1. In exercise of the powers vested under section 255 (3) of the Income Tax Act, 1961 (the Act), the President of the Income Tax Appellate Tribunal (ITAT). has constituted this Special Bench to decide the following questions referred arising in the case of present assessee.
1. "Whether the Tribunal could examine the search activity from the time the search is started so as to determine as to at what point of time the search could said to have come to a close, for the sole purpose of examining whether the assessment is in time or otherwise 2. Whether the term within one year from the end of the period in which the last of the authorisation for search U/s 132 was executed has to be taken to mean the execution of the warrant resulting gin seizure and not with reference to issuing of prohibitory order and successive visits that are claimed as searches, which are so carried out on the basis of the only authorisation that was issued initially 3. Whether, where as search is carried on the basis of an authorisation, resulting in seizure of some items, issue of prohibitory order on others, could the search be said to be continuing and comes to a close only when the authorised officer says that he is no longer going to visit the premises by issuing a panchanama 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 Sec. 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 assesee. It was submitted that in present reference. Sec 158BE reacquired to be interpreted. Section 158BE prescribes the time limit within which the order u/s 158 BC is required to be passed. As per 158BE (1), the limitation starts from last of the authorization issued U/s 132 of the Act. is executed. An assessee who is to be searched may have several premises. For each of the premises, a separate authorization is required, because the authorisation mentions the place to be searched.
Hence, it is possible that all the places could not be searched a single point of time. The person authorized to conduct a search may execute such authorizations on different dates. Hence it is prescribed in Sec. 158 BE(1) that the limitations would commence from the exclusion of last of such authorizations. Once an authorization U/s 132 is executed. The authorized officer has various powers as referred in section 132 (1)(i) to 132 (1)(v). As per second proviso to Sec. 132 (1). if it is not possible or practicable to take physical possession of any valuable article or thing in view of certain peculiar circumstances, the authorized officer may pass an order directing the owner or possessor thereof not to remove, part with or deal with such article. This will amount to deemed seizure. This is treated as Restraint Order hereinafter referred as R.O) in ordinary parlance. At the same time, the Authorised Officer hereinafter referred as A.O.) may, under the provision of section 132(3), where it is not practicable to seize any books documents, valuables etc pass on order directing the owner or possessor thereof not to remove, part with or deal with the same. In common parlance this is called a Prohibitory Order (hereinafter referred as P.O.). However, as per explanation to Sec.
132(3), such P.O. is not to be treated s seizure for purpose of sec.
132(1)(iii). After the search is carried out by execution of the authorization a panchanama is prepared. Such panchanama is the summary of the events during execution of authorization to the end of such search. The panchanama also contains the signature of witnesses. If some R.O. or P.O. is passed, subsequent revocation of such orders is not in respect of execution of authorization originally issued U/s.
132(1). It was therefore argued that once an authorization issued U/s 132(1) is executed. the time limit of completion of assessment prescribed u/s 158 BE (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 commence, Subsequent action of either revoking or prefixing 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 panchanama is prepared. Thus panchanama 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 inspection are not searches. Hence it can be said that subsequent action of revoking or extending R.O./P.O U/s 132(3) is only inspection. This therefore does not extend the commencement of time limit prescribed U/s 158BE. For this proposition, he relied upon the decision of jurisdictional High Court in G.M. Agadi & Bros Vs. Commercial Tax Officer (1973) (32 STC 243) and Binny Ltd. Vs. ACTO (1988) 71 STC 240 (Karnataka). It was argued that what is found as a result of search, is thereafter known, whether same is seized or put under P.O. Hence if the material found is put under P.O., subsequent visit for either revoking or extending P.O. does not amount to search. Thus a Panchanama prepared at such subsequent visit is not in respect of search warrant executed. It amounts only to look into or probing further which is not search under authoriztion. For this proposition, he relied upon the decision of Hon'ble Supreme Court in Tarsem Kumar (161 ITR 505, PP 512).
2.2 Mr. Venkatesan thereafter submitted that for proper adjudication of appeal against order U/s 158 BC (c), the ITAT needs to examine whether there was a valid search U/s 132 (1). For this purpose. ITAT should look into the warrant of authorization panchanama, etc. For this proposition, he relied upon the decision of ITAT. Allahabad bench in case of A.K. Bhansali (73 ITD 49) (TM) He also relied upon decision of Karnataka H C in case of Southern Herbals (2003-Taxindiaonline-12-HC-KAR) for the proposition that if an incorrect inference is drawn from relevant facts or whether such facts are relevant etc., the appellate authority has powers and High Court has only advisory jurisdiction. Thus if search itself is herald illegal, all consequential order U/s 158 BC is a nullity. However, if an order U/s 158 BC (c), for which a valid search U/s 132 is a pre-requisite, is challenged in appeal, the appellate authority should be deemed to have power to adjudicate whether action u/s 132 (1), 132(3), etc. are validly exercised. An order u/s 132(3) can be passed only when it is not practicable to seize any material. hence the ITAT should also examine whether there was any such impracticability necessitating order U/s 132 (3). If no such material is found suggesting impracticability, the P.O. U/s 132 (3) should be ignored for the purpose of time limits U/s 158 Be and explanation thereto. He went on to add that the ITAT, has not only powers but also a duty to look into all such relevant material for passing P.O. U/s 132 (3). If the A.O. is in doubt whether material found during search leads to undisclosed income or not, an order U/s. 132 (3) cannot be passed. For said proposition, he referred to the decisions of O.P. Jindal and Another Vs. Union of India and Others (104 ITR 389) (P & H) and Shriram Jaiswal Vs. Union of India and Others (176 ITR 261) (Allahabad).
2.3 Mr Venkatesan, extensively relied upon the decision of Hon'ble Bombay H.C in case of CIT Vs. Sandhya P. Naik (2001) (253 ITR 534) which upheld the order of ITAT. Pune reported in 66 TTI 533. In said case Hon'ble Bombay H C held that P.O. U/s 132 (3) which did not amount to seizure. does not extend the time limit even after considering the explanation 2 to section 158 BE. 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. Vidarbha Vs. Smt. Godavaridevi Saraf (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. 303900, 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 the search was concluded by lifting the P.O. on 24.1.1996. Thus the time limit of one year is to start from 5.12.1995. The order passed U/s. 158 BC (c) on 28.1.1997 is therefore barred by limitation. Summarising the arguments, he pleaded that first two questions referred need to be answered in the affirmative. and the third question be answered in negative.
3.1 Mr. Nagaraja Rao appearing for an intervener supplemented the arguments put forward by Mr Venkatesan, He further added that if ITAT can decide whether assessment is time-barred or not with reference to last of panchanama after revoking P.O. clamped U.s 132 (3). ITAT by necessary implication has power to decide whether such order U/s 132 (3) was at all warranted. A new dimension was brought in his argument submitting that as per section 132 (8A), though the P.O. U.s 132 (3)( is valid for a period of 60 days only, yet with the approval of the Director Commissioner, same can be extended. Under proviso to section 132 (8A), it can be interpreted that such extension of P.O. can be even beyond date of completion of all proceedings under the Act in respect of the items covered under the P.O. If such any interpretation is possible under the Act, the assessment U.s 158 BC would never get barred by limitation. This can never be the intention of legislature.
3.2 There was indeed considerable confusion as to when the last of the authorizations for search "was executed" Once the legislature, in its wisdom, has added in 1998 (retrospectively from 1.7.95) Explanation 2 to section 158 BE deeming the "conclusion of search as recorded in the last panchanama" as the date of execution, an independent determination of the date of execution is clearly barred. This makes the Panchanama the crucial document for determination of the commencement of the limitation enacted in section 158 BE. This position pushed to the center stage the twin issues of (a) what is a Panchanama: and (b) what is a valid Panchanama. Mr. Rao thereafter submitted that a Panchanama is not defined in the Income tax Act or Income tax Rules, let alone its format being prescribed in the Rules. It is not doubt a document drawn up for recording certain events, signed by the authorized officer and the person searched, and duly witnessed. The non-statutory format of a panchnama could be used by the authorized officer for a variety of purposes. But for the purpose of section 158 BE every document styled as Panchanama need not be regarded by the ITAT as a Panchanama. To decide whether a document is a Panchanama for the purpose of section 158 BE 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 P.c. in as may be. The operation of section 132 (1)/1(A) ends when the authorized officer completes the various tasks enumerated in (i) to (v) of section 132 (1). As actions under section 132 (3) or 132 (4) or 132 (8A) are not part of powers us 132 (1)(1A), there is no question of a Panchanama 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 Panchanama. 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 U/s 132 (3) cannot conceivably regarded as a Panchanama for the purpose of section 158 BE because, as provided in Sec. 132 (8A), the validity of an order under section 132 (3) could extend beyond the making of a block assessment under section 158 BC. It is absurd to relate, directly or indirectly, the commencement of the limitation enacted in section 158 BE to a prohibitory order, which could extend beyond the completion of the block assessment under section 158 BE. Anything relatable to an order under section 132 (3) does not mesh into the scheme of section 158 BE.3.3 Even if a document recording any of the actions covered by items (i) to (v) of section 132 (1) in respect of assets/documents covered in an order U/s 132 (3) were to be considered a Panchanama. The validity of such actions is dependant upon the validity of the order U/s 132 (3). It is ground reality that in many cases an order under section 132 (3) is passed in respect seize" them. The very fact that decisions like B.K. Nowlakha Vs. Union of India (1991) 192 ITR 436; State of Maharashtra vs. N.C. Bajaj (1993) 201 ITR 315; Dr. C. Balakrishnan Nair Vs. CIT (1999) 237 ITR 70 (Ker) and Sandhya Naik & Ors. (2002) 253 ITR 534 (Bom- Panaji Bench) and a number of decisions of the ITAT had to emphasis the mandatory nature of the pre-conditions for the clamping of a prohibitory order U/s 132 (3), amply demonstrate the entrenched bureaucratic practice of placing ultra vires orders under section 132(3) as 'tail' to the concluded search. The reasons for attaching this 'tail' are not far to seek : i) Apart from seizing cash, books of account documents, the thrust of a search is to obtain confessions/declarations of undeclared incomes. The Raja Chelliah Committee has criticized this improper motivation. Such confessions/declarations are easier to obtain in the pressure situation brought about by a search, more so when it is prolonged. The clamping of a prohibitory order under section 132(3) prolongs the pressure situation. The department has been interpreting the words "execution of the warrant of search" in 158 BE to mean the final removal of all constraints on the assets/documents in the custody of the person searched, Thus, clamping an order under section 132(3) to be followed by a Panchanama is the standardised procedure for postponing the commencement of the limitation under section 158 BE. Any thing based on a invalid order U/s 132 (3), as decided in a string of decisions like B.K. Nowlakha Vs. Union of India (1991) 192 ITR 436. State of Maharashtra Vs. N.C. Bajaj (1993) 201 ITR 315; Dr.
C. Balakrishnan Nair Vs. CIT (1999) 237 ITR 709 (Ker) and Sandhya Naik & ors. (2002) 253 ITR 534 (Bom- Panaji Bench) is invalid. A Panchanama, which stands on the crutches of something purported to be done on the basis of an illegal 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 Sec. 132 (c), he submitted that the assessing officer has not authority to go into the validity of such actions/orders. The authorised officer is his peer, or even a senior .
As the assessing officer had no power to consider the issue of validity of the actions/order the ITAT, whose scope is identical to that of the assessing officer, cannot consider the validity of the actions/orders passed by the authorised 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 132 (3) or 132 (8A) or even 132 (1). The revenue argues that ITAT cannot do it in an appeal under section 253 (1)(b). So in the space between the exercise of power by the High Court an the exercise of power by the ITAT the Revenue seeks to promote and harbor untrammeled behavior of the authorized officer. What the ITAT does in an appeal is not merely a confirmation or revision of what the Assessing Officer did. When the assessment is challenged in appeal the ITAT decides what acts of the IT authorities other than the Assessing Officer, which the Assessing Officer presumed to be valid, were really invalid. What binds the Assessing Officer does not necessarily bind the appellate authority. The valuation of a property by the valuation officer binds the assessing officer in making an assessment under the Wealth Tax Act. But it does not bind the appellate authority. If the invalidity taint the assessment itself the ITAT declares the assessment invalid. This is particularly so when the ITAT is functioning as the first appellate authority under section 253 (1)(b). The ITAT need not and does not quash any order or authorization issued by any authority.
