16

[Search and seizure.

17

132. 18(1) Where the 19[Director General or Director] or the 20[Chief Commissioner or Commissioner] 21 [or Additional Director or Additional Commissioner] 22[or Joint Director or Joint Commissioner] in consequence of information23 in his possession, has reason to believe23 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 any24 money, bullion, jewellery or other valuable article or thing24 and such money, bullion, jewellery or other valuable article or thing represents either wholly or partly income or property 25[which has not been, or would not be, disclosed24] 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),
26

[then,

(A) the 27[Director General or Director] or the 28[Chief Commissioner or Commissioner], as the case may be, may authorise any 29[Additional Director or Additional Commissioner or] 30[Joint Director], 31[Joint Commissioner], 32[Assistant Director 33[or Deputy Director]], 34[Assistant Commissioner 33 [or Deputy Commissioner] or Income-tax Officer], or (B) such 29[Additional Director or Additional Commissioner or] 30[Joint Director], or 31[Joint Commissioner], as the case may be, may authorise any 32[Assistant Director 33[or Deputy Director]], 34 [Assistant Commissioner 33[or Deputy Commissioner] or Income-tax Officer], (the officer so authorised in all cases being hereinafter referred to as the authorised officer) to] (i) enter and search35 any 36[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)39, to afford the authorised officer the necessary facility to inspect such books of account or other documents;] (iii) seize40 any such40 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 :
42 41 38

37

[Provided that where any building, place, vessel, vehicle or aircraft referred to in clause (i) is within the area of jurisdiction of any 43[Chief Commissioner or Commissioner], but such 43[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 44[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 45[Chief Commissioner or Commissioner] having jurisdiction over such person may be prejudicial to the interests of the revenue :]
46

[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):]
47

[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:]
48

[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 so49.]

50

[(1A) Where any 51[Chief Commissioner or Commissioner], in consequence of information in his possession, has reason to suspect that any books of account, other documents, money, bullion, jewellery or other valuable article or thing in respect of which an officer has been authorised by the 52 [Director General or Director] or any other 53[Chief Commissioner or Commissioner] or 54[Additional Director or Additional Commissioner] 55[or Joint Director or Joint Commissioner] to take action under clauses (i) to (v) of sub-section (1) are or is kept in any building, place, vessel, vehicle or aircraft not mentioned in the authorisation under sub-section (1), such 56[Chief Commissioner or Commissioner] may, notwithstanding anything contained in section 57[120], authorise the said officer to take action under any of the clauses aforesaid in respect of such building, place, vessel, vehicle or aircraft.] (2) The authorised officer may requisition the services of any police officer or of any officer of the Central Government, or of both, to assist him for all or any of the purposes specified in sub-section (1) 58 [or sub-section (1A)] and it shall be the duty of every such officer to comply with such requisition. (3) The authorised officer may, where it is not practicable59 to seize any such books of account, other documents, money, bullion, jewellery or other valuable article or thing, 60[for reasons other than those mentioned in the second proviso to sub-section (1),] serve an order on the owner or the person who is in immediate possession59 or control thereof that he shall not remove, part with or otherwise deal with it except with the previous permission of such officer and such officer may take such steps as may be necessary for ensuring compliance with this sub-section.
61

[Explanation.For the removal of doubts, it is hereby declared that serving of an order as aforesaid under this sub-section shall not be deemed to be seizure of such books of account, other documents, money, bullion, jewellery or other valuable article or thing under clause (iii) of sub-section (1).] (4) The authorised officer may, during the course of the search or seizure, examine on oath any person who is found to be in possession or control of any books of account, documents, money, bullion, jewellery or other valuable article or thing and any statement made by such person during such examination may thereafter be used in evidence in any proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act.
62

[Explanation.For the removal of doubts, it is hereby declared that the exami-nation of any person under this sub-section may be not merely in respect of any books of account, other documents or assets found as a result of the search, but also in respect of all matters relevant for the purposes of any investigation connected with any proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act.]
63

[(4A) Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search, it may be presumed (i) that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person ;

(ii)

that the contents of such books of account and other documents are true ; and

(iii) that the signature and every other part of such books of account and other documents which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in the handwriting of, any particular person, are in that persons handwriting, and in the case of a document stamped, executed or attested, that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested.] (5) 64[***] (6) 65[***] (7) 66[***] (8) The books of account or other documents seized under sub-section (1) 67[or sub-section (1A)] shall not be retained by the authorised officer for a period exceeding 68[thirty days from the date of the order of assessment under 69[section 153A or] clause (c) of section 158BC] unless the reasons for retaining the same are recorded by him in writing and the approval of the 70[Chief Commissioner, Commissioner, Director General or Director] for such retention is obtained : Provided that the 70[Chief Commissioner, Commissioner, Director General or Director] shall not authorise the retention of the books of account and other documents for a period exceeding thirty days after all the proceedings under the Indian Income-tax Act, 1922 (11 of 1922), or this Act in respect of the years for which the books of account or other documents are relevant are completed.
71

[(8A) An order under sub-section (3) shall not be in force for a period exceeding sixty days from the date of the order.] (9) The person from whose custody any books of account or other documents are seized under subsection (1) 72[or sub-section (1A)] may make copies thereof, or take extracts therefrom, in the presence of the authorised officer or any other person empowered by him in this behalf, at such place and time as the authorised officer may appoint in this behalf.
73

[(9A) Where the authorised officer has no jurisdiction over the person referred to in clause (a) or clause (b) or clause (c) of sub-section (1), the books of account or other documents, or any money, bullion, jewellery or other valuable article or thing (hereafter in this section and in sections 132A and 132B referred to as the assets) seized under that sub-section shall be handed over by the authorised officer to the Assessing Officer having jurisdiction over such person within a period of sixty days from the date on which the last of the authorisations for search was executed and thereupon the powers exercisable by the authorised officer under sub-section (8) or sub-section (9) shall be exercisable by such Assessing Officer.] (10) If a person legally entitled to the books of account or other documents seized under sub-section (1) 74 [or sub-section (1A)] objects for any reason to the approval given by the 75[Chief Commissioner, Commissioner, Director General or Director] under sub-section (8), he may make an application to the

Board stating therein the reasons for such objection and requesting for the return of the books of account or other documents 76[and the Board may, after giving the applicant an opportunity of being heard, pass such orders as it thinks fit]. (11) 77[***] (11A) 78[***] (12) 79[***]
80

[(13) 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).]
81

(14) The Board may make rules in relation to any search or seizure under this section ; in particular, and without prejudice to the generality of the foregoing power, such rules may provide for the procedure to be followed by the authorised officer (i) for obtaining ingress into 82[any building, place, vessel, vehicle or aircraft] to be searched where free ingress thereto is not available ; (ii)
83

for ensuring safe custody of any books of account or other documents or assets seized.

[Explanation 1.For the purposes of sub-section (9A), execution of an authorisation for search shall have the same meaning as assigned to it in Explanation 2 to section 158BE.] Explanation 2.In this section, the word proceeding means any proceeding in respect of any year, whether under the Indian Income-tax Act, 1922 (11 of 1922), or this Act, which may be pending on the date on which a search is authorised under this section or which may have been completed on or before such date and includes also all proceedings under this Act which may be commenced after such date in respect of any year.]

Meaning of Search and Seizure Search means not looking for something which is produced or Open but which is hidden, concealed or not obvious. The word has varied meanings and it should be given the general meanings to look for or to seek which are well known meaning attributable to the word in the context of section 132 as has judicially been held in Assainar Vs ITO reported in 101 ITR 854. It also means taking possession of the record etc. for the purpose of inspection. It includes a thorough inspection of the building, place, vessel, and aircraft and of the person. Seizure means the authority to take possession of records etc outside the possession of the person. It is thus an expression which implies a forcible exaction or taking possession from either the owner or one who has possession and who is unwilling to part with possession. Legislative Developments: These provisions introduced originally with a view to prevent large scale evasion have been amended later in order to plug the loopholes which were brought to light by actual working and consequent to judicial scrutiny and review It is only thus desirable to have a look at the legislative developments in this regard. The authorities under the I.T. Act 1922 did not originally possess any powers of search and seizure. It was only after the Second World War, necessity of this provision was felt to tax the vast profits made by war profiteers. Section 37(2) was thus introduced by Finance Act 1956 to grant powers of search & seizure to the Income tax Authorities. The same powers and provisions as listed in section 37(2) of the I. T. Act 1922 were originally embodied in section 132 of the I.T. Act 1961. The introduced provision continued, till section 30 of the Finance Act 1964 replaced section 132 by a completely new elaborately provision. This became necessary as the then existing provisions in section 37 sub-section (2) of the Income Tax Act 1922 were struck down by Assam High Court being violative of Articles 14 and 19(1 )(g) of the Constitution. The substitution of the section resulted into enlargement of powers of CIT and authorized officers whereby for the first time an order u/s 132 (1) could be issued only if reason to believe existed that books of account or documents were not produced by the person concerned in response to statutory notices issued or are not be produced even if summons were to be issued. The powers under section 132 were further enlarged by an amendment brought about in 1965. Among other changes made, it enabled the authorities to make a seizure of money, bullion jewellery or other valuable article or thing if the authorized officer considered it necessary to satisfy the liability estimated by him but the officer had to pass an order u/s 132(5) within 90 days of the seizure. This power to retain the seized assets has now been diluted as sub-section (5) of section 132 of the I T. Act retrains no more applicable. The powers of search and seizure were further extended by Taxation Laws Amendment Act, 1975 inter alia to authorize search if the officer issuing a warrant had, reason to believe that money, bullion,

jewellery would not be disclosed by the person concerned for income tax purposes in future. Also, Commissioners were empowered to permit entry into any building, place vessel, vehicle or aircraft not within his territorial jurisdiction. Subsequent amendments were made by Amendment Act 1 984 and Finance Act 1988 extending time limit to 120 days u/s 132(5) and granting the power to take constructive possession of the assets seized respectively.

Current Statutory Position Section 132(1) of the Income Tax Act can be invoked by the Commissioner of Income Tax or Chief Commissioner or Director General or Director or any other authorized Additional or Joint Director or Commissioner if he has in consequence of information in his possession has reason to believe. Generally the specified authorities proceed to search a person etc. not on mere whims & fancies but only on the basis of some valid and just information and after duly satisfying itself that the conditions precedent prescribed under sub-section (1) of section 132 are satisfied. None-the-less, there are good number of cases wherein an action to search is taken not in accordance with law, may be on the basis of mere rumor or suspicion. Then the next question, which arises, is what is a information? Information is not defined in the Act. Therefore, it will be relevant lo consider first, the dictionary meaning of information and later to see how this word has been considered by the courts. In Shorter Oxford Dictionary, information is defined as a statement of fact employed as an argument to justify or condemn some act. In Chambers Twentieth Century Dictionary, information has been defined as intelligence given, knowledge, an accusation given to a Magistrate or a court. Courts have considered the meaning and scope of information in the context of different taxing statutes. A few Judicial pronouncement will be helpful in examining the meaning of information: a) The Supreme Court while considering information as occurring in section 147(b) observed in Commissioner of Income Tax vs. A. Raman & Co. (1968) 67 ITR 11 (SC), that it must mean instruction or knowledge derived from an external source concerning facts or particulars. b) If the information was already available to the Income Tax Officer when he first made the original assessment, it is not possible to say that the subsequent discovery of escapement of income from assessment is the result of receipt of the same information at the later stage. A mere possibility that the information had escaped his notice when the original assessment was made does not justify a proceeding under section 34 of the Indian income Tax Act, 1 922-(Priyanand Prasad v. Income Tax Officer AIR 1957 All 760). c) In L.R. Gupta v. Union of India (1992) 194 ITR 32 (Del), relevant to section 132 it is held that the expression information must be something more than a mere rumour or gossip or a hunch.

d) In Om Prakash Jindal v Union of India (1976) 104 ITR 389 (P&H), it is observed by the Punjab and Haryana High Court that there are various sources of information and different modes of its collection, collation and processing. It may be writing or oral; but if it is derived from oral communication, it must be placed on record to justify the formation of reasonable belief on its basis. e) Any information received subsequently without any supporting objective fact in the earlier stages would render the warrant and search invalid- Vide Thanthi Trust v. Income fax Officer (1973) 91 ITR 261 (Mad.). Similarly the next important limb which has to be satisfied is Reason to Believe, as in order to invoke the provisions of section 132(1) of the Act the Commissioner or Director etc. must have Reasons to Believe that the fact of the case justify the basic conditions stipulated in clause (a),(b) (c) of the subsection. The word reason means cause or justification and the word believe means to accept as true or to have faith in it. The belief must be genuine and not a mere pretence and has to be held in good faith and not a reason to suspect. It should be framed after an application of mind and the same should be apparent from the note recorded. Belief may be subjective but reason is objective To further explain. belief may not be open to scrutiny, as it is a final conclusion arrived at on the basis of information received. But reasons due to which the decision is taken can always be examined. The close scrutiny of sub-section (1) of section 132 shows that the authorities specified therein have been empowered to issue a warrant of authorization of search in respect of any person on the basis of Information in their possession they have reason to believe that any such person, - has failed to comply, or - a person to whom such of notice, if issued would fail to comply; or - any person who is in possession of any money bullion, jewellery or other valuable article or thing and such money bullion jewellery etc. represents either wholly or partly income or property which has either not been or would not be disclosed for the purpose of the Income Tax Act referred to in the section as undisclosed income or property. The warrant of authorisation can only be issued to certain specified authorities who alone for the purpose of making search and seizure can enter and search any building etc where he has reason to suspect that such books of accounts money jewellery etc. etc. are kept, or break open the lock of any door etc where the keys thereof are not available; or search any person, who has got out of or is about to get into or is in the building, place etc. if the authorised officer has reason to suspect that such a person has secreted about his person or any such books of accounts etc. etc. or seize any such books of accounts etc. etc. place mark of identification etc. and make a note or any inventory of such money Conclusion

The code laid down in the Income Tax Act for search and seizure confers vast and Draconian Powers to the authorities. However, the powers have been judicially approved and held to be constitutionally valid on grounds of flagrant tax evasion and huge flow of unaccounted money in the system. While these are valid points one cannot equally deny the fact that these activities of search and seizure are infringement on persons liberty, that being so it desirable that such powers be sparingly used and when used every possible regulation adhered to.

PETITIONER: POORAN MAL ETC. Vs. RESPONDENT: DIRECTOR OF INSPECTION (INVESTIGATION) OF INCOME-TAX MAYUR DATE OF JUDGMENT14/12/1973 BENCH: PALEKAR, D.G. BENCH: PALEKAR, D.G. RAY, A.N. (CJ) CHANDRACHUD, Y.V. ALAGIRISWAMI, A. BHAGWATI, P.N. CITATION: 1974 AIR 348 1974 SCR (2) 704 1974 SCC (1) 345 CITATOR INFO : RF 1975 SC 67 (1) R 1976 SC 636 (2,4,6) F 1985 SC 989 (15,16) F 1987 SC1748 (20) ACT: Income Tax Act (1961)-Sections 132, 132A and Rules 112, 112A-Search and seizure-Whether violate Art. 19(1)(f) and (g) of the Constitution. Income Tax Act 1961, Sec. 132(5)-Seizure of money, bullion, etc.-Whether provision confiscatory. Income Tax Act, 1961, Sec. 132(1) and (5)-Search and seizure-Whether provisions hit by Art. 14 of the Constitution for following different procedure for the evaders of tax, who are believed to be in possession of undisclosed income or property and evaders against whom no such belief is entertained by the authorities. Income Tax Act 1961, Sec. 132-Whether evidence gathered from the illegal seizure of documents is excluded at the trial- Whether a writ of prohibition to restrain the use of such evidence can be granted. Income Tax Act 1961, sec. 132--"Reason to believe"-Whether Director of Inspection can entertain reasonable belief as not being directly connected with the assessment-Whether the Director can entertain necessary belief for ordering search and seizure where the assessment was already completed. Income Tax Act, 1961, Sec. 132-Seizure of irrelevant documents-Whether renders the search invalid. HEADNOTE: In the proceedings before the Supreme Court two of them being writ petitions under Art. 32 of the Constitution and two others being appeals from the orders of the Delhi High Court in writ petitions under Art. 226-relief was claimed in respect of the search of certain premises and seizure of

account books, documents, cash, jewelry and other valuables by Income-tax authorities purporting to act u/s 132 of the Income Tax Act, 1961. The petitioners/ appellants challenged the validity of Sec. 132(1) and (5) of Rule 112(A) on the ground that they violate Art. 14, Article 19(1)(f) and (g) and 31 of the Constitution. It was also contended that a writ of prohibition to restrain the authorities from using the 'information gathered from the documents seized should be issued. In the writ petitions, the actual search and seizure were challenged on the ground that they were carried out in contravention of the provisions of Sec. 132 and Rule 112-A. The Court negatived all the contentions. Dismissing the writ petitions and appeals, HELD: (1) When one has to consider the reasonableness of the restrictions or curbs placed on the freedoms mentioned in Art. 19(i) (f) and (g), one cannot possibly ignore how such evasions eat into the vitals of the economic life of the community. Therefore, in the interest of the community, it is only right that the fiscal authorities should have sufficient powers to prevent tax evasion. As a broad proposition, it can be stated that if the safeguards while 'carrying out search and seizure are generally on the lines adopted by the Criminal Procedure Code they would be regarded as adequate and render the temporary restrictions imposed by these measures as reasonable. On detailed examination of the provisions of Sec. 132, and Rule 112, it is clear that 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 Sec. 132 and Rule 112 cannot be regarded as violative of Arts. 19(1)(f) and (g). [714F, 717C] In the course of his duties, the Director of inspection has ample opportunities to follow the course of investigation and assessment carried on by the income Tax Officers and to check the information received from his sources with the actual material produced or not produced before the assessing authorities. It is not, therefore, correct to argue that the Director of Inspection could not entertain honest and reasonable belief before ordering search and seizure under Section 132(1)(a)(b) and (c). The second proviso to sub-section (5) of Sec. 132 shows that the assessee can get a release of all the assets seized if he can make satisfactory arrangements for the payment of the estimated dues. So also, the excess collection is refundable u/s 132-A with interest after the regular enquiry. The provisions of Section 132(5) are not confiscatory in nature. [717F] M. P. Sharma v. Satish Chandra [1954] S.C.R. 1077 and Commissioner of Commercial Taxes v. R. S. Jhaver [1968]1 S.C.R. 148 followed. (II) The provisions of Section 132(1) and (5) cannot be challenged on the ground that they make unjust discrimination between two sets of tax evaders in .ordering search and seizure or retention of the seized wealth for recovering the tax, in some cases and not ordering the same in other cases. All evaders of taxes can be proceeded against u/s 132. Only in some cases, the search may be useful because of the information about the undisclosed income and wealth. Where there is no such information, search and seizure would be futile. Therefore, there is no substance in the contention that two different procedures for assessment are adopted and hence there is discrimination under Art. 14. [720C] C. Venkata Reddy and Another v. Income-tax Officer, (Central) 1, Bangalore, and others, 66 Income-tax Reports, 212 and Ramjibhai Kalidas V.I. G. Desai, Income-tax Officer, and others, 80 Income-tax Reports,

721, cited with approval. (III) The Income-tax authorities can use as evidence any information gathered from the search of the documents and accounts and articles seized. Neither by invoking the spirit of our Constitution nor by strained construction of the fundamental rights can we spell out the exclusion of evidence obtained on an illegal search. U23F], A. K. Gopalan v. State of Madras, [1950] S.C.R. 88 and M. P. Sharma v. Satish Chandra [1954] S.C.R. 1077. Courts in India and in England have consistently refused to exclude relevant evidence merely on the ground that it is obtained by illegal search or seizure. Where the test of admissibility of evidence lies in relevancy, unless there is an express or implied prohibition in the Constitution or other law, evidence obtained as a result of illegal search or seizure is not liable to be shut out. [723G] (IV) In writ petition No. 446171, on facts it was found that the allegations of mala fide and oppressiveness and highhandedness in search and seizure were not proved. On examining the records, held that the petitioner was not cooperating with the Director of Inspection. (V) Held further, that seizure of books of account and other documents which were afterwards found to be not relevant, along with the documents relevant for the enquiry, does not make the search and seizure illegal. It may at the most be an irregularity. On the material on record, the Director of inspection had proper grounds for a belief for ordering search and seizure under sub-clauses (b) and (c) of sub-section (1) of Sec. 132. Merely because the assessment for the relevant year was already completed, it does not mean that on the information in the possession of the Director of Inspection, he cannot entertain the necessary belief. On facts, in Writ Petition No. 86/72 held the search and seizure were neither oppressive nor excessive. JUDGMENT: ORIGINAL/CIVIL APPELLATE JURISDICTION: Writ Petition Nos 446 of 1971 and 86 of 1972. (Under Art. 32 of the Constitution for the enforcement of fundamental rights). Civil Appeals Nos. 1319 and 1320 of 1968. From the Judgment and Order dated the 22nd March, 1968 of the Delhi High Court in Writ Petitions Nos. 798-D and 800-D of 1966. N.D. Karkhanis and Ram Lal, for the petitioner (in W.P. 446/71 N. D. Karkhanis, Balram Sanghai, A. T. M. Sampath, M. M. L Srivastava and E. C. Agarwala, for the petitioner (in W.P. 86/72). F. S. Nariman, Additional Solicitor General of India, B. B. Ahuja and S. P. Nayar, for the respondents (in both W.Ps.) M.C. Chagla, L. M. Singvi, S. Sadhu Singh, Jagmohan Khanna R. N. Kapoor, Nirmala Gupta and Mohinder Kaur and Veena Dev Talwar, for the respondents (in appeals). F.S. Nariman, Additional Solicitor General of India, S. T. Desai. B.B. Ahuja and S. P. Nayar, for the respondents. (in appeals) The Judgment of the Court was delivered by PALEKAR, J.-In these proceedings-two of them Writ Petition under Article 32 of the Constitution and two others which are appeal from orders passed by the Delhi High Court under Article 226relief is claimed in respect of action taken under section 132 of the Incometax, Act, 1961 (hereinafter called the Act) by way of search and seizure of certain premises on the ground that the authorisation for the search as also the search and seizure were illegal. The challenge was based on constitutional and non-constitutional grounds For the appreciation of the constitutional

grounds it is not necessary to give here the detailed facts of the four cases. It is sufficient to state that in all these cases articles consisting of account books and documents and in the Writ Petitions, also cash, jewelry and other valuables, were seized by the Income-tax authorities purporting to act under the, authorisation for search and seizure issued under section 132 of the Act. Broadly speaking the constitutional challenge is directed against sub-sections (1) and,(5) of section 132 of the Act and incidentally also against rule 112A on the ground that these provisions are violative of the fundamental rights guaranteed by Articles 14, 19(1) (f) (g) and 31 of the Constitution. The non-constitutional grounds of challenge are based up on allegations to the effect that the search and seizure were not in accordance with section 132 read with Rule 112. This challenge will have to be considered in the background of the facts of the individual cases. Chapter XIII of the Act deals with Income,-tax authorities. their ,powers and jurisdictions. The heirarchy of authorities as given in section 116 shows that the class of authorities designated as Director of Inspection is shown below the Central Board of Direct Taxes and above the class of authorities known as Commissioner of Income-tax. The other authorities mentioned are Assistant Commissioners of Income-tax. Income-tax Officers, and Inspectors of Incometax. Section 117 shows by whom these various authorities are to be appointed. Section 118 deals with subordination and control. Section 119 deals with the powers of the higher authorities to give instructions and directions to subordinate authorities. Under section 120 Directors of Inspection have to perform such functions of any other Income-tax authority as may be assigned to them by the Board. The Board, it is clear, might assign to the Director of Inspection the functions of any other authority under the Act. We, may then turn to part 'C' of this Chapter which deals with the powers. Section 131 says that the authorities from the Commissioner down to the Income-tax Officer shall have the same powers as are vested in a court under the Code of Civil Procedure in respect of several matters including the enforcing of attendance of any person or compelling the production of books of account and other documents. Section 132 provides for search and seizure. It appears that under section 37(2) of the Income-tax Act, 1922 a limited Power of search and seizure had been first given to the Income-tax authorities in 1966. The present Income-tax Act initially gave that power under section 132 on the same lines as the old section 37(2). But there were further amendments in section 132 in 1964 and 1965. Under the amendment of 1965, two sections namely sections 132 and 132A were substituted for the original section 132. We are concerned with these sections and it will be therefore, necessary in the first instance to reproduce the same "132. (1) Where the Director of Inspection or the Commissioner. in consequence of information in his possession, has reason to believe that(a) any person to whom a summon under subsection (1) of section 37 of the Indian Income-tax Act, 1922 (XI 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 proceedings under the Indian Income-tax Act, 1922 (XI of 1922) or under this Act, or (c) any person is in possession of any money, bullion jewelry or other valuable article or thing and such money, bullion, jewelry or other valuable article or thing represents either wholly or partly in come or property which has not been disclosed for the purposes of the Indian income-tax Act, 1922 (XI of 1922), or this Act (hereinafter in this section referred to as the undisclosed income or property). he may authorise any Deputy Director. of Inspection, Inspecting Assistant Commissioner, Assistant Director of Inspection or Income-tax Officer (hereinafter referred to as the authorised officer) to(i) enter and search any building or place where he has reason to suspect that such books of account, other documents, money, bullion, jewelry or other valuable article or things 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. (iii) seize any such books of account, other documents, money, bullion, jewelry or other valuable. article or thing found as a result of such search; (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 on an inventory of any such money. bullion, jewelry or other valuable article or thing. (2) The authorised officer may requisition the services of any police officer or of any officer of the. Central Government, or of both, to assist him for all or any of the purposes specified in sub-section (1) and it shall be the duty of every such officer to comply with such requisition. (3) The authorised officer may, where it is not practicable to seize any such books of account, other document, money,,bullion, jewelry or other valuable article or thing, 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 officer and such officer may take such steps as may be necessary for ensuring compliance with this sub-section,. (4) The authorised officer may, during the course of the search or seizure, examine on oath any person who is found to be in possession or control of any books of account, documents, money, bullion, jewelry or other valuable, article or thing and any statement made by such person during such examination may thereafter be used in evidence in any proceedings under the Indian Income-tax Act, 1922 (XI of 1922), or under this Act. (5) Where any money, bullion, jewelry or other article or thing (hereinafter in this section and section 132A referred to as the assets) is seized under sub-section (1), the Income tax Officer, after affording a reasonable opportunity to the person concerned for being heard and making such enquiry as may be prescribed, shall, within ninety days of the seizure, make an order, with the previous approval of the Commissioner

(i) estimating the undisclosed income (including the income from the undisclosed property) in a summary manner to the best of his judgment on the basis of such materials as are available with him; (ii) calculating the amount of tax on the income so estimated in accordance with the provisions of the Indian Income-tax Act, 1922 (XI of 1922) or this Act; (iii) Specifying the amount that will be required to satisfy any existing liability under this Act and any one or more of the Acts specified in clause (a) of subsection (1) of section 230A in respect of which such person is in default or' is deemed to be in default, and retain in his custody such assets or part thereof as are in his opinion sufficient to satisfy the aggregate of the amounts referred to in clauses (ii) and (iii) and forthwith release the remaining portion, if any, of the assets to the person from whose custody they were seized; Provided that if, after taking into account the materials available with him, the Income-tax Officer is of the view that it is not possible to ascertain to which particular previous year or years such income or any part thereof relates, he may calculate,the tax on such income or part, as the case may be, as if such income or part were the total income chargeable to tax at the rates in force in the financial year in which the assets were seized; Provided further that where a person has paid or made satisfactory arrangements for payment of allthe amounts referred to in clause (ii) and (iii) or any part thereof, the Income-tax Officer may, with the previous approval of the Commissioner, release the assets or such part thereof as he may deem fit in the circumstances of the case. (6) The assets retained under sub-section (5) may be dealt with in accordance with the provisions of section 132A. (7) If the Income-tax Officer is satisfied that the seized assets or any part thereof were held by such person for or on behalf of any other person, the Income-tax Officer may proceed under sub-section (5) against such other person and all the provisions of this section shall apply accordingly. (8) The books of account or other documents seized under sub-section (1) shall not be retained by the authorised officer for a period exceeding one hundred and eighty days from the date of the seizure unless the reasons for retaining the same are recorded by him in writing and the approval of the Commissioner for such retention is obtained : Provided that the Commissioner shall not authorise the retention of the books of account and other documents for a period exceeding thirty days after all the proceedings under the Indian Income-tax Act, 1922 (XI of 1922), or this Act in respect of the years for which the books of account or other documents are relevant are completed. (9) The person from whose custody any books of account or other documents are seized under sub-section (1) may make copies thereof, or take extracts therefrom, in the presence of the authorised officer or any other person empowered by him in this behalf, at such place and time as the authorised officer may appoint in this behalf. (10) If a person legally entitled to the books of account or, other documents seized under sub-section (1) objects for any reason to the approval given by the Commissioner under sub-section (8), he may make an application to the Board stating therein the reasons for such objection and requesting for the return of the books of account or other documents. (11) If any person objects for any reason to an order made under sub-section (5), he may, within thirty days of the date of such order, make an application to such authority, as may be notified in this behalf

by the, Central Government in the Official Gazette (hereinafter in this section referred to as the notified authority, stating therein the reasons for such objection and requesting for appropriate relief in the matter. (12) On receipt of the application under subsection (10) the Board, or on receipt of the application under subsection (11) the notified authority, may after giving the applicant an opportunity of being heard, pass such orders as it thinks fit. (13) The provisions of the Code of Criminal Procedure, 1898 (V of 1898), relating to searches and seizure shall apply, so far as may be, to searches and seizure under subsection (1). (14) The Board may make: rules in relation to any search or seizure under this section; in particular, and without prejudice to (the generality of the foregoing power, such rules may provide for the procedure to be followed by the authorised officer. (i) for obtaining ingress into such building or place to be searched where free ingress thereto is not available; (ii) for ensuring safe custody of any books of account or other documents or assets seized. Explanation 1.-In computing the period of ninety days for the purposes of sub-section (5), any period during which any proceeding under this section is stayed by an order or injunction of any Court shall be excluded. Explanation 2.-In this section, the word "proceeding" means any proceeding in respect of any year, whether under the Indian Income-tax Act. 1922 (XI of 1922) or this Act, which may be pending on the date on which a search is authorised under this section or which may have been completed on or before such date and includes also all proceedings under this Act which may be commenced after such date in respect of any year. Sec. 132A. (1) The assets retained under sub-section (5) of' section 132 may be dealt with in the following manner, namely (i) The amount of the existing liability referred to in clause (iii) of the said subsection and the amount of the liability determined on completion of the regular assessment or reassessment for all the assessment years relevant to the previous years to which the income referred to in clause (i) of that sub-section relates, and in respect of which he is in default or is deemed to be in default may be recovered out of such assets' (ii) If the assets consist solely of money, or partly of money and Partly of other assets, the income-tax Officer may apply such money in the discharge of the liabilities referred to in clause (i) and the assessee shall be discharged of such liability to the extent of the money so applied. (iii) The assets other than money may also be applied for the discharge of any such liability referred to in clause (i) as remains undischarged and for this purpose such 'assets shall be deemed to be under distraint as if such distraint was effected by the Income-tax, Officer under authorisation from the Commissioner under sub-section (5) of section 226 and the Income-tax Officer may recover the amount

of such liabilities by the sale of such assets and such sale shall be effected in the manner laid down in the Third Schedule. (2) Nothing contained in sub-section (1) shall preclude the recovery of the amount of liabilities aforesaid, by any other mode laid down in this Act. (3) Any assets or proceeds thereof which remain after the liabilities referred to in clause (i) of subsection (1) are discharged shallbe forthwith made, over or paid to the persons from whose custody the assets were seized. (4) (a) The Central Government shall pay simple interest at the rate of nine per cent per annum on the amount by which the aggregate of money retained under section 132 and of the Proceeds, if any, of the assets sold towards the discharge of the existing liability referred to in clause (iii) of subsection (5) of that section exceeds the aggregate of the amounts required to meet the liabilities referred to in clause (i) of subsection (1) of this section. (b) Such interest shall run from the date immediately following the expiry of the period of six months from the date of the order under sub-section (5) of section 132 to the date of the regular assessment or reassessment referred to in clause (i) of sub-section (1) or as the case may be, to the date of last of such assessments or reassessments. Rule 112 A which is also challenged as it prescribes the procedure for the enquiry under section 132(5) is as follows "112A. Inquiry under section 132(1) where any money, bullion, jewelry or other valuable article or thing (hereinafter referred to as assets) are seized, the Incometax Officer shall within fifteen days of the seizure issue to the person in respect of whom enquiry under subsection (5) of section 132 is to be made requiring him on the date to be, specified therein (not being earlier than fifteen days from the date of service of such notice) either to attend at the office of the Income-tax Officer to explain or to produce or cause to be there produced evidence on which such person may rely for explaining the nature of the possession and the source of the acquisition of the assets. (2) The Income-tax Officer may issue a notice to the person referred to in sub-rule (1) requiring him on a date specified therein to produce or cause to be produced at such time and at such place as the Income-tax Officer may specify such accounts or documents or evidence as the Income-tax Officer may require and may from time to time issue further notices requiring production of such further accounts or documents or other evidence as he may require. (3) The, income,-tax Officer may examine on oath any other person or make such other inquiry as he may deem fit. (4) Before any material gathered in the course of the examination or inquiry under sub-rule (3) is used by the Income-tax Officer against the person referred to in subrule (1) the Incometax Officer shall give a reasonable notice to that person to show cause why such material should be used against, him. It will be seen in the first place that the power to direct a search and seizure is given to the Director of Inspection or the Commissioner. Secondly, the authorisation for such search and seizure must be in favour of officers not below the grade of an Income-tax Officer. Thirdly the power to authorise search

and seizure can be exercised only when the Director of Inspection or the Commissioner has reason to believe (1) that in spite of the requisitions under the relevant provisions mentioned in section 132(1) (a) the required books and documents have not been produced; (2) that any person, whether requisition under the above provisions is made or not, will not, or would not, produce or cause, to be produced, any books of account and other documents. which will be useful for, or relevant to, any proceeding under the Income-tax Act; or (3) that any person is in possession of any money, bullion, jewelry or any other valuable article or thing representing either wholly or partly undisclosed income or property. When the authorisation is given by the Director of Inspection or the Commissioner, as the case may be, it must be limited to the five, purposes mentioned in sub-clauses (i) to (v) of subsection (1). Sub-section (14) provides for the making of rules in relation to any search or seizure. Accordingly, rule 112 has been framed which says that the powers of search and seizure under section 132 shall be exercised in accordance with sub-rules (2) to (14) under rule 112. These are detailed rules setting out the procedure for making the search and seizure and for the custody of what has been seized. Sub-section (5) of section 132 deals with the special cases where, on search, money, bullion, jewelry and other valuables believed to be undisclosed income or property are seize d. What is seized cannot be kept by the departmental authorities with them indefinitely. Sub-section (5) requires that a summary enquiry must be made by Income-tax Officer with a view to ascertain how much of the seized valuable should be retained against unpaid tax dues. The balance must be forthwith released. the second proviso to sub-section (5) further shows that the money and valuables may not also be retained by the Incometax Officer if the person, concerned has paid or made satisfactory arrangements for payment of all the income-tax dues which are summarily estimated under sub-section (5). The summary enquiry under sub-section (5) must be finished within 90 days of the seizure and the order which is made thereunder is subject to the previous approval of the Commissioner. Under subsection (6) of section 132 the assets retained 'under subsection (5) are to be dealt with in accordance with the provi sions of section 132-A which clearly goes to show that the Income-tax Officer shall proceed with the regular assessment or reassessment of the tax payable by the person concerned and after such assessment the amount of tax :so held payable is to be recouped from the assets retained under subsection 5 of section 132. The balance, if any, is to be returned with interest at the rate of 9% if the assessment and reassessment is not completed within six months of the date of the retention order made under sub-section (5) of section 132. Even in regard to the books of account and other documents which are seized the authorised officer is not entitled to retain the same for. a period exceeding 180 days unless he records his reasons in writing for retaining the same and the Commissioner approves of the retention. The person from whose custody the books of account and other documents are seized, is, however, entitled to receive copies or take extracts therefrom. Any person aggrieved by the retention of the documents is entitled to make a representation to the Board which is also the authority to which a representation could be made under sub-section (11) by any person objecting to the order passed under subsection (5) retaining the assets. Broadly it will be seen that section 132 and rules 112 and 112A deal. with search and seizure and the disposal of articles seized after search. The challenge under Articles 19 and 14 is directed against sub-sections (1) and (5) of section 132 and rule 112A.

Dealing first with the challenge under article 19(1)(f) and (g) ,of the Constitution it is to be noted that the impugned provisions are evidently directed against persons who are believed on good grounds to have illegally evaded the payment of tax on their income and property.: Therefore, drastic measures to get at such income and property with a view to recover the government dues would stand justified in themselves. When one has to consider the reasonableness of the restrictions or curbs placed on the freedoms mentioned in article 19(f) and (g), one cannot possibly ignore how such evasions eat into the vitals of,the economic life of the community. It is a well-known fact of our economic life that huge sums of unaccounted money are in circulation endangering its very fabric. In a country which has adopted high rates, of taxation a major portion of the unaccounted money should normally fill the Government coffers. Instead of doing so it distorts the economy. Therefore, in the interest of the community it is only right that the fiscal authorities should have sufficient Powers to prevent tax evasion. Search and seizure are not a new weapon in the armory of those whose duty it is to maintain social security in its broadest sense. The Process is widely recognised in all civilized countries Our own 'Criminal Law accepted its necessity and usefulness in sections 96 to 103 and section 165 of the Criminal Procedure, Code. In M. P. Sharma v. Satish Chandra(.) the challenge to the power of issuing a search warrant under section 96 (1) as violative of Article 19 (1) (f) was repelled on the ground that a power of search and seizure is in (1) [1954] S.C.R. 1077. any system of jurisprudence an over-riding power of the State for the protection of social security and that power is necessarily regulated by law. As pointed out in that case a search by itself is not a restriction on the right to hold and enjoy property though a seizure is a restriction on the right of possession and enjoyment of the property seized. That however, is only temporary and for the limited purpose of investigation. Then the Court proceeds to say "A search and seizure is, therefore, only a temporary interference with the right to hold the premises searched and the articles seized. Statutory regulation in this behalf is necessary and reasonable restriction cannot per se. be considered to be unconstitutional. The damage, if any, caused by such temporary interference if found to be in excess of legal authority is a matter for redress in other proceedings. We are unable to see how any question of violation of article 19(1)(f) is involved in this case in respect of the warrants in question which purport to be under the first alternative of section 96(1) of the Criminal Procedure Code-" p. 1081. Similar powers entrusted to those whose duty it was to enforce taxation laws were upheld by this Court in The Commissioner of Commercial Taxes and others v. R. S. Jhaver and others(1). In that case section 41 of the Madras General Sales Tax Act of 1969 was. under challenge. It was held by this Court that an officer empowered by the Government under sub-section (1) of section 41 was entitled to effect a search and seize goods and articles as provided in that section. Dealing with the question of search and seizure in a taxing statute the court observed at page 158 : "Now it has not been and cannot be disputed that the entries in the various Lists of the Seventh Schedule must be given the widest possible interpretation. It is also not in doubt that while making a law under any entry in the Schedule it is competent to the legislature to make all such incidental and ancillary provisions as may be necessary to effectuate the law; particularly it cannot be disputed that in the case of a taxing statute it is open to the legislature to enact provisions which would check evasion of

tax. It is under this power to check evasion that provision for search and seizure is made in many taxing statutes. It must therefore be held that the legislature has power to provide for search and seizure in connection with taxation laws in order that evasion may be checked." It is, now too late in the day to challenge the measure of search and seizure when it is entrusted to income-tax authorities with a view to prevent large sale tax evasion. Indeed the measure would be objectionable if its implement 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 (1) (19681 (1) S.C.R. 148 which prescribed that all searches under the subsection 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 subsection (2), this Court observed : "We are, therefore, of opinion that safeguards provided in S. 165 also apply to searches made under sub-s. (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-s. (2) also clearly show that the power to search under sub-s. (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-s. (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-s. (2) is not a reasonable restriction keeping in view the object of the search, namely, prevention of evasion of tax." 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 subsection (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 (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 subsection (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 behavior. 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 12 cannot be regarded as violative of articles 19(f) 'and (g). A minor point was urged in support of the above contention that section 132 contains provisions which are likely to affect even innocent persons. For example, it was submitted, an innocent person who is merely in custody of cash, bullion or other valuables etc. not knowing that it was concealed income is likely to be harassed by a raid for the purposes of search and seizure. That cannot be helped. Since the object of the search is to get at concealed incomes, any person, who is in custody without enquiring about its true nature, exposes himself to search. Subsection (4) of section 132 shows the way how such an innocent person can make the impact of the (search on him bearable. All that he has to do is to tell the facts to the searching officer explaining on whose behalf he held the custody of the valuables. It will be then for the Incometax Officer to ascertain the person concerned under subsection (5). It was next argued that the power for directing a search is given to an authority like the Director of Inspection who, it is submitted, is, in the very nature of things, incapable of forming any reasonable belief with regard to the requirements of section 132(1) (a) (b) & (c). The contention was that the assessee has no contact in the matter of assessment with the Director and, therefore, he can hardly entertain any belief, reasonable or otherwise. It is conceded that the Income-tax Officer or his superiors in the direct line, like the Inspecting Assistant Commissioner or the Commissioner, may be in a position to entertain the requisite belief on account of their having direct and first hand knowledge of the financial circumstances of the assessee, the defaults he has committed or is likely to commit, etc. But the Director of Inspection has no opportunity and is, therefore, thoroughly unable to form any opinion. This would only mean that any belief entertained by him would be an arbitrary belief and legislation investing such an officer with the power to direct a search is per se unreasonable. in our opinions there is no substance in this argument. The Director of Inspection, as already seen in section 116 of the Income-tax Act, is an officer in the Income-tax Department next only in authority to the Board of Direct Taxes. Section 118 shows that all Inspecting Assistant Commissioners and Income-tax officers, besides being subordinate to the Commissioners, are also subordinate to the Director of Inspection. Under section 119(2) every income-tax officer employed in the execution of the Act is required to observe and follow such instructions as May be issued to him for, his guidance by the concerned Director of Inspection. Moreover under section 120 the Director of Inspection is required to perform such functions of any other income-tax authority, apparently, including the Income-tax Officers and his direct superiors, as may, be assigned to Mm by the Board. Under section 135 the Director of Inspection is competent to

make any enquiry under the Act and for that purpose he is invested with all the Powers that an income,tax Officer has under the Act in relation to the making of enquiries. It would, therefore, follow that in the course of his duties the Director of Inspection has ample opportunities to follow the course of Investigation and assessment carried on by the Incometax Officers and to check the information received from his sources with the actual material produced or not produced before the assessing authorities. It is not, therefore, correct to argue that the Director of Inspection could hardly be expected to entertain, honestly, any reasonable belief for the purposes of scetion 132(1) (a) (b) &(c). A subsidiary point relating to the entertainment of reasonable belief under section 132 was also raised by Mr. Karkhanis. He submitted that it was possible to say that the Director of Inspection or the Commissioner, as the case may be, could, in conceivable cases, entertain reason to believe the existence of conditions referred to in subclauses (a) and (c) of sub-section (1). For example, where the necessary requisition is made under sub-clause (a) the authority concerned may from the record ascertain whether the person to whom the requisition is issued has omitted or failed to produce or cause to be Produced the required documents. Similarly under sub-clause (c) if the authority, has received any secret information ,which, in its opinion, was reliable, it may be possible for it to have reason to believe that any person is in possession 'of any money, bullion, jewellery etc. which is undisclosed income or property and such property is secreted in some place. But Mr. Karkhanis submitted that so far as sub-clause (b) is concemed, it win be impossible for one to say that the authority can reasonably entertain the belief that if a requisition is made the person concerned will not or would not produce or cause to be produced the required documents. In his submission, the authority, can entertain that belief only when a requisition is made and within reasonable time given the document is not produced. That is provided for in sub-clause (a). But to say. that the authority can also have reason to believe that if a requisition is made the person concerned will not in future produce the document is, according to Mr. Karkhanis, a conclusion which is impossible to draw on any conceivable facts. We must say that if Mr. Karkhanis really thinks that there is substance in this argument, than he must be blissfully unaware of the manner in which income-tax is evaded. It is impossible to enumerate all the circumstances in which the necessary reasonable belief may be entertained under subclause (b). As an illustration, however, we may point out a case which fans completely under sub-clause (b). An assessee may be filing his returns from year to year regularly and his Assessments may be also completed in due course over years. Ms books of account and documents have been duly checked from year to year and the assessing officer is also completely satisfied that the returns are correct. But it might so happen that this apparently honest assessee-has invested large funds in properties and other financial deals, reliable information about which finds its way to the Director of Inspection. In such a case no oracle is needed to tell the Director of Inspection that if a requisition is made on the assessee to produce his documents in connection with these financial deals and investments, the assessee will most certainly omit to produce or cause to be produced such documents. On the other hand, there is danger that all these documents may be destroyed because the very fact that a requisition is made with a view to investigate concealed deals would put the assessee, on his guard and the relevant documents may either disappear or be destroyed. . Indeed, it is possible that an assessee may, after knowing that the game is up, produce the requisite documents. But in the nature of things such an assessee would be rare. The question for us to consider is whether the authority under section 132(1) may entertain the reasonable belief that in such circumstances the assessee will not or would not produce the documents. In our opinion though in a very rare case a tax evader may comply

