1. This appeal filed by the Revenue is directed against the order of Id. CIT (A)-VII, Mumbai dated 7-3-2001 for block period 1-4-1981 to 1-8-1998 and Cross Objection No. 236/Mum./2004 is filed by the assessee. The proceedings arise out of assessment completed under Section 158BC of the Income-tax Act, 1961.
2. The first cross objection deals with the legality of the block assessment and cross objections 2 to 5 deals with the merits of the case.
3. The issue raised by the assessee in its first cross objection is that the block assessment order is time barred, therefore illegal and bad in law. Admittedly, the issue was not raised before the Id. CIT (A) and the same has been raised before us for the first time.
4. The said first cross objection raised by the assessee is purely a question of law which arises from the determined facts. The cross objection is to be treated as an appeal for all practical purposes. The issue raised by the assessee is a legal question and goes to the root of the matter as such, following the ratio laid down by the Apex Court in the case of National Thermal Power Co. Ltd. v. CIT , the said cross objection of the assessee is 5. Coming to the facts of the case, a search under Section 132 was initiated on 18-6-1998 and as per the assessee it concluded on 29-6-1998, whereas as per the Revenue the same was concluded on 1-8-1998. The block assessment was completed on 28-8-2000 and as per the contention of the assessee the same was beyond time limitation as prescribed under Section 158BE i.e. within two years from the end of the month in which the last of the authorization of search under Section 132 was executed. The moot question before us is to decide is, as to when the last of authorization for search under Section 132 was executed for the purpose of determining the time limitation for completion of block assessment as provided under Section 158BE of the Income-tax Act, 1961.
6. The relevant facts as stated are that the first Panchnama was drawn at Office No. 922B, 9th Floor, Dalai Street, at Stock Exchange Building, Mumbai on 18-6-1998 which is placed on pages 175 and 176 of the paper book and it was mentioned that the search is temporarily concluded.
7. The second Panchnama was drawn which is placed at page 181-182 of paper book, at House No. 23, 2nd Floor, Atmaram Building, Francis Xavier Lane, Mumbai on 19-6-1998 and it was mentioned that the search is temporarily concluded. On this date certain shares and debentures were found and inventorised as per the Annexure-I of the said Panchnama and were kept in the Steel cupboard in the bed-room and prohibitory order under Section 132(3) was passed.
8. Another Panchnama was drawn at Office No. 922B, 9th Floor, Dalai Street, Mumbai on 24-6-1998 at pages 187 and 189 of the paper book and it was stated that the search is temporarily concluded. Two computer servers and computer's floppies were kept in the right side of the wooden cabinet at the same premises and prohibitory order under Section 132(3) was passed on the same day i.e., 24-6-1998 and it was mentioned that the search was temporarily concluded.
9. Another Panchnama was drawn at 922B, 9th Floor, Dalai Street, Mumbai on 25-6-1998 when two data cartridges were seized and it was mentioned that the search is temporarily completed and another prohibitory order with regard two computer servers and floppies were passed on 25-6-1998, which is placed at Page Nos. 194 to 197 of the paper book.
10. Another Panchnama was prepared at 922B, 9th Floor, Dalai Street, Mumbai which is placed at pages 198 to 200 of the paper book on 29-6-1998 and prohibitory order under Section 132(3) dated 25-6-1998 was removed and two back up data cartridges were seized. It was mentioned in the punchnama that the search is finally concluded.
11. Another panchnama was withdrawn on 1-8-1998 at House No. 23, Second Floor, Atmaram Building, Francis Xavier Lane, Mumbai and the shares and debentures kept in the almirah were again inventorised and released and which is at pages 200-A to 200-S of the paper book. Nothing was mentioned in the Panchnama with regard to conclusion of the search.
