Block assessment passed after period of limitation U/s. 158BE of the Act is bad in law

In this appeal, the assessee has challenged the order of Block Assessment passed by the Assessing Officer by contending that the impugned order was barred by the period of limitation prescribed under section 158BE of the Income-tax Act, 1961 and therefore, the said order was bad in law.

IN THE ITAT MUMBAI BENCH

‘E’ (THIRD MEMBER)

G.D. AGRAWAL, VICE PRESIDENT (AS A THIRD MEMBER) K.C. SINGHAL, VICE PRESIDENT AND S.C. TIWARI, ACCOUNTANT MEMBER

IT(SS) APPEAL NO. 11 (MUM.) OF 2000
[BLOCK PERIOD 1-4-1987 TO 28-7-1997]

Nandlal M. Gandhi

Vs.

Assistant Commissioner of Income-tax, Circle-26(3), Mumbai

K. Sivaram and Ajay Singh for the Appellant.
Rajiv Nabar for the Respondent.

Date of Judgment: JUNE 16, 2008

O   R   D   E   R

Per K.C. Singhal, Vice President –

The main issue arising in this appeal is, whether, the block assessment order dated 30-9-1999 is barred by the period of limitation prescribed under section 158BE of the Income-tax Act, 1961 (‘Act’).

2. Brief facts relating to this issue are these: A search and seizure action under section 132 of the Act was carried out at the premises of the assessee on 28-7-1997. The search operation commenced at 7:30 p.m. and continued up to 2:30 a.m. on 29-7- 1997. Certain incriminating materials were found in the course of search which, inter alia, included certain jewellery and shares. The inventory was prepared in respect of material found in the course of search. A panchnama was prepared in respect of the material found in the course of search. As per para-5 of the panchnama, only books of account and documents, as per Annexure-A, were seized and no seizure was made in respect of any other material particularly in respect of jewellery and shares. In para-2 of the panchnama, it was stated that search was temporarily concluded for the day to be commenced subsequently. However, a prohibitory order was issued under section 132(3) of the Act in respect of jewellery and shares found from the cupboard kept in the bedroom of Bakul N. Gandhi, 11/12, Sandeep Building, Laxminarayan Lane, Matunga. The prohibitory order under section 132(3) of the Act in respect of jewellery was revoked on 1-8-1997 at 4:00 p.m. while the prohibitory order in respect of share certificates was revoked on 8-9-1997. On 8-9- 1997, another panchnama was prepared wherein it was simply stated that search is finally concluded. Except this remark, nothing was stated. At this stage, it may be mentioned that between the period commencing from 29-7-1997 and 8-9-1997, certain statements were recorded. The block assessment was, however, completed on 30-9-1999 determining undisclosed income at Rs. 55,69,390 as against declared undisclosed income of Rs. 16,34,970. The assessee remained unsuccessful in appeal before the learned CIT(A). Hence, this present appeal is preferred before the Tribunal.

3. The learned counsel for the assessee, Mr. K. Shivram, drew our attention to the provisions of section 158BE of the Act to contend that block assessment order could be passed within the period of two years from the end of the month in which last of the authorizations for search under section 132 was executed. According to him, the assessment could be completed latest by 31-7-1999. Since the impugned assessment was passed beyond the period of limitation prescribed under section 158BE the same is barred by period of limitation and, therefore, illegal. Proceeding further, it was submitted that every thing which was found in the course of search was duly inventorised and even the valuation had also been done in respect of the jewellery as is apparent from the prohibitory order under section 132(3) of the Act. Therefore, in his view, the search had been completed at 2:30 a.m. on 29-7-1997 itself as nothing remained to be searched. It was further submitted that on later dates, the prohibitory orders were simply revoked without doing anything further. Therefore, such revocation cannot be considered as part of the search and consequently, the alleged panchnama dated 8-9-1997 cannot be considered as a valid panchnama in the eyes of law. Therefore, the period of limitation could not be extended beyond 31-7-1999. In support of his submissions, he has relied on the following decisions –

(i) Shah Rukh Khan v. Asstt. CIT [2007] 104 ITD 221,

(ii) Javed Mohammad Peshiman v. Dy. CIT [2006] 100 TTJ (Mum.) 434, (iii) Dy. CIT v. Adolf Patric Pinto [2006] 100 ITD 191 (Mum.),

(iv) Sarb Consulate Marine Products (P.) Ltd. v. Asstt. CIT [2005] 97 ITD 333 (Delhi),

(v) Vaji Kanji Thakkar v. Asstt. CIT [ITSS No. 708 (Mum.) of 2003, dated 10-5-2004) and

(vi) CIT v. Mrs. Sandhya P. Naik [2002] 253 ITR 534.

4. On the other hand, the learned Sr. D.R., Mr. S.C. Gupta, has vehemently opposed the submissions of the learned counsel for the assessee by submitting that the search had, in fact, been completed on the date when the prohibitory order under section 132(3) was revoked. He drew our attention to various statements of assessee recorded on 1-8-1997, 14-8-1997, 5-9-1997 and 8-9- 1997 to point out that various questions were asked to explain the sources of jewellery and shares. It is only after considering explanation of the assessee that the search party considered itappropriate to revoke the prohibitory order. According to him, some times, it is not possible to seize the valuable articles or things found in the course of search and prohibitory orders are passed for the time being. Therefore, the search continues till the prohibitory order is revoked. Accordingly, it was contended that search was concluded only on 8-9-1997 when the last panchnama was prepared. Hence, it was prayed by him that assessment order be held within the period of limitation.

5. Rival submissions have been considered carefully. The question for consideration is whether the block assessment made by the Assessing Officer is barred by period of limitation prescribed under section 158BE(1)(b) of the Act, which reads as under :

“158BE. (1) The order under section 158BC shall be passed—

(b) within two years from the end of the month in which the last of the authorisations for search under section 132 or for requisition under section 132A, as the case may be, was executed in cases where a search is initiated or books of account or other documents or any assets are requisitioned on or after the 1st day of January, 1997.

[Explanation 2.—For the removal of doubts, it is hereby declared that the authorisation referred to in sub-section (1) shall be deemed to have been executed, —

(a) in the case of search, on the conclusion of search as recorded in the last panchnama drawn in relation to any person in whose case the warrant of authorisation has been issued;

(b) in the case of requisition under section 132A, on the actual receipt of the books of account or other documents or assets by the Authorised Officer.]”

The perusal of the above provisions clearly shows that – (i) there can be more than one authorization issued under section 132(1) or 132(1A) of the Act and the period of limitation for making assessment shall commence from the end of the month in which last of the authorizations was executed and (ii) the authorizations shall be deemed to have been executed on the conclusion of the search recorded the last panchnama. The deeming provisions of Explanation 2 have been brought on the statute book to cover those cases where more than one panchnama are required to be prepared in the course of search in pursuance of an authorization under section 132 of the Act. There may be cases where search proceeding cannot be concluded on a particular day for various reasons. In such cases, panchnama is prepared in respect of unconcluded search and separate panchnama is prepared on the next date or some other date when search is finally concluded. For example, the search party may find a key of bankon the same date. In such case, the search party may prepare the panchnama in respect of unconcluded search on that day and prepare another panchnama when the bank locker is opened. In such cases, the period of limitation would commence from the end of the month in which last panchnama is prepared. There is no dispute between the parties to this legal position.

6. The dispute between the parties is whether the alleged panchnama dated 8-9-1997, prepared when the prohibitory order under section 132(3) of the Act was lifted by the authorized officer, can be said to be a valid panchnama for the purpose of section 158BE of the Act. “Panchnama” has not been defined in the Act. The provisions of the Code of Criminal Procedure, 1973 (‘Cr.PC’) relating to search and seizure have been made applicable to the searches and seizure under sub-section (1) and subsection (1A) of section 132 of the Act by virtue of sub-section (13) of section 132. Even the relevant provisions relating to searches and seizure in Cr.PC do not define the word “panchnama”. Only a format is provided in which panchnama is to be prepared. The said format has been adopted by the Income-tax Department for preparing the panchnama. “Panchnama” is also not a word of English language. However, in India, “Panchnama” is a word of judicial recognition. “Panchnama” comprises of two Indian words “Panch” and “Nama”. “Panch” means -“witness” while “nama” is used to represent a “document”. Thus, “panchnama” in common parlance as well as in judicial circle is understood as a document prepared in respect of any proceeding in the presence of witnesses. The concept of “panchnama” has been brought or introduced vis-a-vis the search and seizure proceedings in order to safeguard the interest of the person where premises have been searched and to curb the misuse of the powers of search party. That means, in our opinion, the requirement of the presence of witnesses is a sine qua non for conducting of a valid search in respect of which panchnama is to be prepared. Further, the object behind this requirement is that, anything found and seized is truly recorded in the panchnama. If nothing is found, then such fact must be mentioned in the panchnama. On the other hand, if something is found, then it must be duly inventorised in the presence of witnesses. Further, if any seizure is required to be made, then the same should also be made their presence. Once it is done, the same should be truly recorded in such panchnama. Search can be said to be concluded if all these transactions are complied with.

