Introduction: Brief sketch of Search & Seizure provisions as per Income-tax Act, 1961 explained, in nutshell.
i. The object of search under economic laws is to curb the economic offences relating to evasion of taxes, duties and to unearth unaccounted income and wealth. For pursuing such object, there is a provision i.e., section 132 in the Income-tax Act, 1961 under the caption “Search and Seizure” a specific provision according to which the power of search action is available to Income-tax Authorities.
ii. A search action, can be authorized for the reasons provided under section 132 of the Income-tax Act, 1961, which is a procedural section. The constitutional validity of this provision is upheld by the Apex Court, way back in the year 1974 in the decision of Pooran Mal v. Director of Inspection (1974) 93 ITR 505 (SC) The powers of search and seizure are required to be exercised with caution and care in strict compliance with the procedure prescribed, in the provisions of the Act and the Income-tax Rules as well relevant to the said provisions of section 132 of the Act.
iii. The warrant of authorization issued should be based on the existence of materials to justify the reason to believe as stipulated in section 132 of the Act which provision is a code by itself. There are inbuilt provisions to safeguard the interests of taxpayers. The object is to get hold of the evidence relating to undisclosed income, arising out of evasion and concealment of income.
iv. The powers under this provision are neither unbridled nor arbitrary since they are regulated by the provisions of law. The authority empowered to issue the warrant of authorization has to satisfy himself that the basic conditions as laid down under section 132(1) of the Act are fulfilled. Such satisfaction must be in good faith and bona fide so that sufficiency cannot be subjected to challenge before courts. The reasons for issuing the warrant of authorization are to be recorded in writing, so that the existence of information and the formation of belief, is proved to the hilt in the event the search action is subjected to challenge in a Court of law.
v. The recording of satisfaction notes by the authority responsible to issue the warrant of authorization, should contain the pre-search record. The relevant rules as per Income-tax Rules, 1962 are rules 112, 112A and 112B. The authorities, if required can requisition for the Assistance of Police Authorities.
vi. The authorized officer is required to call two respectable inhabitants as witnesses to the search action, before the commencement of the search. Statute has provided for the powers and acts to be performed by the authorized officer. Equally there are also rights provided to the persons searched.
vii. Statements can be recorded before the search action commences and after the commencement and before the conclusion of search. Such statements recorded forms part of evidence for the purposes of assessment. The law provides for retraction of such statements within reasonable time, if the statements are extracted under coercion or undue influence.
viii. The power of seizure should be exercised with great restraint on the part of the authorized officer. Search & seizure provisions have been considered to be essential in the present system of society. In the matters challenged before the Courts over the years the judicial pendulum, was quite in line with the frame work of the statute, evidenced by the judicial propositions rendered as warranted in the matter of interpretation of the provisions of law.
i. The provisions governing “Search and Seizure” are found in section 132 of Income-tax Act, 1961. The terms ‘Search’ and ‘Seizure’ have not been defined in the Income-tax Act. Courts had the occasion to define these two terms.
ii. Meaning of the term ‘search’ as appearing in sub-clause (i) of clause (c) of sub-section (1) of section 132, can be noticed in the earliest decision of Kerala High Court in the case of Assainar v. ITO (1975) 101 ITR 854 (Ker)(HC). The decision mentioned “The word search in section 132(1)(c)(i), considering the object and scope of the section, should not be given a far too technical meaning. The word ‘Search’ has varied meanings and it should be given the general meaning ‘to look for’ or ‘seek’ which are well known meanings attributable to the word” The meaning of the term ‘seizure’ as appearing in sub-clause (iii) of clause (c) of sub-section (1) of section 132 can be noticed in the following judgments of the Courts,
(a) Ramesh Chandar v. CIT (1974) 93 ITR 244 (Punj. & Har.)(HC).
“Seizure is an expression which implies a forcible exaction or taking possession from either the owner or one who has the possession and who is unwilling to part with possession”.
