By TIOL News Service

NEW DELHI, DEC 27, 2013: THE issues before the Bench are - Whether delay in raising the contention that names of assessee's group concerns are not in the panchnamas, specially when the said concerns have the requisite copy of the panchnamas and were aware that their names did not figure in the panchnamas, is a valid ground to deny search warrants; Whether the address mentioned in case of search of a company has to be its registered office only; Whether for the purpose of making assessment u/s 153A, issue of punchnama is a necessary condition; Whether punchnama is required, in case where nothing is found or seized in the search; Whether in case of defective panchnamas, search or initiation of search can be disputed and Whether the assessment orders u/s 153A can be permitted to become a matter of writ proceedings as the first appellate forum. And the verdict goes in four of the Revenue.

Facts of the case

A search and seizure operation u/s 132 was carried out against the assessee group on 31st January, 2008. Assessee had accepted and not disputed the search and seizure operations in the writ petitions but the contention raised was that against 22 petitioners, no panchnamas were drawn/issued and thus proceedings u/s 153A were void and bad for want of jurisdiction. It was also submitted in the rejoinder affidavit to the counter affidavit that these petitioners were not subjected to search and their names had been subsequently interpolated and mentioned in the warrants of search. On 29th December, 2009, the AO passed assessment orders in respect of three AYs making various additions. Assessee had not filed appeal but revision petition u/s 264 were filed, which was decided by an order of remand, for fresh assessments. Subsequent to the order of the Commissioner u/s 264, vide assessment orders dated 8th March, 2013, the income of the MDLR Resorts Pvt. Ltd. had been assessed for the AYs 2006-07, 2007-08 and 2008-09 at Rs.1,66,326/-, Rs.3,59,03,210/- and 23,97,18,215/-, respectively. This indicates that income for MDLR Resorts Pvt. Ltd. for the AY 2008-09 had been assessed at the same figure as had been assessed in the first order. Income for the AYs 2006-07 stands reduced by Rs.77,50,000/-, but income of AY 2007-08 stands increased by a figure of Rs.77,35,728/-.

It was contended by the assessee's counsel that assessment proceedings u/s 153A were invalid as no panchnamas were drawn in the names of 22 petitioners. Second contention which had neither been raised in the writ petition nor in the amended writ petition but in the rejoinder affidavit to the amended writ petition, was to the effect that probably and possibly no warrant for search u/s 132 was issued against these 22 petitioners and, therefore, their names do not appear in the panchnamas. In response it was contested that there was an error or mistake in the panchnamas as a consequence thereof, names of 22 petitioners did not feature in the panchnamas, though the said petitioners were subjected to search and seizure. Error or mistake cannot vitiate proceedings u/s 153A. Secondly, there was obstruction and the officers were prevented from carrying out search at MDLR House and due to resultant confusion, names of the said 22 petitioners were not mentioned in the panchnamas. Lastly, the proceedings u/s 153A were valid and do not falter on the ground of lack of jurisdiction as the search was initiated and duly conducted against the aforesaid 22 petitioners. Regarding the contention of search warrant, the Revenue had relied upon the original records including relevant search warrants to affirm that search and seizure operation was also directed against the said 22 petitioners.

Further argument by the assessee's counsel was regarding the scope of the order of remand passed by the CIT on the revision petitions u/s 264. It was submitted that AO while passing the fresh assessment orders had gone beyond and had in some cases made additions in excess of the additions made in the original assessments which violates the mandate of Section 264. Against which the Revenue's counsel argued that CIT in his order u/s 264, had set aside the original assessment u/s 153A and had directed AO to pass a fresh order after hearing and considering the evidence and material placed on record. The CIT had observed that assessee was prevented and could not in the first round produce relevant documents and material. Various issues were not properly investigated and in light of the various contentions, legal, technical, factual and in the interest of natural justice and fair play, the matter was restored to AO for fresh assessment. AO‘s jurisdiction at the time of fresh assessment was as extensive and broad as at the time of the original assessment. It was not a case of limited remand.

It was also contended by the assessee's counsel that the AO had invoked Section 144A and had sought the opinion of the Joint Commissioner before passing the assessment order. It was submitted that the Joint Commissioner had expressed an opinion, which was prejudicial to the petitioners, without opportunity of being heard. This violates the mandate of Section 144A. In response, the Revenue's counsel had submitted that explanation to Section 144A was applicable and no prejudicial directions were issued to the assessee. Petitioners had also invoked said provision. No prejudice had been caused. It was submitted that the fresh assessment orders u/s 153A had been made subject matter of appeals on all grounds or issues, and therefore, contentions on merits cannot be raised and should not be permitted to be raised in these writ petitions.

