Karnataka H.C : Whether the term ‘within one year from the end of the period in which the last of the authorisation for search under section 132 was executed’ has to be taken to mean the execution of the warrant resulting in seizure and not with reference to issuing of prohibitory order and successive visits that are claimed as search, which are so carried out on the basis of the only authorisation that was issued initially ?

High Court Of Karnataka

C. Ramaiah Reddy vs. ACIT

Block Period : 1985-86 To 5-12-1995

Section : 132

N. Kumar And H.S. Kempanna, JJ.

IT Appeal No. 503 Of 2003

September 8, 2010

JUDGMENT

Factual matrix

N. Kumar, J. – This appeal is by the assessee challenging the order passed by the Tribunal on various grounds, including the findings recorded by the Appellate Tribunal that the Appellate Tribunal has no jurisdiction to examine the legality of the action of the authorising officer anterior to the Assessing Officer commencing the assessment proceedings.

2. On December 5, 1995, search operations were carried out in the assesseeâ€™s premises. On the conclusion of the search operations on December 5, 1995, the authorised officer clamped prohibitory order under section 132 in respect of certain jewelleries, books of account, etc., found at the time of search. Later on, on January 24, 1996, the authorised officer prepared one more panchnama in which, the prohibitory order passed under section 132(3) on December 5, 1995, was lifted. The books of account, jewelleries, etc., which were earlier kept under the prohibitory order were released. There was no seizure effected on January 24, 1996, when the search proceedings were stated to be concluded in the panchnama. It states, the prohibitory order was passed on December 5, 1995, itself. Thereafter, an order of block assessment under section 158BC of the Income-tax Act, 1961 (for short, hereinafter referred to as, “the Act”) was passed by the Assessing Officer on January 28, 1997. Aggrieved by the said order of assessment, the assessee preferred an appeal before the Tribunal in accordance with the provisions of the law, as was prevailing at the relevant point of time. The assessee contended before the Tribunal, among other grounds, that the block assessment was barred by limitation under section 158BE(i) of the Act. When the matter was pending before the Appellate Tribunal, the Revenue filed an application for referring the matter to a Special Bench, in view of the conflicting decisions rendered by various Tribunals in respect of the issues involved in the appeal. Accordingly, the Tribunal framed the following three questions for consideration by the Special Bench. The three points that were referred for consideration by the Special Bench are as under :

Scope of appeal

“(i) 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 would said to have been come to a close, for the sole purpose of examining whether the assessment is in time or otherwise ?”

Limitation

“(ii) Whether the term â€˜within one year from the end of the period in which the last of the authorisation for search under section 132 was executedâ€™ has to be taken to mean the execution of the warrant resulting in seizure and not with reference to issuing of prohibitory order and successive visits that are claimed as search, which are so carried out on the basis of the only authorisation that was issued initially ?”

Panchnama

“(iii)Â Whether where a search is carried on the basis of the authorisation resulting in seizure of some items issue of prohibitory order on others, such search could be said to be genuine and comes to a close only when the authorising officer says that in writing and visits the premises and by seizing some items that are covered by prohibitory order which could have been seized by him even at the first instance and it is not the case of the Department especially when the item so seized finally is not one of those items that are covered by section 132, 132(1) and 132(3) of the Act ?”

3. After hearing the learned counsel for the parties on the aforesaid three issues, the Tribunal held that the first and third questions are answered by the Special Bench in the affirmative while the second question in the negative. However, all the three learned Members of the Bench have written separate orders dealing with various aspects which were urged before them. Aggrieved by the said order of the Special Bench, the assessee is in appeal.

Arguments

4. The learned counsel for the assessee assailing the impugned order of the Tribunal contended under the scheme of the Act the Tribunal being the last fact finding authority has to look into all aspects of search and adjudicate from its initiations to its conclusion which includes looking into the validity of search proceedings. The Tribunal has to look into the jurisdictional aspect of the validity of search from the date of search till the completion of the block assessment proceedings. It can look into whether the officer who had authorised the search has reason to believe that the search should be authorised which is the first jurisdictional fact which is the basis for further proceedings. If this jurisdictional aspect fails all the following steps culminating in the assessment order would fail. Therefore, in coming to the said conclusion it has to satisfy itself that all the procedural aspects and requirements have been complied with. A valid search is a sine qua non for initiating proceedings in a block assessment and unless the Tribunal records a finding that there was a valid search, when it is disputed there cannot be issue of any notice under section 158BC of the Act.

5. He further contended that the starting point of limitation is the day on which the first panchnama is made in respect of the last authorisation for search. The authorities conducting the search are not entitled to visit the premises for searching again and again based on authorisation. The subsequent visit is not a continuation of search but only inspection of the articles and books within the prohibitory order. If any panchnamas are recorded during these visits/inspection they could not be considered as panchnamas of search for the purpose of computation of the commencement of the period of limitation. Before a prohibitory order as contemplated under section 132(3) is passed, it should be preceded by an order in writing setting out the reasons why such an order has become necessary failing which the prohibitory order would be illegal. The authorised officer has no power after commencing the search to adjourn such proceedings or fix a date for continuation of such proceedings and at any rate such adjourned date on which the panchnama is written cannot form the basis for calculating the period of limitation. Lastly, it was contended merely because in panchnamas written on subsequent visits or inspection it is recorded that the search is finally concluded that cannot be construed as the last panchnama and the date from which the period of limitation is to be computed.

6. Per contra, the learned senior counsel appearing for the Revenue submitted that search proceedings were conducted by an authorised officer and after the conclusion of such proceedings on the basis of the material collected during such search and on the basis of the returns filed in pursuance of the notice issued the Assessing Officer passes a block assessment order. In an appeal filed challenging the assessment order the legality of the validity of search proceedings cannot be gone into. Under the statute, no appeal is provided against search proceedings. If at all the assessee wants to challenge search proceedings his remedy is by way of writ petition under article 226 of the Constitution of India. If he fails to avail of the said remedy then in an appeal filed against the assessment order he is estopped from challenging the legality and validity of the search proceedings. Secondly, it was contended that assuming that there is any illegality in search proceedings that would not vitiate the assessment order as it is well settled that any documents or materials collected in such illegal search could be made use of in the assessment proceedings to pass an order. Such a material is not inadmissible. Therefore, the illegality of the search would not render the order of assessment void. If the order of assessment could be supported by other material the validity of the said order has to be gone into with respect of such materials. Therefore, he contended, the Appellate Tribunal was justified in holding that in an appeal under section 253(1), it has no jurisdiction to go into the validity of the initiation and continuation of search proceedings under section 132(1) of the Act.

7. Further, he contended that the law contemplates issue of more than one authorisation in which event for the purpose of limitation, it is the last of such authorisation which has to be taken into consideration. Further, he contended that, in pursuance of an authorisation, the authorised officer visits the place of the assessee and if he is unable to complete the search, he has the discretion to pass prohibitory order, discretion to pass a restraint order and, thereafter, fix the date for further search and on a date convenient to him, he can visit the place again in pursuance of the authorisation, which was given to him earlier and examine the books or other materials which are the subject-matter of restraint order/prohibitory order and, if necessary, seize them at that point of time. It is only then the panchnama which is drawn in the end where he has recorded that the search is completed would be the basis for the starting point of limitation as contemplated under law. Therefore, the subsequent visits for inspection is a continuation of the search proceedings and after such inspection and visits, there is no necessity to have a fresh authorisation. The authorisation issued comes to an end only when a panchnama is written recording that the search is finally concluded or completed and, therefore, he submits that the finding recorded by the Tribunal are legal and valid and do not call for any interference.

Points for consideration

8. In the light of the aforesaid submissions, the points that arise for consideration are :

“(i)Whether the Tribunal is entitled in law to look into all the aspects of search in an appeal before it, in respect of a block assessment order passed under the provisions of Chapter XIV-B of the Income-tax Act, 1961 ?

(ii)What is the starting point of limitation for the purpose of passing the block assessment year as per the provisions of section 158BE of the Income-tax Act, 1961 ?”

Block assessment Chapter XIV-B

9. Chapter XIV-B of the Act deals with special procedure for assessment of search cases. This Chapter was inserted by the Finance Act, 1995, with effect from July 1, 1995. Section 158BE in the Act, which was inserted by the Finance Act, 2003, which came into effect from June 1, 2003, provides that the provisions of this Chapter, that is, Chapter XIV-B, shall not apply where a search is initiated under section 132 or books of account, other documents or any assets or requisition under section 132A after May 31, 2003. In other words, this Chapter XIV-B was in force from July 1, 1995, till the end of May 31, 2003.

10. Section 158B is the definition section. It defines the meaning of block period as well as undisclosed income. Section 158BA provides for assessing the undisclosed income as a result of search in accordance with the provisions of the said Chapter which reads as under :

“158BA. (1) Notwithstanding anything contained in any other provisions of this Act, where after the 30th day of June, 1995, a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A in the case of any person, then, the Assessing Officer shall proceed to assess the undisclosed income in accordance with the provisions of this Chapter.

(2) The total undisclosed income relating to the block period shall be charged to tax, at the rate specified in section 113, as income of the block period irrespective of the previous year or years to which such income relates and irrespective of the fact whether regular assessment for any one or more of the relevant assessment years is pending or not.

Explanation.â€”For the removal of doubts, it is hereby declared thatâ€”

(a)the assessment made under this Chapter shall be in addition to the regular assessment in respect of each previous year included in the block period ;

(b)the total undisclosed income relating to the bock period shall not include the income assessed in any regular assessment as income of such block period ;

(c)the income assessed in this Chapter shall not be included in the regular assessment of any previous year included in the block period.

(3) Where the assessee proves to the satisfaction of the Assessing Officer that any part of income referred to in sub-section (1) relates to an assessment year for which the previous year has not ended or the date of filing the return of income under sub-section (1) of section 139 for any previous year has not expired, and such income or the transactions relating to such income are recorded on or before the date of the search or requisition in the books of account or other documents maintained in the normal course relating to such previous years, the said income shall not be included in the block period.”

11. A reading of the aforesaid provision makes it clear that the condition precedent for the applicability of this provision is initiation of search under section 132 or requisition under section 132A after the 30th day of June, 1995. In such a search, if any undisclosed income is unearthed, then the Assessing Officer shall proceed to assess the undisclosed income in accordance with the provisions of Chapter XIV-B. The total undisclosed income relating to the block period shall be charged to taxation at the rate prescribed under section 113, that is, 60 per cent. under sub-section (2). The Explanation to the said sub-section clarifies that the assessment made under this Chapter shall be in addition to the regular assessment in respect of each previous year including the block period. It further clarifies that the total undisclosed income relating to the block period shall not include the income assessed in any regular assessment as income of such block period. Similarly, the income assessed in this Chapter shall not be included in the regular assessment of any previous year included in the block period. Section 158BB deals with computation of undisclosed income of the block period. The procedure for block assessment is provided under section 158BC. The block assessment order is passed on search being conducted under section 132 or books of account or other documents or any assets are requisitioned under section 132A and in the course of such search or requisition, any money, bullion, jewellery or other valuable article, etc., which has not been disclosed for the purpose of this Act is noticed, then the assessment is made of undisclosed income as a result of search. Clause (c) of section 158BC provides for passing the order of assessment and determination of tax on the basis of such assessment. Against the order passed under section 158BC(c), an appeal is provided to the Appellate Tribunal under clause (b) of sub-section (1) of section 253 in respect of searches conducted after the period June 30, 1995, before January 1, 1997. In other words, it is a first appeal. However, now the position has changed. After that period, first appeal lies to the Commissioner of Income-tax (Appeals) and a second appeal to the Income-tax Appellate Tribunal. Therefore, in this ease we are concerned with the first appellate jurisdiction which is conferred on the Appellate Tribunal.

