TaxTMI 
TaxTMI 
2011 (2) TMI 360
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....n the domestic market. The metals are then processed and sold abroad as well as in the domestic market. 4. The registered office of the company is at New Delhi. It has 8 branches, situate in seven different States of the country and at least one warehouse situate at Noida, UP and the other is said to be at Surat, Gujarat though there is no pleading in respect of the same. 5. The warehouse at Noida is situated within a special economic zone (SEZ) created under the Special Economic Zones Act, 2005, (the SEZ Act). In this warehouse imported precious metals are stored and then dispatched for export or domestic sales. 6. Sri Satish Bansal, Sri Vinod Bansal, and Sri Anil Bansal are real brothers. They are directors of the petitioner-company. 7. A search was conducted by the Income Tax Department (the Department) on September 15, 16, 2009 not only in the offices, branches, and the bonded warehouse of the petitioner at Noida but also at the residences of its directors as well as on some other persons. In all, the search was conducted in ten companies, one firm, and fifteen individuals. 8. According to the Department, the petitioner is a fla....
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....nbsp; The record can be seen by the court without showing it to the counsel for the petitioners ; The relevancy of the information leading to reasonable belief for authorising the search may be judged by the court, without disclosing the same to the petitioner or his counsel. 17. In a nutshell, the procedure proposed by the counsel for the Department meant that we were required to adjudicate the question of relevancy of the information without hearing the counsel for the petitioner on the point of their relevancy-he (counsel for the petitioner) cannot argue unless he is informed about the information. 18. This procedure was objected to by the counsel for the petitioner. According to him, The Department has not claimed privilege for not showing the records ; The court may not see the record unless, it is also shown to the counsel for the petitioner or at least information leading to belief is revealed to him ; The question, whether the information is relevant or not, may be judged only after hearing the counsel for the petitioner ; and The counsel of the petitioner cannot make submissions unless they know what was the....
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....essing Officer to another for the reasons to be recorded after affording opportunity to the assessee. 24. Section 147 of the Act is titled "Income escaping assessment". It empowers an Assessing Officer to reassess income of an assessee, if the conditions mentioned in that section are satisfied. It is subject to sections 148 to 153 of the Act. Prior to April 1, 1989, it contained specific words that reassessment could be done for reasons to be recorded in writing. 25. Sub-rule (2) of rule 112 of the Income-tax Rules, 1962 (the Rules) as it stood prior to its substitution by the Income-tax (Fourth Amendment) Rules, 1975 specifically provided that the authority must record his reasons before issuing a warrant of authorisation for search. In the new sub-rule (2) of rule 112, the words "after recording his reasons for doing so" were deleted. 26. The counsel for the Department brought the aforesaid provisions to our notice and submitted that : Section 132 of the Income-tax Act is differently worded than section 127 or section 147 of the Income-tax Act ; The substitution of rule 112(2) of the Rules, as it stands today, does not require rea....
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.... ; The petitioner or any other person subjected to search was not assessed within the territorial jurisdiction of UP and Bihar ; The DIT(I)-Kanpur had no jurisdiction to authorise search against them under the Income-tax Act. 31. Section 120 of the Income-tax Act is titled "Jurisdiction of income-tax authorities". Its different sub-sections provide as follows : (i) Sub-section (1) of section 120 (section 120(1)) of the Income-tax Act provides that income-tax authorities shall exercise all or any of the powers and perform functions conferred on them under the Income-tax Act in accordance with the direction of the Board for exercising their powers and performing functions ; (ii) Sub-section (2) of section 120 (section 120(2)) of the Income-tax Act provides that the Board may further authorise any income-tax authority to issue order for exercising power, functions by all or any of the income-tax authorities, who are subordinate to him ; (iii) Sub-section (3) of section 120 (section 120(3)) of the Income-tax Act provides that while issuing the direction under section 120(1) or (2), among the other things, the Board would have regard ....
