Advocate Sameer Bhatia
The Effort of the court should not be one of finding means to pull Down the shutters of adjudicatory jurisdiction before a party who seeks Justice, on account of any mistake committed by him, but to see whether It is possible to entertain his grievance if it is genuine.
Hon’ble Justice K.T.Thomas in State of Madhya Pradesh vs. Pradeep Kumar  7 SCC 372
The locution `Enquiry’ is a term of wide and capacious connotation signifying and inherently carrying with it the burden to enquire, probe, delve, scrutinize, escalate and to congregate such vital and salient information as might be required to entrust and endow the charm of stepping into the shoes of scrutiny proceedings carried in due reference to the stipulations provided for by the Income Tax Act, 1961. Going by the very narratives of pragmatic and theoretical considerations of the tenants of expressions `Enquiry’ or ``Proceedings’ as referred to under the stipulations contained in sub-section 6 of section 133, it becomes all the more weighty to have a reference to what is exactly the true and veracious meanings assigned to them under the enactment or how they have commissioned under the norms of due interpretations of various courts and tribunals acting to abet the purpose of enactment i.e. the taxing statute. Though under the umbrella, patronage and championship of incriminating and entrapping litigation channel commonly designated and referred to as the `Enquiry’ or `Proceedings’ under the Income Tax Act, 1961, how the tax, imposts, fee, duty leakages and cracks are to be disinterred and unearthed had always been a challenge reposed for the revenue authorities since the very dawn of the provisions. With new dimensions advanced to the purpose of `Enquiries’ under the statute, it can no more be designated as `Horns of a Dilemma’ to infer that phraseology enquiry can be more abusive than a collateral damage as and when an inference and hypothesis to scrutiny proceedings is referred to.
The Hon’ble Supreme of India in a case titled Kathiroor Service Cooperative Bank Limited vs. Commissioner of Income Tax, Civil Appeal No.7460 of 2013@ SLP(C) No.3976 of 2010 in an attempt to describe and delineate the powers contained under section 133(6) has settled, `The Powers under section 133(6) are in the nature of survey and a general enquiry to identify persons who are likely to have taxable income and whether they are in compliance with the provisions of the Act. It would not fall under the restricted domains of being ‘area specific’ or ‘case specific’. It will be in the interest of the principles of natural justice that for any assessing authority to assume legacy of power contained under the canons of Section 133(6), it will be most vital and bounden duty to have adherence to the formula devised by the Hon’ble Supreme Court of India in a case titled Budhia Swain & Others vs. Gopinath Deb & Others  4 SCC 396 so as to keep an overall vigil over insatiable exigencies of the proceedings, `A distinction has to be drawn between lack of jurisdiction and a mere error in exercise of jurisdiction. The former strikes at the very root of the exercise and want of jurisdiction may vitiate the proceedings rendering them and the orders passed therein a nullity. A mere error in exercise of jurisdiction does not vitiate the legality and validity of the proceedings and the order passed thereon unless set aside in the manner known to law by laying a challenge subject to the law of limitation.’ A coherent, lucid and kindred jurisdictional assumption of power does not in any style and fashion causes the arrest of the proceedings before the courts and tribunals thereby aiding the constitution canonical gospels of interpretation. Further the Hon’ble Supreme Court of India has established in a case titled, `Sukhdev Singh vs. Bhagatram, AIR  SC 1331, `Whenever a man’s rights are affected by decision taken under statutory powers, the court would presume the existence of a duty to observe the rules of natural justice and compliance with rules and regulations imposed by statute.’ In another far reaching judgement titled Mahabir Jute Mills Limited vs. Shibhan Lal Saxena, AIR  SC 2057, the Hon’ble Supreme Court of India settled, `It is well settled that rules of natural justice apply to administrative proceedings and even if there is no statutory requirement, such decision must be a speaking order.’