Validity of search and seizure

12. Sections 132 and 132A is attracted to Chapter XIV-A. Therefore, the assessment of undisclosed income depends upon a valid search initiated under section 132. The search and seizure are dealt with section 132, which reads as under :

“132.(1) Where the Director General or Director or the Chief Commissioner or Commissioner or any such Joint Director or Joint Commissioner as may be empowered in this behalf by the Board, in consequence of information in his possession, has reason to believe that-

(a)any person to whom a summons under sub-section (1) of section 37 of the Indian Income-tax Act, 1922 (11 of 1922), or under sub-section (1) of section 131 of this Act, or a notice under sub-section (4) of section 22 of the Indian Income-tax Act, 1922, or under sub-section (1) of section 142 of this Act was issued to produce, or cause to be produced, any books of account, or other documents has omitted, or failed to produce or cause to be produced, such books of account, or other documents as required by such summons or notice, or

(b)any person to whom a summons or notice as aforesaid has been or might be issued will not, or would not, produce or cause to be produced, any books of account or other documents which will be useful for, or relevant to, any proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act, or

(c)any person is in possession of any money, bullion, jewellery or other valuable article or thing and such money, bullion, jewellery or other valuable article or thing represents either wholly or partly income or property which has not been, or would not be, disclosed for the purposes of the Indian Income-tax Act, 1922 (11 of 1922), or this Act (hereinafter in this section referred to as the undisclosed income or property), then,â€”

(A)The Director General or Director or the Chief Commissioner or Commissioner, as the case may be, may authorise any Additional Director or Additional Commissioner or Joint Director, Joint Commissioner, Assistant Director or Deputy Director, Assistant Commissioner or Deputy Commissioner or Income-tax Officer, or

(B)Such Additional Director or Additional Commissioner or Joint Director or Joint Commissioner, as the case may be, may authorise any Assistant Director or Deputy Director, Assistant Commissioner or Deputy Commissioner or Income-tax Officer,

(the officer so authorised in all cases being hereinafter referred to as the authorised officer) toâ€”

(i)enter and search, any building, place, vessel, vehicle or aircraft where he has reason to suspect that such books of account, other documents, money, bullion, jewellery or other valuable article or thing are kept ;

(ii)break open the lock of any door, box, locker, safe, almirah or other receptacle for exercising the powers conferred by clause (i) where the keys thereof are not available ;

(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 ;

(iib)require any person who is found to be in possession or control of any books of account or other documents maintained in the form of electronic record as defined in clause (t) of sub-section (1) of section 2 of the Information Technology Act, 2000 (21 of 2000), to afford the authorised officer the necessary facility to inspect such books of account or other documents ;

(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 :

Provided that bullion, jewellery or other valuable article or thing, being stock-in-trade of the business, found as a result of such search shall not be seized, but the authorised officer shall make a note or inventory of such stock-in-trade of the business ;

(iv)place marks of identification on any books of account or other documents or make or cause to be made extracts or copies therefrom ;

(v)make a note or an inventory of any such money, bullion, jewellery or other valuable article or thing :

Provided that where any building, place, vessel vehicle or aircraft, referred to in clause (i) is within the area of jurisdiction of any Chief Commissioner or Commissioner, but such Chief Commissioner or Commissioner has no jurisdiction over the person referred to in clause (a) or clause (b) or clause (c), then, notwithstanding anything contained in section 120 it shall be competent for him to exercise the powers under this sub-section in all cases where he has reason to believe that any delay in getting the authorisation from the Chief Commissioner or Commissioner having jurisdiction over such person may be prejudicial to the interests of the Revenue :

Provided further that where it is not possible or practicable to take physical possession of any valuable article or thing and remove it to a safe place due to its volume, weight or other physical characteristics or due to its being of a dangerous nature, the authorised officer may serve an order on the owner or the person who is in immediate possession or control thereof that he shall not remove, part with or otherwise deal with it, except with the previous permission of such authorised officer and such action of the authorised officer shall be deemed to be seizure of such valuable article or thing under clause (iii) :

Provided also that nothing contained in the second proviso shall apply in case of any valuable article or thing, being stock-in-trade of the business :

Provided also that no authorisation shall be issued by the Additional Director or Additional Commissioner or Joint Director or Joint Commissioner on or after the 1st day of October, 2009, unless he has been empowered by the Board to do so.”

13. The heading of section 132 of the Act uses two words “search” and “seizure”. The word “search” is explained in Blackâ€™s Law Dictionary as “an examination of a manâ€™s house or other buildings or premises, or of his person, or of his vehicle, aircraft, etc., with a view to the discovery of contraband, or illicit or stolen property, or some evidence of guilty to be used in the prosecution of a criminal action for some crime or offence with which he is charged” (fifth edition). The word “seizure” is explained in Blackâ€™s Law Dictionary as “the act of taking possession of property, e.g., for a violation of law or by virtue of an execution of a judgment. Term implies a taking or removal of something from the possession, actual or constructive, of another person or persons” (fifth edition).

14. A Division Bench of this court explaining the difference between search and seizure, search and an inspection in the case of G.M. Agadi and Bros. v. CTO [1973] 32 STC 243 (Mys) has held as under (page 245) :

“All searches are inspections, but all inspections are not searches. A search is a thorough inspection of a manâ€™s house, building or premises or of his person with the object of discovering some material, which would furnish evidence of guilt for some offence with which he is charged. It implies a prying into hidden places for that which is concealed. If the object sought for is always in plain sight, then there is no search. If the private account books had been kept in the counter openly at all times and they could have been found on inspection at any time of the day, then the seizure of such account books cannot be said to have been made after a search.”

15. This court, in the case of Southern Herbals Ltd. v. Director of Income-tax (Investigation) reported in [1994] 207 ITR 55 (Karn) has observed as under (pages 62 and 63) :

“â€˜Search and seizureâ€™ is only an initial step in the enquiry to be held regarding tax evasion. At this stage, its purpose is to get hold of evidence bearing on the tax liability of a person, which the said person is suspected to have been withholding from the assessing authority and to get hold of the assets representing income believed to be undisclosed income. The stage for disclosure of the materials is reached only when the Revenue resolves to proceed to make an appropriate order imposing tax liability or penalty, etc., and at that stage, all relevant materials from which the liability of the taxpayer is sought to be inferred shall have to be disclosed.

At the initial stage of search and seizure, it is sufficient if the Revenue places the material before the court to examine whether the said material on which search and seizure is ordered was relevant to the exercise of the power under section 132(1) ; the material placed for the courtâ€™s perusal cannot be disclosed to the petitioner.”

16. In the case of Harikisandas Gulabdas and Sons v. State of Mysore [1971] 27 STC 434 (Mys) the court considered the scope of “inspection” and observed as follows (page 437) :

“If his intention was to inspect and verify the accounts of the petitioner, he would have called for the required accounts and other registers. He did not even inform the petitioner that he would be visiting its premises. He gave a surprise visit, along with his staff, and there he searched and seized some accounts and other documents without following the procedure prescribed under the Code of Criminal Procedure. If his intention was only to verify the accounts, it was unnecessary for him to go to the premises of the petitioner. We have no doubt that he went and searched the business premises of the petitioner and illegally seized the accounts and other documents, but made it appear that they were voluntarily given to him.”

Procedure

17. Sub-section (13) of section 132 provides that the provisions of the Code of Criminal Procedure, 1973 (2 of 1974), relating to searches and seizure shall apply, so far as may be, to searches and seizure under sub-section (1) or under sub-section (1A). It reads as under :

“The provisions of the Code of Criminal Procedure, 1973 (2 of 1974), relating to searches and seizure shall apply, so far as may be, to searches and seizure under sub-section (1) or sub-section (1A)”.

18. As the procedure to be followed in searches is as contemplated under the Code of Criminal Procedure, in order to decide the legality of the searches, the said searches should be in conformity with section 165 of the Code of Criminal Procedure, which deals with searches and seizures. It. reads as under :

“165. Search by police officer.â€”(1) Whenever an officer-in-charge of a police station or a police officer making an investigation has reasonable grounds for believing that anything necessary for the purposes of an investigation into any offence which he is authorised to investigate may be found, in any place within the limits of the police station of which he is in charge, or to which he is attached, and that such thing cannot in his opinion be otherwise obtained without undue delay, such officer may, after recording in writing the grounds of his belief and specifying in such writing, so far as possible, the thing for which search is to be made, search, or cause search to be made, for such thing in any place within the limits of such station.

(2) A police officer proceeding under sub-section (1) shall, if practicable, conduct the search in person.

(3) If he is unable to conduct the search in person, and there is no other person competent to make the search present at the time, he may, after recording in writing his reasons for so doing, require any officer subordinate to him to make the search, and he shall deliver to such subordinate officer an order in writing, specifying the place to be searched, and so far as possible, the thing for which search is to be made ; and such subordinate officer may thereupon search for such thing in such place.

(4) The provisions of this Code as to search-warrants and the general provisions as to searches contained in section 100 shall, so far as may be, apply to a search made under this section.

(5) Copies of any record made under sub-section (1) or sub-section (3) shall forthwith be sent to the nearest magistrate empowered to take cognizance of the offence, and the owner or occupier of the place searched shall, on application, be furnished, free of cost, with a copy of the same by the Magistrate.”

19. A Constitution Bench of the apex court in the case of Commissioner of Commercial Taxes, Board of Revenue v. Ramkishan Shrikishan Jhaver reported in [1967] 66 ITR 664 (SC) ; [1967] 20 STC 453 ; AIR 1968 SC 59 dealing with searches conducted under the Madras General Sales Tax Act to which the provision of section 165 was made applicable as far as may be held, that when the proviso applies, the provisions under sub-section as far as may be possible, we see no reason why section 165 should not apply mutatis mutandis to search made under sub-section (2). At paragraph 17 of the judgment, it held as under (page 677 of 66 ITR) :

“We are also of the opinion that though sub-section (2) itself provides no safeguards and might have been open to objection on that ground, there is a provision in the proviso to sub-section (2) which lays down that all searches under this sub-section shall, so far as may be, be made in accordance with the provisions of the Code of Criminal Procedure. Therefore, the provisions of the Code of Criminal Procedure, so far as may be, apply to all searches made under sub-section (2). It appears that in the High Court, the parties as well as the court assumed that section 165 of the Code of Criminal Procedure would not apply to searches under sub-section (2). We cannot see any warrant for this assumption. The proviso clearly lays down that all searches made under this sub-section, so far as may be, shall be made in accordance with the provisions of the Code of Criminal Procedure. Thus, all the provisions contained in the Code of Criminal Procedure relating to searches would be applicable to searches under sub-section (2), so far as may be. Some of these provisions are contained in Chapter VII but one such provision is contained in section 165. It is true that that section specifically refers to an officer-in-charge of a police station or a police officer making an investigation. But when the proviso applies the provisions of the Code of Criminal Procedure to all searches made under this sub-section, as far as may be possible, we see no reason why section 165 should not apply mutatis mutandis to searches made under sub-section (2). We are, therefore, of the opinion that safeguards provided in section 165 also apply to searches made under sub-section (2). These safeguards are- (i) the empowered officer must have reasonable grounds for believing that anything necessary for the purpose of recovery of tax may be found in any place within his jurisdiction, (ii) he must be of the opinion that such thing cannot be otherwise got without undue delay, (iii) he must record in writing the grounds of his belief, and (iv) he must specify in such writing so far as possible the thing for which search is to be made. After he has done these things, he can make the search. These safeguards, which in our opinion, apply to searches under sub-section (2) also clearly show that the power to search under sub-section (2) is not arbitrary. In view of these safeguards and other safeguards provided in Chapter VII of the Code of Criminal Procedure, which also apply so far as may be to searches made under sub-section (2), we can see no reason to hold that the restriction, if any, on the right to hold property and to carry on trade by the search provided in sub-section (2) is not a reasonable restriction keeping in view the object of the search, namely, prevention of evasion of tax.”

20. The constitutional validity of section 132 was the subject-matter before the honâ€™ble Supreme Court in the case of Pooran Mal v. Director of Inspection ( Investigation) reported in [1974] 93 ITR 505 (SC). The apex court upheld the constitutional validity of the aforesaid provision which provides for search and seizure when it is entrusted to income-tax authorities with a view to prevent a large tax evasion. However, thereafter, they have observed as under (pages 517 and 518) :

“Indeed, the measure would be objectionable if its implementation is not accompanied by safeguards against its undue and improper exercise. As a broad proposition it is now possible to state that if the safeguards are generally on the lines adopted by the Criminal Procedure Code they would be regarded as adequate and render the temporary restrictions imposed by the measure reasonable. In the case just cited there was a proviso to sub-section (2) of section 41 which prescribed that all searches under the sub-section shall, so far as may be, made in accordance with the provisions of the Code of Criminal Procedure. After pointing out that section 165 of the Criminal Procedure Code would apply mutatis mutandis to searches made under sub-section (2), this court observed : â€˜We are, therefore, of the opinion that safeguards provided in section 165 also apply to searches made under sub-section (2). These safeguards are-(i) the empowered officer must have reasonable grounds for believing that anything necessary for the purpose of recovery of tax may be found in any place within his jurisdiction, (ii) he must be of the opinion that such thing cannot be otherwise got without undue delay, (iii) he must record in writing the grounds of his belief, and (iv) he must specify in such writing so far as possible the thing for which search is to be made. After he has done these things, he can make the search. These safeguards, which, in our opinion, apply to searches under sub-section (2) also clearly show that the power to search under sub-section (2) is not arbitrary. In view of these safeguards and other safeguards provided in Chapter VII of the Code of Criminal Procedure, which also apply so far as may be to searches made under sub-section (2), we can see no reason to hold that the restriction, if any, on the right to hold property and to carry on trade, by the search provided in sub-section (2) is not a reasonable restriction keeping in view the object of the search, namely, prevention of evasion of taxâ€™.

We are, therefore, to see what are the inbuilt safeguards in section 132 of the Income-tax Act. In the first place, it must be noted that the power to order search and seizure is vested in the highest officers of the Department. Secondly, the exercise of this power can only follow a reasonable belief entertained by such officer that any of the three conditions mentioned in section 132(1) (a), (b) and (c) exists. In this connection, it may be further pointed out that under sub-rule (2) of rule 112, the Director of Inspection or the Commissioner, as the case may be, has to record his reasons before the authorisation is issued to the officers mentioned in sub-section (1). Thirdly, the authorisation for the search cannot be in favour of any officer below the rank of an Income-tax Officer. Fourthly, the authorisation is for specific purposes enumerated in clauses (i) to (v) in sub-section (1), all of which are strictly limited to the object of the search. Fifthly, when money, bullion, etc., is seized the Income-tax Officer is to make a summary enquiry with a view to determine how much of what is seized will be retained by him to cover the estimated tax liability and how much will have to be returned forthwith. The object of the enquiry under sub-section (5) is to reduce the inconvenience to the assessee as much as possible so that within a reasonable time what is estimated due to the Government may be retained and what should be returned to the assessee may be immediately returned to him. Even with regard to the books of account and documents seized, their return is guaranteed after a reasonable time. In the meantime the person from whose custody they are seized is permitted to make copies and take extracts. Sixthly, where money, bullion, etc., is seized, it can also be immediately returned to the person concerned after he makes appropriate provision for the payment of the estimated tax dues under sub-section (5), and, lastly, and this is most important, the provisions of the Criminal Procedure Code relating to search and seizure apply, as far as they may be, to all searches and seizures under section 132. Rule 112 provides for the actual search and seizure being made after observing normal decencies of behaviour. The person in charge of the premises searched is immediately given a copy of the list of articles seized. One copy is forwarded to the authorising officer. Provision for the safe custody of the articles after seizure is also made in rule 112. In our opinion, the safeguards are adequate to render the provisions of search and seizure as less onerous and restrictive as is possible under the circumstances. The provisions, therefore, relating to search and seizure in section 132 and rule 112 cannot be regarded as violative of articles 19(1)(f) and (g).”

