High Court Of Calcutta
Sanjay Kumar Modi vs. Director Of Income Tax (Investigation) & Ors.
Sections 158BC, 158BD, ART. 226
Kalyan Jyoti Sengupta, J.
GA No. 207 of 2002 & Writ Petn. No. 1663 of 2001
7th March, 2005
Murarka, for the Petitioner : D.K. Som with Pallab Banerjee, for the Respondents
Kalyan Jyoti Sengupta, J. :
This writ petition is directed against the search warrant dt. 16th Dec., 1999, search and Panchanama dt. 17th Dec.,1999, notice dt. 20th Dec., 2000, order dt. 29th Dec., 2000 and letter dt. 8th May, 2001, and all proceedings, notices and orders. The Revenue Department on or about 17th Dec., 1999, at about 8.45 a.m. carried out search and seizure of the petitionerâs residence at 1/A, M.L. Mitra Road, Calcutta-700 017, purported to be under s. 132 of the IT Act, 1961 (hereinafter referred to as “the said Act”). Admittedly, in the search warrant and notice, the name of the petitioner was not there. One Sashi Kumar Modi and K.R. International (P) Ltd., were the noticees and/or the persons concerned in the search warrant. After completion of the search and seizure of documents and the books of account, the writ petition was filed. The petitioner meanwhile also explained and further objected to this action of search and seizure, as there was no search warrant in the name of the petitioner, but in the name of the company in which he was a director. It was explained that the petitioner ceased to be a director of the aforesaid private limited company and further by a family arrangement the premises in question were allotted to the petitioner as owner thereof and the same no longer belonged to either Sashi Kumar Modi or the said private limited company. In spite of this objection, the books of account and other documents were retained and, in fact, extension of such retention period was granted, purporting to be with the approval of the appropriate officials. Such retention of the books of account beyond the statutory period is without any authority of law as no notice of extension was given to the petitioner. The last extension, which was granted, has lost its force and there was no further extension. In spite of that these books of account are still kept by the Revenue Department.
2. During the pendency of the writ petition there was subsequent event. As such the petitioner filed the aforesaid application whereby and whereunder the petitioner prayed for further relief in relation to the subsequent development. In sequel to the aforesaid search and seizure, a notice under s. 158BC was served upon the writ petitioner aiming to conduct block assessment for a particular assessment year. Ultimately, the aforesaid proceedings under s. 158BC for block assessment were dropped by notice. After serving a notice intimating about dropping of the aforesaid proceedings, a fresh notice under s. 158BD has been issued for proceeding with the block assessment, once again under the aforesaid section.
3. On the aforesaid facts and circumstances, Mr. Murarka, learned counsel appearing for the petitioner, contends that search and seizure of the petitionerâs house is wholly unauthorised and invalid as in the notice or in the warrant of search and seizure the petitionerâs name was not mentioned. Furthermore, the residence where the petitioner was residing and was searched did not belong to the noticee as by family agreement the petitioner has become the absolute owner. However, there was no mutation in the records of the Municipal Corporation. As such in the records of the Municipal Corporation the previous ownerâs name is still appearing. The records of municipal authority do not establish ownership, particularly when it was drawn to the attention of the concerned officials of the fact of change of ownership. According to him, the search and seizure of the petitionerâs house is wholly illegal and invalid. He contends lawful and valid proceedings for the block assessment under the aforesaid Chapter presupposes valid and lawful search and seizure as required under s. 132 of the said Act. In support of his contention he has relied on a judgment delivered by a Division Bench of the Delhi High Court, reported in Ajit Jain vs. Union of India (2000) 159 CTR (Del) 204 : (2000) 242 ITR 302 (Del) at p. 312, as confirmed by the Honâble Supreme Court which is reported again in Union of India vs. Ajit Jain (2003) 181 CTR (SC) 22 : (2003) 260 ITR 80 (SC). He has drawn my attention to ss. 158BC and 158BD and submits that there is a clear distinction in the intent and purport between the aforesaid two sections. The proceedings under s. 158BC are intended to be proceeded with against the person or persons who have been searched or whose building or residence have been searched meaning thereby the noticee in the notice of warrant, whereas s. 158BD is contemplated against the person other than the person mentioned in the aforesaid s. 158BC, meaning thereby s. 158BD can be proceeded against the person who has not been searched nor has been intended to be searched. According to him, therefore, when the Revenue started proceedings against the petitioner initially under s. 158BC and further decided to drop then without any reservation for any reason, it must be presumed that the petitioner was intended to be proceeded against under s. 158BC treating him to be the noticee of the search warrant. Subsequent notice under s. 158BD relates to the same search and seizure exercise and the same is absolutely invalid and illegal and this must be set aside and quashed. On the question of retention of the books of account, he contends drawing my attention to s. 132(8) and (9A) of the said Act that in order to constitute a valid retention of the books of account there are conditions to be fulfilled. One of such conditions is that reasons must be recorded as to why such longer period of retention of books of account is required. Such order of authorisation for a longer period must be communicated to the petitioner or the person from whom the books of account were seized. In this case, according to him, no further communication as regard authorisation of longer retention has been made. In any view of the matter, the extended period for retention expired by this time and there was no subsequent order having been passed to the knowledge of the petitioner. So the books of account and other documents seized pursuant to such search and seizure warrant must be returned forthwith and the orders, notices which have been passed shall also be set aside and quashed.