It declares such order or authorization is a nullity and process to decide issues on that footing. In this connection we can refer to the following observations of the Madras High Court in CIT Vs. Elgi Equipment Ltd. (2000) 242 ITR 461 : "The creature of the stature cannot pronounce on the validity of the statute under which it is vested with power and duty of deciding the matter under the statute. However, when it comes to the notice of the Tribunal or the reference court that an authority purporting to act in terms of the statute has acted beyond the terms of the provisions by which the power is conferred on the authority, it is permissible to the ad judicatory forum to retrain from giving effect to such patently ultra vires act of the subordinate authority purporting to act in terms of a stature, though it is in fact inconsistent with the statute." It follow that if the ITAT is of the view that the precondition of impracticality to seize did to exist. it can treat the action of the authorized officer in placing a prohibitory order under section 132 (3) as ultra vires and any reckoning by the assessing officer of the limitation under section 158 BE from the date of any action/order based on such ultra vires order under section 132 (3), as invalid.
3.5 Mr. Rao also submitted that the power of High Court under Article 226 to intervene and nullify ultra vires actions of the authorities under the various phases 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 U/s 158 BC. 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 non-existent 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 issues of a warrant for the judgment of the authorized officer passing on order under section 132 (3) or the Commissioner extending the operation of the order-in terms of section 132 (8A) as held in ITO Vs Seth Bros (1969) 74 ITR 836 (SC). In correct, what the ITAT could deliver in proceedings in an appeal under section 253 (1), being an appellant function stricto sensu, is less circumscribed. For this proposition reliance was placed on decisions of CIT Vs. Kanpur Coal Syndicate (1964) 53 ITR 225 (SC): Jute Corporation of India Vs. CIT (1991) 187 ITR 688 (SC). It therefore follows that the appellate authority could go even into the adequacy of the grounds for clamping a prohibitory order under section 132 (3).
Thus there can never arise a conflict of jurisdiction between the ITAT and the High Court.
3.6 Dealing with each of the question referred to the bench, he submitted that, in the Income Tax Act there are no "no entry" areas, express or implied, barring the ITAT's exercise of power to decide issued germane to the very validity of the assessment under section 158 BC. If one of the issues in the appeal is - whether the block-assessment is time barred-all issues of fact and law that are necessary to decide that issue are indubitably within the scope of the appellate decision. For deciding the issue the ITAT can ascertain from the evidence produced before it, the date of 'conclusion of the search as recorded in the last Panchanama' for the sole purpose of examining whether the assessment is in time. A statutory umbilical cord joints section 132 and Chapter XIV-B. By the Finance No. (2) Act. 1998 Section 158 BE was retrospectively amended with effect from 1.7.1995, by insertion of Explanation 2 in Section 158 BE. The amendment narrows down the scope of fact finding as to the execution of the warrant of search, to ascertaining the date of conclusion of the search as recorded in the last Panchanama drawn". This position of law renders it necessary to decide whether the relevant Panchanama is a valid Panchanama. If the relevant Panchanama is based on action taken after a prohibitory order was passed, it becomes necessary to examine whether the prohibitory order was valid. In the following decisions the High Courts have held that a prohibitory order under section 132 (3) to be considered valid, the department should show the existence of circumstances showing "that it is not practicable to seize any books of account, other documents, money, bullion, jewellery or other valuable article or thing." The prohibitory order under section 132 (3) is often issued when this precondition is not satisfied. This is often done to prolong the pressure 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 a 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 impartibility 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. Balakrishnan Nair Vs. CIT (1999) (237 ITR 709) Ker. and CIT Vs. Sandhya Naik & ors. (2002) (253 ITR 534) (Bom - Panaji Bench).
3.7 As regards second question, Mr. Rao submitted that the execution of a warrant might involved 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 totally irrelevant for reckoning the commencement of limitation for the purpose of section 158 BE. On the date as recorded in the last of the valid panchnamas the clock of limitation inexorably start ticking, if there are multiple valid Panchnamas, Neither the assessing officer not the ITAT can fix as the date of commencement of the limitation under section 158 BE, a date other than the date as recorded in the last of the valid Panchnamas. An independent determination of the date of execution of the warrant is barred by the Explanation.
3.8 As regards the last question. Mr. Rao submitted that answers to questions 1 and 2 and the perspective analysis of the powers of the ITAT will answer question No. 3. Thus he concurred with Mr. Venkatesan that the answers for the first two questions be in affirmative and the of third question be in negative.
4.1 Mr. G. Sarangan, Id. Senior counsel appearing for another intervener also argued on the line of earlier counsels for assessee. It was submitted that powers of ITAT U/s. 255 (6) are very wide. Hence the ITAT needs to verify whether powers U/s 132 (3) are properly exercised or not. It is analogous to verification of whether powers U/s 148 are validly exercised. If it is found that there was no need to pass order U/s 132 (3), such panchanama should be ignored for the purpose of seeing whether order U/s 158 BC is within time limit U.s 158 BE. A search should not be prolonged by clamping Prohibitory Order frequently but should be concluded within shortest possible time. For this purpose he relied upon the decision of ITAT, Bangalore in IT(SS) No. 136 Bang/97 dt. 17.3.1999. in Esqnda Finance and Leasing Ltd. Vs. ACIT. It was argued that if the time limit U/s 158 BE read with explanation 2 thereto is to start from last of the Panchanama, Such panchanama should have ingredients of valid panchanama. The Prohibitory Order U.s 132 (3), should also be a valid order which should justify the action of P.O. It is not correct to say that ITAT being a creature of statute has not power to examine such action of A.O. because of which time limit gets extended. Though it can be examined by High Court, in a writ petition under Article 226/227 of the Constitution, at the same time it cannot be said that such thing cannot be examined by ITAT before whom appeal lies, wherein the ground relating to time limitation is also raised. The adequacy of material on which P.O U/s. 132 (3) 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 U/s 132 of the Act. the Assessing Officer shall issue notice U/s 158 BC. No doubt search should be legally valid but an appellate authority cannot go into the validity of search operations. When such proceedings are not appealable. The notice to be issued by the AO U/s 158BC(a) is not at the discretion of the AO but compulsory one a search takes place U/s 132. Hence, such notice is to be issued by the AO unless the search proceedings are quashed. This is unlike notice u/s 148 wherein the O has to himself form a belief that income has escaped assessment. Such belief is the basis for assumption of jurisdiction by the AO. Such issue can be looked at by the appellate authority when considering the appeal against the assessment order passed in pursuance of notice U/s 148.
However, the Hon'ble High Court exercise its jurisdiction under Article 226/227 of the constitution (Writ jurisdiction) on issue of notice U/s 148 (but before passing of an assessment order). The situation in the case of appeal against order u.s 158BC(c) is different. The AO has no role in fulfilling any jurisdictional fact before assuming jurisdiction. Such assumption (of jurisdiction) is automatic once search proceedings u/s 132 have taken place. Hence, there is no jurisdiction to be assumed. The search itself is conducted by a separate wing of the Department and the AO has no hand in it. Section 132 is a code in itself and no appeal has been provided for in connection herewith. The Assessing Officer cannot is in judgment over any of the proceeding u/s 132. Section 132 proceedings are only one of the methods of collection of date or information for enabling the Department to complete an assessment. The seized material; copies of panchanamas (with copies of P.O.'s attached) and handed over to Assessing Officer. He does not get the authorization/satisfaction note.
etc.) He gets P.O. copies only for the limited purpose of determining the place where the materials were seized (for determining presumption U/s 132 (4A)). In effect the AO has mainly the punchanamas seized materials. Whatever materials he wishes to use against the assessee, has to be put to the assessee and all principles of natural justice should be complied with. Then the Assessing Officer proceeds to pass the order of assessment. Reliance was placed upon the Karnataka High Court decision in the case of Southern Herbals (2003-Taxindiaonline-12-HC-KAR ) 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 AO 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 XIVB. 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 introduct a "Special Procedure for assessment of search cases" as could be seen from the Budget Speech of Hon'ble Finance Minister 212 ITR (St) 87 Para 71. The changes made did not make the provisions of Sec. 132 appealable. Hence, the position as it existed perior 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-moto.
5.3 Dr. Krishna thereafter submitted that, an appeal U/s 253 (1)(b) of the Act is with reference to an order U/s 158 BC(c) of the Act (and not with reference to 158 BC of the Act). The order is passed U/s 158 BC (c) r.w.s 143(3) or 144 as the case may be. But not U/s 158BC (c) r.w.s. 132. Hence, there is no direct linkage of Section 158 BC & 132.
The appellate authority cannot go beyond the jurisdiction of the original authority, otherwise an appeal would have no meaning. As the Assessing Officer cannot adjudicate upon the correctness or otherwise of search operations: nor can the appellate authority, the Hon'ble ITAT cannot do indirectly, what it could not do directly. Decision of Income Tax Appellate Tribunal. Delhi in case of Virinder Bhatia Vs. DCIT (79 ITD 340) supports this proposition directly. contrary view taken by Allahabad Tribunal in Dr. A.K. Bhansali's cae is no longer a good law, since its operation has been stayed by Allahabad High Court. The assessment order is in appeal before the Tribunal. The A.O. alone is the litigant and not the investigation wing (which conducted search operation) before the Tribunal. Hence, the ITAT can look at only such papers as were before the A.O. when he framed the order of assessment.
any objections that the assessee has, will have to be primarily brought out before the A.O. For example, the limitation issue will have to be first taken up before the A.O., who will adjudicate upon the same, based upon copies of Panchanamas in his possession. The A.O. would apply the bringibles laid down u/s 158BE (read with Explanation (2)).
He can verify whether the Panchanama is valid and has been prepared in accordance with the provisions of the Code of criminal Procedure, but he cannot sit in judgment over the issue of search warrant or over any of the proceedings which are noted in the panchanama. The is because he does not have these papers with him. He only uses the search materials to the extent necessary to prepare an order of assessment.
5.4 It was further submitted that, there may be situations where notice u/s 158 BC might have been issued without there being a search at all.
The Hon'ble ITAT would be entitled to look into this aspect as there would be no Panchanama at all. If the search proceedings are quashed, the assessment made is automatically quashed as held in Dr. C.Balakrishnan Nair & Another Vs. CIT & Another (237 ITR 70) Kerla, where the Hon'ble High Court quashed the proceedings, under chapter XIVB. The Tribunal being the higher 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.
2. CIT Vs. Rai Bahadur Hardutory (1967) 66 ITR 443 (SC) : Section 107 of the CPC: 3. Netaji Baig & Others Vs. State of W.B. (2000) 8SCC 262 Para 13 and In all these eases, it is held that courts cannot do indirectly what it cannot do directly. These is no question of partial jurisdiction.
Either the Hon'ble ITAT has the powers (or does not have it) to look onto 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 U/s 132 of the Act. The maxim "express fact cessario tacita" means that if certain things are expressed, what is not expressed should be excluded. Hence, no appeal can be filed with reference to proceedings U/s 132 as no such right has been specifically conferred on the assesse. Southern Herbals case (Supra) (2003-Taxindiaonline-12-HC-KAR ) is also an authority for the proposition that even the Hon'ble High Court cannot sit in judgment over the sufficiency of reasons for issue of search warrant or quash search proceedings, for procedural lapses, if action was taken by revenue authorities. BONA FIDE. Section 132 action is purely administrative and unless actuated by mala fides, cannot be questioned in a court of law as held in Narayana R. Bandekar & Manda N Bandekar Vs. Second ITO & Others (177 ITR 207) (Bombay) page 214 and Southern Herbals case (Supra). The Court did not lay down that the appellate authorities could look into the correctness or otherwise of proceedings U/s 132.
The Court held that the High Court is not an appellate court. It was therefore, submitted that the Hon'ble ITAT has no jurisdiction to go into the legality or otherwise of search operation. It can interfere when the panchanama is invalid (by ignoring such panchanama) or when no search at all has taken place. Other proceedings U/s 132 (including 132 (3) proceedings) cannot be gone into. Advertising to decision of the Madras High Court decision in CIT Vs. Elgi equipments (242 ITR 461) it was agreed that it lays down that acts of lower authorities, beyond the statute can be struck down. However the search wing is not a lower authority, which is a party to the appeal before the Hon'ble ITAT.hence, the ratio of the decision of the Madras High Court does not apply to the issue on hand. Further, the decision of the Madras High Court was on the issue that the statutory authorities should not give affect to Board Circulars which are opposed to the provisions of statute. Section 255(6) lays down that the Hon'ble ITAT has the powers vested in the Income Tax Authorities (U/s 131). This does not lay down the scope of the appeal before the Hon'ble ITAT.5.5 Dr. Krishna further submitted that, ITAT is a creature of statute.
