Vs. Commissioner of Income Tax, Bangalore
 Insc 806 (15
Bhan & Dalveer Bhandari Bhan, J.
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 relevant for disposing of these references in short are.
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.
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.
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.
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/-.
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
Income from undisclosed sources as discussed in para 3.2 as per PRM-1 and PRM-7
Income from undisclosed sources as discussed in para 3.3 i.e., PRM-13 Rs. 6,66,690
in Durgadabail building at Hubli as per para 5 being 50% of Rs. 5,24,200/- Rs.
Unexplained expenditure U/s. 69C Rs. 8,33,525
assessment for the years 1981-82 was completed after making an addition of
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
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.
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 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:-
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 ?
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
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 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;
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).
aggrieved, the appellant has filed these appeals.
counsels for the parties have been heard at length.
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.
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.
(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 :
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.
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.
(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.
the finding of the Tribunal in this regard in our view requires our
supplied] It has been further held at page 254 as under:
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".
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.
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.
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-
that such books of account, other documents, money, bullion, jewellery or other
valuable article or thing belong or belongs to such person;
the contents of such books of account and other documents are true ; and
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."
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],--
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 ;
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;
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;
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
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:
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.
(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.
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.
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.
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).
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.
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.
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.
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,
"shall presume" and
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
words in sub-section (4) are "may be presumed".
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.
under sub-section (4A) would not be available for the purpose of framing a
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.
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
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.
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.
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.
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.
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.
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
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.
appeals are allowed. There will be no order as to costs.
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