BISHAMBHAR DAYAL J. - These connected appeals arise out of writ petitions filed on behalf of several trading units and one trust governed by the members of a certain family in Firozabad against different orders passed by the income-tax department against one or the other of them. Four of these Special Appeals Nos. 89, 90, 91 and 92 of 1967 have been field by the department against the orders of a learned single judge of this court and the other four appeals have been filed by the assessees being Special Appeals Nos. 123, 124, 125 and 127 of 1967. In Firozabad liquid gold is in great demand for decorating glass bangles which are manufactured at Firozabad and which is the main industry there. The learned single judge had given a pedigree in his judgment which brings out the relationship of different members of the family and whose names occur during the proceedings. The main business of the family was carried on in partnership under the name and style of 'Firm Madan Mohan Damma Mal'. Both Sarvasri Madan Mohan and Damma Mal are ancestors of the persons now living. Shri S. G. Chandra is now a leading member of the family and he is said to be carrying on business of all the units either himself or through the other members of the family. In the beginning the firm used to import liquid gold from England against import licences. But subsequently Firozabad Glass and Chemical Industries Ltd. was started in the year 1954 and liquid gold was manufactured by this limited company. The firm used to sell this liquid gold also manufactured by the company. After the manufacture of liquid gold had been started in Firozabad, a trust was created called 'Madan Mohan Damma Mal Trust Society' for promotion of technical education and in order to provide funds for this Trust Society, the Firm Madan Mohan Damma Mal passed a resolution that liquid gold which was to be imported on the import licences till then left in the hands of the firm would be transferred at cost price to the Trust Society and the profits thus received by sale of that liquid gold would be profits of the Trust Society for the purpose of promoting the purpose of the Trust Society. Thus, a third unit in this group, namely, the Trust Society came into existence. The family was also carrying on the trade of preparing oil and this was done by the Madan Mohan Damma Mal Private Co. Limited. There was another unit called the 'Firm Kumar Pharmaceutical Works' which was started in the year 1959, and originally owned by Surendra kumar. But it became a partnership in the year 1961, between Surendra kumar and Hemant kumar. All these units were housed in buildings belonging to the members of the family either at Kotla Road, Firozabad, or at Gher Khokhal. It may also be noted that within the compound of the buildings at Kotla Road, the office and the residence of the Income-tax Officer, Firozabad, were also stationed in the building belonging to a member of the family. In June, 1960, there was some misunderstanding between Shri G. C. Garg, the then Income-tax Officer, Firozabad and Shri S. G. Chandra and some other members of the family. As a result of this misunderstanding, complaints were made and all the case of this family were transferred in 1961, from Firozabad to the Income-tax Officer, (A) Ward, Agra. On the 6th of July, 1964, on account of some secret information sent in writing by the members of this family, the residence and the luggage of Shri G. C. Garg were searched and he was transferred to (c) Ward, Agra. He is still under suspension and enquiries are going on in the matter. The case of the assessees and the petitioners here in court is that this action greatly enraged not only Shri G. C. Garg but all the officers of the income-tax department who combined together and decided to wreak vengeance upon the assessees. As a result of this scheme of teaching a lesson to the assessees, Shri F. D. Helms, who was the Inspecting Assistant Commissioner, Agra, at the investigation of Shri G. C. Garg, took advantage of the amendments made in the Income-tax Act and organised indiscriminate searches and seizures in the premises of the assessees. On the 8th of February, 1965, a large number of Income-tax Officers headed by Shri F. D. Helms and assisted by a posse of police officers raided the premises of : (1) the factory of Firozabad Glass and Chemical Industries Ltd., Kotla Road, Firozabad, (2) the office and the premises of the firm kumar Pharmaceutical Works situate at Kotla Road, Firozabad, (3) the residence of Gopal Chandra and Surendra kumar situate in the same compound at Kotla Road, (4) the premises of Madan Mohan Damma Mal Trust Society also in the same compound, (5) the Gaddi of the firm Madan Mohan Damma Mal at Gher Khokhal, (6) the residence of L. Dau Dayal and Rameshwar Dayal at Gher Khokhal, (7) the office and godown of the firm Kunji Lal Har Dayal situate at Mutwali Gali, Firozabad, (8) the residence of Trilokinath at Gher Halwaiyan, Firozabad, and (9) the residence of Prem Bihari Lal at Gher Halwaiyan. The validity of this search is being challenged on several grounds which will be considered hereafter. It is alleged that unnecessary force was utilised and an indiscriminate search was carried out during which all the safes were broken, floors and walls were dug up at several places and all the account books and papers available were indiscriminately seized and taken away without proper lists being prepared and without following the procedure laid down by law. After this raid, the Income-tax Officer, (A) Ward, served notices on the 4th of March, 1965, under section 22(4) of the Income-tax Act on the Firozabad Glass and Chemical Industries Ltd. and the firm Madan Mohan Damma Mal asking them to produce further documents showing their concealed income from sale of liquid gold as the Income-tax Officer had discovered from account books recovered during raids that a considerable amount of business in manufacture and sale of liquid gold had been carried on by them which was not entered in the regular books of accounts which were submitted before the department. Correspondence thereupon ensured whereby the assessees denied the existence of any such transactions and also the genuineness of any account books that may have given that impression. The Income-tax Officer fixed several dates but no further accounts were produced. On the other hand, the assessees requested for further time for summoning of witnesses, etc., in order to show in their own way that the alleged books recovered at the time of the raid which had created suspicion, were not reliable and no action could be taken on the basis thereof. Adjournment not having been granted, a number of writs were filed