statutory limitation rules and the cited precedent; it addresses the direct legal consequences of the particular statutory amendments and factual sequence in this case.

Show all summary ...

1. Heard Sri Pradeep Agrawal, learned counsel for the petitioner, and Sri D.D Chopra for the respondents.

2. The petitioner, who is an assessee under the Income-tax Act, challenges the search and seizure conducted by the Income-tax Department on February 9, 2000, and also prays for release of the seized assets as well as two Bank guarantees, of Rs. 11,60,000 and Rs. 8 lakhs deposited by the petitioner for, release of a portion of the seized jewellery in pursuance of the, orders of the Settlement, Commission. In short the facts of the case are that on July 18, 2001, return under section 158BC for the block, period April 1, 1989, to February 9, 2000, was filed. On August 17, 200. 1, the petitioner filed an application under section 245C before the Income-tax Settlement Commission, which was registered as Application No. 7/23/2001/3-IT.

3. The Settlement Commission on January 30, 2002, directed the Commissioner of Income-tax (Central) to-furnish report within 90 days, as required under rule 9 of the Income tax Settlement Commission (Procedure) Rules, 1997. The Settlement Commission also directed that the payment be made and accordingly the jewellery be released box-wise and serial-wise.

4. During the period commencing from March 15, 2002, to June 15, 2002, the petitioner deposited a sum of Rs 24 lakhs and after deposit of the said amount jewellery worth, Rs. 23,92,482 kept in box Nos. 1 to 7 as per panchnama dated February 9,2000, was released. On June 16, 2004, the petitioner made another application before the Settlement Commission for release of jewellery kept on box Nos. 8, to 10 and offered to furnish bank guarantee to the tune of Rs. 20 lakhs. On April 26, 2007, the Settlement Commission ordered for release of jewellery on furnishing a bank guarantee of Rs. 20 lakhs; in response to which, the petitioner had furnished one Bank; guarantee of Rs. 11,60,000 and the other of Rs. 8 lakhs.

5. When the proceedirigs were pending before the Settlement Commission, an amendment was incorporated in the Finance Act, 2007, and by virtue of the said amendment, clause (iv) was introduced in section 245HA(1), which provided that if the final order under sub-section (4) of section 245D is not passed on or before March 31, 2008, then the proceedings before the Settlement Commission shall abate bn March 31, 2008.

6. On July 17, 2008, the jewellery kept in box No. 9, valued at Rs. 11,57,500 was ordered to be released in pursuance of the bank guarantee of Rs. 11,60,000 by the Settlement Commission, but the proceedings pending before the Settlement Commission abated as final orders under section 245D(4) were not passed by the Settlement Commission by March 31, 2008.

7. The consequence of the aforesaid amendment was that the assessing authority was to complete the assessment in accordance with law, which assessment was to be made by the Assessing. Officer by the time prescribed.

8. So long as the matter was pending before the Settlement Commission, the Assessing Officer was not required to pass any assessment order and it was the Settlement Commission who was to take a final decision as per section 245D(4) of the Act, but in view of the fact that by virtue, of, the amendment in the Finance Act, 2007, on June 1, 2007, (the pending proceedings before the Settlement Commission since abated, therefore, on March 31, 2008, in ease the orders were not passed by then, the assessment was to be made thereafter by the Assessing Officer and, therefore to give lease of life to such assessments, the Finance Act of 2007. also added the second proviso to section 153(4) of the Income-tax Act, 1961, on June 1, 2007, which, in fact, enlarged the period of limitation by another one, year with effect from. March 31, 2008, i.e, up to March 31, 2009 for passing the assessment order.

9. The aforesaid provision provided a period of one additional year for completing the assessment, if the proceedings, before; the Settlement Commission abated under section 245HA.

10. In view of the aforesaid provision, the assessing authority was obliged to pass the assessment order under section 158BC on the basis of the return filed on July 18, 2001; in view, of the second proviso to section 153(4) of the Income-tax Act, 1961, by March 31, 2009 but the assessing authority did not pass any order of assessment, therefore, the returns filed for the period April 1, 1989, to February 9, 2000; had become, barred by time and no proceedings for assessment could be continued thereafter.

11. The petitioner had preferred an application before respondents Nos. 2 and 3 for release of the seized jewellery, in view of the provisions of section 132B(3), which included the refund of the amount of Rs. 24 lakhs deposited in pursuance of the order passed by the Income-tax Settlement Commission as well as two bank guarantees furnished by the petitioner for release of a portion of the seized jewellery, but his prayer has not been accepted till date.

