2007 (5) TMI 209 - HC - Income Tax

Validity Of assessment order passed u/s 158BC - barred by limitation as provided u/s 158BE - Search operation u/s 132 - documents seized and some fishing vessels/trawlers searched - restraint order u/s 132(3) passed - notice issued u/s 158BC - HELD THAT - The fact that the letter dated September 15, 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 September 14, 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 November 6, 1996, and that on September 14, 1998, there was no restraint order in respect of the fishing trawlers of the assessee and, therefore, the search and panchnama drawn on September 14, 1998, were not in accordance with law. 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 September 14, 1998-it was actually drawn on November 6, 1996-and the period of limitation must, therefore, run from that date onwards. We are clearly of the view that the action for seizing the fishing trawlers ought to have been taken by the Revenue u/s 132(1) of the Act and not u/s 132(3) of the Act. By merely resorting to a restraint order u/s 132(3) of the Act, and that too only up to September 30, 1997, the Revenue could not have extended the time limit for passing an assessment order. Learned counsel for the assessee submitted, that even otherwise, September 14, 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 November 6, 1996, and the events that took place on September 14, 1998, were a make-believe intended to extend the time limit, which was not permissible. 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 - The appeal is dismissed.

Summary

Issues:
1. Validity of assessment order due to limitation period under section 158BE of the Income-tax Act, 1961.
2. Determination of the conclusion date of search and seizure operation.
3. Correct application of sections 132(1) and 132(3) of the Income-tax Act in seizing fishing trawlers.
4. Extension of time limit for assessment order based on restraint order under section 132(3) of the Act.

Issue 1: Validity of assessment order due to limitation period under section 158BE:
The case involves an appeal by the Revenue against an order passed by the Tribunal, where the Tribunal accepted the contention that the assessment order was invalid due to being barred by limitation under section 158BE of the Act. The High Court, after detailed examination, concurred with the Tribunal's decision, emphasizing that the assessment order was beyond the permissible limitation period, rendering it invalid.

Issue 2: Determination of conclusion date of search and seizure operation:
The primary question was whether the search and seizure operations concluded on November 6, 1996, or on September 14, 1998. The Court analyzed the sequence of events, including the issuance of a letter indicating the completion of the search on September 14, 1998, and concluded that the search on that date was a mere formality to extend the limitation period, not justified by any valid reasons. The Court held that the actual conclusion date was November 6, 1996, from which the limitation period should run.

Issue 3: Correct application of sections 132(1) and 132(3) in seizing fishing trawlers:
The Court examined the provisions of sections 132(1) and 132(3) of the Act concerning the seizure of valuable articles or things. It was established that the fishing trawlers, due to their nature, should have been seized under section 132(1) rather than a restraint order under section 132(3). The Court emphasized that the Revenue's action was not in accordance with the law, as passing an order under section 132(3) was unwarranted for the type of articles involved.

Issue 4: Extension of time limit for assessment order based on restraint order under section 132(3):
The Court clarified that by merely resorting to a restraint order under section 132(3) for a limited period, the Revenue could not extend the time limit for passing an assessment order. It was emphasized that the actions taken by the Revenue were not justified and were aimed at circumventing the provisions of the Act to extend the limitation period, which was impermissible.

In conclusion, the High Court dismissed the appeal, finding no substantial question of law, as the issues raised were settled, and the Tribunal's order was upheld. The judgment provided a detailed analysis of the events, legal provisions, and reasoning behind the decision, ensuring clarity on the validity of the assessment order, conclusion date of search operations, and correct application of relevant sections of the Income-tax Act.