1. Under Section 255(3) of the IT Act, 1961 (the Act), the Hon'ble President of Tribunal has constituted this Special Bench consisting of five Members to consider the following question : "Whether the Tribunal has powers to adjudicate upon the issue relating to the validity of the search conducted under Section 132 while disposing the appeal against block assessment ?" 2. Since the above question referred to this Bench for consideration and decision is purely a question of law which can be decided independent of facts of any particular case, we do not deem it necessary to advert to the facts of the case before us at this stage.
However, the background in which this Special Bench has come to be constituted can be outlined here. This case was initially fixed for hearing before a Division Bench of the Tribunal, i.e., 'D' Bench, New Delhi. During the course of hearing, it was noticed by the Members constituting the Division Bench that the assessee-company has challenged, inter alia, the validity of search conducted under Section 132 in its appeal and the question involved for consideration was whether the Tribunal has powers to adjudicate upon the issue relating to the validity of search conducted under Section 132 while disposing of the appeal against the block assessment. It was also noticed by the Division Bench that in a Third Member decision in the case of Dr. A.K.Bansal v. Asstt. CIT (2000) 67 TTJ (All)(TM) 721 : (2000) 73 ITD 49 (All)(TM), the Allahabad Bench of Tribunal has held that in the event of assessee challenging the validity of search under Section 132 on the ground of non- existence of any circumstances/conditions enumerated in Clauses (a), (b) or (c) of Sub-section (1) of Section 132 or challenging the very factum of search on the ground that there was no search warrant in his case, the AO as well as Tribunal not only have the powers but are duty-bound in exercise of their quasi-judicial powers to adjudicate upon the matter and consequently, call for the records of concerned authorities leading to the issue of authorization of search and can satisfy itself with regard to authorization having been issued in accordance with law. It was also given to understand to the Members of the Division Bench that the operation of the said order of the Allahabad Bench has been stayed by the Hon'ble Allahabad High Court. It was also noticed by the Division Bench that Ahmedabad Bench of the Tribunal in the case of Smt. Mumtaz Banu M. Rafiq Bhai v. Asstt.
CIT (2000) 67 TTJ (Ahd) 202 has taken a view that the Tribunal is competent to decide as to whether the conditions precedent for invoking the powers given to the learned CIT under Section 132 are exercised in accordance with the provisions of Section 132. It was further noticed that a contrary view, however, has been taken by the Delhi Bench of Tribunal in the case of Varinder Bhatia and Ors. v. Dy CIT (2002) 74 TTJ (Del) 60 : (2001) 79 ITD 340 (Del) wherein it was held that the powers of the AO and the Tribunal while disposing of the block assessment appeal are limited and they have no power to go into the validity of search. It was also held by Delhi Bench that the question of validity of search is beyond the pale of the power of the AO and that of the Tribunal so far as adjudication of appeal against the block assessment framed by the AO is concerned. It was further held by Delhi Bench of Tribunal that there is no appeal provided against the exercise of power under Section 132 and if at all the validity of search has to be challenged, it can be done by filing a writ petition before the High Court. Keeping in view these divergent opinions on the question of law involved in the present case before it and considering that similar issue is being raised very often before different Benches of Tribunal, a reference was made by the Members of the Division Bench to the Hon'ble President for constitution of a Special Bench. Accordingly, a Special Bench was constituted by Hon'ble President consisting of three Members to decide this issue.
3. By the time the aforesaid Special Bench consisting of three Members finally heard the arguments of both the sides on the question referred to it by the Hon'ble President, a similar issue came to be decided by the Special Bench of Tribunal consisting of three Members constituted at Bangalore in the case of C. Ramaiah Reddy v. Asstt. CIT (2003) 81 TTJ (Bang)(SB)1044 : (2003) 87 ITD 439 (Bang)(SB) and taking note of the same, a reference was made to the Hon'ble President to constitute a larger Bench of five Members to consider and decide this question of law. Accordingly, the Hon'ble President constituted this Special Bench consisting of five Members to decide the said question.
4. Senior advocate, Shri C.S. Aggarwal initiated the arguments on behalf of the assessee. He submitted that although no appeal has been provided either under Section 246A or 253 against the warrant of authorization purportedly issued under Section 132(1) and the assessee thus has remedy in filing a writ petition before the High Court challenging the said authorization, when the assessee seeks to challenge the assessment made under Section 158BC as a result of search, he can very well dispute the validity of search on the basis of non-issue of warrant of authorization or even on the basis of issue of authorization which was not valid. He submitted that the dispute thus pertains to the validity of assessment made under Chapter XIV-B and not, per se, to the validity of search conducted under Section 132(1).
According to him, the block assessment can be made only in the case where search has been conducted and since a valid search is a condition precedent for acquiring jurisdiction in order to proceed with the assessment under Section 158BC, the assessee is entitled to challenge the validity of search in an appeal filed against the block assessment.
Referring to the relevant provisions of Chapter XIV-B, he pointed out that these provisions can be invoked only where there is a search and it presupposes that such search is a valid search. He contended that the AO, therefore, can assume jurisdiction to frame an assessment under Chapter XIV-B only when there is a valid search and consequent to such search, a notice under Section 158BC has been issued. He emphasized that an illegal or invalid search is no search at all in the eye of law and as a necessary corollary, Chapter XIV-B would have no application if the search conducted in the case of the assessee is invalid or illegal.
5. Shri Aggarwal invited our attention to the decision of Hon'ble Delhi High Court in the case of Ajit Jain v. Union of India and Ors. (2000) 242 ITR 302 (Del) and pointed out that it was contended on behalf of the Revenue itself before the Hon'ble High Court that the assessee has an alternative remedy in filing an appeal before the Tribunal against the block assessment and all the contentions including the contentions challenging the validity of the search could be raised by the assessee before the Tribunal. He submitted that the issue before their Lordships in the said case was whether the search made under Section 132(1) of the IT Act was valid or not and keeping in view the aforesaid contentions raised on behalf of the Revenue, their Lordships did not entertain the writ petition filed by the assessee observing that alternative remedy by way of an appeal to the Tribunal was available to the assessee. He contended that the Department itself thus has accepted the position before their Lordships of Delhi High Court that the assessee has an alternative remedy to appeal before the Tribunal wherein all such issues including the issue relating to validity of search could be raised.
6. Shri Aggarwal submitted that it is not the case of the assessee that the Tribunal can go into the question of sufficiency of reasons, but the stand of the assessee is that while examining the applicability of Chapter XIV-B, the Tribunal has the powers to see that the provisions of the said Chapter have been properly applied inasmuch as there is a warrant of authorization issued against the assessee and the same is validly issued based on such reasons as are required to initiate action under Section 132(1). He also submitted that the assessee is not denying or disputing the position that no separate appeal is provided in the Act against the use of power under Section 132(1) by the concerned Departmental authorities. The case of the assessee, however, is that if such power is not invoked in accordance with law, he can certainly dispute/challenge the same in the appellate proceedings as the right of the assessee gets affected only when an assessment is made under Chapter XIV-B.7. Shri Aggarwal further submitted that a similar issue had arisen for consideration before the Hon'ble Chandigarh Bench of Tribunal in the case of Raj Kumar Gupta and in its order dt. 4th Sept., 2001 in IT(SS)A No. 38/Chd/1997, the Tribunal held that it is entitled to go into the validity of search. He submitted that this order of the Tribunal has been upheld by the Hon'ble Punjab & Haryana High Court by dismissing the appeal filed by the Revenue against the same under Section 260A and as per the information available with the assessee, no appeal against the said judgment of Hon'ble Punjab & Haryana High Court has been filed by the Revenue before the Hon'ble Supreme Court. Relying on the judgments of Hon'ble Supreme Court in the case of Union of India and Ors. v. Kaumudini Narayan Dalal and Anr.(SC) and Union of India v. Satish Pannalal Shah (2001) 249 ITR 221 (SC), he contended that the said decision of Hon'ble Punjab & Haryana High Court thus has a binding effect and there being no contrary judgment of any High Court being cited by the Revenue, the assessee is entitled to challenge the validity of assessment made under Chapter XIV-B on the ground that the preconditions for acquiring jurisdiction under the said Chapter have not been satisfied. He also relied on the decision of Hon'ble Kerala High Court in the case of Dr. C. Balakrishna Nair and Anr. v. CIT and Anr. (1999) 237 ITR 70 (Ker) wherein it was held while allowing the writ petition filed by the assessee that the search being illegal, the provisions of Chapter XIV-B cannot be invoked.
8. Shri Aggarwal also contended that the decision of Delhi Bench of Tribunal in the case of Varinder Bhatia and Ors. v. Dy. CIT (supra) holding otherwise does not lay down the correct proposition of law and requires to be reconsidered by this Special Bench. He submitted that the Tribunal is certainly entitled to examine whether there has been a search at all and also whether the preconditions envisaged under Section 132(1) are satisfied before the issue of warrant of authorization. He also submitted that this position is akin to the reassessment proceedings under Section 147/148 inasmuch as even though the assessee cannot file an appeal independently against the notice issued to him under Section 148, he can challenge the validity of the same in an appeal filed against the order of assessment framed under Section 147/148., His contention, therefore, was that when the validity of assessment completed under Chapter XIV-B is challenged by the assessee on the ground of lack of jurisdiction stating that there was no search or a valid search, the Tribunal is entitled to call for and examine the relevant record and see for itself whether there was a warrant of authorization issued against the assessee and whether the preconditions as prescribed under Section 132(1) for issue of such warrant have been properly satisfied.
9. Reliance was placed by Shri C.S. Aggarwal on the decision of Jodhpur Bench of Tribunal in the case of Ashok Kumar Soni v. Dy. CIT (2001) 72 TTJ (Jd) 323, wherein it was held that irregular and improper exercise of power for issuance of search warrant can be scrutinized and examined judicially by the Tribunal in the appellate proceedings before it and although sufficiency of satisfaction/belief for issuing such warrant is not justiciable, the factum of very existence of such satisfaction/belief is justiciable. He also placed reliance on the decision of Jodhpur Bench of Tribunal in the case of Chitra Devi v.Asstt. CIT (2002) 77 TTJ (Jd) 640 wherein it was held that the Tribunal has the jurisdiction as also the duty to examine the validity of authorization for search when the same is challenged before it and it can adjudicate on such examination as to whether the jurisdictional conditions precedent for issuance of authorization of search did exist or not. He pointed out that in the said case before the Tribunal, record containing the reasons for formation of belief as postulated under Section 132(1) was not produced by the Department despite specific directions given by the Tribunal and on the basis of such failure on the part of the Department, the Tribunal proceeded to infer that there, in fact, did not exist reasons with the competent authority to entertain belief reasonably and honestly regarding the satisfaction of conditions as postulated under Clauses (a), (b) and (c) of Section 132(1) and as such, the warrant of authorization issued in the case was not valid. The Tribunal also held the block assessment framed in the said case as invalid and liable to be quashed. He also cited the decision of Jaipur Bench of Tribunal in the case of Urmila Lamba and Ors. v. Asstt. CIT (copy placed at page Nos. 372-375 of his paper book) wherein the assessment completed under Section 158BC was held to be bad in law and without jurisdiction by the Tribunal on the ground that no such warrants were issued in the name of the assessees. He also strongly relied on the Third Member decision of Allahabad Bench of Tribunal in the case of Dr. A.K. Bansal v. Asstt. CIT (supra).
