AI Drafter 
TaxTMI 
TaxTMI 
2004 (5) TMI 34
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....e very outset, for convenience, the facts in each case and the stand of the Revenue are proposed to be reflected in brief. Facts in W.P. (C) No. 1552 of 2000: The petitioner, M/s. M.S. Associates, is a partnership firm duly registered under the provisions of the Indian Partnership Act, 1932. Smt. Jyoti Limbu and Smt. Tilmaya Chong are the two partners of the firm having its registered office at Connaught Place, New Delhi, and branch office at GNG Road, Silpukhuri, Guwahati. The petitioner-firm is engaged in the business of selling of State organised lottery tickets of various States, namely-Assam, Manipur and Meghalaya. The firm's responsibilities are limited to the extent of assisting the State Government to sell lottery tickets. The petitioner firm has been regularly filing income-tax returns before the income-tax authorities which were finalised after scrutiny. The business premises of the petitioner firm as well as the residential and official premises of the persons associated with the firm were searched on June 17/23,1999 and on October 29,1999, in pursuance of the warrants of authorisation issued under section 132 of the Act, and a large amount of cash, jewellery, inve....
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....llegal search. In the affidavit-in-opposition, the respondent authority pleaded that the search and seizure operations were carried out as a consequence of information in possession of the Department and in full compliance with the provisions of section 132 of the Act. It is submitted that during the course of search of the premises of Shri M.K. Subba at Silpukhuri, Guwahati, the office of M/s. Guwahati Agencies was found functioning from the same premises. No office of M/s. M.S. Associates, the petitioner was found at Silpukhuri. The income earned by M/s. Guwahati Agencies has neither been reflected in the regular books of account nor is it reflected in the returns filed by the petitioner firm. Both the partners, Smt. Jyoti Limbu and Smt. Tilmaya Chong, are the wives of Shri M.K. Subba and they are not aware of anything about the lottery business. The entire business is under the control of Shri M.K. Subba and his brother. The proceeds of sale of lottery tickets were never deposited with the Government nor disclosed to tax. The petitioner firm did not file the returns for the accounting years 1998-1999 and 1999-2000. The books of account for those two accounting years were also....
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.... in the residence of the petitioner at Tinsukia. He claimed to be an employee of M/s. Jyoti and Company, an agent of lotteries organised by the State Governments. According to him, in addition to his service, he has a business of selling of cassettes under the name and style of M/s. A.B. Series. His case is that he has been regularly filing income-tax returns before the authority and final assessment has been made thereon after due scrutiny and satisfaction. Though the petitioner is ordinarily a resident of Assam, in view of his service, he has been residing at Ghaziabad, U.P., since 1996. The search was effected in the month of June, 1999, and the income-tax authorities seized cash, investment certificates and books of account belonging to the writ petitioner and his wife, Smt. Archana Subba. The search was conducted primarily because of his employment in the firm of M/s. Jyoti and Company as the proprietor of the said firm has business connection with M/s. M.S. Associates. The search and seizure have been challenged on identical grounds as in the case of W.P. (C) No. 1552 of 2000. According to the writ petitioner, the search and seizure conducted in his premises as well as that o....
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....repetition. According to the answering respondents, no illegality has been committed by the authority in issuing the warrants of authorisation. It is further submitted that the writ petitioner is a partner having 51 per cent, share in M/s. M.S. Associates with effect from April 1,1994, which is the sole distributor of lottery tickets organised by the State of Nagaland. The petitioner firm did not deposit the sale proceeds with the State Government. The search had to be conducted in pursuance of the information in possession of the Department that documents and valuables representing income were not disclosed for assessment. The respondent also denied that respondent No. 6 who had issued the warrants of authorisation had no jurisdiction. In para. 19 of the affidavit, it has been submitted that the authority was justified in taking consequential action under sections 158BC and 158BD of the Act of 1961 for the purpose of finalising block assessment. It is further submitted that the assessee, if aggrieved by the block assessment, is entitled to file an appeal to the Commissioner of Income-tax (Appeals) under section 246A of the Act. Facts in W.P. (C) No. 7008 of 2000: Shri ....