with a requisition, the Director of Inspection who has reliable information that the assessee has consistently concealed his income derived from certain financial deals may be justified in entertaining the reasonable belief that the assessee, if called upon to produce the necessary documents, will not produce the same. There is no substance, therefore, in the contention that sub-clause (b) has overreached itself. The argument that section 132(5) is confiscatory in its effect has also no force. It must be remembered that the object of this provision is to expedite the return of the seized assets after retaining what is due by way of tax to Government and has been illegally withheld by the person concerned. The seizure of the assets has been made in the belief, honestly held, that the assets represents undisclosed income or property. But the Income tax Officer cannot merely rest on this belief. He must take a summary enquiry after notice to the person concerned and the latter has an opportunity to show that he bad duly disclosed this income. If he cannot do this the officer is entitled to proceed on the basis that it is undisclosed income and on the relevant material make a broad estimate of the tax withheld The amount of such tax which truly belongs to Government is retained by the Income-tax Officer and the balance forthwith, released We do not see how this can be described as confiscation. In fact, the second proviso to sub-section (5) shows that the assessee can get a release of all the assets seized if he can make satisfactory arrangements for the payment of the estimated dues. Moreover it must be noted that the enquiry under sub-section (5) is no substitute, for regular Assessment or reassessment. The Income-tax Officer, having jurisdiction, will proceed with the assessment in due course and determine the correct amount of tax payable. In the meantime the assets retained are only by way of sequestration to meet the tax dues 6-784 Sup Cl/74 found to be eventually payable. if by reason of the enquiry under section 132(5), which is admittedly a summary enquiry, an amount in excess of the dues is retained, the same is liable to be returned with interest at 9 per cent under section 132A. We are not, therefore, inclined to hold that the restrictions placed by any of the provisions of section 132, 132A or rule 112A are unreasonable restrictions on the freedoms under section 19(1) (f) & (g) . It was next argued that sections 132(1), and (5) are violative of the fundamental right under Article 14 on the ground (1) that they make unjust discrimination between evaders of tax, distinguishing those who are believed to be, in possession of undisclosed income or property from those evaders of tax who are not believed to be in possession, and (2) that although all evaders are liable to be proceeded against under section 147 of the Act, yet only some of them who are found in possession of undisclosed income or property are .liable to be subjected to the procedure under section 132(5). We find no substance in this argument. All evaders of tax can be proceeded against under section 132. Only in some cases the, search may be useful; in others it may not be. If the Director of Inspection gets timely information about the undisclosed income. and its location, he can direct a search and seizure. Otherwise, it is futile to direct a search and seizure because the whole maneouvre will be fruitless. The provision for seizure is designed with the object of getting at the 'income which has been concealed illegally by the, assessee. Only when he is honestly satisfied that some undisclosed income of a person is likely to come to his hands if a search is directed, he, will be in a position to issue the necessary authorisation. He cannot, however, direct a search in respect of an evader of tax who is astute, enough to spend all his income or otherwise make it impossible to be traced. For the purposes of section 147 of the Act all evaders of tax are subject to the same procedure for assessment of tax including those against whom action is taken

under section 132. Assessees whose assets could be seized for the recovery of their tax liabilities do not stand in a different class, as such, but stand in a different situation from those others against whom the search and seizure process, though available, is futile. The finding of undisclosed income in the form of cash, jewelry and the like makes the provision of sub-section (5) imperative. The taxing authorities cannot keep the valuables with = indefinitely without,trying to see how much of what is now seized will go to the Government by way of tax. Therefore, in fairness to the assessee, sub-section (5) has been deliberately introduced. In the nature of things such an enquiry is impossible in the case of tax evaders from whom nothing is or could be seized on a search. Sub-section (5) of section 132 does not contemplate a different procedure in the matter of regular assessment. See section 132A which shows that those who are found in possession of undisclosed income on a seizure are liable to be regularly assessed or reassessed. Sub-section (5) only contemplates a provisional summary enquiry with a view to determine how much of the seized wealth can be legitimately and reasonably retained to cover the tax liability already incurred. Regular assessment follows under the law in the same manner as in the case of tax evaders who are not found in possession of concealed income. The utmost that can be said is that by reason of the seizure the Government is in a position to secure its tax dues before the regular assessment is concluded. But that does not introduce any different procedure for the regular assessment of such an assessee's income which remains the same for all tax evaders. In one set of cases the fiscal authorities make sure of recoveries, in the other, they are unable to do so-not because the provisions of section 132 do not operate on them, but because action under that section by search and seizure isfutile. Therefore, there is no substance in the contention that two different procedures for assessment are adopted and hence there is a discrimination under Article 14. The plea on behalf of the assessees, in effect, only amounts to this "It is true that we are tax evaders. But if other evaders successfully dodge the collection of the tax by causing their concealed income to disappear, why should we not get the same facility." Some points of lesser substance were mentioned in the petition memos in support of the challenge under Articles 14 and 19(1)(f) and (g). They were,, however, not urged at the time of the hearing, as no the other grounds urged, it was impossible to hold that the impugned provisions were violative of either Articles 14, 19 or 31. We may however, mention in this context that these points had been raised in C. Venkata Reddy and Another v. Income-tax Officer (Central) 1, Bangalore, and others(1) and in Ramjibhai Kalidas v. I G. Desai, Income-tax Officer, and others(2) where they have beenquite adequately dealt with and rejected. Apart from the constitutional challenge there was also a further challenge on the ground that the actual search and seizure in all these cases, being in contravention of the requirements of section 132 and rule 112 was illegal. Several allegations have been made of malafides, highhandedness, oppressive behavior and the like and we shall have to deal with them on the facts of each case. But so far as the two Civil Appeals are concerned, it appears to us that it is not necessary to enter into the question of the alleged illegalities. The High Court has not done so. The relief claimed in those petitions in the High Court was for the, return of the account books and documents which had been seized and it would appear from the record that before the High Court disposed of that matters, the account books and documents had been already returned. However, there was another relief claimed in the petitions and that was for a Writ of Prohibition restraining the Income-tax Department from using as evidence

any information gathered from the search of the articles seized. It would appear from the record that the High Court was prepared to assume for the purposes of those cases that the search and seizure was illegal. Even so the question remained whether these victims of illegal search (1) 66 Income-tax Reports, 212. (2) 80 Income-tax Reports, 721. were-entitled to a Writ of Prohibition that the Income-tax authorities shall not use any information gathered from the documents which had been seized. The High Court held that they were not, and proceeded to pass the following identical order in the two cases. It is as follows "In this case all the documents seized in pursuance of the search warrant have been returned to the petitioners and the only question is whether the information gathered as a result of such search and seizure could be used in evidence if it be held that the search and seizure was illegal. In Balwant Singh and others v. Director of Inspection (Civil Writ No. 750-D of 1966), announced today, we have held that such information can be uses. It is unnecessary, therefore, to pronounce upon the validity of the search and seizure. This petition, therefore, fails and is ,dismissed with no order as to costs." Balwant Singh's case referred to above is reported in 71 In- come-tax Reports, 550. We understand that an appeal had been filed to this Court but was not prosecuted. That decision not only upheld the constitutionality of section 132 of the Income-tax Act but also held that there was nothing in Article 19 of the Constitution which forbids the use of evidence obtained as a result of an illegal search. Consistently with that view the relief for a Writ of Prohibition. was rejected and hence the two Civil Appeals before us. Dr. Singhvi who appeared on behalf of the appellants in the two appeals frankly conceded that there was no specific Article of the Constitution prohibiting the admission of evidence obtained in an illegal search and seizure. But he submitted that to admit such evidence is against the spirit of the Constitution which has made our liberties inviolable. In this connection he referred to some American cases which seem to recognize the validity of his submission. As to the argument based on "the spirit of our Constitution", we can do no better than quote from the judgment of Kania, C. J. in A. K.Gopalan v. The State of Madras(1). "There is considerable authority for the statement that the Courts are not at liberty to declare an Act void because in their opinion it is opposed to a spirit supposed to pervade the Constitution but not expressed in words. Where the fundamental law has not limited, either in terms or by necessary implication, the general powers conferred upon the Legislature we cannot declare a limitation under the notion of having discovered something in the spirit of the Constitution which is not even mentioned in the instrument. It is difficult upon any general principles to limit the omnipotence of the sovereign legislative power by judicial.interposition, except so far as the express words of a written Constitution give that authority." Now, if the Evidence Act 1871 which is a law 'Consolidating, defining and amending the law of evidence, no provision of which is challenged as violating the Constitu-

(1) [1950] S.C.R. 88 at p. 120, tion permits relevancy as the only test of admissibility of evidence (See section 5 of the Act) and, secondly, that Act or any other similar law in force does not exclude relevant evidence, on the ground that it was obtained under an illegal search or seizure, it will be wrong to invoke the supposed spirit of our Constitution for excluding such evidence. Nor is it open to us to strain the language of the Constitution, because some American Judges of the American Supreme Court have spelt out certain constitutional protections from the provisions of the American Constitution. In M. P. Sharma v. Satish Chander, already referred to, a search and seizure made under the Criminal Procedure Code was challenged as illegal on the ground of violation of the fundamental right under Article 20(3), the argument being that the evidence was no better than illegally compelled evidence. In support of that contention reference was made to the Fourth and Fifth amendments of the American Constitution and also to some American cases which seemed to hold that the obtaining of incriminating evidence by illegal seizure and search tantamounts to the violation of the Fifth amendment. The Fourth amendment does not place any embargo on. reasonable searches and seizures. It. provides that the right of the people to be secure in their persons, papers and effects against unreasonable searches and seizures shall not be violated. .Thus the privacy of a citizen's home was specifically safeguarded under theConstitution, although reasonable searches and seizures were not taboo. Repelling the submission, this Court observed at page 1096. "A power of search and seizure is in any system of jurisprudence in overriding power of the State for the protection of social security and that power is necessarily regulated by law. When the Constitution makers have thought fit not to subject such regulation to constitutional limitations by recognition of a fundamental right to privacy,. analogous to the American Fourth Amendment, we have no justification to import it, into a totally different fundamental right, by some process of strained construction. Nor is it legitimate to assume that the constitutional protection under article 20(3) would be defeated by the statutory provisions for searches." It, therefore, follows that neither by invoking the spirit of our Constitution nor by a strained construction of any of the fundamental rights can we spell out the exclusion of evidence obtained on an illegal search. So far as India is concerned its law of evidence is modeled on the rules of evidence, which prevailed in English law, and courts in India and in England have consistently refused to exclude relevant evidence merely on the ground that it is obtained by illegal search or seizure. In Barindra Kumar Ghose and others v. Emperor(1) the learned Chief Justice Sir Lawrence Jenkins says at page, 500 : "Mr. Das has attacked the searches and has urged that, even if there was jurisdiction to direct the issue of search warrants, as I hold there was, still the provisions of the Criminal Procedure Code have been completely disregarded. On this assumption he has contended that the evidence discovered by the searches is not admissible, but to this view I cannot accede. For without in any way countenancing disregard of (1) I.L.R. 37 Calcutta 467. the provisions prescribed by the Code, I hold that what would otherwise be relevant does not become irrelevant because it was discovered in the course of a search in which those provisions were disregarded. As Jimutavahana with his shrewd common-sense observes-"a tact cannot be altered by 100 texts," and as his commentator quaintly remarks : "If a Brahmana be slain, the precept 'slay not a Branmana' does not annul the murder." But the absence of the precautions

designed. by the legislature lends support to the argument that the alleged discovery should be carefully-scrutinized." In Emperor v. Allahdad Khan(1) the Superintendent of Police and a Sub-Inspector searched the house of a person suspected of being in illicit possession of excisable articles and such articles were found in the house searched. It was held that the conviction of the owner of the house under section 63 of the United Provinces Excise Act, 1910, was not rendered invalid by the fact that no warrant had been issued for the search, although it was presumably the intention of the legislature that in a case under section 63, where it was necessary to search a house, a search warrant should be obtained beforehand. In Kuruma v. The Queen(2) where the Privy Council had to consider the English Law of Evidence in its application to Eastern Africa, their Lordships propounded the rule thus : "The test to be applied, both in civil and in criminal cases, in considering whether evidence is admissible is whether it is relevant to the matters in issue. If it is, it is admissible and the court is not concerned with how it was obtained." Some American cases were also cited before the Privy Council. Their Lordships observed at p. 204 thus "Certain decisions of the Supreme Court of the United States of America were also cited in argument. Their Lordships do not think it necessary to examine them in detail. Suffice it to say that there appears to be considerable difference of opinion among the judges both in the State and Federal courts as to whether or not the rejection of evidence obtained by illegal means depends on certain articles in the American Constitution. At any rate, in Olmstead v. United State (1828) 277 U.S. 438, the majority of the Supreme Court were clearly of opinion that the common law did not reject relevant evidence on that ground." In Kuruma's case, Kuruma was searched by two Police Officers who were not authorised under the law to carry out a search and, in the search, some ammunition was found in the unlawful possession of Kuruma. The question was whether the evidence with regard to the finding of the ammunition on the person of Kuruma could be shut out on the ground that the evidence had been obtained by an unlawful search. It was held it could not be so shut out because the finding of ammunition was a relevant piece of evidence on a charge for unlawful possession. In a later case before the Privy Council in Herman King v. The Queen(3) which came on appeal from a Court of Appeal of Jamaica, the law as laid down in Kuruma's case was applied although the Jamaican Constitution guaranteed the constitutional right against (1) 35 Allahabad, 358. (2) [1955] A.C. 197. (3) [1969] (1) A.C. 304. search and seizure in the following provision of the Jamalca (Constitution) Order in Council 1962, Sch. 2, s. 19 "(1) Except with his own consent, no person shall be subjected to the search of his person or his property or the entry by others on his premises. "(2) Nothing contained in or done under the authority of any law shall be held to be inconsistent with or in contravention of this section to the extent that the law in question makes provision which is reasonably required for the purpose of preventing or detecting crime. . . ."

In other words, search and seizure for the purposes of preventing or detecting crime reasonably enforced was not inconsistent with the constitutional guarantee against search and seizure. It was held in that case that the search of the appellant by a Police Officer was not justified by the warrant nor was it open to the Officer to search the person of the appellant without taking him before a Justice of the Peace. Nevertheless it was held that the Court had a discretion to admit the evidence obtained as a result of the illegal search and the constitutional protection against search of person or property without consent did not take away the discretion of the court. Following Kuruma v. The Queen the court held that it was open to the court not to admit the evidence against the accused if the court was of the view that the evidence had been obtained by conduct of which the prosecution ought not to take advantage. But that was not a rule of evidence but a rule of prudence and fair play. It would thus be seen that in India, as in England, where the test of admissibility of evidence lies in relevancy, unless there is an express or necessarily implied prohibition in the Constitution or other law evidence obtained as a result of illegal search or seizure is not liable to be shut out. In that view, even assuming, as was done by the High Court, that the search and seizure were in contravention of the provisions of section 132 of the Income Tax Act, still the material seized was liable to be used subject to law before the Income-tax authorities against the person from whose custody it was seized and, therefore, no Writ of Prohibition in restraint of such use could be granted. It must be therefore, held that the High Court was right 'in dismissing the two Writ Petitions. The appeals must also fail and are dismissed with costs. The two Writ Petitions filed in this Court now remain for consideration and what is to be considered is whether there has been any illegality in the search and seizure because of the alleged contravention of the provisions of section 132 of the Act or rule 112. Writ Petition No. 446 of 1971 The petitioner Pooran Mal is a partner in a number of firmssome of them doing business in Bombay and some in Delhi. His permanent residence is 12A Kamla Nagar, Delhi. His business premises in Delhi are A.14/16 Jamuna Bhavan, Asaf Ali Road, New Delhi. It would appear that on an authorisation issued by the Director of Inspection, his residence and business premises in Delhi were searched on 15th and 16th October, 1971. On the 15th his premises in Bombay were also searched and at that time it appears. the petitioner was present in Bombay. When his residence was searched on 15th and 16th, there were in his house the petitioners wife, two or three adult sons and his father who is said to have been ailing. It was alleged on behalf of the petitioner that the search in the residential premises was malafide, oppressive, excessive, indiscriminate and vexatious. The grounds for making these allegations ,seem to be (1) that the search and seizure, in the house took place in spite of the wife's request to postpone the search; (2) it was Dhanteras day which is a festival day; (3) petitioner's wife was not informed that there was any authorisation; (4) her father-in-law was suffering from paralysis; (5) even children's small boxes containing their pocket money were seized; (6) jewelry including that of the mother-in-law of the petitioner,, Kailashbai, who had died six years earlier was seized; (7) the panchas who helped in the search were unknown to the petitioner or the members of his family; (8) the search went on from 8.00 A.M. on 15.10 till the early hours of 16.10 and the search was again resumed on the evening of 16.10. The grounds on which the wild allegations of malafides, oppression etc. had been made do not appear to be of any substance. It is undoubtedly true that search and seizure is a drastic process and is bound to be associated with some amount of unsavory and

inconvenient results. A sudden search and seizure may unnerve the inmates of the place where the search is made. But this is to be expected. When oppression and malafides are alleged, we should have, more substantial grounds than these. On the other hand, the allegations of highhandedness, malafides,etc. are wholly denied in the affidavit filed on behalf of the Department. That it was a Dhanteras day is denied. But assuming it was there is no law which says that a search and seizure cannot take place on that day. It may be that the wife had requested that the search may be postponed till her husband's- return but obviously the officers concerned could not agree to this request because the whole purpose of the search would have been defeated. It is denied that the inmates were not informed of the authorisation, , In fact it is alleged that the petitioner's wife Smt. Sharda Devi was shown the authorisation and in token of the same, she had put her signature thereon. That the petitioner's father was suffering from paralysis might be unfortunate but it does not appear that the officers concerned caused him the least inconvenience. All throughout the search, it is alleged, Sharda Devi and her two educated sons Dinesh and Vinod, were present at the time of the search. It is not denied that considerable jewelry was seized. The jewelry seized in the house was worth Rs. 37,043/- and though it is the case of,the petitioner that part of it belonged to his mother-inlaw, Smt. Kailashbai, who is now dead, it is stated on oath on behalf of the Department that in the statements recorded on 15th and 16th October, 1971 Smt. Sharda Devi had claimed the whole of the jewelry as her own, though in the last Wealth Tax Return she had valued her jewelry at Rs. 5,0001- only. So, far as the Panchas are concerned, 'it is denied that they were not known to the inmates of the house. In fact, it is alleged by the Department that Pancha Mathuradas was a resident in the same house and had been called at the suggestion of Sharda Devi. it is not denied that' the search went on for a long time because a number of documents and account books were seized in the course of the search and so also a lot of jewelry and cash, The allegation that the small boxes of the children containing their pocket money was seized is denied. We may say, therefore,, on the whole that there is nothing in the petition inducing us to take the view that the search in the house was either malafide, oppressive or excessive etc. etc. The search in the business premises was made when a number of persons who usually worked there were present. Books of account, documents, some jewelry and a large amount of cash amounting to about Rs. 61,000/- were seized. On 16.10 there was a search in the Branch Offices of Laxmi Commercial Bank and the Punjab National Bank. 84 Silver bars were seized from Laxmi Commercial Bank and 30 silver bars were seized from the Punjab National Bank. The value of these silver bars comes to nearly 18 lakhs. It is the case of the petitioner that these bars belongs to M/s Pooran mal and Sons of Bombay who sent the same to the Motor and General Finance Company of which the petitioner is a partner and this Finance Company, it is alleged, kept these bars with the two banks. 84 bars were kept in the account of M/s Udey Chand Pooranmal for an alleged overdraft limit while the 30 silver bars were pledged with the Punjab National Bank in the account of the Finance Company. In all these aforesaid firms the petitioner is a partner and it is the Department's case that all these bars are the undisclosed assets of the petitioner. It appears that the Income-tax Officer made a summary enquiry as required by section 132(5) after issuing notice to the petitioner and his order dated 12-1-1972 shows, of course prima facie, that all the assets which had been seized in the house, the business premises and the banks, except for the value of the ornaments declared by Mrs. Sharda Devi in her Wealth Tax Return, had to be retained for being appropriated against tax dues from 1969 onwards which amounted to nearly 42 lakhs. Indeed this prima facie liability was subject to regular assessment and reassessment.

Mr. Karkhanis submitted that the petitioner bad been very cooperative with the department before and, therefore, the Director of Inspection could have no possible reason to. believe that if any requisition for documents and account books were made the same would not. be produced. This allegation about cooperation is denied by the Department and in this connection the Department has produced a chart at Annexure RI showing how the petitioner has been throughout noncooperative. Assessment for the year 1967-68 is still pending and no return has been filed for the year 1968-69 or for later years. We are not at all satisfied that the petitioner was cooperative, and, therefore, the Director of, Inspection would have no possible ground for entertaining a reasonable: belief as required by sub-clauses (a) (b) & (c) of subsection (1) 'of section 132. To satisfy ourselves we called for the grounds recorded by the Director before the authorisation was issued and we are quite satisfied that there were grounds for him to entertain reasonable belief as required under the sub-clauses. As already pointed out the summary enquiry made under sub-clause (5) of section 132 discloses that the assets seized were for the most part undisclosed income and property. Indeed the accident that undisclosed property is found on a search may not be a justification for the authorisation of a search if, in fact there had been no grounds for entertaining reasonable belief. But finding of assets as expected by the Director of Inspection on, the information received by him would at least support the view that the authority concerned bad reliable information on which he could entertain the necessary belief. On the whole, therefore, we are not inclined to hold that the search and seizure in this Writ Petition was vitiated by any illegality. Writ Petition No. 96 of 1972 The position in this Writ Petition is not different. The petitioner Ganeriwala is a businessman. His residence is 1, Raj Narain Road, Civil Lines, Delhi and he runs a family business in Automobile parts in the name of Ganeriwala Trading Company. The business is at no. 1 Krishna Motor Market, Kashimiri Gate, Delhi. The family seems to be a partner in the firm of M/s Bisheshwar Lal Bijr Natin Barielly, and is. supposed to have income from ancestral agricultural lands in Haryana State. It is alleged by the, petitioner that his assessment of income had been completed upto the year 1970-71 and of Wealth Tax upto 1969-1970. The Return for 1970-71 was also filed. Even so, it is alleged, on 8-101971 his residential house and also the business premises were searched and documents and books of account were seized. The search was started at 8.00 A.M. and continued till the evening and, thereafter, the business premises were searched. The petitioner stated that though the raiding party made a very detailed search, they did. not come across any concealed incomemash of bullion, ornaments or jewelry. General allegations regarding the search being oppressive and excessive are made. But there is no substance in them. Objection was taken to the search on the ground that the authorities had deliberately selected Panchas who were inimical to the petitioner. This is denied. It is stated in the affidavit on behalf of the Department that one of the pancha witnesses namely Lt. Col. Raj Behari Lal was actually sitting in the house of the petitioner even before the search party entered the premises. It is also stated that both the panchas are responsible persons of the locality and the immediate neighbors of the petitioner-one of them being a responsible officer in the Army. The petitioner says that he had told the authorities that he.had been on inimical terms with these panchas. But that is denied. There is, therefore, no reason to think that respectable panchas were not taken for the search. Another objection was made that two cash books relating to the years 1970-71 and 1971-72 were removed by the Income-

tax authorities but they were not duly entered in the inventory. This allegation also is denied, In para 21 of the counter-affidavit the Assistant Director of Inspection has stated that during the course of the petitioners examination and the recording of his statement on October 8, 1971 the petitioner had stated that his Roker-Bahis for the accounting year 1970-71 and 1971-72 did not contain any entries regarding the expenditure on the construction of the godown, and as such those Roker-Bahis were not seized from the custody of the petitioner. The other reason was that the petitioner had requested that they may not be seized as otherwise the petitioner would face difficulties in carrying on his business. It must be remembered that the search and seizure had been ordered because the petitioner had recently constructed a huge godown near his residential premises with the floor area of approximately 6700 sq.. ft. on which a large investment was estimated to have been made from income which had not been disclosed in the books of account produced or returns filed by the petitioner. Since the petitioner himself told the authorities that the Roker-Bahis for the two years did not contain any entries regarding the expenditure on the construction, the authorities inspected the Roker-Bahis for the year 1971-72 and finding that it did not contain ,any entries for the past 30 days it was considered by the authorities not proper to take Possession of the same. We are inclined to think that this objection by the petitioner is an afterthought with a view to malign the departmental authorities. It is not denied that the petitioner had been given a copy of the inventory of the documents seized from his custody on that very day. He, did not raise the objection regarding the account books till November 5, 1971 i.e. nearly after one month. The petitioner is a businessman. He could not have been unaware that his Roker-Bahis for the current year and the previous year were missing for such a long time. It was next alleged that a very large number of documents were seized which were really irrelevant. The authorised officer has to seize books of account and other documents which will be useful for and relevant to any proceeding under the Income-tax Act. When in the course of a search voluminous documents and books of account are to be examined with a view to judge whether they would be relevant a certain amount of latitude must be permitted to the authorities. It is true that when particularly documents are asked to be seized unnecessary examination of other documents may conceivably make the search-excessive. But when the documents, pieces of paper, exercise books, account books, small memos etc. have all to be examined with a view to see how far they are relevant for the proceeding under the Act, an error of judgment is not unlikely. At the most this would be an irregularity not an illegality. Nor can it be a valid objection to the search that it continued for about 16 hours. By their very nature the search and seizure as shown above, would consume a lot of time. In this petition also it was alleged that the Director of Inspection could possibly have no reason to believe the existence of circumstances required by sub-clauses (b) & (c) of sub-section (1) 'of' section 132 because the petitioner's assessment for the year 1970-71 had been already completed and so also the Wealth Tax assessment for the year 1969-70. But this does not mean that on the information, in the possession of the Director of Inspection he cannot entertain the necessary belief. The grounds for the belief recorded by the Director of Inspection before the authorisation were shown to us and we do not the that on the material the authority could not have entertained the belief. A big godown has been newly constructed by the petitioner but his books of account did not reflect the expenditure on account of this construction. It is alleged on behalf of the Department that, on search, certain documents in the nature of maps etc. were seized which showed that the petitioner had constructed the building in the

month preceding the date of search and the money with which the said building was constructed was unaccounted money. There is, therefore, no substance in the contention that the income tax authorities could not have possibly entertained the required belief. The search and seizure, therefore, impugned in this Writ Petition cannot be regarded as illegal. In the result the two Writ Petitions and the two appeals are dismissed with costs. S.B.W. Petitions and appeals dismissed.

B 32 o

est m ft

atches f he i

or S ncome-tax A

upreme c ct

ourt d

ecisions o

ns

ection 1

ore m

atches

Home > India > Taxation & Law > Jewellery > Marriage > Money - 22/05/07 Income Tax Search and Seizure Check out the facts before you start to worry Ads by Google Online Tax filing www.perfios.com Hassle free tax filing through Income Tax Online Online Income Tax News on income tax raid can be found flashing quite often on your TV screen and in morning newspaper, highlighting the unaccounted cash and wealth of the affected. Such news sends jitters in our spines and makes us dread income tax authorities. Under the Income Tax Act, the Search and Seizure operations are a carefully and secretly devised plan of action on the basis of authentic and bonafide information and material (something more than a rumor and gossip), which may be gathered on its own or given by some informer. As such operations invade upon the privacy and freedom of the tax payer, it is exercised under statutory requirements and principles of natural justice. The authorities can exercise these powers when due to the information in their possession; they have firm reason to believe

Any person to whom a summon or notice has been or might be served, has failed or would not produce the books of accounts or other documents as called for. Any person is in possession of money, bullion, jewellery or such property which has not been disclosed.

Merely living in a posh house or having a high standard of living alone does not form a basis for search unless records show that the living standard is not proportionate to income earned. Moreover, a lavish marriage is not a basis for search action. The income tax authorities can enter the place to be searched only during the hours at which it is open for conduct of business/profession and in case of any other place only after the sunrise and before sunset. Once they enter, they can remain till the search is completed. The tax payer has the following rights in case of search

Examining the search warrant which must clearly specify the name of the party to be searched and be duly signed by the officer. The search warrant issued in the name of the firm cannot be used to seize assets of individual partners.

Calling two or more respectable inhabitants of the locality to act as witnesses. Verifying the identity and make personal search of each member of the search party. Calling a doctor in case of emergency. Personal search of ladies to be taken only by lady. Allowing the children to go to school after checking their bags. Having meals at the normal time. Inspect seals placed on various objects Have a copy of panchnama (first listing of evidence and findings made) Inspect and take photocopies of the seized books of account and documents.

Anything representing stock-in-trade of the business shall not be seized but the authorized officer shall make a note of it. As regards gold ornaments and jewellery, 500 gms. per married lady, 250 gms per unmarried lady and 100 gms per male member of the family shall not be seized. Cases wherein people are convicted on the basis of digital data are on the rise. Now, businessmen use removable storage devices such as USB drives, pen drives, digital cameras, iPods and MP3 players to store data due to their miniature and inconspicuous look, making them easy for hiding in case of search. But the department keeps a close tab on all such moves. All these devices including computers and laptops are seized in the presence of witnesses. However, the person being raided can ask for a copy of the data on the drive. So, it is advisable to make separate files for each family member which should specify the details of assets held and income earned, followed by a balance sheet for each financial year, along with the receipts and sources for acquisition of assets. Assets acquired as a result of gift or will should be supported by proper certificates. The details of various bank accounts and lockers held should also be mentioned in the file.

2008-TIOL-540-ITAT-MUM (Also see analysis of the Order ) IN THE INCOME TAX APPELLATE TRIBUNAL BENCH "E" MUMBAI IT (SS) A No. 11/Mum/2000 Block Period : 1.4.1987 to 28.7.1997 SHRI NANDLAL M GANDHI 11/12, SANDEEP LAXMINARAYAN LANE MATUNGA (CR), MUMBAI - 19 Vs THE ASSTT COMMISSIONER OF INCOME-TAX CIRCLE-26(3), MUMBAI-21 K C Singhal, VP and Sudhakar Reddy, AM Dated: July 16, 2008 Appellant Rep by : Mr. Ajay Singh Respondent Rep by : Mr. Abhijit Patankar Income Tax - by passing a restraint order u/s. 132(3), the time limit available for framing the assessment cannot be extended; the department is seeking the extension of time limit for framing the assessment on the strength of prohibitory order issued u/s. 132(3) on 29-7-1997 which was finally revoked on 8-9-1997. The revenue wants the period of limitation for the purpose of Sec. 158BE to be reckoned from 8-9-1997 when the prohibitory order u/s. 132(3) was revoked and a panchanama was prepared stating that the search is finally concluded. However, from the facts of the case it is evident that so far search is concerned, it was already completed on 29-7-1997 when the premises of the assessee was completely searched and all the assets found were inventorised and a panchanama prepared. Thereafter no action for further search had taken place and after the verification of the assessee's explanation with regard to jewellery and shares, the prohibitory order in respect of jewellery was revoked on 1-8-1997 and in respect of share certificates on 8-9-1997. A panchanama prepared on the revocation of prohibitory order u/s. 132(3) wherein the only thing mentioned is 'search is finally concluded', is not a valid panchanama Therefore, the panchanama prepared on 8-9-1997 cannot be said to be a panchanama prepared in pursuance to the warrant of authorization for search within the meaning of See. 158BE(1) of the Act. If a panchanama prepared on the revocation of prohibitory order u/s. 132(3) wherein the only thing mentioned is 'search is finally concluded', is held to be a panchanama prepared on the

conclusion of search within the meaning of Explanation to Sec. 158BE, it would amount to an extending the period of limitation for completion of assessment on account of restraint order u/s. 132(3). It would be contrary to the decision of jurisdictional High Court in the case of Mrs. Sandhya P. Naik. ORDER Per: K C Singhal : In this appeal, the assessee has challenged the order of Block Assessment passed by the Assessing Officer by contending that the impugned order was barred by the period of limitation prescribed under section 158BE of the IT Act, 1961 and therefore, the said order was bad in law. In addition the assessee had also challenged the various additions confirmed by the CIT(A). In respect to the legal ground raised by the assessee there was a difference of opinion between the members constituting the Bench and consequently the following question was referred for the opinion of the Third Member by the Hon'ble President, ITAT under section 255(4) of the Act. "Whether on the facts and in the circumstances of the case the order under section 158BC made by the Assessing Officer is time barred within the meaning of section 158BE of the Act?" 2. In view of the majority opinion, it is held that the Block assessment confirmed by the Assessing Officer was bad in law in as much as it was passed beyond the period of limitation prescribed under section 158BE of the Act. Consequently, the orders of both the lower authorities are hereby quashed. 4. Since the assessee succeeds on the preliminary ground, it is not necessary for us to adjudicate the other grounds relating to additions made by the Assessing Officer. 5. In the result, the appeal of the assessee stands allowed. Order pronounced on 16th July, 2008. IN THE INCOME TAX APPELLATE TRIBUNAL BENCH 'E' MUMBAI IT (SS) A No.11(Mum) of 2000 Block Period 01.04.1987 to 28.7.1997 SHRI NANDLAL M GANDHI, MUMBAI (PAN-AC-26(3)/6-N) Vs ASSTT COMMISSIONER OF INCOME-TAX CIRCLE-26(3), MUMBAI

G D Agrawal, VP Dated: June 16, 2008 Appellant Rep by : Shri K Sivaram & Ajay Singh Respondent Rep by : Shri Rajiv Nabar ORDER Per: G D Agrawal : Since there was a difference of opinion between the Ld. Members constituting 'E' Bench of ITAT, Mumbai in respect of the aforesaid appeal, I was nominated as Third Member by the Hon'ble President, ITAT u/s.255(4) of IT Act. 1961. The question referred to me reads as under :"Whether on the facts and in the circumstances of the case the order u/s. 158BC made by the assessing officer is time barred within the meaning of section 158BE of the Act ?" 2. The issue before the Tribunal was whether the block assessment order dated 30.9.1999 passed u/s. 158BC was barred by limitation in terms of Sec. 158BE of the Act. The admitted facts of the case are that a search & seizure operation under warrant of authorization issued u/s. 132 was carried out at the residential premises of the assessee at 730 p.m. on 28.7.1997 and continued till 2.30 a.m. on 29.7.1997. During the said search, certain incriminating materials which, inter alia, included jewellery and shares, were found and the search party prepared an inventory in respect of such materials found during course of search and a panchanama was also drawn in respect of the said materials in the course of search. As per para-5 of Panchanama only books of accounts and documents, as per Annexure-A, were seized and no seizure was effected in respect of other materials found during course of search including jewellery and shares. In para-8 of the Panchanama, it was stated that search was temporarily concluded for the day to be commenced subsequently. However, prohibitory order was issued u/s. 132(3) in respect of jewellery and shares found from the cupboard kept in the bedroom of assessee's son Sri Bakul N. Gandhi, 11/12, Sandeep Building, Laxminarayan Lane, Matunga. The prohibitory order issued u/s. 132(3) in respect of jewellery was revoked on 1.8.1997 at 4.00 p.m. while prohibitory order in respect of share certificates was revoked on 8.9.1997. On 8-9-1997, another panchanama was prepared wherein it was stated that search is finally concluded and no other comments/remarks were recorded therein. During the period 29.7.1997 to 8.9.1997, certain statements were recorded by the IT. authorities. In response to notice u/s. 158BC, the assessee filed his block return of income on 16.3.1998 declaring undisclosed income of Rs. 16,34,970/- which was determined by the A.O. in order passed u/s. 158BC r.w.s. 145/144 dated 30-9-1999 at Rs.55,69,390/- making thereby several additions under different heads of income. 3. Being aggrieved with such block assessment estimating the total undisclosed income at

Rs.55,69,390/-, the assessee came in appeal before the C.I.T.(A) agitating all the additions made by the A.O. over and above the undisclosed income declared by the assessee himself. He also raised additional ground before the C.I.T.(A) agitating that the order passed by the A.O. on 30.9.1999 was beyond the stipulated period of 2 years from the end of the month in which the warrant of authorization of search was executed, i.e. 28.7.1997 within the meaning of Sec. 158BE of the Act. However, the assessee was unsuccessful before the' C.I.T.(A) on both "counts, i.e. additions made to the. undisclosed income and assessment order being barred by limitation. 4. The assessee came in appeal before the Tribunal agitating order passed u/s. 158BC being barred by limitation as also additions made and confirmed by the C.I.T.(A) to the total undisclosed income in such assessment. After hearing the parties, considering the evidence on record and discussing several case laws on the issue, the Ld. Judicial Member (J.M.) held that(i) The prohibitory order u/s. 132(1) IInd proviso is considered as deemed seizure while the prohibitory order u/s. 132(3) is not to be considered as deemed seizure. The format of panchanama prescribed in Cr. PC provides recording of things found and seized in the presence of witnesses. Though the proceedings of search as well as seizure are to be recorded in the panchanama, yet for the purpose of reckoning the period of limitation u/s. 158BE, it is the panchanama wherein factum of concluding of search is to be recorded as is apparent from the provisions of Explanation 2 to Sec.158BE. Therefore, where no search is carried out but a panchanama is prepared, then such panchanama cannot be treated as a panchanama for the purpose of Sec. 158BE read with Explanation 2 thereof. (ii) The learned Sr. D.R. has not been able to point out any action of search or seizure during the period commencing from 29.7.1997 till the dates of revocation of orders u/s. 132(3), except saying that certain statements were recorded during this period. This cannot be considered as an act of search. Search means finding of hidden or concealed things. Once things are found and inventorised, the process of search comes to an end. It is only the process of seizure which taken place after the process of search. Therefore, search was completed on 29.7.1997, when inventory of things found was prepared and nothing remained to be done. Hence, panchanama dated 8.91997 cannot be said to be a valid panchanama. Merely because a panchanama was prepared, it cannot be construed as panchanama. Even this panchanama does not refer to any act of search. It simply says that search concluded. Thus, the panchanama dated 8.9.1997 cannot be considered to-be a valid panchanama and, therefore, has to be ignored and consequently, limitation period would commence from 29.7.1997. (iii) Even assuming for the sake of argument that seizure is- pan of search, the fact remains that no seizure was made on 8.9.1997. So, neither the act of search nor the act of seizure took place on 8.9.1997 and hence panchanama was not required to be made. Therefore, even on this account, the alleged panchanama dated 8.9.1999 cannot be said to be a valid panchanama. Consequently, the period of limitation cannot be reckoned from 8.9.1997 and the period of limitation would commence only from 29.7.1997 when search as well as seizure actions were concluded.

