Allahabad H.C : The assessee to the validity of search conducted on him under Section 132 of the Act, and Assessing Officer while completing a block assessment under Chapter XIV-B of the Act can in law call for the ‘satisfaction note’ forming reason to believe as envisaged by sub-section (1) of section 132 of the Act, examine its validity and provide the copy thereof to the assessee

High Court Of Allahabad

CIT vs. Dr. A.K. Bansal (Individual)

Block Assessment Up To 14-9-1996

Section : 254, 132

Sunil Ambwani And Bharat Bhushan, JJ.

IT Appeal No.174 Of 2000

Civil Misc. Writ Petition (Tax) No. 223 Of 2000

April 5, 2013

ORDER

1. We have heard Shri Bharat Ji Agarwal, Senior Counsel assisted by Shri Shambhu Chopra for Commissioner of Income Tax, Allahabad and the Director of Income Tax (Investigation), Income Tax Office, Kanpur. Shri S.K. Garg assisted by Shri Ashish Bansal appears for the respondent.

2. The Income Tax Appeal No. 174 of 2000 under Section 260-A of Income Tax Act, 1961 arises out of an order dated 8.12.1999 passed by the Income Tax Appellate Tribunal, Allahabad in ITA No. 1390 (All) of 1997 for the block period upto 14.9.1996 raising following substantial questions of law:-

“(1) Whether the Income Tax Appellate Tribunal has jurisdiction to decide the validity of the search under Section 132 of Income Tax Act, 1961 in an appeal arising out of the block assessment order passed under Section 158-BC of the Act by Assessing Officer on 30.9.1997 after obtaining approval of the Commissioner of Income Tax?

(2) Whether Income Tax Appellate Tribunal hearing the appeal under Section 253(1B) of the Act can direct the department to produce the ‘satisfaction note’ to examine the satisfaction of the Competent Authority under the Act authorising the search?”

3. The Writ Petition No. 223 of 2000 has been filed by Director of Income Tax (Investigation), Kanpur with prayers to quash the order dated 29.11.1999 of Income Tax Appellate Tribunal under Section 255(4) and the order dated 14.2.2000 passed by the Judicial Member (Third Member) of the Tribunal to which the matter was referred on account of difference of opinion between two Members, on the question, that the Tribunal can, while hearing the appeal, consider the validity of the search operations. The revenue has also challenged the opinion of the third Member of the Income Tax Appellate Tribunal under Section 255(4) of the Act which constituted majority opinion, holding that the Assessing Officer can call for and scrutinize the validity of the ‘satisfaction note’, when called upon to do so by assessee, and which can also be scrutinized by Appellate Authority including the Tribunal. The revenue has also prayed for directions to quash the directions of Income Tax Appellate Tribunal dated 14.2.2000 to produce all relevant records relating to and upto the date of issue of search warrant by the concerned authority.

4. Briefly stated the facts giving rise to Income Tax Appeal and the Writ Petition by the revenue, are that a search and seizure operation was carried out in September, 1996 under Section 132(1) in the case of Dr. A.K. Bansal, who is the proprietor of ‘Jeevan Jyoti Hospital’. Similar operations were carried out in the premises of his wife Dr. (Smt.) Bandana Bansal including residential as well as Nursing home. A notice was issued under Section 158-BC of the Act on 24.4.1997 by the Assistant Commissioner of Income Tax, Circle Allahabad requiring the assessee to prepare a true and correct return of his total income including the undisclosed income in respect of which he is the individual/HUF/firm/company/AOP/body of individuals/local authority for the block period mentioned in Section 158 B(a) of the Act.

5. A grievance petition was submitted by the assessee to the Chief Commissioner of Income Tax, Lucknow on 24.4.1997 representing that the notice in question apart from being vague could not be complied because of non-availability of the seized material. Another petition was sent to Grievances Cell on 1.8.1997 as well as petition before the Assessing Officer stating that the assessee could not be subjected to search operations and thus the provisions of Chapter XIV-B were not applicable.

