Source: https://taxcaselaw.com/income_tax_case_laws/section-132/orissa-h-c-whether-in-the-absence-of-warrant-in-the-name-of-an-assessee-the-search-conducted-in-its-premises-is-a-valid-search-as-contemplated-under-section-132/
Timestamp: 2019-04-21 18:54:21+00:00

Document:
B.P. Das And B.N. Mahapatra, JJ.
B.N. Mahapatra, J. – All the above seven appeals have been filed by the appellant under section 260A of the Income-tax Act, 1961 (for short “IT Act, 1961”) challenging the common order dated July 27, 2009 passed by the Income-tax Appellate Tribunal, Cuttack Bench, Cuttack (for short, “the ITAT”) in IT (SS) A Nos. 39 to 45/CTK/2008 pertaining to the assessment years 2000-01 to 2006-07.
“(i) Whether in the absence of warrant in the name of an assessee the search conducted in its premises is a valid search as contemplated under section 132 of the Income-tax Act, 1961 ?
(ii) Whether initiation of a valid search as contemplated under section 132 of the Income-tax Act, 1961 in case of a person is a pre-requisite to issue notice for making assessment/reassessment under section 153A of the Income-tax Act, 1961 in respect of such person ?
3. Since the appellants are the same and common questions of law are involved in all the appeals, they are heard together and disposed of by this common judgment.
4. The short facts leading to the present appeals are that the appellant-Siksha “O” Anusandhan (for short “the society”) is a society registered under the Societies Registration Act, 1860. It was created for charitable purpose to impart technical education. Accordingly, an engineering college known as I.T.E.R. and other educational institutions have been established in Bhubaneswar. The society has been conferred the status of “deemed university” by the University Grants Commission. The appellant-society got registered under section 12A of the Income-tax Act, 1961. The appellant has been assessed as a charitable-society by the assessing authority on its returned income. According to the appellant, pursuant to two search warrants issued in the name of Dr. Manoj Ranjan Nayak, search and seizure operations were carried out in the residential premises of Dr. Manoj Ranjan Nayak, the president of the society at 195, Dharma Vihar, Khandagiri, Bhubaneshwar and at 224 Dharma Vihar, Khandagiri, Bhubaneshwar on August 9, 2005 and August 10, 2005. In the course of search, the authorized officer seized the books of account, documents etc. of the appellant-society from 224, Dharma Vihar, Bhubaneshwar. Pursuant to such search and seizure operations, assessment proceedings under section 153A of the Income-tax Act, 1961 were initiated against the appellant and a tax demand of Rs. 15,35,75,989 was raised for the seven assessment years, i.e., 2000-01 to 2006-07. The appellant challenged the assessment orders passed under section 153A of the Income-tax Act, 1961 by filing appeals before the Commissioner of Income-tax (Appeals) (for short, “the CIT(A)”) and having been unsuccessful before the said forum, it preferred appeals before the Income-tax Appellate Tribunal. Before the learned Income-tax Appellate Tribunal, the appellant raised an additional ground that as no search warrant was served on the appellant, proceedings initiated under section 153A of the Income-tax Act, 1961 are not legal. The learned Income-tax Appellate Tribunal by the impugned order remitted the matters to the Commissioner of Income-tax (Appeals) with a direction to first decide the additional ground raised by the assessee in accordance with law and, if required, the other grounds on the merits after affording due opportunity of hearing to the assessee.
