Wa/352/2005 Of Dr.r.p.patel v. The Asst.director Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS FRIDAY, THE 30 DAY OF JULY 2021 / 8TH SRAVANA, 1943 WA NO. 352 OF 2005 AGAINST THE JUDGMENT IN OP 7661/1999 OF HIGH COURT OF KERALA, ERNAKULAM APPELLANTS/PETITIONERS: 1DR.R.P.PATEL HAHNEMAN HOUSE COLLEGE ROAD, KOTTAYAM-686 001. *2MR.INDRAKUMAR R.PATEL, S/O. LATE R.P.PATEL, INDRA-PRAST BUNGLOW,OPP.ATHMAJYOTI ASHARAM, NEAR PRABHUDWAR,ELLORA PARK, SUBHANPURA,VADODHARA, GUJARAT-390023. *3DR.JAWAHARLAL R.PATEL, S/O.LATE DR.R.PATEL, 7TH PRABHUDWAR,ELLORA PARK, SUBHANPURA,VADODHARA,GUJARAT-390023. *4MRS.JYOTIBEN, D/O.LATE DR.R.P.PATEL, DR.R.P.PATEL INSTITUTE OF HOMEOPATHIC, ELLORA PARK,SUBHANPURA,VADODHARA, GUJARAT-590023. *(ADDITIONAL APPELLANTS 2 TO 4 ARE IMPLEADED AS PER ORDER DATED 08/03/21 IN I.A.NO.1/21 IN W.A. NO.352/2005. BY ADVS. SRI.JOHN RAMESH -:2:- SRI.RAMESH CHERIAN JOHN RESPONDENTS/RESPONDENTS: 1THE ASST.DIRECTOR OF INCOME TAX(INVESTIGATIONS), KOTTAYAM.(INVESTIGATIONS), KOTTAYAM. 2ASST.COMMISSIONER OF INCOME TAXINVESTIGATION CIRCLE,, KOTTAYAM.INVESTIGATION CIRCLE,, KOTTAYAM. 3COMMISSIONER OF INCOME TAXTRIVANDRUM.TRIVANDRUM. *4DR.ARUNKUMAR R.PATEL, S/O.LATE DR.R.P.PATEL, 1ST PRABHUDWAR,ELLORA PARK, SUBHANPURA,VADODHARA,GUJURAT-390023.SUBHANPURA,VADODHARA,GUJURAT-390023. *(ADDITIONAL R4 IS IMPLEADED AS PER ORDER DTD.08/03/21 IN I.A. NO.1/21 IN W.A. NO.352/2005. BY ADVS. SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON9.7.2021, THE COURT ON 30.07.2021 DELIVERED THE FOLLOWING: JUDGMENT Dated this the 30[th] day of July, 2021 Bechu Kurian Thomas, J. By Ext.P5, the original appellant was denied the benefit underthe Kar Vivad Samadhan Scheme, 1998, ('KVS Scheme' for brevity),wholly for the assessment years 1994-95, 1995-96, and partially forthe years 1992-93 and 1993-94. The reason for denying the benefitwas stated as the non-existence of tax liability for the said years onthe date of application under the scheme. Appellant howeverclaimed in the writ petition that, tax arrears existed on the date ofapplication and the encashments of the seized Indira Vikas Patras ofthe appellant were without authority and illegally adjusted against thetax liabilities of the appellant. Thus, the application of the appellantwas rejected stating that there were no existing tax arrears. Thelearned Single Judge held that the encashment was valid anddisposed of the writ petition with directions most of which werecontrary to the appellant’s claim. Hence this appeal 2. The original appellant was a homoeopathic practitioner at Kottayam. The income tax department conducted a search at theresidence and clinic of the Homeopath (for short ‘the assessee’) on 2. The original appellant was a homoeopathic practitioner at Kottayam. The income tax department conducted a search at theresidence and clinic of the Homeopath (for short ‘the assessee’) on 30.12.1994. Simultaneously, the Department conducted searches atthe residence of his two sons at Baroda in Gujarat State. Variousdocuments, cash and several Indira Vikas Patras ('IVP's' for brevity)were recovered during the search. After the seizure of those assets,the assessee disclosed an amount of Rs,1,46,78,980/- for theassessment years 1990-91 to 1995-96 under section 132(4) of theIncome Tax Act,1961 ('the Act' for brevity). An order under section132(5) of the Act was issued by the 2[nd] respondenton 28.4.1995,estimating the total income, the tax thereon, interest and penalty.The said order was issued for retaining the seized assets forappropriation after determination of tax liability of the assessee. TheIVP's 'retained' were encashed through the postmaster and ondifferent dates the realized amount was adjusted towards income taxallegedly due from the assessee for the period 1994-95 and 1995-96.When the KVS Scheme was introduced in 1998, the assessee couldnot claim the full benefit of the KVS Scheme, since by then, the taxarrears for the assessment years 1994-95 and 1995-96, wereadjusted from the amounts obtained by encashing the IVP's. Thisadjustment disentitled the assessee to the benefit of the KVSScheme. Ext.P5 certificate issued by the Commissioner of Income Tax under KVS Scheme denying the benefit of the scheme for the years mentioned above resulted in the writ petition. 3. The learned Single Judge, after considering the merits ofthe matter, disposed of the writ petition. It was held that theencashment of IVP's was valid and that the recovery andadjustments of tax and advance tax for the year 1995-96 were alsoproper. However, the recovery of tax and interest by adjustment fromthe encashed value of the IVP's for all the other years effected priorto the due dates for such payments were held to be bad in law, andthe same was directed to be reconsidered. Aggrieved by the saidjudgment, the assessee is in appeal before us. During the pendencyof the appeal, the original appellant died, and his legal heirs wereimpleaded as additional appellants. 