(b) Mrs Kanwal Shamsher Singh v. UOI (1974) 95 ITR 80 (Delhi) (HC).
iii. The object of search action and consequent seizure, as envisaged by exercise of power can be understood as that search is a process for curbing offences relating to evasion of taxes and duties and to unearth unaccounted income and wealth. Seizure is obtaining the possession under the provisions of law, the unaccounted incomes and assets acquired and owned. The decision of Delhi High Court in the case of Dr. Nalini Mahajan v. DIT (Inv) and Others [2002] 257 ITR 123 (Delhi)(HC) explained the powers of search with reference to the established law. Sufficiency and reasonable safeguards have been provided in the provisions relating to search action.
iv. Section 132 of Income-tax Act, is a comprehensive procedural provision. The exercise of power under the provision requires caution and care in strict compliance with the prescribed procedure. It provides for the circumstances under which the warrant of authorization has to be issued. The section also contains the procedure for search action and seizure.
v. The object of the provision under section 132 is to prevent evasion of payment of tax, and for that purpose to get hold of evidence sought to be withheld from the Assessing Authorities relating to evasion and unearth the unaccounted income or assets and seize the assets acquired and owned by utilising such unaccounted income. Considerable restraints were prescribed by law so that the power is not abused.
Such income believed to have not been disclosed when unearthed by conducting Search Action, the same shall be subjected to tax to ensure the recovery of tax evaded or sought to be evaded in terms of the specified assessment proceedings as envisaged in the respective provisions of the Act.
The necessity of recording reasons for issue of warrant of authorisation for search u/s 132 of the Income-tax Act, 1961 so as to ensure accountability and responsibility in the decision making process acts as a cushion in the event of a legal challenge being made to the satisfaction reached. The reasons enable a proper judicial assessment of the decision taken by revenue. The principles as regards search and seizure that can be deduced from the decision of the Apex Court and continue to hold the field even as on date were summarised in the decision of Apex Court in the case of Director General of Income-tax (Inv) v. Spacewood Furnishers Pvt. Ltd. (2015) 374 ITR 595 (SC) at page 596/[2015] 57 taxmann.com 292/232 Taxman 131 (SC) which are as under:-
“The authority must have information in its possession on the basis of which a reasonable belief can be founded that
(a) the concerned person has omitted or failed to produce books of account or other documents for production of which summons or notice had been issued or such person will not produce such books of account or other documents even if summons or notice is issued to him, or
(b) such person is in possession of any money, bullion, jewellery or other valuable article which represents either wholly or partly income or property which has not been or would not be disclosed.
(i) Such information must be in the possession of the authorised official before the opinion is formed.
(ii) There must be application of mind to the material and the formation of opinion must be honest and bona fide. Consideration of any extraneous or irrelevant material will vitiate the belief or satisfaction.
(iii) Though rule 112(2) of the Income-tax Rules, 1962, which specifically prescribed the necessity of recording of reasons before issuing a warrant of authorisation had been repealed on and from October 1, 1975, the reasons for the belief should be recorded.
(iv) The reasons, however, need not be communicated to the person against whom the warrant is issued at that stage.
(v) Such reasons, however, may have to be placed before the court in the event of a challenge to the formation of the belief of the authorised official in which event the court (exercising jurisdiction under article 226) would be entitled to examine the relevance of the reasons for the formation of the belief though not the sufficiency or adequacy thereof”.
This issue has come up for consideration before the Supreme Court in the latest judgment in the case of Pr. DIT (Inv) v. Laljibhai Kanjibhai Mandalia (2022) 446 ITR 18 (SC)/[2022] 140 taxmann.com 282/288 Taxman 361 (SC). The Gujarat High Court in Laljibhai Kanjibhai Mandalia v. PDIT (Inv) (2019) 416 ITR 365 (Guj.)(HC)/[2019] 105 taxmann.com 260/263 Taxman 604 (Guj.) quashed the warrant of authorisation issued under section 132 of the Income-tax Act, 1961, in the case of Lalji Bhai Kanji Bhai Mandalia, holding that all actions taken pursuant to such warrant of authorisation were ordered to be rendered invalid.
