TaxTMI 
TaxTMI 
2024 (5) TMI 709
X X X X Extracts X X X X
X X X X Extracts X X X X
....is common order and judgment. For convenience, we treat Writ Petition No. 122 of 2009 as the lead matter. 2. Petitioner no. 1 is a private limited company. Petitioner no. 2 is the Chairman and Managing Director of petitioner no. 1. Petitioner nos. 3, 4 and 5 are Directors of petitioner no. 1. Petitioner nos. 5, 6 and 7 are the spouses of petitioner nos. 2, 4 and 3, respectively. Petitioner no. 8 is the married daughter of petitioner no. 2. 3. Respondent No. 1 was the officer empowered by the Central Board of Direct Taxes (CBDT) to issue authorization under section 132 of the Act for carrying out search and seizure under the Act. In exercise of his powers under section 132 of the Act, respondent no. 1 issued authorisations dated 7th July, 2008 in favour of respondent no. 2 and others, authorising them to enter upon and search various premises belonging to petitioners. 4. Petitioner No. 1 was incorporated on 31st December 1960 under the Companies Act 1956 and was a leading manufacturer of forging and engineering products required in the automobile industry. Petitioner no. 1 had an annual turnover of over Rs. 314 crores for the year ended 31st March 2007. Petitioners were reg....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d assuming that he had any information in his possession, the veracity of the same has not been verified even with preliminary enquiry and the action being on such unverified information, is bad in law, (B) Non-observance of the safeguards in section 132 have rendered the search illegal. (C) There were alternate provisions available for the department instead of taking invasive and drastic action under Section 132 (1) of the Act. (D) On the facts of the case, the Respondent No. 2 erred in seizing cash, jewellery and loose papers despite these being fully explainable." 6. Mr. Joshi submitted as under: (a) Section 132 (1) of the Act provides that where the Director General or Director of the Chief Commissioner or Commissioner in consequence of information in his possession, has reason to believe that: (i) any person to whom a summons under section 131 (1) of the Act, or a notice under section 142 (1) of the Act was issued to produce, or cause to be 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; o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mation and without any reason to believe that any undisclosed income was in possession of petitioners, it compromises the assessee's position and exposes him to grave hardship. (h) It is settled law that if the authorisations under section 132 of the Act were issued without observance of the jurisdictional conditions, the entire search and seizure proceedings must be regarded to be invalid. In view of the applicability of Section 165 of the Criminal Procedure Code to the searches and seizures by virtue of sub-section (13) of section 132 of the Act, the taxpayer has been provided with important safeguards against arbitrary action. (i) At the time of search, certain items of cash, jewellery and loose papers were seized from various premises of petitioners notwithstanding the fact that the said seized items were reflected in the regular of books of account of petitioners. The jewellery or ornaments were fully disclosed in Wealth tax Returns Filed along with valuation reports giving detailed description of the items of jewellery and ornaments and their values. During the search and thereafter, before they were seized, the same were reconciled and explained by peti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tor General of Income Tax (Inv.). The reasons for authorizing action under Section 132 of the Act are duly recorded in a Satisfaction Note which shows due application of mind by various statutory authorities. All the procedures and safeguards provided in the Act were duly followed and the search has been carried out within the framework of section 132 of the Act. 11. As regards making available the details of the information received and the satisfaction note, the Learned ASG and later Ms Nagaraj both strongly opposed disclosing / making available copies thereof and for that relied upon the decision of the Apex Court in Principal Director of Income - tax (Investigation) Vs. Laljibhai Kanjibhai Mandalia (2022) 140 taxmann.com 282 (SC). The Learned ASG further submitted that the principles in exercising the writ jurisdiction in the matter of search and seizure under Section 132 of the Act have been elaborated in Laljibhai Kanjibhai Mandalia (Supra) and it is settled law that copy of the material leading to the search should not be made available to assessee. It was also submitted that in view of the explanation inserted in Section 132 (1) by the Finance Act 2017 with retrospective....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Search and seizure. 132 (1) Where the Principal Director General or Director General or Principal Director or Director or the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner or Additional Director or Additional Commissioner or Joint Director or Joint Commissioner in consequence of information in his possession, has reason to believe that- (a) any person to whom a summons under sub-section (1) of section 37 of the Indian Income-tax Act, 1922 (11 of 1922), or under subsection (1) of section 131 of this Act, 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 this Act was issued to produce, or cause to be 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 I....