4. To consider the issues raised at the Bar, it may be necessary to delve briefly into the pleadings in the case. (a) After the search carried out between 30.12.1994 and 07.01.1995 and the consequent seizure by the 1[st] respondent, anorder was passed by the assessing officer-2[nd] respondent on28.4.1995 under section 132(5) of the Act. In the said order, towardsthe concluding portion it was mentioned that “Out of the total assets W.A. No.352/05 seized, cash of Rs.6 lakhs and maturity value of I.V.P. encashed, Rs.4lakhs were adjusted against the advance tax demand for the assessmentyear 1995-96. Balance assets seized are retained since the demandpayable as per this order exceeds the total value of balance assetsseized.” (b) On 29.3.1995, by Ext.P2, the 1[st] respondent requested thePost Master, Head Post Office, to encash IVP's amounting toRs.4,00,000/-. Similarly, between 30.3.1995 and 30.10.1997, IVP'sworth Rs.61,72,000/- were encashed by the 1[st] respondent. (c) According to the appellant/petitioner, instead of retaining or handing over the encashed IVP's, the same were all illegally adjustedagainst alleged advance tax for 1995-96 as well as for the tax andinterest allegedly due for the earlier years. (d) The writ petition was filed alleging that the encashments of (b) On 29.3.1995, by Ext.P2, the 1[st] respondent requested thePost Master, Head Post Office, to encash IVP's amounting toRs.4,00,000/-. Similarly, between 30.3.1995 and 30.10.1997, IVP'sworth Rs.61,72,000/- were encashed by the 1[st] respondent. (c) According to the appellant/petitioner, instead of retaining or handing over the encashed IVP's, the same were all illegally adjustedagainst alleged advance tax for 1995-96 as well as for the tax andinterest allegedly due for the earlier years. (d) The writ petition was filed alleging that the encashments of IVP's and consequent adjustments were all done without authority orjurisdiction and contrary to section 132(9A) of the Act. Apart from thelack of jurisdiction and authority, assessee pleaded that themandatory notice under section 226(3) of the Act had never beengiven to the assessee before proceeding for recovery. Claiming thatthe adjustments were without authority or jurisdiction and in violationof the principles of natural justice, the appellant sought to quash the encashments of the IVP's. Ext.P5 was also challenged on theground that had the illegal adjustments not been made, tax arrearswould have been in existence as on the date of application andassessee would have got the benefit of the KVS Scheme. 5. Counter affidavits and additional counter-affidavits were filed separately by respondents 1, 2, and 3. The 1[st] respondent repeatedlystated that he had handed over the seized books of account, otherdocuments and assets to the assessing officer on 10.1.1995.Respondents 1 and 2 stated that they had carried out theencashments and that merely because the 1[st] respondent had sent aletter to the postmaster, there was no assumption that the 1[st]respondent had initiated the refund. The counter-affidavits furtherstated that the 1[st] respondent never exercised any jurisdiction towithdraw the IVP's or adjust the amounts so encashed. It was furtherasserted that the appropriation of the proceeds of the IVP's werecarried out at the request of the assessee, and since the saidadjustments were at the behest of the assessee, the action of therespondents cannot be faulted. The 3[rd] respondent, while reiteratingthe contentions of other respondents, pointed out that the departmenthad acted as per the instructions given by the assessee in Ext.R3(a) letter. It was further pleaded that in view of Ext.R3(a) the assessee could not turn around and question the action carried out as per hisrequest. 6. The assessee filed reply affidavits. It was stated that the 1[st]respondent encashed the IVP's even before the quantification of tax.It was pleaded that the quantification for the years 1990-91 to 1994-95 was carried out only on 23.12.1997, while for the year 1995-96the quantification was made on 25.11.1997. Appellant pleaded thatthe adjustments were made in gross violation of the mandatoryprovisions. The contents of the separate reply affidavits are notreproduced since most of them contain reiterations or rebuttals of thecounter affidavits. 7. The learned Single Judge in the judgment under appealheld that it was the 2[nd] respondent who carried out the encashmentsof IVP's while the 1[st] respondent had only co-ordinated the encashingby acting on behalf of the 2[nd] respondent. It was further found that,though under section 132(B)(i) of the Act, appropriation of seizedassets can be carried out only after the determination of liability,since the assessee had by Ext.R3(a) requested for adjustment, theaction of the assessing officer was valid. Except for adjustment of -:9:- the encashed value of IVP's for the years prior to the expiry of duedates for payment, all other issues were found against the assessee.It is in such circumstances that the assessee has preferred thisappeal. 8. We heard Adv. Ramesh Cherian John learned counsel for the appellants and Adv. Jose Joseph learned Senior StandingCounsel for the Income Tax Department. -:9:- the encashed value of IVP's for the years prior to the expiry of duedates for payment, all other issues were found against the assessee.It is in such circumstances that the assessee has preferred thisappeal. 8. We heard Adv. Ramesh Cherian John learned counsel for the appellants and Adv. Jose Joseph learned Senior StandingCounsel for the Income Tax Department. 