a. The Principal Director of Income-tax (Inv) challenged the order of the Gujarat High Court in terms of writ petition. The Apex Court, in its detailed order dated July 13, 2022 elaborately stated the principles in exercising the writ jurisdiction in the matter of “search and seizure” under section 132 of the Act, in para No. 33 of the judgment, as under :-
i. The formation of opinion and the reasons to believe recorded is not a judicial or quasi judicial function but administrative in character;
ii. The information must be in possession of the authorised official on the basis of the material and that the formation of opinion must be honest and bona fide. It cannot be merely pretence. Consideration of any extraneous or irrelevant material would vitiate the belief satisfaction:
iii. The authority must have information in its possession on the basis of which a reasonable belief can be founded that the person concerned has omitted or failed to produce books of account or other documents for production of which summons or notice had been issued, or such person will not produce such books of account or other documents even if summons or notice is issued to him; or
iv. Such person is in possession of any money, bullion, jewellery or other valuable article which represents either wholly or partly income or property which has not been or would not be disclosed;
v. Such reasons may have to be placed before the High Court in the event of a challenge to formation of the belief of the competent authority in which event the Court would be entitled to examine the reasons for the formation of the belief, though not the sufficiency or adequacy thereof. In other words, the Court will examine whether the reasons recorded are actuated by mala fides or on a mere pretence and that no extraneous or irrelevant material has been considered;
vi. Such reasons forming part of the satisfaction note are to satisfy the judicial consciousness of the Court and any part of such satisfaction note is not to be made part of the order,
vii. The question as to whether such reasons are adequate or not is not a matter for the Court to review in a writ petition. The sufficiency of the grounds which induced the competent authority to act is not a justiciable issue;
viii. The relevance of the reasons for the formation of the belief is to be tested by the judicial restraint as in administrative action as the Court does not sit as a Court of appeal but merely reviews the manner in which the decision was made. The Court shall not examine the sufficiency or adequacy thereof,
ix. In terms of the explanation inserted by the Finance Act, 2017 with retrospective effect from 1-4-1962, such reasons to believe as recorded by income tax authorities are not required to be disclosed to any person or any authority or the Appellate Tribunal.
b. In para 34 of the judgment the Court held as under:-
“We find that the High Court was not justified in setting aside the authorisation of search dated 7-8-2018 consequently the appeal is allowed and the order passed by high Court is set aside. As a consequence, there of the revenue could be at liberty to proceed against the assessee in accordance with law”.
i. This issue has come up for consideration before the Delhi High Court in the decision of MDLR Resorts (P) Ltd. v CIT (2014) 361 ITR 407 (Delhi) (HC)/[2013] 40 taxmann.com 365/[2014] 221 Taxman 83 (Del.) (Mag.) in the context of section 153A of the Act. In this case, there was a lapse and failure to comply with the requirement of search and seizure manual as the panchanama did not contain the names of 22 petitioners. Therefore, it was contended by filing a writ that the proceedings under section 153A of the Act are void and bad for want of jurisdiction.
ii. The Court held that when there is existence of alternative remedy, the writ petition is not maintainable against the order. The Court held that
“A lapse or failure in the panchanama does not affect the validity of the search, and does not nullify the notice under section 153A of the Act. It certainly would not affect the initiation of the search which is the starting point and precondition for invoking section 153A of the Act”.
iii. The Court further held that:-
“A search and seizure under the Income-tax Act, 1961, has to be carried out in the presence of at least two respectable inhabitants of the locality where the search and seizure is conducted. These respectable inhabitants are witnesses to the search and seizure and are known as “panchas”. The documentation of what they witness is known as the panchanama. The word “nama” refers to a written document. Its type is usually determined by the word which is combined with it as a suffix. The word “panchanama” is used in Explanation 2(a) to section 158BE although it has not been defined in the Act. A panchanama is nothing but a document recording what has happened in the presence of the witnesses (panchas). A panchanama may document the search proceedings, with or without any seizure. A panchanama may also document the return of the seized articles or the removal of seals. But the panchanama that is mentioned in Explanation 2(a) to section 158BE is a panchanama which documents the conclusion of a search. A panchanama should be prepared even in cases where nothing is found or seized in the search”.
i. The term ‘panchanama’ is not defined in the Income-tax Act, 1961. The documentation of what the witnesses to the search, witness is known as panchanama. A panchanama is drawn up when search stands concluded finally or temporarily.
