TaxTMI 
TaxTMI 
1967 (11) TMI 20
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....on is that on no occasion since the registration of the petitioner No. 1 in 1941, the petitioners failed to produce books of account, documents and vouchers when called upon to do so by the income-tax authorities. They claimed to have paid all dues for income-tax and never to have failed to comply with any summons under section 37(1) of the Income-tax Act, 1922, or under section 131(1) of the Income-tax Act, 1961, or of any notice under section 22(4) of the Income-tax Act, 1922, or under section 142(1) of the Income-tax Act, 1961. On January 31, 1967, a number of Income-tax Officers came to the petitioners' office at 21A, Canning Street and also to the residence of the petitioners Nos. 2, 3 and 4 at 22, Mandaville Gardens, with warrants of authorisation issued under section 132 of the Income-tax Act, 1961, and rule 112(1) of the Income-tax Rules, 1962. The warrants of authorisation were issued by the respondent No. 1 for searching premises No. 21A, Canning Street and No. 22, Mandaville Gardens. There was a third warrant for searching premises No. 21A, Canning Street, in connection with the firm of Ramswaroop Mamchand of which the petitioners Nos. 2 and 3 are partners. A search a....
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....tion relating to the firm of Ramswroop Mamchand, but no separate inventory was prepared and the inventory prepared covered the books of the petitioner No. 1, as also of Ramswroop Mamchand. The jewellery and ornaments seized were, however, returned to the ladies after the latter had furnished explanation to the effect that the ornaments and jewellery were not held by them on behalf of any of the petitioners, and had also paid certain arrears of income-tax. On February 8, 1967, the petitioners submitted an application to the Chairman, Central Board of Direct Taxes, complaining that the search and seizure were illegal and requesting return of the books and documents, or at any rate, to retain only such books of account and documents as might be required, and to return the rest of the documents to the petitioners. It is alleged that no reply has been received by the petitioners from the Central Board of Direct Taxes. On April 17, 1967, however, some books were returned to the petitioners. It is alleged that these books which were returned were of no use without the connected books and also the current books of account. Being aggrieved by the search and seizure, the petitioners moved....
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.... documents would not be produced as provided in section 132 of the Act. On the other hand, it was argued, there was ample evidence to show that the petitioners would produce books and documents, if called upon to do so as they had done in the past. It was next contended that it was not enough for the Commissioner of Income-tax to state in the warrants of authorisation that he had reason to believe that books and documents would not be produced by the petitioners, if called upon to do so. The argument was that as the petitioners, having thrown a challenge that on the materials, the Commissioner of Income-tax could have no reason to believe, the department must satisfy this court, that there were grounds for a reason to believe that books and documents would not be produced by the petitioners, if called upon to do so. In other words, it was argued that a mere subjective satisfaction of the Commissioner of Income-tax was not enough to justify the issue of the warrants of authorisation. The petitioners having denied and disputed that there could be any reason to believe that documents would not be produced, the respondents must satisfy this court, it was argued, that there were grou....
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....d not be challenged except on the ground of mala fides, the grounds of satisfaction must have a rational connection with the objects which were to be prevented from being attained. On the question of the exercise of power by an authority, when the exercise of the power has been made subject to the satisfaction of that authority, it was held at page 322 of the report as follows : " When a power is exercised for a purpose or with an intention beyond the scope of, or is not justified by, the instrument creating it, it would be a case of fraud on power, though no corrupt motive or bargain is imputed. In this sense, if it could be shown that an authority exercising power has taken into account, it may even be bona fide and with the best of intentions, as a relevant factor something which it could not properly take into account in deciding whether or not to exercise the power or the manner or extent to which it should be exercised, the exercise of the power would be bad. " Relying upon this decision Mr. Deb argued that a mere recital in the warrant of authorisation that the Commissioner of Income-tax was satisfied, did not justify the search and seizure of the petitioners' office a....