It can have only such powers as are conferred on it. No powers can be inferred. In Md. Kunhi's case (71 ITR 815) Hon'ble Apex Court was concerned with the rights of the Hon'ble ITAT to grant a stay. Though power of stay is not provided for under the statute, however, the Hon'ble SC held that the power of stay, which is collaterial to the main right of appeal, can be inferred. It was submitted that the power that can be inferred can only be collaterial to the main power of appeal. If an appeal does not lie, no collaterial powers can be inferred. The stand taken by the assessee is that proceedings u/s 132 are collaterial to the issue of limitation. However, where the stature does not directly confer the power of appeal against action u/s 132, no collateral power exist. Reference was invited to case of Union of India and Another Vs. Paras Laminates Pvt. Ltd. (186 ITR 722). within bound, the powers of the Tribunal are vast and no restrictions exist. Reacting to arguments submitted by Sri Vankatesan that the decision of third member in Dr. A.K. Bhansal (Supra) inter alia ruled that Tribunal has power to go into the search activity U/s 132 needs and deserves a meritorious consideration, it was submitted that the operation of the entire order in Dr. A.K. Bhansalis case has been stayed by the Hon'ble High Court of Allahabad. Hence, this decision should not be given the meritorious consideration. It was therefore submitted that the answer to the first question should be in the negative.
5.6 Dr. Krishna submitted that the second and third questions are interlinked to each other and relate to the issue of Prohibitory Orders U/s 132 (3). Without prejudice to the submissions on the jurisdictional issue, it was submitted that order U/s 132 (3) are clamped when it is impracticable for the authorized officer to seize the relevant materials. What is impractical cannot be judged by the appellate court.
It will necessarily have to be decided by the authorized officer on the spot. The Court cannot substitute is judgment for that of the authorized officer so long as the actions of the authorized officer were bona fine as held by Karnataka High Court in Southern Herbals 207 ITR 55 P.P. 61 onwards and Supreme Court Judgment in ITO Vs. Seth Brothers (1969) 74 ITR 837. on pages 844, 845, 847 & 848. Unless Mala Fides are averred, these orders are inviolate from judicial scrutiny.
The authorized officer has two options when he forms the opinion that certain materials found in the course of the search are undisclosed. He either seizes there u/s 132 (I) or places a P.O. U/s 132 (3). The Pinches prepare a panchanama. A panchanama is only a record of proceedings of search, seizure, P.O. or any other action U/s 132.
Seizure is only-one of the powers U/s 132 (1). The could be exercise of other powers (like placing marks, inventory, etc.) Every search need not result in seizure. Proceedings u/s 132(3) are peculiar to the I.T.Act. No analogous power exists under the Code of Criminal Procedure.
Even Section 102 of the Cr. P.C. is not analogous to section 132 (3).
Section 102 (3) of Cr. P.C. is akin to second proviso to 132 (1). The Cr. P.C. has no provision equivalent to Sec. 132 (3). Section 132 (3) of the Act which imports the provisions of Cr. P.C. does not refer to 132 (3). The intention of the section 132 (3) is to enable the authorized officer to take a little time to determine the nature of materials found in the course of the search. The authorized officer may find some material which is undisclosed and others which are voluminous requiring time to form an opinion. The authorized officer any place all these materials under P.O. for a maximum period of60 days to scrutinize these at his leisure. The assessment records of the assessee 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 authorised 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 U/s 131 dt. 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 order U/s 132 (3) are passed to prolong the search or to save limitation. At the time of passing the order U/s 132 (3) the assessment order is not even contemplated and will be passed by some other authority.
5.7 Dr. Krishna thereafter submitted that a panchanama can pertain to the record of seizure/inspection/visit in the course of 132 proceedings and not necessarily limited to seizure only. The Karnataka High Court decisions in H.M. Angadi & Brothers (32 STC 243) and Binny Limited (71 STC 240) relied upon by learned Authorised Representative of the appellant is not relevant to the facts at issue. Hence, order U/s 132 (3) will have to be looked at from the point of view of the authorized officer. Poonam Chand R. Shah Vs. ITO (1975) (101 ITR 373) (Mad.) 382 is an authority for the proposition that the Court cannot go into the question of practicability of seizure. Only the authorized officer can decide. The Court cannot substitute its judgment, as held in case of Sardar Santosh Singh Vs. CIT & Others. (248 ITR 532) Jharkhand. Even if the P.O. is tainted by illegality, it may not be proper to quash the proceedings as held in case of Sriram Jaiswal (176 ITR 261) (Allahabad) P.P. 269 - 270. Sec. 158 BE is directory (affirmative language) and not mandatory like Sec. 153 (1) which has imperative language. Reference was made to decision in Ashok Singh Vs. Asst. Controller of Estate Duty and Others (196 ITR 160) (SC) and CIT Vs. State of Rajasthan & Others (234 ITR 637) (Raj). Substantial compliance of a directory provision is sufficient and, hence, question of limitation may become academic on curtain facts. The Act has to be interpreted to uphold the mandate of legislature. As the provisions of section 132 (3) are a part of search proceedings and elongates search proceedings, the answer to question (2) would be in the negative. The panchanama may be prepared even if a seizure is not made, section 158 BE (Explanation 2) does not refer to search proceedings : but only to panchanama which alone can be looked into by the Hon'ble Tribunal in appellate proceedings. Therefore the answer to question No. 3 should be in the affirmative.
5.8 Adverting to the arguments of Shri Nagaraja Rao. Counsel of Intervenor-1, it was submitted by Mr. Amitabh Kumar, Departmental Representative, CIT. that search operations u/s 132 need not result in a seizure at all. It is still in a valid search and a Panchanama needs to be prepared. Hence, a panchanama (being record of proceedings) is to be prepared even if no seizure is made. A search can also result in the following consequence : (a) Seizure U/s 132(1) (b) P.O U/s 132 (3). The P.O. U/s 132 (3) is akin 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 sub-section (1) as per explanation to section 132 (3). Such P.O. U/s 132(3) can have three fall outs and conclusions : (a) time limit of 60 days is exhausted and P.O. gates lifted by operation of law as per section 132 (8A) of the Act. In such a situation, no panchanama prepared.
5.9 Mr. Amitabh Kumar submitted that an order U/s 132 (8A) is different from an order U/s 132 (3) as it specifically required 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 U/s 132 (8A) is separate from an order U/s 132 (3). But no panchanama need be prepared either when order u/s 132 (8A) is passed or when it is lifted as it exhausts itself by efflux of time. Section 132 (8A) orders are a classic case where the interim order services the main proceedings. In a court, for example, the court may suspend its own orders or give certain directions even after the court has become functus officio. Such power is specifically given to the CIT/DIT U/s 132 (8A). It was further submitted that all orders U.s 132 (3) do not fall within the ambit of section 132 (8A). If seizure is to be effected, order u/s 132 (3) which pertain to materials to be used in assessment proceedings will have to be lifted and appropriate orders passed. In such cases a panchanama is prepared. The provisions of section 132 (8A) are more in the nature of attachment of valuables till proceedings under the Act are concluded (or within 30 days thereof) the provisions of section 281B for provisional attachment apply only when assessment proceedings are pending. Thus, search proceedings are concluded in the following circumstances : a) When the P.O. U/s 132 (3) is lifted and the panchanama is prepared.
(b) If the P.O. U/s 132 (3) exhausts itself, search is complete on the date the P.O. was imposed and the last panchanama was drawn.
c) If the P.O u/s 132 (3) is substituted by an order U.s 132 (8A), search is complete on the date on which the earlier panchanama was drawn (as no panchanama is prepared in connection with an order U.s 132 (8A) ). Such interpretation harmoniously blends the provisions of section 132 with 158 BC and 158 BE. No doubt the point of limitation is a question of fact and such point can always be determined by the Hon'ble Tribunal by perusing the Panchanamas drawn up in the court of the search. The copies of the panchanamas are with the A.O. and the A.O. and the Hon'ble Tribunal are both entitled to verify whether the panchanamas were prepared in accordance with the provisions of the Cr. P.C. The Point of limitation can always be fixed by the Hon'ble Tribunal by a plain reading of the Panchanamas legally prepared. The Hon'ble Tribunal cannot go into the legality of the proceedings of which the Panchanama's are a record. Based upon such panchanamas, the Hon'ble Tribunal can decide the point of lamination fixed u/s 158 BE (read with explanation (2) ). As regards, Tarsem Kumar's case (supra) of Hon'ble Supreme Court, Mr. Amitabh Kumar submitted that the case was with reference 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 (Supra) 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 U/s 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 asset.
year did not have any mechanism to call or requisition assets or the books of accounts 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 U/s 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 it 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 132 A. The limitation period depends upon the last panchanama Drawn. This panchanama is with regard to proceedings U/s 132. copies of which are available with A.O. The Validity of such panchanama can always be looked at: but not the legality of proceedings of which the panchanama is the record. The appellate authority can always see whether the panchanama is in accordance with the provisions of the order of criminal procedure. The appellate court cannot sit in judgment over 132 (3) proceedings.
Reliance was placed on the Kerala High Court judgment in T.O. Abraham Vs. ADIT (1999) (238 ITR 501), wherein the issue was regarding limitation on issue of P.O. wherein the court held in amour of the department.
5.10 As regards decision in the case of Smt. Sandhaya Naik (supra), it was submitted by Mr. Amitabh Kumar, that the judgments of other High Court do not bind the Hon'ble ITAT (other than jurisdictional High Court) as held in Patil Vijayakumar and Others Vs. Union of India and Another (151 ITR 48) (Kar.). Wherein the Karnataka High Court specifically dissented from a contrary Bombay High Court decision in Godavari Bai Saraf (Supra). hence, it was submitted that the decision of the Bombay High Court does not bind the Hon'ble Tribunal. Further, it also does not have any persuasive value. The Bombay High Court decision does not answer any of the questions referred for the adjudication of the Hon'ble Special bench. The first question referred pertains to the jurisdiction of the Hon'ble Tribunal, which was neither raised nor answered by the Bombay High Court. The Bombay High Court merely endorsed the decision of the Hon'ble ITAT and dismissed the appeal of department in limine. The thrust of the decision was on the point of execution of warrant. As per the warrant, it was executed on 16.10.96. Hence, the ITAT fixed the limitation on this basis concluding that the search is over when the war rang is executed. This is peculiar to this case because, the AO was forced to write 'Executed' since the assessee refused to acknowledge that warrant was shown to him. The issue of legality of order u/s 132 (3) was only incidental and the final decision did not turn on this issue at all. On the contrary, the Hon'ble Court was influenced by patent defects in the Panchanama drawn.
Which made in non-est in the eyes of the law. The Bombay High Court does not, therefore, law down any principle connected with the question referred. It was vehemently submitted that the Act 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 us 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 No. 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 counsel. In this appeal we are concerned with various questions placed before us in respect of assesssement to 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 immigrated in Sec.
132 (1), he issues as authorization for conducting a search u/s 132 (1) of the Act. Search may be conducted either simultaneously or at different dates at various places in respect of same person. However for each such place of search a separate authorization is required. The authorised officers (A.O.) are empowered to take all or any of the action prescribed in clauses (i) to (iv) of Sec. 132 (1) (e). While conducting the search the Assessing Officer may either seize books and other valuable articles or amy put the same in restraint order. Such restraint order may either be under second proviso to Sec. 132 (1) or Under 132 (3). Whereas restraint order under second proviso is treated as deemed seizure under the Act. prohibitory order (P.O.) U.s 132 (3) is deemed not be a seizure as per explanation to section 132 (3) of the Act. For all the proceedings of search at each place a Panchanama is prepared. A panchanama is basically a declaration by two independent panchas about the vents or proceedings of search. A standards format is devised by the Income Tax Department of panchanama which records the information like the name/address of assessee under search name of authorized official. Names of to there persons assisting the authorised officer, date and time of commencement of search, date and time of completion (temporary or otherwise) of search items found, items seized, etc. It also contains a statement that warrant of authorization duly signed and dated was shown to the assessee for commencement of search and that search was conducted in coordinal manner or it otherwise the narration thereof. This panchanama is countersigned by A.O. and the assessee or person in charge of assessee for having received copy of panchanama. If the A.O. finds it impracticable to seize any books, valuables etc he may pass an order u/s 132 (3) which is generally valid for a period of 60 days. Within such time, the A.O.may either revoke the order an conclude the search, or the Assessing Officer may extend the Prohibitory Order for a further period as per procedure prescribed u/s 132 (8A) of the Act.