7. The peculiar situation arising before us is the situation where a valid panchnama, as described in the preceding paragraph was made on 29-7-1997 but a prohibitory order was also passed under section 132(3) of the Act by the search party in respect of certain items, i.e., jewellery and shares, and a fresh panchnama was prepared on the date when such order was simply lifted. In such panchnama, the authorised officer has not mentioned anything except stating that search is finally concluded. There is no dispute that only one authorization under section 132(1) was issued in pursuance of which search was conducted on 28-7-1997 and panchnama was prepared on 29-7-1997. Validity of this panchnama is not in dispute. Another panchnama, in law, can be made in two situations – firstly, where another authorization is issued for further search and secondly where search, in pursuance of first authorization, still continues. There is no dispute that no fresh authorization was issued for making similar search. So, the question which remains to be adjudicated is whether search in pursuance of the aforesaid authorization stands concluded on 29-7-1997 or continued till revocation of order under section 132(3), i.e., 8-9-1997.

8. Section 132(1) and 132(1A) authorise the search party for two actions, i.e., search and seizure which are distinct and independent action. These words are not interchangeable. Act of seizure is the consequence of search but is not part of search. The word “search” means to go or look through a place or area or anything else in order to find something missing, lost or concealed, etc. So, once the things are found and inventorised, the process of search, in our opinion, is concluded. However, in pursuance of the authorization under section 132(1), the authorized officer is also authorised to seize all or any of the things found. If he thinks proper, he may not seize any of the items found. He may also partly seize and may leave the balance item with the person whose premises are searched. He may also issue prohibitory order either under the provisions of second proviso to section 132(1) or under section 132(3). The prohibitory order under section 132(1) second proviso is also considered as deemed seizure while the prohibitory order under section 132(3) is not to be considered as deemed seizure as per these provisions. The format of panchnama prescribed in Cr.PC provides recording of things found and seized in the presence of witnesses. The above discussion shows that though the proceedings of search as well as seizure are to be recorded in the panchnama yet for the purpose of reckoning the period of limitation under section 158BE, it is the panchnama wherein factum of concluding ofsearch is to be recorded as is apparent from the provisions of Explanation 2 to section 158BE. Therefore, in our opinion, where no search is carried out but a panchnama is prepared, then such panchnama cannot be treated as a panchnama for the purpose of section 158BE read with Explanation 2 of the Act.

9. Having held as above, the next question for consideration is whether search can be said to continue till the date when order under section 132(3) was revoked. If the answer is yes, then, the panchnama dated 8-9-1997 would be a valid panchnama and period of limitation would commence from that date, if the answer is in negative, then search would be deemed to be concluded on 29-7-1997 when the first panchnama was prepared and period of limitation would commence from that date. We have gone through the provisions of the second proviso to section 132(1) as well section 132(3) which provide the circumstances under which prohibitory order can be issued. For the benefit of this order, the same are being reproduced as under :

“Section 132. (1)** ** **

Provided that** ** **

[Provided further that where it is not possible or practicable to take physical possession of any valuable article or thing and remove it to a safe place due to its volume, weight or other physical characteristics or due to its being of a dangerous nature, the authorized officer may serve an order on the owner or the person who is in immediate possession or control thereof that he shall not remove, part with or otherwise deal with it, except with the previous permission of such authorised officer and such action of the authorised officer shall be deemed to be seizure of such valuable article or thing under clause (iii):]

** ** **

(3) The authorised officer may, where it is not practicable to seize any such books of account, other documents, money, bullion, jewellery or other valuable article or thing, [for reasons other than those mentioned in the second proviso to sub-section (1),] serve an order on the owner or the person who is in immediate possession or control thereof that he shall not remove, part with or otherwise deal with it except with the previous permission of such officer and such officer may take such steps as may be necessary for ensuring compliance with this sub-section.

[Explanation.—For the removal of doubts, it is hereby declared that serving of an order as aforesaid under this sub-section shall not be deemed to be seizure of such books of account, other documents, money, bullion, jewellery or other valuable article or thing under clause (iii) of sub-section (1).]”

The perusal of the above shows that prohibitory order under section 132(1) can be issued where it is not possible or practicable to take physical possession of the things found in the search on account of its volume, weight or other physical characteristics or due to its being of dangerous nature. In such cases, the action of authorised officer shall be deemed to be seizure. On the other hand, prohibitory order under section 132(3) can be issued where it is not practicable to seize for the reasons other than these mentioned in the second proviso to section 132(1). In such cases, the order of the authorised officer shall not be deemed to seizure. In the present case, two prohibitory orders were issued under section 132(3). We need not go into the circumstances under which such orders were issued. However, one thing is clear that such orders were revoked on 1-8-1997 and 8-9-1997 without any further proceeding. It is not in dispute that shares and jewellery were inventorised by the search party and even the valuation of jewellery was also done on the date of search itself. So, nothing more was required to be done in respect of these items for which orders under section 132(3) were issued. The learned Sr. DR has not been able to point out any action of search or seizure during the period commencing from 29-7-1997 till the dates of revocation of orders under section 132(3). The only submission of learned Sr. DR was that certain statements were recorded during this period which, in our opinion, cannot be considered as an act of search. As already described, search means finding of hidden or concealed things. Once things are found and inventorised, the process of search comes to an end. It is only the process of seizure which takes place after the process of search. Therefore, in our humble opinion, search was completed on 29-7-1997, when inventory of things found was prepared and nothing, remained to be done. Hence, panchnama dated 8-9-1997 cannot be said to be a valid panchnama. Merely because a panchnama was prepared, it cannot be construed as panchnama. Even this panchnama does not refer to any act of search. It simply says that search concluded. Thus, the panchnama dated 8-9-1997 cannot be considered to be a valid panchnama and, therefore, has to be ignored and consequently, limitation period would commence from 29-7-1997.

10. Even assuming for the sake of argument that seizure is part of search, we find that no seizure was made on 8-9-1997. So, neither the act of search nor the act of seizure took place on 8-9- 1997. Hence, panchnama was not required to be made. Even on this account, the alleged panchnama dated 8-9-1997 cannot be said to be a valid panchnama and consequently, the period oflimitation cannot be reckoned from 8-9-1997. Thus, period of limitation would commence only from 29-7-1997, when search as well as seizure actions were concluded.

11. This issue can also be considered from another angle. As per sub-section (8A) of section 132, as existed on the statute book when order under section 132(3) was passed, the prohibitory order under section 132(3) could not remain in force for a period exceeding sixty days from the date of order. However, the authorised officer, for the reasons to be recorded by him in writing, could extend the period beyond sixty days after obtaining the approval of the Director of Income-tax or as the case may be the Commissioner of Income-tax for such extension. The proviso to this sub-section provided that the Commissioner shall not approve the extension of the period for any period beyond the expiry of thirty days after the completion of all the proceedings under this Act in respect of the years for which the valuable articles or things were relevant. This clearly shows that order under section 132(3) could be extended even beyond the period of completion of assessment. In such situations, it was impossible to compute the period of limitation. This aspect of the matter was considered by the Special Bench of the Tribunal in the case of C. Ramaiah Reddy v. Asstt. CIT [2003] 87 ITD 439 (Bang.). In para 7.3 of its judgment, it was observed by the Bench as under :

“7.3 An interesting argument was taken up to say that a Prohibitory Order under section 132(3) which is not valid after a period of sixty days can be extended beyond such period as prescribed under section 132(8A) the period of validity of order under section 132(3) gets extended even beyond completion of assessment proceedings. Hence, even if search is not concluded, and time-limit has not commenced, assessment can be made which will in other words imply that there will not be any other time-limit even though prescribed under section 158BE. In our opinion, the interpretation of sections 132(3) and 132(8A) as made is not correct. What the Explanation to section 158BE(1) says is that time-limit will start from last of the panchnama and it cannot be interpreted to mean that the time-limit will not commence till order under section 132(3) is in operation. An order under section 132(3) can be passed restraining a person in possession of books or valuables to deal with same. However, once all the materials and valuables are appraised the search will come to an end and to this effect a panchnama will be prepared. Even at the time in certain circumstances as per section 132(8A) may operate even after completion of assessment. This does not mean that time-limit does not commence at all. The timelimit will definitely commence on conclusion of search as per last panchnama prepared. Hence, we do not find merit in said arguments and answer the second question in negative.” [Emphasis supplied]

In view of the above observations, it has to be held that the order under section 132(3) has to be ignored for the purpose of section 158BE. The view taken by us is also fortified by the decision of another Co-ordinate Bench in the case of Adolf Patric Pinto (supra), wherein, similar view has been taken on similar facts. The relevant portion from para 16 of the decision is quoted below for the benefit of this order.