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....lahabad High Court in Seth Brothers v. Commissioner of Income-tax. In that case an authorisation for search and seizure was issued under section 132 of the Act as it stood after its amendment in 1964 and 1965, and more than 500 documents were seized from the premises of the assessee. Some of the documents seized were irrelevant for the purpose of any proceedings under the Act and, besides the documents belonging to the assessee, documents belonging to some connected firms and companies were seized. It was held that the Income-tax Officer did not apply his mind and did not form any opinion regarding the relevancy or usefulness of the documents for any proceedings under the Act, and that as no opinion was formed about the relevancy of the documents which were searched for and seized, the search and seizure must be held to have been in excess of the powers conferred upon the Income-tax Officer. Reliance was also placed by Mr. Deb on a Bench decision of the Punjab High Court in N. K. Textile Mills v. Commissioner of Income-tax. In that case also a letter of authorisation was issued under section 132 of the Act as it stood before its amendment in 1964 and 1965, and various books and ....
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....in respect of books seized and not merely of books and documents with regard to which the search was made. The next contention of Mr. Deb was that although three separate letters of authorisation were issued by the respondent No. 1 for the search and seizure at the office premises of Mamchand & Company at 21A, Canning Street, Calcutta, and also at the residence of the partners at 22, Mandaville Gardens, only one inventory was prepared of the books and documents seized at the said two premises under the said three warrants of authorisation. This, it was argued, was illegal as two inventories should have been prepared with regard to the documents seized by the respondents under the three different warrants of authorisation. The next contention of Mr. Deb was that the scheme of section 132, as it stood after its amendment in 1964 and 1965, was entirely different from the scheme of section 37(2) of the Indian Income-tax Act, 1922, and also of section 132 of the Income-tax Act, 1961, as it stood before the amendment of 1964 and 1965. It was argued that under section 37(2) of the 1922 Act and under section 132 of the 1961 Act (as it stood before the amendments), it was for the Inco....
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....the amendment in 1964 and 1965. It was strenuously argued by Mr. Deb that although section 132 of the Act, after its amendment in 1964 and 1965, imperatively required that the respondent No. 1 must specify the particular documents and books to be searched for and seized, the warrants of authorisation in this case left it to the discretion of the officers authorised to conduct the search and seizure, to place identification marks on such books and documents as they considered relevant or useful for future proceedings and also to examine books of account and documents and to seize among other things such books and documents. Therefore, it was argued, the warrants of authorisation in this case were issued in violation of section 132 of the Act, and in total disregard to the provisions thereof and such warrants and the search and seizure of documents conducted thereunder, must be held to be illegal. The respondent No. 1, it was argued, had failed to specify the particular documents to be searched for and seized, which he was bound to do, and had left it to the authorised officers to decide which books were to be searched for and seized. This, it was argued, the respondent No. 1 was ....
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....by that section, namely, having a reason to believe that books and documents would not be produced when called upon to do so, was not satisfied. There were no materials, it was argued, upon which the Commissioner of Income-tax could have a reason to believe that books and documents would not be produced. Then again, it was argued, there was no proceeding pending against the petitioners and it could not, therefore, be said that the petitioners would not comply with the requisition for production of books and documents. Further, it was submitted, that the respondents did not apply their mind to the necessity or relevancy of the seizure of the books and documents. It was submitted that, on these grounds, the rule nisi should be made absolute. The second point was canvassed somewhat faintly by the learned counsel for the petitioners. This contention was that the search and seizure were made under section 132 of the Act read with rule 112 of the Income-tax Rules, 1962. These rules provided that the powers of search and seizure under section 132 should be exercised in accordance with sub-rules (2) to (14) of rule 112. It was argued that rule 112 was ultra vires section 132 of the Act ....
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....purchaser of the profit, it was argued, was a person or firm having losses to set off and if not, such person or firm passed on the profit by a similar transaction to a third broker in the chain, from whom the actual profit was realised by the principal operator in cash. It was argued that some time five or more persons were brought in the chain, to give the transaction a colour of genuineness. To put a stop to such malpractices ; it was argued, the said Exchange under instructions from the Government passed a bye-law in August, 1960, requiring the members to register all their transactions in transferable specific delivery contracts with the said Exchange on the day following the date of such contracts. This rule, however, it was argued, was circumvented by forging the official seal and signatures of the officials of the Exchange and also by passing contracts without any seal or authentication. In course of diverting profits in this fraudulent manner the petitioners, it was argued, had fabricated and forged documents and large number of fictitious contracts were entered into by them with various parties for fraudulently diverting profits which were liable to income-tax. It was ....
