TaxTMI 
TaxTMI 
2025 (6) TMI 328
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....12.2024 under Section 132 of the Income Tax Act, 1961 and the validity of search proceedings conducted at the premise of the petitioners based thereon under Section 132 of the Income Tax Act, 1961 has been challenged. (4) In Writ Tax No.31 of 2025, in addition to the aforesaid challenge, as, a notice was issued to the said petitioner under Section 131(1A) of the Act, 1961, therefore, by way of an amendment, the said notice dated 27.01.2025 has also been challenged. (5) Inspite of sufficient opportunity, the Revenue did not file any counter affidavit to the writ petitions and in fact, on 11.03.2025, learned Senior counsel appearing for the Revenue made a statement as has been recorded by us in the order sheet that pleadings are not required to be filed and that he would argue on the basis of facts on record. (6) Petitioner of Writ Tax No.30 of 2025 is said to be an eighty years old doctor. Though not very relevant but it is said that he is suffering from Alzheimer. He is a promoter shareholder of a company, namely, India Pesticides Limited. (7) Petitioner of Writ Tax No.31 of 2025 is also aged about eighty years, as claimed and a promoter shareholder of the aforesaid company. (....
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....tax. (11) The provision contained in Section 55(2)(ac) of the Act, 1961 did not contain any such mechanism under which the 'fair market value' of the shares sold by the petitioners could be calculated which was necessary for calculating the capital gain and paying tax thereon. In the absence of this mechanism, there is no way that Capital Gain Tax could be calculated and paid. Most important, the assessing officer ordered refund of the advance tax paid by the petitioners. Therefore, even the Department understood that the income was not liable to tax, otherwise, proceedings would have been initiated against the petitioners for sentencing etc. (12) As many similarly placed persons were claiming advantage of not being liable to tax in respect of such transactions, therefore, realizing the lacunae, an amendment was brought in Section 55 of the Act, 1961 on 01.09.2024 making such transactions liable to capital gain tax by providing a mechanism for calculating their fair market value. The absence of any such mechanism in the unamended provision made it impossible for any willing person to pay the tax. The amendment was made effective from 01.04.2018. It is on account of the af....
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....upreme Court especially in the case of 'Principal Director of Income Tax (Investigation) and ors. vs. Laljibhai Kanjibhai Mandalia' reported in (2022) 446 ITR page 18 (SC) on the subject and should not decide the matter as an appellate court. There was sufficient information and based thereon, reason to believe was formed for the search operation by a competent officer and within the limited bounds of judicial review, this was not a case for interference. He contended that argument of Sri Mistri, learned counsel for the petitioners that the search operations were invalid because of the fact that though the search operations under Section 132 required the competent authority to form a reason to believe which was on a higher footing than the requirement under Section 131 (1A) which only required a reason to suspect, therefore, as in the case of Sneh Lata Agarwal, a notice under Section 131(1A) had been issued subsequent to the search operations, therefore, the search operations were invalid, was not acceptable and was contrary to law. He also stated that reliance placed by Sri Mistri upon the judgment of Division Bench of this Court in 'Dr. Anita Sahay vs. Director of Income Tax (Inv....
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....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, 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 Principal Director General or Director General or Principal Director or Director or the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, as the case may be, may authorise any Additional Director or Additional Commissioner or Joint Director, Joint Commissioner, Assistant Director or Deputy Director, Assistant Commissioner or Deputy Commissioner or Income-tax Officer, or (B) such Additional Director or Additional Commissioner or Joint Director, or Jo....
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....n referred to in clause (a) or clause (b) or clause (c), then, notwithstanding anything contained in section 120, it shall be competent for him to exercise the powers under this sub-section in all cases where he has reason to believe that any delay in getting the authorisation from the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner having jurisdiction over such person may be prejudicial to the interests of the revenue : Provided further that where it is not possible or practicable to take physical possession of any valuable article or thing and remove it to a safe place due to its volume, weight or other physical characteristics or due to its being of a dangerous nature, the authorised officer may serve an order on the owner or the person who is in immediate possession or control thereof that he shall not remove, part with or otherwise deal with it, except with the previous permission of such authorised officer and such action of the authorised officer shall be deemed to be seizure of such valuable article or thing under clause (iii): Provided also that nothing contained in the second proviso shall apply in case of any valuable arti....