9. For easier assimilation, we formulate the following questions for our consideration. (i) Whether the encashments of seized IVP's were carriedout by the 1[st] respondent or the 2[nd] respondent?out by the 1[st] respondent or the 2[nd] respondent? (ii) Whether the encashments of the seized IVP's were in accordance with law? (iii) Whether the encashed amounts under the IVP's wereliable to be adjusted. If so, for which assessmentyears?liable to be adjusted. If so, for which assessmentyears? (iv) What reliefs are the assessee entitled to? 10. The above questions are considered in detail as below. Q.(i) Whether the encashments of seized IVP's were carried out by the 1st respondent or the 2nd respondent? 11. The main argument raised by Adv. Ramesh Cherian John is that the IVP's were encashed by the 1[st] respondent who had no authority to do so as per the provisions of the Act. In the impugned judgment, the learned Single Judge found that the encashments ofIVP's were carried out by the 2[nd] respondent-assessing officer, whilethe 1[st] respondent had only co-ordinated the collection andencashment of IVP's. This finding is seriously attacked by thelearned counsel for the appellant while Adv.Jose Joseph submittedthat the finding needs no interference. 12. Ext.P2 series are the documents by which the IVP's were encashed, while Ext.P3 series are the documents intimating theencashments of other IVP's to the assessee. For a betterappreciation , the first page of Ext.P2 is extracted below:- = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = NO.ADI/INV/KTN/S&S/BNC-49A/94-95. OFFICE OF THE Assistant Director of Income-tax (Investigation),Mangad Buildings Kottayam, dated 29th March, 1995 The Post Master,Head Post Office, Kottayam, Sub:- Encashment of Indira Vlkas Patras- request for Sir, Please refer to the above. 2. I tender herewith the following Indira Vikas Patras with a request to encash thesame, and pay the proceeds being the maturity thereof amounting to Rs.4,00,000 (Rupeesfour lakhs only) to the undersigned:-Sr. No. Distinctive numbers of IVPS. Maturity Date. Amount.1 10C 561030 - 56103910 12-1-1995 Rs.50,000 2 10C 561094 - 561113 3 10C 561317 - 561326 4 10C 561374 - 561383 5 10C 561813 - 561822 6 10C 562082 - 562091 7 10C 562375 - 562384 20 17-1-1995 Rs.1,00,00010 30-1-1995 Rs.50,00010 2-2-1995 Rs.50,00010 17-2-1995 Rs.50,00010 5-3-1995 Rs.50,00010 27-3-1995 Rs.50,000 Total 4,00,000/- Yours faithfully, CC to:Dr.R.P.PatelHannemann House, College Rd.,Kottayam. (N.M.Chacko)Assistant Director of Income Tax (Investigation), Kottayam Copy submitted toThe C.I.T., Thiruvananthapuram, with ref.to her C.No. Misc./71/T/94-SS: dtd 23-3-1995.The D.D.I. (Inv.), Aayakar Bhavan, Tiruvananthapuram. The A.C., Inv.circle, Kottayam. The D.C., Kottayam Rance, Kottayam. = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = 13. The other exhibits produced as Ext.P2 series are Total 4,00,000/- Yours faithfully, CC to:Dr.R.P.PatelHannemann House, College Rd.,Kottayam. (N.M.Chacko)Assistant Director of Income Tax (Investigation), Kottayam Copy submitted toThe C.I.T., Thiruvananthapuram, with ref.to her C.No. Misc./71/T/94-SS: dtd 23-3-1995.The D.D.I. (Inv.), Aayakar Bhavan, Tiruvananthapuram. The A.C., Inv.circle, Kottayam. The D.C., Kottayam Rance, Kottayam. = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = 13. The other exhibits produced as Ext.P2 series are identically worded as Ext.P2 except for the figures, while Ext.P3series are letters addressed to the assessee and issued by the 1[st]respondent informing him of the encashment of the IVP's mentionedtherein. The wordings in Ext.P2 series and those in Ext.P3 clearlyshow that the IVP's were tendered to the Post Master by the 1[st]respondent. The request for encashment originated from the 1[st]respondent, and the encashed amounts (proceeds) were directed tobe paid to the 1[st] respondent (referred to as undersigned in Ext.P2 W.A. No.352/05 series). The words “I tender herewith” and “to the undersigned” in Ext.P2 are crucial while deciding the question raised. The firstsentence of all the letters in Ext.P2 series is explicit that the IVP’swere tendered for encashment by the 1[st] respondent. A glance atExt.P2 and Ext.P3 will reveal that the IVP's were encashed by the 1[st]respondent and not by the 2[nd] respondent. By issuing Ext.P2 seriesletters and tendering the IVP's along with those letters and directingthe proceeds to be paid to the 1[st] respondent, it cannot be assumedthat 1[st] respondent was only co-ordinating the encashment. As amatter of fact, only copies of letters requesting the postmaster toencash the IVP's were sent to the 2[nd] respondent. It is evident fromExt.P2 series that 2[nd] respondent had no role at all in theencashment of IVP's. 14. The contention that the 1[st] respondent sent the lettersencashing the IVP's on behalf of the 2[nd] respondent, is on the face ofthe record, wholly untenable. Respondents 1 and 2 are independentstatutory authorities. They perform functions that are distinct andseparate. They can never be regarded as an agent of one another oras acting on behalf of another. Accordingly, the finding of the learnedSingle Judge that the encashments of IVP's were carried out by the 2[nd] respondent-assessing officer, while the 1[st] respondent had onlyco-ordinated in the collection and encashment of IVP's, is set aside.We, therefore, hold that the encashments of IVP's as per Ext.P2series and Ext.P3 series were carried out by the 1[st] respondent. Q.