Holding

The presumption under Section 132(4A) is a rebuttable presumption applicable only to search‑seizure proceedings and the provisional assessment under Section 132(5); it cannot be used for framing the regular assessment.

Summary

The assessee, a Hindu Undivided Family, was searched under Section 132 of the Income‑Tax Act and unaccounted money, gold and documents were seized. The assessing officer made a provisional assessment under Section 132(5) and later the regular assessment incorporated additions based on a presumption that the seized assets belonged to the assessee, invoking Section 132(4A). The Commissioner (Appeals) upheld those additions, but the Income‑Tax Appellate Tribunal held that the presumption under Section 132(4A) is limited to the provisional assessment and set aside the regular assessment, except for a specific addition. The Karnataka High Court reversed the Tribunal, extending the presumption to the regular assessment. The Supreme Court clarified that the rebuttable presumption in Section 132(4A) applies only to the search‑seizure proceedings and the provisional assessment under Section 132(5), not to the framing of the regular assessment, and remitted the matter to the assessing authority for a fresh assessment.

Issues considered

The scope of the presumption under Section 132(4A) of the Income‑Tax Act – whether it can be used for framing the regular assessment or is confined to the provisional assessment under Section 132(5).
Whether the documents seized from the assessee’s premises can be attributed to the Hindu Undivided Family for assessment purposes.

Legislation cited

Income Tax Act, 1961s. 132, s. 132(4A), s. 132(5), s. 132B, s. 143, s. 278D, s. 68, s. 69

Subjects

Income TaxSection 132PresumptionSearch and seizureRegular assessmentProvisional assessmentRebuttable presumptionTax evasion

Judgment

P.R. METRANI A
v.
COMMISSIONER OF INCOME TAX, BANGALORE

NOVEMBER 15, 2006

[ASHOK BHAN AND DAL VEER BHANDARI, JJ.] B

Income Tax Act, 1961; Sections 132:

Search of premises of assessee-Recovery and seizure of unaccounted
money, gold biscuits, gold jewellery and documents-Assessing authority C
ordering certain additions in assessment-Additions in the assessment
confirmed by the appellate authority holding that presumption under Section
132 (4A) available for framing the regular assessment-Reversed by the
Tribunal excepting additions relating to value of the properties-Tribunal
referring questions of law pertaining to scope of Section 132 (4A) of the D
Act-High Court answering all the questions in favour of Revenue-On
appeal, Held: Object of introduction of Section 132 is to prevent evasion of
tax-Since search and seizure is a serious invasion into the privacy of a
citizen, it has to be construed strictly-8ub-section (4A) of Section 132
enables an assessing authority to raise a rebuttable presumption that the
recovered goods/money/material/documents beionged to the person from E
whose possession these were recovered and the contents of the documents are
true and in his handwriting-High Court erred in its finding that the
presumption under Section 4(A) of Section 132 is irrubuttable presumption
in so far as it relates to passing an order under Section 132(5) of the Act
and rebuttable presumption for the purpose offraming a regular assessment F
as it is not provided in the provisions that the presumption could be raised
for the purpose of regular assessment-Moreover, whenever the Legislative
intended to continue the presumption, it has provided so-Presumption under
Section 132(4A) is available only in regard to the proceedings for search
and seizure and for retention of the assets. seized in terms of Section 132(5)
and their application under Section 132(B)-However, material seized could G
be used as a piece of evidence in any other proceeding under the Act-
Hence, the matter remitted to the assessing authority for framing the assessment
afresh in accordance with law.

H
2 SUPREME COURT REPORTS (2006] SUPP. 9 S.C.R.

A Words and Phrases:

'Presumption' and 'conclusive proof-Meaning and implication of in
the context of Section 132 of the income Tax Act, 1961,,

The question arose for determination in these appeals preferred by the
B assessee was as to whether the High Court was right in deciding the questions
as mentioned below, referred to it by the Income Tax Appellate Tribunal at the
instance of the parties, in favour of the Revenue.

(A) The questions referred to the High Court at the instance of the
Revenue were:
c
(1) as to whether the Income-tax Appella~e Tribunal was correct in law
in holding that the presumption under Sub-section (4A) of Section 132 of the
Income-tax Act, 1961, is only for the limited purpose of passing an order under
Sub-section (5) of the said section;

D (2) as to whether, on the facts and in the circumstances of the case, the
Income-tax Appellate Tribunal was right in law in holding that the documents
seized from the residential premises of the assessee-Hindu undivided family
were not of the said Hindu undivided family and the entries therein did not
pertain to it, particularly when the Income-tax Appellate Tribunal itself has
E accepted that the entries in the said documents culminating in addition of Rs.
2,62,100 in the assessment for the assessment year 1982-83.

