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TMI Blog2003 (7) TMI 260X X X X Extracts X X X X X X X X Extracts X X X X ..... extent of those aspects of search as are necessary to adjudicate the point of limitation, including as to whether the search was actually conducted on the named person or whether the authorization was actually issued in the assessee's name or whether the last panchnama was issued as per legal requirements such as whether the authorized officer has signed it or whether specified number of witnesses signed it and the like. Beyond the purview of the Tribunal are those questions as to whether the search is mala fide or valid under law and whether the prohibitory order u/s 132(3) is justified or whether the panchnama has to be ignored as it has not recorded seizure. When going into the question of search is beyond the jurisdiction of the Assessing Officer for the reason that he is not in possession of the material that led to the search, the appellate authority viz. the Tribunal too cannot. Even if search is bad in law and therefore what is seized must be returned to the assessee, the evidence is still admissible for assessment purposes. Hence, to hold that the Tribunal could go into the questions of even legality of search or of prohibitory order u/s 132(3), would be meaningless. O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sofar as the preliminary points discussed and decided by me hereinabove, I agree with the main points, discussed and decided by the proposed order together with the supplemented order by adopting the reasons therein subject to the slight limitation I have incorporated hereinabove. - Member(s) : N. D. RAGHAVAN., DR. M. V. R. PRASAD, DEEPAK R. SHAH. ORDER Deepak R. Shah, A.M.-- In exercise of the powers vested under section 255(3) of the Income-tax Act, 1961 (the Act), the President of the Income Tax Appellate Tribunal (ITAT), has constituted this Special Bench to decide the following questions referred arising in the case of present assessee. "1. Whether the Tribunal could examine the search activity from the time the search is started so as to determine as to at what point of time the search could said to have come to a close, for the sole purpose of examining whether the assessment is in time or otherwise? 2. Whether the term within one year from the end of the period in which the last of the authorization for search under section 132 was executed has to be taken to mean the execution of the warrant resulting in seizure and not with reference to issuing of prohibitory orders and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th or deal with such article. This will amount to deemed seizure. This is treated as Restraint Order (hereinafter referred as R.O.) in ordinary parlance. At the same time, the Authorized Officer (hereinafter referred as A.O.) may, under the provisions of section 132(3), where it is not practicable to seize any books, documents, valuables etc. pass an order directing the owner or possessor thereof not to remove, part with or deal with the same. In common parlance this is called a Prohibitory Order (hereinafter referred as P.O.). However, as per explanation to section 132(3), such P.O. is not to be treated as seizure for purposes of section 132(1)(iii). After the search is carried out by execution of the authorization, a panchnama is prepared. Such panchnama is the summary of the events during execution of authorization to the end of such search. The panchnama also contains the signature of witnesses. If some R.O. or P.O. is passed, subsequent revocation of such orders is not in respect of execution of authorization originally issued under section 132(1). It was therefore argued that once an authorization issued under section 132(1) is executed, the time limit for completion of asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vant etc., the appellate authority has powers and High Court has only advisory jurisdiction. Thus if search itself is held illegal, all consequential order under section 158BC is a nullity. However, if an order under section 158BC(c), for which a valid search under section 132 is a prerequisite, is challenged in appeal, the appellate authority should be deemed to have power to adjudicate whether action under section 132(1), 132(3), etc. are validly exercised. An order under section 132(3) can be passed only when it is not practicable to seize any material. Hence the ITAT should also examine whether there was any such impracticability necessitating order under section 132(3). If no such material is found suggesting impracticability, the P.O. under section 132(3) should be ignored for the purpose of time limit under section 158BE and explanation thereto. He went on to add that the ITAT, has not only powers but also a duty to look into all such relevant material for passing P.O. under section 132(3). If the Assessing Officer is in doubt whether material found during search leads to undisclosed income or not, an order under section 132(3) cannot be passed. For said proposition, he refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erpretation is possible under the Act, the assessment under section 158BC would never get barred by limitation. This can never be the intention of Legislature. 3.2 There was indeed considerable confusion as to when the last of the authorizations for search "was executed." Once the Legislature, in its wisdom, has added in 1998 (retrospectively from 1-7-1995) Explanation 2 to section 158BE deeming the "conclusion of search as recorded in the last panchnama" as the date of execution, an independent determination of the date of execution is clearly barred. This makes the Panchnama the crucial document for determination of the commencement of the limitation enacted in section 158BE. This position pushes to the center stage the twin issues of (a) what is a Panchnama; and (b) what is a valid panchnama. Mr. Rao thereafter submitted that a Panchnama is not defined in the Income-tax Act or Income-tax Rules, let alone its format being prescribed in the Rules. It is no doubt a document drawn up for recording certain events, signed by the authorized officer and the person searched, and duly witnessed. The non-statutory format of a Panchnama could be used by the authorized officer for a variety ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the mandatory nature of the pre-conditions for the clamping of a prohibitory order under section 132(3), amply demonstrate the entrenched bureaucratic practice of placing ultra vires orders under section 132(3) as 'tail' to the concluded search. The reasons for attaching this 'tail' are not far to seek: (i) Apart from seizing cash, books of account and incriminating documents, the thrust of a search is to obtain confessions/declarations of undeclared incomes. The Raja Chelliah Committee has criticized this improper motivation. Such confessions/declarations are easier to obtain in the pressure situation brought about