6.2 The first question referred to the bench is limited to the extent of determining whether the assessment order passed in respect of block period is within the limit prescribed u/s 158 BE or not and for this purpose whether the Tribunal can scrutinize/examine the search activity from the commencement of search till its completion. For passing an order U/s 158 BE in respect of block period a time limit is prescribed u/s 158 BC 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 agree to the expended time limit. It is not merely an irregularity, which can be cured, but an illegality and cannot be validated by any process. Hence is it primary duty of the ITAT to determine whether the order U/s 158 BC is passed within the time limit prescribed U.s 158 BE of the Act, or not, Now as per Sec. 158 BE, the time limit prescribed starts from the date when the last of the authorizations issued for conducting search U.s 132 is executed, Explanation 2 to section 158 BE 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 search as recorded in the last panchanama.
As seen from the scheme of Act and rules above, on conducting a search, a panchanama is drawn. The panchanama is summary of events at the time of search. It may be a case that a search cannot to be conducted on one single visit. Scores of material like books, valuables, etc are found.
IT may not be possible to immediately determine whether such record, books and valuables leads to undisclosed income or not. For example, lots of jewelleries are found which may be disclosed as well as undisclosed. The assessee may be required to produce evidence in support of contention that the same is disclosed. This may also require some time. similarly certain records, documents books are also found.
Such record may or amy not contain entries leading to undisclosed income. At the same time, the assessee may need to lead evidence that same do not reveal undisclosed income. Thus to have fair assessment of the relevant material, time is required on both sides, revenue as well as assessee, before the material found be either seized or released. At the same time, persons working are human beings and are not expected to work day and night. Hence, in between the material may be put under a Prohibitory Order. Again the next visit of A.O. may take place at the premises searched to take stock of the situation. For each such visit, a panchanama is prepared. Thus, depending upon the prevailing situation the A.O. is required to visit the places time and again, wherein he may go on assessing different materials found and decides on either releasing the same or seizing the same. The visit of A.O is also as per the convenience of both. A.O. as well as the assessee. To suit such convenience, the so castled search may be proloned. To have a record of each such visit, a panchanama is prepared. Finally when nothing remains to be seized or released, as final panchnama is prepared declaring that search is conclude. For all these, though no different authorization warrant is required yet so long as certain material is lying at the premises searched pending the decision either to seize or release search cannot be said to have concluded. The law making authority in its wisdom has added the explanation 2 to section 158 BE to intend as above. Though Income Tax Appellate Tribunal (ITAT) is an authority to decide whether the order U/s 158 BC (c) is passed within the limit prescribed u/s 158 BE or not. yet it cannot decide whether the order passed u/s 132 (3) putting certain P.O. on certain material should have been passed or not, necessitating a panchanama for same. An a.O.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 A.O. before the Income Tax Appellate Tribunal by arguing that certain items have been wrongly put under P.O. for which a panchanamis prepared and hence ignoring such panchanama the time limit should be arrived at us 253 (1)(b) an appeal to Income Tax Appellate Tribunal lies against an order passed U/s 158 BC (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 pre-requisite U/s 158 BC, that a person in case of whom action U.s 132 or 132A has been taken, can be called upon to file a return in respect of the block period and against such person only order u/s 158 BC (c) can be passed.
But the power of Income Tax Appellate Tribunal is restricted to satisfy itself, that action u/s 132 was taken against such person and not beyond that. Similarly the ITAT may also examine whether there was any valid panchanama in respect of search u/s 132. which may be for initial execution of search warrant or for subsequent visit in continuation of such search. However, the ITAT cannot decide whether it was practicable or not to seize the material found and consequently the need to pass order U/.s 132 (3). This is what has precisely been held by Hon'ble Supreme Court in ITO vs. Seth brothers (1969) 74 ITR 836. It is true that a panchanama should be a valid panchanama in the eye of law.
However, once an action has been taken in search proceedings to clamp a P.O. tin respect o certain items and for which panchanama is prepared.
Such an action cannot be called into question in appeal before ITAT. No appeal is provided for against an order either u/s 132 (1) or U/s 132 (3). It was argued that with the introduction of Chapter XIV - B, the scheme of taxing undisclosed income has undergone a change and hence action U.s 132 (3) needs also to be looked into in an appeal before the ITAT. We are not convinced with the arguments. Though Chapter XIV - B is newly introduced, section 132 has not undergone a change and is same as prior to introduction of this chapter. Even earlier, no appeal could be filed against action U/s 132. Unless malafide are alleged even a writ petition to the Hon'ble High Court does not lie against proceedings U/s 132.
6.3 Income Tax Appellate Tribunal has power prescribed under the Act.
In respect of powers conferred, there are no limits or boundaries in exercising the same. There may also be collateral powers in respect of originally invested powers. To sum up, we hold that Income Tax Appellate Tribunal needs to examine the search activity from beginning to determine whether the assessment made U/s 158 BC is within the limitation prescribed U/s 158 BE. If the assessment order is not passed within the time limit, it is nullity. To decide whether an order is valid in eye of law, an to arrive at a conclusion that the block assessment is within the limitation period fixed, it becomes necessary to examine the documents, panchanama etc. Such a conclusion cannot be avoided at all. This may be treated as akin to action u/s 148. To say that there is a valid order of reassessment, there has to be a valid notice u.s 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 u/s 158 BC is that a search u.s 132 should have been conducted on the assesse. The ITAT, therefore, needs to satisfy itself that a search as indeed conducted with reference to the assessee in question. We not that the search should not merely have been initiated, but conducted, Hence, the ITAT is required to verify whether the jurisdictional facts exist before notice can be issued u/s 158 BC. Further, it is also necessary for the ITAT to scrutinize the Panchanamas and connected documents in order to ensure that the assessment order passed is not barred by limitation as provided for under section 158 BE of the Act. we may point out, in this context that the ITAT is entitled to scrutinize the jurisdictional facts that an assessing officer with jurisdiction under the provisions of sections 147/148 of the Act, Although these jurisdictional facts may be different from those required to be satisfied under section 158 BC.Courts have consistently taken the stand that the ITAT, in exercise of its appellate jurisdiction, is entitled to look into the existence or otherwise of jurisdictional facts in order to determine the legality or otherwise of the relevant orders. Hence the ITAT has inherent powers to verify and satisfy itself that there was a search in the case of assessee and that the panchnamas prepared are legal as provided for under Cr. P.C. Thereby the ITAT can conclude whether an assessment order passed u/s 158 BC is in respect of a person against whom search was conducted u/s 132 is conducted.
6.5 it is only an order passed u/s 158 BC (c) that is appealable before the ITAT. An order u/s 158 BC (c) can be passed in case of a person in whose case action u/s 132 has been conducted. Thus it is pre-supposed that there should be action u/s 132. Now when it is said that there has to be action u/s 132, it does not mean that there may be invalid or illegal action u/s 132. If it is challenged that either there is no action U/s 132 or the action is prima facie. illegal or invalid. it is not only right of Income Tax Appellate Tribunal but also duty of the ITAT to examine relevant papers and documents which leads to conclusion that there is valid action U.s 132 which culminated into valid order u/s 158 BC (c). At this juncture we may also make it clear that what is to be looked into by Income Tax Appellate Tribunal is that there has to be valid documents. however, Income Tax Appellate Tribunal cannot and need not look into or examine whether there was any need to proceed u/s 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 u/s 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 U.s 15/8 BC (c) based on valid action u/s 132 and not propriety of action taken in course of valid search u/s 132. The ITAT need to be satisfied only about validity of search u/s 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 u/s 158 BE. When a search is conducted u/s 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 R.O. under second proviso to Sec. 132 (1) or pass a P.O. u/s 132 (3). It is not necessary that every search should result in seizure of any material or valuable article or thing. What is a pre-requisite for an order u/s 158 BC(c) is an action u/s 132 and not seizure of article or records. The time limit u.s 158 BE (1( to pass an order u/s 158 BC (c) is to commence from end of month in which last of authorizations for search u.s 132 is executed, When such authorization is said to be executed, is explained by way of explanation (2) to section 158 BE as introduced by Finance (No. 2) Act. 1998 with retrospective effect from 1.7.1995. As per the said explanation, the time limit commences on conclusion of search as recorded in last panchanama drawn. As described earlier, as panchanama is drawn when a search is conducted, The panchanama is like minutes of the proceedings conducted during search of a premises, belonging to the person searched. At the time of conducting a search the A.O may not be able to complete the search for variety or reasons, The A.O. thus for the time being concludes the search and reserves the right to resume the search on a subsequent visit. To protect the interest of the revenue, the A.O. passes a R.O or P.O. If certain material is left at the premises searched, the same is kept under P.O. On a subsequent visit, which may be according to convenience of both the Assessing Officer and the assessee, the P.O is revoked and depending upon the circumstances, further P.O is either clamped or the search is concluded, In all these visit also a panchanama is prepared. Thus as per explanation 2 to section 158 BE, the limitation will commence from the last panchnama drawn stating that the search is concluded. The arguments of learned counsels for assessee and intervener is that the subsequent visit is only visit and not search and search is deemed to be concluded once a panchanama is drawn at the end of day one, even though a P.O. is clamped. We are unable to accept the arguments, particularly in view of Explanation 2 to section 158 BE explaining when the search is said to be concluded, Even otherwise so ling as certain material and valuables are under P.O at the place searched, no one can conclude whether the material and valuables represent undisclosed income. Unless both the parties, namely the revenue authorities and the assessee have a retook 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 u.s 158 BC (a) can be issued requiring the assessee to file a return of income in respect of undisclosed income vet reading the said section 158 BC (a) it can be concluded that only if a search s conducted u/s 132, a notice u/s 158 BC (a) can be issues.
this, in other words means only when search is concluded, notice u/s 158 BC (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 asses see, the assessee can be asked to file a return in respect of the undisclosed income, Hence, it will be courtier to the scheme of Act that even though notice u/s 158 BC (a) is not issued, time limit for completion of assessment will commence, It is also clear that for 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 valuables are either not seized or released but in respect of which certain P. O. is clamped at the premises searched, Each time a panchanama is required to be prepared. This also suggest that the time limit will not commence so long as the panchanama declaring the conclusion of search is not drawn.
7.2 It may also be worthwhile to note the intention of legislature to introduce explanation 2 to section 158 BE. The relevant part of notes on clauses of the Finance Bill read as under : Clause 48 seeks to amend section 158 BE of the Income Tax Act relating to time limit for completion of block assessment.
The proposed amendment seeks to renumber the existing Explanation of sub-section (2) of section 158BE and to insert a new Explanation 2 thereafter to provide that the execution of an authorization for search u/s 132 or for requisition under sec 132A. will mean the date of conclusion of the search in respect of the authorization as recorded in the last Panchanama in the case of person in whole case the warrant has been issued. In the case of requisition U/s 132A. the execution of an authorization will mean the date when the authorized officer receives book, document or assets, (231 ITR ST. P.202).
The relevant part of he memorandum explaining the provision of the Finance Bill reads as under - To set rest, the controversy regarding the meaning of the word "execution" while calculating the period of limitation in sec 158BE the Bill proposes to clarify that execution means conclusion of search as recorded in the last panchanama drawn, in relation to any person in whose case the warrant of authorization has been issued.
In the case of requisition under section 132 A, it will mean actual receipt of the Books of account of other documents or assets by the authorised officer.
The proposed amendment is retrospective with effect from 11th day of July, 1995 (231 ITR St. 256) 7.3 An interesting argument was taken up to say that a Prohibitory Order u/s 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 u/s 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 outer time limit even though prescribed u/s 158 BE. In our opinion, the interpretation of section 132 (3) and 132 (8A) as made is not correct. What the explanation to section 158 BE (1) says is that time limit will start from last of the panchanama and it cannot be interpreted to mean that the time limit will not commence till order U/s 132 (3) is in operation. An order u/s 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 panchanama will be prepared. Even at the time of conclusion of search an order u/s 132 (3) can be passed which in certain circumstances as per section 132 (8A) may operate even after come petition 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 panchanama prepared. Hence we do not find merit in said arguments and answer the second question in the negative.