for quashing the assessment proceedings. The Firm Madan Mohan Damma Mal filed Writ Petition No. 1265 of 1965 on the 30th March, 1965. The Firozabad Glass and Chemical Industries Ltd. filed Writ Petition No. 1141 of 1965 on the 29th of March, 1965. The Income-tax Officer in the meanwhile passed best judgment assessment orders for the year 1960-61, against the Trust Society and issued a demand notice on the 23rd of March, 1965, along with a penalty notice under section 274 read with section 271 of the Income-tax Act for the same year. Against these orders and notices, Writ Petitions No. 1406 of 1965, was filed on behalf of the Trust Society on the 15th of April, 1965. Other writ Petitions were also filed with which this Bench is not concerned as special appeals do not relate to them. While these writ petitions were pending, the Commissioner of Income-tax U. P. (2) passed orders on the 16th of October, 1965, creating a special circle in Agra for dealing with income-tax assessment cases relating to these units and appointed Shri K. C. Gupta, Income-tax Officer in-Charge of (C) Ward, to take carge of this special circle, which was to take effect from the 1st of November, 1965. He transferred all these cases pending before the Income-tax Officer (A) Ward, to the Income-tax Officer, Special Circle. On the 29th of October, 1965, the Board of Direct Taxs issued a notification including this special circle in the schedule as within the jurisdiction of the Commissioner of Income-tax U. P. (2) with effect from the 1st of November, 1965. On the 12th of November, 1965, notices under section 23(2) of the Income-tax Act were issued fixing dates for appearing against the firm Modan Mohan Damma Mal and the Firozabad Glass and Chemical Industries Ltd. for the assessment year 1961-62 by the Income-tax Officer, Special Circle. The jurisdiction of the Income-tax Officer, Special Circle, to proceed with these cases is challenged. Proceedings were started against these two units for the assessment year 1960-61. Thereupon, the firm Madan Mohan Damma Mall filed Write petition No. 672 of 1966 on the 21st of February, 1966, challenging the jurisdiction of the Income-tax Officer, Special Circle, to proceed with those cases. Shri Surendra Kumar filed Writ petition No. 775 of 1966 for himself and on behalf of the Firm Kumar pharmaceutical Works on the 25th of February. 1966, and the Firozabad Glass and Chemical Industries Ltd. filed Write Petition No. 673 of 1966 on the 21st of February, 1966.
All these writ petitions were heard together by a learned single judge of this court and were disposed of by one common judgment on the 19th of March, 1967. Against this judgment the present special appeals have been filed both by the assessees and by the department as mentioned above. Instead of giving all the details how the learned judge dealt with the contentions of the respective parties, it will be more convenient to take up the points raised on behalf of the assessees in the writ petitions which are material at this stage in the special appeals.
To my mind, the most important questions that have been raised on behalf of the assessees challenging the validity of the proceedings which must be decided in these special appelas are : (1) whether the creation of the special circle was illegal and consequently all the proceedings before the Income-tax Officer, Special Circle are without jurisdiction, (2) whether the raid organised by the income-tax department was against law and, therefore, any material that may have been seized at the time of the raid cannot be utillised against the assessees, and (3) whether the raid and subsequent proceedings taken by the income-tax department against these assesses were actuated by malice and a mala fide motive 'to teach them a lesson' and were, therefore, invalid and nullity. The first two points have been decided against the department and so are the subject of challenge in special appeals by the department and the last was decided against the assessees and has been raised in the special appeals by them among other points. Most of the other points that have been raised on behalf of the assessees in this court are such as are open for consideration in the departmental appeals which, admittedly, have been filed and are pending against the orders passed by the Income-tax Officer from time to time. In due course, I will deal with only those points which cannot be raised and decided in the proceedings pending under the Income-tax Act. In my opinion, the questions which can be raised and properly decided in the appeal against the orders of the Income-tax Officer should not be considered in writ proceedings, particularly when an alternative remedy is being ultilised and is available.
I will now proceed to deal with the above three questions one by one. The first point is the validity of the creation of the special circle in Agra. As stated above, the orders creating special circle, transferring cases to that circle and appointing an Income-tax Officer to that circle with effect from the 1st of November, 1965, were passed by the Commissioner of Income-tax U. P (2) Section 124 of the Income-tax Act, 1961, provides that all Income-tax Officers shall perform their functions in respect of such areas or of such persons so classes of persons, etc. as the Commissioner may direct. Shri K. C Gupta who was the Income-tax Officer, (C) Ward, Agra, was subject to such directions under section 124 of the Income-tax Act issued by the Commissioner. And as the Commissioner directed him to be in-charge from the 1st of November, 1965, of all those cases which were pending in (A) Ward, the Income-tax Officer validly got the power to deal with those cases. The Commissioner was within his jurisdiction to direct one Income-tax Officer to take charge of particular cases and to start work from a particular date. The contention on behalf of the learned counsel for the assessees was that it is the power of the Board to place a particular area or circle within the jurisdiction of the Commissioner and unless that is done, the special circle could not come within the jurisdiction of the Commissioner of Income-tax, U. P (2), as long as such orders were not passed. The notification of the Board, and therefore, it is contended that all the orders passed by the said Commissioner on the 16th of October and the 22nd of October, 1965, were without jurisdiction. Section 121 of the Act, which has been relied upon, is as follows.
'121. (1) Commissioners shall perform their functions in respect of such areas or of such persons or classes of persons or of such incomes or classes of income or of such cases or classes of cases as the Board my direct.'