21. The honâ€™ble Supreme Court, in the case of ITO (Special Investigation) v. Seth Brothers reported in [1969] 74 ITR 836 (SC) has observed as under (page 843) :

“The Commissioner or the Director of Inspection may, after recording reasons, order a search of premises, if he has reason to believe that one or more of the conditions in section 132(1) exist. The order is in the form of an authorisation in favour of a subordinate Departmental officer authorising him to enter and search any building or place specified in the order, and to exercise the powers and perform the functions mentioned in section 132(1). The officer so authorised may enter any building or place and make a search where he has reason to believe that any books of account or other documents which in his opinion will be useful for, or relevant to, any proceeding under the Act, may be found. The officer making a search may seize any books of account or other documents and place marks of identification on any such books of account or other documents, make or cause to be made extracts or copies therefrom and may make an inventory of any articles or things found in the course of any search which in his opinion will be useful for, or relevant to, any proceeding under the Act, and remove them to the income-tax office or prohibit the person in possession from removing them. He may also examine on oath any person in possession of or control of any books of account or documents or assets.

The section does not confer any arbitrary authority upon the revenue officers. The Commissioner or the Director of Inspection must have, in consequence of information, reason to believe that the statutory conditions for the exercise of the power to order search exist. He must record reasons for the belief and he must issue an authorisation in favour of a designated officer to search the premises and exercise the powers set out therein. The condition for entry into and making search of any building or place is the reason to believe that any books of account or other documents which will be useful for, or relevant to, any proceeding under the Act may be found. If the officer has reason to believe that any books of account or other documents would be useful for, or relevant to, any proceedings under the Act, he is authorised by law to seize those books of account or other documents, and to place marks of identification therein, to make extracts or copies therefrom and also to make a note or an inventory of any articles or other things found in the course of the search. Since by the exercise of the power a serious invasion is made upon the rights, privacy and freedom of the taxpayer, the power must be exercised strictly in accordance with the law and only for the purposes for which the law authorises it to be exercised. If the action of the officer issuing the authorisation or of the designated officer is challenged, the officer concerned must satisfy the court about the regularity of his action. If the action is maliciously taken or power under the section is exercised for a collateral purpose, it is liable to be struck down by the court. If the conditions for exercise of the power are not satisfied the proceeding is liable to be quashed. But where power is exercised bona fide, and in furtherance of the statutory duties of the tax officers any error of judgment on the part of the officers will not vitiate the exercise of the power. Where the Commissioner entertains the requisite belief and for reasons recorded by him authorises a designated officer to enter and search premises for books of account and documents relevant to or useful for any proceeding under the Act, the court in a petition by an aggrieved person cannot be asked to substitute its own opinion whether an order authorising search should have been issued. Again, any irregularity in the course of entry, search and seizure committed by the officer acting in pursuance of the authorisation will not be sufficient to vitiate the action taken, provided the officer has in executing the authorisation acted bona fide.

The Act and the Rules do not require that the warrant of authorisation should specify the particulars of documents and books of account : a general authorisation to search for and seize documents and books of account relevant to or useful for any proceeding complies with the requirements of the Act and the Rules. It is for the officer making the search to exercise his judgment and seize or not to seize any documents or books of account. An error committed by the officer in seizing documents which may ultimately be found not to be useful for or relevant to the proceeding under the Act will not by itself vitiate the search, nor will it entitle the aggrieved person to an omnibus order releasing all documents seized.

The aggrieved party may undoubtedly move a competent court for an order releasing the documents seized. In such a proceeding the officer who has made the search will be called upon to prove how the documents seized are likely to be useful for or relevant to a proceeding under the Act. If he is unable to do so, the court may order that those documents be released. But the circumstance that a large number of documents have been seized is not a ground for holding that all documents seized are irrelevant or the action of the officer is mala fide. By the express terms of the Act and the Rules the Income-tax Officer may obtain the assistance of a police officer. By sub-section (13) of section 132, the provisions of the Code of Criminal Procedure, 1898, relating to searches apply, so far as may be, to searches under section 132. Thereby it is only intended that the officer concerned shall issue the necessary warrant, keep present respectable persons of the locality to witness the search, and generally carry out the search in the manner provided by the Code of Criminal Procedure. But sub-section (13) of section 132 does not imply that the limitations prescribed by section 165 of the Code of Criminal Procedure are also incorporated therein.

In ITO v. Firm Madan Mohan Damma Mal [1968] 70 ITR 293 it was observed that the issue of a search warrant by the Commissioner is not a judicial or a quasi-judicial act and even if the Commissioner is enjoined to issue a warrant only when in fact there is information in his possession in consequence of which he may form the necessary belief, the matter is not thereby subject to scrutiny by the court. Section 132 of the Income-tax Act does not require specific mention by description of each particular document which has to be discovered on search : it is for the officer who is conducting the search to decide whether a particular document found on search is relevant for the purpose or not. That statement of the law, in our judgment, accurately states the true effect of section 132. The mere fact that it may ultimately be found that some document seized was not directly relevant to any proceeding under the Act or that another officer with more information at his disposal may have come to a different conclusion will not be a ground for setting aside the order and the proceeding for search and seizure.”

22. The Supreme Court in the case of K.L. Subhayya v. State of Karnataka reported in AIR 1979 SC 711 dealing with the consequence flowing from failure to record the grounds of his belief under the Mysore Excise Act held as under (page 712) :

“In the instant case, it is admitted that the inspector who searched the car of the appellant had not made any record of any ground on the basis of which he had a reasonable belief that an offence under the Act, was being committed before proceeding to search the car and thus the provisions of section 54 were not at all complied with.

This, therefore, renders the entire search without jurisdiction and as a logical corollary vitiates the conviction. We feel that both sections 53 and 54 contain valuable safeguards for the liberty of the citizen in order to protect them from ill-founded or frivolous prosecution or harassment. The point was taken before the High Court which appears to have crushed aside this legal lacuna without making any real attempt to analyse the effect of the provisions of sections 53 and 54. The High Court observed that these two sections were wholly irrelevant. With due respect we are unable to approve of such a cryptic approach to a legal question which is of far reaching consequences.”

23. The scheme of section 132 shows that a warrant of search can be issued on having received information and on having reason to believe therefrom that a person is in possession of assets which has not been or would not be disclosed. Having received information, the authorising officer has to satisfy himself that a particular person is in possession of undisclosed assets. The empowered authority in consequence of information in possession, only when he has reason to believe that any of the conditions mentioned in clauses (a), (b) and (c) of sub-section (1) of section 132 exists, then only he may authorise an officer mentioned in clause (A), clause (B) of sub-section (1) of section 132 to enter and search as provided under clauses (i), (ii), (iia), (iib), (iii), (iv) and (v). No warrant will be issued merely on the basis of suspicion or to make a roving or fishing enquiry to unearth the concealed assets. It is only when the authorising officer is fully satisfied that the information would lead to the discovery of undisclosed assets, that the warrant of search will be issued. Therefore, it is obligatory on the part of the empowered officer to record in writing the grounds of search as set out in the aforesaid provision and then only he can authorise an authorised officer to enter and search as provided under the said provision. The provision of the Code of Criminal Procedure relating to searches and seizure are made applicable to searches and seizures under sub-section (1) or sub-section (1A) of section 132 of the Act so far as may be. Under the Criminal Procedure Code, the police officer is bound to record in writing the grounds of his plea, as to the necessity for such search and specify clearly the article or articles for which the search is to be made. The recording of the reasons is an important aspect in the matter of search and to ignore it is to ignore the material part of the provisions governing such search. If this step is ignored, search would be in contravention of the provisions of the Act. The requirement of sub-section (1) are clearly intended to restrain a police officer from initiating or conducting anything in the nature of general search. Similarly, the empowered authority under the Act, after recording reasons only order a search of premises, if he has reason to believe that one or more of the conditions in section 132(1) exist. The order is in the form of an authorisation in favour of a subordinate Departmental officer authorising him to enter and search any building or place specified in the order and to exercise the powers and perform the functions mentioned in section 132(1). The section does not confer any arbitrary authority upon the Revenue officers. The Commissioner or the Director of Inspection must have, in consequence of information, reason to believe that the statutory conditions for the exercise of the power to order search exist. He must record reasons for the belief and he must issue an authorisation in favour of a designated officer to search the premises and exercise the powers set out therein. Since by the exercise of the power a serious invasion is made upon the rights, privacy and freedom of the taxpayer, the power must be exercised strictly in accordance with the law and only for the purposes for which the law authorises it to be exercised. If the action of the officer issuing the authorisation or of the designated officer is challenged, the officer concerned must satisfy the court about the regularity of his action. The measure would be objectionable if its implementation is not accompanied by the safeguards against its undue and improper exercise. If the safeguards are generally on the lines adopted by the Criminal Procedure Code, they would be regarded as adequate and render the temporary restrictions imposed by the measure reasonable. These safeguards are :

(i)the empowered officer must have reasonable grounds for believing that anything necessary for the purpose of recovery of tax may be found in any place within his jurisdiction,

(ii)he must be of the opinion that such thing cannot be otherwise got without undue delay,

(iii)he must record in writing the grounds of his belief, and

(iv)he must specify in such writing so far as possible the thing for which search is to be made. These safeguards apply to searches under sub-section (2).

24. It clearly shows that the power to search under sub-section (2) is not arbitrary. In the first place, it must be noted that the power to order search and seizure is vested in the highest officers of the Department. Secondly, the exercise of this power can only follow a reasonable belief entertained by such officer that any of the three conditions mentioned in section 132(1) (a), (b) and (c) exists. In this connection, it may be further pointed out that under sub-rule (2) of rule 112, the Director of Inspection or the Commissioner, as the case may be, has to record his reasons before the authorisation is issued to the officers mentioned in sub-section (1). Thirdly, the authorisation for the search cannot be in favour of any officer below the rank of an Income-tax Officer. Fourthly, the authorisation is for specific purposes enumerated in clauses (i) to (v) in sub-section (1), all of which are strictly limited to the object of the search. Fifthly, when money, bullion, etc., is seized the Income-tax Officer is to make a summary enquiry with a view to determine how much of what is seized will be retained by him to cover the estimated tax liability and how much will have to be returned forthwith. This is most important. Rule 112 provides for the actual search and seizure being made after observing normal decencies of behaviour.

25. The obvious consequence is that the requirement about the existence of reason to believe, consequent upon the information in possession and concerned authority is not satisfied, the search cannot be said to be a search under section 132 of the Act as contemplated by the provisions of section 158B of the Act. A search under section 132 as contemplated in the Chapter has to be a valid search. An illegal search is no search and the necessary corollary, in such a case, Chapter XIV-B would have no application. If the search conducted is without jurisdiction, then it would be void ab initio. If the action is illegally taken or power under the section is exercised for a collateral purpose, it is liable to be struck down by the court. If the conditions for the exercise of power are not satisfied, the proceeding is liable to be quashed. The eminent conclusion would be that Chapter XIV-B cannot be undertaken against the assessee. Pursuant to the said search, consequently the block assessment order cannot be sustained. Therefore, when the assessee challenges an order of assessment and contends that the search, which is a sine qua non for the authorities to initiate authorisation and consequently pass an assessment order is illegal and void, the said question goes to the root of the matter. If the said contention is upheld, the assessment order would have no reason to stand.

26. The requirement of section 132(1) of the Act is completed once the empowered officer records in writing the grounds set out in clauses (a), (b) and (c) of sub-section (1) for issuing an authorisation for such a seizure under the provision, whether those grounds are adequate or not is not a matter for the court to be investigated. It is of course open for the assessee to contend that the authorised officer did not have an intention to hold. The expression “reason to believe” does not mean purely a subjective satisfaction on the part of the Income-tax Officer, it is open to the court to examine the question. To that extent the action of the empowered officer in initiating the proceedings under section 132(1) of the Act is open to challenge in a court of law.

Seizure

27. According to Strouds Judicial Dictionary, the word “seizure” in its ordinary and natural sense means” forcible taking possession”. According to Websterâ€™s Dictionary, the word “seized” means “to effect legal possession”. In Shorter Oxford English Dictionary, the said word means “to put in possession”.

28. The moment the act of discovery of unearthing of what is lying undisclosed or concealed is concluded, it would mark the conclusion of search and then what will follow is the seizure or performance of other functions as envisaged in clauses (iii), (iv) and (v) of sub-section (1) of section 132 of the Act.

29. Clause (iii) of sub-section (1) of section 132 of the Income-tax Act provides for seizure of books of account, other documents, money, bullion, jewellery or other valuable article or thing found as a result of search. Then the authorised officer will proceed to seize such assets under clause (iii) of sub-section (1). This shows that an investigation regarding the nature of asset whether it is disclosed or undisclosed has to be made twice : firstly, by the authorising officer and, second, by the authorised officer.

30. When the authorised officer acts upon the warrant, then the law enjoins upon him to make an investigation again on the questions ?

(i)Whether the assets found during search were disclosed ?

(ii)Whether the assets so found were not disclosed ?

(iii)Whether the assets found during search need further verification, which is necessary only when the authorised officer is in doubt as to whether such asset is disclosed or undisclosed ?

31. If he is satisfied that the assets are fully disclosed, then no order can be passed either under sub-section (1) or sub-section (2). If the assets are undisclosed, then the authorised officer may act either under sub-section (1) or sub-section (3) depending on the fact whether it is practicable or not to seize the assets, found to be undisclosed during the search. If it is practicable to seize, then the asset will be seized under sub-section (1), but if it is otherwise, then an order will be passed under sub-section (3). It is manifest that the condition precedent to make a seizure under clause (iii) of sub-section (1) or to make an attachment under sub-section (3) is the discovery of undisclosed assets during search. If no undisclosed asset is found during search, then no action can be taken either under clause (iii) of sub-section (1) or under sub-section (3) of section 132.