(iv) As per Sec. 132(8A) at the relevant time when order u/s. 132(3) was passed, the prohibitory order u/s. .132(3) could not remain in force for a period exceeding 60 days from the date of (order. However, the authorized officer, for the reasons to be recorded by him in witting, could extend the period beyond 60 days after obtaining the approval of the Director of Income-tax or the Commissioner of Income-tax, as the case may be, for such extension. The proviso to this subsection provided that the Commissioner shall not approve the extension of the period for any period beyond the expiry of 30 days after the completion of all the proceedings under this Act in respect of the years for which the valuable articles or things were relevant. This clearly shows that order u/s. 132(3) could be extended even beyond the period of completion of assessment. In such situations, it was impossible to compute the period of limitation. Relying on the Special Bench decision of I.T.A.T., Bangalore in the case of C. Ramaiah Reddy [87 ITD 439] and another decision of Tribunal in the case of Adolf Patric Pinto [100 ITD 191], the Ld. J.M. held that the order u/s. 132(3) has to be ignored for the purpose of Sec. 158BE. (v) The Ld. J.M. on the above reasonings/findings cancelled the orders of the lower authorities with the following observation :"12. In view of the above discussion, it is held that the panchanama dated 8.9.1997 was not a valid panchanama in the eyes of law and. therefore, has to be ignored and consequently, period of limitation will commence from 31.7.1997 since the valid panchanama was prepared on 29.7.1997. Consequently, the block assessment could be completed by 31.7.1999. Since the impugned block assessment order was passed on 30.9.1999, it was clearly beyond the period of limitation prescribed u/s. 158BE. Thus the impugned order of the assessing officer was illegal being barred by the period of limitation. Therefore, the impugned orders of the lower authorities are cancelled." (vi) Since the assessee succeeded on the limitation issue, the Ld. J.M. did not deal with the grounds of the assessee on merits of the additions sustained by the C.I.T.(A). 5. The Ld. Accountant Member (A.M.) passed a dissenting order holding that the search u/s. 132(1) in the case of the assessee was concluded only on 8-9-1997 when the prohibitory order u/s. 132(3) of the Act was lifted by the authorized officer concerned. Hence, it cannot be said that the impugned block assessment order has been made by the A.O. beyond the period of limitation prescribed u/s. 158BE of the Act. For coming to this conclusion, the Ld. A.M. observed that (i) Provisions of Sec. 158BE do not define '"a valid panchanama" in the eyes of law. For that matter there is no definition of 'panchanama' under the provisions of I.T. Act. The circumstances under which prohibitory orders were issued u/s. 132(3) are not doubted. The objection, however, is taken to the revocation of prohibitory orders u/s. 132(3) without arty further action. It was explained by the Ld. Sr. D.R. that during intervening period the A.O. was carrying out a process of examining and verifying the various facts and circumstances attached to the valuable articles or things put under prohibitory order u/s. 132(3) with a view to determine whether the same should be seized or released. Therefore, it cannot be said that this action of the A O. is not pan of search itself and hence prohibitory orders u/s. 132(3) were revoked without any further proceedings. He

held that if the prohibitory orders u/s. 132(3) were validly or correctly issued, how can revocation of those prohibitory orders be held to be no action at all. (ii) Referring to various clauses of Sec, 132(1) for the purpose of application of limitation u/s. 158BE Explanation 2, the Ld. A.M. held that an authorization by the authorizing officer to an authorized officer u/s. 132(1) to search is not limited to discovery of hidden or concealed things. It includes seizure as contemplated in clauses (a) to (c) of Sec. 132(1). It is, therefore, incorrect to say that an authorization u/s. 132(1) comes to an end once things are found and inventorised. There is nothing like a separate authorization to enter and search the premises, another authorization to break open the lock of any door, box, lockers, almirah. another authorization to require any person to afford the authorized officer the necessary facility to inspect such books of accounts or documents another authorization to cause seizure and yet another authorization to place marks of identification or to make a note of preparation of an inventory, etc. The authorizing officer u/s. 132(1) issues a single authorization to the authorized officer to carry out all the above mentioned activities jointly or severally. (iii) Referring to the decision of Hon'ble Bombay High Court in the case of Narayanan Champalal Bajaj [210 I.T.R. 315], the Ld. A.M. observed that the Hon'ble Bombay High Court in the said case have clearly held that search, enquiry and formulating opinion and seizure of valuable articles or things is a single, continuous and homogeneous process. He. therefore, held that merely because the final decision was not to seize the shares in question, it cannot be said that the proceedings undertaken after prohibitory orders u/s. 132(3) were a nullity and the last panchanama drawn was in the eyes of law no panchanama at all. (iv) The Ld. A.M. also did not subscribe to the view taken by the Ld. J.M that unless the department established with sufficient evidence/Material that the provisions of Sec. 132(3) were resorted to with valid reasons to enquire and verify further as to the source and nature of possession of the shares in the hands of the assessee, it should be assumed that prohibitory order u/s. 132(3) was wantonly issued and without any purpose. In this connection, relying on the decision of Hon'ble Apex Court in the case of ITO, Special Investigation Circle-B, Meerut vs. Seth Bros. &. Ors. [74 ITR 836 (SC)], he held that in issues like the. present case it is nor the question as to whether or not the A.O. was justified in taking recourse to the provisions of Sec. 132(3). It is also not germane to the issue as to whether the decisions taken by him are correct decisions or not. The question that can be raised is whether the A.O. exercised his powers bona fide to the best of his judgment. Any error of judgment on his part would have no effect on the legality of action taken by him. (v) The Ld. A.M. further referring to the decision of I.T.A.T., Mumbai Bench-E in the case of M/s. Tips Films P. Ltd. [IT(SS)A No.338/M/2003 dated 31.1.2004] has held that the proposition that various actions taken by the authorized officer during the course of proceedings u/s. 132 are administrative acts of the A.O. in exercise of powers conferred upon him and such actions cannot be called a nullity merely because in the superior wisdom of the appellate authority or the court the authorised officer should have acted in a manner different from he acted, unless it is seen that

the officer did not act bona fide or in good faith or there was scant regard to the relevant facts and law. (vi) 0n the above reasonings, the Ld. A.M. concluded the matter as under :"6. On consideration of the matter I am of the view that if in a given case a prohibitory order u/s. 132(3) is issued that would ordinarily denote continuation of the execution of an authorization u/s. 132(1) of the Act and any "panchanama(s)" drawn in relation to such prohibitory order u/s. 132(3) would for the purpose of the provisions of section 158BE read with Explanation 2 have the effect of extending the time limit for completion of the order u/s. 158BC. It is only the extreme cause of abuse of power or abdication of sense of duty or responsibility as in the case of Sandhya P Naik (supra) that the proceedings taken by the officers after issue of prohibitory orders u/s. 132(3) may be treated to be a nullity. In the case before us there is no reason to believe that the authorized officer first issued a prohibitory order u/s. 132(3) and thereafter lifted the same in abuse of the power in this behalf conferred upon them under the provisions of section 132 of the Act. On the contrary the sequence of events shows that the authorized officers took recourse to the provisions of section 132(3) so as to make enquiries and verification in the interregnum with a view to avoid indiscriminate or uncalled for seizure of the properties belonging to the assessee." 6. At the time of hearing before me, the learned counsel for the assessee reiterated the arguments made before the Tribunal and relied on the order of Ld. J.M. He also submitted as under in support of his contention that the order passed us. 158BC is bad in law and void ab initio:(a) That the search action was conducted on 28/7/1997 and concluded at 2.30 a.m. on 29/7/1997 wherein certain papers and documents were found and seized. Statement u/s. 132(4) was also recorded during the search action from Smt. Rekha Gandhi. (b) That after concluding the search on 29/7/1997, statement of the assessee u/s. 132(4) was recorded on 1/8/1997 & 14/8/1997 and u/s. 131 on 5/9/1997. (c) That on 8/9/1997, panchanama was issued once again mentioning nothing and only giving remark 'Finally Concluded'. (d) That the warrant of authorization of search action was initiated and executed on 28/7/1997 and hence the search was concluded at 2 a.m. on 29/7/1997. Therefore, as per Sec. 158BE, the time limit for passing assessment order u/s. 158BC ended on 31/7/1999. However, in this case as the impugned order u/s. 158BC was passed on 30/9/1999, which was beyond the statutory period of two years from the end of the month in which the. warrant of authorization of search was executed, the same is barred by limitation and hence bad in law and liable to be quashed. (e) That there is no provision in the Cr. P.C. or in the I.T. Act/Rules for postponing the search for a long-period. This view is taken by the Hon'ble Kerala High Court in the case of Dr. C. Balakrishnan vs. C.I.T. [237 I.T.R. 70] and has held that the search cannot be prolonged unreasonably without

justification and the action of the officer was clearly an arbitrary exercise of power and hence the search was not valid. (f) That in the instant case of the assessee, the panchanama issued on 8/9/1997 was only for the purpose or recording statement of the assessee u/s. 131 and for which the search cannot be said to be continuing for a period of 42 days from the date of search action, i.e. 28/7/1997. Hence, the order passed u/s. 158BC is barred by limitation and liable to be quashed. (g) The learned counsel further contended that the search action, whether conducted by I.T. Department or other agency, has to adhere with the Cr. P.C. Sec. 76 of Cr. P.C. does not provide for a case whereby search action is prolonged for such a long period. If the search is prolonged for such a long period under the guise of panchanama, it could only lead to the conclusion that the officer is arbitrarily exercising the powers which could not be the intention of the legislature while introducing the new scheme of assessment of search cases to curb the time limit in deriving the finality of search cases. Keeping in view the objective of the legislature for introducing this new scheme, the search action could not be said to be continuing under the guise of panchanama only for the purpose of recording statement of the assessee and prolonging the search action without any reason. He farther submitted that restrained order does not amount to seizure and if there is no seizure, panchanama cannot be drawn. He placed reliance on the following decisions :CIT vs. Mrs, Sandhya P. Naik [253 I.T.R. 534] Dr. C. Balakrishna vs. CIT [237 I.T.R. 70 (Ker)] (h) That when all the formalities of taking of inventory etc. are completed, if the prohibitory order is issued on the cup board to keep the valuables, time limit cannot be extended. He placed reliance on various decisions of ITAT which included the following :DCIT vs. Adolf Patric Pinto [100 ITD 191 (Mum)] Sarb Consolate Marine Products vs. ACIT [97 ITD 335 (Del)]. Mr. Shahrukh Khan vs. ACIT [IT(SS)A No. 44/M/1998 dated 17.5.2006] (i) That keeping in view the facts and circumstances of the case and the judicial pronouncements relied upon by the assessee before the Bench, the Ld. J.M. had rightly appreciated the case and has rightly held that the order passed u/s. 158BC on 30/9/1999 was barred by limitation. The same should be upheld. 7. The Ld. Departmental Representative, on the other hand, relied on the order of the Ld. A.M. He submitted that warrant of authorization for conducting search was dated 28/7/1997 and the first panchanama in the case of the assessee was drawn on 29/7/1997. As the search was temporarily concluded, prohibitory orders were issued u/s. 132(3) on 28/7/1997 in respect of jewellery and shares found during search. The first prohibitory order in respect of jewellery was revoked on 1-81997 and the second prohibitory order for shares was lifted on 8/9/1997. There was no seizure

during this intervening period. Second panchanama drawn on 8/9/1997 was in continuation of first panchanama dated 29/7/1997 and therefore, it should be taken that first panchanama dated 29/7/1997 was finally concluded on. 8/9/1997 He, therefore, submitted that, in fact, the search had been completed on the date when the prohibitory order u/s. 132(3) was revoked, which in this case was 8/9/1997. He further submitted that in between the period of first panchanama dated 29/7/1997 and second panchanama dated 8/9/1997, statements u/s. 132(4)/131 on five occasions were recorded from the assessee on 23/8/1997, 1/8/1997, 14/8/199/, 5/9/1997 and 8/9/1997 and alter considering the statements recorded, the authorised officer considered it appropriate to lift the prohibitory order. Therefore, in this case search concluded on 8/9/1997 when finally the prohibitory order u/s. 132(3) was revoked. Referring to Sec. 132(8A) of the Act, the Ld. Departmental Representative submitted that the prohibitory order u/s. 132(3) shall not be in force for a period exceeding 60 days from the date of the order. Section 132(3) empowers the assessing authority to take steps as may be necessary for ensuring compliance from the summoned person and issuing order under this section shall not be deemed to be seizure of such books of accounts, documents, money, jewellery etc. as contained in sec. 132(1)(iii). He thus submitted that issuing order u/s. 132(3) is an administrative action on the part of the authorized officer and this cannot be legally questioned. He placed reliance on the following decisions :Promain Ltd. vs. DCIT [95 ITD 489 (SB-Del)] C. Ramaiah Ready vs. ACIT [87 ITD 439 (SB-Bang)] M.B.Lal vs. CIT [279 ITR 298 (Del)] VLS Finance Ltd. vs. CIT [289 ITR. 286 (Del)] CIT. vs. Dr. C. Balakrishnan Nair [282 ITR 158 (Ker)] 7.1. The Ld. Departmental Representative further submitted that the case law relied upon by the learned counsel in the case of CIT vs. Mrs. Sandhya P. Nain (supra) is distinguishable on facts and hence not applicable to the present case. 8. In counter reply, the learned counsel for the assessee has submitted that the facts of cases relied upon by the Ld. Departmental Representative are different. The Ld. J.M. has correctly noted the facts of the case and arrived at a right finding. 9. I have carefully considered the arguments of both the sides and also gone through the decisions relied upon by the parties. The only controversy before me is whether the order passed by the A.O. u/s. 158BC of the IT Act is barred by limitation within the meaning of Sec. 158BE of the Act. Sec. 158BE(1) reads as under :"(1) The order under section 158BC shall be passed (a) within one year 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 after the 30th day of June. 1995, but before the 1st day of January- 1997; (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 after Sec. 158BE inserted by Finance (No.2) Act, 1998 with retrospective effect from 1-7-1995 reads as under :"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." 9.1. Thus, as per Sec. 158BE(1), assessment u/s. 158BC should be completed within one year from the end of the month in which last of the authorization for search u/s. 132 was executed. In the case under consideration before me, search operation in pursuance to the warrant of authorization issued u/s. 132 was carried out at the residential premises of the assessee on 28-71997 and it continued till 29-7-1997. Only one authorization for search was issued. However, prohibitory order u/s. 132(3) was issued in respect of jewellery and shares on 29-7-1997. The prohibitory order in respect of jewellery was revoked on 1-8-1997-while prohibitory order in respect of share certificates was revoked on 8-9-1997. On 8-9-1997, another panchanama was prepared wherein it was stated that search is finally concluded. Now the question is whether for the purpose of Sec. 158BE, the warrant of authorization was executed on 29-7-1997 when the search was originally concluded , though simultaneously prohibitory order u/s. 132(3) was issued in respect of jewellery and shares, or on 8-9-1997 when the prohibitory order issued u/s. 132(3) was withdrawn and a panchanama was prepared stating that the search was finally concluded. 9.2. We find that the Hon'ble jurisdictional High Court has considered the similar issue in the case of C.I.T. vs. Mrs. Sandhya P. Naik [253 I.T.R. 534]. At page-541, their Lordships have considered the effect of issuance of prohibitory order u/s. 132(3) and held as under :''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 fa extended. " [Emphasis supplied). Thus, after interpreting the provisions of Sec. 132(3), their Lordships of the jurisdictional High Court have held that by passing a restraint order, the time limit available for framing the assessment cannot be extended. The Ld. Departmental Representative has tried to distinguish this decision of Hon'ble jurisdictional High Court on the ground that the facts in the case before the Hon'ble High Court were different than the facts in the case of the present assessee. However. I find that the above observation of their Lordships were with reference to the interpretation of the provisions of Sec. 132(3) and not with reference to the specific facts of a particular case. Therefore, in my opinion, the above interpretation of their Lordships of Hon'ble jurisdictional High Court to the provisions of Sec. 132(3) would be applicable to all the rases falling within the jurisdiction of Hon'ble Bombay High Court. Their Lordships have clearly laid down that by passing a restraint order u/s. 132(3), the time limit available for framing the assessment cannot be extended. In the case under consideration before the also, the department is seeking the extension of time limit for framing the assessment on the strength of prohibitory order issued u/s. 132(3) on 29-7-1997 which was finally revoked on 8-9-1997. The revenue wants the period of limitation for the purpose of Sec. 158BE to be reckoned from 8-9-1997 when the prohibitory order u/s. 132(3) was revoked and a panchanama was prepared stating that the search is finally concluded. However, from the facts of the case it is evident that so far search is concerned, it was already completed on 29-7-1997 when the premises of the assessee was completely searched and all the assets found were inventorised and a panchanama prepared. Thereafter no action for further search had taken place and after the verification of the assessee's explanation with regard to jewellery and shares, the prohibitory order in respect of jewellery was revoked on 1-8-1997 and in respect of share certificates on 8-9-1997. Thus, on 8-9-1997 only the prohibitory order in respect of shares was revoked. Therefore, the panchanama prepared on 8-9-1997 cannot be said to be a panchanama prepared in pursuance to the warrant of authorization for search within the meaning of See. 158BE(1) of the Act. If a panchanama prepared on the revocation of prohibitory order u/s. 132(3) wherein the only thing mentioned is 'search is finally concluded', is held to be a panchanama prepared on the conclusion of search within the meaning of Explanation to Sec. 158BE, it would amount to an extending the period of limitation for completion of assessment on account of restraint order u/s. 132(3). It would be contrary to the decision of Hon'ble jurisdictional High Court in the case of Mrs. Sandhya P. Naik (supra). 9.3. The Ld. Departmental Representative has also relied upon the decision of Hon'ble Delhi High Court in the case of M.B. Lal vs. C.I.T. (supra), wherein their Lordships held as under :"That in the instant case the authorization was issued on February 2, 2000. The search also started on the same day and continued till June 29, 2000, during which period various articles and documents were seized. The search would end only upon revocation of the order passed under section 132(3) which, in the instant case, was revoked only on June 29, 2000. The period of

limitation for making an assessment order under section 158BC read with section 158BE of the Act would, therefore, have to be reckoned from June 30, 2000 (being the end of the month in which the last panchanama was drawn) and would end on June 30, 2002. The assessment order, in the instant case, was however made on June 27, 2002, which was well within the outer limit of two years prescribed by law." Similar view is also taken by their Lordships of Delhi High Court in the case of VLS Finance Ltd. vs. C.I.T, (supra). Though the above decision of Hon'ble Delhi High Court supports the case of the Revenue that the period of limitation for completion of assessment would start only upon the revocation of the order passed u/s. 132(3), however, the decision of Hon'ble jurisdictional High. Court will be binding upon the assessees falling within the jurisdiction of Hon'ble Bombay High Court. 9.4. The Ld. Departmental Representative has also relied upon the decision of Hon'ble Kerala High Court in the case of C.I.T. vs. Dr. C. Balakrishnan Nair (supra), wherein their Lordships held as under ;"Where power is exercised bonafide, 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. Any irregularity in the course of entry, search and seizure committed by an officer acting in pursuance of the authorization will not be sufficient to vitiate the action taken, provided the officer has in executing the authorization, acted bonafide." However, the above decision has no relevancy to the facts of the case under consideration before me, because in the appeal before the Tribunal there is no dispute about the intentions of the officers conducting the search or issuing/revoking prohibitory orders. The question is about the impact of such orders upon the period of limitation. 9.5. Both the parties have also relied upon certain decisions of ITAT in support of their rival contentions. However, as I have already stated that the issue is squarely covered by the decision of Hon'ble jurisdictional High Court in the case of Mrs. Sandhya P. Naik (supra), I do not find any justification to deal with decisions of various Benches of the Tribunal relied upon by both the parties. In view of the above, I respectfully following the decision of Hon'ble jurisdictional High Court in the case of Mrs. Sandhya P. Naik (supra) hold that the order passed u/s. 158BC by the A.O. is time barred within the meaning of Sec. 158BE of the Act. 10. The matter will now go to the regular Bench for passing the order as per the majority view. IN THE INCOME TAX APPELLATE TRIBUNAL BENCH 'E' MUMBAI IT(SS) A.No.11/Mum/ 2000 Block Period 01.04.1987 to 28.7.1997

SHRI NANDLAL M GANDHI 11/12, SANDEEP LAMINARAYAN LANE MATUNGA (CR), MUMBAI,19 Vs ASSTT COMMISSIONER OF INCOME-TAX CIRCLE-26(3), MUMBAI K C Singhal, JM and S C Tiwari, AM Dated: May, 2007 REFERENCE UNDER SECTION 255(4) OF THE INCOME TAX ACT, 1961 Since there is a difference of opinion between us in relation to the assessee's ground relating to time limit prescribed u/s 158BE for completion of block assessment u/s 158BC we refer the following question of difference to the Hon'ble President for nominating Third Member so that the point of difference may be decided according to the opinion of the majority of the Members of the Appellate Tribunal.1 "Whether on the facts and in the circumstances of the case the order u/s 158BC made by the assessing officer is time barred within the meaning of section 158BE of the Act?" IN THE INCOME TAX APPELLATE TRIBUNAL BENCH 'E' MUMBAI IT (SS) A No.11/Mum/2000 Block Period : 1.4.1987 to 28.7.1997 Assessment Year : 1988-89 to 1998-99 SHRI NANDLAL M GANDHI 11/12 SANDEEP LAXMINARAYAN LANE MATUNGA (CR), MUMBAI 400019 PAN : AC-26(3)/6-N Vs ASSTT COMMISSIONER OF INCOME-TAX CIRCLE-26(3), EARNEST HOUSE 6TH FLOOR, NARIMAN POINT MUMBAI - 400021 K C Singhal, JM and S C Tiwari, AM

Dated: April, 2007 Appellant Rep by : Shri K Shivram Respondent Rep by : Shri S C Gupta ORDER Per: Singhal : The main issue arising in this appeal is, whether, the block assessment order dated 30,9.1999 is barred by the period of limitation prescribed u/s 158BE of the Income Tax Act, 1961 (Act). 2. Brief facts relating to this issue are these: A search and seizure action u/s 132 of the Act was carried out at the premises of the assessee on 28.7.1997, The search operation commenced at 07:30 pm and continued up to 02:30 am on 29.7.1997. Certain incriminating materials were found in the course of search which, inter-alia, included certain jewellery and shares. The inventory was prepared in respect of material found in the course of search. A panchanama was prepared in respect of the material found in the course of search. As per Para-5 of the panchanama, only books of accounts and documents, as per Anneuxre-A, were seized and no seizure was made in respect of any other material particularly in respect of jewellery and shares. In Para-2 of the panchanama, it was stated that search was temporarily concluded for the day to be commenced subsequently. However, a prohibitory order was issued u/s 132(3) of the Act in respect of Jewellery and shares found from the cupboard kept in the bedroom of Bakul N. Gandhi, 11/12, Sandeep Building, Laxminarayan Lane, Matunga. The prohibitory order u/s 132(3) of the Act in respect of jewellery was revoked on 1.8.1997 at 04:00 pm while the prohibitory order in respect of share certificates was revoked on 8.9.1997. On 8.9.1997, another panchanama was prepared wherein it was simply stated that search is finally concluded. Except this remark, nothing was stated. At this stage, it may be mentioned that between the period commencing from 29.7.1997 and 8.9.1997, certain statements were recorded. The block assessment was, however, completed on 30.9.1999 determining undisclosed income at Rs.55,69,390/- as against declared undisclosed income of Rs. 16,34,970/-. The assessee remained unsuccessful in appeal before the learned CIT(A). Hence, this present appeal is preferred before the Tribunal. 3. The learned counsel for the assessee, Mr. K. Shivram, drew our attention to the provisions of section 158BE of the Act to contend that block assessment order could be passed within the period of two years from the end of the month in which last of the authorizations for search u/s 132 was executed. According to him, the assessment could be completed latest by 31.7.1999. Since the impugned assessment was passed beyond the period of limitation prescribed u/s 158BE the same is barred by period of limitation and, therefore, illegal. Proceeding further, it was submitted that every thing which was found in the course of search was duly inventorised and even the valuation had also been done in respect of the jewellery as is apparent from the prohibitory order u/s 132(3) of the Act, Therefore, in his view, the search had been completed at 02:30 am on 29.7.1997 itself as nothing remained to be searched. It was further submitted that on

later dates, the prohibitory orders were simply revoked without doing anything further. Therefore such revocation cannot be considered as part of the search and consequently, the alleged panchanama dated 8.9.1997 cannot be considered as a valid panchanama in the eyes of law. Therefore, the period of limitation could not be extended beyond 31.7.1999. In support of his submissions, he has relied on the following decisions (i) Shah Rukh Khan Vs ACIT, 104 ITD 221, (ii) Javed Mohammad Peshiman Vs DCIT, 100 TTJ 434, (iii) DCIT Vs Adolf Patric Pinto, 100 ITD 191, (iv) Sarb Consulate Marine Products Vs ACIT, 97 ITD 333, (v) Vaji Kanji Thakkar Vs ACIT (ITSS No.708/Mum/2003 dated 10.5.2004) and (vi) CIT Vs Mrs. Sandhya P. Naik, 253 ITR 534. 4. On the other hand, the learned Sr. D.R., Mr. S.C, Gupta, has vehemently opposed the submissions of the learned counsel for the assessee by submitting that the search had, in fact, been completed on the date when the prohibitory order u/s 132(3) was revoked. He drew our attention to various statement of assessee recorded on 1.8.1997, 14.8.1997, 5.9.1997 and 8.9.1997 to point out that various questions were asked to explain the sources of jewellery and shares. It is only after considering explanation of the assessee that the search party considered it appropriate to revoke the prohibitory order. According to him, some times, it is not possible to seize the valuable articles or things found in the course of search and prohibitory orders are passed for the time being. Therefore, the search continues till the prohibitory order is revoked. Accordingly, it was contended that search was concluded only on 8.9.1997 when the last panchanama was prepared. Hence, it was prayed by him that assessment order be held within the period of limitation. 5. Rival submissions have been considered carefully. The question for consideration is whether the block assessment made by the assessing officer is barred by period of limitation prescribed u/s 158-BE(1)(b) of the Act, which reads as under: "158BE - (1) The order under section 158BC shall be passed (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. 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.]" The perusal of the above provisions dearly shows that (i) there can be more than one authorization issued u/s 132(1) or 132(1A) of the Act and the period of limitation for making assessment shall commence from the end of the month in which last of the authorizations was executed and (ii) the authorizations shall be deemed to have been executed on the conclusion of the search recorded the last panchanama. The deeming provisions of Explanation 2 have been brought on the statute book to cover those cases where more than one panchanama are required to be prepared in the course of search in pursuance of an authorization u/s 132 of the Act. There may be cases where search proceeding cannot be concluded on a particular day for various reasons. In such cases, panchanama is prepared in respect of unconcluded search and separate panchanama is prepared on the next date or some other date when search is finally concluded. For example, the search party may find a key of bank locker but it may not be possible for them to open the bank locker on the same date. In such case, the search party may prepare the panchanama in respect of unconcluded search on that day and prepare another panchanama when the bank locker is opened. In such cases, the period of limitation would commence from the end of the month in which last panchanama is prepared. There is no dispute between the parties to this legal position. 6. The dispute between the parties is whether the alleged panchamnama dated 8.9.1997, prepared when the prohibitory order u/s 132(3) of the Act was lifted by the authorised officer, can be said to be a valid panchanama for the purpose of Section 158BE of the Act. "Panchanama" has not bee defined in the Act. "The provisions of the Code of Criminal Procedure, 1973 (Cr.PC) relating to search and seizure have been made applicable to the searches and seizure under Subsection (1) and sub-section (1A) of section 132 of the Act by virtue of sub-section (13) of section 132. Even the relevant provisions relating to searches and seizure in Cr.PC do not define the word "panchanama". Only a format is provided in which panchanama is to be prepared. The said format has been adopted by the Income Tax Department for preparing the panchanama, "Panchanama'' is also not a word of English language. However, in India, "Panchanama" is a word of judicial recognition. "Panchanama" comprises of two. Indian words "Ranch" and "Nama". "Panch" means "witness" while "nama" is used to represent a "document". Thus, ''panchanama" in common parlance as well as in judicial circle is understood as a document prepared in respect of any proceeding in the presence of witnesses. The concept of "panchanama" has been brought or introduced vis-a-vis the search and seizure proceedings in order to safeguard the interest of the person where premises have been searched and to curb the misuse of the powers of search party. That means, in our opinion, the requirement of the presence of witnesses is a sin qua non for

conducting of a valid search in respect of which panchanama is to be prepared. Further, the object behind this requirement is that, anything found and seized is truly recorded in the panchanama. If nothing is found, then such fact must be mentioned in the panchanama. On the other hand, if something is found, then it must be duty inventorised in the presence of witnesses. Further, if any seizure is required to be made, then the same should also be made in their presence. Once it is done, the same should be truly recorded in such panchanama. Search can be said to be concluded if all these transactions are complied with. 7. The peculiar situation arising before us is the situation where a valid panchanama, as described in the preceding paragraph was made on 29.7.1997 but a prohibitory order was also passed u/s 132(3) of the Act by the search party in respect of certain items i.e., jewellery and shares, and a fresh panchanama was prepared on the date when such order was simply lifted. In such panchanama, the authorised officer has not mentioned anything except stating that search is finally concluded. There is no dispute that only one authorization u/s 132(1) was issued in pursuance of which search was conducted on 28.7.1997 and panchanama was prepared on 29.7.1997. Validity of this panchanama is not in dispute. Another panchanama, in law, can be made in two situations - firstly, where another authorization is issued for further search and secondly where search, in pursuance of first authorization, still continues. There is. no dispute that no fresh authorization was issued for making similar search. So, the question which remains to be adjudicated is whether search in pursuance of the aforesaid authorization stands concluded on 29.7.1997 or continued till revocation of order u/s 132(3) i.e., 8.9.1997. 8. Sections 132(1) and 132(1A) authorise the search party for two actions i.e., search and seizure which are distinct and independent action. These words are not interchangeable. Act of seizure is the consequence of search but is not part of search. The word "search" means to go or look through a place or area or anything else in order to find something missing, lost or concealed, etc. So, once the things are found and inventorised, the process of search, in our opinion, is concluded. However, in pursuance of the authorization u/s 132(1), the authorised officer is also authorised to seize ail or any of the things found. If he thinks proper, he may not seize any of the items found. He may also partly seize and may leave the balance item with the person whose premises are searched. He may also issue prohibitory order either under the provisions of second proviso to section 132(1) or u/s 132(3). The prohibitory order u/s 132(1) IInd proviso is also considered as deemed seizure while the prohibitory order u/s 132(3) is not to be considered as deemed seizure as per these provisions. The format of panchanama prescribed in Cr.PC provides recording of things found and seized in the presence of witnesses. The above discussion shows that though the proceedings of search as well as seizure are to be recorded in the panchanama yet for the purpose of reckoning the period of limitation u/s 158BE, it is the panchanama wherein factum of concluding of search is to be recorded as is apparent from the provisions of Explanation 2 to section 158BE. Therefore, in our opinion, where no search is carried out but a panchanama is prepared, then such panchanama cannot be treated as a panchanama for the purpose of section 158BE r/w Explanation 2 of the Act.

9. Having held as above, the next question for consideration is whether search can be said to continue till the date when order u/s 132(3) was revoked. If the answer is yes, then, the panchanama dated 8.9.1997 would be a valid panchanama and period of limitation would commence from that date, if the answer is in negative, then search would be deemed to be concluded on 29.7.1997 when the first panchanama was prepared and period of limitation would commence from that date. We have gone through the provisions of the second proviso to section 132(1) as well section 132(3) which provide the circumstances under which prohibitory order can be issued. For the benefit of this order, the same are being reproduced as under: Section 132 a) ............. Provided that............. "[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):] (3) The authorised officer may, where it is not practicable to seize any such 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),] 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 officer and such officer may take such steps as may be necessary for ensuring compliance with this sub-section. [Explanation. For the removal of doubts, it is hereby declared that serving of an order as aforesaid under this subsection shall not be deemed to be seizure of such books of account other documents, money, bullion, jewellery or other valuable article or thing under clause (iii) of sub-section (1).]" The perusal of the above shows that prohibitory order u/s 132(1) can be issued where it is not possible or practicable to take physical possession of the. things, found in the search on account of its volume, weight or other physical characteristics or due to its being of dangerous nature. In such cases, the action of authorised officer shall be deemed to be seizure. On the other hand, prohibitory order u/s 132(3) can be issued where it is not practicable to seize for the reasons other than these mentioned in the second proviso to section 132(1). In such cases, the order of the authorised officer shall not be deemed to seizure. In the present case, two prohibitory orders were issued u/s 132(3). We need not go into the circumstances under which such orders were issued. However, one thing is clear that such orders were revoked on 1.8.1997 and 8.9.1997 without any further proceeding. It is not in dispute that shares and jewellery were inventorised by

the search party and even the valuation of jewellery was also done on the date of search itself. So, nothing more was required to be done in respect of these items for which orders u/s 132(3) were issued. The learned Sr. D.R has not been able to point out any action of search or seizure during the period commencing from 29.7.1997 till the dates of revocation of orders u/s 132(3). The only submission of learned Sr. D.R was that certain statements were recorded during this period which, in our opinion, cannot be considered as an act of search. As already described, search means finding of hidden or concealed things. Once things are found and inventorised, the process of search comes to an end. It is only the process of seizure which takes place after the process of search. Therefore, in our humble opinion, search was completed on 29.7.1997, when inventory of things found was prepared and nothing remained to be done. Hence, panchanama dated 8.9.1997 cannot be said to be a valid panchanama. Merely because a panchanama was prepared, it cannot be construed as panchanama. Even this panchanama does not refer to any act of search. It simply says that search concluded. Thus, the panchanama dated 8.9.1997 cannot be considered to be a valid panchanama and, therefore, has to be ignored and consequently, limitation period would commence from 29.7.1997. 10. Even assuming for the sake of argument that seizure is part of search, we find that no seizure was made on 8.9.1997. So, neither the act of search nor the act of seizure took place on 8.9.1997. Hence, panchanama was not required to be made. Even on this account, the alleged panchanama dated 8.9.1999 cannot be said to be a valid panchanama and consequently, the period of limitation cannot be reckoned from 8.9.1997. Thus, period of limitation would commence only from 29.7.1997, when search as well a seizure actions were concluded. 11. This issue can also be considered from another angle. As per subsection (8A) of section 132, as existed on the statute book when order u/s 132(3) was passed, the prohibitory order u/s 132(3) could not remain in force for a period exceeding sixty days from the date of order. However, the authorised officer, for the reasons to be recorded by him in writing, could extend the period beyond sixty days after obtaining the approval of the director of income tax or as the case may be the commissioner of Income Tax for such extension. The proviso to this sub-section provided that the commissioner shall not approve the extension of the period for any period beyond the expiry of thirty days after the completion of all the proceedings under this Act in respect of the years for which the valuable articles or things were relevant. This clearly shows that order u/s 132(3) could be extended even beyond the period of completion of assessment. In such situations, it was impossible to compute the period of limitation. This aspect of the matter was considered by the Special Bench of the Tribunal in the case of C. Ramaiah Reddy, 87 ITD 439 (Bangalore). In Para 7.3 of its judgment, it was observed by the Bench as under: "7.3 An interesting argument was taken up to say that a Prohibitory Order under section 132(3) which is not valid after a period of sixty days can be extended beyond such period as prescribed under section 132(8A) the period of validity of order under section 132(3) gets extended even beyond completion of assessment proceedings. Hence, even if search is not concluded, and time limit has not commenced, assessment can be made which will in other words imply that there will

not be any other time limit even though prescribed under section 158BE. In our opinion, the interpretation of section 132(3) and 132(8A) as made is not correct. What the Explanation to section 158BE (1) says is that time-limit will start from last of the panchanama and it cannot be interpreted to mean that the time limit will not commence till order under section 132(3) is in operation. An order under section 132(3) can be passed restraining a person in possession of books or valuables to deal with same. However, once all the materials and valuables are appraised the search will come to an end and to this effect a panchanama will be prepared. Even at the time in certain circumstances as per section 132(8A) may operate even after completion of assessment This does not mean that time limit does not commence at all. The time-limit will definitely commence on conclusion of search as per last panchanama prepared. Hence, we do not find merit in said arguments and answer the second question in negative." In view of the above observations, it has to be held that the order u/s 132(3) has to be ignored for the purpose of section 158BE. The view taken by us is also fortified by the decision of another Coordinate Bench in the case of Adolf Patric Pinto, 100 ITD 191, wherein, similar view has been taken on similar facts. The relevant portion from para 16 of the decision is quoted below for the benefit of this order. "An order passed under section 132(3) prohibits the person in possession of the books or the valuables to deal with the same except with the prior permission of authorised officer. It does hot mean that the search shall not come to an end till the operation of order under section 132(3). Once all the materials and valuables, which are found during the search, are appraised the search will come to an end." 12, In view of the above discussion, it is held that the panchanama dated 8.9.1997 was not a valid panchanama in the eyes of law and, therefore, has. to be ignored and consequently, period of limitation will commence from 31.7.1997, since the valid panchanama was prepared on 29.7.1997. Consequently the. block assessment could be completed by 31,7.1999. Since the impugned block assessment order was passed on 30.9.1999, it was clearly beyond the period of limitation prescribed u/s 158BE. Thus, the impugned order of the assessing officer was illegal being barred by the period of limitation. Therefore, the impugned orders of the lower authorities are cancelled. 13. Before parting with this order, we would like to mention that various arguments had been made on merits also in respect of the additions made by the assessing officer. Since the assessee succeeds on the legal ground, it is not necessary for us to deal with the submissions of the assessee on merits of the additions sustained by the learned CIT(A). 14. In the result, appeal stands allowed. Per: S C Tiwari, AM : Dated: May 16, 2007

I have carefully gone through the order proposed to be pronounced by my brother learned Judicial Member Shri K.C. Singhal and with utmost respect I regret my inability to agree with his findings, in my humble opinion the search u/s 132(1) in the case before us was concluded only on 08-09-1997 when the prohibitory order u/s 132(3) of the Act was lifted by the authorised officer concerned. Hence it cannot be said that the impugned block assessment order has been made by the assessing officer beyond the period of limitation prescribed u/s 158BE. 2 Under the provisions of section 158BE the time limit to make an order u/s 158BC is to be reckoned with from the end of the month in which the last of the authorisations for the search u/s 132 or for requisition u/s 132A was executed. Explanation 2 to section 158BE declares that the authorisation referred to in sub section (1) of section 158BE 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." From an analysis of Explanation 2 the learned judicial Member has opined that in the instant case the panchnama dated 08-09-1997 was not a valid panchnama in the eyes of law and therefore has to be ignored and consequently period of limitation commenced from 31-07-1997 by virtue of the valid panchnama dated 29-07-1997. It is important to bear in mind here that provisions of section 158BE do not define, "a valid panchanama" in the eyes of law. For that matter there is no definition of 'panchanama' under the provisions of IT. Act, 1961. My learned brother Judicial Member looked for definition of 'panchanama' in the provisions of Code of Criminal Procedure, 1973 (Cr.PC) and he has found out that there is no definition of the word 'panchanama' in the provisions of Cr.PC either and only a format is provided in which 'panchanama' is to be prepared. The learned Judicial Member has therefore attempted to give his own definition of 'panchanama' and held that it is a document prepared in respect of any proceedings in the presence of witness. Because in the instant case there was only one authorisation u/s 132(1) in pursuance of which search was 'conducted' on 28-07-1997 and 'panchanama' was prepared on 29-07-1997, the learned Judicial Member has further, held that a 'panchanama', in law could be made only where search in pursuance of the authorisation, still continued. Hence the crucial question to be adjudicated is whether search in pursuance of the lone authorisation in the instant case was concluded on 29-07-1997 or continued till revocation of order u/s 132(3) on 08-09-1997. Applying this legal view of the matter to the facts of the instant case before us the learned Judicial Member has stated the following as respects two prohibitory orders issued u/s 132(3). "We need not go into the circumstances under which such orders were issued. However, one thing is clear that such orders were revoked on 1.8.1997 and 8.9.1997 without any further proceeding it is not in dispute that shares and jewellery were inventorised by the search party and even the valuation of jewellery was also done on the date of search itself. So, nothing more was required to

be done in respect of these items for which orders u/s 132(3) were issued. The learned Sr.D.R. has not been able to point out any action of search or seizure during the period commencing from 29.7.1997 till the dates of revocation of orders u/s 132(3). The only submission of learned Sr.D.R. was that certain statements were recorded during this period which, in our opinion, cannot be considered as an act of search. As already described, search means finding of hidden or concealed things. Once things are found and inventoried, the process of search comes to an end. It is only the process of seizure which takes place after the process of search. Therefore, in our humble opinion, search was completed on 29.7.1997, when inventory of things found was prepared and nothing remained to be done. Hence, panchanama dated 8.9.1997 cannot be said to be a valid panchanama. Merely because a panchanama was prepared, it cannot be construed as panchnama. even this panchanama does not refer to any act of search. It simply says that search concluded. Thus, the panchanama dated 8.9.1997 cannot be considered to be a valid panchanama and, therefore, has to be ignored and consequently, limitation period would commence from 29.7.1997." With utmost respect I find the reasoning as well as the finding above quoted hard to accept. The circumstances under which prohibitory orders were issued u/s 132(3) are not doubted. The objection, however is taken to the revocation of prohibitory orders u/s 132(3) without any further action. It is difficult to understand that if the prohibitory orders u/s 132(3) were validly or correctly issued, how can revocation of those prohibitory orders be held to be no action at all. During the course of hearing before us the learned senior DR was at pains to explain that during the intervening period the assessing officer was carrying out a process of examining and verifying the various facts and circumstances attached to the valuable articles or things put under prohibitory order u/s 132(3) with a view to determine whether the same should be seized or released. That according to my learned brother is not part of search itself and therefore it should be held that prohibitory orders u/s 132(3) were revoked without any further proceedings. The shares and jewellery had already been inventorised by the search party and even the valuation of jewellery has also been done on the date of search itself. So nothing more was required to be done insofar as the act of search was concerned. Search means finding hidden or concealed things. Once things were found and inventorised the process of search came to an end. it was only the process of seizure which took place after the process of search. In nutshell the learned Judicial Member holds, "As already described, search means finding of hidden or concealed things. Once things are found and inventorised, the process of search comes to an end. It is only the process of seizure which takes place after the process of search. Therefore, in my humble opinion, search was completed on 29-07-1997, when inventory of things found was prepared and nothing remained to be done." it is submitted with respect that this reasoning is contrary to the scheme of the provisions of section 132 under the head "Search and seizure" The title of section 132 itself suggests that the provision deals with the integrated activity of search and seizure. For the purpose of application of limitation u/s 158BE read with Explanation 2 my learned brother has separated search from seizure and set them apart. Provisions of section 132(1) authorise the authorising officer to -

"(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 ox 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 (i) 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 by 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:" It is thus seen that an authorisation by the authorising officer to an authorised officer u/s 132(1) to search or not limited to discovery of hidden or concealed things. It includes seizure of them also if they fall to be in the nature of as described under clauses (a), (b) and (c) of sub section (1) of section 132. It is therefore incorrect to say that an authorisation u/s 132(1) comes to an end "once things are found and inventorised". The authorisation issued u/s 132(1) has five limbs integrated with each other. There is nothing like a separate authorisation to enter and search the premises and another authorisation to break open the lock of any door, box, lockers, safe, almirah or other receptacles; another authorisation to search any person who gets out of, or is about to get into the search, premises; another authorisation to require any person to afford the authorised officer the necessary facility to inspect such books of account or other documents; another authorisation to cause seizure and yet another authorisation to place marks of identification; or separate authorisation to make a note or preparation of an inventory. The authorising officer u/s 132(1) issues a single authorisation to the authorised officer to carry out all the above mentioned activities jointly or severally. Thus the highly restrictive meaning given by

my learned brother to authorisation of search u/s 132 does not appear to be in conformity with the provisions of section 132(1). 3. As a matter of fact the legal position in this behalf stands settled. In the case of 1st Income-tax Officer vs Narayanan Champalal Bajaj (1993) 201 ITR 315 (Bom). The facts of that case briefly are that a search u/s 132 was earned out on 29-10-1985 at the premises of one Shri Narayan Bajaj. The search continued till 9.30 PM and remained incomplete. . During the course of search the authorised officer separated the pawned jewellery and kept it in the almirah and then issued a prohibitory order u/s 132(3) in respect thereof. The almirah was opened next day and it was found that some article was missing. On verification the search party noticed that the steel plates on the rear side of the almirah had been cut into two pieces. The local Income-tax Officer therefore lodged a report with the police station. After completion of the investigation Shri Narayan Bajaj was prosecuted. In the course of defense one of the pleas taken was that the provisions of section 132(3) had been wrongly resorted to. It was contended that the authorised officer had not reached a conclusion or formulated the opinion that the pawned articles kept in the almirah were property undisclosed for the purposes of I.T. Act. Merely because it was 9.30 PM it could not be said that it was not practicable to complete the search. Thus the prohibitory order u/s 132(3) was without any legal foundation and breach or violation of such order did not constitute any offence. The Hon'ble Bombay High Court thereupon held as under: "Authorization under sub section (1) of section 132 of the Act empowers the concerned officer firstly to "make an entry into the premises of particular person, then to search and hold enquiry, thereafter to seize and lastly to prepare an inventory of such articles, valuables or jewellery. This is a single, continuous and homogenous process with various stages as described. Search, enquiry and formulating opinion are the stages prior to effecting seizure. There could hot be a valid seizure unless the earlier stages are complete. Incompletion of search creates impediment in formulating the opinion and causing ultimate seizure of the concerned property. P.W.-3, Prasad, has specifically stated that they reached Yavatmal at about 8.30 a.m. and then started their operation. It continued up to 9.30 p.m. According to the witnesses, it was not possible to complete the search on that day. Shri Palshikar learned counsel appearing for the accused, made a submission that this could not be a ground within the import of the term " reason " as envisaged in sub section (3) of section 132 of the Act. According to learned counsel, may be due to rate hours, it might be inconvenient for the concerned officers to complete the search, still it was not difficult, nor impossible. The proviso to sub section (1) of section 132 of the Act deals with various contingencies when it becomes impracticable to seize the particular property or articles. The first proviso refers to building, place, vessel, vehicle, aircraft, etc., whereas the second proviso to sub section (1) refers to the impossibility or impracticability of taking physical possession of any valuable article. Sub section (3) of section 132 of the Act with which we are concerned deals with the contingencies which are not covered by the second proviso to sub section (1). Section 132(3) of the Act lays down that " the authorised Officer may, where it is not practicable to seize any such books of account,

other documents, money, etc., for reasons other than those mentioned in the second proviso to sub section (1), serve an order on the owner ... In view of the legal provision, it is explicit that the contingency contemplated by sub section (3) of section 132 of the Act could be other than those provided in the proviso to sub section (1) of section 132 of the Act. Such contingency in the given case could be impracticability due to physical or mental incapability of the concerned Officer owing to over strain, in view of our discussion, we hold that the reasons as contemplated under sub section (3) of section 132 of the Act pertain to impracticability rather than impossibility. P.W.-2, Krishnamachari and P.W.-3, Prasad, have specifically stated that it was not feasible for them to complete the search even after continuing if for the whole night. As the completion of the search was not feasible, it had certainly created an impediment in the way of the Officer formulating the opinion and effecting seizure of the objectionable materials; as such in view of our finding that it being a continuous and homogeneous process, incompletion of the search has certainly affected the ultimate act of effecting seizure of the property undisclosed for the purpose of the Income tax Act: In the situation, P.W.-3, Prasad was competent to resort to sub section (3) of section 132 of the Act for issuing the prohibitory order marked as exhibit 16. The order has a legal foundation and is within the parameters of the relevant provision. The same was, therefore, binding on the accused." In the aforesaid judgment Hon'ble Bombay High Court have clearly held that search, enquiry and formulating opinion and seizure of valuable articles or things is a single, continuous and homogeneous process. The Hon'ble jurisdictional High Court have also held that pending a decision to seize or not to seize provisions of section 132(3) could validly resorted to. in these circumstances to say that once the valuable articles or things were found and inventorised the process of search came to an end is to look at the provisions of section 132 only half way through. In the instant case the learned departmental representative has taken this stand that after issue of prohibitory orders u/s 132(3) the assessing officer conducted a detailed enquiry in the course of which statements of parties were recorded and thereafter a decision was arrived at not to seize the shares in question and thereupon prohibitory order u/s 132(3) was lifted. Merely because the final decision was not to seize the shares in question it cannot be said that the proceedings undertaken after prohibitory orders u/s 132(3) were a nullity and the last 'panchanama' drawn was in the eyes of law no 'panchanama' at all. On the contrary as held by the Hon'ble jurisdictional High Court in the case of Narayan Champalal Bajaj (supra) the last 'panchanama' drawn in the instant case was to bring the single continuous and homogenous process with various stages as envisaged under the provisions of section 132 to its logical conclusion. 4. I am unable to subscribe to the view that unless the department established before us with sufficient evidence / material that the provisions of section 132(3) were resorted to with valid reasons to enquire and verify further as to the source and nature of possession of the shares in the hands of the assessee, it should be assumed that prohibitory order u/s 132(3) was wantonly issued and without any purpose. On the contrary the authorised officer of the assessing officer being senior public servants there is a presumption of bonafide and proper conduct on their part

during the course of performance of their duties and it is for the party who alleges otherwise to rebut the presumption with sufficient evidence and material. This position has been clearly recognised by Hon'ble Supreme Court in the case of Income-tax Officer, Special Investigation Circle B, Meerut vs Seth Bros & Ors 74 ITR 836 (SC) in the following words: "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." From the verdict of Hon'ble Supreme Court above quoted it follows that in issues like this it is not the question as to whether or not the assessing officer was justified in taking recourse to the provisions of section 132(3). It is also not germane to the issue as to whether the decisions taken by him are correct decisions or not. The question that can be raised is whether the assessing officer exercised his powers bona fide to the best of his judgment. Any error of judgment on his part would have no effect on the legality of action taken by him. During the course of hearing before us considerable reliance was placed by the learned counsel for the assessee on the judgment of Hon'ble Bombay High Court in the case of CIT vs Mrs. Sandhya P Naik 253 ITR 534 (Bom). The (earned CIT(DR) strongly relied upon the order of ITAT, Mumbai Bench "E" in the case of M/s Tips Films Pvt Ltd I.T.(SS) A No. 338/Mum/2003 dated 31-01-2004 wherein the aforesaid judgment of Hon'ble Bombay High Court was carefully analysed and the Tribunal observed as under:"96. The learned CIT Departmental Representative took us closely through the judgment of Hon'ble Bombay High Court in the case of Sandhya P. Naik 253 ITR 534 (Bom). He referred to page 538 of the judgment and pointed out that Hon'ble High Court had noticed several irregularities. In that case an order u/s 132(3) came to be made by an officer who was not one of the authorized officers mentioned in the search warrant. In that case the search was concluded but at the same time a restraint order u/s 132(3) was passed. Subsequently again a restraint order was passed by an officer who was not one of the authorized officers. The learned counsel for the department himself admitted that there were many defects in the said Panchnama. It was not signed by the assessee nor by any witnesses The Panchnama was drawn at Belgaum and not at Margao the place of seizure. There was no comparison between the facts of the case of Sandhya P. Naik and that of the assessee.

