Income Tax Appellate Tribunal - Amritsar
Rana Sher Singh vs Income-Tax Officer on 15 July, 1993
Equivalent citations: [1993]46ITD95(ASR)
ORDER
--Assessment without considering order under s. 132(5) Ratio & Held:
The directions given by the Commissioner were not to pass an order in conformity with the order passed under sub-section (5) of sectoin 132. He directed that the material collected in search and referred to in order under sub-section (5) of section 132 was required to be considered and that not having been done earlier, the exercise should now be performed. Admissibility of evidence lies in relevancy of evidence and not in the manner in which it is collected. Even if material is collected in a manner not permitted by law, but is relevant for determining the issue involved, it has to be used notwithstanding the tainted collection. There is not even a whisper that material collected and referred to in order under s. 132(5) is not relevant. The Commissioner in the impugned order has specifically directed that fresh assessment should be made by the Income Tax Officer after including only such amount as remains unexplained after considering the explanation tendered by the assessee with regard to the sources of amounts. There is no error in the approach of the Commissioner.
Application:
Also to current assessment years.
Income Tax Act 1961 s.263 ORDER U.S. Dhusia, Judicial Member
1. The assessee has filed an appeal against the order of the Commissioner of Income-tax passed under Section 263, setting aside the assessment for the assessment year 1977-78.
2. According to the Commissioner, the Income-tax Officer had made an erroneous order which was prejudicial to the Revenue and, therefore, he caused the order to be set aside with a direction that the assessment should be remade after looking into the order passed under Section 132(5) made on August 14, 1976.
3. On May 18, 1976, the premises of the assessee, who was a minor then, were searched by the income-tax personnel under Section 132(5) and cash of Rs. 12,000 was found for which the assessee could not, according to the Income-tax Officer, explain the source. Similarly, a chit was found in the box containing jewellery. On the chit, it was mentioned that cash of Rs. 17,000 was missing. Jewellery was also found valued at Rs. 33,341. In respect of the chit and the jewellery also, the Income-tax Officer found that the assessee had no valid explanation. Therefore, he caused them to be assessed under Section 132(5) by an order passed on August 14, 1976. The Income-tax Officer, subsequently, on the basis of the return filed by the assessee, on July 1, 1977, proceeded to make the assessment. He completed the assessment on a total income of Rs. 14,974 on February 20, 1980. According to the Commissioner of Income-tax, the Income-tax Officer, in making the assessment, did not consider the order passed under Section 132(5) and, therefore, did not consider the addition made amounting to Rs. 62,341, representing value of cash, value of jewellery and the amount mentioned in the chit, for which the Income-tax Officer had held that the assessee had no valid source to explain. It is on the basis of this order that the Commissioner of Income-tax reached a finding that the assessment order made subsequently by the Income-tax Officer, on February 18, 1980, was erroneous and was prejudicial to the interests of the Revenue.
4. It has been represented that similar orders were passed by the Commissioner of Income-tax in the case of Central Dry Cleaners, Amritsar (Income-tax Application No. 133 of 1982) and Shri Inderjit Singh, c/o Messrs. Central Dry Cleaners, Amritsar (Income-tax Application No. 135 of 1982). Although we have upheld the order of the Commissioner of Income-tax passed in those cases under Section 263, because the Income-tax Officer had ignored to consider the assessment under Section 132(5), we are unable, precisely for that reason, to find that the order of the Commissioner of Income-tax passed in the case of Rana Sher Singh can be upheld. In our view, it was not noticed by the Commissioner of Income-tax that the assessment order passed in the case of Shri Rana Sher Singh under Section 132(5) was patently bad in law and of no legal effect. We would refer to a part of paragraph 4 from the same order and reproduce an extract below:
"The assessee, Shri Inderjit Singh, as guardian of Shri Rana Sher Singh and Gurraj Singh, minor sons of late Shri Pardhan Singh, 4, Krishna Nagar, Lawrence Road, Amritsar, furnished reply to notice under Rule 112A(1), on July 27, 1976, signed by Shri Inderjit Singh. At the time of reply to the notice under Rule 112A(1), Shri Inderjit Singh contended that he has been made a guardian of the minor children and mentioned that there was no legal authority to appoint him as a guardian but on account of humanitarian grounds, he has tried to reply some of the points mentioned in the notice, which were known to him or which could be gathered from the books of account of the firm. Before dealing with other entries of the case, I would like to point out that, in this letter, wherein Shri Inderjit Singh has mentioned that there was no legal authority to appoint him as a guardian, but, on the other hand, signed this very letter as guardian. ..."