ii. The term panchanama was used in Explanation 2(a) to section 158BE of the Act, although not defined in the Act. A panchanama is nothing but a document recording what has happened in the presence of two witnesses (panchas). This has been stated in the decision of Delhi High Court in the case of Mdlr Resorts Ltd. v. CIT (2014) 361 ITR 407 (Delhi)(HC)/(2013) 40 taxmann.com 365/[2014] 221 Taxman 83 (Delhi) (Mag.)
iii. ‘Panchanama’ is a document, which has the bearing on search action. It has relevance to the execution of the warrant of authorization to conduct the search action. It contains the name of persons against whom search warrant has been issued, and the address of the premises searched.
iv. This document shall bear the signatures of two witnesses being respectable inhabitants who are present from the commencement of search, and till the conclusion of search witnesses are the eyes and ears of justice. This document also evidences the details of books of account, valuables found and seized and the prohibitory orders issued, and the details of statements recorded in the course of search action.
v. This document is relevant for deciding the initiation of assessment proceedings and limitation period for the completion of assessment.
Whether an error in recording panchanama, will render the search invalid was the issue before Delhi High Court in the decision referred above at (ii). The Court held that lapse or failure in the panchanama does not effect the validity of the search action or nullify the relevant notices issued as per the Income-tax Act, 1961.
i. This issue has come up for consideration, before Gujarat High Court, in the decision of Ashish Jayantilal Sanghavi v. ITO (2022) 444 ITR 457 (Guj.)(HC)/(2022)139 taxmann.com 126 (Guj.) pursuant to a writ petition filed.
ii. In this case, the provisions contained in sub-section (1) of section 132B of the income tax have come up consideration, in the context of diamonds seized at the business premises of Akash Diamonds Ltd., from the employee of M/s. Ashish Jayantilal Sanghavi, Mr. Parin N Sheth, who went to collect the signed invoice No.112/19-20 dated July 2, 2019 from Ashish Diamonds Pvt. Ltd.
iii. Appellant filed a request letter to release the diamonds as per proviso to section 132B(1)(i) of Income-tax Act, 1961. Appellant reminded the Assessing Officer 3 times for the release of Diamonds Seized. The employee from whom the Diamonds were seized also sent a reminder to the Assessing Officer for release. The Assessing Officer did not reply to any of the letters addressed to him.
iv. The Court allowed the writ petition and held as under:-
“The provisions contained in section 132B(1) of the Income-tax Act, 1961, are very clear and unambiguous. Section 132B deals with the assets seized under section 132 or requisitioned under section 132A of the Act. A detailed procedure is prescribed under section 132B(1)(i) of the Act. Out of such seized assets, the amount of the existing liability or the amount of the liability determined on the completion of the regular assessment or reassessment including any penalty levied or interest payable in connection with such assessment or reassessment is required to be recovered. The first proviso to this section enables the assessee to make an application within 30 days from the end of the month in which the asset was seized. For release of the assets the assessee is required to explain the nature and source of acquisition of such assets to the satisfaction of the Assessing Officer. On such satisfaction and with prior approval of the Chief Commissioner the Assessing Officer is empowered to release the asset to the person from whose custody the assets were seized. The second proviso to this section makes it clear that the assets are required to be released within a period of 120 days from the date on which the last of the authorizations for search under section 132 or for requisition under section 132A, as the case may be, was executed. The statutory provision of section 132B of the Act is very clear. There appears to be a mandate and such mandate is mandatory and not directory. The courts should attach considerable importance to the time frame provided under sections 132A and 132B when it comes to a question of retention of books of account or of seized assets. It is not permissible for the court to read the time limit provided in the proviso to clause (i) of sub-section (1) of section 132B of the Act as being merely directory. The respondents were directed to hand over the seized asset (diamonds) to the assessee within a period of four weeks from the date of receipt of this order”.
i. This issue has come up for consideration in the recent decision of Madras High Court in the case of Thiru. A. J. Ramesh Kumar v. Dy. CIT (2022) 441 ITR 495 (Mad.)(HC)/(2022) 139 taxmann.com 190 (Mad.). The substance of the decision has been the issue in this query.