We find the facts of the case of Sandhya P. Naik to be very different and distinguishable. In that case the articles put under restraint were silver articles. After the restraint order u/s 132(3) on 20/10/96, the cupboard was once again opened on 26/10/996 and 6 kg of silver vessels were released and fresh order was passed u/s 13-2(3). On December 13, 1996 the Asst. Commissioner who was not one of the authorized officers mentioned in the search warrant removed the seal and made an order releasing the silver vessels and articles. The Hon'ble High Court found that there were several defects. On the facts of that case it was found that there was no practical impediment to seizure of 45 kg of silver articles. The case of the department that the quantity was huge was found to be not acceptable. The court also found that the restrain order could not be cancelled and renewed from time to time as was done in that case. There were many other defects in the Panchnama as it was not signed by the assessee and no witnesses were called to sign the same. The Panchnama was drawn at Bangalore and not at Margaon i.e. the place of seizure. There was no Warrant of Authorization in the name of the subsequent officer. In fact the Department itself admitted that there were, many defects in the Panchama. After taking all the facts of the case into consideration the Hon'ble High Court held that no fault could be found with the order of the ITAT Pune Bench. In the instant case the articles put under the restraint order were not silver' articles but books of account. The case of the learned counsel of the assessee before us is that there was no practicable difficulty in seizure of a few documents. In our opinion it is not a correct view of the matter. From the fact that ultimately only a few papers were seized it cannot be inferred that the search had not been concluded for that purpose only. The search appears to have been continued because the authorized offers did not find at that point of time the matter coming to an end. The law does not envisage recording of any reasons in writing for issuance of an order u/s 132(3) It would therefore not be fair to conclude that there were no reasons at all for issuance of order u/s 132(3) in continuation of the search. In our view the validity of an order u/s 132(3) cannot be tested from what is finally seized. it is a question of bona fide action of the authorized officers to be seen from the over all facts and circumstances of each case. If the over all appraisal of the facts of a particular case do not in particular indicate any callousness, indifference or malafide on the part of the authorized officers, it should be assumed that the search was conducted in a proper manner and an order u/s 132(3) was made for cogent reasons. In the case of Sandhya P. Naik the indifferent and callous manner in which the matter was approached is patent on the facts of the case. From that judgment it cannot be said that the law has been laid down that in every case the burden should be cast on the department to prove the cogent reasons in relation to an order u/s 132(3) otherwise subsequent actions would be rendered a nullity. As pointed out by us the law does not require the authorized officers to record the reasons in writing before an order u/s 132(3) is made and it would be unfair to put this burden on the department long after the conclusion of the search. We are in respectful agreement with the Special Bench of the Tribunal in the case of C. Ramaiah Reddy that the wisdom of the ITAT cannot replace the wisdom of the Assessing Officer passing an order u/s 132(3) on the spur of the moment. There has to be good amount of reasons to call in question the validity of such action. We also see considerable force in the contention of the learned CIT(DR) that the assessee not having objected to an order u/s 132(3) during the course of the search or during the course of the proceedings u/s

158BC and after having allowed the time limit u/s 158BE to be reckoned from the last Panchnama drawn in the case of the assessee should be hard put to establish the illegality in the orders of Income-tax authorities. After consideration of the matter we reject the additional grounds of the assessee that the order u/s 158BC is bad in law on account of having been made beyond the expiry of the statutory time limit. We hold that the search proceedings u/s 132(1) in the case of the assessee company was not over on 27/7/99 or for that matter on 3/8/99 and that the proceedings taken on 4/9/99 were in continuation of the proceedings of the search commenced on 27/7/99." 5. The proposition that various actions taken by the authorised officer during the course of proceedings u/s 132 are administrative acts of the assessing officer in exercise of powers conferred upon him and such actions cannot be called a nullity merely because in the superior wisdom of the appellate authority or the court the authorised officer should have acted in a manner different from he acted, unless it is seen that the officer did not act bona fide or in good faith or there was scant regard to the relevant facts and law, is well established. In the case of Jain and Jain & Ors vs UOI & Ors 134 ITR 655 (Bom) the Hon'ble jurisdictional High Court have stated the legal position in the following words: "Now, formation of belief within the meaning of s. 132 is an important step and a condition precedent to the authorisation of search and seizure. It is nevertheless basically a subjective step. It is one essentially of making up one's mind in this case by the Director of inspection himself as to whether on the information presented he had or had not formed the reason to believe. This belief, of course, cannot be a mere pretence nor can it be a mere doubt or suspicion. His reasons and his belief do not constitute a judicial or a quasi judicial act nor is issue of authorisation a judicial or a quasi judicial function. And the matter, though to an extent justiciable, extremely limited and circumscribed are the court's power of scrutiny and review in that behalf. One may not like the belief of the Director of Inspection. But if the belief is bona fide, if the same is in good faith, if it is not a pretence and if it is cogently supported in this case also overwhelmingly by the information as of the nature here, this court will not interfere therewith or sit in appeal over it. indeed, there would, in such circumstances, be no jurisdiction to interfere. " 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." (emphasis supplied) 6 On consideration of the matter I am of the view that if in a given case a prohibitory order u/s 132(3) is issued that would ordinarily denote continuation of the execution of an authorisation u/s 132(1) of the Act and any "panchama(s)" drawn in relation to such prohibitory order u/s 132(3) would for the purpose of the provisions of section 158BE read with Explanation 2 have the effect of extending the time limit for completion of the order u/s 158BC. It is only in the extreme cases of abuse of power or abdication of sense of duty or responsibility as in the case of Sandhya P Naik (supra) that the proceedings taken by the officers after issue of prohibitory orders u/s 132(3) may

be treated to be a nullity. In the case before us there is no reason to believe that the authorised officer first issued a prohibitory order u/s 132(3) and thereafter lifted the same in abuse of the power in this behalf conferred upon them under the provisions of section 132 of the Act. On the contrary the sequence of events shows that the authorised officers took recourse to the provisions of section 132(3) so as to make enquiries and verification in the interregnum with a view to avoid indiscriminate or uncalled for seizure of the properties belonging to the assessee. 7. it is seen that my brother the learned Judicial Member has not decided upon the various ground of appeal on merits in respect of the additions made by the assessing officer. I therefore do- not propose to go into the same. It would suffice if this issue as to the time limit within which the impugned order u/s 158BC has been made is first sorted out and thereafter the other grounds of appeal on merits of the additions made by the assessing officer are taken up. (DISCLAIMER: Though all efforts have been made to reproduce the order correctly but the access and circulation is subject to the condition that Taxindiaonline is not responsible/liable for any loss or damage caused to anyone due to any mistake/error/omissions.)

Click to Print 2010-TIOL-219-HC-ALL-IT (Also see analysis of the Order ) IN THE HIGH COURT OF ALLAHABAD Civil Misc. Writ Petition No. 1654 of 2006 GOPAL DAS KHANDELWAL AND OTHERS Vs UNION OF INDIA AND OTHERS Rajes Kumar and Pankaj Mithal, JJ Dated : March 30, 2010

Click to Close

Income Tax - Recovery Proceedings u/s 226(3) - A search and seizure u/s 132 was conducted on the business and the residential premises of P who was the proprietor of a firm and was engaged in money lending business. During the aforesaid search jewellery worth Rs. 34.33 lakhs was seized. P on 16-09-03 applied for release of the aforesaid seized jewellery on the ground

that the same belonged to third parties and was in custody of the firm as pawned articles. The CIT vide order dated 07-11-03 directed the assessing authority to release the same on Bank Guarantee of Rs. 34,00,000/- for a period of one year subject to renewal. P offered certain fixed deposits of the petitioners which were with the Bank as security for furnishing Bank Guarantee. Bank on the basis of the aforesaid fixed deposits belonging to the petitioners executed a deed of guarantee on 22-11-03 in favour of the CIT for an amount not exceeding Rs. 34,00,000/- for a period of one year only expiring on 21-11-04. The period of the aforesaid guarantee was extended by one another year expiring on 21-11-05 and no further extensions or any fresh guarantee were given thereafter. P was subjected to block assessment u/s 158 BC and vide order dated 30-05-05 a tax liability of Rs. 8,82,236/- was determined. The AO accordingly vide notice dt 19-09-05 issued u/s 226 (3) of the Act directed the Bank to pay the aforesaid amount of tax with interest as part of the Bank Guarantee furnished by it. A sum of Rs. 10,08,476/- by encashing some of the fixed deposits was accordingly paid by the Bank. Thereafter without any further demand of any tax CIT issued directions u/s 281B/226(3) to the Bank for the attachment of the remaining fixed deposits under the Bank Guarantee to the extent of the balance amount of Rs. 24,91,298/-. On these facts the High Court held: ++ Bank Guarantee is not a very old concept. It is of a recent origin which now forms the backbone of the banking system. It has not been defined in any statute though a 'contract of guarantee' has been defined in Section 126 of the Contract Act, 1982. A contract of guarantee is generally a tripartite agreement involving a surety, principal debtor and the creditor wherein a person who gives the guarantee is called the "surety"; the person on whose behalf guarantee is given is called "principal debtor" ; and the person to whom the guarantee is given is called "the creditor" or the "beneficiary". Bank Guarantee is also a similar kind of contract. However, if a c ontract of Bank Guarantee is examined in depth instead of three, sometimes a fourth player also comes into picture though not described in the contract. This generally happens when the principal debtor himself has nothing to offer to the Bank to enable it to give guarantee on his behalf and a fourth party steps into to offer security. This undisclosed fourth person is one who offers his property in any shape including fixed deposits to the Bank for the purposes of extending Bank Guarantee for the principal debtor to the creditor. In the Banking system Bank Guarantee has dual aspects. It is not merely a contract between the bank and the beneficiary but it is also a contract of security between the Bank and the third party ie. who offers his property for the purposes of executing the Bank Guarantee. Bank Guarantee is therefore a special and an autonomous contract which is independent, separate and distinguishable from the contract from which the liability of the principal debtor arises. Accordingly, it has to be construed on its own terms independent of any other contract between the aforesaid parties inter se. ++ section 226(3) of the Act can only be resorted to when tax is payable and the assessee is in

default or deemed to have defaulted in its payment and not otherwise. ++ section 281B of the Act provides for the provisional attachment of the property belonging to the assessee for a period of six months from the date of such attachment unless extended but excluding the period of stay of assessment proceedings, if any. The language of the above provision is plain and simple. It provides for the attachment of the property of the assessee only and of no one else. ++ Legally "attachment" would mean imposing restriction upon some kind of property by the Court or some other competent, statutory authority. The order of " attachment" as such tells the owner of the property, the custodian of the property and the world at large not to deal with the property attached. Apart from the above restriction, the order of "attachment" carries no other meaning. It is essentially an order to safe-guard and protect the interest of the creditor from being defeated and to enable him to release his dues without any let or hindrance subsequently. High Court concluded as under : 1. Ordinarily, in a contract of Bank Guarantee there are only 3 parties but sometimes there also happens to be a fourth party as in the present case. 2. The life of the Bank Guarantee as per its terms and condition was only upto 21-11-05 3. The provision of Section 226(3) of the Act was not applicable. 4. The order of attachment of the fixed deposits of the petitioners passed under Section 281 B of the Act was illegal. 5. In any case order of attachment was provisional in nature and was valid only for a period of six months from the date of attachment which period had expired much before 01-11-06 6. The order of attachment only places restrictions in dealing with the property and does not authorise the encashment of the fixed deposits. 7. The encashment of the fixed deposits on the expiry of the period of Bank Guarantee, cessation of the provisional attachment which otherwise was illegal and in no way authorise the encashment of the fixed deposits which was totally unjustified. JUDGEMENT All the five petitioners of this writ petition are related to one another. A search and seizure under Section 132 of the Income Tax Act, 1961 (hereinafter referred to as an Act) was conducted on 9.5.2003 and 24.5.2003 on the business and the residential premises of respondent no. 5 Purshottam Das Khandelwal who happened to be the proprietor of the firm M/S Suraj Bhan Purshottam Das engaged in money lending business. During the aforesaid search

jewellery worth Rs. 34.33 lakhs was seized. Respondent no. 5 on 16.9.2003 applied for release of the aforesaid seized jewellery on the ground that the same belonged to third parties and was in custody of the firm as pawned articles. The Commissioner of Income Tax (Central) Kanpur vide order dated 7.11.2003 directed the assessing authority to release the same on Bank Guarantee of Rs. 34,00,000/- for a period of one year subject to renewal. Respondent no.5 offered certain fixed deposits of the petitioners which were with the respondent no. 4, as security for furnishing Bank Guarantee. Respondent no. 4 Bank on the basis of the aforesaid fixed deposits belonging to the petitioners executed a deed of guarantee on 22.11.2003 in favour of the Commissioner of Income Tax (Central) Kanpur for an amount not exceeding Rs. 34,00,000/- for a period of one year only expiring on 21.11.2004 in respect of liability of direct tax arising out of relevant assessment proceedings concerning block assessment only. The period of the aforesaid guarantee was extended by one another year expiring on 21.11.2005. No extension or any fresh guarantee was given thereafter. Respondent no.5 was subjected to block assessment under Section 158 BC of the Act vide order dated 30.5.2005 and a tax liability of Rs. 8,82,236/- was determined. The assessing authority accordingly vide notice dated 19.9.2005 issued under Section 226 (3) of the Act directed the Bank to pay the aforesaid amount of tax with interest, total amounting to Rs.9,08,702/- as part of the Bank Guarantee furnished by it. A sum of Rs. 10,08,476/- by encashing some of the fixed deposits was accordingly paid to respondents no. 2 and 3. Thereafter without any further demand of any tax, the Commissioner of Income Tax (Central) Kanpur on 18/21.11.05 issued directions under Section 281B/226(3) of the Act to the Bank for the attachment of the remaining fixed deposits under the Bank Guarantee to the extent of the balance amount of Rs. 24,91,298/-. The request of the petitioners in writing to release the fixed deposits on the expiry of the period of guarantee was not considered. Ultimately, on 1.11.06 the said amount was released by the Bank in favour of the Commissioner of Income Tax (Central) Kanpur after encashing the remaining fixed deposits of the petitioners in view of the penalty order dated 18.10.2006 imposing penalty of Rs. 22,36,172/- upon respondent no. 5. The petitioners are aggrieved by the encashment and release of the fixed deposits aforesaid. It is in the above back-drop that the petitioners have invoked writ jurisdiction of this Court for issuance of the following directions:(i) a suitable writ, order or direction in the nature of mandamus directing the Assessing Officer, respondent no.3 to forthwith refund the amount of the STDRs/FDRs to the petitioners, encashed and paid by the State Bank of India, Aonla Branch, Bareilly to the Income Tax Department on 1.11.2006 together with the interest at the rate of 15% per annum from 22.11.2005 upto the date of the payment of the said refund to the petitioners. (ii) a suitable writ, order or direction in the nature of certiorari calling for the record of the case to and quashing the letter and notice both dated 18/21.11.2005 under Section 281B/226(3) of the Income-tax Act, 1961 issued by the respondent no. as contained in Annexure- to the writ petition. (iii) any other suitable writ, order direction which this Hon'ble Court may deem fit and proper in the facts and circumstances of the case ; and

(iv) award the cost of the writ petition to the petitioner. In substance the basic prayer of the petitioners is for refund of the encashed amount of the fixed deposits which were attached on 18/21.11.2005 and was paid and released on 1.11.06 in favour of the Commissioner of Income Tax (Central) by the Bank, along with interest on the said amount @ 15% per annum w.e.f. 22.11.2005 and secondly for quashing of the letter/order of attachment dated 18/21.11.2005 of the Commissioner of Income Tax (Central) Kanpur for attachment of the fixed deposit receipts /Bank Guarantee. We have heard Sri Pankaj Naqvi, learned counsel for the petitioners, Sri Bharat Ji Agrawal, Senior counsel assisted by Sri A.N. Mahajan, learned counsel appearing for the Income Tax Department ie. respondents no. 2 and 3 and Smt. Archana Singh, learned counsel for the Bank ie., respondent no.4. We have also perused the pleadings of the parties. On the basis of the respective submissions of the parties, the following points arise for determination in the present writ petition: 1. Whether the fixed deposits of the petitioners which were furnished as security to the Bank respondent no. 4 for extending Bank Guarantee could have been encashed after the expiry of the period of the Bank Guarantee even though they were attached during the subsistence of the guarantee period? 2. Whether the attachment dated 18/21.11.2005 of the Bank Guarantee/fixed deposits was valid? A preliminary objection with regard to locus of the petitioners to maintain this writ petition for a direction to refund the amount as against the Income Tax Department or against the Bank has also been raised. First, we would like to deal with the preliminary objection of the respondents with regard to locus of the petitioners in filing the present writ petition. In examining the above objection let us have a glance on the term 'Bank Guarantee'. Bank Guarantee is not a very old concept. It is of a recent origin which now forms the backbone of the banking system. It has not been defined in any statute though a 'contract of guarantee' has been defined in Section 126 of the Contract Act, 1982. A contract of guarantee is generally a tripartite agreement involving a surety, principal debtor and the creditor wherein a person who gives the guarantee is called thesurety; the person on whose behalf guarantee is given is calledprincipal debtor ; and the person to whom the guarantee is given is called the creditor or the beneficiary. Bank Guarantee is also a similar kind of contract. However, if a contract of Bank Guarantee is examined in depth instead of three, sometimes a fourth player also comes into picture though not described in the contract. This generally happens when the principal debtor himself has nothing to offer to the Bank to enable it to give guarantee on his behalf and a fourth party steps into to offer security. This undisclosed fourth person is one who offers his property in

any shape including fixed deposits to the Bank for the purposes of extending Bank Guarantee for the principal debtor to the creditor. In the Banking system Bank Guarantee has dual aspects. It is not merely a contract between the bank and the beneficiary but it is also a contract of security between the Bank and the third party ie. who offers his property for the purposes of executing the Bank Guarantee. Bank Guarantee is therefore a special and an autonomous contract which is independent, separate and distinguishable from the contract from which the liability of the principal debtor arises. Accordingly, it has to be construed on its own terms independent of any other contract between the aforesaid parties inter se. It is common knowledge that except where public interest is involved, only the person aggrieved having a legal right and suffering a wrong alone is entitle to invoke the writ jurisdiction. Normally, a person aggrieved is one against whom a decision has been pronounced wrongly depriving him of something or adversely affecting his right over something but it does not include any kind of disappointment or personal inconvenience. In the case at hand, the petitioners are the undescribed party in the contract of Bank Guarantee as the Bank had executed the said guarantee for and on behalf of respondent no. 5 on the strength of the fixed deposits offered by the petitioners. Therefore, if their fixed deposits have been encashed or misappropriated in violation of terms and conditions of the contract of Bank Guarantee then certainly they have been wronged and their right to property ie., fixed deposits has been infringed to which they are entitle to redressal in law. Respondents no. 2 and 3 as well as respondent no. 4 in invoking the Bank Guarantee in effect have encashed the fixed deposits of the petitioners. Accordingly, we are of the opinion that even though the petitioners may not be ex-facie party to the contract of Bank Guarantee they have a judicially enforceable right to reclaim the amount invested in the fixed deposits if it has been misappropriated or unauthorizedly encashed by invoking the Bank Guarantee. The view which we have taken above finds support from the Division Bench decision of the Calcutta High Court reported in AIR 1975 Calcutta 145 State Bank of India Vs. The Economic Trading Co. S. A. A. and others wherein their Lordships observed as under:In seeking to enforce the Bank Guarantee the beneficiary of the guarantee, in effect, sought to realise the security furnished by the third party and the third party had, therefore, locus standi to challenge the enforcement of the guarantee. We therefore, over rule the preliminary objection and hold that the petitioners are entitle to invoke writ jurisdiction under the facts and circumstances of the case. Now let us examine the the validity of the directions contained in the letter/order dated 18/21.11.05 for attachment and payment of balance amount under the fixed deposits. Section 222 of the Act authorises the Tax Recovery Officer to adopt any of the modes prescribed therein to recover the tax due where an assessee against whom tax is due and payable commits default in its payment or is deemed to be in default. Section 226(3) of the Act empowers the

assessing/recovery officer to direct any person who holds or is likely to hold any money for or on account of the assessee to pay to him so much of the money which is sufficient to satisfy the amount due to the assessee. It is applicable when money is due to the assessee from any person (See (2007) 10 SCC 101 Administrator Unit Trust of India Vs. B.M. Malani & others). A combined reading of the aforesaid provisions clearly indicates that the procedure prescribed under Section 226(3) of the Act can only be resorted to when tax is payable and the assessee is in default or deemed to have defaulted in its payment and not otherwise. Default would arise only when there is a demand. Admittedly, on 18/21.11.05 the assessee (respondent no. 5) was not in default or deemed default of any tax due. Thus, no order or direction could have been given for such payment to the Bank. Sri Bharat Ji Agrawal in all fairness as such accepted that Section 226 (3) of the Act is not attracted but the attachment is valid under Section 281B of the Act. This brings us to Section 281 B of the Act which provides for the provisional attachment of the property belonging to the assessee for a period of six months from the date of such attachment unless extended but excluding the period of stay of assessment proceedings, if any. The language of the above provision is plain and simple. It provides for the attachment of the property of the assessee only and of no one else. The golden rule of interpretation of statutes is that the statute has to be construed according to its plain, literal and grammatical meaning unless its leads to absurdity. The fixed deposits of the petitioners not being the property of the assessee as such were not open to attachment. In view of the aforesaid discussion in our opinion the order dated 18/21.11.05 is patently illegal. Now we come to the basic question about the validity of the encashment of the fixed deposits of the petitioners for which it is considered appropriate to examine the import of the term 'attachment'. Attachment like the term Bank Guarantee, has also not been defined in any statute, though it is widely used in the Code of Civil Procedure as well as in the Income Tax Act. The word attachment in its most simple sense means to 'tie or fasten'. It therefore speaks about imposing restriction. It is somewhat equivalent to arrest. As by arrest restrictions are placed on movement of a person so by attachment restrictions are placed over the property whether movable or immovable or in the form of actionable claims. Legally attachment would mean imposing restriction upon some kind of property by the Court or some other competent, statutory authority. The order of attachment as such tells the owner of the property, the custodian of the property and the world at large not to deal with the property attached. Apart from the above restriction, the order of attachment carries no other meaning. It is essentially an order to safeguard and protect the interest of the creditor from being defeated and to enable him to release his dues without any let or hindrance subsequently. The effect of the order of attachment, as explained earlier was only to restrict the Bank as well as the owners of the fixed deposits from dealing with the fixed deposits and nothing more. It in no way authorized respondents no. 3 and 4 to invoke the Bank Guarantee so as to encash the fixed

deposits of the petitioners that too after the expiry of the period of Bank Guarantee. The Bank Guarantee was valid initially for a period of one year from 22.1.2003 ending on 21.11.2004 which period was extended for another one year expiring on 21.11.2005. It was not extended thereafter and no new Bank Guarantee was executed. The petitioners have also not offered their fixed deposits as security for furnishing Bank Guarantee after 21.11.2005. Therefore, in the normal circumstances after the expiry of the period of Bank Guarantee the fixed deposits could not have been encashed and the petitioners would have been free to deal with their fixed deposits in their own way without any restriction either by the Bank or the beneficiary. In such a situation, the respondents could not have invoked the Bank Guarantee and encashed the fixed deposits of the petitioners after 22.11.2005 so as to make payment out of the fixed deposits. However, the difficulty arose due to the order dated 18/21.11.2005 alleged to have been issued under Section 281 B read with 226 (3) of the Act by the Commissioner of Income Tax (Central) Kanpur. This order has been found to be illegal. Therefore, also it does not come to the help of the respondents. Moreover, the order of attachment was passed on 18/21.11.05. It was provisional in nature. Its life was only 6 months. Accordingly, it ceased to remain in force after expiry of 6 months from the aforesaid date and was not operative on 1.11.06. There is nothing on record to show its extension. In view of the above also no payment could have been made on 1.11.06. It appears, the Bank under pressure of the order of attachment without the consent of the petitioners released the amount of the fixed deposits in favour of the respondents no. 3 and 4 even though the Bank Guarantee had ceased to be in force; the attachment was illegal and does not have effect of authorising payment; and had lapsed on expiry of six months from the date of attachment. Thus, the action of the Bank in releasing the amount under the fixed deposits was patently illegally and in clear violation of the terms and conditions of the contract of the Bank Guarantee. To sum up, the conclusions are as under:1. Ordinarily, in a contract of Bank Guarantee there are only 3 parties but sometimes there also happens to be a fourth party as in the present case. 2. The life of the Bank Guarantee as per its terms and condition was only upto 21.11.05. 3. The provision of Section 226(3) of the Act was not applicable. 4. The order of attachment of the fixed deposits of the petitioners passed under Section 281 B of the Act was illegal. 5. In any case order of attachment was provisional in nature and was valid only for a period of six months from the date of attachment which period had expired much before 1.11.06. 6. The order of attachment only places restrictions in dealing with the property and does not

authorises the encashment of the fixed deposits. 7. The encashment of the fixed deposits on the expiry of the period of Bank Guarantee, cessation of the provisional attachment which otherwise was illegal and in no way authorised the encashment of the fixed deposits was totally unjustified. In view of the aforesaid facts and circumstances, we are of the considered opinion that the petitioners have been wronged and their fixed deposits have been illegally encashed by the Bank and payment released on 1.11.2006 in favour of the respondents no. 2 and 3. We are conscious that ordinarily disputes arising from a contract are not to be adjudicated in exercise of writ jurisdiction but we have proceeded to decide the matter on merits as only a pure legal question was involved and the facts were not disputed. It is also high time to avoid technicalities in imparting justice and to bring disputes to their logical end and to grant the appropriate relief as may be found suitable in law, equity and justice, otherwise it would be negation of discretionary powers vested in Court. Accordingly, we allow the writ petition and issue a writ of certiorari quashing the order dated 18/21.11.05 (Annexure-7) and also a writ of mandamus commanding respondents no. 2, 3 and 4 to refund the petitioners the amount of their fixed deposits which were encashed on 1.11.2006 within a period of one month with simple interest @ 8% per annum w.e.f. 1.11.06 till the date of refund. The primary liability to refund the aforesaid amount with interest as directed is upon the respondent no. 4 Bank who is set at liberty to claim the said amount from respondents no. 2 and 3 in accordance with law. In the event the amount aforesaid with interest is not refunded within the period stipulated above, the petitioners would be entitle to further interest @ 10% on the above amount including interest so accrued. (Petition allowed. No order as to costs.) (DISCLAIMER: Though all efforts have been made to reproduce the order correctly but the access and circulation is subject to the condition that Taxindiaonline is not responsible/liable for any loss or damage caused to anyone due to any mistake/error/omissions.)

Click to Print

2010-TIOL-101-HC-DEL-IT IN THE HIGH COURT OF DELHI ITA 12/2006 SMT URMILA GAMBHIR LEGAL HEIR OF LATE SHRI SUBHASH GAMBHIR 1/14, WEST PATEL NAGAR, NEW DELHI-8 Vs COMMISSIONER OF INCOME TAX, NEW DELHI A K Sikri And Siddharth Mridul, JJ Dated : December 23, 2009 Appellant Rep. by : Mr. Prem Nath Monga, Adv. Respondent Rep. by : Mr. Sanjeev Sabharwal, Adv. Income tax - Sec 132, 158BC - Assessee is a company - Revenue searches its office premises and residential premises of its promotors - loose paper seized - AO makes additions for purchase of land out of unexplained investment - CIT(A) agrees with the AO - Tribunal examines the evidence and papers and upholds the additions - held, going by the findings of three concurrent authorities that the disputed sheet of papers relates to actual transactions and the fact that the assessee fails to establish its proposition relied on, the loose papers cannot be treated as a dumb paper - additions are sustainable - Assessee's appeal dismissed JUDGEMENT A.K. SIKRI, J. : 1. The Appellants are the legal heirs of late Sh. Subhash Gambhir who was the assessee in this case. He was one of the Promoter Directors of M/s. D.D. Industrial Corporation Limited (hereinafter referred to as the company). On 29th August, 1996 a search was conducted by the Revenue department under Section 132 of the Income Tax Act at the residential premises of the assessee i.e. 1/14, West Patel Nagar, New Delhi as well as at the premises of the company at its registered office at Karampura, New Delhi. Certain documents were found and seized during the search which included Annexure A-6, a loose sheet of paper and jewellery from the bank lockers was also seized. After the search, the Assessing Officer (AO) issued notice dated 12th February, 1997 under Section 158BC of the Act to the assessee. Similar notice dated 11th December, 1997 was issued to the company as well. Enquiries were thereafter made, particularly regarding Annexure A-6 which was, as mentioned above, a sheet of paper and contained following hand written text:

Architect Mutation Brokerage Expenses for Register K. Lal (M.M. Suri) Registration for name etc. Cost of L. Total

140.00 150.00 650.00 172.09 50.00 100.00 50500.00 51,762.00

2. According to the Assessing Officer the figures were in hundreds and the dot in between the figures had no meaning. For example, against the Architect where the figure of 140.00 is mentioned, it actually meant Rs.14,000/-. In this way the total consideration in respect of agricultural land purchased by the assessee in village Bhigan, Tehsil Gannaur, District Sonepat was Rs.51,76,200/-. The Company submitted its reply dated 23rd July, 1997 inter alia stating that the company had purchased the said agricultural land which was duly recorded by it in its books of account. It never made any investment of Rs.51,76,200/- nor Annexure A-6 mentions such a payment. 3. The Assessing Officer, however, issued letter dated 16th September, 1997 requiring the company to show cause as to why Rs.51,76,200/- be not treated as companys unexplained investment. The company was also required to produce certain persons whose names were mentioned in Annexure A-6 page 34. In this letter A.O. also mentioned about another loose paper pages 4 and 5 of Annexure A-6 which according to the A.O. revealed the rate of land Rs.17 to 20 lacs per acre. 4. On 19th September, 1997, the company made detailed reply to the A.O.s letter dated 16th September, 1997 categorically denying any such investment of Rs.51,76,200/- in the purchase of land. The company also explained that page no.34 of Annexure A-6 had no relation with pages 4 and 5 of Annexure A-6. No photocopies of pages 4 and 5 of Annexure A-6 which were only shown to the counsel of the company was made available to the company. The company denied pages 4 & 5 of Annexure A-6 suggesting land rate @17 to 20 lac per acre. In support of its case, the company also submitted affidavits of the vendors of the land from whom the pieces of Agricultural land were purchased as per details given in its earlier letter dated 23rd July, 1997 appearing at pages 47 to 51, particularly page 49. The company also placed on A.O.s record the report dated 29th July, 1997 of the valuer for the valuation of the land purchased. This valuation was done as on January, 1997. The explanation, however, was not to the satisfaction of the A.O. who passed orders dated 31st October, 1997 in the case of the company making addition of Rs.51,76,200/- on protective basis.

5. On 15th September, 1997, the A.O. issued letter to the assessee on the basis of Annexure A-6 requiring him to explain as to why addition of Rs.34,71,135/- (Rs.51,76,200 (-) Rs.16,97,065/-) be not treated as undisclosed income for the assessment year 1996-97. The assessee replied to the same on 19th September, 1997 giving similar explanation which were given by the company in the case of the assessee. On 30th September, 1997, the A.O. passed order under Section 158-BC on the Appellant inter alia making addition of Rs.51,76,200/- on account of undisclosed income being the investment in the purchase of land at village Bhigan. The A.O. also made further addition of Rs.8,86,794/- as the Appellants undisclosed income from alleged investment in the purchase of jewellery relating the same to the assessment year 1997-98. 6. As far as addition on account of jewellery is concerned, the assessees explanation was that the jewellery found with him included jewellery worth Rs.10,96,379/- which beloned to his mother-in-law Smt. Raj Rani Kapoor and was kept with him for safe custody. The assessee had also furnished reconciliation of jewellery found from the premises and jewellery owned by the assessee and his family members vide his letter dated 16th September, 1997, however, explanation of the assessee was rejected by the A.O. resulting in the aforesaid addition. 7. The additions made by the A.O., as aforesaid, were challenged in appeal before the Income Tax Appellate Tribunal (ITAT). The ITAT by a common order passed both in the case of the assessee and the company upheld the two additions made in the case of the assessee as his undisclosed income under Section 158B(b) of the Income Tax Act. The A.O. also had made the protective addition of Rs.51,76,200/- in the hands of the company which was deleted by the ITAT. Against the order of the ITAT, present appeal is preferred in which following two questions of law were framed while admitting the appeal: A. Whether on the facts and in the circumstances of the case and on the true interpretation of Section 158 BB(b) of the Act, there was any material for the ITAT in upholding that loose paper Annexure A-6 page 34 in the total of which was Rs.51762/- found on search represented the sum of Rs.51,76,200/was the assessees undisclosed income for the block period relating the same to the assessment year 1996-97. B. Whether on the fact and in the circumstances of the case, the ITAT was right in law to hold that the sum of Rs.8,86,794/- representing the alleged unexplained investment in the purchase of jewellery found on search represented the appellants undisclosed investment for the Asst. Year 1997-98. We now take up discussion on these questions. Re: Question No.1 8. The learned counsel for the Appellant submits that the impugned order passed by the ITAT is erroneous in point of law and is legally vitiated. The impugned order passed by the ITAT has also been questioned as perverse and legally unsustainable in the eyes of law. The Appellant contends that Annexure A-6, page 34 is a loose sheet of paper unsigned, undated, it gives no particulars of any land,

area, size or location or Khasra No. of any land. It is a vague document and admits of no such interpretation of purchase of any land for value Rs.51,76,200/- by the Appellant. The scribbling on a loose sheet has no evidentiary value in the eyes of law. There is no search material with the A.O. to support this loose sheet of paper to sustain addition of Rs.51,76,200/-. The document does not speak for itself and is a dumb document unsupported in material particulars of any search material and needs to be rejected having no evidentiary value. There is no warrant to read 51762/- as Rs.51,76,200/-. Reliance is placed on 296 ITR 619 (Del.)-CIT vs. Girish Chaudhary, which is a Division Bench judgment of this Court against which even SLP filed by the revenue in the Supreme Court has since been rejected vide order dated 15th February, 2008. It was argued that the Appellant had made no purchase of any agricultural land. It was the company which purchased Agricultural land, which was duly recorded in the books as per its Balance Sheet as on 31st March, 1996. The details of the investment in land, including the names and addresses of the vendors and the price paid was duly disclosed by the company in its letter dated 23rd July, 1997 addressed to the A.O. who issued show cause to the company. The vendors of the land had even filed affidavits in support of the transactions, correctness which have remained uncontroverted. The assumption that the Appellant as one of the Promoter Directors made investment in the purchase of agricultural land for the company was totally misplaced and unfounded, based on no evidence, but on surmises and conjectures on which no assessment could be founded in law. The ITAT, it is contended, merely reproduced the A.O.s order and concluded by para 22 of their order by saying that Annexure A-6, page 4 and 5 supported the Revenues case for reading Annexure A-6 page 34 to be Rs.51,76,200/-, the land rate in the area was Rs.17 to 20 lacs per acre and the land purchased in the name of the company being approximately the same area, the A.O. was justified in making addition. The Appellant contends that the impugned order of the ITAT is based on no facts or evidence. Annexure A-6, pages 4 and 5 was not made available to the assessee even though stated to be found and seized from assessees residence. Reliance therefore on such a document thus totally vitiated the impugned order passed by the ITAT. Even the company was not given copy of any such document. 9. The learned counsel further pointed out that the said document was not even made available to the ITAT by the Revenue, nor was it made available to this Court even after time was taken by the learned Senior Standing Counsel for the Revenue to do so. The impugned order of the ITAT which takes support from Annexure A-6, pages 4 and 5 to sustain its conclusion vide para 22 of its order is thus legally vitiated. It is a blatant case of violation of principles of natural justice. The order of the ITAT is also perverse. Independently Annexure A-6 page 34 has no legs to stand on being a dumb document which otherwise also lacks all the necessary details to sustain any addition. Learned counsel has also relied upon the decision of the Supreme Court in the case of Central Bureau of Investigation vs. V.C. Shukla(1998) 3 scc 410 (SC). It is further pointed out that the letter dated 15th September, 1997issued by the A.O. to the Appellant requiring it to explain about Annexure A-6, page 34. This notice to the assessee by the A.O. makes no mention of Annexure A-6 page 4 and 5 and yet the ITAT has taken support of this document to reach its conclusion vide para 22 of its order. This further vitiates the impugned order of the ITAT which also needs to be declared as perverse. 10. Mr. Monga also argued that Section 158BB(b) read with Section 69 casts burden on the Revenue to prove any undisclosed income which may be attributed to the assessee. This burden in the present case

has not been discharged by the Revenue. The Revenue has by reaching its conclusion acted only on surmises and conjectures without there being any such material to support its findings and conclusions. No material has been found to show that the assessee in the present case has invested any amount in the purchase of land. The fact that the assessee happens to be one of the Promoter Directors of the company and, therefore, could be deemed to have invested some amount which is interpreted to be a fabulous figure of over Rs.51 lacs for the purchase of land in the name of juristic person which is totally different under the law is too far fetched to sustain the conclusion reached by the ITAT which is final fact finding authority and has to act on some material and not to go by irrelevant and erroneous consideration, basing their conclusion on mere conjectures and surmises. The ITAT has to act judicially and has to weigh all the pros and cons of the case far and against the assessee to reach its conclusion. Learned counsel has in this regard referred to the case of Lalchand Bhagat Ambica Ram vs. Commissioner of Income-tax, Bihar and Orissa-37 ITR 288 (SC). It is submitted that this having not been done by the ITAT in the present, the impugned order is legally vitiated and cannot be sustained in the eyes of law. There being thus no cogent and reliable material found on search, the impugned addition of Rs.51,76,200/- could not legally be sustained. 11. Learned counsel for the Respondent has refuted the statement referred to the decisions of the authorities below had taken view on the facts on record which should not be interfered with. The detailed submission in this behalf shall be taken note of while discussing the issue. 12. To summarize, the contention of learned counsel for the Appellant is that Annexure A-6 which is a loose sheet of paper is a dumb document with no evidential value and, therefore, could not have been relied upon by the authorities below for arriving at any conclusion much less for the authorities on making additions in the income of the assessee; there was no causing connection between that paper and purchase of agricultural land at village Bhigan, Tehsil Gannaur, District Sonepat; there was no basis for arriving at figure of Rs.51,76,200/- even on the basis of the said document; in any case the deed regarding that land was in the name of the company and addition could not have been made at the hands of the assessee; the said document was not made available to the ITAT by the Revenue and, therefore, reliance thereupon amounted to violation of principles of natural justice; the burden was on the Revenue to prove any undisclosed income at the hands of the assessee, which was not discharged by the Revenue. 13. It is not in dispute that these very arguments were raised by the assessee before the A.O., in the appeal before the CIT(A) and thereafter before the ITAT as well. The ITAT has discussed the order of the A.O. in detail, on the basis of which the A.O. made the additions. What is not in dispute is that a document including Annexure A-6 were found and seized from the premises of the assessee during the search. The assessee did not disown this document or stated that it did not belong to him. His explanation was that this document had no connection with the purchase of the land by M/s. D.D. Industrial Corporation Limited at village Bhigan, Tehsil Gannaur, District Sonepat. It is only a rough estimate of the cost of setting up of a new project in and around Gurgaon and that this paper did not have any description of khasra number of any land and it also did not contained address of any person. In this backdrop, the A.O. dealt with the aforesaid contention to find out as to whether the document

has any connection with purchase of land by M/s. D.D. Industrial Corporation Limited at village Bhigan, Tehsil Gannaur, District Sonepat or it related to setting up of a new project in and around Gurgaon only. Since there was no denial that the said paper was related to the purchase of the property, it was for the assessee was to demonstrate how it was related to the proposed purchase of land in and around Gurgaon. The A.O. found that the assessee had failed to furnish any details of land which he proposed to purchase in and around Gurgaon. No project details, which he was planning to have at the said land, had been furnished by the assessee. He had also failed to produce Mr. K. Lal (M.M. Suri) against whom 50.00 is mentioned in the said sheet of paper. He also observed that nature of the figures in the paper clearly suggested that they were not appropriate expenses to be paid but expenses actually incurred on various accounts mentioned in the said paper. Commenting upon the figures mentioned, which could only be in hundreds, the A.O. opined that it was highly improbable that the architect fee would only Rs.140/-, mutation charges would be only Rs.150/- and the brokerage would be only Rs.650/-. Therefore, he concluded that the figures were in hundreds. Proceeding further on that basis, according to him cost of land was Rs.50,50,000/- and other expenses Rs.16,08,500/- and in this manner total cost of land came to Rs.66,58,500/-. If the brokerage of Rs.65,000/- is to be taken into consideration, it comes within the range of 0.75 to 1% of the cost of land which was keeping in view of the prevalent brokerage. Further, significant finding arrived at by the A.O. and noted by the Tribunal are as under: 12. The AO further observed that the assessee in his statement recorded on 19.10.96 admitted having met and discussed regarding project with Shri K. Lal from the office of Shri M.M. Suri, consultant for the projects. However, the assessee and any of his company had not shown any expenses on a/c of consultancy charges paid to Shri K. Lal. No consultant would provide consultancy without charging the fees. The payment of Rs.5000/- shown at page 34 of Annexure A-6 to Shri K. Lal would show the relationship between the assessee, paper and Shri K. Lal. This would further prove that this paper relate to the land purchased for DD Industrial Corpn., which had started its activities subsequent to the search. The assessee itself had admitted having discussed regarding negotiation with foreign company and its components for project at Gannaur with Shri K. Lal in the month of May & June 96 in his reply to question 7 & 8 of the statement recorded on 19.11.96. Thus the AO observed that this proved the close nexus between Shri K. Lal, the page and the land at village Bhigan. 13. The AO also observe that page 36 of Annexure AA-140 was the site plan for the said land and no expenses of this a/c had been shown to have incurred in the books. The expenses/payment to architect and Shri K. Lal as reflected in page 34 of Annexure A-6 would further substantiate that this paper related to the unaccounted expenditure of the assessee on a/c of purchase of land at village Bhigan for DD Indl. Corpn. The assessee failed to furnish the details of the persons who had made this site plan. When specifically confronted in question no.14. The assessee replied that one Shri S.K. Arora had made this plan. . .

