Income Tax Appellate Tribunal - Chennai
Sterlite Industries (India) Ltd., ... vs Assessee on 15 April, 2004
IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH 'C' CHENNAI
Before Shri Abraham P. George, Accountant Member and
Shri George Mathan, Judicial Member
.....
I.T.(SS) A. No. 182/Mds/2004
Block Assessment Years : 1990-91 to 1999-2000
and the period 01-04-1999 to 08-12-1999
The Deputy Commissioner of M/s. Sterlite Industries (India)
Income-tax-2(3), v. Ltd., 5th Floor, Dhanraj Mahal,
Mumbai. CSM Road, Apollo Bunder,
Mumbai-400 039.
(PAN : AABCS4955Q)
(Appellant) (Respondent)
AND
C.O. No.336/Mds/2005
(In IT(SS)A No. 182/Mds/2004)
Block Asst. Years 1990-91 to 1999-2000
and the period 01-04-1999 to 08-12-1999
M/s. Sterlite Industries (India) v. The Deputy Commissioner of
Ltd., Mumbai-400 039. Income-tax-2(3), Mumbai.
(Cross Objector) (Respondent)
Department by : Shri Shaji P. Jacob
Assessee by : Dr. Debi Prasad Pal,
Shri R. Janakiraman &
Shri T. Vasudevan
ORDER
2
I.T.A. No.182/Mds/2004 &
CO No. 336/Mds/2005
PER GEORGE MATHAN, JUDICIAL MEMBER :
IT(SS) A. No. 182/Mds/2004 is an appeal filed by the Revenue against the order of the learned CIT(Appeals)-XXXIII, Mumbai in appeal No. CIT(A)XXXIII/Rg-2(3)/IT/13-S/02-03 dated 15-04-2004 for the block assessment years 1990-91 to 1999-2000 and a part of assessment year 2000-01 (upto 08- 12-1999). C.O. No. 336/Mds/2005 is a cross objection filed by the assessee against the above Revenue's appeal.
2. Shri Shaji P. Jacob, Sr. DR represented on behalf of the Revenue and Shri Devi Pal, Sr. Advocate along with Shri R. Janakiraman and Shri T. Vasudevan, Advocates represented on behalf of the assessee.
3. The facts in the present appeal are that the assessee is a domestic company which is in the business of manufacture of non-ferrous metals and telecommunication equipments. There was a search and seizure operation under section 132 of the Income Tax Act, 1961 carried out at various locations being the offices and factories of M/s. Sterlite Industries Ltd. and all their group companies as also at the residential premises of all the Directors and top officials of the company on 08-12-1999. Consequent to the search, block assessment orders have been passed on 28-03-200002 under section 143(3) read with section 158BC of the Act by the Assistant Commissioner of Income-tax, Circle- I(3), Mumbai. The assessee had filed appeal against the block assessment order before the learned CIT(A)-XXXIII, Mumbai and came to be disposed of by the 3 I.T.A. No.182/Mds/2004 & CO No. 336/Mds/2005 learned CIT(A) vide order dated 15-04-2004 which was the subject matter of appeal by the Revenue in IT(SS) A No. 426/Mum/2004 and cross objection against the said appeal was No. 154/Mum/2005. The appeal filed by the Revenue and the cross objection by the assessee came to be transferred to the Chennai Benches and the same have been numbered as IT(SS) A No. 182/Mds/2004 and C.O. No. 336/Mds/2005.
4. In the Revenue's appeal, the Revenue has raised the following grounds :
"1. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in upholding the addition only to the extent of ` 27,50,00,000/- being excess depreciation on account of inflation of cost of the fixed Assets due to inclusion of infructuous capital expenditure on the basis of Chairman's statement dated 08- 01-2000 as against the addition of ` 34,39,37,070/- made by the Assessing Officer being excess depreciation with reference to the inflated cost of Copper Smelter and Sulphuric Acid Plant on account of bogus purchases of steel and consequently deleting addition to the extent of ` 7,89,37,070/-.
2. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in deleting the disallowance of depreciation of ` 60,21,808/- made by the Assessing Officer in respect of the Jelly-filled Telephone cables, optical Fibre and Optical Fibre Cables Plant at Aurangabad, the nonferrous rod plant at Lonavala and the aluminium foil plant at Sanaswadi on account of bogus pucchases of steel made from M/s. Gopal Rai and Sons and M/s. G.R. Enterprises.
3. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in deleting the addition of ` 4 I.T.A. No.182/Mds/2004 & CO No. 336/Mds/2005 3,70,27,309/- made by the Assessing Officer being the depreciation related to the capitalized component of foreign exchange fluctuation and attributable to plant and machinery procured indigenously by use of loans taken in foreign exchange, on the ground that the increase in liability in respect of the loans in foreign currency is a question which should be considered in the normal assessment and the disallowance cannot be a part of the Block assessment.
4. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in deleting the addition of ` 5.60 lacs made by the Assessing Officer on account of cash salary to Mr.B.K. Pansari.
5. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in deleting the addition of ` 5,91,36,878/- made by the Assessing Officer on account of expenditure incurred in relation to the attempt by the assessee to acquire the shares of INDAL being capital in nature, holding that the disallowance cannot be made as "undisclosed income" in the Block Asessment.
6. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in deleting the addition of ` 5 lacs, made by the Assessing Officer on account of cost of the three paintings found at the residence of Mr. D.P. Agarwal, accepting the submission of the assessee that the burden to prove the origin of the paintings in that of Mr. D.P. Agarwal and not of the assessee company without taking into account the explanation submiitted before the Assessing Officer during assessment proceedings that three paintings found have already accounted and were part of the furniture provided at the residence of their CMD Shri Anil Agarwal.5
I.T.A. No.182/Mds/2004 & CO No. 336/Mds/2005
7. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in deleting the addition of ` 5 lacs, made by the Assessing Officer on account of donation to Adivasi Vikas Sangathan, on the ground that it cannot be considered as undisclosed income of the block period.
8. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in holding that the amendment to section 113 being prospective in nature, no separate surcharge is leviable on the tax rate of60% on the undisclosed income computed for the block period in the case of the assessee for which Block Assessment order has been passed on 28-03-2002 i.e. before 01-06-2002 the effective date of amendment.
9. The appellant craves leave to add, to alter or amend the above ground of appeal."
5. In the cross objection filed by the assessee, the following grounds have been raised:
"I 1. On the facts and circumstances of the case, the learned Commissioner of Income-tax (Appeals)-XXXIII, Mumbai {(the CIT(A)} legally erred in upholding the validity of the assessment order dated 28th March 2002 under Section 143(3) r.w.s. 158BC of the Income-tax Act, 1961 ('the Act').
2. It is prayed that the assessment order dated 28th March 2002 under Section 143(3) r.w.s. 158BC of the Act be quashed as being ab initio void and illegal.
II 1. On the facts and circumstances of the case, the learned CIT(A) legally erred in holding that the assessment order dated 28th 6 I.T.A. No.182/Mds/2004 & CO No. 336/Mds/2005 March 2002 under Section 143(3) r.w.s. 158BC of the Act was not barred by limitation.
2. It is prayed that the assessment order dated 28th Mach 2002 under Section 143(3) r.w.s. 158BC of the Act be cancelled as being barred by limitation.