by a search, more so when it is prolonged. The clamping of a prohibitory order under section 132(3) prolongs the pressure situation. The department has been interpreting the words "execution of the warrant of search" in section 158BE to mean the final removal of all constraints on the assets/documents in the custody of the person searched. Thus, clamping an order under section 132(3) to be followed by a Panchnama is the standardised procedure for postponing the commencement of the limitation under section 158BE. Any thing based on an invalid order under section 132(3), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to the following observations of the Madras High Court in CIT v. Elgi Equipments Ltd. [2000] 242 ITR 460: "The creature of the statute cannot pronounce on the validity of the statute under which it is vested with power and duty of deciding the matter under the statute. However, when it comes to the notice of the Tribunal or the reference court that an authority purporting to act in terms of the statute has acted beyond the terms of the provision by which the power is conferred on the authority, it is permissible to the adjudicatory forum to refrain from giving effect to such patently ultra vires act of the subordinate authority purporting to act in terms of a statute, though it is in fact inconsistent with the statute." It follows that if the ITAT is of the view that the precondition of impractibility to seize did not exist, it can treat the action of the authorized officer in placing a prohibitory order under section 132(3) as ultra vires and any reckoning by the Assessing Officer of the limitation under section 158BE from the date of any action/order based on such ultra vires order under section 132(3), as invalid. 3.5 Mr. Rao also submitted that the power of High Court under A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment is in time. A statutory umbilical cord joints section 132 and Chapter XIV-B. By the Finance No. (2) Act, 1998 section 158BE was retrospectively amended with effect from 1-7-1995, by insertion of Explanation 2 in section 158BE. The amendment narrows down the scope of fact finding as to the execution of the warrant of search, to ascertaining the date of "conclusion of the search as recorded in the last Panchnama drawn". This position of law renders it necessary to decide whether the relevant Panchnama is a valid Panchnama. If the relevant Panchnama is based on action taken after a prohibitory order was passed, it becomes necessary to examine whether the prohibitory order was valid. In the following decisions the High Courts have held that a prohibitory order under section 132(3) to be considered valid, the department should show the existence of circumstances showing "that it is not practicable to seize any books of account, other documents, money, bullion, jewellery or other valuable article or thing." The prohibitory order under section 132(3) is often issued when this precondition is not satisfied. This is often done to prolong the pressure situation under which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dly exercised. If it is found that there was no need to pass order under section 132(3), such panchnama should be ignored for the purpose of seeing whether order under section 158BC is within time limit under section 158BE. A search should not be prolonged by clamping Prohibitory Order frequently but should be concluded within shortest possible time. For this purpose he relied upon the decision of ITAT, Bangalore in Esqnda Finance Leasing Ltd. v. Asstt. CIT [IT (SS) No. 136 (Bang.) of 1997 dated 17-3-1999]. It was argued that if the time limit under section 158BE, read with Explanation 2 thereto is to start from last of the Panchnama, such panchnama should have ingredients of valid panchnama. The Prohibitory Order under section 132(3), should also be a valid order which should justify the action of P.O. It is not correct to say that ITAT being a creature of statute has no power to examine such action of Assessing Officer because of which time limit gets extended. Though it can be examined by High Court, in a writ petition under Article 226/227 of the Constitution, at the same time it cannot be said that such thing cannot be examined by ITAT before whom appeal lies, wherein the grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 32 have taken place. Hence, there is no jurisdiction to be assumed. The search itself is conducted by a separate wing of the Department and the Assessing Officer has no hand in it. Section 132 is a code in itself and no appeal has been provided for in connection herewith. The Assessing Officer cannot sit in judgment over any of the proceedings under section 132. Section 132 proceedings are only one of the methods of collection of data or information for enabling the Department to complete an assessment. The seized materials; copies of panchnamas (with copies of P.O.'s attached) are handed over to Assessing Officer. He does not get the authorization/satisfaction note, etc.). He gets P.O. copies only for the limited purpose of determining the place where the materials were seized [for determining presumption under section 132(4A)]. In effect the Assessing Officer has mainly the panchnamas/seized materials. Whatever materials he wishes to use against the assessee, has to be put to the assessee and all principles of natural justice should be complied with. Then the Assessing Officer proceeds to pass the order of assessment. Reliance was placed upon the Karnataka High Court decision in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as were before the Assessing Officer when he framed the order of assessment. Any objections that the assessee has, will have to be primarily brought out before the Assessing Officer. For example, the limitation issue will have to be first taken up before the Assessing Officer, who will adjudicate upon the same, based upon copies of Panchnamas in his possession. The Assessing Officer would apply the principles laid down under section 158BE [read with Explanation (2)]. He can verify whether the Panchnama is valid and has been prepared in accordance with the provisions of the Code of Criminal Procedure, but he cannot sit in judgment over the issue of search warrant or over any of the proceedings which are noted in the panchnama. This is because he does not have these papers with him. He only uses the search materials to the extent necessary to prepare an order of assessment. 