12. In the backdrop of the above facts, the main argument of the Id.
counsel for the assessee Shri Vijay B. Mehta is that the last authorization was executed on 29-6-1998 i.e., when the back-up data cartridges were seized from 922B, 9th Floor, Dalai Street. He further stated that the Panchnama drawn on 1-8-1998 cannot be considered as execution of the authorization under Section 132 since nothing new was done on that date. The shares and debentures were already inventorised at House No. 23, 2nd Floor, Atmaram Building, Francis Xavier Lane, Mumbai on 19-6-1998. On 1-8-1998, another inventory was prepared of the same shares and debentures and those were released. According to him the restrained order was passed on 19-6-1998 with regard to the said shares and debentures which were inventorised on that day itself does not extent the period of limitation for the purpose of Section 158BE.For this proposition he relied on the following case law:CIT v. Sandhya (P.) Naik (ii) Smt. Neena Wadhwa v. Dy. CIT [2003] 128 Taxman 149 (Delhi - Trib.)Ananta N. Naik v. Dy. CIT (iv) T.S. Chandrashekar v. Asstt. CIT [2000] 113 Taxman 26 (Trib. - Bang.) (v) Madhuvana House Building Co-operative Society v. Asstt.
CIT[2002] 76 TTJ (Bang.) 948.
(vi) M. Sivaramakrishnaiah & Co. v. Asstt CIT [2005] 93 TTJ (Visakhapatnam) 1035.
13. On the other hand, the learned DR Shri Ash win Kumar stated that the last authorization was executed on 1-8-1998 as the shares and the debentures were required to be identified as the distinctive numbers were not mentioned at the time of preparation of the inventory on 19-6-1998 and he drew our attention to pages 298 to 302 which is the inventory of shares and debentures found during the search at House No.23, Second Floor, Atmaram Building, Francis Xavier Lane, Mumbai which was prepared and signed on 19-6-1998 on which the distinctive numbers have not been mentioned. He also drew our attention to page No. 200C, which is the list of shares and debentures prepared on 1-8-1998 at the said premises mentioning the same shares along with their distinctive numbers. He further stated that it was a valid search and the block assessment has been completed within the prescribed time as provided in Chapter-XIV-B. He further stated that in the case of Mrs. Sandhya P.Naik, supra, the block assessment was held to be invalid on account of various irregularities noted by Hon'ble High Court and as such the same cannot be applied to the facts of this case.
14. We have heard both the parties. Section 158BE(1) provides limitation for completion of assessment and the limitation is to start from the end of the month in which the last of the authorization for search under Section 132 was executed. Explanation 2 of Section 158BE provides that the last authorization referred in Section 132 shall be deemed to have been executed, in the case of search, on the conclusion of search as recorded in the last Punchnama. The only question is to be decided by us in this case is when was the last of the authorization under Section 132 for search was executed, in order to determine the start of time limitation provided under Section 158BE. Meaning thereby it is required to be decided whether the last of the authorization warrant was executed on 29-6-1998 or on 1-8-1998. To be more precise the question to be decided is whether the Panchnama prepared on 1-8-1998 at the residential premises can be treated as last execution of the authorization warrant.
15. The search party visited twice at the residential premises of the assessee at House No. 23, Second Floor, Atmaram Building, Francis Xavier Lane, Mumbai on 19-6-1998 and again on 1-8-1998. On the first visit itself the house was searched and the shares and debentures found were inventoried as per Annexure-I and kept in the steel cupboard in the bed-room and prohibitory order was passed under Section 132(3). The authorized officers were aware of the nature and contents of the documents which were kept in the said cupboard, as the inventory of the said documents i.e. shares and debentures was prepared on 19-6-1998 and PO was passed. It was mentioned in the PO order that all the shares and debentures were belonging to the assessee and his family members were kept in the cupboard. Obviously the authorized officers must have come to the conclusion that these shares and debentures are not required to be seized. The PO order passed under Section 132(3) does not amount to seizure as per the Explanation to said Sub-section.