Held that,

++ MDLR Group as a whole was subjected to search following a detailed note prepared for approval and issue of warrant of search. The note was available on the confidential files produced before us. Names of companies, concerns etc. belonging to MDLR group were mentioned and recorded in the file/proceeding recorded. Names of 22 petitioners are included in the said list. We have also examined the warrants for search. Details of persons to be subjected to search were duly recorded in the search warrant but due to want of space in the printed proforma, details of some of the persons to be subjected to search have been recorded at the bottom of the page and top of the next page. This was for want of space in the printed performa of the warrant of search at the relevant place as the warrant was against several persons. After minute and arduous examination of the confidential files, with the purpose and intention to rule-out foul play or interpolation, we are satisfied that the apprehension of the petitioners is ill-founded and without merit. Search warrants were signed by the witnesses and also persons to whom they were shown when the raiding team had entered the premises, subjected to seach. Delay in raising this contention specially when the 22 petitioners had the requisite copy of the panchnamas and were aware that their names did not figure in the panchnamas, is indicative of the fact that the stand/stance was an after-thought. We are satisfied that the search warrants were issued against the petitioners including the 22 petitioners mentioned above. Thus the said contention is to be rejected;

++ we have considered the said submissions but do not find any merit in the same. As recorded above, we had asked for the original files and we are satisfied that the search warrants were also issued against the 22 petitioners whose names do not figure in the panchnamas. We find that documentation, papers etc. relating to these 22 assessees were seized and were duly mentioned in the annexures to the panchnamas. Seizure of the said documents is not challenged. Thus material and papers relating to 22 petitioners were seized as per the annexures to the panchnamas. For clarity, we would like to elaborate, what has been briefly referred to above. Search warrants (i.e. Form No. 45) were printed documents in which requisite blanks i.e. names and details have been filled by hand. Due to paucity of space in the column, the authority issuing the search warrant had put an, (*) mark and thereafter mentioned other names in respect of whom the search warrant had been issued. Names of parties to be subjected to search have been mentioned at two separate places on the first page of search warrants Form No. 45. The first point or place refers to preconditions mentioned in Section 132(1)(a) and (b) and the second point or place refers to the preconditions stipulated in Section 132(1)(c). Second page of the form requires mentioning the address where the suspected books of accounts, other documents, money, bullion, jewellery, valuable articles etc. were kept, by the persons who were being subjected to search. In the panchnamas relating to MDLR Estate Private Limited, MDLR Hotels Private Limited and Shivgori Builders Private Limited, it was noticed that their names were not included in the names of the persons mentioned in the column relating to clauses (a) and (b) of Section 132(1). However, their names were mentioned in the column relating to Section 132(1)(c). In these circumstances, suspicion of the petitioners is not affirmed. It does not impel us to form and decide the contention in favour of the petitioners;

++ the contention with regard to their addresses being different, is misconceived and mere ipse dixit. Address of a company will normally mean its registered office, head office etc. A person can operate from or keep documents, money etc. at different places and not necessarily from the registered office etc. or from where business is conducted. The address mentioned in the warrant and the panchnama need not be the registered office or the head office but it has be the place where the search was to be conducted and was conducted. The address at which search could be conducted would be the place or location, where books of accounts, documents, jewellery, unaccounted assets etc. could be located/found;

++ what is noticeable that the mandate and language of Section 153A(1) does not make any reference to panchnama or the date of panchnama. It does not state that the panchnama is a pre-condition for invoking the said Section. The words used by the Legislature are "search is initiated under Section 132 ……" The word 'initiate' means to commence or start. The section is invoked and applicable when the search is 'initiated'. In other words, the section ticks of and comes into play when the search commences or is undertaken against a person. The expression 'initiate' had come up for interpretation before the Karnataka High Court in CIT vs. WIPRO Finance Ltd. (2008-TIOL-432-HC-KAR-IT) in relation to Sections 158BC, 158BD etc., and it was observed that as per the dictionary meaning, the said word refers to beginning, commencement or start of proceedings. Reference was made to the decision of the Supreme Court in Om Prakash Jaiswal vs. G.K. Mittal AIR 2000 SC 1136, wherein expression 'initiate any proceedings for contempt' in Section 20 of the Contempt of Courts Act 1971, was interpreted. It was held that the word 'initiate' means introductory steps or action or first move. Black's Law Dictionary was referred to and it was observed that 'initiation of contempt proceedings' takes place when the court applies its mind to allegation and decides to direct the alleged contemnor under Section 17 to show-cause as to why he should not be punished. Thereafter, reference was made to different factual situations. It was observed that it is the settled principle that while assigning meaning to any expression in any provision of a statute, the context under which the particular expression is used has to be borne in mind. Therefore, bearing in mind the context in which the expression 'search initiated' has been used under various sections of IT Act including ss. 158BA(1), 158BC, 158BD, 158BE(1)(a) and (b) and 253A(1)(a) and (b) and also in the light of examining the dictionary meaning of the word 'initiate' as extracted by the High Court of Rajasthan at para No. 34 of its judgment in the case of Rajasthan Udyog referred to supra and also in the light of the above observations of the Hon‘ble Supreme Court in the case of Omprakash Jaiswal we may safely assign to the expression 'search initiated'; the meaning 'search taken' or 'search commenced‘ or 'making beginning of the search'. If this is meant by expression 'search initiated' it cannot be held that the only signing of the authorizations by the Director of IT, Bangalore, on 30th Dec., 1996 to make a search in the premises of the respective assessees would amount to 'initiation of search'. The signing of the authorizations‘ would at best amount to 'taking of the decision by the said authority to initiate search in the premises of respective assessees but not initiation of search itself;

