Kerala H.C : the validity of assessments on the ground of alleged irregularity in the search warrant issued under section 132 was not questioned in the first round of appeals which reached the Tribunal

High Court Of Kerala

Jose Cyriac vs. CIT

Section : 132

C.N. Ramachandran Nair & K. Surendra Mohan, JJ.

IT Appeal No. 76 Of 2010 And 684, 777 & 1168 Of 2009

October  22, 2010

JUDGMENT

C.N. Ramachandran Nair, J.-Connected appeals, one filed by the assessee and three filed by the Revenue relate to the assessments of relatives and related concerns pursuant to a search made under section 132 and a survey made under section 133A of the Income-tax Act, 1961 (hereinafter called “the Act”). We have heard senior counsel Sri P.K.R. Menon appearing for the Revenue and advocate Sri P. Balakrishnan appearing for the assessees.

2. The facts leading to the controversy are the following. The following business concerns generally known as Carbo group have their office in Carbo House, Old Railway Station Road, Cochin-18 :

1. Carbographics Pvt. Ltd.

2. Carbo Colour Ltd.

3. Carbo Aquamarine Exports Pvt. Ltd.

4. Bethal Chemical Industries P. Ltd.

5. Kurian’s Ink and Chemicals Ltd.

6. Jagannath Aqua Culture Tuticorin P. Ltd.

7. M/s. K. C. Thomas and Co.

8. M/s. Carbo Chemical Industries

9. M/s. Jose Kurian and Sons

3. The partners of the firms and directors of the companies are admittedly brothers by name Jose Cyriac and Jose Kurian, sons of one of the partners by name P.C. Joy and other family members. Suspecting suppression and concealment of income by the partners and the business concerns, the Director of Income-tax (Investigation) issued search warrants in Form 45 showing the places to be searched as the group head office of “Carbo group of concerns” specifically showing their office address and stating in the very same warrant the name and residential address of the partner to be searched. Similarly search warrant was issued in the case of each and every partner/director of the business concerns. Based on the search warrants, search and survey operations are carried out and all the assessees were called upon to file returns of undisclosed income. All the assessees filed returns without any contest about the validity of the assessments initiated pursuant to search and survey. Assessments completed were challenged in first appeal before the Commissioner of Income-tax (Appeals) wherein also the assessees did not contest the validity of the assessments on the ground that search was not conducted in accordance with the provisions of section 132 of the Act or for any defect in the search warrants issued. The Commissioner of Income-tax (Appeals) while considering the appeals did not have any opportunity to consider the validity of assessments on the ground of any omission or mistake or irregularity in the search warrants issued. The only contention raised by all the assessees in first appeals was that assessees were not given sufficient opportunity by the Assessing Officer to raise their objections against the income determined. The Commissioner (Appeals) upheld the claim of the assessees that sufficient opportunity was not given to raise objection against the proposal for assessment and so much so, he set aside all the assessments and remanded the cases to the Assessing Officer for fresh adjudication. The Department challenged the orders of the Commissioner of Income-tax (Appeals) before the Tribunal. The contention of the Revenue before the Tribunal was that the assessees after receipt of notices from the Assessing Officer took ten months’ time to file even returns and, therefore, the assessees cannot complain that they were not given sufficient time by the Assessing Officer before making assessments. Even though pursuant to the Commissioner of Income-tax (Appeal)’s orders in the first round of appeals some of the assessments were revised during the pendency of the Departmental appeals before the Tribunal, the Tribunal later upheld the claim of the Department that delay in completion of assessments is more attributable to the assessees who took ten months’ time to file the returns and such returns were filed on the verge of expiry of the time limit for completion of assessments, set aside the orders of the Commissioner of Income-tax (Appeals) and the matter was remitted back to the Commissioner of Income-tax (Appeals) for consideration of the appeal on the merits i.e. on the income determined based on the materials gathered in search and survey.

4. When the appeals were taken up by the Commissioner of Income-tax (Appeals) after remand, the assessees for the first time raised a contention that the assessments were invalid for the reason that the search warrant was issued in the name of “Carbo group of concerns” who are not assessees and so much so, the search conducted under section 132 is invalid which affects the validity of assessments. In fact, the appeals were restored to the Commissioner of Income-tax (Appeals) by the Tribunal with a specific direction to consider the assessments on the merits. In other words, the validity of assessments on the ground of alleged irregularity in the search warrant issued under section 132 was not questioned in the first round of appeals which reached the Tribunal. Even though the remand order issued by the Tribunal did not authorise the Commissioner of Income-tax (Appeals) to consider the validity of assessments on the alleged ground of irregularity in the search, the Commissioner (Appeals) still proceeded to consider the assessees’ contention in regard to the validity of search. The Commissioner of Income-tax (Appeals) accepted the contention of the assessees that the search carried out with the warrant issued in the name of “Carbo group of concerns” was an invalid search and consequently assessments were cancelled by him. When the Revenue took up the matter in appeals before the Tribunal, three appeals were heard and decided by one Bench of the Tribunal and the last appeal was heard by a different Bench which took a view entirely different from the view taken by the earlier Bench. In other words, both the Benches of the Tribunal issued divergent orders with regard to the validity of assessments. Therefore, we have to only consider which order of the Tribunal is right. We notice that the later decision was rendered by the Tribunal in the order produced in I.T. A. No. 76 of 2010 which is the appeal filed by the assessee wherein the Tribunal has explained how the other Bench order of the Tribunal is not tenable. Therefore, we proceed to consider the said order issued by the Tribunal in I. T. A. No. 207/Coch/2005 pertaining to the assessment of one of the partners Sri Jose Cyriac.