III 1. On the facts and circumstances of the case, the learned CIT(A) legally erred in holding that undisclosed income of the block assessment computed without reference to the previous year to which it pertained to was not in violation of Section158BB(1) of the Act.
2. It is prayed that it be held that the block assessment order made without determining the undisclosed income for each previous year was void and illegal.
IV 1. On the facts and circumstances of the case, the learned CIT(A) legally erred in holding that the block assessment made without issuing a show cause notice had not violated the principles of natural justice and was valid.
2. It is prayed that it be held that the block assessment order made in violation of the principles of natural justice be treated as invalid.
V 1. On the facts and circumstances of the case, the learned CIT(A) legally erred in holding that disallowance of depreciation could be a subject of block assessment.
2. It is prayed that it be held that disallowance of depreciation could not be the subject of block assessment. VI 1. On the facts and circumstances of the case, the learned CIT(A) legally erred in holding the disallowance of depreciation was on the basis of evidence found in the course of the search and 7 I.T.A. No.182/Mds/2004 & CO No. 336/Mds/2005 consequently that the Assessing Officer had jurisdiction to consider the disallowance of depreciation in the block assessment.
2. It is prayed that it be held that the disallowance of depreciation was made without jurisdiction and the same could not be part of the block assessment.
VII 1. On the facts and circumstances of the case, the learned CIT(A) legally erred ion upholding the disallowance of depreciation on the copper smelter and the sulphuric acid plant of ` 27,50,00,000 for the period 1,04,1998 to 08.12.1999.
2. It is prayed that the Assessing Officer be directed to delete the disallowance of depreciation of ` 27,50,00,000. VIII 1. On the facts and circumstances of the case the learned CIT(A) erred in not adjudicating upon the ground that the entire foreign exchange fluctuation treated as cost was correctly includible as 'cost' and accordingly, depreciation of ` 3,70,27,309 was allowable on such cost.
2. It is prayed that it be held that the foreign exchange fluctuation be treated as cost and depreciation thereon be allowed. X 1. On the facts and circumstances of the case the learned CIT(A) erred in upholding the addition of 13,21,591 made on account of notings (page 43 of Annexure A/2 to Panchnama dated 8th December, 1999) alleged to represent unaccounted expenses of the Respondent under Section 69C of the Act.
2. It is prayed that the Assessing Officer be directed to delete the addition of ` 13,21,591.
XI 1. On the acts and circumstances of the case the learned CIT(A) erred in upholding the addition of ` 19 lakhs based on a scribbling found in the Director's chamber (page 44 of Annexure A/2 8 I.T.A. No.182/Mds/2004 & CO No. 336/Mds/2005 to Panchnama dated 8th December, 1999) representing credit to directors for travel and other expenses.
2. It is prayed that the Assessing Officer be directed to delete the disallowance of ` 19 lakhs.
XII 1. On the facts and circumstances of the case the learned CIT(A) erred in upholding the addition made on alleged credit of ` 5 lakhs in favour of Ms. Suman Agarwal for her alleged London trip.
2. It is prayed that the Assessing Officer be directed to delete the addition of ` 5 lakhs.
XIII 1. On the facts and circumstances of the case the learned CIT(A) erred in upholding the addition made on alleged credit of ` 14 lakhs in favour of Ms. Vedavati Agarwal.
2. It is prayed that the Assessing Officer be directed to delete the addition of ` 14 lakhs.
XIV 1. On the facts and circumstances of the case the learned CIT(A) erred in upholding the addition made on account of page 15 of Annexure A/6 of Panchnama dated 8th December, 1999 alleged to represent undisclosed expenditure of the Respondent under Section 69C of the Act being cash payment of salary of ` 1.6 lakhs to Mr. A.T. Panjwari.
2. It is prayed that the Assessing Officer be directed to delete the addition of ` 1.6 lakhs.
XV 1. On the facts and circumstances of the case the learned CIT(A) erred in upholding the addition of ` 6.90 lakhs on account of alleged cash payment for land at Piparia adjusted against bogus steel bills.
2. It is prayed that the Assessing Officer be directed to delete the addition of ` 6.90 lakhs.9
I.T.A. No.182/Mds/2004 & CO No. 336/Mds/2005 XVI 1. On the facts and circumstances of the case the learned CIT(A) erred in upholding the addition made on account of loose sheet at page 42 of A/2 of Panchnama dated 8th December, 1999 alleged to represent unaccounted income of the Respondent being cash payment of ` 1,48,60,000 to Mr. Tarun Jain.
2. It is prayed that the Assessing Officer be directed to delete the addition of ` 1,48,60,000.
XVII Each of the above ground is without prejudice to the other.
XVIII The Respondent craves leave to add to, amend and/or alter any of the above grounds."
6. At the time of hearing it was submitted by the learned senior counsel on behalf of the assessee that in the assessee's cross objection grounds I (1 & 2), II(1 & 2), III(1 & 2) and IV(1 & 2) were legal issues which went to the root of the assessment insofar as the assessee had challenged the validity of the assessment order itself. It was the submission that as these grounds went to the root of the assessment, they may be heard first. The learned DR did not object to the submissions. Consequently grounds I(1 & 2), II(1 & 2), III(1 & 2) and IV (1 & 2) were heard first.
7. It was the submission by the learned senior counsel that the assessee company was incorporated on 08-09-1975 under the name "Rainbow Investments Ltd." with its registered office at Calcutta. In October, 1976 the company's name was changed to M/. Sterlite Cable Ltd. In 1979 the registered 10 I.T.A. No.182/Mds/2004 & CO No. 336/Mds/2005 office was shifted to the State of Maharashtra. The company started manufacture of PVC power cables, overhead power transmission conductor and enameled copper wire. In 1986 the company's name was changed to M/s. Sterlite Industries (India) Ltd. In 1988 the company came out with public issue of shares and convertible debentures to pot finance the company's first jelly filled telephone cable plant at Waluj, Aurangabad. In 1990 the company discontinued production of PVC cables and enameled copper wires. In 1991 the assessee company set up continuous cast copper rod plant at Lonavala. In 1993 the company had set up one more jelly filled telephone cable plant at Silvassa. In 1996 the assessee got optical fiber plant at Waluj, Aurangabad and continuous cast copper rod plant at Silvassa from M/s. Sterlite Communications Ltd., on account of merger. In 1998 the company commissioned copper smelting plant at Tuticorin (Tamilnadu) and a copper refinery at Silvassa. This copper smelting and refinery was relocated from Ratnagiri, Maharashtra due to environmental problems faced by the company. To pot finance the above projects, the company came out with Indian public/right issues in 1988, 1989, 1991 and 1993. Thus the company was having its manufacturing facilities at Aurangabad, Silvass, Sanaswadi (Pune), Lonavala, Karanjwana (Pune) and Tuticorin.