In the present case, the Income-tax Commissioner, U. P. (2) had already the whole of Agra division in his jurisdiction when he issued the impugned orders. His jurisdiction was defined by area and, therefore, the whole of Agra and Firozabad and cases arising therein were under his jurisdiction. He could thus validly exercise this power of transferring cases to a particular Income-tax Officer under him under section 124 of the Act. Since in the schedule issued by the Board, the jurisdiction of the Commissioner had been detailed with reference to areas and a new circle was created by the Commissioner which had no reference to any area, the notification of the 29th of October, 1965, was issued by the Board of Direct Taxes merely to bring the schedule up-to-date. No orders were passed by the Board creating the circle. That notification merely amended the Schedule by adding a special circle also within the jurisdiction of the Commissioner in the schedule. I am unable to see why before this notification of the 29th of October, 1965, there was no special circle, and hence the orders of the Commissioner assigning cases to Shri K. C. Gupta and appointing Shri K. C Gupta as the officer-in-charge of these cases in the special circle were legal.
It was next contended that on receipt of the notices issued by the Income-tax Officer, Special Circle, his jurisdiction to decide cases was challenged by the assessees and he was bound under section 124(4) of the Act to refer the question to the Commissioner for decision. That sub-section is as follows.
'124. (4) Where a question arises under this section as to whether an Income-tax Officer has jurisdiction to assess any persons the question shall be determined by the Commissioner.....'
I am unable to see any force in this contention. In the present case, the Commissioner himself passed orders transferring the cases from (A) Ward to special circle. The question of jurisdiction had not arisen independently of such orders. The Income-tax Officer was bound by the orders of the Commissioner and since the Commissioner had himself directed him to hear those cases there was no point in referring the matter back to the Commissioner for decision. To my mind, cases challenging the validity of transfer orders cannot be covered by this provision. Sub-section (6) of section 124 of the Act is as follows :
Subject to the provisions of sub-section (5) where an assessee calls in question the jurisdiction of an Income-tax Officer, then, the Income-tax Officer shall, if not satisfied with the correctness of the claim, refer the matter for determination under sub-section (4) before assessment is made.'
This sub-section contemplates that an Income-tax Officers where he is satisfied with the correctness of the claim will himself refuse to proceed with the assessment. But where he is not satisfied with the correctness of the claim be will refer the matter to the Commissioner. This at least contemplates that Income-tax Officer has to apply his mind and to come to a conclusion whether he has jurisdiction or not. But in a case where the Commissioner has transferred cases to be tried by him, there is nothing for the Income-tax Officer to apply his mind upon. He has merely to obey orders and to do the needful. Moreover, this power to refer to the Commissioner is also subject to the provisions of sub-section (5) which provides a time-limit within which such objection as to jurisdiction ought to be made. But in the present case the objection was raised much beyond that time-limit as in this case returns were filed several years before cases were transferred to the special circle. This also indicates that the Legislature contemplated an objection of jurisdiction being raised only in those cases which were to be initiated before a particular Income-tax Officer and did not relate to cases which were already pending for several years and were then transferred from one Income-tax Officer to another. I, therefore, see no force in this contention and I am of opinion that the Income-tax Officer, Special Circle, had jurisdiction to deal with these income-tax cases according to law.
The next question for consideration at this stage is the validity of the search and the utility of the documents which were recovered at such search. The contention on behalf of the assessee is that the search was mala fide and was contrary to the provisions of law. The question of mala fide will be considered separately but here I will deal with the illegality alleged to have been committed in this connection. In the first place it is contended that under section 132 of the Income-tax Act, 1961, as amended in 1965, on search warrant could be issued unless the Commissioner (who issued the search warrant) had information in his possession in consequence of which he had reason to believe that the the assessee would not produce the books of account which might be useful or relevant in assessing the tax. It is argued that the existence of such information is a matter of fact which can be adjudicated upon by a court of law althought the formation of opinion may be subjective. In this connection, main reliance was placed on the case of Nakkuda Ali v. M. F De S. Jayaratne. In that case their Lordships of the Privy Council were considering the provisions of Regulation No. 62 which contained the relevant words : Where the Controller has reasonable grounds to believe that any dealer is unfit to be allowed to continue as dealer.' These words were interpreted to mean that 'there must in fact exist such reasonable grounds known to the Controller before he can validly exercise the power of cancellation.' But their Lordships further proceeded to note that the Controller was not required to perform any judicial or quasi-judicial functions and unless that was the position the matter would not become justiciable. Their Lordships observed :
'It is long step in the argument to say that because a man is enjoined that he must not take action unless he has reasonable ground for believing something, he can only arrive at that belief by a course of conduct analogous to judicial process. And yet, unless that proposition is valid, there is really no ground for holding that the Controller is acting judicially or quasi-judicially when he acts under this Regulation. If he is not under a duty so to act, then it would not be according to law that his position should be amenable to review and if necessary to avoidance by the procedure of certiorari.'
