TMI Blog2003 (7) TMI 260X X X X Extracts X X X X X X X X Extracts X X X X ..... isits that are claimed as searches, which are so carried out on the basis of the only authorization that was issued initially? 3. Whether, where a search is carried on the basis of an authorization, resulting in seizure of some items, issue of prohibitory orders on others, could the search be said to be continuing and comes to a close only when the authorized officer says that he is no longer going to visit the premises by issuing a panchnama and by seizing some items that are covered by the prohibitory order which could have been seized by him even at the first instance and it is not the case of the department, especially when the items so seized finally is not one of those items that are covered by section 132(1) and 132(3) of the Act?" At the outset, it is made clear that the objection raised by the respondent revenue against the members earlier constituting the Special Bench, who continue to be part of the present constitution, no more subsists. There is no objection, therefore, for the presently constituted bench to dispose off the matter. 2.1 Mr. Venkatesan, C.A., opened the arguments on behalf of assessee. It was submitted that in present reference, section 158BE is re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt prescribed undersection 158BE(1) commenced from such execution. It may be a case that for different premises, there may be different authorization which may be executed at different time or dates. However, once last of such authorization is executed, the limitation commences. Subsequent action of either revoking or refixing the R.O. or P.O. is not execution of authorization. A.P.O. may be either revoked or continued and at each of such time, a panchnamais prepared. Thus panchnama is only summary of events that took place on each visit. It may result in seizure or release of the items put into R.O. or P.O. The subsequent visits are therefore an inspection only but not a continuation of the search. A search is an inspections, but all inspections are not searches. Hence it can be said that subsequent action of revoking or extending R.O./P.O. under section 132(3) is only inspection. This therefore does not extend the commencement of time limit prescribed under section 158BE. For this proposition, he relied upon the decision of jurisdictional High Court in C.M. Agadi Bros. v. CTO [1973] 32 STC 243 (Mys.) and Binny Ltd. v. Asstt. CTa [1988] 71 STC 240 (Kar.) It was argued that what ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred to the decisions of Om Prakash Jindal v. Union of India [1976] 104 ITR 389 (Punj. Har.) and Sriram Jaiswal v. Union of India [1989] 176 ITR 261 (All.). 2.3 Mr. Venkatesan, extensively relied upon the decision of Hon'ble Bombay HC in case of CIT v. Mrs. Sandhya P. Naik [2002] 253 ITR 534 which upheld the order of ITAT, Pune reported in 66 TTJ 533. In said case Hon'ble Bombay HC held that P.O. under section 132(3) which did not amount to seizure, does not extend the time limit even after considering the explanation 2 to section 158BE. He went on to submit that this being the solitary decision on the question involved, the same should be followed as per the decision of Hon'ble Bombay High Court in case of CIT v. Smt. Godavaridevi Saraf [1978] 113 ITR 589. It was pleaded that no law can be pronounced on vacuum of facts. Hence he narrated the facts of the present case. In present case, search was carried out on 5-12-1995. Out of cash found of Rs. 3,03,900, sum of Rs. 3,00,000 was seized. The jewellery found were less than 500 gms, and hence in terms of CBDT instruction, same was not seized. A.P.O. was passed in respect of certain jewellery, books of account, etc. Subsequently ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... variety of purposes, but for the purpose of section 158BE every document styled as Panchnama need not be regarded by the ITAT as a Panchnama. To decide whether a document is a Panchnama for the purpose of section 158BE the provisions of section 132(13) would be relevant. The provisions of this sub-section which subjects the searches under section 132(1)/(1A) to the application of the Cr.P.C. insofar asmay be. The operation of section 132(1)/1(A) ends when the authorized officer completes the various tasks enumerated in (1) to (v) of section 132(1). As actions under section 132(3) or 132(4) or 132(8A) are not part of powers under section 132(1)(1A), there is no question of a Panchnama for witnessing such actions. Nor can a formal declaration by the authorized officer that "he is no longer going to visit the premises", be considered subject-matter of a Panchnama. Even a record of doing any of the things covered by items (i) to (v) of section 132(1) in respect of documents/assets covered in a prohibitory order under section 132(3) cannot conceivably regarded as a Panchnama for the purpose of section 158BE because, as provided in section 132(8A), the validity of an order under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 132(3), as decided in a string of decisions like B.K. Nowlakha's case, Narayan Champalal Bajaj's case, Dr. C. Balakrishna Nair's case and Mrs. Sandhya P. Naik's case is invalid. A Panchnama, which stands n the crutches of something purported to be done on the basis of an legal order under section 132(3) is invalid. 3.4 As regards powers of ITAT to look into legality or otherwise of action/order contemplated in section 132(c), he submitted that the Assessing Officer has no authority to go into the validity of such actions/orders. The Authroized officer is his peer, or even a senior. As the Assessing Officer had 10 power to consider the issue of validity of the actions/orders the ITAT, whose scope is identical to that to the Assessing Officer, cannot consider he validity of the actions/orders passed by the authorized officer. The revenue seeks to carve out a "no challenge" zone of action in a field regulated by law. The High Court in its writ jurisdiction under Article 226 resolutely avoids considering the sufficiency of reasons for taking action similar to the action taken under section 132(3) or section 132(8A) or even 132(1). The revenue argues that the ITAT cannot do it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wer of High Court under Article 226 to intervene and nullify ultra vires actions of the authorities under the various phrases of search and seizure under section 132 cannot be doubted. But the existence of this remedy does not take away the right of such person to alternatively challenge any of the different actions purportedly taken under section 132, in regular appeal proceedings under section 253(1)(b) against the block assessment order under section 158BC. Besides, what the High Court does in its writ jurisdiction is judicial review of a particular administrative