ii. Section 132 of Income-tax Act deals with “search & seizure”. Sub-section (4) of section 132, permits the authorized officer to record a statement on oath during the course of a search. Such statement recorded carries significant evidentiary value. Such statement can be used by the Assessing Officer in the course of assessment proceedings as corroborative evidence along with documentary evidence relating to the material found during the course of “search and seizure”.
iii. As per sub-section (4A) of section 132, there is a statutory presumption with regard to books of account, documents, money, bullion, jewellery or other valuable article or thing found in the possession or control of the person in the course of search, that they belong to the searched person.
iv. The statutory impact provided to the statement recorded under sub-section (4) of section 132 during the Search Action enables the Assessing Officer to proceed on the basis that the contents of such statement as correct and represents true state of affairs. The statement made by a person u/s 132(4) has significant evidentiary value and thus binding on the person who makes it.
v. If the deponent is of the view that according to him, such statement recorded on oath, is not correct he should demonstrate with sufficient, credible corroborative and cogent, convincing material evidence at the earliest point of time in terms of retraction. Such retraction should not be a mere assertion.
vi. On the substantial question of law relating to admissibility, relevancy and evidentiary value of statement, obtained under section 132(4) of Income-tax Act, 1961 the issue is no longer res integra. This is because Apex Court has not granted special leave in the case of Bannalal Jat Constructions Pvt. Ltd. v. ACIT (2019) 413 ITR 322. Bannalal Jat Constructions Pvt. Ltd. v. ACIT (2019) 418 ITR 291 (Raj.)(HC)/(2019) 106 taxmann.com 127 (Raj.).
vii. The legal position in relation to statement under section 132(4) of the Income-tax Act, 1961, has been set out as under, in the decision of Madras high Court in Thiru. A. J. Ramesh Kumar v. Dy. CIT (2022) 441 ITR 495 (Mad)(HC) at page 501/(2022) 139 taxmann.com 190 (Mad.).
(a) An admission is an extremely important piece of evidence though it is not conclusive.
(b) A statement made voluntarily by the appellant could form the basis of assessment.
(c) The mere fact that the appellant retracted the statement could not make the statement unacceptable.
(d) The burden lay on the appellant to show that the admission made by him in the statement earlier at the time of Search/Survey was wrong. Such retraction, however, should be supported by a strong evidence stating that the earlier statement was recorded under duress and coercion, and this has to have certain definite evidence to come to the conclusion indicating that there was an element of compulsion for the appellant to make such statement.
(e) However, a bald assertion to this effect at much belated stage cannot be accepted.
Accordingly, the settled judicial proposition is that a statement made under section 132(4) of the Income-tax Act, 1961, has a strong evidentiary value and is binding on a person who makes it, unless retracted with cogent evidence at the earliest point of time.
i. This issue has come up for consideration before Telangana & Andhra Pradesh High Court in the decision of CIT v. Naresh Kumar Agarwal [2014] 369 ITR 171 (Telangana)(HC)/[2015] 53 taxmann.com 306 (AP). In this case Search action was on 9th of January 1996. The statement u/s 132(4) was recorded on 30th March, 1996. The issue before the Court was “such a statement whether could be brought under fold of section 132(4)” of the Income-tax Act, 1961.
ii. The Court held
“The circumstances under which a statement is recorded from an assessee in the course of search and seizure are similar to those under section 94 of the Code of Criminal Procedure 1973, by operation of sub-section (13) of section 132. Parliament never intended to place the proceedings under the Act on a higher pedestal than those under the criminal enactment”.
iii. The Court also held that:-
“The statement of the assessee under section 132(4) of the Income-tax Act, 1961 is required to be made during the course of search or seizure. Sub-section (4) of section 132 does not permit of any doubt that the statement must be recorded while the search is in progress and before the search is concluded. The question of recording a statement after the conclusion of the search does not arise. There is not even any scope, to explain the delay, once the statement is recorded, after the search. The recording of statement even during the search is not a matter of course. It is only when material such as books of account, documents, money, bullion, jewellery and the like is found or discovered during search, that the statement can be recorded. If the search did not lead to the discovery of any matters there would not be any occasion to record the statement at all. The provision itself is to the effect that the statements recorded shall be treated as evidence in the proceedings under the Act. That would be so, as long as the statement is not retracted. If the assessee comes forward with a plea that his statement was recorded under threat or coercion, the evidentiary value of the statement suffers a serious dent. This is particularly so when the person from whom it is recorded is going to be visited with penal consequences. The provision cannot be taken as a provision laying down any new principle in the law of evidence. The statement recorded under sub-section (4) of section 132 partakes of the character of one recorded by an investigating officer under section 162 of the Code of Criminal Procedure, 1973. It cannot be ascribed the status of a proven fact. At the most, it would constitute the basis for the prosecution to frame its case and correspondingly be material for the defence to ensure that the prosecution sticks to its version. The question of a statement of that nature being treated as clinching evidence by itself, leading to any penal action does not arise”.
