Deepak R. Shah, A.M. - (1.) IN exercise of the powers vested under Section 255(3) of the IT Act, 1961 (the Act), the President of the Tribunal, 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 be 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 authorisation 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 successive visits that are claimed as searches, which are as carried out on the basis of the only authorisation that was issued initially ? Whether, where a search is carried on the basis of an authorisation, resulting in seizure of some item, issue of prohibitory orders on others, could the search be said to be continuing and comes to a close only when the authorised officer says that he is no longer going to visit the premises by issuing a panchanama and by seizing some items that are covered by the prohibitory order which could have been seized by him even at the first instance and it is not the case of the Department especially when the items so seized finally is not one of these items that are covered by Sections 132(1) and 132(3) of the Act ?" At the outset, it is made clear that the objection raised by the respondent Revenue against the members earlier constituting the Special Bench, who continue to be part of the present constitution no more subsists. There is no objection, therefore, for the presently constituted Bench to dispose of the matter. 2.1 Mr. Venkatesan, C.A. opened the arguments on behalf of assessee. It was submitted that in present reference Section 158BE is required to be interpreted. Section 158BE prescribes the time-limit within which the order under Section 158BC is required to be passed. As per Section 158BE(1), the limitation starts from last of the authorization issued under Section 132 of the Act, is executed. An assessee who is to be searched may have several premises. For each of the premises, a separate authorization is required, because the authorisation mentions the place to be searched. Hence, it is possible that all the places gould not be searched at a single point of time. The person authorized to conduct a search may execute such authorizations on different dates. Hence, it is prescribed in Section 158BE(1) that the limitations would commence from the execution of last of such authorizations. Once an authorization under Section 132 is executed, the authorized officer has various powers as referred in Sections 132(1)(i) to 132(1)(v). As per second proviso to Section 132(1), if it is not possible or practicable to take physical possession of any valuable article or thing in view of certain peculiar circumstances, the authorized officer may pass an order directing the owner or possessor thereof not to remove part with or deal with such article, This will amount to deemed seizure. This is treated as restraint order (hereinafter referred as RO). in ordinary parlance. At the same time, the authorised officer 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 PO). However, as per Explanation to Section 132(3), such PO 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 panchanama is prepared. Such panchanama is the summary of the events during execution of authorization to the end of such search. The panchanama also contains the signature of witnesses. If some RO or PO 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 assessment prescribed under Section 158BE(1) commenced from such execution. It may be a case that for different premises, there may be different authorizations which may be executed at different time or dates, However, once last of such authorization is executed, the limitation commences. Subsequent action of either revoking or refixing the RO or PO is not execution of authorizations. A PO may be either revoked or continued and at each of such time, a panchanama is prepared, Thus, panchanama is only summary of events that took place on each visit. It may result in seizure or release of the items put into RO or PO. The subsequent visits are, therefore, an inspection only but not a continuation of the search. A search is an inspection, but all inspections are not searches. Hence, it can be said that subsequent action of revoking or extending RO/PO under Section 132(3) is, only inspection. This, therefore, does not extend the commencement of time-limit prescribed under Section 158BE. For this proposition, he relied upon the decision of jurisdictional High Court in G.M. Agadi & Bros. v. CTO (1973) 32 STC 243 (Kar) and Binny Ltd. v. Asstt. CIT (1988) 71 STC 240 (Kar). It was argued that what is found as a result of search, is thereafter known, whether same is seized or put under PO. Hence, if the material found is put under PO subsequent visit for either revoking or extending PO does not amount to search. Thus, a panchanama prepared at such subsequent visit is not in respect of search warrant executed, It amounts only to look into or probing further which is not search under authorization. For this proposition, he relied upon, the decision of Hon'ble Supreme Court in CIT v. Tarsem Kumar and Anr. (1986) 161 ITR 505 (SC). 