Should Tribunal have Power under Section 132 of Income-Tax Act, 1961?

This article was written by Priyanka Pareek a student of College of Law and Governance, Mody university.

The aggrieved party can file appeal against the order of Commissioner of Income Tax (Appeals) before the Income Tax Appellate Tribunal. Section 253 of the Income Tax Act, 1961 provides for the appellate powers of Income Tax Appellate Tribunal. But it nowhere specifies the power of ITAT with respect to search and seizure operation under section 132 of the Act.The provision states that that an order passed by an Assessing Officer under clause (c) of section158BC, in respect of search initiated under section 132 or books of account, other documents or any assets requisitioned under section 132A after the 30th day of June, 1995, but before the 1st day of January, 1997 can be appealed before ITAT. But since the amendment of 1997, this provision has been a matter of a great judicial controversy. Some of the High courts have decided that ITAT has power to decide any matter related to search and seizure and some have decided contrary to the same.

As the Act itself says that the Appellate Tribunal shall, for the purpose of discharging its functions, have all the powers which are vested in the income-tax authorities referred to in section 131, and any proceeding before the Appellate Tribunal shall be deemed to be a judicial proceeding within the meaning of Section 193 and 228 and for the purpose of Section 196 of the Indian Penal Code, 1860 and the Appellate Tribunal shall be deemed to be a civil court for all the purposes of section 195 and Chapter XXX-V of the Code of Criminal Procedure, 1973.^[1] The Tribunal, though not a court, exercises in its appellate jurisdiction under section 254, judicial powers of an appellate court of the widest possible amplitude.^[2]

It has also been deicide in the case of ‘C. Ramaiah Reddy v. Asst. CIT (IMV)’[3] that the Appellate Tribunal also has the power to decide the validity of search and it was observed that a mere search or seizure, by itself would not result in foisting the liability on the assessee though it would invade his right to privacy and the fundamental right to carry in business. But, if the said search or seizure results in determination of liability and levy of tax then the assesse is said to be and aggrieved person. The said determination of liability and levy of tax has to be by way of an assessment order, and then he gets the right to challenge the assessment on several grounds including the authorization and initiation of search and seizure without which no order of assessment could have been passed. Though the authorization of search and seizure may not be by the assessing officer, the basis of search assessment order by him is the authorization and the consequent search and seizure and the material collected during the said proceedings. If the very initiation of block assessment proceedings is vitiated and void, the assessment order passed in such proceedings would be non est and void ab initio. That is a ground available to the assesse to challenge the assessment order in an appeal. May be a procedural irregularity in conducting search and seizure may not vitiate the assessment order, but the very initiation of the proceedings if it is not in accordance with law, the initiation would be without jurisdiction, void and the consequent order would also be void. It is not a curable defect. It is also voidable at the option of the assesse. If he has not challenged the same by way of writ petition under Article 226 of the Constitution, he would not lose his right to challenge the same in an appeal.

Under section 158B, the definition of block period is given, which reads as under:

Section 158B: In this Chapter, unless the context otherwise requires.-

(a) ‘Block period’ means the period comprising previous years relevant to six assessment years preceding the previous year in which the search was conducted under Section 132 or any requisition was made under Section 132A and also includes the period upto the date of the commencement of such search or date of such requisition in the previous year in which the said search was conducted or requisition was made;

Provided that where the search is initiated or the requisition is made before the 1st day of June, 2001, the provisions of this clause shall have effect as if for the words ‘six assessment years’, the words ‘ten assessment years’ had been substituted;[4]

A bare perusal of the above definition shows that the block period means the period comprising of the previous years, (such number of years as may be prescribed from time to time) proceeding the previous year, in which search was conducted under Section 132, or any requisition was made under Section 132A. Thus, for attracting this provision, it is necessary that a search is required to be conducted under Section 132, and obviously, for conducting such search, authorization is required to be given, only if the concerned competent, authority has reasons to believe, about existence of one or more circumstances, enumerated in Clauses (a) to (c) of Section 132(1), as required under the said provision, and in absence of authorization, based on reasons, as required under Section 132, the ‘block assessment’ itself cannot be made. Thus the action of the Assessing officer is inextricable linked with the initiation of the assessment proceedings the same can be assailed before the appellate authority. If the initiation of these block assessment proceedings is vitiated in the eye of law, there is no search and the entire proceedings based on such search has no legs to stand. Therefore, in an appeal filed challenging the block assessment order, it is open to the assesse to contend that this foundation of block assessment is an illegal search. Therefore it is obligatory on the part of the tribunal to first go into the jurisdictional aspect and satisfy itself that the said search was valid and legal.[5] It is only then it can go into the correctness of the order of the block assessment.It is also a settled legal positus that, if there is a provision conferring a right of appeal, it should be read in a reasonable, practical and liberal manner.^[6] In interpreting fiscal statute, the court cannot proceed to make good deficiencies, if there by any, the court must interpret the statute as it stands, and in case of doubt, in a manner favorable to the taxpayer.^[7] When the statute expressly refers to “a search initiated u/s. 132 of the Act” in section 253(1)(b), while interpreting the said provision it cannot be ignored. Therefore, the subject-matter of appeal under the provision is not only the assessment order by the A.O. but also “a search initiated” u/s. 132 of the Act. There is no bar for the appellate authority to go into the question of validity of search and for that purpose to call for the “satisfaction note”, as the validity of search is the foundation of the assessment. The tribunal is the last court of facts.[8] It has all the powers available to call for the “satisfaction note” and to examine the validity of search. If an incorrect inference is drawn from relevant facts and or whether such facts are relevant etc., the appellate authority has powers and High Court has only advisory jurisdiction.[9] Thus, if search itself is held illegal, all consequential orders under section 158 BC is a nullity. However, if an order under section 158BC(c), for which a valid search under section 132 is a prerequisite is challenged in an appeal, the appellate authority should be deemed to have power to adjudicate the action.