(B) The questions referred to the High Court at the instance of the
assessee were:

F (I) Whether, on the facts, the Tribunal was justified in holding that the
applicant HUF was liable to be taxed in respect of Rs. 2,62,100/- being alleged
unexplained investment in the property invoking the provisions of Section 69
of the Act;

(2) On the facts, whether the Tribunal was justified in holding that the
G part of the entries in the seized documents could be attributed to the applicant
HUF when the applicant had denied the knowledge or ownership of the
document

Allowing the appeals, the Court

H HELD: 1.1. Sections 132 to 1328 of the Jncome Tax Act embody an
) P.R. METRAN1 v. COMMNR OF INCOME TAX, BANGALORE 3
integrated scheme laying down the procedure comprehensively for search and A
seizure and the power of the authorities making the search and seizure to
order the confiscation of the assets seized. Section 132 of the Act is a Code
in itself. It provides for the conditions upon which and the circumstances in
which the warrants of authorization can be issued. [11-E-F-G]

1.2. The proceedings under Section 132(5) as it existed till 31.5.2002 B
are of a quasi-judicial nature as it provided affording of reasonable opportunity
to the person concerned ofbeing·heard and pass an order after making an
enquiry as might be prescribed. Enquiries under sub-section 132(5) is to
). enable the assessing officer to determine the tax liability of the assessee in
a summary manner and t.letermine the undisclosed income in relation to the
money, bullion, jewellery etc. seized under Section 132 and retain the assets
c
seized till the regular assessment is framed. The order passed under Section
132 (5) is for the purpose of retaining the assets seized and it is subject to
the framing of the regular assessment [14-F-G-HJ

1.3. Search and seizure under Section 132 is a serious invasion into D
the privacy of a citizen, therefore, it has to be construed strictly. Sub-section
(4A) was inserted by Taxation Law (Amendment) Act, 1975 to permit a
presumption to be raised in the circumstances mentioned therein. Before the
insertion of sub-section (4A) the onus of proving that the books of account,
other documents, money, bullion, jewellery etc. found in possession or control
of a person in the course of a search belonged to that person was on the Income E
Tax Department Sub-section (4A) enables an assessing authority to raise a
rebuttable presumption that such books of account, money, bullion etc. belonged
to such person; that the contents of such books of account and other documents
are true, and, that the signatures and every other part of such books of account
and other documents are signed by such person or are in the handwriting of F
that particular person. [15-A-B-C)
1.4. The object of introduction of Section 132 is to preyent the evasion
of tax and bring it to asse5sment. It is not merely an information of undisclosed
income but alsu to seize money, bullion etc. representing the undisclosed
income and to retain them for the purposes of realization of taxes, penalties
G
etc. Search and seizure is a serious invasion in the privacy of the person.
Section 132 which is a complete code by itself provides that the money, bullion
or the books of account etc. should not be retained unnecessarily and that the
provisional assessment made under Section 132 for the purpose of retention
of the books is passed within a specified time in accordance with law. It
provides that the books of account, money and bullion which are not required H
...
"{
4 SUPREME COURT REPORTS [2006) SUPP. 9 S.C.R.

A are not retained unnecessarily thereby causing harassment to the person
concerned. In order to see that the assessment order is framed within the
time frame provided under Section 132, legislature provided for a rebuttable
presumption to be raised against the person from whose possession and
control the books of account, money, bullions etc. are seized so that the order
B can be passed within the time frame provided under Section 132 of the Act.
[15-D-E-F-G]

2.1. A presumption is an inference of fact drawn from other known or
proved facts. It is a rule of law under which courts are authorized to draw a
particular inference from a particular fact. It is of three types, (i) "may
C presume", (ii) "shall presume" and (iii) "conclusive proof'. "May presume"
leaves it to the discretion of the Court to make the presumption according to
the circumstances of the case. "Shall presume" leaves no option with the Court
not to make the presumption. The Court is bound to take the fact as proved
until evidence is given to disprove it. In this sense such presumption is also
rebuttable. "Conclusive proof' gives an artificial probative effect by the law
D to certain facts. No evidence is allowed to be produced with a view to combating
that effect. In this sense, this is irrebuttable presumption. (15-H; 16-A-B]

2.2. The words in sub-section (4) are "may be presumed". The
presumption under sub-section (4A) therefore, is a rebuttable presumption.
The finding recorded by the High Court in the impugned judgment that the
E presumption under sub-section (4A) is a irrebuttable presumption in so far
as it relates .to the passing of an order under sub-section (5) of Section 132
and rebuttable presumption for the purpose of framing a regular assessment
is not correct. There is nothing either in Section 132 or any other provisions
of the Act which could warrant such an inference or finding. [16-C-D]
F
2.3. There is nothing either in Section 132 or any other provision of
the Act to indicate that the presumption provided under Section 132 which is
a self contained code for search and seizure and retention of books etc. can
be raised for the purposes of framing of the regular assessment as well.
Wherever the legislature intended the presumption to continue, it has provided
G so. (16-D-E-F[

