TaxTMI 
TaxTMI 
2011 (12) TMI 59
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....e week commencing from 22nd August 2011. The short contention is about absence of any material, warranting such search action. 2. Accordingly, we have heard Shri Thakkar with Shri Bhattad, learned counsel for the petitioners and Shri Parchure, learned counsel for the respondents. 3. Shri Thakkar, learned counsel has urged that the petitioners are regular in paying incometax, in filing return and have produced books of accounts and supplied all information as and when demanded. In this situation, there was no reason or occasion to proceed under Section 132 of the Act against them. He has contended that the only purpose of search was to fish out some material to find out why petitioner No. 1 - Company has registered phenomenal growth over short period. The purpose is collateral and hence action of search on its basis is unsustainable. He states that the benefit under Section 80IA has been properly claimed and allowed and it appears that purpose was to withdraw it anyhow. Even in relation to Keyman Insurance Policies, he explains that the material is on record and policies have been transferred by Company to such Keyman and necessary facts are all within the knowledge ....
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....on), Pune, have found such search necessary after considering the facts as disclosed in those satisfaction notes. He has pointed out that these authorities are independently given power by S. 132 and satisfaction of any one such authority is sufficient to sustain the exercise. The replies as filed on record from time to time are relied upon to justify the entire action. The learned counsel states that after discreet enquiries, the action has been taken and as there is material on record which supports it and its relevance is already looked into, the petition is without any merit and liable to be dismissed. 6. The perusal of Division Bench judgment of Calcutta High Court in the case of Smt. Uma Devi Jhawar vs. Income Tax Officer, (supra) reveals that the Court found that when Court allows Income Tax Officer to produce such records and the Court examines the same to find out whether there are valid reasons, the Court has to allow inspection of such records to the assessee. The recorded reasons or material or letter of proposal sent by Income Tax Officer to Commissioner of Income Tax, was in the light of provisions of Section 148 of the Act and High Court has found that it is ....
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....the assessee were known namelenders. The Hon'ble Apex Court in para 10, noted that there was nothing to show that confession by Mohansingh related to a loan to assessee and not to someone else and it was difficult to infer the period to which that loan related. The Hon'ble Apex Court has then noted that the reasons for the formation of belief must have rational connection with or relevant bearing on the formation of the belief, a direct nexus or live link between the material coming to the notice of the Income Tax Officer and the formation of this belief is found essential. The Hon'ble Apex Court has noted that the words were not "reason to suspect". 9. In the case of L.R. Gupta and Ors. vs. Union of India and Ors., (supra), the Hon'ble Division Bench of Delhi High Court has considered the provisions of Section 132(1) of the Act. In para 3, Division Bench has noticed that search was authorized because of information allegedly gathered about receipt of approximately Rs.30 crores by assessee from land acquisition department. Discreet enquiries were made and it was revealed to the department that house property at Anand Lok was under demolition and an apartment building was to....
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.... of these books of account unless of course there is information to the effect that he has been keeping some secret account books also. He has to arrive at a decision in the background of the mental make up of an individual of individuals jointly interested in a transaction or a venture. A blanket condemnation of persons of diverse activities unconnected with each other on the odd chance that if their premises are searched from incriminating material might be found is wholly outside the scope of S. 165, Cr. P.C. This power has to be exercised in an honest manner and search warrants cannot be indiscriminately issued purely as a matter of policy." In para 15 of this judgment, the Delhi High Court has also found that in his satisfaction note, the Director of Investigation had recorded only one reason and it was that the petitioners were not disclosing true income and wealth. This reason was found not in addition to reasons contained in note of recommendation put up by other respondents and Delhi High Court has found that satisfaction of said authority only was relevant and needed to be examined. 10. In the case of Vindhya Metal Corporation and Ors. vs. Commissioner of ....
