Kerala H.C : Whether the limitation period has expired when the assessment order was passed under Section 158BC

High Court Of Kerala

K.V. Padmanabhan vs. Assistant Commissioner Of Income Tax

Section 132(3), 158BE(1)(b)

K.Vinod Chandran & Ashok Menon, JJ.

ITA.No. 191 of 2012

7th January, 2019

Counsel Appeared:

Anil D. Nair, Nivedita A.Kamath, J.R. Prem Navaz for the Petitioner.: P.K.R. Menon, Sr.Counsel, GOI(Taxes), Jose Joseph, SC for the Income Tax.


The appeal raises a substantial question of law against the order of the Income Tax Appellate Tribunal; whether the limitation period has expired when the assessment order was passed under Section 158BC of the Income Tax Act, 1961 (‘Act’, for short). Shorn of the unnecessary details, the brief facts to be noticed are that on due authorization, the premises of the assessee was searched under Section 132 of the Act on 16.03.2000. At the time of search, a panchnama was prepared seizing almost 3700 documents. A wooden almirah, with documents therein, found in the residential premises of the assessee was also issued with a restraint order under Section 132(3) of the Act. Later, there was a further search conducted of the documents and the rticles kept in the almirah and seven documents were seized by a panchnama on the search conducted on 04.04.2000. The question urged before this Court is on the setting in of limitation by the time, the assessment order was passed on 24.04.2002. The limitation commences from the last day of the month in which the last panchnama was recorded.

The contention of the assessee-appellant as argued before us by the learned Counsel, Sri.Anil D Nair is that there was no authorisation for the officer who had conducted the search and seizure on 04.04.2000. Immediately we have to notice that such a contention was n ver raised by the assessee before any of the fact finding authorities. The learned Senior Counsel, Government of India (Taxes), Sri Ravindranatha Menon would specifically refer to the decision of the Hon’ble Supreme Court in 2016 (384) ITR 1 (SC) [VLS Finance Ltd. v. Commissioner of Income Tax] to contend that the validity of the authorisation having not been challenged in the course of search and assessment proceedings ie: before the fact finding authorities, there could be no new challenge raised before this Court. Per contra, it is pointed out that though there is no ground raised on the question of the authorisation being absent, there is a question of law framed in the memorandum.

We have already stated the skeletal facts, sufficient for the consideration of the question raised on limitation. It need only be observed that if the last panchnama is found to be the one as recorded on 16.03.2000 then the limitation has to be calculated from 31.03.2000 and expires on 31.03.2002. The assessment order passed on 24.04.2002 then would be vitiated on grounds of limitation. However, if the panchnama recorded on 04.04.2000 is found to be proper and valid, then, the limitation would have to commence from 30.04.2000 and the order passed on 24.04.2002 would be within the period of limitation. In this context, the learned Counsel has placed before us a number of decisions of various High Courts which will have to be examined to understand the law as expounded by the various courts.

Before that, it is only appropriate to first look at the decision of a Division Bench of this Court reported in 2006 (282) ITR 158 (Commissioner of Income-Tax and another v. Dr. C. Balakrishnan Nair and another). This judgment does not consider the limitation aspect at all, but was against the notice issued for block assessment. We notice the said decision only because the facts are almost identical and the Division Bench had laid down the principles of a search under Section 132; which are relevant here. Therein on a warrant of authorisation, issued on information received of undervaluation of a sale of property on 27.10.1995, search was carried out at the residences of the vendor and vendee. A panchnama was prepared on the said date in the presence of witnesses and since the search was not completed, the books of accounts and records were put in an Almirah and sealed in the presence of witnesses. A prohibitory order under Section 132(3) was served on the assessees on the same date. The search team visited the premises of the assessee on two subsequent days, when the operations could not be resumed for reason of the absence of the assessees. Finally, the search was resumed and concluded. The question was whether there was a requirement for a second authorization insofar as the search conducted after about 15 days. There were also grounds of mala fides alleged against the authorised officer who had conducted the search and it was also asserted that the officer had taken away documents which were not recorded as seized in the panchnama. We need not go into the factual adjudication on the allegation of mala fides raised which were negatived by the Division Bench. The learned Single Judge had found that the subsequent search carried out without a separate authorisation was not proper. The Division Bench set aside that finding and held that there could be a subsequent search carried out, insofar as the documents which were restrained under Section 132(3) without a further authorisation. We extract paragraph 20 of the aforesaid judgment which spoke on the procedure under Section 132 of the Act with specific reference to the facts of a second search within a period of two weeks.