15. The AO further noted that page 4 & 5 of Annexure A-6 which were the sketches of the land in village Bhigan showed the land rate was thus arranging from 17 lakhs to 20 lakhs per acre. Thus the AO observed that this also proved that the consideration of Rs.1600,000/- for 4 acres of land shown by the assessee in its books of a/c was understated value of land. The unexplained investment had been shown in page 34 of Annexure A-6. 14. On that basis he arrived at a finding that the said sheet of paper was connected with purchase of loan at village Bhigan, Tehsil Gannaur, District Sonepat in the name of M/s. D.D. Industrial Corporation Limited. Since the company was incorporated in January, 1996 only and it had not started its functions, there was no occasion of generation of unaccounted or accounted income for the company. For this reason he made actual additions in the income of the assessee who was the promoter of the said company and protective assessment was made in the name of the company. 15. CIT as well as ITAT have confirmed the aforesaid findings. The ITAT observed that once it is found that slips were found from the possession and control of the assessee, then onus was upon the assessee to prove the contents of the slips, since these contents of the slip was within the knowledge of the assessee and he fails to discharge this onus. 16. The discussion in this behalf is summed up in the following manner: 22. On consideration of the matter we are of the view that these papers pertain to the land in the village Bhigan and the rates shown were ranging between Rs.17 lacs and Rs.20 lacs per acre and not as claimed by the assessee. The finding given by the AO on examination of the matter that figure shown at page 3 & 4 of Annexure A-6 is hundred appears to be correct. We find in agreement with the reasoning assigned by the AO in arriving at the said conclusion. We, therefore, uphold the order of the AO passed in this regard. Since the addition made substantively in the hands of Late Subhash Gambhir is upheld, we direct to delete the addition made protectively in the company (M/s. D.D. Indl. Corpn.) 17. It is clear from the above that after analyzing facts/material, findings of facts are arrived at to the effect that the said sheet of paper relates to actual transactions and did not depict or reflect rough estimate of the cost of setting up of a new project in and around Gurgaon, explanation sought to be given by the assessee, which he failed to establish. In the facts and circumstances of the case, we, therefore, cannot treat it to be a dumb paper and are unable to accept this contention of the learned counsel for the assessee. Concurrent findings are arrived at by all the three authorities below and it is not a case where these findings can be treated as perverse. In view thereof, reliance placed upon the judgment of this Court in Girish Chaudhary (supra) or the judgment of Supreme Court in V.C. Shukla (supra) and Lalchand Bhagat Ambica Ram (supra) would not be of any assistance. This question is thus answered in the affirmative i.e. in favour of the Revenue and against the assessee. Re: Question No.2 18. In so far addition on account of jewellery is concerned Mr. Monga submitted that during the course of search proceedings, the Appellant was found to be in possession of jewellery worth Rs.54,70,063/both at residence and bank lockers. Vide letter dated 25th July, 1997 in reply to the A.O.s query, the total shortfall of jewellery including the silver utensils was valued at Rs.6,44,416/- which was surrendered as undisclosed income of the Appellant in the return filed pursuant to notice under Section

158 BC of the IT Act. It is further submitted that in reply to the A.O.s letter dated 15th September, 1997, the shortfall explained was of Rs.6,07,698/-. The A.O. while framing assessment under Section 158 BC made addition of Rs.8,86,794/- relating to the assessment year 1997-98 estimating unexplained jewellery at Rs.15,31,210/- giving credit of surrender at Rs.6,44,416/-, he further added Rs.8,86,791/- as assessees undisclosed income for the block period. It is stated that in the appeal filed before the ITAT Appellant objected to the addition of Rs.8,86,791/- and contended that its explanation inter alia of jewellery worth Rs.10,96,370/- belonging to his mother-in-law deserved to be accepted in view of evidence produced and if that was accepted, the difference calculated at Rs.15,31,210/- as alleged unexplained jewellery would not be there. The ITAT without appreciating the correspondence between the Appellant and the A.O. and without taking into account the material placed on the record estimated the addition at Rs.8,86,791/- as Appellants undisclosed income on the ground that they agreed with the A.O.s finding that the possession of jewellery belonging to Smt. Raj Rani, the mother-in-law of assessee had already been considered by the Revenue in framing assessment in the case of Urmila Gambhir D/o Smt. Raj Rani. It is thus argued that the ITAT did not have the benefit of the A.O.s order passed in the case of Smt. Urmila Gambhir as no such document was placed on their record. The finding recorded by the ITAT is simply based on the A.O.s order without application of its own mind and addition confirmed without taking into account any material at all. The entire evidence in the shape of correspondence exchanged between the A.O. and the assessee on the issue has been ignored from consideration by the ITAT. It is also submitted that the ITAT has acted arbitrarily, capriciously and failed to follow the law laid down by the Supreme Court in Lalchand Bhagat Ambica Ram (supra). It is further submitted that the impugned order on this issue is thus legally vitiated resulting in the miscarriage of justice and also in violation of principles of natural justice. 19. We find that the addition of Rs.8,86,794/- on account of unexplained jewellery is worked out by the AO on the basis that during the course of search at the residence and other locker of the assessee, the following jewellery was found: 1/14 West Patel Nagar 1/14 West Patel Nagar Locker at Punjab & Sind Bank Patel Nagar (in joint name with His wife) Bank of India, Karol Bagh (in the name of Urmila Gambhir And her brother Sharavan Kapoor) 22,43,506.00 3,33,053.00

14,68,195.00

14,25,309.00

54,70,063.00 20. The value of the jewellery as per wealth tax return of Shri Subhash Gambhir, his wife Smt. Urmila Gambhir and his unmarried daughter was as under:

Subhash Gambhir (Valuation report dated 31.3.95 Smt. Urmila Gambhir-wife-doMs. Bhavna Gambhir-daughter 31.3.92

15,46,783.00 14,05,927.00 52,641.00 30,05,351.00

21. The assessee was thus required to furnish the source of jewellery. The assessee vide his letter dated 25th July, 1997 stated that out of jewellery found at the residence and the locker with the Bank of India, Karol Bagh Branch held by his wife jointly with his brother, jewellery amounting to Rs.10,96,379/belongs to his mother-in-law, Smt. Rajrani Kapoor. The assessee further submitted that this jewellery was received by his mother-in-law by way of will left by the father of his mother-in-law, who expired in 1977. Thus he submitted that this jewellery should be reduced out of total jewellery of Rs.54,70,063/-. The assessee gave the details of working of total gold in terms of quantity which has been extracted at page 3 of the assessment order. The Assessing Officer has mentioned that the assessee had surrendered the amount of Rs.6,44,000/- that is [Rs.1,92,066 + Rs.4,45,000/- + Rs.7,350/-] as his unexplained investment in the jewellery. This amount had been shown by the assessee as his undisclosed income for the assessment year 1997-98 in his return of income in Form 2B. The Assessing Officer after taking into consideration the above reply of the assessee and the facts of the case and also the locker in Bank of India, Karol Bagh branch, held by Smt. Urmila Gambhir, wife of the assessee jointly with her brother and that certain papers belonging to her mother found in the same locker treated the jewellery of Rs.14,25,309/- exclusively in the hands of Smt. Urmila Gambhir as per details given below:i) Total value of jewellery filed by Urmila Gambhir in Wealth Tax return for A.Y. 1995-96 14,05,927.00

ii) Total appreciated value of above jewellery as on 29.8.96 18,38,520.00 iii) Total jewellery found in the locker in Bank of India iv) Value of the jewellery belonging to mother of Smt. Urmila Gambhir and kept in the locker along with certain papers v) Value of jewellery belonging to the assessee (iii-iv) 14,25,309.00

1,72,887.00

12,52,422.00

vi) Value of the jewellery in excess of jewellery found in the locker belonging to Urmila Gambhir to be considered in the 5,86,098.00 assessment proceedings of the assessee i.e. Shri Subhash

Gambhir (ii-v) 22. The contention of the assessee that the jewellery amounting to Rs.10,96,379/- belonging to his mother-in-law was mixed in the jewellery found at the residence and in the locker of Indian Bank, Karol Bagh was rejected by the Assessing Officer by observing that the same did not require any further consideration as this issue had been considered in the hands of Smt. Urmila Gambhir. The Assessing Officer further observed that the contention of the assessee regarding wealth tax return filed by his mother-in-law and will found at the time of search in the locker had duly been considered while arriving at the above figure. Thus, he worked out the unexplained investment in the jewellery in the hands of the assessee at Rs.40,44,774/- and after reducing the value of jewellery at Rs.25,13,564/- as shown in the wealth tax return of Shri Subhash Gambhir, Smt. Urmila Gambhir and Miss Bhavana Gambhir and also taking appreciation factor as on 20th August, 1996 into consideration arrived at the unexplained jewellery of Rs.15,31,210/-. From the unexplained jewellery of Rs.15,31,210/-, the Assessing Officer further reduced the surrendered amount of Rs.6,44,416/-. Thus the total addition made on account of unexplained jewellery came to Rs.8,86,794/-. 23. It is thus clear that jewellery which was found during search was of the value of Rs. 54,70,063/- out of this the assessee and his wife and unmarried daughter had disclosed the jewellery worth Rs.30,05,351/- in the wealth tax returns. In these circumstances, the assessee was supposed to give satisfactory source of jewellery worth Rs.24.65 lacs. As per the A.O. he could not give the explanation to the extent of Rs.8,86,794/-. The A.O. while holding so, did not accept the contention of the assessee that jewellery amounting to Rs.10,96,379/- belonging to his mother-in-law was mixed in the jewellery found at his residence and in the locker. In fact this is the only bone of contention. If this aspect is accepted then entire jewellery stands accounted for. The ITAT has simply affirmed the findings of the A.O. without discussing the explanation of the assessee in this behalf. Entire discussion on this behalf in the order of the Tribunal reads as under:27. After having heard the parties and perusal of the records, we find no infirmity in the impugned order inasmuch as the claim of the assessee that the jewellery amounting to Rs.10,96,379/- belonging to her mother in law and has been mixed up in the jewellery found during search has been duly considered in the hands of Smt. Urmila Gambheer. Further the appreciation has been given to the value of the jewellery declared in the wealth tax return of the above named persons. Hence, this ground of the assessee is dismissed. 24. The A.O. in the assessment order had only stated that this aspect was dealt with in detail while considering the case of Smt. Urmila Gambhir. There is no independent discussion by the A.O. in the assessment order passed by him in the case of the assessee. Because of this reason, grievance of the assessee is that the order of the Tribunal is without reasons and ITAT did not have the benefit of A.O.s order passed in the case of Smt. Urmila Gambhir as no such document was placed on their record. The entire evidence in the shape of correspondence exchange between the A.O. and the assessee on the issue has been ignored from consideration by the Tribunal. This is a formidable argument put forth by the learned counsel for the assessee as is clear from the aforequoted portion of the Tribunals order on this aspect.

25. We, therefore, have no option but to set aside the order of the Tribunal insofar as question No.2 is concerned on the ground that this aspect was not duly considered and dealt with in the impugned order and remit the case back to the Tribunal on this aspect. 26. The upshot of the aforesaid discussion is that this appeal is partly allowed. Parties are left to bear their respective costs.

2009-TIOL-584-ITAT-DEL IN THE INCOME TAX APPELLATE TRIBUNAL BENCH 'C' DELHI IT(SS)A No.22(Del)/2008 Block Period : 1991-92 to 02.02.2001 HARISH DARGAN PROP, SONA JEWELLERS 41, MAIN ROAD, PITAMPURA, DELHI Vs DY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-15, NEW DELHI Rajpal Yadav, JM and K G Bansal, AM Dated: June 05, 2009 Appellant Rep by: Shri C V Sajan, FCA Respondent Rep by: Smt Sheela Chopra, Sr DR & Smt Puja Jindal, DR Income Tax - Sections158 BFA(2) - Search and seizure operation conducted at the residence and business premises of the assessee - books of account, documents and assets found and seized - On Notice u/s 158BC assessee files nil return - On assessment, undisclosed income of the assessee for the block period computed, comprising of unexplained cash and the value of unexplained investment in gold and diamond stocks - Penalty imposed u/s 158BFA(2) - CIT(A) dismisses appeal - Held, assessee has not obtained the documents in due process of law - there is no affidavit about the manner in which the documents were obtained by the assessee. These documents are not considered for deciding the proceedings. This case relates to the cash and stock found from the assessee. His explanation was examined and was not found to be bona fide right up to the stage of Tribunal in quantum proceedings - CIT(A) order of penalty u/s 158BFA(2) upheld.

Assessee's Appeal dismissed. ORDER Per: K G Bansal: This appeal of the assessee emanates from the order of CIT(Appeals)-II, New Delhi, passed on 26.12.2007, in which the levy of penalty of Rs.12,58,562/- u/s 158BFA(2) of the Income-tax Act, 1961, was confirmed. The assessee has taken two grounds in the appeal. In ground no. 1, it is mentioned that both the AO and the CIT(Appeals) failed to act judiciously in disposing off the submissions of the assessee and thereby acted arbitrarily and prejudicially. In ground no. 2, it is mentioned that on the facts and in the circumstances of the case, the levy of penalty is bad in law as it is in complete disregard of the principles laid down by Hon'ble Supreme Court in the case of Hindustan Steel Ltd. Vs. State of Orissa (1972) 83 ITR 26 = (2002-TIOL-148-SC-CT). 2. On the basis of the orders of the lower authorities, it is found that the search and seizure operation was conducted at the residence and business premises on 2.2.2001, in which books of account, documents and assets were found and seized. Notice u/s 158BC was issued on 8.3.2002 and the assessee filed nil return on 21.11.2002. The assessment u/s 158BC was completed on 26.2.2003, computing the undisclosed income of the assessee for the block period 1.4.1990 to 2.2.2001 at Rs.18,85,648/-, comprising of unexplained cash of Rs.17.00 lakh and the value of unexplained investment in gold and diamond stocks at Rs.1,85,648/-. Penalty proceedings were also initiated u/s 158BFA(2), which were disposed off on 31.7.2007 by levying penalty of Rs.12,58,552/-, being the minimum penalty leviable under the aforesaid provision. Aggrieved by this order, appeal was filed before the learned CIT(Appeals), who dismissed the appeal. 3. Before us, the ld. counsel for the assessee referred to paragraph 3.1 of the assessment order which contains answer to various questions recorded on 2.2.2001 at the IGI airport where the assessee was found in possession of cash amounting to Rs.18,07,500/-. The statement is written on two pages. The first page containing five answers was signed by the assessee but the second page was not signed by him. On first page, it was inter-alia deposed that he was carrying Rs.17 lakh to Bombay for purchase of diamonds for the proprietary concern, M/s Sona Jewellers. The books of this concern had cash balance of about Rs.4.00 lakh on 1.2.2001. However, the cash of Rs.17.00 lakh was over and above the cash balance of Rs.4.00 lakh in the books of M/s Sona Jewellers. Apart from being proprietor of the aforesaid concern, he was also a director of M/s Hira Jewellers (P) Ltd. The second page contains the statement to the effect that Hira Jewellers (P) Ltd. was formed in the year 2000. This cash does not belong to the aforesaid company. This cash has been generated from proprietary concern, M/s Sona Jewellers and has not been accounted for in its books, therefore, this amount is being offered as unaccounted cash for the purpose of taxation. The assessee also promised to pay tax on the aforesaid income on 5.2.2001. As mentioned earlier, this part of the statement has not been signed by the assessee. The statement of the assessee was also recorded u/s 132 on 2.2.2001. Our attention was drawn to page 25 of the paper book, which contains deposition to the effect that the sum of Rs. 17.00 lakh related to Hira Jewellers (P) Ltd. and the balance to himself and his proprietary concern, M/s Sona Jewellers. The source of the aforesaid

sum of Rs.17 lakh of Hira Jewellers (P) Ltd. was stated to be sale proceeds in cash for two or three days. Page 67 of the paper book is a part of deposition by Ms. Meenakshi Sharma and in answer to question no. 8, it was deposed by her that she came to the office at 9.30AM and at that time Mrs. Lata Sahni and other peons were present there. The peon got the keys from Shri Harish Dargan at about 10.30 AM. At that time two officials from the Income-tax department arrived when she along with other were displaying jewellery in the show-room. On the basis of this statement, it was sought to be established that the search of the show room started at 10.30 AM. Our attention was also drawn towards Panchnama in the case of the assessee drawn on 3.2.2001, which shows that jewellery, ornaments etc. were inventorised and valued at Rs.55,55,962/- and the value of the bullion was worked out at Rs.75,63,997/-. The search at the premises of M/s Sona Jewellers, HD-3, Pitampura, Delhi, started at 13.15 hours and was closed at 21.30 hours. Our attention was also drawn towards the Panchnama of the personal search dated 2.2.2001, which shows that after interception at IGI, he was brought to the Income-tax Officer with his brief case, search in respect of which started on 2.2.2001 at 12.00 noon and ended at 11.40 PM. Our attention was also drawn towards the assessment order in the case of Hira Jewellers (P) Ltd. framed u/s 158BC on 26.2.2003, in which the undisclosed income was computed at Rs.1,22,042/-, consisting of unexplained investment in gold and silver stocks of Rs. 82,877/- and unrecorded sale of diamond stock of Rs.29,165/- Our attention was also drawn towards pages 136 to 138 of the paper book, being a letter dated 11.7.2001 written by Shri Homi Rajvansh, Additional Director of Income-tax (Investigation)-VI, New Delhi, to the Director of Income-tax (Investigation)-II, New Delhi, in which it was reported that seizure of jewellery in the case of M/s Hira Jewellers cannot be justified and the same deserves to be released. Our attention was also drawn to page 139 of the paper book, being a confidential letter written by Shri Milap Jain to the Chief Commissioner of Income-tax (Central), New Delhi, in which it was mentioned that page 2 of the unsigned statement does not carry any evidentiary value; statements of Smt. Dhanlata Marwah, Smt. Meenakshi Sharma and Smt. Shalini Bali were recorded with reference to seized annexures A-11 and A-12, which have not been handed over by the Investigation Wing for the reason of their nonavailability on account of foul play by the assessee. In the course of hearing before us, the assessee was questioned as to how he came in possession of the aforesaid two letters. In letter dated 22.5.2009, it was stated that the possession of the documents could be unintentional slip on the part of the departmental officers, who in place of giving release letter, mixed up documents and erroneously handed over the documents. These documents were placed in the paper book for the limited purpose of proving that the jewellery seized was released by the department even before determining the undisclosed income in the case of Hira Jewellers (P) Ltd. These documents were also relied upon in quantum proceedings before the lower authorities. That there was no foul play in doing so, reliance was placed on the decision of Hon'ble Andhra Pradesh High Court in the case of Pentokota Surya Appa Rao & Others Vs. Pentakota Seethayamma & Others (1976) 103 ITR 222. 3.1 Coming to the merits, our attention was drawn towards page 6 of the assessment order, which contains statement of Smt. Shalini Bali recorded on 2.2.2001. In question no. 6, a query was raised regarding the counter on which TT bars were kept. It was stated that there was sale of TT bars (gold biscuits) being done, for which there was no counter. Those were kept by Shri Harish Dargan in his personal safe, kept in his cabin. Even I do not know how many TT bars were kept by him in safe. The sales are being effected either through me or through Sonu, who was on leave today. For the purpose of

sale, the bars used to taken from Shri Harish Dargan, weighed by him and a bill was prepared. The payment was received by the cashier, Meenakshi. Later on, the bars were handed over to the customer. Generally, bars are sold to the customers who were known to Shri Harish Dargan. On the basis of this statement, the case of the ld. counsel was that the cash was out of sale proceeds of the TT bars. Our attention was also drawn towards page 97 pointing out that photocopies of sale bill book was not given, making it difficult for him to prepare the return u/s 158BC. This fact was not rebutted in the assessment order. Thus, it was argued that penalty could not have been levied. 3.2 In order to support the case, reliance was placed on the order of "E" Bench of Mumbai Tribunal in the case of DCIT Vs. Koatex Infrastructure Ltd. (2006) 100 ITD 510, in which it was held that the levy of penalty u/s 158BFA(2) is not automatic in a case where assessed undisclosed income is more than the returned undisclosed income; and the AO has to take into account the circumstances and explanation offered by the assessee. If no mala fide could be attributed to him, the penalty could not be levied. Further, reliance was placed on the order of "C" Bench of Bangalore Tribunal in the case of Smt. Mala Dayanithi Vs. DCIT (2004) 91 ITD 46, in which it was held that where on the basis of seized material found in the course of search, some addition was made on the basis of estimation of the value of property, penalty u/s 158BFA(2) could not be levied. Reliance was also placed on the decision of Hon'ble Supreme Court in the case of Hindustan Steel Ltd. Vs. State of Orrisa (supra), in which it was held that a penalty will not be levied merely because it was lawful to do so, especially when there is a technical or venial breach of the provision of the Act or where the breach flows from a bona-fide belief that the offender is not liable to act in the manner mentioned in the statute. 3.3 In reply, the ld. DR submitted that the addition made by the AO was confirmed by the learned CIT(Appeals) and the Hon'ble Tribunal. He drew our attention towards page 1 of the statement recorded on oath at IGI terminal, which has already been mentioned by us. He also drew our attention to page 25 of the paper book, being statement recorded in the course of search u/s 132, in which it was stated that the sum of Rs. 17.00 lakh related to Hira Jewellers (P) Ltd. and the balance amount related to the proprietary concern of M/s Sona Jewellers. The cash in the case of Hira Jewellers (P) Ltd. was stated to be out of cash sales of two or three days. It was his case that these two statements are at variance in the sense that it was never stated by the assessee at IGI airport that some money also belonged to Hira Jewellers (P) Ltd. He also drew our attention to the return showing nil undisclosed income, which means that the cash was not taken into account for the purpose of computing the undisclosed income. In these circumstances, it was argued that the explanation of the assessee was not bona fide. 3.4 In order to support the levy of penalty, reliance was placed on the decision of Hon'ble Supreme Court in the case of K.P. Madhusundnan Vs. CIT (2001) 251 ITR 99. In that case, the assessee did not have sufficient cash balance on the day when some bank drafts were taken. The explanation was that money was obtained as hand loans from friends, for which no entries were made in the books of account. Since the assessee was not in a position to furnish the evidence, the amount involved in the bank drafts was offered as additional income. The AO also levied penalty u/s 271(1)(c) by invoking the provision contained in the Explanation 1(B) to section 271. The Hon'ble Court mentioned that when the AO issued notice u/s 271(1)(c), the assessee was put to notice that the provision contained in the Explanation was applicable. Therefore, it was for him to show that failure to return the correct income

was not due to any neglect or fraud. In absence of bona-fide explanation in this behalf, the levy of penalty was justified. Further, reliance was placed on the decision of Hon'ble Supreme Court in the case of Union of India & Others Vs. Dharmendra Textile Processors & Others (2008) 306 ITR 277, = (2008-TIOL192-SC-CX-LB) in which it was held that the Explanation appended to section 271(1)(c) of the Act entirely indicate the element of strict liability on the assessee for concealment of income or for furnishing inaccurate particulars of income while filing the return. The object behind this section and the Explanation is to provide for remedy for loss of revenue, which is civil in nature and for which willful concealment is not an essential ingredient as in the matter of prosecution u/s 276C of the Act. His case was that the provision contained in section 271(1)(c) was more strict than the provision contained in section 158BFA(2). Therefore, the matter of penalty has to be decided in terms of statutory language of the applicable section and the explanation of the assessee. The explanation was found to be not bona fide by the Tribunal. Therefore, the lower authorities were right in levying the penalty. 4. We have considered the facts of the case and rival submissions. We may at the outset decide the question as to whether, the documents placed in the paper book on pages 136 to 139 can be admitted in evidence before us? In the case of Pentakota Surya Appa Rao & Others (supra), it is found that after 1.4.1964, the courts are empowered to call for the evidence in the shape of the records maintained by the Income-tax department while deciding civil litigation between two parties. If summons are issued, the revenue will not be set up the plea of confidentiality of documents and such documents will have to be produced before the court of law. This case does not hold that the assessee can some how flick the internal records of the revenue and use them in evidence in any manner to support the case. The assessee has not obtained these documents in due process of law. The explanation is that these documents might have been handed over to him in stead of handing over the release letter. In the first place, the explanation is tentative and it does not definitively state the manner in which the assessee came in possession of the documents. Further, there is no affidavit about the manner in which the documents were obtained by the assessee. In these circumstances, these documents are not considered for deciding the proceedings. 4.1 The explanation of the assessee with regard to ownership of the cash was examined by the Tribunal in detail and it was concluded that the explanation of the assessee has been rightly rejected by the lower authorities. The main reasons for coming to this conclusion were that -(i) it was never stated at the airport that he was carrying cash belonging to Hira Jewellers (P) Ltd.; (ii) the alleged letter he was carrying from the company was not brought to the notice of the officials concerned; (iii) Mrs. Marwah, who was in-charge of the bill section, clearly stated in the statement during the search that the bills were written by her in the morning of 2.2.2001 and that too without making any actual sale, and this statement was supported by the statements of other employees, the retraction from them after a long period of time could only be attributed to the influence of the assessee over them, and (iv) merely showing cash in the books of the company does not mean that its availability was accepted in assessment proceedings. For the sake of ready reference, paragraph 5.2 of the order of the Tribunal is reproduced below:"5.2 As regards the ownership of the cash, the explanation of the assessee, that the cash belonged to the company, is also not convincing. The assessee at the airport never stated that he was carrying the cash

on behalf of the company though he had stated that he was director of the company. Further, the plea that he was carrying a letter from the company regarding cash, is also not convincing because in case he was carrying the letter, he could have easily explained and brought to the notice of the officials. There was a time gap of several hours between the time he was intercepted at the airport and the search at the premises. The assessee had not been arrested in the intervening period and, therefore, he could easily contact the officials of the company and records could be easily manipulated. These records include writing of few bills showing substantial cash received on account of cash sales on the previous day and the letter stated that he was carrying cash on behalf of the company which was seized during search. Mrs. Marwah, who was in-charge of the bill, clearly stated in her statement during search that these bills were written by her only in the morning of 2.2.2001 and without making actual sale. This statement was also supported by statement of other employees. These employees retracted from their earlier statements after a gap. The claim that the earlier statement was made under coercion is not supported by any evidence. These employees had signed these statements after clearly stating that the statement had been made in sound mind and without any pressure. These have not been controverted by any legally admissible evidence. Under the circumstances, the retraction made after a long gap by employees who are under control of the asses see, does not have any evidentiary value and the original statements have to be accepted as indicating the true state of affairs. Several decisions of the Tribunal mentioned in para 3.1 support the case of the revenue on this point. Further, the letter of the company that he was carrying cash could be easily prepared and placed in the office and it is only self-serving statement as this letter ...by him at the airport. The availability of cash is supported by only the bills which as admitted by the employees, were prepared the next day without actually receiving the cash. There is no other independent evidence produced regarding actual sale and receipt of cash on the previous day. The plea of the asses see that the cash was accepted in the case of the company is also not acceptable. Mere showing the cash in the books of the company does not mean that the cash has been accepted. There is no finding by any other authority that the cash belonged to the company. In fact, the ownership of cash is the subject matter of proceedings in case of the assessee. After considering the entire surrounding circumstances and the material on record, we are of the opinion that the plea of the assessee that the seized cash belonged to the company has been rightly rejected by the revenue authorities. Accordingly, we confirm the order of CIT(A) on this point and dismiss the appeal of the assessee." 4.2 Coming to the provision contained in section 158BFA(2), it is enacted that the assessing officer may direct a person that he shall pay by way of penalty a sum which shall not be less than the amount of tax leviable but which shall not exceed three times of the amount of tax leviable in respect of undisclosed income determined by the AO. This section is not worded in the manner in which section 271(1)(c) has been worded. Section 271(1)(c) contains the element of concealment of income or furnishing inaccurate particulars of income. The levy under that section has been held to be civil in nature, which has to be decided on the basis of the statutory provision and the Explanation appended to the provision, as held in the case of Dharmendra Textile Processors & Others (supra). Thus, by analogy the only thing which has to be seen is whether there was justifiable reason for the assessee not to include the cash in the return as undisclosed income. We find that it was held by the Tribunal that the explanation of the assessee in respect of seized cash, as belonging to the company, has been rightly rejected by the

revenue authorities, the reasons for which have already been stated by us in paragraph 4.1 (supra). Nothing further has been stated by the assessee in these matter. It is not a case of technical or venial breach, so that it could be said that the ratio in the case of Hindustan Steel Ltd. is applicable, more so after reading the decision in the case of K.P. Mathusudnan and Dharmendra Textile Processors & Others (supra). Further, it is nobody's case that penalty u/s 158BFA(2) is mandatory as and when addition is made. In the case of Smt. Mala Dayanithi (supra), the addition was made on the basis of estimate made by the DVO, which was accepted by the assessee. In the instant case, the addition has been made on the basis of actual cash found and seized from the assessee. Thus, the facts are distinguishable. In the case of Koatex Infrastructure Ltd. (supra), it was held that authorities below have to apply mind before levy of penalty as they have discretion either to levy or not to levy the penalty. In that case, voluminous seized material was there because of which there was a difference between computation of undisclosed income made by the assessee and the AO. The computation of the AO was accepted by the assessee. The instant case is not of sifting large amount of seized material. It relates merely to the cash and stock found from the assessee. His explanation was examined and was not found to be bona fide right up to the stage of Tribunal in quantum proceedings. In these circumstances, we agree with the learned CIT(Appeals) that it was a fit case for levy of penalty u/s 158BFA(2). 5. In the result, the appeal is dismissed. (This order was pronounced in the open court on 05.06.2009.)

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH 'H' DELHI IT [SS] Appeal No. 146 (Del) of 2005 Block Assessment period : 1/04/1987 to 24/09/1997 M/s AHUJASONS SHAWLWALE PVT LTD 6/44, WEA KAROL BAGH, NEW DELHI PAN NO: AAACP7122R Vs DY COMMISSIONER OF INCOME TAX CIRCLE : 1(1), NEW DELHI Rajpal Yadav, JM and K D Ranjan, AM Dated: April 30, 2009 Appellant Rep by: Shri M P Rastogi, & S Anantharaman, CA Respondent Rep by: Shri V K Tiwari, CIT DR

Income tax - Penalty u/s 158-BFA(2) - Assessee is a trader - Revenue conducts search & seizure u/s 132 - finds excess stock, unaccounted purchases and cash - Assessee asked to file block return - return filed but NIL undisclosed income shown - AO makes additions and initiates penalty u/s 158-BFA(2) held, the first proviso to section 158-BFA (2) offers a concession to the assessee to escape penalty by admitting undisclosed income in the block return and paying taxes. Since the assessee had filed Nil undisclosed income and the AO had rightly make additions for undisclosed income through unaccounted stocks, the second proviso to the Sec 158-BFA(2) comes into force as what is required to be established is only the undisclosed income in excess to the one disclosed in the block return concealment of income like in Sec 271(1)(c) is not a pre-condition under this Section for imposing penalty - this is more so in view the Apex Court decision in Dharmendra Textiles case where it is held that penalty is a civil liability and no mens rea is required to be established for imposing it. Assessee's appeal dismissed. ORDER Per: K D Ranjan: This appeal filed by the assessee for Block assessment period 1/04/1987 to 24/09/1997 arises out of the order passed by the ld. Commissioner of Income-tax (Appeals) IV, New Delhi. 2. The only issue for consideration relates to imposition of penalty under section 158-BFA (2) of the IT Act, 1961. The facts of the case stated in brief are that search and seizure operation u/s. 132 of Income Tax Act, 1961 was carried out on business of the assessee on 23.09.1997 and concluded on 28.10.1997. The assessing officer issued notice on 10.12.1998 u/s. 158BC requiring the assessee to file return of income for the block period 1.4.1987 to 23.09.1997. The return of income was filed on 17.9.1999 after issue of subsequent notice and reminder showing nil undisclosed income. During the course of search the assessee was found in possession of 92,523 pieces of shawls. However, as per stock register the numbers of pieces of shawls were 66,269. The assessing officer also noticed that the Annexure A-2 contained papers 1 to 69 which were purchase bills in the name of Ahujasons Shawlwale P. Ltd. issued by various parties and they were dated 1st August, 1977 till 20th September, 1997. Similarly the sales bills as contained in the Annexure A-1 were the bills of sales on various dates from 2nd September, 1977 till 16th September, 1977. The assessing officer also noted that stock of shawls of 92,523 included 5,211 sample pieces as mentioned in the Panchnama. Thus, the stock as per physical verification was at 87,312. However as per reconciliation the stock was 89,379. Therefore, there was difference of 2,067 shawls. As regards sample pieces of shawls the AO noted that there was no record of such samples. Even the assessee could not give names of the persons to whom samples were given. Therefore, the conclusion drawn was that the shawls numbering 2,067 were sold outside the books of accounts. The assessing officer in order to determine the sale price of 2,067 pieces of shawls applied the average tag price of Rs.752/- per shawl. The sale value of 2,067 pieces of shawls came to Rs.15,55,483/-. He treated the amount of Rs.15,55,483/- as sale outside the books of accounts and added the same as trading addition. He also added the excess cash of Rs.42,400/- as income of the financial year for the block period 1.04.1987 to 23.09.1997.

3. The assessee being aggrieved by the assessment order went in appeal before the ld. CIT (Appeals). The ld. CIT (Appeals) confirmed the addition of Rs.42,400/-. The issue of shortage of stock was restored to the assessing officer to be decided afresh. However, the ld. CIT (Appeals) enhanced the income by Rs.1,72,14,704/-. The assessee aggrieved with the order passed by the ld. CIT (Appeals) preferred an appeal before the ITAT, Delhi. ITAT in order IT (SS) Appeal No. 87 (Del) of 2002 of October 2000 set aside the order of the ld. CIT (Appeals) with the directions to frame assessment order after giving due opportunity to the assessee. The assessing officer by order dated 31st March, 2004 passed under section 158-BC read with section 254 of the Act completed the assessment at an income of Rs.43,85,705/- by making the following additions :1. Income as per order dated 29.03.2004 passed u/s. 154/254/158BC 2. Unaccounted purchases 3. Addition on account Jagdish Industries 4. Addition on account of 6 invoices of Annexure A-2 5. Unaccounted cash Rs.15,96,784 Rs.3,71,759/Rs.1,57,250/-; Rs.22,17,512/-; Rs.42,400/-.

The assessing officer also initiated penalty proceedings under section 158-BFA (2) of the Income-tax Act. 4. During the course of penalty proceedings it was submitted that addition made on account of unaccounted purchases aggregating to Rs.27,46,521/- (3,71,759 +1,57,250 +22,17,512) was not undisclosed income. It was submitted that the assessing officer made addition of Rs.3,71,759/- based purely in his opinion and inference drawn by him that the assessee could not establish its stand and it had been purchasing shawls from the parties on approval basis as they were not regular suppliers and a new supplier who had not dealt with the assessee it was very unlikely that the supplier will leave goods at the premises of a new purchaser. The second addition of Rs.1,57,250/- was made on the basis of finding recorded by the assessing officer that from invoices raised it was seen that all the invoices were serial numbered but the dates which have been written have a gap of 7 and 8 days between two invoices which also indicated that the party was not genuine because in a normal course of business the invoices were issued regularly and it was highly unlikely that in 15 days three serial numbered invoices were only issued. The assessing officer also noted that invoice No. 8 had date of 15.09.1997 where invoice No. 9 was dated 14.09.1997 which was not possible in a bonafide transaction. These circumstances and evidences suggested that the transaction was not a genuine transaction and purchases were treated as non-verifiable and the same were never intended to be recorded in the regular books of accounts. Likewise, the addition of Rs.22,17,512/- was made on the ground that all six invoices were pending for 6 to 8 months and those were tempered to show as if the same were purchases for year 1997-98 and not 1996-97. According to the assessing officer it created a bonafide belief that these purchases were not meant to be entered in the books of accounts and, therefore, the amount shown in the invoices was treated as undisclosed income. It was also pleaded that provisions of

section 158-BFA (2) of the Act were not applicable at all and the penalty was leviable only when (i) assessee had concealed particulars of income; (ii) assessee furnished inaccurate particulars; and (iii) the assessee was not able to justify its claim. Since none of the condition was satisfied the penal provisions were not applicable at all. The findings of the assessing officer were only by way of inference, not believing the claim of the assessee. It was also submitted that satisfaction was not recorded and, therefore, the very initiation of penalty proceedings was ban in law. Further it was submitted that during the the proceedings under section 132 of the Act, the stocks found was inventorised. It has not been found that the goods as per invoices were found in the stock. The ld. CIT (Appeals) gave a finding that it was not found as to when such goods were purchased; whether such goods were sold; whether such goods have been remaining in the stock etc. Therefore, there was complete lack of evidence to point out any concealment or even an attempt for concealment. Further it was also submitted that the issue had been viewed by different authorities in different ways: (1) JCIT did not consider the mode to be unaccounted. (2) CIT (Appeals) considered it so and enhanced the income; (3) The Appellate Tribunal could not even uphold such enhancement; (4) DCIT Acquiesces in the major part of the stock and the explanation of the assessee and remains only a portion of the same. Therefore, looking from any point of view the assessee had not concealed particulars of income or furnished inaccurate particulars of income. The assessee claimed that there were purchases as such. There was no corroborative evidence to show that the purchases were made. 5. The contention of the assessee was rejected by the assessing officer on the ground that the undisclosed income had been out on the basis of the documents which have not been disclosed by the assessee or would have not been disclosed. It has been established that these transactions were not recorded in the books of accounts and would not have been disclosed for the purposes of Income-tax. The contention of the assessee that penalty under section 158-BFA can only be imposed when the assessee concealed the particulars of income or furnished inaccurate particulars of its income or has not been able to justify the claim, was also not acceptable to assessing officer on the ground that the provisions of section 158-BFA (2) of the Act did no stipulate any such condition. For imposition of penalty under section 158-BFA (2) of the Act, the only requirement to be established was that undisclosed income of block period had been determined in accordance with the provisions of ChapterXIV-B of the Act. The assessing officer, therefore, came to the conclusion that it has been established that the assessee has indulged in the transactions, which were not recorded in the books of accounts. The assessee was given opportunity to declare undisclosed income for the block period, but the assessee responded by filing block period return with NIL un-disclosed income. Therefore, the assessee clearly and intentionally failed to disclose or declare its true and correct undisclosed income. Since the assessee filed the return of undisclosed income for the block period at nil, the provisions of section 158BFA (2) were attracted. He, therefore, treated the undisclosed income at Rs.43,85,705/- and imposed penalty of Rs.30,26,126/-.

6. Before the ld. CIT (Appeals) the arguments advanced by the assessee were that the penalty under section 158-BFA (2) of the Act was not sustainable because the initial satisfaction in terms of decision of Hon'ble Delhi High Court in the case of CIT Vs. Ram Commercial Enterprises 246 ITR 568 (Del.) = (2003TIOL-69-HC-DEL-IT) had not been recorded by the assessing officer at the time of initiation of penalty proceedings. This contention of the assessee was rejected by the ld. CIT (Appeals) on the ground that the said decision was rendered in respect of penalty under section 271(1)(c) of the Act. Since the provision of sections 271(1)(c) and 158-BFA (2) were differently worded the decision was not applicable in respect of penalty under section 158-BFA (2) of the Act. Section 158-BFA (2) nowhere referred to the assessing officer's satisfaction. It was also argued that the additions have been made by the assessing officer only on non-acceptance of the explanation of the explanation furnished by the assessee. Therefore, the additions have been made on a difference of opinion and hence penalty proceedings could not be attracted. The ld. CIT (Appeals) rejected this contention of the assessee on the grounds that the assessee had not filed any appeal against order of the assessing officer dated 31st March, 2004 determining the assessee's undisclosed income at Rs.43,85,705/- as against NIL undisclosed income as shown by the assessee in the block return of income. The ld. CIT (Appeals) in view of provisions of section 158-BFA (2) of the Act observed that where undisclosed income determined by the assessing officer was in excess of the income shown in the return, the penalty shall be imposed on that portion of the undisclosed income determined, which is in excess of the amount undisclosed income shown in the return. The assessee had shown NIL undisclosed income in the return and the assessing officer had determined undisclosed income at Rs.43,85,705/-. The assessing officer did not file any appeal against the assessment order. Thus the undisclosed income determined at Rs.43,85,705/- became final. That being the case in view of the language employed in section 15-BFA (2) the imposition of penalty on undisclosed income of Rs. 43,85,705/- was automatic and, therefore, he upheld the order of the assessing officer imposing penalty of Rs.30,26,126/-. 7. Before us the ld. AR of the assessee submitted that the search was conducted on 23rd September, 1994. Certain purchase invoices, which were posted up to the date of search, were seized. The goods were received by the assessee on approval basis. During the course of search shortage of stock of Rs.15,54,483/- was found an excess cash of Rs.42,400/- was found at the time of search. The ld. CIT (Appeals) confirmed the addition of Rs.42,400/-. The issue of shortage of stock was restored to the assessing officer to be decided afresh. However, the ld. CIT (Appeals) enhanced the income by Rs. 1,72,14,704/-. On further appeal, ITAT restored the matter to the file of the assessing officer with regard to enhancemnent made by the ld CIT (Appeals). As regards addition on account of shortage of stock, no appeal was preferred as CIT(A) had set aside the issue to the file of assessing officer with the directions that pass order after adopting the correct stock available with the assessee as on the date of search. During the second round of assessment proceedings, the assessing officer maintained addition of Rs.42,400/- on account of excess cash found. The assessing officer had not discussed addition on account of the shortage of stock in the assessment order. However, he added the amount the amount of Rs.15,96,784/-. The assessee had paid tax on the same. As against the enhanced income of Rs.1,72,14,704/-, the assessing officer has determined income of Rs.27,46,521/- against which no appeal has been filed by the assessee. The ld. AR of the assessee further submitted that the addition of Rs.15,96,784/- on account of shortage of stock could have been made. At the best the assessing officer

could have made addition of gross profits treating shortage of stock as unrecorded sales. He placed reliance on decisions various High Courts in the case of CIT Vs. Gurubachhan Singh J. Juneja (2008) 302 ITR 63 (Guj.) = (2008-TIOL-410-HC-AHM-IT); Man Mohan Sadani Vs. CIT (2008) 304 ITR 52 (MP); CIT Vs. Balchand Ajit Kumar (2003) 263 ITR 610 (MP); & CIT Vs. S M Omer (1993) 201 ITR 608 (Cal). As regards the addition of Rs.3,71,759/- and Rs.1,57,250/- it has been submitted that the purchases were made on approval basis from new parties. No questions were asked at the time of search. The payments have been made to these parties through demand drafts; the details thereof are available at pages 52, 52-A and 53 of the paper book. The payments were also evidenced from entries made in the books of accounts. As regards the purchases made from Srinagar parties, the ld. AR submitted that the shawls were also received on approval basis and were not unaccounted for. Hence the assessing officer had made addition on presumption basis. He further submitted that levy of penalty under section 158BFA(2) is not automatic. The provisions of section 158-BFA (2) of the Ac t are pari materia with the provisions of section 271(1)(c). He placed decision on ITAT order reported in 97 ITD 527 (KOL) for the proposition that penalty under section 158BFA(2) is not automatic. 8. On the other hand, the CIT [DR] submitted that the quantum addition have been accepted by the assessee and no appeal has been filed. The assessing officer passed order u/s. 154/254/158BC on 29.03.2004 determining undisclosed income from trading at Rs.15,96,784/-, copy thereof has not been placed on record by the assessee. Therefore, it is incorrect on part of the ld. AR of the assessee that assessing officer had made addition without any discussion in assessment order. He further submitted that for imposition of penalty under section 158-BFA (2) the element of mens rea is not is not required. The provisions of section 158-BFA (2) of the Act are not pari materia with the provisions of section 271(1)(c). Penalty under section 158BFA(2) is imposable on excess undisclosed income determined by the assessing officer. If the assessee was aggrieved against the additions made by the assessing officer, he should have filed appeal before the ld. CIT (Appeals) and agitated additions in appeal. Since the assessee was not aggrieved from the assessment order and, therefore, no appeal was filed by it. He further submitted that the appeal filed by the assessee is against the penalty order and not against the quantum and, therefore, the assessee is not permitted to advance arguments that the additions could not have been made. Under section 158-BFA (2) when quantum additions are determined, penalty under section 158-BFA is automatic and has to be levied. 9. We have heard both the parties. In the case before us the assessee filed return of the block period at NIL income. However, the assessing officer in the course of assessment proceedings had made various additions which has resulted in computation of undisclosed income of Rs.43,85,705/-. The above undisclosed income is consisted of excess cash found Rs.42,000/-; trading addition of Rs.15,96,784/-; unaccounted purchases Rs.3,71,759/-; addition on account of Jagdish Industries: Rs.1,57,250/-; & addition on account of 6 invoices of Annexure A-2 : Rs.22,17,512/-. The assessee had not filed any appeal against the additions made by the assessing officer in final assessment order made under section 158-BC read with section 254 of the Act dated 31st March, 2004. Therefore, the undisclosed income determined by the assessing officer at Rs.43,85,705/- has attained finality. Under section 158-BFA (2) of the Act the assessing officer or the ld. Commissioner (Appeals) in the course of proceedings under Chapter-XIV-B may direct that a person shall pay by way of penalty a sum which shall not be less than

the amount of tax leviable, but which shall not exceed three times of the amount of tax so leviable in respect of undisclosed income determined by the assessing officer under clause (c) of section 158-BC of the Act. However, the first proviso to section 158-BFA (2) provides that no order imposing penalty shall be made in respect of a persons if - (i) such person has furnished a return under clause (a) of section 158BC(a); (ii) the tax payable on the basis of such return has been paid or, if the assets seized consist of money, the assessee offers the money so seized to be adjusted against the tax payable; (iii) evidence of tax paid is furnished along with the return; and (iv) an appeal is not filed against the assessment of that part of income which is shown in the return. Therefore the first proviso to section 158-BFA (2) of the Act grants concession to the assessee even after search and seizure operations to disclose undisclosed income in block period return on the basis of seized material or information that came into possession of the Department and pay tax thereon and relax. No penalty was imposable if the discloser of undisclosed income for the block period was made. However, second proviso to section 158-BFA (2) of the Act provides that the provisions of first proviso shall not apply where undisclosed income is determined by the assessing officer in excess of income shown in the return and in such cases penalty shall be imposed on that portion of the undisclosed income determined which is in excess of the amount of undisclosed income shown in the return. In the instant case, the assessee had chosen to file return of undisclosed income for the block period at NIL income when assessing officer had issued notices u/s. 158BC two times and a reminder subsequently. Thus the assessee had not only chosen to avail the concession granted by the law under the first proviso but had accepted the determination of undisclosed income at Rs. 43,85,705/- after two rounds of litigations and had paid tax thereon. Therefore, the assessee's case falls under second proviso to section 158-BFA (2) of the Act. 10. The contention of the ld. AR of the assessee is that the additions made to do involve concealment on the part of the assessee. From the appellate order of the ld. CIT (Appeals) we find that the ld. CIT(Appeals) has mentioned that the number of shawls at 66,269 was actually arrived at by taking the opening stock as on 1.04.1997 on the basis of the return filed by the assessee after the search. The calculation made by the assessing officer, therefore, suffered from another discrepancy. The assessing officer had taken the number of shawls as per Annexure A-2 at 24,539 whereas the number was actually much less as mentioned in para 10 of her order. This would have result of further increasing the discrepancy between the number of shawls actually found at the time of search and as per assessee's books of accounts. The matter was restored to the file of the assessing officer for a correct appreciation of the closing stock available with the assessee. The assessing officer, as is seen from the notice issued by him dated 7.01.2004 under section 154 of the Act that the assessing officer while giving the appeal effect reduced the demand to NIL whereas the addition of Rs.15,96,784/- was sustained by the ld. CIT(Appeals), which was not contested by the assessee before the ITAT. Thereafter the assessing officer vide order dated 29th March, 2004 adopted the figure of 15,96,784/- on account of sales outside the books of accounts. In appeal filed before the ITAT the assessee had not contested the sustenance of the addition on trading account. The assessee had only filed appeal before the ITAT in relation to enhancement of Rs.1,72,14,704/-. Thus, the addition of Rs. 15,96,784/- attained the finality. As regards the addition on account of purchases made form various parties at Rs. 3,71,759/- and addition of Rs.1,57,250/- were on account of purchases not recorded in the books of accounts. Therefore, the addition will be in the nature of undisclosed income. Similar is the case with reference to the purchases

made from Sri Nagar parties. The assessee had not recorded these purchases for a period of 6 to 8 months. The bills were tempered to show as if the same pertained to assessment year 1997-98 and not 1996-97. The assessee had not recorded these purchases in the books of accounts and, therefore, the same will constitute the un-disclosed income. The assessee had accepted the order of the assessing officer by not filing the appeal. Therefore, it is not possible to accept the contention of the assessee that the amount added by the assessing officer and accepted by the assessee did not form part of undisclosed income. The payments made subsequent to search by the assessee will not change the situation that there was no un-disclosed income arising from the bills found during the course of search, which were not entered in the books of accounts for the period of six to eight months. 11. The provisions of section 271(1)(c) of the Act are applicable where concealment has been detected during the course of assessment proceedings or the assessee has filed inaccurate particulars of income whereas in respect penalty under section 158-BFA (2) the penalty is imposable in respect of excess undisclosed income determined by the assessing officer. There is no provision in section 158BFA(2) similar to Explanation 1 of section 271(1)(c) where penalty is imposable when the assessee fails to offer an explanation or offers an explanation, which is found by the assessing officer or the ld. CIT (Appeals) to be false or offers an explanation, which he is not able to substantiate and fails to prove that such explanation is bonafide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him. Therefore, provision off section 158-BFA (2) are based on determination of excess undisclosed income admitted by the assessee under section 158-BC (1)(a) of the Act and not on concealment of income or furnishing of inaccurate particulars of such income. Hon'ble Supreme Court in the case of Union of India Vs. Dharmendra Textiles Processors [2008] 166 TAXMAN 65 (SC) = (2007-TIOL-159-SC-CX) has held that in civil liabilities like imposition of penalty under section 271(1)(c) there is no necessity of proving mens rea on the part of the assessee. Therefore, after the decision of Hon'ble Supreme Court in the case of Dharmendra Textiles Processors even in case of imposition of penalty u/s. 271(1)(c) the Revenue is not required to prove that assessee had wilfully concealed the income or had furnished inaccurate particulars of such income. 12. The contention of the assessee that additions were not liable to be made is of no consequence since penalty under section 158-BFA(2) is imposable with reference to excess undisclosed income determined by the assessing officer. The question whether undisclosed income has been correctly determined or not cannot be raised now as the assessee is not aggrieved with the determination of undisclosed income as no appeal has been filed against the undisclosed income determined by the assessing officer. The Legislature provided opportunity to the assessee under first proviso to section 158BFA (2) to admit the undisclosed income even after the material was found from his possession under proceedings u/s. 132 of the Act which formed the basis of determination of undisclosed income. The assessee having failed to avail such concessions as provided in first proviso to section 158-BFA (2) of the Act, the provisions of second proviso will come into operation. 13. It is not the case of the assessee that opportunity of being heard was not given. The assessing officer has followed the procedure prescribed in section 158-BFA (3) for imposing penalty under section 158BFA (2) of the Act. In view of the above, we are of the considered view that the penalty under section

158-BFA (2) has rightly been imposed by the assessing officer. Accordingly, we do not find any infirmity the order passed by the ld. CIT (Appeals) confirming the penalty under section 158-BFA (2) of the Act. 14. In the result, the appeal filed by the assessee is dismissed. (The order pronounced in the open court on 30.04.2009.)