action. Such a forum of review, not being an appellate forum, is greatly circumscribed. The adequacy of the grounds is generally not gone into. It is only when the grounds are nonexistent or patently irrelevant that the Court quashes the action of the authorized officer. The High Court cannot substitute its own judgment of the adequacy of the grounds for issue of a warrant for the judgment of the authorized officer passing an order under section 132(3) or the Commissioner extending the operation of the order, in terms of section 132(8A) as held in ITO v. Seth Bros. [1969] 74 ITR 836 (SC). In contrast, what the ITAT cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e situation under which the assessee is induced to make income declarations and related confessions. The Raja Chelliah Committee has observed that the very authorization of search is motivated by an object of procuring income declarations. The Hon'ble ITAT may take judicial notice of this bureaucratic practice. It is found that 132(3) order is passed in respect of a sheaf of papers or of assets of negligible bulk or value, which, even on a highly strained interpretation, cannot be considered as "not practicable to seize". It must be noted that the criteria of impractibility for the purpose of section 132(3) are residuary and exclude those criteria, which cover a prohibitory order under the second proviso to section 132(1). Reference was invited to decision of Dr. C. Balakrishna Nair's case and Mrs. Sandhya P. Naik's case. 3.7 As regards second question, Mr. Rao submitted that the execution of a warrant might involve the clamping of a prohibitory order under second proviso to section 132(1), which is a deemed seizure or under section 132(3), which is deemed non-seizure. In either case, the date of issue of the prohibitory order or the date of lifting of the prohibitory order is to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whom appeal lies, wherein the ground relating to time limitation is also raised. The adequacy of material on which P.O. under section 132(3) is passed is not looked into by High Court in its Writ jurisdiction. In such a situation, if 'mala fide' is alleged by the assessee. ITAT should have power to examine the issue of limitation from such angle also. Thus if ITAT has power to decide the limitation issue in appeal before it, it has to be constructed in such a fashion that all the ingredients extending the time limit can be properly examined and not to limit the power available to it. In the end, Mr. Sarangan also submitted that all the questions referred be answered as urged by earlier counsels. 5.1 On behalf of revenue Dr. R.B. Krishna, Advocate, Mr. Amitabh Kumar (D.R. - CIT) and Mr. Radhakrishna, Senior D.R. presented therein arguments. 5.2 Dr. Krishna firstly submitted that the first question goes into the jurisdiction of the Tribunal and whether the Tribunal can examine the search activity. Once a search is conducted under section 132 of the Act, the Assessing Officer shall issue notice under section 158Bc. No doubt search should be legally valid but an appellate authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the Karnataka High Court decision in the case of Southern Herbals Ltd. for the proposition that materials and information need not be handed over to the assessee before conclusion of search proceedings. The assessee is entitled to only such materials as are relied upon by the Assessing Officer in framing the order of assessment and that too at the time of assessment proceedings. The provisions of section 132 were on statute prior to introduction of Chapter XIV-B. No appeal remedy against provisions of section 132 was provided for even at that time. The only change brought in by the Finance Act, 1995 was to introduce a "Special Procedure for assessment of search cases" as could be seen from the Budget Speech of Hon'ble Finance Minister. The changes made did not make the provisions of section 132 appealable. Hence, the position as it existed prior to introduction of Chapter XIV-B with regard to non-availability of Appeal remedy against section 132 remains. Any grievance of the tax payer in this regard can only be settled before the High Court under Writ jurisdiction alone. There is no alternative remedy. The Hon'ble ITAT would not be able to assume the powers of High Court suo motu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceedings are quashed, the assessment made is automatically quashed as held in Dr. C. Balakrishna Nair's case, where the Hon'ble High Court quashed the proceedings under chapter XIV-B. The Tribunal being the highest fact finding authority can give a finding as to whether there was a search or not. But it cannot pronounce upon the legality of the search, which is the domain of High Court. The appellate authority can do only what the original authorities can do. For this proposition he relied upon following cases: 1. Jute Corpn. of India Ltd.'s case; 2. CIT v. Rai Bahadur Hardutory Motilal Chamaria [1967] 66 ITR 443 (SC); Section 107 of the CPC; 3. Netai Bag v. State of W.B. [2000] 8 SCC 262 Para 13; and 4. State of Punjab v. Bakshish Singh [1998] 8 SCC 222. In all these cases, it is held that courts cannot do indirectly what it cannot do directly. There is no question of partial jurisdiction. Either the Hon'ble ITAT has the powers (or does not have it) to look into legality of search operations. What the Hon'ble High Court cannot do in writ proceedings, the appellate authority also cannot do, especially when an appeal has not been provided for with respect to proceedings un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h power of stay is not provided for under the statute, however, the Hon'ble SC held that the power of stay, which is collateral to the main right of appeal, can be inferred. It was submitted that the power that can be inferred can only be collateral to the main power of appeal. If an appeal does not lie, no collateral powers can be inferred. The stand taken by the assessee is that proceedings under section 132 are collateral to the issue of limitation. However, where the statute does not directly confer the power of appeal against action under section 132, no collateral power exist. Reference was invited to case of Union of India v. Paras Laminates (P.) Ltd. [1990] 186 ITR 722 (SC). Within bounds, the powers of the Tribunal are vast and no restrictions exist. Reacting to arguments submitted by Sri Venkatesan that the decision of third member in Dr. A.K. Bansal's case inter alia ruled that Tribunal has power to go into the search activity under section 132 needs and deserves a meritorious consideration, it was submitted that the operation of the entire order in Dr. A.K. Bansal's case has been stayed by the Hon'ble High Court of Allhabad. Hence, this decision should not be given