2005 (6) TMI 224 - AT - Income Tax

Tribunal Can't Rule on Search Validity During Appeal; Assessee Must File Writ Petition for Search Validity Challenge.

Promain Ltd. Versus Deputy Commissioner Of Income-Tax.

The ITAT Special Bench determined that it lacks the authority to adjudicate the validity of a search conducted under section 132 during an appeal against ... Appellate Tribunal - undisclosed income for the block period - warrant of authorization - assumption of jurisdiction - Whether the Appellate Tribunal has powers to adjudicate upon the issue relating to the validity of the search conducted u/s 132 while disposing the appeal against block assessment - Period of limitation u/s 158BE - HELD THAT:- It is well-settled that as a general rule, the issue of validity of exercise of power by an authority can be raised in any proceedings including a collateral proceedings. However, it is also well-settled that the validity of exercise of power by an authority can be set up in the collateral proceedings only when there is lack of inherent jurisdiction on the part of the authority exercising the power. If the authority possesses the necessary power but while exercising the power exceeds or abuses the power, then it cannot be said that the authority lacks inherent jurisdication. In the first category of cases, challenge to the validity of the exercise of power can be raised in collateral proceedings also. In the second category of cases collateral attack was not to be allowed. The authority issuing a warrant of authorization has the necessary power to do so by virtue of the provisions of section 132. If in exercising that power the authority acts without material or comes to conclusions about existence of conditions mentioned in clause (a), (b) or (c) of section 132(1) of the Act based on extraneous reasons or irrelevant material then it would be a case of an error within the jurisdiction of the authority. It is an error within the jurisdiction because the statute has already conferred the jurisdiction to the designated officers to issue warrant. Hence, an error or arbitrariness in issuing a warrant is within the jurisdiction and not without. Such error can be rectified only in appropriate proceedings and not in any collateral proceedings. Our conclusion that remedy against improper exercise of power in initiating search by issuance of warrant of authorization lies in the form of seeking issue of a writ also gets support from the decision of Hon'ble Delhi High Court in the case of Ajit Jain [2003 (1) TMI 97 - SC ORDER] which has been subsequently affirmed by the Hon'ble Supreme Court. In the said case, similar action was challenged by the assessee in a writ petition filed before the Hon'ble Delhi High Court and their Lordships of Delhi High Court entertained the writ petition filed by the assessee observing that his case does fall in the category where an action is wholly without jurisdiction and results in infringement of fundamental right. Hon'ble Delhi High Court further observed that while sufficiency or otherwise of the information cannot be examined by the Court in writ jurisdiction, the existence of information and its relevance to the formation of the belief is open to the judicial scrutiny because it is the foundation of this condition precedent for exercise of a serious power of search of a private property or person which involves violation of privacy of a citizen. These observations recorded by Hon'ble Delhi High Court explicitly show that a power of search of a private property or a person is a serious power and exercise of the same without jurisdiction results in the infringement of the fundamental right since it involves violation of the privacy of a citizen. Keeping in view this legal position, it can appropriately be held that it is only the High Court which can examine the validity of search by ascertaining whether the pre-conditions for the issuance of a warrant of authorization based on existence of reasons to believe as recorded were satisfied or not in a given case in exercise of power of writ vested in them under article 226. To sum up, we hold that the Income-tax Appellate Tribunal has no powers, either express or incidental/implied, to adjudicate upon the issue relating to the validity of the search conducted u/s 132 while disposing of the appeal against block assessment. As already discussed, the search action u/s 132 has three limbs, i.e., initiation of search, conduct of search and conclusion of search. Insofar as the validity of search is concerned, the first limb, i.e., initiation of search, which includes all the actions culminating into issue of warrant of authorization assumes significance and relevance and the same, in our opinion, are not justiciable in an appeal before the Tribunal. The only remedy in this matter lies in the form of seeking issue of a writ from the Hon'ble High Court. We, therefore, answer the question referred to this Special Bench in negative, i.e., in favour of the Revenue and against the assessee. As regards the remaining two limbs, i.e., conduct of search and conclusion of search, anomalies and infirmities therein, if any, do not go to vitiate the search action and the Tribunal can look into these aspects to the extent relevant for disposing of the appeal against the block assessment as discussed