“An order passed under section 132(3) prohibits the person in possession of the books or the valuables to deal with the same except with the prior permission of authorised officer. It does not mean that the search shall not come to an end till the operation of order under section 132(3). Once all the materials and valuables, which are found during the search, are appraised the search will come to an end.”

12. In view of the above discussion, it is held that the panchnama dated 8-9-1997 was not a valid panchnama in the eyes of law and, therefore, has to be ignored and consequently, period of limitation will commence from 31-7-1997, since the valid panchnama was prepared on 29-7-1997. Consequently the block assessment could be completed by 31-7-1999. Since the impugned block assessment order was passed on 30-9-1999, it was clearly beyond the period of limitation prescribed under section 158BE. Thus, the impugned order of the Assessing Officer was illegal being barred by the period of limitation. Therefore, the impugned orders of the lower authorities are cancelled.

13. Before parting with this order, we would like to mention that various arguments had been made on merits also in respect of the additions made by the Assessing Officer. Since the assessee succeeds on the legal ground, it is not necessary for us to deal with the submissions of the assessee on merits of the additions sustained by the learned CIT(A).

14. In the result, appeal stands allowed.

Per S.C. Tiwari, Accountant Member. –

I have carefully gone through the order proposed to be pronounced by my brother learned Judicial Member Shri K.C. Singhal and with utmost respect I regret my inability to agree with his findings. In my humble opinion the search under section 132(1) in the case before us was concluded only on 8-9-1997 when the prohibitory order under section 132(3) of the Act was lifted by the authorised officer concerned. Hence it cannot be said that the impugned block assessment order has been made by the Assessing Officer beyond the period of limitation prescribed under section 158BE.

2. Under the provisions of section 158BE the time-limit to make an order under section 158BC is to be reckoned with from the end of the month in which the last of the authorisations for the search under section 132 or for requisition under section 132A was executed. Explanation 2 to section 158BE declares that the authorisation referred to in sub-section (1) of section 158BE shall be deemed to have been executed, –

“(a) in the case of search, on the conclusion of search as recorded in the last panchnama drawn in relation to any person in whose case the warrant of authorisation has been issued;

(b) in the case of requisition under section 132A, on the actual receipt of the books of account or other documents or assets by the Authorised Officer.”

From an analysis of Explanation 2 the learned Judicial Member has opined that in the instant case the panchnama dated 8-9-1997 was not a valid panchnama in the eyes of law and therefore has to be ignored and consequently period of limitation commenced from 31-7-1997 by virtue of the valid panchnama dated 29-7- 1997. It is important to bear in mind here that provisions of section 158BE do not define, “a valid panchnama” in the eyes of law. For that matter there is no definition of ‘panchnama’ under the provisions of Income-tax Act, 1961. My learned brother Judicial Member looked for definition of ‘panchnama’ in the provisions of Code of Criminal Procedure, 1973 (‘Cr.PC’) and he has found out that there is no definition of the word ‘panchnama’ in the provisions of Cr.PC either and only a format is provided in which ‘panchnama’ is to be prepared. The learned Judicial Member has therefore attempted to give his own definition of ‘panchnama’ and held that it is a document prepared in respect of any proceedings in the presence of witnesses. Because in the instant case there was only one authorisation under section 132(1) in pursuance of which search was ‘conducted’ on 28-7- 1997 and ‘panchnama’ was prepared on 29-7-1997, the learned Judicial Member has further held that a ‘panchnama’, in law could be made only where search in pursuance of the authorisation, still continued. Hence the crucial question to be adjudicated is whether search in pursuance of the lone authorisation in the instant case was concluded on 29-7-1997 or continued till revocation of order under section 132(3) on 8-9- 1997. Applying this legal view of the matter to the facts of the instant case before us the learned Judicial Member has stated the following as respects two prohibitory orders issued under section 132(3) :

“We need not go into the circumstances under which such orders were issued. However, one thing is clear that such orders were revoked on 1-8-1997 and 8-9-1997 without any further proceeding. It is not in dispute that shares and jewellery were inventorised by the search party and even the valuation of jewellery was also done on the date of search itself. So, nothing more was required to be done in respect of these items for which orders under section 132(3) were issued. The learned Sr. D.R. has not been able to point out any action of search or seizure during the period commencing from 29-7-1997 till the dates of revocation of orders under section 132(3). The only submission of learned Sr. D. R. was that certain statements were recorded during this period which, in our opinion, cannot be considered as an act of search. As already described, search means finding of hidden or concealed things. Once things are found and inventorised, the process of search comes to an end. It is only the process of seizure which takes place after the process of search. Therefore, in our humble opinion, search was completed on 29-7- 1997, when inventory of things found was prepared and nothing remained to be done. Hence, panchnama dated 8-9-1997 cannot be said to be a valid panchnama. Merely because a panchnama was prepared, it cannot be construed as panchnama. Even this panchnama does not refer to any act of search. It simply says that search concluded. Thus, the panchnama dated 8-9-1997 cannot be considered to be a valid panchnama and, therefore, has to be ignored and consequently, limitation period would commence from 29-7-1997.”

With utmost respect I find the reasoning as well as the finding above quoted hard to accept. The circumstances under which prohibitory orders were issued under section 132(3) are not doubted. The objection, however is taken to the revocation of prohibitory orders under section 132(3) without any further action. It is difficult to understand that if the prohibitory orders under section 132(3) were validly or correctly issued, how can revocation of those prohibitory orders be held to be no action at all. During the course of hearing before us the learned senior DR was at pains to explain that during the intervening period the Assessing Officer was carrying out a process of examining and verifying the various facts and circumstances attached to the valuable articles or things put under prohibitory order under section 132(3) with a view to determine whether the same should be seized or released. That according to my learned brother is not part of search itself and therefore it should be held that prohibitory orders under section 132(3) were revoked without any further proceedings. The shares and jewellery had already been inventorised by the search party and even the valuation of jewellery has also been done on the date of search itself. Sonothing more was required to be done insofar as the act of search was concerned. Search means finding hidden or concealed things. Once things were found and inventorised the process of search came to an end. It was only the process of seizure which took place after the process of search. In nutshell the learned Judicial Member holds, “As already described, search means finding of hidden or concealed things. Once things are found and inventorised, the process of search comes to an end. It is only the process of seizure which takes place after the process of search. Therefore, in my humble opinion, search was completed on 29-7-1997, when inventory of things found was prepared and nothing remained to be done.” It is submitted with respect that this reasoning is contrary to the scheme of the provisions of section 132 under the head “Search and seizure”. The title of section 132 itself suggests that the provision deals with the integrated activity of search and seizure. For the purpose of application of limitation under section 158BE read with Explanation 2 my learned brother has separated search from seizure and set them apart. Provisions of section 132(1) authorise the authorising officer to—

“(i) enter and search any [building, place, vessel, vehicle or aircraft] where he has reason to suspect that such books of account, other documents, money, bullion, jewellery or other valuable article or thing are kept;

(ii) break open the lock of any door, box, locker, safe, almirah or other receptacle for exercising the powers conferred by clause (i) where the keys thereof are not available;

(iia) search any person who has got out of, or is about to get into, or is in, the building, place, vessel, vehicle or aircraft, if the authorised officer has reason to suspect that such person has secreted about his person any such books of account, other documents, money, bullion, jewellery or other valuable article or thing;

(iib) require any person who is found to be in possession or control of any books of account or other documents maintained in the form of electronic record as defined in clause (i) of sub-section (1) of section 2 of the Information Technology Act, 2000 (21 of 2000), to afford the authorised officer the necessary facility to inspect such books of account or other documents;

(iii) seize any such books of account, other documents, money, bullion, jewellery or other valuable article or thing found as a result of such search:

Provided that bullion, jewellery or other valuable article or thing, being stock-in-trade of the business, found as a result of such search shall not be seized by the authorised officer shallmake a note or inventory of such stock-in-trade of the business;

(iv) place marks of identification on any books of account or other documents or make or cause to be made extracts or copies therefrom;

(v) make a note or an inventory of any such money, bullion, jewellery or other valuable article or thing:”