th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see are, more often than not, in the office of the Assessing Officer. The authorized officer may be participating in a number of searches simultaneously. Hence, the Act itself gives the authorized officer 60 days time to complete the exercise. Dr. Krishna also explained the facts of present case wherein it is found that- (i) The assessee had never filed Returns of income (leading to the presumption that all articles found were undisclosed). (ii) The Board Instruction pertaining to gold did not apply to jewellery. (iii) After the search on 5-12-1995, certain jewellery and records were put under P.O. The assessee was asked to explain the same as per summons under section 131 dated 5-12-1995, which was not responded to by the assessee on ground of ill-health and mental stress. The P.O. was thereafter lifted within fifty days well within time limit of sixty days and search was declared concluded. It is therefore not correct to say that orders under section 132(3) are passed to prolong the search or to save limitation. At the time of passing the order under section 132(3) the assessment order is not even contemplated and will be passed by some other authority. 5.7 Dr. Krishna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to an interim order passed in court proceedings. Such an order is a part of proceedings and the search continues. This order does not amount to seizure under subsection (1) as per explanation to section 132(3). Such P.O. under section 132(3) can have three fall outs and conclusions: (a) time limit of 60 days is exhausted and P.O. gets lifted by operation of law as per section I32(8A) of the Act. In such a situation, no panchnama prepared. (b) The P.O. is lifted within 60 days and a panchnama is prepared. (c) The P.O. is substituted by an order under section 132(8A). 5.9 Mr. Amitabh Kumar submitted that an order under section 132(8A) is different from an order under section 132(3) as it specifically requires reasons to be recorded in writing and orders passed by the CIT/DIT. Section 132(8A) is only an administrative extension of 132(3). Therefore, there is no panchnama prepared while extending the operation of 132(3) order. Hence an order under section 132(8A) is separate from an order under section 132(3). But no panchnama need be prepared either when order under section 132(8A) is passed or when it is lifted as it exhausts itself by afflux of time. Section 132(8A) orders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rence to articles seized by the customs authorities. The IT Commissioner issued warrant of search, which was quashed by the Hon'ble S.C. The Hon'ble Supreme Court in Tarsem Kumar's case noted that when the assets were seized by another statutory authority legally, there was no necessity for the Income-tax department to issue a warrant under section 132 to seize the same assets. This decision of the Hon'ble S.C. was prior to the introduction of the section 132A. The provisions as they stood for the relevant asst. year did not have any mechanism to call or requisition assets or the books of account seized by any other authority. It is in this context, the Hon'ble S.C. said that where another authority has control of legally seized assets, there is no necessity to issue warrant under section 132, on the ground that the department was aware of the location of the articles. This decision is on peculiar facts. Normally warrants of search are issued only when the location is known but the articles to be seized are not known. Hence, the decision cannot be taken to mean that no search can be made if the location is known. The judgment was rendered with reference to law before insertion of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the law. The Bombay High Court does not, therefore, lay down any principle connected with the question referred. It was vehemently submitted that the Act has to be interpreted in a manner which conforms to the intention of Legislature and to see that the Act is workable. To make such proceedings under section 132 subject to appellate jurisdiction would make administration unworkable. Hence, even on this ground the Hon'ble ITAT cannot go into the legality or otherwise of search operations. Dr. Krishna summing up the arguments submitted that answer to question Nos. 1 and 2 be in negative and to question No.3 be in affirmative. 6.1 We have carefully considered the rival submission, the relevant facts and the case laws cited by the learned counsels. In this appeal we are concerned with various questions placed before us in respect of assessment be made under Chapter XIV-B of the Act. We shall therefore understand the scheme of the Act in respect of such assessment. When the Director General or Chief Commissioner or the Commissioner is satisfied about any of the situation narrated in section 132(1), he issues an authorization for conducting a search under section 132(1) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty from the commencement of search till its completion. For passing an order under section 1 58BC in respect of block period a time limit is prescribed under section 15 8BC of the Act. An order can therefore be said to be validly passed provided the same is passed within the time limit prescribed. There is no provision in the Act to extend the said limitation. No Income Tax authority including the Income Tax Appellate Tribunal has any power to extend such time limit. Even the assessee cannot consent or agreed to the extended time limit. It is not merely an irregularity, which can be cured, but an illegality and cannot be validated by any process. Hence it is primary duty of the I.T.A.T. to determine whether the order under section 158BC is passed within the time limit prescribed under section 158BE of the Act, or not. Now as per section 158BE, the time limit prescribed starts from the date when the last of the authorizations issued for conducting search under section 132 is executed. Explanation 2 to section 158BE explains when such authorization can be said to be executed. The explanation says in clause (a) thereof that authorization is deemed to be executed on conclusion of sea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether the order under section 158BC(c) is passed within the limit prescribed under section 158BE or not, yet it cannot decide whether the order passed under section 132(3), putting certain P.O. on certain material should have been passed or not, necessitating a panchnama for same. An Assessing Officer himself is the only competent authority to decide on the spur of the moment whether to conclude the search by either releasing the material or seizing them. It is not open to assessee to challenge such administrative action of Assessing Officer before the Income Tax Appellate Tribunal by arguing that certain items have been