8. It was the submission that the search had been conducted on the assessee's premises on 08-12-1999. Consequent to the search on 08-12-1999 a Panchnama was drawn up and about 108 files seized. Prohibitory Orders had also been passed u/s 132(3) of the Income Tax Act, 1961 on the documents in 11 I.T.A. No.182/Mds/2004 & CO No. 336/Mds/2005 the record room and almirah in the room of the General Manager (F &A) and seals had been placed in the record room door at M/. Sterlite Industries (India) Ltd., Tuticorin. The learned authorised representative drew our attention at pages 1 & 2 of the departmental paper book I which is the copy of the Panchnama dated 8-12-1999 and at page 16 of the departmental paper book I which showed the copy of the Prohibitory Order passed under section 132(3) on 8.12.1999. It was the further submission that the search commenced at 8.30 a.m. and was temporarily concluded at 11.30 p.m. It was the further submission that statements had been recorded from various persons in the course of search on 8.12.1999, such as Shri V. Ramanathan, General Manager (F & A), Shri C.V. Krishnan, Chief Executive Officer and President of Sterlite Copper Sipcot, Tuticorin, Shri K. Ranganathan, General Manager (Commercial), who was in charge of purchase and stores etc. It was the submission that on 21.1.2000 the PO passed u/s. 132(3) was repeated and a fresh Panchnama was passed which is shown at pages 33 and 34 of the paper book. It was the submission that on 21.1.2000 the proceedings were started at 10 a.m. and was concluded at around 7 p.m. It was the submission that on 21.1.2000 also 14 files were seized and taken and a PO was imposed on the almirah in the room of General Manager (F & A) as also on the record room of M/s. Sterlite Industries (India) Ltd. The copy of PO was shown at pages 131 & 132 of the departmental paper book II. It was the submission that the Panchnama dated 21.1.2000 also showed that the search was temporarily concluded. It was the further submission that 12 I.T.A. No.182/Mds/2004 & CO No. 336/Mds/2005 subsequently on 2.3.2000 the Prohibitory Order placed on 21.1.2000 was lifted at 2 p.m. and the search was treated as finally concluded at 8 p.m. It was the submission that as per the Panchnama dt. 2.3.2000 certain other documents were also seized as also a back up of computer was taken. It was the submission that other than the statements recorded on 8.12.1999, no statements had been recorded on either 21.1.2000 or 2.3.2000. It was thus the submission that the Prohibitory Order placed on 8.12.1999 and 21.1.2000 were totally illegal insofar as, as per the provisions of section 132(3) it is only when it is not practicable to seize any such books of accounts, other documents, money, bullion, jewellery or other valuable article or thing the Prohibitory Order could be placed. It was the submission that all that the authorized officer had put to his Prohibitory Order was the almirah in the room of the General Manager (F & A) as also the record room. It was the further submission that all that the search party had searched for and had found had been substantially taken on 8.12.1999 and the Prohibitory Order had been placed only for the purpose of extending the period of search. It was the submission that the items in regard to which the Prohibitory Order had been placed were not items which were not practicable to seize. It was the submission that a perusal of the Panchnama dt. 21.1.2000 and 2.3.2000 clearly showed that nothing fresh was found. It was the submission that this clearly showed that whatever was required to be found and what was looked for and for the purpose of which the search had been conducted, had already been found on 8.12.1999 and after seizing substantial portion of the 13 I.T.A. No.182/Mds/2004 & CO No. 336/Mds/2005 same, a few balance papers were left in the almirah of the General Manager (F&A) and Prohibitory Order imposed on the said almirah as also the record room just for the purpose of extending the limitation in regard to the execution of the warrant of authorization. It was the submission that in these circumstances the Prohibitory Order imposed on 8.12.1999 and 21.1.000 should be looked upon as a garb for extending the date of conclusion of the search by drawing up of the last Panchnama and the Panchnama and the Panchnama as drawn on 8.12.1999 should be treated as the last Panchnama drawn in relation to the assessee in whose case the warrant of authorization had been issued. The learned senior counsel placed reliance on the decision of the Hon'ble Delhi High Court in the case of B.K. Nowlakha And Others v. Union of India and Others reported in 192 ITR 436 wherein the Hon'ble Delhi High Court had held that when an order u/s 132(3) is issued it must be recorded as to why it is not practicable to effect seizure. In the present case, it was the submission that there were no reasons record, nor was there any cause shown as to why it was not practicable to effect the seizure of the documents which were placed before the Prohibitory Order. It was the further submitted that when a Prohibitory Order was placed, it was a restraint on the owner or the person in possession of the goods from removing and parting with the possession or dealing with the items on which the Prohibitory Order has been placed. The order of restraint is effective against the owner or person in possession thereof and was not to aim at the department itself which had placed the Prohibitory Order. He drew our attention to page 445 14 I.T.A. No.182/Mds/2004 & CO No. 336/Mds/2005 of the said decision of the Hon'ble Delhi High Court wherein it had been held as follows :
"In our opinion, even when an order under section 132(3) has been passed, the Departmental officials are not restrained from examining the goods. An order under section 132(3) restrains the owner or the person in possession of the goods from removing, parting with possession or dealing with them. The order of restraint is effective against the owner or the person in possession thereof and is not aimed at the Department itself. By issuing an order under section 132(3), the Department is not restrained from examining the goods in respect of which a restraint order has been passed. There was no valid reason, therefore, for seeking to revoke the orders on April 9, 1991, and June 6, 1991. Seeing the dates when such auction was taken, we find considerable force in the contention of learned counsel for the petitioner that this device was resorted to solely with a view to circumvent the provisions of section 132(8A). The first revocation was effected on April 9, 1991, only about one or two days before the expiry of 60 days. Similarly, the second revocation of June 6, 1991, was also effected only about one or two days before the expiry of 60 days from April 9, 1991."
It was thus the submission that the placing of the Prohibitory Order on 8.12.1999 itself was illegal and invalid insofar as there was no practical difficulty in seizing the documents on which the Prohibitory Order had been placed as also the Prohibitory Order imposed on 21.1.2000. It was the submission that the drawing 15 I.T.A. No.182/Mds/2004 & CO No. 336/Mds/2005 up of the Panchnamas on 21.1.2000 and 2.3.2000 were invalid insofar as the documents were available for the Revenue to verify and there was no necessity for the Prohibitory Order or the Panchnamas. The Panchnamas consequently were only for the purpose of extending the period of limitation. It was the submission that as per the provisions of section 158BE the limitation for passing the assessment order expired on the expiry of 2 years from the end of the month in which the last of authorisation for search under section 132 was executed. It was thus the submission that the Panchnama dated 8.12.1999 would be the last of the Panchnama drawn in relation to the assessee in whose case the warrant of authorization had been issued and consequently the assessment was liable to be completed by 31.12.2001 and as the assessment had been completed on 28.03.2002 the same was liable to be treated as barred by limitation and annulled.
9. It was the further submission that the Prohibitory Order having been placed on the items in the almirah of the General Manager (F&A) as also the record room of the assessee on 8.12.1999 and the Prohibitory Order having been lifted on 21.1.2000 and another Prohibitory Order on the same items could not have been placed unless a categorical finding that the items were impracticable of being seized, was specifically shown, which in this case has not been done. He also placed reliance upon the decision of the Hon'ble Bombay High Court in the case of CIT v. Mrs. Sandhya P. Naik reported in 253 ITR 534 wherein the Hon'ble Bombay High Court had also categorically held that an action u/s 132(3) of the 16 I.T.A. No.182/Mds/2004 & CO No. 336/Mds/2005 Act can be resorted to only if there is any practical difficulty in seizing the items which are liable to be seized and when there is no such practical difficulty the officer is left with no other alternative but to seize the items. It was the submission that a perusal of the decision of the Bombay High Court also clearly showed that by passing a restraint order the time limit available for framing the assessment order cannot be extended.