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....partment that documents and valuables representing income were not disclosed for assessment. In para. 19 of the affidavit, it has been submitted that the authority was justified in taking consequential action under sections 158BC and 158BD of the Act of 1961 for the purpose of finalising block assessment in view of seizure of unaccounted valuables and documents. It is further submitted that the assessee, if aggrieved by the block assessment, is entitled to file an appeal to the Commissioner of Income-tax (Appeals) under section 246A of the Act. Facts in W.P. (C) No. 2889 of 2001: M/s. Teesta Rangit Private Limited represented by its managing director, Shri Sanjay Raj Subba, has filed this petition challenging the legality and validity of the notice dated February 20, 2001, issued by the Commissioner of Income-tax, Central Zone-VI, New Delhi, whereby the petitioner firm was directed to prepare a true and correct return of the total income including undisclosed income assessable for the block period from April 1,1989, to June 23, 1999, under section 158B(a) of the Income-tax Act, 1961. In the month of June, 1999, on different dates, in pursuance of different warrants of authori....
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.... concerns connected or associated with it are involved in tax evasion and, hence, issued the warrants of authorisation. Facts in W.P. (C). No. 2890 of 2001: In this petition, the petitioners, M/s. Sikkim Subba Associates, have prayed for quashing the impugned notice dated February 20, 2001 (annexure 6), issued by the Deputy Commissioner of Income-tax, Central Zone-IV, New Delhi. The notice has been issued by the aforementioned respondent No. 4 directing the petitioner firm to prepare a true and correct return of its total income including undisclosed income for the purpose of block assessment for the period beginning April 1,1989, to June 23,1999. The petitioner firm registered in the year 1991 has been engaged in the business of lottery of the Government of Sikkim as per agreement dated October 22,1991. According to the petitioner firm, the provisions of the Income-tax Act, 1961, are not applicable in the State of Sikkim and, therefore, the question of it being amenable to the provisions of the aforesaid Act does not arise. It is submitted that the business premises of M/s. M.S. Associates at New Delhi, Guwahati, Tinsukia and North Lakhimpur, and the official residences of t....
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....ction 158BC is nothing but initiation of an assessment proceeding in connection with a search which may or may not eventually result in the assessment of any undisclosed income. Therefore, the impugned notice issued in compliance with the provisions of the Act warrants no interference. Facts in W.P. (C). No. 3729 of 2001: Shri Nar Bahadur Khatiwada filed this petition challenging the search and seizure conducted in his premises on June 23, 1999, as illegal and unconstitutional with prayer for quashing the impugned notice dated November 13, 2000 (annexure D), issued by the Deputy Commissioner of Income-tax, Central Circle-IV, New Delhi, calling upon him to prepare true and correct return of total income including undisclosed income for block assessment for the period of April 1,1989, to June 23,1999. The petitioner is a practising advocate and has been counsel of M/s. M.S. Associates. The petitioner's case is that he has no connection whatsoever with the business carried on by M/s. M.S. Associates save and except that he is counsel of the said firm. The petitioner is assessed to tax and has been regularly filing his return which are being finalised after scrutiny of the books ....
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....y M/s. M.S. Associates challenging the notices dated March 15, 2001 (annexure IV), and November 6, 2001 (annexure IX), issued by respondent No. 5 and the special audit report dated September 7, 2001. The notice dated March 15, 2001, has been issued under section 142(2A) of the Income-tax Act, 1961, for the assessment year 1998-99 directing the petitioner firm to get the accounts for the assessment year 1998-99 audited and to furnish the said report before the income-tax authorities within 60 days. By the notice dated November 6, 2001, the respondent authority directed the petitioner firm to show cause as to why penalty under section 271B of the Income-tax Act should not be imposed for its failure in getting the accounts audited. The petitioner firm initially a proprietoral firm was converted into a partnership firm with effect from March 24,1994, and is engaged in the business of selling lottery tickets of various State Governments including Assam and Nagaland. The petitioner firm has been regularly submitting its returns of income-tax which has been assessed to tax after scrutiny of the books of account. It has been submitted that the business premises of the petitioner firm inclu....