7.4 Learned Authorised Representative heavily relied upon decision of Hon'ble Karnataka High Court in Southern Herbals Limited Vs. Director of Income Tax (investigation) and Others (207 ITR 55) for the proposition that since Hon'ble High Court does not have such power in Writ jurisdiction to satisfy itself about sufficiently of reasons for passing an order under section 132 (3), appellate authority like ITAT should be deemed to have such powers. We are unable to accept such a contention Hon'ble Karnataka High Court in Southern Herbals Ltd. case (supra) in pages 60 & 61 observed as follows : "The attempt of Id. Counsel for the petitioner is to indirectly probe into and analyses the sufficiency of the reasons leading to the issuance of authorisation. This is not permissible. It is not for the court to examine the sufficiency of the material leading to the belief of the authority that search shall have to be conducted : that court has to see that the belief was reasonable, in the sense, that is was formed on the basis of relevant material (information) : the court cannot substitute its own opinion as to the reasonableness of the belief.
"Suffice if I state here that it is not permissible for the court to sit in appeal over the belief formed by the officer issuing the authorisation and the court cannot venture to reappreciate the materials available to the said officer to see whether the belief formed was correct or erroneous." Hon'ble Supreme Court in case of Seth Brothers at page 843 observed as under : "The Act and the Rules do not require that the warrant of authorisation should specify the particulars of documents and books of account; a general authorisation to search for and seize documents and books of account relevant to or useful for any proceedings complies with the requirements of the Act and the Rules.
It is for the officer making the search to exercise his judgment and seize or not to seize any documents or books of account. An error committed by the officer in seizing documents which may ultimately be found not to be useful for or relevant to the proceeding under the Act will not by itself vitiate the search, nor will it entitle the aggrieved person to an omnibus order releasing all documents seized." Following the decision of Seth Brothers (supra) Hon'ble Karnataka High Court in Southern Herbals Ltd. Case (Supra) on page 65 held as under : "It is, therefore, clear that, before issuing authorization the authority should record reasons for his "reasonable belief and the court 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 the sufficiency of reasons is not a matter to be looked into in passing an order u/s 132 (3). It is at the discretion of A.O. 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. Case (supra) is of no help to assessee in present appeal.
7.5 Much reliance was placed on decision of Bombay High Court in Sandhya Naik's case (supra). 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 panchanama was drawn stating that the search is concluded (PP 538 of the relevant ITR) though in said panchanama it was stated that cup board containing silver articles is sealed and an order u/s 132 (3) was passed with respect to the assessee firm dealing with the same.
ii) Panchanama dt. 13.12.1996 was not a valid panchanama for the reason that same was prepared by an officer who was not an authorized officer and no signature of panchas was available on it.
It was also admitted that there were many defects in said Panchanama (P.P. 539).
Thus, the Hon'ble High Court held that once the search is concluded as noted in that valid panchanama, assessment order passed in Dec. 1997 was beyond period of one year rom end of month in which search was concluded. Since there is a clear finding of fact that there was no valid panchanama dt. 13.12.1996. same has to be ignored and ignoring same, the assessment order was barred by limitation. however it was not held that even though there would be a valid panchanama in continuation of search due to valid order u/s 132 (3). same is to be ignored. This decision does not alter the situation that the time limit will commence only from the date of last valid panchanama. It successive visits are in continuation of a search warrant originally executed for which a valid panchanama exist, the time limit of completion of assessment will commence only from the last of such panchanama which suggests that the search is concluded. It may be a case that in a search u/s 132, the A.O. does to seize any articles. The search need no result in seizure of records or valuables. At the end of the search, the A.O may release all the books, valuables etc and still he is competent to pass an order u/s 158 BC (c). An another u./s 158 BC (c) does not presuppose seizure of articles. An order u/s 158 Bc (c) is to be passed in respect of undisclosed income found as a result of a search. In view of the discussion above, we answer the second question in the negative.
8.1 We shall now discuss the third and last question referred. Though the question is not happily worded yet by fragmenting the question, the answer can be given. The first limb of the question is that if on commencement of search there are certain seizures u/s 132 (1), as well as passing certain prohibitory under u/s 132 (3), does the search come to an end 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 panchanama 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 panchanama 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 panchanama prepared will give an indication whether the search is continuing or not. If on reading of the panchanama, 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 panchanama will be prepared based on action taken at the time of subsequent visit. From the Panchanama 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 panchanama will, therefore, clearly indicate whether the search is continuing or not, which in turn will determine commencement of time limit.
8.3 The second limb of the third question is that with regard to a P.O.issued in respect of certain items which could have been seized at first instance only or if such items originally placed under P.O. are ultimately not seized, should such P.O. and relevant panchanama be ignored for the purpose of commencement of limitation u/s 158 BE of the Act We have already discussed and held that placing a P.O. at a particular moment in respect of particular items is the administrative act of the A.O. How and in what circumstances a P.O. is issued is to be left to the wisdom of the A.O. concerned. The Income Tax Appellate Tribunal cannot substitute its wisdom, or bases on its appreciation of fact, decide whether such P.O. should have been issued or not. What can be appealed before the tribunal is the order passed u/s 158 BC (c), which should be within the time limit prescribed u/s 158 BE and not the administrative act of passing a P.O. / R.O. seizing or releasing certain materials, valuables etc, They may be variety of reasons for temporarily suspending the search by passing a P.O. and mentioning the same in the Panchanama as per law. It was vehemently argued by Mrs.
Venkatesan that a subsequent visit is not a continuation of search as once the material is under P.O. the contents of the same is known and hence examining such material does not amount to search. Fro this proposition support was sough from the decision of the Hon'ble Supreme Court in Tarsem Kumar Case (supra). We are unable to accept the contention of the Id. Authorised Representative. The facts of the case and law pronounced thereon are entirely different to the present set of facts. The decision of the Hon'ble Supreme Court does not support the roy propounded by Mr. Venkatesan. It is never held by Hon'ble Supreme Court that if an item is under a P.O. its entire contents are always known to the revenue authorities and hence panchanama prepared suggesting a P.O. is to be ignored for purpose of reckoning the time limit. We are in total agreement with the argument of Dr. Krishna that after introduction of Sec. 132 A. the decision of Tarsen Kumar (Supra) has no relevance.
8.4 At this moment, we would also like to refer to the decision of Income Tax Appellate Tribunal. Bangalore Bench in case of Microland Ltd. 67 ITD 446. The decision was strongly relied upon by Id. A.R. for the proposition that if there is no valid warrant of search no order can be passed u/s 158 BC (c). Hence to verify the validity of order u/s 158 BC (c) the Tribunal should also examine all related facts including validity of search warrant, panchanama 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 u/s 158 BC (c). AT the same time, we also apply the observation of Tribunal in said order of Microland case (supra) wherein on page 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 dated, issue of fresh warrants of search were necessary and those searches conducted on the later days should be considered as fresh searches. In as much as, no fresh warrant of search was issued on the subsequent days, it is contended by Shri Pradeep that the subsequent searches should be considered as invalid and illegal. We are however unable to agree with the contention on behalf of the assessee on this issue. Once a search is commenced on a particular day, it is possible and also legally permissible for the departmental authorities to hold up the search on a temporary basis on that day by issue of preventive orders under section 132 (3) and by making a specific mention in the panchanama that the search operation is being temporarily closed only. In such a case, it would be perfectly valid on the part of the departmental authorities to resume the search proceedings on a subsequent day from the point where they had been left on the last day and to continue on in this manner. Although fresh panchamas are required to be executed on each day of search operation (that has actually been done in this particular case) however, no fresh warrant of search would be necessary fro the subsequent days. This point has been discussed by us in detail and the legal position in this regard stands explained in our earlier order in the case of Poornima Finance Corpn. & H. V. Srinivas Dt. 15.8.1997 in IT (SS) Appeal No. 87 (Bang.) of 1997." We. concurring with the aforesaid observation, hold that, for commencement of time limit u/s 158 BE, what is to be seen is the date of last valid panchanama. Seizure or absence of seizure will not determine validity of Panchanama. What sec, 132 (13) suggests is that the Code of Criminal Procedure, 1973 (2 of 1974) relating to search and seizure shall apply, so far as may be to searches u/s 132 (1). Thus as per the Criminal Procedure Code, what is to be seen avis valid panchanama only and not seizure resulting from such search. It is not the intention of legislature to suggest that if there is no final seizure, the panchanama releasing the material from P.O. is to be ignored. An action U/s 132 (1) and 132 (3) is purely an administrative act and not a quesi judicial order. Thus we are of considered opinion that if an order U/s 132 (3) is passed, which is indicated in a valid panchanama drawn (whether such material under P.O. is seized or not) such panchanam is to be considered as valid for the purpose of calculating the time limit prescribed u/s 158 BE.9.1 We shall now revert to the facts of the present case and decide whether the assessment is within time prescribed u/s 158 BE.9.2 In present case, the search warrant was executed on 5th Dec. 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 panchanama was prepared at that time of which there is no dispute. Subsequently, the assessee was called in a summons issued u/s 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 u/s 272A (1) (c) of the Act. The same A.O. thereafter revoked the P.O. concluded the search for which a valid panchanama was prepared on 24.1.1996. The assessee was served with a notice u/s 158 BC (c) Dt. 8.2.1996 to file return for block period. The assessee filed the return on 1.3.1996, disclosing total income of s.
37,31,050. The Id. Counsel for assessee based on above facts argued that items under P.O. were certain jewellery being less than 500 gms and certain F.D. Receipts and Pass books only. Sine jewellery found was less than 500 gms, the A.O. could not have seized the same as per CBDT instruction. The passbook and other fixed deposits were so small in valume that same could have been seized on first instance on 5.12.1995 only and hence there was no need to put the same under P.O. The Id.
A.R. thereafter relied upon the decision of Hon'ble Delhi High Court in case of B.K. Nowlakha Vs. Union of India (1991), (192 ITR 436) wherein the court held that section 132 (3) could be resorted to only if there was any practical difficulty in seizing the item which was liable to be seized. The Delhi High Court furthermore stated in the connection that if there we no practical difficulties then the authorised officer has the jurisdiction and duty to seize the books of account, other documents, money, bullion, valuable article, etc. found as a result of the search if no explanation was coming forward in respect thereof. The Delhi High Court further commented in that case that the power u/s 132 (3) cannot be so exercised as to circumvent the provision o section 132 (1) read with section 132 (5). It was therefore argued before us that ignoring the order u/s 132 (3), the search was concluded on 5.12.1995 only and hence order u/s 158 BC (c) should have been passed on or before 31.12.1996. Since the order u/s 158 BC (c) in present case is passed on 28.1.1997. same is not within time prescribed u/s 158 BE and hence invalid.
9.3 The Id. D.R. Mr. Radhakrishna submitted that in the past the assessee has never filed any return u/s 139 of the Act. Thus entire material found should be treated as relating to undisclosed income only. At first instance the search which commenced on 5.12.1995 at 8.15 AM in the morning was temporarily concluded at 7.00 P.M. At that time explanation of assessee was required on various material found. The A.O. therefore issued a P.O. and asked the assessee to appear on 8.12.1995. As requested by assessee, the hearing was adjourned to 12.12.1995. on which date also assessee did not appear. Ultimately, as per convince of both the A.O. and assessee search was concluded on 24.1.19963 There is a valid Panchanama for conclusion of search on 24.1.1996. Thus the time limit to pass an order u/s 158 BC shall be 31.1.1997 as per section 158 BE 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 u/s 158 BE will commence from ate of the last of valid panchanama. In this case last of valid panchanamas was drawn on 24.1.1996. It is the case of Id. A.R. that since there was no practical difficulty in seizure, P.O u/s 132 (3) should not have been passed. We have also held that order u/s 132 (3) is an administrative action not open for challenge before Tribunal. The wisdom of the ITAT cannot replace the wisdom of the A.O. passing an order u/s 132 (3) on the spur of the moment. It is not the case of the assessee that the panchanama dt. 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 panchanama was prepared. Thus the order u/s 158 BC (c) passed on 28.1.1997 is within the time limit prescribed u/s 158 BE. This ground of appeal is accordingly dismissed.
10. The matter shall now go back to the respective bench to pass necessary orders considering the observation as above.
11. While I agree with the answers given by my learned brother, I would like to add the following : 11.1 Firstly, it appears to me that all the three questions referred to the Special Bench are loaded in favour of the appellant but this bench has to answer the questions as framed and that is what we have done.
