TaxTMI 
TaxTMI 
2019 (4) TMI 571
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.... the process of setting up a new business in Goa. The said company was in need of finance for setting up its business and consequently, approached the petitioner for a loan. On the petitioner asking for some sort of security, the said company offered that another company being Royale Recreation Private Limited would give its property bearing Sub Plot No.65 admeasuring 346 square metres and Sub-Plot No.68 admeasuring 463.50 square metres, in all, admeasuring 809.50 square metres constituting a part of Aldeia De Goa of property known as "Nauxim" or "Chicalium Bhat" bearing Survey No.31/1-A admeasuring 1,06,950 square metres situated in village Bambolim, in registration sub-District Ilhas, District North Goa in the State of Goa as security for the said loan. Subsequently, an agreement was reached and a registered deed of mortgage came to be executed for the property between the petitioner, Goan Recreation Clubs Private Limited (also referred to as the "borrower company") and Royale Recreation Private Limited (also referred to as the "guarantor company") on 22.6.2016. Pursuant to the said agreement, an amount of Rs. 10,00,00,000/- (rupees ten crore) came to be given by the petitioner t....
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.... that company. It appears that subsequent to the search, the respondents have been raising query after query and calling for details of assets, etc. from the petitioner. It is the case of the petitioner that the respondents are without any rhyme or reason or legal justification harassing the petitioner and his family members and are grossly abusing the power vested in them under the provisions of the Income Tax Act. Being aggrieved, the petitioner has filed the present petition challenging the authorisation issued under section 132 of the Income Tax Act, 1961. 5. In response to the averments made in the petition, the respondent No.1 has filed affidavit-in-reply, inter alia, stating that the search was carried out under valid warrant of authorisation under section 132 after proper recording of 'reasons to believe' in the satisfaction note, and the approval of the same by the competent authority, as prescribed in law. The action under section 132 of the Income Tax Act, 1961 on 10.8.2018 at the residence of the petitioner and other subsequent actions taken by the respondents by way of post search analysis are good in law and sound as per the provisions of the Income Tax Act....
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....Year Name of the party from whom Loan was taken Loan Amount (in Rs.) Source and Relationship with the company 2015-16 Sarju Sharma 75,00,000/- Director Rajputana General Com. Corp. Pvt Ltd. 4,27,00,000/- Non related Entity 2016-17 Laljibhai Kanjibhai Mandalia 10,00,00,000/- Addl. Director Viarra Entertainment Pvt. Ltd. 25,60,00,000/- Associated Company Rajputana General Commercial Corporation Pvt. Ltd. 1,50,00,000/- Non related entity d) From the above chart it is noticed that the company raised huge unsecured loans within two years of it incorporation from various individuals and companies. e) Whereas, in the pre search analysis, on going through the records available with the MCA (Ministry of Corporate Affairs) and ITBA (Income Tax Business Application) it came to light that the company M/s Goan Recreation Clubs Pvt. Ltd. During the financial year 2016- 17 have introduced three new Directors along with the exit of then existing Director Shri Rohit Gurubhakta Sharma on 03.03.2017, the details given in the following table:- Name of the Director PAN Date of appointment Date of cessation No. ....
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....ed and carried out on the basis of the information gathered as explained in the above point nos. (a) to (g) of this para. Therefore, from the foregoing paras it can be concludedFrom the above though it is found that Shri Mandalia had resigned as Additional Director of the company on 25.06.2016 and the loan was repaid by the company in the same year as noticed from the table given at point no. (g) of this para but the chain of events raises credible doubt on the transactions entered into by the petitioner with the company in question as it is the familiar modus operandi being practiced by the entry operators. Therefore, from the foregoing paras it can be concluded that the department initiated the search and seizure operation in the premises of the petitioner after conforming to all the criteria mentioned in the Section 132 sub-section 1 clause (s), (b) and (c) of the Income Tax Act, 1961. The search and seizure action was initiated after detailed analysis of information, duly recording of reasons in the Satisfaction Note and approval of the same by the competent authorities." 5.2 It is further averred in the affidavit-in-reply that in the present instance, the ....
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....ner is being investigated." 5.4. The said respondent has thereafter referred to the post search analysis, which is not relevant for the present purpose as this court is concerned with the validity of the authorisation issued under section 132 of the Act and the post search analysis has got no bearing in that regard. 6. Mr. S. N. Soparkar, Senior Advocate, learned counsel with Mr. P. A. Mehd, learned advocate for the petitioner submitted that the impugned search action is bad in law and in violation of the provisions of section 132 of the Act. It was submitted that firstly, the conditions precedent for any action under section 132 of the Act have not been satisfied; and secondly, the action under section 132 as well as all further actions of the respondents pursuant to the said action are illegal and deserves to be quashed. The attention of the court was invited to the provisions of section 132 of the Act to submit that for the purpose of issuance of an authorisation for search under section 132 of the Act, the concerned authority in consequence of information in his possession should have reason to believe that either of the three situations mentioned under sub-section (1) of....