2.2 Mr. Venkatesan thereafter, submitted that for proper adjudication of appeal against order under Section 158BC(c), the Tribunal needs to examine whether there was a valid search under .s. 132(1). For this purpose, Tribunal should look into the warrant of auorization, panchananma, etc. For this proposition, he relied upon the decision of Tribunal, Allahabad Bench in case of Dr. A.K. Bansal v. Asstt. CIT (2000) 67 TTJ (All)(TM) 721 : (2000) 73 ITD 49 (All)(TM). He also relied upon decision of Karnataka High Court in case of Southern Herbals v. Director of IT (Inv.) and Ors. (1994) 207 ITR 55 (Kar) for the proposition that if an incorrect inference is drawn from relevant facts or whether such facts are relevant etc. the appellate authority has powers and High Court has only advisory jurisdiction. Thus, if search itself is held illegal, all consequential orders 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 Sections 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. Tribunal should also examine whether there was any such impracticability necessitating order under Section 132(3). If no such material is found suggesting impracticability, the PO 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 Tribunal, has not only powers but also a duty to look into all such relevant material for passing PO under Section 132(3), If the authorised 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 referred to the decisions of O.P. Jindal and Anr. v.. Union of India and Ors. (1976) 104 ITR 389 (P&H), and Shriram Jaiswal v. Union of India and Ors. (1989) 176 ITR 261 (All). 2.3 Mr. Venkatesan, extensively relied upon the decision of Hon'ble Bombay High Court in case of CIT v. Sandnya P. Naik (2001) 253 ITR 534 (Bom) which upheld the order of Tribunal, Pune in Late Ananta N. Naik v. Dy. CIT (2000) 66 TTJ (Pune) 533. In said case Hon'ble Bombay High Court held that PO under Section 132(3) which did not amount to seizure, does not extend the time-limit even after considering the Expln. 2 to Section 158BE. He went on to submit that this being the solitary decision on the question involved, the same should be followed as per the decision of Hon'ble Bombay High Court in case of CIT v. Smt. Godavandevi Saraf (1978) 113 ITR 589 (Bom). It was pleaded that no law can be pronounced on vacuum of facts. Hence, he narrated the facts of the present case. In the present case, search was carried out on 5th Dec., 1995. Out of cash found of Rs. 3,03,900, sum of Rs. (sic) was seized. The jewellery found were less than 500 gms, and 'hence in terms of CBDT instruction, same was not seized. A PO was passed in respect of certain jewellery, books of accounts etc. Subsequently the search was concluded by lifting the PO on 24th Jan., 1996. Thus, the time-limit of one year is to start from 5th Dec., 1995. The order passed under Section 158BC(c) on 28th Jan., 1997, is, therefore, barred by limitation. Summarising the arguments, he pleaded that first two questions referred need to be answered in the affirmative, and the third question be answered in negative. 3.1 Mr. Nagaraja Rao, appearing, for an intervener supplemented the arguments put forward by Mr. Venkatesan. He further added that if Tribunal can decide whether assessment is time-barred or not with reference to last of panchanama after revoking PO clamped under Section 132(3), Tribunal by necessary implication has power to decide whether such order under Section 132(3) was at all warranted. A new dimension was brought in his argument submitting that as per Section 132(8A), though the PO under Section 132(3) is valid for a period of 60 days only, yet with the approval of the Director/Commissioner, same can be extended. Under proviso to Section 132(8A), it can be interpreted that such extension of PO can be even beyond date of completion of all proceedings under the Act in respect of the items covered under the PO. If such an interpretation 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 authorisations for search "was executed". Once the legislature, in its wisdom, has added in 1998 (retrospectively from 1st July, 1995) Expln. 2 to Section 158BE deeming the "conclusion of search as recorded in the last panchanama" as the date of execution, an independent determination of the date of execution is clearly barred. This makes the panchanama the crucial document for determination of the commencement of the limitation enacted in Section 158BE. The position pushes to the center stage the twin issues of (a) what is a panchanama and (b) what is a valid panchanama. Mr. Rao, thereafter, submitted that a panchanama is not defined in the IT Act or IT 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 panchanama could be used by the authorised officer for a variety of purposes, but for the purpose of Section 158BE every document styled as panchanama need not be regarded by the Tribunal as a panchanama. To decide whether a document is a panchanama for the purpose of Section 158BE the provisions of Section 132(13) would be relevant. The provisions of this sub-section which-subjects the searches under Section 132(1)/(1A) to the application of the CrPC in so far as may be. The operation of Section 132(1)/1(A) ends when the authorised officer completes the various tasks enumerated in (i) to "(v) of Section 132(1), As actions under Section 132(3) or 132(4) or 132(8A) are not part of powers under Section 132(1)/(1A), there is no question of a panchanama for witnessing such actions. Nor can a formal declaration by the authorized officer that "he is no longer going to visit the premises", be considered subject-matter of a panchanama. Even a record of doing any of the things covered by items (i) to (v) of Section 132(1) in respect of documents/assets covered in a prohibitory order under Section 132(3) cannot conceivably regarded as a panchanama for the purpose of Section 158BE because, as provided in Section 132(8A), the validity of an order under Section 132(3) could extend beyond the making of a block assessment under Section 158BC. It is absurd to