THE COMMISSIONER OF INCOME TAX V. M/S THE SOUTH INDIA PAPER MILLS LTD

ITA/171/2008

AI Insights

The case involves multiple Income Tax Appeals (ITAs) and Cross Objections (CROBs) related to the block assessment of M/s. The South India Paper Mills Ltd. for the period from 01/04/1986 to 14/11/1996. The primary legal issue was the validity of the block assessment order passed on 29.01.1998, which was challenged on the grounds of being time-barred. The revenue appealed against the ITAT's decision which had granted relief to the assessee, while the assessee contested the findings regarding the timing of the block assessment. The High Court of Karnataka, referencing a prior judgment in C.Ramaiah Reddy vs. Assistant Commissioner of Income-Tax, held that the block assessment was indeed barred by limitation as it was not completed within the statutory one-year period from the date of the authorized search.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 728971 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 02-09-2014
• Assessment Year: misc
• Other Referred Cases: C.RAMAIAH REDDY VS. ASSISTANT COMMISSIONER OF INCOME-TAX
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: A SHANKAR; M LAVA
• Assessee Lawyers: JEEVAN NEERALGI; E I SANMATHI
• Keywords: Authorization; Block assessment; Limitation Period; Search and seizure
• Section: 132; 132(3); 260-A

Judgement Text

" 1 IN THE HIGH COURT OF KARNATAKA, BANGALORE DATED THIS THE 02ND DAY OF SEPTEMBER 2014 PRESENT: THE HON'BLE MR.JUSTICE N.KUMAR AND THE HON'BLE MRS.JUSTICE RATHNAKALA ITA NO.171 OF 2008 C/W ITA NO.172 OF 2008, ITA NOS.359-360 OF 2014, ITA.CROB NO.1 OF 2011 IN ITA NO.171 OF 2008 ITA CROB NO.7 OF 2010 IN ITA NO.172 OF 2008 ITA NO.171/2008: BETWEEN: 1. The Commissioner of Income-tax No.55/1, Shilpashree Vidyaranya Complex Vishveshwarapuram Mysore. 2. The Assistant Commissioner of Income-Tax Central Circle No.55/1, Shilpashree Vidyaranya Complex Vishveshwarapuram Mysore. …APPELLANTS (By Sri.Jeevan J.Neeralgi, Advocate) 2 AND: M/s.The South India Paper Mills Ltd., Chikkayanachathra P.O., Nanjangud – 571 301. …RESPONDENT (By Sri.A.Shankar and Sri.M.Lava, Advocates) ITA No.171/2008 is filed under Section 260-A of I.T.Act, 1961 arising out of Order dated 12.10.2007 passed in IT(SS)A No.17/BNG/1998, for the Block Assessment Period 1/4/1986 to 14/11/1996, praying to formulate the substantial questions of law stated therein and to allow the appeal and set aside the order passed by the ITAT, Bangalore in IT(SS)A No.17/BNG/1998 dated 12.10.2007 and confirm the order of the Appellate Commissioner confirming the order passed by the Assistant Commissioner of Income Tax, Central Circle, Mysore. ITA NO.172/2008: BETWEEN: 1. The Commissioner of Income-tax No.55/1, Shilpashree Vidyaranya Complex Vishveshwarapuram Mysore. 2. The Assistant Commissioner of Income-Tax Central Circle No.55/1, Shilpashree Vidyaranya Complex Vishveshwarapuram Mysore. …APPELLANTS (By Sri.E.I.Sanmathi, Advocate) 3 AND: M/s.The South India Paper Mills Ltd., Chikkayanachathra P.O., Nanjangud – 571 301. …RESPONDENT (By Sri.A.Shankar and Sri.M.Lava, Advocates) ITA No.172/2008 is filed under Section 260-A of I.T.Act, 1961 arising out of Order dated 12.10.2007 passed in IT(SS)A No.73/BNG/2002, for the Block Assessment Period 1/4/1986 to 14/11/1996, praying to formulate the substantial questions of law stated therein and to allow the appeal and set aside the order passed by the ITAT, Bangalore in IT(SS)A No.73/BNG/2002 dated 12.10.2007 and confirm the order of the Appellate Commissioner confirming the order passed by the Assistant Commissioner of Income Tax, Central Circle, Mysore. ITA NOS.359-360/2014: BETWEEN: M/s.The South India Paper Mills Limited Rep. by its General Manager – Finance & Accounts Sri.B.Ravi Holla