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 bullion, jewellery or other valuable article or thing, being stock-in-trade of the business, found as a result of such search shall not be seized but the authorised officer shall make a note or inventory of such stock-in-trade of the business; (iv) place marks of identification on any books of account or other documents or make or cause to be made extracts or copies therefrom; (v) make a note or an inventory of any such money, bullion, jewellery or other valuable article or thing: Provided that where any building, place, vessel, vehicle or aircraft referred to in clause (i) is within the area of jurisdiction of any Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, but such Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner has no jurisdiction over the person referred to in clause (a) or clause (b) or clause (c), then, notwithstanding anything contain....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Court. The said satisfaction note(s) have also been placed before us. A perusal of the file containing the satisfaction note(s) indicate that on 8-6-2009 the Assistant Director of Income Tax (Investigation), Nagpur had prepared an elaborate note containing several reasons as to why he had considered it reasonable to believe that if summons or notice were issued to the respondent to produce the necessary books of account and documents, the same would not be produced. The Assistant Director also recorded detailed reasons why he entertains reasons to believe that the promoters of the respondent assessee company would be found to be in possession of money, bullion, jewellery, etc. which represents partly or wholly income which has not been disclosed for the purposes of the Act. xx xx xx 21. In the light of the views expressed by this Court in ITO v. Seth Bros. [ITO v. Seth Bros., (1969) 2 SCC 324 : (1969) 74 ITR 836] and Pooran Mal [Pooran Mal v. Director of Inspection (Investigation), (1974) 1 SCC 345 : 1974 SCC (Tax) 114 : (1974) 93 ITR 505], the above opinion expressed by the High Court is plainly incorrect. The necessity of recording of reasons, despite ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... a reasonable belief can be founded that the person concerned has omitted or failed to produce books of accounts or other documents for production of which summons or notice had been issued, or such person will not produce such books of accounts or other documents even if summons or notice is issued to him; or iv) Such person is in possession of any money, bullion, jewellery or other valuable article which represents either wholly or partly income or property which has not been or would not be disclosed; v) Such reasons may have to be placed before the High Court in the event of a challenge to formation of the belief of the competent authority in which event the Court would be entitled to examine the reasons for the formation of the belief, though not the sufficiency or adequacy thereof. In other words, the Court will examine whether the reasons recorded are actuated by mala fides or on a mere pretence and that no extraneous or irrelevant material has been considered; vi) Such reasons forming part of the satisfaction note are to satisfy the judicial consciousness of the Court and any part of such satisfaction note is not to be made part of the order; ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tment cannot rely upon what was unearthed on account of opening of the lockers of petitioners, as the information and reason to believe as contemplated under Section 132 (1) of the Act must be prior to such seizure. We are also going to adopt the same approach. Therefore, we are not inclined to discuss the provisions of Section 132 of the Act or the effect of the explanation inserted in Section 132 (1) by the Finance Act 2017. 17. It will also be useful to reproduce paragraph 8 of Director General of Income Tax (Investigation), Pune vs. Spacewood Furnishers Private Limited (2015) 12 SCC 179, which reads as under: "8. The principles that can be deduced from the aforesaid decisions of this Court which continue to hold the field without any departure may be summarized as follows : 8.1 The authority must have information in its possession on the basis of which a reasonable belief can be founded that- (a) the person concerned has omitted or failed to produce books of account or other documents for production of which summons or notice had been issued OR such person will not produce such books of account or other documents even if summon....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r the purposes of the Act. 19. The position, that the Authority must have information in his possession on the basis of which a reasonable belief can be founded that the person concerned has omitted or failed to produce the books of accounts or other documents for production of which summons or notice has been issued or such person will not produce such books of accounts or other documents even if summons of notice is issued to him, or such person is in possession of any money, bullion or other valuable articles which represents either wholly or partly income or property which has not been or would not be disclosed, is the foundation to exercise the power under Section 132 of the said Act. The Apex Court in Laljibhai Kanjibhai Mandalia (Supra) and in Spacewood Furnishers Pvt Ltd. (Supra) has specifically held that such reasons may have to be placed before the High Court in the event of a challenge to formation of the belief of the Competent Authority in which event the Court would be entitled to examine the reasons for formation of the belief, though not the sufficiency or adequacy thereof. 20. It is also necessary to note that no notice or summons have been issued to petitio....