wrongly put under P.O. for which a panchnama is prepared and hence ignoring such panchnama, the time limit should be arrived at under section 253(1)(b) an appeal to Income Tax Appellate Tribunal lies against an order passed under section 158BC(c) only. Thus, the Income Tax Appellate Tribunal has the power as well as the duty to first decide whether such order is legally valid or not. For this purpose, it has all the powers to see whether there was any search warrant in the name of assessee or not. It is the prerequisite under section 158BC, that a person in case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arrive at a conclusion that the block assessment is within the limitation period fixed, it becomes necessary to examine the documents, panchnama etc. Such a conclusion cannot be avoided at all. This may be treated as akin to action under section 148. To say that there is a valid order of reassessment, there has to be a valid notice under section 148. The reasons should have been recorded. The reasons need to be germane to conclude that some income has escaped assessment regarding the issue on hand. Though sufficiency of reasons is not to be examined, yet there should be a live link between the reasons recorded and conclusion that income has escaped assessment. To hold that order of reassessment is valid in the eye of law, Income Tax Appellate Tribunal has power to examine the reasons recorded and existence of nexus between reasons and conclusion that income has escaped assessment. 6.4 There is yet another way of looking at this issue. The jurisdictional fact that needs to be satisfied before the Assessing Officer can issue notice under section 158BC is that a search under section 132 should have been conducted on the assessee. The ITAT, therefore, needs to satisfy itself that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal cannot and need not look into or examine whether there was any need to proceed under section 132 by issuing a search warrant, or whether the conditions specified were satisfied to issue a search or to examine whether there was any need to pass an order under section 132(3). These actions are purely administrative actions taken by the Assessing Officer on the spur of the moment depending upon situation. What is appealable before Income Tax Appellate Tribunal is an order under section 158BC(c) based on valid action under section 132 and not propriety of action taken in course of valid search under section 132. The ITA T need to be satisfied only about validity of search under section 132 based on valid authorization. We therefore answer the first question in the affirmative. 7.1 The second question pertains to the commencement of time limit prescribed under section 158BE. When a search is conducted under section 132, the Assessing Officer can take any of the actions specified in sub-sections (i) to (v) of section 132(1). As mentioned earlier, during the course of search, the Assessing Officer may pass a RO. under second proviso to section 132(1) or pass a P.O. under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee have a relook in the matter which is either seized, or released, it is impossible to arrive at a primary conclusion suggesting any undisclosed income shown therein. Though it is not mentioned clearly as to when a notice under section 158BC(a) can be issued requiring the assessee to file a return of income in respect of undisclosed income, yet reading the said section 158BC(a), it can be concluded that only if a search is conducted under section 132, a notice under section 158BC(a) can be issued. This, in other words means, only when search is concluded, notice under section 158BC(a) can be issued. Now it is not the intention of Legislature to suggest that though the material or valuables are under a P.O. at the premises of the assessee, the assessee can be asked to file a return in respect of the undisclosed income. Hence, it will be counter to the scheme of Act that even though notice under section 158BC(a) is not issued, time limit for completion of assessment will commence. It is also clear that for a subsequent visit, either to revoke the P.O. or renew the same, no fresh authorization is required. The search is deemed to be continuing so long as all the materials and valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t can be made which will in other words imply that there will not be any outer time limit even though prescribed under section 158BE. In our opinion, the interpretation of sections 132(3) and 132(8A) as made is not correct. What the explanation to section 158BE(1) says is that time limit will start from last of the panchnama and it cannot be interpreted to mean that the time limit will not commence till order under section 132(3) is in operation. An order under section 132(3) can be passed restraining a person in possession of books or valuables to deal with same. However, once all the materials and valuables are appraised the search will come to an end and to this effect a panchnama will be prepared. Even at the time of conclusion of search an order under section 132(3) can be passed which in certain circumstances as per section 132(8A) may operate even after completion of assessment. This does not mean that time limit does not commence at all. The time limit will definitely commence on conclusion of search as per last panchnama prepared. Hence we do not find merit in said arguments and answer the second question in the negative. 7.4 Learned Authorized Representative heavily rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt cannot be asked to substitute its own opinion whether an order authorizing search should have been issued. When the power is exercised bona fide and in furtherance of the statutory duties of the tax officers, any error of judgment on their part will not vitiate the exercise of the power." We are therefore of opinion that sufficiency of reasons is not a matter to be looked into in passing an order under section 132(3). It is at the discretion of Assessing Officer depending upon the circumstances situation prevalent at relevant time. Still, Hon'ble Karnataka High Court has held that if power is exercised bona fide, it cannot be challenged in writ jurisdiction but if 'Assessee' is alleging 'mala fide', it is always open for the assessee to challenge the same before Hon'ble High Court. Thus decision of Southern Herbals Ltd.'s case is of no help to assessee in present appeal. 