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....rson or entity to comply with such requisition.] (3) The authorised officer may, where it is not practicable to seize any such books of account, other documents, money, bullion, jewellery or other valuable article or thing, for reasons other than those mentioned in the second proviso to sub-section (1), serve an order on the owner or the person who is in immediate possession or control thereof that he shall not remove, part with or otherwise deal with it except with the previous permission of such officer and such officer may take such steps as may be necessary for ensuring compliance with this sub-section. Explanation.-For the removal of doubts, it is hereby declared that serving of an order as aforesaid under this sub-section shall not be deemed to be seizure of such books of account, other documents, money, bullion, jewellery or other valuable article or thing under clause (iii) of sub-section (1). (4) The authorised officer may, during the course of the search or seizure, examine on oath any person who is found to be in possession or control of any books of account, documents, money, bullion, jewellery or other valuable article or thing and any statement made by such pers....
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....ral or Principal Director or Director shall not authorise the retention of the books of account and other documents for a period exceeding thirty days after all the proceedings under the Indian Income-tax Act, 1922 (11 of 1922), or this Act in respect of the years for which the books of account or other documents are relevant are completed. (8A) An order under sub-section (3) shall not be in force for a period exceeding sixty days from the date of the order. (9) The person from whose custody any books of account or other documents are seized under sub-section (1) or sub-section (1A) may make copies thereof, or take extracts therefrom, in the presence of the authorised officer or any other person empowered by him in this behalf, at such place and time as the authorised officer may appoint in this behalf. (9A) Where the authorised officer has no jurisdiction over the person referred to in clause (a) or clause (b) or clause (c) of sub-section (1), the books of account or other documents, or any money, bullion, jewellery or other valuable article or thing (hereafter in this section and in sections 132A and 132B referred to as the assets) seized under that sub-section shall be han....
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....ccount or other documents and the Board may, after giving the applicant an opportunity of being heard, pass such orders as it thinks fit. (11) [***] (11A) [***] (12) [***] (13) The provisions of the Code of Criminal Procedure, 1973 (2 of 1974), relating to searches and seizure shall apply, so far as may be, to searches and seizure under sub-section (1) or subsection (1A). (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 any building, place, vessel, vehicle or aircraft 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 seized [Explanation 1.-For the purposes of sub-sections (9A), (9B) and (9D), the last of [authorisations] for search shall be deemed to have been executed,- (a) in the case of search, on the conclusion of search as recorded in the last panchnama drawn in relation to any person in whose case the warrant of authorisation has been is....
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....on from whose possession or control such assets have been taken into custody by any officer or authority under any other law for the time being in force, then, 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 may authorise any Additional Director, Additional Commissioner, Joint Director, Joint Commissioner, Assistant Director or Deputy Director, Assistant Commissioner or Deputy Commissioner or Income-tax Officer (hereafter in this section and in sub-section (2) of section 278D referred to as the requisitioning officer) to require the officer or authority referred to in clause (a) or clause (b) or clause (c), as the case may be, to deliver such books of account, other documents or assets to the requisitioning officer. 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. (2) On a requisition being made under sub-section (1), the officer or authority referred to in cla....
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....urce of acquisition of any such asset is explained to the satisfaction of the Assessing Officer, the amount of any existing liability referred to in this clause may be recovered out of such asset and the remaining portion, if any, of the asset may be released, with the prior approval of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, to the person from whose custody the assets were seized: Provided further that such asset or any portion thereof as is referred to in the first proviso shall be released within a period of one hundred and twenty days from the date on which the last of the authorisations for search under section 132 or for requisition under section 132A, as the case may be, was executed; (ii) if the assets consist solely of money, or partly of money and partly of other assets, the Assessing Officer may apply such money in the discharge of the liabilities referred to in clause (i) and the assessee shall be discharged of such liability to the extent of the money so applied; (iii) the assets other than money may also be applied for the discharge of any such liability referred to in clause (i) as remains undischarged a....
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.... invades the rights and liberties of citizens especially the Right to Privacy, therefore, exercise of power thereunder is hedged by certain conditions so as to ensure avoidance of arbitrary and malafide action and to safeguard citizens from such action. They also balance the demands of the State (Revenue) vis-a-vis the rights and liberties including right to privacy available to the citizens of this country. Therefore, the provisions of Section 132 have to be understood and interpreted strictly just as they have to be complied strictly. (22) On a bare reading of the above quoted provision, it is evident that in order to initiate any action thereunder, first of all, there has to be information in possession of the officers referred thereunder. Secondly, such officers should have reason to believe as a consequence of such information and based thereon. Thirdly, this information and reason to believe should have a relation with any of the three clauses (a), (b) or (c) contained therein, otherwise such exercise would be bad in law. (23) In this context, we may fruitfully rely on a Division Bench judgment of Delhi High Court in the case of 'L.R. Gupta & Ors. vs. Union of India & Ors' ....