2.4. It is evident from the fact that whereas the legislature under Section
132 (4) has provided that the books of account, money, bullion, jewellery and
other valuable articles or things and any statement made by such person
H during examination may thereafter be used as evidence in any other

. --
P.R. METRANI v. COMMNR. OF INCOME TAX, BANGALORE 5
proceedings under the Act but has not provided so under Sub-section (4A) of A
Section 132 of the Act. (16-H; 17-A-BJ

3.1. Presumption under Section 132 (4A) is available only in regard to
the proceedings for search and seizure and for the purpose of retaining the
assets under Section 132(5) and their application under Section 132B. It is
not available for any other proceeding. except where it is provided that the B
presumption under Section 132 (4A) would be available. [17-C-D)

3.2. The High Court of Allahabad in Pushkar Narain Sarra/and the High
Court of Delhi in Daya Chand have taken the correct view in holding that
).
the presumption under Section 132(4A) is available only in regard to the
proceedings for search and seizure under Section 132 of the Constitution. C
Such presumption shall not be available for framing the regular assessment.
The High Court ofKarnataka in the impugned judgment has clearly erred in
holding to the contrary. Consequently, question No. 1 of the Revenue is
answered against the Revenue and in favour of the assessee. {17-D-EJ
D
Pushkar Narain Sarrafv. CIT, (1990) 183 ITR 388 and Daya Chand vs.
CIT, (2001) 250 ITR 327, approved.

3.3. It is clarified that though presumption under Section 132(4A) is
not available to authorities while framing the regular assessment but the
material seized can be used as a piece of evidence in any other proceedings E
under the Act, all contentions are left open. [17-FJ

3.4. The orders passed by the assessing authorities as well as the CIT
(Appeals) are vitiated as they have proceeded to frame the assessment raising
the presumption under sub-section (4A) of Section 132. The same are set
aside and the case is remitted back to the assessing authority for framing F
the assessment afresh in accordance with law. Question No. 2 claimed by the
Revenue and the question No. 2 claimed by the assessee are returned
unanswered as the case is being remitted back to the assessing authority for
framing a fresh assessment. (17-G-H; 18-AJ

4. The assessing authority shall frame the assessment in accordance G
with law, without being influenced by any of the observations made in the
previous orders or this order. (18-A-BJ

CIVIL APPELLATE JURISDICTION : Civil Appeal No. (s). 5673-5675 of
2002.
H
6 SUPREME COURT REPORTS [2006] SUPP. 9 S.C.R.

A From the final Judgment and Order dated 9-7-2001 of the High Court of
Kamataka at Banaglore in IRTC No. 39/1996 in· R.A. No. 4/Bang/94, IRTCNo.
38/1996 in R.A. No. 167/B/93 and IRTC No. 40/1996 in R.A. No. 5/B/94.

Dhruv Mehta and Harshvardhan Jha (for M/s. K.L. Mehta & Co.) for
the Appellant.
B
B.B. Ahuja, Arijit Prasad (for B.V. Balaram Das) for the Respondent.

The Judgment of the Court was delivered by

BHAN, J. These appeals are directed against the judgment and order
C dated 9.7.2001 passed by the High Court of Kamataka at Bangalore in ITRC
Nos. 38, 39 & 40of1996 vide which the High Court has allowed the reference
cases 39 and 40 of 1996 thereby answering the questions in favour of the
Revenue and against the assessee. ITRC No. 38 of 1996 filed by the assessee
has been dismissed by the High Court. Since these appeals arise from the
D common order passed by the High Court, we also propose to dispose them
of by a common order.

FAClS

The facts relevant for disposing of these references in short are P.R.
Metrani and Y.R. Metrani were two brothers and are the members of the Joint
E Hindu Family. P.R. Metrani (HUF) assessee was a partner in a firm called
Mis. R.N. Metrani and Sons. Y.R. Metr~ni was also a partr.er in this fom. P.R.
Metrani as well as Y.R. Metrani have died during the pendency of these cases,

A search of the residential premises Ranganatha Nilaya was conducted
F by the Income Tax, Central Excise and Customs Departments on. 30.06.1982
and 01.07 .1982 and as well as the business premises where the business of
the firm was being conducted. The residential premises of J.J. Bakale, nephew
of P.R. Metrani were also searched. The search brought to surface unaccounted
money, gold biscuits, gold jewellery, silver 'etc. besides some important
documents. For the purpose of assessment for the assessment years 1981-82
G and 1982-83 three documents were found to be relevant by the Assessing
Officer and they were marked as PRM-1, PRM-7 and PRM-13 at the time of
search and seizure, which were seized from the residential premises namely,
'Ranganatha Nilaya'. Statement of J.J. Bakale was recorded at the time of
search. P.R. Metrani was away to Rajasthan on a business tour. He was
examined after his return to Hubli on 13.7.1982. He denied the possession of
H
. .,.;.
P.R. METRANI v. COMMNR. OF INCOME TAX, BANGALORE [BHAN, J.] 7
PRM-1, PRM-13 and PRM-14. He also denied that these papers contain any A
writing made by him. The Assessing Authority made a summary adjudication
order under Section 132(5) of the Income Tax Act, 1961 (for short "The Act").
He made certain additions and retained the assets seized.