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....come-tax Act is titled "search and seizure". It pro-vides for search and seizure. There are conditions precedent before exercising it. The relevant conditions for this case are as follows : (i) Under section 132(1) of the Income-tax Act, a search may be authorised only if the officer (specified in that section) has reasons to believe that any circumstance as enumerated in section 131(1) clauses (a) to 131(1)(c) exist on the basis of information before him. The belief to authorise the search has to be based on information or material : it cannot be conducted without any information or material. This is the first condition. (ii) A search is a serious invasion on the right to privacy : the right protected under article 21 of the Constitution. Considering it, the courts have also held that the information/ material leading to belief should also be relevant ; it should be connected with the search. It is only then that a search can be authorised. This is the second condition. 40. The corollary to the aforesaid conditions is that, where there is no information or if there is information but it is irrelevant then the court can quash the search. Nevertheless, ....
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....ion) has been added at serial number 16. 47. The search is conducted and its records are maintained in the organisation of the Directorate General of Income-tax (Investigation). In view of section 24, the RTI Act does not apply to it. No information can be obtained from the office of Director General of Income-tax (Investigation) under the RTI Act. 48. A citizen may not be entitled to any information under the RTI Act but it does not mean that the information cannot be revealed even, when its relevancy is being questioned in a court of law ? No bar under the Income-tax Act 49. Section 138 of the Income-tax Act is titled "Disclosure of information respecting assessees". It provides as follows : Sub-section (1)(a) of section 138 (section 138(1)(a)) provides information may be given to the other officer or the authorities subject to the conditions mentioned therein ; Sub-section (1)(b) of section 138 (section 138(1)(b)) provides that information in respect of any assessee may be given to a person if it is public interest to do so ; Sub-section (2) of section 138 of the Income-tax Act provides that the Central Govern....
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....the documents but there is also no provision allowing the same. However, it is not necessary to consider, whether a person has right to inspect it or not as the proceeding are before the court and are governed by the Evidence Act. Sections 123 to 125 of the Evidence Act provide what information may be seen and disclosed by the court. 58. Section 125 of the Evidence Act is titled "Information as to commission of offences". It provides that no Revenue Officer shall be compelled to say whence he got any information as to the commission of any offence against the public revenue. "Whence" means-from where, from what source. In cases of information regarding offences against the public revenue, the source of the information is even beyond the domain of the courts. 59. The Explanation to section 125 explains "Revenue Officer" to mean any officer employed in or about the business of any branch of public revenue. The DIT(I)-Kanpur is employed in the branch of public revenue and is a revenue officer. 60.Chapter XXII of the Income-tax Act is titled "Offences and prosecution". Sections 276C, 277, 277A, 278B are part of this Chapter. They provide punishment for ....
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.... further regarding section 123 or 124 of the Evidence Act, as yet privilege has not been claimed under these sections. At present, only section 125 of the Evidence Act is relevant. 67. The relevancy of information can only be judged after looking into the information : it cannot be done on mere statement of the officials of the Department or their counsel. In our opinion, in an appropriate case, or if the prima facie case is made out against the search then the court may ask the Department to indicate the information/material or reasons to believe (except the source) for authorising the search. 68. Let us consider the question, whether the relevancy of information leading to reasons to believe for authorising the search is to be adjudged after disclosing and hearing the aggrieved person or not. Indicating information to aggrieved person-Ensures fairness 69. In case, we consider the question of relevancy of information without disclosing the information, then the counsel for the petitioner cannot address us on that point. We might hold the information to be relevant. The result would be that this question would be decided without opportunity to....