In the present case the issue of search warrant by the Commissioner was certainly not a judicial or a quasi-judicial act and even if the Commissioner was enjoined to issue a warrant only, when he could form the necessary belief, the matter would not thereby become subject to scrutiny by the court. On fats, the Commissioner has in his affidavit (paragraph 6) stated that he had acted on the basis of information and material placed before him to the effect that the firm had been carrying on a large scale business in the manufacture and sale of liquid gold, the profit from which were not being incorported in the account books of the petitioner-company and the company had thus evaded tax to a very substantial extent. He also stated that this information indicated that the petitioner-company had been maintaining duplicate sets of accounts different from those which were being produced before the income-tax department which the company was not likely to produce. Shri. F. D. Helms, the Inspecting Assistant Commissioner, has also stated in his affidavit as follows :
'The fact is that some secret information was passed on to me which prima facie gave an indication that the petitioner-company had been carrying on large scale business in the manufacture and sale of liquid gold and the sale of such liquid gold was being effected through the allied business of modan Mohan Damma Mal who were the sole selling agents of the petitioner-firm which was not accounted for in the companys books of account.... that the petitioner was maintaining duplicate sets of accounts which were different from the books which were being produced before the income-tax U. P. (2), who asked for some further clarifincation from me. I sent detailed report to the Commissioner through a special messenger and was later on called by the Commissioner for personal discussion together with the records of the case. After the Commissioner for personal discussion together with the records of the case. After the Commissioner was satisfied about the authority of the information he issued the necessary authorisation letter under section 132 of the Income-tax Act, 1961.'
The department has also produced one statement of Kalicharan which was recorded in this connection on the 30th of January, 1965. Among other things he had stated that he was serving with M/s. Madan Mohan Damma Mal, that he was realising the amounts for the sale of liquid gold and that he was also keeping accounts thereof. He also stated that these realisations, were not entered in the regular books of account and that he was maintaining another set of accounts. There is other information also contained in his statement but it is unnecessary to refer to the same. In my opinion, on these affidavit of responsible officers, coupled with this evidence which has been disclosed, there is no reason to doubt that the Commissioner had information which led him to issue the necessary warrant.
The next contention raised was that the statement of Kalicharan was not sufficient to issue a search warrant for all the places mentioned in the warrant and that the search itself was conducted at least at two places which was not authorised by the warrant, namely, at the premises of Madan Mohan Damma Mal Trust Society and the Kumar Pharmaceutical Works. The justification for the issue of the warrant for the search of so many places is, as put forward by the department, that all these units were allied concerns of the firm Madan Mohan Damma Mal and the duplicate sets of accounts which they were out to find out, could be placed at any of these premises and the search of all the places simultaneously was, therefore, not only justified but necessary. There is no denial of the fact that the places where the search was conduct the were within the control of the partners of the firm Madan Mohan Damma Mal and their direct relations. It is, therefore, difficult to say that there was no justification for conducting the search simultaneously at all the places. Another contention against the search was that there was an indiscriminate search where all the safes were broken open, floors were dug up at several places, even walls were sometimes dug up and everything possible irrespective of their relevance for the purpose was seized. In this connection, the learned single judge has given three instances of the documents taken into possession by the department at this search which he considered, were wholly irrelevant for the purpose. These documents were shown to us by the learned Advocate-General who was appearing on behalf of the department and he explained that these three items were relevant for the purpose in hand. I am satisfied that these documents cannot be said to be wholly irrelevant. No other instance was brought to our notice by the learned counsel appearing for the assessees which was wholly irrelevant for the purpose. The documents taken away at the time of the search were entered in the lists, although some of the items did not indicate the nature of the document but from that alone it is not possible to hold that the documents were wholly irrelevant.
It was also very seriously contended on behalf on the assessees that under section 132 of the Income-tax Act, it was incumbent for the Commissioner to specify particular documents which had to be searched and in the warrant issued in the present case no such documents were specified. It was further contended that the officer authorised to make the search should merely be directed to find out particular documents and that he had no discretion of his own to decide which documents were relevant and which were not. The relevant words of section may be quoted as follows.
'Where... the Commissioner... has reason to believe that any person to whom... a notice under sub-section (4) of section 22 of the Indian Income-tax Act, 1922, or under sub-section (1) of section 142 of this Act was issued to produce... any books of account or other documents has omitted or failed to produce.... or any person to who a summons or notice as aforesaid has been or might be issued will not,... produce ... any books of account or other documents which will be useful for, or relevant to, any proceeding.... he may authorise any... Inspecting Assistant Commissioner... Income-tax Officer (...) to enter and search any building or place where he has reason to suspect that such books of account,..... are kept....'
It may be noted here that the search is to be authorised for the purpose of finding out account books which may be relevant for the purpose of income-tax. Where the income-tax department has to discover duplicate sets of account books from which the real account of profit and loss of a particular assessee is to be discovered, it is impossible for the Commissioner to exactly know the nature of those papers from which such discovery can be made. In the very nature of things, the warrant cannot specifically describe the documents and the language of the section is certainly wide enough to include a general description of the documents which would be relevant for finding out the real income of the assessee. I am, therefore, of the opinion that the section does not require specific mention by description of each particular document which has to be discovered on search. It is for the officer who is conducting the search to decide whether a particular document found on search was relevant for the purpose or not. In this connection reliance was placed on a decision of this court in Seth Brothers v. Commissioner of Income-tax. In that case, after a search, more than five hundred documents were seized and many of those documents were in fact found to be irrelevant for purpose of the assessment. Besides the documents of the assessee, the officers seized documents belonging to some connected firms and companies. Marks of identification were not put on the documents, and the documents were retained for more than the authorised period and the police force used was found to be excessive. In these circumstances it was held that the search was not bona fide inasmuch as the extent of seizure was far beyond the limit and the action amounted to an abuse of the power conferred under section 132 of the Act. It was held in that case that the Income-tax Officer did not apply his mind at all as to which document was to be searched and formed no opinion regarding relevance or usefulness of the document. The search was held to be illegal. In the present case it has not been shown that irrelevant documents had been seized and, in fact, it was admitted in the affidavit that many account books and registers were left with the owners. Shri Rameshwar Dayal in his affidavit (paragraph 4) filed in writ petition No. 1406 of 1965 admitted that the documents seized were closely examined before they were taken possession of. With regard to the allegation of excessive force being used, Shri F. D. Helms, in paragraph 10 of his counter-affidavit filed in writ petition No. 1406 of 1965, has stated that in view of the fact that a large number of premises were to be searched simultaneously, seventeen Income-tax Officers were authorised to make searches. Police assistance was also taken in order to prevent any breach of the peace. The police officers, however, did not take part in the actual search. I was also alleged that on a previous occasion, when the search was carried out by the sales tax authorities in the business and residential premises of the chairman and some of the members of the partnership, a violent resistance was offered from their side with show of fire-arms and in order to prevent such occurrence it was necessary to take police protection. In the present case, fourteen premises were simultaneously searched and in view of the allegations mentioned above, I find it difficult to hold that the number of persons taking part in the search was excessive.