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

3. As a matter of fact the legal position in this behalf stands settled. In the case of First ITO v. Narayan Champalal Bajaj [1993] 201 ITR 315 (Bom.). The facts of that case briefly are that a search under section 132 was carried out on 29-10-1985 at the premises of one Shri Narayan Bajaj. The search continued till 9.30 p.m. and remained incomplete. During the course of search the authorized officer separated the pawned jewellery and kept it in the almirah and then issued a prohibitory order under section 132(3) in respect thereof. The almirah was opened next day and it was found that some article was missing. On verification the search party noticed that the steel plates on the rear side of the almirah had been cut into two pieces. The local Income-tax Officertherefore lodged a report with the police station. After completion of the investigation Shri Narayan Bajaj was prosecuted. In the course of defence one of the pleas taken was that the provisions of section 132(3) had been wrongly resorted to. It was contended that the authorised officer had not reached a conclusion or formulated the opinion that the pawned articles kept in the almirah were property undisclosed for the purposes of Income-tax Act. Merely because it was 9.30 p.m. it could not be said that it was not practicable to complete the search. Thus the prohibitory order under section 132(3) was without any legal foundation and breach or violation of such order did not constitute any offence. The Hon’ble Bombay High Court thereupon held as under :

“Authorization under sub-section (1) of section 132 of the Act empowers the concerned officer firstly to make an entry into the premises of particular person, then to search and hold enquiry, thereafter to seize and lastly to prepare an inventory of such articles, valuables or jewellery. This is a single, continuous and homogeneous process with various stages as described. Search, enquiry and formulating opinion are the stages prior to effecting seizure. There could not be a valid seizure unless the earlier stages are complete. Incompletion of search creates impediment in formulating the opinion and causing ultimate seizure of the concerned property.

P.W.-3, Prasad, has specifically stated that they reached Yavatmal at about 8.30 a.m. and then started their operation. It continued up to 9.30 p.m. According to the witnesses, it was not possible to complete the search on that day. Shri Palshikar, learned counsel appearing for the accused, made a submission that this could not be a ground within the import of the term “reason” as envisaged in subsection (3) of section 132 of the Act. According to learned counsel, may be due to late hours, it might be inconvenient for the concerned officers to complete the search, still it was not difficult, nor impossible. The proviso to sub-section (1) of section 132 of the Act deals with various contingencies when it becomes impracticable to seize the particular property or articles. The first proviso refers to building, place, vessel, vehicle, aircraft, etc., whereas the second proviso to sub-section (1) refers to the impossibility or impracticability of taking physical possession of any valuable article. Sub-section (3) of section 132 of the Act with which we are concerned deals with the contingencies which are not covered by the second proviso to subsection (1). Section 132(3) of the Act lays down that “the authorized Officer may, where it is not practicable to seize any such books of account, other documents, money, etc., for reasons other than those mentioned in the second proviso to sub-section (1), serve an order on the owner. . . . In view of the legal provision, it is explicit thatthe contingency contemplated by sub-section (3) of section 132 of the Act could be other than those provided in the proviso to subsection (1) of section 132 of the Act. Such contingency in the given case could be impracticability due to physical or mental incapability of the concerned Officer owing to over strain. In view of our discussion, we hold that the reasons as contemplated under subsection (3) of section 132 of the Act pertain to impracticability rather than impossibility.

P.W.-2, Krishnamachari and P.W.-3, Prasad, have specifically stated that it was not feasible for them to complete the search even after continuing it for the whole night. As the completion of the search was not feasible, it had certainly created an impediment in the way of the Officer formulating the opinion and effecting seizure of the objectionable materials; as such, in view of our finding that it being a continuous and homogeneous process, incompletion of the search has certainly affected the ultimate act of effecting seizure of the property undisclosed for the purpose of the Income-tax Act. In the situation,

P.W.-3. Prasad was competent to resort to sub-section (3) of section 132 of the Act for issuing the prohibitory order marked as exhibit 16. The order has a legal foundation and is within the parameters of the relevant provision. The same was, therefore, binding on the accused.”

In the aforesaid judgment Hon’ble Bombay High Court have clearly held that search, enquiry and formulating opinion and seizure of valuable articles or things is a single, continuous and homogeneous process. The Hon’ble jurisdictional High Court have also held that pending a decision to seize or not to seize provisions of section 132(3) could validly resorted to. In these circumstances to say that once the valuable articles or things were found and inventorised the process of search came to an end is to look at the provisions of section 132 only half way through. In the instant case the learned departmental representative has taken this stand that after issue of prohibitory orders under section 132(3) the Assessing Officer conducted a detailed enquiry in the course of which statements of parties were recorded and thereafter a decision was arrived at not to seize the shares in question and thereupon prohibitory order under section 132(3) was lifted. Merely because the final decision was not to seize the shares in question it cannot be said that the proceedings undertaken after prohibitory orders under section 132(3) were a nullity and the last ‘panchnama’ drawn was in eyes of law no ‘panchnama’ at all. On the contrary as held by the Hon’ble jurisdictional High Court in the case of Narayan Champalal Bajaj (supra) the last ‘panchnama’ drawn in the instant case was to bring the single continuous and homogenous process with various stages as envisaged under the provisions of section 132 to its logical conclusion.

4. I am unable to subscribe to the view that unless the department established before us with sufficient evidence/material that the provisions of section 132(3) were resorted to with valid reasons to enquire and verify further as to the source and nature of possession of the shares in the hands of the assessee, it should be assumed that prohibitory order under section 132(3) was wantonly issued and without any purpose. On the contrary the authorised officer of the Assessing Officer being senior public servants there is a presumption of bona fide and proper conduct on their part during the course of performance of their duties and it is for the party who alleges otherwise to rebut the presumption with sufficient evidence and material. This position has been clearly recognised by Hon’ble Supreme Court in the case of ITO v. Seth Bros. [1969] 74 ITR 836 in the following words :

“If the action is maliciously taken or power under the section is exercised for a collateral purpose, it is liable to be struck down by the court. If the conditions for exercise of the power are not satisfied the proceeding is liable to be quashed. But where power is exercised bona fide, and in furtherance of the statutory duties of the tax officers any error of judgment on the part of the officers will not vitiate the exercise of the power. Where the Commissioner entertains the requisite belief and for reasons recorded by him authorizes a designated officer to enter and search premises for books of account and documents relevant to or useful for any proceeding under the Act, the court in a petition by an aggrieved person cannot be asked to substitute its own opinion whether an order authorizing search should have been issued. Again, any irregularity in the course of entry, search and seizure committed by the officer acting in pursuance of the authorisation will not be sufficient to vitiate the action taken, provided the officer has in executing the authorization acted bona fide.”

From the verdict of Hon’ble Supreme Court above quoted it follows that in issues like this it is not the question as to whether or not the Assessing Officer was justified in taking recourse to the provisions of section 132(3). It is also not germane to the issue as to whether the decisions taken by him are correct decisions or not. The question that can be raised is whether the Assessing Officer exercised his powers bona fide to the best of his judgment. Any error of judgment on his part would have no effect on the legality of action taken by him. During the course of hearing before us considerable reliance was placed by the learned counsel for the assessee on the judgment of Hon’ble Bombay High Court in the case of Mrs. Sandhya P. Naik (supra). The learned CIT(DR) strongly relied upon the order of ITAT, Mumbai Bench “E” in the case of Tips Films (P.) Ltd. [IT(SS) A. No. 338 (Mum.) of 2003, dated 31-1-2004] wherein the aforesaid judgment of Hon’ble Bombay High Court was carefully analysed and the Tribunal observed as under:—

“96. The learned CIT Departmental Representative took us closely through the judgment of Hon’ble Bombay High Court in the case of Mrs. Sandhya P. Naik 253 ITR 534 (Bom.). He referred to page 538 of the judgment and pointed out that Hon’ble High Court had noticed several irregularities. In that case an order under section 132(3) came to be made by an officer who was not one of the authorized officers mentioned in the search warrant. In that case the search was concluded but at the same time a restraint order under section 132(3) was passed. Subsequently again a restraint order was passed by an officer who was not one of the authorized officers. The learned counsel for the department himself admitted that there were many defects in the said Panchnama. It was not signed by the assessee nor by any witnesses. The Panchnama was drawn at Belgaum and not at Margao the place of seizure. There was no comparison between the facts of the case of Mrs. Sandhya P. Naik and that of the assessee.

