Navin Kumar Agarwal vs. CIT (Calcutta High Court)

A search u/s 132 of the Act was conducted on 8th December, 1999. The restraint order imposed on 8th December, 1999 was vacated on 31st January, 2000. The search party drew the panchnama dated 31st January, 2000 stating that the search commenced at 15:20 hours and was closed at 15:30 hours. The assessee claimed that the search was concluded on 8th December, 1999 and that the search dated 31st January, 2000 was only for the purpose of revocation of the restraint order dated 8th December, 1999 passed under Section 132 (3) of the Income-tax Act. The assessee contended that the period of limitation has to be reckoned from the search dated 8th December, 1999 and the period of limitation expired on 31st December, 2001, whereas the assessment order was passed on 31st January, 2002 which is out of the prescribed period of limitation. The assessee upon the judgement in the case of CIT vs. S. K. Katyal reported in (2009) 308 ITR 168 (Delhi) wherein it was held that the period of limitation has to be reckoned from the date when the search took place and not from the date when the keys were handed back to the assessee. HELD by the High Court rejecting the plea:

(i) The judgement in CIT vs. S. K. Katyal (2009) 308 ITR 168 (Delhi) does not in our opinion, lay down the correct law. In two earlier judgements of the Delhi High Court itself contrary views were taken. See M. B. Lal vs. CIT (2005) 279 ITR 298 (Delhi) and VLS Finance Ltd vs. CIT (2007) 289 ITR 286 (Delhi). Ordinarily an authorization for search is valid until the same has been executed. In order to avoid any controversy as to when was the authorization executed the legislature has provided in the aforesaid explanation that the authorization shall be deemed to have been executed on conclusion of search as recorded in the last panchnama. Therefore, the law insists upon a panchnama for the purpose of formal recording that the search is at an end. Without such recording the search once initiated does not come to an end. We are unable to find any justification for the view that search comes to an end immediately after the search has been concluded for the day. Such an argument may possibly have been advanced in the absence of the deeming provision contained in Explanation 2 (a) to Section 158BE. Law as we can see it is that a search initiated pursuant to a written authorization may be kept in suspended animation so long as the same is not formally brought to an end in writing in the presence of witnesses by drawing a panchnama which is bound to be the last panchnama.

(ii) A restraint order under Section 132(3) is in aid of search and is valid for sixty days u/s. 132(8A) unless revoked earlier. During continuance of the restraint order the search itself cannot be said to have come to end. It was contended that on 31st January 2000 no search took place only the restraint order was vacated. From the panchnama dated 31st January 2000 it appears that at 15:30 hours the search finally concluded. The admitted fact that the keys were made over and the restraint order under Section 132(3) was lifted corroborates the fact that the search finally came to an end. The search could not have been at an end on any day prior to 31st January, 2000. The object of withholding the keys was to resume the search if and when it was felt necessary. The return of the keys manifested the intention that the search was at an end. Since the law required formal recording of conclusion of search the panchnama dated 31st January 2000 was drawn up and the business transacted on the day was recorded.

(iii) It is to be noticed that the period of limitation for the purposes of Income Tax Act under Section 158BE is dependent on the conclusion of search and not on the conclusion of the investigation. Investigation includes examination of witnesses which can be done under Section 131 of the Income Tax Act. The Assessing Officer wanted to examine the assessee but he did not turn up after the conclusion of the search as would appear from the assessment order quoted above. Another pertinent question in accordance with Section 465(2) of CRPC shall be “whether by keeping the search pending till 31st January 2000 any failure of justice was occasioned?” Neither in the case of Katyal nor before us any such point was canvassed. The second pertinent question shall be “was the point of limitation raised at the earliest stage before the assessing officer? The assessee by his letter dated 28th January, 2002 addressed to the assessing officer contended that due to his preoccupation he was unable to appear before the latter to record his deposition. When the case of the assessee is that the time prescribed for assessment had expired on 31st December, 2001, he should have raised the point in his letter dated 28th January, 2002 which he did not do. Therefore prolongation of the search did not cause any prejudice to the assessee not to talk of occasioning any failure of justice. It appears from the assessment order that the assessee was served with a notice u/s 131 to appear for recording his deposition. Time to do so was extended on four occasions. The assessee by his letter dated 28th January, 2002 evinced his intention not to appear. In those circumstances the assessment was completed on 31st January, 2002 which otherwise might have been completed on or before 31st December, 2001.