The Black’s Law Dictionary, 9th Edition, 2009 at pagination reference 864 defined the expression `Enquiry’ as a request for information, either procedural or substantive.’ The appellation `Enquiry’ was also stood defined and elaborated by the Merriam Webster Unabridged Dictionary which states that the words `Inquiry or Enquiry’ connotes:-
a) examination into facts or principles.
b) a request for information
c) a systematic investigation often of a matter of public interest.
The expression `Enquiry’ stood coined and inserted in the Income Tax Act, 1961 by the Finance Act, 1995 with effect from 01st July, 1995. Prior to this provision, there was an inbuilt and coherent scope for the expression `Proceeding’ under the enactment for which the mere pendency, unconcluded, unsettled and outstanding aura use to be the condition precedent which was also subject to the subjective satisfaction of various courts and tribunals. The very charisma of the expression `Proceeding’ was subject to the scrutiny of the Hon’ble Bombay High Court in a case titled, D.B.S.Financial Services Private Limited vs. Smt.M.George, ITO  73 Taxman 640 in which it was settled, `The term `proceedings’ used in section 133(6) must be confined to its normal ambit of a pending or existing proceedings. The major significance of this order shook the very credibility of the revenue authority in basing their claims upon that weight of satisfaction which would be further subject to the litmus test of pendency and unresolved actions taken pursuant to the provisions stipulated for by the enactment. The executive actions of the state machinery and the revenue authorities stood buried under the adobe of pendency thereby tying their hands in furtherance of executing the provisions of the enactment. Hence the word `Enquiry’ got birth under the womb of failing litigations when tested by courts on the precincts of legality and pendency of proceedings. The expression `Enquiry’ cannot be based upon penurious notions and surmises and conjectures of legal credence but must afford a relative, legitimate, tenable and rational counter from the side of the subject being put to test under its never un-abating and everlasting horizon and orbit. For any confrontation with the findings of an `Enquiry’, it will be an unbridled, unrestricted, unfettered, unimpeded right of the subject to have recourse to the very trailer in form of inspection and appraisal to vouch that all the records, materials and documents to be used against him must be made accessible to him whenever a request and call comes from his side. A show-cause notice which might be in nature of an `Enquiry’ proceedings and contains hyper-technical digression can never see the ray of light when tested on the mere yardstick of legality. It will be most expedient to have recourse to the law laid down by the Hon’ble Supreme Court of India in a case titled, Commissioner of Central Excise vs. Brindavan Beverages Private Limited & Others  5 SCC 388, `It cannot be disputed that the show cause notice is the foundation on which the department has to build up its case, therefore, if the allegations in the show-cause notic are not specific and are on the contrary vague, lack details and/or unintelligible or do not disclose the real material upon which a proposed action is contemplated to be drawn, then it is sufficient to hold that the noticee was not given proper opportunity to meet the allegations indicated in the show cause notice. In a very recent judgement and a path breaking and innovative law composed under the highest court of the country, the Hon’ble Supreme Court has held in a case titled, Tata Chemicals Limited vs. Commissioner of Customs (Preventive) Jamnagar, Civil Appeals 7628-7629 of 2009 dated 14th May, 2015, `while interpreting the expressions `deems it necessary’ and `reason to believe’ – It does not mean subjective satisfaction of the concerned customs officer, the Court observed that such power should be exercised in accordance with the restraints imposed by law. Exercise of power by customs officer should not be subjective/ arbitrary; it should be based on reasonable grounds. Further the judgement said, if the law requires that something be done in a particular manner, it must be done in that manner, and if not done in that manner has no existence in the eye of law at all.