Chikkayana Chatra P.O. Nanjangud Mysore District – 571 301. …APPELLANT (By Sri.A.Shankar and Sri.M.Lava, Advocates) AND: The Assistant Commissioner of Income-Tax 4 Central Circle #55/1, Shilpashree Vidyaranya Complex Vishveshwarapuram Mysore – 575 008. ...RESPONDENT (By Sri.Jeevan J.Neeralgi, Advocate) ITA Nos.359-360/2014 are filed under Section 260-A of I.T.Act, 1961 arising out of the Order dated 12.10.2007 passed in IT(SS)A No.17/Bang/1998 and 73/Bang/2002, for the Assessment Period 01/04/1986 to 14/11/1996 praying to adjudicate and decide the foregoing question of law and/or such other question of law as may be formulated by this Hon’ble court and to allow the appeal of the Appellant and set aside the findings to the extent against the Appellant in the order passed by the ITAT, Bangalore Bench, ‘B’ in IT(SS)A Nos.17/Bang/1998 and 73/Bang/2002 dated 12.10.2007 on the validity of Block Assessment Period 01.04.1986 to 14.11.1996 Annexure-A. ITA.CROB No.1/2011 in ITA No.171/2008: BETWEEN: M/s.The South India Paper Mills Limited Rep. by its General Manager – Finance & Accounts Sri.B.Ravi Holla Chikkayana Chatra P.O. Nanjangud Mysore District – 571 301. …CROSS OBJECTOR (By Sri.A.Shankar and Sri.M.Lava, Advocates) AND: 5 1. The Commissioner of Income-Tax #55/1, Shilpashree Vidyaranya Complex Vishveshwarapuram Mysore – 575 008. 2. The Assistant Commissioner of Income-Tax Central Circle #55/1, Shilpashree Vidyaranya Complex Vishveshwarapuram Mysore – 575 008. ...RESPONDENTS (By Sri.Jeevan J.Neeralgi, Advocate) ITA.Crob No.1/2011 in ITA No.171/2008 is filed under Order XLI Rule 22 of CPC, 1908 arising out of order dated 12.10.2007 for the Assessment Period 01.04.1986 to 14.11.1996 praying to formulate the substantial questions of law stated therein and to allow the cross objection appeal and set aside the findings to the extent against the cross objector in the order passed by the ITAT, Bangalore Bench ‘B’ in IT(SS)A No.17/Bang/1998 dated 12.10.2007 as Annexure-A. ITA.CROB No.7/2010 in ITA No.172/2008: BETWEEN: M/s.The South India Paper Mills Limited Rep. by its General Manager – Finance & Accounts Sri.B.Ravi Holla Chikkayana Chatra P.O. Nanjangud Mysore District – 571 301. …CROSS OBJECTOR 6 (By Sri.A.Shankar and Sri.M.Lava, Advocates) AND: 1. The Commissioner of Income-Tax #55/1, Shilpashree Vidyaranya Complex Vishveshwarapuram Mysore – 575 008. 2. The Assistant Commissioner of Income-Tax Central Circle #55/1, Shilpashree Vidyaranya Complex Vishveshwarapuram Mysore – 575 008. ...RESPONDENTS (By Sri.Jeevan J.Neeralgi, Advocate) ITA.Crob No.7/2010 in ITA No.172/2008 is filed under Order XLI Rule 22 of CPC, 1908 arising out of order dated 12.10.2007 for the Assessment Period 01.04.1986 to 14.11.1996 praying to formulate the substantial questions of law stated therein and to allow the cross objection appeal and set aside the order passed by the Tribunal in IT(SS)A No.73/Bang/2002 dated 12.10.2007. These Appeals and Cross Objections coming on for Admission, this day, N.KUMAR, J., delivered the following: 7 J U D G M E N T The revenue has preferred the appeals in ITA Nos.171/2008 and 172/2008 challenging the order of the Tribunal granting relief to the assessee on merits. Whereas, the assessee has preferred appeal Nos.359-360/2014 challenging the finding of the Tribunal that the order of the Block Assessment passed was not within the time and therefore, it is void. Therefore, all the appeals are taken up together and disposed of by this common order. 2. It is submitted that if the impugned block assessment order is not passed within the time, the question of going into merits would not arise. Therefore, the question whether the block assessment order was passed in time or not is gone into as a preliminary issue. 