2009-TIOL-32-HC-ORISSA-IT IN THE HIGH COURT OF ORISSA W.P.(C) No. 14018 of 2008 U K MAHAPATRA AND CO AND OTHERS Vs INCOME TAX OFFICER AND OTHERS Dr B S Chauhan, CJ and B N Mahapatra, J Dated : October 29, 2008 Appellant Rep. by : Dr Debi Pal, Sr. Adv., Bigyan Kumar Sharma, A K Mohapatra, R K Sahu and M Jesthi Respondent Rep. by : Akhila Kumar Mohapatra, Standing Counsel Income Tax - Revenue conducts survey u/s 133A in the premises of Petitioner, a Chartered Accountant Firm which was the auditor of the assessee, and impounded certain files - Held that although Explanation to Sec 133A allows survey of any other place where the books of accounts of assessee are kept but the precondition for conducting survey u/s 133A, is that the client in course of survey must state that his books of accountant/documents and records are kept in the office of his chartered accountant/lawyer/tax practitioner - Assessee in the present case has not made any such statement in counter affidavit, therefore, the action of ITO is without authority of law Held, ITO is not an income-tax authority competent to conduct survey u/s 133A - inspection and recording of reasons are cumulative pre-conditions for impounding books of account or other documents u/s 133A(3)(ia) Held, wherever obtaining of "approval" of higher authority is provided under the Act to do certain thing with regard to an assessee, a hearing need not always be given to such assessee merely because some consequences arise - Petition disposed of partly in favor of petitioners. JUDGEMENT

Per : B N Mahapatra : 1. In this writ petition, the petitioners challenge the action of opposite parties Nos. 1 and 2 in conducting survey in their business premises and impounding books of account/documents belonging to their clients in course of the survey and retention of those books of account/documents on the ground that the said survey was conducted illegally and all the consequential actions taken by opposite parties Nos. 1 and 2 were in violation of the provisions of section 133A of the Income-tax Act, 1961 (hereinafter referred to as "the IT. Act"). 2. The facts giving rise to this writ petition are that petitioner No. 1 is a chartered accountants firm and petitioners Nos. 2 and 3 are its partners. They are engaged in the practice of accountancy involving auditing, consultancy, financing and other services to their clients under the provisions of the Chartered Accountants Act, 1949 (hereinafter referred to as "the C. A. Act, 1949"). On May 28, 2008, opposite party No. 1 conducted survey under section 133A in the premises of the petitioner-firm. The survey party showed Uttam Kumar Mahapatra one of the partners of the firm the authorization for conducting survey issued in accordance with the proviso below to section 133A(6) of the Income-tax Act by opposite party No. 2 and took the initial of Sri Mahapatra on the said authorization without serving a copy thereof on him. Opposite party No. 1 after making search, selected few files and records available with the petitioner and placed mark of identification on the same bearing Nos. UKM-1 to UKM-6. The survey party impounded those documents. Being aggrieved by the aforesaid action of opposite parties, the petitioner made an application to opposite party No. 1 on June 16, 2008, under annexure 3, inter alia, requesting opposite party No. 1 to release the books of account and loose sheet bundles immediately. In the said letter, it was mentioned that the action taken by opposite party No. 1 not only contravened the Circular issued by opposite party No. 3 but also against the provisions of section 126 of the Indian Evidence Act, 1872 (hereinafter referred to as "the Act 1872"), which allows certain privilege to the petitioners and their clients in accordance with the provisions of sections 126, 127, 128 and 129 of the Act, 1872. It was also mentioned therein that books of account/documents were impounded without recording reasons thereof. Opposite party No. 1 did not return the impounded books of account and documents to the petitioner. He in his reply dated June 23, 2008 (annexure 4) intimated the petitioner that the survey operation under section 133A of the Income-tax Act was done as per the existing provisions of law. The petitioner was further informed that soon after completion of the survey operation, the impugned materials/ loose sheet bundles were handed over to Sri B. D. Mishra, Joint Director (Investigation), Income-tax, Aayakar Bhawan, Bhubaneswar (opposite party No. 2), who might be contacted for any clarification on the issue of release of the impounded materials/loose sheet bundles. Hence, this writ petition. 3. Dr. Debi Pal, learned senior counsel for the petitioners, submitted that Circular No. 7-D(LXIII-7), dated May 3, 1967, under annexure 1 (hereinafter called the Circular dated May 3, 1967) issued by opposite party No. 3 clearly prohibits the income-tax authority to enter the premises of the chartered accountant acting under the provision of section 133A of the Act for the purpose of inspecting the books of account/documents of their clients. The aforesaid instruction though binding on income-tax authorities was violated by opposite party No. 1 while conducting survey under section 133A of the Act in the case of the petitioner. Opposite party No. 1 was not an income-tax authority competent under the Income-

tax Act to conduct survey under section 133A. Even by the alleged authorization by the Joint Director of Income-tax (Investigation), opposite party No. 1 does not become the assessing authority and is not vested with the power and jurisdiction of an Assessing officer to assess the petitioner. Opposite party No. 1 during the course of the survey impounded the books of account and documents without recording any reason thereof and, therefore, the said impounding order (annexure 2) is illegal and without jurisdiction. The books of account impounded in course of survey cannot be retained for a period exceeding ten days without obtaining approval of the Chief Commissioner of Income-tax (hereinafter referred to as "the CCIT") or the Director General of Income-tax (hereinafter referred to as "the DGIT"). In the present case, no approval from the CCIT or the DGIT has been obtained. In any event, approval, if any, alleged to have been made, the petitioner should have been given an opportunity of hearing before such approval was made, as the same prejudicially affects the rights of the petitioner. In the absence of any such opportunity of hearing to the petitioner, the approval given if given by opposite party No. 3 is illegal, invalid and without any authority of law. The opposite parties are not legally permitted to verify the impounded books of account of the clients of the petitioners which are the privileged documents in accordance with the provisions of section 126 of the Act, 1872, as the matter relates to the professional communication between the clients and the petitioners. Dr. Pal further submitted that it is well settled that no court or authority can ask for the privileged documents relating to a client of any professional. In support of his contention he relied upon the decision rendered in the case of Watson v. Cammell Laird and Co. [Shipbuilders and Engineers] Ltd. [1959] 2 All ER 757 (CA) and Council of the Institute of Chartered Accountants of India v. Mani S. Abraham, AIR 2000 Ker 212. The actions of opposite parties violate the basic fundamental rights of the petitioner to carry on his business and is violative of articles 14 and 19(1)(g)(i) of the Constitution of India. Thus, the entire survey operation carried out by opposite party No. 1 is illegal, invalid and without jurisdiction. 4. Mr. Akhila Mohapatra, learned counsel appearing on behalf of opposite parties strenuously argued that a survey under section 133A was conducted at Plot No. 237, Bapuji Nagar, Bhubaneswar in connection with search and survey operation conducted in the case of Serajuddin and Co. and group. The provisions of section 133A(1) empower an income-tax authority to enter the office of a chartered accountant for which he has been authorized to do so and to inspect such books of account and other documents as he may require and may be available at such place. The petitioner's premises was surveyed as one of the business premises of the Serajuddin group, because of the petitioner's involvement in the group to the extent of receiving its sale proceeds in his chambers, keeping blank signed cheques of the key persons of the group, using his address for office purpose for many of the concerned group, etc. In the diary of the assessee group, the same plot number appears to that of the petitioner. The Circular dated May 3,1967, is an outdated one and it has been superseded by various other circulars issued by the Board subsequently. The Taxation Laws (Amendment) Act, 1975, which came into force with effect from October 1, 1975, brought in a new provision by which powers under section 133A were enlarged and the scope of amendment was explained clearly, vide Board's Circular No. 179, dated September 30, 1975 ([1976] 102 ITR (St.) 9). The position as regards the powers of the income-tax authority has been made clear by the Board in clause 3 of the said circular. According to the said circular, the income-tax authorities have the power to enter any other place in which the person carries on business or profession states that any of his books of account or other documents or any part

of cash, stock and valuable articles or thing relating to his business or profession are kept. This is also explicitly stated in the newly inserted Explanation, vide Circular No. 551 dated January 23, 1990 ([1990] 183 ITR (St.) 7), Circular No. 717, dated August 14, 1995 [1995] 215 ITR (St.) 70), Circular No. 7 of 2003 dated September 5, 2003 ([2003] 263 ITR (St.) 62), the scope of power under section 133A has been enlarged. In the instant case, the Joint Director of Income-tax, Unit-II (opposite party No. 2), the competent authority had authorized the Income-tax Officer (Headquarters) to conduct survey under section 133A. Survey of plot No. 237, Bapuji Nagar was not conducted as business premises of a chartered accountant. All documents were impounded from the said premises by recording reason for doing so. The impounded books of account and documents have been retained beyond ten days from the date of impounding with the approval of the Director General of Income-tax (Investigation), Kolkata, as per the provisions of section 133A(3)(ia)(b). He further submitted that "Assessing Officer" appeared in Explanation (a) to sub-section (6) of section 133A includes an Income-tax Officer as per the definition of "Assessing Officer" given in section 2(7A) of the Income-tax Act. 5. Mr. Mohapatra further submitted that the provisions of section 126 of the Act, 1872, clearly speak that nothing in that section shall protect from disclosure of any such communication in furtherance of any illegal purpose. Evasion of tax is illegal and the petitioner is duty bound to disclose the same. The chartered accountant's code of ethics requires them ". . . not to shield a client from the consequences of his tax frauds, on the contrary it is guiding principle of professional conduct to discourage tax evasion. . . " 6. Concluding his argument, Mr. Mohapatra, learned counsel for the Revenue submitted that there was no illegality involved in the survey proceedings conducted by the Department in the premises of the petitioner. 7. In view of the rival contentions of the respective parties, the questions which fall for consideration by this court are as follows : (i) Whether the income-tax authorities are empowered to conduct survey under section 133A of the Income-tax Act in the premises of a chartered accountant who is the auditor of an assessee in respect of whom survey under section 133A of the Income-tax Act is carried on ? (ii) Whether, on the facts and circumstances of the case, the Income-tax Officer, (Headquarters), opposite party No. 1 is not a competent income-tax authority to conduct survey under section 133A of the Income-tax Act in the premises of the petitioner chartered accountant ? (iii) Whether, on the facts and circumstances of the case, the opposite party No. 1 has impounded the books of account from the business premises of the petitioner only after recording reasons for doing so and thereby has not violated the mandates of section 133A(3)(a) of income-tax Act ? (iv) Whether, on the facts and circumstances of the case, opposite party No. 1 or 2 has retained the impounded books of account/documents beyond ten days without obtaining approval from the Chief Commissioner or Director General and such retention, if any, is unauthorized and invalid in law ?

(v) Whether it is incumbent upon the CCIT/DGIT to give an opportunity of hearing to an assessee whose books of account are intended to be retained for a period exceeding ten days before any approval for such extended period is granted ? (vi) Whether, on the facts and circumstances of the case, impounding of books of account belonging to the client of the petitioner-chartered accountant from his premises by the income-tax authorities in course of survey operation under section 133A of Income-tax Act amounts to breach of privileged communication by the petitioner ? 8. At this juncture, it is very much necessary to know various relevant provisions of section 133A, which confer power of survey, inspection, impounding and retention of books of account/documents upon the income-tax authorities. The relevant provisions of section 133A are quoted below : "133A. Power of survey. - (1) Notwithstanding anything contained in any other provision of this Act, an income-tax authority may enter (a) any place within the limits of the area assigned to him, or (b) any place occupied by any person in respect of whom he exercises jurisdiction, or (c) any place in respect of which he is authorized for the purposes of this section by such income-tax authority, who is assigned the area within which such place is situated or who exercises jurisdiction in respect of any person occupying such place, at which a business or profession is carried on, whether such place be the principal place or not of such business or profession and require any proprietor, employee or any other person who may at that time and place be attending in any manner to, or helping in, the carrying on of such business or profession (i) to afford him the necessary facility to inspect such books of account or other documents as he may require and which may be available at such place, (ii) to afford him the necessary facility to check or verify the cash, stock or other valuable article or thing which may be found therein, and (iii) to furnish such information as he may require as to any matter which may be useful for, or relevant to, any proceeding under this Act. Explanation. - For the purposes of this sub-section, a place where a business or profession is carried on shall also include any other place, whether any business or profession is carried on therein or not, in which the person carrying on the business or profession states that any of his books of account or other documents or any part of his cash or stock or other valuable article or thing relating to his business or profession are or is kept. (2) An income-tax authority may enter any place of business or profession referred to in sub-section (1) only during the hours at which such place is open for the conduct of business or profession and, in the case of any other place, only after sunrise and before sunset.

(3) An income-tax authority acting under this section may, (i) if he so deems necessary, place marks of identification on the books of account or other documents inspected by him and make or cause to be made extracts or copies therefrom, (ia) impound and retain in his custody for such period as he thinks fit any books of account or other documents inspected by him : Provided that such income-tax authority shall not(a) impound any books of account or other documents except after recording his reasons for so doing ; or (b) retain in his custody any such books of account or other documents for a period exceeding ten days (exclusive of holidays) without obtaining the approval of the Chief Commissioner or Director General therefor, as the case may be, (ii) make an inventory of any cash, stock or other valuable article or thing checked or verified by him, (iii) record the statement of any person which may be useful for, or relevant to, any proceeding under this Act. (4) An income-tax authority acting under this section shall, on no account, remove or cause to be removed from the place wherein he has entered, any cash, stock or other valuable article or thing..... (6) If a person under this section is required to afford facility to the income-tax authority to inspect books of account or other documents or to check or verify any cash, stock or other valuable article or thing or to furnish any information or to have his statement recorded either refuses or evades to do so, the income-tax authority shall have all the powers under sub-section (1) of section 131 for enforcing compliance with the requirement made : Provided that no action under sub-section (1) shall be taken by an Assistant Director or a Deputy Director or an Assessing Officer or a Tax Recovery Officer or an Inspector of Income-tax without obtaining the approval of the Joint Director or the Joint Commissioner, as the case may be. Explanation. - In this section, (a) 'Income-tax authority means a Commissioner, a Joint Commissioner, a Director, a Joint Director, an Assistant Director or a Deputy Director or an Assessing Officer, or a Tax Recovery Officer, and for the purposes of clause (i) of sub-section (1), clause (i) of sub-section (3) and sub-section (5), includes an Inspector of Income-tax ; . . ." 9. So far as the first question is concerned, the provisions of section 133A make it clear that the place to which an income-tax authority can enter should either be a place within the limits of the area under the jurisdiction of the said income-tax authority or any place occupied by any person in respect of whom he exercises jurisdiction or any place in respect of which he is authorized for the purpose of the said section by such income-tax authority who is assigned the area within which such place is situated or who exercises jurisdiction in respect of any person occupying such place. In either case, the place should be

one where the business or profession of the assessee is carried on. It is immaterial whether the place of business is the principal or additional or subsidiary place of business or profession of a person in respect of whom survey under section 133A is intended. However, Explanation below sub-section (1) of section 133A of the Income-tax Act clarifies that a place where business or profession is carried on shall also include any other place whether any business or profession is carried on therein or not in which the person carrying on business or profession states that any of his books of account or documents or any part of his cash or stock or any other valuable article or thing relating to his business or profession are or is kept. Thus, at the time of survey, if the concerned person states that any of his books of account or documents or any part of his cash or stock or any other valuable article is or are kept in the office of his chartered accountant or advocate or income-tax practitioner, the survey officer can enter such office for the limited purpose of inspecting those books of account or other documents. Similarly, if the concerned person states at the time of survey that his books of account or documents or cash or stock or any other thing/article relating to his business or profession are kept in his residential premises or in the premises of some other person, the survey officer can enter those premises for the limited purpose of inspecting those books of account or other documents or cash or stock or any other article or thing relating to the business or profession of such person. Thus, the precondition for conducting survey under section 133A in the premises of a chartered accountant, lawyer, tax practitioner in connection with survey of the business place of their client is that the client in course of survey must state that his books of accountant/documents and records are kept in the office of his chartered accountant/lawyer/tax practitioner. Unless this precondition is fulfilled, the income-tax authority cannot assume any power to enter the business premises/office of the chartered accountant/lawyer/tax practitioner to conduct survey under section 133A of the Income-tax Act in connection with survey of the premises of their client. 10. In the present case, the counter-affidavit and the additional counter-affidavit filed by the opposite parties do not reveal that anybody on behalf of M/s. Serajuddin and Co. and group in whose case survey under section 133A was carried on has stated that their books of account were kept in the premises of the petitioner-chartered accountant. No such statement of M/s. Serajuddin and Co. or group was also produced before this court in course of hearing. In the absence of any such statement the opposite parties lack jurisdiction to enter the premises of the petitioner-firm and conduct the survey under section 133A of the Income-tax Act. The submission of Mr. Mohapatra, learned counsel for the Incometax Department that survey under section 133A was conducted in Plot No. 237, Bapuji Nagar, Bhubaneswar as additional place of business of M/s. Serajuddin and Co. and group for which any such statement was not necessary is contrary to the materials available on record. In paragraph 2 of the counter-affidavit, opposite parties Nos. 2 and 4 have admitted that a survey under section 133A has been conducted in the premises of M/s. U.K. Mohapatra and Co., Plot No. 237, Bapuji Nagar, Bhubaneswar, in connection with search and seizure operation in the case of M/s Serajuddin and Co. and group. Annexure 2 shows that the Survey Officer has impounded books of account/loose sheet bundles in course of survey under section 133A of the Income-tax Act in the business premises of M/s. U. K.Mohapatra and Co. on May 28, 2008. Further, pursuant to the petitioner's letter dated June 16, 2008 (annexure 3) for release of books of account/loose sheet bundles, opposite party No. 1, vide his letter dated June 23, 2008 (annexure-4) intimated the petitioner that survey operation under section

133A of the Income-tax Act was conducted in his premises on May 28, 2008, as per the existing provisions of law. In annexure C/2, opposite party No. 1 recorded reason for impounding the books of account/documents which also reveals that he conducted survey under section 133A of the Income-tax Act in the business premises of M/s. U.K. Mohapatra and Co. There are other documents as annexure H/2, dated June 11, 2006 ; annexure-1/2 dated September 23, 2008, and annexure-J/2 to the counteraffidavit, which also reveal that opposite parties conducted survey under section 133A in the business premises of the petitioner. 11. Therefore, in the present case, survey conducted in the premises of the petitioner-chartered accountant under section 133A is without authority of law. 12. So far as the second question is concerned, it is only an income-tax authority as described in Explanation (a) to sub-section (6) of section 133A of the Income-tax Act who can exercise the power of survey under section 133A. Those income-tax authorities are a Commissioner, a Joint Commissioner, a Director, a Joint Director, an Assistant Director or a Deputy Director or an Assessing Officer, or a Tax Recovery Officer, and for the purposes of clause (i) of sub-section (1), clause (i) of sub-section (3) and sub-section (5), includes an Inspector of Income-tax ITO (Headquarters)-opposite party No. 1, who was authorized by opposite party No. 2 to conduct the survey in the premises of the petitioner, is not an income-tax authority under the said Explanation. The contention of Mr. Mohapatra that Assessing Officer includes an Income-tax Officer as per the definition of "Assessing Officer" given in section 2(7A) is not tenable since he has not brought to the notice of this court any direction or order issued under sub-section (1) or (2) of the Income-tax Act or any other provisions of the Income-tax Act by which opposite party No. 1 is vested with the power and jurisdiction of an Assessing Officer to assess the petitioner. Sub-section (1) of section 133A of the Income-tax Act authorizes an income-tax authority to conduct survey as provided in the said section. A plain reading of Explanation (a) to sub-section (6) of section 133A which gives the meaning of income-tax authority does not reveal that opposite party No. 1 Income-tax Officer (Headquarters), who was authorized to conduct survey by opposite party No, 2 was an income-tax authority covered under the said Explanation. Thus, in the present case, the Income-tax Officer (Headquarters)-opposite party No. 1 is not an income-tax authority competent to conduct survey and can be authorized to conduct such survey under section 133A of the Income-tax Act in the premises of the petitioner. 13. So far as the third question is concerned, section 133A(3)(ia) makes it clear that the income-tax authority shall not impound any books of account or other documents except after recording his reasons for doing so. Section 133A(3)(ia) of the Act authorizes an income-tax authority to impound only those books of account which are inspected by him. "Inspection" involves intelligent application of mind. Recording of reasons again involves intelligent application of mind. Thus, inspection and recording of reasons are cumulative pre-conditions for impounding books of account or other documents under section 133A(3)(ia) of the Act. Needless to say that impounding is restricted only to inspected books of account/documents. Each book/document before impounding should be inspected. The Survey Officer before impounding books of account or documents must inspect those carefully and record reasons for impounding of the said books of account/documents.

14. In the present case, the reasons recorded by opposite party No. 1 in annexure C/2 to the counteraffidavit do not reveal that before impounding the books of account/documents bearing identification mark UKM-1 to UKM-6, those were inspected/examined. The reasons recorded are general in nature and do not indicate any application of mind by the Survey Officer before the same were impounded. 15. Dr. Pal, learned senior counsel for the petitioners, submitted that opposite party No. 1 has not recorded any reason before impounding the books of account of the petitioner. According to him, even though the books of account/documents were impounded on May 28, 2008, the so-called reasons for such impounding were recorded on May 29, 2008. 16. There is some substance in the argument of Dr. Pal. Annexure 2 to the writ petition reveals that the books of account/documents were impounded in course of survey operation under section 133A of the Income-tax Act in the business premises of the petitioner-firm on May 28, 2008. In the counter-affidavit dated October 1, 2008, and the additional counter-affidavit dated October 23, 2008, the opposite parties have not controverted the date of impounding of books of account as May 28, 2008. On the other hand, in paragraph 8 of the counter-affidavit the opposite parties stated that the reasons for impounding the books of account have been recorded in annexure C/2 to the counter-affidavit. Annexure C/2 to the counter-affidavit reveal that the reasons were recorded on May 29, 2008. This shows the books of account/documents were impounded on May 28, 2008, and the reasons for impounding of such books of account were recorded on May 29, 2008, by opposite party No. 1, which is a gross violation of the provisions of sub-section (3) of section 133A of the Income-tax Act. 17. In this context, it may be seen that one of the reasons for impounding the books of account as recorded in annexure C/2 to the counter-affidavit is that the books of account of M/s. Serajuddin and Co. and group, which were found in the premises of the petitioner, could not be cross-tallied with the corresponding cash book, ledger, etc., as the latter were not available then. However, a perusal of the documents which were impounded as per the list contained in annexure 2 to the writ application does not reveal that the same belonged to M/s. Serajuddin and Co. and group. The authorized officer in annexure 2 has also not indicated that the said impounded documents belonged to M/s. Serajuddin and Co. and group. There is nothing on record to show that the survey commenced on May 28, 2008, and continued till May 29, 2008, and thus the impounding order was passed at about midnight of May 28, 2008, and simultaneously or immediately after reasons were recorded on May 29, 2008. Thus, suggestion made by Mr. Mohapatra in this regard is not worth acceptance. Therefore, the reasons as recorded on May 29, 2008, in annexure C/2 to the counter-affidavit cannot be considered as a valid reason for impounding the said books of account/documents on May 28, 2008. 18. The fourth question relates to power of income-tax authorities to retain impounded books of account beyond ten days. According to proviso (b) to clause (ia) of sub-section (3) of section 133A of the Act, the income-tax authorities shall not retain any books of account or other documents in their custody for a period exceeding ten days (exclusive of holidays) without obtaining the approval of the Chief Commissioner or the Director General. It was submitted by Dr. Pal that the impounded books of account were retained beyond ten days in contravention of the provisions of subsection (3) of section 133A. Mr. Mohapatra, learned counsel for the Revenue, contended that since the documents

impounded were voluminous, they were retained beyond ten days after taking approval of DGIT, Calcutta. According to him, the books of account were impounded on May 29, 2008, and ten days from the date of impounding expired on June 11, 2008. On June 11, 2008, the DGIT (Investigation) approved the retention of the impounded books of account/documents up to August 31, 2008, under annexure H/2 to the additional counter-affidavit. Again, vide letter dated September 23, 2008 (annexure I/2) to the additional counter-affidavit, the DGIT, Calcutta, approved retention of the same up to October 31, 2008. 19. A perusal of the above two approval letters reveals that the opposite 19 parties had retained the impounded books of account/documents for the period from September 1, 2008, to September 22, 2008, without obtaining any approval either from the DGIT (Investigation) or from the Chief Commissioner of Income-tax as required under sub-section (3) of section 133A. Thus, the retention of the impounded books of account/documents by the opposite parties from September 1, 2008, to September 22, 2008, is not authorized under the law. 20. Again, retention of the impounded books of account beyond ten days 20 also involves application of mind both by the officer seeking extension of time for retention and the Chief Commissioner or the Director General, as the case may be, while granting such approval. In Raj and Raj Investments v. ITO [2007] 293 ITR 57 (Kam), it was found that the Chief Commissioner had accorded permission to retain documents without examining the need for retention and there was no justification for the Department to plead that the assessee did not co-operate. It was held that retention was not bona fide and was liable to be quashed. 21. The Madhya Pradesh High Court in Sampatlal and Sons v. CIT [1984] 21 150 ITR 191 held that in a case where 180 days had expired from the date of seizure and no steps were taken to obtain the approval of the Commissioner during that period, but the approval was granted only after filing of a petition by the petitioner after two years from the date of seizure, such an approval could not validate the retention of books of account and other documents seized from the petitioner which became invalid after the expiry of 180 days. 22. Thus, the income-tax authorities cannot impound books of account or any documents without following the procedure laid down in section 133A of the Income-tax Act. 23. The hon'ble Supreme Court in CIT v. Oriental Rubber Works [1984] 145 ITR 477, arising under section 132 of the Income-tax Act held that it is the duty of the Revenue to communicate to the person concerned not only the Commissioner's approval but also the recorded reason on which the same has been approved. The hon'ble court further held that the communication should be made as expeditiously as possible after passing the order of approval. In default of such expeditious communication, any further retention of seized books of account or other documents would become invalid and unlawful. The concerned person, from whose custody books of account and other documents were taken, acquires a right to get return of the same. 24. This court in Super Construction v. Assistant Commissioner of Sales Tax [2008] 18 VST 387 (CESTATOrissa) (OJC No. 1622 of 1998) decided on July 23, 2008, has taken a similar view.

25. Even though section 133A of the Act does not provide for communication of the recorded reason of the Chief Commissioner or Director General and the reason advanced by the officer seeking extension of time for retention of impounded books/documents beyond the prescribed period of ten days to the person from whose custody documents were impounded, in all fairness, it should be communicated to the concerned person who is bound to be materially prejudiced because of such impounding and retention of books of account. 26. Admittedly, in the present case, even though the books of account and other documents were impounded on May 28, 2008, and retained beyond ten days, the petitioner has not been communicated till date, the DGIT's approval and reasons recorded for approving the same. This is certainly unfair. 27. Another important aspect of the case is that under sub-section (3) of section 133A of the Income-tax Act only an income-tax authority acting under the said section can retain in his custody the impounded books of account and other documents beyond ten days from the date of impounding (exclusive of holidays) after obtaining approval of the Chief Commissioner or the Director General, as the case may be. The income-tax authority, who conducted the survey and impounded the books of account under section 133A is opposite party No. 1 being authorized by opposite party No. 2. Opposite party No. 1 in his letter dated June 23, 2008 (annexure 4) intimated petitioner No. 1 that the impounded materials/ loose sheet bundles were handed over to B. D. Mishra, JD1T (Investigation)-opposite party No. 2 soon after completion of the survey operation. Therefore, the petitioner could have contacted him for any clarification on the issue of release of those impounded materials/loose sheet bundles. Strangely, neither opposite party No. 1 nor opposite party No. 2 sought for any approval either from the DGIT, Calcutta, or from the Chief Commissioner to retain the impounded books of account/documents beyond ten days. It is the ADIT (Investigation), Unit-2(1), Bhubaneswar, who, vide his letters dated June 4, 2008 (annexure K/2) and dated August 19, 2008 (annexure L/2) requested the DGIT, Calcutta, to accord necessary approval for retention of the impounded books of account up to June 30, 2008, and October 31, 2008, respectively. Further, annexure J/2 to the additional affidavit dated October 23, 2008, reveals that the DIT (Investigation), Bhubaneswar, requested for approval of the DGIT, Calcutta, for retention of the books of account and documents up to June 30, 2009, for preparation of appraisal report. Thus, it is evident, the opposite parties had not acted in accordance with the provisions of law, which is certainly undesirable on the part of the statutory authorities. 28. The hon'ble Supreme Court in Sangeeta Singh v. Union of India [2005] AIR 2005 SC 4459, held that a statute is an edict of the Legislature. The language employed in a statute is the determinative factor of the legislative intent. 29. The hon'ble apex court in Hukam Chand Shyam Lal Vs. Union of India, AIR 1976 SC 789, held that where a power is required to be exercised by a certain authority in a certain way, it should be exercised in that manner or not at all, and all other modes of performance are necessarily forbidden. It is all the more necessary to observe this rule where power is of a drastic nature and its exercise in a mode other than the one provided will be violative of the fundamental principles of natural justice.

30. In Hira Cement Workers Union v. State of Orissa [2001] 92 CLT 184, this court held that where a power has been given to do a certain thing in a certain way, the thing must be done in that way or not at all, and other methods of performance are necessarily forbidden. 31. So far as the fifth question is concerned, a plain reading of section 133A(3)(ia)(b) does not say that the CCIT or the DGIT should give a personal hearing to the person whose books of account are intended to be retained for a period exceeding ten days before any approval for such extended period of retention is granted. Retention of books of account for an extended period as envisaged in section 133A(3)(ia) is necessary only to examine the books of account/documents which would not be completed within ten days considering the volume of books of account and documents impounded. This is the preliminary stage of examination of books of account, for which, sometimes ten days time may not be adequate. Some more time may be necessary to examine the impounded books of account/ documents depending upon the facts of the case. To meet such situation, the Legislature has enacted provisions in proviso (b) to section 133A(3)(ia) for retention of books of account for a period exceeding ten days. In that situation, before giving approval for retention of the books of account for a further period exceeding ten days, there is no need to afford any opportunity of hearing to the person whose books of account are impounded and intended to be retained for a period exceeding ten days. After such approval is made, the person concerned obviously shall be given an opportunity to explain his books of account which could not be done within ten days from the date of impounding of the books of account/documents. 32. The principles decided by the hon'ble Supreme Court in Rajesh Kumar v. Deputy CIT [2006] 287 ITR 91 = (2006-TIOL-140-SC-IT) and reaffirmed in Sahara India (Firm) v. CIT [2008] 300 ITR 403 (SC) = (2008TIOL-73-SC-IT-LB) which has been relied upon by Dr. Pal, learned senior counsel appearing for the petitioners have no application to the present case. The facts of that case are completely different from the facts of the present case. In that case, a raid was conducted in the business premises of an assessee. Some documents including the books of account were seized few of which were in the hard disk of the computer. By order dated November 23, 2004, the Deputy Commissioner mooted a proposal for special audit in terms of section 142(2A) of the Act to the Commissioner of Income-tax. The Commissioner of Income-tax approved the said proposal of the Deputy Commissioner of Income-tax by letter dated February 29, 2004. Pursuant thereto, one Dinesh Gupta and Co. was appointed as a special auditor. Only on December 7, 2004, the assessee was informed in regard to appointment of an auditor for special audit of their accounts in terms of section 142(2A) of the Act. The Deputy Commissioner of Income-tax was requested by the assessee to supply the copy of the reasons by letter dated December 11, 2004, which was refused by a letter dated December 13, 2004. The chartered accountant submitted his audited report dated January 17, 2005. A writ petition was filed by the assessee before the Delhi High Court, inter alia, questioning that the order impugned was vitiated in law having been passed without giving any opportunity of hearing to the assessee and also on the same ground it suffered from total non-application of mind. The writ petition was dismissed by the Delhi High Court. 33. The hon'ble Supreme Court analysing the provisions of section 142(2A), inter alia, held that indisputably, the prejudice of the assessee, if an order is passed under section 142(2A) of the Act, is apparent on the face of the statutory provision. He has to undergo the process of further accounting

despite the fact that his accounts have been audited by a qualified auditor in terms of section 44AB of the Act. An auditor is a professional person. He has to function independently. He is not an employee of the assessee. The fee of the special auditor has been fixed at Rs. 1.5 lakhs. The assessee during audit of the account by the special auditor had to answer a large number of questions. The expression "complexity" in section 142(2A) would mean the state or quality of being intricate or complex or that is difficult to understand. All that is difficult to understand should not be regarded as complex. What is complex to one may appear simple to another. It depends on one's level of understanding or comprehension. Sometimes, what appears to be complex on the face of it, may not be really so if one tries to understand it carefully. Therefore, special audit should not be directed on cursory look at the accounts. There should be an honest attempt to understand the accounts of the assessee. Under these back-grounds, the hon'ble Supreme Court held that before giving any direction for special audit, an opportunity of hearing should be given to the concerned assessee. 34. Thus, in that case, the assessee was saddled with a heavy expenditure of Rs. 1.5 lakh. In the present case no such financial burden is on the assessee. In that case the books of account of the assessee were audited by a qualified chartered accountant and the income-tax authority wanted to get those books of account audited once again applying the provisions of section 142(2A) of the Act on the ground of complexity of accounts. The assessee had to answer a large number of questions during the audit by a special auditor. In the case at hand, the income-tax authorities want only to examine the books of account impounded by them. These are the distinguished features between the two cases and the principle decided in Rajesh Kumar's case [2006] 287 ITR 91 (SC) = (2006-TIOL-140-SC-IT) and reaffirmed in Sahara India (Firm)'s case [2008] 300 ITR 403 (SC) = (2008-TIOL-73-SC-IT-LB) has no application to the present case. By the Finance Act, 2007, with effect from June 1, 2007, a proviso has been inserted to section 142(2A) to the effect that the Assessing Officer shall not direct the assessee to get the accounts so audited unless the assessee has been given a reasonable opportunity of being heard. It may be relevant in the present context to say that wherever obtaining of "approval" of higher authority is provided under the Income-tax Act to do certain thing with regard to an assessee, a hearing need not always be given to such assessee merely because some consequences arise. Take for example the term "approval" used in the proviso to section 133A(6) of the Income-tax Act. The proviso says, no action under sub-section (1) of section 133A shall be taken by an Assistant Director or a Deputy Director or an Assessing Officer or Tax Recovery Officer or an Inspector of Income-tax without obtaining the approval of a Joint Director or a Joint Commissioner, as the case may be. Here, if a hearing is given to an assessee before granting approval for taking action under section 133A(1) in his case, then the entire purpose for which section 133A(1) is enacted will be frustrated. 35. So far as the sixth question is concerned, there would be no breach of privileged communication even if books of account belonging to the client of the petitioner were impounded by the income-tax authorities from the petitioner-firm who is the auditor of the said client. In the present case, the Survey Officer has only impounded the books of account belonging to the petitioner's client in respect of whom survey and search operation was conducted on the same day. The books of account/documents were impounded by operation of the statutory provisions contained in section 133A of the Act. The partner of the petitioner-firm did not volunteer to disclose anything about his client to the survey officers. The

petitioner shall also not be right in his duty to prevent or non-co-operate the statutory authorities while they are discharging their official duty. In Shyam Jewellers v. Chief Commissioner (Administration) [1992] 196 ITR 243, the Allahabad High Court observed as follows (page 269) : "However, as the authorities under the Income-tax Act are the custodians of public money and they have to perform their duties in good faith in accordance with law and the procedure prescribed which rules out any vindictive or malicious action or misuse of authority, no one has a right to interfere in their performance of duty or create hurdles or humiliate or manhandle them. Any such action cannot be appreciated and is to be deprecated and persons taking the law into their hands or committing guilt deserve the prescribed punishment. But at the same time, it is the duty of the officers to see that they act in accordance with law, shorn of all feeling of vindic-tiveness or ego and in good faith which protects them and grants them full immunity even from any legal action." 36. Besides, the opposite parties in paragraph 9 of the counter stated that the proviso to section 126 of the Act, 1872, clearly mentions that nothing in that section shall protect from disclosure of any such communication in furtherance of any illegal purpose. Similarly, opposite parties in paragraph 10 of the counter-affidavit stated that the chartered accountant's code of ethics requires not to shield a client from the consequences of his tax frauds, on the contrary, it is a guiding principle of professional conduct to discourage tax evasion. Though the petitioner denied the averments made in paragraphs 9 and 10 of the counter, has not stated under what circumstance the legal provisions referred to by the opposite parties are not applicable. Apart from that, in paragraph 8 of the writ petition, the petitioner has stated that no question was put to him by the survey party regarding books of account/documents of his profession. Be that as it may, in the present case, since the partner of the petitioner-firm has not voluntarily disclosed any privileged communication between himself and his clients to the survey party, the question of breach of privileged communication does not arise. 37. In Watson v. Cammell Laird and Co. [Shipbuilders and Engineers] Ltd. [1959] 2 All ER 757, relied upon by the petitioner, it has been held that on the plaintiffs claim against the defendant in respect of an accident, his solicitors obtained copies of hospital records concerned with the plaintiffs treatment. The Court of Appeal held that these copies were privileged notwithstanding that the originals could be obtained by the defendant from the hospital by means of a court order. This is a part of the privilege that the advice given by a lawyer to his client is not disclosable, the reason being that by revealing the lawyer's copies, the lawyer's advice or strategy would emerge. Copies made by lawyer are the fruits of his expertise ; in so far as skill is involved it was part of his professional skill in assisting his client to go to the hospital and get copies. 38. In Council of the Institute of Chartered Accountants of India v. Mani S. Abraham, AIR 2000 Ker 212, the hon'ble Kerala High Court has held that a chartered accountant disclosed information which had come to him during the statutory audit of a banking company. Communications were made to several persons including the Prime Minister about the alleged irregularities by the bank. This was held to be a grave professional misconduct.

39. In the present case, since the petitioner has not disclosed anything to the survey party voluntarily about his client, the question of breach of communication does not arise. 40. For the reasons stated in paragraphs 7 to 10, the survey operation under section 133A, in the petitioner's premises, impounding of books of account/documents on May 28, 2008, and retention of the same till date being made illegally without following the procedure as laid down in section 133A of the Income-tax Act, the petitioner is entitled to get back the impounded books of account/documents. 41. In CIT v. Kamal and Co. [2007] 213 CTR (Raj) 200 ; [2009] 308 ITR 129 (Raj) it was held that the materials collected during the course of illegal survey can be used for making additions. In Pooran Mal v. Director of Inspection (Investigation) [1974] 93 ITR 505 = (2002-TIOL-221-SC-IT), the hon'ble Supreme Court held even assuming that the search and seizure were in contravention of the provisions of section 132 of the Income-tax Act, still the material seized was liable to be used subject to law before the income-tax authorities against the person from whose custody it was seized. Therefore, if the opposite parties think that the books of account or any portion thereof are or is relevant for their purpose, they are entitled to take copy of such documents or portion of such books of account. 42. In the above fact situation, we direct opposite party No. 2 to return the books of account/documents as impounded from the premises of the petitioner in course of survey under section 133A by opposite party No. 1 within a period of two weeks from the date of production of a certified copy of this order before him by the petitioner. 43. With the above direction, the writ petition is disposed of. 44. Dr. B. S. Chauhan C. J.I agree.

2008-TIOL-589-ITAT-MAD IN THE INCOME TAX APPELLATE TRIBUNAL BENCH "B" CHENNAI IT(SS)A. No.168/Mds/06 Block Assessment Period : 01.04.96 to 31.03.02 and 01.04.02 to 18.02.03 SHRI M SRINIVASULU NEW NO 15 (OLD NO 7) 1ST FLOOR, LIME KLINE STREET, AMINJIKARAI CHENNAI-600029 PAN AIQPM7204C

Vs THE ASST COMMISSIONER OF INCOME TAX CENTRAL CIRCLE IV(3) CHENNAI-600034 IT(SS)A. No.180/Mds/06 Block Assessment Period : 01.04.96 to 31.03.02 and 01.04.02 to 18.02.03 THE ASST COMMISSIONER OF INCOME TAX CENTRAL CIRCLE IV(3) CHENNAI-600034 Vs SHRI M SRINIVASULU NEW NO 15 (OLD NO 7) 1ST FLOOR, LIME KLINE STREET, AMINJIKARAI CHENNAI-600029 Dr O K Narayanan, AM and Vijay Pal Rao, JM Dated: May 09, 2008 Appellant Rep by : Shri Prassan Chand Ostwal Respondent Rep by : Shri Sudhakar Tiwari, CIT DR Unexplained cash and investments Cogent explanation backed with reasons to be advanced by assessee to substantiate source of such assets. Assessee was carrying cash of Rs. 50 lakhs when he was taken into custody by Police at Chennai. On the basis of information, I.T. Department conducted search. In the block assessment, in addition to the cash seized of Rs. 50 lakhs a sum of Rs. 561 lakhs being deposits in various bank accounts were added. On appeal, CIT(A) deleted the addition of Rs. 561 lakhs and upheld addition of Rs. 50 lakhs. Both assessee and Department are in appeal before ITAT. As far as cash remitted in bank accounts amounting to Rs. 561 lakhs, AO did not accept the explanation of the assessee that it represents sale proceeds of its consignment business in Gutka and Pan Masala business since the business is conducted at Palakkad in Kerala whereas cash is deposited in the bank accounts in Coimbatore and Chennai. The AO of M/s Dariwal Industries at Pune for whom assessee was acting as consignment agent, confirmed that assessee was consignment agent of that company and that such bank transactions are reflected in the books of accounts of that company. On this basis, the addition was deleted by CIT(A) and this stand was upheld by ITAT. Regarding cash seized amounting to Rs. 50 lakhs, Tribunal held that the time lag of one day between Police apprehending assessee and I.T. Department executing the warrant cannot be stretched by assessee to claim that Department has falsified in recording the correct date of executing the warrant.