The relative section 133 reads Power to call for information and its occupant sub-section 6 reads in its entirety:-
133 The [Assessing] Officer, the [Deputy Commissioner (Appeals),] [the Joint Commissioner] of the Commissioner (Appeals] may, for the purposes of this Act,-
(6) require any person, including a banking company or any officer thereof, to furnish information in relation to such points or matters or to furnish statements of accounts and affairs verified in the manner specified by the [Assessing] Officer, the [Deputy Commissioner (Appeals) [, the [Joint Commissioner] or the Commissioner (Appeals), giving information in relation to such points or matters as, in the opinion of the [Assessing] Officer, the [Deputy Commissioner (Appeals) [, the [Joint Commissioner] or the Commissioner (Appeals)], will be useful for, or relevant to, any [enquiry or] proceeding under this Act :
[Provided that the powers referred to in clause (6), may also be exercised by the [Principal Director General or] Director-General, the [Principal Chief Commissioner or] Chief Commissioner, the [Principal Director or] Director and the [Principal Commissioner or] Commissioner :]
[Provided further that the power in respect of an inquiry, in a case where no proceeding is pending, shall not be exercised by any income-tax authority below the rank of [Principal Director or] Director or [Principal Commissioner or] Commissioner without the prior approval of the [Principal Director or] Director or, as the case may be, the [Principal Commissioner or] Commissioner:]
Moving further, it will be most apposite to have a construed reference to the meaning assigned to the expression `Person’ as mentioned under the enactment. Section 2(31) of the Income Tax Act, 1961 defines the expression “person” as the term includes—
(i) an individual,
(ii) a Hindu undivided family,
(iii) a company,
(iv) a firm,
(v) an association of persons or a body of individuals, whether incorporated or not,
(vi) a local authority, and
(vii) every artificial juridical person, not falling within any of the preceding sub-clauses.
[Explanation.—For the purposes of this clause, an association of persons or a body of individuals or a local authority or an artificial juridical person shall be deemed to be a person, whether or not such person or body or authority or juridical person was formed or established or incorporated with the object of deriving income, profits or gains;]
The expression `Person’ could not have been so widely explained and elucidated as has been done under the rigours of section 2(31) thereby virtually giving stance to varied and numerous forms of entities both natural and those which are developed under the edifice of a statutory charter such as the case being that of a company or of a partnership firm. The section is so exhaustive and nourishing in its approach that it has left virtually no room for any `Person’ to be left outside the purview of its leap thereby entailing the enquiry to lead the infantry of taxing provisions triggering the building of bunkers from whose room nothing can escape, decamp and abscond. Hon’ble Gauhati High Court had the occasion to consider the meaning of the expression `Person’ as deep rooted in the statute book. In a case titled Commissioner of Income Tax vs. Smt.Basana Rani Saha  111 Taxmann 712 (Gauhati) the court has settled, `Insofar as the provisions of clause (6) of section 133 are concerned, it cannot be disputed that the assessing authority has the powers to require any person to give information in relation to such points or matters which in his opinion will be useful for value and proof in any enquiry or proceedings under the Act. The words `any person’ used in this sub-section would also includes a valuation.
To locomote from one arena of the provisions under the shelter of section 133(6), the Hon’ble Supreme Court of India has in a case titled Karnataka Bank Limited vs. Secretary, Government of India & Others (2002) 175 CTR (SC) 405 concluded while dismissing the Special Leave Petition (SLP) preferred by the appellant, that after introduction of second proviso with effect from 01th July 1995, `It is clear from the mere reading of the said provision that it is not necessary that any inquiry should have commenced with the issuance of notice or otherwise before Section 133(6) could have been invoked. It is with the view to collect information that power is given under Section 133(6) to issue notice, inter alia, requiring a banking company to furnish information in respect of such points or matters as may be useful or relevant. The second proviso makes it clear that such information can be sought for even when no proceeding under the Act is pending, the only safeguard being that before this power can be invoked the approval of the Director or the Commissioner, as the case may be, has to be obtained. The Hon’ble Kerala High Court has confirmed in a case titled `The Chavassery Service Cooperative Bank Limited vs. ITO  37 DTR 102, `Income Tax Authorities have power to issue notices under section 133(6), on any person including private banks, cooperative societies and even nationalized banks calling for information useful or relevant to any enquiry, if no proceedings are pending, such information can be called with prior approval of Director or CIT. In another judgement rendered by the territorial seat of the Hon’ble Kerala High Court in a case titled, `Kulathupuzha Service Co-op Bank Ltd. vs. ITO (Intelligence) (2014) 361 ITR 200 (Ker), it got settled on the similar pattern, `Dismissing the petition the Court observed that the Co-operative Bank should not feel shy to furnish the information sought by the Income tax department in order to ensure that transaction of the depositors are wholly transparent. The petitioner-bank had to furnish the information sought for by the Income-tax Department in order to ensure that the transactions of the depositors were wholly transparent. The petitioner was, however, free to move the authority for granting extension of time to furnish the particulars which shall be dealt with in accordance with law.