Notice under Section 139(2) dated 17.9.1982 for the assessment year
1982-83 was served on the assessee on 21.9.1982. The appellant declared a B
total income ofRs.46,200/- and a net agricultural income ofRs.6,000/-. Notices
under Section 143(2) and 142(1) were issued on several dates. Appellant
appeared before the authorities on several dates and assessment came to be
completed. The following additions were made in respect of the assessment
year 1982-83:- C
i. Income from undisclosed sources as Rs. 28,67,920
discussed in para 3 .2 as per
PRM-1 and PRM-7
II. Income from undisclosed sources as Rs. 6,66,690
discussed in para 3.3 i.e., D
PRM-13
iii lnvestent in Durgadabail building at Rs. 2,62,100
Hubli as per para 5 being 50% of
I Rs. 5,24,200/-
iv Unexplained expenditure U!s. 69C Rs. 8,33,525 E
The assessment for the years 1981-82 was completed after making an
addition of Rs.19,93, 117/-.

Assessing Authority made an assessment for the construction of a
commercial complex in Durgadabailu, the investment for which was declared F
at Rs. 5,55,000/- for the entire building. Half of the building belonged to P.R.
Metrani and other half to Y.R. Metrani. The department had sent the Valuation
Officer for enquiry regarding the cost of building and it was fixed by the
Department Valuation Officer at Rs. 5,83,000/-. The assessing authority however
did not accept the valuation made by the Valuation Officer and held that the
total investment on the building was Rs. 6,45,809/-. A source to the extent of G
Rs. 1,21,627/- was accepted. The balance was rounded off to Rs. 5,24,200/-.
Half of this was added to the assessment of P.R. Metrani (HUF) and other
half were added in the assessment of Y.R. Metrani.

The appellant being aggrieved filed appeals before the Commissioner
(Appeals). The Commissioner (Appeals) by separate order disposed of the H
8 SUPREME COURT REPORTS [2006] SUPP. 9 S.C.R.

A appeals relating to assessment years I 981-82 and 1982-83. He examined the
issue including certain credits, and, on 19.9.1988 confirmed the additions
barring the sum of Rs. 36,000/- for the assessment year 1982-83. The orders
of the Assessing Authority as well as the Commissioner (Appeals) are based
on the presumptions in terms of Section 132 (4A) of the Act. It was held that
presumptions under Section 132 ( 4A) were not confined to the orders passed
·s under Section 132 only, but, were available for framing the regular assessments
as well.

The assessee being aggrieved filed a further appeal before the Income
Tax Appellate Tribunal, Bangalore (for short "The Tribunal"). The Tribunal
C relying upon the judgment of the Allahabad High Court in the case of
Pushkar Narain Sarra/ v. CIT, ( 1990) 183 ITR 388, on the scope of Section
132 (4A) held that the presumptions under Section 132 (4A) are confined to
the framing of the order under Section 132 (5) only and are not available for
framing the regular assessment. The Tribunal accepted the appeals, set aside
the orders passed by the Commissioner (Appeals) as well as assessing authority
D except to the extent of addition of Rs. 2,62, I 00/-. At the instance of the
Revenue, the Tribunal referred the following two questions for both the
assessment years 1982-83 for the opinion of the High Court:-

"(I) Whether the Income-tax Appel late Tribunal was correct in law in
holding that the presumption under Sub-section (4A) of Section 132
E of the Income-tax Act, 1961, is only for the Jim ited purpose of passing
an order under Sub-section (5) of the said section ?

(2) Whether, on the facts and in the circumstances of the case, the
Income-tax Appellate Tribunal was right in law in holding that the
documents seized from the residential premises of the assessee-Hindu
F undivided family were not of the said Hindu undivided family and the
entries therein did not pertain to it, particularly when the Income-tax
Appellate Tribunal itself has accepted that the entries in the said
documents culminating in addition of Rs. 2,62, I 00 in the assessment
for the assessment year 1982-83 pertained to the assessee-Hindu
G undivided family and upheld the said addition ?"

At the instance of the assessee, the Tribunal referred the following two
questions for the opinion of the High Court:

"( 1) Whether on the facts the Tribunal was justified in holding that
H the applicant HUF was liable to be taxed in respect of Rs. 2,62, 100/
P.R. METRANI v. COMMNR. OF INCOME TAX, BANGALORE [BHAN, J.] 9

- being alleged unexplained investment in the property invoking the A
provisions of sec. 69 of the Act?