5.4 It was further submitted that, there may be situations where notice under section 158BC might have been issued without there being a search at all. The Hon'ble ITAT would be entitled to look into this aspect as there would be no Panchnama at all. If the search proceedings are quashed, the assessment made is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... place. Other proceedings under section 132 [including 132(3) proceedings] cannot be gone into. Adverting to decision of the Madras High Court decision in Elgi Equipments Ltd.'s case it was agreed that it lays down that acts of lower authorities, beyond the statute can be struck down. However the search wing is not a lower authority, which is a party to the appeal before the Hon'ble ITAT. Hence, the ratio of the decision of the Madras High Court does not apply to the issue on hand. Further, the decision of the Madras High Court was on the issue that the statutory authorities should not give effect to Board Circulars which are opposed to the provisions of statute. Section 255(6) lays down that the Hon'ble ITAT has the powers vested in the Income-tax Authorities (under section 131). This does not lay down the scope of the appeal before the Hon'ble ITAT. 5.5 Dr. Krishna further submitted that, ITAT is a creature of statute. It can have only such powers as are conferred on it. No powers can be inferred. In Md. Kunhi's case (71 ITR 815) Hon'ble Apex Court was concerned with the rights of the Hon'ble ITAT to grant a stay. Though power of stay is not provided for under the statute, howeve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of proceedings of search, seizure, P.O. or any other action under section 132. Seizure is only one of the powers under section 132(1). There could be exercise of other powers (like placing marks, inventory, etc.). Every search need not result in seizure. Proceedings under section 132(3) are peculiar to the IT. Act. No analogous power exists under the Code of Criminal Procedure. Even section 102 of the Cr. P.C. is not analogous to section 132(3). Section 102(3) of Cr. P.C. is akin to second proviso to 132(1). The Cr. P.c. has no provision equivalent to section 132(3). Section 132(13) of the Act which imports the provisions of Cr. P.C. does not refer to 132(3). The intention of the section 132(3) is to enable the authorized officer to take a little time to determine the nature of materials found in the course of the search. The authorized officer may find some material which is undisclosed and others which are voluminous requiring time to form an opinion. The authorized officer may place all these materials under P.O. for a maximum period of 60 days to scrutinize these at his leisure. The assessment records of the assessee are, more often than not, in the office of the Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itation may become academic on certain facts. The Act has to be interpreted to uphold the mandate of Legislature. As the provisions of section 132(3) are a part of search proceedings and elongates search proceedings, the answer to question (2) would be in the negative. The panchnama may be prepared even if a seizure is not made, section 158BE (explanation 2) does not refer to search proceedings; but only to a panchnama which alone can be looked into by the Hon'ble Tribunal in appellate proceedings. Therefore the answer to question No.3 should be in the affirmative. 5.8 Adverting to the arguments of Shri Nagaraja Rao, Counsel of Intervenor-1, it was submitted by Mr. Amitabh Kumar, Departmental Representative, CIT, that search operations under section 132 need not result in a seizure at all. It is still in a valid search and a Panchnama needs to be prepared. Hence, a panchnama (being record of proceedings) is to be prepared even if no seizure is made. A search can also result in the following consequences: (a) Seizure under section 132(1) (b) P.O. under section 132(3). The P.O. under section 132(3) is akin to an interim order passed in court proceedings. Such an order is a part of pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on which the earlier panchnama was drawn [as no panchnama is prepared in connection with an order under section 132(8A)]. Such interpretation harmoniously blends the provisions of section 132 with 158BC and 158BE. No doubt the point of limitation is a question of fact and such point can always be determined by the Hon'ble Tribunal by perusing the panchnamas drawn up in the course of the search. The copies of the panchnamas are with the Assessing Officer and the Assessing Officer and the Hon'ble Tribunal are both entitled to verify whether the panchnamas were prepared in accordance with the provisions of the Cr.P.C. The point of limitation can always be fixed by the Hon'ble Tribunal by a plain reading of the Panchnamas legally prepared. The Hon'ble Tribunal cannot go into the legality of the proceedings of which the Panchnama's are a record. Based upon such panchnamas, the Hon'ble Tribunal can decide the point of limitation fixed under section 158BE [read with explanation (2)]. As regards, Tarsem Kumar's case of Hon'ble Supreme Court, Mr. Amitabh Kumar submitted that the case was with reference to articles seized by the customs authorities. The IT Commissioner issued warrant of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her, it also does not have any persuasive value. The Bombay High Court decision does not answer any of the questions referred for the adjudication of the Hon'ble Special Bench. The first question referred pertains to the jurisdiction of the Hon'ble Tribunal, which was neither raised nor answered by the Bombay High Court. The Bombay High Court merely endorsed the decision of the Hon'ble ITAT and dismissed the appeal of department in limine. The thrust of the decision was on the point of execution of warrant. As per the warrant, it was executed on 16-10-1996. Hence, the ITAT fixed the limitation on this basis concluding that the search is over when the warrant is executed. This is peculiar to this case because, the Assessing Officer was forced to write 'Executed' since the assessee refused to acknowledge that warrant was shown to him. The issue of legality of order under section 132(3) was only incidental and the final decision did not turn on this issue at all. On the contrary, the Hon'ble Court was influenced by patent defects in the Panchnama drawn, which made it non estin the eyes of the law. The Bombay High Court does not, therefore, lay down any principle connected with the que ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... items found, items seized, etc. It also contains a statement that warrant of authorization duly signed and dated was shown to the assessee for commencement of search and that search was conducted in a cordial manner or if otherwise the narration thereof. This panchnama is countersigned by Assessing Officer and the assessee or person in charge of assessee for having received copy of panchnama. If the Assessing Officer finds it impracticable to seize any books, valuables etc. he may pass an order under section 132(3) which is generally valid for a period of 60 days. Within such time, the Assessing Officer may either revoke the order and conclude the search, or the Assessing Officer may extend the Prohibitory Order for a further period as per procedure prescribed under section 132(8A) of the Act. 6.2 The first question referred to the bench is limited to the extent of determining