relate, directly or indirectly, the commencement of the limitation enacted in Section 158BE to a prohibitory order, which could extend beyond the completion of the block assessment under Section 158BC. Anything relatable to an order under Section 132(3) does not mesh into the scheme of Section 158BE. 3.3 Even if a document recording any of the actions covered by items (i) to (v) of Section 132(1) in respect of assets/documents covered in an order under Section 132(3) were to be considered a panchanama, the validity of such actions is dependant upon the validity of the order under Section 132(3). It is ground reality that in many cases an order under Section 132(3) is passed in respect of assets/documents in respect of which it could not be said that "it is not practicable to seize" them. The very fact that decisions like B.K. Nowlakha v. Union of India (1991) 192 ITR 436 (Del), State of Maharashtra v. N.C. Bajaj (1993) 201 ITR 315 (Bom), Dr. C. Balakrishnan Nair v. CIT (1999) 237 ITR 70 (Ker) and Sandhya Naik and Ors. v. CIT (2002) 253 ITR 535 (Bom-Panaji Bench) and a number of decisions of the Tribunal had to emphasise the mandatory nature of the preconditions 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 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 panchanama is the standardised procedure for postponing the commencement of the limitation under Section 158BE. Anything based on an invalid order under Section 132(3), as decided in a string of decisions like B.K. Nowlakha v. Union of India (supra), State of Maharashtra v. Narayan Champalal Bajaj and Anr. (supra), Dr. C. Balakrishnan Nair v. CIT (supra) and CIT v. Sandhya P. Naik and Ors. (supra) is invalid. A panchanama, which stands on the crutches of something purported to be done on the basis of an illegal order under Section 132(3) is invalid. 3.4 As regards powers of Tribunal to look into legality or otherwise of action/order contemplated in Section 132(1)(c), he submitted that the authorised officer has no authority to go into the validity of such actions/orders. The athorised officer is his peer, or even a senior. As the AO had no power to cosider the issue of validity of the actions/orders the Tribunal, whose scope is identical to that of the AO, cannot consider the validity of the actions/orders passed by the authorised officer. The Revenue seeks to carve out a "no challenge" zone of action in a field regulated by law. The High Court in its writ jurisdiction under Article 226 resolutely avoids considering the sufficiency of reasons for taking action similar to the action taken under Section 132(3) or 132(8A) or even 132(1). The Revenue argues that the Tribunal cannot do it in an appeal under Section 253(1)(b). So in the space between the exercise of power by the High Court and the exercise of power by the Tribunal the Revenue seeks to promote and harbour untrammeled behaviour of the authorized officer. What the Tribunal does in an appeal is not merely a confirmation or revision of what the AO did. When the assessment is challenged in appeal the Tribunal decides what acts of the IT authorities other than the AO, which the AO presumed to be valid, were really invalid. What binds the AO does not necessarily bind the appellate authority. The valuation of a property by the valuation officer binds the AO in making an assessment under the WT Act. But it does not bind the appellate authority. If the invalidity taints the assessment itself the Tribunal declares the assessment invalid. This is particularly so when the Tribunal is functioning as the first apellate authority under Section 253(1)(b). The Tribunal need not and does not quash any order or authorization issued by any authority. It declares such order or authorization is a nullity and proceeds to decide issues on that footing. In this connection we can refer to the follwing observations of the Madras High Court in CIT v. Elgi Equipments Ltd. (2000) 242 ITR 460 (Mad). "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 statue. 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." If follows that if the Tribunal is of the view that the precondition of impracticability 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 AO 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 Article 226 to intervene and nullify ultra vires actions of the authorities under the various phases of search and seizure under Section 132 cannot be doubted. But the existence of this remedy does not take away the right of such person to alternatively challenge any of the different actions purportedly taken under Section 132, in regular appeal proceedings under Section 253(1)(b) against the block assessment order under Section 158BC. Besides, what the High Court does in its writ jurisdiction is judicial review of a particular administrative action. Such a forum of review, not being an appellate forum, is greatly circumscribed. The adequacy of the grounds is generally not gone into. It is only when the grounds are non-existent or patently irrelevant that the Court quashes the action of the authorized officer. The High Court cannot substitute its own Judgment of the adequacy of the grounds for issue of a warrant for the judgment of the authorized officer passing an order under Section 132(3) or the CIT extending the operation of the order, in terms of Section 132(8A) as held in ITO v. Seth Bros. (1969) 74 ITR 836 (SC). In contrast, what the Tribunal could deliver in proceedings in an appeal under Section 253(1), being an appellate function stricto sensu, is less circumscribed. For this proposition reliance was placed on decisions of CIT v. Kanpur Coal Syndicate (1964) 53 ITR 225 (SC), Jute Corporation of India v. CIT (1991) 187 ITR 688 (SC), It, therefore, follows that the appellate authority could go even into the adequacy of the ground for clamping a prohibitory order under Section 132(3). Thus, there can never arise a conflict of jurisdiction between the Tribunal and the High Court. 