Lastly, it was contended that according to the provisions of the Code of Criminal Procedure it was necessary to have two respectable witnesses of the locality to witness the search but this was not done. In this connection it has been stated that the witnesses who had signed the list of documents taken away at the time of the search were not present and their signatures were obtained later on. The allegation on behalf of the department is that persons of the locality who were present in the very beginning were scared away by the assessees and did not agree to witness the search on account of influence of the assessees. Whatever be the reason, there appears to be this irregularity in the proceeding. But this precaution was meant to ensured that a particular article had been recovered from the place of search. In the present case much importance cannot be attached to that aspect of recovery. The documents seized at the time of the search were themselves relevant for purposes of the assessment. Even of the documents were found at some other place and were relevant for purposes of the assessment, they would be equally useful and, therefore, the fact of discovery at a particular place is not of much importance in such case. On account of this irregularity it is not possible to say that the whole search was illegal and without authority.
In this connection another question arises whether the documents recovered at a search which was not absolutely according to law, can be utilised for assessment purposes. A large number of cases were cited at the Bar on the proposition that evidence procured in an unlawful manner could or could not be utilised at a trial. On behalf of the department reliance has been placed on Kunuma son of Kaniu v. Regina, in which it has been held by their Lordships of the Privy Council as follows :
'In considering whether evidence is admissible, the test is whether it is relevant to the matters in issue and if it is relevant, the court is not concerned with the method by which it is obtained or with the question whether that method was tortuous or excusable.'
Learned counsel appearing for the assessee relied upon some American cases in which a distinction was made between the documents recovered contrary to the provisions of the Constitution and the documents recovered in other illegal ways and it was held that those which were recovered contrary to the provisions of the Constitution could not be used while those which violated other provisions of law could, however be used. In our Constitution there is no prohibition like the one contained in the Fourth Amendment of the United States Constitution and, hance, that question does not arise here. It was also argued that production of certain documents before a court of law is different from utilising illegally obtained documents in the assessment of income-tax. The distinction which is alleged is that in a court of law a party does an illegal act to obtain documents but the court is not affected by it. In the present case it is the department which recovers the documents illegally and it is the department which tries to utilise the same for purposes of assessment. But I am unable to see any real distinction between the two cases. On the executive side, the department has recovered a document which is placed for consideration before the Income-tax Officer who acts quasi-judicially at the time of assessee, net and who has not taken any part in the method of recovery. What the Income-tax Officer making the assessment has to see is the relevancy of the documents for purposes of the assessment. It was further contended that the process of assessment includes the procedure of recovery of documents, etc., and, therefore, the whole process utilised for purposes of assessment must be according to law and any breach of law would entail invalidity of the assessment. I am unable to see any direct connection between the assessment of tax and the method by which a document is found out, which is utilised for purposes of assessment. I am, therefore, not prepared to hold that the process of finding out a document is a part of the procedure for assessment. I am of the opinion that the documents recovered at the search could be utilised for purposes of assessment. The mere fact that some premises were searched for which there was no warrant specifying that place, is not material the present case because no documents recovered at those two places which were not mentioned in the warrant, have any bearing on the assessment made. Apart from bona fides which will be considered hereafter, I do not see any reason why the documents recovered at the search should not be utilised for assessment purposes.
Arguments were also advanced to indicate that the main documents upon which reliance has so far been made by the department are documents mentioned in list D at items 1-70 and 77. It was argued that the documents actually produced in court as having been recovered and mentioned at those items in list D were not those documents which had in fact been recovered at that time and that these documents were forged ones. Whether these documents are forged or genuine documents belonging to these assessees is not a matter which can be considered in writ proceedings on the basis of the affidavit filed in support thereof. This matter needs detailed investigation which can properly be done by the officers of the income-tax department before relying upon them for making assessments. If the petitioner did not have sufficient opportunity to prove that those documents were forged ones, it is a serious matter which will be considered by the department itself at the proper stage. I, therefore, come to the conclusion that there is nothing so illegal in the search as to make it wholly without jurisdiction and the documents really recovered at the search can be utilised for purposes of assessment, if they belong to the assessees.
It was next contended in this connection that under section 132(8) of the Act, documents seized cannot be retained for more than 180 days. But the proviso to that sub-section is as follows :
'Provided that the Commissioner shall not authorise the retention of the books of account and other documents for a period exceeding thirty days after all the proceedings under the Indian Income-tax Act, 1922, or this Act in respect of the years for which the books of account or other documents are relevant are completed.'
The raid having taken place on the 8th of February, 1965, and the writ petitions having been filed in March, 1965, even 180 days had not come to an end and, in any case, the income-tax proceedings in respect of the relevant years are still going on. If the documents are needed for purposes of assessment, it is not proper to direct return of those documents at this stage.