4. Mr. Som, the learned senior advocate appearing with Mr. Pallab Banerjee, the learned advocate while opposing the writ petition contends that the writ petition has now become infructuous in view of the withdrawal of the previous notice issued under s. 158BC. Subsequent notice under s. 158BD is a separate and distinct cause of action and it has got nothing to do with the search and seizure for previous proceedings. When the writ petition has become infructuous, interlocutory application in connection therewith is bound to fail, as challenge against this notice cannot be made, so this Court will not interfere with the notice issued on 31st Dec., 2001, under s. 158BD in this proceeding. His contention as against the challenge to the search, seizure and retention of the books of account and other materials is that under the provision of s. 132(4) of the said Act, lawful authorisation has been made stipulated in the said provision. He further submits that in view of the provision of the aforesaid section and initiation of proceedings under s. 158BD, retention of the books of account and other materials are justified and lawful until this proceeding is completed. He contends further that the petitioner had alternative remedy for getting these documents and other materials released by making an application under s. 132(10) of the said Act of the Board. No such application was made. Therefore, this issue cannot be raised nor the writ Court will decide the same. He submits further that in view of the interim order passed by this Court the proceedings could not be completed. Therefore, the books of account were necessitated to be retained by the Department and this authorisation has been granted by the CIT till 31st Dec., 2002, as it will appear from the Annexure to the interlocutory application. His next contention is that even if search and seizure is assessed to be illegal and bad, the matter or the evidence collected therefrom can be utilised for any proceedings under the law. Therefore, this evidence and materials arising out of the search and seizure can be utilised or may be made useful in the proceedings under s. 158BD. In support of his submission he has relied on the decisions of the Supreme Court, reported in Pooran Mal vs. Director of Inspection (Inv.) & Ors. 1974 CTR (SC) 25 : (1974) 93 ITR 505 (SC) and Dr. Partap Singh & Anr. vs. Director of Enforcement (1985) 46 CTR (SC) 319 : (1985) 155 ITR 166 (SC).
He submits that when it was detected that the initial notice under s. 158BC was issued against Sanjay Kumar Modi wrongly and erroneously, subsequent notice was issued immediately after withdrawal of the first notice. He submits this confusion arose because of the abbreviated name of S. Modi in the warrant of search and seizure notice. Actually in this case the proceedings should have been initiated under s. 158BD. Therefore, there is no illegality or invalidity for retention of the books of account or in the proceedings itself. It will appear from the statement and admission of Sanjay Modi himself that he did not disclose a large amount in his returns for regular assessment for showing these proceedings which proceedings have been initiated in connection with the search and seizure. He has been asked to file returns again. This is permissible under the law. In support of his submission he has relied on a decision of the Supreme Court reported in Smt. Kusum Lata Singhal vs. CIT (1990) 86 CTR (SC) 173 : (1990) 185 ITR 56 (SC). He has also relied on a decision of the Division Bench of the Kerala High Court, reported in T.S. Sujatha vs. Union of India (1999) 151 CTR (Ker) 29 : (1999) 239 ITR 488 (Ker) in support of the proposition that under s. 127(3) the documents and papers collected during the search and seizure can be utilised for the purpose of issuance of show-cause notice under s. 158BD and this cannot be said to be an act without jurisdiction or illegal. He concludes that there is no illegality or infirmity in the action taken by the Department concerned and the writ petition should be dismissed.
