TaxTMI 
TaxTMI 
1968 (3) TMI 16
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....Shri Rajendra Mohan, Income-tax Officer, respondent No. 2. The search was held in pursuance of the various authorisations issued by the Director of Inspection (Investigation) under section 132 of the Income-tax Act, 1961, and rule 112(1) of the Income-tax Rules, 1962. It is sufficient to reproduce one of the authorisation forms signed by the Director of Inspection (Investigation) as all other forms are exactly in the same language : " (See rule 112) Warrant of authorisation under section 132 of the Income-tax Act, 1961, and Rule 112(1) of the Income-tax Rules, 1962. The Income-tax Officers, S/Shri R. P. Gautam, P. K. Sharan, Rajendra Mohan, Govind Ram, S. N. Tandon, P. L. Madan, P. Ranganathan, R. R. Gupta, Miss S. Ghosh and Miss M. Sehgal, I. T. Os., Delhi. Whereas information has been laid before me and on the consideration thereof, I have reason to believe that : If a summons under sub-section (1) of section 37 of the Indian Income-tax Act, 1922, or under sub-section (1) of section 131 of the Income-tax Act, 1961, or a notice under sub-section (4) of section 22 of the Indian Income-tax Act, 1922, or under sub-section (1) of section 142 of the Income-tax Act, 19....
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....y requisition the services of any police officer or any officer of the Central Government, or of both, to assist you for all or any of the purposes specified in sub-section (1) of section 132 of the Income-tax Act, 1961. Sd/- R. D. Shah 22-7-66. Seal Director of Inspection (Investigation) " In pursuance of the said authorisation a number of Income-tax Officers went to the various premises set out in the authorisation forms, searched the said premises and seized a large number of documents. There has been some controversy at the bar as to how many people were comprised in the raiding party and that controversy will be dealt with later. There has, however, been no dispute about the documents seized. Petitioners Nos 1 to 5 are brothers and petitioner No. 6 is their mother. All the petitioners live at No. 35, Rajpur Road, Delhi. Petitioners Nos. 1 to 5 have another brother who is not a petitioner. It is alleged that petitioners Nos. 1 to 4 and 6 carry on business while the fifth petitioner is engaged in cultivating land. There was no authorisation for search and seizure of any documents belonging to the fifth petitioner. It is also not in dispute that assessments of the ....
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....produced, any books of account or other documents has omitted or failed to produce, or cause to be produced, such books of account, or other documents as required by such summons or notice, or (b) any person to whom a summons or notice as aforesaid has been or might be issued will not, or would not, produce or cause to be produced, any books of account or other documents which will be useful for, or relevant to, any proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act, or (c) any person is in possession of any money, bullion, jewellery or other valuable article or thing and such money, bullion, jewellery or other valuable article or thing represents either wholly or partly income or property which has not been disclosed for the purpose of the Indian Income-tax Act, 1922 (11 of 1922), or this Act (hereinafter in this section referred to as the undisclosed income or property), he may authorise any Deputy Director of Inspection, Inspecting Assistant Commissioner, Assistant Director of Inspection or Income-tax Officer (hereinafter referred to as the authorised officer) to-- (i) enter and search any building or place where he has reason to suspect....
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....(including the income from the undisclosed property) in a summary manner to the best of his judgment on the basis of such materials as are available with him ; (ii) calculating the amount of tax on the income so estimated in accordance with the provisions of the Indian Income-tax Act, 1922 (11 of 1922), or this Act ; (iii) specifying the amount that will be required to satisfy any existing liability under this Act and any one or more of the Acts specified in clause (a) of sub-section (1) of section 230-A in respect of which such person is in default or is deemed to be in default, and retain in his custody such assets or part thereof as are in his opinion sufficient to satisfy the aggregate of the amounts referred to in clauses (ii) and (iii) and forthwith release the remaining portion, if any, of the assets to the person from whose custody they were seized : Provided that if, after taking into account the materials available with him, the Income-tax Officer is of the view that it is not possible to ascertain to which particular previous year or years such income or any part thereof relates, he may calculate the tax on such income or part, as the case may be, as if such ....
