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2025 (6) TMI 328
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....itions, Warrant of Authorization dated 11.12.2024 and issued on 12.12.2024 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 eight....
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....etitions. It details the reasons why petitioners were not liable to capital gain 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 ....
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....ch matters is very limited and the Court should keep in mind the pronouncement of Hon'ble the Supreme 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 t....
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....r 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, 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 C....
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....ommissioner 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 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 suc....
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....or the Principal Director General or the Director General, in accordance with the procedure, as may be prescribed, in this regard, to assist him for all or any of the purposes specified in subsection (1) or sub-section (1A) and it shall be the duty of every such officer or person 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-sect....
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....rincipal Chief Commissioner or Chief Commissioner, Principal Commissioner or Commissioner, Principal Director General or Director General or Principal Director or Director for such retention is obtained : Provided that the Principal Chief Commissioner or Chief Commissioner, Principal Commissioner or Commissioner, Principal Director General or Director General 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. ....
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....ase may be, within a period of sixty days from the date of receipt of such reference.] (10) If a person legally entitled to the books of account or other documents seized under commissioner, Principal Director General or Director General or Principal Director or Director under subsection (8), he may make an application to the Board stating therein the reasons for such objection and requesting for the return of the books of account 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 b....
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....ssued will not, or would not, produce or cause to be produced, such books of account or other documents on the return of such books of account or other documents by any officer or authority by whom or which such books of account or other documents have been taken into custody under any other law for the time being in force, or (c) any assets represent either wholly or partly income or property which has not been, or would not have been, disclosed for the purposes of the Indian Income-tax Act, 1922 (11 of 1922), or this Act by any person 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....
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....r XIV-B for the block period, as the case may be (including any penalty levied or interest payable in connection with such assessment) and in respect of which such person is in default or is deemed to be in default, or the amount of liability arising on an application made before the Settlement Commission under sub-section (1) of section 245C, may be recovered out of such assets : Provided that where the person concerned makes an application to the Assessing Officer within thirty days from the end of the month in which the asset was seized, for release of asset and the nature and source 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 tw....
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....der section 132 or requisition under section 132A was executed to the date of completion of the assessment or reassessment or re-computation. Explanation 1.-In this section,- (i) "block period" shall have the meaning assigned to it in clause (a) of section 158B; (ii) "execution of an authorisation for search or requisition" shall have the same meaning as assigned to it in [Explanation to section 158B]. Explanation 2.-For the removal of doubts, it is hereby declared that the "existing liability" does not include advance tax payable in accordance with the provisions of Part C of Chapter XVII." (21) Section 132 is a provision which 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 hav....
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....ch of the Delhi High Court in L.R. Gupta (supra) had the occasion to consider the meaning, purport and scope of Section 132 (1) clauses (a), (b) and (c) and in that context while referring to clause (b) of Section 132(1) of the Act, 1961 observed as under:- "Sub-clause (b) of Section 132(1) refers to cases where there is reason to believe that if any summons or notice, as specified in the said sub-clause (a) has been issued or will be issued then that person will not produce or cause to be produced the books of account, etc. In other words, the said provision refers to the belief which may be formed by the Appropriate Authority to the effect that the person concerned is not likely to voluntarily, 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 Depar....
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....n of the relevant books or who are in possession of undisclosed money, bullion and jewellery, etc. Take for instance, a particular assessee who has utilised his undisclosed income in constructing a spacious building. His premises cannot be subjected to a search under this Section on this score alone. A search would be authorised only if information is given to the Commissioner of Income Tax that such a person is keeping money, bullion, jewellery, etc., in this building or elsewhere. Further, if an assessee has been regularly producing his books of account before the assessing authorities who have been accepting these books as having been maintained in proper course of business, it would be somewhat unjustified use 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 t....
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....ay refer to a decision of Hon'ble the Supreme Court in the case of 'Principal Director of Income Tax (Investigation) and ors. vs. Laljibhai Kanjibhai Mandalia' (2022) 446 ITR page 18 (SC) wherein after considering earlier precedents on the subject, ultimately, observed as under:- "32. In the light of judgments referred to above, the sufficiency or inadequacy of the reasons to believe recorded cannot be gone into while considering the validity of an act of authorization to conduct search and seizure. The belief recorded alone is justiciable but only while keeping in view the Wednesbury Principle of Reasonableness. Such reasonableness is not a power to act as an appellate authority over the reasons to believe recorded. 33. We would 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 ....
