TaxTMI 
TaxTMI 
2008 (6) TMI 366
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....to record the reasons regarding the satisfaction in terms of section 132 of the Act of 1961 and thereafter warrant of authorisation should have been issued as per the provisions of section 132 of the Act of 1961. The petitioner has stated that the whole search and seizure made by the Department on March 28 and 29, 2008 are per se illegal and contrary to the statutory provisions and is liable to be set aside. 3. The petitioner/society is registered with its main object and activities to promote co-operative banking transactions only to the members of the society and inter alia to : (a) inculcate an attitude and habit for saving in the members ; (b) management of safe investment of the members ; (c) arranging need based loans and finances to the members ; (d) providing other economic facilities and services for this purpose the society is having share money of the members, savings accounts, daily deposit accounts, recurring deposit accounts, fixed deposit accounts etc., for which complete accounts and records are maintained ; (e) to provide other service like payment of telephone, electric bills and preparations of bank drafts as p....
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....d raid was conducted by the officials of the Department and cash amounting to Rs. 30 lakhs was seized by the Department. It has been further stated that the cash found with the petitioner-society was reflected in the cash books and the Department went to the extent of seizing all the accounts of the society. The petitioner-society has raised various grounds challenging the search and seizure conducted by the Department and stated that the action of the Department is absolutely contrary to the well settled procedure as contemplated under section 132 of the Act of 1961. It has been further stated that the Department was not having any knowledge of undisclosed property or undisclosed accounts of the petitioner and the Department was required to go through the returns to arrive at a conclusion that there was reason to believe that the petitioner has some undisclosed income and then only further action could have taken under section 132 of the Act. The petitioner has prayed before this court for quashing the entire proceedings and has also prayed for releasing of the bank accounts and cash which has been seized by the Department. 7. The Department has filed a return and it has....
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....ed under section 132(1)(a), (b) and (c) of the Act of 1961 were fulfilled to conduct the search and seizure in the business premises of the petitioner/society. 10. It has also been stated in the return that the society was involved in various activities including providing accommodation payment facilities to its members who are businessmen and traders at Gwalior by issuing cheques and demand drafts to outstation parties in consideration of huge cash deposits on daily basis to effect transactions of their unaccounted money. The society has received payment through inward clearing and it is withdrawn in cash by the concerned person. It has been further stated that very nominal members of the society were effecting payments and receipts through the bank account of the society and not from their own bank account which clearly reflects that these transactions of payments and receipts are probably not recorded in their books of account. The investment and income from such transactions is unaccounted and undisclosed to the Department thereby causing huge revenue loss to the Government by way of evading income-tax, sales tax, VAT, excise duty etc., The Department have further sta....
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....hem nominal members thereby assisting and abetting routing of unaccounted money through the bank account of the society which remain undisclosed to the Department as these transactions are not recorded by the members in their books of account. In this regard, the society has specifically amended its objects by incorporating the clause to appoint 'nominal members' who are only allowed to avail of the facility of issue of cheques at par and demand draft and at the same time they are not eligible for any dividend on shares, participation in other activities and availing of loan. This amended 'objects clause' of the society of issue of cheques at par and demand draft, is the only operative object and activity of the society which is primarily tantamount to a banking activities for which the society is neither a bank registered under the RBI Act nor is it registered as a NBFC with RBI. Thus, the activities under taken by the samiti of providing facilities of issue at par cheques and demand drafts to its members (mostly nominal members) apparently made for this purpose only is an illegal activity. In these circumstances, the samiti does not retain its co-operative status of a separate en....
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....t of 1961 are liable to be quashed by this court or not ? 13. The respondent/Department has produced the entire material before this court at the time of hearing and after hearing the learned senior counsel for the parties and after going through the pleadings including the rejoinder filed by the petitioner, it is evident that the search and seizure was conducted by the respondent on March 28, 2008 and March 29, 2008. 14. Section 132 of the Act of 1961 reads as under : "132. (1) Where the Director General or Director or the Chief Commissioner or Commissioner or any such Joint Director or Joint Commissioner as may be empowered in this behalf by the Board, in consequence of information in his possession, has reason to believe that- (a) any person to whom a summons under subf section (1) of section 37 of the Indian Income-tax Act 1922 (11 of 1922), or under sub- section (1) of section 131 of this Act, or a notice under sub-section (4) of section 22 of the Indian Income-tax Act, 1922, or under sub-section (1) of section 142 of this Act was issued to produce, or cause to be produced any books of account or other documents has omitted or failed to produce....
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....ustify the action, the authorities must have relevant material on the basis of which they could form an opinion that they have to believe that action under section 132 would be justifiable. In the absence of any relevant material the authority would be acting in excess of his powers and in violation of the mandatory requirements of section 132 and the action of the authority cannot be sustained. If such action is challenged under article 226 of the Constitution of India the court comes to the conclusion that there was no relevant material before the authority to form an opinion under section 132, the court in exercise of powers under article 226 of the Constitution of India can interfere. 18. The High Court of Delhi in L. R. Gupta v. Union of India [1992] 194 ITR 32 ; [1992] 46 DLT 14 (DB) scanning the ingredients of section 132 of the Income-tax Act has opined that jurisdiction under section 132 can be exercised on the formation of a belief and the belief is to be formed on the basis of receipt of information by the authorising officer and the information must be something more than a mere rumour or a gossip or a hunch. There must be some material which can be regarded a....