We find the facts of the case of Mrs. Sandhya P. Naik to be very different and distinguishable. In that case the articles put under restraint were silver articles. After the restraint order under section 132(3) on 20-10-1996, the cupboard was once again opened on 26- 10-1996 and 6 kg. of silver vessels were released and fresh order was passed under section 132(3). On December 13, 1996 the Asstt. Commissioner who was not one of the authorized officers mentioned in the search warrant removed the seal and made an order releasing the silver vessels and articles. The Hon’ble High Court found that there were several defects. On the facts of that case it was found that there was no practical impediment to seizure of 45 kg. of silver articles. The case of the department that the quantity was huge was found to be not acceptable. The court also found that the restrain order could not be cancelled and renewed from time to time as was done in that case. There were many other defects in the Panchnama as it was not signed by the assessee and no witnesses were called to sign the same. The Panchnama was drawn at Bangalore and not at Margaon, i.e., the place of seizure. There was no Warrant of Authorization in the name of the subsequent officer. In fact the Department itself admitted that there were many defects in the Panchnama. After taking all the facts of the case into consideration the Hon’ble High Court held that no fault could be found with the order of the ITAT, Pune Bench. In the instant case, the articles put under the restraint order were not silver articles but books of account. The case of the learned counsel of the assessee before us is that there was no practicable difficulty in seizure of a few documents. In our opinion it is not a correct view of the matter. From the fact that ultimately only a few papers were seized, it cannot be inferred that the search had not been concluded for that purpose only. The search appears to have been continued because the authorized officers did not find at that point of time the matter coming to an end. The law does not envisage recording of any reasons of writing for issuance of an order under section 132(3). It would therefore, not be fair to conclude that there were no reasons at all for issuance of order under section 132(3) in continuation of the search. In our view the validity of an order under section 132(3) cannot be tested from what is finally seized. It is a question of bona fide action of the authorized officers to be seen from the over all facts and circumstances of each case. If the over all appraisal of the facts of a particular case do not in particular indicate any callousness, indifference or mala fide on the part of the authorized officers, it should be assumed that the search was conducted in a proper manner and an order under section 132(3) was made for cogent reasons. In the case of Mrs. Sandhya P. Naik the indifferent and callous manner in which the matter was approached is patent on the facts of the case. From that judgment it cannot be said that the law has been laid down that in every case the burden should be cast on the department to prove the cogent reasons in relation to an order under section 132(3) otherwise subsequent actions would be rendered a nullity. As pointed out by us the law does not require the authorized officers to record the reasons in writing before an order under section 132(3) is made and it would be unfair to put this burden on the department long after the conclusion of the search. We are in respectful agreement with the Special Bench of the Tribunal in the case of C. Ramaiah Reddy that the wisdom of the ITAT cannot replace the wisdom of the Assessing Officer passing an order under section 132(3) on the spur of the moment. There has to be good amount of reasons to call in question the validity of such action. We also see considerable force in the contention of the learned CIT(DR) that the assessee not having objected to an order under section 132(3) during the course of the search or during the course of the proceedings under section 158BC and after having allowed the time-limit under section 158BE to be reckoned from the last Panchnama drawn in the case of the assessee should be hard put to establish the illegality in the orders of Income-tax authorities. After consideration of the matter we reject the additional grounds of the assessee that the order under section 158BC is bad in law on account of having been made beyond the expiry of the statutory time-limit. We hold that the search proceedings under section 132(1) in the case of the assessee company was not over on 27-7- 1999 or for that matter on 3-8-1999 and that the proceedings taken on 4-9-1999 were in continuation of the proceedings of the search commenced on 27-7-1999.”

5. The proposition that various actions taken by the authorized officer during the course of proceedings under section 132 areadministrative acts of the Assessing Officer in exercise of powers conferred upon him and such actions cannot be called a nullity merely because in the superior wisdom of the appellate authority or the court the authorised officer should have acted in a manner different from he acted, unless it is seen that the officer did not act bona fide or in good faith or there was scant regard to the relevant facts and law, is well established. In the case of Jain and Jain v. Union of India [1982] 134 ITR 6551 (Bom.) the Hon’ble jurisdictional High Court have stated the legal position in the following words :

“Now, formation of belief within the meaning of section 132 is an important step and a condition precedent to the authorisation of search and seizure. It is nevertheless basically a subjective step. It is one essentially of making up one’s mind in this case by the Director of Inspection himself as to whether on the information presented he had or had not formed the reason to believe. This belief, of course, cannot be a mere pretence nor can it be a mere doubt or suspicion. . . . His reasons and his belief do not constitute a judicial or a quasi-judicial act nor is issue of authorisation a judicial or a quasi-judicial function. And the matter, though to an extent justiciable, extremely limited and circumscribed are the court’s power of scrutiny and review in that behalf. One may not like the belief of the Director of Inspection. But if the belief is bona fide, if the same is in good faith, if it is not a pretence and if it is cogently supported in this case also overwhelmingly by the information as of the nature here, this court will not interfere therewith or sit in appeal over it. Indeed, there would, in such circumstances, be no jurisdiction to interfere. Where the Commissioner entertains the requisite belief and for reasons recorded by him authorises a designated officer to enter and search premises for books of account and documents relevant to or useful for any proceeding under the Act, the court in a petition by an aggrieved person cannot be asked to substitute its own opinion whether an order authorising search should have been issued.” [Emphasis supplied]

6. On consideration of the matter I am of the view that if in a given case a prohibitory order under section 132(3) is issued that would ordinarily denote continuation of the execution of an authorization under section 132(1) of the Act and any “panchnama(s)” drawn in relation to such prohibitory order under section 132(3) would for the purpose of the provisions of section 158BE read with Explanation 2 have the effect of extending the time-limit for completion of the order under section 158BC. It is only in the extreme cases of abuse of power or abdication of sense of dutyor responsibility as in the case of Mrs. Sandhya P. Naik (supra) that the proceedings taken by the officers after issue of prohibitory orders under section 132(3) may be treated to be a nullity. In the case before us there is no reason to believe that the authorized officer first issued a prohibitory order under section 132(3) and thereafter lifted the same in abuse of the power in this behalf conferred upon them under the provisions of section 132 of the Act. On the contrary the sequence of events shows that the authorised officers took recourse to the provisions of section 132(3) so as to make enquiries and verification in the interregnum with a view to avoid indiscriminate or uncalled for seizure of the properties belonging to the assessee.

7. It is seen that my brother the learned Judicial Member has not decided upon the various ground of appeal on merits in respect of the additions made by the Assessing Officer. I therefore, do not propose to go into the same. It would suffice if this issue as to the time-limit within which the impugned order under section 158BC has been made is first sorted out and thereafter the other grounds of appeal on merits of the additions made by the Assessing Officer are taken up.

REFERENCE UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961

Since there is a difference of opinion between us in relation to the assessee’s ground relating to time-limit prescribed under section 158BE for completion of block assessment under section 158BC we refer the following question of difference to the Hon’ble President for nominating Third Member so that the point of difference may be decided according to the opinion of the majority of the Members of the Appellate Tribunal:—

“1. Whether on the facts and in the circumstances of the case, the order under section 158BC made by the Assessing Officer is time-barred within the meaning of section 158BE of the Act?”

THIRD MEMBER ORDER

Per G.D. Agrawal, Vice President, As a Third Member. – Since there was a difference of opinion between the Ld. Members constituting “E” Bench of ITAT, Mumbai in respect of the aforesaid appeal, I was nominated as Third Member by the Hon’ble President, ITAT under section 255(4) of Income-tax Act, 1961. The question referred to me reads as under :—

“Whether on the facts and in the circumstances of the case, the order under section 158BC made by the Assessing Officer is timebarred within the meaning of section 158BE of the Act ?”

2. The issue before the Tribunal was whether the block assessment order dated 30-9-1999 passed under section 158BC was barred by limitation in terms of section 158BE of the Act. The admitted facts of the case are that a search and seizure operation under warrant of authorization issued under section 132 was carried out at the residential premises of the assessee at 7.30 p.m. on 28-7-1997 and continued till 2.30 a.m. on 29-7-1997. During the said search, certain incriminating materials which, inter alia, included jewellery and shares, were found and the search party prepared an inventory in respect of such materials found during course of search and a panchnama was also drawn in respect of the said materials in the course of search. As per para 5 of Panchnama, only books of account and documents, as per Annexure-A, were seized and no seizure was effected in respect of other materials found during course of search including jewellery and shares. In para-8 of the Panchnama, it was stated that search was temporarily concluded for the day to be commenced subsequently. However, prohibitory order was issued under section 132(3) in respect of jewellery and shares found from the cupboard kept in the bedroom of assessee’s son Sri Bakul N. Gandhi, 11/12, Sandeep Building, Laxminarayan Lane, Matunga. The prohibitory order issued under section 132(3) in respect of jewellery was revoked on 1-8-1997 at 4.00 p.m. while prohibitory order in respect of share certificates was revoked on 8-9-1997. On 8-9-1997, another panchnama was prepared wherein it was stated that search is finally concluded and no other comments/remarks were recorded therein. During the period 29-7-1997 to 8-9-1997, certain statements were recorded by the Income-tax authorities. In response to notice under section 158BC, the assessee filed his block return of income on 16-3-1998 declaring undisclosed income of Rs. 16,34,970 which was determined by the Assessing Officer in order passed under section 158BC read with section 145/144 dated 30-9-1999 at Rs. 55,69,390, making thereby several additions under different heads of income.