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....ch order, make an appl`ication to such authority, as may be notified in this behalf by the Central Government in the Official Gazette (hereinafter in this section referred to as the notified authority), stating therein the reasons for such objection and requesting for appropriate relief in the matter. (12) On receipt of the application under sub-section (10) the Board, or on receipt of the application under sub-section (11) the notified authority, may, after giving the applicant an opportunity of being heard, pass such orders as it thinks fit. (13) The provisions of the Code of Criminal Procedure, 1898 (5 of 1898), relating to searches and seizure shall apply, so far as may be, to searches and seizure under sub-section (1). (14) The Board may make rules in relation to any search or seizure under this section ; in particular, and without prejudice to the generality of the foregoing power, such rules may provide for the procedure to be followed by the authorised officer-- (i) for obtaining ingress into such building or place to be searched where free ingress thereto is not available ; (ii) for ensuring safe custody of any books of account or other documents or assets s....
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.... may be to searches under this section. " Mr. Veda Vyasa, the learned counsel for the petitioners, presented two alternative arguments regarding the scope of the expression " has reason to believe " in section 132. He said : (1) in view of the fact that the provisions of the Criminal Procedure Code relating to searches and seizures apply " so far as may be " to searches and seizures under sub-section (1) of section 132, even the sufficiency of the grounds leading to the reason to believe are justiciable ; and (2) in any case, even if the scrutiny by courts as to the existence of reason to believe is limited in any manner, the courts can still strike down search and seizure carried out in pursuance of an authorisation if the court finds that (a) the reason to believe was not bona fide ; (b) there are no grounds justifying the existence of the reason to believe ; (c) the grounds given in support of such existence of the reason to believe are extraneous to the cause ; and (d) at least some of such grounds are irrelevant or extraneous to the matter in issue. The arguments on the justiciability of the sufficiency of grounds were put by Mr. Veda Vyasa thus : Under su....
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....rovision like section 132(1) ; and (3) The search and seizure provisions of the Criminal Procedure Code apply only " so far as may be ", which means that those provisions should be applied only consistently with the scheme and the purpose of section 132 and the said Act. When so applied, the power to issue search warrants has been, subject to fulfilment of certain conditions, made dependent on the reason to believe of the specified authorities. Mr. Veda Vyasa referred to K. Hoshide v. Emperor and said that even the adequacy of the grounds on which courts issue search warrants under section 96 of the Criminal Procedure Code is justiciable. I prefer not to express any opinion on the question whether the adequacy of grounds on which the court issues search warrants under the Code of Criminal Procedure is open to scrutiny by courts particularly in such collateral proceedings and I would rather decide this question assuming that it is so. For the purposes of this case, it is sufficient to say that the language of section 132 does not permit the interpretation suggested by Mr. Veda Vyasa. I cannot also lose sight of the fact that we are not sitting in appeal over the decision of th....
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....at no circumstances leading to an inference of the kind contemplated by the section exist, the action might be exposed to interference unless the existence of the circumstances is made out. As my brother Shelat has put it trenchantly : 'It is not reasonable to say that the clause permitted the Government to say that it has formed the opinion on circumstances which it thinks exist....' Since the existence of 'circumstances' is a condition fundamental to the making of an opinion, the existence of the circumstances, if questioned, has to be proved at least prima facie. It is not sufficient to assert that the circumstances exist and give no clue to what they are, because the circumstances must be such as to lead to conclusions of certain definiteness. " Similarly, Shelat J., while dealing with the expression " reason to believe ", observed : " Therefore, the words, 'reason to believe' or 'in the opinion of', do not always lead to the construction that the process of entertaining 'reason to believe' or 'the opinion' is an altogether subjective process not lending itself even to a limited scrutiny by the court that such 'a reason to believe' or 'opinion' was not formed on rel....
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...., denial of any bank accounts and failure to disclose assets proportionate to apparent wealth ; (e) the ghost address in Calcutta was adopted so as to keep the income-tax authorities in the dark as to the real extent of their financial activities and income ; (f) independent enquiries were also made by the officers of the Directorate of Inspection (Intelligence), New Delhi, which showed the following : (i) the petitioners were carrying on extensive business at various places which had apparently not been disclosed ; (ii) the petitioners had acquired several licences in several scarce commodities and had disposed them of secretly and at fantastic profits ; (iii) the petitioners had been incurring lavish expenditure which was quite inconsistent with their declared resources ; (iv) the petitioners had acquired assets worth several lakhs of rupees which is also inconsistent with their declared resources ; (v) the petitioners were co-accused in a certain case filed by the Special Police Establishment, Central Bureau of Investigation, and some of their books of account were still in the custody of the Special Police Establishment, Central Bureau of Investigation. Scr....