Assessee initially stated that the amount was handed over to him by Mr. Abdulla to hand over to Mr. Mohammed. Though Mr. Abdulla denied this, assessee did not ask for cross-examination. Further he did not ask for examination of Mr. Mohammed. Then he took a different stand that this sum represents sale proceeds of his business but could not prove that claim also. Hence the addition was upheld by CIT(A) and ITAT. Appeal by both assessee and revenue dismissed. ORDER Per: O K Narayanan : These are two cross appeals filed by the assessee and Revenue. These cross appeals are directed against the order of the Commissioner of Income Tax (Appeals)-I at Chennai dated 19.5.2006 and arise out of the block assessment completed under Section 158BC read with Sec 143(3) of the income-tax Act, 1961. 2. The assessee in this case Shri M Srinivasulu was carrying a cash of Rs.50 lakhs on 17.2.03 when he was taken into custody by the police at Central Railway Station, Chennai. On seizure of the above cash of Rs.50 lakhs, the Income Tax Department was informed and the investigation was taken over by the Department. On the basis of these developments, searches were conducted at various places having connection with the assessee and details were collected through investigation It was found that the assessee was operating accounts with different banks in which huge deposits were made by the assessee on various dates. 3. The details of the cash deposits made in the above stated bank accounts are as follows:HDFC Bank, Chennai Standard Chartered Bank, Coimbatore UT1 Bank, Anna Nagar, Chennai A.P.Mahesh Co-operative Bank TOTAL Rs.2,16,00,000/Rs. 1,65,40,000/Rs. 1,20,00,000/Rs. 60,10,000/Rs.5,61,50,000/-

4. The assessee was asked to explain the whereabouts of the huge cash deposits made in the bank as stated above. The assessee earlier stated that he was an office boy working in a company by name M/s Rawani Foods and Beverages Ltd. He also stated that one Mr Mohamed Illyas was the Managing Director of the company. He also stated that one Mr. Abdulla, who is stated to be his brother's son had given him the cash of Rs.50 lakhs to be handed over to Mr Mohamed Illyas at Hyderabad When this matter was cross verified, Mr Abdulla denied the knowledge of any such events and also stated that he did not know the assessee and the assessee was never working in the office of Mr. Abdulla. But, anyhow Mr. Abdulla agreed that the assessee was his friend; but, still he denied the knowledge of the cash of Rs.50 lakhs.

5. The assessee had further explained that he was the consignment agent for Kerala State for M/s DIL which was trading in a product called "Manikchand Gutkha" and "Manikchand Pan Masala". The assessee said that he was operating his business under the name and style of M/s South India Traders at Palakkad in Kerala and he was selling the Gutkha and Pan Masala in Kerala as the agent of M/s DIL at Pune. He further stated that all the cash transactions reflected in the bank accounts maintained by the assessee are the sale proceeds of Gutkha and Pan Masala, deposited by the assessee from time to time as he was not operating any bank accounts in Palakkad, Kerala. He stated before the authorities that all the sale proceeds were deposited at different banks at Chennai and Coimbatore and later on these were transferred either to Hyderabad or at Pune. M/s DIL has business places and factories at Baroda, Pune and Hyderabad Anyhow, explanation offered by the assessee was found unconvincing by the Assessing Authority and he proceeded to compute the undisclosed income in the hands of the assessee. The total of cash deposits made in different bank accounts amounting to Rs.5,61,50,000/- was treated as undisclosed income of the assessee. In addition to the above amount, the cash seized from the person of the assessee was also treated as his undisclosed income. Thus, the block assessment was completed on a total undisclosed income of Rs.6,11,50,000/-. 6. The block assessment was taken in first appeal. The CIT(Appeals) studied the case in a detailed manner and passed a speaking order. A number of contentions were taken before the CIT(Appeals) both legal and factual. A plea was taken before the CIT(Appeals) that the statement was given by the assessee under coercion when he was in police custody. Therefore, those statements should not be relied upon to make additions in the hands of the assessee. He also explained before the CIT(Appeals) that all the bank deposits were sale proceeds of Gutkha and Pan Masala made in Kerala State. In order to ascertain the truthfulness of the above explanation, the CIT(Appeals) asked for a detailed remand report from Assessing Authority. He also directed the Assessing Authority to get a detailed report from the Assessing Authority at Pune who was handling the case of M/s DIL On the basis of such details collected and in the light of the remand report submitted by the Assessing Authority and in the light of the copy of the letter of the Asst. Commissioner of Income Tax, Circle I(1), Pune, the CIT(Appeals) adjudicated the matter. 7. The CIT(Appeals) found that M/s Dhariwal Industries Limited (DIL) had appointed M/s South India Traders at Palakkad in Kerala as the consignment agent in the State of Kerala. The Assessing Authority at Pune has reported that the assessee Shri M. Srinivasulu as proprietor of South India Traders, Palakkad was the consignment agent of M/s DIL since 7th May, 2002 and regular transactions were entered between the assessee and M/s Dhariwal Industries Limited. The Assessing Authority of M/s Dhariwal Industries Limited stated in his report that all the transactions involving the cash remittances pointed out by the Assessing Authority have been recorded in the books of accounts of M/s Dhariwal Industries Limited. As per the Assessing Officer's reports, the details of consignments sent to Kerala and its corresponding sale proceeds are reflected. In the light of the above evidence, the CIT(Appeals) came to the conclusion that the cash remittances made in different bank accounts were nothing but sale proceeds of Gutkha and Pan Masala collected by M/s South India Traders from Kerala State and made in various bank accounts wherever the account of M/s Dhariwal Industries Limited either at Pune or at Hyderabad. He therefore held that there was no justification in treating the amount of Rs.5,61,50,000/as the undisclosed income of the assessee. Accordingly it was deleted.

8. But, as far as the amount of Rs.50 lakhs seized from the assessee was concerned, the CIT(Appeals) held that the explanation offered by the assessee was unconvincing and there was no avidence on record to show that the said amount related to sale proceeds which the assessee had in the business of Gutkha and Pan Masala. Accordingly, the amount of Rs.50 lakhs was confirmed as the undisclosed income of the assessee, 9. The assessee and Revenue both are aggrieved by the order of the CIT(Appeals). The assessee is aggrieved because the CIT(Appeals) has confirmed the addition of Rs.50 lakhs. The Revenue is aggrieved for the reason that the CIT(Appeals) has deleted the amount of Rs.5,61,50,000/- from the computation of undisclosed income in the hands of the assessee. Therefore, these cross appeals before us. 10. The assessee has raised the following grounds in the appeal filed before us:(1) Both the learned Assessing Officer and Hon'ble Commissioner of Income Tax (Appeals)-I have misdirected themselves in law in not looking into the facts that the search was totally illegal and void authorities below initio as before issuing warrants of authorisation. (a) any of the three conditions mentioned under Section 132(1) of the Income-tax Act, 1961, had not been complied with; and (b) there existed no materials, whatsoever, which could lead to formation of reason to believe that any assets or income which has not been or would not have been disclosed by the appellant; by holding that it is for the Courts of Law to adjudicate without appreciating the appellant's right to ensure that rule of the law has been followed by the Income Tax Authorities before resorting to extreme step of search. (2) Both the learned assessing officer and Hon'ble CIT(Appeals)-I have further erred to appreciate that consequential warrants of authorisation were executed on various banks in respect of appellant's bank accounts with them on date 18, 19-02-2003 even before executing warrant of authorization in the first instant on the appellant himself on date 20-02-2003. (3) The learned assessing officer erred in assessing Rs.50,00,000/- seized from appellant by Police as undisclosed income which the Hon'ble CIT(Appeals)-I also erred in confirming this addition even though; (a) this seized amount was part of cash balance shown by cash book on 17/18-2-2003 and which the cash book and other books of accounts were also impounded and other records seized; (b) the appellant disowned and withdrawn the statement which was extracted from him while he was in police custody with then active participation, interference, intimidation, threats, advice, suggestion of police authorities etc; (c) the sworn statement was recorded under Section 131 of the Income-tax Act, 1961, on 17-2-2003 but was shown falsefully as recorded on 18-2-2003 by Income Tax Officials concerned and which the statement recorded and any material evidence found therein, if any, before commencement of actual

search u/s 132 of the Income-tax Act, 1961 on date 18-2-2003 could not be used for in making block assessment as block assessment is made only for search conducted and evidence found/ collected/ surfaced during the course of search on one hand and proceedings u/s 131 and 132 are distinct and separate to each other on the other hand. (d) the carrying of cash generated from sale in Palakkad to Coimbatore, Chennai, Hyderabad was accepted and therefore this cash of Rs.50,00,000/- seized by Police Authorities like other cash was also transported and brought to Chennai; (e) the whole business which appellant was made to disown was proved belonging to appellant and therefore entire statement so revoked duly matched already existed evidences; (f) there could have been no occasion for the appellant to give any sworn statement u/s 132 of the Income-tax Act, 1961 on 18-2-2003 as no warrant of authorization was served upon the appellant on 182-2003 on one hand and based on appellant's sworn statement u/s 131 of the Income-tax Act, 1961 on 17-2-2003 only, the first warrant of authorization was shown executed on Standard Chartered Bank, Coimbatore on 18-2-2003 at 6.00 p.m. after closer of the Bank for the day on the other hand; (g) the appellant had retracted, withdrawn and disowned the sworn statement which being coerced, not honest and alienate to real facts were not corroborated/supported both by any available evidence and/or also by sworn statements of Mr. Abdullah recorded during the course of Income Tax proceedings in the case of appellant on one hand and falsities committed therein by the very Income Tax Authorities who recorded the appellant's sworn statement on 17/02/2003 and shown as if recorded on 18-02-2003 on the other hand, as held by Hon'ble ITAT, Chennai Bench in the case of Assistant Commissioner of Income Tax Vs Suresh Kumar Barmecha in I.T.A. No. 863/Mds/97 and CO. No. 41/Mds/96. (4) Both the learned assessing officer and Hon'ble CIT(Appeals)-I have further erred to appreciate the fact that the appellant's sworn statements recorded on 17-02-2003 were not true, correct and acceptable as; (a) these statements were recorded in the office of the Commissioner of Police, Central Crime Branch, Egmore Chennai-8 when the appellant was not in a sound and disposable state of mind due to severe physical torture inflicted upon the appellant by the police; (b) several Police Officials were present and for almost every question put up to the appellant and answered by him were interfered by the Police with their advice, intimidation, warning of further physical torture etc; (c) answers were not recorded as stated by the appellant but were twisted, extended, and fabricated to suit their purposes of proceeding against the appellant only in the manner to suit their ulterior notice of making a case out of no case at all; (d) after the appellant was administered the oath, appellant had signed respective page sheet No./1 and put the date 17-02-2003 which the appellant was forced to alter it as 18-02-2003 which is visible even to the naked eyes; and

(e) the Income Tax Official had recorded the appellant's statements jointly with the Police Officers with their active participation and help, the Act not provided for, permitted and empowered u/s 131 of the Income-tax Act, 1961. (5) Both the learned assessing officer and Hon'ble CIT(Appeals)-I further failed to look into the appellant's submissions that the appellant had no access to his books of accounts while he was deposing and his plea to verify and check the books of accounts of his business in the name of "South India Traders" was turned down. (6) Both the learned assessing officer and Hon'ble CIT(Appeals)-I have further failed to look into the fact that the DDI, UNIT III(1) Chennai who has shown the statement of appellant recorded on 18-02-2003 for malafide and malicious intention in mind also didn't put the timings of statements recorded which, if recorded, it could have clashed with the timings of appellant being produced by the Police before the Hon'ble Court on the next day 18-02-2003. (7) Both the learned assessing officer and Hon'ble CIT(Appeals)-I have further failed to appreciate that the claim of the DDI, Unit III(1), Chennai in having shown the appellant's statement recorded on 18-022003 got belied with the (a) admittance of DDI, Unit II(2) Chennai in his affidavit filed in M.P. No. 1205 of 2003 in Crime No.126 of 2003 before the Chief Metropolitan Magistrate Court, Chennai-8 wherein the appellant's statements are admitted to have been recorded on the same day 17-02-2003; and (b) factual date of 17-02-2003 only mentioned in the appraisal report, as appellant learnt, when the Income Tax Department on getting the information from the Police arrived to police office and recorded the appellant's statements on the same day. (8) Further the learned assessing officer went wrong in holding that the events which occurred were only between appellant and police department without appreciating that these events on 17-02-2003 were in fact between appellant, Police department and Income Tax Department also as Income Tax Officials arrived to the police office on information from Police and jointly recorded the appellant's statements which Hon'ble CIT(Appeals)-I also failed to look into. (9) The learned assessing officer has further gone wrong in holding that the police found Rs.50 lakhs in cash on the appellant's person around 6.00 p.m. of 18-02-2003 even though the appellant was caught with Rs.50,00,000/- and taken in police custody around 17.30 hours on 17-02-2003 which the fact prosecution has also admitted in the proceedings in Crime No.126 of 2003. The Hon'ble CIT(Appeals)-I also contradicted himself in para 2,6,22 and 24 his order of appeal and failed to decide the correct. (10) The Hon'ble CIT(Appeals)-I has failed to call and look into various details and other records which the assessing officer has relied upon in making the block assessment and which the records the appellant had requested the Hon'ble CIT(Appeals)-I to call from Assessing Officer and Income Tax authorities concerned vide his letter dated 24-5-2005 filed on 27-5-2005.

11. Ultimately, the prayer of the assessee is that the amount of Rs 50 lakhs confirmed by the CIT(Appeals) as undisclosed income may be deleted 12. As far as the Revenue is concerned, following are the grounds:(1) The ld. CIT(A) is not justified in deleting the addition of cash deposits in four bank accounts of Rs.5,61,50,000/- assessed as undisclosed income of the assessee. (2) The ld. CIT(A) has failed to appreciate the fact that the assessee has not been able to explain with credible evidence the sources for the deposits of Rs.5,61,50,000/- which should be treated as undisclosed income of the assessee for the block period. (3) The ld. CIT(A) has failed to appreciate that the assessee has claimed 77% of his total sales in cash (each being below Rs.20000/-) and still could not provide address of a single such purchaser. (4) The ld. CIT(A) has failed to appreciate that the assessee's explanation that he kept Rs.1.4 Crore in cash in Ramprasad Lodge, Coimbatore was found to be false and the assessee admitted subsequently that he could not explain anything' about this Rs.1.4 Crores. (5) The ld. CIT(A) ought to have held that the cash book of the assessee shows a closing balance of Rs.165.94 lakhs as on 29.1.03 and this huge amount of cash was not found anywhere during the course of search and the assessee was not able to explain the utilization or storage of this huge amount of cash. 13. We heard Shri Prassan Chand Ostwal, Chartered Accountant appearing for the assessee and Shri Sudhakar Tiwari, the Commissioner of Income Tax appearing for the Revenue. 14 We heard both sides in detail. The assessee has also filed a detailed paper-book before the Tribunal containing 178 pages in which copies of various papers are furnished. He has also filed one affidavit stating that he was arrested by the police on 17.2.2003 around 5.30 PM, whereas the Assessing Officer has stated that the amount of Rs.50 lakhs was found in the person of the assessee on 18.2.2003 which is untrue and false. The Chartered Accountant has also filed a detailed written submission before the Tribunal running to 12 pages, at the time of hearing. 15. The necessary facts relevant for these cases are reflected the assessment order as well as in the order of the CIT(Appeals) in a sufficiently detailed manner. Therefore, it is not necessary for us to repeat the events in a chronological order as it amounts to sheer repetition. We have gone through the paperbook filed by the assessee wherever it is necessary. The papers arranged in the paper-book have already been discussed by the lower authorities in their orders. The new affidavit filed before the Tribunal at the time of hearing is nothing but a repetition of the earlier statement of the assessee that the Assessing Authority has made an untrue statement regarding the actual date of arrest of the assessee. The argument filed by the Chartered Accountant is the summary of the various contentions advanced by him in the course of hearing of these appeals. 16. The impugned block assessments have been completed on the basis of two premises. The first one is that the amount of Rs.5,61,50,000/- being the total remittances of cash made by the assessee in

different bank accounts constituted the undisclosed income of the assessee. The second one is that the amount of Rs.50 lakhs seized from the assessee's person by the police also related to the undisclosed income in the hands of the assessee. 17. As far as cash remittances amounting to Rs.5,61,50,000/- is concerned, the Assessing Authority has not accepted the explanation of the assessee that those amounts represented the sale proceeds of Gutkha and Pan Masala obtained by the assessee in the State of Kerala as the consignment agent of M/s Dhariwal Industries Limited. The main reason pointed out by the Assessing Authority to reject the explanation of the assessee was that the assessee was carrying on the business at Palakkad in the State of Kerala, whereas the cash remittances were made in different bank accounts stood at different places at Coimbatore and Chennai. The explanation offered by the assessee that the sale proceeds were being brought by the assessee to Coimbatore and Chennai to deposit in the banks was not accepted by the Assessing Authority According to the Assessing Authority, the proposition made by the assessee is highly improbable. 18. But, the CIT(Appeals) made effective enquiries on the subject. He not only called for a remand report from the concerned Assessing Authority but also asked for a detailed reply from the Assessing Authority of M/s Dhariwal Industries Limited at Pune. In the detailed letter, addressed by the Asst. Commissioner of Income Tax, Circle I(1) at Pune, the contention of the assessee that he was operating as consignment agent of M/s Dhariwal Industries Limited was confirmed The most important aspect is that the entire cash remittances made by the assessee in different banks in Chennai and Coimbatore, were treated by the Assessing Authority as undisclosed income, have been reflected in the regular books of accounts maintained by M/s Dhariwal Industries Limited who had appointed the assessee as its consignment agent for Kerala State. In other words, whatever explanations were offered by the assessee in respect of the cash remittances were proved by the accounts maintained by M/s Dhariwal Industries Limited. All the cash remittances made by the assessee in different bank accounts have been reflected in the books of accounts of M/s Dhariwal Industries Limited which has been certified by the local income tax authorities. 19. It is in view of the above speaking material that the CIT(Appeals) has held that there is no material available on record to show that the sum of Rs.5,61,50,000/- amounted to undisclosed income in the hands of the assessee. 20. When we go through the orders of the Assessing Authority and the CIT(Appeals) and all other records available before us, we find that the only conclusion that is possible from the facts of the case is that the conclusion arrived at by the ld CIT(Appeals). He has examined the case in a very dispassionate manner and has fairly recorded his findings that the amount of Rs 5,61,50,000/- cannot be, treated as undisclosed income of the assessee. The case of the assessee on this point is proved by his statement made before the authorities, and different details of bank accounts and the books of accounts of M/s Dhariwal Industries Limited which were also confirmed by the local income tax authority at Pune. When all the materials available on record would support the contention of the assessee, it is not necessary for any Appellate authority to rely on the preponderance of probabilities relied on by the Assessing Authority. The case of the Assessing Authority is that, it was unbelievable that the assessee could carry

the cash from Palakkad to Coimbatore and Chennai to deposit in various bank accounts. Prima facie the contention of the assessee may look improbable, but the subsequent evidence brought on record has endorsed the contention of the assessee and has disproved the rule of improbability relied on by the Assessing Authority. When facts are visible on the basis of records and evidences, it is not necessary to take shelter under the shadow of probabilities. 21. Therefore, in the facts and circumstances, we find that the order of the CIT(Appeals) deleting the addition of Rs.5,61,50,000/- is just and proper in law. 22. When this is our finding, the appeal filed by the Revenue is liable to be dismissed. 23. Next, we will consider the case of addition of Rs.50 lakhs. The argument of the assessee is that the seizure of cash was made on one day and search was carried on by the Income Tax Department on another day and the statement was made by the assessee out of coercion and compulsion and the amount of Rs.50 lakhs was in fact part of sale proceeds of Gutkha and Pan Masala in Kerala. 24. But, we do not find much force in the contention of the assessee that the actual date of arrest and date recorded by the Department were different. The execution of warrant against the assessee should be construed from the point when the Department has taken up the case of the assessee and has acknowledged the recovery of cash by the Police Department Definitely the assessee might have taken into custody by the police earlier than the action swung in by the Department. It is on the information from the police, the Department has come into the scene. It is not necessary for them to execute the warrant immediately. They will make necessary and preliminary enquiries not only with the assessee but also with Police Department which are the necessary prelude before executing the warrant issued against the assessee. Therefore, the time lag between the physical arrest made by police and the execution of warrant by the Income Tax Department cannot be stretched too far as attempted by the assessee so as to say that the Department has recorded an entirely different date. On going through the chronology of events, we do not find any force in the argument of the assessee that the Department has falsified in recording the correct date of executing warrant. 25. Regarding coercion and compulsion which made the assessee to make certain adverse statements against him are also not convincing. Even though the assessee might have been frightened or dazed in the police custody, actual position could have been explained to income tax authorities later on. The assessee initially stated that the amount was handed over to him by Mr. Abdulla to hand over to Mr Mohamed Illyas. That statement was disproved when Mr Abdulla was examined by the Department authorities. The assessee did not ask for cross examination of Mr. Abdulla nor the assessee asked to call for Mr. Mohamed Illyas as witness. Therefore, his contention that the amount was handed over by Mr. Abdullah cannot be accepted for evidentiary value. 26. Once the above explanation was shattered, the assessee took a different stand to explain that the amount of Rs.50 lakhs represented the sale proceeds of Gutkha and Pan Masala. This explanation is also hit by the explanation offered by the assessee in respect of cash remittances made in different bank accounts. The assessee has already stated that the sale proceeds collected from Palakkad were deposited in various bank accounts in Tamil Nadu and those funds were transferred by those banks to

the credit of M/s Dhariwal Industries Limited either at Pune or Hyderabad. Once the assessee himself has explained that sale proceeds were invariably deposited in the bank accounts, there is no question of having an additional amount of Rs.50 lakhs with him as part of the cash sales of Gutkha and Pan Masala. The sale proceeds having been deposited in different bank accounts by cash, there is no scope for additional amount of Rs.50 lakhs in the hands of the assessee. Therefore, the said statement was also not convincing. 27. Moreover, the assessee had nothing in his hands to prove that the said amount of Rs 50 lakhs was part of the sale proceeds of Gutkha and Pan Masala in Kerala. This is relevant because the sales recorded in the books of Dhariwal Industries Limited at Pune support the cash remittances made in the bank accounts. The books M/s Dhariwal Industries Limited do not support the point of additional amount of Rs.50 lakhs On this ground also the contention of the assessee fails. 28. In the facts and circumstances of the case, it is the considered view that the CIT(Appeals) has rightly confirmed the addition of Rs.50 lakhs as undisclosed income of the assessee. 29. The appeal filed by the assessee also fails. 30. In result, the appeal filed by the assessee as well as Revenue are dismissed. 31 Order pronounced on 09th of May, 2008

2007-TIOL-229-HC-DEL-IT (Also see analysis of the Order ) IN THE HIGH COURT OF DELHI ITA No. 656 of 2006 COMMISSIONER OF INCOME TAX (CENTRAL), NEW DELHI VS M/s SARB CONSULATE MARINE PRODUCTS PVT LTD MADAN B. LOKUR AND V.B. GUPTA JJ., Dated: May 2, 2007 Appellant rep by : Mr. R.D. Jolly with Ms. Sonia Mathur, Advs. Respondent rep by : Mr. C.S. Aggarwal, Sr. Advocate with Mr. Prakash Kumar, Adv.

Search & seizure u/s 132 - Documents seized and a restraint order u/s 132(3) issued against fishing trawlers - After 22 months another search conducted but no seizure made - Return for block assessment filed and assessment order passed - Assessee calls for invocation of limitation u/s 158BE and alleges that the second search was only an eyewash to extend the period of limitation - A search should be continuous and if it is discontinued and then resumed, a valid explanation for the gap must be available however, it was only a make-believe story in this case to extend the time-limit which can be seen from the letter of the AD about the completion of the search issued after 22 months - Then the seizure of trawlers should have been u/s 132(1) and not 132(3) JUDGEMENT Per: MADAN B. LOKUR, J : The Revenue is aggrieved by an order dated 31st August, 2005 passed by the Income Tax Appellate Tribunal, Delhi Bench 'E', New Delhi (the Tribunal) in IT (SS) A No.102/Del/1998 relevant for the block period 1987-88 to 1997-98 (upto 6th November, 1996). 2. The assessee carries on fishing activities in the high seas and it appears that on the basis of some information available with the Revenue, a search operation in respect of the assessee was conducted under Section 132 of the Income Tax Act, 1961 (the Act) on 6th November, 1996. During the search operation, some documents were seized and some fishing vessels/trawlers belonging to the assessee were searched and a restraint order under Section 132(3) of the Act was passed in respect of those vessels and served upon the concerned persons. 3. The restraint order under Section 132(3) of the Act was extended on 30th March, 1997 upto 30th September, 1997 when no further orders were passed. 4. On 16th December, 1997 a notice was issued to the assessee under Section 156BC of the Act to file a return for the block period 1.4.1986 to 6.11.1996. The return was filed by the assessee on 15th September, 1998 and an assessment order was made on 30th September, 1998. 5. In the meanwhile, a further search was conducted on the fishing vessels/trawlers on 14th September, 1998. There was no seizure but a panchnama was drawn up. 6. The Assistant Commissioner of Income Tax, in his assessment order dated 30th September, 1998 levied tax on the assessee against which an appeal was filed before the Tribunal. In the appellate forum, the assessee raised an additional ground, which was permitted by the Tribunal, to the effect that the assessment order passed on 30th September, 1998 is without jurisdiction being barred by limitation as provided under Section 158BE of the Act. This contention was accepted by the Tribunal and it was held that the assessment order was invalid with the result that the appeal filed by the assessee was allowed. 7. Being aggrieved, the Revenue has filed this appeal under Section 260A of the Act seeking the framing of some substantial questions of law. In our opinion, no substantial question of law arises for consideration since the issues raised are no longer res integra.

8. The principal question that arises for consideration is whether the last panchnama was drawn on 6th November, 1996 when certain documents were seized by the Revenue and a restraint order was passed in respect of the fishing vessels/trawlers under Section 132(3) of the Act or whether the search and seizure operations concluded when a panchnama was drawn up on 14th September, 1998. According to the assessee, all proceedings concluded on 6th November, 1996 and the proceedings on 14th September, 1998 were an eyewash intended only to extend the period of limitation. The Revenue, of course, justifies the drawing up of the panchnama on 14th September, 1998 and canvassed that the period of limitation be calculated from that date. 9. We find that on 6th November, 1996 some documents of the assessee were seized and a panchnama drawn up on the same day after an inventory was made. On the same day, three trawlers belonging to the assessee were subject to a restraint order under Section 132(3) of the Act. Thereafter, absolutely no search or seizure took place in respect of the assessee for more than one year and ten months. Eventually, on 14th September, 1998 the search was completed and we have on record a letter dated 15th September, 1998 issued by the Assistant Director of Income Tax (Investigation), Belgaum to the Assistant Director of Income Tax (Investigation), New Delhi in respect of the completion of search. The opening sentences of this letter read as follows:The search in the above group case was completed by me on 14-09-1998 as required by you. The completion of search was mere formality as there were no PO in existence. 10. It is quite clear, on a reading of this letter, that what the Revenue has done is to carry out some kind of a dummy search on 14th September, 1998 even though there was no restraint order in respect of the fishing trawlers and the dummy search was conducted by way of a formality so as to extend the period of limitation for drawing up an assessment order. Is this permissible. 11. In Dr. C. Balakrishnan Nair v. Commissioner of Income-tax, [1999] 237 ITR 70, the Kerala High Court observed that the search in that case was discontinued on 27th October, 1995 and resumed only on 10th November, 1995. There was no cogent reason for the gap of fourteen days and neither the Code of Criminal Procedure, 1973 nor the Act nor the Income Tax Rules permitted the postponement of a search for such a long period. Keeping the affected parties in a state of suspended animation about the probable continuation of search would be agonising. It was held that there must be some convincing reason for not resuming the search immediately and absent such convincing reasons, it was held that the second search was not legal or valid. 12. Similarly, in Commissioner of Income-tax v. Mrs. Sandhya P. Naik, [2002] 253 ITR 534, it was held by the Bombay High Court that simply stating in the panchnama that the search is temporarily suspended does not entitle the authorised officer to keep the search proceedings alive by passing a restraint order under Section 132(3) of the Act. In arriving at this conclusion, the Bombay High Court placed reliance upon Sriram Jaiswal v. Union of India, [1989] 176 ITR 261 decided by the Allahabad High Court.

13. A general consensus appears to have emerged among the High Courts to the effect that a search under Section 132 of the Act should be continuous and if it is discontinued and thereafter resumed, then there must be a valid explanation for the gap. In so far as the present is concerned, the facts on record show that prima facie there was absolutely no justification for keeping the search pending for more than one year and ten months without any semblance of any activity by the Revenue. 14. By way of justification for the hiatus, we were told by learned counsel for the Revenue that there was a transfer of jurisdiction in respect of some officers and enquiries were required to be made in respect of the assets of the assessee and that is what resulted in the break. These reasons are worth nothing for prolonging the search and seizure operation for such a long period of time. The absence of any cogent or valid explanation given by the Revenue for postponing the search from 6th November, 1996 to 14th September, 1998 makes the proceedings of the latter date completely unwarranted. 15. To this must be added the fact that the letter dated 15th September, 1998 sent by the Assistant Director of Income Tax (Investigation), Belgaum to the Assistant Director of Income Tax (Investigation), New Delhi clinches the issue. It has been categorically stated in the letter that the search conducted was a mere formality since there was no prohibitory order in existence. The unarticulated suggestion in this letter is that the Revenue carried out the search on 14th September, 1998 merely to extend the period of limitation and not because it was necessary to conduct a search for making any recovery or seizure. We agree with the conclusion of the Tribunal that this letter clearly suggests that the search and seizure operation had come to an end on 6th November, 1996 and that on 14th September, 1998 there was no restraint order in respect of the fishing trawlers of the assessee and, therefore, the search and panchnama drawn on 14th September, 1998 were not in accordance with law. 16. This being the position, it cannot be said that the last panchnama drawn up in respect of the search and seizure operation pertaining to the assessee, in terms of Explanation 2 to Section 158BE of the Act, was drawn up on 14th September, 1998 it was actually drawn on 6th November, 1996 and the period of limitation must, therefore, run from that date onwards. 17. Learned counsel for the assessee contended that the restraint order in respect of the fishing trawlers could not have been passed under Section 132(3) of the Act but was required to be passed under Section 132(1) of the Act. 18. The second proviso to Section 132(1) of the Act clearly lays down that where it is not possible or practicable to take possession of any valuable article or thing and remove it to a place due to its volume, weight or other physical characteristics or due to its being of a dangerous nature, then the authorised officer may serve on the owner or the person who is in possession of that article or thing an order restraining him from removing or parting or otherwise dealing with the said article or thing except with the previous permission of the authorised officer and such action shall be deemed to be a seizure of such valuable article or thing. On the other hand, Section 132(3) of the Act comes into operation when it is not possible to seize any valuable article or thing for reasons other than those mentioned in the second proviso to sub-section (1) and by an Explanation added to Section 132(3) of the Act, it is made

clear that the serving of an order under Section 132(3) of the Act shall not be deemed to be a seizure of such valuable article or thing. 19. It is obvious that the fishing trawlers could not be seized by reason of their volume or weight. Appropriately, therefore, an order could be passed by the authorised officer only of deemed seizure under Section 132(1) of the Act. Passing an order under Section 132(3) of the Act was not at all warranted given the nature of the articles, that is, fishing trawlers. 20. In B.K. Nowlakha v. Union of India, [1991] 192 ITR 436, this Court held that if a seizure is effected then an order is required to be made under Section 132(5) of the Act but if there is no seizure and only an order of restraint is passed under Section 132(3) of the Act, then other consequences follow including the possibility of an extension of a restraint order under Section 132(8A) of the Act as it stood at the relevant time. It was held that given the field of operation of the second proviso to Section 132(1) of the Act, and the far reaching adverse effect that a restraint order under Section 132(3) of the Act may have on the business of an assessee, 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. The Bombay High Court reached the same conclusion in Mrs. Sandhya P. Naik and added that this had become more clear after the insertion of the Explanation to Section 132(3) of the Act to the effect that a restraint order passed thereunder does not amount to a seizure. 21. Under the circumstances, we are clearly of the view that the action for seizing the fishing trawlers ought to have been taken by the Revenue under Section 132(1) of the Act and not under Section 132(3) of the act. By merely resorting to a restraint order under Section 132(3) of the Act, and that too only upto 30th September, 1997, the Revenue could not have extended the time limit for passing an assessment order. 22. Learned counsel for the assessee submitted, that even otherwise, 14th September, 1998 cannot be the date of the last panchnama because in fact no seizure was effected on that date. We do not think it necessary to go into this question on the facts of the present case. We also do not think it necessary to discuss the provisions of Rule 112(7) of the Income Tax Rules relied upon by learned counsel. The reason for our not discussing this is because we have come to the conclusion that the search and seizure operation actually concluded on 6th November, 1996 and the events that took place on 14th September, 1998 were a make-believe intended to extend the time limit, which was not permissible. 23. The issues raised being clearly settled, and since we find no fault in the order passed by the Tribunal, in our opinion, no substantial question of law arises for consideration. 24. The appeal is dismissed.

2002-TIOL-221-SC-IT IN THE SUPREME COURT OF INDIA W P Nos 446 of 1971 & 86 of 1972 POORAN MAL Vs DIRECTOR OF INSPECTION (INVESTIGATION), INCOME,TAX, NEW DELHI, AND OTHERS (AND OTHER CASES). D. G. PALEKAR., A. N. ROY., Y. V. CHANDRACHUD., A. ALAGIRISWAMI AND P. N. BHAGWATI, JJ Dated : December 14, 1973 Seizure of voluminous documents and books of accounts cannot be termed as illegal search as it may at most be termed irregular in certain circulstances; Going by the intelligence even if assessments were finalised the authorities had ground to believe that unaccounted money has been generated and that is how a search was a must JUDGEMENT Per : Palekar J : In these proceedings---two of them writ petitions under article 32 of the Constitution and two others which are appeals from orders passed by the Delhi High Court under article 226---relief is claimed in respect of action taken under section 132 of the Income-tax Act, 1961 (hereinafter called the Act), by way of search and seizure of certain premises on the ground that the authorisation for the search as also the search and seizure were illegal. The challenge was based on constitutional and non-constitutional grounds. For the appreciation of the constitutional grounds it is not necessary to give here the detailed facts of the four cases. It is sufficient to state that in all these cases articles consisting of account books and documents and in the writ petitions, also cash, jewellery and other valuables, were seized by the income-tax authorities purporting to act under the authorisation for search and seizure issued under section 132 of the Act. Broadly speaking, the constitutional challenge is directed against sub-sections (1) and (5) of section 132 of the Act and incidentally also against rule 112A on the ground that these provisions are violative of the fundamental rights guaranteed by articles 14, 19(1)(f), (g), and 31 of the Constitution. The non-constitutional grounds of challenge are based upon allegations to the effect that the search and seizure were not in accordance with section 132 read with rule 112. This challenge will have to be considered in the background of the facts of the individual cases. Chapter XIII of the Act deals with income-tax authorities, their powers and jurisdictions. The hierarchy of authorities as given in section 116 shows that the class of authorities designated as Director of Inspection is shown below the Central Board of Direct Taxes and above the class of authorities known as Commissioner of Income-tax. The other authorities mentioned are Assistant Commissioners of Income-

tax, Income-tax Officers and Inspectors of Income-tax. Section 117 shows by whom these various authorities are to be appointed. Section 118 deals with subordination and control. Section 119 deals with the powers of the higher authorities to give instructions and directions to subordinate authorities. Under section 120, Directors of Inspection have to perform such functions of any other income-tax authority as may be assigned to them by the Board. The Board, it is clear, might assign to the Director of Inspection the functions of any other authority under the Act. We may then turn to part " C " of this Chapter which deals with the powers. Section 131 says that the authorities from the Commissioner down to the Income-tax Officer shall have the same powers as are vested in a court under the Code of Civil Procedure in respect of several matters including the enforcing of attendance of any person or compelling the production of books of account and other documents. Section 132 provides for search and seizure. It appears that under section 37(2) of the Income-tax Act, 1922, a limited power of search and seizure had been first given to the income-tax authorities in 1956. The present Income-tax Act initially gave that power under section 132 on the same lines as the old section 37(2). But there were further amendments in section 132 in 1964 and 1965. Under the amendment of 1965, two sections, namely, sections 132 and 132A, were substituted for the original section 132. We are concerned with these sections and it will be, therefore, necessary in the first instance to reproduce the same: " 132. (1) Where the Director of Inspection or the Commissioner, 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 (XI 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 (XI 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 disclosed for the purposes of the Indian Income-tax Act, 1922 (XI of 1922), or this Act (hereinafter in this section referred to as the undisclosed income or property), he may authorise any Deputy Director of Inspection, Inspecting Assistant Commissioner, Assistant Director of Inspection or Income-tax Officer (hereinafter referred to as the authorised officer) to--(i) enter and search any building or place 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 ; (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 ; (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. (2) The authorised officer may requisition the services of any police officer or of any officer of the Central Government, or of both, to assist him for all or any of the purposes specified in subsection (1) and it shall be the duty of every such officer to comply with such requisition. (3) The authorised officer may, where it is not practicable to seize any such books of account, other document, money, bullion, jewellery or other valuable article or thing, 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 officer and such officer may take such steps as may be necessary for ensuring compliance with this sub-section. (4) The authorised officer may, during the course of the search or seizure, examine on oath any person who is found to be in possession or control of any books of account, documents, money, bullion, jewellery or other valuable article or thing and any statement made, by such person during such examination may thereafter be used in evidence in any proceeding under the Indian Income-tax Act (XI of 1922), or under this Act. (5) Where any money, bullion, jewellery or other valuable article or thing (hereinafter in this section and section 132A referred to as the assets) is seized under subsection (1), the Income-tax Officer, after affording a reasonable opportunity to the person concerned for being heard and making such enquiry as may be prescribed, shall, within ninety days of the seizure, make an order, with the previous approval of the Commissioner,--(i) estimating the undisclosed income (including the income from the undisclosed property) in a summary manner to the best of his judgment on the basis of such materials as are available with him ; (ii) calculating the amount of tax on the income so estimated in accordance with the provisions of the Indian Income-tax Act, 1922 (XI of l922), or this Act ; (iii) specifying the amount that will be required to satisfy any existing liability under this Act and any one or more of the Acts specified in clause (a) of sub-section (1) of section 230A in respect of which such person is in default or is deemed to be in default, and retain in his custody such assets or part thereof as are in his opinion sufficient to satisfy the aggregate of the amounts referred to in clauses (ii) and (iii) and forthwith release the remaining portion, if any, of the assets to the person from whose custody they were seized :

Provided that if, after taking into account the materials available with him, the Income-tax Officer is of the view that it is not possible to ascertain to which particular previous year or years such income or any par thereof relates, he may calculate the tax on such income or part, as the case may be, as if such income or part were the total income chargeable to tax at the rates in force in the financial year in which the assets were seized: Provided further that where a person has paid or made satisfactory arrangements for payment of all the amounts referred to in clauses (ii) and (iii) or any part thereof, the Income-tax Officer may, with the previous approval of the Commissioner, release the assets or such part thereof as he may deem fit in the circumstances of the case. (6) The assets retained under sub-section (5) may be dealt with in accordance with the provisions of section 132A. (7) If the Income-tax Officer is satisfied that the seized assets or any part thereof were held by such person for or on behalf of any other person, the Income-tax Officer may proceed under sub-section (5) against such other person and all the provisions of this section shall apply accordingly. (8) The books of account or other documents seized under sub-section (1) shall not be retained by the authorised officer for a period exceeding one hundred and eighty days from the date of the seizure unless the reasons for retaining the same are recorded by him in writing and the approval of the Commissioner for such retention is obtained : Provided that the Commissioner shall not authorise the retention of the books of account and other documents for a period exceeding thirty days after all the proceedings under the Indian Income-tax Act, 1922 (XI of 1922), or this Act in respect of the years for which the books of account or other documents are relevant are completed. (9) The person from whose custody any books of account or other documents are seized under subsection (1) may make copies thereof, or take extracts therefrom, in the presence of the authorised officer or any other person empowered by him in this behalf, at such place and time as the authorised officer may appoint in this behalf. (10) If a person legally entitled to the books of account or other documents seized under sub-section (1) objects for any reason to the approval given by the Commissioner under sub-section (8), he may make an application to the Board stating therein the reasons for such objections and requesting for the return of the books of account or other documents. (11) If any person objects for any reason to an order made under sub-section (5), he may, within thirty days of the date of such order, make an application to such authority, as may be notified in this behalf by the Central Government in the Official Gazette (hereinafter in this section referred to as the notified authority), stating therein the reasons for such objection and requesting for appropriate relief in the matter.

(12) On receipt of the application under sub-section (10) the Board, or on receipt of the application under sub-section (11) the notified authority, may, after giving the applicant an opportunity of being heard, pass such orders as it thinks fit. (13) The provisions of the Code of Criminal Procedure, 1898 (V of 1898), relating to searches and seizure shall apply, so far as may be, to searches and seizure under sub-section (1). (14) The Board may make rules in relation to any search and seizure under this section; in particular, and without prejudice to the generality of the foregoing power, such rules may provide for the procedure to be followed by the authorised officer--(i) for obtaining ingress into such building or place to be searched where free ingress thereto is not available ; (ii) for ensuring safe custody of any books of account or other documents or assets seized. Explanation 1.---In computing the period of ninety days for the purposes of sub-section (5), any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded. Explanation 2.---In this section, the word ' proceeding' means any proceeding in respect of any year, whether under the Indian Income-tax Act, 1922 (XI of 1922), or this Act, which may be pending on the date on which a search is authorised under this section or which may have been completed on or before such date and includes also all proceedings under this Act which may be commenced after such date in respect of any year. 132A. (1) The assets retained under sub-section (5) of section 132 may be dealt with in the following manner, namely :--(i) The amount of the existing liability referred to in clause (iii) of the said sub-section and the amount of the liability determined on completion of the regular assessment or reassessment for all the assessment years relevant to the previous years to which the income referred to in clause (i) of that sub-section relates, and in respect of which he is in default or is deemed to be in default may be recovered out of such assets. (ii) If the assets consist solely of money, or partly of money and partly of other assets, the Income-tax Officer may apply such money in the discharge of the liabilities referred to in clause (i) and the assessee shall be discharged of such liability to the extent of the money so applied. (iii) The assets other than money may also be applied for the discharge of any such liability referred to in clause (i) as remains undischarged and for this purpose such assets shall be deemed to be under distraint as if such distraint was effected by the Income-tax Officer under authorisation from the Commissioner under sub-section (5) of section 226 and the Income-tax Officer may recover the amount of such liabilities by the sale of such assets and such sale shall be effected in the manner laid down in the Third Schedule.