The most important allegation on behalf of the assessees challenging the validity of these proceedings including the search was that, according to the assessee, the department was actuated by malice and not by an honest motive for the purposes of the Act.
I have already considered above the validity of the raid and the discovery of the documents and have come to the conclusion that there was nothing illegal about it and the main motive alleged for malice against the assessees also does not appeal to me. Subsequent orders passed during the assessment proceedings are orders which have to be considered in those proceedings and need not be detailed here.
One question has, however, been raised which, according to the learned counsel appearing for the assessees, cannot be raised at the time of the appeal. His contention is that in cases where best judgment assessment has been made on account of failure to comply with the notice issued under section 142 of the Act, the only method of getting that judgment set aside under the Income-tax Act is to make an application under section 146 of the said Act in which all that is open to the assessees is to say that he did not have a reasonable opportunity to comply or was prevented by sufficient cause from complying with the notice. He has, therefore, to accept that he ought to have complied with the notice but did not get sufficient opportunity to do so and that he was now prepared so to comply. According to the learned counsel, it is not possible to raise the question that the notice itself was unfounded and the documents required being non-existent it was not possible to comply with it. I am unable to agree with this contention. The words of sub-clause (iii) of section 146 of the Act are :
'.... that he had not a reasonable opportunity to comply, or was prevented by sufficient cause from complying, with the terms of any notice referred to in clause (ii).'
The phrase 'was prevented by sufficient cause from complying with' is wide enough to cover a case where the documents required do not exist and, therefore, it was not possible to comply with the notice. Non-existence of the documents is a sufficient cause for non-compliance with the notice and the assessee is at liberty to satisfy the Income-tax Officer that the basis which created suspicion in the mind of the Income-tax Officer for issuing the notice was itself wrong and that no such documents which were required by the notice to be produced ever existed. On being so satisfied the Income-tax Officer will cancel the notice and the assessment proceedings can be started afresh. That being the scope of the application, an appeal against that order would also cover such a decision. Admittedly, applications for setting aside the ex parte best judgment assessments have been made and the proceedings are still pending. Another question raised by the learned counsel in this connection was that the Trust Society had been taxed for income which had already been taxed in the hands of the firm Madan Mohan Damma Mal. The position taken by the department is that the assessment against the Trust Society is merely protective assessment in case it is ultimately found that the firm was not liable to pay tax on this income, the revenue may not suffer. Whether protective assessment is permitted by law is a matter of great controversy. Their Lordships of the Supreme Court have twice left the matter open and there is no decision of this court on that point. Whether such a protective assessment is possible or not can also be raised in the appeal against the assessment of the Trust Society filed or to be filed on behalf of the trust. Learned counsel appearing for the assessees referred to a large number of orders passed during the course of the assessment which according to the learned counsel were not justified in the circumstances and which indicated that the officers were actuated by malice. But all these matters are under consideration in the assessment proceedings where they can be heard on them. After hearing learned counsel at some length, I am not satisfied that the officer concerned were actuated by malice against the assessees and not by a genuine desire to discover concealed profits.
The only other contention which needs consideration in these special appeals is, that the penalty notices issued to some of the assessees were wholly without jurisdiction, as section 271 of the Income-tax Act, 1961, under which they had been issued was applicable to cases arising out of assessment for the year before the 1st day of April, 1962. The contention is that clauses (f) and (g) of sub-section (2) of section 297 of the said Act contravened the provisions of article 14 of the Constitution, and, therefore, section 271 read with section 297 of the Act cannot be made applicable to these old assessments. Under section 297(2)(a) and (b) of the Act, a distinction has been made for purposes of assessment between those cases where return of income-tax had been filed before the commencement of the Act on 1st day of April, 1962, and those in which return itself had been filed after the commencement of the new Act. In the former cases, the old Act has been made applicable, as if the new Act had not been passed while in the latter cases the assessment is to be made according to the new Act. On the other hand, in clauses (f) and (g) which relate to penalty, the classification has been made more on the basis of the filing of the return but on the basis of the assessment being made before or after the 1st day of April, 1962, and the argument is that this classification in clauses (f) and (g) depending upon the date of assessment by the Income-tax Officer is wholly an arbitrary classification and is, therefore, contrary to the provisions of article 14 of the Constitution. Clauses (f) and (g) are as follows :
'(f) Any proceeding for imposition of a penalty in respect of any assessment completed before the 1st day of April, 1962, may be initiated and any such penalty may be imposed as if this Act had not been passed;
(g) Any proceeding for the imposition of a penalty in respect of any assessment for the year ending on 31st day of March, 1962, or any earlier year, which is completed on or after the 1st day of April, 1962, may be initiated and any such penalty may be imposed under this Act.'