whether the assessment order passed in respect of block period is within the limit prescribed under section 158BE or not, and for this purpose whether the Tribunal can scrutinize/examine the search activity from the commencement of search till its completion. For passing an order under section 1 58BC in resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remises searched to take stock of the situation. For each such visit, a panchnama is prepared. Thus, depending upon the prevailing situation the Assessing Officer is required to visit the places time and again, wherein he may go on assessing different materials found and decides on either releasing the same or seizing the same. The visit of Assessing Officer is also as per the convenience of both, Assessing Officer as well as the assessee. To suit such convenience, the so-called search may be prolonged. To have a record of each such visit, a panchnama is prepared. Finally when nothing remains to be seized or released, a final panchnama is prepared declaring that search is concluded. For all these, though no different authorization warrant is required, yet so long as certain material is lying at the premises searched pending the decision either to seize or release, search cannot be said to have concluded. The law-making authority, in its wisdom has added the explanation 2, to section 158BE to intend as above. Though Income Tax Appellate Tribunal (ITAT) is an authority to decide whether the order under section 158BC(c) is passed within the limit prescribed under section 158BE or not, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undergone a change and hence 'action under section 132(3) needs also to be looked into in an appeal before the ITAT. We are not convinced with the arguments. Though Chapter XIV-B is newly introduced, section 132 has not undergone a change and is same as prior to introduction of this chapter. Even earlier, no appeal could be filed against action under section 132. Unless mala fides are alleged, even a writ petition to the Hon'ble High Court does not lie against proceedings under section 132. 6.3 Income Tax Appellate Tribunal has power prescribed under the Act. In respect of powers conferred, there are no limits or boundaries in exercising the same. There may also be collateral powers in respect of originally vested powers. To sum up, we hold that Income Tax Appellate Tribunal needs to examine the search activity from beginning to determine whether the assessment made under section 158BC is within the limitation prescribed under section 158BE. If the assessment order is not passed within the time limit, it is a nullity. To decide whether an order is valid in eye of law, and to arrive at a conclusion that the block assessment is within the limitation period fixed, it becomes necessary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 158BC is in respect of a person against whom search was conducted under section 132 is conducted. 6.5 It is only an order passed under section 158BC(c) that is appealable before the ITAT. An order under section 158BC(c) can be passed in case of a person in whose case action under section 132 has been conducted. Thus it is pre-supposed that there should be action under section 132. Now when it is said that there has to be action under section 132, it does not mean that there may be invalid or illegal action under section 132. If it is challenged that either there is no action under section 132 or the action is prima facie, illegal or invalid, it is not only right of Income Tax Appellate Tribunal but also duty of the ITAT to examine relevant papers and documents which leads to conclusion that there is valid action under section 132 which culminated into valid order under section 158BC(c). At this juncture we may also make it clear that what is to be looked into by Income Tax Appellate Tribunal is that there has to be valid documents. However, Income Tax Appellate Tribunal cannot and need not look into or examine whether there was any need to proceed under section 132 by issui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rched, the same is kept under P.O. On a subsequent visit, which may be according to convenience of both the Assessing Officer and the assessee, the P.O. is revoked and depending upon the circumstances, further P.O. is either clamped or the search is concluded. In all these visits also a panchnama is prepared. Thus as per explanation 2to section 158BE, the limitation will commence from the last panchnama drawn stating that the search is concluded. The arguments of learned counsels for assessee and intervener is that the subsequent visit is only a visit and not a search and search is deemed to be concluded once a panchnama is drawn at the end of day one, even though a P.O. is clamped. We are unable to accept the arguments, particularly in view of Explanation 2to section 158BE explaining when the search is said to be concluded. Even otherwise, so long as certain material and valuables are under P.O. at the place searched, no one can conclude whether the material and valuables represent undisclosed income. Unless both the parties, namely the revenue authorities and the assessee have a relook in the matter which is either seized, or released, it is impossible to arrive at a primary conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion amendments in procedure for block assessment: To set at rest, the controversy regarding the meaning of the word "execution" while calculating the period of limitation in section 158BE, the Bill proposes to clarify that execution means conclusion of search as recorded in the last panchnama drawn in relation to any person in whose case the warrant of authorization has been issued. In the case of requisition under section 132A, it will mean actual receipt of the Books of account or other documents or assets by the authorized officer. The proposed amendment is retrospective with effect from 1st day of July, 1995. 