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....der article 21 of the Constitution. 75. We are not only exercising writ jurisdiction, but are also sentinel on the qui vive for protections of the rights ; we are on the alert for any encroachment on any freedom. Should we decide a point relevant to intrusion of * See the article. "The Just Judge" in the book, "the Art of a Lawyer" published by "theUniversity Book Agency, Allahabad."privacy without affording reasonable opportunity to the petitioners ; should we adopt a procedure that might not be fair-the ultimate aim of all jurisprudence ; the yardstick on which all procedure should be tested. 76. The courts have evolved different principles-the promissory estoppel, or the legitimate expectation, or the principles of the natural justice, or the Wednesbury principle, or any other ground (bad faith, irrelevant consideration, acting under dictation etc.)-to ensure fairness in administrative action. Should we adopt a procedure that might not pass the test of fairness ? 77. We do not think so. The procedure of indicating information and reason to believe (except the source) to the petitioner, then taking a decision on relevancy of the information....
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....is to be utilised, is entirely dependent on the discretion of the Assessing Officer. It is also up to him to indicate the same as and when he considers appropriate. 81. However, in the assessment proceeding under section 153A of the Income-tax Act, the information or material or reason to believe for authorising search is not relevant. It was only relevant for authorising the search. 82. In the assessment under section 153A of the Income-tax Act, reasons for search will not be disclosed-the only thing that will be disclosed to the petitioner is the material or information that is sought to be utilised against the petitioner in the assessment. The reasons for the search are neither used for making assessment nor would they be ever communicated to the petitioner. This position was also accepted by the counsel for the Department. 83. In case the information or reasons to believe for authorising a search are not germane to assessment proceeding then it is difficult to conceive as to how their disclosure would adversely affect the assessment proceeding : they only affect the search. 84. Apart from the above, whatever documents or material was seiz....
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....There was no malice on the part of the respondent. The counsel for the petitioner submitted that : 89. The legality of search was not relevant as no action was proposed to be taken on the basis of the search under the FERA ; The only relevant question was whether the documents should be returned or not and the documents could not be returned as the authorisation under section 132A was valid ; The wording of section 37 of the FERA and section 132 of the Income-tax Act were different (see below)2. Section 132 of the Income-tax Act used the words, "in consequence of information in his possession". These words were absent under section 37 of the FERA ; The petitioner (who had argued the case personally) had submitted that : "If the court is going to look into the file produced on behalf of the second respondent, the same must be disclosed to the appellant so that they can controvert any false or wholly unsustainable materials set out in the file." In case the search was challenged, then the correctness or falsity of information/material could not be seen. The only thing that could be seen is relevancy or bona fide....
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....e no relief was sought for quashing the search but it appears that the question of validity of search was taken up for grant of the prayers claimed in the writ petition. It was for this reason that the court had thought that there was an alternative remedy under section 132(11) by way of filing objection before the Commissioner against the order under section 132(5). The court observed (page 266 of 176 ITR) : ". . . when the petitioner has an alternative remedy under sub-section (11) of section 132 by way of filing objections before the Commissioner, in our view, the courts should be loath to interfere under article 226." 94. The court also did not hold that in an appropriate case, the Department could not be asked to produce the records. It is clear from the following observations (page 265 of 176 ITR) : "The Income-tax Officer has already set out the details of the undisclosed assets in the said order and therefore, it became easier for the petitioner to show that the assets said to be undisclosed in the order passed under section 132(5) had, in fact, been disclosed. There is no precise averment and no supporting material in this behalf. On these fac....
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.... High Court on 23-5-2007) have taken a similar view. The observations made therein are wide and the reasons are different however, substantially they have held that though it was not necessary that the material information should be disclosed in every case, but when search was challenged then in an appropriate case, such disclosure should be made. 102. In our opinion in an appropriate case, where the petitioner makes out a prima facie case : The court, in an appropriate case, can order the Department to indicate contents or nature of information/material and reasons to believe authorising the search (without disclosing the source of information) to the aggrieved person ; The question of relevancy of information/material and reasons to believe is to be judged after hearing the aggrieved person ; The question of their relevancy is not to be decided without assistance of the aggrieved person. This is subject to any valid claim of privilege under sections 123 and 124 of the Evidence Act. 5th point : It is an appropriate case 103. The Government of India had announced a Special Economic Zone (SEZ) Scheme in April, 2000 with a view ....