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....e-tax department. It was argued that in the assessment proceedings of another assessee, it had been found that fictitious transactions with the said assessee involving crores of rupees had been entered into. The documents containing the evidence of such fictitious transactions entered into by the petitioner worth over a crore of rupees had been impounded and were in the possession of the department. Stich documents included fictitious brokerage bills, which had been passed between the petitioners and the said assessee. It was next urged by the learned Advocate-General that the respondent No. 1 clearly indicated what kind of books, papers and documents were to be looked for by the Income-tax Officers who were to conduct the search and the seizure. It was on the facts mentioned above, the learned Advocate-General argued, that the warrants of authorisation had been issued by the respondent No. 1 for search of the petitioners' dwelling house at Mandaville Gardens and of the office premises at Canning Street and the seizure of the books and documents which, in the opinion of the respondent No. 1, would be relevant and material for the purpose of proceeding against the petitioners, an....
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....ooks and documents found at the premises would be removed to the income-tax office in sealed boxes and gunny bags. Referring to the affidavit-in-opposition filed by Subodh Kumar Roy affirmed on June 5, 1967, the learned Advocate-General submitted that on the second day of the search at No. 22, Mandaville Gardens on February 1, 1967, the searching officers found a large number of books of account in steel trunks in a cow-shed at 5 p.m., although they were earlier told by the petitioners that the cow-shed was empty. On that day the searching officers were told that a lady of the house had developed heart trouble and complaints were made of inconvenience caused by the prolonged search. As the documents were discovered in the cow-shed very late in the day, and as the examination and preparation. of inventory would have taken a long time, the petitioner's representatives suggested that the books found on the 2nd day of the search might be taken to the income-tax office for examination and preparation of inventory. A list of the books was made and they were thereafter removed to the income-tax office. The search of these books found on the 2nd day of the search, it was argued, was still ....
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....ntion of the learned Advocate-General was that there was no substance whatsoever in the petitioners' contention that there was no ground for reason to believe that books and documents would not be produced, if and when called upon to do so, as the petitioners had always in the past produced books and documents whenever they were called upon to do so. With regard to the assessment year 1956-57, the petitioners, it was argued, failed to comply with a notice under section 22(2) of the Indian Income-tax Act, 1922. There was a further failure on the part of the petitioners to produce books on May 21, 1958, and time for production was extended till May 23, 1958, on which date also the petitioners failed to produce the books requisitioned. It was next argued that there had been defaults in the past on the part of the petitioners in payment of income-tax. In the assessment year 1964-65, the petitioner failed to pay the provisional demand in answer to a notice under section 141 of the Income-tax Act, 1961, and for this failure a penalty of Rs. 570 was imposed upon the petitioners under section 221 of the said Act. Again for the assessment year 1965-66, the petitioners failed to make payment....
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....been held that having regard to the large scale evasion in payment of taxes by businessmen who concealed books of account and documents, and sometimes maintained duplicate sets of books, it was necessary that Income-fax Officers should be armed with sufficient power to remedy the evil. I respectfully agree with the observations of the learned judges mentioned above. I shall, however, revert to this contention of the learned Advocate-General later in this judgment. The learned Advocate-General next proceeded to deal with the Bench decision of the Allahabad High Court in Seth Brothers v. Commissioner of Income-tax. He sought to distinguish that decision from the facts of the instant case by referring to the order for search and seizure in that case. He argued that in that case a raid was ordered for search and seizure of all account books and papers which could be found. It was argued that there was no direction upon the searching officers to examine the books and seize such of them as might be relevant and material for the purpose of further proceedings. There was, on the other hand, it was argued, a direction for wholesale and indiscriminate search and seizure of all account boo....
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.... only such of them as would be relevant and material for the purpose of future proceedings. Various books and documents were left behind at the office premises and others were returned upon examination. So far as the books found at the 2nd day's search at the residential premises at Mandaville Gardens was concerned, it was argued, no seizure had yet been made as the scrutiny and examination of the books could not be completed on account of the heart attack of a lady inmate of the house. These books and documents were removed to the income-tax office for scrutiny and preparation of the search list and the seizure thereof. The examination and scrutiny, it was argued, could not be completed by reason of the injunction issued by this court. There was no indiscriminate or arbitrary search and seizure of the books as care was taken, it was argued, to seize only such books as would be relevant and to return such books as would not be material for the purpose of further proceedings. The learned Advocate-General next contended that the Punjab decision could be of no assistance to the petitioners in this case as in that case the raid was organised and search and seizure of books were dire....