32. The proviso to the said provision places a restriction on the authorised officer to seize the bullion, jewellery or other valuable articles or things being stock-in-trade of the business. In which event, the authorised officer shall make a note or inventory of such stock-in-trade or business and leave the materials in the possession of the assessee.

33. The second proviso to sub-section (1) of section 132 of the Act provides that whether it is not possible or practicable to take physical possession of any valuable article or thing and remove it to a safe place or volume, weight or other physical characteristics for the reasons set out in the said proviso, the authorised officer may serve an order on the owner or the person who is in immediate possession or control thereof not to remove or part with or otherwise deal with it except with the previous permission of the authorised officer when such an order is made such action of the authorised officer shall be deemed to be seizure of such valuable article or thing under clause (iii).

34. However, if the said order to be valid, not only an order in writing is required but the said order should also disclose why it is not possible to take physical possession of the article or things. The said proviso recognizes three circumstances under which such a seizure is not possible, firstly, due to its volume, secondly, due to its weight, thirdly, other physical characteristics and, fourthly, due to which of its dangerous nature.

35. A discretion is vested with the authorised officer not to seize as aforesaid by sub-section (3) of section 132 of the Act. It provides where it is not practicable to seize any books of account, other documents, money, bullion jewellery or other valuable article or thing for reasons other than those mentioned in the second proviso to sub-section (1), then he can serve an order on the owner or the person, who is in immediate possession or control thereof directing him not to remove or part with, except with the previous permission of such officer and such officer has been vested with the power to enforce compliance with the order. The Explanation to sub-section (3) makes it clear the serving of an order aforesaid shall not be deemed to be a seizure of such books of account, other documents, money, bullion, jewellery or other valuable article or thing under clause (iii) of sub-section (1) of the Act. Such an order is known as a restraint order. Therefore, the said provisions makes out a distinction between a seizure order and a restraint order.

36. Sub-section (8A) of section 132 of the Act makes it clear that an order under sub-section (3) shall not be in force for a period exceeding 60 days from the date of the order. From the tenor of the language used in the said proviso, it is clear that the said restraint order seizes to be operating on the expiry of 60 days from the date of the said order. No express order requiring the withdrawal or cancellation of the said order is required to be passed under the Act. It ceases to exist automatically on expiry of 60 days prescribed.

37. If the restraint order and the prohibitory orders are passed without complying with the requirement as set out in the aforesaid provisions what would be the effect were the subject-matter of several judgments.

38. The Punjab and Haryana High Court in the case of Om Parkash Jindal v. Union of India reported in [1976] 104 ITR 389 (P&H) per discussion at page 405 has held as under :

“Per discussion in para. 8 above, the word â€˜practicableâ€™ occurring in sub-section (3) of section 132 cannot, in my opinion, be extended to a case where the authorised officer on finding ornaments, etc., on a search has doubts or is not certain that there are reasons to believe that the same were undisclosed property. It is only when he has reason to believe that such ornaments are undisclosed property but the seizure of the same is impracticable on account of the nature or location of the same or on any other ground rendering the seizure of the said ornaments, etc., impossible or unsafe that the authorised officer can have recourse to the provisions contained in sub-section (3) of section 132. In the case in hand, the stand taken up by the respondents has been that they did not seize ornaments, etc., found on search and opted to attach the same under sub-section (3) of section 132, because they could not make up their mind as to whether the same were undisclosed property without verification of the statement of Shri Om Parkash Jindal recorded on June 6, 1974. That means that on June 6, 1974, and also on July 12, 1974, the authorised officers felt reluctance in believing that the aforesaid ornaments, etc., were undisclosed property. When that was their view, they could not, in my opinion, for the reasons already recorded above, legally attach those ornaments, etc., under sub-section (3) of section 132. It is pertinent to note that Sri Om Parkash Jindal had disclosed in his statement recorded on June 6, 1974, that 32 ornaments of annexure â€˜D-Iâ€™ belonged to his wife and 4 ornaments of annexure â€˜D-IIâ€™ belonged to his son and daughter-in-law, and it was only 17 ornaments of annexure â€˜D-IIIâ€™ which belonged to Bajrang Lal and 5 ornaments, G. C. notes and silver coins of annexure â€˜D-IVâ€™ that belonged to Chuni Lal. Examination of Bajrang Lal and Chuni Lal might or might not afford verification of the aforesaid statement of Om Parkash Jindal as to whether 17 items of ornaments of annexure â€˜D-IIIâ€™ belonged to Bajrang Lal and 5 ornaments, G. C. notes and silver coins of annexure â€˜D-IVâ€™ were the property of Chuni Lal. Their examination could not have afforded any assistance to the authorised officers respecting 32 ornaments of annexure â€˜D-Iâ€™ or 4 ornaments of annexure â€˜D-IIâ€™. Smt. Savitri Devi, wife of Shri Om Parkash Jindal, and Smt. Sachita Devi, his daughter-in-law, were present on June 6, 1974, at the premises when the same were searched and inventory (annexure â€˜D-IIâ€™) had been prepared respecting the ornaments worn by them. So, verification of the statement of Shri Om Parkash Jindal respecting 32 ornaments of annexure â€˜D-Iâ€™ and 4 ornaments of annexure â€˜D-IIâ€™ could be obtained from them. Shri Prithvi Raj Jindal was present at the premises on July 12, 1974, and verification of the aforesaid statement of Shri Om Prakash Jindal could be secured from him on that day. Therefore, there are no grounds to maintain that the authorised officers had any necessity of examination of Bajrang Lal and Chuni Lal for coming to a finding that there were reasons to believe that the aforesaid 32 ornament of annexure â€˜D-Iâ€™ or 4 ornaments of annexure â€˜D-IIâ€™ were undisclosed property. Further, there is nothing in the Act or the Rules to show that the authorised officer can kept the property, found on search, under his seal and retain the same for an indefinite period by having recourse to sub-section (3) of section 132. He may attach the said property under sub-section (3) of section 132 if so permitted by the provisions contained therein and retain the same for a reasonable period. When the provisions of rule 112A of the Rules require the Income-tax Officer to issue requisite notice within 15 days and provisions contained in sub-section (5) of section 132 require the Income-tax Officer to record the necessary order within 90 days from the date of the seizure of the ornaments, etc., it can be justly said that the said reasonable period during which the ornaments, etc., can be retained would not ordinarily exceed 90 days from the date of attachment of the same. Attachment of ornaments, etc., under sub-section (3) of section 132 would necessarily deprive a citizen of use of the same as he pleases and thereby it is infraction of his liberty to the free use of the said ornaments. Therefore, it is desirable that the authorised officer should decide the matter one way or the other and lift the attachment, effected by him under sub-section (3) of section 132, at the earliest. In the case in hand, the ornaments, etc., were attached on June 6, 1974. No decision had been taken to seize the same for about six months, i.e., till December 3, 1974, when the present writ petition was filed. Therefore, in these circumstances, continuation of the attachment allegedly made by the authorised officers of the ornaments, etc., of annexures â€˜D-Iâ€™, â€˜D-IIâ€™, â€˜D-IIIâ€™ and â€˜D-IVâ€™, especially when I am of the view that the same was not sanctioned by the provisions of sub-section (3) of section 132, will not be permissible. It is indisputable that this court can while exercising the powers under article 226 of the Constitution, mould the remedy as it suits to the facts of a particular case. So, when it had been found that the attachment of ornaments, etc., referred to above, was not countenanced by the provisions of sub-section (3) of section 132, and had been directed by the authorised officers in the error of judgment, the same has to be lifted. But, at the same time, the powers of the authorised officers to seize the same, if they have material with them to justify that action cannot be taken away.”

Restraint order

39. Interpreting sub-section (1) and sub-section (3) of section 132 of the Act, the Delhi High Court in the case of B.K. Nowlakha v. Union of India reported in [1991] 192 ITR 436 (Delhi) at page 442 has held as under :

“Reading the second proviso to section 132(1) and sub-section (3) of section 132, it appears that the Legislature, with effect from April 1, 1989, has regarded certain orders of restraint as amounting to an order of seizure. The phraseology of the two provisions is somewhat identical. Sub-section (3) of section 132 enables the authorised officer to pass a restraint order where it is â€˜not practicable to seizeâ€™ any such books of account, documents, valuable articles, etc. The second proviso to section 132(1) also talks of a case where it is not practicable to take physical possession of a valuable article or thing and in which case an order of restraint may be issued but the second proviso would come into play only where it is not practicable to take physical possession of the valuable article for any of the four reasons, viz., due to its volume or weight or other physical characteristics or due to its being of a dangerous nature. To put it differently, if any of these four reasons exists, then the authorised officer need not take physical possession of the articles but can pass a restraint order but such a restraint order will be deemed to be seizure of such valuable articles. Physical possession is not taken because it is not practicable. If it is not practicable to take physical possession of a valuable article for any reason other than that provided in the second proviso to section 132(1), then the provision of section 132(3) can be validly invoked, e.g., books of account or valuable articles which are liable to be seized may be under a lock and it may not be possible to get physical possession of the same because the key may not be available. Another example is where the key of a locker is recovered but the locker cannot be opened for any reason and it may be suspected that the said locker would contain articles which are liable to be seized. There can be a large number of reasons which make it impracticable to seize documents and valuable things. The word â€˜practicableâ€™ indicates that, for some good and valid reason, it is not possible to seize the valuable articles or the books of account. Sub-section (3) of section 132 would apply only in those cases where the second proviso to section 132(1) does not apply. Where it is not practicable to seize the account books and valuable articles for the reason stated in the second proviso to section 132(1), a restraint order would be regarded as a deemed seizure but where it is not practicable to do so for any other reason, then a restraint order will be regarded as having been validly passed under section 132(3) and the restraint order will continue till a formal seizure is effected.”

Again, at pages 444 and 445, it has held as under :

“In our opinion, the power under section 132(3) cannot be so exercised as to circumvent the provisions of section 132(1) read with sub-section (5) thereof. When a search is conducted and valuable movable articles are found which are liable for seizure, then they should be seized. Because such seizure was not effected due to their physical characteristics, Parliament thought it necessary to enact the second proviso to section 132(1). Whereas previously due to the weight, volume or physical characteristics, only restraint orders under section 132(3) were passed, now with effect from April 1, 1989, such restraint orders are being regarded as deemed seizure under sub-clause (iii) of section 132(1). The intention of the Legislature is very clear, viz., it is the duty of the authorised officers to effect seizure wherever any valuable article or thing is found during the course of the search and the words â€˜not practicable to seizeâ€™ used in section 132(3) have to be understood in this sense, viz., where there is a practicable difficulty in effecting seizure, then an order under section 132(3) can be passed. Not knowing the value of the articles or whether they are antique or not cannot be regarded as a practical difficulty on the part of the authorised officer in effecting seizure. In our opinion, therefore, the orders which were issued under section 132(3) were not validly issued and the goods which were found at the premises could have been seized by actually seizing the articles or by making an order of restraint under the second proviso to section 132(1) of the Act. This was not done in the present case.

Whenever there is a seizure of articles under section 132(1) including a deemed seizure, an order under sub-section (5) has to be passed within 120 days of the seizure. Where no such order is passed, the goods have to be released. The period of 120 days came to an end on or about June 8, 1991. As no order under section 132(5) has been passed, the said goods are liable to be released.

There is another reason for ordering the release of the said goods even on the assumption that a valid order under section 132(3) was passed. Firstly, when an order under section 132(3) is issued, it must, in our opinion, be recorded as to why it is not practicable to effect seizure. This is for the reason that whenever any such order is passed, then the Commissioner can grant an extension under sub-section (8A) of section 132 after recording reasons in writing. In the present case, we are informed that, on June 20, 1991, reasons were recorded by the Commissioner while granting extension. Be that as it may, we find that, just prior to the expiry of 60 days of the order dated February 11, 1991, the order under section 132(3) was revoked on April 9, 1991, and a fresh order in respect of the same goods was again passed on April 9, 1991. This exercise was repeated on June 6, 1991.

In our opinion, it is not permissible to do so. The orders which are passed under section 132(3) may have a very far-reaching effect on the business of an assessee. The order of restraint may adversely affect the business and, therefore, adequate safeguards are sought to be provided in the Act by the insertion of the provisions of sub-section (8A) in section 132. In order that the restraint order must not be continued indefinitely, sub-section (8A) of section 132 provides that the restraint order can be continued only if, before the expiry of 60 days, and for reasons to be recorded, the Commissioner grants an extension. The provisions of sub-section (8A) cannot be bypassed or rendered nugatory by revoking an order under section 132(3) and thereafter passing another order on the same date. On February 11, 1991, an order under section 132(3) has been passed. The 60 days would expire on or about April 10, 1991. If the order under section 132(3) was to be continued, then the Commissioner should have granted approval under sub-section (8A). What was done in the present case was to cancel the order dated February 11, 1991, on April 9, 1991, and then to pass a fresh order under section 132(3), on that very date. No approval of the Commissioner of Income-tax was sought. The same thing happened on June 6, 1991. The order under section 132(3) was, in effect, extended twice without any concurrence from the Commissioner of Income-tax and merely on the Assistant Director of Income-tax deciding to revoke the order and passing a fresh order. The provisions of sub-section (8A) of section 132 were thereby circumvented.

In our opinion, once an order under section 132(3) has been passed, then the limitation period commences and such order cannot be continued unless and until the provisions of section 132(8A) are satisfied.”