6. A block assessment order under Section 158BC read with Section 143(3) of the Act was passed on 30.9.1997 for the block period from 1.4.1986 to 14.9.1996 on a total income of Rs.4,50,59,000/- on which the tax payable @ 60% was Rs.2,70,35,400/-. The order was passed after approval of the Commission of Income Tax under Section 158BG of the Act.

7. The assessee filed an Appeal (ITA No. 1390 (All) of 1997) before the Income Tax Appellate Tribunal, Allahabad Bench ‘B’, Allahabad. The Tribunal granted stay of recovery of the entire amount of tax.

8. The appeal was heard by two Members of the Bench. The Members disagreed on a question of law amongst them, and hence referred the following two questions for opinion to the third Member under Section 255(4) of the Act:-

“(i) Whether in the event of a challenge by the assessee to the validity of search conducted on him under Section 132 of the Act, and Assessing Officer while completing a block assessment under Chapter XIV-B of the Act can in law call for the ‘satisfaction note’ forming reason to believe as envisaged by sub-section (1) of section 132 of the Act, examine its validity and provide the copy thereof to the assessee?

(ii) Whether, in the event of a demand for providing of such ‘satisfaction note’ forming reason to believe not being met and its non-examination by the Assessing Officer, the Appellate Tribunal during the hearing of the first appeal under section 253(1)(b) of the I.T. Act, 1961 can act similarly and direct the department to produce such material before it?”

9. The third Member heard the matter and passed a detailed order on 29.11.1999 in which he expressed opinion, the relevant extract of which is quoted as follows:-

“7.5….. Now since the fulfilment of any of the conditions or existence of any of the circumstances listed in clause (a) or (b) or (c) is wholly dependent on the existence of fact material it could not be accepted that an authority acting as quasi judicial authority or an appellate authority, which strictly speaking, may not be Courts but certainly are carrying on the judicial functions, cannot go into the issue relating to the existence of such facts material.

11… What I am able to understand from the above discussions is that one can approach the High Court or the Supreme Court, as the case may be, requesting invoking of the extraordinary jurisdiction under Article 226 or Article 32 of the Constitution, as the case may be, if it is found that:

(i) violation of fundamental right is by way of legislative action, i.e. by the statute itself or by way of an Ordinance.

(ii) if the subject’s fundamental right or any other right is abrogated by the executive, i.e. by the authorities, acting under a lawful legislation/statute, by misinterpreting the provisions or due to any other reasons, then the extraordinary jurisdiction under Article 226 of the Constitution can be requested for only if (a) there is no other remedy available under the relevant statute or (b) if the procedure/other remedial procedure is followed, the subject would suffer an irreparable loss to life or properties or reputation or anything else.

12. Non-guaranteeing the subject’s right to approach the High Court under Article 226 supports the view that subject’s right to approach the High Court requesting for the invoking of the special jurisdiction is neither guaranteed nor is absolute-which makes it, further clear that wherever the subject has efficacious alternative remedy under the relevant statutes for getting the objective redress, it should first exhaust that remedy.

12.1 If this is the law, then to say that a subject, instead of going to the Tribunal, should go to the High Court by way of a petition under Article 226 is to confer a right on the subject which otherwise is not conferred on it- even by the Constitution itself.

13. In view of the above discussion, I am of the opinion that Article 226 does not debar the subject from taking recourse to efficacious remedies available under the statutes; rather it is necessary to first exhaust the other efficacious remedy available except in special circumstances which, so far as the present case is concerned, do not exist.