++ the contention is that Section 153B(1) & (2), refers to panchnama and when there is no panchnama, proceeding in respect of 22 petitioners cannot be validly initiated under section 153A. We have examined Section 153A(1) above and now examine whether in the facts of the present case failure to mention names, affects validity of the notices issued under Section 153A of the Act. The aforesaid contention of the 22 petitioners has to fail in the present cases for several reasons. The said contention was not raised against the first order under Section 153A passed by the Assessing Officer which was made subject matter of challenge in a revision before the Commissioner under Section 264 of the Act. The Commissioner has set aside the first assessment orders under Section 153A of the Act and has passed an order of remand for fresh adjudication vide order dated 16th March, 2012. The petitioners have not questioned and challenged the orders dated 16th March, 2012 and have accepted the same. All panchnamas are dated 31st January, 2008. There are no subsequent or second set of panchnamas in the case of the search warrants against the 22 petitioners. 31st January, 2008 was the date of search as recorded in the warrants of search. The petitioners, including 22 petitioners whose names do not feature in the panchnamas, have not denied that they were subjected to search on 31st January, 2008. It is also not repudiated or contested that several documents/papers relating to the 22 petitioners were seized and were included in the list of the seized documents/papers attached to the panchamas. Thus, there cannot be any dispute or debate regarding the question of time limit or limitation period for completion of assessment under Section 153A and indeed the said issue is foreclosed. In the facts of the present case, the contention should be and is rejected. As per the manual prepared by the Revenue relating to search and seizure operations, at the end of search or when it is temporarily concluded, a panchnama is required to be prepared or drawn. It is evidently clear that this document has considerable evidentiary value and should be prepared with care and caution. The panchnama should be exhaustive, record of all events in the same sequence in which they have occurred and should specify details like name of person against whom warrant was issued, time of temporary conclusion of search etc. Panchnama should be prepared even in cases where nothing is found or seized in the search;

++ there is certainly lapse and failure to comply with the requirements of search and seizure manual as the panchnama did not contain names of the 22 petitioners and does not record any suspension of search. Even the obstruction and presence of third persons were not mentioned in the panchnamas. But this would not affect the validity of the search. We only record that panchnamas in the present case to this extent are defective, but the search or initiation of search cannot be disputed. However, the respondents should take remedial steps and ensure that such lapses do not occur in future, otherwise similar allegations will get repeated, entailing litigation. We are informed that copy of the warrant of search is only shown to the occupant or persons against whom it is issued and their signatures obtained but no copy is furnished to them. Any search and seizure operation invades constitutionally protected and cherished right of privacy. Administrative lapse even of minor nature when there is invasion of the said right does lead to criticism and allegations. It will be salutary and proper that a copy of the search warrant be furnished to the occupant or the person searched. This would curtail any allegation of interpolation, addition of names etc. However, in the facts of the present case, we do not think that the lapse or failure in the panchnamas affects the validity of the search or nullifies notice u/s 153A. It certainly would not affect initiation of search which is the starting point and precondition for invoking Section 153A. Panchama is drawn when the search stands concluded finally or temporarily. The effect of the said lapse on merits or to the value or degree of importance to be given to the material seized is a matter of appraisal and merits and not a question to be examined and answered in these writ petitions;

++ the interpretation which can and should be given to the said orders and whether or not there was violation of the requirements of Section 144A can be examined in the appellate proceedings. Assessment orders u/s 153A cannot and should not be permitted to become a matter of writ proceedings as the first appellate forum. The first appellate statutory authority can deal with the questions and issues raised before us, whose jurisdiction indeed has been invoked with appeals being preferred by the petitioners. We do not think that the contentions and issues raised, merit or justify their examination and decision in writ petitions in exercise of extra ordinary jurisdiction. The first appellate authority should and under the Act, can examine the said contentions/issues and pass appropriate orders. The first appellate authority can also examine the question as to whether or not any prejudice has been caused to the petitioners because of alleged failure of the Joint Commissioner to hear the petitioners before passing an order under section 144A of the Act. The effect of the petitioners‘ filing their representations invoking Section 144A etc. is again an aspect which can be examined by the appellate authorities. The appellate authorities have the right and power to opine on the said subject matters. It would not be correct to bifurcate the objections against the assessment orders and hear a part of the objections in the writ proceedings, while the other objections relating to 'merits' of the assessment order are permitted and allowed to be raised in the pending appeals before the appellate authority. This bifurcation shall not serve the cause of justice and may result in ambiguous or even conflicting orders;

++ in view of the alternative remedy which is efficacious and provided by the statute itself, we do not want to delve into the said issues. In view of the aforesaid discussion, we do not find any merit in the present writ petitions and the same are dismissed. We clarify that the observations made in the judgment are for the purpose of disposal of the writ petitions and the appeals against the assessment order u/s 153A on merits will be decided in accordance with law and the observations relating to merits of the addition made hereinabove will not be considered as binding. The petitioners will pay costs as per the Delhi High Court Rules to the respondents.

(See 2013-TIOL-1096-HC-DEL-IT)