“Section 132 of the Income-tax Act empowers search and seizure to be carried out by the departmental officers and to take away whatever valuable documents, records, etc., during the period of search which are found to be necessary. Search may be sudden and unexpected. Search team would not be able to unearth all documents at a time at one stroke. Party may at times keep the incriminating documents beyond the search of the search team, if he suspects a search. During the search, search team will have to detect and ollect all the records which are necessary to achieve the objective. Relevancy or otherwise of the materials is o be determined by the search team. Documents which are necessary or relevant would normally be seized. Th search team will have to separate the wheat from the chaff and would seize only documents which are relevant. It may not be practicable to seize all the documents in a day or two, because they are in an unfamiliar territory while the assessee would be familiar with each and every items and materials kept in the place of search. Att tude of some of the assessees may be helpful, of others may not. In this connection reference may be made to the decisions of the apex court in Pooran Mal v. Director of Inspection (Investigation) [(1974) 93 ITR 505] and ITO v. Seth Brothers (1969) 74 ITR 8367. The petitioners have raised a contention that search was prolonged unreasonably and the reasons stated are not convincing. Search commenced on October 27, 1995, and continued on November 10, 1995, and there is a delay of fourteen days for which the Department have given acceptable explanation. In the absence of any time limit prescribed in the Code of Criminal Procedure or the Income-tax Act, we are not prepared to say that the delay, in conducting the search has vitiated the search and seizure”

This broadly outlines the fundamental scope and elementary content of a search operation under Section 132 of the Act.

5. In the present case also, we find the aforesaid declaration squarely applicable. We notice that there was a search carried out on 16.03.2000 and a panchnama prepared, a copy of which was handed over to us by the learned Counsel for the assessee, across the Bar, which was stated to be part of the paper book produced before the Tribunal. We also see that on 16.03.2000 one wooden almirah containing some documents and other records were issued with a restraint order under Section 132(3). As admitted by the learned Counsel for the assessee there were almost 3700 documents seized on the said date as evidenced from the panchnama. Hence we are of the opinion that it was not practical to look into the entire books of accounts and documents found in the premises, the balance of which by the restraint order, on the first day of search was kept in an almirah and sealed under Section 132(3). This does not amount to a seizure as provided under Section 132. Only if the records are kept in the custody of the assessee on the grounds found in the second proviso to Section 132(1), could there be a deemed seizure though not particularly seized on the day of search.

6. Now the question arises as to which of the two is the last panchnama as spoken of in Section 158BE(1)(b) of the Act. Section 158BE(1)b) and Explanation 2(a) are relevant and are extracted here under:

“Section 158BE: Time limit for completion of block assessment (1)(b): Within two years from the end of the month in which the last of the authorisations for search under section 132 or for requisition under section 132A, as the case may be, was executed in cases where a search is initiated or books of account or other documents or any assets are requisitioned on or after the 1st day of January, 1997.

Explanation 2(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.”

There are a number of decisions of various High Courts placed before us by the learned Counsel for the assessee, which we have to look into. But at the outset, we also have to notice that the said decisions invariably noticed the decision of a learned Single Judge of this Court and placed reliance on the same, which has been reversed by a Division Bench, as noticed herein before in Dr. C. Balakrishnan Nair.

Commissioner of Income Tax v. Mrs. Sandhya P. Naik [2002 (253) ITR 534(Bom)], considered Section 158BE(1)(a) which provided a limitation period of one year and otherwise was in pari materia. The earch conducted in the residential premises of the assessee continued for some days and concluded on 16.10.1996. The assessment had to be completed on or before 31.10.1997; while it was actually completed only on 31.12.1997. The Department contended that there was a restraint order issued under Section 132(3) with respect to the articles kept in a cupboard and there was a panchnama prepared on 13.12.1997; hence the limitation of one year commenced only from 31.12.1997. The Division Bench found that the panchnama prepared on 13.12.1997 was by an officer not authorised under Section 132 and that there was no seizure as such effected. After the search, the prohibitory order passed under Section 132(3) was withdrawn by the authorised officer, on a request made by the assessee as to the articles contained in the cupboard being of a religious nature and required for the purposes of a pooja. The Assistant Director of Income Tax, the authorised officer, released the cupboard on 26.10.1996 which order was implemented on 13.12.1997 by the Assistant Commissioner of Income-Tax, who admittedly was not an authorised officer. There was also no seizure carried out under Section 132 and the panchnama was only insofar as re ease of the silver vessels and articles. These are not comparable facts, which have any connection to the fac s of this case.