(2) On the facts whether the Tribunal was justified in holding that the
part of the entries in the seized documents could be attributed to the
applicant HUF when the applicant had denied the knowledge or
ownership of the document?" B
The High Court answered all the four questions in favour of the Revenue
and against the assessee. On question No. l regarding presumption under
sub-section (4A) of Section 132 of the Act, it has been held that the same
) is not limited to the passing of an order under sub-section (5) of Section 132
only; the same presumption can be raised for framing the regular assessment C
as well. The Bench has recorded its dissent with the view taken by the
Allahabad High Court in Pushkar Narain Sarra/ (supra).

Being aggrieved, the appellant has filed these appeals.

Learned counsels for the parties have been heard at length. D
The Allahabad High Court in Pushkar Narain Sarraf's case has held
that the presumption arising under Section 132 (4A) is available only in regard '
} to and in the context of search and seizure and the same was not available
for framing the regular assessment. That Sections 132 to 132B of the Act
embody an integrated scheme laying down comprehensively the procedure E
for search and seizure and the power of the authorities making the search and
seizure to order the confiscation of the assets seized under Section 132 of the
Act. The presumption arising under sub-section (4A) of Section 132 applies
only in relation to the provisional adjudication which is contemplated under
Section 132 (5) and the same was not available for framing the regular F
assessment.

Subsequently the High Court of Delhi in Daya Chand v. CIT, (2001) 250
ITR 327, has taken a somewhat similar view and has held "that presumption
arising under Section 132 (4A) must be held to be applicable only in relation
to the provisional adjudication as contemplated under sub-section (5) of G
Section 132 and the presumption cannot be said to have the effect of excluding
the application of Section 68."

The Kamataka High Court in the impugned judgment has taken the
following view :
H
10 SUPREME COURT REPORTS [2006] SUPP. 9 S.C.R.

A ... The Tribunal holds that looking to the scheme it appears that the
presumption of Sub~section (4A) is only for the limited purpose of
passing an order under Sub- section (5). According to the Tribunal
the assessing authority was wrong in drawing ari inference under
Section 132(4A) in the proceedings. In that view of the matter, the
Tribunal rejected the case of the Department. This .finding in our view
B is not correct. The entire object of this Chapter is to levy tax with
regard to an undisclosed income cif an assessee. Search and seizure
is one accepted method adopted by the Revenue authority with regard
to digging out undisclosed income by .an a:Ssessee. If the intention
of the legislature is only to give a limited presumption, under Section
c 132(4A) they would have said so in so many words. ,Even otherwise
a reading of the entire Chapter would show that it was never the
intention of the legislature to restrict the presumption only to an
order under Section 132(5) of the Act. In fact as we mentioned earlier,
Sub-section (I) provides for entering, searching, breaking open, seizing,
placing marks on the documents and Sub-section (2) provides for
D police help and Sub-section (3) provides for retention by the owner
subject to an order. Sub-section (4) ·which is a crucial provision
categorically states that any books, documents, money, bullion,
.jewellery or any statement made by an assessee in the course of
search or seizure can be made by use of as evidence in any proceeding
E under the Income-tax Act. If Sub-section (4A) is ~ead with _Sub-section
(4) it is clear to us that there cannot be any restriction with regard to
the presumptive value that can be attached to Section l32(4A) of the
Act. Section 132(5) only providesfor an order being made in the case
on hand. That, by itself, does not take away the presumptive value
attached to Section 132(4A) for other proceedings as held by the
F Tribunal. In fact Section 132(5) provides for an order being passeJ as
a result of search initiated or requisition made before July 1, 1995.
Even after this date the section is still available in the statute. Therefore,
.J..
an inference can safely be drawn in the light of Sub-sections (4) and
(5) of Section 132 itself that no limited presumption can be attached
to Section l32(4A). At the same time we must also point out that the
G
presumptive value is total in so far as Section 132(5) is concerned,
but in so far as other proceeding's are concerned it is only a
rebuttable presumption. Therefore, the finding of the Tribunal in this
regard in our view requires our interference. [Emphasis supplied ]

H
P.R METRANI ''· COMMNR. OF INCOME TAX, BANGALORE [BHAN, J.] 11
It has been further held at page 254 as under: A
"Therefore, it is clear to us that the presumptive value to the
documents is available in respect of an order to be passed under the
Act including an order under Section 132(5) of the Act. Therefore, a
reading of the provision with regard to the seized documents clearly

-·- indicates that its presumptive value cannot by any stretch of B
imagination be restricted only to Section 132(5) as held by the
Tribunal. It is a ;'non-rebuttable presumption" under section 132(5)
of the Act and in other cases it is a "rebuttable presumption".

