TaxTMI 
TaxTMI 
2013 (2) TMI 120
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....n bullion since over 10 years. In the recent past, the Company decided to enter into a new venture of manufacturing and selling wholesale jewelery of 22 carat gold to jewelery show rooms situated across the country. For the purpose of such venture, the petitioner was required to prepare sample jewelery and exhibit them to different show-room owners doing the business of retail selling of jewelery so that the petitioners could get bulk orders from such jewelers. To be able to prepare such large collection of sample jewelery, the Company required sizeable quantity of gold weighing nearly 25 kilos. Since purchasing such gold would have required a huge capital investment on the part of the Company, the petitioners contacted one Meghji Girdhar HUF (hereinafter to be referred to as 'MG-HUF') to take such quantity of gold on lease to be used as stock in trade of the Company. It is the case of the petitioners that the said MG-HUF is engaged in the business of leasing out large quantity of gold which it owns. The Directors of the petitioner Company were acquainted with the members of MG-HUF. It was agreed between the parties that 25 kilos of 24 carat gold would be leased to petitioner No. 1....
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....ld. When the flight landed at Chennai, all the five passengers were detained. Their statements were recorded. Simultaneously, inquiries were also conducted at the business premises of petitioner No. 1 company. Statements of various persons were recorded. Income Tax Authorities also carried out inquiries with Karta of MG-HUF at Neemuch. On the basis of such materials collected and the survey report received by the Chennai Officials, search authorization was issued. For such purpose, Deputy Director of Income Tax (Investigation), Air Intelligence Unit, Chennai recorded a satisfaction note on 26th July 2012. Such satisfaction note was placed before the Additional Director of Income Tax, Investigation, Chennai who placed his notings on the same date agreeing that warrant of authorization under section 132 of the Income Tax Act ('the Act' for short) be issued and the gold jewelery be seized. The entire record was thereafter placed before the DGIT(Invest.), Chennai who approved the proposed actions. Pursuant to such authorization, the respondents seized the entire quantity of gold jewelery under a seizure panchnama dated 26th July 2012. The petitioners made a detailed representation date....
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....he vouchers prepared by petitioner No. 1 Company for handing over the gold to the goldsmiths do not carry the signatures of the recipients. There are other anomalies with respect to the quantity of gold handed over and received back as also with respect to labour charges paid, inward and outward registers do not match and only 22 kilos out of total 25 kilos of gold was used for ornaments and balance of the gold was not physically found during the survey. Principally on such basis, the respondents have sought to oppose the petition contending that after sufficient material was available at the command of the competent authority, satisfaction note was prepared suggesting authorization of search and seizure. Such satisfaction note was perused and approved by the higher authorities as required, only upon which search authorization was issued. 7. Learned Senior Advocate Shri Soparkar for the petitioners vehemently contended that the requirements of section 132(1) of the Act were not satisfied. The authority could not have formed a belief that the person in possession of jewelery had not or would not disclose it for the purpose of the Act. He submitted that the entire stock was duly r....
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....ies in his movements, they have been sufficiently explained in the rejoinder filed by the petitioners pointing out that he had travelled to Ahmedabad via Pune. His mobile phone locations would establish this fact. In any case, some minor discrepancies with respect to the travel schedule of either of the two members of MG-HUF would not clothe the Department with jurisdiction to authorize search and seizure operations. 7.3 Counsel further submitted that the books maintained by the petitioner Company scrupulously matched with the quantity of gold handed over to different goldsmiths for preparation of gold ornaments. Outgoing quantity matched perfectly with the total weight of gold ornaments when converted from 24 carat gold into 22 carat gold by addition of alloys. He submitted that in view of the disclosure of the gold in the books of accounts of the Company, it cannot be stated that the petitioners had not or would not have disclosed such gold for the purpose of the Act. 7.4 Counsel lastly submitted that in any case, the gold ornaments form stock in trade of petitioner No. 1 Company. In view of proviso to sub-section (1) of section 132, gold ornaments which form stock in trade....
