CASE NO.:
Appeal (civil) 5673-5675 of 2002
PETITIONER:
P.R. Metrani
RESPONDENT:
Commissioner of Income Tax, Bangalore
DATE OF JUDGMENT: 15/11/2006
BENCH:
ASHOK BHAN & DALVEER BHANDARI
JUDGMENT:
J U D G M E N T
BHAN, J.
These appeals are directed against the judgment and
order dated 9.7.2001 passed by the High Court of Karnataka
at Bangalore in ITRC Nos. 38, 39 & 40 of 1996 vide which the
High Court has allowed the reference cases 39 and 40 of 1996
thereby answering the questions in favour of the Revenue and
against the assessee. ITRC No. 38 of 1996 filed by the
assessee has been dismissed by the High Court. Since these
appeals arise from the common order passed by the High
Court, we also propose to dispose them of by a common order.
FACTS
The facts relevant for disposing of these references in
short are.
P.R. Metrani and Y.R. Metrani were two brothers and are
the members of the Joint Hindu Family. P.R. Metrani (HUF)
assessee was a partner in a firm called M/s. R.N. Metrani and
Sons. Y.R. Metrani was also a partner in this firm. P.R.
Metrani as well as Y.R. Metrani have died during the pendency
of these cases.
A search of the residential premises Ranganatha Nilaya
was conducted by the Income Tax, Central Excise and
Customs Departments on 30.06.1982 and 01.07.1982 and as
well as the business premises where the business of the firm
was being conducted. The residential premises of J.J. Bakale,
nephew of P.R. Metrani were also searched. The search
brought to surface unaccounted money, gold biscuits, gold
jewellery, silver etc. besides some important documents. For
the purpose of assessment for the assessment years 1981-82
and 1982-83 three documents were found to be relevant by
the Assessing Officer and they were marked as PRM-1, PRM-7
and PRM-13 at the time of search and seizure, which were
seized from the residential premises namely, 'Ranganatha
Nilaya'. Statement of J.J. Bakale was recorded at the time of
search. P.R. Metrani was away to Rajasthan on a business
tour. He was examined after his return to Hubli on 13.7.1982.
He denied the possession of PRM-1, PRM-13 and PRM-14. He
also denied that these papers contain any writing made by
him. The Assessing Authority made a summary adjudication
order under Section 132(5) of the Income Tax Act, 1961 (for
short "The Act"). He made certain additions and retained the
assets seized.
Notice under Section 139(2) dated 17.9.1982 for the
assessment year 1982-83 was served on the assessee on
21.9.1982. The appellant declared a total income of
Rs.46,200/- and a net agricultural income of Rs.6,000/-.
Notices under Section 143(2) and 142(1) were issued on
several dates. Appellant appeared before the authorities on
several dates and assessment came to be completed. The
following additions were made in respect of the assessment
year 1982-83:-
i.
Income from undisclosed sources as
discussed in para 3.2 as per PRM-1
and PRM-7
Rs. 28,67,920
ii.
Income from undisclosed sources as
discussed in para 3.3 i.e., PRM-13
Rs. 6,66,690
iii
Investent in Durgadabail building at
Hubli as per para 5 being 50% of Rs.
5,24,200/-
Rs. 2,62,100
iv
Unexplained expenditure U/s. 69C
Rs. 8,33,525
The assessment for the years 1981-82 was completed
after making an addition of Rs.19,93,117/-.
Assessing Authority made an assessment for the
construction of a commercial complex in Durgadabailu, the
investment for which was declared at Rs. 5,55,000/- for the
entire building. Half of the building belonged to P.R. Metrani
and other half to Y.R. Metrani. The department had sent the
Valuation Officer for enquiry regarding the cost of building and
it was fixed by the Department Valuation Officer at Rs.
5,83,000/-. The assessing authority however did not accept
the valuation made by the Valuation Officer and held that the
total investment on the building was Rs. 6,45,809/-. A source
to the extent of Rs. 1,21,627/- was accepted. The balance was
rounded off to Rs. 5,24,200/-. Half of this was added to the
assessment of P.R. Metrani (HUF) and other half were added in
the assessment of Y.R. Metrani.