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....se, on the other hand, it was argued, there was no indiscriminate seizure of the books and documents of the petitioners. So far as the seizure of books at the office premises at Canning Street, and of books found at the first day's search at Mandaville Gardens was concerned, only such books and documents, as appeared to be relevant, had been seized, and so far as the documents found on the second day's search at the residential premises at Mandaville Gardens was concerned, the examination of the same had not yet been completed and, therefore, it was argued, it could not be said that there had been indiscriminate seizure of the books. The next contention of the learned Advocate-General was that the decision of the Supreme Court in Barium Chemicals Limited. v. Company Law Board was of no assistance to the petitioners in this case as that decision was based on section 237 of the Companies Act, 1956, which was not pari materia with section 132 of the Income-tax Act, 1961. In that case, the learned Advocate-General submitted, it was held that if the Central Government had in fact not formed an opinion, its order could be challenged but if the opinion was formed upon insufficient or inad....
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....r that they were such that it was impossible for any one to form an opinion therefrom suggestive of the said things, the opinion could be challenged on the ground of failure to apply the mind of the authority or on the ground that it was formed on collateral grounds and was beyond the scope of the statute. In this case the circumstances that existed before the issue of the warrants of authorisation clearly disclosed that grounds existed for an investigation and it was on these grounds that the respondent No. 1 had formed the belief that a search of the petitioners' residential premises and also of the office premises was necessary and also that such books ought to be seized as would be relevant to or useful for further proceedings in law. On this aspect of the case the learned Advocate-General relied upon the decision of the Supreme Court in Calcutta Discount Company Limited v. Income-tax Officer. In that case, however, the Supreme Court was dealing with section 34(1)(a) of the Indian Income-tax Act, 1922, which deals with the case of an assessee who has failed or omitted to make a full disclosure of his true income. It was held that if there were in fact reasonable grounds for ....
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....cedure Code with regard to discovery and inspection of documents, compelling production of books of account and other documents, etc. So far as civil court is concerned, discovery, inspection and production of documents could be directed only with regard to particular documents which are specified in the order, and not with regard to all the documents in the possession of a party. The learned Advocate-General submitted that matters dealt with in sections 131 and 132 of the Act were entirely different and that section 131 was not an adjunct of section 132. Section 131 of the Act, it was argued, related to the power regarding discovery production of evidence, etc., while section 132 of the Act dealt with search and seizure. It was submitted that it could not, therefore, be argued that the condition in which a civil court could direct production and inspection of documents should be treated to be condition precedent which must be fulfilled before a warrant of authorisation was issued by the Commissioner of Income-tax. Sections 131 and 132 of the Act, it was argued, were not supplementary to each other in view of the matters and circumstances contemplated by the two sections, which wer....
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....ent could be held to be vitiated by some error of fact or law. This decision, to my mind however, is not of much assistance to the respondents in this case, as the observations were made in a proceeding under section 147(1)(b) of the Act. The jurisdiction of the Income-tax Officer to assess or reassess income-tax under section 147(1)(b) of the Act depends on facts which are entirely different from the facts upon which jurisdiction to issue warrants of authorisation can be exercised by the Director of Inspection or the Commissioner of Income-tax under section 132 of the Act. I have referred to the facts which led to the issue of the warrants of authorisation by the respondent No. 1 at some length earlier in this judgment. Those facts do indeed disclose, prima facie at any rate, that there is a conspiracy among a group of assessees to evade liability for income-tax. It appears that there are written complaints in the possession of the respondent No. 1 that the petitioners were acting in collusion and conspiracy with certain other persons for diverting profits to avoid income-tax liabilities. The information in the possession of the respondent No. 1 disclosed that for a number of y....