5. Mr. S. Ray, learned counsel appearing on behalf of the appellant submitted that the order passed by the learned Tribunal is totally erroneous, illegal and irrational. Relying on the provisions of section 132(1) of the Income-tax Act, 1961 read with Form 45 of the Income-tax Rules, 1962 (for short “the Rules”), he argued that the main purpose of section 132(1) of the Income-tax Act, 1961 is to unearth undisclosed income. A search operation cannot be conducted in a wild manner. Relying on the decisions of the Punjab and Haryana High Court in S.C. Sibal v. CIT  106 ITR 102 (Punj. & Har.) and Manmohan Krishan Mahajan v. CIT 107 ITR 420 (Punj. & Har.), he argued that in the absence of a proper search warrant the proceedings under section 153A of the Income-tax Act, 1961 against the assessee are invalid. It was further argued that the assessment proceedings as contemplated under section 153A of the Income-tax Act, 1961 can only be initiated against a person in whose case search operation has been initiated under section 132(1) of the Income-tax Act, 1961. The assessment proceedings initiated and completed under section 153A of the Income-tax Act, 1961 in the absence of initiation of valid search as contemplated under section 132 of the Income-tax Act, 1961 are illegal. Placing reliance on the decision of the Delhi High Court in Ajit Jain v. Union of India  242 ITR 302 (Delhi), which has been approved by the Hon’ble Supreme Court in Union of India v. Ajit Jain  260 ITR 80 (SC), it is argued that the condition precedent for making a search assessment is a valid search. The action of the Assessing Officer is without jurisdiction. In support of his contention, he also relied on the decision of the Delhi High Court in CIT v. M.S. Rohini S. Walia  289 ITR 328 (Delhi). He further argued that the learned Tribunal has committed an error in remitting the matters to the file of the Commissioner of Income-tax (Appeals) after a perusal of the record relating to search and after being satisfied that there was no warrant in the name of the appellant-society. In support of such contention, Mr. Ray relied upon the decision of the apex court in National Thermal Power Co. Ltd. v. CIT  229 ITR 383 (SC), and the decision of the Allahabad High Court in CIT v. Mohd. Ayyub and Sons Agency  197 ITR 637 (All). The learned Income-tax Appellate Tribunal should have decided the jurisdictional issue itself instead of remitting the matters to the Commissioner of Income-tax (Appeals) by placing reliance on the decision of the Madhya Pradesh High Court in CIT v. Tollaram Hassomal  298 ITR 22 (MP), which is not at all applicable to the present case. Hence, the order of the learned Income-tax Appellate Tribunal is not sustainable.
6. Per contra, Mr. A. Mohapatra, senior standing counsel appearing on behalf of the Income-tax Department supported the order of the learned Income-tax Appellate Tribunal. It was vehemently contended that even if there is any illegality in the search warrant, the same would not invalidate the search assessment proceedings initiated under section 153A of the Income-tax Act, 1961.
(v) make a note or an inventory of any such money, bullion, jewellery or other valuable article or thing : . . .
8. Section 132 prescribes that the competent authorities are empowered to permit the authorized officers to enter, search, break open, seize, place marks of identification and take other steps as contemplated under sub-clauses (i) to (v). However, such powers can be exercised against a person upon fulfilment of certain conditions. Firstly, the competent authority must have information in its possession and, secondly, on the basis of such information it must have reason to believe that the conditions as stipulated in sub-clauses (a), (b) and (c) of section 132(1) of the Income-tax Act, 1961 exist. Sub-clauses (a), (b) and (c) of section 132(1) speak of any person. Search and seizure cannot be sustained unless it is clearly shown that it was done by the authority duly authorized, and all the conditions precedent in relation thereto existed. Thus, before issuance of search warrant in order to take recourse under section 132 of the Income-tax Act, 1961, the authority competent to issue search warrant must be satisfied that search under section 132(1) is needed in respect of a definite person. Satisfaction required under section 132(1) of the Act 1961 is qua the person whose name appears in the warrant of authorization. If search as contemplated under section 132 of the Income-tax Act, 1961 is conducted in the premises of a person without any warrant of authorization in the name of the person searched, or on the basis of a warrant of authorization in the name of some other persons, that would be a clear case of non-application of mind of the empowered income-tax authorities and such a search cannot be held to be valid. It is so, because the belief which forms the foundation of search relates to a definite person who is to be subjected to search. If the contrary is the fact situation, the same would amount to serious lapses and would be in clear violation of the provisions contained in section 132(1) of the Income-tax Act, 1961, as it does not stand the test of section 132 of the Income-tax Act, 1961. Therefore, the most serious content of the warrant of authorization is the name and description of the person whose premises, etc., are sought to be searched.
9. The Punjab and Haryana High Court in Jagmohan Mahajan v. CIT  103 ITR 579 (Punj. & Har.), held that a search authorized in the absence of material necessary to form the requisite belief under section 132(1) on the basis of blank warrant of authorization signed by the Commissioner of Income-tax was illegal and no order under section 132(5) on the basis of such a search could be made.