The appellant being aggrieved filed appeals before the
Commissioner (Appeals). The Commissioner (Appeals) by
separate order disposed of the appeals relating to assessment
years 1981-82 and 1982-83. He examined the issue including
certain credits, and, on 19.9.1988 confirmed the additions
barring the sum of Rs. 36,000/- for the assessment year
1982-83. The orders of the Assessing Authority as well as the
Commissioner (Appeals) are based on the presumptions in
terms of Section 132 (4A) of the Act. It was held that
presumptions under Section 132 (4A) were not confined to the
orders passed under Section 132 only, but, were available for
framing the regular assessments as well.
The assessee being aggrieved filed a further appeal before
the Income Tax Appellate Tribunal, Bangalore (for short "The
Tribunal"). The Tribunal relying upon the judgment of the
Allahabad High Court in the case of Pushkar Narain Sarraf
Vs. CIT, (1990) 183 ITR 388, on the scope of Section 132 (4A)
held that the presumptions under Section 132 (4A) are
confined to the framing of the order under Section 132 (5) only
and are not available for framing the regular assessment. The
Tribunal accepted the appeals, set aside the orders passed by
the Commissioner (Appeals) as well as assessing authority
except to the extent of addition of Rs. 2,62,100/-. At the
instance of the Revenue, the Tribunal referred the following
two questions for both the assessment years 1982-83 for the
opinion of the High Court:-
"(1) Whether the Income-tax Appellate
Tribunal was correct in law in holding that
the presumption under Sub-section (4A) of
Section 132 of the Income-tax Act, 1961, is
only for the limited purpose of passing an
order under Sub-section (5) of the said
section ?
(2) Whether, on the facts and in the
circumstances of the case, the Income-tax
Appellate Tribunal was right in law in holding
that the documents seized from the
residential premises of the assessee-Hindu
undivided family were not of the said Hindu
undivided family and the entries therein did
not pertain to it, particularly when the
Income-tax Appellate Tribunal itself has
accepted that the entries in the said
documents culminating in addition of Rs.
2,62,100 in the assessment for the
assessment year 1982-83 pertained to the
assessee-Hindu undivided family and upheld
the said addition ?"
At the instance of the assessee, the Tribunal referred the
following two questions for the opinion of the High Court:
"(1) Whether on the facts the Tribunal was
justified in holding that the applicant HUF was
liable to be taxed in respect of Rs. 2,62,100/-
being alleged unexplained investment in the
property invoking the provisions of sec. 69 of
the Act?
(2) On the facts whether the Tribunal was
justified in holding that the part of the entries
in the seized documents could be attributed to
the applicant HUF when the applicant had
denied the knowledge or ownership of the
document?"
The High Court answered all the four questions in favour
of the Revenue and against the assessee. On question No.1
regarding presumption under sub-section (4A) of Section 132
of the Act, it has been held that the same is not limited to the
passing of an order under sub-section (5) of Section 132 only;
the same presumption can be raised for framing the regular
assessment as well. The Bench has recorded its dissent with
the view taken by the Allahabad High Court in Pushkar
Narain Sarraf (supra).
Being aggrieved, the appellant has filed these appeals.
Learned counsels for the parties have been heard at
length.
The Allahabad High Court in Pushkar Narain Sarraf's
case has held that the presumption arising under Section 132
(4A) is available only in regard to and in the context of search
and seizure and the same was not available for framing the
regular assessment. That Sections 132 to 132B of the Act
embody an integrated scheme laying down comprehensively
the procedure for search and seizure and the power of the
authorities making the search and seizure to order the
confiscation of the assets seized under Section 132 of the Act.
The presumption arising under sub-section (4A) of Section 132
applies only in relation to the provisional adjudication which is
contemplated under Section 132 (5) and the same was not
available for framing the regular assessment.
Subsequently the High Court of Delhi in Daya Chand Vs.
CIT, (2001) 250 ITR 327, has taken a somewhat similar view
and has held "that presumption arising under Section 132
(4A) must be held to be applicable only in relation to the
provisional adjudication as contemplated under sub-section
(5) of Section 132 and the presumption cannot be said to have
the effect of excluding the application of Section 68."