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). As per proviso to 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 outer time limit even though prescribed under section 158B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reme Court in case of Seth Bros. at page 843 observed as under: "The Act and the Rules do not require that the warrant of authorization should specify the particulars of documents and books of account; a general authorization to search for and seize documents and books of account relevant to or useful for any proceeding complies with the requirements of the Act and the Rules. It is for the officer making the search to exercise his judgment and seize or not to seize any documents or books of account. An error committed by the officer in seizing documents which may ultimately be found not to be useful for or relevant to the proceeding under the Act will not by itself vitiate the search, nor will it entitle the aggrieved person to an omnibus order releasing all documents seized." Following the decision of Set h Bros.' case Hon'ble Karnataka High Court in Southern Herbals Ltd.'s case on page 65 held as under: "It is, therefore, clear that, before issuing authorization, the authority should record reasons for his "reasonable belief" and the court cannot be asked to substitute its own opinion whether an order authorizing search should have been issued. When the power is exercised bona fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e last of such panchnama which suggests that the search is concluded. It may be a case that in a search under section 132, the Assessing Officer does not seize any articles. The search need not result in seizure of records or valuables. At the end of the search, the Assessing Officer may release all the books, valuables, etc. and still he is competent to pass an order under section 158BC(c). An order under section 158BC(c) does not pre-suppose seizure of articles. An order under section 158BC(c) is to be passed in respect of undisclosed income found as a result of a search. In view of the discussion above, we answer the second question in the negative. 8.1 We shall now discuss the third and last question referred. Though the question is not happily worded yet by fragmenting the question, the answer can be given. The first limb of the question is that if on commencement of search there are certain seizures under section 132(1), as well as passing certain prohibitory order under section 132(3), does the search come to an end? 8.2 While answering the question number 2, we have opined that if a P.O. is passed at the premises of assessee under which certain books, records or valuables a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch as once the material is under P.O., the contents of the same is known and hence examining such material does not amount to search. For this proposition support was sought from the decision of the Hon'ble Supreme Court in Tarsem Kumar's case. Weare unable to accept the contention of the ld. Authorised Representative. The facts of the case and law pronounced thereon are entirely different to the present set of facts. The decision of the Hon'ble Supreme Court does not support the theory propounded by Mr. Venkatesan. It is never held by Hon'ble Supreme Court that if an item is under a P.O., its entire contents are always known to the revenue authorities and hence panchnama prepared suggesting a P.O. is to be ignored for purpose of reckoning the time limit. We are in total agreement with the argument of Dr. Krishna that after introduction of section B2A, the decision of Tarsem Kumar's case has no relevance. 8.4 At this moment, we would also like to refer to the decision of Income-tax Appellate Tribunal, Bangalore Bench in case of Microland Ltd. v. Asstt. CIT [1998] 67 ITO 446. The decision was strongly relied upon by ld. A.R.for the proposition that if there is no valid warrant of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at, for commencement of time limit under section 158BE, what is to be seen is the date of last valid panchnama. Seizure or absence of seizure will not determine validity of panchnama. What section 132(13) suggests is that the Code of Criminal Procedure, 1973 (2 of 1974) relating to search and seizure shall apply, so far as may be, to searches under section 132(1). Thus as per the Criminal Procedure Code, what is to be seen is valid panchnama only and not seizure resulting from such search. It is not the intention of Legislature to suggest that if there is no final seizure, the panchnama releasing the material from P.O. is to be ignored. An action under section 132(1) and 132(3) is purely an administrative act and not a quasi-judicial order. Thus we are of considered opinion that if an order under section 132(3) is passed, which is indicated in a valid panchnama drawn (whether such material under P.O. is seized or not) such panchnama is to be considered as valid for the purpose of calculating the time limit prescribed under section 158BE. We therefore answer the third question in the affirmative. 9.1 We shall now revert to the facts of the present case and decide whether the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 95 only and hence order under section 158BC(c) should have been passed on or before 31-12-1996. Since the order under section 158BC(c) in present case is passed on 28-1-1997, same is not within time prescribed under section 158BE and invalid. 9.3 The ld. D.R. Mr. Radhakrishna submitted that in the past the assessee lever filed any return under section 139 of the Act. Thus entire material found should be treated as relating to undisclosed income only. At first instance, the search which commenced on 5-12-1995 at 8.15 AM in the morning was temporarily concluded at 7.00 PM. A t that time explanation of assessee was required on various material found. The Assessing Officer therefore issued a P.O. and asked the assessee to appear on 8-12-1995. As requested by assessee, the hearing was adjourned to 2-1995, on which date also, assessee did not appear. Ultimately, as per convenience of both, the Assessing Officer and assessee, search was concluded on 24-1-1996. There is a valid Panchnama for conclusion of search on 24-1-1996. Thus the time limit to pass an order under section 158BC shall be 31-1-1997 as per section 158BE read with explanation 2 thereto. Thus the order is within time limit. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal is the order under section 158BC(c) and not the authorization issued under section 132 or the conduct of search under section 132. The reference to section 132 in clause (b) of section 253 (1) is only for specifying the period within which the search must have been conducted for the direct appeal to lie before the Tribunal in respect of an order under section 158BC(c). The reference to section 132 in section 253(1)(b) does not render search action the subject of appeal before the Tribunal. As there is no right of appeal before the Tribunal in respect of search under section 132, it appears to me that the Tribunal cannot go into the question about the validity of the authorization issued under section 132, or even the mode of conduct of search in pursuance of the authorization, which includes such questions as - whether the prohibitory order under section 132(3) was validly issued or not. For ascertaining the limitation period for the completion of assessment in terms of section 158BE read with Explanation-2 thereto, the Tribunal cap go into only those aspects of the search as are necessary to decide the question of limitation, These aspects include questions like whether th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e learned counsel for the assessee that a prohibitory order under section 132(3) may be extended beyond a reasonable period just to extend time limit for completion of block assessment in terms of Explanation 2to section 158BE does not seem to have such substance because that contention is based only on an apprehension of collusion between two distinct functionaries though of the same Department and such collusion is improbable and cannot be presumed. 