Commissioner of Income Tax vs Smt. P. Shanthi LR of P. Balaji

Mrs. Chitra Venkataraman, J.—Learned counsel appearing for the assessee in Tax Case (Appeal) No. 1257 of 2005 has filed a memo dt.

6th June, 2012 stating that the minor P. Balaji has now become major. The said memo is recorded. The Revenue and the assessee have filed the

above tax case (appeals) challenging the order of the Tribunal. The assessment herein relates to block assessment for the block period 1988-89 to

1997-98.

This Court, by order dt. 12th Dec, 2005, admitted Tax Case (Appeal) No. 1257 of 2005, filed by the Revenue, on the following substantial

questions of law :

Whether in the facts and circumstances of the case, the Tribunal was right in holding that for the purpose of calculation of limitation to complete

block assessment, the date of seizure of bank accounts earlier covered by a prohibitory order cannot be taken into account ?

Whether in the facts and circumstances of the case, the Tribunal was right in holding that where material was covered by a prohibitory order

would not be part of seized items, even though it was also separately seized and a Panchanama was drawn ?

This Court, by order dt. 18th Jan., 2011, admitted Tax Case (Appeal) No. 1128 of 2010, filed by the assessee on the following substantial

questions of law:

(i) Where the Tribunal has held that the assessment is barred by limitation, whether the Tribunal is right in law in setting aside the assessment on

merits ?

(ii) Search having been made in the case of the appellant''s erstwhile wife Smt. Shanthi, whether the Tribunal is right in law in upholding the

jurisdiction of assessment in appellant''s case on the basis of search conducted on the appellant''s erstwhile wife Smt. Shanthi ?

(iii) Where no warrant of search has been issued either on the estate of the appellant or on the legal heirs of the appellant, whether the Tribunal is

right in law in upholding the search proceedings ?

The appellant/assessee herein is the mother of minor P. Balaji, legal representative of the estate of S.M. Pandian, father of minor P. Balaji. The

said S.M. Pandian died during 1996. Based on an information that the said deceased Pandian had acquired lot of assets out of his undisclosed

income, search was conducted on 11th Sept., 1997 at different places including the residence of the deceased, the residence of P. Shanti,

divorced wife of the deceased and the residential premises of his associates and business premises. Based on the materials gathered, the block

assessment was finalised.

Aggrieved by this, the legal representative of the deceased, viz., the minor son, preferred an appeal through the natural guardian, mother. The

assessment was challenged mainly on the ground of limitation as well as on the improper initiation of the search proceedings. The assessee

contended that the search proceedings suffered legal infirmity; that the Panchnama was issued in the name of Shanti, divorced wife of the

deceased. However, in the course of the proceedings before the Tribunal, learned counsel appearing for the said Shanti conceded that there was

no assessment made in the name of Shanti in her own rights; that the assessment framed was in respect of the deceased person; the items included

as undisclosed income of the deceased were the assets belonging to the estate of the deceased. The Tribunal further pointed out that the minor

child along with his paternal grandmother were the legal representatives of the estate of the deceased Pandian; that the mere non-mentioning of the

legal heir, per se, would not, make the search illegal. The Tribunal further pointed out that the Panchnama issued on 11th Sept., 1997 was with

regard to the locker, which stood in the name of Shanti as well as her divorced husband and that the said Shanti, in her capacity as a natural

guardian of the minor child, represented his interest. Consequently, the claim of the assessee, as regards the improper or illegal initiation of search

by reason of non-observance of the provisions, was dismissed. However, on the plea of limitation, the Tribunal pointed out that the prohibitory

order in respect of bank account was made on 11th Sept., 1997, which was lifted subsequently.

Referring to the decision in I. Devarajan and Others Vs. Tamil Nadu Farmers Service Co-operative Federation and Others, the Tribunal

observed that the time-limit for framing the assessment was to be counted from the seized items only and not with reference to the prohibitory

order issued. Since the date of search was 8th Oct., 1997, the assessment would have to be framed within a period of two years from the end of

the month in which seizure was made and this period ended on 31st Oct., 1999. As the assessment was framed on 26th Nov., 1999, it was clearly

barred by limitation. Thus on the issue of limitation, the Tribunal held the same against the Revenue. Thus the assessee''s appeal was allowed in

part. Aggrieved by this, the Revenue has preferred Tax Case (Appeal) No. 1257 of 2005 on the issue of limitation.

As far as the assessee''s appeal [Tax Case (Appeal) No. 1128 of 2010] is concerned, questions are raised as to the legality of the search

contending that there was no search warrant issued either on the estate of the assessee or on the legal representative of the deceased Pandian.

