TaxTMI 
TaxTMI 
2026 (7) TMI 15
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....f Money Laundering [Issuance of Provisional Attachment Order] Rules, 2013 [ 'the PMLA Rules, 2013', for short]. By the PAO, the Deputy Director as 'the Authorized Officer' has provisionally attached inter alia three plots of land belonging to the petitioner [hereinafter collectively referred to as 'the Attached Property', for ease of reference], holding that the PAO shall remain in force for a period of One Hundred and Eighty days from the date of the PAO. The PAO is stated to have been made under the Second Proviso to sub-section [1] of Section 5 of the PMLA and shall cease to have effect after the expiry of the said period, or on the date of an Order passed by the Adjudicating Authority [PMLA], New Delhi, under Section 8[3] of the PMLA, whichever is earlier. 2. The petitioner has also sought for a direction to restrain the respondents from taking any coercive steps against the petitioner pursuant to or in furtherance of the PAO dated 30.03.2026 and consequential proceeding thereafter, apart from an interim order of stay of the operation and effect of a Summons dated 27.04.2026 issued by the Special Judge, Papum Pare District, Yupia, Arunachal Pradesh ['the Special Court'] in P....
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.... Officer has recorded his 'reason to believe' in the Order itself. It is his submission that 'reason to believe' is to be recorded in a separate file and such 'reason to believe' is to be recorded prior to initiation of the proceeding under Section 5[1] of the PMLA. It is contended that the Legislature has intended that before initiation of any proceeding leading to issuance of a PAO, the reason to believe is to be recorded at first in the file. Reliance is placed in a decision of the Delhi High Court in Aprajita Kumari vs. Joint Director, Enforcement Directorate, [2018] SCC OnLine DEL 13479, wherein it is held that the reason to believe at every stage must be noted down by the Authorized Officer in the file. In the impugned PAO, the Authorized Officer has recorded his reason to believe in the Order itself and not in a separate file at any prior point of time and the same invalidates the PAO. Till the Authorized Officer forms an opinion on the basis of the material on record, about the fulfillment of the two conditions, which has to be recorded in writing, the pre-conditions for passing of the order of provisional attachment cannot be said to be in existence. In the case of the pet....
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....by referring to the registered Sale Deeds, annexed as Annexure-9 to the writ petition, he has contended that the Attached Property, which are three plots of land, were purchased in the year 2022 after obtaining No Objection Certificate from the Competent Authority with regard to their transfer by way of sale on 10.12.2021 on the basis of applications submitted on 26.11.2022. As the FIR no. 182/2024 was registered on 03.10.2024 and the connected ECIR was registered on 28.03.2025, the Attached Property were evidently acquired at an earlier point of time. As they were purchased anterior to registration of FIR no. 182/2024, the same cannot be attached under Section 5[1] of the PMLA. He has further contended that the petitioner purchased three plots of land from a person, who was not connected either with the investigation of FIR no. 182/2024 or with the investigation of ECIR dated 28.03.2025. Therefore, the said three plots of land could not have been brought under the purview of the impugned PAO by exercise of the powers under Section 5[1] of the PMLA. As the Authorized Officer does not have any authority and jurisdiction to attach any property obtained prior to generation of the PoC,....
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....of the petitioner on the said aspect is misconceived. 6.1. The learned Retainer Counsel has pointed out that the Enforcement Directorate has already filed the Prosecution Complaint [Offence Report] on 30.03.2026 in reference to ECIR no. ECIR/ITSZO/02/2025 dated 28.03.2025 before the Court of learned District & Sessions Judge, Yupia, Arunachal Pradesh and in view of submission of the Offence Report, the processes were already issued. He has further submitted that there has already been compliance of the provision of sub-section [2] of Section 5. The matter will henceforth be dealt by the Adjudicating Authority under Section 8 of the PMLA and the petitioner, after being served with the notice, can place the evidence and other relevant information and particulars before the Adjudicating Authority to claim that the Attached Property should not be declared to be property involved in money-laundering and confiscated by the State. 6.2. It is also the contention of Mr. Dhar that without availing such statutory remedy, the petitioner has straightway approached this Court assailing the PAO in a writ petition. The writ petition is, therefore, not maintainable and the petitioner should b....