11.6 The search material along with Panchnama is handed over by the authorized officer to the Assessing Officer and the Assessing Officer comes into picture only at this stage for assessment purposes. As the issue of notice calling for return is mandatory as mentioned above, the Assessing Officer obviously cannot sit in judgment over reasons for the conduct of the search which includes questions regarding the prohibitory order imposed under section 132(3). He can go only into such basic questions as are mentioned hereinabove, for ascertaining the time limit for completion of the assessment. 11.7 I also find merit in the contention of the learned counsel for the Department that the jurisdiction of the fist appellate authority in coterm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the illegality of the search does not render the evidence collected inadmissible, it actually serves no purpose even if it is held that the Tribunal can go into questions involving the legality of the search or the legality of the prohibitory order under section 132(3). 11.10 It has been argued that a Panchnama which does not record a seizure is not a Panchnama and so, should be ignored for the purpose of counting limitation in terms of the Explanation 2 to section 158BE. It is contended that an order under section 132(3) does not elongate the search unless the relevant Panchnama is a Panchnama of search. A distinction is made between what are described as a Panchnama of search and a Panchnama of visit. The former records a seizure whereas the latter does not. This contention does not seem to be borne out of the language of the Explanation 2 to section 1 58BE. The provision refers only to the 'last panchnama' drawn up, and does not seem to imply a distinction between different categories of panchnamas. The expression 'last panchnama' implies earlier panchnamas drawn up in the course of execution of an authorization issued under section 132. If the order under section 132(3) does n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat search shall have to be conducted; the court has to see that the belief was reasonable, in the sense, that it was formed on the basis of relevant material (information) the court cannot substitute its own opinion as to the reasonableness of the belief. The court has to examine to see whether the belief is an irrational or blind belief, formed out of prejudice or the result of relying on wild gossip or baseless rumors, etc. In this regard the relevant principles enunciated by the Supreme Court will be referred to in due course, hereinafter, suffice if I state here that it is not permissible for the court to sit in appeal over the belief formed by the officer issuing the authorization and the court cannot venture to reappreciate the materials available to the said officer to see whether the belief formed was correct or erroneous. There is a difference in law between an incorrect inference drawn from certain basic facts and the relevancy of those basic facts to the inference drawn. In the former case, the incorrectness of the inference drawn can be rectified or nullified by a superior authority or court, provided the law permits it to be rectified. The said rectification or nullif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pportunities for the same through its welfare activities. Therefore, when prevention of tax evasion measures are taken and unearthing of hidden wealth is aimed at by recourse to the power of search and seizure, all that the court can examine is to find out whether there is a relevant basis for the exercise of the said power by the State or its officers. An arbitrary invasion of the rights or liberties of the citizen is not permissible and the court's role as the guardian of the fundamental rights is to see whether the State's action is arbitrary or unauthorized. To form a particular opinion and. take a decision to act under a given set of circumstances as provided under the law is the exclusive function of the administrators. The process of arriving at the decision should not be vitiated by irrationality or irrelevancy because, in such a case, the resultant decision will become arbitrary. There is vast and qualitative difference between an administrative act and a judicial act in spite of the recent dilution of the concept of an administrative action. Assuming that power to order search and seizure is a quasi-judicial (though I do not think so), the scope for judicial scrutiny of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shows that judicial review is excluded. If discretion is conferred on A.B., "if he is satisfied", or "if he considers it necessary", or "where it appears to him that there is reason to believe", it is clear that the exercise of the discretion cannot be reviewed, first, because it relates to A.B.'s state of mind, and if he says that it existed, it is next to impossible to prove that it did not, and secondly, because the court cannot substitute its own state of mind for that of A.B." It is because of such considerations as are contained in the above remarks of Seervai, the Hon'ble Karnataka High Court in the case of Southern Herbals Ltd. has held that to form a particular opinion and to take a decision to act on the given set of circumstances as provided under the law is exclusive function of the administrator. So, the question whether search was properly conducted and whether a prohibitory order imposed by the authorized officer was justified in the given circumstances seem to be matters which if at all, are amenable for consideration only by the Hon'ble High Court in exercise of its writ jurisdiction. 11.14 The Hon'ble Karnataka High Court has observed that the writ jurisdiction is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 132(8A). These two provisions throw up what may be described as a 'hen and egg' syndrome. Limitation has to be counted in terms of Explanation 2 to section 1 58BE from the date of last panchnama. But, in terms of proviso to section 132(8A) as it stood during the relevant period, the prohibitory order could be extended up to a period of 30 days from the date of completion of all the proceedings in respect of the block assessment and so on, the last panchnama could be postponed beyond the completion of the assessment. Obviously, the circular link has to be broken. It is claimed on behalf of the Department that in such a situation, no limitation for completion of assessment applies. This contention has only to be mentioned to be rejected. It is also claimed on behalf of the Department that prohibitory order is like an interim order in main proceedings and an interim order sometimes can be extended beyond the closure of the main proceedings. It is explained that such a situation as contemplated under proviso to section 132(8A) arises