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....ly, or even after notice, produce documents before the Income Tax authorities. Where, for example, there is information that a person is hiding or likely to hide or destroy documents or books of account which are required or are relevant for the purposes of the Act then, in such case, it can be said that unless and until search is conducted, the said books of account or documents will not be recovered. The belief of the authority must be that the only way in which the Income Tax Department would be in a position to obtain books of account and documents from a person is by the conduct of a search and consequent seizure of the documents thereof. In our opinion, some facts or circumstances 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 account and such like documents are maintained primarily for the reason that they are not to be produced before the Inco....
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....e of power on the part of the Commissioner of Income Tax to issue a search warrant for the production of these books of account unless of course there is information to the effect that he has been keeping some secret account books also. He has to arrive at a decision in the background of the mental make up of an individual or individuals jointly interested in a transaction or a venture. A blanket condemnation of persons of diverse activities unconnected with each other on the odd chance that if their premises are searched some incriminating material might be found is wholly outside the scope of Section 165, Criminal Procedure Code. This power has to be exercised in an honest manner and search warrants cannot be indiscriminately issued purely as a matter of policy." (27) Reason to Believe are contained in the Satisfaction Note. It is this note which is to be seen by us but before doing so, we need to understand the meaning of the term 'Reason to Believe' and scope of judicial review in such matters. This Court had the occasion to explain the phrase 'Reason to Believe' in the case of 'Ganga Prasad Maheshwari vs. CIT' reported in (1981) 6 Taxman 363 in the following m....
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....uld like to restate and elaborate the principles in exercising the writ jurisdiction in the matter of search and seizure under Section 132 of the Act as follows: i) The formation of opinion and the reasons to believe recorded is not a judicial or quasi-judicial function but administrative in character; ii) The information must be in possession of the authorised official on the basis of the material and that the formation of opinion must be honest and bona fide. It cannot be merely pretence. Consideration of any extraneous or irrelevant material would vitiate the belief/satisfaction; iii) The authority must have information in its possession on the basis of which 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 re....
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....ovisions and the proceedings consequent thereto. While the sufficiency or otherwise of the information cannot be examined by the court, the existence of information and its relevance to the formation of the belief can undoubtedly be gone into. Also, whether on the material available with the Commissioner, any reasonable person could have arrived at the conclusion that a search, seizure or requisition should be authorised is a field open to judicial review. (See Chhugamal Rajpal v. Chaliha [1971] 79 ITR 603 (SC); Motilal v. Preventive Intelligence Officer [1971] 80 ITR 418 (All); Sibal v. CIT [1975] 101 ITR 112 (P&H); ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC); Manju Tandon (Smt.) v. Kapoor [1978] 115 ITR 473 (All) and Ganga Prasad Maheshwari v. CIT [1983] 139 ITR 1043 (All)." (31) This judgment also explains the scope of judicial review in such matters which is in tune with the decision of Hon'ble the Supreme Court though it has been rendered earlier. (32) Learned Senior Advocate and A.S.G. appearing for the Revenue relied heavily upon the judgment of Hon'ble Supreme Court in the case of Laljibhai Kanjibhai Mandalia (supra) to submit that the scope of judicial review in th....
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....f the explanation to Section 132 such material / information could be available to the assessee only after the assessment proceedings commence and of course, in view of the Supreme Court mandate in the case of Laljibhai Kanjibhai Mandalia (supra) but, in order to justify our decision, we will have to refer, even if cursorily, to the Satisfaction Note in the light of the requirements of law. (37) When we peruse the Satisfaction Note, we do not find any information whatsoever whether under the heading 'Other Allegations' or otherwise, elsewhere, which could be referable to clause (b) of sub-Section (1) of Section 132 for issuance of warrant of authorization for search. (38) Without impeding upon the requirements of law as referred in the case of Laljibhai Kanjibhai Mandalia (supra) or the explanation to Section 132, the information/ material referred in the satisfaction note, other than under the heading 'Other allegation', has absolutely no relation to clause (b). This part is only in the context of sale of shares under O.F.S. and the amendments in Section 55 (2)(ac) of the Act, 1961. The amendment of Section 55(2) (ac) of the Act, 1961 on 01.09.2024 itself demonstrates that becau....
