Ever since the enactment of the
original Income-tax statute of 1922, the Income-tax authorities have been vested
with certain powers that are coterminous with the powers of
a Court under the Code of Civil Procedure, 1908. S. 131 of the Income-tax Act,
1961 is one such provision which includes, inter alia, the power to ‘enforce
the attendance of any person and examine him on oath.’
The justification or rationale
for these powers, depending on the reader’s point of view, is amply supported
by the well-settled and pervasive judicial principle of ‘audi alterem
partem,’ (no one be condemned unheard) in spite of the equally
well-settled principle that ‘nobody can be compelled to render evidence
The powers u/s.131(1) are
exercised for the proper administration of tax laws and for obtaining further
elucidation, on information available with the authorities, from the as-sessee
concerned. It enables the authorities to conduct inquiry and collect evidences
in support of their contentions. It also helps to bring to light the correct
facts and circumstances, for the purpose of carrying out
proceedings under the Act and is treated to be equally fair to the Depart-ment
as well as the assessee.
Insertion of Ss.1(A) :
S. 131(1A) was introduced with
effect from 1-10-1975 to empower the Asstt. Director of
Inspection, now amended to include officers authorised to carry out search
operations (i.e ‘authorised of-ficers’), to exercise the powers
mentioned in the S. 131(1).
The said provision was
introduced to nullify the effect of the ruling of the Calcutta High Court in the
case of UoI v. Gopal Das Gupta, (1974 Tax LR 656) wherein the Court held
that the Director of Inspection had no power to issue a notice u/s.131 and
record a statement of the person under the said Section as the same was
avail-able to the assessing officer.
This practical difficulty was
explained by the Departmental Circular No. 551 dated 23-1-1990 which was issued
to explain the scope and effect of the amend-ment in the following words :
". . . difficulty
felt was that an authorised officer could record a statement on oath only
during the course of search under the provisions of S. 132(4). Sometimes it
becomes necessary to record a preliminary statement before the commencement of
search for proper investigation. This was not possible as the Courts had held
that such a preliminary statement before the search could not be
re-corded under the provisions of S.
132(4) . . ."
To overcome these difficulties,
the Amending Act, 1987 has amended the said Ss.(1A) to extend similar powers to
an ‘authorised officer’ within the meaning of Ss.(1) of S. 132 before he
takes search and seizure action under clauses (i) to (v) of that sub-section.
S. 131(1) and S. 131(1A) — Distinction and
S. 131 is comprised of two
complementary sub-sections relating to two different classes of officers.
Whereas S. 131(1) empowers the jurisdictional assessing officer to issue sum-mons,
S. 131(1A) empowers the officers of the investigation wing viz. Assistant
Director, Deputy Director or the Director of Income-tax (Investigation).
Another point of distinction is
that powers u/s.131(1) can be exercised by the assessing officer only when any
proceedings are pending before him in relation to that assessee. Whereas power
u/s.131(1A) can be exercised notwithstanding that no pro-ceeding is pending
before the investigation officers. In other words, S. 131(1A) can also be
invoked for the purposes of a preliminary inquiry before carry-ing out the
However, the controversy arises
when the said Section i.e. S. 131(1A) is brought into play by the
authorised officers after conclusion of search action u/s.132. The questions
arise whether such acts on the part of the authorised officers are valid in view
of the fact that the same powers are available to the assessing officer u/s.131
and whether, such exercise of power u/s.131(1A), after conclusion of action
u/s.132, is valid.
By bringing both the provisions
into play simultaneously, there occurs multiplicity of pro-ceedings in
connection with the same assessee for the same case; one before the assessing
officer u/s.131(1) and another before the investigation officers u/s.131(1A).
In order to shed more light on
the issue, let us analyse the scope of powers u/s.131(1A) and related issues.