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....on was issued, ultimately leading to the seizure of gold ornaments under a panchnama. 8.2 Counsel highlighted various anomalies and discrepancies which, according to him, were crucial and enabled the competent authority to form an opinion that requirements of section 132(1)(c) of the Act were fulfilled and that therefore, search and seizure operation was necessary. According to the counsel, the lease agreement suffers from various infirmities, which we have already noted earlier. Counsel also highlighted that there was no identification of the gold which was handed over to the petitioners by MG-HUF. In turn, it was not possible to connect the gold ornaments ultimately prepared by different goldsmiths with the gold received by the petitioner from said MG-HUF. Counsel pointed out that there were discrepancies and anomalies in the books of accounts maintained by petitioner No. 1 Company. All the accounts were prepared by one person, apparently with a view to covering the gold movement in case of being detected. The payments of labour charges for preparation of ornaments was made simultaneously on 27.7.2012 after the search operations. The passengers could not give details of the pr....
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....urt. In this respect, we may refer to the decision of the Apex Court in the case of Rajendran Chingaravelu v. R.K. Mishra, Addl. CIT, 320 ITR 1 (SC). In such case, the petitioner had withdrawn sizeable amount from his bank account at Hyderabad with an intention to purchase property at Chennai. He traveled from Hyderabad to Chennai on 15th June 2007 carrying such cash. At Hyderabad Airport, he disclosed that he was carrying Rs. 65 lacs in cash along with the Bank's certificate certifying the source of withdrawal. He was allowed to board the flight. When he reached Chennai, the Income Tax Officials intercepted him. He was questioned about such large amount of cash that he was carrying. His defence that he had the certificate of the Bank having withdrawn such amount was not accepted. He was subjected to detailed interrogation and search and the money was seized, but later on released. For the harassment that he faced, he filed writ petition at Andhra Pradesh High Court. The High Court dismissed the petition for want of territorial jurisdiction. He carried the matter to the Supreme Court. In this background, the Supreme Court held and observed as under : "5. The first question that ....
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....State of Rajasthan v. Shaika Properties, AIR 1985 SC 1289, the Supreme Court held that the cause of action is a bundle of facts which, taken with the law applicable to them gives the plaintiff a right to relief. In the instant case, we are of the view that the petitioner being a regular assessee in New Delhi, survey operation under section 133A of the Act having been conducted by the authorities at Delhi and the entire action of the search ultimately culminating in the block assessment under Chapter XIV B by the Assessing Officer based in New Delhi, not only a part of cause of action but substantial cause of action arose within the territorial jurisdiction of this court. Accordingly, we reject the objection." 10. Counsel for the Revenue relied on the decision of the Apex Court in the case of Union of India v. Adani Exports Ltd., AIR 2002 SC 1260. In the said case, however, facts were that the petitioner company had claimed the benefit of duty exemption passbook scheme which was denied by the Madras Customs Authorities. Export and import of which credit was claimed had also been made from Madras. The petition was filed in the Gujarat High Court. The Apex court held that merely be....
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....erial collected subsequent to recording of satisfaction note and issuance of authorization of search and seizure cannot be pressed in service for supporting authorization to search. Further, the different factors and discrepancies sought to be highlighted by the Department, through affidavits filed before us and through oral submissions made by the counsel also independently would be of no consequence unless and until the genesis of such discrepancies are found in the satisfaction note. It may be to explain or expand particular factors already noted by the competent officer in his satisfaction note that such factors can be highlighted before us. In short, we have focused our attention to the different aspects noted by the Deputy Director of Income Tax in his satisfaction note dated 26th July 2012 to ascertain whether it can be stated that the requirements of section 132(1)(c) of the Act are satisfied. We may recall that sub-section (1) of section 132 of the Act empowers the officers mentioned therein to authorize an appropriate officer to carry out search and seizure operations if in consequence of information in his possession he has reason to believe that any of the requirements ....