40. The Allahabad High Court, in the case of Sriram Jaiswal v. Union of India reported in [1989] 176 ITR 261 (All) has held as under (page 267) :

“Then, we come to the important question whether an order under section 132(3) can be passed merely to ascertain whether a given asset is disclosed or undisclosed. To find out the true answer to this question, we will have to dissect the anatomy of section 132. Section 132, sub-section (1), so far as is relevant for our purposes, read that where the authorising officer, as specified in sub-section (1) of section 132, in consequence of information in his possession has reason to believe that any person is in possession of any money, bullion, jewellery or other valuable article or thing and such money, bullion, jewellery or other valuable article or thing represents either wholly or partly income or property which has not been, or would not be, disclosed for the purposes of the Act of 1961, then the authorised officer, as specified in clause (a) of sub-section (1), may seize any such books of account, other documents, money, bullion, jewellery or other valuable article or thing found as a result of such search. So, the requirement of section 132(1) is that the authorising officer must be in possession of information not amounting to mere pretence or suspicion, but substantial information on the basis of which he could have reason to believe that any person is in possession of any asset, as mentioned in clause (c) and, then, he may authorise any officer, as specified in clause (a), who, on being satisfied that the person about whom information has been received, is in possession of undisclosed income or property, may seize such assets under clause (iii). The word â€˜suchâ€™ occurring in clause (iii) of sub-section (1) clearly shows that the assets as mentioned in clause (iii) refer to undisclosed assets as mentioned in clause (c). Thus, what can be seized under clause (iii) is the asset as mentioned in clause (c) which has not been or would not be disclosed for the purpose of the Income-tax Act. Some courts took the view that â€˜seizureâ€™ means taking physical possession of any valuable article or thing. To overcome this, the Legislature has amended section 132(1) by the Finance Act, 1988. The effect of this amendment is that a second proviso shall be inserted with effect from April 1, 1989, in sub-section (1) of section 132. The second proviso, which is not relevant for the instant petition, because that would be inserted only with effect from April 1, 1989, enables the authorised officer to serve an attachment order on the owner, or the person, who is in immediate possession or control thereof, in respect of an asset where it is not possible or practicable to take physical possession of any valuable article or thing and remove it to a safe place due to its volume, weight or other physical characteristic or due its being of a dangerous nature. The second proviso raises a fiction that such attachment order shall be deemed to be seizure of such valuable article or thing under clause (iii) and a consequential amendment has been made in sub-section (3) with effect from April 1, 1989, by adding a parenthetical clause thus : (â€˜for reasons other than those mentioned in the second proviso to sub-section (1)â€™).

Whereas sub-section (1) of section 132, read with the second proviso, to be inserted with effect from April 1, 1989, refers to seizure or deemed seizure, sub-section (3) of section 132 refers to attachment of the assets mentioned in clause (iii). Sub-section (4) empowers the authorised officer to examine on oath, any person who is found to be in possession or control of any asset mentioned in clause (iii) of sub-section (1). Sub-section (4A) raises certain presumptions. Then comes sub-section (5) which contemplates a summary enquiry with a view to determine how much of the seized assets can be legitimately and reasonably retained to cover the tax liability already incurred. Sub-section (11) provides a remedy against the order made in sub-section (5), in that objections may be filed before the Commissioner challenging the order for any reason passed under sub-section (5).”

41. From the aforesaid discussion, it is clear that the second proviso to sub-section (1) of section 132 and sub-section (3) of section 132 operate in different fields and they are mutually exclusive. The only common thread underlying these two provisions is the order to be passed by the authorised officer who discloses the reasons for passing such orders. However, the order passed under proviso (ii) to sub-section (3) of section 132 will be in force only for 60 days and no such time limit is prescribed in the case of deemed seizure under the second proviso to sub-section (1) of section 132.

42. In the case of block assessment, the Assessing Officer on determination of 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. This block assessment as contained in Chapter XIV-B is a special procedure provided for unearthing undisclosed income and bringing to tax the said income by imposing tax. Under the scheme of the block assessment as is clear from the wordings in each and every section, the block assessment is based on search and seizure. This order is made appealable under section 253(1)(b).

Scope of appeal

43. The contention of the Revenue is that the Tribunal cannot look into the validity of the search as conducted under the provisions of section 132 of the Act as the Tribunal has no jurisdiction or competence to look into this aspect. Right of appeal to the assessee would not include assailing any action of the income-tax authority prior to initiation of search. The appeal lies against an assessment order passed by the Assessing Officer under clause (c) of section 158BC. 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 Assessing Officer 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, anything done by the income-tax authorities prior to the search would be beyond the pale of the 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. Right of appeal to the assessee would not include assailing any action of the income-tax authority prior to initiation of search. The only remedy available with the assessee is to challenge the same before the High Court in a writ petition under article 226/227 of the Constitution of India.

44. Therefore, the question is while exercising the appellate jurisdiction, the Appellate Tribunal has to confine itself to the order passed by the Assessing Officer or can it go through the legality of the proceeding commencing from a search under section 132 which ultimately culminated in the order.

45. Section 253 of the Act provides for an appeal to the Appellate Tribunal. Clause (b) of sub-section (1) of section 253 specifically provides that the order passed by an 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, after the 30th day of June, 1995, but before the 1st day of January, 1997. It reads as under :

“253. (1) Any assessee aggrieved by any of the fallowing orders may appeal to the Appellate Tribunal against such orderâ€”

(a)an order passed by a Deputy Commissioner (Appeals) before the 1st day of October, 1998, or, as the case may be, a Commissioner (Appeals) under section 154, section 250, section 271, section 271A or section 272A ; or

(b)an order passed by an 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, after the 30th day of June, 1995, but before the 1st day of January, 1997 ; or

(ba)an order passed by an Assessing Officer under sub-section (1) of section 115VZC ; or

(c)an order passed by a Commissioner under section 12AA or under clause (vi) of sub-section (5) of section 80G or under section 263 or under section 271 or under section 272A or an order passed by him under section 154 amending his order under section 263 or an order passed by a Chief Commissioner or a Director General or a Director under section 272A ; or”

46. Section 254 deals with orders which could be passed by the Appellate Tribunal. Sub-section (1) of section 254 provides that the Appellate Tribunal may after giving both the parties to the appeal an opportunity of being heard “pass such orders thereon as it thinks fit”. Section 255 deals with the procedure of the Appellate Tribunal. It provides for constitution of the Benches in all circumstances, a member or president sitting singly can dispose of the matter in such a manner and the appeal shall be decided according to the opinion of the majority. If there is a majority but if the members are equally divided, the said dispute is to be resolved. Sub-section (5) provides that subject to the provisions of this Act. the Appellate Tribunal shall have power to regulate its own procedure and the procedure of Benches thereof in all matters arising out of the exercise of its powers or of the discharge of its functions, including the places at which the Benches shall hold their sittings. In so far as the powers of the Appellate Tribunal is concerned, sub-section (6) mandates that for the purpose of discharging its functions, the Appellate Tribunal shall have all the powers which are vested in the income-tax authorities referred to in section 131 and any proceedings before the Appellate Tribunal shall be deemed to be a judicial proceeding within the meaning of sections 193 and 228 and for the purpose of section 196 of the Indian Penal Code and the Appellate Tribunal shall be deemed to be a civil court for all the purposes of section 195 and Chapter XXX-V of the Code of Criminal Procedure. Sub-section (6), which deals with the power of the Appellate Tribunal, read as under :

“(6) The Appellate Tribunal shall, for the purpose of discharging its functions, have all the powers which are vested in the income-tax authorities referred to in section 131, and any proceeding before the Appellate Tribunal shall be deemed to be a judicial proceeding within the meaning of sections 193 and 228 and for the purpose of section 196 of the Indian Penal Code (45 of 1860) and the Appellate Tribunal shall be deemed to be a civil court for all the purposes of section 195 and Chapter XXX-V of the Code of Criminal Procedure, 1898 (5 of 1898).”

47. The Revenue in support of their contention relied on the judgment of the Special Bench in the case of Promain Ltd. v. Deputy CIT reported in [2006] 281 ITR (AT) 107 (Delhi) ; [2005] 95 ITD 489 (Delhi) [SB], where the question referred to the Full Bench was as under (page 111 of 281 ITR (AT) :

“Whether the Income-tax Appellate Tribunal has powers to adjudicate upon the issue relating to the validity of the search conducted under section 132 while disposing of the appeal against block assessment ?”

48. After referring to the various decisions, it is observed as under (page 137 of 281 ITR (AT) :

“If these words are read together, it would mean commencement of search, the actual carrying on/execution of search and completion of search. Therefore, the validity of search referred 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 Assessing Officer under the provisions of Chapter XIV-B . . .

Therefore, each and every action of an income-tax 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 honâ€™ble High Court by way of writ petition under article 226/227 of the Constitution of India . . .

the Assessing Officer is only required to satisfy himself that search was conducted in the case of an assessee and initiated after June 30, 1995, and nothing more. Another aspect of search which is to be seen by the Assessing Officer is the execution of the last authorisation 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 Assessing Officer is with reference to the evidence found as a result of the search as provided in section 158BB. This is because the Assessing Officer 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 Assessing Officer is not required to see any other aspect of the search . . .

a valid search is the foundation for assuming jurisdiction to make the block assessment under the provisions of Chapter XIV-B . . . 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 Assessing Officer 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 â€˜initiateâ€™ 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 the income-tax authorities prior to the above action would be beyond the pale of the expression â€˜where a search is initiatedâ€™ or the expression â€˜where any search is conductedâ€™ used by the Legislature in Chapter XIV-B of the Act . . .

Consequently, right of appeal to the assessee would not include assailing any action of the income-tax authority prior to initiation of search. Hence, it has to be held that the 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 . . .

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.”

49. Incidentally, they were following the impugned judgment in coming to the aforesaid conclusion. In the aforesaid judgments, one of the reasonings given by the Tribunal to hold that the validity of a search under section 132(1) cannot be gone into in appeal is, there is no specific provision providing for an appeal against such an action. They have further held that if such an action is arbitrary and the assessee is aggrieved by the same he has the remedy of challenging the said action by way of writ petition under article 226 of the Constitution of India. Therefore, they held what could be the subject-matter of a writ petition under article 226 cannot be the subject-matter of a statutory appeal under the Act. Further, they have said that the right of appeal is a right, which has to be conferred by a specific provision under the statute, when a statute does not provide for an appeal against the action under section 132(1). The assessee not only has the right of appeal but an appeal filed against the assessment order he cannot challenge the validity of a search.

50. Reliance is also placed by the Revenue on the judgment of the Delhi High Court in the case of M.B. Lal v. CIT reported in [2005] 279 ITR 298 (Delhi). Following the impugned judgment in this case, they have held in the light of this decision, it is no longer open to the petitioner to reagitate the question of validity of the authorisation and the legality of the search proceedings either before the Commissioner of Income-tax or before the Tribunal for that matter.

51. In order to appreciate the scope of appeal it is necessary to know the meaning of assessment, as used in the Indian Income-tax Act.

52. The apex court in the case of C.A. Abraham v. ITO reported in [1961] 41 ITR 425 (SC) dealing with the word “assessment” used in the Indian Income-tax Act, 1922, has explained the meaning as under (page 429) :

“Section 44 sets up machinery for assessing the tax liability of firms which have discontinued their business and provides for three consequences, (1) that on the discontinuance of the business of a firm, every person who was at the time of its discontinuance a partner is liable in respect of income, profits and gains of the firm to be assessed jointly and severally, (2) each partner is liable to pay the amount of tax payable by the firm, and (3) that the provisions of Chapter IV, so far as may be, apply to such assessment. The liability declared by section 44 is undoubtedly to assessment under Chapter IV, but the expression â€˜assessmentâ€™, used therein does not merely mean computation of income. The expression “assessment”, as has often been said, is used in the Income-tax Act with different connotations. In CIT v. Khemchand Ramdas [1938] 6 ITR 414 , 416 the Judicial Committee of the Privy Council observed :

â€˜One of the peculiarities of most Income-tax Acts is that the word “assessment” is used as meaning sometimes the computation of income, sometimes the determination of the amount of tax payable and sometimes the whole procedure laid down in the Act for imposing liability upon the taxpayer. The Indian Income-tax Act is no exception in this respect, . . .â€™

A review of the provisions of Chapter IV of the Act sufficiently discloses that the word â€˜assessmentâ€™ has been used in its widest connotation in that Chapter. The title of the Chapter is â€˜Deductions and assessmentâ€™. The section which deals with assessment merely as computation of income is section 23 ; but several sections deal not with computation of income, but determination of liability, machinery for imposing liability and the procedure in that behalf. Section 18A deals with advance payment of tax and imposition of penalties for failure to carry out the provisions therein. Section 23A deals with power to assess individual members of certain companies on the income deemed to have been distributed as dividend, section 23B deals with assessment in case of departure from taxable territories, section 24B deals with collection of tax out of the estate of deceased persons, section 25 deals with assessment in case of discontinued business, section 25A deals with assessment after partition of Hindu undivided families and sections 29, 31, 33 and 35 deal with the issue of demand notices and the filing of appeals and for reviewing assessment and section 34 deals with assessment of incomes which have escaped assessment. The expression â€˜assessmentâ€™ used in these sections is not used merely in the sense of computation of income and there is in our judgment no ground for holding that when by section 44, it is declared that the partners or members of the association shall be jointly and severally liable to assessment, it is only intended to declare the liability to computation of income under section 23 and not to the application of the procedure for declaration and imposition of tax liability and the machinery for enforcement thereof. Nor has the expression, â€˜all the provisions of Chapter IV shall so far as may be apply to such assessmentâ€™ a restricted content : in terms it says that all the provisions of Chapter IV shall apply so far as may be to assessment of firms which have discontinued their business. By section 28, the liability to pay additional tax which is designated penalty is imposed in view of the dishonest contumacious conduct of the assessee. It is true that this liability arises only if the Income-tax Officer is satisfied about the existence of the conditions which give him jurisdiction and the quantum thereof depends upon the circumstances of the case. The penalty is not uniform and its imposition depends upon the exercise of discretion by the taxing authorities ; but it is imposed as a part of the machinery for assessment of tax liability. The use of the expression â€˜so far as may beâ€™ in the last clause of section 44 also does not restrict the application of the provisions of Chapter IV only to those which provide for computation of income. By the use of the expression â€˜so far as may beâ€™ it is merely intended to enact that the provisions in Chapter IV which from their nature have no application to firms will not apply thereto by virtue of section 44. In effect, the Legislature has enacted by section 44 that the assessment proceedings may be commenced and continued against a firm of which business is discontinued as if discontinuance has not taken place. It is enacted manifestly with a view to ensure continuity in the application of the machinery provided for assessment and imposition of tax liability notwithstanding discontinuance of the business of firms. By a fiction, the firm is deemed to continue after discontinuance for the purpose of assessment under Chapter IV.