The Court followed the decision of Andhra Pradesh High Court in the case of CIT v. Shri Ramdas Motor Transport (1999) 238 ITR 177 (AP)(HC)/(1999) 102 Taxman 300 (AP). The Court, dissented from the judgment of Kerala High Court in the case of CIT v. O. Abdul Razak (2013) 350 ITR 71 (Ker)(HC)/(2012) 20 taxmann.com 48/207 Taxman 193 (Ker.)(Mag.), which was the case relating to retraction of voluntary statement, later permitted and whether the voluntary statement has evidentiary value.
i. This issue has come up for consideration before Madras High Court in the case of CIT v. Jayalakshmi Ammal (Smt.) (2017) 390 ITR 189 (Mad) (HC)/(2016) 74 taxmann.com 35/242 Taxman 449 (Mad.). This is a case of Jewellers where a search under section 132 has taken place. It was on the basis of material collected during search a notice has been issued directing the assessee to file the return of income. Nil return of income has been filed. Additions were made by the Assessing Officer. The matter reached the Income Tax Appellate Tribunal which granted relief. The revenue preferred appeal before the High Court, challenging the order of the Income Tax Appellate Tribunal.
ii. The High Court held:-
“In case of Block Assessment for deciding any issue against the assessee the authorities under the Income-tax Act, 1961, have to consider, whether there is any corroborative material evidence. If there is no corroborating documentary evidence, then the statement recorded under section 132(4) of the Income-tax Act, 1961 above should not be the basis for arriving at any adverse decision against the assessee”.
The essence of the decision is that if there is no corroborating documentary evidence, then the statement recorded under section 132(4) of the Income-tax Act, 1961 alone should not be the basis for arriving at any adverse decision against the assessee.
i. In respect of any case, where search Action takes place, the Search Officer makes a report, termed as appraisal report. This report consists of income is computed as inferred by him, as the undisclosed income unearthed during the search, based on his verification of the seized material.
ii. Such report is in the nature of a direction to the Assessing Officer, to enable him to proceed with the assessments and computation of income after due appreciation of evidence forth coming in the course of assessment proceedings for the respective assessment year falling within the purview of the Search Action
iii. The law warrants that the Assessing Officer should compute the income with reference to the evidence found during search, after gathering further evidence in the course of hearing. It therefore follows that the Assessing Officer, for all practical purposes of assessment, cannot merely place total reliance on such appraisal report.
iv. If according, to the Assessing Officer, the contents of appraisal report are based on inferences and presumptions, he should rely on the evidences further submitted by the assessee before him which suggest that the quantification of undisclosed income as revealing by the appraisal report is not correct, and there being no such undisclosed income as quantified in the appraisal report.
For the aspects mentioned about the reliance, on appraisal report, the decision of Allahabad High Court in the case of CIT v. N K Laminates Pvt. Ltd. (2014) 365 ITR 211 (All) (HC)/ (2014) 45 taxmann.com 544 (All.) may be read in detail.
i. Section 132B of the Income-tax Act provides for application of seized and requisitioned Assets. Sub-clause (i) of sub-section (1) of section 132B of Income-tax Act, 1961, provides the method of treatment of cash seized during search and authorises the Assessing Officer to adjust the seized cash against the existing liability, and further against any demand that may become due on assessments warranted by the search.
ii. The first proviso to sub-section (1) of section 132B permits the submission of application to the Assessing Officer within 30 days from the end of the month in which the Asset was seized, for release of Asset once the nature and source of acquisition is explained to the satisfaction of the Assessing Officer.