7.5 Much reliance was placed on decision of Bombay High Court in Mrs. Sandhya P. Naik's case. The facts of said case is carefully perused by us. In said case, there is a clear finding of fact to the effect that: (i) On 26-10-1996, a panchnama was drawn, stating that the search is concluded (PP. 538 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8.2 While answering the question number 2, we have opined that if a P.O. is passed at the premises of assessee under which certain books, records or valuables are kept, to be looked into at a next visit as per the convenience of both revenue officials and the assessee, the panchnama prepared at such a moment will suggest whether the search is continuing or not. However, if on the first day of the search itself, if the search is concluded and same is noted in panchnama which records such a finding, even though certain material is under P.O., search will be declared to have come to an end. Thus the panchnama prepared will give an indication whether the search is continuing or not. If on reading of the panchnama, it can be found out whether the search is to continue due to the clamping of a P.O. when a subsequent visit take place, once again a panchnama will be prepared based on action taken at the time of subsequent visit. From the panchnama drawn, it can be decided whether the search is continuing or not. After all materials are looked into the search will be declared to have come to an end. A reading of the panchnama will, therefore, clearly indicate whether the search is continui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in case of Microland Ltd. v. Asstt. CIT [1998] 67 ITO 446. The decision was strongly relied upon by ld. A.R.for the proposition that if there is no valid warrant of search, no order can be passed under section 158BC(c). Hence to verify the validity of order under section 158BC(c) the Tribunal should also examine all related facts including validity of search warrant, panchnama etc. We have already held, while answering question No.1 that the Tribunal has inherent power to examine all such documents so as to uphold the validity of the order passed under section 158BC(c). At the same time, we also apply the observation of Tribunal in said order of Microland's case wherein on pages 474 475, it was held as under: "Sri Pradeep has also tried to raise another issue in this connection. He argues that when the search operation was closed on the first day i.e., 29-3-1996, it has got to be considered that the said operation undertaken on that day actually came to an end. It is the argument of Sri Pradeep that for continuation of the search operation on subsequent dates, issues of fresh warrants of search were necessary and those searches conducted on the later days should be considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... escribed under section 158BE. We therefore answer the third question in the affirmative. 9.1 We shall now revert to the facts of the present case and decide whether the assessment is within time prescribed under section 158BE. 9.2 In present case, the search warrant was executed on 5th December, 1995. At that time certain books and cash were seized. Certain jewellery and books etc. found were not seized but in respect of which a P.O. was passed. A valid panchnama was prepared at that time for which there is no dispute. Subsequently, the assessee was called in a summons issued under section 131 on various dates for giving evidence, which assessee could not attend due to his ill-health and as advised by Doctor to take rest. This fact is apparent from reply of assessee to show-cause notice issued before levying penalty under section 272A(1)(c) of the Act. The same Assessing Officer thereafter revoked the P.O., concluded the search for which a valid panchnama was prepared on 24-1-1996. The assessee was served with a notice under section 158BC(c) dated 8-2-1996 to file return for block period. The assessee filed the return on 1-3-1996, disclosing total income of Rs. 37,31,050. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earch on 24-1-1996. Thus the time limit to pass an order under section 158BC shall be 31-1-1997 as per section 158BE read with explanation 2 thereto. Thus the order is within time limit. 9.4 We have carefully considered these issues. Based on our discussion while answering the questions posed before this Special Bench, we held that the time limit under section 158BE will commence from date of the last of valid panchnama. In this case last of valid panchnamas was drawn on 24-1-1996. It is the case of ld. A.R. that since there was no practical difficulty in seizure, P.O. under section 132(3) should not have been passed. We have also held that order under section 132(3) is an administrative action not open for challenge before Tribunal. The wisdom of the ITAT cannot replace the wisdom of the Assessing Officer passing an order under section 132(3) on the spur of the moment. It is not the case of the assessee that the panchnama dated 24-1-1996 is invalid or not properly drawn up. We therefore hold that the time limit shall commence from end of January, 1996 when last of valid panchnama was prepared. Thus the order under section 158BC(c) passed on 28-1-1997 is within the time limit pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 158BE read with Explanation-2 thereto, the Tribunal cap go into only those aspects of the search as are necessary to decide the question of limitation, These aspects include questions like whether the search was actually conducted on the named person; whether the authorization was actually issued in the name of assessee; and whether the last Panchnama drawn up was in conformity with the legal requirements i.e., whether it was actually drawn up by the Authorized Officer and it was signed by the specified number of witnesses, etc. In other words, so far as the Panchnama is concerned, the invalidity of actions recorded in Panchnama cannot be looked into, but the legality of the Panchnama can be examined. It was fairly conceded by the learned counsel for the Department that an illegal Panchnama in this restrictive sense does not elongate the search. Further questions as to whether the search was mala fide and it was invalid under law, and whether the imposition of prohibitory orders under section 132(3) was unjustified, etc. are, to my mind, beyond the purview of the appellate jurisdiction of the Tribunal. 11.4 A comparison has been made by both the parties between the provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for ascertaining the time limit for completion of the assessment. 11.7 I also find merit in the contention of the learned counsel for the Department that the jurisdiction of the fist appellate authority in coterminus with that of the Assessing Officer. The Assessing Officer cannot go into the validity of the search because he is not in possession of the material that led to the search. He may not be given even a copy of the authorization issued under section 132, let alone a copy of the reasons recorded for the search. So, it appears that the Assessing Officer cannot go into the question of validity of the search. Issues which are beyond the purview of the Assessing Officer cannot possibly be adjudicated by the Tribunal also, which is sometimes the first appellate authority. If the appellate authority can go into the questions which are beyond the purview of the Assessing Officer, the system of appeal becomes meaningless and unworkable. In that situation, as contended by the learned counsel for the Department, nobody would appear before the lower authority. 