3. Being aggrieved with such block assessment estimating the total undisclosed income at Rs. 55,69,390, the assessee came in appeal before the CIT(A) agitating all the additions made by the Assessing Officer over and above the undisclosed income declared by the assessee himself. He also raised additional ground before the CIT(A) agitating that the order passed by the Assessing Officer on 30-9-1999 was beyond the stipulated period of 2 years from the end of the month in which the warrant of authorization of search was executed, i.e., 28-7-1997 within the meaning ofsection 158BE of the Act. However, the assessee was unsuccessful before the CIT(A) on both counts, i.e. additions made to the undisclosed income and assessment order being barred by limitation.

4. The assessee came in appeal before the Tribunal agitating order passed under section 158BC being barred by limitation as also additions made and confirmed by the CIT(A) to the total undisclosed income in such assessment. After hearing the parties, considering the evidence on record and discussing several case laws on the issue, the Ld. Judicial Member (J.M.) held that –

(i) The prohibitory order under section 132(1) second proviso is considered as deemed seizure while the prohibitory order under section 132(3) is not to be considered as deemed seizure. The format of panchnama prescribed in Cr. PC provides recording of things found and seized in the presence of witnesses. Though the proceedings of search as well as seizure are to be recorded in the panchnama, yet for the purpose of reckoning the period of limitation under section 158BE, it is the panchnama wherein factum of concluding of search is to be recorded as is apparent from the provisions of Explanation 2 to section 158BE. Therefore, where no search is carried out but a panchnama is prepared, then such panchnama cannot be treated as a panchnama for the purpose of section 158BE read with Explanation 2 thereof.

(ii) The learned Sr. D.R. has not been able to point out any action of search or seizure during the period commencing from 29-7-1997 till the dates of revocation of orders under section 132(3), except saying that certain statements were recorded during this period. This cannot be considered as an act of search. Search means finding of hidden or concealed things. Once things are found and inventorised, the process of search comes to an end. It is only the process of seizure which taken place after the process of search. Therefore, search was completed on 29-7-1997, when inventory of things found was prepared and nothing remained to be done. Hence, panchnama dated 8-9-1997 cannot be said to be a valid panchnama. Merely because a panchnama was prepared, it cannot be construed as panchnama. Even this panchnama does not refer to any act of search. It simply says that search concluded. Thus, the panchnama dated 8-9-1997 cannot be considered to be a valid panchnama and, therefore, has to be ignored and consequently, limitation period would commence from 29-7-1997.

(iii) Even assuming for the sake of argument that seizure is part of search, the fact remains that no seizure was made on 8-9-1997. So, neither the act of search nor the act of seizure took place on 8-9-1997 and hence panchnama was not required to be made. Therefore, even on this account, the alleged panchnama dated 8-9-1999 cannot be said to be a valid panchnama. Consequently, the period of limitation cannot be reckoned from 8-9-1997 and the period of limitation would commence only from 29-7-1997 when search as well as seizure actions were concluded.

(iv) As per section 132(8A) at the relevant time when order under section 132(3) was passed, the prohibitory order under section 132(3) could not remain in force for a period exceeding 60 days from the date of order. However, the authorized officer, for the reasons to be recorded by him in writing, could extend the period beyond 60 days after obtaining the approval of the Director of Income-tax or the Commissioner of Income-tax, as the case may be, for such extension. The proviso to this sub-section provided that the Commissioner shall not approve the extension of the period for any period beyond the expiry of 30 days after the completion of all the proceedings under this Act in respect of the years for which the valuable articles or things were relevant. The clearly shows that order under section 132(3) could be extended even beyond the period of completion of assessment. In such situations, it was impossible to compute the period of limitation. Relying on the Special Bench decision of ITAT, Bangalore in the case of C. Ramaiah Reddy (supra) and another decision of Tribunal in the case of Adolf Patric Pinto (supra), the Ld. J.M. held that the order under section 132(3) has to be ignored for the purpose of section 158BE.

(v) The Ld. J.M. on the above reasoning/findings cancelled the orders of the lower authorities with the following observation :—

“12. In view of the above discussion, it is held that the panchnama dated 8-9-1997 was not a valid panchnama in the eyes of law and, therefore, has to be ignored and consequently, period of limitation will commence from 31-7-1997 since the valid panchnama was prepared on 29-7-1997. Consequently, the block assessment could be completed by 31-7-1999. Since the impugned block assessment order was passed on 30-9-1999, it was clearly beyond the period of limitation prescribed under section 158BE. Thus the impugned order of the Assessing Officer was illegal being barred by the period of limitation. Therefore, the impugned orders of the lower authorities are cancelled.”

(vi) Since the assessee succeeded on the limitation issue, the Ld. JM did not deal with the grounds of the assessee on merits of the additions sustained by the CIT(A).

5. The Ld. Accountant Member (A.M.) passed a dissenting order holding that the search under section 132(1) in the case of the assessee was concluded only on 8-9-1997 when the prohibitory order under section 132(3) of the Act was lifted by the authorized officer concerned. Hence, it cannot be said that the impugned block assessment order has been made by the Assessing Officer beyond the period of limitation prescribed under section 158BE of the Act. For coming to this conclusion, the Ld. A.M. observed that –

(i) Provisions of section 158BE do not define “a valid panchnama” in the eyes of law. For that matter there is no definition of ‘panchnama’ under the provisions of Incometax Act. The circumstances under which prohibitory orders were issued under section 132(3) are not doubted. The objection, however, is taken to the revocation of prohibitory orders under section 132(3) without any further action. It was explained by the Ld. Sr. DR that during intervening period the Assessing Officer was carrying out a process of examining and verifying the various facts and circumstances attached to the valuable articles or things put under prohibitory order under section 132(3) with a view to determine whether the same should be seized or released. Therefore, it cannot be said that this action of the Assessing Officer is not part of search itself and hence prohibitory orders under section 132(3) were revoked without any further proceedings. He held that if the prohibitory orders under section 132(3) were validly or correctly issued, how can revocation of those prohibitory orders be held to be no action at all.

(ii) Referring to various clauses of section 132(1) for the purpose of application of limitation under section 158BE Explanation 2, the Ld. A.M. held that an authorization by the authorizing officer to an authorized officer under section 132(1) to search is not limited to discovery of hidden or concealed things. It includes seizure as contemplated in clauses (a) to (c) of section 132(1). It is, therefore, incorrect to say that an authorization under section 132(1) comes to an end once things are found and inventorised. There is nothing like a separate authorization to enter and search the premises, another authorization to break open the lock of any door, box, lockers, almirah, another authorization to require any person to afford the authorized officer thenecessary facility to inspect such books of account or documents, another authorization to cause seizure and yet another authorization to place marks of identification or to make a note of preparation of an inventory, etc. The authorizing officer under section 132(1) issues a single authorization to the authorized officer to carry out all the above mentioned activities jointly or severally.

(iii) Referring to the decision of Hon’ble Bombay High Court in the case of Narayanan Champalal Bajaj (supra), the Ld. A.M. observed that the Hon’ble Bombay High Court in the said case have clearly held that search, enquiry and formulating opinion and seizure of valuable articles or things is a single, continuous and homogeneous process. He, therefore, held that merely because the final decision was not to seize the shares in question, it cannot be said that the proceedings undertaken after prohibitory orders under section 132(3) were a nullity and the last panchnama drawn was in the eyes of law no panchnama at all.

(iv) The Ld. A.M. also did not subscribe to the view taken by the Ld. J.M. that unless the department established with sufficient evidence/material that the provisions of section 132(3) were resorted to with valid reasons to enquire and verify further as to the source and nature of possession of the shares in the hands of the assessee, it should be assumed that prohibitory order under section 132(3) was wantonly issued and without any purpose. In this connection, relying on the decision of Hon’ble Apex Court in the case of Seth Bros. (supra), he held that in issues like the present case it is not the question as to whether or not the Assessing Officer was justified in taking recourse to the provisions of section 132(3). It is also not germane to the issue as to whether the decisions taken by him are correct decisions or not. The question that can be raised is whether the Assessing Officer exercised his powers bona fide to the best of his judgment. Any error of judgment on his part would have no effect on the legality of action taken by him.