The Karnataka High Court in the impugned judgment
has taken the following view :
The Tribunal holds that looking to the
scheme it appears that the presumption of
Sub-section (4A) is only for the limited
purpose of passing an order under Sub-
section (5). According to the Tribunal the
assessing authority was wrong in drawing an
inference under Section 132(4A) in the
proceedings. In that view of the matter, the
Tribunal rejected the case of the Department.
This finding in our view is not correct. The
entire object of this Chapter is to levy tax with
regard to an undisclosed income of an
assessee. Search and seizure is one accepted
method adopted by the Revenue authority
with regard to digging out undisclosed income
by an assessee. If the intention of the
Legislature is only to give a limited
presumption, under Section 132(4A) they
would have said so in so many words. Even
otherwise a reading of the entire Chapter
would show that it was never the intention of
the Legislature to restrict the presumption
only to an order under Section 132(5) of the
Act. In fact as we mentioned earlier, Sub-
section (1) provides for entering, searching,
breaking open, seizing, placing marks on the
documents and Sub-section (2) provides for
police help and Sub-section (3) provides for
retention by the owner subject to an order.
Sub-section (4) which is a crucial provision
categorically states that any books,
documents, money, bullion, jewellery or any
statement made by an assessee in the course
of search or seizure can be made by use of as
evidence in any proceeding under the Income-
tax Act. If Sub-section (4A) is read with
Subsection (4) it is clear to us that there
cannot be any restriction with regard to the
presumptive value that can be attached to
Section 132(4A) of the Act. Section 132(5) only
provides for an order being made in the case
on hand. That, by itself, does not take away
the presumptive value attached to Section
132(4A) for other proceedings as held by the
Tribunal. In fact Section 132(5) provides for
an order being passed as a result of search
initiated or requisition made before July 1,
1995. Even after this date the section is still
available in the statute. Therefore, an
inference can safely be drawn in the light of
Sub-sections (4) and (5) of Section 132 itself
that no limited presumption can be attached
to Section 132(4A). At the same time we must
also point out that the presumptive value is
total in so far as Section 132(5) is concerned,
but in so far as other proceeding's are
concerned it is only a rebuttable presumption.
Therefore, the finding of the Tribunal in this
regard in our view requires our interference.
[ Emphasis supplied ]
It has been further held at page 254 as under:
"Therefore, it is clear to us that the
presumptive value to the documents is
available in respect of an order to be passed
under the Act including an order under
Section 132(5) of the Act. Therefore, a reading
of the provision with regard to the seized
documents clearly indicates that its
presumptive value cannot by any stretch of
imagination be restricted only to Section
132(5) as held by the Tribunal. It is a "non-
rebuttable presumption" under section 132(5)
of the Act and in other cases it is a
"rebuttable presumption".
Mr. G. Sarangan, further has placed
before us a judgment of the Allahabad High
Court in the case of Pushkar Narain Sarraf v.
CIT, (1990) 183 ITR 388. With respect we are
unable to subscribe to the view of the decision
of the Allahabad High Court. We have
carefully gone through the said judgment. We
find in the said case that no reasons are
forthcoming as to why the said presumption
is to be restricted to Section 132(5) only. In
fact that judgment on the other hand states
that Section 68 cannot said to have been
excluded for regular assessments."
[ Emphasis supplied ]
Sections 132 to 132B of the Act embody an integrated
scheme laying down the procedure comprehensively for search
and seizure and the power of the authorities making the
search and seizure to order the confiscation of the assets
seized. Section 132A gives power to the authorities to
requisition books of account in consequence of the information
in its possession. Section 132B provides the manner in which
the assets retained under sub-section (5) of Section 132 can
be dealt with.
Section 132 is a Code in itself. It provides for the
conditions upon which and the circumstances in which the
warrants of authorization can be issued. Sub-section (2)
authorizes the authorized officer to requisition the services of
any police officer or of any officer of the Central Government or
of both to assist him for all or any of the purposes for which
the search is conducted. Under sub-section (4) the
authorized officer can during the course of search or seizure
examine on oath any person who is found to be in possession
or control of any books of account, documents, money,
bullion, jewellery or other valuable article or thing and any
statement made by such persons during such examination
may thereafter be used in evidence in any proceeding under
the Act. Sub-sections (4A) and 5 are set out in detail as it
existed at the relevant time.
