Appeal allowed: s.132 belief formation administrative; review limited to Wednesbury reasonableness, recorded reasons need not be disclosed

SC allowed the appeal, set aside the HC order quashing the search authorization and held the authorization valid. The Court ruled that formation of belief under s.132 is administrative; review is limited to Wednesbury-style reasonableness to ensure the satisfaction was bona fide and not mala fide or founded on irrelevant material, not to assess adequacy of reasons. The recorded reasons need not be disclosed and courts should not act as appellate bodies over the merits. Consequentially Revenue is liberty to proceed with search, seizure and further action in accordance with law.

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Issues Involved:
1. Validity of the warrant of authorization issued under Section 132 of the Income Tax Act, 1961.
2. Whether the conditions precedent specified in Section 132 of the Act were satisfied.
3. Scope of judicial review in matters of search and seizure under Section 132 of the Act.
4. Adequacy and relevance of the reasons to believe recorded by the Revenue.

Detailed Analysis:

1. Validity of the Warrant of Authorization:
The challenge in the present appeal is to an order dated 22.02.2019 passed by the High Court of Gujarat at Ahmedabad whereby the warrant of authorization dated 07.08.2018 issued by the appellant (Revenue) under Section 132 of the Income Tax Act, 1961 was quashed. Consequently, all actions taken pursuant to such warrant of authorization were ordered to be rendered invalid.

2. Conditions Precedent Specified in Section 132:
The respondent (Assessee) challenged the act of authorization for search and seizure on the ground that it is a fishing enquiry and the conditions precedent as specified in Section 132 of the Act are not satisfied. The High Court found that none of the reasons to believe to issue authorization met the requirement of Section 132(1)(a), (b), and (c). The High Court recorded that the belief that the petitioner would not respond to a summons or notice issued as envisaged under clause (b) of subsection (1) of section 132 is not based upon any information or other material but is based upon conjectures and surmises.

3. Scope of Judicial Review:
The Supreme Court emphasized that the jurisdiction of the High Court while exercising judicial review is very limited. The High Court's role is to examine the existence of reasons, not the legality of the same. The sufficiency or inadequacy of the reasons to believe recorded cannot be gone into while considering the validity of an act of authorization to conduct search and seizure. The belief recorded alone is justiciable but only while keeping in view the Wednesbury Principle of Reasonableness.

4. Adequacy and Relevance of the Reasons to Believe:
The reasons to believe recorded by the Revenue were found to be not whimsical or irrelevant. The detailed satisfaction note showed multiple entries in the account books of Sarju Sharma and others, and the manner in which Sarju Sharma contacted the assessee in Ahmedabad for a loan of Rs.10 crores did not appear to be a normal transaction. The Revenue asserted that the accommodation entry is a common modus operandi to bring the unaccounted black money to books for a brief period. The investment of Rs.10 crores for a short period was not for earning interest income as the same was repaid in the same assessment year. The Revenue intends to investigate the fund trail of the money paid by the assessee.

Conclusion:
The Supreme Court found that the High Court was not justified in setting aside the authorization of search dated 07.08.2018. The appeal was allowed, and the order passed by the High Court was set aside. Consequently, the Revenue would be at liberty to proceed against the assessee in accordance with law. The Court reiterated the principles for exercising writ jurisdiction in the matter of search and seizure under Section 132 of the Act, emphasizing the administrative nature of the formation of opinion and the limited scope of judicial review in such matters.

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