(v) The Ld. A.M. further referring to the decision of ITAT, Mumbai Bench-E in the case of Tips Films (P.) Ltd. (supra) has held that the proposition that various actions taken by the authorized officer during the course of proceedings under section 132 are administrative acts of the Assessing Officer in exercise of powers conferred upon him and such actions cannot be called a nullity merely because in the superior wisdom of the appellate authority or the court the authorised officer should have acted in a manner different from he acted, unless it is seen that the officer did not act bona fide or in good faith or there was scant regard to the relevant facts and law.

(vi) On the above reasonsings, the Ld. A.M. concluded the matter as under :—

“6. On consideration of the matter I am of the view that if in a given case a prohibitory order under section 132(3) is issued that would ordinarily denote continuation of the execution of an authorization under section 132(1) of the Act and any “panchnama(s)” drawn in relation to such prohibitory order under section 132(3) would for the purpose of the provisions of section 158BE read with Explanation 2 have the effect of extending the time-limit for completion of the order under section 158BC. It is only the extreme cause of abuse of power or abdication of sense of duty or responsibility as in the case of Mrs. Sandhya P. Naik (supra) that the proceedings taken by the officers after issue of prohibitory orders under section 132(3) may be treated to be a nullity. In the case before us there is no reason to believe that the authorized officer first issued a prohibitory order under section 132(3) and thereafter lifted the same in abuse of the power in this behalf conferred upon them under the provisions of section 132 of the Act. On the contrary the sequence of events shows that the authorized officers took recourse to the provisions of section 132(3) so as to make enquiries and verification in the interregnum with a view to avoid discriminate or uncalled for seizure of the properties belonging to the assessee.”

6. At the time of hearing before me, the learned counsel for the assessee reiterated the arguments made before the Tribunal and relied on the order of Ld. J.M. He also submitted as under in support of his contention that the order passed under section 158BC is bad in law and void ab initio :—

(a) That the search action was conducted on 28-7-1997 and concluded at 2.30 a.m. on 29-7-1997 wherein certain papers and documents were found and seized. Statement under section 132(4) was also recorded during the search action from Smt. Rekha Gandhi.

(b) That after concluding the search on 29-7-1997, statement of the assessee under section 132(4) was recorded on 1-8-1997 and 14-8-1997 and under section 131 on 5-9-1997.

(c) That on 8-9-1997, panchnama was issued once again mentioning nothing and only giving remark ‘Finally Concluded’.

(d) That the warrant of authorization of search action was initiated and executed on 28-7-1997 and hence the search was concluded at 2 a.m. on 29-7-1997. Therefore, as per section 158BE, the time-limit for passing assessment order under section 158BC ended on 31-7-1999. However, in thiscase as the impugned order under section 158BC was passed on 30-9-1999, which was beyond the statutory period of two years from the end of the month in which the warrant of authorization of search was executed, the same is barred by limitation and hence bad in law and liable to be quashed.

(e) That there is no provision in the Cr. P.C. or in the Income-tax Act/Rules for postponing the search for a long period. This view is taken by the Hon’ble Kerala High Court in the case of Dr. C. Balakrishnan (supra) and has held that the search cannot be prolonged unreasonably without justification and the action of the officer was clearly an arbitrary exercise of power and hence the search was not valid.

(f) That in the instant case of the assessee, the panchnama issued on 8-9-1997 was only for the purpose or recording statement of the assessee under section 131 and for which the search cannot be said to be continuing for a period of 42 days from the date of search action, i.e., 28-7-1997. Hence, the order passed under section 158BC is barred by limitation and liable to be quashed.

(g) The learned counsel further contended that the search action, whether conducted by Income-tax Department or other agency, has to adhere with the Cr. P.C. section 76 of Cr. P.C. does not provide for a case whereby search action is prolonged for such a long period. If the search is prolonged for such a long period under the guise of panchnama, it could only lead to the conclusion that the officer is arbitrarily exercising the powers which could not be the intention of the Legislature while introducing the new scheme of assessment of search cases to curb the time-limit in deriving the finality of search cases. Keeping in view the objective of the Legislature for introducing this new scheme, the search action could not be said to be continuing under the guise of panchnama only for the purpose of recording statement of the assessee and prolonging the search action without any reason. He further submitted that restrained order does not amount to seizure and if there is no seizure, panchnama cannot be drawn. He placed reliance on the following decisions:

Mrs. Sandhya P. Naik (supra) Dr. C. Balakrishnan Nair v. CIT [1999] 237 ITR 701 (Ker.)

(h) That when all the formalities of taking of inventory etc. are completed, if the prohibitory order is issued on the cup board to keep the valuables, time-limit cannot be extended. He placed reliance on various decisions of ITAT which included the following:—

Adolf Patric Pinto (supra) Sarb Consolate Marine Products (supra) Mr. Shah Rukh Khan (supra)

(i) That keeping in view the facts and circumstances of the case and the judicial pronouncements relied upon by the assessee before the Bench, the Ld. J.M. had rightly appreciated the case and has rightly held that the order passed under section 158BC on 30-9-1999 was barred by limitation. The same should be upheld.

7. The Ld. Departmental Representative, on the other hand, relied on the order of the Ld. A.M. He submitted that warrant of authorization for conducting search was dated 28-7-1997 and the first panchnama in the case of the assessee was drawn on 29-7-1997. As the search was temporarily concluded, prohibitory orders were issued under section 132(3) on 28-7-1997 in respect of jewellery and shares found during search. The first prohibitory order in respect of jewellery was revoked on 1-8-1997 and the second prohibitory order for shares was lifted on 8-9-1997. There was no seizure during this intervening period. Second panchnama drawn on 8-9-1997 was in continuation of first panchnama dated 29-7-1997 and , therefore, it should be taken that, first panchnama dated 29-7-1997 was finally concluded on 8-9-1997. He, therefore, submitted that, in fact, the search had been completed on the date when the prohibitory order under section 132(3) was revoked, which in this case was 8-9-1997. He further submitted that in between the period of first panchnama dated 29-7-1997 and second panchnama dated 8-9-1997, statements under section 132(4)/131 on five occasions were recorded from the assessee on 23-8-1997, 1-8-1997, 14-8-1997, 5-9-1997 and 8-9-1997 and after considering the statements recorded, the authorised officer considered it appropriate to lift the prohibitory order. Therefore, in this case search concluded on 8-9-1997 when finally the prohibitory order under section 132(3) was revoked. Referring to section 132(8A) of the Act, the Ld. Departmental Representative submitted that the prohibitory order under section 132(3) shall not be in force for a period exceeding 60 days from the date of the order. Section 132(3) empowers the assessing authority to take steps as may be necessary for ensuring compliance from the summoned person and issuing order under this section shall not be deemed to be seizure of such books of account, documents, money, jewellery etc., as contained in section 132(1)(iii). He thus submitted that issuing order under section 132(3) is an administrative action on the part of theauthorized officer and this cannot be legally questioned. He placed reliance on the following decisions:

Promain Ltd. v. Dy. CIT [2005] 195 ITD 489 (Delhi)(SB); C. Ramaiah Reddy (supra);

M.B. Lal v. CIT [2005] 279 ITR 298 (Delhi);

VLS Finance Ltd. v. CIT [2007] 289 ITR 2862 (Delhi);

CIT v. Dr. C. Balakrishnan Nair [2006] 282 ITR 1583 (Ker.).

7.1 The Ld. Departmental Representative further submitted that the case law relied upon by the learned counsel in the case of Mrs. Sandhya P. Naik (supra) is distinguishable on facts and hence not applicable to the present case.

8. In counter reply, the learned counsel for the assessee has submitted that the facts of cases relied upon by the Ld. Departmental Representative are different. The Ld. J.M. has correctly noted the facts of the case and arrived at right finding.

9. I have carefully considered the arguments of both the sides and also gone through the decisions relied upon by the parties. The only controversy before me is whether the order passed by the Assessing Officer under section 158BC of the Income-tax Act is barred by limitation within the meaning of section 158BE of the Act. Section 158BE(1) reads as under:—

“(1) The order under section 158BC shall be passed—

(a) within one year from the end of the month in which the last of the authorisations for search under section 132 or for requisition under section 132A, as the case may be, was executed in cases where a search is initiated or books of account or other documents or any assets are requisitioned after 30-6-1995, but before 1-1-1997;

(b) within two years from the end of the month in which the last of the authorisations for search under section 132 or for requisition under section 132A, as the case may be, was executed in cases where a search is initiated or books of account or other documents or any assets are requisitioned on or after 1-1-1997.”

