TaxTMI 
TaxTMI 
TaxTMI 
2011 (3) TMI 706
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.... by the respondents to various banks, financial institutions and others ; (C) to restrain the income-tax authorities from issuing the notices under section 153A(1) to the other group companies of Neesa group for furnishing return of income-tax for last six assessment years, mechanically and without application of mind." 2. The facts of the case as stated in the petition are that petitioner No. 1 is a company. Petitioner No. 2 is a civil engineer from IIT, Roorkee, holding a diploma in business finance from ICFAI, who joined the Indian Administrative Service in the year 1985 and played a key role by implementing various policy initiatives in the Tourism, Industry, Energy and Infrastructure Sector in Gujarat, and held different positions in the Government of Gujarat during his 17 years' tenure. He resigned in 2002 to join the private sector as a senior executive. Subsequently, he set up his own ventures in various sectors. Under his leadership, Neesa group has converted itself into a well-diversified group involved in hospitality services ; agro-biotechnology, steel castings and I. T. services through innovative business planning and professional management. Neesa Lei....
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....the petitioners have been filing income-tax returns year after year and have been paying income-tax year after and that they have also been attending all the assessment related proceedings of the Department and submitting information/data, etc., required by the Department from time to time. There has been no occasion of nonappearance or non-furnishing of information or details. Further, all the assets, loans either short-term or long-term, have been disclosed by the petitioners from year after year and as such, it was incumbent upon the respondents to first verify the information, which might have formed the basis for invoking section 132 of the Act with the concerned Assessing Officers. It is further averred in the petition that the notices issued under section 133(6) of the Act to various banks, financial institutions and others are illegal and the same have been issued for collateral purposes and not for achieving any legitimate purposes of the Act. That the petitioners apprehend that no prior approval of the Director or the Commissioner is obtained as required and if at all the said approval is obtained, the same is bad in law. It is also the case of the petitioners tha....
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....thered, a specific satisfaction was recorded as required under the said section. It is further averred that the original file containing the satisfaction note had been produced before the court for the perusal of the court and that from the satisfaction note, it can be seen that the pre-search inquiries clearly indicated that the assessee group was in possession of documents which would not be produced by issuance of summons or other notice in terms of the provisions of section 132(1)(b) of the Act as also the assets as contemplated under clause (c) of section 132(1) of the Act. It is further stated that pre-search inquiries and satisfaction recorded for taking action under section 132(1) of the Act have been vindicated even from the findings in the search. It is also averred in the affidavit that the petitioner had shown a huge unsecured loans to the extent of Rs. 6,25,26,010 as on March 31, 2007, from his father Shri Raghunathprasad Gupta, who, however, had categorically denied any such transaction in the statement recorded during the course of search proceedings. As regards notices issued under section 133(6) of the Act, it has been stated that the notices have been issued mainl....
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....ive of the fact that the action taken by the respondents is premature. The learned counsel invited the attention of the court to various decisions of the Supreme Court, this High Court and other High Courts to indicate the considerations which should weigh with the court while considering the challenge to the validity of the authorization issued under section 132 of the Act. The same shall be referred to hereinafter at an appropriate stage. Referring to the provisions of section 132 of the Act it was submitted that action under the said provision can be taken "in consequence of information", such information should be concrete material based on which the concerned officer should have reason to believe. In other words, the information should be credible information as opposed to suspicion, gossip, or a hunch. It was submitted that in the present case the petitioners have been regularly filing their income-tax returns and have always been co-operative with the Income-tax Department and as such there could be no reason for the respondents to form a belief that the petitioners would refuse to supply any information which may be sought for by the Income-tax Department. It was su....
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....1(1A) of the Act can be issued thereunder only before the authorized officer takes action under section 132(1) of the Act. It was held that the very fact that the respondents issued notices under section 131(1A) of the Act after the search and seizure operation under section 132 of the Act goes to show that there was neither reason to believe, nor material before the authorized officer on the basis of which he could issue a warrant under section 132 of the Act. As regards the challenge to issuance of notices under section 133(6) of the Act, the learned counsel for the petitioners submitted that after the search the respondents have issued notices under section 133(6) of the Act to Axis P. Equity Ltd,. calling for information which is irrelevant for the purposes of the Income-tax Act. It was submitted that such notice should have nexus to the proceedings or inquiry under the Act and cannot be a fishing inquiry. Referring to the notice dated September 23, 2010, it was submitted that from the very nature of information called for by the respondents it is apparent that it has no nexus with the inquiry and that the sole object is to throttle the petitioners' business. It was emp....