In another law settled by the Hon’ble Seat of Income Tax Appellate Tribunal (ITAT), Mumbai titled as, `DCIT .v. Rajeev G. Kalathi (2015) 67 SOT 52 (Mum.)(Trib) having due reference to the enquiry made under section 133(6) of the Income Tax Act, 1961 settled that suspicion however of greater magnitude it might be cannot partake the character of evidence. The assessee claimed to have made purchases from certain parties. In order to corroborate his due claim of genuineness of the purchases, he produced bills from the parties and proof of payment by cheque. However, the AO treated the purchases as “bogus” purchases u/s 68 on the ground that the notices u/s 133(6) sent to the alleged suppliers at the address stated in their bills were returned un-served. Further, the said suppliers were termed as ‘Hawala Dealers’ (i.e. person who issued a bill for purchase of goods without delivery) by the Maharashtra VAT department. On appeal, the CIT(A) deleted the addition. On appeal by the department to the Tribunal HELD dismissing the appeal: The fact that the supplier is declared as a “Hawala
dealer” by the VAT department is a good starting point for making further investigation and taking it to its logical end. However, suspicion of highest degree cannot take place of evidence. The AO ought to have called for details of the bank accounts of the suppliers to find out as whether there was any immediate cash withdrawal from their account. No such exercise was done. There is nothing in the order of the AO about the cash trail. Transportation of good to the site is one of the deciding factor to be considered for resolving the issue. Proof of movement of goods is not in doubt. In the absence of sufficient evidence, the purchases cannot be treated as bogus.
The second proviso appended to the provisions of sub-section 6 of section 133 of the Income Tax Act, 1961 with effect from 01st July, 1995 has though casted a little relief in so far as the circumstances of the case go where No Proceedings are Pending and the power of enquiry is exercised by any income tax authority not below the rank of a Principal Director (with retrospective effect from 01st June, 2013, inserted by the Finance (No.2) Act 2014, or Director or Principal Commissioner (with retrospective effect from 01st June, 2013, inserted by the Finance (No.2) Act 2014 or Commissioner without the prior approval of the Principal Director (with retrospective effect from 01st June, 2013, inserted by the Finance (No.2) Act 2014 or Director or as the case may be the Principal Commissioner (with retrospective effect from 01st June, 2013, inserted by the Finance (No.2) Act 2014 or Commissioner. The said proviso limits the power and jurisdiction of the assessing authority to acquire and procure the approvals as listed above only in a case where No Proceedings Are Pending. The effect of the qualifying provision will cease to operate in a case where proceedings are outstanding and pending for due adjudication by the assessing authority thereby restraining the very operative part of the section. The general rule regarding the proviso has been elucidated by Justice Hidayatullah in Shah Bhojraj Kuverji Oil Mills and Ginning Factory vs. Subhash Chandra Yograj Sinha, AIR 1961 SC 1596 as, `As a general rule, a proviso is added to an enactment to qualify or create an exception to what is in the enactment, and ordinarily, a proviso is not interpreted as stating a general rule. Normally the essential function of a proviso is bank upon the last intention of the lawmakers and has been well defined in Sundaram Pillai vs. Pattabiranam  1 SCC 591 by the Hon’ble Supreme Court of India as, `The well-established rule of interpretation of a proviso is that a proviso may have three rate functions. Normally, a proviso is meant to be an exception to something within the main enactment or to qualify something enacted in which but for the proviso it would be within the purview of the enactment. In other words, a proviso cannot be torn apart from the main enactment nor can it be used to nullify or set at naught the real object of the main enactment. While interpreting a proviso sure to be taken that it is used to remove special cases from the general enactment and provide for them separately. In short, generally speaking a proviso is intended to limit the enacted provision so as to except something which would have otherwise been within it or in some measure to modify the enacting clause. Sometimes a proviso may be embedded in the main provision and becomes an integral part of it so as to amount to a substantive provision itself. To Sum up, a proviso may serve four different purposes:
1. qualifying or excepting certain provisions from the main enactment;
2. it may entirely change the very concept of the intendment of the enactment by insisting on certain mandatory conditions to be fulfilled in order to make the enactment workable;
3. it may be embedded in the Act itself as to become an integral part of the enactment and thus acquire the tenor and colour of the substantive enactment itself; and
4. it may be used merely to act as an optional addenda to the enactment with the sale object of explaining the real intendment of the statutory provision.