) Mr. G. Sarangan, further has placed before us a judgment of the
Allahabad High Court in the case of Push/car Narain Sarrafv. CIT, C
(1990) 183 ITR 388. With respect we are unable to subscribe to the
view of the decision of the Allahabad High Court. We have carefully
gone through the said judgment. We find in the said case that no
reasons are forthcoming as to why the said presumption is to be
restricted to Section 132(5) only. In fact that judgment on the other D
hand states that Section 68 cannot said to have been excluded for
regular assessments.''

[Emphasis supplied]
)
Sections 132 to l32B of the Act embody an integrated scheme laying E
down the procedure comprehensively for search and seizure and the power
of the authorities making the search and seizure to order the confiscation of
the assets seized. Section 132A gives power to the authorities to requisition
books of account in consequence of the information in its possession. Section
l32B provides the manner in which the assets retained under sub-section (5)
of Section 132 can be dealt with. F
Section 132 is a Code in itself. It provides for the conditions upon which
and the circumstances in which the warrants of authorization can be issued.
Sub-section (2) authorizes the authorized officer to requisition the services of
any police officer or of any officer of the Central Government or of both to
assist him for all or any of the purposes for which the search is conducted. G
Under sub-section (4) the authorized officer can during the course of search
or seizure examine on oath any person who is found to be in possession or
control of any books of account, documents, money, bullion, jewellery or
_other valuable article or thing and any statement made by such persons
during such examination may thereafter be used in evidence in any proceeding H

.,
12 SUPREME COURT REPORTS [2006] SUPP. 9 S.C.R.

A under the Act. Sub-sections (4A) and 5 are set out in detail as it existed at
the relevant time.

"(4A) Where any books of account, other documents, money, bullion,
jewellery or other valuable article or thing are or is found in the
possession or control of any person in the course of a search, it may
13 be presumed-

(i) that such books of account, other documents, money, bullion,
jewellery or other valuable article or thing belong or belongs to such
person;

C (ii) that the contents of such books of account and other documents
are true; and

(iii) that the signature and every other part of such books of account
and other documents which purport to be in the handwriting of any
particular person or which may reasonably be assumed to have been
D signed by, or to be in the handwriting of, any particular person, are
in that person':; handwriting, and in the case of a document stamped,
executed or attested, that it was duly stamped and executed or attested
by the person by \Vhom it purports to have been so executed or
attested."

E "(5) Where any money, bullion, jewellery or other valuable article or
thing (hereafter in this section and in sections J32A and J32B referred
to as the assets) is seized under sub-section (1) or sub-section (IA),
the Assessing Officer, after affording a reasonable opportunity to the
person concerned of being heard and making such enquiry as may be
prescribed, shall, within one hundred and twenty days of the seizure,
F make an order, with the previous approval of the Deputy
Commissioner],-

(i) estimating the undisclosed income (including the income from
the undisclosed property) in a summary manner to the best of his
judgment on the basis of such materials as are available with him;
G
(ii) calculating the amount of tax on the income so estimated in
accordance with the provisions of the Inclian Income-tax Act,
1922 (I I of 1922), or this Act;

(iia) determining the amount of interest payable and the amount
H of penalty imposable in accordance with the provisions of the
P.R. METRANI v. COMMNR. OF INCOME TAX, BANGALORE [BHAN, J ] 13

Indian Income-tax Act, 1922 ( 11 of 1922), or this Act, as if the A
order had been the order of regular assessment;
(iii) specifying the amount that will be required to satisfy any
existing liability under this Act and any one or more of the Acts
specified in clause (a) of sub-section (I) of section 230A in
respect of which such person is in default or is deemed to be in B
default,

and retain in his custody such assets/or part thereof as are in his
opinion sufficient to satisfy the aggregate of the amount~ referred to
in clauses (ii), [ (iia)] and (iii) and forthwith release the remaining
portion, if any, of the assets to the person from whose custody they . C
were seized :

Provided that if, after taking into account the materials available with
him, the Assessing Officer is of the view that it is not possible to
ascertain to which particular previous year or years such income or
any part thereof relates, he may calculate the tax on such income or D
part, as the case may be, as if such income or part were the total
income chargeable to tax at the rates in force in the financial year in
which the assets were seized and may also determine the interest or
penalty, if any, payable or imposable accordingly:

Provided further that where a person has paid or made satisfactory E
arrangements for payment of all the amounts referred to in clauses (ii),
(iia) and (iii) or any part thereof, the Assessing Officer may, with the
previous approval of the Chief Commissioner or Commissioner, release
the assets or such part thereof as he may deem fit in the circumstances
of the case.
F
Sub-section (6) provides that assets retained under sub-section (5) may
be dealt with in accordance with the provisions of Section 1328. Sub-section
(7) provides that if the assessing officer is satisfied that the seized assets ol\
any part thereof were held by such person for or on behalf of other person,
the assessing officer may proceed under sub-section (5) against such other G
person and the provisions of Section 132 shall apply to such other persons -
as well. Sub-section (8) provides that the books of account or other documents
seized under sub-section (1) and (IA) shall not be retained by the authoriZed
officer for a period exceeding 180 days from the date of the seizure without
recording reasons for retaining the same in writing and taking approval of the
Chief Commissioner or Commissioner for such retention. Chief Commissioner H
14 SUPREME COURT REPORTS [2006) SUPP. 9 S.C.R.