12. The short argument advanced by the learned counsel for the petitioner is that in view of the aforesaid provisions of the Income-tax Act, the Assessing Officer was legally obliged to pass the assessment order by March 31, 2009, in view of the fact that the proceedings registered before the Settlement Commission stood abated on March 31, 2008, in terms of the second proviso to section 153(4) of the Act up to March 31, 2009, and the Assessing Officer having failed to do so, all the proceedings stand vitiated.

13. In support of his submission, learned counsel for the petitioner relies upon the judgment of the Delhi High Court in the case of Commissioner Of Income-Tax, Delhi, Central-I v. Escorts Farms P. Ltd. [1989] 180 ITR 280 (Delhi) wherein the court observed as under (page 282):

“In our opinion, the decision of the Tribunal is correct when it stated, that the effect of holding that the assessment was barred by time is that all further proceedings pursuant to the said decision would be infructuous. The Income-tax Officer gets jurisdiction to pass an assessment order if it is within limitation. If the assessment is barred by time, then any decision on the merits would be of no consequence, and for the same reason, the decision, on the merits, by the appellate authorities would also be of no consequence and would have to be ignored. This is exactly what the Tribunal has observed in the impugned order. For, if the assessment is barred by time, no effect can be given to the other decision on the merits. If, however, the reference of the Department against the order passed in M.A No. 4 of 1985 succeeds, then the decision on the merits of the various appellate authorities would automatically remain.”

14. Sri D.D Chopra, appearing for the Revenue, has very fairly stated that there cannot be any dispute with respect to the aforesaid legal provision and its effect thereof, but, in the instant case, as a matter of fact, the Assessing Officer could not know about the proceedings being abated before the Settlement Commission, as no orders were passed by the Settlement Commission and that in the absence of knowledge that he is to pass an assessment order, the assessment order could not be passed within the period of limitation.

15. We do not find any exception under the Act where the period of limitation for passing the assessment order can be enlarged/enhanced, either by the court or by the assessing authorities.

16. Section 153(1) prescribes limitation for passing an assessment order in matters arising out of proceedings under section 143 or section 144 of the Act. The language used is prohibitive, which restrains/prohibits the Assessing Officer to pass an order of assessment, after the period prescribed therein.

17. The second proviso to section 153(4) prescribed an extended period of one year for making the assessment, excluding the period during which the proceedings remained pending before the Settlement Commission and does not give any latitude for extending the aforesaid period.

18. It will be appropriate to observe that the proceedings before the Settlement Commission abated by virtue of an amendment in the Finance Act, 2007, and the amendment so brought on record on the statute book is presumed to be known to all concerned and particularly the Revenue. There was no occasion for the Settlement Commission to pass any order of abatement, as the abatement was by operation of law nor was there any occasion for the assessee to communicate the said fact to the Assessing Officer, though he might have done so, but it was the obligation of the Assessing Officer to pass the assessment order within the statutory period.

19. Lack of knowledge on the part of the Assessing Officer could never be a good ground for extending the period of limitation, in view of the specific statutory limitation prescribed.

20. Since the proceedings under the Act were to be taken in accordance with the statutory limitation prescribed, which does not permit any sort of relaxation, we are unable to accept the plea of the respondents in this regard.

21. Consequent to our findings aforesaid, all assessment proceedings in pursuance of the search and seizure conducted by the Income-tax Department on February 9, 2000, are a nullity and are liable to be set aside. The jewellery which finds mention in the panchnama dated February 9, 2000, is liable to be released forthwith along with two bank guarantees furnished by the petitioner for release of a portion of the seized jewellery. The amount of Rs. 24 lakhs also need be refunded to the petitioner. The petitioner is thus, entitled for release of the seized jewellery forthwith and the amount deposited in pursuance of the orders of the Settlement Commission in accordance with the provisions of section 132B(3) of the Act, which reads as under:

“132B. (3) Any assets or proceeds thereof which remain after the liabilities referred to in clause (i) of sub-section (1) are discharged shall be forthwith made over or paid to the persons from whose custody the assets were seized.”

22. We, therefore, set aside/quash all the proceedings of assessment initiated in pursuance of the search and seizure conducted by the Income-tax Department on February 9, 2000, and further direct that the seized jewellery and the amount of Rs. 24 lakhs and two bank guarantees of Rs. 11,60,000 and Rs. 8 lakhs deposited by the petitioner in pursuance of the orders of the Settlement Commission for release of a portion of the seized jewellery, shall be released in favour of the petitioner forthwith.

23. The writ petition is allowed. No order as to costs.