A Division Bench considered another ins ance of search in (2007) 294 ITR 444 (Delhi) Commissioner of Income Tax v. Sarb Consulate Marine Products P Limite . The assessee who was engaged in fishing on the high seas was subjected to a search under Section 132 on 06.11.1996, when some documents were seized and a restraint order issued under Section 132(3) against some fishing vessels/trawlers. The restraint order was extended twice and on 16.12.1997 there was a notice issued under Section 158BC. The return was filed by the assessee within time and later a further search was conducted in the fishing vessels/trawlers on 14.09.1998; but without any seizure having been effected. All the same a panchnama was drawn up. The contention of limitation as raised by the assessee was met on the ground that the last panchnama as provided for under the Explanation 2 to Section 158BE is that prepared on 14.09.1998. The Division Bench found that after the first search and seizure on 06.11.1996, there was absolutely no proceedings taken and the search was merely stated to have been completed on 14.09.1998, in a letter of the Assistant Director of Income Tax (Investigation). The Court found that the same was a dummy search initiated as a mere formality so as to extend the period of limitation. Proceedings were held to be barred by limitation finding the last panchnama drawn to be, on 06.11.1996 and not on 14.09.1998 when a dummy search was carried out for the purpose of extending the period of limitation.

10. (2009) 221 CTR 385 (Kar) [Commissioner of Income Tax v. T.S.Chandrashekar] again considered the issue of limitation on the basis of the search conducted. Therein, two authorisations were issued on the same day; one in the morning and the other in the evening at 3.45 p.m.: the former for the search of the business premises and the latter for the search of residential premises. The Court clearly found that the second authorisation has to be considered as the authorisation later issued. However, on the question of panchnama, it was found that on 12.12.1995, there was seizure of certain documents from the business premises and on 13.12.1995, there was seizure of cash made from the residential premises. Though there were subsequent searches carried out on 19.01.1996, and 7th & 12th of February, 1996, those did not lead to any seizure and the drawing of panchnama was only for carrying out an inventory of the jewellery. In this context, it was found that the document evidencing seizure of cash from the residence of the assessee was the last panchnama for the purpose of computation of limitation. The subsequent searches carried out in the next year, could not lead to extension of the limitation period was the finding.

(2009) 308 ITR 168 (Delhi) [Commissioner of Income Tax v. S.K.Katyal] also considered the question of limitation under Section 158BE. The search under Section 132 commenced on 17.11.2000 at 8 a.m. and continued till 7 p.m., when it was temporarily concluded for the day, which was to be commenced subsequently, for which purpose seals were placed in the cash box kept in an almirah. A panchnama was prepared on the conclusion of the proceedings, wherein there were certain seizures made. However, there was no search conducted thereafter. On 03.01.2001, the Income Tax Officer inspected the premises and revoked the restraint order under Section 132(3). The keys of the almirah and the safe were returned to the assessee for which a panchnama was drawn up. The Department claimed limitation from the date of that particular panchnama; which was found to be unsustainable on the basis of the afore cited decisions.

All the cited decisions found the respective assessments to be hit by limitation, for reason of the panchnama ordering release of goods or documents, restrained under Section 132, not being the last panchnama for reason of there being no seizure as such effected. We are of the opinion that none of these decisions apply to the facts of the present case, since, here, the facts are quite distinct insofar as the second panchnama prepared on 04.04.2000 specifically effected seizure of seven documents, from the documents and articles that were kept sealed in the almirah against which a restraint order was issued under Section 132(3). The intention of the legi lature in providing for a limitation period is to ensure certainty and finality to legal proceedings and avoid unnecessary delay exposing the assessee to proceedings for indefinite periods; but also enabling the Department to look into the incriminating materials seized on search. The delay should not prejudice the assesssee but the Department should also be given adequate time to settle and conclude the proceedings without prejudice to the revenu . The legislature hence devised a measure by which the period for completion statutorily commences from the last date in which such incriminating materials are seized; which has to be evidenced by a panchnama. Reliance cannot be, to panchnamas prepared for release of goods or resort to some other device of a dummy search being carried out, merely for the purpose of extending the period of limitation.