5. It will be seen that the assessee was a minor at that time. Since his father, Shri Pradhan Singh, had expired, according to the personal law he followed, his mother, Smt. Preetam Kaur, was the natural guardian, but she too had died on March 13, 1976. Therefore, when the search took place, the assessee (minor) had no guardian left. But Inderjit Singh could not claim to be a guardian of the minor. It was for this reason that he claimed that he was not a guardian, but the Assessing Officer appointed him a guardian. We are taken by surprise that the Income-tax Officer had assumed an authority which we are not aware of in any such provision contained in the Income-tax Act, 1961, which permits him to assume that authority. As we know, it is only a civil court of competent jurisdiction which acts as the guardian or can, at request made to its appoint a guardian. We have looked into the provisions of Hindu Law in Mulla's famous book (1982) Edition in paragraph 538. A perusal of this paragraph does not leave any doubt in our mind that the Income-tax Officer had acted in an illegal and arbitrary manner disregarding the facts altogether. Inderjit Singh stayed at 5, Krishna Nagar, while the minor resided at 4, Krishna Nagar. It can be anybody's guess that he was not a member of the family of the minor, who was residing at 4, Krishna Nagar. In that paragraph, reference is made to a sale by a guardian-ad hoc, i.e., by a separated uncle, who had never intermeddled nor acted as a guardian. The sale was held to be void. Therefore, we cannot find any support in law for the act of the Income-tax Officer in appointing Inderjit Singh as a guardian on his own authority. It was for a situation like this where a guardian is not available, that the Income-tax Act, 1961, provides for direct assessment of a minor and also for direct recovery of the tax dues from him. We are unable to guess the reasons for which the Income-tax Officer did not adopt this procedure and assessed the minor directly to obtain his explanation and say in the matter and felt the need for appointing a guardian by his sweet and arbitrary will. In our view, the order passed under Section 132(5) is a bad order in the eye of law because this order was made without providing the assessee an opportunity of making his reply. Such an order, apart from being bad in the eye of law, is void for violating the principles of natural justice. The Commissioner of Income-tax in relying on such an order, has, in our view, completely misdirected himself and passed an order which cannot be supported in law. For this reason, we cancel his order and restore the assessment made by the Income-tax Officer.
6. The appeal is allowed.
P.K. Mehta, Accountant Member
7. I am not able to share the conclusion of my colleague to allow this appeal (as it should be instead of dismissing) on the ground that the order passed under Section 132(5) of the Income-tax Act, 1961, is bad in the eye of law and also void for violating the principles of natural justice. The point about the order under Section 132(5) in this form was not raised by the assessee nor replied to by the Revenue. My colleague was firmly of the view that the appeal need not be refixed for providing a hearing to the parties and the Tribunal could deal with the issue in this fashion. I still feel that it would have been better to refix the matter and hear the parties.
8. Be that as it may, I will express my opinion on the issue as best as I understand it. I will quote the relevant paragraph 7 of the order of the Commissioner of Income-tax under Section 263 of the Act :
"7. In view of the foregoing, I hold that in making the order of regular assessment under Section 143(3) dated February 20, 1980, for the assessment year 1977-78, the Income-tax Officer omitted to take into consideration the concealed income of Rs. 62,341 computed by the Income-tax Officer, District III(ii), Amritsar, in his order under Section 132(5).