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....les and things which represent wholly or partly the income or property which was not disclosed for the purpose of assessment to income-tax. " Mr. Veda Vyasa strenuously urged that "reason to believe" must exist when authorisations were issued under section 132 and formulation of the reasons in the couter-affidavit could be of no avail to the revenue. It was for this reason that we directed the revenue to file the grounds in court and Mr. Desai, the learned counsel for the revenue, immediately, on our enquiry, expressed complete willingness to do so. We were taken through the grounds and I find that they are such as could lead any reasonable man to believe that action under section 132 was called for. It is not necessary to discuss them in detail as they are now part of the record and it is sufficient to say that the reasons would meet even the scrutiny of adequacy. Resons and the counter-affidavit further show that the Director of Inspection fully applied his mind to the matter before issuing the authorisations. Mr. Veda Vyasa next contended that the Director of Inspection and the Income-tax Officers did not apply their minds to the various aspects which required their attent....
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....ted above clearly show that the Director of Inspection did apply his mind and could have reason to believe that search and seizure was necessary. Mr. Veda Vyasa, the learned counsel for the petitioner, emphasised two aspects in this behalf--(1) the assessments up to 1962-63 having been completed, there could have been no occasion to issue any notices under section 37 of the Indian Income-tax Act, 1922, or sub-section (4) of section 22 of the Income-tax Act and, yet, in the authorisation quoted above, these sections have been mentioned which shows that the Director of Inspection blindly quoted the authorisation form, being Form No. 45, prescribed under the Rules without applying his mind as to which provisions could be attracted in the case. Mr. Veda Vyasa drew our attention to section 297 of the Income-tax Act, 1961, and said that, even if action is to be taken against any person for escaped assessment, the sections applicable would be sections 147 and 148 of the 1961 Act and, therefore, sections 37 and 22(4) of the 1922 Act could, in no case, apply. And (2) the respondents had failed to show that the director applied his mind and came to the conclusion that relevant or useful b....
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....e for an authorised officer to scrutinise thousands of papers in one day. The authorised officers have filed affidavits in which they say that the seizure was made under a reasonable belief that the papers seized belonged to the petitioners and were relevant or useful for the " income-tax purposes ". They have also denied that the seizure was indiscriminate. Shri Rajinder Mohan, respondent No. 2, in his affidavit also stated that petitioners Nos. 2 and 3 were present at the time of the search, the authorisations were shown to them and he took their signatures thereon. The fact that the authorisations are signed by them has not been denied. Mr. Desai, learned counsel for the respondents, in support of his plea that there was a proper application of mind, mainly relied on the circumstance that some documents were not seized while on some marks of identification were put and the documents left with the petitioners, and that showed that the authorised officers considered their relevance or usefulness before seizing them. With respect to the bundles of papers and several files, Mr. Desai contended that it was sufficient compliance with the Act and the Rules if the authorised offic....
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....as one of the allegations against the petitioners is that they have been carrying on business in various names without disclosing the income therefrom. Books of 1949 and of other earlier years as well as the note-book relating to poultry would be relevant to arrive at the capital structure of the petitioners and find out whether the expenses on their living are within their available disclosed resources. According to Mr. Veda Vyasa, however, it was enough for the petitioners to allege that irrelevant papers were seized and it was always for the respondents to justify the seizure of each and every document. Once I am satisfied that the authorised officers applied their mind to the usefulness or relevance of the documents, the matter assumes a different shape. For, then the decision will have to be left to the authorised officers to see whether or not the documents were useful or relevant. If the conclusion is that a reasonable man acting bona fide could believe that the documents were useful or relevant, it will not be open to the courts to substitute their own opinion or sit in appeal over the judgment of the authorised officer. Of course, if the courts come to the conclusion th....
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....t the hands of the authorised officers, Mr. Desai contended that it was entirely for the authorised officers under clause 3 of sub-section (1) of section 132 to decide which of the relevant or useful books and documents should be seized and which left with the petitioners by only placing marks of identification. I am not prepared to accept that broad proposition. Search and seizure is a serious invasion on the rights of the subjects. The search and seizure was really not known at earlier stages to common law, When it was for the first time introduced, it was confined only to stolen goods, but its usefulness soon forced its recognition and was, from time to time, extended to such like searches and seizures. It is true that sometimes the over-zealousness of the authorities led to its abuse and it appears that for this reason the Fourth Amendment was introduced in the American Constitution in recognition of the fact that a man's house is his castle not to be invaded by any general authority to search and seize his goods and papers. The only legal means that can be applied to search a person's abode is a search warrant and, in the absence thereof, neither any private person nor any off....