We, then, come to the decision of the Madras High Court, wherein decisions of the High Courts of Delhi and Karnataka were relied on. The Madras High Court in A.Rakesh Kumar Jain v. Joint Commissioner of Income Tax [Tax Case (Appeal) No.1240/2006] considered the aspect of limitation under Section 158BE. A search was commenced in the assessee’s premises on 12.12.2001 and the proceedings were closed on 13.12.2001. A panchnama evidencing seizure of materials was also drawn up on that date. On 08.02.2002 and on 15.02.2002 further panchnamas were drawn up evidencing issuance of prohibitory order but there was no further authorisation issued for that search. The Revenue contended that the assessment made under Section 158BC on 27.02.2004 was within the limitation period as calculated from the last panchnama prepared in February 2002. The assessee challenged the order on the ground that the subsequent search conducted in February 2002 was not pursuant to any authorisation issued. There was also no prohibitory order issued on 13.12.2001 when the authorised search concluded.

14. The High Court of Madras held that when a search is conducted and the search party leaves after drawing up a panchnama, the search is completed and the authorisation is implemented and executed. A further search would require a fresh authorisation. However if there is a restraint order against any materials or documents, then the search could be continued even without a fresh authorisation but the search and seizure shall be confined to the materials or documents which are subjected to the restraint order. If a seizure is made from those documents or materials subjected to restraint order on the second search, then there shall be a panchnama drawn up, which would be the last panchnama drawn up for the premises. It was also held that the materials so seized on the basis of that last panchnama could be used for computing the undisclosed income. We perfectly agree with the High Court of Madras on these aspects. However, the Division Bench went on to hold that for purposes of limitation, the last panchanama would be that drawn up on the day when the search was completed at the first instance. Hence, the panchnama drawn up later for seizure of the materials against which a restraint order was passed would have no bearing, in computation of limitation. We, with respect, express our dissent to that proposition based on an artificial distinction created between a panchnama on completion of search and of the premises, which is not statutorily recognised. Reliance, for that proposition, was placed on (2011) 339 ITR 210 (Kar) [C.Ramaiah Reddy v. Assistant Commissioner of Income Tax (IMV)]. (2010) 328 ITR 320 (Delhi) [Commissioner of Income Tax v. Anil Minda] is also seen relied on.

15. In Anil Minda, there was an authorisation issued to search the premises of the assessee on 13.03.2001. The search was commenced on 19.03.2001 and continued on 20th, 26th, 27th and 28th of that month. On 26.03.2001, it was noticed that there was a locker maintained by the assessee in a Bank for which a second authsorisation was issued on 26.03.2001. The locker was searched and that second authorisation executed on 26.03.2001 itself. However, on the first authorisation, search was continued on 27th and 28th of March and then on 11th of April, 2001. The Department contended that since the search with respect to the first authorisation concluded on 11.04.2001, limitation has to be computed from 30.04.2001. The assessee argued that under Section 158BE, the limitation starts from the end of the month in which the last of the authorisation for search under Section 132 was executed, since the search made on the second authorisation concluded on 26.03.2001. The contention was that the limitation commenced from the execution of the last of the authorisations and hence, here it commenced when the authorisation to search the bank locker was executed. The Division Bench however gave short shrift to the said contention finding that the Explanation, then would be rendered otiose. There being only one authorisation issued he ein this decision is not at all relevant for this case.