The Legislature has expressly enacted that the provisions of Chapter IV shall apply to the assessment of a business carried on by a firm even after discontinuance of its business, and if the process of assessment includes taking steps for imposing penalties, the plea that the Legislature has inadvertently left a lacuna in the Act stands refuted. It is implicit in the contention of the appellant that it is open to the partners of a firm guilty of conduct exposing them to penalty under section 28 to evade penalty by the simple expedient of discontinuing the firm. This plea may be accepted only if the court is compelled, in view of unambiguous language, to hold that such was the intention of the Legislature. Here the language used does not even tend to such an interpretation. In interpreting a fiscal statute, the court cannot proceed to make good deficiencies if there be any ; the court must interpret the statute as it stands and in case of doubt in a manner favourable to the taxpayer. But where, as in the present case, by the use of the words capable of comprehensive import, provision is made for imposing liability for penalty upon taxpayers guilty of fraud, gross negligence or contumacious conduct, an assumption that the words were used in a restricted sense so as to defeat the avowed object of the Legislature qua a certain class will not be lightly made.”

53. Therefore, the word “assessment” has been used in its widest connotation. It is used as meaning some times the computation of income, some times determination of the amount of tax payable, and some times the whole procedure laid down in the Act imposing liability upon the tax payees. Therefore, the word “assessment” encompasses the determination of liability, machinery for imposing liability and the procedure in that behalf. It is against such order of assessment an appeal lies.

54. The apex court in the case of CIT v. Ashoka Engineering Co. reported in [1992] 194 ITR 645 (SC), explaining how appeal provision should be construed, held as under (page 649) :

“We have heard counsel for both the parties. The question at issue is regarding a right of appeal. It is true that there is no inherent right of appeal to any assessee and that it has to be spelt from the words of the statute, if any, providing for an appeal. But it is an equally well-settled proposition of law that, if there is a provision conferring a right of appeal, it should be read in a reasonable, practical and liberal manner. Having considered the two alternatives which have been placed before us, we agree with the cases which have taken the view that the cases before us can be treated as cases where the application or declaration is not in order and is consequently rejected. This construction does not place any undue strain on the language of section 185(2) or (3). It will be appreciated that, even if an application is filed before the Income-tax Officer which prima facie appears to be out of time, the Income-tax Officer cannot straightaway reject it or refuse to entertain it. He will have to give an opportunity to the assessee to show cause as to how it can be entertained. Sometimes, even his impression that there is delay may itself be shown to be wrong. If the assessee satisfies the Income-tax Officer that there was sufficient cause, then the application has to be entertained by the Income-tax Officer. In other words, the defect that the application was beyond time stands remedied and the application is in order.”

55. The apex court in the case of ITO v. M.K. Mohammed Kunhi reported in [1969] 71 ITR 815 (SC), dealing with the scope of the appellate power under the Income-tax Act, 1961, has held as under (page 820) :

“It is well known that the Income-tax Appellate Tribunal is not a court but it exercises judicial powers. The Tribunalâ€™s powers in dealing with appeals are of the widest amplitude and have in some cases been held similar to and identical with the powers of an appellate court under the Civil Procedure Code.”

It further said as under (page 820) :

“It was said that the general principle was that in a taxing statute there was no room for what could be called the equitable construction, but that principle applied only to the taxing part of the statute and not to the procedural part. It has further been observed that â€˜where the Legislature invests an Appellate Tribunal with powers to prevent an injustice, it impliedly empowers it to stay the proceedings which may result in causing further mischief.”

56. The Delhi High Court in the case of CIT v. Edward Keventer (Successors) P. Ltd. reported in [1980] 123 ITR 200 (Delhi) dealing with the scope of the appeal, in particular, with references to interconnected appeals held as under (page 214) :

” . . . in a case where certain grounds concerning the same matter are interlinked, they should be considered together and the scope of the subject-matter before the Tribunal should be construed accordingly. The position might be different where different grounds of appeal are dealt with by the Appellate Assistant Commissioner, which have no real inter-connection with each other though naturally they all bear upon particular assessment and though they may all broadly relate to the computation of income from the same head of source. But in a case where there are inter-connected grounds of appeal and they have impact on the same subject-matter, the scope of the appeal should be broadly considered in the correct perspective. While the appellant should not be made to suffer and be deprived of the benefit given to him by the lower authority where the other side has not appealed, equally the procedural rules should not be interpreted or applied so as to confer on an appellant a relief to which he cannot be entitled if the points decided in his favour on the same matter by the lower court are also considered as requested by the respondent.”

57. In answering the said question, the Rajasthan High Court in the case of CIT v. Smt. Chitra Devi Soni [2009] 313 ITR 174 (Raj) at paragraphs 10 and 11 has held as under (page 180) :

“A bare reading of the abovequoted clauses leaves no manner of doubt, in view of the use of word â€˜thenâ€™, that the action of authorising search provided under clauses (A) and (B) has of necessity to be preceded by the existence of the requirements of the other part of said section, as quoted above. In other words, existence of reason to believe, in consequence of information in possession of the officer, mentioned in sub-section (1), about the existence of one or more of the eventualities catalogued in clauses (a) to (c) is the sine qua non to entitle the authority to make authorisation, as required by clauses (A) and (B). The obvious consequence is that if the requirement of sub-section (1) about the existence of the reason to believe, consequent upon the information in possession of the concerned authority is not satisfied there could possibly be no authorisation, irrespective of the fact that it may have been made and in turn if any search is conducted in pursuance of the authorisation issued in the absence of requisite sine qua non, the search cannot be said to be a â€˜searchâ€™ under section 132 of the Act, as contemplated by the provisions of section 158B of the Act.

The above being the legal position, since the assessment in the present case is made under Chapter XIV-B, and when it was specifically challenged by the assessee, that the circumstances contemplated by section 132(1) did not exist, this is a matter which goes to the root of the matter about jurisdiction of the assessing authority to proceed under Chapter XIV-B, the Tribunal was very much justified, and had jurisdiction to go into the question as to whether the search was conducted consequent upon the authorisation having been issued in the background of the existence of eventualities and material mentioned in section 132(1). We are conscious of the fact that it is not open to us or the court to go into the question of sufficiency of the reasons on the basis of which the competent authority may have had entertained the reason to believe the existence of one or more of the eventualities under clauses (a) to (c), but then the question as to whether there at all existed any material to have the reason to believe, even purportedly, consequent upon information in his possession, with the competent authority is the matter which can definitely be looked into by the Tribunal so also by this court as the absence would vitiate the entire action.”

58. Yet another Division Bench of the Rajasthan High Court in the case of Kusum Lata v. CIT reported in [1989] 180 ITR 365 (Raj) has held as under :

“The court cannot go into the sufficiency of the information or the material. All that has to be seen is as to whether some material in fact existed or not for coming to the opinion and to have the reason to believe that any person is in possession of any undisclosed income or property. Obviously, as to whether the circumstances contemplated by clauses (a) to (c) existed or not.”

59. There is no inherent right of appeal to any assessee and that it has to be spelt out from the words of the statute, if any, providing for an appeal. But it is an equally well-settled proposition of law that, if there is a provision conferring a right of appeal. It should be read in a reasonable, practical and liberal manner. The Tribunalâ€™s powers in dealing with appeals are of the widest amplitude and have in some cases been held similar to and identical with the powers of an appellate court under the Civil Procedure Code.

60. A mere search or seizure, by itself would not result in foisting the liability on the assessee though 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 authorisation of search and seizure as illegal. But, once such unauthorised or illegal search and seizure culminates in an assessment order, than he gets a right to challenge the assessment on several grounds including the authorisation and initiation of search and seizure without which no order of assessment could have been passed. Though the authorisation and search and seizure may not be by the Assessing Officer, the basis of such assessment order by him is the authorisation and consequent search and seizure and the material collected during the said proceedings. If the very initiation of block assessment proceeding is vitiated and is 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 be 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.

61. 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 assessee 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.

62. 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 in 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.

Re : Limitation

63. Section I58BC prescribes the procedure for block assessment. Section 158BE of the Act prescribes the time limit for completion of block assessment. According to the said section, the commencement of the period of limitation is within one year from the end of the month in which the last of the authorisation for search under section 132 was executed. Therefore, it implies there could be more than one authorisation under section 132(1) of the Act. If there are more than one authorisation, the starting point of limitation is to be computed from the last of the authorisations. Explanation 2 to sub-section (2) of section 158BE explains when “authorisation” is deemed to have been executed. The authorisation referred to in sub-section (1) shall be deemed to have been executed 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. The words “last of the authorisation” used in section 158BE implies there can be more than one authorisation for search under section 132. Explanation 2 do not refer to such last of the authorisation. It only refers to authorisation and how it shall be deemed to have been executed. It is because, when the law provides for more than one authorisation, the limitation is to be computed from the date of the last of the authorisation, which is executed. If the authorisations are executed and search is conducted on different dates there will be panchnamas on different dates. A doubt may arise regarding the commencement of the day from which limitation is to be computed. In order to remove the said doubt this Explanation was added by the Finance (No. 2) Act, 1998, with retrospective effect from July 1, 1995. The expression used is “last panchnama” and not “last of the panchnama”. Therefore, there cannot be plurality of panchnamas in respect of the authorisation. This intention could be gathered from the words “last of the authorisations” used in the main section. The word used is “panchnama” and not “panchnamas”.

What is panchnama ?

64. A search and seizure under the said Act has to be carried out in the presence of at least two respectable inhabitants of the locality where the search and seizure is conducted. These respectable inhabitants are witnesses to the search and seizure and are known, as “panchas”. The documentation of what they witness is known as the panchnama. The word “nama”, refers to a written document. So panchnama is a written record of what the panch has witnessed. In Mohan Lal v. Emperor , AIR 1941 Bom 149, it was observed that “the panchnama is merely a record of what a panch see . . . panchnama is essentially a document recording certain things which occur in the presence of panchas and which are seen and heard by them. A memorandum of what happens in the presence of the panchas as seen by them and of what they hear. A panchnama is nothing but a document recording what has happened in the presence of the witnesses (panchas). A panchnama may document the search proceedings with or without any seizure. A panchnama may also document the return of the seized articles or the removal of seals. But, the panchnama that is mentioned in Explanation 2(a) to section 158BE is a panchnama which documents the conclusion of a search. Clearly, if a panchnama does not, from the facts recorded therein, reveal that a search was carried out at all on the day to which it relates, then it would not be a panchnarna relating to a search and, consequently, it would not be a panchnama of the type which finds mention in the said Explanation 2(a) to section 158BE.

65. Interpreting rule 112 of the Income-tax Rules which deals with search and seizure, the Delhi High Court in the case of CIT v. S.K. Katyal reported in [2009] 308 ITR 168 (Delhi) has held as under (page 179) :

“These provisions demonstrate that a search and seizure under the said Act has to be carried out in the presence of at least two respectable inhabitants of the locality where the search and seizure is conducted. These respectable inhabitants are witnesses to the search and seizure and are known as â€˜panchasâ€™. The documentation of what they witness is known as the panchnama. The word â€˜namaâ€™, refers to a written document. Its type is usually determined by the word which is combined with it as a suffix. Examples being, nikah-nama (the written muslim marriage contract), hiba-nama (gift deed, the word â€˜hibaâ€™ meaning-gift), wasiyat-nama (written will) and so on. So a panchnama is a written record of what the panch has witnessed. In Mohan Lal v. Emperor, AIR 1941 Bom 149, it was observed that â€˜the panchnama is merely a record of what a panch sees . . .â€™

Similarly, the Gujarat High Court in the case of Valibhai Omarji v. State, AIR 1963 Guj 145, noted that â€˜(a) panchnama is essentially a document recording certain things which occur in the presence of panchas and which are seen and heard by themâ€™. Again, in State of Maharashtra v. Kachardas D. Bhalgar [1978] Bom LR 396, a panchnama was stated to be â€˜a memorandum of what happens in the presence of the panchas as seen by them and of what they hearâ€™.”