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....ied out ? (3) Was the search and seizure of books and documents at the petitioners' residence and office premises bad, having regard to the amendment of section 132, on the ground that the respondent No. 1 in issuing the letters of authorisation did not apply his mind to the question of relevancy of the documents searched for and seized and failed to specify the particular documents to be searched for and seized and left it to the officers who conducted the search to determine what documents to search for and seize ? On the answer to the questions mentioned above, would depend the legality any validity of the warrants of authorisation issued by the respondent No. 1 and also of the search for and seizure of the documents effected thereunder. I shall now proceed to deal with the first question, namely, whether the respondent No. 1 could have, on the materials in his possession, reason to believe that the petitioners would not produce books of account and documents if called upon to do so. The respondent No. 1 in the affidavitin-opposition affirmed by him, has set out the materials in his possession, upon which he relied before issuing the letters of authorisation. I have ref....
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....ure of the materials clearly indicates that the entries in the books of account had been made and fictitious documents and duplicate sets of books had been brought into existence for the purpose of creating losses to wipe out profits actually made. As these materials, prima facie, at any rate, show that they were intended to reduce the income-tax liabilities of the petitioners, the conclusion, decision or opinion of the respondent No. 1 that documents and books of account bearing testimony of fictitious ante-dated transactions would not be produced if a summons or notice for such production was issued, cannot be questioned or challenged by the petitioners. The purpose of manufacturing documents being to suppress profits made for avoiding liability for income-tax, it would be idle to expect that the petitioners would disclose the real books and documents which would prove the actual profits made by them and, consequently, would make them liable for a much larger amount on account of income-tax. No liability has been imposed upon the petitioners for evasion of income-tax yet. Books and documents have been searched for and seized, for further scrutiny, for further proceedings. It may ....
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....hat the respondents' case was that the petitioners had made false entries in their books of account to create losses from fictitious ante-dated bogus transactions to wipe out real profits. If that was so, Mr. Deb argued, there could be no reason to believe that the books which had been manufactured would be withheld. In other words, it was argued that if the books-were got up, for the purpose of wiping out real profits by making false entries regarding losses arising from fictitious transactions, the petitioners would have readily produced such books of account and documents. There is hardly any force in this contention. If false entries have been made in the books of account to show losses from fictitious bogus contracts to wipe out real profits made, such entries must have been made from books and documents which disclosed the real profits made by the petitioners. It was, therefore, all the more necessary that books of account and documents relating to transactions, both real and fictitious, must be seized to ascertain the extent and the scope of the evasion. If it is true that the petitioners manufactured a set of books and documents incorporating false entries which they would ....
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.... that the written instructions were fabricated and brought into existence later on. The charge made by Mr. Deb is a serious one, and it there was any substance in this charge, his clients should have made a specific allegation to the effect that the written instructions have been manufactured and fabricated later on and were not given to the searching officers for their guidance. No such charge having been made in the affidavit-in-reply, I cannot accept Mr. Deb's contention that the written instructions were fabricated and brought into existence later on for the purpose of this application. It was argued by Mr. Deb that no notice should be taken of the written instructions as they were not part of the warrants of authorisation and therefore the question if the search and seizure was indiscriminate and arbitrary must depend on the materials in the warrants of authorisation only, without any reference to the written instructions. I am not impressed by this contention of Mr. Deb. If the written instructions were given to the searching officers, and on the materials I hold that they were in fact so given, I do not see any reason why the searching officers in conducting the search fo....
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....rned already to the petitioners. It cannot, therefore, be said that there was a wholesale, indiscriminate and reckless search or seizure at the petitioners' office premises. The search at the petitioners' residence at No. 22 Mandaville Gardens stands on a different footing. As I have noticed earlier, the scrutiny and examination of books could not be completed by the searching officers as the petitioners had represented that a lady of the house had fallen ill. The documents found at the residence on the second day of search were, with the consent and approval of the petitioners, brought to the office of the income-tax department, but the examination and scrutiny of the books could not be completed by the income-tax department by reason of the injunction issued by this court. The respondent's contention with regard to these books is that the search is not yet complete as a seizure list could not be prepared by them on account of the injunction issued by this court. An inventory, however, had been prepared of these books and this inventory has been annexed to the petition. Learned counsel for the petitioners argued that the respondent's case that seizure had not been made with reg....