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....39;reasons to believe' contained in the satisfaction note are in respect of all the three conditions contained in clause (a), (b) and (c) of Section 132 (1) of the Act, but learned A.S.G. during course of argument very fairly submitted that only clause (b) is attracted and we have no doubt in our mind that there is absolutely no information on the basis of which any prudent person could have formed a reason to believe referable to clause (a) and (c) so far as the petitioner Pramod Swarup Agrawal and Sneh Lata Agarwal are concerned. Of course, the satisfaction note is in respect of not only Pramod Swarup Agrawal and Sneh Lata Agrawal but several other persons, therefore, possibly, reference to all these three clauses has been made on account of aforesaid fact, otherwise, so far as the petitioners before us in these two petitions are concerned, there is no information referable to clause (a) and (c) of Section (1) of Section 132 nor for that matter to clause (b). (42) We have already stated earlier that the Revenue has not filed any counter affidavit that in any earlier proceedings under the Income Tax Act, the petitioners had avoided production of documents etc so as to give a ....
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....urn by 31.03.2025 in the context of non-payment of capital gains tax. However, on being confronted with the provisions of law as pointed out by Sri Mistri, that is, second proviso to Section 139 (8-A) which prevented the petitioners from doing so, he had no answer. Be that as it may, we are only concerned with the validity of warrant of authorization and search operations conducted under Section 132 as of now. (44) In the context of the supplementary documents provided by learned A.S.G., we are constrained to observe that these contain information which was discovered post-search. Information and reason to believe referred in Section 132 of the Act, 1961 have to pre-exist the search operations under Section 132. Such search cannot be justified or validated by relying upon post-search material or information or reason to believe. Reference may be made in this regard to decision of Division Bench of Bombay High Court in Writ Petition No.122 of 2009 'H.J. Industries Pvt. Ltd. And Ors. vs. Mr. Rajendra and Ors.' as also another Division Bench judgment of the same High Court in Writ Petition No.1729 of 2024 'Bal Krushna Gopalrao Buty and Ors. vs. Principal Director (Investigation), Nag....
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.... arises, can be considered independenty. Our order shall also not come in the way if the Revenue has a cause to proceed against the petitioners under any other provisions of the Act, 1961. (49) Now, coming to other issue which arise in the writ petition of Sneh Lata Agrawal, that is, the validity of the notice dated 27.01.2025 issued under Section 131 (1A) of the Act, 1961. (50) Section 131 of the Act, 1961 reads as under:- "(1) The Assessing Officer, Deputy Commissioner (Appeals), Commissioner (Appeals), Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner and Dispute Resolution Panel referred to in clause (a) of sub-section (15) of section 144C shall, for the purposes of this Act, have the same powers as are vested in a court under the Code of Civil Procedure, 1908 (5 of 1908), when trying a suit in respect of the following matters, namely: (a) discovery and inspection; (b) enforcing the attendance of any person, including any officer of a banking company and examining him on oath; (c) compelling the production of books of account and other documents; and (d) issuing commissions. (1A) If the Principal Director General or Direc....
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....er Section 131(1A) dated 27.01.2025, he could not have done so as the action envisaged under clauses (i) to (v) of sub-Section (1) of Section 132 had already been taken prior to issuance of this notice and sub-Section (1A) of Section 131 prohibited any action by him after the stage of clauses (i) to (v) of sub-Section (1) of Section 132 had been crossed. It was argued by Sri Mistri, learned counsel appearing for the petitioners that Sri Adarsh Kumar who was Authorized Officer under Section 132 was not the assessing officer of the petitioners nor had assessment proceedings started, therefore, he could not have issued such notice under Section 131 of the Act, 1961. We had specially granted opportunity to learned A.S.G. to address us on this issue vide our order dated 28.03.2025. The only argument advanced by learned A.S.G. was that the Authorized Officer also happened to the Deputy Director of investigation as under sub-Section (1A) and as Deputy Director (Investigation) he was competent to issue such notice under Section 131, therefore, there was no illegality. With respect, we cannot accept this argument. (52) We have carefully considered the provisions of sub- Section (1A) of Sec....
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....out the fact that he was an authorized officers under sub-Section (1) of Section 132 and had issued the impugned notice under Section 131 (1A), therefore, he could not have issued the notice under sub-Section (1) of Section 131 after action had been taken under clauses (i) to (v) of sub-Section (1) of Section 132 and having done so, the said notice dated 27.01.2025 cannot be sustained. (54) In fact, this is precisely the opinion expressed by a Division Bench of Jharkhand High Court in the case of 'Emaar Alloys Pvt. Ltd. vs Director General of Income Tax (Investigations) and Others' reported in (2015) 235 Taxman 569 (Jharkhand) wherein towards the end of the judgment while discussing the question as to whether issuance of notice under Section 131 (1A) subsequent to action under Section 132 would invalidate the search operations, negate the said argument it has been observed that the authorised officer does not have any power to issue notices under section 131(1A) of the Act post- search, as such, at best issuance of such notice would render the notice invalid. But issuance of notice under s. 131(1A) of the Act post-search would not in any manner render the proceedings under section....