Therefore, the aforesaid order under Section 143(3), dated February 20, 1980, for the assessment year 1977-78 is erroneous and prejudicial to the interests of the Revenue in so far as the Income-tax Officer has failed to consider the said concealed income of Rs. 62,341. Therefore, pursuant to and in accordance with the provisions of Section 263 of the Income-tax Act, 1961, I set aside the aforesaid order of assessment dated February 20, 1980, and direct the Income-tax Officer to make a fresh order of assessment according to law, by including in the computation of total income the whole or part of the abovesaid concealed income of Rs. 62,341 as may be found liable for inclusion in the assessee's total income on consideration, enquiry and appraisal of the relevant facts and material."
9. In my view, there is no inter-connection between the illegality of the order under Section 132(5) of the Act and the legality of the order of the Commissioner of Income-tax under Section 263. It is not a situation where an addition made in a quantum assessment becomes relevant for the levy of penalty and thereby the legality of an assessment in quantum will affect the legality of the penalty imposed. The order of the Commissioner of Income-tax was purporting to refer to the omission of the Income-tax Officer at the assessment stage to note the material which had come to light as a result of search and its subsequent processing under Section 132(5) of the Act and the quantum of unexplained income considered therein. The more important fact in these circumstances is what the search uncovered and that information was to be Considered by the Income-tax Officer while framing the assessment for the accounting year in which the search took place. The material brought to surface will be relevant for determining the assessee's income liable to tax for the concerned assessment year. Looking into the order under Section 132(5) could shorten the labour of the Income-tax Officer in the event the assessee could successfully explain a part of the material seized. It is not that the assessment cannot be framed without depending or relying upon the order under Section 132(5). The illegality of such an order, as assumed by the Judicial Member, in my opinion, will not invalidate the order of the Commissioner of Income-tax under Section 263. That being so, I cannot endorse the view that the situation in this case is different from the other two connected cases of Messrs. Central Dry Cleaners, Amritsar, Income-tax Application No. 133/ (ASR) of 1982-Shri Inderjit Singh, Income-tax Application No. 135/(ASR) of 1982. To me the situation is identical in all three cases and as in the other two cases, I will uphold the order of the Commissioner of Income-tax under Section 263 of the Act and dismiss the appeal of the assessee.
10. As there is a difference of opinion between us on the point of validity of the order of the Commissioner of Income-tax under Section 263 of the Income-tax Act, 1961, we refer the case to the President of the Appellate Tribunal for further action under Section 255(4) of the Act.
ORDER Vimal Gandhi, Judicial Member
11. There being a difference of opinion between the learned Accountant Member and the learned Judicial Member, the following reference was made under Section 255(4) of the Income-tax Act, 1961 :
"As there is a difference of opinion between us on the point of validity of the order of the Commissioner of Income-tax under Section 263 of the Income-tax Act, 1961, we refer the case to the President of the Appellate Tribunal for further action under Section 255(4) of the Act."
12. The Hon'ble President has referred the point of dispute for my consideration. I have heard Shri Salil Kapur, Advocate, for the assessee and Shri J.S. Arora, Senior Departmental Representative, on behalf of the Revenue. The assessment year involved is 1977-78 for which the previous year ended on March 31, 1977. The assessee was a minor having attained majority only on January 5, 1977. In a raid carried out by the Revenue on the assessee's premises on May 18, 1976, certain incriminating documents along with jewellery and cash were found and seized. In order to retain the cash and jewellery seized, the Assessing Officer passed an order under Section 132(5) on August 14, 1976. The assessee being a minor, the aforesaid order was passed taking Shri Inderjit Singh as the guardian of the minor, the father, mother and grand-parents of the minor being already dead. It is relevant to mention that Shri Inderjit Singh, in his reply to the notice under Rule 112A(1), had stated that the Assessing Officer had no legal authority to appoint him as the guardian. The objection was not dealt with.