10. The learned senior counsel further placed relied upon the decision of the Third Member decision of the ITAT in the case of Nandlal M. Gandhi v. Assistant Commissioner of Income-tax, reported in 308 ITR (AT) 314 (Mumbai) wherein the learned Third Member has followed the decision of the Hon'ble Bombay High Court in the case of CIT v. Mrs. Sandhya P. Naik, referred to supra, to hold that by a restraint order u/s 132(3), the time limit available for framing the assessment order cannot be extended. It was thus the submission that the search having been concluded on 8-12-1999 the assessment order was liable to be passed by 31-12-2001. Consequently, the assessment order passed on 28.3.2002 was barred by limitation.
11. It was the further submission that in the assessment order the year-wise computation of the undisclosed income has not been done and the same was in violation of section158BB(1) of the Act and consequently the assessment was liable to be annulled. He placed reliance on the decision of the Hon'ble Supreme Court in the case of CIT v. Suresh N. Gupta reported in 297 ITR 322 to support 17 I.T.A. No.182/Mds/2004 & CO No. 336/Mds/2005 his contention that u/s. 158BB there is a theory of block period and it is based on the principle of aggregation of total incomes and consequently the computation of the undisclosed income year-wise has to be done and it is only the aggregate of the same which could be treated as the undisclosed income. He further placed reliance upon the decision of the Allahabad Bench of the ITAT in the case of Verma Roadways v. Assistant Commissioner of Income-tax reported in 75 ITD 183 (All.) wherein vide para 52 the Tribunal has categorically given a finding that as per the provisions of section 158BB while computing the undisclosed income of the block year, the Assessing Officer shall work out the aggregate of the total income of the previous years and this has to be done year-wise only. He also placed reliance on the circular of the CBDT reported in 254 ITR (St.) 162 to support his submission that the undisclosed income in the block period is to be computed year-wise and then aggregation of the same was to be done.
12. Shri T. Vasudevan, Advocate on behalf of the assessee relied upon the decision of the Hon'ble jurisdictional High Court in the case of Rakesh Sarin v. Deputy Commissioner of Income-tax reported in 333 ITR 451 (Mad) to support his contention that a search u/s 132 should be continuous and if there was a gap, there must be a valid explanation for the gap. In the absence of a valid and acceptable explanation, the search held on the three occasions could not be treated as a continuation of the search. It was the submission that in the said decision the Hon'ble jurisdictional High Court had categorically given a finding that the provisions of law, referred to in the Prohibitory Order was section 132(3) 18 I.T.A. No.182/Mds/2004 & CO No. 336/Mds/2005 of the Act and the contents of the wooden almirah and steel cabinet which were the subject-matter of the Prohibitory Orders were not such in volume, weight or other physical characteristics and so dangerous in nature that it was not possible or practicable to take physical possession of the same and to remove them from that place. It was the submission that in the assessee's case the documents had already been found in the search held on 8.12.1999. An inventory was also taken in respect of the same and it was the subject matter of the prohibitory order and such documents were not such in volume, weight or other physical characteristics and so dangerous in nature that it was not possible or practicable to take physical possession of the same and to remove them from that place and all that was done on 21.1.2000 was only lifting the PO and taking part of the documents out into physical possession of the Revenue and keeping the balance under PO and on 2.3.2000 lifting the prohibitory order and taking possession of the balance documents from the almirah and the record room which were already under Prohibitory Order. It was thus the submission that the conclusion of the actual search took place on 8.12.1999 itself when all the documents which were searched and were found and put under Prohibitory Order, even though there was no impracticability in seizing and taking away the said documents and consequently the limitation in regard to the completion of the block assessment was expired on 31.12.2001 and consequently the assessment order dated 28.3.2002 was liable to be annulled as barred by limitation. 19
I.T.A. No.182/Mds/2004 & CO No. 336/Mds/2005
13. In reply, the learned DR submitted that the person who had conducted the search was the Dy. Director of Income-tax (Investigation), Tirunelveli and he was not a respondent in the appeal. It was the submission that the decision of the Hon'ble Delhi High Court in the case of B.K. Naulakha And Others, referred to supra, clearly showed that the said decision was in a writ proceedings. It was the submission that the validity of a search could not be considered by the ITAT as has been categorically held by the Hon'ble Delhi High Court in the case of M.B. Lal v. CIT reported in 279 ITR 298, wherein the Hon'ble Delhi High Court had categorically held that it was no longer open to the assessee to reagitate the question of validity of the authorization and the legality of the search proceedings either before the Commissioner or before the Tribunal for that matter. The question of validity or otherwise of the search proceedings stood concluded by the judgment of the High Court in the writ proceedings. He further relied upon the decision of the Hon'ble Chatisgarh High Court in the case of Trilok Singh Dhillon v. CIT reported in 332 ITR 185, wherein the Hon'ble High Court had categorically held that it is not open to the assessee to question the legality and validity of search and seizure proceedings during the assessment proceedings before the Assessing Officer or in appeal before the Commissioner or the Tribunal. He further relied upon the decision of the Hon'ble Punjab & Haryana High Court in the case of CIT v. Paras Rice Mills reported in 313 ITR 182, wherein the Hon'ble High Court had categorically given a finding that the Tribunal cannot go into the question of validity or otherwise of any administrative 20 I.T.A. No.182/Mds/2004 & CO No. 336/Mds/2005 decision for conducting search and seizure. He also relied upon the decision of the Kerala High Court in the case of CIT v. Dr. C. Balakrishnan Nair And Another reported in 282 ITR 158 to support his contention that there was no infirmity in the action of the Department in keeping the documents in the almirah kept in the premises after issuing an order under section 132(3). He further relied upon the decision of the Hon'ble Delhi High Court in the case of CIT v. Anil Minda reported in 328 ITR 320 to support his contention that the period of limitation of two years was from the date when last Panchnama was drawn in respect of any warrant of authorization, if more than one warrants of authorization existed. It was the submission that in regard to the decision of the Hon'ble Bombay High Court in the case of Mrs. Sandhya P. Naik, referred to supra, the decision had no applicability insofar as the decision was on account of the fact that the Officer who conducted the search was not one of the authorized Officers mentioned in the search warrant. It was the further submission that the other decisions had no applicability insofar as the last Panchnama in those cases had been treated as invalid as there was no seizure on the day when the last Panchnama was drawn. It was the submission that in the present case there was practical difficulty in seizing the documents insofar as the volume of documents was substantial. He placed before us a copy of the letter dated 07-01-2011 filed by the Officer, who had conducted the search on the assessee's premises on 8.12.1999 addressed to the Sr. Departmental Representative of the Income Tax Appellate Tribunal which is extracted below :
21
I.T.A. No.182/Mds/2004 & CO No. 336/Mds/2005 "GOVERNMENT OF INDIA OFFICE OF THE ADDITIONAL COMMISSIONER OF INCOME-TAX TDS RANGE - I, 7TH FLOOR, NEW BLOCK 121 M. G. ROAD, CHENNAI - 600 034 TDS Rg-I/2010-11 Dated: 07-01-2011 To The Sr. Departmental Representative 0/0 CIT(DR) Income Tax Appellate Tribunal ITA, 'B' Block, 'D' Wing, Rajaji Bhawan Besant Nagar Chennai-90.
Sir, Sub: Search Operation u/s 132 in the case of Mis. Sterlite Industries (India) Ltd.- Comments on Point No.2 -
Regarding.