10. Referring to the provisions of Section 132(1), Shri Aggarwal submitted that action under the said provisions has to be initiated in consequence of information and subject to the conditions specified therein. He contended that if there is no such information available with the concerned authority and if the conditions precedent for authorising search as specified in the said provisions are not satisfied, the warrant of authorization issued under Section 132(1) is liable to be held as invalid and consequently the assessment completed under Chapter XIV-B is also liable to be quashed. He submitted that the search warrant as well as reasons recorded before the issue of such warrant were examined by the Allahabad Bench of Tribunal in the case of Dr. A.K. Bansal v. Asstt. CIT (supra) and on such examination, it was found that the conditions precedent for issue of warrant of authorization were not satisfied. He submitted that the Tribunal, therefore, held the search conducted in the said case to be invalid for lack of jurisdiction and also quashed the consequential assessment completed under Chapter XIV-B. He submitted that the assessee in the present case is of a strong belief that no warrant of authorization was issued in its case and even if the same was issued, conditions precedent as prescribed in Clauses (a), (b) and (c) of Section 132(1) were not satisfied. He contended that the search conducted in this case, therefore, was invalid and the assessment completed under Chapter XIV-B in pursuance of such invalid search is liable to be quashed.
11. As regards the decision rendered by Bangalore Special Bench of Tribunal in the case of C. Ramaiah Reddy (supra), Shri Aggarwal submitted that the same cannot be considered as the precedent or ratio decidendi on the issue under consideration mainly because the issues raised before the Special Bench in the said case were different and the issue as is specifically raised for consideration before the Special Bench in the present case was not there directly for consideration of the Bangalore Special Bench. He invited our attention to the three questions referred to the Bangalore Special Bench of the Tribunal by the Hon'ble President to show that the issue relating to validity of search and especially the Tribunal's power to go into that aspect was not specifically referred to by the Hon'ble President.
12. Advocate, Shri V.H. Patil appearing for M/s First Global Stock Broking (P) Ltd. as intervener submitted that Chapter XIV-B prescribing special procedure for assessment of search cases was introduced in the statute by the Finance Act, 1995, and since the assessment for the block period assessing undisclosed income has now to be made in the cases where search has been conducted, the validity of search has become of vital importance. He submitted that since the block assessment under Chapter XIV-B is made consequent to a search, validity of search has a direct bearing on such assessment inasmuch as invalid search is bound to make the consequent assessment to be invalid and liable to be quashed. Relying on the decision of Hon'ble Kerala High Court in the case of Dr. C. Balakrishna Nair and Anr. v. CIT (supra), he pointed out that the assessments completed in the said cases under Chapter XIV-B have been held to be invalid on the ground that search was not validly conducted therein. He contended that the question of validity of search thus assumes great significance in the matter of assessments completed as per the special procedure under Chapter XIV-B consequent to search and seizure operation and it is, therefore, necessary to decide who is competent to look into the aspect of validity of search and to what extent. In this regard, he cited the case laws of Baldev Raj Mehra v. Union of India and Ors. (2003) 263 ITR 535 (P&H), K.T Thomas and Ors. v. Union of India and Ors. (1999) 235 ITR 526 (Ker) and Vipan Kumar Jain and Ors. v. Union of India and Ors.
(2001) 249 ITR 728 (P&H) to contend that the issue of validity of search can be looked into by the Tribunal and not by the Hon'ble High Court in exercise of its writ jurisdiction. As regards the decision of Bangalore Special Bench of Tribunal in the case of C. Ramaiah Reddy (supra), he submitted that the issue as precisely raised before this Special Bench now in the present case was not directly involved for consideration before the Bangalore Special Bench and as a matter of fact, different issues were raised in the said case which is evident from the questions referred to the said Special Bench. He contended that the observations/findings recorded by the Bangalore Special Bench in the said decision, therefore, cannot be considered as directly related to the issue of validity of search. On the other hand, he contended, if other aspects of search proceedings are being gone into by the Tribunal while deciding the appeals filed against the block assessment, it is then difficult to understand what exactly is the bar in not looking into the aspect of validity of search on the basis of satisfaction recorded by the competent authority. He also contended that even if the recording of such satisfaction by the competent authority is assumed to be an administrative act for the sake of argument, other administrative acts of similar nature are being challenged regularly before the High Court in the writ jurisdiction. He submitted that even the Bangalore Special Bench of Tribunal also reckoned the power of the Tribunal to... (sic) was totally unjustified.
In support of his contentions, he also relied on the decision of Allahabad Bench of Tribunal in the case of Dr. A.K. Bansal (supra) and that of Hon'ble Bombay High Court in the case of CIT v. Sandhya P. Naik (2002) 253 ITR 534 (Bom).
13. Shri M.S. Syali, senior advocate appearing on behalf of Maharani Kam Sundri as intervener submitted that acts done by a Court which has no jurisdiction either over the person, the cause or the process are said to be "coram non judice" and such acts have no validity. He invited our attention to a copy of order of Hon'ble Delhi High Court in the case of Ashok Chawla & Ors. placed at page Nos. 37-43 of his paper book and submitted that the powers of the Tribunal to go into all the aspects of search including its validity have been recognized even by the jurisdictional High Court. He contended that the AO has no jurisdiction to proceed under Chapter XIV-B for completing the assessment for the block period without there being a valid search and, therefore, the very validity of search, which is a jurisdictional aspect, can very well be challenged in an appeal filed against the assessment order passed under Chapter XIV-B. He submitted that the issue of lack of jurisdiction can be raised at any stage and if the validity of search or more so lack thereof has a direct bearing on the jurisdiction of the AO, such issue can very well be raised in an appeal filed against the block assessment.
14. Relying on the decision of Hon'ble Supreme Court in the case of Chiranji Lal Shrilal Goenka v. Jagjit Singh and Ors. (1993) 2 SCC 507, Mr. Syali contended that a decree passed by a Court without jurisdiction on the subject-matter or on the ground on which a decree is made which goes to the root of its jurisdiction or lacks inherent jurisdiction is a nullity being coram non judice and its validity can be set up whenever it is sought to be enforced or is acted upon as a foundation for a right even at the stage of execution or in collateral proceedings. He contended that the defect of jurisdiction strikes at the very authority of the Court to pass decree which cannot be cured by consent or waiver of the party. He also contended that similarly, search is a foundation of block assessment proceedings and if the search itself is invalid, the further proceedings become null and void.
15. Mr. Syali further submitted that the fundamental legal principle is that there is no wrong without remedy and, therefore, the observation of the Bangalore Special Bench of Tribunal in the case of C. Ramaiah Reddy (supra) to the effect that mere is no remedy available in law against the invalid search, clearly runs contrary to this basic legal principle. Reliance was placed by him in this regard on the decision of Hon'ble Supreme Court in the case of D.K. Basu v. State of West Bengal (1997) 1 SCC 416 wherein it was held that there is no wrong without a remedy. He submitted that there is no doubt that it is for the assessee to make out a prima facie case to show that such satisfaction was not there or that the conditions specified in Clauses (a), (b) and (c) of Section 132(1) were not satisfied. However, once such case is made out, the Tribunal having inherent and plenary powers as held by Hon'ble Supreme Court in the case of ITO v. M.K. Mohammed Kunhi (1969) 71 ITR 815 (SC), has ample jurisdiction to go into this aspect and examine the issue relating to validity of search.
16. Reliance was placed by Mr. Syali on the decision of Hon'ble Supreme Court in the case of Barium Chemicals Ltd. v. CLB AIR 1967 SC 295 wherein it was held that the words "reason to believe" or "in the opinion of" do not always lead to the construction that the process of entertaining "reason to believe" or "the opinion" is an altogether subjective process not lending itself even to a limited scrutiny by the Court that such "reason to believe" or "opinion" was not formed on relevant facts or within the limits or within the restrains of the statute as an alternative safeguard to rules of natural justice where the function is administrative. He pointed out that although an order passed in exercise of powers under statute cannot be challenged on the ground of propriety or sufficiency as held by Hon'ble apex Court, it is liable to be quashed on the ground of mala fides, dishonesty or corrupt purpose. He contended that even if such order is passed in good faith and with the best of intention to further the process of legislation which confers the power, since the authority has to act in accordance with and within the limits of that legislation, its order can also be challenged if it is beyond those limits or is passed on grounds extraneous to the legislation or if there are no grounds at all for passing it or if the grounds are such that no one can reasonably arrive at the opinion or satisfaction requisite under the legislation.
According to him, illegality of order i.e., lack of jurisdiction, irrationality in order, i.e., excess of jurisdiction, impropriety in order i.e., procedural flaws as well as proportionality of action are the grounds for challenging any order of quasi-judicial authority and going by this basic legal principle, if the mandatory conditions for initiation of valid search are not satisfied in any particular case, the same can be a ground for challenging the validity of such initiation.
17. Shri Syali contended that although sufficiency of the reasons recorded for deriving satisfaction in the matter of initiation of search cannot be disputed/challenged as held by Hon'ble Supreme Court in (1992) 194 ITR (St) 239, the issue of validity of search being embedded in the validity of order passed under Section 158BC, the same to the extent of satisfaction of conditions precedent before initiation of search can very well be raised in an appeal filed against the order passed under Section 158BC.Referring to the provisions of Sections 158BA and 158BC, he pointed out that valid search is a precondition for acquiring jurisdiction to proceed under Chapter XIV-B against the assessee and as such, it is open for the assessee to challenge this jurisdictional aspect in an appeal filed in the block assessment proceedings. He contended that legal position is well-settled that even in the collateral or derivative proceedings, the validity of order passed in the original proceedings could be challenged. Reliance was placed by him on the decision of Kerala High Court in the case of Ashok & Co. v. CIT (1992) 195 ITR 786 (Ker) and that of Hon'ble Rajasthan High Court in the case of Deep Chand Kothari v. CIT (1988) 171 ITR 381 (Raj) to contend that question of jurisdiction can be raised at any time even during the course of collateral proceedings. He contended that when validity of reopening can be challenged in the reassessment proceedings before the AO even if such reopening was approved by Chief CIT on being satisfied himself about the escapement of income, there is no reason why validity of initiation of search under Section 132(1) cannot be challenged in the block assessment proceedings. Reliance was also placed by him in this regard on the decision of Hon'ble Delhi High Court in the case of Mrs. Kailash Suneja and Ors. v. Appropriate Authority and Ors. (1998) 231 ITR 318 (Del) wherein it was held that Appropriate Authority having acted in an arbitrary fashion in arriving at the fair market value of properties ignoring the sale instances of comparable properties and relying on sale instances of properties situated far away from subject properties, by making adjustments for plus and minus factors in a whimsical manner, the orders for pre-emptive purchase had to be quashed.
18. Shri Syali finally contended that right of appeal has to be made effective as held by Hon'ble Supreme Court in the case of Mohammed Kunhi (supra) and in order to make the right of appeal against the block assessment proceedings effective, the assessee should be entitled to challenge the validity of search as well. In support of this contention, he also cited the decision of Hon'ble Gujarat High Court in the case of CIT v. Shivabhai B. Patel (1999) 239 ITR 919 (Guj) and that of Hon'ble Rajasthan High Court in the case of Prakash Chitra v. ITO (2001) 249 ITR 760 (Raj). He, however, agreed that the scope of judicial review in the matter of validity of initiation of search is limited inasmuch as sufficiency of reasons recorded for deriving satisfaction about the initiation of search cannot be gone into.