A is mandated not to authorize the retention of books of account and other
documents under the proviso to sub-section (8) and not to retain the books
of account and other items for a period exceeding 30 days after all the
proceedings under the Act in respect of the years for which the books of
account, other documents, money, bullions, jewellery or other valuable articles
B or things are relevant. Under sub-section (9) the persons from whose custody
the books of account and other documents are seized is entitled to make
notes thereof and take extracts therefrom in the presence of the authorized
officer. Sub-sections (9) and (10) are of the same nature. Sub-section (11)
provides that if any person objects for any reason to an order made under
sub-section (5), he can within 30 days of the date of such order make an
C application to the Chief Commissioner stating the reasons therein for such
objections and requesting for appropriate relief in the matter. Further, sub-
section provides for applicability of Code of Criminal Procedure and making
of rules by the board in search or seizure etc.

The section considered as a whole, shows that it has its own procedure
D for the search, seizure, determination of the point in dispute, quantum to be
retained and also the quantum of the tax and interest on the undisclosed
income. Under sub-section (11) as it existed till 31.5.2002, the person aggrieved
has been given the right to file an application (in place of appeal) objecting
to the order passed under sub-section (5) and request for appropriate relief
E in the matter. It has all the fortifications of a code. This provision exists in
complete isolation of the other provisions of the Act. It has the trappings of .
small code in itself.

The proceedings under Section 132(5) as it existed till 31.5.2002 are of
a quasi-judicial nature as it provided affording of reasonable opportunity to
F the person concerned of being heard and pass an order after making an
enquiry as might be prescribed. Enquiries under sub-section 132(5) is to
enable the assessing officer to determine the tax liability of the assessee in
a summary manner and determine the undisclosed income in relation to the
money, bullion, jewellery etc. seized under Section 132 and retain the assets
seized till the regular assessment is framed. The order passed under Section
G 132 (5) is for the purpose of retaining the assets seized and it is subject to
the framing of the regular assessment. Whatever portion of the money or
other articles seized is explained in a satisfactory and reasonable manner by
the person from whom the same was seized, are returned to hirri and the rest
are to be retained. As stated earlier, no appeal lies against the order passed
H under Section 132, only an application lies to the Chief Commissioner or
.). P,R. METRANI v. COMMNR. OF INCOME TAX, BANGALORE [BHAN, J.] 15
Commissioner as permitted by Section 132(11). A
Search and seizure under Section 132 is a serious invasion into the
privacy of a citizen, therefore, it has to be construed strictly. Sub-section (4A)
was inserted by Taxation Law (Amendment) Act, 1975 with effect from l.l0.1975
to permit a presumption to be raised in the circumstances mentioned therein.
Before the insertion of sub-section (4A) the onus of proving that the books B
of account, other documents, money, bullion, jewellery etc. found in possession
or control of a person in the course of a search belonged to that person was
on the Income Tax Department. Sub-section (4A) enables an assessing authority
to raise a rebuttable presumption that such books of account, money, bullion
etc. belonged to such person; that the contents of such books of account
and other documents are true, and, that the signatures and every other part
c
of such books of account and other documents are signed by such person
,.._ or are in the handwriting of that particular person.

Raising of such presumption has been enacted by the Legislature to
enable the assessing authority to make a provisional adjudication within the D
time frame prescribed under Section 132. Otherwise it may not be possible to
do so. The object of introduction of Section 132 is to prevent the evasion of
tax, i.e., to unearth the hidden or undisclosed income or property and bring
~ it to assessment. It is not merely an information of undisclosed income but
also to seize money, bullion etc. representing the undisclosed income and to
retain them for the purposes of realization of taxes, penalties etc. Search and E
seizure is a serious invasion in the privacy of the person. Section 132 which
is a complete code by itself provides that the money, bullion or the books of
account etc. should not be retained unnecessarily and that the provisional
assessment made under Section 132 for the purpose ofretention of the books
is passed within a specified time in accordance with law. It provides that the F
books of account, money and bullion which are not required are not retained
unnecessarily thereby causing harassment to the person concerned. In order
to see that the assessment order is framed within the time frame provided
under Section 132, legislature provided for a rebuttable presumption to be
raised against the person from whose possession and control the books of
account, money, bullions etc. are seized so that the order can be passed G
within the time frame provided under Section 132.