Ref: Letter in IT(SS) A.No.182/CHNY /04 dated 03-12-2000 received from % the Sr. D.R. ITAT, Chennai.
-oOo-
Kind attention is invited to your letter dated 03-12-2010, wherein, queries have been raised about the completion of search in the case of Mis. Sterlite Industries.
At the outset, I must mention that my involvement with the conduct of the search was limited to the fact, that I was one of the Authorised Officers only. 22
I.T.A. No.182/Mds/2004 & CO No. 336/Mds/2005 The initiation of the search and the conclusion of the search was not my responsibility. The search on Mis. Sterlite Industries was organized by Shri Rajiv Agarwal, DDIT (Inv.,), VIII(4) of Mumbai. It was under the Bombay Unit's guidance everything was organized. Shri Rajiv Agarwal had contacted me over phone in early December and had requested me to organize a team consisting of 4 Authorised Officers and about 30 personnel, in order to cover large premises. He had not even mentioned the location. Accordingly, the then Addl. Director (Inv.,) Madurai, Shri A. Suryanaryanan directed Shri Arun C. Bharath, DDIT, Trichy to join me at Tirunelveli along with his staff. Two ITOs namely Shri Krishnakumar and Seshan from Tirunelveli and Madurai respectively were also deputed as part of the team of Authorised Officers.
Early morning of 8th December, 1999, a fax was received from Mumbai. As per the directions therein, the team proceeded to Tuticorin for Action u/s 133A. The faxed brief contained clear lines of enquiry. The allegation was that capital expenses in the construction of the factory/project had been greatly inflated. Hence, they had asked us to physically verify the plant and identify material that could establish inflation of purchase of capital goods. Besides, the general points mentioned above, the team at copper smelter plant was asked to find out the following:
a) Obtain the details of capital expenses on this project. The total expenses are about Rs.1200 crores. The findings may be communicated to the control room at Mumbai. This list may be scrutinized specially for any material received from Khapoli (near Mumbai) or Mumbai.23
I.T.A. No.182/Mds/2004 & CO No. 336/Mds/2005
b) Take in possession primary documents relating to receipt of material at the gate. Such documents may be obtained right from the time when the erection of plant was started.
c) Statement of technical person in charge for erection of plant may be recorded regarding the total expenses incurred. He may also be asked about quantity of steel plates used for the erection of plant.
d)Copies of civil and mechanical plan of the plant may be obtained.
e)In case of list of requirements of materials prepared at the planning stage can be found, a copy may be obtained.
f) A copy of the fixed asset register may be obtained if the same is found at the premises.
g) Detailed inventory of all the capital equipment installed may also be taken.
f) The technical person may be asked about the percentage of recovery from copper concentrate.
While proceeding on these lines and when computers were examined, it was found that certain bills which had appeared in the computer system had not been entered in the gate registers. In short, there was a discrepancy in the material that had been physically received in the site as per the gate register and the material shown as purchase for construction of the plant, especially, 24 I.T.A. No.182/Mds/2004 & CO No. 336/Mds/2005 purchase of steel flats. This fact was put across to Shri V. Ramanathan, GM (Finance & Accounts) who admitted prima facie that purchase of steel flats had been inflated and bogus purchase orders were also present. Statements were also recorded from Shri K. Ranganathan, General Manager, Shri C.V. Krishnan, CEO & President of Sterlite Copper, Shri J.R. Venkat Rana, Vice President, Smelter.
From the statement recorded and material unearthed, it was clear that there was large scale tax evasion and the materials found were voluminous. This was communicated to the organizing DDIT, who then suggested that the same should be converted into a search. Accordingly, warrant of authorization was obtained from Jt. CIT, Tirunelveli, Shri E. Manikandan Nair and the search was conducted.
The search proceedings continued unbroken for nearly 48 hours and were temporarily concluded in the late hours of 09-12-1999. The search had to be temporarily concluded because the factory was several acres large (more than 100 acres). Their main record room had to be searched completely for bringing out all the gate pass registers for the relevant period and the bogus vouchers. The size of the record room itself was about 30,000 Sq.ft. Additional documents were stored in containers out side the record room. List of tentative bogus vouchers had been identified by generating a list of vouchers without gate pass numbers (material inwards receipt numbers) from the company's computer system. This tentative list contained several 100s of vouchers. Each of the vouchers was kept in bound volume, which was first to be located in the record room and wherever possible individual vouchers were seized, after separation from the fold. In several cases, the entire bound volumes had to be seized, as 25 I.T.A. No.182/Mds/2004 & CO No. 336/Mds/2005 the vouchers could not be extracted individually. The task of identifying these vouchers alone consumed nearly 24 hours starting from about 8.00PM on 08-12- 1999 and upto 8.30PM of 09-12-1999. After securing these vouchers and gate passes and gate pass registers the search was temporarily concluded. The record room was sealed as it had to be thoroughly searched. The search of the containers had also been completed by this time.
The search could not be finally concluded because the entire record room had to be searched for more such vouchers or any other incriminating materials. As a matter of fact, during the course of search proceedings, it was also found that the assessee had claimed bogus transport expenses on these non-existent purchases. These vouchers also had to be located for further proof of assessee's tax evasion. Tentative list of inflated purchases and list of alleged transports were faxed during the course of search to the organizing DDIT's control room and they were constantly briefed. At this juncture only, the JNE unit was deployed as others left the search by 8th evening. Only 3 it is, 2 clerical staff and I were involved in the continuing of the search. As the search had continued for 2 days, it was imperative to temporarily conclude the search. The materials unearthed also required enquirIes to be conducted, about the movement of transport vehicles arriving at Tuticorin and in the State of Tamj] Nadu.
On temporary conclusion, I returned to my Head Quarters in Tirunelveli at about 11.00 clock and placed the materials in a small safe room at Tirunelveli. On 10th morning itself, with hardly few hours of sleep, I had to rush to the wind farm location, at Khayathar, near Tirunelveli, for verification of the installation of around 21 wind energy generators each costing about Rs.2 crores. Enquiries 26 I.T.A. No.182/Mds/2004 & CO No. 336/Mds/2005 had to be conducted at the site, at the electricity distribution office at Khaitar, at the . Wind energy cell at Tirunelveli and Electricity Board Office at Tuticorin. A report on this had to be sent urgently as this also involved a search of particular group at Kolkotta which had revenue implication of Rs.37 crores.
I am also enclosing photocopies of my T A bills for the period, which clearly detail my availability in the headquarters. I would like to submit that during that period I was deployed in the searches in the State of Kerala, Tirunelveli, Tamilnadu and in Chennai also. I have also conducted 2 searches in Surandai Village on 18-02-2000 and 2 searches in Ambasamudaram during the same period. As a matter of fact, my presence in headquarters at Tirunelveli was minimal with additional work load regarding enquiries and reports to be sent. My searches at Ambasamudaram and Surandai village was time bound. Any delay in mounting these searches would also have occasioned in loss of incriminating materials. Hence, it was imperative that the searches were conducted and could not be postponed.