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.... was submitted that there was no reason for the Commissioner, Kolkata to form the belief that the petitioner would not respond to the notice and that the only situation which would be applicable in the facts of the present case is clause (b) of section 132(1) of the Act, which would not be attracted having regard to the facts of the present case. Reference was made to the income tax return of the petitioner filed for assessment year 2017-18, to point out that in the return of income itself, the transaction in question has been reflected. It was pointed out that tax has been deducted at source in respect of the interest paid on the loan given by the petitioner and the department has also given credit to the petitioner. 6.2 Reliance was placed upon the decision of this court in the case of LKS Bullion Import and Export Pvt. Ltd. v. Director General of Income Tax, rendered on 30.10.2012 in Special Civil Application No.11593 of 2012 wherein the court on the basis of the record and the reasons noted by the authority was of the view that it was not possible to come to the conclusion that the petitioners had not or would not have disclosed the jewellery for the purpose of the Act. The ....
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....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 (II of 1922), or this Act (hereinafter in this Section referred to as the undisclosed income or property)." (32) The basis of the exercise of the jurisdiction under Section 132(1) has to be the formation of a belief and the belief is to be formed on the basis of receipt of information by the authorising officer. (33) The expression ''information" must be something more than mere rumour or a gossip or a hunch. There must be some material, which can be regarded as information, which must exist on the file on the basis of which the authorising officer can have reason to believe that action under Section 132 is called for any of the reasons mentioned in Clauses (a), (b) or (c). When an action of the issuance of authorisation under Section 132 is challenged in a Court it will be open to the petitioner to contend that on the facts or information disclosed, no reasonable person could have come to the conclusion that action under Section 132 was called for. The opinion which has to be formed is subjective a....
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....ces must exit on the basis of which such a belief can be formed. For example, if the Department has information that a person has duplicate sets of account books or documents where havala transactions are recorded then the Department can legitimately come to the conclusion that if a notice is sent then that person is not likely to produce the said documents etc. Duplicate books of accounts and such like documents are maintained primarily for the reason that they are not to be produced before the Income Tax authorities. To put it differently, the nature of the documents may be such which are not, in the normal course, likely to be produced before the Income Tax authorities either voluntarily or on requisition being sent. It may also happen that the documents may exist and be in the custody of a person which would show the existence of immoveable property which he may have acquired from money or income which has been hidden from the Income Tax Department. The past record of the assessed, his status or position in life are also relevant circumstances in this regard. Where, however, documents exist which are not secretly maintained by an assessed, for example pass books, sale deeds whi....
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....t no action can be taken under Section 132(1)(C). Authorisation under Section 132(1) can be issued if there is a reasonable belief that the assessed does not want the Income Tax Department to know about the existence of such Income or asset in an effort to escape, assessment. Section 132(1)(c) has been incorporated in order to enable the Department to take physical possession of those moveable properties or articles which are or represent undisclosed income or property. The words "undisclosed income" must mean income which is liable to be taxed under the provisions of the Income Tax Act but which has not been disclosed by an assessed in an effort to escape assessment. Not disclosed must mean the intention of the assessed to hide the existence of the income or the asset from the Income Tax Department while being aware that the same is rightly taxable." It was submitted that in the facts of the present case the petitioner has disclosed the amount in question in its return of income and has duly paid the tax on the interest received thereon. None of the circumstances contemplated under subsection (1) of section 132 of the Act exist in the present case and hence, there was no valid ....
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.... that action under section 132 is called for. Such information should be fairly reliable and should not be a mere rumour or an unverified piece of gossip or a hunch. The court, therefore, while examining the validity of the authorization issued under section 132 of the Act would firstly be required to examine as to whether there exists any information of the nature referred to hereinabove in the possession of the concerned officer, on the basis of which he could have formed a reason to believe. The next factor which would be required to be satisfied is as to whether before issuance of the authorization, the concerned official has recorded the reasons for his belief. If reasons have been recorded, the opinion which has to be formed being subjective, the jurisdiction of the court to interfere is very limited. The court will not act as an appellate authority and examine meticulously the information in order to decide for itself as to whether the action under section 132 is called for. But the court would be acting within its jurisdiction in seeing whether the act of issuance of authorization under section 132 is arbitrary or mala fide or whether the satisfaction recorded is such which....
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....f the Act was issued. It was submitted that to realise the entire amount, the real picture would not have emerged otherwise, and, therefore, there was necessity to issue authorisation under section 132 of the Act. It was submitted that today there is a satisfaction note which establishes positive appreciation on the part of the authorities as contemplated under clause (b) of sub-section (1) of section 132 of the Act and hence, there is no warrant for intervention by this court. It was urged that the petition being devoid of any merit or substance, deserves to be dismissed. 7.6 The learned senior standing counsel further produced a copy of the satisfaction note recorded by the concerned authority for the perusal of the court and made submissions on the basis thereof. 8. In rejoinder, Mr. Soparkar, learned counsel for the petitioner submitted that a parrot like reproduction of the statutory provisions will not vest jurisdiction in the respondents and that to vest jurisdiction under section 132 of the Act, there has to be a reason for issuing authorisation for search thereunder. It was contended that the first respondent had no authority to record the conclusion that the petitio....