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....not the case here. In the circumstances of this case and in the light of the discussion hereinbefore, it must be held that the authorised officers did apply their minds. In searching or seizing the documents they may have erred slightly here or there and seized the documents which, on closer scrutiny, may ultimately turn out to be irrelevant but that cannot vitiate the search. That takes me to the next contention of Mr. Veda Vyasa that search and seizure under section 132(1) can be resorted to only if there are pending proceedings and not merely a remote possibility of some proceedings being taken at a later stage. The argument of Mr. Veda Vyasa was this : Section 131 applies only to pending proceedings and so does section 132(1)(a). Clause (b) of sub-section (1) of section 132 is only in aid of section 131 and section 132(1)(a) and must necessarily be limited within the area of sections 131 and 132(1)(a). When faced with the second Explanation to section 132 that the word " proceeding " includes proceedings which may be pending on the date of the search or which may have been completed on or before such date and includes also all proceedings which may be commenced after such da....
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....n (1) of section 132 might have to be issued. If there is only a remote possibility of such summonses or notices being issued the section would not be satisfied, not because there are no proceedings imminent, but because a reasonable person could not have, in those circumstances, reason to believe that the person concerned will not produce the documents if summonses or notices are issued to him. In that sense it may be said that search warrants cannot be issued merely with a view to making a roving or fishing enquiry, but can be issued only when there exists a good ground for believing that further proceedings may have to be taken. Having regard, however, to the facts of this case it cannot be said that search warrants were issued when there was not even a remote possibility of further proceedings. The next argument urged on behalf of the petitioners was that the Director of Inspection or the Commissioner must specify the documents to be searched or seized. This argument was based again on the existence of the words " to whom a summons or notice as aforesaid has been or might be issued " in clause (b) of sub-section (1) of section 132. Mr. Veda Vyasa said that the reason to beli....
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....ties to specify the documents. All that the authority issuing authorisation must believe is that there are useful and relevant documents available in the premises to be searched. In Durga Prasad v. Supdt. (Prevention), Central Excise, Nagpur, the Supreme Court construed section 105 of the Customs Act, which reads : " 105. (1) If the Assistant Collector of Customs, or in any area adjoining the land frontier or the coast of India an officer of customs specially empowered by name in this behalf by the Board, has reason to believe that any goods liable to confiscation, or any documents or things which in his opinion will be useful for or relevant to any proceeding under this Act, are secreted in any place, he may authorise any officer of customs to search or may himself search for such goods, documents or things. (2) The provisions of the Code of Criminal Procedure, 1898, relating to searches shall, so far as may be, apply to searches under this section subject to the modification that sub-section (5) of section 165 of the said Code shall have effect as if for the word 'Magistrate', wherever it occurs, the words 'Collector of Customs' were substituted. Their Lordships observed....
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....rs of the documents, for they will be known only after the search is made. Doubtless he has to indicate broadly the nature of the documents and the goods in regard to which the officer authorised by him should make a search, for without that his mandate cannot be obeyed. The authorization issued by the Assistant Collector of Customs in this case clearly mentioned that on information received it appeared that the appellant was in possession of contraband goods and documents relating thereto and also described the office and the residential premises wherein those goods and documents would be found. In the circumstances of the case, we are satisfied that the specifications are sufficient to enable the officer authorized to make the search. " In this case also the authorisation said that the person concerned will not produce or cause to be produced books of account or other documents which will be useful for or relevant to the proceedings under the Income-tax Act, 1922, or the Income-tax Act, 1961. That specification was, in any case, sufficient so far as the requirements of section 132 go. Mr. Veda Vyasa then contended that provisions of section 165 of the Criminal Procedure Cod....
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....plying section 165, it must be held that the authorised officers must also record reasons in writing. There is no warrant for this proposition. Under section 132 of the Income-tax Act, the search warrants can be issued upon reason to believe by the Director of Inspection or the Commissioner. The section does not require the Director or the Commissioner to record reasons though he may have to do so because, if the action is challenged in court, the authorising officer will have to justify his action within the limited area of objectivity. Rule 112, however, provides this safeguard in terms and requires the Director of Inspection or the Commissioner to record reasons for authorising the search or seizure. Section 165 of the Criminal Procedure Code applies only " so far as may be " and at the most it can be said that the effect of section 165(1) is that the person issuing the authorisation must record reasons. The said section 165 cannot be held to require the authorised officer to record reasons. Under the said section the police officer concerned may either make the search or cause it to be made. Even there the officer, who is authorised to make the search by the police officer conc....