(ii). Whether the encashment of the IVP's were inaccordance with law? 15. The IVP's were seized by the 1[st] respondent duringsearches conducted in accordance with the provisions of the Act.Section 132 of theAct deals with ‘search and seizures’. A specialand separate procedure is laid down under section 132 of the Act tosearch and seize documents or assets. As per section 132 of theAct, if the officers specified therein has reason to believe that there isundisclosed income or property, they can authorise the officersmentioned in S.132(1A), (hereafter referred to as ‘authorised officer’)to enter, search and even seize any books of account, or otherdocuments, money, bullion, jewellery or other valuable articles foundin such search. If the authorised officer is not the assessing officer ofthe assessee, then the procedure under S.132(9A) must be resortedto. It is fruitful to extract S.132(9A) of the Act as it then existed at thisjuncture. “S.132(9A)-Where the authorised officer has no jurisdictionover the person referred to in clause (a) or clause (b) orclause (c) of sub-section (1), the books of account or otherdocuments or assets seized under that sub-section shall behanded over by the authorised officer to the AssessingOfficer having jurisdiction over such person within a periodof fifteen days of such seizure and thereupon the powersexercisable by the authorised officer under sub-section (8)or sub-section (9) shall be exercisable by such AssessingOfficer.” 16. As per the above extracted provision, the authorised officer shall hand over all the seized assets, including documents, to theassessing officer within 15 days of seizure, and thereafter, thepowers under sub-clause (8) and (9) of section 132 can be exercisedonly by such assessing officer. Thus after 15 days of seizure, theauthorised officer cannot retain any of the seized documents orassets. Once the assessing officer comes into possession of theseized articles or documents, he is then obliged to pass an orderunder section 132(5) within 120 days of the seizure regarding fiveaspects. The five features to be dealt with in an order under section132(5) are (a) to estimate the undisclosed income in a summarymanner, (b) to calculate the amount of tax on the income, soestimated, (c) to determine the amount of interest payable and thepenalty to be imposed, (d) to specify the amount required to satisfyany existing liability, and (e) to retain in his custody such assets as are in his opinion sufficient to satisfy the amounts determined as tax, interest, penalty and the defaulted amount till that date. 17. Section 132 of the Act is a code by itself. The various stepsare provided with a salutary purpose. It has an inbuilt mechanism toprevent arbitrary actions. Sections 132 to S.132B embody anintegrated scheme laying down the procedure comprehensively forsearch and seizure and the power of the authorities making thesearch and seizure to order the confiscation of the assets seized.Reference to the decisions in Pooran Mal v. Director of Inspection(Investigation)[(1974) 1 SCC 345], andP.R.Metrani v.Commissioner of Income Tax, Bangalore [(2007) 1 SCC 789] areadvantageous in this context. 18. The inevitable conclusion on comprehending the scheme ofS.132 is that the authorised officer who conducted the search andseizure becomes functus officio, as far as the seized articles ordocuments are concerned, after the fifteenth day from seizure.Beyond the fifteenth day, the authorized officer cannot possess anyof the documents or assets seized during the search. It is an inbuiltmechanism under the provision. It is the statutory mandate on theauthorized officer to hand over all the seized documents and assets to the assessing officer. However, if the authorized officer and the assessing officer are the same, he can continue to retain thedocuments or assets and then act as the assessing officer. 19. In the decision in K.V. Krishnaswamy Naidu & Co. v. Commissioner of Income Tax and Others [(1987) 166 ITR 244(Mad.)], the Madras High Court had occasion to consider whether theauthorised officer who conducted the search and seizure could applyfor an extension of the period of retention of the assets or documentsbeyond the period of 15 days, as contemplated under section 132(8)of the Act. While answering the aforesaid question in the negative, the court observed as follows: to the assessing officer. However, if the authorized officer and the assessing officer are the same, he can continue to retain thedocuments or assets and then act as the assessing officer. 