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....Limbu and Smt. Tilmaya Chong are partners of M/s. M.S. Associates, they have no knowledge of the lottery business which is absolutely under the control of Mr. Moni Kumar Subba and his brother, Mr. S.R. Subba. The proceeds of lottery tickets were not deposited with the State Government. The respondent authority denied the petitioner's claim that books of account of the petitioner firm were found in order. The search was conducted against Mr. Moni Kumar Subba group, as there was reason to believe that the said group was in possession of the books of account, papers and other documents wherein undisclosed transactions have been recorded and such documents/books of account would never be produced before the income-tax authorities. Besides, there was reason to believe that the group is in possession of money, bullion, jewellery and other valuable articles or things comprising wholly or partly income which would not be disclosed for the purpose of assessment. It was in this context, the warrants of authorisation for search by the respective Director of Income-tax (Investigation), were issued as per the provisions of section 132 of the Act. The return filed by the petitioner firm under se....
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....nt certificates, fixed deposit receipts and other documents were seized. The petitioner has also challenged the legality and validity of the warrants of authorisation. The petitioner's books of account, other records and various materials, relevant for the assessment year 1998-99 were also seized. The petitioner could not file the return for the assessment year 1998-99 within the time limit because of seizure of all materials from her possession. It was filed belatedly on March 29, 2000, under section 139(4) declaring an income of Rs. 35,23,980. The income declared has to be treated as undisclosed income for the block assessment proceedings under Chapter XIV-B of the Act and, therefore, it was wrong on the part of the authority to make assessment for the year 1998-99. The audit report as envisaged under section 44AB could not be obtained because of the seizure of material documents and the same could not be filed before the authorities within time. Thereafter, the authority issued the notice dated April 7, 2000, for regular assessment for the assessment year 1997-98 under section 143(2) although the same, as per the provisions of law, has to be assessed in the block assessment p....
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....e draft report of the CAG, any other information in their possession to form reasons to believe as is required under section 132(1) of the Act? The issues framed above will also govern the other writ petitions on all material points. At the very beginning, I will like to take up issue No. 1 with reference to the factual matrix of each case in the following order: In W.P. (C). No. 1552 of 2000 as many as five warrants of authorisation were issued against the petitioner firm. The DIT (Investigation), New Delhi, issued three warrants of authorisation on June 23, 1999, and June 22, 1999, against this firm including one against Mr. S.R. Subba and Shri Ajoy Kumar Subba. The Additional DIG (Investigation), Delhi, issued the warrants of authorisation on June 23, 1999, against Mr. M.K. Subba, Mr. S.R. Subba, Smt. Jyoti Limbu, the petitioner firm and M/s. Jyoti and Company. The DIT (Investigation), Calcutta, issued warrant of authorisation on June 18, 1999, against the petitioner firm. In pursuance of the above warrants of authorisation, the premises of the petitioner firm as well as that of other persons were searched at New Delhi and Siliguri. The petitioner's claim that in pursuance....
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.... during the course of search in the premises of others, evidence of undisclosed property/income was unearthed. The office file containing the notes of satisfaction and warrants of authorisation from the Guwahati office also show that no warrant of authorisation for search and seizure was issued against M/s. M.S. Associates by the DIT (Investigation), Guwahati. Search and seizure carried out in different places in the State of Assam on the strength of warrants of authorisation issued by the DIT (Investigation), Guwahati, against other persons cannot be obviously agitated by the writ petitioner before this court. The contention of the petitioner that the Commissioner of Income-tax (Investigation), Guwahati, issued the warrants of authorisation is belied by the materials available in the office file. Therefore, no cause of action arose when the search was carried out against others as per authorisation of the DIT (Investigation), Guwahati. The cause of action for maintainability of a writ petition by the petitioner firm within the jurisdiction of this court will arise as and when the authorities at Guwahati initiate appropriate proceedings under the provisions of the Income-tax Act, 1....