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....Brothers case a raid was ordered for search and seizure of all account books and papers which could be found. There was no direction upon the searching officers to examine the books and seize such of them as might be relevant and then again it was found in that case that the Income-tax Officer did not apply his mind and did not form any opinion regarding the relevancy or usefulness of the books of account. In that case, section 132 of the Act, as it stood before its amendment in 1964 was considered. That section as it stood before its amendment in 1964 made the exercise of the power by the Income-tax Officer subject to the rules made in that behalf. There was in that case a direction to the Income-tax Officer to search for and seize all books and documents without examining the same and without considering if such books would be relevant and material for further proceedings against the assessee. In N. K. Textile Mills v. Commissioner of Income-tax, on the other hand, a raid was organised for search and seizure of books because of information received by the income-tax department that the assessee in that case was manipulating accounts in his basement with a view to showing a reduce....
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.... searched for and seized and left it to the officers who conducted the search to determine what documents to search for and seize. The above contention is based on the terms of section 132 of the Act as it stands after the amendment of that section in. 1964 and 1965. After the amendment of the section in 1964, it is entirely and solely for the Commissioner of Income-tax who should have a reason to believe that the conditions mentioned in clauses (a), (b) and (c) of sub-section (1) of the Act had happened or would happen. By the amendment of the section in 1965 it was provided that either the Director of Inspection or the Commissioner of Income-tax should have a reason to believe and should thereupon issue the warrants of authorisation. The argument of the learned counsel for the petitioners was that no discretion was left after the amendment in 1965, to any officer other than the Commissioner of Income-tax or the Director of inspection in the matter of search for and seizure of the books. There fore, if either the Commissioner or the Director of Inspection had reason to believe that the matter or things mentioned in clause (a), or (b), or (c) had happened or would happen, he mig....
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....hing in section 132 or any of the sub-sections thereof which requires the respondent No. 1 to specify the particular books to be searched for and seized. But, in this case, as I noticed earlier in this judgment, besides the warrants of authorisation written instructions were issued by the respondent No. 1 to the Income-tax Officers. In these instructions the nature of the books to be searched for and seized, with full particulars were set out. In my opinion, in considering the question if respondent No. 1 issued specific instructions for the search for and seizure of particular books, the warrants of authorisation must be considered together with the written instructions. The warrants have been issued strictly in compliance with section 132 of the Act as it stands after the 1965 amendment. Section 132 does not require that full or any particulars of books and documents to be searched for and seized under a warrant of authorisation should be specified in the warrant. But the respondent No. 1 did not by any means leave the Income-tax Officers in the dark as to the books and documents which they were to search for and seize All the relevant material particulars with regard to the book....
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....nstructions for search he indicated the nature and the class of the books to be searched for and seized, which in his opinion would be useful for further proceedings. This, in my view, provide ample materials to hold that the respondent No. 1 applied his mind to the question of the relevancy of the books and documents to be searched for and seized. I see no reason for rejecting the statement made by the respondent No. 1 in his affidavit. The written instructions bear ample testimony to the fact that he applied his mind to the question of relevancy of the books and documents which the Income-tax Officers were to search for and seize. For the reasons mentioned above, I cannot accept the contention of the learned counsel for the petitioners that the search and seizure was bad either on the ground that the respondent No. 1 did not apply his mind to the question of relevancy of the documents to be searched for and seized or on the ground that he failed to specify the particular documents to be searched for and seized by the Income-tax Officers. Mr. Deb's contention that only one inventory was prepared although three warrants of authorisation were issued, the first one relating to ....
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....itted that reasons for retention of the books beyond the period mentioned in sub-section (8) of section 132 had been recorded in writing and the approval of the Commissioner had been duly obtained. A copy of the reasons recorded in writing has been produced in court and has been kept on record. Learned counsel for the petitioners, however, raised another contention which was based on the proviso to sub-section (8) of section 132 of the Act. This contention was that, although sub-section (8) of section 132 enabled the Commissioner to approve of the retention of the books seized beyond 180 days from the date of seizure, the proviso to the sub-section required that the books so retained must be returned within a further period of 30 days after the expiry of 180 days. In other words, it was contended that the books and documents seized could not be retained beyond a period of 180 days as provided in sub-section (8) of section 132 and a further period of 30 days as enjoined by the proviso. Therefore, it was argued that whether the proceedings were completed or not, the books and documents seized could not be retained beyond a period of 180 days and a further period of 30 days, that i....