15. So far as the powers and jurisdiction of the AO to go into the question of existence of any circumstances or satisfaction of any conditions enumerated in cl. (a) or (b) or (c) of sub-s.(1) of s.132 are concerned, I am of the opinion that empowerment of the AO to make an assessment of block period is an executive act in exercise of powers vested by virtue of provisions of s.120 of the Act and the AO has no reason or right to challenge such empowerment but the moment the AO proceeds to exercise his power to make assessment of a block period, his action partakes the character of a quasi-judicial act by a quasi-judicial authority and as far as the proceedings for making an assessment of a block period are concerned, the moment the AO decides to proceed by way of issuing a notice under s.158BC of the Act, the quasi-judicial proceedings are put in motion and it is at this stage of the matter that the AO is supposed to apply his quasi-judicial mind and should not proceed with closed mind. The moment the AO is supposed to apply his quasi-judicial mind, he can and is duty bound to go into the question of existence of a search action under s.132 of the Act having taken place in accordance with law which in turn extends his jurisdiction to go into the question of existence of any of the circumstances for satisfaction of any of the conditions stipulated in cl. (a) or (b) or (c) of sub-s (1) of s.132 irrespective of the fact as to whether he is called upon by the assessee to do so or not. His failure to do so may not only cause unlawful loss to the subject but can result in loss to the revenue also because if the AO is said to have no powers to satisfy himself about the factum of search in accordance with law, then he is bound to proceed with closed mind and closed eyes, i.e., without going into the factum of search itself-what to say of in accordance with law or in violation of law; which, as may be clear from the following example, may result in loss to the revenue:

Example: Let us take and example of a search action in the case of one ‘A’ having been carried out as a result of search warrant having been issued in favour of ‘A’ alone, but during the course of search it is found that there are other concerns/persons, namely, ‘B’, ‘C’ and ‘D’ having independent business at the same premises. The search party completes the search by seizing the documents, books and other assets as the case may be, by preparing Panchnamas either in the name of ‘A’ alone or in the names of ‘A’, ‘B’, ‘C’ and ‘D’ separately. The authorised officer informs the AO, having jurisdiction over the cases about the factum of search. The AO, without going into the factum of search-what to say in accordance with law or against law, makes assessments of ‘A’, ‘B’, ‘C’ and ‘D’ under s.158 BC. ‘B’, ‘C’ and ‘C’ challenge their assessments under s.158BC before the appellate authority on the ground that there being no search warrant in their names, assessments under s.158 BC were bad in law. The appellate authority has no option but to verify the factum of search, i.e., the existence of search warrant in the names of ‘B’, ‘C’ and ‘D’ and on satisfaction that there was no authorisation in their names has to declare the assessment of block period in case of ‘B’, ‘C’ and ‘C’ as avoid ab initio.”

10. The third Member held that the empowerment of an Assessing Officer to make an assessment is an executive act and if he proceeds to make an assessment, it becomes a judicial act. What follows is that he can go into the issue of existence of any other or all the three conditions as are spelled out in Section 132(1) of the Act. He further held that the Tribunal in deciding the appeal has got all incidental powers. It being the highest fact finding authority, has the powers to look into the validity of search. The Tribunal relied upon Micro Land Ltd. v. Asstt. CIT [1998] 67 ITR 446 (Bangalore Bench of ITAT in deciding the matter).

11. The third Member also relied upon Union of India v. Sheo Shanker Sitaram [1974] 95 ITR 523 in which this Court has held that an officer or authority upon whom jurisdiction has been conferred to make an order judicially has to act independently. The communications between the officer empowered to impose penalty and the higher authorities in regard to assessment or penalty proceedings could not be held to be communications made in official confidence because in law these authorities are not entitled to exchange opinions or advice in regard to judicial proceedings. Reference was made to Ajit Jain v. Union of India [2000] 242 ITR 302/[2001] 117 Taxman 295 (Delhi) in which it was held “It is exiomatic that search under Section 132, as contemplated in the Chapter has to be a valid search. An illegal search is no search and as a necessary corollary in such a case Chapter XIV-B would have no application. The judgment was affirmed by the Supreme Court in Union of India v. Ajit Jain [2003] 260 ITR 80/129 Taxman 74.

12. Shri Bharat Ji Agarwal, appearing for the revenue submits that the same question later came up for consideration before a Five- Members Bench of Income Tax Appellate Tribunal, Delhi in Promain Ltd. v. Dy. CIT [2005] 95 ITD 489/147 Taxman 66 (Delhi) (SB) (Mag.)in which it has expressed the opinion after discussing the entire case law including the judgment in Ajit Jain’s case (supra) as follows:-

“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.”