Finally, it must be stated that the DDIT concerned had promised to come and conclude the search himself. However, because of his tight schedule and enquiry wok at Mumbai, he probably could not find time and he deputed one ITO and ITI from Mumbai who arrived on 01-03-2000. On their arrival our team had gone to the premises of the Sterlite factory and concluded the search on 02-03- 2000. In between this time also, we examined the record room, where fresh seals were placed in GM (F&A) room, where certain material and loose sheets were kept and on the arrival of team from Mumbai the search was finally concluded. The materials kept in nearly 12 iron boxes were handed over to them 27 I.T.A. No.182/Mds/2004 & CO No. 336/Mds/2005 on 03-03-2000 and a copy of the handing over note is enclosed for your ready reference. If my memory serves me correct the seized material weighed more than 400 to 500 Kilograms and all the original documents including the warrant in original, 12anchanamas, copies of papers were handed over the Income Tax Officer attached to the organizing unit on 03-03-2010.
I, therefore, submit that there has been no unreasonable delay in search proceedings in the instant case. The volume of the material was such that search had to take place on various dates. My other official duties, most of which were also of urgent nature kept me away from headquarters for a long period, required the temporary conclusion of the search. I was not available in headquarters for a long period. Moreover, the period spent on travel for pre- search work like conducting of discrete enquiries, reconnaissance are not reflected in the bill.
During the year, I had concluded 14 searches and organised a further 12 consequential searches. These searches involved enquiry and other work in a time bound manner, which also required time during this period.
As Deputy Director of Income-tax, during this period several confidential and discreet enquiries were also made. As mentioned earlier these are not reflected in the Travelling Allowance bills.
Hence, I submit that there was no delay.
Yours faithfully, Sd/-
(P. SELVAGANESH) ADDL. COMMISSIONER OF INCOME TAX TDS RANGE I, CHENNAI-34 "
28
I.T.A. No.182/Mds/2004 & CO No. 336/Mds/2005 Copy submitted to the CIT (TDS), Chennai for information.
Copy to :
1. The Commissioner of Income-tax, Chennai-III, Chennai.
2. The Director of Income-tax (Investigation), Madurai.
3. The Assistant Commissioner of Income-tax, Company Circle-VI(4), Chennai."
14. It was the submission by the learned DR that the last Panchnama having been drawn on 2-3-2000 and seizure having been done vide this Panchnama, the assessment order passed on 28.03.2002 was liable to be held to be in time and not barred by limitation. In regard to the submission on behalf of the assessee that the assessments had not been done year-wise for the purpose of computation the aggregate of the undisclosed income for the block period, it was submitted that this led only to an irregularity or error in the order which cannot make the assessment order null and void. It was the submission that he had no objection if the issue in the assessment order was restored to the file of the Assessing Officer to re-compute the undisclosed income year-wise and to aggregate the same in line with the provisions of section 158BB(1) of the Act. For this proposition the learned DR relied upon the decision of the Hon'ble Supreme Court in the case of Deepak Agro Foods v. State of Rajasthan & Ors 29 I.T.A. No.182/Mds/2004 & CO No. 336/Mds/2005 reported in 2008-TIOL-134-Hon'ble SC-CT. He vehemently supported the orders of the Assessing Officer and the learned CIT(A) on the issue of jurisdiction.
15. In reply, the learned senior counsel vehemently objected to the letter filed by the learned DR being the letter of the Officer who had conducted the search on 8-12-1999 explaining his reasons for the imposition of the Prohibitory Order. It was thus the submission that no decision contrary to the decision of the Hon'ble Delhi High Court in the case of B.K. Nowlakha And Others, referred to supra, was available and as the PO had been issued on the same subject matter it is only for the purpose of extending the limitation which should not be permitted. It was the submission that no practical difficulty in seizing the documents was shown and consequently the Prohibitory Order issued was invalid and the subsequent Panchanamas drawn on 21.1.2000 and 2.3.2000 were liable to be discarded and the search should be deemed to have completed on 8-12- 1999 itself.
16. In reply, the learned DR submitted that the letter is on the basis of the records available and no fresh facts were being brought out. He also filed his written submissions extracted herein below :
30
I.T.A. No.182/Mds/2004 & CO No. 336/Mds/2005 31 I.T.A. No.182/Mds/2004 & CO No. 336/Mds/2005 32 I.T.A. No.182/Mds/2004 & CO No. 336/Mds/2005 33 I.T.A. No.182/Mds/2004 & CO No. 336/Mds/2005 34 I.T.A. No.182/Mds/2004 & CO No. 336/Mds/2005 35 I.T.A. No.182/Mds/2004 & CO No. 336/Mds/2005 36 I.T.A. No.182/Mds/2004 & CO No. 336/Mds/2005 37 I.T.A. No.182/Mds/2004 & CO No. 336/Mds/2005 38 I.T.A. No.182/Mds/2004 & CO No. 336/Mds/2005 39 I.T.A. No.182/Mds/2004 & CO No. 336/Mds/2005 40 I.T.A. No.182/Mds/2004 & CO No. 336/Mds/2005
17. We have considered the rival submissions. At the outset we have to decide on the admissibility of the letter filed by the learned DR of the Officer, Shri P. Selvaganesh, Additional Commissioner of Income-tax, TDS Range-I, Chennai, who was one of the authorized Officers at the time of search of the present assessee. A perusal of the letter clearly shows that all that the Officer has done was to bring on record what was done in the course of the search and why the Prohibitory Order had been placed. This letter dated 07-01-2011 can in no way be considered as an additional evidence and would have to be considered as a statement given by a responsible officer of the Department who was involved in the course of search. Consequently, the same is taken on record and the objection taken by the learned senior counsel in regard to this letter stands rejected.
18. The facts in the present case clearly show the following:
a) A search was conducted on the premises of the assessee on 8-12-
1999 at 8.30 a.m at Mumbai on the basis of a warrant of authorization dt. 02-12- 1999 issued u/s 132 of the Act by the Director of Income-tax (Investigation), Mumbai.
b) The search was temporarily concluded at 11.30 p.m. on 8-12-1999 as per para 8 of the Panchnama dated 8-12-1999.
c) As per the said para 8 seals were placed on the cabin of Shri Anil & Shri Navin Agarwal, cabin of Shri Tarun Jain and the computer server room. 41
I.T.A. No.182/Mds/2004 & CO No. 336/Mds/2005
d) It is noticed that this Panchnama is in relation to the office premises of the assessee at C.S.M. Road, Apollo, Bunder, Mumbai-39. The search is found to have been finally concluded on 22-02-2000 at 2 p.m. in Mumbai, i.e. the warrant dated 02-12-1999 is said to have been executed on 22- 02-2000 at 2 p.m.
e) A search is noticed to have been conducted on the factory and office premises of the assessee at SIPCOT Industrial Complex, Madurai Bypass Road, Tuticorin on 08-12-1999 on the basis of a warrant of authorization issued by the Joint Commissioner of Income Tax, Tirunelveli. This search is said to have been temporarily concluded on 09-12-1999 at around 7 p.m.
f) It is further noticed that a Prohibitory Order u/s 132(3) has been issued on 9-12-1999 at 7 p.m. by the Dy. Director of Income-tax (Inv.), Tirunelvali on the documents in the record room and the almirah in the room of General Manager (F & A) and 4 seals were placed on the record room's door.
g) It is noticed that the Prohibitory Order has been issued on the powers vested in the Dy. Director of Income-tax (Inv.) under the warrant of authorization dated 8-12-1999 issued by the Joint Commissioner of Income Tax, Tirunelveli.
h) Subsequently, on 21.1.2000 the Dy. Director of Income-tax (Inv.), Tirunelveli re-entered the premises of the assessee at Tuticorin at 10 a.m. and continued the search till 7 p.m. on 21.1.2000. This is also on the basis of a warrant of authorization dated 8-12-1999.