11.8 Before the Tribunal, the assessee can definitely raise question that the material collected during the search was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een different categories of panchnamas. The expression 'last panchnama' implies earlier panchnamas drawn up in the course of execution of an authorization issued under section 132. If the order under section 132(3) does not elongate the search as contended, the authorized officer cannot even visit the premises on subsequent dates, even for the purposes of lifting the prohibitory order. A panchnama may record only imposition of the prohibitory order or it may record the lifting of the prohibitory order without any seizure or it may record seizure at the time of lifting the prohibitory order. These are different contexts in which a panchnama may be drawn up. All of them qualify as panchnama for the purposes of counting the limitation for the purpose of Explanation 2to section 158BE. Besides the Panchnama which is 'illegal' in the restricted sense mentioned herein above, the only other Panchnama that does not quality for that purpose of counting the limitation is a panchnama drawn up after the completion of the assessment, to which I shall refer hereinafter. 11.11 It is not that the question of legality of search action cannot be considered at all. The only question is whether the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts to the inference drawn. In the former case, the incorrectness of the inference drawn can be rectified or nullified by a superior authority or court, provided the law permits it to be rectified. The said rectification or nullification is part of the appellate or revisional power which the law should specifically provide for. The writ jurisdiction is not so comprehensive as a comprise within it such an appellate or revisional power. It is essentially a supervisory jurisdiction to see that statutory authorities function within their bounds and that their decisions are not arbitrary, fanciful or based on irrelevant considerations. The scope of the writ jurisdiction while examining the validity of the authorization under section 132(1) is clearly limited to seeing whether the reasonable belief formed by the authority issuing the authorization was a reasonable belief, in the sense whether the said belief was formed only on the basis of relevant material/information. It was seriously and repeatedly urged that the reasons leading to the formation of the belief under section 132(1) should be discussed to the person against whom the authorization was issued at least after the search. Si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e act and a judicial act in spite of the recent dilution of the concept of an administrative action. Assuming that power to order search and seizure is a quasi-judicial (though I do not think so), the scope for judicial scrutiny of the exercise of the said power is very much limited, bearing in mind the respective roles assigned to the executive and the judicial departments of the State." In the light of the above, it is clear that there is a marked distinction between the appellate jurisdiction and the writ jurisdiction of the High Court. There seems to be difference between the writ jurisdiction of the High Court and the appellate jurisdiction of even the High Courts, let alone that of the Tribunal. It is also clear that the scope for judicial scrutiny of an administrative action, in contra-distinction to the scrutiny of a quasi-judicial action, is very limited. It is noteworthy that the Hon'ble High Court described or treated the search proceedings as an administrative act. Actually search is one of the modes of collection of material by the revenue and in this sense it is on part with survey action as collection of material from different sources even though it has more rigor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the given circumstances seem to be matters which if at all, are amenable for consideration only by the Hon'ble High Court in exercise of its writ jurisdiction. 11.14 The Hon'ble Karnataka High Court has observed that the writ jurisdiction is not so comprehensive as the appellate or revisionary. Learned counsel for the assessee sought to take support from this remark and tried to argue that as the writ jurisdiction is very limited in scope, the Tribunal should go into such issues like validity of the search and the validity of the prohibitory order as, otherwise, according to him, there would be a vast no-man's land which cannot be traversed by any forum. This contention is also not acceptable. It is not as though there are no noman's lands known to law. The learned author, Seervai has used the following quotation from a British judgment as the introduction to the Chapter - 'Right to Judicial Remedies'-- "The maxim that there is wrong without a remedy does not mean, as it is sometimes supposed, that there is a legal remedy for every moral or political wrong. If these were its meaning, if would be manifestly untrue. There is no legal remedy for the breache of a solemn promi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in proceedings. It is explained that such a situation as contemplated under proviso to section 132(8A) arises when certain assets like fixed deposits held by the assessee in a bank are involved. When proviso to section 132(8A) is involved, the order under section 132(3) ceases to be a prohibitory order and takes on the character of an order of attachment to secure the interests of Revenue. It is a power that can be exercised by the authorized officer and is analogous to the power under the provision of section 281B that can be exercised by an Assessing Officer. Whatever be the purpose of such extension of the prohibitory order as contemplated under proviso to section 132(8A), it seems to me that, the limitation can only be counted from the last panchnama drawn up before the completion of assessment, as otherwise, it would imply that there would be no limitation for the completion of assessment, which obviously, is an absurd proposition. So, limitation has to be ascertained with reference to the last panchnama drawn up before the completion of assessment, and if the assessment is completed after the period of one year from the date of last panchnama, whether that panchnama records s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undating us to sail over and reach our destination of decision which we are rendering hereby. All the learned representatives before us on both sides including for the interveners in this proceedings, in particular of the instant assessee and the Standing Counsel of the Department, therefore, deserve commendable appreciation which if not recorded herein will reflect our failure in duty. Thus I proceed as herein below. 