It was held by the Rajasthan High Court in Case of ‘J.R. Tantia Charitable Trust v. IT’[10] that the legal position is that the Appellate Tribunal of Income Tax can also look into the validity and propriety of the search under section 132 of the Act and therefore, the assesse does have effective alternate remedy in this regard. It is also settled by the Division Bench of Rajasthan High Court in ShriBadri Ram Chaudhary v. ACIT[11] that the legal position, whether the tribunal does have a power to decide the legality and propriety of the raid under Section 132 of the act remains no longer res integra in the light of the judgment rendered in Chitra Devi’s case[12] which is upheld by the Supreme Court where S.L.P.[13] filed by the department was dismissed against the order of High Court.

The contrary opinion to this is that the validity of action taken u/s. 132 could not be examined in an appeal filed before the ITAT.^[14]It has also been decided by various High Courts in different judicial pronouncementsthat the section 132 is a code in itself and no appeal has been provided for in connection herewith^[15]and the Appellate Tribunal cannot do indirectly what it cannot do directly.^[16] There is no question of partial jurisdiction. Either the Hon’ble ITAT has the powers (or does not have it) to look onto the legality of search operations. In a taxing statute, one has to look merely at what is clearly said.^[17]ITAT is a creature of statute, thus its powers emanate from the provision of Section 254 of the Act and not from any other provisions.^[18]Hence, no appeal can be filed with reference to proceedings u/s. 132 as the right of appeal is a statutory right and therefore the same can be exercised only to the extent it is conferred on the assessee. No such right is provided under the Act vis-a-vis the action u/s. 132.^[19] In such a case, an action can only be challenged before the Hon’ble HC by way of writ petition under Article 226 r/w 227 of the Constitution of India.^[20]

Conclusion

Thus, the matter, due to different and contrary opinions of the different High Courts is a matter of judicial controversy and has to be decided by the Hon’ble Apex Court, so that the uniform law can be established and the abuse of this controversy does not take place. But certain things, which have to be taken into consideration, are that the issue which is with respect to search and seizure conducted under section 132 of Income Tax Act, 1961 is purely a factual matter. And it is already a settled position that the Appellate Tribunal is the highest authority to decide any matter in controversy with respect to facts. Thus, if the tribunal, itself is not conferred with the power of deciding a factual matter, then this is going to be a chaotic situation. At the same time, in case of poor assessee, who is affected by the prejudiced actions of IT department will lose an opportunity to appeal. This is going to harm the basic ideology of the Act itself as well, which is in support of the assessee. Thus, it has to be emphasized upon by the Supreme Court that the basic ideology of the Act is not hampered and the poor assessee is not found in the clutches of IT department.

[1]Income Tax Act, 1961, §255(6).

[2]ITO v. M.K. Mohammad Kunhi, (1969) 71 ITR 815 (SC).

[3]C. Ramaiah Reddy v. Asst. CIT (IMV), [2011] 339 ITR 210 (Karn).

[4] Income Tax Act, 1961, §158B

[5] V. Ramprasad v. Dy. CIT, MANU/KA/2567/2012; Shri Parma Ram Bhakar v. DCIT, ITA No. 311 Jodh/2010; M/S Mahalakshmi Developers v. DCIT, ITA No. 281 Jodh/2014.

[6]CIT v. Ashoka Engineering Co., AIR 1993 SC 858.

[7]C.A. Abraham v. ITO, AIR 1961 SC 609.

[8] CIT v. Manohar Glass 232 ITR 302; AN Transports v. CIT 185 ITR 134; Assam Co. v. CIT 217 ITR 109.

[9]Southern Herbals v. Director of IT (Inv.) and Ors.(1994) 207 ITR 55 (Kar).

[10]J.R. Tantia Charitable Trust v. IT’ (2013) 355 ITR 226 (Raj.)

[11]ShriBadri Ram Chaudhary v. ACIT, (2012) 67 DTR (Raj.) 83.

[12]Commissioner of Income Tax v. Smt. Chitra Devi Soni, (2009) 313 ITR 174 (Raj.)

[13] CIT v. Smt. Chitra Devi Soni, (2009) 313 ITR(St.) 28.

[14]C. Ramaiah Reddy v. DCIT, (2011) 244 CTR (Kar.) 126.

[15]P.R. Metrani v. CIT, AIR 2007 SC 386.

[16]Virinder Bhatia v. DCIT, (2001) 79 ITD 340 (Del.).

[17]CIT v. Doaba Cooperative Sugar Mills Ltd., (1998) 230 ITR 774 (P&H).

[18]ACIT v. ChilkaVyankateshSidram, ITA No. 1367/PN/05/2008.

[19]Jute Corporation of India v. CIT, (1991) 187 ITR 688 (SC); CIT v. RaiBahadurHardutory, (1967) 66 ITR 443 (SC); NetajiBaig v. State of W.B., (2000) 8 SCC 262; State of Punjab v. Bakshish Singh, (1998) 8 SCC 222.

.[20]Promain Ltd. v. DCIT, (2006) 281 ITR (AT) 107 (Del.)