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....he circumstances, would form a belief which will impel him to take action under the law. 22. In Deputy DIT (Investigation) v. Mahesh Kumar Agarwal [2003] 262 ITR 338 (Cal) it has been held that the conditions precedent which are required to be fulfilled for action to be taken under section 132 of the Act are that the officer must be in possession of information on the basis of which he has reason to believe that the concerned person has not produced or would not cause to be produced the books of account and the condition has to be fulfilled before decision to issue a notice under section 132(1) of the Act is taken. The information must exist before the opinion is formed. It has also been held therein that the authorized officer must actively apply his mind to the information in his possession and form an opinion that there are reasons to believe. Such opinion must be formed on the basis of the material available at that time. The material must have rational nexus or bearing to the reasons for formation of the belief. In the said case it has been held that although a matter relating to search is open to judicial scrutiny, the court cannot sit in appeal over the opinion for....
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....f Gwalior to make payments towards their unaccounted unrecorded purchases from outside parties who insist for immediate payments in cash or otherwise. As the large amount of payments in cash cannot be effected due to normal safety reasons, these traders are carrying the demand drafts/pay orders prepared by these two societies from their own bank account and thus settle their own account for outstation purchases. For this service, societies must be charging certain fee/commissions from these members. Most of the time the purchase and sales in respect of goods acquired through these DD/pay orders remain unaccounted and the investment and the profit earned from these transactions remain escaped from assessment." 25. The formation of opinion shows that there has been maintenance of accounts in various banks. It has also enumerated evidence. During investigation it has been found that the society as engaged primarily to provide accommodation, payment in terms of DD and cheques on behalf of the members and the local traders. A reference has been made to copies of bank accounts from Punjab National Bank and Vijaya Bank. (I) Vijaya Bank, Gwalior in Account No. OD-250019 (period S....
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....Rs. 19,87,339 was issued. Again on December 6, 2005 cash deposit of Rs. 10,00,000 was made against which payments were made by issue of cheques favouring yourself for issue of draft amounting to Rs. 21,24,573. (iii) Flag A-4 shows that on December 13, 2005 cash of Rs.10,00,000 was deposited and 3 (three) cheques totalling of Rs.9,83,100 was given to Sriniwas Cable (Rs. 4,00,000) Saroj (Rs.5,83,100). Again on December 27, 2005 cash of Rs. 7,50,000 was deposited and payment through two cheques for Rs. 3 lakhs and Rs.4.50 lakhs were issued in favour of Sriniwas Cable. On December 29, 2005, against cash deposit of Rs. 6,00,000 cheque to Sriniwas Cable was Rs. 3,50,000 and outward transfer through two demand drafts for Rs. 4,19,572 were issued. (iv) At flag A-5, on January 20, 2006 cash deposit of Rs. 10 lakhs was made against which payments were made through two cheques for Rs. 4 lakhs in favour of Sriniwas Cable. On January 21, 2006 cash of Rs. 5,00,000 was deposited and inward transfer for DD was made for Rs. 4,50,405. On January 23, 2006, cash deposit of Rs. 10,00,000 was made and 4 cheques totalling to Rs. 8,90,000 were issued to Srinivas Cable and another two c....
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.... observed that while making payments by demand drafts through cheques though the payments are made to one party at one particular point of time the same have been made by making different cheques of equivalent amount of the same date which indicates that the person does not want to make a single pay- ment of a big consolidated amount just to avoid being noticed from tax authority implying that such transactions are unaccounted transactions for which the assessee (concerned parties) do not have any valid source. The examples are as under : 1. First example : Flag C-1 S. No. Date Issued cheques Payment amount (Rs ) Name of the party 1 February 2007 928607 5,00,000 M/s C P Industries 2 February 2007 928606 5,00,000 M/s C P Industries 3 February 2007 928605 5,00,000 M/s C P Industries 2. Second example : Flag C-2 1 February 2007 928647 5,00,000 M/s Asha Oil Industries 2 February 2007 928648 5,00,000 M/s Asha Oil Industries 3 February 2007 928649 5,00,000 M/s Asha Oil Industries 27. Thereafter there is refe....
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.... service charges for providing this services. In the similar case at Katni, it has been found that the rate of commission/service charges for providing these accommodation payments is at Rs. 1 per thousand. If this rate is applied then a minimum of Rs. 13,00,000 income has accrued to the society in respect of these three bank account transactions. Similar income are accruing to other societies most of these societies and person who are managing them are not filing their income-tax returns therefore, this commission income remain escaped from taxation. Thus the entire operations of the societies of providing accommodation payment entries are not declared to the Income-tax Department and the income earned in the form of commission/fees for providing such facilities mostly escape from assessment. Further, the sources of these payments contributed by the members of the society and other local traders on whose behalf payments were made are not accounted for by these persons in their books of account which implies that all these transactions represent the unaccounted transaction of these traders/members of the societies. Therefore, the sources of investment in respect of these transac....