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...., 473 & 474 of the Indian Penal Code [IPC] against two persons specifically, Sri Rakesh Sharma and Sri Ashutosh Kumar Jha, along with other unidentified individuals, for their alleged involvement in a criminal conspiracy involving cheating and forgery of documents. It was alleged that one M/s Siddhi Vinayak Trade Merchants ['M/s Siddhi Vinayak', for short], registered under the Central Goods and Services Tax [CGST] Act, 2017 in the State of Arunachal Pradesh, showing its Principal Place of Business [PPoB] at Likabali, Arunachal Pradesh, registered as Trader-Retailer/Wholesaler Business under HSN 7204, 7214, 2713, 2715, 7604 & 8482, was found to be engaged in fraudulent practices of passing on GST Input Tax Credit [ITC] through issuance of GST Invoices without concomitant supply of goods. M/s Siddhi Vinayak had issued Invoices totaling 15,258 Invoices amounting to Rs. 658,55,35,521/- from October to March of the Financial Year [FY] : 2023-2024 to fifty-eight entities across eleven different States. All the entities to which GST Invoices were issued are registered in eleven States and ITC amounting to Rs. 99,31,36,975/- was passed to those entities. 8. On 23.05.2024, the PPoB of M....
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....ected with the case, for their attendance and production of documents relevant to the enquiry. 11. In the Statement, the Complainant stated that M/s Siddhi Vinayak, was a non-existent shell entity created solely for the purpose of issuing fake GST Invoices to pass on ITC fraudulently without actual supply of goods. Field verification revealed that its PPoB declared in the GST Registration was fictitious. The electricity bill for obtaining the GST Registration was found to be forged. It was established that M/s Siddhi Vinayak existed only on paper and had no physical PPoB. GST Returns revealed that M/s Siddhi Vinayak issued 15,258 bogus Invoices within a span of six months from October, 2023 to March, 2024 having a total Invoice value of Rs. 658,55,35,521/- enabling fifty-eight firms located across eleven States to fraudulently avail ITC amounting to Rs. 99,31,36,975/-. The Invoices were found to have been issued without any corresponding movement of goods. Verification in the E-Way Portal revealed that no E-Way bills were generated against the GSTIN of M/s Siddhi Vinayak, which confirmed the transactions was merely paper transactions, created to facilitate fraudulent availment a....
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....g about Rs. 1.47 Crore, and those payments were made through Indian Bank and Axis Bank accounts. He stated that he submitted bank details, ledgers, invoices and E-Way bills in support of such transactions. M/s Fama Marketing received ITC in relation to these transactions and the total ITC received from both entities was Rs. 52.66 lakh. Despite his assurance, he did not submit any GSTR-2A/2B and GSTR-3B returns for FY : 2023-2024. Ledger entries showed that an amount of Rs. 1,02,82,140/- remained outstanding and payable to M/s L.S. & Company for more than two years vis-a-vis the Balance Sheets of FY: 2022 - 2023, FY: 2023-2024 & FY : 2024-2025. 15. A search was sought to be conducted on 20.01.2026 at the business premises of M/s Fama Marketing, Imphal. But no office was found functioning at the declared PPoB. When the petitioner was asked about the same, the petitioner stated that the said location was a virtual branch office maintained in compliance with GST norms, and though he undertook to provide documentary evidence later on, by he did not. The petitioner stated that goods such as TMT Bars reflected in Invoices were usually unloaded at various project locations in Imphal cit....
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....ate ITC, ultimately causing wrongful loss to Government Exchequer through evasion of indirect tax [GST]. The transactions constitute 'Proceeds of Crime' within the meaning of Section 2[1][u] of the PMLA, being derived or obtained, directly or indirectly, from criminal activity relating to the Schedule Offences punishable under Sections 120B, 420, 467, 468, 471, 473 & 471, IPC. G. The prevention of Money-Laundering Act [PMLA] Act, 2002:- 19. The Prevention of Money-Laundering Act, 2002 [PMLA] has been enacted with the prime objective to prevent money-laundering and to provide for confiscation of property derived from, or involved in, money-laundering and for matters connected therewith or incidental thereto. The PMLA is designed for confiscation of the PoC so that such illicit funds do not undermine financial system. The offence of money-laundering has propensity to create far-reaching consequences. The laundering of PoC causes significant loss to the State Exchequer. The illegal diversion and layering of funds having cascading effect, leads to revenue losses and creates a dent in availability of legitimate financial resources to the formal economy. 20. Considering the grou....
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.... would require the noticee to produce evidence on which he relies upon and also other relevant information and particulars to show cause as to why all or any of the properties should not be declared to be the properties involved in money-laundering and confiscated. Section 8[2] requires the Adjudicating Authority to consider the Reply to the Notice; to hear the aggrieved person as well as the Authorized Officer; and take into account 'all relevant materials placed on record' before him. After following the above procedure, the Adjudicating Authority has to record his finding whether all or any of the properties referred to in the Notice are involved in money laundering. 22.2. If the Adjudicating Authority is satisfied that any such property is involved in money-laundering, he will confirm the attachment of such property, by recording a finding to that effect in writing, whereupon the attachment of such property will continue during the pendency of the criminal proceedings. It becomes final after an Order of confiscation is passed either under Section 8[5] or under Section 8 [7] and other provisions of the PMLA. Under Section 8[4], upon confirmation of the PAO, the Director or ot....
