Warrant of authorisation issued by Addl Director without proper authority – entire search and assessment consequent to such invalid search is bad in law and annulled : ITAT
NEW DELHI, OCT 16, 2007 : REVENUE sometimes loses cases, because elementary principles are ignored. The Income Tax department just lost a case because they did not know who should issue the search warrant.
The assessee is an individual and is a medical practitioner. A search and seizure operation was conducted on 22.6.1998 under section 132(1) of the Income-tax Act, in the business premises of VLS Finance Ltd. & residential premises of the husband of the assessee. The assessee is wife of the Vice Chairman of VLS Finance Ltd. There was no authorization in the name of the assessee. During the search proceedings, some documents, loose papers etc. were seized from the sidential premises C-561, Defence Colony, New Delhi, Cash of Rs. 8 lacs was also seized, which belonged to VLS Finance Ltd. The authorized officers recorded a statement of the assessee during the search operation on 22/6/1998. During the search operation, the authorized officer had noted the details about bank lockers in the name of the assessee. These bank lockers were put under restraint by the orders passed under section 132(3) of the Act. The assessing officer issued notice under section 158-BC of the Act and the assessee on 29.8.2000, disclosing NIL undisclosed income, filed the block return, in pursuance of that notice.
The assessing officer in her assessment order has referred Annexure A-1 pages 1-105 seized from the premises C-489, Defence Colony, New Delhi (the office of VLS Finance Ltd.). It is pertinent to note here that the entire annexure was not found either from the residential premises or from VLS Office premises at C-489, Defence Colony, New Delhi, but the Page Nos. 1 to 97 were found and the other pages i.e. 98 to 105 were the printouts taken by the authorized officer from a floppy, which was found from the briefcase of Shri Rajesh Jhalani. Shri Jhalani is a practicing Chartered Accountant and was looking after the accounts and taxation matters of VLS Finance Ltd. and family members of promoters of the company on retainer-ship basis. This briefcase was snatched away from him the moment, he entered the premises No. C-489, Defence Colony, New Delhi, by the team of Officers of Investigation Wing on 22.6.1998. The assessing officer has asked the assessee to explain the page No. 104 and 105 of the Annexure No. A-1 wherein some transactions appearing alleged to have been entered into with Shri M.S. Bawa, who is a Director in M.H. Builders Private Limited (hereinafter referred as MHB) and the assessee. The assessing officer worked out notional interest income of Rs. 11,24,187/- on the advance of Rs. 24 lakhs extended to MHB on the basis of entire in loose sheet Nos. 104 and 105 and made the addition as undisclosed income.
During the search operations, the Investigation Wing noted the disclosed bank lockers in name of the assessee either severally or jointly with her husband. These bank lockers were put under restraint by the orders passed under section 132(3) of the Act. However, these lockers were opened subsequently and authorized officer examined its contents. The Locker No. 156 in the State Bank of Patiala was opened first time on 10.9.1998 and jewellery has been valued at Rs. 31.30 lacs. However, on objection of the assessee, it was put under restraint on that day and again opened on 3.11.1998.
This time the valuation of jewellery has been done by some other valuer at Rs. 25.18 lacs. The authorized officer has worked out an alleged undisclosed investment in jewellery for Rs. 10,34,124/- on the basis of jewellery found in the said locker in the State Bank of Patiala, Defence Colony, New Delhi.
The assessee aggrieved by the additions preferred appeal before the CIT(Appeals) who confirmed the order of the assessing officer, but gave partial relief with regard to both the aforesaid additions made by the assessing officer.
And the assessee is before the Tribunal with the following additional grounds:- That on facts and circumstances of the case
(a) the block assessment is vitiated on the ground that the Additional Director of Income-tax (Investigation) who authorized the search of bank Locker No. 292 with Bank of Baroda, Defence Colony, New Delhi, Locker No. 156 with State Bank of Patiala, Defence Colony, New Delhi and Locker No. 759 and 760 with Bank of Baroda, reaterKailash- 1, New Delhi and Locker No. 141 with Allahabad Bank, Swaroop Nagar, Kanpur on 22.6.1998 lacked inherent jurisdiction to do so.”
(b) authorized officer lacked the inherent jurisdiction to pass a restraint order under section 132(3) dated 22.06.1998 in respect of Bank Locker No. 292 with Bank of Baroda, Defence Colony, New Delhi, Locker No. 156 with State Bank of Patiala, Defence Colony, New Delhi and Locker No. 759 with Bank of Baroda, Greater Kailash-1, New Delhi as he was not authorized to do so by any warrant of authorization issued against the assessee.”
It was brought to the notice of the ITAT that a similar issue had come up for consideration in the case of the husband of the assessee, and the Tribunal after following the decision of the Hon’ble Delhi High Court in the case of Dr. NaliniMahajan and others Vs. DI (Investigation) and others quashed the assessment.
In a similar issue, the Delhi High Court had ruled that Additional Director of Income Tax (Investigation) had no authority to issue warrant u/s 132 (1) of the Act and observed,
It is now well-settled that when a power is given to do a certain thing in a certain manner, the same must be done in that manner or not at all. A delegation of power is essentially a legislative function. Such a power of delegation must be provided for by the statute. The Director himself for certain matters is the delegating authority. He, unless the statute expressly states, cannot sub- delegate his power to any other authority. In any event, if an authority, which had no jurisdiction to issue such an authorization did so, the same would be liable to be quashed as ultra vires. Thus, unless and until an amendment is carried out, by reason of the re-designation itself, read with the provisions of the General Clauses Act, the Addl. Director does not get any statutory power to issue authorization to issue warrant. Therefore, the Addl. Director (Investigation) cannot be said to have any power to issue any authorization or warrant to Joint Director. Consequently, notification dt. 6th Sept., 1989 is not valid in law to the said extent.
The Tribunal held that the High Court’s decision is clearly applicable to the facts of the present case. The warrant of authorization issued in the present case by the Addl. Director of Income Tax (Investigation) has therefore to be held without proper authority and the entire search as well as the assessment proceedings consequent to such invalid search has to be held bad in law and annulled.
Similar view has also been expressed by the Tribunal in the case of husband of the assessee. In view of the above, the first additional ground of appeal is allowed and the order of assessment is annulled. In view of the above, the other issues raised by the assessee in the grounds of appeal do not call for any adjudication.
And so the appeal is allowed.
