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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

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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

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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

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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 : \005\005The 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

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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.  

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       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,

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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

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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

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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

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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.