66. Therefore, if there are more than one authorisation, irrespective of the date of such authorisation, it is the date of execution of the said authorisation, which is to be reckoned, as evidenced by the panchnama and conclusion of search as recorded in the last panchnama drawn in relation to the warrant of authorisation issued. It does not imply that there can be more than one panchnama in respect of one authorisation. If there are more than one authorisation, it is the last of the authorisations, which has to be taken into consideration for the purpose of reckoning limitation. It is not the date of issue of such last authorisation. But it is the date on which the said authorisation is executed. The proof of such execution of an authorisation is the drawing up of a panchnama. It is the last panchnama drawn in relation to an authorisation issued is relevant for the purpose of computing the period of limitation. The Legislature advisedly has not referred to either the date of issue of authorisation, or the date of execution or the date of drawing of panchnama as the date on which the limitation starts. The starting point of limitation is the “end of the month” in which the last of the authorisation is executed as recorded in the last panchnama. Therefore, the date of the commencement of the limitation is definite. Depending upon the calendar month, it may be 28th or 29th if the month is February, 30th or 31st, depending on the number of days in the month. What is to be recorded in the panchnama is that the search is concluded and not that it was the last search because the panchas of the subsequent panchnama may not be aware of any earlier panchnama as they may not be the panchas who witnesses the search and seizure on that date. Once such conclusion of search is recorded, it is proof of execution of the warrant of authorisation. It is the last panchnama recording conclusion of search, if there are more than one authorisation and more than one panchnama in relation to such authorisation, which is to be taken into consideration for the purpose of computing the limitation.

67. The next question for consideration is, when once the authorised officer in pursuance of the authorisation enters the premises and starts searching, when exactly the said search comes to an end. It is contended on behalf of the Revenue that a discretion is vested with such authorised officer to complete the search, draw a panchnama stating that the search is completed on the day he begins the search or if for any reasons it is not possible to complete such search, he can pass a restraint order, prohibitory order and then fix another date for continuing such search. Thereafter, at his convenience and discretion, he can visit the premises again and continue the search in respect of the subject-matter of the restraint order and prohibitory order and he can also make a fresh search. Every visit made by the authorised officer for inspection is a search under the Act and such a search comes to an end only when the panchnama is written and in the panchnama it is expressly stated that it is finally concluded. It is in the light of the said contentions it is necessary to consider when the search begins and when the search ends in law. This aspect has drawn attention of the various courts in this country and the law on this point is well settled.

68. In fact, it is useful to refer to the observations of the Income-tax Tribunal Bangalore in the case of Kirloskar Investments and Finance Ltd. v. Asst. CIT [1998] 67 ITD 504 (page 542) :

“53. Execution of authorisation of search means actual implementation of such authorisation, i.e., the officials authorised under the said authorisation act on it by entering the building where books of account, documents are kept and search, break open the lock of safe, etc., search it and seize such books, documents, money, bullion and so on. Primarily, a search is conducted on a person because, a person is suspected to have stacked money, bullion, jewellery, valuable article or thing and his books of account or documents from which the true income could be determined because, the income as shown by him is not correct. This being the intention, the party authorised to carry out the search has to ensure that their search reveals all of the above or any of the above. To achieve this objective of search, it is necessary that the search is carried out at one stretch and completed. Because the volume of the items searched is so large compared to the number of officials deputed, it may not be practicable to complete the search in one day and, therefore, the officials temporarily stop the search by sealing the premises searched with their lock and seal. The search is started immediately in the following day and completed with the seizure of items that is carried by the party carrying out the search. When the party conducting the search leave the premises searched carrying seized items, it means that other items noted during the search but left behind in the premises are not seized material.

54. The question â€˜what is the life of the authorisation ?â€™, is of importance. Authorisation may be prepared but it was decided not to act on it, in which case, it had died a natural death. Authorisation issued for a specific person and the officials act on it and perform what all they could do under section 132 of the Act including seizure of books, etc., the purpose of the authorisation is served. Therefore, it could be concluded that the life of the authorisation starts with its issue and ends with its implementation or action by the officials resulting in seizure of books, documents, money and so on. As had been observed earlier, the purpose of search is to locate the undisclosed income with power to seize books, documents, money, bullion, etc., that represent wholly or partly the undisclosed income, it has to be concluded that the search is complete with the seizure of the items for which the officials are on the look out . . .

56. The counsel for the Revenue that once the search had started and the officials authorised for search seize some items and after a gap of few days re-enter the premises and carry on the search, and repeat this after gaps and finally decide that no more search is called for, it is at that point that the search is completed. This to our view is a wrong appreciation of the provisions contained in section 132(1) of the Act because, if the officials found some items on search and had seized them and had left the premises, they had exhausted the power under the authorisation to carry out the search. This is obvious because, the search was based on an information on which a belief was formed that a person is in possession of books, etc., that show income or property that is not disclosed or that would not be disclosed and acting on this belief, the authorisation is issued that is followed by action taken by searching the premises and seizing items. It is quite possible that at the time of formation of belief, the officials may not have a clear picture about the form in which the undisclosed income may be found but merely because, the seized items is not found matching expected or anticipated quantum of undisclosed income that was believed to be existing, it cannot be taken to mean that the search is still continuing and it will end only when the person matches the expectations of the officials who initiated the search. This would lead to a situation that once a person is searched, his premises is continuously open for the officers to search despite the fact that the search party is unable to find item that represents undisclosed income. In order to make sure that the authorised officials who are empowered to initiate a search and the officials authorised to search strictly conform to the purpose for which search is permitted under the Act, the preamble provisions, namely, information on which a belief was formed that a person is in possession of books, etc., that show income or property that is not disclosed or that would not be disclosed, has been enacted. The Explanation that is added to sub-section (3) of section 132 of the Act is clear to the effect that order restraining the person on whom such an order is served in removing, parting, or otherwise deal with it does not amount to seizure. This further goes to show that as soon as the search party seizes some items and serves with the restraining order and leaves the premises, the search operation has ended. We are, therefore, of the opinion that the search comes to an end when the search party leaves the premises after carrying with them the seized material. We are further of the opinion that as soon as the search party leaves the premises carrying with them the seized material, the authorisation for search is fully implemented upon and execution is complete.”

69. The Kerala High Court in the case of Dr. C. Balakrishnan Nair v. CIT reported in [1999] 237 ITR 70 (Ker) held as under (page 77) :

“The second undisputed fact is that the search was discontinued on October 27, 1995, and resumed only on November 10, 1995. The reasons stated for the gap of 14 days is hardly convincing. There is no provision in the Criminal Procedure Code or in the Income-tax Act or the rules for postponing the search for such a long period. N. Subramanian in his book Search and Seizure stated at page 108 that when once the search starts it can go on continuously day or night, rain or shine. To keep the affected parties in a suspended animation about the probable continuation of search would be agonising. In this case, considering the nature of the allegations and the materials seized there is no reason why it could not be closed on October 27, 1995, and even if it is provisionally concluded why it could not be continued immediately. There is no bar for the operation to continue on holidays. The absence of the petitioners in the house is nothing but a lame excuse. If the respondents wanted the operation to be continued there are ways to secure the presence of the petitioners and continue the operations. Therefore, unless there is convincing reason for not resuming search immediately the proceedings undertaken by the second respondent for a second search cannot be held to be legal. It is invading the right and freedom of the petitioners for a period more than required or necessary. The averment that the petitioners were not available for two days is denied by them. Instead it is stated that they could not keep the house in order as the search was incomplete and that they had telephoned and required the officers to complete the search. Therefore, search has prolonged unreasonably without justification.

Thirdly, the seized documents and records cannot be retained by the authorised officer for more than 15 days. It shall be handed over to the Income-tax Officer within 15 days of the seizure. Sub-section (9A) of section 132 of the Act is very clear in this aspect. In the additional counter-affidavit filed by the second respondent it is submitted that the seized documents and records were handed over by P. N. Devadasan, Assistant Director of Income-tax (Inv.)-1, Calicut, within 15 days. In the counter-affidavit filed by the first respondent it is stated that the search operation in this case was planned and executed by the then ADI (Inv.)-1, Calicut, P. N. Devadasan. Therefore, he cannot be the Income-tax Officer having jurisdiction over the petitioners. Sub-section (8) of section 132 of the Act enables the authorised officer to retain the books of account and other documents for a period exceeding 15 days from the date of seizure. But that power of detention can be exercised only by the Income-tax Officer under sub-section (9A) of section 132 of the Act. Therefore, the detention of the documents and records seized by P.N. Devadasan is clearly contrary to the provisions of the Act.”

70. The Bombay High Court in the case of CIT v. Mrs. Sandhya P. Naik reported in [2002] 253 ITR 534 (Bom) has held as under (page 541) :

“The restraint order in view of this authority cannot be cancelled and renewed from time to time. Action under section 132(3) of the Income-tax Act can be resorted to only if there is any practical difficulty in seizing the item which is liable to be seized. When there is no such practical difficulty the officer is left with no other alternative but to seize the item, if he is of the view that it represented undisclosed income. Power under section 132(3) of the Income-tax Act thus cannot be exercised so as to circumvent the provisions of section 132(3) read with section 132(5) of the Income-tax Act. The position has become much more clear after the insertion of the Explanation to section 132(3) effective from July 1, 1995, that a restraint order does not amount to seizure. Therefore, by passing a restraint order, the time limit available for framing of the order cannot be extended.”

71. A search is a thorough inspection of a manâ€™s house, building or premises or of his person, with the object of discovering some material which would furnish evidence of guilt for some offence with which he is charged. It implies a prying into hidden places for that which is concealed. When once the search starts it can go on continuously day or night, rain, or shine. There is no bar for the operation to continue on holidays. It is possible, in a given case, due to the volume of the place to be searched or on account of the volume of the articles to be seized, it may not be possible to complete the search within 24 hours. In which event, there is no prohibition to continue search beyond 24 hours and in such an event, the search would come to an end only after the search is completed may be 48 hours or 72 hours, but the search should be continued without any interruption.

72. The life of the authorisation starts with its issue and ends with its execution by the officials resulting in seizure of books, documents, money and so on. The search is to be carried out at one stretch and completed. The search comes to an end when the search party leaves the premises after carrying with them the seized material. As soon as the search party leaves the premises, the authorisation for search is fully implemented upon and execution is complete. They had exhausted the power under the authorisation to carry out the search. Otherwise, it would lead to a situation where once a person is searched, his premises is continuously open for the officers to search despite the fact that the search party is unable to find item that represents undisclosed income. Then the word “search” used in the context loses its meaning. The search pre-supposes that the assessee is in possession of some undisclosed income or other material and the authorities want to lay their hand on such undisclosed income or other material. Once the search commences and if it is adjourned for a later date, without completing the search on the adjourned date if the search recommences, it ceases to be a search in the context in which the said word is used in section 132 of the Act.

73. The second proviso to section 132(1) deals with the “deemed seizure”. When in the course of search, it is not possible to seize for the reasons set out in the aforesaid provisions. It is possible under four circumstances :

(a)where it is not possible or practicable to take physical possession of any valuable article or thing ;

(b)remove it to a safe place due to its volume, weight ;

(c)other physical characteristics ; and

(d)due to being its dangers nature.

74. Therefore, the law recognizes such a situation and has provided a remedy to tackle such problems. The authorised officer has been given a discretion for the reasons to be recorded in writing to pass a restraint order in respect of the articles, books and other material which he could not take physical possession of, i.e., by making an inventory and leaving it to the custody of the assessee and directing him not to part with the same without his permission.

75. Similarly, in circumstances not covered under those provisions, it is open for him to pass a prohibitory order under sub-section (3) not amounting to seizure which order will be in force for a period of 60 days after securing the possession of the materials, articles, etc., in the aforesaid manner. Action under section 132(3) of the Income-tax Act can be resorted to only if there is any practical difficulty in seizing the item which is liable to be seized. When there is no such practical difficulty the officer is left with no other alternative but to seize the item, if he is of the view that it represented undisclosed income. Power under section 132(1)(iii) of the Income-tax Act thus cannot be exercised, so as to circumvent the provisions of section 132(1)(iii) read with section 132(1)(v) of the Income-tax Act. It is open for the authorised officer to visit the place for the purpose of investigation securing further particulars. Under the scheme, the law provides for such procedure. But not when he visits the premises for further investigation for the materials already secured. It does not amount to search as the materials to be looked into and investigated is already known and is the subject-matter of a prohibitory order or a restraint order. Though it is not seizure or deemed seizure, it amounts to deemed possession. What is in your possession is to be looked into to find out, is there any incriminating material. It does not amount to search as understood under section 132 of the Act. It is only because of paucity of time he has gone back and wants to come back and look into the matter leisurely. There is no provision in the Criminal Procedure Code or in the Income-tax Act or the rules for postponing the search for a long period. Then, the concept of search as understood either under the provisions of the Criminal Procedure Code or the Act which are made applicable expressly, would lose its meaning. If such a course is attracted, it is open to an authorised officer to keep the authorisation in his pocket like a season ticket and go on visiting the premises according to his whims and fancies. It seriously affects the valuable right of the assessee conferred under the Constitution. To keep the affected parties in a suspended animation about the probable continuation of search would be agonising. It is invading the right and freedom of the petitioners for a period more than required or necessary. The orders which are passed under section 132(3) may have a very far-reaching effect on the business of an assessee. The order of restraint may adversely affect the business and, therefore, adequate safeguards are sought to be provided in the Act by the insertion of the provisions of sub-section (8A) in section 132. In order that the restraint order must not be continued indefinitely, sub-section (8A) of section 132 provides that the restraint order can be continued only if, before the expiry of 60 days, and for reasons to be recorded, the Commissioner grants an extension. The provisions of sub-section (8A) cannot be bypassed or rendered nugatory by revoking an order under section 132(3) and, thereafter, pass another order on the same date. In the nature of things, the search is to be done expeditiously and the undisclosed income is to be unearthed and proceeding has to be initiated against such person and the tax legitimately due to the Government is to be recovered. There cannot be any laxity on the part of the authorised officer in this regard. Any other interpretation would run counter to the scheme of search provision under the Act. Therefore, by passing a restraint order, the time limit available for framing of the order cannot be extended. Once an order under section 132(3) has been passed, then the limitation period commences and such order cannot be continued unless and until the provisions of section 132(8A) are satisfied.