19. Advocate, Shri Salil Kapoor appearing on behalf of the intervener, Shri Baldev Raj Mehra submitted that as per Chapter XIV-B introduced in the statute w.e.f. 1st July, 1995, the AO has to issue notice under Section 158BC in each and every case where a search has been conducted and since the assessee already having suffered a search has also to undergo the agony of entire block assessment proceedings, he is very much entitled to challenge the validity of search in an appeal filed before the Tribunal against the assessment completed under Chapter XIV-B being an aggrieved party. He submitted that one of such aggrieved assessees had filed a writ petition before the Hon'ble Punjab & Haryana High Court challenging the validity of search, but it was contended on behalf of the Department before their Lordships that alternative remedy to challenge the validity of search is available to the assessee in the form of appeal which can be preferred to the Tribunal. Referring to the decision of Hon'ble Punjab & Haryana High Court in intervener's own case reported in (2003) 263 ITR 535 (P&H) (supra), he pointed out that such a stand taken by the Department was accepted by the Hon'ble High Court and the assessee was directed to raise all the issues, which were sought to be raised in the writ filed before the High Court, in an appeal to be preferred before the Tribunal. He contended that in challenging the validity of order passed under Section 158BC, the assessee can very well challenge the validity of search because the very jurisdiction to proceed under Section 158BC is assumed by the AO as a result of search which obviously means a valid search.
20. Shri Shiva Swamy, learned counsel appearing for M/s Anuradha Timber Estates as intervener mainly attempted to assail the order of the Bangalore Special Bench of Tribunal in the case of C. Ramaiah Reddy (supra) and that too on the various issues relating to Panchanama. He submitted that several conclusions drawn by the Tribunal in the said order on these issues are contrary to the statute, self-contradictory and illogical. In this regard, he highlighted the following aspects : (i) The Bangalore Special Bench was of the view that in every case of search there should necessarily be a Panchnama whereas it is nowhere stated in the IT Act or in the IT Rules that in every case of search there should be a Panchanama.
(ii) The Bangalore Special Bench held that it is the duty of the authorized officer to record the conclusion of search in the last Panchnama whereas it is nowhere stated in the IT Act or in the IT Rules that an authorized officer should record the conclusion of search in a Panchanama.
(iii) When the assessee and the interveners in Bangalore pointed out to the Bangalore Special Bench that under Section 132(8A) a prohibitory order (PO) can be lifted and a Panchanama for lifting the PO can be recorded even after the assessment has been completed, the Special Bench recognized that this created a logical problem; it was "a hen and egg syndrome" (i.e., a chicken-first or egg-first dilemma); the Special Bench held that an assessment order should normally be passed only after the "last Panchanama" (chronologically last Panchanama) is written, but in the case contemplated by Section 132(8A), the assessment order itself can be passed even before the last Panchanama is prepared. The Special Bench thus committed a greater logical fallacy while holding that in such a situation the last "valid" Panchanama is the Panchanama written before the assessment order is passed; the Panchanama written after the assessment order should be ignored for the purposes of calculation of limitation.
(iv) The Special Bench has held that the "last Panchanama" can be "the last-but-one Panchanama" or "the last-but-two Panchanama". But the legislature itself has stipulated in Expln. 2 to Section 158BE that time should be reckoned only from the last Panchanama, i.e., chronologically the last Panchanama. The validity of the date of the assessment order depends on the date of the last Panchanama, but as held by Bangalore Special Bench, the validity of the date of the last Panchanama itself depends on the date of assessment order; this reasoning is patently erroneous.
21. Mr. Shiva Swamy submitted that neither the term "Panchanama" is defined anywhere in the IT Act or in the IT Rules or even in the Criminal Procedure Code (CrPC) nor any form of Panchanama is prescribed under the IT Rules or under the CrPC. He contended that the Bangalore Special Bench, however, assumed throughout its judgment that the practice of the Departmental officers of writing a document called "Panchanama" must be treated as sacrosanct which was not justified. He also contended that since the crucial term "Panchanama" is an undefined word, Expln. 2 to Section 158BE should be totally ignored and the limitation should be computed only with respect to the main Section 158BE(1). He submitted that the Bangalore Special Bench has erred in holding that Expln. 2 completely overrides Section 158BE(1) and that this Explanation comes into play in the case of each and every search.
According to him, if the provisions of Section 158BE(1) and Expln. 2 to that section are interpreted harmoniously, the same will lead to the conclusion that if there is more than one authorization for search in the case of the same person, the date of execution of the "last" of such authorizations must be taken as the starting point for ascertaining the limitation period. In this regard, his contention was that since the word 'Panchanama' is not defined and there is also no need to write a Panchanama in each and every case or to record the conclusion of a search in the Panchanama under the statute, provisions of Expln. 2 to Section 158BE(1) should be ignored completely. For proper appreciation of the concept of 'execution of authorisation', he relied on the decision of Hon'ble Bombay High Court in the case of CIT v. Sandhya P. Naik (supra) wherein it was held that the search comes to an end when the search party leaves the premises after carrying with it the seized material and thus the authorization for search is fully implemented and execution is complete.
22. Shri Shiva Swamy also contended that a harmonious reading of all the relevant provisions clearly indicates that the only legally recognizable Panchanama is the one written at the time of the initial entry of the authorized officers into a particular building of a particular assessee and alternatively the concept of "Panchanama" can be totally disregarded and the period of limitation can be ascertained from the execution of last search warrant. According to him, the Tribunal in order to decide the issue relating to execution of authorization has necessarily to go into the actual conduct of the search from initiation to the conclusion and it is also necessary for it to decide the meaning of the expression "conclusion of the search".
His contention, therefore, was that even if it is assumed that the administrative actions of the authorized officers cannot be questioned before a Tribunal and the same can be challenged only before a High Court, still while performing its quasi-judicial functions, the Tribunal has to decide the meaning of the expressions (1) "Panchanama" occurring in Expln. 2 to Section 158BE, (2) "the last Panchanama", (3) "execution of the last of the authorizations", and (4) "conclusion of a search" and it must not confine itself to a bare perusal of a document called Panchanama which is not recognized by the IT Act or CrPC nor should it merely have a look at the signature of the Director of IT and the name of the assessee and the names of the witnesses.
23. Shri Shiva Swamy submitted that several questions in the context of validity of search and seizure operation right from initiation to conclusion of the said proceedings would arise depending on facts of each case and it would be appropriate and expedient if such incidental questions are also answered by this Special Bench consisting of five Members due to unsettled law on those questions and due to their national importance covering number of block assessment cases. He also submitted that he has identified such incidental questions for the consideration of this Bench as follows : Question 1 : Whether it is possible for a quasi-judicial authority to apply the provisions contained in Expln. 2(a) to Section 158BE when the most crucial term in the Explanation, namely "Panchanama" is not defined either in the IT Act or in the IT Rules or in the CrPC and when the dictionary meaning is inappropriate Question 2 : Without prejudice to the above question, whether there is a legal requirement for an authorized officer to prepare a "Panchanama" for recording any activity that takes place during the search Question 3 : Whether there is a legal requirement that an authorized officer should record the conclusion of a search in any "Panchanama" or in a chronologically "last Panchanama" Question 4 : Whether the expression '"the authorization referred to in Sub-section (1)" "appearing in Expln. 2 to Section 158BE refers to "the last of the authorizations for search" already mentioned in Section 158BE(1) Question 5 : Whether, it is possible to state that the limitation time should start from the "last Panchanama" when the last Panchanama itself can be prepared after the assessment order has been completed in the circumstances envisaged in Section 132(8A), Section 132(9A), Section 132B(1)(i), Section 132B(1)(ii), Section 132B(1)(iii), Section 132B(3), and Rule 112C of the IT Rules? Question 6 : Whether a harmonious reading of Section 158BE, Expln. 2 to Section 158BE, Section 132, Rule 112*, and Rule 112C of the IT Rules would lead to the conclusion that the limitation period would run from the execution of the last of the authorizations for search (and not from the date of the last "Panchanama") Question 7 : Whether a harmonious reading of Section 158BE(1), Expln. 2 to Section 158BE, Section 132, Section 132-B, Rule 112, and Rule 112C would lead to the conclusion that any search becomes "executed" when the authorized officers make their first visit to a premises, stay as along as they wish, seize whatever articles they need under Section 132(1)(iii), make a deemed seizure of any other articles under Section 132(1) second proviso, and leave the premises Question 8 : Whether "conclusion of a search" must be decided according to objective criteria by a quasi-judicial authority and not on the assumption that the recording of the conclusion of a search by an authorized officer is conclusive proof of the closure of the search Question 9 : In view of the judgment of the Supreme Court in the case of Union of India v. Ajit Jain (supra) which held that there can be no valid block assessment unless there is a valid search, whether the Tribunal and quasi-judicial authorities should necessarily go into the validity of the search itself for deciding the validity of a block assessment under Chapter-XIV-B of the IT Act? Question 10 : Whether the expression "seizure" means the initial act of physical possession of articles by the authorized officer, or whether it includes a re-seizure of articles which were already physically seized Question 11 : Whether, the expression "search" means the initial finding of articles, or it includes the re-finding of articles already found in an earlier search Question 12 : Whether a judgment of a Division Bench or even a Special Bench of the Tribunal is binding on another Special Bench, or even a Division Bench of the Tribunal with regard to those inferences which are contrary to the provisions of the legislation contained in the IT Act or in the IT Rules, or which are self-contradictory, or which are illogical Question 13 : Whether the question regarding the "practicability" of seizure of any article or thing is a question of fact or question of law, and whether it can be adjudicated by the Tribunal Question 14 : Whether the term "seizure" includes taking possession of any article or thing by putting a lock or a seal 24. Shri Shiva Swamy submitted that none of the above questions raised by him deal with the administrative discretion exercised by the Departmental officers in the course of a search and since the same relate to the interpretation of certain provisions of the IT Act and the IT Rules, they can always be raised before a Tribunal.
25. In reply, Shri. G.C. Sharma, learned special counsel appearing for the Revenue, submitted that for deciding the issue raised before this Special Bench, it is necessary to recognize the distinction between an administrative/executive power conferred on a specific authority appointed under the IT Act and the judicial functions to be performed by such authority. He submitted that the AO performs the function of determining the taxable income and consequent liabilities attached thereto of a particular assessee for a particular year and nothing more. He pointed out that Section 116 of the Act specifies the classes of IT authority for the purposes of the Act whereas Section 120 provides for exercise of all or any of the powers conferred on certain authority or for performance of certain functions by them under the Act or under the directions issued by the CBDT. He took us through the relevant provisions contained in Chapter XIII-C titled 'Powers' and submitted that Section 131 deals with purely administrative or executive powers conferred on various authorities mentioned in that Chapter. He pointed out that Section 132 is enacted in this Chapter to confer powers of search and seizures only on the authorities mentioned therein and these powers, he emphasized, are essentially of executive/administrative nature. He contended that once these powers are exercised by the competent authority, the assessee, even if aggrieved, could not challenge the same by way of an appeal unless it is specifically provided under the Act. He also contended that appeal is not a vested right against any action of the State and the remedy by way of an appeal must be specifically provided in the statute itself.