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....Delhi. Since, no action has been taken as yet by the respondent authority at Guwahati, the petitioner cannot claim that the cause of action wholly or in part has arisen within the jurisdiction of this court. Therefore, this writ petition is also not maintainable for lack of jurisdiction. The question of maintainability of Writ Petition (C) No. 6965 of 2000 also stands on similar footing. The warrants of authorisation in this case were issued by the DIT and Additional DIT (Investigation), New Delhi, on June 22, 1999, and June 23, 1999, against M/s. Jyoti and Company, Mr. Ajoy Kumar Subba, Mr. M.K. Subba and M/s. M.S. Associates. The warrants of authorisation available in the office file also indicate that the places ordered to be searched are situated outside the territorial limits of this court. The petitioner, Smt. Jyoti Limbu, is an assessee at New Delhi. The notice dated November 13, 2000, challenged in this petition has been issued from the authorities in New Delhi for the block period from April 1,1989, to June 23,1999. The DIT (Investigation), NER, (Guwahati), is in no way connected with the warrants of authorisation mentioned above. The search and seizure in the pre....
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....so not been impleaded in this petition as respondent. No cause of action appears to have arisen either wholly or in part at any place within the jurisdiction of this court. Hence, this petition is also not maintainable. Writ Petition (C) No. 2890 of 2001 has been filed by M/s. Sikkim Subba Associates challenging the notice dated February 20, 2001, issued by the Commissioner of Income-tax, Calcutta, under section 158BC of the Act of 1961. The places ordered to be searched are situate outside the jurisdiction of this court. It is evident from the warrants of authorisation that the places ordered to be searched are in the State of Sikkim. Besides, the DIT (Investigation), Calcutta, who had issued the warrants of authorisation has not been made a party. On a careful consideration of the above materials on record, it appears that this court has no jurisdiction to entertain the writ petition, the authorities at Guwahati being in no way connected with the search and seizure. Writ Petition (C) No. 3729 of 2001 has been filed by Shri Nar Bahadur Khatiwada, an advocate. Three warrants of authorisation have been issued by the DIT (Investigation) from New Delhi and Calcutta. The warrants....
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....hi. The audit report was also prepared at New Delhi. The petitioner is an assessee at New Delhi. There is nothing on record to show that the DIT (Investigation), Guwahati, is in any way connected with the aforesaid notices and the audit report. The existence of registered office at Guwahati has also been disputed by the respondents in their affidavit-in-opposition. Thus, the existence of a branch office at Guwahati becomes controverted and cannot be looked into by this court in exercise of its powers under article 226. The head office of M/s. Jyoti and Company is at New Delhi and the branch office at Ghaziabad (U.P.) and Parwanoo in Himachal Pradesh. There is nothing on record to show that the aforesaid notices were relatable to the business of the petitioner firm to any place within the jurisdiction of this court. Therefore, this court has no jurisdiction to adjudicate the issues raised in this petition. The petitioner is an assessee at New Delhi and has to take up the matter in accordance with the provisions of the Act of 1961 before the authorities at New Delhi from where the impugned notices were issued. In all the writ petitions except W.P. (C) No. 7008 of 2000 the prayer i....