76. Once the authorised officer enters into the premises and conducts search, the search gets concluded when he comes out of the premises as evidenced by the panchnama. In the course of the said search he may seize any books of account, other documents, money, bullion, jewellery or other valuable article or thing found as a result of search. In the course of search he has been vested with the power to break open any room in the premises, any locker in the premises, any almirah or where it is not possible or practicable to take physical possession, the second proviso to sub-section (1) of section 132 applies and pass a prohibitory order which amounts to a deemed seizure. In cases where sub-section (1) is not attracted, sub-section (3) provides for a restraint order which is not a deemed seizure. In the course of search if no incriminating material is found also, the search comes to an end. These are the four contingencies that can normally happen after the authorised officer enters the premises, before comes out of the premises. It is in the course of search those materials were considered and such orders were passed. Even in respect of the subject-matter of those two orders the search comes to an end when the authorised officer comes out of the premises. Once he comes out, the authorisation comes to an end. On the basis of the same authorisation he cannot enter the premises again for search. If he wants to search again he has to obtain another authorisation. However, in law he is entitled to enter the premises again, not for the purpose of search, but only for the purpose of inspection of the subject-matter of either the prohibitory order or the restraint order. When he enters the premises again, he has no jurisdiction to look into any other material except those materials which are the subject-matter of a prohibitory order or a restraint order. As he is not entering the premises again with the intention of making a search of the premises, the authorisation contemplated under section 132(1) of the Act is not necessary. However, when he inspects the materials which are the subject-matter of these two orders it is done in furtherance of the search conducted when he entered the premises by virtue of the authorisation granted under section 132(1) of the Act. He can after such inspection seize any incriminating materials which disclose undisclosed income for the purpose of block assessment under Chapter XIV of the Act. Merely because one more panchnama is drawn evidencing seizure of any material in the course of such inspection that cannot be construed as a last panchnama referred to in Explanation (2) to section 158BE. When once a warrant of authorisation has been issued for search before it is concluded as evidenced by the panchnamas, what is to be recorded in the panchnama is as under :

(1)Whether the authorised officer entered and searched the premises ?

(2)Broke open the lock of any door, box, locker, safe, almirah, etc. ?

(3)Searched any person as provided under clause (iia) of sub-section (1) of section 132 ?

(4)Afford the authorised officer necessary facility to look into the electronic record as provided under clause (iib) of sub-section (1) of section 132 ?

(5)Seized any book of account, other documents, money, bullion, jewellery, etc. ?

(6)Placed any marks of identification, on any books of account, other documents, etc. ?

(7)Made a note of or an inventory of any such money, bullion, jewellery, other valuables, etc. ?

(8)Whether any prohibitory order made under the second proviso to sub-section (1) of section 132 amounting to deemed seizure ?

(9)Whether any restraint order passed under sub-section (3) of section 132 ?

(10)Whether nothing incriminating material is found and no seizure is made ?

77. The panchnama referred to in Explanation 2 to the said section specifically refers to search under section 132 and section 132 specifically refers to authorisation to enter and search and it has no reference to entering and searching the premises which are the subject-matter of prohibitory order or restraint order. No authorisation is required to enter the premises and inspect the materials which are the subject-matter of prohibitory order or restraint order. The said order itself acts as an authorisation to enter the premises and inspect the materials which are the subject-matter of those orders and it also empower them to seize any incriminating material. However, after entering the premises of such person, he has to confine his actions only for inspection of the subject-matter of prohibitory order or restraint order. He cannot search the premises over again. Any material seized after such inspection would be the undisclosed income for the purpose of the block assessment in pursuance of search under section 132(1) of the Act. The panchnama evidencing such inspection and seizure would be the last panchnama in respect of the said premises. But for the purpose of limitation under section 158BE, it would not be the last panchnama drawn in proof of conclusion of search, as defined in Explanation 2 to section 158BE. For the purpose of limitation, there can be only one search and one panchnama.

78. The law expressly provides for more than one authorisation. A search authorisation could specify only one building/place/vessel/vehicle/aircraft. This is clear from the use of the building, etc., in the singular sense. Section 132(1) uses building/place/vessel/vehicle/aircraft in singular sense. Further, clause (a) in Form 45 uses the word, “to enter and search, the said building/place/vessel/vehicle/aircraft. When there are multiple places to search and such places are far off, it is impractical to have a single authorisation. Different persons will be carrying out search and each one of them is required to be authorised through the search authorisation. In other words, search authorisation should authorise a particular official for executing the search. Therefore, when there are different places to be searched, separate search authorisation should be drawn with reference to each place of search. The said authorisations may be issued on different dates in which case, the last of such authorisations is to be looked into for the purpose of limitation. However, it is possible that there may be more than one authorisation on the same day. Then the question is which is the last of such authorisations for the purpose of limitation. When all the authorisations are executed there will be one panchnama in respect of each such authorisation. The authorisations may be executed on different dates also. Then the doubt would arise regarding which authorisation to be looked into for the purpose of limitation as all of them are last authorisation. It is for removal of that doubts that the Explanation is inserted. For the purpose of computing the limitation, it is the one year from the end of the month in which the last of the authorisations was executed. If there are more than one authorisation issued on the same day, then the last panchnama drawn in relation to the warrant of authorisation issued on the same day. As the period commences from the end of the month of the execution of the authorisation, the law has provided for the authorised officer to visit the premises for the purpose of inspection regarding the material which is the subject-matter of prohibitory order or the restraint order, even after search. However, the said exercise has to be done expeditiously, as the period of limitation starts from the date of search was concluded as evidenced by the panchnama, as otherwise the very object with which these provisions was introduced would be defeated.

79. Circular No. 772, dated 23rd December, 1998, issued by Central Board of Direct Taxes explains this position as under ([1999] 235 ITR (St.) 35) :

“According to section 158BE, limitation of 2 years has to be counted from the end of the month in which last of the authorisations was executed. Use of the word â€˜authorisationsâ€™ implies issue of more than one authorisation. Supposingly two authorisations are issued one after the other and the last authorisation is executed first while the authorisation issued earlier is executed later on. In such case, limitation should be counted from the date of issue of the execution of the last authorisation, though it is executed earlier and not from the execution of the earlier authorisation which is executed later. This anomalous situation is intended to be removed by insertion of Explanation 2 below section 158BE with effect from July 1, 1995, by the Finance (No. 2) Act, 1998. This Explanation reads as follows :

â€˜Explanation 2.-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 ;

(b)in the case of requisition under section 132A, on the actual receipt of the books of account or other documents or assets by the authorised officer.â€™

According to this Explanation, limitation is to be counted with reference to the last panchnama drawn on execution of a warrant of authorisation as referred to in section 158BE. The main attribute of the panchnama is stated to be that it should record the conclusion of search.”

80. The law does not contemplate the authorised officer to set out in any of the panchnama that he has finally concluded the search. If for any reason the authorised officer wants to search the premises again, it could be done by obtaining a fresh authorisation. There is no prohibition in respect of the same premises. It is open to the empowered authority to issue authorisation but when the authorisation is issued once, the authorised officer cannot go on visiting the premises under the guise of search. Therefore, it is clear once in pursuance of an authorisation issued the search commences, it comes to an end with the drawing of a panchnama. When the authorised officer enters the premises, normally, the panchnama is written when he comes out of the premises after completing the job entrusted to him. Even if after such search he visits the premises again, for investigation or inspection of the subject-matter of restraint order or prohibitory order, if a panchnama is written, that would not be the panchnama which has to be looked into for the purpose of computing the period of limitation. But, such a panchnama would only record what transpires on a re-visit to the premises and the incriminating material seized would become part of the search conducted in pursuance of the authorisation and would become the subject-matter of block assessment proceedings. But, such a panchnama would not extend the period of limitation. It is because the limitation is prescribed under the statute. If proceedings are not initiated within the time prescribed, the remedy is lost. The assessee would acquire a valuable right. Such a right cannot be at the mercy of the officials, who do not discharge their duties in accordance with law. The procedure prescribed under section 132 of the Act is elaborate and exhaustive. The said substantive provision expressly provides for search and seizure. In the entire provision there is no indication of that search once commenced can be postponed. What can be postponed is only seizure of the articles. Therefore, once search commences it has to come to an end with the search party leaving the premises whether any seizure is made or not. The limitation for completion of block assessment is expressly provided under section 158BE which clearly declares that it is the execution of the last of authorisation which is to be taken into consideration. The word “seizure” is conspicuously missing in the said section. The same cannot be read into the section for the purpose of limitation. Then it amounts to rewriting the section by the court, which is impermissible in law.

81. The aforesaid Circular No. 772, dated December 23, 1998 (see [1999] 235 ITR (St.) 35) refers to this dilemma faced by the Department.

“127. Execution of last of the authorisation or requisition

The word â€˜executeâ€™ is defined in Blackâ€™s Law Dictionary, fifth edition, page 509 as follows :

â€˜to complete ; to make ; to sign ; to perform ; to do ; to carry out according to its terms ; to follow up ; to fulfil the command or purpose of ; to perform all necessary formalities ; to make and sign a contract ; to sign and deliver a notes.â€™

The word â€˜executionâ€™ is defined at page 510 of the said Law Dictionary as follows :

â€˜Carry out some act or course of conduct to its completion. Northwest Steel Rolling Mills v. Commissioner of Internal Revenue, C.C.A. Wash., 110 F.2d 286, 290 : completion of an act : putting into force : completion fulfilment : perfecting of anything or carrying it into operation and effect. “Execution” a process in action to carry into effect the directions in a decree or judgmentâ€”Foust v. Foust, 47 Cal. 2d 121, 302 p.2d 11, 13.â€™

In the light of the above definition of the words â€˜executeâ€™ and â€˜executionâ€™, one may argue that until and unless the final act is performed, the warrant of authorisation should not be treated as executed and the mere initiation of the search followed by an interregnum consequent upon restraint order or for any other reason may not be treated as â€˜executionâ€™ of the warrant. But this interpretation would be hypertechnical and it needs detailed discussion as is done in the following paras.

The question arises as to whether execution of a warrant of authorisation or requisition refers to the conclusion of the proceedings under section 132 and/or 132A or it refers only to the execution of the warrant even though as a result of such execution the proceedings under section 132 or 132A are yet to he completed. The latter situation will include a case in which a restraint order under section 132(3) is passed. In such a case, it can be said that though the warrant of authorisation has been executed, proceedings under section 132(3) are pending. Since the word â€˜executeâ€™, also means â€˜to completeâ€™, one has to wait for conclusion of the proceedings under section 132(3) for the purpose of computation of limitation under section 158BE(1) and the period of one year has to be computed from the end of the month in which the proceeding under section 132(3) are concluded. If there are more than one warrant limitation will be counted from the execution of the last one.

A contrary view is as much possible if one were to consider the spirit of the scheme which envisages expeditious disposal of the search cases and it would be reasonable to interpret that execution of warrant is not tantamount to completion of proceedings under section 132 or 132A the period during which the proceedings under section 132(3) remained pending has to be excluded for the purpose of counting limitation of one or two years under section 158BE. Otherwise, it may lead to absurd results as it may take several years before restraint under section 132(3) is lifted and it may thus extend the period of one or two years by all those years during which proceedings under section 132(3) remained pending it may be agreed against this view that section 132(8A) takes care that there is no extension of proceedings under section 132(3) and that the view cannot be taken without doing violence to the language of the Act.”

82. Therefore, the Explanation added to remove a doubt cannot be construed as a provision providing a longer period of limitation than the one prescribed in the main section. When under the scheme of the section there is no indication of a second search on the basis of the same authorisation issued under the said provision, the legislative intention is clear and plain and the interpretation to be placed by the courts should be in harmony with such an intention. Therefore, one authorisation is to be issued in respect of one premises in pursuance of which there can be only one search and such a search is concluded, when the searching party comes out of the premises, which is evidenced by drawing up a panchnama. When there are multiple places to search and when multiple authorisations are issued, on different dates or on the same date or in respect of the same premises more than one authorisation is issued on different dates, the last panchnama drawn in proof of conclusion of search in respect of the authorisation is to be taken into consideration for the purpose of limitation for block assessment.

Conclusions

(1)The Tribunal has got powers to look into all aspects of search and a valid search is sine qua non for initiating block assessment.

(2)Materials seized during an invalid search cannot be used in block assessment proceeding but can be used in other assessment proceedings under the Act.

(3)The power to put prohibitory order under section 132(3) is under law but the reasons for doing so has to be recorded in writing and are justiciable.

(4)The period of limitation starts on the date on which the last of authorisation has been executed and not when the authorised officer states that the search is finally concluded. Putting a prohibitory order under section 132(3) does not elongate the starting point of limitation.

83. In the light of the aforesaid discussion, as the Tribunal has declined to go into the jurisdictional aspect, the appropriate course would be to set aside the order and remit the entire matter back to the Tribunal for fresh consideration keeping in mind the observations made in this judgment and also consider the jurisdiction aspect which it had declined to consider while passing the impugned order.

84. Therefore, the finding recorded by the Tribunal that action of the Income-tax authorities anterior to search cannot be the subject-matter of the appeal, the legality of the validity of the search proceedings cannot be gone into in the appeal against the order of block assessment and statute has not provided any right of appeal, against such an order cannot be sustained. Accordingly, the said findings are set aside. Consequently, the entire matter is now remitted back to the Tribunal to consider the appeal afresh, on the merits, including the question of the validity and legality of the search, in the light of the law laid down in this decision. Hence, we pass the following :

ORDER

(1)Appeal is allowed.

(2)The substantial questions of law raised in this appeal are answered in favour of the assessee and against the Revenue.

(3)The entire matter is remitted back to the Tribunal for fresh consideration on the merits including the jurisdictional points.

(4)No costs.

[Citation : 339 ITR 210]