19. In the decision in K.V. Krishnaswamy Naidu & Co. v. Commissioner of Income Tax and Others [(1987) 166 ITR 244(Mad.)], the Madras High Court had occasion to consider whether theauthorised officer who conducted the search and seizure could applyfor an extension of the period of retention of the assets or documentsbeyond the period of 15 days, as contemplated under section 132(8)of the Act. While answering the aforesaid question in the negative, the court observed as follows: “5. ……..The Income-tax Officer could not exercise hispowers under sub-section (5) unless he is in legalpossession of the assets or other documents seized duringthe search made. Even if the authorised officer is anincome tax officer, if he had no jurisdiction over thepersons referred to in clause (a), (b) or (c) of sub-section(1), he could not exercise his power under sub-section (5).He shall have to hand over the seized documents orassets to the Income-tax Officer having jurisdiction overthe person to make an order under sub-section (5). Asseen from sub-section (5), there is a time limit of 120 daysfrom the date of seizure for making an order. It is in orderto enable the Income-tax Officer who has jurisdiction overthe person to make an order under sub-section (5) withinthe period prescribed in cases where the authorised officerwas directed to hand over the documents or assets seizedto that Income-tax Officer within a period of 15 days fromthe date of seizure. In the circumstances, therefore, therecould be no doubt that when sub-s.(9A) refers to an authorised officer having no jurisdiction over the person, itis a reference to an officer other than an Income-taxOfficer having jurisdiction to make an order under sub-section (5). Any other construction will make sub-section(5) unworkable. For the same reason, the authorisedofficer referred to in sub-section (8) is the same authorisedofficer referred to in sub-section (9A) as having nojurisdiction over the person. The net result, therefore,would be that if the authorised officer is an Income-taxOfficer having jurisdiction over the person, he can retainthe records himself for 180 days under sub-section (8).But, however, he will have to make an order under sub-section (5) within 120 days. If the records are required byhim for any other purpose, for example under section288(5), that Income-tax Officer also can ask for approval ofthe Commissioner for such retention. If the authorisedofficer happens to be an officer rather than an Income-taxOfficer having jurisdiction over the person to make anorder under sub-section (5), that authorised officer shallhand over the documents and assets to the Income-taxOfficer having jurisdiction over the person and once that isdone, the Income-tax Officer gets jurisdiction not only tomake an order under sub-section (5) and also to exercisethe powers of an authorised officer under sub-section (8)or sub-section (9) of that section. Thus, though undersection 132(1), the Director of Inspection may authorise aDeputy Director of Inspection or an Inspecting AssistantCommissioner or an Assistant Director of Inspection orIncome-tax Officer and the officer so authorised is referredto as the authorised officer, the provisions of sub-section(8) could not be invoked by such officer unless he happensto be an Income-tax Officer having jurisdiction over theperson and who can make an order under sub-section (5).The authorisation given to such officer by the Director ofInspection in turn also only enables such officer to searchand seize the documents, records, money, bullion,jewellery or other valuable article or thing and the otherpowers specifically referred to in the authorisation does notand could not enable that officer to make an order undersection 132(5) unless such authorised officer happens tobe an Income-tax Officer himself having jurisdiction oversuch person.” It was concluded that “If the AssistantDirector of Inspection had retained the records beyond the period of 15 days from the date of seizure, the retentionitself would have been illegal.” 20.The Supreme Court affirmed the above decision of the Madras High Court in Commissioner of Income Tax and Others v. K.V.Krishnaswamy Naidu & Co. [(2001) 9 SCC 767] andobserved that the authorised officer could not pass an order undersection 132(5) and he cannot retain the documents beyond 15 daysand hence such officer could not have mooted a proposal undersection 132(8) for further retention. 21. It is thus clear from the scheme of section 132 as well as from the decisions stated above that the authorised officer whoconducted the search and seizure cannot retain the documents orassets beyond 15 days. If the authorised officer cannot retain theassets or the documents, it is ineluctable that the said officer couldnot have encashed the IVP’s. The authorised officer could not havebeen in de facto or de jure possession of the assets or documentsseized under section 132(1) of the Act after 15 days of seizure. 22. In the instant case, the search and seizure were conductedon 30.12.1994 till 07.01.1995. By 22.01.1995, the 1[st] respondent hadbecome functus officio and ought to have handed over thedocuments and assets seized to the 2[nd] respondent. The fact that W.A. No.352/05 -:19:- from the decisions stated above that the authorised officer whoconducted the search and seizure cannot retain the documents orassets beyond 15 days. If the authorised officer cannot retain theassets or the documents, it is ineluctable that the said officer couldnot have encashed the IVP’s. The authorised officer could not havebeen in de facto or de jure possession of the assets or documentsseized under section 132(1) of the Act after 15 days of seizure. 