As far as Revenue''s appeal on limitation issue is concerned, sub-s. (1)(b) to s. 158BE of the IT Act, is the relevant provision, which reads as

under :

158BE(1) The order under s. 158BC shall be passed--

(a) within one year from the end of the month in which the last of the authorisations for search under s. 132 or for requisition under s. 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 the

30th day of June, 1995, but before the 1st day of January, 1997;

(b) within two years from the end of the month in which the last of the authorisations for search under s. 132 or for requisition under s. 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, inserted under Finance Act ( No. 2) of 1998 w.e.f. 1st July, 1995 reads as under :

Explanation 2.--For the removal of doubts, it is hereby declared that the authorisation referred to in sub-s. (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 s. 132A, on the actual receipt of the books of account or other documents or assets by the authorised officer.

The above said provision came up for consideration before the Karnataka High Court in the decision in C. Ramaiah Reddy Vs. Assistant

Commissioner of Income Tax, The Karnataka High Court elaborately dealt with the object and introduction of Expln. 2 to sub-s. (1) to s. 158BE

of the IT Act. As is evident from the reading of the provisions under s. 158BE r/w Expln. 2, the period of two years'' limitation in respect of search

carried on, on or after 1st Jan., 1997, has to be calculated from the end of the last month in which last of the authorisations for search was

executed. The date of execution is explained in the Explanation as the date on which the search was concluded, as recorded in the last Panchnama

drawn in relation to any person in whose case warrant of authorisation has been issued. Thus, if there are more than one authorisation and the

search is conducted on different dates as per the authorisations, the starting point for the purpose of calculating the limitation would be the last of

Panchnamas recording the conclusion of search. The Karnataka High Court pointed out that the expression ''last Panchnama'' has to be read as

referable to the last of the authorisations as used in the main section. The Karnataka High Court pointed out that once on the basis of an

authorisation the search party conducts the search and after the search comes out of the premises, then there is a conclusion of search as defined in

Expln. 2; that the Panchnama evidencing such investigation and seizure would be the last Panchnama in respect of the said premises. Where there

are multiple places to search, separate search authorisation should be drawn with reference to each place of search. The authorisation may be

issued on different dates, in which event, the last of such authorisations has to be looked into for the purpose of limitation. However, considering

the possibility of more than one authorisation issued on the same day and executed, there should be one Panchnama in respect of each such

authorisation and the authorisation might have been executed on different dates also. In that event, doubt may arise as to which authorisation has to

be looked into for the purpose of limitation, since all of them are last authorisation. Thus, to remove the doubts therein, Explanation was inserted.

The Karnataka High Court referred to the Circular of the Board No. 772, dt. 23rd Dec, 1998 reported in (1999) 151 CTR (St) 9 : (1999) 235

ITR (St) 35 and pointed out to the reference on the execution of last of the authorisations as required. Thus referring to the meaning of ''execution'',

the Board held that the word ''execute'' also means to complete. Thus, one has to wait for the conclusion of the proceedings under s. 132(3) for

the purpose of computation of limitation under s. 158BE(1) and if there are more than one warrant, limitation would be counted from the execution

of the last warrant. Thus, after referring to the Board''s circular, the Karnataka High Court observed as follows :

Therefore, the Explanation added to remove a doubt cannot be construed as a provision providing a longer period of limitation than the one

prescribed in the main section. When under the scheme of the section there is no indication of a second search on the basis of the same

authorisation issued under the said provision, the legislative intention is clear and plain and the interpretation to be placed by the Courts should be

in harmony with such an intention. Therefore, one authorisation is to be issued in respect of one premises in pursuance of which there can be only

one search and such a search is concluded, when the searching party comes out of the premises, which is evidenced by drawing up a Panchnama.

When there are multiple places to search and when multiple authorisations are issued, on different dates or on the same date or in respect of the

same premises more than one authorisation is issued on different dates, the last Panchnama drawn in proof of conclusion of search in respect of the

authorisation is to be taken into consideration for the purpose of limitation for block assessment.

The Court concluded that :

(4) The period of limitation starts on the date on which the last of authorisation has been executed and not when the authorised officer states that

the search is finally concluded. Putting a prohibitory order under s. 132(3) does not elongate the starting point of limitation.

Similar view was also taken in the decision in The Commissioner of Income Tax Vs. Sh. Anil Minda, wherein the Delhi High Court referring to

the deeming clause as available in Expln. 2 held that by the deeming provision, authorisation referred to in sub-s. (1) would be that authorisation

which was executed on the conclusion of search as recorded in the last Panchnama. Thus the High Court viewed that by this deeming provision,

even an authorisation which may not be otherwise a last authorisation would become the last authorisation, if that was executed and if the

Panchnama in respect thereto was drawn last. Thus the point of limitation has to start from the execution of the warrant on the last Panchnama

drawn and not before.

Learned standing counsel appearing for the Revenue fairly placed before us, apart from the above two decisions, the decision of Kerala High

Court in T. O. ABRAHAM and CO. and Another Vs. ASSISTANT DIRECTOR OF INCOME TAX (INVESTIGATION) and Others,

wherein learned Single Judge of the Kerala High Court considered the issue on limitation as provided for under s. 158BE prior to the insertion of

Expln. 2, which was only at the stage of a Finance Bill. The High Court pointed out that the plain meaning of s. 158BE was that the period of one

year would start from the end of the month of the execution of the authorisation, meaning thereby, after completion of search or implementation of

search order. Thus the limitation would not stop on the date of the issue of authorisation.