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....t indicate that action under section 132 is premature, Mr.Bhatt submitted that section 131(1A) of the Act in so far as the same provides for taking action under clauses (i) to (v) relates only to the authorized officer referred to in sub-section (1) of section 132. In so far as the Director General or the Director or the Joint Director or the Assistant Director or the Deputy Director are concerned, they can take action under section 131(1A) of the Act if they have reason to suspect that any income has been concealed as envisaged thereunder. Reliance was placed upon a decision of this High Court in the case of Arti Gases v. Director of Income-tax (Investigation) [2001] 248 ITR 55 (Guj), wherein the court had held that the notices under section 131(1A) of the Act can also be issued after completion of the search undertaken under the provisions of section 132 of the Act. As regards the challenge to the notices under section 133(6) of the Act is concerned, the learned counsel vehemently submitted that at the time of issuance of notice, vide order dated October 11, 2010, the court had issued notice only for the purpose of examining the aspect as to whether before initiating sear....
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....nt on the part of the officers will not vitiate the exercise of the power. Where the Commissioner entertains the requisite belief and for reasons recorded by him authorizes a designated officer to enter and search premises for books of account and documents relevant to or useful for any proceeding under the Act, the court in a petition by an aggrieved person cannot be asked to substitute its own opinion whether an order authorizing search should have been issued. Again, any irregularity in the course of entry, search and seizure committed by the officer acting in pursuance of the authorization will not be sufficient to vitiate the action taken, provided the officer has in executing the authorization acted bona fide. In the case of Ramjibhai Kalidas v. I. G. Desai, ITO [1971] 80 ITR 721 (Guj), this High Court has held that the condition precedent for the exercise of the power to issue authorization for search and seizure is that the Director of Inspection or the Commissioner must have the requisite reason to believe in consequence of information in his possession. The power to authorize search and seizure is hedged in by the requirement of this condition precedent and it is only if....
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....sfaction which is recorded is such which shows lack of application of mind of the appropriate authority. The reason to believe must be tangible in law and if the information or the reason has no nexus with the belief or there is no material or tangible information for the formation of the belief, then, in such a case, action taken under section 132 would be regarded as bad in law." 8. It was further held that in the light of the provisions of sub-clause (b) of section 132(1) of the Act, the belief of the authority must be that the only way in which the Income-tax Department would be in a position to obtain books of account and documents from a person is by conducting a search and consequent seizure of the documents thereof. In the opinion of the court, some facts or circumstances must exist on the basis of which such a belief can be formed. It was further held that an authorization under section 132(1) can be issued if there is a reasonable belief that the assessee does not want the Income-tax Department to know about the existence of such income or asset in an effort to escape assessment. That apart, there must be material on which the mind has to be applied and opinion fo....
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....sion of the Calcutta High Court in the case of Deputy Director of Income-tax (Investigation) v. Mahesh Kumar Agarwal [2003] 262 ITR 338 (Cal) ; 130 Taxman 674 (Cal) ; and (g) The decision of the Allahabad High Court in the case of Doctors X-ray and Pathology Institute P. Ltd. v. Director of Investigation [2009] 318 ITR 125 (All) ; 186 Taxman 480 (All.). 10. Since similar principles have been enunciated in the aforesaid decisions, with a view to avoid prolix, the same are not referred to in detail. The aforesaid pronouncements have exhaustively settled the guidelines with reference to scrutiny by the court while examining the legality, propriety or otherwise of the issuance of search warrants under section 132(1) of the Act. From the principles enunciated in the above referred to decisions, it is apparent that for the purpose of exercise of powers under section 132 of the Act two conditions precedent are required to be satisfied. The first condition is that the concerned officer must have some information in his possession, and the second condition is that, in consequence of such information he must have reason to believe that the statutory conditions for exe....