22. In the instant case, the search and seizure were conductedon 30.12.1994 till 07.01.1995. By 22.01.1995, the 1[st] respondent hadbecome functus officio and ought to have handed over thedocuments and assets seized to the 2[nd] respondent. The fact that W.A. No.352/05 -:19:- the order under section 132(5) was issued on 28.04.1995presupposes that the 1[st] respondent had handed over the documentsbefore that date. In the counter affidavits and the additional counteraffidavit it is asserted that the seized documents and assets werehanded over to the assessing officer on 10-01-1995. It is manifestthat, the 1[st] respondent could not have exercised any power after22.01.1995. He could also not have been in possession of any of thedocuments or assets from 22.01.1995 or thereafter. 23. The first letter demanding encashment of IVP's is dated29.03.1995, which was even before Ext.P1 order under section132(5). All the remaining encashments were subsequent to29.03.1995. It fails our comprehension as to how the 1[st] respondentcould have encashed the IVP's when he was not legally entitled to bein possession of the seized documents. Therefore, no furtherelaboration is required to conclude that all encashments were doneby the 1[st] respondent without authority or jurisdiction and that tooafter he had become functus officio. In view of our discussion asabove, we are of the considered view that the encashments of theIVP’s were contrary to law and were void as having been carried outby a person without authority. Q.(iii) Whether the encashed amounts under the IVP’s were liable to be adjusted. If so, for which assessment years? 24. Since we have already found that the encashments of IVP'swere bad in law,the consequent adjustment of the IVP's were alsoillegal. 25. We can approach this issue from another angle also. As mentioned earlier, while section 132 embodies a scheme for searchand seizure, section 132B provides how the assets retained undersection 132(5) can be dealt with, as stipulated by section 132(6) ofthe Act. 26. As per section 132B the assets seized under section 132can be utilised to clear any existing liability under the Act and theliability determined on completion of assessment in respect of whichthe assessee is in default. It is clear that before determining theliability, there cannot be any adjustment. In the impugned judgment,the learned Single Judge found that “section 132B(i) authorisesappropriation of seized assets towards liability only after determination ofliability through adjudication”. It was also found that the assessmentfor 1994-95 was completed only on December 23, 1997, while thetax was recovered by encashment of IVP’s before completion of the assessment and even adjusted before the assessee became a defaulter which are both contrary to the section. 26. As per section 132B the assets seized under section 132can be utilised to clear any existing liability under the Act and theliability determined on completion of assessment in respect of whichthe assessee is in default. It is clear that before determining theliability, there cannot be any adjustment. In the impugned judgment,the learned Single Judge found that “section 132B(i) authorisesappropriation of seized assets towards liability only after determination ofliability through adjudication”. It was also found that the assessmentfor 1994-95 was completed only on December 23, 1997, while thetax was recovered by encashment of IVP’s before completion of the assessment and even adjusted before the assessee became a defaulter which are both contrary to the section. 27. Ext.P4 series are the assessment orders passed for theassessment years 1990-91 till 1995-96. Except for the assessmentyear 1995-96, for all other assessment years, assessment orders aredated 23.12.1997, as is seen from Ext.P4, Ext.P4(a), Ext.P4(b),Ext.P4(c), and Ext.P4(d). For the assessment year 1995-96,Ext.P4(e) bears the date 17.11.1997. A reading of Ext.P4(d) andExt.P4(e) reveals that for those assessment years, i.e 1994-95 and1995-96, covered by the said orders, the IVP’s were adjusted by thedepartment, even prior to the determination of liability. For the year1995-96, the adjustments were effected on different dates betweenApril, 1995 to January, 1997. For the year 1994-95, the adjustmentswere affected in August and October 1997. It is thus evident that theIVP’s were adjusted against liabilities that were not determined onthe date of such adjustments. The adjustments are therefore invalidunder this count also. The procedure, the manner of adjustmentsand the steps adopted by the 2[nd] respondent were contrary to theprovisions of the Act. 28. In this context, it is essential to refer to Ext.R3(a) letter W.A. No.352/05 written by the assessee. The learned Single Judge held the saidletter to be an authorisation given to the 2[nd] respondent to encashthe IVP’s and to adjust the recovered amounts towards the taxliabilities. With respects, we find ourselves unable to agree to thesaid finding for more reasons than one. 29. Primarily, Ext.R3(a) cannot be regarded as a letter giving blanket authority to the respondents to encash the IVP's or to adjustthe encashed amount towards the tax liability. The letter