16. The Karnataka High Court in C.Ramaiah Reddy was concerned with facts identical to those in some of the cited decisions. Search was carried out on 05.12.1995 and a panchnama was drawn up on conclusion of search for the day and prohibitory order issued against certain jewellery and books of accounts. On 24.01.1996, the prohibitory order was lifted and the items restrained, released by a panchnama. The assessment order was passed on 28.01.1996, relying on the second panchnama. We have no doubt that the facts clearly make out limitation having set in. However, the Division Bench found a distinction on the basis of the expressions used in the Explanation and Section 132(1)(a) and (b). The words “last panchnama” used in the Explanation as distinguished from the words “last of the authorisations” used in the body of the section has a definite connotation insofar as the legislature not contemplating more than one panchnama with respect to a particular search; was the finding. The reasoning seems to be that with respect to a particular authorisation, there could be only one panchnama drawn up, and if at all, a panchnama is drawn up on the basis of a seizure made in pursuance to a restraint order, the limitation cannot stand extended by reason of the second panchnama. The Division Bench observed; to hold otherwise, the Explanation ought to have used the words “last of the panchnamas”. It was also observed that if a restraint order was held to be a permission to carry out any number of searches then, the authorised officer could use it as a ‘season ticket’ to carry out intermittent searches at his whims and fancies. With all the respect at our command, we are unable to agree with the said proposition as propounded by the Division Bench of the Karnataka High Court.

We notice from the above extracted provision that the limitation commences on the execution of the last of the authorisations in the event of a search initiated or for requisition made of books of accounts, other documents or any assets. The Explanation further clarifies that in cases of search the authorisation is deemed to have been executed on the conclusion of the search as recorded in the last panchnama drawn in relation to any person in whose case the warrant of authorisation has been issued. As for requisition, the Explanation clarifies that it shall be on the actual receipt of the books of accounts, other documents or assets. The thrust is on the seizure of incriminating materials and the requirement to enable the Department to look into such materials and adjudicate upon it, for which a reasonable period of two years is provided from the last day of the month, in which the authorisation is executed; evidenced by the drawing up of a panchnama of seizure of materials or documents. Even if the search operations continue for a number of days or are conducted on days not continuous or consequent, that would not be relevant in so far as computing limitation which has to be from the last date on which incriminating material was recovered and seized, which seizure is also evidenced by a panchnama.

At the risk of repetition, it has to be reiterated that once on the basis of an authorisation a search is initiated, then it has to be continuous unless there is a restraint order issued against any documents or materials. This is also logical since once the search party leaves the premises, no one would leave any incriminating material in the premises for further seizure. Once the search party leaves the subject premises, for a further search there should be a fresh authorisation. However, if a restraint order is issued against any material and the same allowed to be kept in the premises itself, then within sixty days a further search could be carried out on the very same authorisation but; confined to the materials against which a restraint order is issued under Section 132 (3). Here, we pause to briefly dilate upon what is seizure under Section 132. Seizure is as provided under clause (iii) or second proviso to Section 132(1). The Explanation to sub section (3) specifically excludes a restraint order from the definition of a seizure under clause (iii) of Section 132(1). Coming back to the search, the panchnama drawn up last, would be that drawn up seizing incriminating materials; a seizure as provided in Section 132. Whether it be on the first authorisation or the last under a series of such authorisations is not relevant for our case, which has only one authorisation.

19. In the present case, the proceedings commenced on 16.03.2000. As we noticed, there were a number of documents seized on that day which definitely would have taken up the entire day on which the search was conducted. The seizure has to be made on a cursory verification and a prima facie satisfaction be ng entered into of the need to seize the same. A panchanama was drawn up and the other documents which the autho ised officer wished to examine were placed in an almirah and the same issued with a restraint order under Section 132(3). We agree with the decision of the Madras High Court in A.Rakesh Kumar Jain that for a second search to be conducted, there need to be a second authorisation obtained since the search concluded on that day. We also agre with the Division Bench decision of the Karnataka High Court in C.Ramaiah Reddy insofar as there being no requirement for a second authorisation, if the search is confined to the materials against which a restraint order has bee issued under Section 132(3). But, we are unable to agree with the finding in C.Ramaiah Reddy that a seizure made of the documents which have been issued with a restraint order under Section 132(3) cannot be said to be the last panchnama.