Scope of power u/s.131(1A) :
The Section reads as
"If the Director General
or Director or Joint Director or Assistant Director or Deputy Director, or the
authorised officer referred to in Ss.(1) of S. 132 before he takes action
under clauses (i) to (v) of that sub-section, has reason to suspect that any
income has been concealed, or is likely to be concealed, by any person or
class of persons, within his jurisdiction, then, for the
purpose of making any enquiry or investigation relating
there-to, it shall be competent for him to exercise the powers conferred U/ss.(1)
on the Income-tax authorities referred to in that
sub-section, notwith-standing that no proceedings with respect
to such person or class of persons are pending before him or any other
From the above, three important
phrases emerge in relation with the exercise of powers u/s.131(1A) that seize
our at-tention in the present discus-sion. These are :
(a) before he takes action
under clauses (i) to (v) of S. 132;
(b) has reason to suspect that
income has been concealed; and
(c) notwithstanding that no
proceedings with respect to such person or class of persons are pending.
From a plain reading of the
provision as aforesaid and the explanatory memorandum, the intent and the
purpose of the legislature is clearly evident. The said provision enables the
officers of the investigation wing to exercise the powers as mentioned before
search and seizure action u/s.132(1), clauses (i) to (v) are applied. However, a
recent trend is that even after conclusion of the search, the authorised
officers keep summoning the person searched u/s.131(1A) to conduct a ‘post-search
— Whether a misnomer :
The officers as aforesaid are
wont to conduct a ‘post search inquiry’ as called in common parlance. The
searched assessee is summoned and his statement is recorded on the various
It is incumbent upon the ‘authorised
officers’ to hand over the seized documents, statements recorded by them
u/s.132(4) and other material to the assessing officer for the purposes of
completion of assessment procedure under Chapter XIV-B. In case a ‘post-search
inquiry’ is carried out, a report of the same is also forwarded, along with
recom-mended lines of inquiry. This report is a confidential official document.
As a result, at the time of
block assessment proceedings under Chapter XIV-B, it is often felt that, the
jurisdictional assessing officer, gets unduly influenced by the findings in the
appraisal report. Even though such findings are arrived at uni-laterally and
without affording a reasonable and adequate oppor-tunity for hearing to the
assessee, the assessing officer is unable to judiciously and independently
analyse the case before him. This is more so when
the said report is never forwarded to the person
searched by the assessing officer.
It is a well-laid down principle
that the assessing officer is a quasi-judicial authority having quasi-judicial
powers during the course of assessment. The Supreme Court in the case of Sirpur
Paper Mills Ltd. v. CWT, (1970) 77 ITR 6 at pages 7 and 8 have upheld the
The need for independent
application of mind by the assessing officer and non-applicability of any
guiding force is further stressed by the Supreme Court in the case of Orient
Paper Mills Ltd. v. Union of India, AIR 1969 SC 48, 51. The Court held
"No authority, however
high placed, can control the decision of a judicial or quasi-judicial
authority. That is the essence of our judicial system. It is true that the
assessing authorities as well as appellate authorities are judges in their own
cause; yet when they are called upon to decide disputes arising under the Act,
they must act independently and impartially. They cannot be said to
act independently if their judgement is controlled by the directions given by
others. Then it is a misnomer to call their orders as their judge-ments; they
would essentially be the judgements of the authority that gave the
directions and which authority had given those judgements without
hearing the aggrieved party" (Orient Paper mills Ltd. v. Union of
India, AIR 1969 SC 48, 51)
. . . their two
functions are separate; while functioning as quasi-judicial officers they
should not allow their judgements be influenced by administrative
considerations or by the instructions or directions given by their
superiors." (Orient Paper Mills Ltd. v. Union of India, AIR 1969
SC 48, 51)
Similar view, in respect to the
report sent to the assessing officer by the authorised officer, has also been
expressed by the Madras Bench of the ITAT in the case of Kirtilal Kalidas
& Co. v. DCIT reported in 67 ITD 573 (Mad.).
From belief to suspicion : A regressive
Summoning the person searched
u/s.131(1A) after conclusion of search also appears to be regres-sive in nature.
Action u/s.132 is an extreme step taken by the Income-tax Department to un-earth
the undisclosed income/asset of a person. Prior to issuance of a warrant of
authorisation, the issuing authority should have adequate information which
forms the ‘reason to believe’ that there is undisclosed income. However, the
powers u/s.131(1A) are exercisable upon having a ‘reason to suspect’ the
existence of undisclosed income.