"(4A) Where any books of account, other
documents, money, bullion, jewellery or other
valuable article or thing are or is found in the
possession or control of any person in the
course of a search, it may be presumed-
(i) that such books of account, other
documents, money, bullion, jewellery or other
valuable article or thing belong or belongs to
such person ;
(ii) that the contents of such books of account
and other documents are true ; and
(iii) that the signature and every other part of
such books of account and other documents
which purport to be in the handwriting of any
particular person or which may reasonably be
assumed to have been signed by, or to be in the
handwriting of, any particular person, are in
that person's handwriting, and in the case of a
document stamped, executed or attested, that
it was duly stamped and executed or attested
by the person by whom it purports to have
been so executed or attested."
"(5) Where any money, bullion, jewellery or
other valuable article or thing (hereafter in
this section and in sections 132A and 132B
referred to as the assets) is seized under sub-
section (1) or sub-section (1A), the Assessing
Officer, after affording a reasonable
opportunity to the person concerned of being
heard and making such enquiry as may be
prescribed, shall, within one hundred and
twenty days of the seizure, make an order,
with the previous approval of the Deputy
Commissioner],--
(i) estimating the undisclosed income
(including the income from the
undisclosed property) in a summary
manner to the best of his judgment on
the basis of such materials as are
available with him ;
(ii) calculating the amount of tax on the
income so estimated in accordance with
the provisions of the Indian Income-tax
Act, 1922 (11 of 1922), or this Act;
(iia) determining the amount of interest
payable and the amount of penalty
imposable in accordance with the
provisions of the Indian Income-tax Act,
1922 (11 of 1922), or this Act, as if the
order had been the order of regular
assessment;
(iii) specifying the amount that will be
required to satisfy any existing liability
under this Act and any one or more of
the Acts specified in clause (a) of sub-
section (1) of section 230A in respect of
which such person is in default or is
deemed to be in default,
and retain in his custody such assets/or part
thereof as are in his opinion sufficient to
satisfy the aggregate of the amounts referred
to in clauses (ii), [ (iia)] and (iii) and forthwith
release the remaining portion, if any, of the
assets to the person from whose custody they
were seized :
Provided that if, after taking into account the
materials available with him, the Assessing
Officer is of the view that it is not possible to
ascertain to which particular previous year or
years such income or any part thereof relates,
he may calculate the tax on such income or
part, as the case may be, as if such income or
part were the total income chargeable to tax at
the rates in force in the financial year in which
the assets were seized and may also determine
the interest or penalty, if any, payable or
imposable accordingly:
Provided further that where a person has
paid or made satisfactory arrangements for
payment of all the amounts referred to in
clauses (ii), (iia) and (iii) or any part thereof,
the Assessing Officer may, with the previous
approval of the Chief Commissioner or
Commissioner, release the assets or such part
thereof as he may deem fit in the
circumstances of the case.
Sub-section (6) provides that assets retained under sub-
section (5) may be dealt with in accordance with the provisions
of Section 132B. Sub-section (7) provides that if the assessing
officer is satisfied that the seized assets or any part thereof
were held by such person for or on behalf of other person, the
assessing officer may proceed under sub-section (5) against
such other person and the provisions of Section 132 shall
apply to such other persons as well. Sub-section (8) provides
that the books of account or other documents seized under
sub-section (1) and (1A) shall not be retained by the
authorized officer for a period exceeding 180 days from the
date of the seizure without recording reasons for retaining the
same in writing and taking approval of the Chief
Commissioner or Commissioner for such retention. Chief
Commissioner is mandated not to authorize the retention of
books of account and other documents under the proviso to
sub-section (8) and not to retain the books of account and
other items for a period exceeding 30 days after all the
proceedings under the Act in respect of the years for which the
books of account, other documents, money, bullions, jewellery
or other valuable articles or things are relevant. Under sub-
section (9) the persons from whose custody the books of
account and other documents are seized is entitled to make
notes thereof and take extracts therefrom in the presence of
the authorized officer. Sub-sections (9) and (10) are of the
same nature. Sub-section (11) provides that if any person
objects for any reason to an order made under sub-section (5),
he can within 30 days of the date of such order make an
application to the Chief Commissioner stating the reasons
therein for such objections and requesting for appropriate
relief in the matter. Further, sub-section provides for
applicability of Code of Criminal Procedure and making of
rules by the board in search or seizure etc.
