T. O. Abraham and Co. and anr. Vs. Assistant Director of Income Tax (investigation) and ors. - Court Judgment

P. Shanmugam, J.

The 1st petitioner firm is doing works contracts and is an assessee under the Income Tax Act. The 2nd petitioner is one of eight partners of the firm. In this writ petition they have challenged the assessment order, Ext. P14, and the notice issued in pursuance of it. They have also sought for declaration that the search and seizure made in their local office is violative of the provisions contained in section 132(1) of the Income Tax Act, 1961 (hereinafter referred to as `the Act)

2. The brief facts leading to the filing of this writ petition are as follows:

'The 1st petitioner-firm have undertaken and executed various contract works with the government from 1990 to 1995. The business premises of the petitioners and the residence of the 2nd petitioner were searched as per the warrant of authorisation issued by the 1st respondent on 30-4-1996. The search commenced on 30-4-1996 at 4 p.m. The proceedings were closed on 1-5-1996 at 5 a.m. as temporarily concluded for the day to be commenced subsequently. The search again commenced on 6-5-1996 at 2 a.m. and the proceedings were closed on 6-5-1995 at (six) p.m. as finally concluded. The assessment proceedings were initiated and ultimately Ext. P14 block assessment order for the years 1987-88 to 1997-98 was passed determining demand of Rs. 5,90,98,266. The petitioners have preferred their statutory appeal against their assessment order and it is pending. However, the Original Petition is filed under article 226 of the Constitution challenging the assessment orders as well as for declaration that the search and seizure were illegal.'

3. Section 132 of the Act authorises search and seizure if the authorised officer has reason to believe in consequence of information that any person is in possession of money, income, etc. which has not been disclosed. Sub-section (5) of section 132 of the Act obliges the Income Tax Officer to pass appropriate orders within 120 days of seizure. The special procedure given under Chapter XIV-B gives separate time limit for completion of block assessment under section 158BE of the Act.

4. Section 158B of the Act defines block period as consisting of the previous years relevant to ten assessment years preceding the previous years in which the search was conducted and the period upto the date of the commencement of the search.

5. Section 158BE of the Act prescribes the time limit of one year for the completion of block assessment. The period of one year starts from the execution of the authorisation.

6. The authorisation is issued under section 132 of the Act. The execution is borne out by panchnama Ext. P3 (1) dated 6-5-1996.

7. The objection of the petitioner in this connection is considered in the assessment order Ext. P14 as follows:

'One important aspect to be considered before entering into discussion regarding the undisclosed income is the assessee's claim regarding the time limit for completion of the Block Assessment. The assessee, by its telegram (received in this office on 19-5-1997) has claimed that the block assessment has become time-barred on the ground that the search was carried out after executing the warrant of authorisation on 30-4-1996. The assessee's claim is that, as the warrant was executed on 30-4-1996, the Block Assessment has become time-barred on 30-5-1997. Execution of warrant for search has to be treated as completion of the proceedings. Unless the search is completed, undisclosed income cannot be ascertained. As the very purpose of the scheme of block assessment is to tax the undisclosed income for the block period, the assessee's claim is not at all well founded. In the case of the assessee, the search initiated on 30-4-1996 was temporarily closed on 1-4-1996, and finally closed on 6-5-1996. Therefore, block assessment gets time-barred only on 31-5-1996. Assessee's objection on this ground is overruled'.

8. The ground No. 19 of the Original Petition on this aspect is as follows:

'The fourth respondent should not have given approval under section 158BE of the Act in view of the limitation provided in section 158BG of the Act. In this case, the last of authorisation for the search under section 132 of the Act was executed on 30-4-1996. That being so, the period prescribed under section 158BG of the Act expired on 29-4-1997, as the authorisation for search was executed on 30-4-1996, that is on the last date of that month. This has rendered the entire proceedings which culminated in passing Ext. P14 illegal, without jurisdiction and void'.

9. Learned senior counsel, Mrs. Nalini Chitambaram, prefaces her argument stating that ordinarily this court cannot be called upon to consider and interfere with the assessment orders when there is an effective alternative remedy of appeal. However, in the light of the interpretation that the petitioner seeks to place and the plea of limitation for the assessment, it will go to the root of the matter, and hence the Original Petition is the only remedy. She submits that petitioners will not be in a position to successfully canvass the interpretation of the provisions of the Income Tax Act before the department. Hence, without going into the other aspects raised in the Original Petition, learned senior counsel confined her case on two of the following grounds:

(i) The warrant of authorisation for the search- under section 132 of the Act was executed on 30-4-1996. Therefore, the period prescribed under section 158BE of the Act expired on 29-4-1997. That also happened to be the last day of that month for the assessment year. Therefore, the entire assessment is without jurisdiction;

(ii) The assessment years as per assessment order (Ext. P14) is shown as 1987-88 to 1996-97 and 1997-98 upto 6-5-1996 (block period from 1-4-1986 to 6-5-1996). According to learned senior counsel; block period as defined under section 158B means the previous years relevant to ten assessment years preceding the previous year in which the search was conducted under section 132 of the Act. The search commenced in this case was on 30-4-1996 and, therefore, the previous year is 1995-96 and the relevant assessment year is 1996-97. The ten previous years are 1986-87 to 1995-96 and the ten block assessment years are 1987-88 to 1996-97.

10. Learned senior counsel also submitted that the department has omitted to include the assessment year 1987-88 in the block assessment year and it is quite possible that petitioners would have to carry forward of loss in which case there would not be any undisclosed income. In view of this patent error in not including or omitting the 1987-88, the assessment order is patently illegal.

11. Learned senior standing counsel, Mr. Menon, for the revenue submitted that the petitioner has preferred a statutory appeal and all these points can be canvassed before the appellate authority. He also submitted that on a plain interpretation of section 158BE the one year period of limitation starts to run from the execution of the authorisation and in this case the authorisation issued for search was executed only on 6-5-1996 as finally concluded. The execution, according to him, means only completion, conclusion or implementation of the authorisation and not the date of the issue of the authorisation. He further drew inspiration and support as to the intendment of the legislature to the Finance Bill No. 2 of 1998 where ExpIanation 2 has been added which is as follows:

'For the removal of doubts, it is hereby declared that the authorisation referred to in sub-section (1) shall be deemed to have been executed.

(a) in the case of search, on the conclusion of search as recorded in the last Panchnama drawn in relation to any person in whose case the warrant of authorisation has been issued.

Though this Bill has not become an Act, the legislature has attempted to make their intention clear. That apart, in my view, on a plain meaning of section 158BE it could only mean that one year period will start from the ending of the month of the execution of the authorisation meaning thereby after completion of search or implementation of search order. I agree with the counsel for revenue any other interpretation would be inconsistent with the object for which the special provision has been enacted. Only after the completion of search, the department will have the materials collected and be in a position to begin their assessment and not from the initiation.

12. The second point urged by the petitioner is not taken by the petitioners in this Original Petition as a specific ground. Besides, the prejudice that the petitioner has suffered is not clear and is put in a hypothetical basis. Therefore, the senior counsel is right in stating that this is a matter to be looked into by .the appellate authority after considering the facts of the case.

For all these reasons I do not find any grounds warranting interference in the impugned writ petition. Without prejudice to the rights of the petitioners to pursue the appeal and challenge the assessment order, the Original Petition is dismissed.