The basic norm devisable from a bare reading of the second proviso is to tie the hands of the assessing authority and to restrict its very action in sitting over the information tending to aid an Enquiry until and unless there being no unequivocal or indubitable assumption of approval is obtained by such authority when such authority is being subordinate to the rank of Principal Director or Director or Principal Commissioner or Commissioner of Income Tax under the Income Tax Act, 1961. The Hon’ble Supreme of India in a case titled Kathiroor Service Cooperative Bank Limited vs. Commissioner of Income Tax, Civil Appeal No.7460 of 2013@ SLP(C) No.3976 of 2010 has affirmed the safeguard provided to assessee or the subject by having due reference to second proviso appended to section 133(6) by holding, `Where no proceeding is pending against the assessee, the assessing authority must obtain the prior approval of the Director or Commissioner, as the case may be before issuance of such notice.
There is a popular maxim in law In Jure Omnis Definitio Periculosa Est which deciphers that `In law every definition is dangerous’ might appropriately fit when equated with the rephrased expression `Enquiry’ when understood in the realm of taxonomic granules. The very integument of the expression `Enquiry’ as it is generally understood seems to have been further magnified, strengthened, dilated, swelled and enlarged through the interpretation and diagnosis by the courts and tribunals acting to assists and aid the constitution of India. Since the very expression `Enquiry’ has passed through the decisive test of the Highest Court of the land, The Hon’ble Supreme Court of India, what is highly palpable, tangible and observable that the only safeguard available with the subject is to very meticulously, punctiliously, critically observe and witness the very noteworthy facet of proceedings that whether there is already a pendency of proceedings before the assessing authority or not accompanied by the subjective and minute assessment of the very fact that that goes to the root in determining what is the cadre of issuing authority or the assessing authority issuing notice of `Enquiry’. The subject must gird up one’s loins to designate and confer the very assumption of jurisdiction by the assessing authority as a faulty, nugatory, nullity, void ab inito, bereft, denuded, de-foliate jurisdiction in absence of the due approval which stood as a pre-requisite for initiating any legal course to `Enquiry’ or `Proceedings’ under the Income Tax Act, 1961. At the same time what is expected off from the revenue authorities intending to step into the shoes of `Enquiry’ or `Proceedings’ is that once they tend to attain satisfaction claim from a brief scrutiny of the information produced by the subject, the very purview thereof should not be enlarged so as to carry tales and portray the very touchstone of the proceedings as more disparaging, abusive, groundless, unwarranted, unfounded and unsubstantiated yardstick paving way for assessment proceedings.
(Article by – Advocate Sameer Bhatia, R/o, 158/2, Guru Teg Bahadur Nagar, Opposite Mata Gujri Park, Jalandhar – 144003, Punjab Contact Nos:- 9041304900 Email Address: email@example.com)