After hearing learned counsel and examining the materials produced before this Court, it appears at the time of the filing of this writ petition, the petitionerâs challenge was against the search and seizure, retention of the books of account and other materials pursuant to such search and seizure and also the notice issued under s. 158BC of Chapter XIV-B of the said Act for block assessment. Subsequently, the petitioner has filed in this writ petition the aforesaid application being GA No. 207 of 2002, in view of dropping of proceeding for block assessment under s. 158BC of the said Act.
The point raised by Mr. Som that in view of the subsequent development the writ petition has now become infructuous and so the aforesaid application, being an interlocutory one, is not maintainable needs to be considered. It is very persuasive to hold in favour of Mr. Som as to maintainability of the writ petition. I am of the view, overruling the objection of Mr. Som, that because of the subsequent development the writ petition has not been rendered infructuous as the subsequent action of the Revenue under s. 158BD against the petitioner is relatable to the original action, which is under challenge in the writ petition. It has now become an elementary principle of law that the subsequent development having nexus to the original cause of action can be brought in the parent proceeding to cut short the litigation and for the ends of justice. The basic object of the justice delivery system is to put an end to the controversy between the parties as early as possible and comprehensively, even taking note of the subsequent development, particularly when the subsequent development has nexus or having origin to the fundamental controversy involved in the petition.
7. Upon a plain reading of Chapter XIV-B of the said Act it will appear that the procedure for block assessment started with search and seizure initially claimed to be valid by the Revenue and it is the basis to initiate proceedings under the aforesaid Chapter under ss. 158BC and 158BD. By necessary implication it appears from said section that valid and lawful search and seizure is a condition precedent for holding a proceeding under s. 158BD of the said Act also. As such I hold that the writ petition has not become infructuous so far as it relates to the grievance of legality and validity of the search and seizure and the retention of the books of account and other documents.
8. I shall be dealing with the first question as to the legality and validity of the search and seizure carried out under s. 132 of the said Act. In the Panchanama it appears that warrant for search was issued in the names of Sashi Modi, Mr. M.R. Modi and K.R. International Ltd., for the premises 1/A, M.L. Mitra Road, Calcutta-700 017. Necessary order for search was passed in the names of Ram Narayan Sharma and Jugal Kishore Churial. From inventory list it appears that Sanjay Modi, the writ petitioner at the aforesaid premises was also searched and jewellery and valuable articles were also seized. Therefore, it is not clear whether S. Modi meant as Sanjay Modi or Sashi Modi. At that point of time it was not clear but it appeared in the affidavit-in-opposition to the writ petition that said search warrant was not issued in the name of Sanjay Modi.
It appears from the rival contentions of the respective parties and the material placed before me, the first question in my view is whether such search and seizure at the premises No. 1/A, M.L. Mitra Road, Calcutta, was justified or not in view of the claim of the writ petitioner that the said premises exclusively belonged to him. It is an admitted position that in the municipal records the said premises belonged to the father of the writ petitioner, Mr. K.P. Modi, since deceased. It is claimed by the writ petitioner that by the family settlement and/or arrangement, which took place in 1996 this premises has been exclusively allotted to him, no document has been annexed to claim exclusive ownership of the writ petitioner. Even if there be any, the same has not been registered in the appropriate registration office. It is a settled position of the law, transfer or change of ownership in respect of the immovable property exceeding the value of Rs. 100 must be done by a written instrument, followed by registration under the Indian Registration Act. Without such course of action, no right, title or interest is said to have been changed or transferred in the eye of law. The purpose of effecting registration is to make the members of the public know that change has been effected so far as ownership is concerned and such registration book is always amenable for the inspection of the members of the public. Therefore, I hold that in the absence of any registered document the transaction, inter se, of members of the joint family property is neither binding nor can be recognised by a third party.
The Revenue perhaps having found in the records of the municipal records that the said property still belonged to the members of the joint family including the writ petitioner, has issued the search warrant and executed Panchanama. It is an admitted position that the order of authorisation of the search of the said building was not in the name of Sanjay Modi being the writ petitioner herein, it was done in the name of Sashi Modi being the brother of the writ petitioner, K.R. Modi, and the family private limited company, namely, K.R. International (P) Ltd. On the date of the search and seizure K.R. Modi was dead, obviously the search cannot be carried out against a dead person but search in the name of Sashi Modi was valid and lawful. Sashi has not come forward to challenge the search and seizure, nor has the company, K.R. International (P) Ltd. challenged it. In his representation the writ petitioner did not raise the legality and validity of the said search and seizure. For the first time the writ petitioner challenged the legality and validity in this proceeding. Therefore, I hold that search and seizure at least in the name of Sashi is lawful and valid.