16. An order passed under Section 132(3) prohibits the person in possession of the books or the valuables to deal with the same except with the prior permission of authorized officer. It does not mean that the search shall not come to an end till the operation of order under Section 132(3). Once all the materials and valuables, which are found during the search, are appraised the search will come to an end. The warrant under Section 132(1) is issued in the name of particular officer or officers who authorized to do any one as all the actions which are mentioned in the Section 132(1). The relevant provision is reproduced hereunder for ready reference: 132. (1) Where the Director General or Director or the Chief Commissioner or Commissioner or any such Joint Director or Joint Commissioner as may be empowered in this behalf by the Board, in consequence of information in his possession, has reason to believe that-- (A) the Director General or Director or the Chief Commissioner or Commissioner, as the case may he, may authorise any Joint Director, Joint Commissioner, Assistant Director or Deputy Director, Assistant Commissioner or Deputy Commissioner or Income-tax Officer, or (B) such Joint Director, or Joint Commissioner, as the case may be, may authorise any Assistant Director or Deputy Director, Assistant Commissioner or Deputy Commissioner or Income-tax Officer, (the officer so authorised in all cases being hereinafter referred to as the authorised officer) to-- (i) enter and search any building, place, vessel, vehicle or aircraft where he has reason to suspect that such books of account, other documents, money, bullion, jewellery or other valuable article or thing are kept; (ii) break open the lock of any door, box, locker, safe/almirah or other receptacle for exercising the powers conferred by Clause (i) where the keys thereof are not available; (iia) search any person who has got out of, or is about to get into, or is in, the building, place, vessel, vehicle or aircraft, if the authorised officer has reason to suspect that such person has secreted about his person any such books of account, other documents, money, bullion, jewellery or other valuable article or thing; (iib) require any person who is found to be in possession or control of any books of account or other documents maintained in the form of electronic record as defined in Clause (f) of Sub-section (1) of Section 2 of the Information Technology Act, 2000 (21 of 2000), to afford the authorised officer the necessary facility to inspect such books of account or other documents; (iii) seize any such books of account, other documents, money, bullion, jewellery or other valuable article or thing found as a result of such search: Provided that bullion, jewellery or other valuable article or thing, being stock-in-trade of the business, found as a result of such search shall not be seized but the authorised officer shall make a note or inventory of such stock-in-trade of the business; (iv) place marks of identification on any books of account or other documents or make or cause to be made extracts or copies therefrom; (v) make a note or an inventory of any such money, bullion, jewellery or other valuable article or thing.
17. The passing of prohibitory order under Section 132(3) is an administrative act and it is the domain of the authorized officer to decide during the course of search if any PO is required to be passed or not. However, in order to determine whether the search as come to end or not, what is required to be seen whether the documents or valuables being kept under PO have been appraised or not. The Explanation 2 of section 158BE does not mean that the time limitation will not start till PO passed under Section 132(3) is in operation.
This view also finds support from the order of Special Bench in the case of C. Ramaiah Reddy v. Asstt. CIT [2003] 87 ITD 439 (Bang.) the relevant para 7.3 of the said judgment is reproduced as under: 7.3 An interesting argument was taken up to say that a Prohibitory Order under Section 132(3) which is not valid after a period of sixty days can be extended beyond such period as prescribed under Section 132(8A). As per proviso to Section 132(8A) the period of validity of order under Section 132(3) gets extended even beyond completion of assessment proceedings. Hence even if search is not concluded, and time-limit has not commenced, assessment can be made which will in other words imply that there will not be any other time-limit even though prescribed under Section 158BE. In our opinion, the interpretation of Section 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 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 negative.
18. As stated in the earlier part of this order, on 19-6-1998 an inventory was prepared of shares and debentures found at the residence of the assessee and the same were kept under PO. On the second visit of the search party i.e. on 1-8-1998 the said cupboard was opened, inventory of same shares and debentures was again prepared and those were released. The only difference in the two inventories prepared was that in the first inventory distinctive numbers were not mentioned whereas in the second inventory the distinctive numbers were mentioned.