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....er judgment in the case of 'Spacewood Furnishers (P) Ltd. v. DG of Income Tax', reported in (2012) 340 ITR 393 wherein the order of the High Court was set aside disapproving the judgment of High Court wherein the satisfaction note had been reproduced extensively. (30) In this context, we may also refer to a Division Bench judgment of this Court in the case of 'Vindhya Metal Cooperation & Ors. vs. Commissioner of Income Tax and Ors. (1985)' ITR Vol.156 page 233 wherein it has been held as under :- "It is settled that the existence or otherwise of the condition precedent to exercise of power under these provisions is open to judicial scrutiny. The absence of the condition precedent would naturally have the effect of vitiating the authorisation made by the Commissioner in either of the two provisions 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....
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....red above has to be related/ referrable to clause (b) aforesaid and should have a rational connection with the said clause (b) and if it is not then it can be a ground for interference under Article 226 of the Constitution of India because then it would be a case of absence of such information/ reason to believe in the context of said clause (b) of sub-Section (1) of Section 132 of the Act, 1961 and would lead to a conclusion that it is an arbitrary exercise of power, without application of mind to the provisions of law and legal requirements contained therein. (36) In the light of the aforesaid, we have perused the satisfaction note carefully. As we are not required to reproduce it nor to refer its context extensively for obvious reason as according to the Revenue, the assessment is still to commence and it is only in view of 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 ....
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....h information and reason to believe formed by the competent authority in this regard as contained in the handwritten note signed on 10.12.2024 had any relation whatsoever to clause (b) of sub- Section (1) of Section 132 of the Act, 1961 so as to justify a search operation under the said provision in the context of the petitioners. (40) On a bare reading of the satisfaction note and Section 132, we have no hesitation to conclude that the jurisdictional prerequisites for exercise of power under Section 132 are / were woefully absent in this case and consequently, we have no hesitation to say that the entire search operations based on such satisfaction note and warrant of authorization are illegal. The information and reason to believe based thereon so far as the petitioners are concerned are a mere pretence. (41) Interestingly, the '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 ....
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....f India Pesticide Limited, two had paid the capital gains tax based on the sale of shares held by them under O.F.S., however, he had no answer to the contention of Sri Mistri, learned counsel for the petitioners that if the search operations were not based on the said transaction then why the premises of these two persons were not searched. Be that as it may, can the petitions be thrown out merely because two shareholders paid capital gain tax especially when the petiioner had from the beginning claimed that they were not liable to tax, certainly not. We do not dwell on this aspect any further in view of what has already been stated by us based on our examination of the satisfaction note to the extent it relates to the petitioners before us. Learned A.S.G. even went to the extent of saying that if the petitioners so choose they can file a return 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 authori....
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....oners that the fact that a notice under Section 131 (1A) of the Act, 1961 was issued to one of the petitioners-Sneh Lata Agrawal after the search operations is itself proof of the fact that prior to it there was no reason to believe to undertake an exercise under Section 132 as the requirement of Section 131 is a lesser requirement that is of having reason to suspect whereas the reason to believe stands on a higher footing, is not required to be considered in view of the discussion already made. (48) In view of the above discussion, we quash the warrant of authorization impugned herein and also declare the search operation impugned before us as illegal. Consequences shall follow accordingly as per law. The benefit of the order shall not be ipso facto available to others whose names figure in the satisfaction note and, their cases, if the occasion so 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 issu....
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....b-section (2) may impound and retain in its custody for such period as it thinks fit any books of account or other documents produced before it in any proceeding under this Act: Provided that an Assessing Officer or an Assistant Director or Deputy Director shall not: (a) impound any books of account or other documents without recording his reasons for so doing, or (b) retain in his custody any such books or documents for a period exceeding fifteen days (exclusive of holidays) without obtaining the approval of the Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General or Principal Commissioner or Commissioner or Principal Director or Director therefor, as the case may be." (51) In this context, one of the facts which came to light during argument was that an authorized officer under Section 132 of the Act, 1961, namely, Adarsh Kumar who had issued the notice under 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 ....
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....ection 131(1A) and would amount to reading and understanding the provision in a manner so as make it susceptible to abuse and misuse at the hand of the revenue authorities. (53) The explanation offered in this regard by learned A.S.G. cannot be accepted as it will render the conditions imposed upon the authorized officer under Section 131 (1A) otiose and also leave scope for circumvention of said conditions and its misuse. Sri Adarsh Kumar being the Authorized Officer and he not being the assessing officer of the petitioners nor the assessment proceedings having started, he could have issued such notice only prior to action under clauses (i) to (v) of sub-Section (1) of Section 132 having been taken and not after that. The Revenue cannot be given the benefit of the fact that he also happened to be Deputy Director, therefore, he could have issued the notice. We have gone through the documents on record and there is no dispute about 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 ....