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.... as no rational human being can consider connected with the fact in respect of which the belief is to be entertained so that no reasonable man can come to such a belief, the exercise of the power would be bad. In appropriate cases a writ petition may lie challenging the validity of the action on the ground of absence of power or on a plea that proceedings were taken maliciously or for a collateral purpose. Examining the facts of the present case in the aforesaid legal back drop, it has been contended on behalf of the petitioners that the authorizations issued by respondent No. 2-Director General of Income-tax are illegal and invalid inasmuch as there were no grounds before him on the basis of which he could have reason to believe that the petitioners were in possession of undisclosed income or property. For this purpose, the respondent-authorities had produced the file containing the satisfaction note as well as the material based on which the satisfaction had been recorded, for the perusal of the court. On scrutiny of the record produced before the court, it has been noticed that a detailed proposal/satisfaction note has been prepared by the Additional Director of Income-t....
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....rization under section 132 of the Act, it cannot be said that based on such material no reasonable person could have formed the opinion that reasons for exercise of powers under section 132 exist. In the opinion, of this court, the record of the case clearly indicates that there was sufficient and relevant material before respondent No. 2 to form the requisite opinion as contemplated under section 132(1) of the Act. As noted hereinabove, at the stage of considering the validity of authorization to search and seize under section 132(1) of the Act, the consideration is as to whether there is some relevant material so as to warrant proceedings under section 132 of the Act and the question of sufficiency cannot be gone into. The next contention raised on behalf of the petitioners is that issuance of notice under section 131(1A) of the Act, after the search is fatal to the whole process and that even if there was a belief, if material was gathered to sustain such belief, the warrant of authorization is illegal. In this regard it may pertinent to refer to the provisions of section 131 of the Act, which in so far as the same are relevant for the present purpose read thus : ....
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....counsel for the petitioner is correct. The respondents in their counter affidavit have stated that it was respondent No. 4 who had sent the material to respondent No. 1 on the basis of which respondent No. 1 had recorded his satisfaction under section 132(1). It is respondent No. 4 himself who had issued summons under section 131(1A) of the Act after the search. As such there could not possibly be any material, which can be the basis of having reason to believe in respondent No. 1. The very fact that the respondents issued notices under section 131(1A) after the search and seizure operation under section 132 of the Act goes to show that there was neither reason to believe nor material before the authorising officer on the basis of which he could issue a warrant under section 132 of the Act." 12. On the other hand on behalf of the respondents, reliance has been placed on a decision of this High Court in the case of Arti Gases v. Director of Income-tax (Investigation) [2001] 248 ITR 55 (Guj), wherein the court has held that the notices under section 131(1A) of the Act can also be issued after completion of the search undertaken under the provisions of section 132 of the Act. ....
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....impression of the authorised officer with regard to the nature of the documents was not correct, we are sure that such a notice would help the assessee himself. If the assessee is called upon to give some information or to explain certain documents or writings seized during the process of search, in our opinion, no harm can be caused to the assessee and as stated hereinabove, such particulars can be helpful not only to the Department but to the assessee also. We, therefore, do not agree with the submissions made by the learned advocate, Shri Puj that such a notice can be issued only before initiation of proceedings under section 132 of the Act. Moreover, even under the provisions of section 133 of the Act, the Assessing Officer or the officers referred to in the said section are having power to call for information. So issuance of such a notice during or after the search cannot be said to be bad in law." 14. The main plank of the submissions advanced by the learned counsel for the petitioners was that issuance of notices under section 131(1A) of the Act subsequent to the search proceedings was fatal and would render the search proceedings invalid even if the requisite satis....
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....ns precedent for exercise of powers under section 132(1) of the Act had been satisfied. However, by the order dated October 11, 2010 whereby notice was issued on the petition, the challenge to the notices under section 133(6) of the Act has not been repelled by the court. Besides, one of the members of this Bench was a party to the said order and it was never the intention of the court to limit the challenge in the petition to the validity of the search proceedings alone. In the circumstances, the petitioners are not prohibited from pursuing their challenge to the said notices. 16. Examining the issue on the merits, it has been vehemently submitted on behalf of the petitioners that the information called for under the impugned notices is irrelevant for the purposes of the Income-tax Act and that the information called for reveals that the same is in the nature of a fishing or roving inquiry which has no nexus with the inquiry and that the sole object is to throttle the petitioner's business. That the issuance of notice under section 133(6) is a patent abuse of power, which does not advance the cause of income-tax proceedings and as such the same is without authority of law ; has n....