If it is not so provided, the remedy cannot be availed of indirectly by any process. In this regard, he pointed out that the orders appealable before the Tribunal are specified in Section 253 and although appeal is provided against the order passed by the AO under Section 158BC, no appeal is provided against initiation of search by exercising powers conferred under Section 132.
26. Shri Sharma submitted that the AO obviously has no power to consider the validity of a search and nullify the action taken under Section 132 by another competent authority appointed under the Act and it, therefore, follows that the Tribunal, which is a creature of the statute, cannot pronounce upon the validity of the search as it performs the same judicial function as that of the AO and can decide only such issues in appeal as have arisen or could have arisen before the AO. According to him, since the grounds of appeal before Tribunal and power of Tribunal to adjudicate upon them must arise out of the order of the AO, what the AO could not do while performing his function, the Tribunal is not competent to do the same in appeal before it. He submitted that the jurisdictional fact of search is to be gathered from the record and once this jurisdictional fact of the search having been initiated during the specified period is established, the AO has to proceed to frame the assessment as provided in Chapter XIV-B and the Tribunal has no power to pronounce as an appellate authority upon the validity of search and nullify the assessment made under Chapter XIV-B. He contended that the AO is not authorized under the Act to question in assessment proceedings the validity of search and it, therefore, follows that the Tribunal is also not competent to decide that question.
27. Shri G.C. Sharma pointed out that similar submissions were made before Delhi Bench of the Tribunal in the case of Virender Bhatia v.Dy. CIT (supra) and Division Bench of the Tribunal was pleased to accept the propositions urged on behalf of the Revenue. He submitted that the Special Bench of Tribunal at Bangalore has endorsed this decision of Division Bench in the case of C. Ramaiah Reddy v. Asstt.
CIT and Ors. (supra) wherein similar question has been decided in favour of the Revenue after having considered that such pronouncement was necessary to pronounce upon the questions referred in that case. He contended that Bangalore Special Bench has distinctly held that the Tribunal has no power to pronounce upon the validity of a search and thus the question before this Special Bench is no longer res integra but stands concluded. He submitted that it is, therefore, wrong on the part of the assessee to urge that the decision of the Special Bangalore Bench does not deal with this question.
28. Shri G.C. Sharma further submitted that there is no authority of any High Court to support an answer to the question under consideration in the affirmative that is against the Revenue and even in the case of Ajit Kumar Jain v. Union of India and Ors. (supra), this question did not arise for consideration directly or indirectly. He contended that the decision rendered by the High Court in the said case is only to the effect that valid search is a condition precedent to proceed under the special procedure enacted in Chapter XIV-B and the same has no bearing on the question as to whether the Tribunal has the power to pronounce upon the validity of initiation of a search or that the AO or any other authority has that power. He emphasised that the power of the Tribunal to decide the validity of search is not dependent upon an assessment having been made under Chapter XIV or special Chapter XIV-B and even where regular assessment has been made as a result of or after the initiation of search, the question of validity of search cannot be decided by the Tribunal.
29. Referring to the provisions of Sections 246A and 253, Shri G.C.Sharma contended that no appeal is provided against the warrant of authorization purported to have been issued under Section 132(1) and there is no dispute about this position. According to him, it is also not in dispute that the assessee cannot merely challenge a warrant of search in an appeal before the Tribunal and can challenge a validity of search independently by way of writ petition only before the Hon'ble High Court. His contention, therefore, was that if the challenge to the authorization under Section 132(1) is beyond the scope of an appeal provided under the Act, then it cannot be indirectly challenged while challenging the validity of a block assessment. He also contended that it is an incorrect proposition of law to still contend that while challenging the validity of the assessment before the appellate authority, the appellant could challenge the validity of search and that the appellate authority is duty-bound to see whether a warrant of authorization was issued and whether the conditions for issuance of the search warrant were satisfied. He submitted that all that the AO or the appellate authorities including Tribunal can see/check from the record is as to whether the search had been initiated within the prescribed period for the purposes of framing a block assessment.
30. As regards the decision of Hon'ble Delhi High Court in the case of Ajit Jain v. Union of India (supra) relied upon by the learned counsel for the assessee, Shri G.C. Sharma submitted that the same is not an authority to canvass an answer to the question raised before the Special Bench. He contended that the passage of the said decision only lays down that alternate remedy is not a bar to issuance of a writ under Article 226 and it has not been held by the Hon'ble Delhi High Court that there is an alternative remedy of challenging the validity of a search before the appellate authority. He also contended that the arguments raised by the counsel on behalf of either of the parties before the High Court do not lay down any proposition and it, therefore, cannot be regarded as ratio decidendi as sought to be canvassed by the learned counsel for the assessee. As regards the decision of Chandigarh Bench of Tribunal in the case of Raj Kumar Gupta (supra), he submitted that search in that case was found to have been conducted on the basis of warrant of authorization issued to a third party and not to the assessee and neither the warrant of authorization nor any material regarding the reasons for initiating search in the case of the assessee was produced by the Revenue before the Tribunal.
He contended that in those facts and circumstances of that case, the Tribunal held that no search was conducted in the case of the assessee and the AO had no jurisdiction to frame an assessment under Chapter XIV-B. He submitted that appeal filed by the Revenue against this decision of the Tribunal under Section 260A was not admitted by the Hon'ble Punjab & Haryana High Court for the reason that findings of fact could not be assailed by the Revenue on any ground whatsoever and the same, therefore, is of no consequence to the issue raised before this Special Bench. His contention, therefore, was that it would be wholly erroneous to draw any assistance from the said decision of Chandigarh Bench of Tribunal or the order of the Hon'ble Punjab & Haryana High Court dismissing the appeal of the Revenue filed against the said decision.
31. According to Shri Sharma, it is an admitted position that if the High Court or the Supreme Court holds a search as illegal, provisions of Chapter XIV-B would automatically not apply and the proper remedy for the appellant, therefore, is to challenge the validity of the search before the High Court instead of challenging it before the Tribunal. He submitted that it has not been denied on behalf of the assessee that no appeal is provided in the Act against the use of the power under Section 132(1) and it is, therefore, erroneous and incorrect to contend that the validity of search could be challenged in an appeal against an assessment made under Chapter XIV-B of the IT Act.
He reiterated the stand of the Revenue that there can be no challenge of the exercise of an executive action before a quasi-judicial authority and that the Hon'ble Tribunal is only empowered to examine whether the search has been, in fact, initiated and is not empowered in law to examine whether reasons to believe existed before the issuance of the search warrant. He submitted that the action under Section 132(1) cannot be compared with the reopening of an assessment under Section 147 by issue of a notice under Section 148 because the reasons are recorded and subsequently reassessment is framed by the AO while performing functions of a quasi-judicial authority whereas the reasons under Section 132(1) are recorded not by the AO but by an independent authority competent to issue warrant under Section 132 which is purely an executive action. He contended that the Tribunal is merely a quasi-judicial authority and such quasi-judicial authority has no control over exercise of an executive power by an authority prescribed in the Act for that purpose. According to him, only the High Court has the power and the authority to examine the validity of search by examining whether the preconditions for the issuance of a warrant of authorization based on existence of reasons to believe as recorded were not satisfied in a given case and a quasi-judicial authority such as Tribunal cannot examine the validity of an executive action and usurp the powers of writ vested in the Hon'ble High Courts under Article 226 of the Constitution.
32. As regards the case of Urmila Lamba and Ors. (supra) cited on behalf of the assessee, Shri Sharma submitted that no warrant of authorization issued in the name of the assessee was produced by the Revenue for the examination of Tribunal despite the fact that the assessee in that case had filed an affidavit stating that no search warrant was executed in her name and in these peculiar facts of that case, Jaipur Bench of the Tribunal took the view that the block assessment proceedings were invalid. He contended that even the other decisions of the Tribunal cited on behalf of the assessee are not decisive of the question referred to this Special Bench and moreover, the operation of the order of Allahabad Bench of Tribunal in the case of Dr. A.K. Bansal (supra) has been stayed by the Hon'ble Allahabad High Court. He contended that the decision of Delhi Bench of Tribunal in the case of Virender Bhatia (supra) and that of Special Bench (Bangalore) in the case of C. Ramaiah Reddy (supra), on the other hand, directly and persuasively provide an answer to the said question and the view expressed therein deserves to be endorsed by this Special Bench.
33. Shri G.C. Sharma also submitted that the scheme of Section 132 is that after the order of search, the authorized officers conduct the search and draw the Panchnama regarding the conduct of the search. This Panchnama gives complete details of the officer who issued the warrant, the person against whom search was ordered, the premises ordered to be searched, the books of account, other documents, cash, bullion, jewellery and other articles or things found or seized in the course of search. The Panchnama is drawn in the presence of two Panchas and the persons who are in possession or control of the premises. The Panchnama is a very important and sacred document. In fact, it establishes that the search has been conducted. The truthfulness of the Panchnama or its validity cannot be dismissed lightly. His contention, therefore, was that since the order under Section 158BC is based upon the conduct of the search, no further document beyond Panchnama is required to be produced by the Department before the Tribunal to establish the factum of search. Without prejudice to this contention, he submitted that the Department is in possession of an authorization of search issued in the name of appellant duly signed by the Director of IT (Inv.), and if the Tribunal comes to a conclusion that it is entitled to see the authorization of search and passes an order accordingly, the Department is ready to produce the same for the perusal of Members of the Tribunal. He, however, contended that if at all it is to be held that the Tribunal can direct the production of warrant of authorization, it should not be laid down as a rule but this can appropriately be done only after filing an affidavit by the assessee as per Rule 10 of ITAT Rules.
34. Shri Sharma also contended that the case laws relied upon by advocate, Shri Syali are with reference to different Acts and in the context of altogether different provisions which are not at all in pari materia with the provisions of Section 132(1). In this regard, he submitted that the Tribunal is not a Court in strict sense and a decree also is materially different from the authorization issued by the Director of Inv. under Section 132(1). According to him, warrant of authorization cannot be equated to decree and only if the authority issuing the warrant of authorization lacks inherent jurisdiction, this aspect can be raised before the AO. However, if such authorization is issued by a competent authority in exercise of its jurisdiction, the AO cannot go into validity of authorization and so also the Tribunal sitting in appeal on the order of the AO.35. In this regard, he referred to the Notification No. 354 issued by the CBDT on 3rd Dec, 2001, placed on record by the Revenue and invited our attention to the following portion thereof: "In exercise of the powers conferred by Sub-section (1) and Sub-section (2) of Section 120 of the IT Act, 1961, (43 of 1961) and in supersession of S.O. No. 703(E), dt. 6th Sept., 1989, and any order issued by the Directors General of IT (Inv.), so far it relates to the jurisdiction of Directors, the CBDT hereby : (a) directs that the Directors specified in column (2) of the Schedule hereto annexed shall exercise their powers vested in them under Section 132 of the said Act and perform their functions relating thereto in respect of the territorial areas of whole of India; (b) directs that the Directors specified in column (2) of the Schedule hereto annexed shall exercise their powers vested in them under all other provisions of the said Act (other than Section 132) and perform their functions relating thereto in respect of the territorial areas specified in the corresponding entries in column (3) of the said Schedule; (c) authorizes the Directors specified in column (2) of the Schedule hereto annexed to issue orders in writing for the exercise of the powers and performance of the functions by all or any of the IT authorities who are subordinate to them, in respect of such territorial areas as may be specified in such orders." 36. He pointed out that as set out in para (a) of the aforesaid circular, all the Directors of IT (Inv.) are authorized to exercise their powers vested in them under Section 132 of the IT Act and perform their functions relating thereto in respect of the territorial area of whole of India. His contention, therefore, was that each and every Director of IT (Inv.) can exercise his powers vested in him under Section 132 in respect of the entire territory of India and thus enjoys inherent jurisdiction-over all the cases falling in the territory of whole of India.