There could be many cases when search s no concluded on the very day in which it is commenced. There could also be seizure made of incriminating documents as revealed on a continuous search on consecutive days on the same authorisation or on a subsequent search on a further authorisation or a seizure effected from the material or documents which were issued with a restraint rder. In all such cases, the last panchnama drawn up of an effective seizure made under Section 132, not being covered by the second proviso, would be the starting point of the period of limitation. It is in the circumstance of the search and seizure being not concluded in a particular day, that there is a provision under sub-Section (3) of Section 132 to make a restraint order, so as to continue the proceedings on the very same authorisation issued.

We again notice the Division Bench decision of this Court in Balakrishnan Nair (C)(Dr.) and the extracted paragraph to fortify our findings. When search is continued on the subsequent days and there is requirement of seizure, the panchnama last recorded would be the starting point of limitation. Again looking at the specific words employed in clause (a) of Explanation 2, it has to be reiterated that the last panchnama is that drawn up on the conclusion of the search, in relation to any person in whose case the warrant of authorisation has been issued. The person referred to therein is not the authorised officer and is the assessee against whom the authorisation for search is issued. The warrant of authorisation contemplates a search being continued over a period of time and seizure effected by drawing up panchnamas; more than one. In the decisions of the various High Courts, we referred to at the first instance, we noticed that the later panchnamas though drawn up did not result in any seizure of documents or materials and only effected release of those materials against which a restraint order was issued under Section 132(3). What distinguishes the present case is the fact that there was a seizure effected of the documents which were issued with a restraint order.

The learned counsel for the assessee then would contend that there were only seven documents seized on the second day of search, that is on 04.04.2000. The contention of the assessee before the appellate authority was also that the second search was conducted only to extend the period of limitation. We see that the Tribunal has rightly found that at the time when the search was proceeded with, it would not have been in the contemplation of the authorised officer that an assessment order would be issued only after the period of limitation. It cannot also be assumed that the authorised officer had at the time of search itself decided to issue an order after the limitation as provided under Section 158BE. Here is not a case where there was unexplained delay in carrying out the further seizure of the documents against which a restraint order is issued. In the above circumstances, we answer the question on limitation, on the facts in this case, against the assessee and in favour of the Revenue.

The next question as framed in the memorandum is as follows:

“In the facts and circumstances of the case, ought not the Tribunal have found the second search conducted on 4.4.2000, under the warrant of authorization dated 8.3.2000, done by a different party was bad in law?”

Immediately we notice that this is not to say that the second search was not by an authorised officer and inbuilt is the admission that it was by one authorised, but a different Officer. The learned counsel for the assessee would take us to Form No.45, the warrant of authorisation under Section 132 which speaks of au horisation of specific officers, which document is not communicated to the assessee. Pertinent is the fact that one ingle authorisation could specify more than one officer. It is also pointed out that Rule 112(7) of the Income Tax Rules specifically speaks of the list of all things seized in the course of search (panchanama) to be prepared by the authorised officer and signed by such witnesses. It is the contention that there is no authorisation issued in favour of the officer who conducted the second search and seizure.

24. As pointed out by the Revenue, there is absolutely no ground taken before any of the fact finding authorities on this particular aspect. If it was taken, definitely the same could have been examined. Though the learned Counsel prayed for a remand, we are not persuaded for the following reasons. Though not formally communicated, it cannot be assumed that the assessee was not aware of the order of autho isation, which definitely, he would have been confronted with at the time of search. The Form as pointed out by the learned Counsel also speaks of authorisation of more than one officer. We notice from Annexure-B, the order of the first appellate authority, that the appellant’s case was that the search and seizure were conducted on two days by two different authorised persons. Hence, at the first appellate stage, the specific contention was that both the officers though authorised had independently conducted the search on the two separate days. This contention cannot vitiate the search and seizure and was not accepted by the first appellate authority or the Tribunal. Here too, the contention is reiterated, which we find to be a mere after thought to delay the finalisation by realisation of the demand. We, hence, answer that question raised also against the assessee and in favour of the Revenue and decline a consideration on facts as to whether the officer, who carried out the search and seized the seven documents, did so under a valid authorisation under Section 132 for reason of the assessee having not raised it at all before the fact finding authorities or even before this Court. The contention, infact, was quite the opposite; which results in an admission that there was due authorisation. We, hence, reject the Income Tax Appeal without any order as to costs.

[Citation : 412 ITR 55]

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