THE DEPUTY COMMISSIONER OF INCOME TAX V. M/S MICRO LAND LTD

ITRC/1/2010

AI Insights

The case involves the Deputy Commissioner of Income-Tax, Central Circle-V, Bangalore as the appellant and M/s. Micro Land Ltd. as the respondent. The core issue revolved around the legality of the assessment order for the block period from 1986-87 to 1996-97, following a series of searches conducted on the premises of the respondent. The Income Tax Appellate Tribunal had referred several questions of law to the High Court, primarily focusing on the validity of the search and the subsequent assessment. The High Court's decision hinged on the interpretation of the limitation period for block assessments under the Income Tax Act, particularly in light of multiple search authorizations.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 736284 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 04-12-2014
• Assessment Year: misc
• Other Referred Cases: C.Ramaiah Reddy Vs. Assistant Commissioner of Income Tax (IMV)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: S R ANURADHA
• Assessee Lawyers: K V ARAVIND
• Keywords: Block assessment; Depreciation; Limitation Period; Plant and machinery; Search and seizure; Undisclosed income
• Section: 32; 132; 256(2); 158(BC); 158 BE

Judgement Text

" IN THE HIGH COURT OF KARNATAKA AT BANGALORE` DATED THIS THE 4TH DAY OF DECEMBER, 2014 :PRESENT: THE HON’BLE MR. JUSTICE N. KUMAR :AND: THE HON’BLE MR. JUSTICE B.MANOHAR I.T.R.C. NO.1/2010 BETWEEN THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-V, BANGALORE. ... APPELLANT (BY SRI.K.V.ARAVIND, ADVOCATE) AND M/S. MICRO LAND LTD., ‘MICRO LAND HOUSE’ 58, 7TH BLOCK, 80 FEET ROAD, KORAMANGALA, BANGALORE-34. ... RESPONDENT (BY SMT.S.R.ANURADHA, ADVOCATE) THE ASSISTANT REGISTRAR OF THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCHE, BANGALORE HAS FORWARDED A REFERENCE U/S. 256(2) OF THE INCOME TAX ACT, 1961 IN R.A.NO.233(BANG)/1998 ARISING OUT OF IT(SS)A NO.117/B/1997, FOR THE ASSESSMENT YEAR: BLOCK PERIOD FROM 1986-87 TO 1996-97 FOR THE OPINION OF THE HON'BLE JUDGES OF THIS HIGH COURT, ON THE QUESTION OF LAW AS STATED IN THE REFERENCE. 2 THIS ITRC COMING ON FOR HEARING, THIS DAY, N. KUMAR J. DELIVERED THE FOLLOWING: J U D G M E N T The Income Tax Appellate Tribunal, Bangalore Bench ‘A’, Bangalore, has referred RA No.233(Bang)/1998, u/s.256(2) of the Income Tax Act, 1961, to this Court, with the following questions of law for consideration. They are as under: “1. Whether without passing any order directing the production of search records from the Director of Income Tax (Investigation) and without examining the original search warrant, whether the Tribunal was justified in holding that the name of the assessee was interpolated in the search warrant and it related to the Managing Director of the assessee and not the assessee. 2. Whether having regard to the provisions of Sec.158-BE, in particular the explanations thereto, the Tribunal was justified in holding that the assessment under sec.158 BC was barred by limitation. 3 3. If depreciation is claimed on fraudulent documents and allowed in regular assessment, whether it can be termed as ‘undisclosed income’ on discovery of fraud. 4. Whether on the facts and circumstances, the Tribunal was justified in inferring that there was no undisclosed income which could be subjected to assessment under chapter XIV-B of the Act. 5. Whether the Tribunal ought to have held that assets which were said to be purchased by the assessee were not ‘plant/machinery’ in its hands for claiming to the assessee to the benefit of deduction under sec.32 of the Act. 6. Whether on the facts and circumstances, probabilities of the case and legal presumption available, Tribunal was justified in inferring that the material was not sufficient to warrant withdrawal of depreciation already allowed or to add lease discount charges. 4 7. Whether a separate surcharge cannot be levied in respect of search and seizure assessment under chapter XIV-B.” 2. As could be seen from the aforesaid questions of law, the second question pertains to “bar on limitation”. The assessee is a limited Company engaged in the business of buying and selling of computer hardware, networking and also leasing. The business premise of the assessee was searched u/s.132 of the Act, on 29.3.1996 and the search was finally concluded on 23.5.1996. The assessment for the block years from 1986-87 to 1996-97 was passed by the Assessing Authority on 30.5.1997. 3. The material on record discloses that premises was searched on 29.3.1996, in pursuance of search warrant issued by an Authorised Officer. As the said search could not be completed on that day, it continued on the next day i.e., on 30.3.1996. After a gap of nearly two months, again the premises was searched on 5 23.5.1996 without any search warrant. It is from that date, the assessment order passed is within time. 4. This Court had an occasion to consider this question in the case of C.Ramaiah Reddy Vs. Assistant Commissioner of Income Tax (IMV) reported in [2011] 339 ITR 210 (Kar.), wherein it has been held as under: “Section 158BC prescribes the procedure for block assessment. Section 158BE of the Act prescribes the time limit for completion of block assessment. According to the said section, the commencement of the period of limitation is within one year from the end of the month in which the last of the authorization for search under section 132 was executed. Therefore, it implies there could be more than one authorization under section 132(1) of the Act. If there are more than one authorization, the starting point of limitation is to be computed from the last of the authorizations. Explanation 2 to sub-section (2) of section 158BE explains when “authorization” is deemed to have been executed. The authorization referred to in sub- 6 section (1) shall be deemed to have been executed 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. The words “last of the authorization” used in section 158BE implies there can be more than one authorization for search under section 132. Explanation 2 do not refer to such last of the authorization. It only refers to authorization and how it shall be deemed to have been executed. It is because, when the law provides for more than one authorisation, the limitation is to be computed from the date of the last of the authorization, which is executed. If the authorizations are executed and search is conducted on different dates there will be panchnamas on different dates. A doubt may arise regarding the commencement of the day from which limitation is to be computed. In order to remove the said doubt this Explanation was added by the Finance (No.2) Act, 1998, with retrospective effect from July 1, 1995. The expression used is “last panchnama” and not “last of the 7 panchnama”. Therefore, there cannot be Plurality of panchnamas in respect of the authorization. This intention could be gathered from the words “last of the authorizations” used in the main section. The word used is “panchnama” and not “panchnamas”. When the search was conducted on 29.3.1996, there was no authorization at all to conduct search on 23.05.1996. Therefore, the period of limitation being one year from the end of the month in which the last of the authorization for search u/s.132 was executed. The limitation has to be computed from 30.3.1996. If so computed, the block order of assessment ought to have been passed on or before 30.3.1997. The Order of assessment passed on 30.5.1997 is clearly barred by law of limitation. 5. In that view of the matter, we do not deem it proper to go into the merits of the case and hence, we decline to answer the other questions referred to us for consideration. 8 6. It is submitted that the Revenue has preferred an appeal to the Apex Court against the judgment of this court in the case of C. Ramaiah Reddy, cited supra and it is pending consideration. In the event of Revenue succeeding in the said appeal on the question of limitation, then liberty is reserved to the Revenue to seek for revival of this appeal, in which event, at that stage, this court will go into the merits of the other questions raised. Accordingly, ITRC stands disposed off. It is open to the assessee to appear before the Hon'ble Apex Court and put forth his contention in the appeals which are pending before the Hon'ble Supreme Court for grant of permission. Sd/- JUDGE Sd/- JUDGE PL "