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....and Customs Regulations. They are maintained and monitored by the Reserve Bank of India. The import of precious metals goes through custom checks ; The imports are through "foreign letters of credit". Stock of bullion are procured through nominated agencies, MCX and NCDEX. The volume of purchase is reflected in the quantitative tally ; The petitioner also purchases stock-in-trade from the domestic market but it is only through the nominated agencies Multi Commodity Exchange (MCX) and National Commodities and Derivatives Exchange (NCDEX) ; The domestic sales are through cheques and some are through cash. However, they are fully reflected in their quantitative tally. The part of the turnover by cash is through the regular bank accounts and is duly entered in the account books. There is no hidden bank account. 111. In paragraphs 62 to 64 of the writ petitions, the facts regarding recovery have been asserted. They are as follows : The total amount of cash found in different offices of the petitioner was Rs. 5,01,605. Out of this Rs. 4,90,000 was from its Chennai office and was seized. The jewellery found in the Bangalore office of th....
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....d emphasis on certain assertions in the counter-affidavit that the petitioner had surrendered a sum of Rs. 11 crores. According to him, it shows that there was undisclosed money in the hands of the petitioner. 119. There is nothing to show that the petitioner had surrendered a sum of Rs. 11 crores for the period prior to search. 120. Sri Satish Bansal is one of the directors in the petitioner. He filed an application dated October 30, 2009 before the Assistant Director of Income-tax (Investigation), Noida, UP (the ADIT(I)-Noida). This application is in reference to the discussion held in connection with a proceeding related to search and seizure. 121. The aforesaid application is four pages long and has 11 paragraphs. In different paragraphs it gave information sought by the ADIT(I)-Noida. Paragraph 7 of this application is as follows : "At the same time ; it is gathered that, looking to overall trends of business that are being carried on by the `persons' as aforesaid and/or the activities with which they are connected, the results are progressive so far during the financial year 2009-10 relevant to assessment year 2010-11. Keeping in view s....
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....information ; (d) In the present case the petitioner has made out a prima facie case. 127. In view of our conclusions, the Department may produce the record after showing it to the counsel for the petitioner or file a supplementary counter-affidavit indicating therein the information or material and reasons to believe for authorising the search. In case record is shown to the petitioner or a supplementary counter-affidavit is filed then, it will be open to the Department not to show or state that part of information that might indicate source of the information. We also clarify that : 128. The Department has not claimed privilege under the Evidence Act as yet. It will also be open to the Department to claim privilege under section 123 or 124 of the Evidence Act ; There are other points in the writ petition that we have not considered at this stage. They may be considered subsequently. Appendix I In case of search, pre and post Finance Act 1995 position regarding search, as stated by the counsel for the petitioner, is as follows : (i) A search is conducted under 132 of the Income-tax Act. Earlier, it could be done und....
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....k place. The pending proceeding for assessment also abate. (viii) The income assessed is charged to tax at the rate applicable to the respective years. The base for tax is total income as for a normal assessment and not for the undisclosed income as for block period. There is also no exemption for interest and penalty. (ix) The position of assessment in post Finance Act, 1995, is as follows: (a) In case a search is valid then assessment for the block period under Chapter XIV-B or assessment for six previous assessment years under sections 153A to 153C can be done ; (b) If the search is invalid then neither the block assessment under Chapter XIV-B nor assessment of previous six assessment years under sections 153A to 153C can be done (Ajit Jain v. Union of India [2000] 242 ITR 302) though the material found during search may be utilised for making assessment for that year or reassessment proceeding may be started if otherwise permissible under law ; In substance there is material difference if the search is valid or invalid so far as assessment and reassessment are concerned. Result (x) In a nu....