VLS FINANCE LTD. & ANR. versus COMMISSIONER OF INCOME TAX & ANR.

Citation: [2016] 3 S.C.R. 390 · Decided: 28-04-2016 · Supreme Court of India · Bench: A.K. SIKRI · Disposal: Dismissed

Cited by 2 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

A 
B 
c 
D 
E 
F 
G 
H 
[2016] 3 S.C.R. 390 
VLS FINANCE LTD. & ANR. 
v. 
COMMISSIONER OF INCOME TAX & ANR. 
(Civil Appeal No. 2667 of2007) 
APRIL 28, 2016 
(A.K. SIKRI AND ROHINTON FALi NARIMAN, JJ.] 
Income Tax Act, 1961 - s. 158BE(2). explanation 1 -
Completion of block assessment - Computation of two years period 
of limitation - Period during which assessment proceedings are 
stayed by order of a court - Exclusion of - Held: Period during 
which interim stay of the order passed by the court is in operation 
has to be excluded while computing the period of two years as 
limitation period prescribed for completing the block assessment -
On facts, special audit and its report was an integral step towards 
assessment proceedings - Assessing officer formed an opinion that 
there was a need for special audit and the report of special audit 
was necessary for carrying out the assessment - Order directing 
special audit was challenged and interim order was granted staying 
the making of a special report, the assessing officer would not 
proceed with the assessment in the absence of the audit. 
Dismissing the appeal, the Court 
HELD: 1.1 The period during which interim stay of the order 
passed by the court is in operation has to be excluded while 
computing the period of two years as limitation period prescribed 
for completing the block assessment. [Para 15] (398-F] 
1.2 The explanation 1 to s. 158BE(2) of the Income Tax 
Act, 1961 grants benefit of exclusion only for those cases where 
'the assessment proceeding is stayed by an order or injunction' 
of the court. On literal construction, it becomes clear from the 
reading of this provision that the period that is to be excluded 
while computing the period of limitation for completion of Block 
Assessments is the period during which assessment proceedings 
are stayed by an order of a court and this provision shall not 
apply if the stay of some other kind, i.e, other than staying the 
assessment proceedings, is passed. The provision relating to 
limitation need to be strictly construed. [Para 19] [400-C-D] 
390 
VLS FINANCE LTD. & ANR. v. COMMISSIONER OF INCOME 
TAX&ANR. 
1.3 As a general rule, when there is no stay of the 
assessment proceedings passed by the Court, Explanation 1 to 
Section 158BE of the Act may not be attracted. However, this 
general statement of legal principle has to be read subject to an 
exception in order to interpret it rationally and practically. In those 
cases where stay of some other nature is granted than the stay of 
the assessment proceedings but the effect of such stay is to 
prevent the assessing officer from effectively passing assessment 
order, even that kind of stay order may be treated as stay of the 
assessment proceedings because of th_e rea__wJI that such stay 
order becomes an obstacle for the assessing officer to pass an 
assessment order thereby preventing the assessing officer to 
proceed with the assessinent proceedings and carry out 
appropriate assessment. The High Court, in the impugned 
judgment has propounded the correct and relevant test, viz., 
whether the special audit is an integral part of the assessment 
proceedings, i.e., without special audit it is not possible for the 
assessing officer to carry out the assessment? If it is so, then 
stay of the special audit may qualify as stay of assessment 
proceedings and, therefore, would be covered by the said 
explanation. [Para 20] [400-G-H; 401-A-D] 
391 
A 
B 
c 
D 
1.4 The High Court rightly held that the special audit was, 
an integral step towards assessment proceedings. The submissioh : E 
of the appellants that the writ petition of the appellant was 
ultimately allowed and the Court had quashed the order directing 
special audit would mean that no special audit was needed and, 
therefore, it was not open to the respondent to wait for special · 
audit, cannot be accepted. The assessing officer had, after going 
through the matter, formed an opinion that there was a need for 
special audit and the report of special audit was necessary for 
carrying out the assessment. Once such an opinion was formed, 
naturally, the assessing officer would not proceed with the 
assessment till the time the special audit report is received, 
inasmuch as in his opinion, report of the special audit was 
necessary. In a situation where the order of special audit is not 
challenged, the assessing officer would naturally wait for this report 
before proceeding further. Order of specia

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