13. Shri Bharat Ji Agarwal submits that in CIT v. Paras Rice Mills [2009] 313 ITR 182/176 Taxman 181 the Punjab and Haryana High Court has, while deciding the same question as to whether the Income Tax Appellate Tribunal can in hearing the appeal go into the validity of the action taken under Section 132(1) of the Income Tax Act, and whether in such case the Tribunal can enlarge the scope, ambit and complexion of the appeal in the garb of raising additional grounds specifically when such grounds do not fall within the scope of Section 253 of the Income Tax Act, since this issue had not been raised before the assessing authority, held as follows:-

“12. We are of the view that the Tribunal when hearing an appeal against the order of assessment, could not go into the question of validity or otherwise of any administrative decision for conducting search and seizure. The same may be subject matter of challenge in independent proceedings where question of validity or otherwise of administrative order could be gone into. The appellate authority was concerned with the correctness or otherwise of the assessment.

For the above reasons, we answer the question (a) in favour of the revenue and against the assessee.”

14. The Punjab & Haryana High Court relied upon the judgments of Delhi Bench of the Tribunal in Virender Bhatia v. Dy. CIT [2001] 79 ITD 340; Madhya Pradesh High Court in Gaya Prasad Pathak v. Asstt. CIT [2007] 290 ITR 128/162 Taxman 307; the view of the Rajasthan High Court in CIT v. Smt. Chitra Devi Soni [2009] 313 ITR 174/[2008] 170 Taxman 164 and the judgment of its own Court in CIT v. Raj Kumar Gupta ITA No. 50 of 2002 decided on August 21, 2003 by Punjab & Haryana High Court.

15. In Paras Rice Mills case (supra) the Punjab & Haryana High Court quoted with approval the judgments of Delhi High Court in M.B. Lal v. CIT [2005] 279 ITR 298/149 Taxman 490 at page 303 as follows:-

“It was, in the light of the above, no longer open to the petitioner to reagitate the question of validity of the authorization and legality of the search proceedings either before the Commissioner of Income-tax or before the Tribunal for that matter. The question of validity or otherwise of the search proceedings stood concluded by the judgment of this Court dated May 6, 2002, in the writ petition mentioned above…”

16. In Gaya Prasad Pathak’s case (supra) the Rajasthan High Court held as follows:-

“…In our considered opinion, the jurisdiction exercised by the statutory authority while hearing the appeal cannot enter into the justifiability of an action under section 132A of the Act. To elaborate: whether the order passed by the Commissioner is without jurisdiction or not cannot be the subject-matter of assessment as the same does not arise in the course of assessment. Therefore, neither the Assessing Officer nor the appellate authority can dwell upon the said facet. We may note with profit, it would not be a jurisdictional fact within the parameters of assessment proceeding or an appeal arising therefrom. It can only partake of the nature and character of adjudicatory fact to the limited extent whether such search and seizure had taken place and what has been found during the search and seizure. The validity of search and seizure in and, therefore, the same cannot be dwelled upon or delved into in an appeal. The submission of Mr. Nema that the Tribunal having been constituted under article 323 of the Constitution can delve into, we are disposed to think, is an unacceptable proposition of law especially in the teeth of the provision contained under section 253 of the Act.”

17. Shri Bharat Ji Agarwal submits that the Assessing Officer, while completing the block assessment, cannot examine the validity of the ‘satisfaction note’, for authorising the search to examine if the search was valid. A notice under Section 158(B)(C) is the basis of the block assessment. He submits that in the present case the assessee did not challenge the validity of the ‘satisfaction note’ authorising the search. He neither raised any grounds nor argued the question of validity of search before the Assessing Officer. In appeal under Section 253(1) the order of Assessing Officer under clause (c) of Section 158BC in respect of search initiated under Section 132 or books of account, other documents or any assets requisitioned under Section 132A may be subject matter of appeal before the Appellate Tribunal. The only matter in appeal is the validity of assessment order which follows after the valid search. The Tribunal, while hearing the appeal under Section 253(1)(b) has to decide as to whether the determination of the undisclosed income and the tax determined thereon is in accordance with law and is correct. The Appellate Tribunal does not have any power or authority to go beyond the assessment order and has no powers to question the validity of the search.