is in factaddressed to the 2[nd] respondent requesting him to encash andappropriate the same towards the liability, if it was not possible toascertain the previous year to which the investment relates. Theletter also refers to adjusting the advance tax. Even if it is assumedthat the letter confers authority upon the respondents to encash theIVP's, the same has to be done in accordance with law. The officersempowered to act in the exercise of the statutory powers mustconform to the statutory prescription in letter and spirit. If the letterExt.R3(a) is assumed as the authority to encash the IVP's; it isevident that the same being addressed to the 2[nd] respondent and theencashment having been done by the 1[st] respondent, therespondents could not have relied upon Ext.R3(a) to justify their actions. In the above circumstances, we are of the view that the respondents could not have acted upon Ext.R3(a) to encash theIVP’s or to adjust the same contrary to the statutory prescriptions. 30. Reliance upon section 292B of the Act is also of no avail to the department. The violation of mandatory conditions are notcurable by recourse to section 292B. Further, the action complainedof was not done in substance or effect, in conformity with the intentand purpose of the Act. Q.(iv) What reliefs are the assessee entitled to? actions. In the above circumstances, we are of the view that the respondents could not have acted upon Ext.R3(a) to encash theIVP’s or to adjust the same contrary to the statutory prescriptions. 30. Reliance upon section 292B of the Act is also of no avail to the department. The violation of mandatory conditions are notcurable by recourse to section 292B. Further, the action complainedof was not done in substance or effect, in conformity with the intentand purpose of the Act. Q.(iv) What reliefs are the assessee entitled to? 31. Since we have found the invocation of IVP's as withoutauthority and the consequent adjustment as done contrary to theprovisions of the Act, it is necessary that the status quo ante berestored as on the date of application under the KVS Scheme tomeet the ends of justice. 32. In view of the findings recorded by us as above, we setaside the judgment of the learned Single Judge. Ext.P2 series andExt.P3 series produced in the writ petition are hereby quashed.Ext.P5, insofar as it relates to the assessment years 1991-92, 1992-93, 1993-94, 1994-95 and 1995-96, is also quashed. Even thoughthe KVS Scheme is not in existence now, the appellant ought not to be prejudiced on account of the long pendency of this writ appeal before this Court. As we have set aside the invocation of the IVP’sand the consequent adjustment of the amounts encashed andrestored status quo ante, the application for the grant of benefitunder the KVS Scheme shall stand revived. The 3[rd] respondent shallpass fresh orders on the application claiming benefit of the KVSScheme, in accordance with law. This writ appeal shall stand allowed as above. Sd/- S.V.BHATTI JUDGE Sd/- vps BECHU KURIAN THOMAS JUDGE APPENDIX PETITIONER'S/S' EXHIBITS: EXT.P3(i) TRUE COPY OF THE LETTER ISSUED TO THE PETITIONER BY FIRST RESPONDENT DATED 24.9.1998PETITIONER BY FIRST RESPONDENT DATED 24.9.1998 EXT.P4TRUE COPY OF THE ORDER OF ASSESSMENT U/S.143(3)READ WITH S.147 AND 144A OF INCOME TAX ACT BY THE SECOND RESPONDENT DT.23.12.1997 FOR THE YEAR 1990-91U/S.143(3)READ WITH S.147 AND 144A OF INCOME TAX ACT BY THE SECOND RESPONDENT DT.23.12.1997 FOR THE YEAR 1990-91 EXT.P4(a) TRUE COPY OF THE ORDER OF ASSESSMENT U/S.143(3)READ WITH S.147 AND 144A OF INCOME TAX ACT BY THE SECOND RESPONDENT DT.23.12.1997 FOR THE YEAR 1991-92U/S.143(3)READ WITH S.147 AND 144A OF INCOME TAX ACT BY THE SECOND RESPONDENT DT.23.12.1997 FOR THE YEAR 1991-92 EXT.P4(b) TRUE COPY OF THE ORDER OF ASSESSMENT U/S.143(3)READ WITH S.147 AND 144A OF INCOME TAX ACT BY THE SECOND RESPONDENT DT.23.12.1997 FOR THE YEAR 1992-93U/S.143(3)READ WITH S.147 AND 144A OF INCOME TAX ACT BY THE SECOND RESPONDENT DT.23.12.1997 FOR THE YEAR 1992-93 EXT.P4(c) TRUE COPY OF THE ORDER OF ASSESSMENT U/S.143(3)READ WITH S.147 AND 144A OF INCOME TAX ACT BY THE SECOND RESPONDENT DT.23.12.1997 FOR THE YEAR 1993-94U/S.143(3)READ WITH S.147 AND 144A OF INCOME TAX ACT BY THE SECOND RESPONDENT DT.23.12.1997 FOR THE YEAR 1993-94 EXT.P4(d) TRUE COPY OF THE ORDER OF ASSESSMENT U/S.143(3)READ WITH S.147 AND 144A OF INCOME TAX ACT BY THE SECOND RESPONDENT DT.23.12.1997 FOR THE YEAR 1994-95U/S.143(3)READ WITH S.147 AND 144A OF INCOME TAX ACT BY THE SECOND RESPONDENT DT.23.12.1997 FOR THE YEAR 1994-95 EXT.P4(e) TRUE COPY OF THE ORDER OF ASSESSMENT U/S.143(3)READ WITH S.144A OF INCOME TAX ACT BYTHE SECOND RESPONDENT DT.17.11.1997 FOR THE YEAR 1995-96U/S.143(3)READ WITH S.144A OF INCOME TAX ACT BYTHE SECOND RESPONDENT DT.17.11.1997 FOR THE YEAR 1995-96 EXT.P5TRUE COPY OF THE ORDER PASSED BY THE THIRD RESPONDENT UNDER THE KAR VIVAD SAMADHAN SCHEME 1998 DT.26.2.1999RESPONDENT UNDER THE KAR VIVAD SAMADHAN SCHEME 1998 DT.26.2.1999 EXT.P6TRUE COPY OF THE STATEMENT SHOWING TOTAL INCOMEOF THE PETITIONER FOR THE ASSESSMENT YEAR 1995-96OF THE PETITIONER FOR THE ASSESSMENT YEAR 1995-96 EXT.P4(e) TRUE COPY OF THE ORDER OF ASSESSMENT U/S.143(3)READ WITH S.144A OF INCOME TAX ACT BYTHE