when certain assets like fixed deposits held by the assessee in a bank are involved. When proviso to section 132(8A) is involved, the order under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces of the instant case roped with the issue in adjudication before us, however much I persuaded myself to dissent from the views proposed and supplemented by my learned Brothers, I fail very often in succeeding to dissent so because of the erudition reflected in the orders of my counter parts of this Special Bench. While so, I was contemplating as to whether a separate order is necessary by me to be written as below but I could not resist my temptation of doing so because of the tremendous efforts and untiring zeal had by the learned representatives of the assessee with that of the interveners and of the Department with its learned Standing Counsel presenting before us their respective stand in their own inimitable style highlighting the various provisions of law and copious case laws even under different enactments showering non-stop like torrential rain overflowing even to the next week of that week of hearing, thus inundating us to sail over and reach our destination of decision which we are rendering hereby. All the learned representatives before us on both sides including for the interveners in this proceedings, in particular of the instant assessee and the Standing Counsel o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bench began its hearing as scheduled without adjourning the case by rejecting the request of the Department but having its prayer for reconstitution being granted. In response to the assessee's prayer that let the Department give in writing that it does not have objection for the present constitution, the Department also filed its no objection in writing on record for the existing Members to commence the hearing and adjudication proceedings upon questions referred. The hearing that commenced in the week also spilled over the next immediate week with marathon arguments advanced by the learned representatives on behalf of the assessee and for the interveners, besides by the learned Standing Counsel for the Department and also by the learned Departmental Representatives. 15. The learned counsel for the assessee submitted at the outset that they were not given opportunity of being heard regarding framing of the questions to be answered by the Special Bench and further in their view of the matter, the questions were not happily worded. It is also submitted by them that they are not furnished with copies of the petition of the Department praying for Special Bench or of the recommendatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore especially when the Judicial Member was a common Member to both the views expressed aforesaid. The Hon'ble Supreme Court held in various judgments such as in Srivenkateswara Rice, Ginning Groundnut Oil Mill Contractors Co. v. State of AP [1971] 28 STC 599 and Aditya Minerals (P.) Ltd. v. CIT [1999] 236 ITR 39 that it is not proper to have such inconsistency in the views or decisions taken and the case should be referred to a larger Bench if a contrary view has to be taken. These are the gist of the Department's petition highlighted with the following too. 16.3 A number of assessments have been completed under section 1 58BC by the Department on the basis that the period of limitation runs from the date on which the prohibitory order under section 132(3) was finally lifted and the search proceedings closed and appeals against a large number of such orders are pending, with heavy stakes involved. The decision on the issue of limitation would have a repercussion on search assessments made all over India and that the issue involved is serious enough to warrant the constitution of a Special Bench to authoritatively pronounce upon the issue once for all so that the major controversy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f ITAT v. Dy. CIT [1996] 218 ITR 275 (SC) holding that the power of the President to constitute Special Bench may also be exercised administratively, thus reversing the decision of the Hon'ble A.P. High Court. 17.3 A mere look at sub-section (1) of section 255 of the Income-tax Act, 1961 shows that it is the administrative function of the President to constitute Benches from amongst the members of the Tribunal for exercising its powers and functions. Similarly, section 255(3) empowers the President for disposal of any particular case to constitute a Special Bench consisting of three or more members, one of whom shall necessarily be a Judicial Member and one an Accountant Member. The functions under section 255(1) and (3) entrusted to the President are obviously administrative functions. They have nothing to do with the exercise of any judicial power. It is of course true that as per section 255(5), the Tribunal can regulate its own procedure and the procedure of Benches and for that purpose can frame appropriate regulations. In exercise of that power the Tribunal has framed regulations in its office manual. 17.4 Regulation 98A says that the concerned Bench which is seized of the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nch can be constituted by the President only pursuant to a judicial order and not in exercise of his administrative powers. It is of course true that in any pending matter before a Bench of two learned Members, if it is felt by the learned members that a Special Bench is required to be constituted, they can pass a judicial order in the light of regulation 98A. But such a situation had never arisen on the facts of the present case. 17.7 Further the Supreme Court was unable to appreciate how the High Court in exercise of its power under Article 226 of the Constitution of India could sit in appeal or judgment over the administrative decision of the President who might have felt that the case was of all India importance and was required to be decided by a larger Bench of three Members. Such an administrative order is not open to scrutiny under Article 226 of the Constitution of India except in extraordinary cases wherein the order is shown to be a mala fide one according to the Apex Court vide: Chaturvedi Pithisaria's Income-tax Law Fifth Edition Vol. V, July 2000. 