above. In our opinion, the Tribunal also has the power to call for the production of warrant of authorization and other documentary evidence to ascertain that the search in fact was initiated and conducted in a given case to verify this jurisdictional fact, if so challenged by the assessee and if so thought fit by the Tribunal in the facts and circumstances of the case. Before we part with this order, we may touch upon one incidental issue raised by Shri C.S. Aggarwal. Relying on the decision of the Hon'ble Andhra Pradesh High Court in the case of V. V. Trans-Investments (P.) Ltd. v. CIT [1993 (12) TMI 52 - ANDHRA PRADESH HIGH COURT] and that of the Hon'ble Supreme Court in the case of ITAT v. Dy. CIT [1996 (1) TMI 5 - SUPREME COURT], he has contended that an appeal has to be disposed of by the Tribunal as a whole and not in a piecemeal manner. He has also contended that whenever reference is made by the Hon'ble President to the Special Bench, it is the entire appeal which has to be disposed of by the Bench and not just a particular issue raised therein. Shri G.C. Sharma, on the other hand, has contended that it is a convention followed by the ITAT, which is evident from a number of Special Bench decisions, to decide only a particular question or questions as per the reference made by the Hon'ble President to the Special Bench and not the entire appeal. He has further contended that this convention needs to be followed or otherwise it will give rise to many practical problems in the matter of constitution of Special Bench by the Hon'ble President. Be that as it may, what has been referred to by the Hon'ble President in the present case for the consideration and decision of this Special Bench is only one question as stated above and not the entire appeal/case. We, therefore, confine ourselves to answer the said question specifically referred to us u/s 255(3). The matter will now go to the regular Bench for disposing of the appeal of the assessee keeping in view the decision of Special Bench rendered hereinabove. Issues Involved:1. Powers of the Income Tax Appellate Tribunal (ITAT) to adjudicate on the validity of a search conducted under section 132 while disposing of an appeal against block assessment.Issue-wise Detailed Analysis:1. Powers of ITAT to Adjudicate on the Validity of Search Conducted Under Section 132:The core question referred to the Special Bench was whether the ITAT has the authority to adjudicate upon the issue relating to the validity of a search conducted under section 132 while disposing of an appeal against block assessment. The Special Bench, after considering various arguments and precedents, concluded that the ITAT does not possess such powers, either express or incidental/implied, to adjudicate upon the validity of the search conducted under section 132.The Tribunal emphasized that the right of appeal is a statutory right and not inherent. The scope of the Tribunal's powers is limited to the actions of the Assessing Officer (AO) and does not extend to examining the validity of the authorization of the search. The Tribunal's jurisdiction is confined to the assessment proceedings and does not cover the administrative or executive actions taken by the authorities under section 132. The initiation of the search, which includes actions culminating in the issue of a warrant of authorization, is not justiciable before the Tribunal. The only remedy available to the assessee in such cases is to challenge the validity of the search by filing a writ petition before the High Court.The Tribunal also addressed the argument that if the Tribunal can examine the validity of reasons recorded by the AO under section 148, it should also be able to examine the validity of the action under section 132. The Tribunal rejected this argument, stating that the AO's action under section 148 is inextricably linked with the assessment proceedings, whereas the action under section 132 is not. The Tribunal's powers are limited to examining whether the search was initiated and conducted, and not the conditions prescribed in section 132(1)(a) to (c).Furthermore, the Tribunal clarified that the validity of the search can be questioned in collateral proceedings only when there is a lack of inherent jurisdiction. In the case of section 132, the authority issuing the warrant of authorization has the necessary power, and any error or arbitrariness in exercising that power is within the jurisdiction and cannot be challenged in collateral proceedings.The Tribunal also noted that the conduct and conclusion of the search do not have a direct bearing on the validity of the search. Any irregularities in the conduct or conclusion of the search do not invalidate the search if the initiation was valid. The Tribunal can look into these aspects only to the extent relevant for disposing of the appeal against the block assessment.In conclusion, the Tribunal held that it does not have the power to adjudicate on the validity of the search conducted under section 132 while disposing of an appeal against block assessment. The only remedy for the assessee to challenge the validity of the search is by filing a writ petition before the High Court.The matter will now go back to the regular Bench for disposing of the appeal of the assessee, keeping in view the decision of the Special Bench.