It is also permissible while making search and seizure the third partiesâ obligation to pay tax namely, against whom the search and seizure was not authorised can be traced and upon tracing the same this can very well be examined by the Revenue Department.
The decision and authority cited by Mr. Murarka in Ajit Jain vs. Union of India (supra) and Union of India vs. Ajit Jain (supra) are not helpful in any manner in this case. In those cases the search and seizure were held invalid and illegal. So in sequel to this invalid search and seizure the entire proceeding under the above Chapter was held illegal. In this case search in favour of Sashi who was also one of the family members and the resident of the said premises which was and still is under the law a joint family property is in my view, perfectly lawful and justified. Under those circumstances, I am unable to hold that search and seizure is unlawful. The aforesaid position of law is very clear in s. 132, sub-s. (1), cl. (c)(iia) and (iii) in sub-s. (9A) of the IT Act, 1961, and those are reproduced hereunder : “132(1)(c)(iia) search any person who has got out of, or is about to get into, or is in the building, place, vessel, vehicle or aircraft, if the authorised officer has reason to suspect that such person has secreted about his person any such books of account, other documents, money, bullion, jewellery or other valuable article or thing; …………. (iii) seize any such books of account, other documents, money, bullion, jewellery or other valuable article or thing found as a result of such search;”
It further appears from sub-s. (9A) of s. 132 of the said Act : “(9A) Where the authorised officer has no jurisdiction over the person referred to in cl. (a) or cl. (b) or cl. (c) of sub-s. (1), the books of account or other documents or assets seized under that sub-section shall be handed over by the authorised officer to the ITO having jurisdiction over such person within a period of fifteen days of such seizure and thereupon the powers exercisable by the authorised officer under sub-s. (8) or sub-s. (9) shall be exercisable by such ITO.”
14. It appears from the affidavit that while making search and seizure in the said premises, the books of account belonging to the writ petitioner could be identified and these books of document were handed over to the AO who is having jurisdiction to make assessment of the petitioner. Therefore, it is perfectly within the legitimate authority of the Revenue to seize the seizure of the petitionerâs books of account, documents, articles in the said search and seizure exercise though there was no authorisation in his name.
15. Mr. Murarka, on behalf of the writ petitioner, contends that the proceedings under s. 158BC against the writ petitioner in connection with the said search and seizure are invalid and illegal, have now become academic, since they are dropped. It appears the writ petitioner on receipt of the said notice under s. 158BC, made representations that such proceeding is invalid and illegal in view of the fact that no search and seizure was made in the name of the writ petitioner. The position of law is very clear to uphold the contention of Mr. Murarka in principle in this respect. The language of s. 158BC which is quoted hereunder, is very clear to understand. “158BC. Where any search has been conducted under s. 132 or books of account, other documents or assets are requisitioned under s. 132A, in the case of any person, then,â (a) the AO shallâ (i) in respect of search initiated or books of account or other documents or any assets requisitioned after the 30th day of June, 1995, but before the 1st day of January, 1997 serve a notice to such person requiring him to furnish within such time not being less than fifteen days; (ii) in respect of search initiated or books of account or other documents or any assets requisitioned on or after the 1st day of January, 1997 serve a notice to such person requiring him to furnish within such time not being less than fifteen days but not more than forty-five days, as may be specified in the notice a return in the prescribed form and verified in the same manner as a return under cl. (i) of sub-s. (1) of s. 142, setting forth his total income including the undisclosed income for the block period : Provided that no notice under s. 148 is required to be issued for the purpose of proceeding under this Chapter : Provided further that a person who has furnished a return under this clause shall not be entitled to file a revised return; (b) the AO shall proceed to determine the undisclosed income of the block period in the manner laid down in s. 158BB and the provisions of s. 142, sub-ss. (2) and (3) of s. 143 and s. 144 shall, so far as may be, apply; (c) the AO, on determination of the undisclosed income of the block period in accordance with this Chapter, shall pass an order of assessment and determine the tax payable by him on the basis of such assessment; (d) the assets seized under s. 132 or requisitioned under s. 132A shall be retained to the extent necessary and the provisions of s. 132B shall apply subject to such modifications as may be necessary and the references to âregular assessmentâ or âreassessmentâ in s. 132B shall be construed as references to âblock assessmentâ.”