3. The assessee is a limited company registered under the provisions of the Companies Act. The factory and 8 its registered office is situated at Chikkayyana Chatra Post, Nanjangud. The assessee is in the business of manufacturing and trading in paper. A search was conducted under Section 132 of the Act in the business premises of the assessee on 14.11.1996. In pursuance of a search, warrant was issued by the competent authority. The search was also continued on 15.11.1996, 16.11.1996, and 27.11.1996. Prohibitory order came to be passed on 14.11.1996. The documents, which were kept in almirah in the course of search dated 14.11.1996, 15.11.1996, 16.11.1996 and 27.11.1996 were seized. Again on 13.01.1997, the board minutes book was seized and a mahazar was drawn stating that the search was closed. It is also not in dispute that there was no authorization issued by the competent authority to search on 15.11.1996, 16.11.1996, 27.11.1996 and 13.01.1997. The record discloses that the authorization for search and seizure was issued on 05.11.1996. At the end of 14.11.1996, 9 15.11.1996 and 16.11.1996, a mahazar was drawn. Infact, a prohibitory order had been passed on those days also and books had been kept in almirah. It is only on 27.11.1996, all the documents were seized and yet another mahazar was drawn. The authorities have held that the day on which the search was completed and a mahazar was drawn, the period of limitation is to be computed from that date. If so computed, the order passed on 29.01.1998 is well within time. However, the assessee contends that the search was conducted on 14.11.1996 in pursuance of an authorization and a mahazar was drawn. Hence, the period of one year is to be computed from 14.11.1996 as for the subsequent search and seizure, there was no authorization at all. The said orders were passed by the authorities relying on the judgment of a Special Bench of the Tribunal in Ramaiah Reddy’s case. The said judgment of the Special Bench was challenged in an appeal before this Court. This Court in the case of C.RAMAIAH REDDY VS. ASSISTANT COMMISSIONER 10 OF INCOME-TAX reported in [2011] 339 ITR 210 held that the period of limitation starts on the date on which the last of authorization has been executed and not when the authorized officer states that the search is finally concluded. Putting a prohibitory order under Section 132 (3) does not elongate the starting point of limitation. 4. In view of the aforesaid judgment, in the instant case, there was only one authorization dated 05.11.1996 in pursuance of which search was conducted on 14.11.1996. Even if it is to be held that the search was continued on the two consecutive dates and it ended on 16.11.1996, the block assessment orders should have been passed on or before 30.11.1997. Whereas the block assessment order is passed on 29.01.1998 which is clearly barred by law of limitation. Therefore the block assessment order passed is liable to be set aside. In view of the fact that the block assessment order is held to be barred by limitation, 11 question of going into merits of the said order does not arise. Consequently, we pass the following: O R D E R 1. ITA Nos.359-360/2014 is allowed. ITA No.171/2008 and ITA Nos.172/2008 are dismissed. ITA.Crob No.1/2011 and ITA.Crob No.7/2010 are also dismissed. 2. The block assessment order dated 29.01.1998 is hereby set aside. 3. Parties to bear their own costs. It is submitted that the judgment of this Court in Ramaiah Reddy’s case is now pending consideration before the Apex Court. Revenue as well as the assessee are at liberty to seek for revival of these appeals, if need arises, after the judgment of the Apex Court. 12 Sri.Jeevan J.Neeralgi, learned Counsel is permitted to file his power for revenue within four weeks from today. Sd/- JUDGE Sd/- JUDGE Prs* "