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....ving been placed on the record it could not be withdrawn and relied on In re Quartz Hill & c. Company: Ex parte Young. No permission was given to Mr. Desai to place the affidavit on the record and the matter had yet to be decided when the affidavit was withdrawn. In view of my decision that the authorised officers did apply their minds it is unnecessary to go into this question. Mr. Veda Vyasa also pressed on us to permit him to cross-examine the deponents on behalf of the respondents. He said that, apart from the fact that the affidavits were vague and not properly verified, he would be able to show that the statements made therein are not correct and neither had the Director of Inspection reason to believe nor did the authorised officers apply their minds. I see no justification for allowing that request. Paragraph 10, sub-paragraphs (a), (c) and (e) of paragraph 13, and sub-paragraphs (e) and (g) of paragraph 14 have been sworn by R. D. Shah as true to his knowledge. Paragraph 10 of the affidavit deals with the protest letters, etc., by the petitioners and the offer by respondent No. 1 that the petitioners might approach the officers concerned for inspecting the books and docume....
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.... 19, the majority view is that there were no guidelines provided as to when and in what circumstances the power in question was to be exercised or for the purpose or object of the exercise of the power. The power could be exercised without notice to the person concerned and there was no provision for an aggrieved party to make a representation and, therefore, the restriction imposed on the fundamental rights was not reasonable. In Surajmull Nagarmull v. Commissioner of Income-tax, the Special Bench of the Calcutta High Court, however, came to the conclusion that section 37(2) did not violate either article 14 or article 19 of the Constitution. In Commissioner of Commercial Taxes v. Ramkishan Srikishan Jhaver, their Lordships of the Supreme Court upheld the validity of sections 41(2) and (3) of the Madras General Sales Tax Act relating to search and seizure of accounts and documents on the ground that there were sufficient safeguards provided, particularly in view of the applicability of section 165, Criminal Procedure Code, and, therefore, article 19 was not violated. One of the factors taken by their Lordships of the Supreme Court into consideration was that the officer seizing th....
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....ction 132, on the other hand, is directed to compel compliance with notices already issued or which may be issued. Section 131, therefore, gives power to compel production of persons and books while section 132 is intended to give power to search or seize documents which the persons concerned are likely to withhold. There is, therefore, a valid classification and a distinction based on the reason to believe by senior officials, which reason is, to a certain extent, subject to judicial scrutiny, that the books will not be produced. Section 132 cannot be struck down as discriminatory, particularly when sufficient safeguards have been provided. The object of the legislature in enacting section 132 is both to avoid tax evasion and facilitate enquiry in proceedings. Search warrants may be issued against an assessee who has filed a return or has failed to file a return and the apprehension is that he will destroy the books so that the proper income-tax is not assessed against him. It call also be issued to witnesses who are possessed of books and documents which may help the assessee in arriving at a correct assessment but it is apprehended that, inter alia, out of vindictiveness or illw....
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....r the documents searched and seized in violation of article 19 or of section 132 can be retained or not. It is, however, necessary to decide one other question, namely, whether the information collected by the department in pursuance of an illegal search can be used as evidence and this is so because in two other writ petitions, being Writ Petitions Nos. 798-D of 1966 and 800-D of 1966, we heard arguments only on this question and not on the question whether the search or seizure in those cases was legal or illegal, while Civil Writ No. 58 of 1966 was compromised without prejudice to the contention of the petitioners that such evidence cannot be used, and, therefore, if the conclusion is that such documents can be used, it will be unnecessary to decide the question of legality of the search in those cases. In Weeks v. United States, it was held that the Federal Court could not use as evidence something unreasonably seized by a Federal Officer. In Burdeau v. McDowell, however, it was decided that if something was seized by someone acting without complicity on the part of the United States and gives that to the Government, the prosecution was entitled to use it. The exception made....
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....evant evidence on that ground. " Though in Ohio's case the Supreme Court of the United States said that the rule which excludes unconstitutional evidence from being admitted is an essential part both of the Fourth and Fourteenth Amendments, Mr. Veda Vyasa suggested that the said rule as developed in the United States was not only a command of the Fourth Amendment but also a judicially created rule of evidence and there was no reason why the same rule of evidence should not be created by the courts in India because article 19 in our Constitution is intended also to serve the same purpose as the Fourth Amendment in the United States. There are two ways of looking at the American decisions. One way of looking at those decisions may be, as suggested by Mr. Veda Vyasa, that the exclusionary rule is a judicially created rule of evidence. It that be so, then it would be open to the Legislature to override that rule and permit use of evidence illegally obtained. In that situation the matter will depend on the provisions of the Indian Evidence Act. Of course, it would be a different matter as to what value should be attached to an evidence illegally seized. No provision of the Evidence A....