14. Briefly stated, the background of the case is as follows. Needless to say that this appeal of the assessee pertains to the Block Period from 1-4-1985 to 5-12-1995, and challenges the order dated 28"1-1997 of the Asstt. Commissioner of Income Tax passed under section 158BC of the Income Tax Act, by adding various additions and disallowances, as erroneous. This appeal was filed by the assessee in his status as individual on 19-3-1997. This appeal seems to have been granted early hearing by the Bench and has been coming up for hearing from time to time since 17-7-1997 onwards but adjourned at the request of both the parties or either. We note from the records that queerly neither the Department, in spite of being aggrieved by grant of stay, nor the assessee has act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be answered by the Special Bench and further in their view of the matter, the questions were not happily worded. It is also submitted by them that they are not furnished with copies of the petition of the Department praying for Special Bench or of the recommendation of the then Vice President for constitution of the Special Bench including the question framed. Thus, dissatisfaction was expressed by the Counsel for the assessees. 16.1 The learned representative for the Revenue responded by submitting that: The order impugned by the assessee in the instant case has been passed under section 158BC of the Income-tax Act, 1961 providing for assessment of undisclosed income of a Block Period of assessment issued in pursuance of a search. The period of limitation for passing order under section 158BE would be one year from the end of the month in which the last of the authorization for search under section 132 was executed (provided the search took place after 30-6-1995 but before 1-1-1997 as is the situation in the aforesaid case.). The Department has been taking a consistent stand that when in the course of search under section 132 of the Income-Tax Act, a prohibitory order is iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n on the issue of limitation would have a repercussion on search assessments made all over India and that the issue involved is serious enough to warrant the constitution of a Special Bench to authoritatively pronounce upon the issue once for all so that the major controversy is set right. Hence, the Special Bench is requested to be constituted by the Hon'ble President exercising his power under section 255(3) of the Act, to hear and adjudicate upon the following questions: "Whether the period of limitation for passing an order under section 158BC of the Income-tax Act, 1961 is to be reckoned from the date on which the last of the prohibitory orders under section 132(3) was lifted drawing the last of the panchnamas OR/from the date of the first seizure effected by the Department under section 132(1) of the Income Tax Act, 1961 even though Panchnamas were drawn on subsequent date of search. Or/ And Such other questions as the Hon'ble President may deem fit." 17.1 Based on the Department's petition and the then learned Vice-President reframing the question into three thus recommending it for being answered by constituting a Special Bench, the Hon'ble President has approved th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal can regulate its own procedure and the procedure of Benches and for that purpose can frame appropriate regulations. In exercise of that power the Tribunal has framed regulations in its office manual. 17.4 Regulation 98A says that the concerned Bench which is seized of the matter may in exercise of its judicial function in an appropriate case make a reference to the President to constitute a Special Bench. The exercise of that function by the Bench of the Tribunal hearing the matter is of course a judicial function but so far the President's power under section 255(1) read with sub-section (3) to constitute Benches or for that matter Special Benches is concerned, the said power is an administrative power. It is obvious that the President in this connection may even act as suo motu if it is brought to his notice that any important point is pending for such decision in a matter which requires to be decided by a larger Bench. If the President acting on such information and in bona fide exercise of his powers constitutes a larger Bench or a Special Bench for deciding a matter, it cannot be said that he acted ultra vires the powers and functions entrusted to him by the Le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extraordinary cases wherein the order is shown to be a mala fide one according to the Apex Court vide: Chaturvedi Pithisaria's Income-tax Law Fifth Edition Vol. V, July 2000. 17.8 In the instant case what has happened is identical. Over the petition of the Department requesting for constitution of Special Bench in view of conflicting decisions on the relevant issue in question even though it was not heard by a Division Bench by giving opportunity to both parties particularly to the assessee who raises the objection that he has been given no opportunity of being heard to assist the Court in framing the questions and also not been given copy of the petition of the Department for constitution of Special Bench, the then Vice President has revised the single question prayed for by the Revenue to be answered by the Special Bench into three questions furnishing detailed reasons thereof for eight pages and also considering them as question of all India importance recurring in several cases of search and seizure under Chapter XIV-B of the Act throughout the country especially when conflicting decisions have arisen from different Benches of the Tribunal in the country. Therefore, the Pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Special Bench do arise. However, it appears that the assessee has raised additional grounds of appeal which are on record and it is noted that the 1st additional ground of appeal gives rise to, may be only some aspects of, the questions referred to the Special Bench. May be argued that the additional grounds of appeal should be admitted by the Division Bench under ITAT Rule 11 [analogous to section 250(5) of the Act regarding the first appellate authority] supported by a separate application therefor and also by an affidavit swearing reasons as to why it could not raise so earlier, which appears to have been not done in the instant case. 18.2 We note that the assessee in his additional grounds of appeal has prayed for admission thereof, which were