13. In the aforesaid order under Section 132(5), the Assessing Officer had proposed to make the following addition in the assessment year 1977-78:
Rs.
(i) Out of cash found of Rs. 18,430, a sum of Rs. 12,000 remained unexplained in proceedings under section 132(5) 12,000
(ii) One chit was found in the box containing jewellery in which there was mention of cash of Rs. 17,000 which was missing from the said box (Paragraph 6 of order under section 132(5)) 17,000
(iii) Value of jewellery found in the residence and business premises of the firm (Paragraphs 7 to 10 and 12 of order under section 132(5)) 33,341 62,341
14. However, while making the regular assessment under Section 143(3) on February 29, 1980, the Assessing Officer did not take notice of the facts mentioned in the order under Section 132(5) and took the assessee's total income at Rs. 18,720 only.
15. The Commissioner of Income-tax subsequently examined the assessee's records and found that assessment was made without taking into consideration the concealed income mentioned in the order under Section 132(5) of the Income-tax Act, 1961. He, therefore, held the view that the assessment so made was erroneous and prejudicial to the interests of the Revenue and issued a show cause notice dated September 20, 1988, under Section 263 of the Income-tax Act. The assessee submitted a reply dated November 10, 1980, in which it was contended that all the material seized from the business premises of the firm and residential premises of the assessee were scrutinised by the Assessing Officer before completing the assessment of the firm and its partners. The assessee, therefore, requested that action under Section 263 be dropped.
16. The learned Commissioner rejected the assessee's reply and held as follows :
"From a perusal of the assessment records, the order-sheet recording the day-to-day proceedings of the regular assessment, the various papers filed by the assessee in the course of regular assessment proceedings and the office (sic) in the case of the firm, given by the Income-tax Officer, it is amply clear that the Income-tax Officer never considered the said order under Section 132(5) made by the Income-tax Officer, District III(ii), Amritsar, in the case of the assessee as well as in the case of the firm, that he never called upon the assessee to explain the reasons for not treating the said amounts as concealed income of the assessee, that the assessee also did not tender any explanation to that effect in the course of the regular assessment proceedings. It cannot, therefore, be said that this aspect of the matter was considered by the Income-tax Officer and that after considering the explanation as satisfactory, he treated the said amounts as fully explained. Thus the fact remains that the Income-tax Officer simply omitted to consider and apply his mind to the unexplained cash and other articles determined as concealed income for the assessment year 1977-78.
7. In view of the foregoing, I hold that in making the order of regular assessment under Section 143(3) dated February 20, 1980, for the assessment year 1977-78, the Income-tax Officer omitted to take into consideration the concealed income of Rs. 62,341 computed by the Income-tax Officer, District III(ii), Amritsar, in his order under Section 132(5). Therefore, the aforesaid order under Section 143(3), dated February 20, 1980, for the assessment year 1977-78 is erroneous and prejudicial to the interests of the Revenue in so far as the Income-tax Officer has failed to consider the said concealed income of Rs. 52,341. Therefore, pursuant to and in accordance with the provisions of Section 263 of the Income-tax Act, 1961, I set aside the aforesaid order of assessment dated February 20, 1980, and direct the Income-tax Officer to make a fresh order of assessment according to law, by including in the computation of total income the whole or part of the abovesaid concealed income of Rs. 62,341 as may be found liable for inclusion in the assessee's total income on consideration, enquiry and appraisal of the relevant facts and material,"
17. He set aside the assessment with a direction to the Assessing Officer to make fresh assessment after providing an opportunity of being heard to the assessee. He specifically directed that the explanation tendered by the assessee with regard to the sources of these amounts be examined by the Income-tax Officer on the merits of the case. The assessment framed was accordingly set aside and the matter restored to the Income-tax Officer.