10. The Delhi High Court in Ajit Jain’s case  242 ITR 302 (Delhi) held that it is axiomatic that search under section 132 has to be a valid search. An illegal search is no search and as a necessary corollary in such a case Chapter XIV-B would have no application. This judgment of the Delhi High Court has been upheld by the apex court in Union of India v. Ajit Jain  260 ITR 80 (SC). The Delhi High Court in CIT v. M.S. Rohini S. Walia  289 ITR 328 (Delhi), held that it would be a futile exercise to entertain appeals where admittedly no search warrant was issued in the case of the assessees and the Tribunal held that unless a search warrant was issued, the Assessing Officer could not invoke the provisions of section 158BC of the Income-tax Act, 1961 for initiation of block assessment proceedings against the assessees.
11. Thus, we are of the view that in absence of any search warrant in the name of an assessee, search conducted in its premises is not a valid search as contemplated under section 132 of the Income-tax Act, 1961.
13. The provisions of section 153A make it clear that only in the case of a person where a search is initiated under section 132 or books of account or other documents or any assets are requisitioned under section 132A after 31st day of March, 2003, the Assessing Officer shall after issuing notice assess or reassess the total income of such person for six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition made. The legislative intent is clear from the use of the expression “such person” in clause (a) of section 153A. The expression clearly relates to a person in respect of whom search under section 132 has been initiated as section 153A itself provides. Thus to exercise powers under section 153A in the case of a person the mandatory requirement is that there must be initiation of a search as contemplated under section 132 or requisition under section 132A of the Income-tax Act, 1961 in respect of such person. In a case where there is no initiation of search as contemplated under section 132, the basic condition for issuance of notice under section 153A does not exist. In order to assume jurisdiction to assess a person under section 153A, there must be initiation of a valid search in respect of such person under section 132 of the Income-tax Act, 1961. The word “person” appearing in section 132 and in section 153A of the Income-tax Act, 1961, is one and the same person. Thus the person, in respect of whom search under section 132 is initiated, is the same person against whom notice under section 153A is to be issued for making assessment/reassessment under that section.
14. In Ajit Jain’s case  260 ITR 80 (SC), the apex court held that valid search is a prerequisite for invoking provisions of block assessment.
15. The Bombay High Court in CIT v. Tirupati Oil Corporation  248 ITR 194 (Bom), held that notice under section 158BC cannot be issued against the firm relating to a search in the case of a partner and therefore held the assessment to be bad in law.
16. In view of the above, we are not inclined to accept the contention of Mr. A. Mohapatra that even if there is any illegality in the search warrant, the same will not invalidate the search assessment proceeding initiated under section 153A of the Income-tax Act, 1961.
17. Therefore, we are of the view that initiation of a valid search as contemplated under section 132 of the Income-tax Act, 1961 in the case of a person is a prerequisite to issue notice for making assessment/reassessment under section 153A of the Income-tax Act, 1961 in respect of such person.
20. The order dated May 5, 2009 (annexure 8) passed by the learned Income-tax Appellate Tribunal in I.T.A. No. 71 of 2009 reveals that the Tribunal had directed the learned Departmental representative to produce the records of the search to examine as to whether search warrant was issued in the name of the assessee or not, and adjourned the case to May 6, 2009. The order of the Tribunal further reveals that both parties argued at length on the applicability of the provisions of sections 153A and 153C. Thereafter, the learned Tribunal relying on the decision of the Madhya Pradesh High Court in CIT v. Tollaram Hassomal  298 ITR 22 (MP), remitted the matter to the Commissioner of Income-tax (Appeals) with a direction to decide first the additional ground taken by the assessee in accordance with law and, if required, the other grounds on the merits after giving due opportunity of being heard to the assessee.
21. Admittedly, the Tribunal after being satisfied that the additional ground taken by the appellant before it to be a question of law and goes to the root of the matter vide order dated May 5, 2009 (annexure 8) directed the learned Departmental representative to produce the records of search to examine as to whether a search warrant was issued in the name of the assessee or not and adjourned the case to May 6, 2009. At this stage, there is no reason as to why the Tribunal being the final fact finding authority could not have recorded its finding on the aforesaid vital jurisdictional issue when consciously the Tribunal called for the record of search. This action of the learned Tribunal, in our view, seems to be unjust.