18. Shri Bharat Ji Agarwal submits that in the present case at that time after the opinion of the 3rd Member the Tribunal was in the process of considering the validity of the search by calling satisfaction note, the revenue prayed for interim orders and that on 7.8.2000 this Court passed following orders:-

“Issue notice.

Until further orders, the further proceedings in I.T. Case No. 1390 (Allahabad) of 1997 pending before respondent no.2 shall remain stayed.”

19. It is submitted that the proceedings are pending on account of interim orders in the Tribunal and now since the question has been determined by a Five-Members Bench in Promain Ltd.’s case (supra) in favour of the revenue and on the opinion expressed by various High Courts as above, the Court may allow the Income Tax Appeal as well as the writ petition, which has been filed by way of abandoned caution and permit the Tribunal to complete the proceedings of the appeal without going into the validity of the search operations.

20. Shri Ashish Bansal holding brief of Shri S.K. Garg, on the other hand, submits that the issue involved in the appeal and the writ petition was considered by the Karnataka High Court in the case of C Ramaiah Reddy v. Asstt. CIT [2011] 339 ITR 210/[2012] 20 taxmann.com 781 in which it was held at pages 253 to 255 as follows:-

“A mere search or seizure, by itself would not result in foisting the liability on the assessee thought it would invade his right to privacy and the fundamental right to carry on business. But, if the said search and seizure results in determination of liability and levy of tax then the assessee is said to be an aggrieved person. The said determination of liability and levy of tax would be by way of an assessment order. Then only he can avail of the remedy of appeal provided under the statute. In other words, he cannot prefer an appeal against authorization of search and seizure as illegal. But, once such unauthorized or illegal search and seizure culminates in an assessment order, then he gets a right to challenge the assessment on several grounds including the authorization and initiation of search and seizure without which no order of assessment could have been passed. Though the authorization of search and seizure may not be by the Assessing Officer, the basis of such assessment order by him is the authorization and consequent search and seizure and the material collected during the said proceedings. If the very initiation of block assessment proceeding is vitiated and void, the assessment order passed in such proceedings would be non est and void ab initio. That is a ground available to the assessee to challenge the assessment order in an appeal. May be a procedural irregularity in conducting search and seizure may not vitiate the assessment order, but the very initiation of the proceedings if it is not in accordance with law, the initiation would be without jurisdiction, void and the consequent order would also be void. It is not a curable defect. It is not voidable at the option of the assessee. If he has not challenged the same by way of writ petition under Article 226 of the Constitution, he would not lose his right to challenge the same in an appeal. There cannot be an estoppel against the statute. In this regard it is useful to notice the specific words used in sub-section (1)(b) of section 253, i.e., “an order passed by the Assessing Officer under clause (c) of section 158BC in respect of search initiated under section 132:. The language used by the Legislature tends to show that this appeal provision specifically applies to an assessment order consequent to search initiated under section 132 of the Act. In interpreting fiscal statute, the court cannot proceed to make good deficiencies, if there by any, the court must interpret the statute as it stands, and in case of doubt, in a manner favourable to the taxpayer. When the statute expressly refers to “a search initiated under section 132 of the Act:, while interpreting the said provision it cannot be ignored. The expression used is capable of comprehensive impact. The words used are “a search initiated”. Therefore, the subject-matter of appeal under the provision is not only the assessment order by the Assessing Officer but also “a search initiated” under section 132 of the Act. Therefore, the necessary corollary is, if the assessee contends that the search initiated under section 132 of the Act is not in accordance with law, it would not satisfy the legal requirements as contemplated under section 132(1)(a), (b), (e), then the said contention has to be considered and adjudicated upon by the Tribunal, in an appeal filed against the assessment order. Since this action of the Assessing Officer is inextricably linked with the initiation of assessment proceedings the same can be assailed before the appellate authority. If the initiation of these block assessment proceedings is vitiated, in the eye of law, there is no search and the entire proceedings based on such search has no legs to stand.