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....me Tax (Investigation). There are some contentions revolving around Section 80IB or Keyman Insurance policy but then it is not the case of the respondents that said position was not within their knowledge earlier. It is urged that survey under Section 133A of the Act of a Labour Contractor to whom majority of labour payments were made revealed that he had inflated expenses in his book probably to cover inflated bills raised by him on the petitioners - company. It is claimed that said labour contractor declared additional income of Rs.1.3 crores. The petitioners have then filed reply to these submissions and pointed out the names of contractors, regular payment to those contractors. It is contended that those contractors have been working with other employers also. The reason pleaded in affidavit reply is, therefore, stated to be frivolous. The respondents have then filed additional affidavit on 22.09.2010 and in it, it is mentioned that satisfaction note was initially recorded by the Assistant Director of Income Tax on the basis of necessary information on record. The said Assistant Director is alleged to have personally conducted discreet enquiries on various occasions before reco....
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....d genuineness was doubtful. The substantial unreconciled amounts were found in the bank account of assessee company. The petitioners have thereafter filed their reply to this affidavit on 23.11.2010 which is nothing but reiteration of their earlier stand. Thereafter the petitioners have filed CAW No. 2587 of 2010 for admission of Additional documents already filed by them with rejoinder on 20th July 2010. Thereafter they filed CAW No. 2788 of 2010 for grant of early hearing. 14. The provisions of Section 132(1) of the Act contemplate a satisfaction of a particular authority and here as claimed by the respondents, the satisfaction note of Additional Director of Income Tax approved by Director of Income Tax (Investigation) has culminated in issuance of search and seizure warrant. This position is disclosed in para 4 of the additional affidavit dated 22.09.2010. In affidavit dated 15.11.2010, in para 6, it is stated that the Director of Income Tax (Investigation) has recorded his personal satisfaction before issuing the warrant of authorization under Section 132. The material looked into by said authority is also disclosed in para 6. Thus, the respondents claimed that a note w....
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....affidavit reply filed on 22.09.2010 by the respondents show preparation of separate notes by the Additional Director of Income Tax and by the Assistant Director of Income Tax after recording satisfaction and its approval by the Director of Income Tax, again a separate note. It is claimed that the Director of Income Tax also recorded his personal satisfaction and it culminated in issuance of search and seizure warrants. This is reiterated by the respondents in para 6 of their additional affidavit dated 15.11.2010. 15. It is, therefore, obvious that the authority which has given its final nod and in absence of which the action under Section 132(1) was not possible, is not claimed to have recorded personal satisfaction in this respect. Its handwritten note does not record any such satisfaction. Thus "reason to believe" being pressed into service is not of that authority. This is final authority who has stated that it has gone through the note and it has also perused the satisfaction note of Director of Income Tax (Investigation). It has recorded that the "Director of Income Tax (Investigation), Nagpur, has got adequate information to arrive at his satisfaction that search and ....
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.... been undertaken by the Assistant Director of Income Tax (Investigation), Nagpur. The note running into seven pages prepared by the said officer prepared in consultation with the Additional Director (Investigation), Nagpur, does not show any date, time or place of any such discreet enquiry or even does not name the person with whom it was made. This satisfaction note mentions high margins up to 40% gross profit and less profit margins. It is noted that gross profit ratio for the financial year 2005-06 was 33%, for 2006-07 it was 25% and for the year 2007-08 it was 27%. It is also noted that books show steep fall in gross profit even though turnover of the company increased by leaps and bound. The next sentence is "it is learnt that substantial portion of gross sales of the company is not recorded in the books of company. It is also gathered that the company is over invoicing its purchases in order to lower its taxable profits". There is also reference to liberal tax structure of Hong Kong and to over invoicing of imports which is easily possible there. Huge deductions from the taxable profits from Section 80IB, dubious nature of international transactions and in balance sheet of th....
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....quiries or outcome thereof is apparent from any of the earlier notes. This officer has again mentioned "notes on prepages have been perused". This note also does not contain any reference to any labour contractor. 19. The mode and manner in which all these notes are prepared, therefore, show the absence of any relevant material with authorities which would have enabled them to have "a reason to believe" that action under Section 132(1) of the Act was essential. No new material as such has been disclosed anywhere. No document or report of alleged discreet inquiry forms part of these notes. It is apparent that the entire exercise has been undertaken only because of the high growth noted by the respondents. The material like high growth, high profit margins, the contention in respect of or doubt about international brand and details thereof is available with the authorities. It is not their case that they had obtained any other information which was suppressed by the petitioners from them. The effort, therefore, was to find out some material to support the doubt entertained by the department. Whether such doubt entertained can be said to be bonafide is itself a moot question. ....