22. The specific stand of the appellant is that pursuant to the order dated May 5, 2009 (annexure 8) passed by the learned Income-tax Appellate Tribunal directing the learned Departmental representative to produce the records of the search to examine whether search warrant was issued in the name of the assessee, the Revenue produced the search records and the Income-tax Appellate Tribunal after examining the relevant records was satisfied that no such search warrant was issued against the appellant-society under section 132(1) of the Income-tax Act, 1961. In spite of the same, the Income-tax Appellate Tribunal vide its order dated July 27, 2009 remitted the matter to the Commissioner of Income-tax (Appeals) for fresh hearing which is not permissible under the law.
23. Law is well-settled that once the materials are available on record, the appellate court should have disposed of the case on the merits taking those materials into consideration and there is no need to direct remand.
24. The Apex Court in Indian Bank v. K.S. Govindan Nair  13 SCC 697, held that once the materials are available on record, it was for the High Court to have decided the matter on the basis of that materials after appreciation of evidence, and there was no need for directing remand.
25. The Apex Court in Gowrammanni v. V.V. Patil (D)  (II) OLR SC 465, held that the appellate court should have itself disposed of the case on the merits taking into consideration the evidence adduced before the trial court as on the question of identity of disputed land the parties have adduced evidence, the court commissioner was appointed and submitted a report, and he was examined as a witness and duly cross-examined and thereupon the suit was disposed of by the trial court.
26. The Allahabad High Court in Mohd. Ayyub and Sons Agency’s case  197 ITR 637 (All.), held that the power of the Tribunal to permit any party to the appeal to raise the question of jurisdiction, which goes to the root of the matter and does not involve further investigation into facts, cannot be disputed on the plain reading of rule 11 of the Income-tax (Appellate Tribunal) Rules, 1963. Indeed, on such a plea being taken, the Tribunal is under a statutory obligation not only to entertain the plea but also to decide the same after providing sufficient opportunity of being heard to the other side.
27. The Allahabad High Court in A.D. Sons v. Commissioner of Sales Tax  29 STL 37, held that on the facts of the case and in view of the finding recorded in the said impugned order, the Tribunal was in error in remanding the case to the assessing authority for giving second innings to the Department, and it was not open to the Tribunal under the law to do so.
28. However, we find that neither the order of the learned Tribunal nor annexure 8 reveals whether the Revenue had produced the relevant search records pursuant to the direction of the Tribunal vide order dated May 5, 2009. If the records were produced as contended by the appellant, the learned Income-tax Appellate Tribunal should have recorded its findings vis-a-vis the stand taken by the appellant. If the relevant records were not produced by the Revenue pursuant to the order of the Tribunal dated May 5, 2009, the Tribunal should have insisted upon production of the search records in view of the specific stand of the appellant that there was no search warrant in the name of the appellant-assessee, which was the foundation of the jurisdictional issue. After verifying the relevant search records, the learned Tribunal should have taken a decision on the additional ground and should not have remitted the matter to the Commissioner of Income-tax (Appeals) for adjudication on the additional ground that goes to the root of the case.
29. In the fact situation, since we have already laid down the law, the Tribunal has to decide the matter in the light of the legal position highlighted above after verifying the records with regard to the stand taken by the appellant. Because of the inadequate factual findings, we direct the learned Tribunal to rehear the matter. However, we make it clear that if the Tribunal comes to the conclusion that there was no search warrant in the name of the appellant as contended by the appellant-assessee, then it would be open to the Department to make assessment in a manner other than section 153A, if permissible under the law. Our above view gets support from the decision of the apex court in Pooran Mal v. Director of Inspection (Investigation)  93 ITR 505 (SC), wherein it was held that 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.
30. With the above observations, the appeals are disposed of. No costs.
This entry was posted in Sec. 153A, Section 132 and tagged 336 ITR, In favour of Assessee, Orissa High Court, validity of search proceeding, warrant of authorization under section 132A.

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