37. As regards the various issues sought to be raised by advocate Shri Shivaswamy, Shri Sharma contended that intervener cannot enlarge the scope of question referred by the Hon'ble President for the consideration of Special Bench and since the issues sought to be raised by him are not within the scope of question specifically referred to by the Hon'ble President to this Special Bench, the same cannot be entertained. He submitted that many issues raised by him relating to irregularity or infirmities during the course of search, in any case, can be gone into by the Tribunal depending on the facts and circumstances of each case.
38. As regards the issue of examining the material before the Director of IT (Inv.) in coming to the conclusion that the aforesaid case was fit for search and seizure operation, Shri G.C. Sharma stated that such an action on the part of Tribunal will amount to usurping the writ jurisdiction of the High Court or the Supreme Court in the garb of exercising its appellate jurisdiction. Moreover, the powers exercised in this regard by the competent authority resulting in initiation of search are purely of administrative nature which is beyond the scope of appellate jurisdiction. According to him there is one more vital aspect which should be considered is that the material before the Director of IT (Inv.) includes highly secret papers regarding not only the information but also informer and since these documents contain privileged communication protected from perusal of any appellate authority, the same cannot be produced in the open Court as such a production of document may pose threat to the life of the informer. He pointed out that even during the course of writ proceedings before the High Court, such documents are produced for perusal of the Judges in the chamber.
39. Shri C.S. Aggarwal, in the rejoinder, submitted that it is for the Revenue to establish that a valid search has been conducted in the assessee's case and such valid search has to be shown from warrant of authorization which should be validly issued in accordance with law satisfying the required conditions specified in the relevant provisions. He also submitted that the very foundation of search is the warrant of authorization issued on the basis of satisfaction reached by the competent authority and Panchnama cannot be a conclusive proof to establish the factum of valid search. He contended that when the search proceedings are initiated, the entire exercise becomes quasi-judicial and not just administrative. He also contended that information available with Director of Inv. may not be looked into by the Tribunal from sufficiency point of view, but it has to be seen that the conditions for initiation of valid search have been satisfied.
40. We have considered the rival submissions in the light of material available on record and various judicial pronouncements relied upon by the learned representatives of both the sides in support of their arguments. At the outset, it would be expedient to define the scope of the question referred to this Special Bench because an attempt has been made especially by Shri Shiva Swamy, the learned counsel appearing for M/s Anuradha Timber Estates as intervener, to enlarge the scope of the said question by submitting that several issues relating to the validity of search and seizure operation right from initiation to conclusion of the said proceedings would arise depending upon the facts of each case. He has submitted that it would be appropriate if such incidental questions are also answered by this Special Bench consisting of five Members to settle the controversies on these issues taking into consideration its importance. He has also identified some of such issues and put forth the same in the form of fourteen questions for the consideration of the Special Bench. It is, however, worthwhile to note here that the question referred to for the consideration of the Special Bench in that sense is very specific inasmuch as it deals with the powers of the Tribunal to adjudicate upon the issue relating to the validity of search conducted under Section 132 and that too while disposing of the assessee's appeal filed against the block assessment.
41. The scope of the question referred to this Special Bench is thus limited to a consideration of the issues relating to the validity of search conducted under Section 132 and those aspects which have a direct bearing on the validity of search can only be looked into while answering the said question. In this regard, it is pertinent to note that the search action under Section 132 has three limbs i.e.
initiation of search, conduct of search and conclusion of search.
Insofar as the validity of search is concerned, the first limb, i.e., initiation of search, which includes all the action culminating into issue of warrant of authorization, assumes significance and relevance.
As regards the other two limbs, i.e., conduct of search and conclusion of search, they do not have direct bearing on the validity of search because once the conditions for the exercise of the powers under Section 132(1) are satisfied and the power is exercised bona fide and in furtherance of the statutory duties of the authorities, any error or mistake on the part of the authorities in the matter of conduct and conclusion does not go to vitiate the exercise of the said power.
42. A useful reference in this regard can be made to the decision of Hon'ble Madhya Pradesh High Court in the case of Naraindas v. CIT (1984) 148 ITR 567 (MP), wherein it was held that any irregularity in the course of entry, search and seizure committed by the officer in pursuance of authorization will not be sufficient to invalidate the action provided the officer has, in exercising the authorization, acted bona fide. Similarly, in the case of Mamchand & Co. v. CIT (1970) 76 ITR 217 (Cal), Hon'ble Calcutta High Court held that the presence of police without evidence of force is not detrimental to the validity of the search nor the enormity of the search could be a ground for condemnation if the search is otherwise justified. In the case of Subir Roy and Anr. v. S.K. Chattopadhyay and Ors. (1986) 158 ITR 472 (Cal), Hon'ble Calcutta High Court held that any error committed by the officials in seizing the documents which may ultimately be...(sic) search nor will it entitle the aggrieved person to an omnibus order for release of all documents seized. To the similar effect is the decision of Hon'ble Allahabad High Court in the case of Hindustan Metal Works and Ors. v. CIT and Ors. (1968) 68 ITR 798 (All), wherein it was held that the fact that a few documents not apparently relevant to any pending proceedings were seized nor the fact that the authorized officer, at the time of seizure, did not record that the seized documents were relevant to any proceedings, would not invalidate the search proceedings.
43. Hon'ble Kerala High Court, however, has taken a slightly different view in the case of Dr. C. Balakrishnan Nair and Anr. v. CIT and Anr.
(supra) wherein it was held that action of the search party in dumping the documents, pass books, etc. in an almirah and sealing it without ordering seizure, suspending the search for fourteen days and then resuming it for no valid reason, retaining the documents for more than fifteen days without handing them over to the ITO, and taking away of number of documents from petitioners' premises without their knowledge and consent is clearly an arbitrary exercise of power and, therefore, the whole action taken under Section 132 is vitiated. Nevertheless, the preponderance of judicial opinion clearly suggests that the subsequent errors/infirmities in the conduct or conclusion of search do not invalidate the search if the same is initiated after satisfactory compliance of the conditions stipulated in the exercise of the power under Section 132(1) and such power is exercised bona fide in furtherance of statutory duties of the authorities. It, therefore, follows that what essentially is to be seen to ascertain the validity of search is the valid initiation of search in accordance with the provisions of Section 132(1) and if such initiation is based on satisfaction of the conditions stipulated in the said provision, the other aspects involved in the conduct of search need not be gone into since the infirmity therein, if any, does not result in vitiating the search action. We are, therefore, of the view that the various issues sought to be raised by Mr. Shiva Swamy touching the various aspects involved in the conduct of search relating to Panchnama, etc. are not within the scope of the question specifically referred to the Special Bench for consideration and decision and the same need not be dealt with by us. Nevertheless, we will touch upon these aspects at the appropriate stage just to clarify the position further.
44. During the course of hearing before us, various decisions of the higher forum have been cited from the side of the assessee and it was contended that the question under reference to this Special Bench has already been answered by the High Courts in the affirmative and to the effect that the Tribunal does have powers to adjudicate upon the issue relating to the validity of search conducted under Section 132. The following decisions have been cited before us in this regard:CIT v. Mrs. Sandhya P. Naik and Ors.
(h) Ashok Chawla and Ors. (supra) (copy at pp. 37 to 43 of Mr.
Syali's paper book).
45. From a careful perusal of the aforesaid decisions of the different High Courts, it is however observed that the question now referred to for consideration of the Special Bench was not involved specifically for the consideration of the High Courts and there is no direct decision rendered in any of the said cases answering this question. It is no doubt true that in some of the said cases, the writ petitions filed by the assessees were held to be not maintainable by the High Courts on. the ground that alternative remedy in the form of appeal to the Tribunal was available to them. However, merely on the basis of the High Courts holding that the alternative remedy is apparently available to the assessee, it cannot be inferred that the Tribunal has the power to go into the issue relating to the validity of search conducted under Section 132. In any case, this issue was never raised directly before the High Courts in any of the aforesaid decisions cited on behalf of the assessee and, as such, the High Courts had no occasion to decide the same on merits. It is worthwhile to consider here that appeal before the Tribunal and writ before the High Court are not mutually exclusive remedies in the strict sense.
46. Before us, it has been pointed out on behalf of the assessee that in some of the cases, it was submitted on behalf of the Revenue itself that the assessee has an alternative remedy available in the form of filing an appeal before the Tribunal in which all the issues including the issue relating to validity of search could be raised. It is, however, observed that such stand was taken by the Revenue before the High Court in the limited context of maintainability of writ petitions filed by the assessee and that too by stating that the petitioner has an efficacious alternative remedy against the block assessment order by way of appeal to the Tribunal which can be availed of. It was, thus, never submitted by the Revenue before the High Court that the Tribunal has a power to adjudicate upon the issue relating to the validity of the search conducted under Section 132 nor the submissions made by them were to that effect either directly or even impliedly. In any case, as rightly submitted' by the learned Special Counsel for the Revenue, such stand taken by the Revenue, if any, Would not be able to give such powers to the Tribunal if the same otherwise are not conferred upon it under the statute. It, therefore, follows that there is no decision of any High Court, at least amongst those cited before us, wherein the question now referred to the Special Bench has been answered directly and specifically and this issue is still res integra which has to be considered and decided independently by the Special Bench.
47. There are several cases in which action under Section 132(1) has been challenged by the assessee by way of writ petition filed before the various High Courts and the High Courts exercising their writ jurisdiction have gone into and decided the issue relating to the validity of such action taken under Section 132(1). However, in order to ascertain as to whether the assessee also has the alternative remedy available against action under Section 132(1) taken in his case by way of an appeal before the Tribunal against the block assessment which is completed as a result of search, it would be necessary to examine as to whether the provisions contained in the IT Act, 1961, give power to the Tribunal, either expressly or impliedly to consider and decide the issue relating to the validity of search while exercising its appellate jurisdiction over the block assessment.
48. The jurisdiction to assess the undisclosed income for the block period has been vested in the AO by virtue of the provisions of Section 158BA where the search under Section 132 is initiated after 30th day of June, 1995. Such power/jurisdiction has to be exercised in accordance with the provisions of Chapter XIV-B. The procedure to assess has been provided in Section 158BC according to which, the AO is required to commence the proceedings by serving the notice under this section where any search has been conducted under Section 132 but initiated after 30th June, 1995. Further, such assessment has to be completed within a period of one year from the end of the month in which the last of the authorizations for search under Section 132 was executed in case where search was initiated after 30th June, 1995, but before 1st Jan., 1997.
These provisions indicate that the legislature has used two words "initiated" and "conducted" with reference to the search under Section 132. The word 'initiated' is understood in legal sense as 'commenced' while the word 'conduct' is understood as 'carry on'. If these words are read together, it would mean commencement of search, the actual carrying on/execution of search and completion of search. Therefore, validity of search referred to for consideration of the Special Bench has to be understood with reference to the initiation/commencement of the search, actual conducting of search and final execution of search vis-a-vis the powers/functions/duties of the AO under the provisions of Chapter XIV-B.49. At this stage, it would be appropriate to mention that the right of appeal to any party is not a fundamental or inherent right but only a statutory right as held by the Hon'ble Supreme Court in the case of CIT v. Ashoka Engg. Co. (1992) 194 ITR 645 (SC). Therefore, each and every action of an IT authority is not appealable unless specific right of appeal is conferred on the aggrieved party. If no right of appeal is conferred against any -action of the tax authorities, then such an action can only be challenged before the Hon'ble High Court by way of writ petition under Articles 226/227 of the Constitution of India.