The section considered as a whole, shows that it has its
own procedure for the search, seizure, determination of the
point in dispute, quantum to be retained and also the
quantum of the tax and interest on the undisclosed income.
Under sub-section (11) as it existed till 31.5.2002, the person
aggrieved has been given the right to file an application (in
place of appeal) objecting to the order passed under sub-
section (5) and request for appropriate relief in the matter. It
has all the fortifications of a code. This provision exists in
complete isolation of the other provisions of the Act. It has
the trappings of small code in itself.
The proceedings under Section 132(5) as it existed till
31.5.2002 are of a quasi-judicial nature as it provided
affording of reasonable opportunity to the person concerned of
being heard and pass an order after making an enquiry as
might be prescribed. Enquiries under sub-section 132(5) is to
enable the assessing officer to determine the tax liability of the
assessee in a summary manner and determine the
undisclosed income in relation to the money, bullion,
jewellery etc. seized under Section 132 and retain the assets
seized till the regular assessment is framed. The order passed
under Section 132 (5) is for the purpose of retaining the assets
seized and it is subject to the framing of the regular
assessment. Whatever portion of the money or other articles
seized is explained in a satisfactory and reasonable manner by
the person from whom the same was seized, are returned to
him and the rest are to be retained. As stated earlier, no
appeal lies against the order passed under Section 132, only
an application lies to the Chief Commissioner or
Commissioner as permitted by Section 132(11).
Search and seizure under Section 132 is a serious
invasion into the privacy of a citizen, therefore, it has to be
construed strictly. Sub-section (4A) was inserted by Taxation
Law (Amendment) Act, 1975 with effect from 1.10.1075 to
permit a presumption to be raised in the circumstances
mentioned therein. Before the insertion of sub-section (4A)
the onus of proving that the books of account, other
documents, money bullion, jewellery etc. found in possession
or control of a person in the course of a search belonged to
that person was on the Income Tax Department. Sub-section
(4A) enables an assessing authority to raise a rebuttable
presumption that such books of account, money, bullion etc.
belonged to such person; that the contents of such books of
account and other documents are true, and, that the
signatures and every other part of such books of account and
other documents are signed by such person or are in the
handwriting of that particular person.
Raising of such presumption has been enacted by the
Legislature to enable the assessing authority to make a
provisional adjudication within the time frame prescribed
under Section 132. Otherwise it may not be possible to do so.
The object of introduction of Section 132 is to prevent the
evasion of tax, i.e., to unearth the hidden or undisclosed
income or property and bring it to assessment. It is not
merely an information of undisclosed income but also to seize
money, bullion etc. representing the undisclosed income and
to retain them for the purposes of realization of taxes,
penalties etc. Search and seizure is a serious invasion in the
privacy of the person. Section 132 which is a complete code
by itself provides that the money, bullion or the books of
account etc. should not be retained unnecessarily and that the
provisional assessment made under Section 132 for the
purpose of retention of the books is passed within a specified
time in accordance with law. It provides that the books of
account, money and bullion which are not required are not
retained unnecessarily thereby causing harassment to the
person concerned. In order to see that the assessment order
is framed within the time frame provided under Section 132,
legislature provided for a rebuttable presumption to be raised
against the person from whose possession and control the
books of account, money, bullions etc. are seized so that the
order can be passed within the time frame provided under
Section 132.
A presumption is an inference of fact drawn from other
known or proved facts. It is a rule of law under which courts
are authorized to draw a particular inference from a particular
fact. It is of three types, (i) "may presume", (ii) "shall presume"
and (iii) "conclusive proof". "May presume" leaves it to the
discretion of the Court to make the presumption according to
the circumstances of the case. "Shall presume" leaves no
option with the Court not to make the presumption. The
Court is bound to take the fact as proved until evidence is
given to disprove it. In this sense such presumption is also
rebuttable. "Conclusive proof" gives an artificial probative
effect by the law to certain facts. No evidence is allowed to be
produced with a view to combating that effect. In this sense,
this is irrebuttable presumption.