A presumption is an inference of fact drawn from other known or
proved facts. It is a rule of Jaw under which courts are authorized to draw a
particular inference from a particular fact. It is of three types, (i) "may presume",
H

""
16 SUPREME COURT REPORTS [2006] SUPP. 9 S.C.R.

A (ii) "shall presume" and (iii) "conclusive proof'. "May presume" leaves it to
the discretion of the Court to make the presumption according to the
circumstances of the case. "Shall presume" leaves no option with the Court
not to make the presumption. The Court is bound to take the fact as proved
until evidence is given to disprove it. In this sense such pn:sumption is also
B rebuttable. "Conclusive proof' gives an artificial probative effect by the Jaw
to certain facts. No evidence is allowed to be produced with a view to
combating that effect. In this sense, this is irrebuttable presumption.

The words in sub-section (4) are "may be presumed". The presumption
under sub-section (4A) therefore, is a rebuttable presumption. The finding
C recorded by the High Court in the impugned judgment that the presumption
under sub-section (4A) is a irrebuttable presumption in so far as it relates to
the passing of an order under sub-section (5) of Section 132 and rebuttable
presumption for the purpose of framing a regular assessment is not correct.
There is nothing either in Section 132 or any other provisions of the Act
D which could warrant such an inference or finding.

Presumption under sub-section (4A) would not be available for the
purpose of framing a regular assessment. There is nothing either in Section
132 or any other provision of the Act to indicate that the presumption
provided under Section 132 which is a self contained code for search and
E seizure and retention of books etc. can be raised for the purposes of framing
of the regular assessment as well. Wherever the legislature intended the
presumption to continue, it has provided so. Reference may made to Section
278D of the Act which provides that where during the course of any search
under Section 132, any money, bullion, jewellery or other valuable articles or
things or any books of account etc. are tendered by the prosecution in
F evidence against the person concerned, then the provisions of sub-section
(4A) of Section 132 shall, so far as may be, apply in relation to such assets
or books of account or other documents. This clearly spells out the intention
of legislature that wherever the legislature intended to continue the ,I.

presumption under sub-section (4A) of Section 132, it has provided so. It has
G not been provided that the presumption available under Section 132 (4A)
would be available for framing the regular assessment under Section 143 as
well.

This is also evident from the fact that whereas the legislature under
Section 132 (4) has provided that the books of account, money, bullion,
H
. "
..)
P.R. METRANI 1·. COMMNR. OF INCOME TAX, BANGALORE [BHAN, J .) 17
jewellery and other valuable articles or things and any statement made by A
such person during examinaticn may thereafter be used as evidence in any
other proceedings under the Act but has not provided so under sub-section
(4A) of Section 132. It does not provide that the presumption under Section
132(4A) would be available while framing the regular assessment or for that
matter under any other pn?ceeding under the Act except under Section 378D.
B
Section 132 being a complete code in itself cannot intrude into any
other provision of the Act. Similarly, other provisions of the Act cannot
interfere with the scheme or the working of Section 132 or its provisions.
I'
Presumption under Section 132 (4A) is available only in regard to the
proceedings for search and seizure and for the purpose of retaining the assets c
under Section 132(5) and their application under Section l 32B. It is not
~ available for any other proceeding. except where it is provided that the
presumption under Section 132 (4A) would be available.

In our considered view, the High Court of Allahabad in Pushkar Narain D
Sarraf (supra) and the High Court of Delhi in Daya Chand (supra) have taken
the correct view in holding that the presumption under Section 132(4A) is
available only in regard to the proceedings for search and seizure under
)
Section 132. Such presumption shall not be available for framing the regular
assessment. The High Court of Karnataka in the impugned judgment has
clearly erred in holding to the contrary. Consequently, question No. 1 of the E
Revenue is answered in the affirmative, i.e. against the Revenue and in favour
of the assessee.

It may be clarified that though presumption under Section 132(4A) is
not available to authorities while framing the regular assessment but the
material seized can be used as a piece of evidence in any other proceedings F
under the Act, all contentions are left open.

For the reasons stated above, appeals are accepted and the order
passed by the High Court is set aside. The orders passed by the assessing
authorities as well as the CIT (Appeals) are vitiated as they have proceeded
G
to frame the assessment raising the presumption under sub-section (4A) of
Section 132. The same are set aside and the case is remitted back to the
assessing authority for framing the assessment afresh in accordance with law.
Question No. 2 claimed by the Revenue and the question No. 2 claimed by
the assessee are returned unanswered as the case is being remitted back to
H

""
18 SUPREME COURT REPORTS [2006] SUPP. 9 S.C.R.

A the assessing authority for framing a fresh assessment.
We are not recording any opinion as to the merits of the case. The
assessing authority shall now frame the assessment in accordance with law,
without being influenced by any of the observations made in the previous
orders or this order.
B
Accordingly, appeals are allowed. There will be no order as to costs.

S.K.S. Appeals allowed.