Reference can be made to the judgment of the apex Court in the case of Central Provinces Manganese Ore Co. Ltd. v. CIT (1986) 160 ITR 961 (SC) where their Lordships at p. 968 of the report held that no appeal lies against improper exercise of the discretion to waive or reduce interest. It was also held that appeal could be filed against the levy of interest only where assessee completely denies to be assessed vis-a-vis me interest. The Hon'ble Calcutta High Court in the case of ANZ Grindlays Bank Plc v. CIT (2000) 241 ITR 269 (Cal) held that there is no right of appeal against an order charging interest under Section 220(2) of the Act. Recently, the Hon'ble Bombay High Court in the case of Chem Amit v. Asstt. CIT (2005) 143 Taxman 348 (Bom) has held that under Section 260A of the Act, appeal to the High Court is provided only against an order passed in appeal by the Tribunal and consequently, no appeal lies against the order of rectification under Section 254(2) passed by the Tribunal since such order cannot be considered as an order passed in appeal. The Delhi Bench of the Tribunal has also held in the case of Pradeep Singh v. Dy. CIT [IT(SS)A. No. 140/Del/2000, order dt. 1st Feb., 2005 [reported at (2005) 93 TTJ (Del) 1005--Ed.] (to which two of us were a party) that order of rectification under Section 154 passed by the AO against an order under Section 158BC was not directly appealable to the Tribunal under Section 253(1)(b) as no such right was conferred by the statute and, therefore, in such cases, assessee could file appeal only before the CIT(A).
50. The legal position emanating from the aforesaid judicial pronouncements thus is required to be borne in mind while adjudicating the issue under consideration along with the duties/functions of the AO vis-a-vis the block assessment proceedings. Though jurisdiction to assess the undisclosed income found as a result of search initiated after 30th June, 1995 is vested in the AO under Section 158BA, the actual exercise of such power begins under Section 158BC by serving the notice on the assessee to file the return for the block period. Section 158BC uses two expressions namely "where any search has been conducted under Section 132" and "in respect of search initiated". Before issuing any notice under Section 158BC, the AO is only required to see that search has been conducted in the case of a person whose undisclosed income is to be assessed. The latter expression is only relevant to see that such search must have been initiated after 30th June, 1995. There is a distinction between initiation and conduct of search to which we will refer in the later part of our order.
51. At this stage, it is sufficient to mention that before the issuance of notice under Section 158BC, the AO is only required to satisfy himself that search was conducted in the case of an assessee and initiated after 30th June, 1995 and nothing more. Another aspect of search which is to be seen by the AO is the execution of the last authorization as provided in Section 158BE. This is relevant only for the purpose of ascertaining the period of limitation for making the block assessment. The last aspect of the search which is to be seen by the AO is with reference to the evidence found as a result of the search as provided in Section 158BB. This is because the AO can use only that evidence which is found as a result of search and such other material which is relatable to such evidence. Apart from these requirements, the AO is not required to see any other aspect of the search.
52. The major contention raised by Mr. Aggarwal, the learned counsel for assessee, before us is that a valid search is the foundation for assuming jurisdiction to make the block assessment under the provisions of Chapter XIV-B as held by the Hon'ble Delhi High Court in the case of Ajit Jain v. Union of India (supra) (later on affirmed by the apex Court in Union of India v. Ajit Jain (2003) 260 ITR 80 (SC) and it is, therefore, the duty of the Tribunal to examine whether the conditions specified in Clauses (a) to (c) of Section 132(1) are satisfied before issuing authorization by the authorities mentioned therein to search the premises of the assessee. We are unable to accept this contention for the reason that the right of appeal to the assessee as well as the powers of the Tribunal to hear the appeal are limited to the actions of the AO and not beyond that whereas the conditions to be satisfied as prescribed in Clauses (a) to (c) of Section 132(1) are prior to initiation of the search. According to the legal connotation, the word 'initiate' means to begin or to commence. A search is a physical act of the party making search and therefore, a search can be said to have begun or commenced when the first act to enter the premises is taken by the search party. Therefore, in our humble opinion, anything done by IT authorities prior to the above action would be beyond the pale of expression "where a search is initiated" or the expression "where any search is conducted" used by the legislature in Chapter XIV-B of the Act.
53. Section 132(1) empowers the authorities mentioned therein to authorize certain authorities to enter and search any premises where, the person authorizing has reasons to suspect that books of account, other documents, money, bullion, jewellery or other valuable articles belonging to assessee are kept. This itself shows that action of authorizing search is altogether different from the act of search. As already discussed, the AO is only required to see that search has been initiated and conducted and nothing more. It, therefore, follows that the AO is not required to look into anything about the conditions prescribed in Clauses (a) to (c) of Section 132(1) of the Act.
Consequently, right of appeal to the assessee would not include assailing any action of IT authorities prior to initiation of search.
Hence, it has to be held that requirements of Clauses (a) to (c) of Section 132(1) are not justiciable before the appellate authority. If the assessee is aggrieved by the action of the authority mentioned in Section 132(1), then the only remedy available with the assessee is to challenge the same before the High Court in writ petition under Article 226/227 of the Constitution of India.
54. Another contention of Mr. Aggarwal, the learned counsel for the assessee, is that if the Tribunal can examine the validity of the reasons recorded by AO under Section 148 then for the same reason, the Tribunal can also examine the validity of the action of DI/CIT under Section 132(1). We are unable to accept this contention also. We have already held that it is only the action of AO connected with the assessment proceedings which is assailable before the appellate authority. In the case of reassessment proceedings, the statute itself provides that AO shall record reasons which led him to believe that the income of the assessee had escaped assessment. Since this action of AO is inextricably linked with the initiation of assessment proceedings, the same can be assailed before the appellate authority. But, in the case of block assessment proceedings, there is no such requirement in law. What the AO is required to see is that search is initiated and conducted in the case of assessee and nothing more. Therefore, action of DI/CIT under Section 132(1) cannot be equated with the action of the AO under Section 148 for the purpose of determining the scope of the powers of the appellate authority. At this stage, we may clarify that there is no dispute to the legal position that action of DI/CIT under Section 132(1) is the foundation for commencement of block assessment proceedings and therefore, such action is justiciable. The dispute is only about the forum before which such action can be challenged. What we are holding is that such action cannot be challenged before the appellate authority but the same can certainly be challenged before the High Court in the writ petition. If the High Court holds such action as illegal then certainly block assessment proceedings will have to be declared as void ab initio.
55. As regards the various decisions of the Tribunal cited by the learned representatives of both the sides, we do not deem it necessary to deal with each and every such decision. It would be sufficient to mention that the following question was referred to the Special Bench at Bangalore in the case of C. Ramaiah Reddy v. Asstt. CIT (supra) : "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 be said to have come to a close, for the sole purpose of examining whether the assessment is in time or otherwise?" 56. After examining the arguments of the parties and the intervenes, all the three members delivered their separate orders stating different reasons. Though the above question was referred to the Special Bench with reference to the provisions of Section 158BE, the arguments were advanced with reference to the powers of the Tribunal to examine the validity of the action of tax authorities under Section 132(1) and consequently, the members of the Special Bench delivered their separate orders on this issue. The majority view was that the Tribunal cannot examine the validity of the action of the IT authorities under Section 132(1). We are in agreement with the majority view for the reasons given by us. Hence, contrary view taken by various Division Benches of the Tribunal stands overruled.
57. Coming to the High Court judgments, we have already held that none of the judgments relied upon by the learned counsel for the assessee directly decided the issue under consideration. The main thrust of Mr.
Aggarwal was on the judgment of jurisdictional High Court in the case of Ajit Jain v. Union of India (supra). In that case, no doubt, it was held that a valid search is a condition precedent for invoking the provisions of Chapter XIV-B but nowhere it was held that in appellate authority can examine the validity, of the action of authorizing the search under Section 132 as the Hon'ble High Court was examining the validity of such action in the writ petition filed by the assessee and had no occasion to consider the issue pressed before us. We have already held that such action under Section 132(1) can only be challenged before the High Court under Article 226/227 of the Constitution of India. Therefore, our legal finding that Tribunal cannot look into the validity of action of authorizing the search under Section 132(1) is not in conflict with the ratio laid down by the jurisdictional High Court in the above case. For the similar reasons, we hold that the judgment of Kerala High Court in the case of Dr. C.Balakrishnan Nat v. CIT (supra), judgment of Bombay High Court in the case of CIT v. Sandhya P. Naik (supra) and judgment of Delhi High Court in the case of B.K. Nowlakha and Ors. v. Union of India (1991) 192 ITR 436 (Del) are distinguishable inasmuch as action of authorization under Section 132(1) was not in dispute before these High Courts. In fact, these judgments were rendered with reference to the action of search party to which we will refer later on. Besides this, none of the High Court judgments holds that Tribunal as an appellate authority can examine the validity of action of authorization of search under Section 132(1) of the Act.
58. Heavy reliance has been placed by Mr. Aggarwal on the judgment of Punjab & Haryana High Court in the case of CIT v. Raj Kumar Gupta dt.
21st Aug., 2003 dismissing the appeal of the Revenue under Section 260A. It has been submitted by him that the Tribunal, Chandigarh Bench, vide order dt. 7th Sept., 2001 had held that the Tribunal is competent to decide as to whether the conditions precedent for invoking powers given to DI/CIT under Section 132 are exercised in accordance with the provisions of Section 132. Reference was also made to the observations of the Tribunal at page 9 of the order which is placed at p. 347 of the paper book. He also drew our attention to the questions of law which were proposed by the Revenue for admission before the High Court. The same are reproduced below : "(a) Whether, on the facts and circumstances of the case, the Hon'ble Tribunal was justified in holding that the search was illegal and without jurisdiction (b) Whether the Tribunal was justified in calling for the satisfaction note of the DI, which is a secret document and on the basis of which warrant of search was issued by the DI (c) Whether the Tribunal was justified in ignoring the various Panchnamas prepared at various premises which clearly showed that the warrant of authorization were shown to the assessee in the presence of not only the authorized officer but also the Panchas." 59. Mr. Aggarwal has pointed out that the Hon'ble High Court did not admit the aforesaid question of law and dismissed the appeal of Revenue filed under Section 260A. In these premises, it has been pleaded by him that the order of the Tribunal has been affirmed by the High Court and, therefore, it should be held that the Tribunal can adjudicate upon the action of the tax authorities under Section 132(1). The judgment of the High Court has been perused carefully and the same is also being reproduced for the benefit of this order: "The Tribunal vide orders dt. 7th Sept., 2001, allowed the appeal of the respondent assessee, which was filed by him against order dt.
21st July, 1999 passed by AO under Section 158BC read with Section 143(3) of the IT Act and consequently, quashed assessment framed by the AO, on the ground that there was no valid search and. seizure.