Therefore, in an appeal filed challenging the block assessment order, it is open to the assessee to contend that this foundation for block assessment is an illegal search. Therefore, it is obligatory on the part of the Tribunal first to go into the jurisdictional aspect and satisfy itself that the said search was valid and legal. It is only then it can go into the correctness of the order of block assessment. Therefore, it cannot be said merely because the assesses did not choose to challenge the search conducted in his premises on the aforesaid grounds by way of a writ petition under Article 226 of the Constitution before the High Court, he cannot challenge the said order in appeal. In the absence of a specific provision provided under the Act for appeal against such orders, in the appeal filed against the assessment order, the Tribunal is not estopped from going into such question.

The Apex Court in the case of Pooran Mal v. Director of Inspection (Investigation) reported in (1974) 93 ITR 505 (SC) has held, even assuming that the search and seizure were in contravention of the provisions of section 132 of the Income-tax Act, still the materials seized was liable to be used subject to law before the income-tax authorities against the person from whose custody it was seized. There is no quarrel with the said legal proposition. In the first place, the provisions relating to the block assessment was not in the statute on the day the said judgment was delivered by the apex court. Secondly, prior to the incorporation of the provisions of block assessment for an assessment, search was not a condition precedent. It is in that context it was held even if search and seizure is illegal, the material recovered during such illegal search and seizure could be looked into for the purposes of assessment and act, but that is not possible, in case of block assessment. Even if a return is filed in pursuance of a direction issued under the said Chapter and the material secured during search and seizure which is declared as illegal is looked into, still the order of assessment passed in this proceedings would be a nullity because the very initiation of the proceedings is void. Those materials secured in the illegal search and seizure would certainly be made use of the assessment proceedings under the Act other than the block assessment proceedings and, therefore, the contention that the assessment order would not get vitiated because of illegal search and seizure as it is based on the returns filed and the materials secured during the illegal search and seizure is, without any substance.”

21. Shri Ashish Bansal submits that there is no bar for the Appellate Authority to go into the question of validity of search and for that purpose to call for the ‘satisfaction note’, as the validity of search is the foundation of the assessment. The Tribunal is the last court of facts. It has all the powers available to call for the ‘satisfaction note’, and to examine the validity of the search. There is no need to file a separate writ petition for that purpose as the powers under Section 226 of Constitution of India, in the matters in which orders have been passed under an statute, are co-extensive with the appellate powers. He submits that the principle of natural justice is attracted in such case. The assessee is entitled to know the reason that had led to initiation of search and seizure action against him so that he may get an opportunity to contend that such action was not valid. Shri Garg has relied upon Rajesh Kumar v. Dy.CIT [2006] 287 ITR 91/157 Taxman 168 (SC); Kanwar Natwar Singh v. Director of Enforcement [2011] 330 ITR 374 (SC). He has also cited a number of cases in support of his submission namely Jan Mohammed v. CIT [1953] 23 ITR 15 (All.); Sub Divisional Officer v. Shambhu Narain Singh AIR 1970 SC 140; Asstt. Collector, Central Excise v. National Tobacco Co. AIR 1972 (SC) 2563; Goyal & Co. v. Union of India [1994] 209 ITR 332 (Raj.); City Montessory School v. Union of India, Writ Petition No.2818 (MB) of 2000; Asstt. CIT v. Hotel Blue Moon [2010] 321 ITR 362/188 Taxman 113 (SC); M.D. Overseas Ltd. v. DGIT [2011] 333 ITR 407/198 Taxman 136/10 taxmann.com 30 (All.); and CIT v. Ashoka Engg. Co. [1992] 194 ITR 645/63 Taxman 510 (SC) in support of his submission.

22. We have carefully considered the arguments and find that the order of Income Tax Appellate Tribunal holding that the Tribunal, while deciding the appeal, can look into the validity of the search operations, is patently erroneous. The Five-Members Bench of the Income Tax Appellate Tribunal, Delhi (Special Bench) expressly overrules the opinion of the Tribunal, under challenge in this appeal, that the Tribunal in deciding the appeal against the assessment, can consider the validity of the search.

