Search and seizure under Section 132 quashed for lack of reasonable belief and pretextual reasons

The Bombay HC quashed search and seizure proceedings under Section 132 of the Income Tax Act, ruling that authorities lacked reasonable belief to initiate action. The court found that no prior summons or notices were issued to the petitioners, and the reasons recorded were merely pretextual with irrelevant material. The HC emphasized that information justifying search must exist prior to seizure, not be discovered during it. Following precedents from SC and previous HC decisions, the court held that authorities must possess specific information indicating non-compliance or concealment before exercising Section 132 powers. All consequent actions and notices were quashed, with the case decided in favor of the assessee.

---

---

Issues Involved:
1. Legality of the search action u/s 132 of the Income Tax Act.
2. Validity of the authorizations issued for the search.
3. Compliance with procedural safeguards.
4. Disclosure of reasons for the search.

Summary:

1. Legality of the Search Action u/s 132:
The court examined whether the search action initiated under Section 132 of the Income Tax Act was justified. The petitioners argued that the authorizations for the search were unconstitutional, ultra vires, invalid, and without jurisdiction. They contended that the search was conducted without any reliable information or verified preliminary enquiry, rendering the action bad in law. The court found that the respondents failed to establish a reasonable belief that the conditions mentioned in Section 132(1)(a) to (c) were satisfied, making the search and seizure invalid.

2. Validity of the Authorizations Issued for the Search:
Petitioners challenged the authorizations dated 7th July 2008, arguing that they were issued without any reliable information or preliminary enquiry. The court reviewed the contents of the file provided by the respondents and concluded that the material considered was irrelevant and unrelated. The reasons recorded indicated a mere pretence, and the satisfaction note did not demonstrate a process of forming a reasonable belief. Therefore, the authorizations did not fulfill the jurisdictional pre-conditions specified in Section 132 of the Act.

3. Compliance with Procedural Safeguards:
The petitioners argued that the search was conducted without observing the safeguards provided in Section 132, making it illegal. The court agreed, noting that no notice or summons had been issued to the petitioners prior to the search, which could have justified an apprehension of non-compliance. The court emphasized that the information giving rise to a reason to believe must be prior to the seizure, and respondents cannot rely on what was unearthed during the search.

4. Disclosure of Reasons for the Search:
The petitioners requested the disclosure of the satisfaction note and the information leading to the search. The respondents opposed this, citing the decision in Principal Director of Income - tax (Investigation) Vs. Laljibhai Kanjibhai Mandalia and the Explanation inserted in Section 132(1) by the Finance Act 2017, which states that the reasons for the belief shall not be disclosed. The court examined the reasons in a sealed envelope and found them to be general and insufficient to justify the search. The court held that the reasons forming part of the satisfaction note must satisfy judicial conscience, which was not the case here.

Conclusion:
The court quashed and set aside the search action and all consequent actions and notices under Section 132(1) of the Act due to non-compliance with the jurisdictional pre-conditions and lack of a reasonable belief based on relevant information. However, it clarified that the revenue could still use the information or material gathered during the search in appropriate proceedings against the assessee as permissible by law.

Orders:
- The search and seizure action under Section 132(1) was quashed.
- All consequent actions and notices were set aside.
- The bank guarantee provided by the petitioner was to be returned within four weeks.

---