42
I.T.A. No.182/Mds/2004 & CO No. 336/Mds/2005
i) On 21.1.2000 at 7 p.m. certain documents were seized and further Prohibitory Order on the same almirah in the room of General Manager (F& A) and the record room was placed.
j) Nothing fresh was found in the course of the search on 21.1.2000 as is evident from para 5(b) of the Panchnama.
k) Subsequently, on 2.3.2000 the authorized Officer again re-entered the premises of the assessee at Tuticorin at 2 p.m. and the Panchnama recorded the search to have been finally concluded at 8 p.m. Nothing was found again as per the said Panchnama. However, seizures have been done.
19. Thus what is noticed here is that there are two warrants of authorization. One dated 2-12-1999 duly signed and sealed by the Dy. Director of Income-tax (Investigation), Mumbai and another duly signed and sealed by the Joint Commissioner of Income Tax, Tirunelveli dated 8-12-1999. It is evident that these are two different searches as two different warrant of authorization have been issued by two different Officers for searching two different premises. A perusal of the letter of the authorized Officer who conducted the search i.e. dated 07-01-2011 clearly showed that in the early morning of 8-12-1999 FAX was received from Mumbai and as per the direction therein the team proceeded to Tuticorin for action under section 133A of the Act. The FAX is clear and contained clear lines of enquiry. The area of enquiry has clearly been brought out. It is noticed that the statements recorded from Shri V. Ramanathan, General Manager (F&A) on 08-12-1999 is a statement recorded u/s 131 of the 43 I.T.A. No.182/Mds/2004 & CO No. 336/Mds/2005 Act. The statement recorded from Shri C.V. Krishnan on 08-12-1999 is u/s 133A of the Act and the statement recorded from Shri K. Ranganathan, General Manager (Commercial) is u/s 133A of the Act. Thus it is noticed that the statement recorded from the three employees at Tuticorin is in the course of a survey u/s 133A and not as a consequence of the search u/s 132 as is evident from the statements recorded. As per the said letter dated 07-01-2011 when it was noticed that there was large scale tax evasion and the materials found were voluminous it was communicated to the organizing Dy. Director of Income-tax (Inv.) at Mumbai who then suggested that the same should be converted into a search and accordingly the warrant of authorization was obtained from the Joint Commissioner of Income Tax, Tirunelveli and the survey was converted into a search. Thus what becomes clear is that a search was conducted on 8.12.1999 in the offices of the assessee at Mumbai. A survey was conducted on the factory premises at Tuticorin on 8.12.1999 and after it was noticed that there was large scale tax evasion and voluminous materials were found the survey was converted into a search. In the passing we may mention here that if anything has been found in the course of survey, then such evidences and materials found in the course of survey, loses its character of undisclosed documents for the purpose of the search. This view of ours finds support from the decision of the Hon'ble jurisdictional High Court in the case of CIT v. G.K. Senniappan reported in 284 ITR 220. There is a difference between the proceedings u/s 132A and Section 133A. One is a requisition and the other is a survey. Section 132 is a 44 I.T.A. No.182/Mds/2004 & CO No. 336/Mds/2005 search. As per the letter dated 07-01-2011, a list of tentative bogus vouchers had been identified by generating a list of vouchers without gate pass numbers from the company's computer system and the vouchers had been located in the record room and had also been seized and after securing the vouchers and the gate pass register, statements were recorded on such evidences found in the course of survey u/s 133A. The letter dated 07-01-2011 of the Officer also clearly shows that all the necessary documents had been found.
20. The said letter dated 07-01-2011 also clearly shows that when it was found that there was large scale tax evasion and materials were voluminous and the same was connected to the organizing Dy. Director of Income-tax (Inv.), it was suggested that the survey should be converted into a search and according the warrant of authorization was obtained from the Joint Commissioner of Income Tax, Tirunelveli. This resulted in the Panchnama being issued on 08-12- 1999 by the Joint Commissioner of Income Tax, Tirunelveli. Here we may specifically mention that we are unable to comprehend how a search team left for Tuticorin on the early morning of 08-12-1999, recorded statements, verified documents and vouchers, contacted the Dy. Director of Income-tax, Mumbai, obtained a warrant of authorization from Joint Commissioner of Income Tax, Tirunelveli and was able to initiate a search proceedings at Tuticorin on the same premises at 8.45 a.m. Be that as it may, the Officer says that the search could not be finally conclude because the entire record room had to be searched for more such vouchers or any other incriminating material which however is not 45 I.T.A. No.182/Mds/2004 & CO No. 336/Mds/2005 supported by the Panchnama dated 21.1.2000 or dated 2.3.2000 as the Panchnama dated 21.1.2000 and 2.3.2000 do not talk of anything having been found but not seized. Thus the only conclusion that comes out of this letter when read along with the statements recorded and the Panchnama is that what was required to be found was found and seized or kept under the Prohibitory Order on 9.12.1999. A perusal of the letter dated 07-01-2011 also clearly shows that by 8th evening out of the group of 4 authorised Officers and 30 personnel who had gone to the factory premises of the assessee on 8.12.1999 only 3 remained, being 2 clerical staff and the Officer who has written the letter. This also clearly shows that by 8th evening all that was required to be tracked down had been tracked down as no responsible Officer would leave or be permitted to leave the premises of search until and unless everything that was required to be searched and found had been searched and found.
21. We may also mention here that the statements under sections 131 and 133A have been recorded by one Shri Arun C. Bharath, the Dy. Director of Income-tax (Inv.), Unit-I, Trichy. As per the letter dated 07-01-2011 this Officer had also left the premises on 8th evening. The letter dated 07-01-2011 interestingly also does not talk of what had happened in the course of the continuation of the search on 21-01-2000. There is only a passing reference in regard to the action which was done on 21.1.2000. A further reading of the letter dated 07-01-2011, extracted above, clearly shows that an ITO and an ITI from Mumbai had arrived on 01-03-2000 and on their arrival the team went to 46 I.T.A. No.182/Mds/2004 & CO No. 336/Mds/2005 the factory premises on 02-03-2000 and the material kept in nearly 12 iron boxes were handed over to them on 03-03-2000. Thus the letter dated 07-01- 2011 itself clearly shows that all that was required to be found and seized had been found and either seized or kept under the Prohibitory Orders on 09-12- 1999 itself. Here it is specifically noticed that if an ITO and an ITI could take away nearly 12 iron boxes containing the seized documents, how it was impractical for seizing the said nearly 12 iron boxes and taking them away on 09- 12-1999 itself when everything that was required to be found had already been found in the course of survey but was seized in the course of search. Thus once it is found that the documents had been found and seized on 09-12-1999 itself and on 02-03-2000 materials were only taken away from the premises on which Prohibitory Orders had been placed, the Prohibitory Orders which were placed on 09-12-1999 were for keeping under restraint documents which were practicable of seizure and consequently the Prohibitory Order passed on 09-12-1999 and the limitation for passing the assessment order as per the provisions of section 158BE expired on 31.12.2001. Here we may also mention, in passing, that a perusal of the assessment order does not show of any of the documents having been considered in regard to the search conducted on the assessee's factory premises.