17.8 In the instant case what has happened is identical. Over the petition of the Department requesting for constitution o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred to it [vide CIT v. Highway Construction Co. (P.) Ltd. [1966] 217 ITR 234, 240 (Gauhati)]. But in the instant case, if the question as prayed by the Department in its petition for reference to the Hon'ble President for constitution of Special Bench and the questions as framed by the then Vice-President approved by the President and referred to the Special Bench for being answered are seen, it may give the impression as to whether they arise out of the grounds of appeal raised by the assessee in the instant case. A perusal of the grounds of appeal would reveal only challenging the order dated 28-1-1971 of the ACIT under section 158BC of the Act for the block period 1-4-1985 to 5-12-1995 as erroneous regarding several additions and disallowances made and confirmed. Nowhere in the grounds of appeal all the aspects of the issues involved as reflected from the questions referred to the Special Bench do arise. However, it appears that the assessee has raised additional grounds of appeal which are on record and it is noted that the 1st additional ground of appeal gives rise to, may be only some aspects of, the questions referred to the Special Bench. May be argued that the additiona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to have been admitted especially when these questions are also substantial questions of law that very frequently arise in search and seizure cases as the instant one being of All India importance, more so when there are conflicting decisions over it and when it is a settled proposition of law that such kind of questions involving law could be raised at any stage of the proceedings, besides the fact that the decision of Special Bench binds on all the Benches of the Tribunal throughout the country and the President has also therefore constituted the Special Bench by approving those three questions recommended by the then Vice President, whether or not such a constitution of Special Bench is framed under section 255(1) or (3) of the Act. Thus any argument against answering these questions by this Special Bench is liable to be overruled before proceeding further in this matter. 19.1 The learned counsel for the assessee along with those of the interveners, besides the learned Standing Counsel for and learned representatives of the Department, in the course of their arguments, referred to the following case laws: Union of India v. Kaumudini Narayan Dalal [2001] 249 ITR 219 (SC)/Union of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Mad.), CWT v. Sripat Singhania [1978] 112 ITR 363 (All.), ITO v. M.K. Mohammed Kunhi [1969] 71 ITR 815 (SC) at p. 819, Paras Laminates (P.) Ltd.'s case at. p. 726, Punamchand R. Shah v. ITO [1975] 101 ITR 373 (Mad.) at p. 382, Sardar Santosh Singh's case at p. 535, State of Rajasthan's case, CIT v. Rayala Corpn. (P.) Ltd [1995] 215 ITR 883 (Mad.) at pp. 894 898, Ashok Singh's case at pp.165, 169, Ram Jas v. State of V.P. AIR 1974 SC 1811, Dharamdeo Rai v. Ramnagina Rai AIR 1972 SC 928, Andhra Bank v. Dy. CIT [2002] 255 ITR 1 (AP.), Digvijay Chemicals Ltd. v. Asstt. CIT [2001] 248 ITR 381 (All.), Clause 48 of NOC, Para 71 Finance Minister's Budget Speech, CIT v. N.C John Sons Ltd. [2002] 253 ITR 524 (Ker.), McDowell Co. Ltd. v. CTO [1985] 154 ITR 148 (SC), Virinder Bhatia's case, Siemens India Ltd. v. K. Subramanian, ITO [1983] 143 ITR 120 (Bom.) at p 139, Suraj Mall Mohta Co. v. A.V. Visvanatha Sastri [1954] 26 ITR 1 (SC), Verma Roadways v. Asstt. CIT [2000] 75 ITD 183 (All.) at p. 222, Deen Dayal Goyal's case, Garware Nylons Ltd.'s case, Pooran Mal's case, Dr. Partap Singh case, Ramkishan Shrikishan Jharver's case, Southern Herabals Ltd.'s case, Page 7 para 2 Shri H V. Srinivas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... search Section 100 of Cr.P.C. Power of Police Officer to seize certain property Section 102(3) of Cr.P.C. VI. Interpretation clause:. Section 3 of the Indian Evidence Act, 1872 in Law of Evidence by Dhirajlal. VII. Power of High Court for issue of certain writs. Art. 226 of the Constitution of India. Power of superintendence overall courts by the H.c. Art. 227 of Constitution of India. VIII. Rajah Chellaiah Committee Report 1992. IX. H.M. Seervai: Constitutional Law of India 4th Edition Vol. II, 1500, 1508 pages. 20.1 The submissions made by both the parties on the merits of the questions also have been heard, besides going through the aforesaid case laws relied upon by both the parties as well as the provisions of law cited above referred to and interpreted by rival contenders, both respectively. As has been submitted by both the parties before us and also as observed by my learned colleagues, the questions framed are not happily worded. Yet in the light of the submissions made over them and highlighted by the case laws relied upon and under the relevant provisions of law referred to above, the questions have been attempted to be answered by us. From the aforesaid questions referr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions as to whether the search is mala fide or valid under law and whether the prohibitory order under section 132(3) is justified or whether the panchnama has to be ignored as it has not recorded seizure. When going into the question of search is beyond the jurisdiction of the Assessing Officer for the reason that he is not in possession of the material that led to the search, the appellate authority viz. the Tribunal too cannot. Even if search is bad in law and therefore what is seized must be returned to the assessee, the evidence is still admissible for assessment purposes. Hence, to hold that the Tribunal could go into the questions of even legality of search or of prohibitory order under section 132(3), would be meaningless. Only about the validity of assessment under section 158BC(c) and not of search under section 132 could be appealed against before the Tribunal. Recovery of seized material or retention of assets under section 132(5) cannot be a subject-matter in the appeal before the Tribunal. 20.3 Search proceedings can be challenged only before the High Court in its writ jurisdiction and therefore not before the Tribunal. When search proceeding is essentially of investig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Bench. 10 46 ---------------------------------------------------------------------------------------------- Sl. No. Particulars Para Page ---------------------------------------------------------------------------------------------- Supplemented Order 11 - 12 46 -58 ---------------------------------------------------------------------------------------------- a. Questions loaded in favour of 11.1 46 Assessee b. Appeal is a creature of Statute 11.2 46 c. No. right of appeal under section 11.3 47-48 132 before Tribunal 11.3 d. Assessing Officer cannot go into 11.4 48 the question of search 11.4 e. Authorized Officer Assessing Officer 11.5 48 - 49 cannot collude f. Assessing Officer cannot sit in Judgment 11.6 49 over Authorized Officer g. Appellate Authority cannot exceed 11.7 49 Assessing Officer's purview h. Validity of Assessment Order and not 11.8 50 Search appealed before Tribunal i. Validity of search order or PO too cannot 11.9 50 be appealed before Tribunal. j. Panchnama 11.10 50 - 51 k. Search action assailed before High Court 11.11 51 - 52 only and not Tribunal l. Southern Herbals Ltd. v. CIT 11.12 52 - 54 m. Judicial Review of Administrative Action 11.13 54 - 55 n. Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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