While arriving at the conclusion aforesaid, it has been found on facts that there was no satisfaction note recorded by the Director of Investigation before issuing any warrant of authorization. The Revenue did not choose to produce the warrant of authorization issued by the Director of Investigation as well as any other material including satisfaction note of the Director of Investigation authorizing the search.
The finding of fact as mentioned above could not be assessed on any ground whatsoever, No merit. Dismissed." 60. A perusal of the above clearly shows that appeal of the Revenue was dismissed on facts and no proposition of law was laid down by their Lordships. It has been clearly observed by the Court that the Tribunal found on facts that there was no satisfaction note recorded by DI before issuing any warrant of authorization. In view of such finding of fact, their Lordships dismissed the appeal. It is the settled legal position that a decision is an authority for the proposition it decides and not what can legally be deduced therefrom. Reference can be made to Full Bench judgment of the Delhi High Court in the case of CIT v.Kalvinator of India Ltd. (2002) 256 ITR 1 (Del)(FB) at p. 17. Similar view has been expressed by the Hon'ble Supreme Court in the case of CIT v. Sun Engg. Works (P) Ltd. (1992) 198 ITR 297 (SC) at p. 320. Keeping in view this legal position, it cannot be said that the Hon'ble Punjab & Haryana High Court in the case of Raj Kumar Gupta affirmed any legal position laid down by the Tribunal. Hon'ble High Court dismissed the appeal after having found as fact that no satisfaction note was recorded by the DI under Section 132. In view of this finding of fact, their Lordships did not think it necessary to express any opinion on any question of law. It is also pertinent to note that the Hon'ble High Court did not mention that no substantial question of law arose from the order of the Tribunal. This itself shows that their Lordships did not think it necessary to apply their mind on the question referred to by the Revenue in its memo of appeal. The judgment of the High Court, in our opinion, was entirely based on the finding of fact and, therefore, this judgment cannot be said to lay down any proposition of law regarding power of Tribunal to adjudicate on the issue of validity of action of DI/CIT under Section 132(1) of the Act.
61. Before us, it has been contended by Shri G.C. Sharma, learned Special Counsel for the Revenue referring to Chapter XIII-C containing various provisions relating to the powers given to the various Departmental authorities, that the powers given to the competent authorities under Section 132 are purely administrative or executive in nature and the assessee aggrieved by exercise of such powers can challenge the same by way of writ petition before the jurisdictional High Court, since, no remedy by way of an appeal is specifically provided in the Statute against the warrant of authorization issued under Section 132(1). Shri Aggarwal, on the other hand, has submitted that when the search proceedings are initiated, the entire exercise becomes quasi-judicial and not just administrative. It would be appropriate here to understand the distinction between a judicial and administrative function. A judicial decision is made according to law i.e. by applying legal rules and principles and mainly guided by legal policy whereas an administrative decision is made according to administrative policy, which in turn is guided by what is expedient and desirable in the interest of public. A quasi-judicial function is an administrative function, which the law requires to be exercised in same respects as if it were judicial. The exercise of the quasi-judicial function is dictated by policy and expediency but requires the authority to follow the principles of natural justice and requires the authority to act fairly and not arbitrarily. Existence of a lis inter partes or a quasi lis, i.e., existence of a dispute between a person and the administrative authority itself is necessary and only then would there be an occasion for an administrative authority to exercise a quasi-judicial function.
62. The power to initiate a search against any person and to authorize entering of any premises and effect seizure of books of accounts, money, bullion, etc., is a power which the law has conferred on certain authorities referred to under the provisions of Section 132 of the IT Act. The exercise of the power under Section 132 to initiate a search of a place and effect seizure is subject to fulfilment of two conditions (a) existence of information in possession of the authority specified in Section 132, and (b) their belief on the basis of such information that a person to whom summons is issued to produce books of accounts and, omits to produce such books of account or will not produce them or that the person is in possession of money, bullion or jewellery or other valuable articles or things which he has not disclosed or would not disclose for the purpose of the IT Act, 1961.
The legislature has used the expression "reason to believe". The language of the section is objective and, therefore, the authority exercising the power should be in a position to show that the conditions for exercise of the power were fulfilled in a manner which will satisfy the Court. The standard of satisfaction in such an event will be the familiar legal standard of a reasonable man. But this standard of a reasonable man will vary according to the statutory context and purpose. The standard would reduce to a vanishing point when the authority exercising the power does so in an emergency and the public interest at large would out weigh the interest of the individual concerned. There could be cases, where it may not always be possible for the authority concerned to prove reasonableness of its action on the ground that the information on the basis of which it could justify its action deserves to be protected. The power of search and seizure is an important means of unearthing black money. In a welfare State geared to social justice such powers are recognized as important.
63. Considering the nature of power of search and seizure as explained above, it cannot be said that it decides any right inter partes or between a person and the authority. The power is basically to collect evidence and to prevent tax evasion. Going by the purpose of the exercise of this power, there cannot be any opportunity of being heard or being afforded to the person who is to be searched. The only limitation on exercise of this power, therefore, is that the power should be exercised fairly and not arbitrarily. The existence of conditions for issue of a warrant of authorization to conduct a search can always be questioned only after a warrant is issued and a search is carried out in the case of a person who challenges such an action. No preventive action is possible from a person to be searched before an actual search is carried out. In many cases, the material found as a result of search would always justify an action for issue of a warrant of authorization to carry out a search. Even in such cases, the reasons on the basis of which the search was initiated and the material which was sought to be unearthed through a search and the material which is actually found in the course of search, might be different. Therefore, the reasonability or fairness in initiating search cannot in all cases be justified on the basis of the formation of belief as was entertained by the authority when a warrant of authorization was issued.
64. The absence of a lis or a quasi lis would prompt one to think that the satisfaction to be reached by the authority issuing warrant of authorization is only an administrative function. The fact that the belief has to be entertained by the authority issuing the warrant only after satisfying itself about existence of the three conditions for issue of a warrant mentioned in Clauses (a), (b) and (c) of Section 132 (1) which satisfaction has to be on the basis of information in their possession and such satisfaction has to be objective and not subjective, will prompt one to conclude that power to initiate a search is only a quasi-judicial function. It is, therefore, difficult to conclude whether the power is quasi-judicial or purely administrative.
Even the Hon'ble Supreme Court in the case of A.K. Kraipak v. Union of India AIR 1970 SC 150 has observed that the dividing line between an administrative power and a quasi-judicial power is quite thin and is being gradually obliterated. That, what was considered as an administrative power some years back is now being considered as quasi-judicial power.
65. For the present case, the distinction as to whether the power to initiate the search by issue of a warrant of authorization is quasi-judicial or administrative function is not of much consequence as we are concerned with the remedy to an aggrieved person for improper exercise of power to issue such a warrant. Whether the said power is quasi-judicial or administrative, the duty to act fairly and not arbitrarily exists and if the power is not so exercised, the aggrieved person has a right to remedies. When one comes to the remedies available to an aggrieved person, he can have his right for action for damages in a civil Court subject to the bar of civil proceedings as laid down in the IT Act, 1961. He has a statutory right of appeal to the forums provided in the relevant law. We have already held that against an improper exercise of power to issue warrant of authorization, no appeal lies before the appellate authorities under the IT Act. The other remedy is a prerogative remedy seeking issue of various writs or orders from the High Court. This remedy is always available to an aggrieved person against any arbitrary action. We, therefore, hold that the question as to whether the initiation of search by issue of warrant of authorization is an administrative function or a quasi-judicial function is purely academic in the present context inasmuch as answer to the said question will not have any direct bearing on the issue under consideration before this Special Bench.
66. Before us, Mr. Syali has raised a contention to the effect that block assessment proceedings under Chapter XIV-B are collateral proceedings initiated as a result of action under Section 132(1) and since the AO acquires jurisdiction to proceed under Chapter XIV-B as a result of search or for that matter a valid search, the jurisdictional aspect relating to validity of search can be set up at the stage of execution in the form of block assessment which is passed in the collateral proceedings. In this regard, he has relied on the decisions of Hon'ble Supreme Court in the case of Chiranji Lal Shrilal Goenka (supra) wherein it was held that validity of decree which goes to the root of the matter, its validity can be set up even at the stage of execution or in collateral proceedings.
67. It is well-settled that, as a general rule, the issue of validity of exercise of power by an authority can be raised in any proceedings including a collateral proceedings. However, it is also well-settled that the validity of exercise of power by an authority can be set up in the collateral proceedings only when there is lack of inherent jurisdiction on the part of the authority exercising the power. If the authority possesses the necessary power but while exercising the power exceeds or abuses the power, then it cannot be said that the authority lacks inherent jurisdiction. In the first category of cases, challenge to the validity of the exercise of power can be raised in collateral proceedings also. In the second category of cases collateral attack was not to be allowed.
68. The authority issuing a warrant of authorization has the necessary power to do so by virtue of the provisions of Section 132. If in exercising that power, the authority acts without material or comes to conclusions about existence of conditions mentioned in Clauses (a), (b) or (c) of Section 132(1) of the Act based on extraneous reasons or irrelevant material, then it would be a case of an error within the jurisdiction of the authority. It is an error within the jurisdiction because the statute has already conferred the jurisdiction to the designated officers to issue warrant. Hence, an error or arbitrariness in issuing a warrant is within the jurisdiction and not without. Such error can be rectified only in appropriate proceedings and not in any collateral proceedings.
69. It cannot be said that there exists any primary fact, which alone gives jurisdiction to the authority to exercise power to issue a warrant of authorization. To quote an example, a Rent Control Tribunal constituted to decide dispute between landlord and tenant can exercise its power to decide a dispute only when there exists a landlord-tenant relationship between the parties before it. But a power to issue a warrant of search is not dependent on existence of any primary fact.
The process of forming "reason to believe" on the basis of information in possession by the authority even if exercised improperly cannot be said to be an error outside the jurisdiction of the authority concerned. Therefore, challenge to such action cannot be raised in collateral proceedings. If a statutory remedy is not provided against improper exercise of such power as in the case of a decision to issue a search warrant, the remedy lies only in the form of seeking issue of a writ certiorari.
70. Our conclusion that remedy against improper exercise of power in initiating search by issuance of warrant of authorization lies in the form of seeking issue of a writ also gets support from the decision of Hon'ble Delhi High Court in the case of Ajit Jain v. Union of India and Ors. (supra) which has been subsequently affirmed by the Hon'ble Supreme Court (supra). In the said case, similar action was challenged by the assessee in a writ petition filed before the Hon'ble Delhi High Court and their Lordships of Delhi High Court entertained the writ petition filed by the assessee observing that his case does fall in the category where an action is wholly without jurisdiction and results in infringement of fundamental right. Hon'ble Delhi High Court further observed that while sufficiency or otherwise of the information cannot be examined by the Court in writ jurisdiction, the existence of information and its relevance to the formation of the belief is open to the judicial scrutiny because it is the foundation of this condition precedent for exercise of a serious power of search of a private property or person which involves violation of privacy of a citizen.
These observations recorded by Hon'ble Delhi High Court explicitly show that a power of search of a private property or a person is a serious power and exercise of the same without jurisdiction results in the infringement of the fundamental right since it involves violation of the privacy of a citizen. Keeping in view this legal position, it can appropriately be held that it is only the High Court which can examine the validity of search by ascertaining whether the preconditions for the issuance of a warrant of authorization based on existence of reasons to believe as recorded were satisfied or not in a given case in exercise of power of writ vested in them under Article 226 of the Constitution.