The argument of the learned counsel is that imposition of penalty is a part of the assessment and in cases where a return had been filed and assessment completed before the 1st day of April, 1962, the assessment was to be made under clause (a) and penalty imposed under clause (f) according to the old Act. But in some of those cases where assessment proceedings continued and were finished on or after the 1st day of April, 1962, the penalty proceedings would be governed by the new Act. This was incongruous. It was pointed out that under the old Act, the procedure for imposing the penalty was substantially different and no penalty could be imposed without the sanction of the higher authorities. This was a safeguard which denied under the present Act and thereby a distinction was made between the two persons who were practically in the same situation except for the mere chance of the assessment having taken place a little later. For this proposition reliance was placed on the case of Shakti Offset Works v. Inspecting Assistant Commissioner of Income-tax. The Bombay High Court has taken the view which supports the contention of the learned counsel. After carefully examining the provisions of law, I am, however, unable to agree with this proposition. Under the old Act, penalty was not treated as a separate matter. All that was provided under section 28 of the Income-tax Act, 1922, was that in certain cases, the assessee was liable to pay something more in addition to the tax already assessed. Formerly, there was no separate Chapter dealing with penalties but in the Act of 1961, Chapter XXI has been separately provided dealing with penalties alone and under the new scheme it was necessary that section 297 of the Act should provide definitely and separately for the procedure to be followed in penalty matters and, therefore, clauses (f) and (g) separately deal with the question of penalty and it cannot be said that the matter of penalty is also by necessary implication included within clauses (a) and (b) which deal with only that assessment. Since penalty has to be calculated and then imposed according to the tax assessed, the penalty being proportionate to the tax, the imposing of penalty must necessarily follow the assessment. The question of imposition of penalty thus arises after the assessment has been completed and, therefore, the provision that in cases where assessment has been completed after the new Act had come into force, the penalty would be imposed according to the new Act, appears to be a reasonable classification. It was contended that even in those cases where assessment had been made before the 1st day of April, 1962, the Income-tax Officer may not impose penalty and the question of penalty may be considered for the first time by the officer hearing the appeal and in that case also the penalty question may arise for the first time after the new Act had come into force. Therefore, it was contended, the classification based on the date of the assessment by the Income-tax Officer was an unreal classification. This argument does not appeal to me because the Appellate Assistant Commissioner or the Tribunal will be exercising those powers which the Income-tax Officer ought to have exercised and in effect they would be doing why the Income-tax Officer ought to have done when he finalised the assessment. Those cases are, therefore, not real cases where the question of imposing penalty arises for the first time after the coming into force of the new Act. There is no dispute that a classification based upon the date when the proceeding start either before or after the new Act had come into force, is a valid classification. It has not been challenged that under clauses (a) and (b) of section 297, the classification based upon the date of filing or the return, whether before or after the passing of the new Act, is a valid classification. On the same principle, where the question of the imposing and calculating penalty arises for the first time after the passing of the new Act, the provision in clause (g) that in those cases penalty would be calculated and penalty proceedings started according to the new Act, is a reasonable classification.
I may also be noted in this connection that under the new Act the maximum limit of penalty which can be imposed is never larger than what was provided under the old Act, and, therefore, this provision does not work to the prejudice of those in whose cases the provisions of the new Act have become applicable on account of clause (g) quoted above.
Lastly, it may also be noted that in this matter the provisions of article 20 of the Constitution also have no application. Article 20 merely prohibits a person being subjected to greater penalty 'than that which might have been inflicted under the law in force at the time of the commission of the offence.' As stated above, the possibility of greater penalty being imposed than could have been imposed under the old law does not arise even though the act for which penalty can be imposed the treated as an offence within the meaning of that article. I am, therefore, unable to hold that the penalty notices under section 271 of the new Act were without jurisdiction.
In this connection another contention of the learned counsel may be considered. The contention is that on the words of section 271, failure to file a return must be under section 139 of the new Act. But in the case of a return for previous years before the 1st day of April, 1962, section 139 was not applicable. This argument does not appeal to me because section 297(2)(g) expressly provides that procedure under the new Act will be applicable. Section 271 of the Act, therefore, although does not apply by its own force but is made applicable by virtue of section 297(2)(g) and that being so, section 271 must be taken to be applicable in spite of its specific language being inapplicable. If the provisions of section 271 had been applicable by their own force, section 297(2)(g) would have been unnecessary. The very purpose of inserting that provision is to make section 271 applicable when by its own language it does not apply. I, therefore, see no force in this argument either.
As a result of these findings, I allow Special Appeals Nos. 89, 90, 91 and 92 of 1967, filed by the department while I dismiss Special Appeals Nos. 123, 124, 125 and 127 of 1967 filed by the assessees. As a result, all the writ petitions filed by the assessees are also dismissed. In view of all the circumstances of the case, I direct the parties to their own costs both in the special appeals as also in the writ petitions.
V. G. OAK. C.J. - I have read the judgment prepared by learned brother Bishambhar Dayal J. I agree that the connected writ petitions should be dismissed. I wish to add a few words on the question whether the officers concerned had jurisdiction to took certain action under the Income-tax Act, 1961, hereafter referred to as the Act.
On October 22, 1965, the Commissioner of Income-tax, U. P. II, passed on order transferring certain cases to the Income-tax Officer, Special Circle, Agra, Sri K. C. Gupta was nominated as the Income-tax Officer, Special Circle, Agra. The order was to take effect from November 1, 1965. The Central Board of Direct Taxes issued notifications from time to time specifying the jurisdiction of Commissioner of Income-tax. One such notification was issued by the Central Board of Direct Taxes on October 22, 1965. By this notification, Special Circle, Agra. was specified as item No. 32 in the jurisdiction of the Commissioner of Income-tax, U. P. II. This notification also took effect from November 1, 1965. On these facts, the learned single judge held that the order of the Commissioner of Income-tax, U. P. II dated October 22, 1965, is illegal, and Sri K. C. Gupta had no jurisdiction to deal with the cases assigned to him.
Section 124 of the Act deals with jurisdiction of Income-tax Officers, Sub-section (1) of section 124 states :
'Income-tax Officers shall perform their functions in respect of such areas or of such persons or classes of persons or of such incomes or classes of income.... as the Commissioner may direct.'