not urged in the original grounds of appeal assigning the reason that these grounds do not involve any investigation of facts, otherwise than those on records of the Department and are also pure question of law, and disposal thereof for advancement of substantial cause of justice. This Special Bench is not concerned with any of the main grounds or additional grounds of appeal except the first additional ground prayed for admission as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he learned counsel for the assessee along with those of the interveners, besides the learned Standing Counsel for and learned representatives of the Department, in the course of their arguments, referred to the following case laws: Union of India v. Kaumudini Narayan Dalal [2001] 249 ITR 219 (SC)/Union of India v. Satish Panalal Shah [2001] 249 ITR 221(SC)/Tarsem Kumar v. CIT [1974] 94 ITR 567 (Punj. Har.) affirmed in Tarsem Kumar's case Bafna Textiles v. ITO [1975] 98 ITR 1 (Kar.) affirmed in ITO v. Bafna Textiles [1987] 164 ITR 281 (SC) Tarsem Kumar's case p. 512 Mrs. Sandhya P. Nayak's case at pp. 539, 541-2 Shri Ganesh Enterprises (P.) Ltd v. Union of India [1994] 210 ITR 786 (Delhi) at 795H 796D CIT v. Ramesh Chander [1974] 93 ITR 450 (Punj. Har.) Pooran Mal's case Jagmohan Mahajan v. CIT [1976] 103 ITR 579 (Punj. Har.) S.C. Sibal v. CIT [1917] 106 ITR 102 (Punj. Har.) Manmohan Krishan Mahajan v. CIT [1977] 107 ITR 420 (Punj. Har.) R. Bhardwaj v. Chief Commissioner (Admn.) [1990] 182 ITR 149 (Kar.) Dr. Partap Singh's case at p. 174 Southern Herbals Ltd.'s case at pp. 60 to 62, 66B, 64CD, 65 followed by Delhi HC in Shri Ganesh Enterpris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... K. Subramanian, ITO [1983] 143 ITR 120 (Bom.) at p 139, Suraj Mall Mohta Co. v. A.V. Visvanatha Sastri [1954] 26 ITR 1 (SC), Verma Roadways v. Asstt. CIT [2000] 75 ITD 183 (All.) at p. 222, Deen Dayal Goyal's case, Garware Nylons Ltd.'s case, Pooran Mal's case, Dr. Partap Singh case, Ramkishan Shrikishan Jharver's case, Southern Herabals Ltd.'s case, Page 7 para 2 Shri H V. Srinivas ITA (SS) No. 86/B/97 Dt. 5-8-1997, Page 7 para 2, Poornima Fin. Corpn. IT(SS)A No. 87/B/97 Dt. 5-8-1997, Page 3 para 2, Sri S. Abdul Salam IT(SS)A No. 74/ B/97 Dt. 16-1-1998, Srivenkateswara Rice, Ginning Groundnut Oil Mill Contractors Co.'s case, Aditya Minerals (P) Ltd.'s case. 19.2 On the other hand, the learned Standing Counsel for the Department along with the learned representatives for the Revenue, both Seniors and Juniors, referred to the following provisions of law including under different enactments which were also referred to by the learned counsel for the assessee along with those of the interveners as well: ------------------------------------------------------------------------------- 1. Power regarding discovery, production of Section 131 evidence etc. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... III. Law of Income-tax (9th Edition) VoL V, 6978, 6981, by A.C. Sampath Iyengar IV. Powers of Appellate Court. Section 107 C.P.C. V. Warrant may be directed to any person Section 73 of Cr.P.C. When search warrant may be issued Section 93 of Cr.P.C. Persons in-charge of closed place to allow search Section 100 of Cr.P.C. Power of Police Officer to seize certain property Section 102(3) of Cr.P.C. VI. Interpretation clause:. Section 3 of the Indian Evidence Act, 1872 in Law of Evidence by Dhirajlal. VII. Power of High Court for issue of certain writs. Art. 226 of the Constitution of India. Power of superintendence overall courts by the H.c. Art. 227 of Constitution of India. VIII. Rajah Chellaiah Committee Report 1992. IX. H.M. Seervai: Constitutional Law of India 4th Edition Vol. II, 1500, 1508 pages. 20.1 The submissions made by both the parties on the merits of the questions also have been heard, besides going through the aforesaid case laws relied upon by both the parties as well as the provisions of law cited above referred to and interpreted by rival contenders, both r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the point of limitation, including as to whether the search was actually conducted on the named person or whether the authorization was actually issued in the assessee's name or whether the last panchnama was issued as per legal requirements such as whether the authorized officer has signed it or whether specified number of witnesses signed it and the like. Beyond the purview of the Tribunal are those questions as to whether the search is mala fide or valid under law and whether the prohibitory order under section 132(3) is justified or whether the panchnama has to be ignored as it has not recorded seizure. When going into the question of search is beyond the jurisdiction of the Assessing Officer for the reason that he is not in possession of the material that led to the search, the appellate authority viz. the Tribunal too cannot. Even if search is bad in law and therefore what is seized must be returned to the assessee, the evidence is still admissible for assessment purposes. Hence, to hold that the Tribunal could go into the questions of even legality of search or of prohibitory order under section 132(3), would be meaningless. Only about the validity of assessment under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 4.1 13 to 14 e. Department's Standing Counsel's 5.2 to 5.7 15 to 23 submissions f. D.R. (CIT)'s submissions 5.8 - 5.10 23 - 27 g. Senior DR's submission 9.3 45 h. Operative portion. 6.1 - 9.4 27 - 46 i. Scheme of Block Assessment 6.1 27 - 28 Chapter XIV-B j. Question No.1 6.2 - 6.5 28 - 33 k. Question No.2 7.1 - 7.5 34 - 40 L. Question No.3 8.1 - 8.4 40 - 43 m. First limb of Question 3 8.1 - 8.2 40 - 41 n. Second limb of Question 3 8.3 - 8.4 41 - 43 o. Whether assessment is in time in 9.1 43 the instant case p. Facts of the instant case. 9.2 43 - 45 q. Decision on limitation 9.4 45 - 46 r. Remission to regular Bench. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecial 17.1 62 Bench f. Validity of such Constitution 17.2 - 17.8 63 - 66 g. Deemed admission of first Additional 18.1 - 18.2 67 - 68 ground warranting Special Bench h. Case Laws 19.1 69 - 71 i. Provisions of Law 19.2 72 - 73 j. Dissection of the questions 20.1 73 - 74 k. Salient features of proposed, 20.2 - 20.3 74 - 76 supplemented and concurred Orders l. Scheme of the Orders 20.4 76 - 77 m. Concurrence of answers to the 20.5 78 three questions n. Limitation in the instant case 20.6 78 o. Remission to the regular Bench 21 79 20.5 Thus while the assessee's learned counsel and of the interveners submitted that the first two questions have to be answered in affirmative, and the third question in the negative, the learned Standing Counsel for the Department as well as the learned r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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