11.2 It is necessary to keep in mind the obvious fact that appeal is a creature of stature. The learned author Sampath Iyengar in 'Law of Income Tax (9th Edition, Vol. 5) at page 6978 observed as under : "7. No inherent right of appeal - It is well settled that a right of appeal is a creature of statute. There is no inherent right of appeal and its existence must depend upon the terms of the statute in question." In support of the above proposition he has referred to the following decisions 11.3 The order under appeal before the Tribunal in terms of S.253.(1)(b) is an order passed by an Assessing Officer under clause (c) of section 158 BC, in respect of search initiated under S.132..'.
So, the subject matter of appeal is the order under section 158BC(c) and not the authorisation issued under section 132 or the conduct of search under section 132. The reference to section 132 in clause (b) of section 253 (1) is only for specifying the period within which the search must have been conducted for the direct appeal to lie before the Tribunal in respect of an order under section 158 BC(c). The reference to section 132 in section 253 (1)(b) does not render search action the subject of appeal before the Tribunal. As there is no right of appeal before the Tribunal in respect of search under section 132, it appears to me that the Tribunal cannot go into the question about the validity of the authorisation issued under section 132, or even the mode of conduct of search in pursuance of the authorisation, which includes such questions as - whether the prohibitory order under section (132)(3) was validly issued or not. For ascertaining the limitation period for the completion of assessment in terms of section 158 BE read with Explanation-2 thereto, the Tribunal can go into only those aspects of the search as are necessary to decide the question of limitation.
These aspects include questions like wither the search was actually conducted on the named person: whether the authorisation was actually issued in the name of assessee and whether the last panchanama drawn up was in conformity with the legal requirements i.e. whether it was actually drawn up by the Authorised Officer and it was signed by the specified number of witness, etc. In other words, so far as the Panchanama is concerned, the invalidity of action recorded in Panchanama cannot be looked into, but the legality of the Panchanama can be examined, It was fairly conceded by the learned counsel for the Department that an illegal Panchanama in this restrictive sense does not elongate the search. Further questions as to whether the search was malafide 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 provision of section 158 BC and the provisions of section 148. Even a cursory comp is on between sections 158 BC and 148 shows that there is a vast difference between these two sections so far as the jurisdiction of the Assessing Officer is concerned. For assuming jurisdiction under section 147. the Assessing Officer must have reason to believe that income chargeable to tax has escaped assessment and when such a belief is reached, he 'may' issue notice under section 148, whereas, under section 158 BC, issue of notice calling for the return when a search has been conducted, is mandatory. The explanation used in the said provisions is that the Assessing Officer 'shall' issue the said notice when a search has been conducted. As the issue of notice under section 158 BC is mandatory and it is not dependent on 'any reason to believe' reached by the Assessing Officer that income chargeable to tax has escaped assessment, it appears to me that going into the question of search is beyond the jurisdiction of the Assessing Officer.
11.5 The search is conducted by the authorised officer who, as per the prevailing system in the Department, is different from the Assessing Officer. It appears that the two functions of (a) search and (b) assessment have been separated and entrusted to different functionaries to bring in more objectivity into the processes of both search as assessment. So, the contention of the learned counsel for the assessee that a prohibitory order under section 132 (3) may be extended beyond a reasonable period just to extend time limit for completion of block assessment in terms of Explanation 2 to section 158 BE does not seem to have such substance because that contention is based only on an apprehension of collusion between two distinct functionaries though of the same Department and such collusion is improbable and cannot be presumed.
11.6 The search material along with Panchanama is handed over by the authorised officer to the Assessing Officer and the Assessing Officer comes into picture only at this state for assessment purposes. As the issue of notice calling for return is mandatory as mentioned above, the Assessing Officer obviously cannot sit in judgment over reasons for the conduct of the search which includes questions regarding the prohibitory order imposed under section 132 (3). He can go only into such basic questions as are mentioned herein above , for ascertaining the time limit for completion of the assessment.
11.7 I also and merit in the contention of the learned counsel for the Department that the jurisdiction of the first appellate authority is coterminous 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 authorisation 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 questions like that the material collected during the search was not put to him and that sufficient opportunity of rebuttal was not given. These questions involve validity of the assessment order passed under section 158 BC and not the validity of the search action under section 132.
11.9 The matter may be view from another angle. Even if the search and seizure and the prohibitory order under section 132 (3) are in contravention of the legal provisions, the material obtained thereby can still be used by the Department against the person concerned in the light of the decision of the Apex Court in the case of Pooran Mal Vs.
Director of Inspection-(Inv) (93 ITR 505) and Dr. Pratap Singh and Another Vs. Director of Enforcement and Others (155 ITR 1669). Even if the search is bad in law, the only consequence is that the assets seized during such search must be returned to the person from whose custody they were seized as held by the Apex Court in the case of Ramkishan Shrikrishan Jhavar (66 ITR 664), but the evidence is still admissible for assessment purposes. Recovery of seized material by the department from the assessee is separate proceeding and is not subject of appeal before the Tribunal. Retention of assets under section 132 (5) as it stood earlier was subject to only administrative review before the Commissioner under section 132 (10) and was not subject of appeal before the Tribunal. These provisions. however, have since been removed. When the illegality of the search does not render the evidence collected inadmissible, it actually serves no purpose even if it is held that the Tribunal can go into questions involving the legality of the search or the legality of the prohibitory order under section 132 (3).
11.10 It has been argued that a Panchnama which does not record a seizure is not a Panchnama and so, should be ignored for the purpose of counting limitation in terms of the Explanation-2 to section 158BE. It is contended that an order under section 132(3) does not elongate the search unless the relevant Panchanama is a Panchnama of search. A distinction is made between that are described as a Panchnama of search and a Panchanama of visit. The former records a seizure whereas the latter does not. This contention does not seem to be borne out of the language of the Explanation 2 to Section 158BE. The provision refers only to the 'last panchanama' drawn up, and does not seem to imply a distinction between different categories of panchanamas. The expression last panchanama implies earlier panchanamas drawn up in the course of execution of an authorisation issues under section 132. It the order under section 132 (3) does not elongate the search as contended, the authorised officer cannot even visit the premises on subsequent date, 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 panchanama may be drawn up. All of them qualify as panchnama for the purposes of counting the limitation of the purpose of Explantion-2 to 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 Tribunal is the correct forum of considering the legality of the search or it is the legitimate role of only the Hon'ble High Court. The learned author.
Sampath Iyengar mentions at page 6981 of Law of Income Tax Vol.5 9th Edition that in cases where no appeal is provided for, the remedy of the assessee will be by way of revision or, in appropriate cases, by way of writ petition. Before the introduction of Chapter XIVB. search action was assailed on various grounds only before the Hon'ble High Courts and not before the Tribunal. These does not seem to be any change in the legal position in this regard even after the introduction of Chapter XIVB. Simply because there is a direct appeal before the Tribunal in respect of search was conducted during a specified period, it does not follow that the Tribunal is now vested with any of the powers which are the legitimate sphere of the High Court in exercise of its writ jurisdiction.
11.12 Both sides have placed considerable force on the decision of the Karnataka High Court in the case of Southern Herbals Ltd. Vs. CIT (207 ITR 55). The Hon'ble High Court observed in that decision as under - "the attempt of learned counsel for the petitioner is to indirectly probe into an analyses the sufficiency of reasons loding to the issuance of authorisation. This is not permissible. It is not for the court to examine the sufficiency of the material leading to the belief of the authority that search shall have to be conducted ; the court has to see that the belief was reasonable, in the sence, that is was formed on the basis of relevant material (information) the court cannot substitute its own opinion as to the reasonableness of the belief. The court has to examine to see whether the belief is an irrational or blind belief, formed out of prejudice or the result of relying on wild gossip or baseless rumors, etc. In this regard the relevant principles enunciated by the Supreme Court will be referred to in due course, hereinafter, suffice if I state here that it is not permissible for the court to sit in appeal over the belief formed by the officer issuing the authorisation and the court cannot venture to reappreciate the materials available to the said officer to see whether the belief formed was correct or erroneous. These is a difference in law between an incorrect inference drawn from certain basis facts and the relevancy of those basis facts 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 permists it to be rectified.
The said rectification or nullification is part of the appellate or provisional power which the law should specifically provide for. The writ jurisdiction is not so comprehensive as to 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 authorisation under section 132(1) is clearly limited to seeing whether the reasonable belief formed by the authority issuing the authorisation was a reasonable belie, 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 authorisation was issued at least after the search. Since the search and seizure are inherently arbitrary and are a serious invasion of the fundamental rights of the petitioner guaranteed under article 19(1)(a) of the Constitution, disclosure of the reasons and the basis for the formation of the relevant belief would enable the petitioner to show whether it was an arbitrary action.
It is true that the power of search and seizure is a serious and drastic power, exercise of the said power directly intruded into and involved the fundamental rights of the citizens of this country. It is a case of direct conflict between the State's power and the citizen's rights and liberties. Courts as guardians of the fundamental rights of the people of this country have to closely watch and guard these rights and liberates. But at the same time, miscues of the said rights and liberties by a few persons which in tern, would adversely affect the revenues of the State cannot be permitted. The power vested in the state is to see that rights and liberties vested in individuals are not misused to the determent of the public. The menace of tax evasion has to be curbed by the State so that the vast revenues needed by the State to expand on its welfare activities, beneficial to the law abiding people in the state, could be preserved and collected. The rights and liberties of a vast number of citizens would be meaningful and properly enjoyable only if the State is able to create proper opportunities for the same through its welfare activities. Therefore, when prevention of tax evasion mensures are taken and unearthing of hided wealth is aimed at by recourse to the power of search and seizure, all that the court can examine is to find out whether there is a relevant basis for the exercise of the said power by the State or its officer. An arbitrary invasion of the rights or liberaties of the citizen is not permissible and the court's role as the guardian of the fundamental rights is to see whether the state's action is arbitrary or unauthorized. To form a particular opinion and take a decision to act under a given set of circumstances as provided under the law is the exclusive function of the administrators. The process of arriving at the decision should not be vitiated by irrationality or irrelevancy because, in such a case, the resultant decision will become arbitrary. These is vast and qualitative difference between an administrative act and a judicial act inspite of the recent dilution of the concept of an administrative action. Assuming that power to order search ad seizure is a quasi-judicial (though I do not thing 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 actions as collection of material from different sources even though it has more rigorous consequence. The learned author H.M. Seervai in his monumental work.
Constitutional Law of India. 4th Edition, Vol.2, page 1500 has given certain tests to distinguish between judicial function and administrative function and, in this content has observed as under : "One test which is said to distinguish judicial from other functions turns upon whether the performance of the function results in a binding order which is conclusive and which if made within jurisdiction can be distinguished from functions of a merely advisory, deliberative or investigatory character of functions where the exercise of power does not have effect unless confirmed by another body." In the light of the above test, it appears that the search proceeding being essentially of an 'investigative' nature is an administrative action and so naturally the Hon'ble Karnataka High Court has expressed a lot of hesitation in allowing to itself a bigger role in the scrutiny of the said administrative action. If that is the hesitation of a Hon'ble High Court, it follows that the Tribunal should be more chary in assuming such a role.
11.13 Judicial review of administrative action is normally excluded and in this context the learned Seervai has observed at page 1508 of his book Constitutional Law of India 4th Edition, Vol 2, as under : "(5) Whether in war-time, emergency or ordinary legislation, the conferment of a discretion which is subjective shows that judicial review is excluded. If discretion is conferred on A.B. "If he is satisfied". or "if he considers it necessary" or "where it appears to him that there is reason to believe". it is clear that the exercise of the discretion cannot be reviewed, first, because it relates to A.B. s state of mind, and if he says that it existed, it is next to impossible to prove that it did not, and secondly, because the court cannot substitute it own state of mind for that of A.B." It is because of such considerations as are contained in the above remarks of Seervai, the Hon'ble Karnataka High Court in the case of Southern Herbals Limited (supra) has held that to form a particular opinion and to take a decision to act on the given set of circumstances as provided under the law is exclusive function of the administrator.
So the question whether search was properly conducted and whether a prohibitory order imposed by the authorised officer was justified in the given circumstances seem to be matters which if at all, are noble 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 its the appellate or reversionary.