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..... The seized properties/documents are in the custody of the authorities at Delhi and Calcutta. The authorities at Delhi and Calcutta have initiated follow-up action. No suit for recovery of the seized materials could, therefore, be filed in any civil court subordinate to this court. Suit for recovery of the seized materials, therefore, would lie only before the civil courts subordinate to the Delhi or Calcutta High Court. Where a suit does not lie, a writ will also not lie. The above discussion is with regard to the maintainability of the writ petitions. It would appear that this court has jurisdiction only to decide Writ Petition (C) No. 7008 of 2000. The other writ petitions are not maintainable. This decision is arrived at after due consideration of the materials on record and the various judgments relied upon by the parties. The second question relates to the report of the Comptroller and Auditor General of India which was also taken into consideration by the respondent authorities for the purpose of determining the existence of circumstances under section 132(1) of the Act of 1961. Mr. S.S. Ray, learned senior counsel, laid maximum emphasis on this question and argued....
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....-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, or would not be, disclosed for the purposes 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), then, - (A) the Director General or Director or the Chief Commissioner or Commissioner, as the case may be, may authorise any Joint Director, Joint Commissioner, Assistant Director, Assistant Commissioner or Deputy Commissioner or Income-tax Officer, or . . ." Sub-section (1) of section 132 speaks of three situations one of which must exist to enable the Director General or the Director or the Chief Commissioner or Commissioner and Joint Commissioner or Deputy Commissioner to issue warrants of authorisation for search and seizure of any building, place, vessel, vehicle or aircraft where the authority issuing such authorisation has reasons to suspect that such books of account, other documents, mone....
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....n ITO v. Seth Bros. [1969] 74 ITR 836 (SC); AIR 1970 SC 292, and Dr. Nand Lal Tahiliani v. CIT [1988] 170 ITR 592 (All) submitted that section 132 of the Act does not confer any arbitrary authority upon the Revenue Officers to issue authorisation for search and seizure which otherwise amounts to invasion of the rights of the citizens; and the powers available have to be exercised only in strict compliance with the provisions of law. The Revenue Officers must record reasons for the belief before authorisation is issued. Mr. Ray, laid emphasis on the expression "information" and submitted that a mere rumour or a gossip cannot be treated as an information within the meaning of section 132. To further justify, learned counsel also relied upon the decisions in L.R. Gupta v. Union of India [1992] 194 ITR 32 (Delhi); Dr. Nand lal Tahiliani v. CIT [1988] 170 ITR 592 (All) and C. Venkata Reddy v. ITO [1967] 66 ITR 212 (Mys). The decisions referred to above clearly indicate that there must be some materials in the possession of the authority which can be regarded as an information and the same must exist on the file on the basis of which the authorising officer must have the "reason to be....
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.... who shall cause it to be laid before the Legislature of the concerned State, here the State of Nagaland (reference article 151(2)). The State Legislature is required to refer it to the Public Accounts Committee for examination and recommendations. The recommendations of the Public Accounts Committee have to be laid before the Legislative Assembly. In the instant case, the report of the CAG was placed before the Legislative Assembly, State of Nagaland, and it was referred to the Public Accounts Committee under rule 235 (Volume II) of the Nagaland Legislative Assembly Rules. The Public Accounts Committee examined the correctness of the report and submitted its recommendation in the month of March, 2002, to the effect that the report is not sustainable. The recommendations of the Public Accounts Committee were accepted by the State Legislature. Prior use of such a report would definitely amount to breach of the privilege of the House. In the instant case, as stated earlier, the Public Accounts Committee did not find reason to accept the report of the CAG and the matter thus stood disposed of. The report, during the period when it was exclusively the property of the House, could not b....
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.... as follows: "15. For these reasons, in my view, the detention order if it had been based only on the ground of prevention of acts prejudicial to the maintenance of law and order, it would not have been in terms of rule 30(1)(b) and would not have justified the detention. As I have earlier pointed out, however, it also mentions as another ground for detention, the prevention of acts prejudicial to public safety. In so far as it does so, it is clearly within the rule. Without more, we have to accept an order made on that ground as a perfectly legal order. The result then is that the detention order mentions two grounds one of which is in terms of the rule while the other is not. What then is the effect of that? Does it cure the illegality in the order that I have earlier noticed? This question is clearly settled by authorities. In Shibban Lal Saksena v. State of Uttar Pradesh, AIR 1954 SC 179, it was held that such an order would be a bad order, the reason being that it could not be said in what manner and to what extent the valid and invalid grounds operated on the mind of the authority concerned and contributed to the creation of his subjective satisfaction which formed the bas....