Learned standing counsel appearing for the Revenue also placed reliance on the decisions in Commissioner of Income Tax Vs. Shri Pashupati

Tours and Travels, Commissioner of Income Tax Vs. Shri S.K. Katyal, and CIT vs. Plastika Enterprises (2009) 23 DTR (Bom) 333 : (2009) 180

Taxman 293 (Bom).

A perusal of the decision of the Delhi High Court in CIT vs. Shri Pashupati Nath Jee Tours & Travels (supra) shows that turned on the fact-

situation therein that there was no link between one search and the other and the same were not continuous, in the sense that the authorisations

were issued and executed at different points of time with intervals. In that context, the Delhi High Court held that the last of the authorisations

executed would not be held to have had any link to the first authorisation issued and executed so as to have the benefit of Expln. 2.

As far as the law declared by the Karnataka High Court in the decision in C. Ramaiah Reddy vs. Asstt. CIT (supra); Delhi High Court in the

decision in CIT vs. Anil Minda (supra) and so too the Kerala High Court in the decision in T.O. Abraham & Co. & Anr. vs. Asstt Director of IT

(Inv.) & Ors. (supra) are concerned, we respectfully agree with the views expressed by the High Courts and on a reading of the plain words

available in s. 158BE r/w Expln. 2, we have no hesitation in holding that in the case of search, the conclusion of the search as recorded in the last

Panchnama with reference to the authorisation issued would be the starting point for the purpose of computing the limitation for finalising the block

assessment.

As held in the decisions of the Karnataka High Court and the Delhi High Court cited supra, if there are more than one authorisation for search,

it is the conclusion of the search as recorded in the last Panchnama, which would be relevant and not the date on which the authorisation was

issued. In other words, in the case of multiple authorisations, the criteria for calculating the limitation would be that irrespective of the date of

authorisations, the conclusion of the search as recorded in the last Panchnama alone would be taken into consideration.

With the above view on Expln. 2 to sub-s. (1) to s. 158BE of the IT Act, the dates pertaining to search, which are admitted by the parties

herein, need to be noted.

Admittedly, as far as the first of the search is concerned, the authorisation was first issued on 10th Sept., 1997. The search commenced on

11th Sept., 1997 and the proceedings were completed on 11th Sept., 1997. There was also an authorisation of the same date, in respect of which,

another search was commenced on 11th Sept., 1997 and completed on 11th Sept., 1997. The second search commenced on 5th Nov., 1997

was concluded on 5th Nov., 1997. Subsequent thereto, in connection with this, there was one more authorisation dt. 31st Oct., 1997, for which

the search commenced on 3rd Nov., 1997 and concluded on 3rd Nov., 1997.

Thus the last of the Panchnama evidencing the conclusion of search with reference to the authorisation issued on 31st Oct., 1997 was 3rd

Nov., 1997. Going by the above said facts, the time-limit available for completion of block assessment, as per sub-s. (1)(b) to s. 158BE would be

the end of the month in which the last of Panchnamas evidencing the conclusion of the search in respect of which the authorisation was executed.

Hence, the relevant starting point is to be calculated taking the last Panchnama dt. 3rd Nov., 1997; that the period of two year time-limit

commenced on 30th Nov., 1997 to expire on 30th Nov., 1999. The assessment herein was made on 26th Nov., 1999.

Thus going by the factual details as are available that the two year time-limit commencing from 30th Nov., 1997 ended on 30th Nov., 1999,

we have no hesitation in holding that the assessment made herein under Chapter XIV-B is well within the period of limitation, as provided for under

s. 158BE(1)(b) of the IT Act.

In the above circumstances, we have no hesitation in allowing the tax case (appeal) filed by the Revenue in respect of first question of law.

As far as the second question of law is concerned, it is not necessary for us to deal with the same, considering the answer given to question

No. 1. Accordingly, Tax Case (Appeal) No. 1257 of 2005 stands allowed.

As far as the assessee''s tax case in Tax Case (Appeal) No. 1128 of 2010 is concerned, we do not agree with the submissions made by the

learned counsel appearing for the assessee. As pointed out in the order of the Tribunal, the contention made by the assessee was considered that

the mother represented the minor child, who was the legal representative of the deceased. Thus the estate of the deceased was represented by the

minor through the mother. In the circumstances, we have no hesitation in holding that the assessment based on the search made in the premises of

the deceased and the warrant in the name of the mother as a representative of the legal heir of the deceased, is proper. The purpose of search was

to find out the undisclosed income of the deceased and on his demise, the estate was represented by the legal heirs, one of whom happened to be

the minor son and the property represented by him. In the circumstances, we confirm the order of the Tribunal. Accordingly, Tax Case (Appeal)

No. 1128 of 2010 stands dismissed. No costs.