Section 124(1) confers on the Commissioner wide power of distribution of work among Income-tax Officer subordinate to him. At all material times (October and November, 1965), Shri K. C. Gupta was subordinate to the Commissioner of Income-tax, U. P. II, and the whole of district Agra was within the jurisdiction of the Commissioner. Power to create zones or circles within his jurisdiction is implicit in section 124(1) of the Act. It was open to the Commissioner to specify a certain part of district Agra or a group of cases as 'Special Circle, Agra'. The subsequent notification issued by the Central Board of Direct Taxes on October 29, 1965, was merely recognition of the situation created by the Commissioners order dated October 22, 1965. In my opinion, the Commissioners order dated October, 22, 1965 is valid, and Shri K. C. Gupta had jurisdiction to deal with cases assigned to him.
Another contention raised on behalf of petitioners is that no action against them could be taken under sections 147 and 271 of the Act for certain assessment years. Section 139 of the Act provides for filing return of income. Section 147 deals with income escaping assessment. Section 271 provides for penalty for failure to furnish return, etc.
Section 147 of the Act states :
(a) the Income-tax Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the Income-tax Officer....
he may... assess or reassess such income....'
Section 271 of the Act states :
(1) 'If the Income-tax Officer... is satisfied that any person -
(a) has without reasonable cause failed to furnish the return of total income which he was required to furnish under sub-section (1) of section 139....
he may direct that such person shall pay be way of penalty...'
It will be noticed that sections 147 and 271 of the Act deal with omission or failure on the part of an assessee to make a return under section 139 of the Act. The question has been raised whether action under these provisions is permissible with respect to assessment years before the commencement of the Act.
The Income-tax Act, 1961, came into force on April 1, 1962 Section 297 of the Act repealed the Indian Income-tax Act, 1922, hereafter referred to as the old Act. It will be noticed that section 139 of the Act of 1961, did not come into force till April 1, 1962. The question therefore arise whether omission to furnish a return prescribed by the old Act can be said to be an omission or failure on the part of an assessee to make a return under section 139 of the new Act. Strictly speaking, omission to file a return prescribed by the old Act cannot be described as an omission to file a return prescribed by section 139 of the new Act. If sections 147 and 271 of the new Act are read in isolation, it would appear that no action under these provisions could be taken with reference to assessment years prior to April 1, 1962. But section 297 of the Act has enlarged the operation of sections 147 and 271 of the Act.
Section 297 of the Act deals with repeals and savings. Sub-section (2) of section 297 of the Act contains several clauses. Clause (d) of section 297(2) reads thus :
'Where in respect of any assessment year after the year ending on the 31st day of March, 1940. ..
(ii) any income chargeable to tax had escaped assessment within the meaning of that expression in section 147 and no proceedings under section 34 of the repealed Act in respect of any such income are pending at the commencement of this Act, a notice under section 148 may... be issued with respect to that assessment year and all the provisions of this Act shall apply accordingly....'
Clause (d) of section 297(2) of the Act indicates a clear intention on the part of Parliament that action under sections 147 and 148 of the Act is permissible with respect to assessment years between March 31, 1940 and April, 1, 1962. So, although an omission or failure may not strictly speaking constitute omission or failure under section 139 of the Act, action under sections 147 and 148 of the Act is permissible under the conditions specified in section 297(2)(d) of the Act.
Clause (f) of section 297(2) of the Act is :
'Any proceeding for the imposition of a penalty in respect of any assessment completed before the 1st day of April 1962, may be initiated and any such penalty may be imposed as if this Act had not been passed.'
Section 297(2)(g) is :
'Any proceeding for the imposition of a penalty in respect of any assessment for the year ending on the 31st day of March, 1962, or any earlier year, which is completed on or after the first day of April, 1962, may be initiated and any such penalty may be imposed under this Act,....'
Section Section 297(1)(g) of the Act permits proceedings for the imposition of a penalty in respect of assessment years before April, 1, 1962. Consequently, even if there was strictly speaking no failure to file a return as required by section 139 of the Act, action can be taken under section 271 of the Act for the imposition of a penalty.
It is to be noted that according to clause (f), action has to be taken under the old Act, whereas under clause (g) action may be taken under the new Act. It has been urged for the petitioners that the provision of different procedures under clauses (f) and (g) is discriminatory, and contravenes article 14 of the Constitution.
It is to be noted that the differentiation in clauses (f) and (g) has been made with reference to April 1, 1962, that was the date on which the Act came into force. According to clauses (f) and (g) if assessment has been completed before April 1, 1962, action for imposing penalty has to be taken under the old Act, while if assessment is completed on or after April 1, 1962, action for imposing penalty may be taken under the new Act. Such a transitional provision is in consonance with the recognized legislative practice.
It has been urged for the petitioners that the provision for imposition of penalty under the new Act is more harsh than the corresponding provision under the old Act. That may be so. It does not, however, follow that clause (g) is discriminatory or unconstitutional. It was suggested for the petitioners that an Income-tax Officer may delay assessment proceedings in order to bring a case under clause (g) instead of clause (f) Now, Income-tax Officers are expected to dispose of all cases with expedition. If an Income-tax Officer deliberately delays completion of assessment proceedings in order to harass a certain assessee, such action can be struck down by this court as mala fide. The bare possibility of some Income-tax Officer deliberately delaying the disposal of a case is not a sufficient ground for supposing that clause (g) is discriminatory. In my opinion, clauses (f) and (G) of sub-section (2) of section 297 of the Act are not discriminatory, and do not contravene article 14 of the Constitution.