71. Before us, reliance has been placed by Mr. Syali on the decision of Hon'ble Supreme Court in the case of M.K. Mohammed Kunhi (supra) to contend that the Tribunal has ample jurisdiction to go into and examine the issue relating to the validity of search in exercise of its incidental and implied powers in order to make fully effective the express grant of its statutory powers. In this regard, it is pertinent to note that the subject-matter of an appeal before the Tribunal, as expressly provided in the statute, is an assessment completed by the AO under Section 158BC and there is no provision for filing an appeal before the Tribunal against the warrant of authorization issued under Section 132(1). It is no doubt true that all the aspects inextricably linked with the block assessment completed under Section 158BC can be gone into by the Tribunal exercising its implied or incidental powers.
However, as already discussed, the action under Section 132(1) especially its initiation part cannot be considered as inextricably linked with the block assessment inasmuch as the action under Section 132(1) is not an integral part of the assessment proceedings. This is so because the AO gets the jurisdiction to proceed under Section 158BC merely on the basis of the factum of the initiation of search by virtue of Section 158BA, and once the fact of search is established, he gets authority to proceed under Chapter XIV-B to complete the assessment under Section 158BC. In. other words, the assessment proceedings under Chapter XIV-B is the step taken away from the action conducted under Section 132(1) more particularly its initiation part and the same being not inextricably linked with the assessment proceedings under Chapter XIV-B, the Tribunal cannot consider and decide the issue relating to the validity of search even in the exercise of its implied powers which obviously are limited by the express powers conferred on it by the Statute. We, therefore, find it difficult to agree with the contention raised on behalf of the assessee that the Tribunal can look into the aspect of validity of search by exercise of its implied or incidental power.
72. Having held that the Tribunal cannot adjudicate upon the action of the DI/CIT under Section 132(1), the next question, is whether the Tribunal can examine the validity of any aspect of the search i.e., from commencement till completion thereof. As already pointed out, the scheme of Chapter XIV-B requires the AO to examine such aspects at three stages. The first stage is when the AO has to issue notice under Section 158BC. At this stage, he is required to satisfy himself that search has been initiated and carried out in the case of an assessee on whom such notice is to be served. In this connection, he should see the authorization issued under Section 132(1) and the Panchnama prepared by the search party so as to satisfy himself that search was initiated and earned out in the case of the person on whom notice under Section 158BC is to be served. The scope of examination is very limited i.e., to ascertain that search operation was carried out in the case of such person and nothing more. If the AO does not satisfy himself in this regard, then the assessee has the right to object to the validity of the assessment before the appellate authority on the ground that no search was initiated/conducted in the case of the appellant. For example, an authorization under Section 132(1) may be only in the name of a company but in the course of such search, the premises of directors/employees of company are searched by the same search party without obtaining fresh authorization. In such a case, the search in the case of such directors/employees would be without authority of law on the face of it and, therefore, the AO would not derive any power from Section 158BA in respect of such directors/employees unless the case is covered under Section 158BD. Reference can be made to the case of CIT v. Pushpa Rani (2004) 136 Taxman 627 (Del) wherein Tribunal was held to be justified in holding that proceedings under Section 158BC were void ab initio in the absence of search warrant in the name of the appellant. In the case of Raj Kumar Gupta (supra), the Chandigarh Bench of the Tribunal found as a fact that there was no authorization to search the assessee and consequently, block assessment made by AO was quashed by the Tribunal. On this very finding of fact, the Hon'ble High Court declined to interfere with the order of the Tribunal and the appeal of the Department was dismissed. Sometimes, it is also seen that the strangers present at the time of the search are also searched. Such a search of the stranger would be valid vis-a-vis the person whose premises are searched under Section 132(1) but such action vis-a-vis the stranger would be invalid in the absence of fresh authorization under Section 132(1) and consequently, action under Section 458BC cannot be taken against the stranger barring the circumstances under Section 158BD. These examples are pot exhaustive but are merely illustrative. Therefore, in such cases, the Tribunal, in our opinion, can satisfy itself about the validity of search by examining the authorization issued under Section 132(1). If it is found that there was no such authorization in the case of the appellant then assessment made under Section 158BC would be void ab initio. However, it is clarified that such power of Tribunal is very limited to ascertain the fact as to whether there was any authorization under Section 132(1) in the case of the appellant and nothing more.
73. The next stage comes after the assumption of jurisdiction when the AO examines the seized material. Section 158BB requires the AO to determine the total undisclosed income with reference to the evidence found as a result of search and such other material/information relatable to such evidence. This evidence includes the statement recorded in the course of search. If any action of the search party with reference to/connected with such evidence is not in accordance with law, the assessee can object to the same before the AO who shall deal with the same as per law. Consequently, such action can also be challenged before the Tribunal and the Tribunal shall be within the powers to adjudicate such issue. However, it is clarified that any defect or irregularity would neither vitiate the validity of search nor the assessment since such action occurs after the valid assumption of search/assessment proceedings. The Tribunal may, however, pass such order as it may deem fit in case of any defect/irregularity in such action of search party.
74. The third and perhaps the last stage comes at the time of completing the assessment for the purpose of computing the period of limitation under Section 158BE. This section provides that assessment under Section 158BC has to be made within one year or two years, as the case may be, from the end of the month in which last of the authorizations for the search under Section 132 was executed.
Therefore, the Tribunal as an appellate authority, can also examine as to when the last of the authorizations was executed. A search can be said to be executed when it is concluded in terms of Section 132. The actions of the search party are enumerated in Clauses (i) to (v) of Section 132(1), i.e., searching of premises mentioned in the authorization, placing marks of identification, preparation of inventory, seizure of any thing found, etc. The second proviso to Section 132(1) provides power to the search party to issue restraint order under the circumstances mentioned in the proviso. Sub-section (3) empowers the search party to issue prohibitory order under the circumstances mentioned in this sub-section. Sub-section (4) empowers the authorized officer to record the statement of any person who is found to possess or to have control of the items mentioned therein.
Finally, the Panchnama has to be prepared which can be considered as an evidence for concluding the search. Though there is no specific mention of preparation of Panchnama in Section 132, it can be logically inferred from Expln. 1 after Section 132(14). This Explanation provides that "execution of an authorization for search" shall have the same meaning as assigned to it in Expln. 2 to Section 158BE. The latter Explanation provides that authorization of search shall be deemed to have been executed when the last Panchnama is drawn in relation to a person in whose case warrant of authorization is issued. The above discussion shows that search comes to an end when the last Panchnama is drawn with reference to the last of the authorizations. It is the date of such Panchnama which is relevant for determining the period of limitation for passing the order under Section 158BC by the AO.Accordingly, we are of the view that the AO is required only to find out the date when the last Panchnama with reference to last authorization is drawn and nothing beyond that. The examination of the conduct of search party including the issuing of restraint order/prohibitory order is outside the purview of the AO and consequently, outside the purview of the appellate authority.
Therefore, the Tribunal can examine the record only with a view to find out the date of last Panchnama.
75. It is, however, pertinent to mention about the significance of the Panchnama. The Panchnama is a document which is prepared in the presence of Panchas (respectable local witnesses) containing the items found and seized in the course of search. So the AO must satisfy himself for the purpose of calculating the period of limitation that the document in question is in reality a Panchnama. There may be a case where inventory is prepared in respect of books of account or valuable articles found in the course of search but taking of or removal of such books of account or valuable article is not practicable. The authorized officer may issue restraint order under second proviso to Section 132(1). Such restraint is deemed to be a seizure as per the said proviso. Hence, in such a case, the preparation of inventory and Panchnama would be irrelevant and any action of the authorized officer lifting the restraint order would/ in our opinion, be irrelevant. The reason is that whatever the search party was required in law to do had been done and nothing more was required.
The restraint order is passed not because anything was to be done but because it was not practicable to take physical possession and remove the material to a safe place at the relevant time. As held by Hon'ble Bombay High Court in the case of CIT v. Mrs. Sandhya P. Naik (supra), the authorized officer cannot keep the search proceedings in operation by passing a restraint order under Section 132(3) so as to circumvent the provisions of Section 132(3) read with Section 132(5).
76. However, the situation would be different where prohibitory order under Section 132(3) is issued because such order, unlike restraint order, does not amount to seizure as per Sub-section (3) of Section 132. Such orders are issued where it is not practicable to seize. So an act of seizure remains to be performed and, therefore, search cannot be said to be concluded. Hence, in such case, search would be concluded when prohibitory order is lifted and the books of account/valuable articles are actually seized and Panchnama is prepared. In such case, it is this Panchnama (if it is the last one) which is relevant for calculating the period of limitation. Accordingly, we hold that Tribunal can examine the record of search with a view to find out the factum of last Panchnama as discussed above.
77. To sum up we hold that the Tribunal has no powers, either express or incidental/implied, to adjudicate upon the issue relating to the validity of the search conducted under Section 132 while disposing of the appeal against block assessment. As already discussed in para No.41, the search action under Section 132 has three limbs, i.e., initiation of search, conduct of search and conclusion of search.
Insofar as the validity of search is concerned, the first limb, i.e., initiation of search, which includes all the actions culminating into issue of warrant of authorization assumes significance and relevance and the same, in our opinion, are not justiciable in an appeal before the Tribunal. The only remedy in this matter lies in the form of seeking issue of a writ from the Hon'ble High Court. We, therefore, answer the question referred to this Special Bench in negative, i.e., in favour of the Revenue and against the assessee.
78. As regards the remaining two limbs, i.e., conduct of search and conclusion of search, anomalies and infirmities therein, if any, do not go to vitiate the search action and the Tribunal can look into these aspects to the extent relevant for disposing of the appeal against the block assessment as discussed above. In our opinion, the Tribunal also has the power to call for the production of warrant of authorization and other documentary evidence to ascertain that the search, in fact, was initiated and conducted in a given case to verify this jurisdictional fact, if so challenged by the assessee and if so thought fit by the Tribunal in the facts and circumstances of the case.
79. Before we part with this order, we may touch upon one incidental issue raised by Shri C.S. Aggarwal. Relying on the decision of the Hon'ble Andhra Pradesh High Court in the case of V.V. Trans-Investments (P) Ltd. v. CIT and Ors. (1994) 207 ITR 508 (AP) and that of the Hon'ble Supreme Court in the case of ITAT v. Dy. CIT and Ors. (1996) 218 ITR 275 (SC), he has contended that an appeal has to be disposed of by the Tribunal as a whole and not in a piecemeal manner. He has also contended that whenever reference is made by the Hon'ble President to the Special Bench, it is the entire appeal which has to be disposed of by the Bench and not just a particular issue raised therein. Shri G.C.Sharma, on the other hand, has contended that it is a convention followed by the Tribunal, which is evident from a number of Special Bench decisions, to decide only a particular question or questions as per the reference made by the Hon'ble President to the Special Bench and not the entire appeal. He has further contended that this convention needs to be followed or otherwise it will give rise to many practical problems in the matter of constitution of Special Bench by the Hon'ble President. Be that as it may, what has been referred to by the Hon'ble President in the present case for the consideration and decision of this Special Bench is only one question as stated above and not the entire appeal/case. We, therefore, confine ourselves to answer the said question specifically referred to us under Section 255(3). The matter will now go to the regular Bench for disposing of the appeal of the assessee keeping in view the decision of Special Bench rendered hereinabove.