Now, once a ‘reason to believe’
has been formed by the Depart-ment regarding the existence of the undisclosed
asset/income and search operations have been carried out, formation of ‘reason
to suspect’ for issuance of summons appears to be
quite regressive and illogical. Hence, the practice of issuance of summons to
the person searched u/s.131(1A), for the purpose of the postsearch inquiry,
seems incorrect and tends to hit at the very root of the purpose behind the
introduction of this sub-section.
The contents of S. 132(1), which
specify the circumstances in which the search operations may be carried out,
read as :
(i) when a person to whom
notice u/s.131 or u/s.142 of the Act was issued to produce books or documents
and he has failed to comply;
(ii) when a person to whom
aforesaid notice is to be issued and he would not comply or
(iii) any person is in
possession of valuable article or thing, representing income or property which
has not been or would not be disclosed under the Act.
Satisfaction of at least one of
the above three conditions is a precondition to an income-tax search operation.
It is inter-esting to note that one of the circumstances in which the power to
search is exercisable is when a notice u/s.131 is issued and it has not been
complied with or there is a reason to believe that if a notice u/s.131 is
issued, it will not be complied with — Some food for thought.
It is also interesting to
compare the powers provided u/s.131(1) and the powers provided u/s.132(1). These
Powers much more enlarged in
scope are already exercised by the Department on a person at the time of
carrying out search and seizure operations. The provisions related to search
operations are expansive enough to enable the officers to complete their
investigation, within the provided framework. Hence, there cannot be an occasion
in law to virtually carry out the same act once again by the same authorities by
issuing summons u/s.131(1A) after exercising the powers as mentioned u/s.132.
Impact of new Chapter XIV-B and deletion of S.
Before the introduction of
Chapter XIV-B, an assessee who had been subjected to search was afforded an
opportunity to appear before the Income-tax Officer so that an order u/s.132(5)
could be passed ‘estimating’ his undisclosed income. This would help the
Department in deciding how much assets to retain towards the taxes. During the
course of such proceedings, it was incum-bent upon the assessee to appear before
the investigation authorities and help the authorities in resorting to such
estimation and in inquiry and investigation.
However, w.e.f. 1-7-1995, the
entire operation has been decentralised and separate wings for search &
seizure and assessment procedure respectively have been instituted. S.
132(5) stands abolished and now there is no provision in law which allows
estimate of undisclosed income by the Department. There is a clear demarcation
between the scope of duties and powers before and after the conclusion of a
After introduction of the Block
assessment scheme u/s.158BC, the assessee is first afforded an opportunity to
file his return of income commonly known as ‘Block return’ and disclose his
undisclosed income honestly. For this purpose the assessee is provided complete
immunity from any penalty under the Act and only higher rate of taxation i.e.
60% is applicable. Now, the question of concealment, if any, in the said Block
return is to be determined by the jurisdictional assessing officer before whom
the ‘block assessment’ is pending.
There cannot be any ‘concealment’ till return is filed.
Hence, summons by investigation wing to detect concealment after conclusion of
search but before providing rightful opportunity to the assessee to come clean
and pay taxes on his hidden income goes against the express intent of the
Applicability of Law of
Postsearch inquiry u/s.131(1A)
also comes under shadow of doubt because provisions of S. 132(9A) specifically
state that the seized material has to be transferred to the jurisdictional
Income-tax Officer within 15 days. Thereafter it is the domain of the AO to
analyse the seized material and carry out the requisite investigation. The above
contention has been upheld by the Kerela High Court in the case of Dr.
Balkrishnan Nair v. CIT reported in 154 CTR page 543 as well as the Gujarat
High Court in the case of N. R Paper Boards reported in 234 ITR 733 wherein it
has been held that :
". . . a
separate procedure is devised in Chapter XIV-B to deal with the cases where
search is initiated or requisition made u/s.132 or u/s.132A, after June 30,
1995. This procedure is for assessment of the ‘undis-closed income’ as
defined in S. 158B(b) of the Act. We may notice from the provisions of S.