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....Income-tax Act, 1922. The hon'ble Supreme Court by the aforesaid observation in para. 5 of the judgment in Dhirajlal [1954] 26 ITR 736 (SC) apparently did not lay down any law in perpetuity for all cases based on divergent factual background. The decision of the hon'ble Supreme Court in S. Narayanappa v. CIT [1967] 63 ITR 219 shows that the hon'ble Supreme Court in this case dealt with the expression "reason to believe" occurring in section 34 of the Act of 1922. The observation of the Supreme Court is as follows: ". . . But the legal position is that if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under section 34. Whether these grounds are adequate or not is not a matter for the court to investigate. In other words, the sufficiency of the grounds which induced the Income-tax Officer to act is not a justiciable issue. It is of course open for the assessee to contend that the Income-tax Officer did not hold the belief tha....
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....y the court. If the conditions for exercise of the power are not satisfied the proceeding is liable to be quashed. But where power is exercised bona fide, and in furtherance of the statutory duties of the tax officers any error of judgment on the part of the officers will not vitiate the exercise of the power. Where the Commissioner entertains the requisite belief and for reasons recorded by him authorises a designated officer to enter and search premises for books of account and documents relevant to or useful for any proceeding under the Act, the court in a petition by an aggrieved person cannot be asked to substitute its own opinion whether an order authorising search should have been issued. Again, any irregularity in the course of entry, search and seizure committed by the officer acting in pursuance of the authorisation will not be sufficient to vitiate the action taken, provided the officer has in executing the authorisation acted bona fide." It would appear from the aforesaid two judgments relied upon by Shri Agarwalla that there must be some reasonable ground for the Income-tax Officer to believe that there has been non-disclosure as regards any fact which led to undera....
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.... the search warrant and that it is also not necessary to specify the documents or books of account, etc., which would be the subject matter of search and seizure. The judgments make it clear that a warrant of authorisation cannot be challenged on the ground that the documents or books of account, etc., which are the subject matter of search have not been specified therein and further that the q documents, books of account and other materials seized would not lose their evidentiary value even if search and seizure are illegal. In para. 9 of the counter affidavit filed in W.P. (C) No. 1552 of 2000, the respondent authority stated clearly that the searches were an all India affair in consequence of information in possession of the respondent authority including the reports of discreet inquiries and these reports were considered to conclude that the concerned group was in possession of books of account, papers and documents wherein undisclosed transactions have been recorded, and that the same would never be produced before the income-tax authorities. Necessity, therefore, arises for scrutiny of the office files produced by Shri Agarwalla in order to determine the existence of ot....
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....l c not disclose the true income before the income-tax authorities. The note of satisfaction does not indicate that the report of the CAG was given supremacy in forming the required "belief". Similar is the situation with regard to the note of satisfaction of the authorities at Guwahati. The note of satisfaction at Guwahati was drawn on the report of the DDIT (Investigation), Siliguri, wherein information has been recorded of accumulation of property undisclosed to tax. Though this note of satisfaction also refers to the report of the CAG, the satisfaction was drawn primarily on the basis of the information collected from various sources by the DDIT at Siliguri relatable to the concerned group at Guwahati. The details of the information available in the relevant files received from various sources other than the report of the CAG were voluminous, and the same were capable of leading the authorities to conclude that the writ petitioners were in possession of undisclosed property/income which they would never divulge even after service of a notice under section 131 of the Income-tax Act. The presence of the report of the CAG as one of the sources of the F information could not ....