I earned counsel for the assessee sought to take support from this remark and tried to argues that as the writ jurisdiction is very limited in scope, the Tribunal ghouls 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 no-man's lands known to law. The learned author. Seervai has used the following quotation from 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, it would be manifestly nature. There is no legal remedy for the breaches of a solemn promise not under seal, nor for many kinds of verbal standard though each may involve ruin. The maxim means only that legal wrong and legal remedy are correlative terms, and it would be more intelligibly and correctly stated, if it were reversed, so as to stand, "when there is no legal remedy, there is no legal wrong." When these is no legal remedy for wrong, it is a no man's land and such situations are not rare. The contention of the learned counsel for the assessee seems to tantamount to reading the decision of the Hon'ble High Court upside down. If the Hon'ble High Court cannot scrutinize an administrative action beyond a point, it does not mean that the Tribunal should legitimately assume that role. We have no quarrel with the proposition that the appellate jurisdiction is wider than the writ jurisdiction. But what is to be seen is what exactly is the subject of appeal. As already mentioned, what is in appeal before the Tribunal is the assessment order under section 158 BC(c) and not the search action under section 132. So, the vide appellate powers of the Tribunal are only in the context of adjudicating the validity of the assessment order but do not, to my mind, extend to the matter of scrutiny of various administrative actions that finally resulted in the order under section 158BC (c).
11.15 An issue has been raised as to how limitation cannot be counted in terms of Explanation 2 to section 158 BE because of the provisions of section 132 (8A). These two provisions throw up what may be described as a 'hen and egg' syndrome. Limitation has to be counted in terms of Explanation -2 to Section 158BE from the date of last panchanama. But in terms of proviso to section 132 (8A) as it stood during the relevant period, the prohibitory order could be extended up to a period of 30 days from the date of completion of all the proceedings in respect of the block assessment and so on, the last panchama could be postponed beyond the completion of the assessment.
Obviously, the circular link has to be broken. It is claimed on behalf of the Department that in such a situation, no limitation for completion of assessment applies. This contention has only to be mentioned to be rejected. It is also claimed on behalf of the Department that prohibitory order is like an interim order in main proceedings and an interim order sometimes can be extended beyond the closure of the main 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 interest of Revenue. It is a power than can be exercised by the authorised officer and is analogous to the power under the provision of sec. 281 B 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 panchanama 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 panchama drawn up before the completion of assessment, and if the assessment in completed after the period of one year from the date of last panchanama, whether that panchanama records seizure or not, the assessment has to be quashed as time barred in terms of Explanation to section 158 BE. I has already mentioned that the further questions as to whether a panchanama has to be ignored because it did not record seizure is beyond the purview of the Tribunal. A panchanam has to be taken as a valid Panchnama so long as it conforms to the normal requirements mentioned hereinbefore and has to be treated as valid for the purpose of ascertaining the limitation period. The only requisites are that the panchanama should have been drawn up before the completion of assessment, and it should comply with the formal requirements. There are of course, inherent safeguards in section 132(8A) against abuse of power by the authorised officer, and still, if there is any abuse of power that is a matter for review by the Hon'ble High Court.
12. In the light of and subject to the above note. I agree with the replies suggested by my learned Brother for the three questions referred to this Bench.
13. I have carefully gone through the orders proposed and supplemented respectively by my learned Brothers. After doing so and duly considering the various aspects of the issue involved and after a very long and due deliberations amongst us, inspite of some of us being on leave and camps, giving due care and meticulous attention to the complexities involved while closely analyzing the facts and circumstances of the instant case roped with the issue in adjudication before us, however much I persuaded myself to dissent from the views proposed and supplemented by my learned Brother. I fail very often in succeeding to dissent so because of the erudition reflected in the orders of my counter parts of this Special Bench. While so, I was contemplating as to whether a separate order is necessary by me to be written as below but I could not resist my temptation of doing so because of the tremendous efforts and untiring zeal had by the learned representatives of the assessee with that of the interveners and of the Department with its learned Standing Counsel presenting before us their respective stand in their own inimitable style highlighting the various provisions of law and copious case laws even under different enactments showering non-stop like torrential rain overflowing even to the next week of that week of hearing, thus inundating us to said 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 out 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 dt. 28.1.1997 of the Asst. Commissioner of Income Tax passed under section 158BC of the Income Tax Act, by adding various additions and disallowance, 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 at the required of both the parties. We note from the records that queerly neither the Department in spite of being aggrieved by grant of stay nor the assessee has activated the matter fro around two years for hearing. Thereafter Standing Counsel has been engaged by the Department who also has to pray for adjournment on some occasions. One of the occasions was for the reason that the Department has moved a petition dt. 31.3.1999 through the then learned Vice President for constitution of Special Bench. The then Vice President gave his comments on 15.9.1999 recommending constitution of Special Bench. On 13.9.2000, the first constitution of the Special Bench was revised. Subsequently too in the early part of 2002. Such constitution of the Special Bench has to be revised. Thereafter when the hearing was fixed, after the presiding Vice President arrived on camp, the Department prayed for adjournment. When it was rejected being such request belated, the Department came with a petition that one of the Members, namely a Judicial member was requested to be changed for the reason that he has already decided a similar issue in a different appeal and that, therefore, even one Member should not have been a party to a decision for or against taken earlier on the similar issue involved herein. When this was immediately communicated to the Hon'ble President, he allowed the prayer of the Department by reframing the constitution again with the existing Members of the Special Bench herein.
Thus the Special Bench began its hearing as scheduled without adjourning the case by rejecting the request of the Department but having it prayer of reconstitution being granted. IN response to the assessee's prayer that let the Department give in writing that it does not have objection for the present constitution, the Department give in writing that it does not have objection for the present constitution, the Department also filed its no objection in writing on record for the existing Members to commence the hearing and adjudication proceedings upon questions referred. The hearing that commence the hearing and adjudication proceedings upon questions referred. The hearing that commenced in the week also Spilled over the next immediate week with marathon arguments advanced by the learned representatives on behalf of the assessee and for the intervener, besides by the learned Standing Counsel for the Department and also by the learned Departmental Representatives.
15. The learned counsel for the assessee submitted at the outset that they were not given opportunity of being heard regarding framing of the questions to be answerer 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. Under section 158BE 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 authorisation for search under section 132 was executed (provided the search took place after 30.6.95 but before 1.1.97 as is the situation in the aforesaid case.) The Department has been taking consistent stand that when in the course of search under section 132 of the Income Tax Act, a prohibitory order is issued under section 132(3). Such order would have the effect of extending the period of search and would also mean that on lifting of the prohibitory order and preparation of a final Panchanama only, the authorisation for such search under section 132 would be deemed to have been executed. Hence, the Department has taken the stand that the limitation period for completion of block assessment would expire one year from the end of the month when the prohibitory order issued under section 132 (3) was finally lifted and search operations treated as closed.
16.2 The Bangalore Bench of the Tribunal have held in a Kumar of cases that this view of the Department is correct and that the limitation period under section 158BE would run only from the dare when that last of the prohibitory order is lifted and the search treated as close. Yet another Bangalore Bench consisting of the then Vice President and a Judicial Member have taken contrary view on this very issued in another case holding that the efficacy of a search warrant issued under section 132 would be till the moment the first seizure under section 132(1) takes place and that any prohibitory order subsequently issued under section 132(3) issued subsequently would not have the effect of extending the period of search. No reason has however been given for giving such contrary view. Therefore, there is an apparent inconsistency in the view expressed by the two co-ordinate Bench of the Tribunal Bangalore especially when the Judicial Member was a common Member to both the views expressed aforesaid. The Hon'ble Supreme Court held in various judgments such as in 28 STC 599 and 236 ITR 39 what it is not proper to have such inconsistency in the views or decisions taken and the case should be referred to a larger Bench if a contrary view has to be taken. These are the gist of the Department's petition highlighted with the following too.
16.3 A number of assessments have been completed under section 158BC by the Department on the basis that the period of limitation runs from the date of which the prohibitory order under section 132(3) was finally lifted and the search proceedings closed and appeals against a large number of such orders are pending, with heavy stakes involved. The decision on the issue of limitation would have a repercussion on search assessments made all over India and that the issue involved in 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 panchanamas OR/from the date of the first seizure effected by the Department under section 132(1) of the Income Tax Act. 1961 even though Panchanamas were drawn on subsequent date of search.
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 the aforesaid questions and constituted a Special Bench ultimately resulting in the present Members as constituents thereof surving to answer the aforesaid three questions.
17.2 I have already dealt with the objection raised by the Revenue for one of the earlier constituents to remain in the Special Bench resulting in the Hon'ble President sustaining the prayer of the Revenue and replacing the earlier constituent by one of us here. Now I am going to deal with the objection raised by the assessee that the has neither been afforded with the opportunity of being heard over framing of the questions referred to the special bench as existing nor been furnished with copy of the petition of the Revenue for constitution of a Special Bench to be aware of its contents to be transparent. The gist of the petition of the Department as well as the questions for recommendation of the Vice President has been narrated above. In this connection the hurdle eaused by the assessee, though may appear to be reasonable is well as genuine especially when supported by the decision in the case of V.V. Transluvestments (P) Ltd., vs. CIT in 207 ITR 508 AP holding that constitution of Special Bench of Tribunal by the President was based on a judicial order passed by a Division bench after hearing both the parties as to whether or not a Special Bench is required, however, hearing parties for framing the questions to be referred stands now eclipsed by the decision rendered in the case of ITAT v. DCIT reported in 218 ITR 275 (SC) holding that the power of the President to constitute Special Bench may also be exercised administratively, thus reversing the decision of the Hon'ble A.P. High Court.
17.3 A mere look at sub-section (1) of section 255 of the Income-tax Act, 1961 shows that it is the administrative function of the President to constitute Benches from amongst the members of the Tribunal for exercising its powers and functions. Similarly, section 255(3) empowers the President for disposal of any particular case to constitute a Special Bench consisting of there or more members one of whom shall necessarily be a Judicial Member and one an Accountant Member. The functions under Sec. 255 (1) and (3) entrusted to the Present are obviously administrative functions. they have nothing to do with the exercise of any judicial power. It is of course true that as per sec.
255(5), 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 resident 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 (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 sou 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 as 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 Legislature under section 255(1) read with sub-section (3) of the Act.
17.5 It cannot be said that when none of the Benches of the Tribunal had made any reference by judicial order, the President of the Tribunal was not competent to constitute a Special Bench. It may be stated that Special Benches can be constituted by the President both in exercise of his administrative powers under section 255 (1) read with sec. 255(3) as also on the basis of a judicial order passed by any Bench of the Tribunal making a reference to the President in that connection under regulation 98A of the Office Manual. But it is not as if that such a reference by the members under regulation 98A by passing a judicial order is the only mode and manner in which the President can be moved to constitute a Special Bench. Even independent of such a reference on the judicial side, the President can in an appropriate case, even suo motu move in the matter and can constitute a Special Bench of course on appropriate and germane grounds. IT is however true that the President in exercise of his administrative power under section 255(3) cannot just constitute a Special Bench without any rhyme or reason. That could be demonstrated as unreasonable, capricious or mala fide on a given set of facts.
7.6 In that view of the matter, the Apex Court has held (218 ITR 275 at 289) that the the Division Bench of the A.P. High Court in 207 ITR 508 A.P. was in error when it took the view there Special Bench can be constituted by the President only pursuant to a judicial order and not in exercise of his administrative powers. It is of course true that in any pending matter before a Bench of two learned Members, if it is felt by the learned members that a Special Bench is required to be constituted, they can pass a judicial order in the light of regulation 98A. But such a situation had never arisen on the facts of the present case.
17.7 Further the Supreme Court was (at page 289) unable to appreciate how the High Court in exercise of its power under Art. 226 of the Constitution of India could sit in appeal or judgment over the administrative decision of the President who might have felt that the case was of all India importance and was required to be decided by a larger Bench of three Members. Such an administrative order is not open to scrutiny under Article 226 of the Constitution of India except in 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 2002.