iii. The seizure of Assets which are explained is not permissible as held in the case of Rajesh Sharma v. ACIT (Inv) (2001) 249 ITR 15 (Gauhati) (HC)/(2001) 119 Taxman 996 (Gau.) Allahabad High Court in the case of Sobha Sengar (Smt) v. CIT (2000) 244 ITR 10 (All)(HC)/(1999) 105 Taxman 142 (All.), held when a person from whom the Asset (cash) has been seized died and the property becomes that of the widow, it is no longer possible to adjust the amount against the liability of the deceased, if it has not been adjusted during his life time.
iv. Explanation 2 of section 132B, specifically provides. “For the removal of doubts it is hereby declared that the existing liability does not include Advance Tax payable in accordance with the provisions of Part C of Chapter-XVII”.
There are decisions where the Courts have held that the authorities have the discretion to return the Assets subject to bank guarantee or other acceptable security.
The decision of Madras High Court in the case of Vetrivel Minerals v. Asstt. CIT (2021) 437 ITR 178 (Mad)(HC)/(2021) 129 taxmann.com 126/282 Taxman 321 (Mad.) had the occasion to deal with the relevance of evidence, as to the validity of search assessment and has set aside the assessment. This is the decision, in the case, where pursuant to search and seizure conducted under section 132 of the Income-tax Act, 1961, in the group of companies to which the assessee belonged to another group, assessment orders were passed against the assessee. The assessment has been challenged by writ petition filed. The aspects dealt with in the decision are as under:-
i. Electronic documents used as secondary evidence.
“That when the assessments had been framed only on the basis of the electronic records, which were copies of excel sheets, excel work note book etc, failure to comply with section 65B of the Indian evidence Act, 1872, rendered the document inadmissible in the eye of law”.
For this proposition Court relied on the decisions (1) Anvar P.V. v. P.K. Basheer (2014) 10 SCC 473, and Maharashtra Chess Association v. UOI (2020) 13 SCC 285.
ii. Mandatory conditions under provisions section 65B of Indian Evidence Act, 1872, not complied with.
“The department was to strictly comply with the provisions of section 65B of the Indian Evidence Act, 1872, if the department used the electronic documents by way of secondary evidence”.
iii. Failure to afford opportunity to cross examine persons whose statements relied upon.
“The department either should not have relied on the statements recorded u/s 132(4) and if they were relied upon, the department should not have denied the opportunity to the assessee’s demand to cross examine the persons who gave the statements. The contention of the department that since the statements recorded were of persons who were employees of the assessee and therefore the assessee could not seek cross examination of them could not be accepted. The plea of alternative remedy which was also an effective one to undo the violations committed by the department was unsustainable”.
For this proposition Court relied on the decision of Apex Court in the case of Kishan Chand Chellaram v. CIT (1980) 125 ITR 713 (SC)/(1980) 4 Taxman 29 (SC).
iv. Failure to supply copies of Panchanama and copies of seized electronic documents:-
“The failure to furnish Panchanamas to the assessee was a violation of the principles of natural justice as it disabled them from having knowledge of the seized materials and the alleged incriminating materials relied upon by the department. Whatever be the volume of materials, seized the assessee also having made a demand, the department was bound to have given all the copies. When the department used such materials for framing assessment copies of those should have been given to the assessee”.
v. Yet another issue that has come up for consideration was that, the department has taken the stand that there were two groups which were searched by a single warrant and that the companies of one group should not be given to another, for which the Court held that the Assessing Officer should not have discussed the statement of the other group for framing the assessment of the assessee which vitiated the assessment proceedings.
vi. Yet another issue that has been dealt with by the Court was that the Assessing Officer stated that if specific materials were asked. He would have taken permission from the other group and supplied. This stand was not taken by the department before passing of the assessment orders. On the contrary the department had demanded original Panchanamas for giving the copies of seized document, without explaining which were the concerns. Thus, the conclusion of the department while completing the assessment has not been appreciated by the Court. For all the above reasons, High Court, has set aside the assessment order for completion of assessment afresh.