Merely by mentioning distinctive numbers in the second inventory it cannot be held that the said shares and debentures were not appraised by the Search Party on 19-6-1998. No search proceedings as envisaged under Section 132(1) took place on 1-8-1998 only another inventory was prepared and the shares and debentures were release. In the case of Sandhya P. Naik, supra, it is held that simply stating in the Panchnama that the search is temporarily suspended, the authorized officer cannot keep the search proceeding in operation by passing a restraint order under Section 132(3). In the case of the assessee, no doubt that the Panchnama prepared at the residence on 19-6-1998, that the search is temporarily concluded but actually no search was made on 1-8-1998, only the shares and debentures were released. The relevant portion of the judgment of Hon'ble Bombay High Court in the case of Sandhya P. Naik (supra) is reproduced hereunder: Admittedly, only the following officers were authorized to conduct the search. Their names were: Admittedly, the name of Mr. Abrol does not figure here. So also admittedly, there was only one search warrant, which was issued on October 16, 1996, and executed between October 16, 1996, and October 20, 1996, and which expired thus on October 20, 1996. The warrant was issued on October 7, 1996, and the search was conducted continuously between October 16, 1996 and October 20, 1996. In between, the search was suspended only during the late hours of the night. On October 20, 1996, having seized all the relevant materials and valuables, the search party obviously had come to the conclusion that there was no further material to be seized and no more search operation to continue. The search comes to an end when the search party leaves the premises after carrying with it the seized material and thus authorization for search is fully implemented and execution is complete. For this proposition, the Income-tax Appellate Tribunal Bench, Pune, took support of the decision of the Bangalore Bench in the case of Kirloskar Investments and Finance Ltd. v. Asstt.
CIT[1998] 67 ITD 504. In the present case at hand, the cupboard in which 45 kgs. of silver articles were kept was sealed by making an order under Section 132(3) of the Income-tax Act. The authorized officers were obviously very much aware of the contents of the cupboard and the nature of articles in view of the inventory made by them. They had also come to the conclusion that the said 45 kgs. of silver articles need not be seized. There was no practical impediment to seizure of the said 45 kgs. of silver, if it was considered by the authorized officer as necessary. The contention of learned Counsel for the Department that it was not practical to seize huge quantity of silver at odd hours, was rightly held to be untenable by the Income-tax Appellate Tribunal, because at the same odd hour, the search party seized and removed from the premises of the assessee 5,729 gms. of gold ornaments, cash of Rs. 1,69,000 and books of account, weighing nearly 500 kgs. On October 26, 1996, 6 kgs. of silver articles in the said cupboard were released, a Panchnama was made and a further order under Section 132(3) passed with respect to the said sealed cupboard and the seal was placed against. Thus, the Income-tax Appellate Tribunal rightly held that the proceedings, on October 26, 1996, could not be considered as part of the execution of the search proceedings, which concluded on October 20, 1996. Indeed, by simply stating in the panchnama that the search is temporarily suspended, the authorized officer cannot keep the search proceedings in operation by passing a restraint order under Section 132(3). Reliance placed by the Department on the judgment of the Allahabad High Court in the case of Sriram Jaiswal v. Union of India , was correct. The restraint order in view of this authority cannot be cancelled and renewed from time to time. Action under Section 132(3) of the Income-tax Act can be restored to only if there is any practical difficulty in seizing the item which is liable to be seized. When there is no such practical difficulty the officer is left with no other alternative but to seized the item, if he is of the view that it represented undisclosed income. Power under Section 132(3) of the Income-tax Act thus cannot be exercised so as to circumvent the provisions of Section 132(3) read with Section 132(5) of the Income-tax Act. the position has become much more clear after the insertion of the Explanation to Section 132(3) effective from July 1, 1995, that a restraint order does not amount to seizure. Therefore, by passing a restraint order, the time-limit available for framing of the order cannot be extended.
19. Keeping in view the facts of the case and the case law referred above, we are of the view that the last of the authorization was executed on 19-6-1998 and the Panchnama prepared on 1-8-1998 was only for the purpose of lifting of PO and cannot be treated as execution of the search warrants. Having held so we hold that the assessment order passed under Section 153BC on 28-8-2000 was barred by time limitation as provided under Section 158BE and same is quashed. The 1st Cross Objection of the assessee is allowed. Cross Objections from 2 to 5 are on merits. We do not see any need to go to the merits as the assessment has been quashed on legal grounds.
IT(SS) A No. 215/Mum./2001, Block period 1-4-1989 to 1-8-1998 (Revenue's appeal) 20. In view of the assessment being quashed as order passed in Cross Objection of the assessee, we do not see any need to go into the merits of the case. The appeal of the Revenue is dismissed.
21. In the result, assessee's Cross Objection is allowed and Revenue's appeal is dismissed.