23. We agree with the reasons given by the Five-Members Bench of the Tribunal in Promain Ltd.’s case (supra) that the satisfaction to be reached by the Authority issuing warrant of authorisation is an administrative function. The fact, that the plea has to be entertained by the Authority issuing the warrant only after satisfying itself about the existence of the conditions on which the satisfaction has to be arrived at on the basis of the opinion in their possession and that such satisfaction has to be objective and not subjective, may prompt one to conclude that the power to initiate a search is only a quasi-judicial function. The dividing line after A.K. Kraipak v. Union of India AIR 1970 SC 150 between an administrative power and a quasi-judicial powers is quite thin and is being gradually obliterated. That what was being considered as an administrative power is now being considered as quasi-judicial power. The issue, however, is not of much consequence as there is remedy for an aggrieved person for improper exercise of power to issue such warrant. Whether the power is administrative or quasi-judicial, the duty to act fairly exists, the aggrieved person has a remedy to approach the High Court for any action which is either based on no material or insufficient material or suffers from malafide. The initiation of search by issue of warrant of authorisation is not a subject matter of the assessment. The Assessing Authority cannot go into such questions and consequently the Appellate Authority which has to look into the validity of the assessment order cannot question the validity of the search.

24. The Five-Member Bench of the Tribunal held that the Tribunal cannot adjudicate upon the action of the Director of Investigation/Commissioner of Income Tax under Section 132 (1). It may look into the point, if it was raised before the Assessing Officer regarding the later stages, namely issuance of notice under Section 158BC and preparation of panchnama to satisfy itself that the search was initiated and carried out in case of the person on whom the notice was served. If the Assessing Officer does not satisfy himself in this regard, then the assessee has the right to object to the validity of the assessment in appeal on the ground that no search was initiated/conducted in the case of the appellant. The Assessing Officer can look into these aspects under Section 148BA unless the case is covered under Section 158BD of the Act.

25. The Five-Members Bench further held that the Tribunal can also look into the findings recorded by the Assessing Officer on the examination of the seized material, and validity of the order under Section 158BB which requires the Assessing Officer to determine the total undisclosed income with reference to the evidence found as a result of search and such other material/information relatable to the search and this evidence will include the statements recorded in the course of search. The Tribunal can also look into the consequence of the search namely the completion of assessment for the purpose of computing the period of limitation under Section 158BE. It may also examine as to when the last of the authorizations was executed for the purpose of calculating the limitation. The Tribunal may also look into the findings of the Assessing Officer on the action of the search party namely identification, preparation of inventory, seizure etc. The Assessing Officer or the Appellate Authority, however, cannot look into the validity of the search by calling for the warrant of authorization and examining the records authorising search for the purpose of an enquiry whether the search was valid.

26. We entirely agree with the reasoning given in Promain Ltd.’s case (supra), Deputy Commissioner of Income Tax as well as the decisions of Punjab & Haryana High Court, Madhya Pradesh High Court, Rajasthan High Court, and Delhi High Court which have on more than one occasion held that in hearing an appeal against the order of the assessment, the Tribunal cannot go into the question of validity or otherwise of any decisions for conducting search and seizure. This decision can be challenged in an independent proceedings where the question of validity of order may be gone into.

27. The judicial opinion is now fairly settled that neither the Assessing Officer nor the Tribunal in appeal can summon and examine the warrant of authorisation for the purpose of examining whether there existed reasons to believe on the materials before the competent authority to order search under Section 132(1).

28. On the reasons discussed as above, the Income Tax Appeal and the Writ petition are allowed. The questions of law raised by the Commissioner of Income Tax are decided in negative in favour of the revenue and against the assessee. The Income Tax Appellate Tribunal will decide the pending appeal in accordance with the questions decided by us and the observations made in this judgment. Since the appeal is pending for more than 13 years, the Income Tax Appellate Tribunal is directed to decide it very expeditiously and preferably within two months.

[Citation : 355 ITR 513]

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