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.... placed upon the decision of the Supreme Court in the case of Commissioner of Income Tax, Allahabad v. Vindhya Metal Corporation, (1997) 224 ITR 614, wherein the court in the facts of the said case has held that considering the material on which reliance was placed by the Commissioner, no reasonable person could have entertained the belief that the respondent therein would not have disclosed the amount in question for the purposes of the Act. It was submitted that the case of the petitioner stands on an even stronger footing. It was, accordingly, urged that the petition deserves to be allowed by quashing and setting aside the impugned authorisation. 9. It is in the backdrop of the above facts and contentions that the validity of the authorisation issued by the first respondent under section 132 of the Act is required to be examined. 10. At the outset it would be germane to refer to the provisions of section 132 of the Act, which to the extent the same is relevant for the present purpose reads as under:- "132. Search and seizure.-(1) Where the Principal Director General or Director General or Director or the Principal Chief Commissioner or Chief Commissioner or Princi....
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....t that such books of account, other documents, money, bullion, jewellery or other valuable article or thing are kept; (ii) break open the lock of any door, box, locker, safe, almirah or other receptacle for exercising the powers conferred by clause (i) where the keys thereof are not available; (ii-a) search any person who has got out of, or is about to get into, or is in, the building, place, vessel, vehicle or aircraft, if the authorised officer has reason to suspect that such person has secreted about his person any such books of account, other documents, money, bullion, jewellery or other valuable article or thing; (ii-b) require any person who is found to be in possession or control of any books of account or other documents maintained in the form of electronic record as defined in clause (i) of sub-section (1) of Section 2 of the Information Technology Act, 2000, to afford the authorised officer the necessary facility to inspect such books of account or other documents; (iii) seize any such books of account, other documents, money, bullion, jewellery or other valuable article or thing found as a result of such search: Provided that ....
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.... Explanation.-For the removal of doubts, it is hereby declared that the reason to believe, as recorded by the income-tax authority under this sub-section, shall not be disclosed to any person or any authority or the Appellate Tribunal." 11. On a plain reading of sub-section (1) of section 132 of the Act, it is clear that it is in consequence of information in his possession that the concerned authority should have reason to believe that any of the three circumstances provided under sub-section (1) of section 132 exist. Existence of any one of the circumstances is mandatory to justify the exercise of power to issue authorisation. The condition precedent for exercising power to issue authorisation for search and seizure is hedged in by the requirements of these conditions precedent and it is only if these conditions are fulfilled that the power can be exercised. The facts of the present case are required to be examined in the light of the above statutory provision. 12. Insofar as the first circumstance as laid down under clause (a) of sub-section (1) of section 132 is concerned, the same relates to a case where any person to whom a summons under sub-section (1) of section 131....
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....132 of the Act are satisfied is required to be considered. 16. Clause (b) of sub-section (1) of section 132 of the Act provides for issuance an authorisation in case where the authority in consequence of information in his possession, has reason to believe that such person to whom a summons or notice has been issued or might be issued will not, or would not, produce or cause to be produced, any books of account or other documents which would be useful for, or relevant to, any proceeding under the Act. In the facts of the present case, it may be noted that the first respondent, namely the authority who has issued the authorisation under section 132 of the Act, is not the jurisdictional Assessing Officer. The first respondent Principal Director of Income Tax (Investigation), Kolkata, who has issued the impugned authorisation is based in Kolkata and, therefore, has no jurisdiction over the petitioner under the normal provisions of the Act. The only provision under which the said respondent can exercise jurisdiction over the petitioner is under section 132 of the Act in view of the CBDT notification dated 3.12.2001 issued under section 120(1) and (2) of the Act, whereby the Director....
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....ch would not have been disclosed by him for the purposes of the Act. On the contrary, in the facts of the present case, from the record of the case as produced by the respondents as well as by the petitioner, it is evident that the loan transaction whereby the petitioner had advanced Rs. 10,00,00,000/- to the borrower company has been duly reflected in the books of account of the petitioner. In his return of income, the petitioner has duly shown the interest income from such transaction. The tax deducted at source in respect of such interest income, has been credited to the account of the petitioner by the concerned authority. Therefore, the entire transaction has been disclosed by the petitioner. There is no other material on record on the basis the respondents could have formed the belief as contemplated under clause (c) of sub-section (1) of section 132 of the Act. Evidently, therefore the circumstance envisaged under clause (c) of section 132(1) of the Act also does not exist in the present case. 18. In the opinion of this court, on the information which has come on record there is no material on the basis of which a reasonable person could have formed the belief that action....