(2) Nothing contained in sub-section (1) shall preclude the recovery of the amount of liabilities aforesaid by any other mode laid down in this Act. (3) Any assets or proceeds thereof which remain after the liabilities referred to in clause (i) of subsection (1) are discharged shall be forthwith made over or paid to the persons from whose custody the assets were seized. (4) (a) The Central Government shall pay simple interest at the rate of nine per cent. per annum on the amount by which the aggregate of money retained under section 132 and of the proceeds, if any, of the assets sold towards the discharge of the existing liability referred to in clause (iii) of sub-section (5) of that section exceeds the aggregate of the amounts required to meet the liabilities referred to in clause (i) of sub-section (1) of this section. (b) Such interest shall run from the date immediately following the expiry of the period of six months from the date of the order under subsection (5) of section 132 to the date of the regular assessment or reassessment referred to in clause (i) of sub-section (1) or, as the case may be, to the date of last of such assessments or reassessments. Rule 112A which is also challenged as it prescribes the procedure for the enquiry under section 132(5) is as follows : " 112A. Inquiry under section 132.---(1) Where any money, bullion, jewellery or other valuable article or thing (hereinafter referred to as assets) are seized, the Income-tax Officer shall within fifteen days of the seizure issue to the person in respect of whom enquiry under sub-section (5) of section 132 is to be made requiring him on the date to be specified therein (not being earlier than fifteen days from the date of service of such notice) either to attend at the office of the Income-tax Officer to explain or to produce or cause to be there produced evidence on which such person may rely for explaining the nature of the possession and the source of the acquisition of the assets. (2) The Income-tax Officer may issue a notice to the person referred to in sub-rule (1) requiring him on a date specified therein to produce or cause to be produced at such time and at such place as the Incometax Officer may specify such accounts or documents or evidence as the Income-tax Officer may require and may from time to time issue further notices requiring production of such further accounts or documents or other evidence as he may require. (3) The Income-tax Officer may examine on oath any other person or make such other inquiry as he may deem fit. (4) Before any material gathered in the course of the examination or inquiry under sub-rule (3) is used by the Income-tax Officer against the person referred to in sub-rule (1) the Income-tax Officer shall give a reasonable notice to that person to show cause why such material should not be used against him." It will be seen in the first place that the power to direct a search and seizure is given to the Director of Inspection or the Commissioner. Secondly, authorisation for such search and seizure must be in favour of officers not below the grade of an Income-tax Officer. Thirdly, the power to authorise search and

seizure can be exercised only when the Director of Inspection or the Commissioner has reason to believe : (1) that in spite of the requisitions under the relevant provisions mentioned in section 132(1)(a) the required books and documents have not been produced ; (2) that any person, whether requisition under the above provisions is made or not, 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 Income-tax Act ; or (3) that any person is in possession of any money, bullion, jewellery or any other valuable article or thing representing either wholly or partly undisclosed income or property. When the authorisation is given by the Director of Inspection or the Commissioner, as the case may be, it must be limited to the five purposes mentioned in sub-clauses (i) to (v) of sub-section (1). Sub-section (14) provides for the making of rules in relation to any search or seizure. Accordingly, rule 112 has been framed which says that the powers if search and seizure under section 132 shall be exercised in accordance with sub-rules (2) to (14) under rule 112. These are detailed rules setting out the procedure for making the search and seizure and for the custody of what has been seized. Sub-section (5) of section 132 deals with the special cases where, on search, money, bullion, jewellery and other valuables believed to be undisclosed income or property are seized. What is seized cannot be kept by the departmental authorities with them indefinitely. Sub-section (5) requires that a summary enquiry must be made by the Income-tax Officer with a view to ascertain how much of the seized valuables should be retained against unpaid tax dues. The balance must be forthwith released. The second proviso to sub-section (5) further shows that the money and valuables may not also be retained by the Income-tax Officer if the person concerned has paid or made satisfactory arrangements for payment of all the income-tax dues which are summarily estimated under sub-section (5). The summary enquiry under sub-section (5) must be finished within 90 days of the seizure and the order which is made thereunder is subject to the previous approval of the Commissioner. Under sub-section (6) of section 132 the assets retained under sub-section (5) are to be dealt with in accordance with the provisions of section 132-A which clearly goes to show that the Income-tax Officer shall proceed with the regular assessment or reassessment of the tax payable by the person concerned and after such assessment the amount of tax so held payable is to be recouped from the assets retained under subsection (5) of section 132. The balance, if any, is to be returned with interest at the rate of 9% if the assessment and reassessment is not completed within six months of the date of the retention order made under sub-section (5) of section 132. Even in regard to the books of account and other documents which are seized the authorised officer is not entitled to retain the same for a period exceeding 180 days unless he records his reasons in writing for retaining the same and the Commissioner approves of the retention. The person from whose custody the books of account and other documents are seized is, however, entitled to receive copies or take extracts therefrom. Any person aggrieved by the retention of the documents is entitled to make a representation to the Board which is also the authority to which a representation could be made under sub-section (11) by any person objecting to the order passed under sub-section (5) retaining the assets. Broadly, it will be seen that section 132 and rules 112 and 112A deal with search and seizure and the disposal of articles seized after search. The challenge under articles 19 and 14 is directed against sub-sections (1) and (5) of section 132 and rule 112A.

Dealing first with the challenge under article 19(1)(f) and (g) of the Constitution it is to be noted that the impugned provisions are evidently directed against persons who are believed on good grounds to have illegally evaded the payment of tax on their income and property. Therefore, drastic measures to get at such income and property with a view to recover the Government dues would stand justified in themselves. When one has to consider the reasonableness of the restrictions or curbs placed on the freedoms mentioned in article 19(1)(f) and (g), one cannot possibly ignore how such evasions eat into the vitals of the economic life of the community. It is a well-known fact of our economic life that huge sums of unaccounted money are in circulation endangering its very fabric. In a country which has adopted high rates of taxation a major portion of the unaccounted money should normally fill the Government coffers. Instead of doing so it distorts the economy. Therefore, in the interest of the community, it is only right that the fiscal authorities should have sufficient powers to prevent tax evasion. Search and seizure are not a new weapon in the armoury of those whose duty it is to maintain social security in its broadest sense. The process is widely recognized in all civilized countries. Our own criminal law accepted its necessity and usefulness in sections 96 to 103 and section 165 of the Criminal Procedure Code. In M. P. Sharma v. Satish Chandra the challenge to the power of issuing a search warrant under section 96(1) as violative of article 19(1)(f) was repelled on the ground that a power of search and seizure is in any system of jurisprudence an overriding power of the State for the protection of social security and that power is necessarily regulated by law. As pointed out in that case a search by itself is not a restriction on the right to hold and enjoy property though a seizure is a restriction on the right of possession and enjoyment of the property seized. That, however, is only temporary and for the limited purpose of investigation. Then the court proceeds to say : " A search and seizure is, therefore, only a temporary interference with the right to hold the premises searched and the articles seized. Statutory regulation in this behalf is necessary and reasonable restriction cannot per se be considered to be unconstitutional. The damage, if any, caused by such temporary interference if found to be in excess of legal authority is a matter for redress in other proceedings. We are unable to see how any question of violation of article 19(1)(f) is involved in this case in respect of the warrants in question which purport to be under the first alternative of section 96(1) of the Criminal Procedure Code." Similar powers entrusted to those whose duty it was to enforce taxation laws were upheld by this court in Commissioner of Commercial Taxes v. Ramkishan Shrikishan Jhaver. In that case section 41 of the Madras General Sales Tax Act of 1969 was under challenge. It was held by this court that an officer empowered by the Government under sub-section (1) of section 41 was entitled to effect a search and seize goods and articles as provided in that section. Dealing with the question of search and seizure in a taxing statute the court observed at page 158 : " Now it has not been and cannot be disputed that the entries in the various Lists of the Seventh Schedule must be given the widest possible interpretation. It is also not in doubt that while making a law under any entry in the Schedule it is competent to the legislature to make all such incidental and a provisions as may be necessary to effectuate the law ; particularly it cannot be disputed that in the case of a taxing statute it is open to the legislature to enact provisions which would check evasion of tax. It is under this power to check evasion that provision for search and seizure is made in many taxing statutes. It must therefore be held that the legislature has

power to provide for search and seizure in connection with taxation laws in order that evasion may be checked." It is now too late in the day to challenge the measure of search and seizure when it is entrusted to income-tax authorities with a view to prevent large scale tax evasion. 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 : " We are, therefore, of 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." 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 (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). A minor point was urged in support of the above contention that section 132 contains provisions which are likely to affect even innocent persons. For example, it was submitted, an innocent person who is merely in custody of cash, bullion or other valuables, etc., not knowing that it was concealed income is likely to be harassed by a raid for the purposes of search and seizure. That cannot be helped. Since the object of the search is to get at concealed incomes, any person, who is in custody without enquiring about its true nature, exposes himself to search. Sub-section (4) of section 132 shows the way how such an innocent person can make the impact of the search on him bearable. All that he has to do is to tell the true facts to the searching officer explaining on whose behalf he held the custody of the valuables. It will be then for the Income-tax Officer to ascertain the person concerned under sub-section (5). It was next argued that the power for directing a search is given to an authority like the Director of Inspection who, it is submitted, is, in the very nature of things, incapable of forming any reasonable belief with regard to the requirements of section 132(1)(a), (b) and (c). The contention was that the assessee has no contact in the matter of assessment with the director and, therefore, he can hardly entertain any belief, reasonable or otherwise. It is conceded that the Income-tax Officer or his superiors in the direct line, like the Inspecting Assistant Commmissioner or the Commissioner, may be in a position to entertain the requisite belief on account of their having direct and first hand knowledge of the financial circumstances of the assessee, the defaults he has committed or is likely to commit, etc. But the Director of Inspection has no opportunity and is, therefore, thoroughly unable to form any opinion. This would only mean that any belief entertained by him would be an arbitrary belief and legislation investing such an officer with the power to direct a search is per se unreasonable. In our opinion, there is no substance in this argument. The Director of Inspection, as already seen in section 116 of the Income-tax Act, is an officer in the income-tax department next only in authority to the Board of Direct Taxes. Section 118 shows that all Inspecting Assistant Commissioners and Income-tax Officers, besides being subordinate to the Commissioners, are also subordinate to the Director of Inspection. Under section 119(2) every Income-tax Officer employed in the execution of the Act is required to observe and follow such instructions as may be issued to him for his guidance by the concerned Director of Inspection. Moreover, under section 120, the Director of Inspection is required to perform such functions of any other income-tax authority, apparently, including the Income-tax Officers and his direct superiors, as may be assigned to him by the Board. Under section 135 the Director of Inspection is competent to make any enquiry under the Act and for that purpose he is invested with all the powers that an Income-tax Officer has under the Act in relation to the making of enquiries. It would, therefore,

follow that in the course of his duties the Director of Inspection has ample opportunities to follow the course of investigation and assessment carried on by the Income-tax Officers and to check the information received from his sources with the actual material produced or not produced before the assessing authorities. It is not, therefore, correct to argue that the Director of Inspection could hardly be expected to entertain, honestly, any reasonable belief for the purposes of section 132(1) (a), (b) and (c). A subsidiary point relating to the entertainment of reasonable belief under section 132 was also raised by Mr. Karkhanis. He submitted that it was possible to say that the Director of Inspection or the Commissioner, as the case may be, could, in conceivable cases, entertain reason to believe the existence of conditions referred to in sub-clauses (a) and (c) of subsection (1). For example, where the necessary requisition is made under sub-clause (a) the authority concerned may from the record ascertain whether the person to whom the requisition is issued has omitted or failed to produce or cause to be produced the required documents. Similarly, under sub-clause (c), if the authority has received any secret information which, in its opinion, was reliable, it may be possible for it to have reason to believe that any person is in possession of any money, bullion, jewellery, etc., which is undisclosed income or property and such property is secreted in some place. But Mr. Karkhanis submitted that so far as subclause (b) is concerned, it will be impossible for one to say that the authority can reasonably entertain the belief that if a requisition is made the person concerned will not or would not produce or cause to be produced the required documents. In his submission, the authority can entertain that belief only when a requisition is made and within reasonable time given the document is not produced. That is provided for in sub-clause (a). But to say that the authority can also have reason to believe that if a requisition is made the person concerned will not in future produce the document is, according to Mr. Karkhanis, a conclusion which is impossible to draw on any conceivable facts. We must say that if Mr. Karkhanis really thinks that there is substance in this argument, then he must be blissfully unaware of the manner in which income-tax is evaded. It is impossible to enumerate all the circumstances in which the necessary reasonable belief may be entertained under sub-clause (b). As an illustration, however, we may point out a case which falls completely under subclause (b). An assessee may be filing his returns from year to year regularly and his assessments may be also completed in due course over years. His books of account and documents have been duly checked from year to year and the assessing officer is also completely satisfied that the returns are correct. But it might so happen that this apparently honest assessee has invested large funds in properties and other financial deals, reliable information about which finds its way to the Director of Inspection. In such a case no oracle is needed to tell the Director of Inspection that if a requisition is made on the assessee to produce his documents in connection with these financial deals and investments, the assessee will most certainly omit to produce or cause to be produced such documents. On the other hand, there is danger that all these documents may be destroyed because the very fact that a requisition is made with a view to investigate concealed deals would put the assessee on his guard and the relevant documents may either disappear or be destroyed. Indeed, it is possible that an assessee may, after knowing that the game is up, produce the requisite documents. But, in the nature of things, such an assessee would be rare. The question for us to consider is whether the authority under section 132(1) may entertain the reasonable belief that in such circumstances the assessee will not or would not produce the documents. In our opinion, though in a very rare case a tax evader may comply with a requisition, the Director of Inspection who has reliable

information that the assessee has consistently concealed his income derived from certain financial deals may be justified in entertaining the reasonable belief that the assessee, if called upon to produce the necessary documents, will not produce the same. There is no substance, therefore, in the contention that sub-clause (b) has over-reached itself. The argument that section 132(5) is confiscatory in its effect has also no force. It must be remembered that the object of this provision is to expedite the return of the seized assets after retaining what is due by way of tax to Government and has been illegally withheld by the person concerned. The seizure of the assets has been made in the belief, honestly held, that the assets represent undisclosed income or property. But the Income-tax Officer cannot merely rest on this belief. He must make a summary enquiry after notice to the person concerned and the latter has an opportunity to show that he had duly disclosed this income. If he cannot do this the officer is entitled to proceed on the basis that it is undisclosed income and on the relevant material make a broad estimate of the tax withheld. The amount of such tax which truly belongs to Government is retained by the Income-tax Officer and the balance forthwith released. We do not see how this can be described as confiscation. In fact, the second proviso to sub-section (5) shows that the assessee can get a release of all the assets seized if he can make satisfactory arrangements for the payment of the estimated dues. Moreover, it must be noted that the enquiry under on sub-section (5) is no substitute for regular assessment or reassessment. The Income-tax Officer, having jurisdiction, will proceed with the assessment in due course and determine the correct amount of tax payable. In the meantime the assets retained are only by way of sequestration to meet the tax dues found to be eventually payable. If by reason of the enquiry under section 132(5), which is admittedly a summary enquiry, an amount in excess of the dues is retained, the same is liable to be returned with interest at 9 per cent. under section 132A. We are not, therefore, inclined to hold that the restrictions placed by any of the provisions of section 132, 132A or rule 112A are unreasonable restrictions on the freedoms under article 19(1)(f) and (g). It was next argued that section 132(1) and (5) are violative of the fundamental right under article 14 on the ground : (1) that they make unjust discrimination between evaders of tax, distinguishing those who are believed to be in possession of undisclosed income or property from those evaders of tax who are not believed to be in possession, and (2) that although all evaders are liable to be proceeded against under section 147 of the Act, yet only some of them who are found in possession of undisclosed income or property are liable to be subjected to the procedure under section 132(5). We find no substance in this argument. All evaders of tax can be proceeded against under section 132. Only in some cases the search may be useful ; in others it may not be. If the Director of Inspection gets timely information about the undisclosed income and its location, he can direct a search and seizure. Otherwise, it is futile to direct a search and seizure because the whole manoeuvre will be fruitless. The provision for seizure is designed with the object of getting at the income which has been concealed illegally by the assessee. Only when he is honestly satisfied that some undisclosed income of a person is likely to come to his hands if a search is directed, he will be in a position to issue the necessary authorisation. He cannot, however, direct a search in respect of an evader of tax who is astute enough to spend all his income or otherwise make it impossible to be traced. For the purposes of section 147 of the Act all evaders of tax

are subject to the same procedure for assessment of tax including those against whom action is taken under section 132. Assessees whose assets could be seized for the recovery of their tax liabilities do not stand in a different class as such, but stand in a different situation from those others against whom the search and seizure process, though available, is futile. The finding of undisclosed income in the form of cash, jewellery and the like makes the provision of sub-section (5) imperative. The taxing authorities cannot keep the valuables with them indefinitely without trying to see how much of what is now seized will go to the Government by way of tax. Therefore, in fairness to the assessee, sub-section (5) has been deliberately introduced. In the nature of things such an enquiry is impossible in the case of tax evaders from whom nothing is or could be seized on a search. Sub-section (5) of section 132 does not contemplate a different procedure in the matter of regular assessment. See section 132A which shows that those who are found in possession of undisclosed income on a seizure are liable to be regularly assessed or reassessed. Sub-section (5) only contemplates a provisional summary enquiry with a view to determine how much of the seized wealth can be legitimately and reasonably retained to cover the tax liability already incurred. Regular assessment follows under the law in the same manner as in the case of tax evaders who are not found in possession of concealed income. The utmost that can be said is that by reason of the seizure the Government is in a position to secure its tax dues before the regular assessment is concluded. But that does not introduce any different procedure for the regular assessment of such an assessee's income which remains the same for all tax evaders. In one set of cases the fiscal authorities make sure of recoveries, in the other, they are unable to do so---not because the provisions of section 132 do not operate on them, but because action under that section by search and seizure is futile. Therefore, there is no substance in the contention that two different procedures for assessment are adopted and, hence, there is a discrimination under article 14. The plea on behalf of the assessees, in effect, only amounts to this : " It is true that we are tax evaders. But if other evaders successfully dodge the collection of the tax by causing their concealed income to disappear, why should we not get the same facility ? " Some points of lesser substance were mentioned in the petition memos in support of the challenge under articles 14 and 19(1)(f) and (g). They were, however, not urged at the time of the hearing, as on the other grounds urged, it was impossible to hold that the impugned provisions were violative of either article 14, 19 or 31. We may, however, mention in this context that these points had been raised in C. Venkata Reddy v. Income-tax Officer, (Central), Bangalore and in Ramjibhai Kalidas v. L G. Desai, Incometax Officer, where they have been quite adequately dealt with and rejected. Apart from the constitutional challenge there was also a further challenge on the ground that the actual search and seizure in all these cases, being in contravention of the requirements of section 132 and rule 112 was illegal. Several allegations have been made of mala fides, high-handedness, oppressive behaviour and the like and we shall have to deal with them on the facts of each case. But, so far as the two Civil Appeals are concerned, it appears to us that it is not necessary to enter into the question of the alleged illegalities. The High Court has not done so. The relief claimed in those petitions in the High Court was for the return of the account books and documents which had been seized and it would appear from the record that before the High Court disposed of that matter, the account books and documents had been already returned. However, there was another relief claimed in the petitions and

that was for a writ of prohibition restraining the income-tax department from using as evidence any information gathered from the search of the articles seized. It would appear from the record that the High Court was prepared to assume for the purposes of those cases that the search and seizure was illegal. Even so the question remained whether these victims of illegal search were entitled to a writ of prohibition that the income-tax authorities shall not use any information gathered from the documents which had been seized. The High Court held that they were not, and proceeded to pass the following identical order in the two cases. It is as follows : " In this case all the documents seized in pursuance of the search warrant have been returned to the petitioners and the only question is whether the information gathered as a result of such search and seizure could be used in evidence if it be held that the search and seizure was illegal. In Balwant Singh v. Director of Inspection (Civil Writ No. 750-D of 1966), announced today, we have held that such information can be used. It is unnecessary, therefore, to pronounce upon the validity of the search and seizure. This petition, therefore, fails and is dismissed with no order as to costs." Balwant Singh's case referred to above is reported in [1969] 71 I.T.R. 550. We understand that an appeal had been filed to this court but was not prosecuted. That decision not only upheld the constitutionality of section 132 of the Income-tax Act, but also held that there was nothing in article 19 of the Constitution which forbids the use of evidence obtained as a result of an illegal search. Consistently with that view the relief for a writ of prohibition was rejected and hence the two Civil Appeals before us. Dr. Singhvi who appeared on behalf of the appellants in the two appeals frankly conceded that there was no specific article of the Constitution prohibiting the admission of evidence obtained in an illegal search and seizure. But he submitted that to admit such evidence is against the spirit of the Constitution which has made our liberties inviolable. In this connection he referred to some American cases which seem to recognize the validity of his submission. As to the argument based on " the spirit of our Constitution ". we can do no better than quote from the judgment of Kania C.J. in A. K. Gopalan v. State of Madras : " There is considerable authority for the statement that the courts are not at liberty to declare an Act void because in their opinion it is opposed to a spirit supposed to pervade the Constitution but not expressed in words. Where the fundamental law has not limited, either in terms or by necessary implication, the general powers conferred upon the legislature we cannot declare a limitation under the notion of having discovered something in the spirit of the Constitution which is not even mentioned in the instrument. It is difficult upon any general principles to limit the omnipotence of the sovereign legislative power by judicial interposition, except so far as the express words of a written Constitution give that authority." Now, if the Evidence Act, 1871, which is a law consolidating, defining and amending the law of evidence, no provision of which is challenged as violating the Constitution, permits relevancy as the only test of admissibility of evidence (see section 5 of the Act) and, secondly, that Act or any other similar law in force does not exclude relevant evidence on the ground that it was obtained under an illegal search or seizure, it will be wrong to invoke the supposed spirit of our Constitution for excluding such evidence.

Nor is it open to us to strain the language of the Constitution, because some American judges of the American Supreme Court have spelt out certain constitutional protections from the provisions of the American Constituition. In M. P. Sharma v. Satish Chandra, already referred to, a search and seizure made under the Criminal Procedure Code was challenged as illegal on the ground of violation of the fundamental rights under article 20(3), the argument being that the evidence was no better than illegally compelled evidence. In support of that contention reference was made to the Fourth and Fifth Amendments of the American Constitution and also to some American cases which seemed to hold that the obtaining of incriminating evidence by illegal seizure and search tantamounts to the violation of the Fifth Amendment. The Fourth Amendment does not place any embargo on reasonable searches and seizures. It provides that the right of the people to be secure in their persons, papers and effects against unreasonable searches and seizures shall not be violated. Thus, the privacy of a citizen's home was specifically safeguarded under the Constitution, although reasonable searches and seizures were not taboo. Repelling the submission, this court observed at page 1096 : " A power of search and seizure is in any system of jurisprudence an overriding power of the State for the protection of social security and that power is necessarily regulated by law. When the Constitution makers have thought fit not to subject such regulation to constitutional limitations by recognition of a fundamental right to privacy, analogous to the American Fourth Amendment, we have no justification to import it, into a totally different fundamental right, by some process of strained construction. Nor is it legitimate to assume that the constitutional protection under article 20(3) would be defeated by the statutory provisions for searches." It, therefore, follows that neither by invoking the spirit of our Constitution nor by a strained construction of any of the fundamental rights can we spell out the exclusion of evidence obtained on an illegal search. So far as India is concerned its law of evidence is modelled on the rules of evidence which prevailed in English law, and courts in India and in England have consistently refused to exclude relevant evidence merely on the ground that it is obtained by illegal search or seizure. In Babindra Kumar Ghose v. Emperor the learned Chief Justice, Sir Lawrence Jenkins, says at page 500 : " Mr. Das has attacked the searches and has urged that, even if there was jurisdiction to direct the issue of search warrants, as I hold there was, still the provisions of the Criminal Procedure Code have been completely disregarded. On this assumption he has contended that the evidence discovered by the searches is not admissible, but to this view I cannot accede. For, without in any way countenancing disregard of the provisions prescribed by the Code, I hold that what would otherwise be relevant does not become irrelevant because it was discovered in the course of a search in which those provisions were disregarded. As Jimutavahana with his shrewd common sense observes---'a fact cannot be altered by 100 texts', and as his commentator quaintly remarks : 'If a Brahmana be slain, the precept " Slay not a Brahmana " does not annul the murder.' But the absence of the precautions designed by the legislature lends support to the argument that the alleged discovery should be carefully scrutinized."

In Emperor v. Allahdad Khan the Superintendent of Police and a Sub-Inspector searched the house of a person suspected of being in illicit possession of excisable articles and such articles were found in the house searched. It was held that the conviction of the owner of the house under section 63 of the United Provinces Excise Act, 1910, was not rendered invalid by the fact that no warrant had been issued for the search, although it was presumably the intention of the legislature that in a case under section 63, where it was necessary to search a house, a search warrant should be obtained beforehand. In Kuruma v. Queen, where the Privy Council had to consider the English law of evidence in its application to Eastern Africa, their Lordships propounded the rule thus : " The test to be applied, both in civil and in criminal cases, in considering whether evidence is admissible is whether it is relevant to the matters in issue. If it is, it is admissible and the court is not concerned with how it was obtained." Some American cases were also cited before the Privy Council. Their Lordships observed at page 204 thus : " Certain decisions of the Supreme Court of the United States of America were also cited in argument. Their Lordships do not think it necessary to examine them in detail. Suffice it to say that there appears to be considerable difference of opinion among the judges both in the State and Federal Courts as to whether or not the rejection of evidence obtained by illegal means depends on certain articles in the American Constitution. At any rate, in Olmstead v. United States, the majority of the Supreme Court were clearly of opinion that the common law did not reject relevant evidence on that ground." In Kuruma's case, Kuruma was searched by two police officers who were not authorised under the law to carry out a search and, in the search, some ammunition was found in the unlawful possession of Kuruma. The question was whether the evidence with regard to the finding of the ammunition on the person of Kuruma could be shut out on the ground that the evidence had been obtained by an unlawful search. It was held it could not be so shut out because the finding of ammunition was a relevant piece of evidence on a charge for unlawful possession. In a later case before the Privy Council in Herman King, v. Queen, which came on appeal from a Court of Appeal of Jamaica, the law as laid down in Kuruma's case was applied although the Jamaican Constitution guaranteed the constitutional right against search and seizure in the following provision of the Jamaica (Constitution) Order in Council, 1962, Schedule 2, section 19 : " (1) Except with his own consent, no person shall be subjected to the search of his person or his property or the entry by others on his premises. (2) Nothing contained in or done under the authority of any law shall be held to be inconsistent with or in contravention of this section to the extent that the law in question makes provision which is reasonably required ............ for the purpose of preventing or detecting crime ..........." In other words, search and seizure for the purposes of preventing or detecting crime reasonably enforced was not inconsistent with the constitutional guarantee against search and seizure. It was held in that case that the search of the appellant by a police officer was not justified by the warrant nor was it open to the officer to search the person of the appellant without taking him before a Justice of the Peace. Nevertheless it was held that the court had a discretion to admit the evidence obtained as a

result of the illegal and the constitutional protection against of person or property without consent did not take away the discretion of the court. Following Kuruma v. Queen the court held that it was open to the court not to admit the evidence against the accused if the court was of the view that the evidence had been obtained by conduct of which the prosecution ought not to take advantage. But that was not a rule of evidence but a rule of prudence and fair play. It would thus be seen that in India, as in England, where the test of admissibility of evidence lies in relevancy, unless there is an express or necessarily implied prohibition in the Constitution or other law of evidence obtained as a result of illegal search or seizure is not liable to be shut out. In that view, even assuming, as was done by the High Court, that the search and seizure were in contravention of the provisions of section 132 of the Income-tax Act, still the material seized was liable to be used subject to law before the income-tax authorities against the person from whose custody it was seized and, therefore, no writ of prohibition in restraint of such use could be granted. It must be, therefore, held that the High Court was right in dismissing the two writ petitions. The appeals must also fail and are disimissed with costs. The two writ petitions filed in this court now remain for consideration and what is to be considered is whether there has been any illegality in the search and seizure because of the alleged contravention of the provisions of section 132 of the Act or rule 112. Writ Petition No. 446 of 1971.---The petitioner, Pooran Mal, is a partner in a number of firms---some of them doing business in Bombay and some in Delhi. His permanent residence is 12A, Kamla Nagar, Delhi. His business premises in Delhi are A. 14/16, Jamuna Bhavan, Asaf Ali Road, New Delhi. It would appear that on an authorisation issued by the Director of Inspection, his residence and business premises in Delhi were searched on 15th and 16th October, 1971. On the 15th, his premises in Bombay were also searched and at that time it appears the petitioner was present in Bombay. When his residence was searched on 15th and 16th, there were in his house the petitioner's wife, two or three adult sons and his father who is said to have been ailing. It was alleged on behalf of the petitioner that the search in the residential premises was mala fide, oppressive, excessive, indiscriminate and vexatious. The grounds for making these allegations seem to be,--(1) that the search and seizure in the house took place in spite of the wife's request to postpone the search ; (2) it was Dhanteras day which is a festival day ; (3) Petitioner's wife was not informed that there was any authorisation ; (4) her father-in-law was suffering from paralysis ; (5) even children's small boxes containing their pocket money were seized ; (6) jewellery including that of the mother-in-law of the petitioner, Kailashbai, who had died six years earlier, was seized ;

(7) the panchas who helped in the search were unknown to the petitioner or the members of his family ; (8) the search went on from 8-00 a.m. on October 15 till the early hours of October 16 and the search was again resumed on the evening of October 16. The grounds on which the wild allegations of mala fides, oppression, etc., had been made do not appear to be of any substance. It is undoubtedly true that search and seizure is a drastic process and is bound to be associated with some amount of unsavoury and inconvenient results. A sudden search and seizure may unnerve the inmates of the place where the search is made. But this is to be expected. When oppression and mala fides are alleged, we should have more substantial grounds than these. On the other hand, the allegations of high-handedness, mala fides, etc., are wholly denied in the affidavit filed on behalf of the department. That it was a Dhanteras day is denied. But assuming it was, there is no law which says that a search and seizure cannot take place on that day. It may be that the wife had requested that the search may be postponed till her husband's return but obviously the officers concerned could not agree to this request because the whole purpose of the search would have been defeated. It is denied that the inmates were not informed of the authorisation. In fact it is alleged that the petitioner's wife, Smt. Sharda Devi, was shown the authorisation and in token of the same she had put her signature thereon. That the petitioner's father was suffering from paralysis might be unfortunate but it does not appear that the officers concerned caused him the least inconvenience. All througout the search, it is alleged, Sharda Devi and her two educated sons, Dinesh and Vinod, were present at the time of the search. It is not denied that considerable jewellery was seized. The jewellery seized in the house was worth Rs. 37,043 and though it is the case of the petitioner that part of it belonged to his mother-in-law, Smt. Kailashbai, who is now dead, it is stated on oath on behalf of the department that in the statements recorded on 15th and 16th October, 1971, Smt. Sharda Devi had claimed the whole of the jewellery as her own, though in the last wealth-tax return she had valued her jewellery at Rs. 5,000 only. So far as the panchas are concerned, it is denied that they were not known to the inmates of the house. In fact, it is alleged by the department that pancha Mathuradas was a resident in the same house and had been called at the suggestion of Sharda Devi. It is not denied that the search went on for a long time because a number of documents and account books were seized in the course of the search and so also a lot of jewellery and cash. The allegation that the small boxes of the children containing their pocket money was seized is denied. We may say, therefore, on the whole that there is nothing in the petition inducing us to take the view that the search in the house was either mala fide, oppressive or excessive, etc., etc. The search in the business premises was made when a number of persons who usually worked there were present. Books of account, documents, some jewellery and a large amount of cash amounting to about Rs. 61,000 were seized. On October 16, there was a search in the branch offices of the Laxmi Commercial Bank and the Punjab National Bank. 84 silver bars were seized from the Laxmi Commercial Bank and 30 silver bars were seized from the Punjab National Bank. The value of these silver bars comes to nearly 18 lakhs. It is the case of the petitioner that these bars belong to M/s. Pooranmal and Sons of Bombay who sent the same to the Motor and General Finance Company of which the petitioner is a partner and this finance

company, it is alleged, kept these bars with the two banks. 84 bars were kept in the account of M/s. Udey Chand Pooranmal for an alleged overdraft limit while the 30 silver bars were pledged with the Punjab National Bank in the account of the finance company. In all these aforesaid firms the petitioner is a partner and it is the department's case that all these bars are undisclosed assets of the petitioner. It appears that the Income-tax Officer made a summary enquiry as required by section 132(5) after issuing notice to the petitioner and his order dated January 12, 1972, shows, of course prima facie, that all the assets which had been seized in the house, the business premises and the banks, except for the value of the ornaments declared by Mrs. Sharda Devi in her wealth-tax return, had to be retained for being appropriated against tax dues from 1969 onwards which amounted to nearly 42 lakhs. Indeed this prima facie liability was subject to regular assessment and reassessment. Mr. Karkhanis submitted that the petitioner had been very co-operative with the department before and, therefore, the Director of Inspection could have no possible reason to believe that if any requisition for documents and account books were made the same would not be produced. This allegation about co-operation is denied by the department and in this connection the department has produced a chart at annexure " R-I " showing how the petitioner has been throughout non-co-operative. Assessment for the year 1967-68 is still pending and no return has been filed for the year 1968-69 or for later years. We are not at all satisfied that the petitioner was co-operative, and, therefore, the Director of Inspection would have no possible ground for entertaining a reasonable belief as required by sub-clauses (a), (b) and (c) of sub-section (1) of section 132. To satisfy ourselves we called for the grounds recorded by the Director before the authorisation was issued and we are quite satisfied that there were grounds for him to entertain reasonable belief as required under the sub-clauses. As already pointed out the summary enquiry made under sub-clause (5) of section 132 discloses that the assets seized were for the most part undisclosed income and property. Indeed, the accident that undisclosed property is found on a search may not be a justification for the authorisation of a search if, in fact, there had been no grounds for entertaining reasonable belief. But finding of assets as expected by the Director of Inspection on the information received by him would at least support the view that the authority concerned had reliable information on which he could entertain the necessary belief. On the whole, therefore, we are not inclined to hold that the search and seizure in this writ petition was vitiated by any illegality. Writ Petition No. 86 of 1972.---The position in this writ petition is not different. The petitioner, Ganeriwala, is a businessman. His residence is No. 1, Raj Narain Road, Civil Lines, Delhi, and he runs a family business in automobile parts in the name of Ganeriwala Trading Company. The business is at No. 1, Krishna Motor Market, Kashmeri Gate, Delhi. The family seems to be a partner in the firm of M/s. Bisheshwar Lal Brij Nath, Barielly, and is supposed to have income from ancestral agricultural lands in Haryana State. It is alleged by the petitioner that his assessment of income had been completed up to the year 1970-71 and of wealth-tax up to 1969-70. The return for 1970-71 was also filed. Even so, it is alleged, on October 8, 1971, his residential house and also the business premises were searched and documents and books of account were seized. The search was started at 8-00 a.m. and continued till the evening and, thereafter, the business premises were searched. The petitioner stated that though the raiding party made a very detailed search, they did not come across any concealed income---cash or

bullion, ornaments or jewellery. General allegations regarding the search being oppressive and excessive are made. But there is no substance in them. Objection was taken to the search on the ground that the authorities had deliberately selected panchas who are inimical to the petitioner. This is denied. It is stated in the affidavit on behalf of the department that one of the pancha witnesses, namely, Lt. Col. Raj Behari Lal, was actually sitting in the house of the petitioner even before the search party entered the premises. It is also stated that both the panchas are responsible persons of the locality and the immediate neighbours of the petitioner---one of them being a responsible officer in the Army. The petitioner says that he had told the authorities that he had been on inimical terms with these panchas. But that is denied. There is, therefore, no reason to think that respectable panchas were not taken for the search. Another objection was made that two cash books relating to the years 1970-71 and 1971-72 were removed by the income-tax authorities but they were not duly entered in the inventory. This allegation also is denied. In para. 21 of the counter-affidavit the Assistant Director of Inspection has stated that during the course of the petitioner's examination and the recording of his statement on October 8, 1971, the petitioner had stated that his Roker Bakis for the accounting years 1970-71 and 1971-72, did not contain any entries regarding the expenditure on the construction of the godown, and as such those Roker Bahis were not seized from the custody of the petitioner. The other reason was that the petitioner had requested that they may not be seized as otherwise the petitioner would face difficulties in carrying on his business. It must be remembered that the search and seizure had been ordered because the petitioner had recently constructed a huge godown near his residential premises with the floor area of approximately 6,700 sq. ft. on which a large investment was estimated to have been made from income which had not been disclosed in the books of account produced or returns filed by the petitioner. Since the petitioner himself told the authorities that the Roker Bahis for the two years did not contain any entries regarding the expenditure on the construction, the authorities inspected the Roker Bahis for the year 1971-72, and finding that it did not contain any entries for the past 30 days it was considered by the authorities not proper to take possession of the same. We are inclined to think that this objection by the petitioner is an after-thought with a view to malign the departmental authorities. It is not denied that the petitioner had been given a copy of the inventory of the documents seized from his custody on that very day. He did not raise the objection regarding the account books till November 5, 1971, i.e., nearly after one month. The petitioner is a businessman. He could not have been unaware that his Roker Bahis for the current year and the previous year were missing for such a long time. It was next alleged that a very large number of documents were seized which were really irrelevant. The authorised officer has to seize books of account and other documents which will be useful for and relevant to any proceeding under the Income-tax Act. When in the course of a search voluminous documents and books of account are to be examined with a view to judge whether they would be relevant, a certain amount of latitude must be permitted to the authorities. It is true that when particular documents are asked to be seized unnecessary examination of other documents may conceivably make the search excessive. But when the documents, pieces of paper, exercise books, account books, small memos etc., have all to be examined with a view to see how far they are relevant for the proceeding under the Act, an error of judgment is not unlikely. At the most this would be an

irregularity---not an illegality. Nor can it be a valid objection to the search that it continued for about 16 hours. By their very nature the search and seizure as shown above would consume a lot of time. In this petition also it was alleged that the Director of Inspection could possibly have no reason to believe the existence of circumstances required by sub-clauses (b) and (c) of sub-secti on (1) of section 132 because the petitioner's assessment for the year 1970-71 had been already completed and so also the wealth-tax assessment for the year 1969-70. But this does not mean that on the information in the possession of the Director of Inspection he cannot entertain the necessary belief. The grounds for the belief recorded by the Director of Inspection before the authorisation were shown to us and we do not think that on the material the authority could not have entertained the belief. A big godown has been newly constructed by the petitioner but his books of account did not reflect the expenditure on account of this construction. It is alleged on behalf of the department that, on search, certain documents in the nature of maps, etc., were seized which showed that the petitioner had constructed the building in the month preceding the date of search and the money with which the said building was constructed was unaccounted money. There is, therefore, no substance in the contention that the income-tax authorities could not have possibly entertained the required belief. The search and seizure, therefore, impugned in this writ petition cannot be regarded as illegal. In the result the two writ petitions and the two appeals are dismissed with costs.

2010-TIOL-568-ITAT-MUM IN THE INCOME TAX APPELLATE TRIBUNAL BENCH 'F' MUMBAI IT(SS) No.586/Mum/2004 Block Period: 01-04-1995 to 27.09.2001 SHRI SATRAMDAS G FATEHCHANDANI FLAT NO 101, A-WING, VISHNU, DARSHAN BLDG, NEAR AMAN TALKIES, ULHASNAGAR-421002 PAN NO:AAEPF2441G Vs ACIT, CENTRAL CIRCLE-2 2ND FLOOR, PAWAR INDUSTRIAL AREA EDULJI ROAD, CHARAI, THANE-400061 there is no reason to see as to how passing of the order u/s 132(3) was improper. There are two reasons as to why search was not concluded on 28.9.2001. Firstly, proceedings continued up to 3.30

am and officers thought it fit to temporarily conclude search. Secondly, assessee was not available at the time of search on 28.9.2001. When the officers visited assessee's office premises on 18.10.2001, the assessee was present in the premises and an inventory of loss sheets was taken after duly asking for explanation regarding each of the seized papers. There is no infirmity or regularity in either passing an order u/s 132(3) of the Act or in the search conducted and concluded on 18.10.2001. The Panchanama drawn on 18.10.2001 is a proper and valid Panchanama drawn and was the last Panchanama drawn in the case of assessee. The period of limitation had to be reckoned from the said date. The decisions relied upon by learned counsel for the assessee can be applied only on the facts of the relevant case. In the present case, Panchanama drawn on 18.10.2001 was a valid Panchanama and the period of limitation has to be reckoned accordingly;

2010-TIOL-219-HC-ALL-IT (Also see analysis of the Order ) IN THE HIGH COURT OF ALLAHABAD Civil Misc. Writ Petition No. 1654 of 2006 GOPAL DAS KHANDELWAL AND OTHERS Vs UNION OF INDIA AND OTHERS

Legally "attachment" would mean imposing restriction upon some kind of property by the Court or some other competent, statutory authority. The order of " attachment" as such tells the owner of the property, the custodian of the property and the world at large not to deal with the property attached. Apart from the above restriction, the order of "attachment" carries no other meaning. It is essentially an order to safe-guard and protect the interest of the creditor from being defeated and to enable him to release his dues without any let or hindrance subsequently

2009-TIOL-295-HC-DEL-IT (Also see analysis of the Order) IN THE HIGH COURT OF DELHI W.P.(C) 9479/2007 And CM 9520/2008 S R BATLIBOI & CO Vs DEPARTMENT OF INCOME TAX(INVESTIGATION) Laptops of Auditors seized during search of an assessee Income Tax Department cannot force auditors to part with information of other parties stored in the computers - The authorized 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; he must be of the opinion that such thing cannot be otherwise got at without undue delay; he must record in writing the grounds of his belief; and he must specify in such writing, so far as possible, the thing for which search is to be made. Where material or document or assets belong to a third party, totally unconcerned with the person who is raided, none of these conditions are fulfilled.

seizure - the act of forcibly dispossessing an owner of property the taking possession of something by legal process

2008-TIOL-540-ITAT-MUM (Also see analysis of the Order ) IN THE INCOME TAX APPELLATE TRIBUNAL BENCH "E" MUMBAI IT (SS) A No. 11/Mum/2000 Block Period : 1.4.1987 to 28.7.1997 SHRI NANDLAL M GANDHI 11/12, SANDEEP LAXMINARAYAN LANE MATUNGA (CR), MUMBAI - 19 Vs THE ASSTT COMMISSIONER OF INCOME-TAX CIRCLE-26(3), MUMBAI-21 Income Tax - by passing a restraint order u/s. 132(3), the time limit available for framing the assessment cannot be extended; the department is seeking the extension of time limit for framing the assessment on the strength of prohibitory order issued u/s. 132(3) on 29-7-1997 which was finally revoked on 8-9-1997. The revenue wants the period of limitation for the purpose of Sec. 158BE to be reckoned from 8-9-1997 when the prohibitory order u/s. 132(3) was revoked and a panchanama was prepared stating that the search is finally concluded. However, from the facts of the case it is evident that so far search is concerned, it was already completed on 29-7-1997 when the premises of the assessee was completely searched and all the assets found were inventorised and a panchanama prepared. Thereafter no action for further search had taken place and after the verification of the assessee's explanation with regard to jewellery and shares, the prohibitory order in respect of jewellery was revoked on 1-8-1997 and in respect of share certificates on 8-9-1997. A panchanama prepared on the revocation of prohibitory order u/s. 132(3) wherein the only thing mentioned is 'search is finally concluded', is not a valid panchanama Therefore, the panchanama prepared on 8-9-1997 cannot be said to be a panchanama prepared in pursuance to the warrant of authorization for search within the meaning of See. 158BE(1) of the Act. If a panchanama prepared on the revocation of prohibitory order u/s. 132(3) wherein the only thing mentioned is 'search is finally concluded', is held to be a panchanama prepared on the conclusion of search within the meaning of Explanation to Sec. 158BE, it would amount to an extending the period of limitation for completion of assessment on account of restraint order u/s. 132(3). It would be contrary to the decision of jurisdictional High Court in the case of Mrs. Sandhya P. Naik.

2008-TIOL-287-ITAT-DEL-SB (Also see analysis of the Order) IN THE INCOME TAX APPELLATE TRIBUNAL SPECIAL BENCH 'D' DELHI IT (SS) A. No. 555(Del)/2003 Block Period : 1.4.1988 to 12.3.1999 SMT KRISHNA VERMA, I-16, SECTOR-10, FARIDABAD Vs ASSTT COMMISSIONER OF INCOME TAX, INVESTIGATION CIRCLE, FARIDABAD IT (SS) A. No. 556(Del)/2003 Block Period : 1.4.1988 to 12.3.1999 SMT KRISHNA VERMA, I-16, SECTOR-10, FARIDABAD Vs ASSTT COMMISSIONER OF INCOME TAX, INVESTIGATION CIRCLE, FARIDABAD

the provision authorising the passing of the restraint and prohibitory orders both under the second proviso to sub-section (1) and under sub-section (3) of section 132 are incidental to the powers of search under section 132 and are designed to enable and effectuate the purpose of the search. The difference between a prohibitory order passed under the second proviso to section 132 (1) and that passed under sub-section (3) of section 132 are these. Under the former, the passing of the prohibitory order itself will be deemed to be seizure of the article or thing, because of the impossibility or impracticability of taking physical possession of such article or thing due to various reasons. The restraint order passed under the second proviso amounts to seizure and it has been expressly stated so therein. In contrast, the restraint order passed under sub-section (3) has been expressly clarified not to amount to seizure. Secondly, the reasons which justify the passing of the order under sub-section (3) should be different from the reasons stated in the second proviso to subsection (1). Obviously, the authorised officers conducting a search cannot be expected to be continuously present in the searched premises till the entire exercise is over. There may be administrative and other practical difficulties in continuing the search for days together. In case of such practical difficulties, where' the search is not completed, sub-section (3) authorises the officer to

serve a restraint order on the owner or person in possession directing him not to remove or otherwise deal with the articles placed under restraint. Such an order can be passed even where a part of the premises could not be covered during the search and where for administrative or several other reasons the officers conducting the search are obliged to leave the premises. That is precisely why it has been stated in the Explanation that the serving of the restraint order on the owner or the person in possession shall not be deemed to be seizure. Whereas under the second proviso to sub-section (1) the serving of the restraint order amounts to seizure, under sub-section (3) the serving of the restraint order does not amount to seizure. The reason is simple. The officers place a restraint on the owner or the person in possession for a temporary period so that the search can be revived at a later point of time and continued;

Meanings : "Constructive seizure" means a seizure of property where the property is left in the control of the owner and the seizing agency posts the property with notice of seizure by that agency for forfeiture. "Constructive seizure" is the expression of a manifest intent to seize and take possession of another person's property by posting or otherwise lawfully giving notice that action will be undertaken seeking the property's forfeiture. A constructive seizure does not remove the property from the physical custody of the possessor. seizure of property the property is left in the control of the owner

and the seizing agency posts the property with notice of seizure

an order passed is a deemed seizure. (ban; inhibit; prohibit; deny; decline; refuse; repulse; turn down