16. Sec. 158BD relates to the proceeding against the person in whose name the search warrant was not authorised. This is clear and this will be again clear from s. 158BD of the said Act, which is also quoted hereunder: “158BD. Where the AO is satisfied that any undisclosed income belongs to any person, other than the person with respect to whom search was made under s. 132 or whose books of account or other documents or any assets were requisitioned under s. 132A, then, the books of account, other documents or assets seized or requisitioned shall be handed over to the AO having jurisdiction over such other person and that AO shall proceed against such other person and the provisions of this Chapter shall apply accordingly.” Therefore, the difference between the two sections is clearly discernible. Sec. 158BD can be resorted to against any person when the AO is satisfied that undisclosed income belongs to that person against whom no search and seizure was made under s. 132. The procedure is that books of account or other documents or assets seized shall be handed over to the AO having jurisdiction over such person and that AO shall proceed under s. 158BC against such other person.
17. In this case, as had been already pointed out by Mr. Som that when it was found upon scrutiny that the search and seizure ordered to be made against Sashi Modi, K.R. International and M.R. Modi is not fruitful or objective, the proceeding under s. 158BC was dropped. Intimation in this regard was also given to the writ petitioner. In my view, even after dropping the proceeding under s. 158BC of the said Act, which was sought to be initiated initially, the Revenue authority is not debarred from proceeding under other appropriate provision of law. The question of res judicata in a case of this nature does not and cannot arise. Therefore, the notice issued under s. 158BD by the Revenue is absolutely justified under the law. So, I hold that, at this stage, initiation of this proceeding under s. 158BD is justified on the basis of the material documents and records. Whether the amount of cash, jewellery and other assets found at the time of search and seizure were undisclosed income or not, can be decided by the AO when the appropriate return shall be filed. The decision of the officer and authority is not questioned at any point of time nor do I find there is improper exercise of jurisdiction while initiating the proceeding under s. 158BD. Obviously, there was some mistake initially and such mistake was detected and as such the said proceeding under s. 158BC was dropped. As such the contention of Mr. Murarka, that search and seizure is invalid and any proceeding in sequel thereto is bad in law, is meritorious in the aforesaid situation.
As far as the question of retention of the books of account and documents of the writ petitioner is concerned, I am of the view, accepting the argument of Mr. Murarka, that in each and every occasion the reasons for retention of the books of account and the documents beyond 180 days have to be communicated in writing not only to the persons with respect to whom the searches were made but also the persons from whom books of account have been taken away. No document has been produced by the Revenue that authorisation order of the CIT was communicated for the period from 15th June, 2002 to 29th Dec., 2002. It does not appear from the records either whether during this period there was any valid authorisation of the CIT to retain the books of account and the documents of the writ petitioner. It appears from the records on 25th May, 2000, there was a proposal for authorisation for retention of the books of account in relation to the Lerica Group till 31st Dec., 2000, from 14th June, 2000. But no such approval has been granted by the CIT nor the same was communicated to the petitioner. Therefore, on expiry of 15th June, 2002, the seizure of the petitionerâs books of account and documents was accordingly illegal and invalid. I accept the argument of Mr. Murarka also that the subsequent retention order is also illegal. But the writ petitioner did not take any step for return of the documents and books of account and materials and this present writ petition was filed on 21st Aug., 2001. By that time a valid order of retention was passed by the appropriate authority. As such I am unable to pass any order, directing the books of account and other materials be handed over immediately to the petitioner, since it appears a subsequent order of retention has been passed till 30th June, 2003, and the same could not be communicated to the petitioner, in view of the interim order passed by this Court. Under those circumstances, I dispose of the writ petition by passing the following order.
In the event the writ petitioner has not filed any returns pursuant to the notice under s. 158BD, then he shall do so within a period of three months from the date of receipt of this order and the respondent shall release the books of account and other documents within 8 weeks from the date of receipt of this order, after retaining the xerox copies of the same as I think there is no justification to retain the books of account for such long time, besides the petitioner will not be able to submit the returns without the aforesaid books of account and documents.
The petitioner would be entitled to explain the source of cash money and jewellery traced by the Revenue during the aforesaid search and seizure.
There will be no order as to costs.
[Citation : 278 ITR 374]