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....orded that it is highly unlikely that such large quantity of gold jewelery was brought only as samples. The passengers could not give details of customers they were like to meet in Chennai. He further highlighted that it is not possible to establish co-relation between the gold allegedly received from MG-HUF and the gold used for preparation of the ornaments which was found at Chennai Airport. On the basis of above observations, he recorded that "it is clear that the persons do not have an intention to disclose the jewelery of 23915 grams found in the Airport to the Department". On the basis of such conclusion, he suggested that the Director of Income Tax, if satisfied to issue a warrant of authorization for seizing the same by conducting a search and seizure operation under section 132 of the Act. 15. Such satisfaction note was placed before the Additional Director of Income Tax who approved the suggestion noting that in view of the report received from the Additional DIT Unit II, Ahmedabad and the contents of the note of the Deputy Director, Chennai, it is clear that the jewelery found with Shri L.K. Soni at Chennai represents unaccounted assets. 16. Such notes were placed ....
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....eceived from such persons after adding alloys for conversion of gold from 24 carat to 22 carat. The so called discrepancies pointed out by the Revenue in such documents really do not exist. Respondents fail to notice that the gold ornaments would weight marginally more than the weight of gold from which they are made due to addition of alloys. They also failed to see that such increase in weight was uniform in all cases. Accounts were also maintained regarding labour charges to be paid to different agencies. It can therefore not be stated that there was sufficient information in possession of the Director of Income Tax to have reason to believe that such jewelery had not been or would not be disclosed for the purpose of the Act. 18. There were some discrepancies highlighted by the Department particularly with respect to the agreement dated 14th June 2012. It was argued that such agreement was found in possession of the petitioners and not in possession of the lessee. It was further argued that the co-relation between the gold actually used in preparation of the ornaments and the one which was available with MG-HUF could not be established. 19. To our mind, these factors would....
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....compelling production of books of accounts and other documents and issuing commissions. Under sub-section (1A) of section 131, the Director General or Director or Joint Director or Assistant Director or Deputy Director or the authorized officer referred to under sub-section (1) of section 132, if has reason to suspect that any income has been concealed or is likely to be concealed by any person or class of persons within his jurisdiction, then for the purpose of making any inquiry or investigation relating thereto, it would be competent for him to exercise powers conferred under sub-section (1) notwithstanding that no proceedings with respect to such person or class of persons are pending before him or any other Income Tax Authority. 21. It can be immediately noticed that under sub-section (1A) of section 131, the officers mentioned therein have very wide powers of discovery and inspection and enforcing attendance or compelling production of documents and issuing commissions for the purpose of making any inquiry or investigation even when no proceedings are pending before him, if he has reason to suspect that any income has been concealed or is likely to be concealed by any pers....
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....self as to whether action under section 132 is called for. But the court would be acting within its jurisdiction in seeing whether the act of issuance of an authorisation under section 132 is arbitrary or mala fide or whether the satisfaction 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." ** ** ** "Sub-clause (c) refers to money, bullion or jewellery or other valuable articles which, either wholly or partly, should have been income of an assessee which has not been disclosed for the purpose of the Act. The said sub-clause pertains only to movable and not immovable assets. Secondly, it pertains to those assets which, wholly or partly, represent what should have b....
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.... be taxed under the provisions of the Income-tax Act but which has not been disclosed by an assessee in an effort to escape assessment. "Not disclosed" must mean the intention of the assessee to hide the existence of the income or the asset from the Income-tax Department while being aware that the same is rightly taxable." 23. In the case Vindhya Metal Corpn. v. C.I.T. 156 ITR 233 (All.), a Division Bench of the Allahabad High Court examined the case where the person was found in possession of cash of Rs. 4,63,000/- while he was travelling by train. Such amount was seized by the Railway Police and the Commissioner of Income Tax was informed about it. Search and seizure operation was carried out. The High Court held that mere fact that the person who was in possession of large amount of cash and he did not have document regarding his ownership or that his name was not found in the list of income tax assessee could not be treated as sufficient information leading to a reasonable mind to infer that the amount would not be disclosed for the purpose of the Act. It was observed that there was nothing before the Commissioner to suggest that the said amount, in fact, was wholly or in pa....