5. Counsel appearing for both sides have referred to a copy of the warrant issued in Form 45 produced in all the cases. We notice from the warrant issued in the case of the assessee in I.T.A. No. 76 of 2010 that the authorisation was to search the office of “M/s. Carbo group of concerns, Carbo House, 40/168, Old Railway Station Road, Cochin- 18” and also the residence of the appellant-assessee Jose Cyriac, Panamkuzhakal House, SRM Road, Cochin-18. On going through the other warrants produced in the court, we notice that in all the warrants issued under section 132 of the Act the place authorised to be searched is the group head office of the business concerns under the control of all the assessees and the residences of the partners named in the warrant. The first question to be considered is in the second round when the appeals were restored to the Commissioner of Income-tax (Appeals) by the Tribunal, whether the Commissioner (Appeals) was entitled to consider the question of validity of assessments based on the irregularity in the warrant alleged by the assessees. We find force in the contention of the counsel for the Revenue and the findings of the Tribunal in their order challenged in I.T.A. No. 76 of 2010 that the Commissioner of Income-tax (Appeals) while considering the appeals after remand by the Tribunal should consider the appeals based on the directions contained in the Tribunal’s order. It is to be noted that the assessees never contested the validity of the assessments on the ground of alleged irregularity in the warrant issued in the first round of appeal before the Commissioner of Income-tax (Appeals). In the second stage when the Revenue filed appeals before the Tribunal against the orders of the Commissioner of Income-tax (Appeals) remanding the cases, though the assessees filed cross-objection challenging the validity of the assessments, the Tribunal did not consider the same because the same did not arise from the orders of the Commissioner of Income-tax (Appeals) challenged before the Tribunal. In other words, the Tribunal while remanding the cases did not allow the assessee to raise an issue on the validity of assessments on the ground of alleged defects in the warrant issued which was not the subject-matter of first appeals filed before the Commissioner of Income-tax (Appeals). Admittedly, the remand orders issued by the Tribunal had become final and in the remand order the Tribunal neither considered the validity of assessments nor included the same within the scope of remand for the Commissioner of Income-tax (Appeals) to consider the same when the matter reached him for a second round after remand by the Tribunal. We, therefore, uphold the findings of the Tribunal in the order challenged in I.T.A. No. 76 of 2010 that the Commissioner of Income-tax (Appeals) had no jurisdiction to consider the validity of the assessments and he was authorised to consider only the assessment on the merits, i.e., about the income determined in assessment.

6. Even though we have upheld the order of the Tribunal on the lack of jurisdiction of the Commissioner of Income-tax (Appeals) to consider the validity of assessments after remand by the Tribunal, both sides argued merits on the validity of the assessments as well. After verifying the entries in the copies of search warrants produced, we have already noticed that in all the warrants the names of the assessees and the residential addresses of the assessees are given as place to be searched besides the head office of the Carbo group of concerns which was also authorised to be searched under the same warrant. In our view, there is nothing wrong in authorising search of a group of concerns by a warrant issued under section 132 of the Act. We have already stated in the beginning of the judgment the names of the firms and the companies whose head office address is shown in every warrant for search. Very many business concerns which are assessed after search have in their name, the name “Carbo” and “Carbo” appears to be the common name forming part of the name of various business concerns of the related assessees. The assessees do not dispute that the address of the head office of the business concerns shown is not correct. Admittedly, all the assessees have their head office in the same building, the address of which is fully given in the warrant. Besides the name of the group shown as Carbo group of concerns in the warrant, every warrant contains the address of residential house of the assessee to be searched. In fact, it is admitted that based on the search warrant issued the head office of the business concerns and the residences of the partners/directors were searched and documents and records were recovered. The assessees have not chosen to challenge the validity of assessments on the allegation of the defect or irregularity in the warrant issued either before the Assessing Officer or in the first round of appeals and they have chosen to raise such a contention after remand before the Commissioner of Income-tax (Appeals) for the first time. We are in complete agreement with the finding of the Tribunal in their order challenged in I.T.A. No. 76 of 2010 that the Commissioner of Income-tax (Appeals) has no jurisdiction to entertain such a contention. Further, on the merits also, we find no substance in the allegation of the assessees that the warrant is defective. In our view, the warrants issued are free from the defect alleged by the assessees. What is required to be stated in the warrant is precise details about the assessees and the persons to be searched which are contained in the warrants issued in these cases because the group head office of all the business concerns and the residence of the persons in charge of business namely, partners and directors of the business concerns, were authorised to be searched. We, therefore, find no merit in the assessees’ challenge against the validity of assessments. For the reasons stated above, we allow the Revenue’s appeals, namely, I.T.A. Nos. 684, 777 and 1168 of 2009 by vacating the orders of the Tribunal. Since the Tribunal has decided the merits on the additions in the order challenged in I.T.A. No. 76 of 2010, the said appeal filed by the assessee is dismissed. So far as the other appeals are concerned, since neither the Commissioner of Income-tax (Appeals) nor the Tribunal has considered the assessees’ challenge against the determination of income and additions made, the matter will stand remanded to the Commissioner of Income-tax (Appeals) for decision on the merits, i.e., pertaining to the income assessed based on the orders of remand issued by the Tribunal in the first round of appeals.

[Citation : 336 ITR 241]

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