132(9A) that where the authorised officer has no jurisdiction over the person
referred to in clause (a), (b) or (c) of Ss.(1) of S. 132, the books of
account or other documents or assets seized under that sub-section shall be
handed over by the authorised officer to the Income-tax Officer having
jurisdiction over such person. It will also be noticed from the provisions of
S. 120 and S. 124 of the Act, that there are provisions made for empowering
the Assessing Officers in respect of the area and they have jurisdiction in
respect of any person residing or carrying on business within that area. Thus,
in cases where the search was initiated after June 30, 1995, and the
authorised officer who has conducted the search and seizure u/s.132(1) of the
Act, is not the Assessing Officer having jurisdiction over the person, he will
be handing over the material to the Assessing Officer having jurisdiction in
the matter as a result of the provisions of Ss.(9A) of S. 132 of the
In any case, S. 158BH provides
for the completion of the block assessment within a time limit of two years from
the end of the month in which the last warrant of authorisation has been
executed. So, in case, after the conclusion of the search, the matter remains
with the investigation wing, instead of being expeditiously transferred to the
jurisdictional officer, the time available with the latter, for carrying out the
complex procedure of assessment gets whittled down, which certainly cannot be
the intention of the legislature.
Last but not the least, is the
authors’ contention that powers u/s.131(1A) can be exercised only when no
proceedings under the Act are pending in relation to the concerned assessee.
This view has been concurred with by the Madhya Pradesh High Court in the case
of Arjun Singh & Another v. Assistant Director of
Income-tax (Investigation) reported in 246 ITR page 363 wherein it has
been held that :
". . . the
comparison of the two provisions i.e., Ss.(1) and Ss.(1A) of S. 131
leads us to the irresistible inference that the officers mentioned in Ss.(1)
of S. 131 of the Act can exercise power thereunder only if a proceeding for
assessment is pending before him against an assessee but the authorities
mentioned in Ss.(1A), viz., Director General or Director or deputy
Director or Assistant Director or the authorised officer, can exercise such
power, notwith-standing that no assessment proceedings for assessment are
pending, where he has reason to suspect that any income has been concealed or
is likely to be concealed by any person or class of persons,
obviously other than the assessee against whom assessment proceedings are
pending as for him the power is already available under Ss.(1)."
Thus the above Court has very
categorically restricted the scope of notice u/s.131(1A) so as to avoid
duplication and multi-plicity of proceedings. It has stated that S. 131(1) and
S. 131(1A) are mutually exclusive as when S. 131(1) comes into play S. 131(1A)
has no role to play. As soon as the action u/s.132 is concluded, by virtue of
the jurisdiction being passed on to the designated assessing officer, assessment
proceedings under Chapter XIV-B become pending, thereby making S. 131(1)
operative and S. 131(1A) redundant.
The other side of the
However, the above arguments
have not been accepted by the Gujarat Bench of High Court in the case of Aarti
Gases reported in 248 ITR page 55. The High Court dismissed the writ petition of
the assessee stating that in order to have complete idea about the material
seized during the search and under-stand the nature of the documents, notice
u/s.131(1A) can be issued by the authorised officer. Such a notice would be
helpful not only to the Department but also to the assessee as he will be in a
position to offer explanation correctly.
However, the above judgements
seems to have erred in appre-ciating the role of the assessing officer vis-à-vis
the authorised officer. The opportunity of hearing has to be afforded by the
assessing officer. Moreover, it is his domain to call for explanation and
information from the person searched as he is burdened with the responsibility
of passing a speaking assessment order under Chapter XIV-B. It is a simple
management maxim that authority and responsibility go hand in hand. Hence, if
the responsibility of passing the assessment order rests with the assessing
officer, it is but natural that the authority to call for information vests with
the same officer. Moreover, the person searched has appellate remedy against the
order passed by the assessing officer which is not available against the report
prepared by the authorised officer.
Summing up :
The Act has undergone conceptual
and fundamental change in search and seizure operations after the introduction
of Chapter XIV-B for the assessment of search cases. Consequential changes in S.
132 [for instance abolition of S. 132(5)] also leads to an inevitable conclusion
that there is a clear demarcation between the authorities conducting
investigation and the authori-ties passing the assessment order. Separate powers
have been provided by the statute to both these authorities to enable them to
exercise their authority in the right manner. However, whether or not these
powers are coterminous or are they mutually exclusive is what is
to be decided not only judicially but also administratively. Till then the
controversy shall continue.