3.6 Dealing with each of the question referred to the Bench, he submitted that, in the IT Act there are no "no entry" areas, express or implied, barring the Tribunal's exercise of power to decide issues germane to the very validity of the assessment under Section 158BC. If one of the issues in the appeal is--whether the block assessment is time-barred--all issues of fact and law that are necessary to decide that issue are indubitably within the scope of the appellate decision. For deciding the issue the Tribunal can ascertain from the evidence produced before it, the date of "conclusion of the search as recorded in the last panchanama" for the sole purchase of examining whether 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 w.e.f. 1st July, 1995, by insertion of Expln. 2 in Section 158BE. The amendment narrows down the scope of factfinding as to the execution of the warrant of search, to ascertaining the date of "conclusion of the search as recorded in the last panchanama drawn". This position of law renders it necessary to decide whether the relevant panchanama is a valid panchanama. If the relevant panchanama 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, moneys, 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 assessee is induced to make income declarations and related confessions. The Raja Chelliah Committee has observed that the very authorization, of search is motivated by an object of procuring income declarations. The Hon'ble Tribunal may take judicial notice of this bureaucratic practice. It is found that Section 132(3) order is passed in respect of a sheaf of papers or of assets of negigible bulk or value, which, even on a highly strained interpretation, cannot be considered as "not practicable to seize". It must be noted that the criteria of impracticability for the purpose of Section 132(3) are residuary and exclude those criteria, which cover a prohibitory order under the second proviso to Section 132(1). Reference was invited to decision of Dr. C. Balakrishnan Nair v. CIT (supra) and CIT v. Sandhya P. Naik and Ors. (supra). 3.7 As regards second question. Mr. Rao submitted that the execution of warrant might involve the clamping of a prohibitory order under second proviso to Section 132(1), which is a deemed seizure or under Section 132(3), which is deemed non-seizure. In either case, the date of issue of the prohibitory order or the date of lifting of the prohibitory order is totally irrelevant for reckoning the commencement of limitation for the purpose of Section 158BE. On the date as recorded in the last of the valid panchanamas the clock of limitation inexorably start ticking, if there are multiple valid panchanamas, neither the AO nor the Tribunal can fix as the date of commencement of the limitation under Section 158BE, a date other than the date as recorded in the last of the valid Ranchnamas. An independent determination of the date of execution of the warrant is barred by the Explanation. 3.8 As regards the last question. Mr. Rao submitted that answers to questions 1 and 2 and the perspective analysis of the powers of the Tribunal will answer question No. 3. Thus, he concurred with Mr. Venkatesan that the answers for the first two questions be in affirmative and that of third question be in negative.
(3.) 1 Mr. G. Sarangan, learned senior counsel appearing for another intervened also argued on the line of earlier counsel for assessee. It was submitted that powers of Tribunal under Section 255(6) are very wide. Hence, the Tribunal needs to verify whether powers under Section 132(3) are properly exercised or not. It is analogous to verification of whether powers under Section 148 are validly exercised. If it is found that there was no need to pass order under Section 132(3), such panchanama 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 Tribunal, Bangalore in IT(SS) No. 136/Bang/97 dt. 17th March, 1999, in Esanda Finance and Leasing Ltd. v. Asstt. CIT. It was argued that if the time-limit under Section 158BE r/w Expln. 2 thereto is to start from last of the panchanama, such panchanama should have ingredients of valid panchanama. The prohibitory order under Section 132(3), should also be a valid order which should justify the action of PO. It is not correct to say that Tribunal being a creature of statute has no power to examine such action of authorised 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 Tribunal before whom appeal lies, wherein the ground relating to time-limitation is also raised. The adequacy of material on which PO under Section 132(3) is passed is not looked into by High Court in its writ jurisdiction. In such a situation, if 'mala fide' is alleged by the assessee, Tribunal should have power to examine the issue of limitation from such angle also. Thus, if Tribunal has power to decide the limitation issue in appeal before it, it has to be constructed in such a fashion that all the ingredients extending the time-limit can be properly examined and not to limit the power available to it. In the end, Mr. Sarangan also submitted that all the questions referred be answered as urged by earlier counsel.;