18. Being aggrieved, the assessee filed an appeal before the Appellate Tribunal. The Tribunal heard the appeal. After hearing the appeal, the learned Judicial Member was of the view that the order of the Commissioner of Income-tax under Section 263 was liable to be cancelled. In his view, the Commissioner of Income-tax was not right in law in directing the Income-tax Officer to consider the order passed under Section 132(5) as the said order was patently bad in law and of no legal effect. The Assessing Officer could not appoint Shri Inderjit Singh as the guardian of the minor and pass an order through him. In case the guardian of the minor was not available, the Income-tax Act provides for direct assessment on the minor and direct recovery of tax due from him, but the Income-tax Officer in the present case did not adopt the above procedure. The learned Judicial Member, accordingly, held that the order passed under Section 132(5) was bad in the eye of law, void ab initio and violated the principles of natural justice. The Commissioner of Income-tax, relying upon the aforesaid order, completely misdirected himself and passed an order which cannot be supported in law. With the aforesaid reasons, the learned Judicial Member proposed an order cancelling the order passed under Section 263 of the Income-tax Act.
19. The learned Accountant Member was unable to share the conclusion of the learned Judicial Member to allow the appeal on the ground that the order passed under Section 132(5) is bad in law and consequently the order under Section 263 should be cancelled. He observed that the point regarding the order under Section 132(5) in the present form was not raised by the assessee nor replied to by the Revenue. He was of the view that it would have been better to refix the matter to hear the parties on the above point, but as the learned Judicial Member did not agree to the above approach, the learned Accountant Member expressed his opinion on the issue involved. After reproducing paragraph 7 of the order of the Commissioner of Income-tax (quoted above), he observed that there is no interconnection between the illegality of the order under Section 132(5) and the legality of the order of the Commissioner of Income-tax under Section 263. The order of the Commissioner of Income-tax purported to refer to the omission of the Income-tax Officer at the assessment stage to note the material that came to light as a result of search and its subsequent processing under Section 132(5) of the Act and the quantum of unexplained income considered therein. The information uncovered in the search was relevant for determining the assessee's income liable to tax for the concerned assessment year. Looking into the order under Section 132(5) could shorten the labour of the Income-tax Officer. It is not that the assessment cannot be framed without depending or relying upon the order under Section 132(5). The illegality of such an order as assumed by the Judicial Member in his view will not invalidate the order of the Commissioner of Income-tax under Section 263. That being so, the learned Accountant Member could not endorse the view that the situation in this case was different from the other two connected cases of Messrs. Central Dry Cleaners, Amritsar. The Accountant Member then referred to the decision in the other connected case of Messrs. Central Dry Cleaners and as the situation was identical, he upheld the order of the Commissioner of Income-tax under Section 263. I have heard the parties on the point of difference.
20. Shri Salil Kapur, learned counsel for the assessee, vehemently contended that both the learned members have expressly or by necessary implication agreed that Shri Inderjit Singh was not the guardian of the assessee in the relevant period and thus the order under Section 132(5) on the minor through him was illegal and bad in law. Consequently, the conclusion of the Commissioner of Income-tax in the impugned order holding the assessment as erroneous and prejudicial to the interests of the Revenue for not considering the order under Section 132(5) was unjustified. An assessment for failure to consider an illegal order cannot be held to be erroneous calling for action under Section 263. Therefore, the Commissioner of Income-tax was in error in directing the Assessing Officer to make fresh assessment after taking into consideration the illegal order passed under Section 132(5) of the Income-tax Act, 1961. Shri Salil Kapur, accordingly, justified and supported the reasoning and conclusion of the learned Judicial Member. Shri J.S. Arora, Senior Departmental Representative, on the other hand, supported the view taken by the learned Accountant Member. He submitted that, in the replies filed in proceedings under Section 132(5), Shri Inderjit Singh acted on behalf of the minor. Shri Inderjit Singh further filed an appeal under Section 132(11) of the Income-tax Act. No abjection was raised on the illegality of the order under Section 132(5) by the assessee before the Commissioner of Income-tax in proceedings under Section 263 or at the time of hearing before the Tribunal and this has been specifically noted by the learned Accountant Member. Shri Arora further submitted that the learned Judicial Member was not correct in deciding the issue in favour of the assessee without affording any opportunity to the Revenue to explain its case. As far as the Commissioner of Income-tax's order was concerned, no principle of natural justice was violated in this case and observations to the above effect of the learned Judicial Member on facts were unjustified. At any rate, the Commissioner of Income-tax, in the impugned order, did not ask the Assessing Officer to follow the order under Section 132(5) but he only directed him to consider the material recovered at the time of raid and referred to in the said order. Even without any order under Section 132(5), the Assessing Officer was dutybound to consider the gathered material and in not taking account of the said material in the regular assessment order, he committed an error which caused prejudice to the interests of the Revenue. Shri Arora thus justified and supported the order of the learned Accountant Member.