i. Section 132(3) of the Income-tax Act provides for the power to issue prohibitory order referring to the assets which are reasonably believed to be undisclosed property of the assessee. Section 132(3) can be resorted to when there is any practical difficulty in seizing the asset which is liable to be seized representing wholly or partly the undisclosed property of the assessee, and circumstances of the given case do not permit immediate seizure.
ii. In other words, if the authorised officer has no such practical difficulty, he is left with no other alternative but to seize the item if he is of the view that it represents undisclosed income.
iii. As per clause (iii) of sub-section (1) of section 132, or for the reason stated in the second proviso to sub-section (1) or for the reason stated in section 132(3), an order can be served on the owner or person who is in immediate possession or control of the assets that he shall not remove, part with or otherwise or deal with it except with the previous permission of the authorised officer as the case may be.
iv. There is a marked difference between the prohibitory order and seizure order by virtue of the explanation to section 132(3). A prohibitory order cases to exist automatically on the expiry of 60 days prescribed as per sub-section (8A) of section 132.
i. Sub-section (4A) of section 132 of Income-tax Act, 1961 relate to the rule of presumption which enables an Assessing Authority to raise a rebuttable presumption. Section 132(4A) provides about the presumption regarding seized material that the materials found during the Search action, belongs to the person in possession and control of the premises searched.
ii. There is a judicial proposition of Apex Court, dealing with the scope of presumption in the case of P.R. Metrani v. CIT (2006) 287 ITR 209 (SC)/(2006) 157 Taxman 325 (SC). The decision dealt with different kinds of presumption viz,. “May presume”, “shall presume” and “conclusive proof”.
iii. According to the decision, a presumption is an inference of fact drawn from other known or proved facts. It is a rule of law under which courts are authorised to draw a particular inference from a particular fact.
iv. The Court also held that presumption is rebuttable on the premise that a presumption per se is not an evidence, and it is to be understood according to the circumstances of the case.
v. The Court also held that though presumption is available as per section 132(4A), the section does not provide that the presumption would be available for purposes of assessment.
vi. Section 292C of Income-tax Act, 1961 deals with “presumption as to assets and books of account”. It provides that facts are to be presumed by operation of law. Therefore, presumption is rebuttable. It is to be considered as a deeming provision, it cannot be applied in a routine manner ignoring the facts of the case and the circumstances merely because the law permits as per section 292C of the Act. In other words, the provisions of section 292C has the relevance of putting it to its logical conclusion both by the assessee and the revenue as well.
i. Section 132(4) of the Income-tax Act is a machinery provision. It is not a charging provision. The Apex Court laid down the principle that a fiscal statute, should be construed strictly only in respect of charging provision and not to machinery provisions, in the case of CIT v. National Taj Traders (1980) 121 ITR 535 (SC)/(1979) 2 Taxman 546 (SC).
ii. It is seldom argued by the revenue that the word ‘May’ should also be understood as “shall” and therefore to record the statement is mandatory. Insofar as the search action is concerned, it is always open to the assessee to insist for recording the statement u/s 132(4), once he is of the view that it is beneficial or advantageous, in the given facts of the case.
iii. Further, where the authorised officer is recording the statement u/s 132(4), assessee should always reply based on the facts revealing from the documents put to him, and insist that the answer should be in the same manner he intends to answer and not otherwise.
iv. The assessee should cleanly understand that when he insists that the statement be recorded on oath u/s 132(4) of the Act, the statement so given is binding and it shall be used as evidence in the further assessment proceedings.
i. No statute defines the principles of natural justice. The Andhra Pradesh High Court in the decision of Thakur V. Hari Prasad v. CIT (1987) 167 ITR 603/32 Taxman 196 (AP)(HC) held:-
“The doctrine of natural justice is a facet of fair play in action. No person shall be saddled with a liability without being heard. In administrative law, this doctrine has been extended when a person is made liable in an action without being heard. The principles of natural justice do not supplant the law but merely supplement the law or even humanise it. If a statutory provision can be read consistent with the principles of natural justice, the court could do so, for the Legislature is presumed to intend to act according to the principles of natural justice.”
ii. In the event any statutory prohibition explicitly provided that the principle of natural justice cannot be applied then to seek the application of the said principle is not justified. This is because the legislative mandate cannot be overlooked merely on the principle of equity, more so because the statutory provision prevails.
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