SECOND RESPONDENT DT.17.11.1997 FOR THE YEAR 1995-96U/S.143(3)READ WITH S.144A OF INCOME TAX ACT BYTHE SECOND RESPONDENT DT.17.11.1997 FOR THE YEAR 1995-96 EXT.P5TRUE COPY OF THE ORDER PASSED BY THE THIRD RESPONDENT UNDER THE KAR VIVAD SAMADHAN SCHEME 1998 DT.26.2.1999RESPONDENT UNDER THE KAR VIVAD SAMADHAN SCHEME 1998 DT.26.2.1999 EXT.P6TRUE COPY OF THE STATEMENT SHOWING TOTAL INCOMEOF THE PETITIONER FOR THE ASSESSMENT YEAR 1995-96OF THE PETITIONER FOR THE ASSESSMENT YEAR 1995-96 EXT.P7TRUE COPY OF THE LETTER ISSUED BY THE PETITIONER DT.7.11.1995 TO THE CHIEF COMMISSIONER OF INCOME TAX, KERALAPETITIONER DT.7.11.1995 TO THE CHIEF COMMISSIONER OF INCOME TAX, KERALA EXT.P8TRUE COPY OF THE LETTER ISSUED TO THE SECOND RESPONDENT BY THE PETITIONER DT.13.9.1995RESPONDENT BY THE PETITIONER DT.13.9.1995 EXT.P9TRUE COPY OF THE APPLICATION FILED UNDER SECTION 154 OF THE ACT DT.27.11.1995 BEFORE THESECOND RESPONDENT SECTION 154 OF THE ACT DT.27.11.1995 BEFORE THESECOND RESPONDENT EXT.P10TRUE COPY OF THE STATEMENT OF REVISED TOTAL INCOME FILED BY THE PETITIONERINCOME FILED BY THE PETITIONER EXT.P11TRUE COPY OF THE LETTER ISSUED TO THE ADDL.COMMISSIONER OF INCOME TAX DT. 7.3.1996 BY THE PETITIONER ALONG WITH STATEMENT OF REVISED INCOMEADDL.COMMISSIONER OF INCOME TAX DT. 7.3.1996 BY THE PETITIONER ALONG WITH STATEMENT OF REVISED INCOME EXT.P12TRUE COPY OF THE LETTER ISSUED TO THE SECOND RESPONDENT BY PETITIONER DT.10.3.1997RESPONDENT BY PETITIONER DT.10.3.1997 EXT.P13TRUE COPY OF ORDER DATED 8.3.2000 UNDER SECTION 132(8) OF THE ACT132(8) OF THE ACT EXT.P14TRUE COPY OF THE INTIMATION UNDER SECTION 143 (1)(a) OF THE ACT ISSUED BBY THE SECOND RESPONDENT DT.24.7.1997 FOR TE ASSESSMENT YEAR 1995-96(a) OF THE ACT ISSUED BBY THE SECOND RESPONDENT DT.24.7.1997 FOR TE ASSESSMENT YEAR 1995-96 EXT.P15TRUE COPY OF THE LETTER ISSUED BY THE FIRT RESPONDENT TO THE PETITIONER RRECEIVED ON 30.1.1997RESPONDENT TO THE PETITIONER RRECEIVED ON 30.1.1997 EXT.P16TRUE COPY OF THE LIST OF INDIRA VIKAS PATRA FOUNDMENTIONED IN THE PANCHANAMA DT.31.12.1994MENTIONED IN THE PANCHANAMA DT.31.12.1994 EXT.P17TRUE COPY OF THE STATEMENT SHOWING DATE OF ENCASMENT FURNISHED BY THE 2 RESPONDENT DT.9.5.2003ENCASMENT FURNISHED BY THE 2 RESPONDENT DT.9.5.2003 EXT.P18TRUE COPY OF THE STATEMENT FURNISHED BY THE SECOND RESPONDENT SHOWING DETAILS OF DEMAND RISEDAND COLLECTIONS MADE DATED 17.1.2003SECOND RESPONDENT SHOWING DETAILS OF DEMAND RISEDAND COLLECTIONS MADE DATED 17.1.2003 EXT.P19TRUE COPY OF THE ORDER DATED 13.3.1997 EXT.P20TRUE COPY OF THE ORDER DATED 7.3.2000 EXT.P21 TRUE COPY OF THE ORDER DATED 3.3.2003 EXT.P22TRUE COPY OF THE ORDER UNDER SECTION 154 DATED 22.12.1997 FOR THE ASSESSMENT YEAR 1995-9622.12.1997 FOR THE ASSESSMENT YEAR 1995-96 EXT.P23TRUE COPY OF THE NOTICE OF DEMAND UNDER SECTION 156 OF THE INCOME TAX ACT 1961 FOR THE ASSESSMENTYEAR 1995-96156 OF THE INCOME TAX ACT 1961 FOR THE ASSESSMENTYEAR 1995-96 -:28:- EXT.P24TRUE COPY OF THE NOTICE OF DEMAND UNDER SECTION 156 OF THE INCOME TAX ACT 1961 FOR THE ASSESSMENTYEAR 1993-94156 OF THE INCOME TAX ACT 1961 FOR THE ASSESSMENTYEAR 1993-94 EXT.P25TRUE COPY OF THE NOTICE OF DEMAND UNDER SECTION 156 OF THE INCOME TAX ACT 1961 FOR THE ASSESSMENTYEAR 1994-95156 OF THE INCOME TAX ACT 1961 FOR THE ASSESSMENTYEAR 1994-95 EXT.P26TRUE COPY OF THE NOTICE OF DEMAND UNDER SECTION 156 OF THE INCOME TAX ACT 1961 FOR THE ASSESSMENTYEAR 1991-92156 OF THE INCOME TAX ACT 1961 FOR THE ASSESSMENTYEAR 1991-92 EXT.P26(a) TRUE COPY OF DEMAND UNDER SECTION 156 OF THE INCOME TAX ACT 1961 FOR THE ASSESSMENT YEAR 1992-93INCOME TAX ACT 1961 FOR THE ASSESSMENT YEAR 1992-93 EXT.P27TRUE COPY OF CMP NO.3366 OF 2000 IN OP 7661/1999 DT. 21.1.2000DT. 21.1.2000 EXT.P28PAPER BOOKCONTAINING EXTRACTS OF SECTIONS AND JUDGMENTS OF HON’BLE SUPREME COURT AND HIGH COURTJUDGMENTS OF HON’BLE SUPREME COURT AND HIGH COURT RESPONDENT'S/S' EXHIBITS: EXT.R3(a) LETTER FROM PETITIONER TO FIRST RESPONDENT DT. 13.3.199513.3.1995 EXT.P26TRUE COPY OF THE NOTICE OF DEMAND UNDER SECTION 156 OF THE INCOME TAX ACT 1961 FOR THE ASSESSMENTYEAR 1991-92156 OF THE INCOME TAX ACT 1961 FOR THE ASSESSMENTYEAR 1991-92 EXT.P26(a) TRUE COPY OF DEMAND UNDER SECTION 156 OF THE INCOME TAX ACT 1961 FOR THE ASSESSMENT YEAR 1992-93INCOME TAX ACT 1961 FOR THE ASSESSMENT YEAR 1992-93 EXT.P27TRUE COPY OF CMP NO.3366 OF 2000 IN OP 7661/1999 DT. 21.1.2000DT. 21.1.2000 EXT.P28PAPER BOOKCONTAINING EXTRACTS OF SECTIONS AND JUDGMENTS OF HON’BLE SUPREME COURT AND HIGH COURTJUDGMENTS OF HON’BLE SUPREME COURT AND HIGH COURT RESPONDENT'S/S' EXHIBITS: EXT.R3(a) LETTER FROM PETITIONER TO FIRST RESPONDENT DT. 13.3.199513.3.1995 EXT.R3(b) LETTER ISSUED TO THE POSTMASTER BY THE SECOND RESPONDENT DT.6.2.1996RESPONDENT DT.6.2.1996 EXT.R2(a) TRUE COPY OF THE REVISED STATEMENT OF TOTAL INCOME FOR THE ASSESSMENT YEAR 1995-96 AND INCOME FOR THE ASSESSMENT YEAR 1995-96 AND PREVIOUS YEAR ENDED 31.3.1995 OF DR.R.P.PATEL ANN.R2(b) TRUE COPY OF THE LETTER RECEIVED FROM THE ASST. COMMISSIONER OF INCOME TAX DATED 15.7.2004COMMISSIONER OF INCOME TAX DATED 15.7.2004 ANN.R2(c) TRUE COPY OF THE LETTER TO THE CHIEF COMMISSIONEROF INCOME TAX DATED 17.1.1996OF INCOME TAX DATED 17.1.1996 ANN.R2(d) TRUE COPY OF THE LETTER FROM THE PETITIONER DATED27.11.199527.11.1995