THE COMMISSIONER OF INCOME TAX vs SRI D S MANJUNATH

- 1 - IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 26TH DAY OF NOVEMBER 2013 P R E S E N T THE HON’BLE MR. JUSTICE N. KUMAR A N D THE HON’BLE MRS. JUSTICE RATHNAKALA INCOME TAX APPEAL NO.172 OF 2007

BETWEEN:

1.THE COMMISSIONER OF INCOME-TAX CENTRAL CIRCLE, NO.55/1, SHILPASHREE VIDHYARANYA COMPLEX, VISHVESHWARANAGAR, MYSORE.

2.THE ASSISTANT COMMISSIONER OF INCOME TAX INVESTIGATION CIRCLE – II, NO.55/1, SHILPASHREE VIDHYARANYA COMPLEX, VISHVESHWARANAGAR, MYSORE.

... APPELLANTS.

(BY SRI K V ARAVIND & SRI B. PRAMOD, ADVS.)

AND:

SRI. D.S. MANJUNATH, 3,4,5, MANASARA ROAD, 3RD CROSS, INDIRANAGAR, MYSORE.

...RESPONDENT.

(BY SRI A SHANKAR & SRI M LAVA, ADVS.)

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THIS ITA IS FILED UNDER SEC.260-A OF I.T. ACT, 1961, ARISING OUT OF ORDER DATED 08-09- 2006 PASSED IN IT(SS)A 156/BANG/1997, FOR THE BLOCK ASSESSMENT YEAR 1986-87 TO 1995-1996, PRAYING THAT THIS HON'BLE COURT MAY BE PLEASED TO:

I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN,

II. ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT BANGALORE IN IT(SS)A 156/BANG/1997 DATED 08-09-2006 & CONFIRM THE ORDER PASSED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, INVESTIGATION CIRCLE – II, BANGALORE, IN THE INTEREST OF JUSTICE AND EQUITY.

THIS ITA COMING ON FOR HEARING THIS DAY, N. KUMAR, J., DELIVERED THE FOLLOWING: -

JUDGMENT

The revenue has preferred this appeal against the order passed by the tribunal holding that the block assessment order passed in respect of the assessee is one without jurisdiction as there was no warrant issued in his name for search which is a condition precedent.

A search was conducted in the residential premises of D.T.S.Rao on 06.02.1996. His son Sri D.S.Manjunath was also residing with his father in the

- 3 - same premises. Warrant of authorization was issued in the name of D.T.S.Rao. Panchanamas were made on 06.02.1996, 19.02.1996 and 23.04.1996 in respect of the search action.

In the panchanama dated 06.02.1996 and 23.04.1996, the name was shown as that of D.T.S.Rao and in the panchanama dated 19.02.1996, the warrant of authorization was shown as D.T.S.Rao and D.S.Manjunath. After search notice was issued under Section 158 BC of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’ for brevity), to the assessee calling for return of undisclosed income for the block period, the assessee filed his return for income as ‘Nil’ undisclosed income. The assessing officer concluded the block assessment determining the total undisclosed income of Rs.69,65,721/-. Aggrieved by the said order, the assessee preferred an appeal before the Tribunal.

It was contended before the Tribunal that ‘the assessment order passed on 30.09.1997, was barred by limitation and should be cancelled. It was also contended that the entire block assessment is one

- 4 - without jurisdiction as no warrant of authorization has been issued in the name of D.S.Manjunath and issue of warrant in the joint name of D.T.S.Rao and D.S.Manjunath is illegal. The assessment order passed under Section 158BC and 158BD of the Act is contrary to law.’

The Tribunal after considering the rival contentions was of the view that in the warrant of authorization, only the name of D.T.S.Rao was entered and the name of the assessee was not shown. Therefore, the block assessment of the assessee made under Section 158BC of the Act is illegal. Further, it held that although the warrant of authorization does not contain the name of the assessee, the panchanamas prepared in the course of search, clearly show that search activity was carried out on the assessee. This is because the portion of the premises belongs to the assessee which has also been searched and cash, books of accounts and valuable articles found therein were inventorised and were seized as belonging to the assessee. Prohibitory order was also passed in the said

- 5 - portion of the premises occupied by the assessee. In the absence of the warrant in the name of the assessee in the action of search, the premises belonged to D.T.S.Rao and also occupied by the assessee and issue of warrant of authorization in the joint names is without the authority of the law. It is especially so when the search party did not have any doubt at all with the articles found and seized belong to the assessee only and not of Sri D.T.S.Rao, whose name appears in the warrant of authorization. It is perhaps, that is why the name of the assesee was included in the second panchanama to facilitate the seizure of the articles. Therefore, there was a search without a warrant of authorization in the case of the assessee. Therefore, it held that the block assessment order passed is one without jurisdiction and accordingly, set aside the order. However on other aspects of the matter, the matter has been remanded to the assessing authority for fresh consideration.

Learned Counsel for the revenue assailing the impugned order contends that the search warrant was

- 6 - in the name of D.T.S.Rao as at the time of search, assessee was residing in the premises, law provides for his search and seizure of the materials.

The appeal was admitted to consider the following substantial question of law: In the absence of a search warrant being issued in the name of the assessee, whether the authorities were justified in passing a Block Assessment Order under Section 158BC read with Section 158BD in case of the materials seized from the assessee relating to him?

When once the material seized showed undisclosed income in respect of the assessee, then Section 158BD of the Act is attracted and accordingly, assessment is done under Section 158BC of the Act and the Tribunal was in total error in finding fault with the Block Assessment Order passed in respect of the assessee and therefore, he submits, that portion of the order requires to be set-aside.

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We do not see any merit in the said contention. When a warrant is issued for search and seizure in the name of a person with reference to the premises, authorities have a right to enter the premises and search the premises and seize incriminating articles. If at the time of search, any persons apart from the assessee in respect of whom the warrant is issued, are present, it is open to the authorities to search them and seize articles from them, which relates to the person in respect of whom warrant has been issued. Similarly, when after seizure of material it is found that it discloses the undisclosed income of another person, then under Section 158BD the authorities can proceed against such person. That is the scheme of the Act. If any person other than the one named in the warrant is searched and such incriminating material is seized, which belongs to his person and not the person in respect of whom the warrant is issued, if that person is to be assessed for the Block period, there should be a warrant issued in his name and in respect of the premises because, search and seizure is a condition

- 8 - precedent for passing a Block Assessment Order. A person, who is searched and from whom the incriminating material is seized relates to that person, if there is no warrant issued for search and seizure, that cannot be made the basis for a Block Assessment Order.

In the instant case, the warrant was issued in the name of Sri.D.T.S. Rao. Assessee, his son was residing in the same premises. Therefore, it was open for the authorities to search and seize incriminating materials from him pertaining to his father Sri.D.T.S. Rao. Similarly, if any incriminating material is found in the possession of Sri.D.T.S. Rao, relating to his son, then they could have proceeded under Section 158BD. But that is not the position. After search and seizure of the assessee, they found materials pertaining to the assessee. Therefore, the Authorities have rightly held that the Block Assessment Order passed in relation to the assessee and searched is one without jurisdiction. In that view of the matter, we do not find any material in this appeal. Accordingly, appeal is dismissed.

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The Learned counsel appearing for the appellant is permitted to file power in the Registry within four weeks.

Sd/- JUDGE

nvj/sps

THE COMMISSIONER OF INCOME TAX vs. SRI D S MANJUNATH