The words in sub-section (4) are "may be presumed".
The presumption under sub-section (4A) therefore, is a
rebuttable presumption. The finding recorded by the High
Court in the impugned judgment that the presumption under
sub-section (4A) is a irrebuttable presumption in so far as it
relates to the passing of an order under sub-section (5) of
Section 132 and rebuttable presumption for the purpose of
framing a regular assessment is not correct. There is nothing
either in Section 132 or any other provisions of the Act which
could warrant such an inference or finding.
Presumption under sub-section (4A) would not be
available for the purpose of framing a regular assessment.
There is nothing either in Section 132 or any other provision of
the Act to indicate that the presumption provided under
Section 132 which is a self contained code for search and
seizure and retention of books etc. can be raised for the
purposes of framing of the regular assessment as well.
Wherever the legislature intended the presumption to
continue, it has provided so. Reference may made to Section
278D of the Act which provides that where during the course
of any search under Section 132, any money, bullion, jewellery
or other valuable articles or things or any books of account
etc. are tendered by the prosecution in evidence against the
person concerned, then the provisions of sub-section (4A) of
Section 132 shall, so far as may be, apply in relation to such
assets or books of account or other documents. This clearly
spells out the intention of legislature that wherever the
legislature intended to continue the presumption under sub-
section (4A) of Section 132, it has provided so. It has not been
provided that the presumption available under Section 132
(4A) would be available for framing the regular assessment
under Section 143 as well.
This is also evident from the fact that whereas the
legislature under Section 132 (4) has provided that the books
of account, money, bullion, jewellery and other valuable
articles or things and any statement made by such person
during examination may thereafter be used as evidence in any
other proceedings under the Act but has not provided so
under sub-section (4A) of Section 132. It does not provide that
the presumption under Section 134A would be available while
framing the regular assessment or for that matter under any
other proceeding under the Act except under Section 378D.
Section 132 being a complete code in itself cannot
intrude into any other provision of the Act. Similarly, other
provisions of the Act cannot interfere with the scheme or the
working of Section 132 or its provisions.
Presumption under Section 132 (4A) is available only in
regard to the proceedings for search and seizure and for the
purpose of retaining the assets under Section 132(5) and their
application under Section 132B. It is not available for any
other proceeding. except where it is provided that the
presumption under Section 132 (4A) would be available.
In our considered view, the High Court of Allahabad in
Pushkar Narain Sarraf (supra) and the High Court of Delhi in
Daya Chand (supra) have taken the correct view in holding
that the presumption under Section 132(4A) is available only
in regard to the proceedings for search and seizure under
Section 132. Such presumption shall not be available for
framing the regular assessment. The High Court of Karnataka
in the impugned judgment has clearly erred in holding to the
contrary. Consequently, question No.1 of the Revenue is
answered in the affirmative, i.e. against the Revenue and in
favour of the assessee.
It may be clarified that though presumption under
Section 132(4A) is not available to authorities while framing
the regular assessment but the material seized can be used as
a piece of evidence in any other proceedings under the Act, all
contentions are left open.
For the reasons stated above, appeals are accepted and
the order passed by the High Court is set aside. The orders
passed by the assessing authorities as well as the CIT
(Appeals) are vitiated as they have proceeded to frame the
assessment raising the presumption under sub-section (4A) of
Section 132. The same are set aside and the case is remitted
back to the assessing authority for framing the assessment
afresh in accordance with law. Question No. 2 claimed by the
Revenue and the question No. 2 claimed by the assessee are
returned unanswered as the case is being remitted back to the
assessing authority for framing a fresh assessment.
We are not recording any opinion as to the merits of the
case. The assessing authority shall now frame the assessment
in accordance with law, without being influenced by any of the
observations made in the previous orders or this order.
Accordingly, appeals are allowed. There will be no order
as to costs.