21. I have given careful thought to the rival submissions of the parties. Having regard to the scheme of the Income-tax Act, 1961, as a whole with particular reference to the provisions of Section 132 and those relating to regular assessment in Sections 143 and 144, the two, in my view, have different purposes to serve. Section 132 is applicable at the pre-assessment stage and powers of search and seizure are exercised to gather material which may be relevant and useful for purposes of an assessment. Under Section 132(5), a summary assessment is made to retain the money, bullion, jewellery or other valuable articles and assets seized in search carried out under Sub-section (1) of Section 132. A regular assessment, on the other hand, is made to determine the total income of an assessee and the tax payable by him after taking into account all relevant available material. An order under Sub-section (5) of Section 132, without strictly following the procedure laid down by law, may affect the right of the Revenue to retain the assets seized but cannot prejudice its powers to make a regular assessment. Where an order under Sub-section (5) is passed and the seized wealth (valuable articles) is retained, the Revenue is in a more secure position to recover the tax due even before the regular assessment is concluded. In the other cases, they have to take recourse to recovery proceedings, Apart from the above, in my view, there is no connection between an order under Section 132(5) and the regular assessment. The position would have been different if existence of a valid order under Section 132(5) was a condition precedent to take up and make a valid order in the regular assessment. In that situation, it would have been necessary to examine the validity and legality of the order under Sub-section (5) of Section 132. But there is no such legal requirement under the Act. I am, therefore, of the view that the question of validity of the order under Sub-section (5) of Section 132 normally and particularly on the facts of the present case before me was not relevant at all. I agree with the view taken by the learned Accountant Member.
22. Further, in my considered view, the learned Accountant Member properly appreciated the import of the order passed by the Commissioner of Income-tax under Section 263. The directions given by the Commissioner of Income-tax were not to pass an order in conformity with the order passed under Sub-section (5) of Section 132 of the Income-tax Act, 1961. He directed that the material collected in search and referred to in the order under Sub-section (5) of Section 132 was required to be considered and that not having been done earlier, the exercise should now be performed. It is settled law that admissibility of evidence lies in the relevancy of evidence and not in the manner in which it is collected. Even if material is collected in a manner not permitted by law, but is relevant for determining the issues involved, it has to be used notwithstanding the tainted collection. In the case of Pooran Mal v. Director of Inspection (Investigation) [1974] 93 ITR 505, their Lordships of the Supreme Court upheld the utilisation of evidence for purposes of assessment obtained as a result of illegal search and seizure. In the present case, there is not even a whisper that the material collected and referred to in the order under Section 132(5) is not relevant. The learned Commissioner, in the impugned order, has specifically directed that fresh assessment should be made by the Income-tax Officer after including only such amount as remains unexplained after considering the explanation tendered by the assessee with regard to the sources of the amounts. I see no error in the approach of the learned Commissioner of Income-tax. In my view, the conclusion drawn by the learned Accountant Member is in accordance with law. I agree with the same. The matter now may be placed before the regular Bench for disposal in accordance with law.