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 raised 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 there questions furnishing detailed reasons thereof for eight pages and also considering them as question off all India importance recurring in several cases of search and seizure under chapter XIVB of the Act throughout the country especially when conflicting decisions have arisen from different Benches of the Tribunal in the country. Therefore, the President has not even acted suo motu, though he has such power, but on the recommendation of the then learned Vice President with detailed reasons and that too over the petition of the Department praying for the constitution of the Special Bench in view of conflicting decisions particularly of Bangalore Bench itself. Under these circumstances, the decision of the AP High Court which could have come to the rescue of the assessee has been also eclipsed by the decision of the Apex court stated above. Consequently, we are not inclined to sustain but bound to, in the light of the ratio decided in of the summit court cited supra, overrule the objection of the assessee that the Department has neither furnished copy of its petition to the assessee for constitution of Special bench nor the assessee has been given opportunity of being heard to assist in framing of the questions, even though, in my view, such furnishing of the petition by the Department and hearing of the assessee, rather both parties, before a Division Bench would have improved the situation better, with due regard to state so.
18.1 Now coming to the other aspect of the matter, on the scope and extent of the jurisdiction of the Special Bench it cannot be disputed that a Special Bench of the Tribunal is constituted to decide a particular point or points referred to it for its decision, In the absence of such reference, the Special Bench has no jurisdiction to consider and decide the point or points which was or were not referred to it (vide CIT v. Highway Construction Co. P Ltd., (1966) 217 ITR 234.
240 (Gauhati)]. But in the instant case, if the question as prayed by the Department in its petition of reference to the Hon'ble President for constitution of Special Bench and the questions as framed by the then Vice-President approved by the President and referred to the Special Bench for being answered are seen, it may give the impression as to whether they arise out of the grounds of appeal raised by the assessee in the instant case. A perusal of the grounds of appeal would reveal only challenging the order dated 28.1.71 of the ACIT under section 158BC of the Act for the block period 1.4.85 to 5.12.95 as erroneous regarding several additions and disallowances made and confirmed. Nowhere in the grounds of appeal all the aspects of the issues involved as reflected from the questions referred to the Special Bench do arise. However, it appears that the assessee has raised additional grounds of appeal which are on record an it is noted that the 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 sec. 250(5) of the Act regarding the first appellate authority] supported by a separate application there - for 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 course 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 it gives rise to though not all but some aspects of the questions referred to us. As stated, the first additional ground is that the order of assessment under section 158 BC dated 28.01.97 is bad in law which aspect is identical to the first main ground of appeal. That apart, the petition for constitution of Special Bench is made queerly not by the Appellate-Assessee but only by the Respondent-Revenue requesting the Hon'ble President to frame other questions too as may be deemed by him fit besides its question sought for reference. Hence, the Department did not and could not raise any objection thereto. Finding that the questions appearing to have been heavily couched in favour of the assessee, as said by may learned Brother in his Supplementary Order, the assessee too has perhaps not raised any objection, much less serious, in this regard. Therefore we deem it fit and proper to view that the first additional ground giving rise to the aforesaid questions referred to us are deemed to have been admitted especially when these questions are also substantial questions of law that very frequently arise in search and seizure cases as the instant one being of All India importance, more so when there are conflicting decisions over it and when it is a settled proposition of law that such kind of questions involving law could be raised at any stage of the proceedings, besides the fact that the decision of Special bench binds on all the Benches of the Tribunal through out the contrary and the President has also therefore constituted the Special Bench by approving those three questions recommended by the then Vice President, whether or not-such a constitution of Special Bench is framed under section 255 (1) or (3) of the Act. Thus any argument against answering these questions by this Special Bench is liable to be overruled before proceeding further in this matter.
19.1 The learned counsel for the assessee along with those of the interveners, besides the learned Standing Counsel for the learned representatives of the Department, in the course of their arguments, referred to the following case laws : 249 ITR 219 (SC) Union of India & Others Vs. Kaumudini Narayan Dalal & Anr. 249 ITR 221 (SC) U.O.I. Vs. Satish Pannalal Shah.
94 ITR 567 (P & H)161 ITR 505 (SC) Tarsem Kumar Vs. CIT affirmed in CIT Vs. Tarsem Kumar.
98 ITR 1 (Kar.) 164 281 (SC) ITO ITR Bafna Textiles Vs. ITO affirmed in Vs. bafna Taxtiles 210 ITR 786 (Del) at 795H & 796 D Shri Ganesh Enterprises P. Ltd. Vs. Union of India.
182 ITR 149 (Kar) R. Bharadwaj Vs. Chief Commissioner (Admn.) & Others 155 ITR 166 (SC) @ 174 Dr. Pratap Singh & Another Vs. Director of Enforcement & Ors.
207 ITR 55 (Kar) @ 60 TO 62 66B. 64 CD.65 Southern Hearblas Ltd. Vs.
D.I.T.(Inv) followed by Delhi in H.C. 104 ITR 389 (P & H) Om Prakash Jindal & Another Vs. Union of India & Others.
192 ITR 436 (Del) @ 437 & 443 B.K. Nowlakha & Others Vs. Union of India.
66 ITR 443 (SC) @ 449 CIT (Central) Vs. Rai bahadur Hardutroy Motilal Chamaria.
177 ITR 207 (Bom) @ 214 Narayana Bandekar & Manda N. Bandekar Vs. II ITO & Ors.
238 ITR 501 (Ker) T.O. Abraham & Co. Another Vs. Asst. Director of I.T. (Inv) 235 ITR 118 (SC) Appropriate Authority & Another Vs. Smt. Sudha Patil & Another ITA (SS) 136/Bang/97 Dt. 17.3.99 @ 17.23.30 M/s. Esanda Finance & Leasing Ltd. Vs. ACIT. 83 ITR 453 at 455 Commissioner of Agricultural I.T. Vs. V.N. Narayanan Bhattadiripad.
186 ITR 722 (SC) @ 726 Union of India & Another Vs. Paras Laminates Pvt. Ltd. 143 ITR 120 (Bom) @ 139 Siemens India Ltd. & Another Vs.
K.Subramanian, ITO, com,Cir. IV(4). Bombay 26 ITRA Suraj Mall Mohta and Co. Vs. A.V. Viswanatha Sustri & Another 155 ITR 166 (SC) Dr. Pratap singh & Another Vs. Director of Enforcement & Ors.
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 evidence etc. Sec. 131 Search & Seizure Sec. 132(1)(b)(c)(I to v), Proviso 2, (1A), (2), (3) & Expln., (4)(5), (8A) Power to requisition books of accounts etc. Sec. 132A Application of seized or requisitioned assets. Sec.
132B Return of Income Sec. 139 Assessment Sec. 143(3) Best judgment assessment Sec. 144 Income escaping assessment Sec. 147 Issue of notice where income has escaped assessment Sec. 148 Time limit of completion of asset. and re-assessment Sec. 153(1) Procedure for Block assessment Sec. 158BC(a) Undisclosed income of any other person Sec. 158BD Expln. Time limit for completion of Block assessment Sec. 158 BE (1)(a)(b), Expln. 2(a), Notes on clauses.
Appealable orders before Commissioner (Appeals) Sec. 246A. Appeals to Appellate Tribunal Sec. 253 (1)(b)(c)(2) Procedure of Appellate Tribunal Sec. 255(6) Penalty for failure to answer questions etc.
Sec. 272A(1)(c) Provisional attachment to protect revenue Sec. 281B II. Warrant of authorisation under the proviso to Sec. 132 (1) of the I.T. Act, 1961 : Form 45A under I.T. Rule 112(2)(b) Appeal to the C.I.T. (A) : Form No. 35 under I.T. Rule 45. Appeal to the Appellate Tribunal : Form No. 36 under I.T. Rule 47(1) V. Warrant may be directed to any person Sec. 73 of Cr. P.C. When search warrant may be issued Sec. 93 of Cr. P.C. Persons in-charge of closed place to allow search Sec. 100 of Cr. P.C. Power of Police Officer to seize certain property Sec. 102(3) of Cr. P.C. Interpretation clause : Sec. 3 of the India Evidence Act, 1872 in Law of Evidence by Dhirajlal. Power of High Court for issue of certain writs Act. 226 of the Constitution of India. Power of superintendence over all courts by the H.C. Art. 227 of Constitution of India.
VIII. Rajah Chellaiah Committee Report 1992. Art. 227 of Constitution of India.
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 the both the parties as well as the provisions of law cited above referred to and interpreted by rival contenders, both respectively. As has been submitted by both the parties before us and also as observed by my learned Colleagues, the questions framed are not happily worded. Yet in the light of the submissions made over them and highlighted by the case laws relied upon the under the relevant provisions of law referred to above, the questions have been attempted to be answered by us. From the aforesaid questions referred to us arise the following ingredients : a) Whether the Tribunal has power to examine the search activity from the time of its commencement If so, whether it can determine as to at what point of time search could be said to have come to an end Whether these powers could be exercised for the sole purpose of scrutinizing as to whether assessment is in time or time barred.
b) When section 158 BE stipulates the time limit for completion of Block assessment and an order to be passed under section 158 BC within one year from the end of the month in which the last of the authorisations for search under section 132 (or under section 132A for requisition) was executed, whether the aforesaid execution has to be taken to mean the execution of the warrant resulting in seizure but not with reference to issuing of prohibitory orders and successive visits that are claimed as searches, which are so carried out on the basis of the only authorisation that issued initially c) Where a search is carried out on the basis of an authorisation, resulting in seizure of some items and issue of prohibitory orders on other items, whether the search could be said to be continuing If so, whether such continuing search comes to a close only when the authorised officer says that he is no longer going to visit the prohibitory order which could have been seized by him even at the first instance 20.2 The salient features of our answers to the aforesaid questions are these. There is no right of appeal to the Tribunal against search proceedings under section 132 and therefore questioning before the Tribunal cannot arise regarding the validity of authorisation issued under section 132 or even the mode of conduct of search pursuant to authorisation including impugning the validity of prohibitory order issued under section 132 (3), except to the extent of these aspects of search as are necessary to adjudicate the point of limitation, including as to whether the search was actually conducted on the named person or whether the authorisation was actually issued in the assessee's name or whether that last panchnama was issued as per legal requirements such as whether the authorised 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 malafide 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 there are what seized must be returned to the assessee, the evidence is still admissible for assessment purpose.
Hence, to hold that the Tribunal could go into the questions of even legality of search or of prohibitory order under section 132(3) is justified or whether the panchanama 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 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 there are wall there are will ais seized must be returned to the assessee, the evidence is still admissible for assessment purpose.
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 section 158 BC(c) and not of search under section 132 could be appealed against before the Tribunal. Recovery of seized material or retention of assets under section 132(5) cannot be a subject matter in the appeal before the Tribunal.
20.3 Search proceedings can be challenged only before the High Court in its writ jurisdiction and therefore not before the Tribunal. When search proceedings is essentially of investigative in nature constituting consequently an administrative action, the Hon'ble Karnataka High Court in the case of Southern Herbals and reservation, in spite of having Writ jurisdiction, to scrutinize such administrative action beyond a point and therefore the Tribunal cannot seize such a role to itself. The words 'last panchanama' mean earlier panchanama drawn while executing an authorisation under section 132 and the limitation can be counted from the last panchanama but before completion of assessment. If order under section 132(3) does not elongate the search as contended, then the authorised officer cannot even visit the premises on subsequent dates even for lifting prohibitory order. If the assessment is completed after the period of one year from the date of last panchanam, whether or not that panchnama records seizure, the assessment is liable to be quashed as time barred.
There are inherent safeguards provided under section 132 (8-A) against abuse of power by the authorised officer. Even otherwise, there is High Court to exercise judicial review of administration action too which the Tribunal, therefore cannot and should not assume.
20.4 Thus the order, proposed, supplemented and concurred deal with the issues in questions as per the scheme given hereunder for the sake of convenience and ready reference.
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 representative of the Revenue countered that the first two questions have to be answered in negative while the third in affirmative, ultimately for the reasons detailed as stated above in the proposed order as well as in the supplemented order by my other Brothers and in my concurred order too, 1st and 3rd questions are answered by the Special Bench in the affirmative while the second question in negative.
20.6 In so far as the point as to whether assessment in the instant case is in time or time barred, according to me. I refrain from answering it as done in the supplemented order of the other learned Brother unlike in the proposed order by my learned Brother, for the reason that it has not been referred to us in the three questions aforesaid for being answered. I therefore, leave it to the regular Bench to adjudicate it in the light of the answers to the questions referred to this Special Bench, before proceeding to the other issues raised in this appeal.
21. In the result, while I have filed in the gap in the other orders of my learned Brothers, in so far as the preliminary points discussed and decided by me hereinabove. I agree with the main points, discussed and decided by the proposed order together with the supplemented order by adopting the reasons therein subject to the slight limitation I have incorporated hereinabove.