22. Another issue which comes up to the forefront is that there are two warrants of authorization - one which was issued on 02-12-1999 which resulted in a search at Mumbai on 08-12-1999 and which has been marked as temporarily 47 I.T.A. No.182/Mds/2004 & CO No. 336/Mds/2005 concluded on 08-12-1999 at 11.30 p.m. Another on the basis of a warrant of authorisation dated 08-12-1999 issued by the Joint Commissioner of Income Tax, Tirunelveli. The warrant of authorization dated 08-12-1999 issued by the Joint Commissioner of Income Tax, Tirunelveli resulted in the conversion of a survey into a search at the factory premises of the assessee dated 08-12-1999. Thus, these are two separate search proceedings. Only one assessment order has been passed. If the assessment order passed on 28-03-2002 is treated as a consequence of the search conducted on the assessee on 08-12-1999 as a consequence of the warrant of authorization issued by the Joint Commissioner of Income Tax, Tirunelveli, then as we have held before, the assessment order ought to have been passed by 31-12-2001 and the assessment order barred by limitation. If the assessment order is deemed to have been passed as a consequence of the warrant of authorization issued by the Dy. Director of Income-tax (Inv.), Mumbai on 02-12-1999, which resulted into a search at the Mumbai premises of the assessee on 08-12-1999, as it is noticed that the Prohibitory Orders have been placed on the cabin of Shri Anil Agarwal and Navin Agarwal and in the cabin of Shri Tarun Jain and the computer server room and as it is noticed that there is no impracticability in regard to the seizure which has resulted in the issuance of a Prohibitory Order u/s 132(3) of the Act, the search would have to be deemed to have been completed on 08-12-1999 in which case also the limitation for completing the assessment is on 31.12.2001 and consequently the assessment order passed on 28.03.2002 is barred by limitation. 48
I.T.A. No.182/Mds/2004 & CO No. 336/Mds/2005
23. The argument of the learned DR that the search conducted at Tuticorin is a consequential search does not change the fact that there are two searches. As per the provisions of section 132(1) of the Act, the search is targeted on a premises. The assessee might be the same. If there are two warrants of authorization, then there must be two assessment orders under Chapter XIV-B. This is because as per the Explanation to section 158BE, the execution of warrant of authorization is as recorded in the last of the Panchnamas. The search in the case of the assessee in Mumbai as a result of the Panchnama issued by the Dy. Director of Income-tax (Inv.), Mumbai on 02-12-1999 as per the Panchanama recorded in regard to the said warrant of auhorisation is shown to have been finally concluded uon 22-02-2000. If this is so, any assessment on the basis of the warrant dated 02-12-1999 would get barred by limitation on 28- 02-2002. This is if we take all the Panchnamas as valid in relation to Mumbai search. If this is so, the assessment order dated 28-03-2002 cannot have any addition in relation to the search conducted on the basis of the warrant of authorization dated 02-12-1999. Then all that is left is the search conducted on the assessee on the basis of the warrant of authorization issued by the Joint Commissioner of Income Tax, Tirunelveli on 08-12-1999. This warrant we have already explained as already been executed on 09-12-1999 itself as we have held that the Prohibitory Order issued on 09-12-1999 is invalid. Consequently, the Panchnama drawn on 21-01-2000 and 02-03-2000 become invalid. 49
I.T.A. No.182/Mds/2004 & CO No. 336/Mds/2005
24. Though we have found that there are two warrants of authorization and consequently there should be two assessments, we are of the view that this is only a technical hitch which could be rectified insofar as the issues could be sent back to the Assessing Officer for passing two separate assessment orders. However, we are not doing so in the present case as the limitation for passing the assessment orders itself expired on 31-12-2001 and after 11 years sending it back would in no way help insofar as the limitation would continue to operate against the assessment order that could be passed afresh.
25. The argument of the learned DR that the Tribunal cannot go into the validity or otherwise of the administrative decision conducting the survey and seizure relied upon in the case of Paras Rice Mills, referred to supra, would not apply to the present case insofar as it is not the validity or the administrative decision for conducting the search and seizure that has been decided by the Tribunal. It is the point of start of limitation for the purpose of completing the assessment that has been decided in the present case. Further, our view in regard to the practicability of seizure when applying the provisions of section 132(3) is supported by the decision of the Hon'ble Delhi High Court in the case of B.K. Nowlakha And Others, referred to supra, as also the decision of the Hon'ble jurisdictional High Court in the case of Rakesh Sarin, referred to supra. The decision of the Hon'ble Kerala High Court in the case of Dr. C. Balakrishnan Nair And Another, referred to supra, is clearly distinguishable on the facts of the present case insofar as in the case of Dr. C. Balakrishnan Nair the Prohibitory 50 I.T.A. No.182/Mds/2004 & CO No. 336/Mds/2005 Order was only for a period of about 13 days and the Hon'ble High Court had therein clearly given a finding that the delay of 14 days had been explained by the Revenue whereas in the present case the delay is from 09-12-1999 to 02-03- 2000 which is more than 80 days and whereas the Prohibitory Order itself has a life of 60 days which also clearly shows that the action conducted on 21-01-2000 was only to get over the expiry of the Prohibitory Order which had been issued on 09-12-1999 which itself we have held to be illegal. In any case, the decision of the Hon'ble Kerala High Court would not apply in view of the specific decision of the Hon'ble jurisdictional High Court in the case of Rakesh Sarin, referred to supra. Our view also finds support of the decision of the Bombay High Court in the case of Mrs. Sandhya P. Naik, referred to supra, wherein the Hon'ble High Court had categorically held that action u/s 132(3) can be resorted to only if there is any practical difficulty in seizing the item which is required to be seized. In the present case, it has been categorically found that there was no practical difficulty in seizing the items which are liable to be seized and which themselves had been specifically identified when the Prohibitory Order was imposed on 09- 12-1999.
26. Coming to the submission of the learned senior counsel that the assessment has not been completed on the basis of the provisions of section 158BB(1) insofar as year-wise computation of undisclosed income has not been done for the purpose of aggregation of the undisclosed income, we are of the view that it is only an irregularity in regard to the computation of the undisclosed 51 I.T.A. No.182/Mds/2004 & CO No. 336/Mds/2005 income which is curable in view of the decision of the Hon'ble Supreme Court in the case of M/s. Deepak Agro Foods, referred to supra. In the circumstances, the grounds No. I (1 & 2) and II (1 & 2) stand allowed and ground No. III (1 &
2) stands dismissed.
27. In the circumstances, the cross objection filed by the assessee on the technical grounds stands allowed insofar as (i) what has been found in the course of survey cannot be included in the block assessment and (ii) the assessment order dated 28-03-2002 is barred by limitation. As we have quashed the assessment order as barred by limitation, we are not going into the merits of each of the additions. As we have quashed the assessment as barred by limitation, the appeal filed by the Revenue in respect of the additions which have been deleted by the learned CIT(A) is not being disposed of on merits and the appeal is dismissed.
28. In the result, the appeal filed by the Revenue is dismissed and the cross objection filed by the assessee is allowed.
29. The order was pronounced in the court on 08/07/2011.
Sd/- Sd/-
(Abraham P. George) (George Mathan)
Accountant Member Judicial Member
Chennai,
Dated the 08th July, 2011.
H.
Copy to: Assessee/AO/CIT (A)/CIT/D.R./Guard file