Explanation 2 after section 158BE inserted by Finance (No. 2) Act, 1998 with retrospective effect from 1-7-1995 reads as under :—

 “Explanation 2.—For the removal of doubts, it is hereby declared that the authorisation referred to in sub-section (1) shall be deemed to have been executed,—

(a) in the case of search, on the conclusion of search as recorded in the last panchnama drawn in relation to any person in whose case the warrant of authorisation has been issued;

(b) in the case of requisition under section 132A, on the actual receipt of the books of account or other documents or assets by the Authorised Officer.”

9.1 Thus, as per section 158BE(1), assessment under section 158BC should be completed within one year from the end of the month in which last of the authorization for search under section 132 was executed. In the case under consideration before me, search operation in pursuance to the warrant of authorization issued under section 132 was carried out at the residential premises of the assessee on 28-7-1997 and it continued till 29-7- 1997. Only one authorization for search was issued. However, prohibitory order under section 132(3) was issued in respect of jewellery, and shares on 29-7-1997. The prohibitory order in respect of jewellery was revoked on 1-8-1997 while prohibitory order in respect of share certificates was revoked on 8-9-1997. On 8-9-1997, another panchnama was prepared wherein it was stated that search is finally concluded. Now the question is whether for the purpose of section 158BE, the warrant of authorization was executed on 29-7-1997 when the search was originally concluded though simultaneously prohibitory order under section 132(3) was issued in respect of jewellery and shares, or on 8-9-1997 when the prohibitory order issued under section 132(3) was withdrawn and a panchnama was prepared stating that the search was finally concluded.

9.2 We find that the Hon’ble jurisdictional High Court has considered the similar issue in the case of Mrs. Sandhya P. Naik (supra). At page-541, their Lordships have considered the effect of issuance of prohibitory order under section 132(3) and held as under :—

“Action under section 132(3) of the Income-tax Act can be resorted to only if there is any practical difficulty in seizing the item which is liable to be seized. When there is no such practical difficulty the officer is left with no other alternative but to seize the item, if he is of the view that it represented undisclosed income. Power under section 132(3) of the Income-tax Act thus cannot be exercised so as to circumvent the provisions of section 132(3) read with section 132(5) of the Income-tax Act. The position has become much more clear after the insertion of the Explanation to section 132(3) effective from 1-7-1995, that a restraint order does not amount to seizure. Therefore, by passing a restraint order, the time-limit available for framing of the order cannot be extended.” [Emphasis supplied]

Thus, after interpreting the provisions of section 132(3), their Lordships of the jurisdictional High Court have held that bypassing a restraint order, the time-limit available for framing the assessment cannot be extended. The Ld. Departmental Representative has tried to distinguish this decision of Hon’ble jurisdictional High Court on the ground that the facts in the case before the Hon’ble High Court were different than the facts in the case of the present assessee. However, I find that the above observation of their Lordships were with reference to the interpretation if the provisions of section 132(3) and not with reference to the specific facts of a particular case. Therefore, in my opinion, the above interpretation of their Lordships of Hon’ble jurisdictional High Court to the provisions of section 132(3) would be applicable to all the cases falling within the jurisdiction of Hon’ble Bombay High Court. Their Lordships have clearly laid down that by passing a restraint order under section 132(3), the time-limit available for framing the assessment cannot be extended. In the case under consideration before me also, the department is seeking the extension of time-limit for framing the assessment on the strength of prohibitory order issued under section 132(3) on 29-7-1997 which was finally revoked on 8-9- 1997. The revenue wants the period of limitation for the purpose of section 158BE to be reckoned from 8-9-1997 when the prohibitory order under section 132(3) was revoked and a panchnama was prepared stating that the search is finally concluded. However, from the facts of the case it is evident that so far search is concerned, it was already completed on 29-7-1997 when the premises of the assessee was completely searched and all the assets found were inventorised and a panchnama prepared. Thereafter no action for further search had taken place and after the verification of the assessee’s explanation with regard to jewellery and shares, the prohibitory order in respect of jewellery was revoked on 1-8-1997 and in respect of share certificates on 8-9-1997. Thus, on 8-9-1997 only the prohibitory order in respect of shares was revoked. Therefore, the panchnama prepared on 8-9-1997 cannot be said to be a panchnama prepared in pursuance to the warrant of authorization for search within the meaning of section 158BE(1) of the Act. If a panchnama prepared on the revocation of prohibitory order under section 132(3) wherein the only thing mentioned is ‘search is finally concluded’, is held to be a panchnama prepared on the conclusion of search within the meaning of Explanation to section 158BE, it would amount to an extending the period of limitation for completion of assessment on account of restraint order under section 132(3). It would be contrary to the decision of Hon’ble jurisdictional High Court in the case of Mrs. Sandhya P. Naik (supra).

9.3 The Ld. Departmental Representative has also relied upon the decision of Hon’ble Delhi High Court in the case of M.B. Lal (supra), wherein their Lordships held as under :—

“That in the instant case the authorization was issued on 2-2-2000. The search also started on the same day and continued till 29-6- 2000, during which period various articles and documents were seized. The search would end only upon revocation of the order passed under section 132(3) which, in the instant case, was revoked only on 29-6-2000. The period of limitation for making an assessment order under section 158BC read with section 158BE of the Act would, therefore, have to be reckoned from 30-6-2000 (being the end of the month in which the last panchnama was drawn) and would end on 30-6-2002. The assessment order, in the instant case, was however made on 27-6-2002, which was well within the outer limit of two years prescribed by law.”

Similar view is also taken by their Lordships of Delhi High Court in the case of VLS Finance Ltd. (supra). Though the above decision of Hon’ble Delhi High Court supports the case of the revenue that the period of limitation for completion of assessment would start only upon the revocation of the order passed under section 132(3), however, the decision of Hon’ble jurisdictional High Court will be binding upon the assessees falling within the jurisdiction of Hon’ble Bombay High Court.

9.4 The Ld. Departmental Representative has also relied upon the decision of Hon’ble Kerala High Court in the case of Dr. C. Balakrishnan Nair (supra), wherein their Lordships held as under:—

“Where power is exercised bona fide, and in furtherance of the statutory duties of the tax officers, any error of judgment on the part of the officers will not vitiate the exercise of the power. Any irregularity in the course of entry, search and seizure committed by an officer acting in pursuance of the authorization will not be sufficient to vitiate the action taken, provided the officer has in executing the authorization, acted bona fide.”

However, the above decision has no relevancy to the facts of the case under consideration before me, because in the appeal before the Tribunal there is no dispute about the intentions of the officers conducting the search or issuing/revoking prohibitory orders. The question is about the impact of such orders upon the period of limitation.

9.5 Both the parties have also relied upon certain decisions of ITAT in support of their rival contentions. However, as I have already stated that the issue is squarely covered by the decision of Hon’ble jurisdictional High Court in the case of Mrs. Sandhya P. Naik (supra), I do not find any justification to deal with decisions of various Benches of the Tribunal relied upon by boththe parties. In view of the above, I respectfully following the decision of Hon’ble jurisdictional High Court in the case of Mrs. Sandhya P. Naik (supra) hold that the order passed under section 158BC by the Assessing Officer is time-barred within the meaning of section 158BE of the Act.

10. The matter will now go to the regular Bench for passing the order as per the majority view.

Per K.C. Singhal, Vice President. –

In this appeal, the assessee has challenged the order of Block Assessment passed by the Assessing Officer by contending that the impugned order was barred by the period of limitation prescribed under section 158BE of the Income-tax Act, 1961 and therefore, the said order was bad in law. In addition the assessee had also challenged the various additions confirmed by the CIT(A). In respect to the legal ground raised by the assessee there was a difference of opinion between the Members constituting the Bench and consequently the following question was referred for the opinion of the Third Member by the Hon’ble President, ITAT under section 255(4) of the Act :

“Whether on the facts and in the circumstances of the case, the order under section 158BC made by the Assessing Officer is timebarred within the meaning of section 158BE of the Act?”

2. The Third Member vide order dated 16-6-2008 agreed with the view of the Judicial Member by expressing his opinion that the assessment made by the Assessing Officer was barred by the period of limitation prescribed under section 158BE of the Act.

3. In view of the majority opinion, it is held that the block assessment confirmed by the Assessing Officer was bad in law inasmuch as it was passed beyond the period of limitation prescribed under section 158BE of the Act. Consequently, the orders of both the lower authorities are hereby quashed.

4. Since the assessee succeeds on the preliminary ground, it is not necessary for us to adjudicate the other grounds relating to additions made by the Assessing Officer.

5. In the result, the appeal of the assessee stands allowed.

NF