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.... of the authority revealing a case of palpable injustice. 24. The same issue came up for consideration before a three-Judge Bench in Southern Electricity Supply Co. of Orissa Ltd. vs. Shri Sitaram Rice Mill, [2012] 2 SCC 108. A Show Cause Notice / PAO was issued to the assessee on the ground of unauthorized use of electricity meter under Section 126[1] of the Electricity Act, 2003 and a demand for payment of electricity charges was raised. The contention of the assessee was that Section 126 would not be applicable to it and challenged the jurisdiction of the authority who issued such Show Cause Notice / PAO before the High Court in its writ jurisdiction. The High Court entertained the writ petition and the judgment was challenged before the Hon'ble Supreme Court in appeal. The Hon'ble Supreme Court while observing that the High Court did not commit any error in exercising its jurisdiction in respect of the challenge raised on jurisdiction, has inter-alia proceeded to observe that depending upon the facts of a given case, writ petitions can be heard only where they involve primary questions of jurisdiction or the matters which go to the very root of jurisdiction and where the aut....
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....thority of law. As it then goes to the root of the matter, the remedy available under the writ jurisdiction is not to be declined without examining the given facts and circumstances of the case. It is on such supposition, the court proceeds further to examine the points raised on behalf of the petitioner on the premise that the points raised go to the root of the matter and would establish that the Authorized Officer has committed a jurisdictional error in the process. II. Whether on the basis of material in his possession, the Authorized Officer could have reason to believe that any person is in possession of the PoC or a part of the PAO; and such PoC are likely to be concealed, transferred or dealt with in any manner which may result in frustrating any proceeding relating to confiscation of such PoC for issuing a PAO? Whether in the given facts and circumstances of the case, the power under the Second Proviso is exercisable? 28. Section 5 of the PMLA has provided for attachment of property involving money-laundering. On a reading of sub-section [1] of Section 5, it emerges that where the Director or any other officer not below the rank of Deputy Director authorized by the D....
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....n-attachment of the property is likely to frustrate any proceeding under the PMLA. 30. It has been settled by Vijay Madanlal Choudhary [supra] that it is only upon recording satisfaction regarding the twin requirements referred to in sub-section [1] of Section 5, the Authorized Officer can proceed to issue a PAO of PoC. Before issuing a formal order, the Authorized Officer has to form his opinion and delineate the reasons for such belief, to be recorded in writing, which indeed is not on the basis of assumption, but on the basis of material in his possession. The PAO is, thus, the outcome of such satisfaction already recorded by the Authorized Officer. It is, therefore, necessary to look, at first, what were the material in possession of the Authorized Officer on the basis of which he appeared to have reached the satisfaction and had reasons to believe, which were recorded in writing, that there was existence of PoC. 31. From the impugned PAO itself, it is evident that the Authorized Officer had in his possession the complaint of FIR no. 182/2024, registered on 03.10.2024, for the offences mentioned hereinabove; the ECIR no. ECIR/ITS20/02/2025 registered on 28.03.2025; docume....
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....at M/s Siddhi Vinayak had office only on paper and it did not even have a Bank Account in its name. The Authorized Officer had the GST Returns filed by M/s Siddhi Vinayak wherefrom it was evident to him that an amount of Rs. 99,31,36,975/- were passed as ineligible or bogus ITC to 58 non-existent or fictitious entities/individuals, mentioned in Table-A in the PAO. The Authorized Officer had the GST Returns upon whose analysis along with the corroborative materials in the form of statements and documents seized during the search operation, he had drawn the satisfaction that out of the total amount of Rs. 99,31,36,975/- crores of fraudulently generated ITC by M/s Siddhi Vinayak, an amount of approximately Rs. 76.89 crores was illegally transmitted as ineligible and bogus ITC to various downstream entities. He had materials in possession in the form of GST Returns which revealed that M/s Prince Enterprise received Rs. 8,30,00,134,82/-, M/s A.C. Enterprises received Rs. 6,35,78,196/-, M/s Rangoli Enterprise received Rs. 5,03,33,200/-, M/s Pawan Enterprise received Rs. 2,97,39,584/-, M/s Sardar Enterprise received Rs. 5,58,15,349/-, Ms. P. Enterprise received Rs. 5,90,70,320/-, M/s Jais....
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....s a result of criminal activity relating to a Scheduled Offence. The sweep of Section 5[1] is not limited to the accused named in the criminal activity relating to a Scheduled Offence. It would apply to any person [not necessarily being accused in the Scheduled Offence], if he is involved in any process or activity connected with the PoC. Such a person besides facing the consequence of PAO, may end up in being named as accused in the complaint to be filed by the Authorized Officer concerning offence under Section 3 of the PMLA. 36. From the definition of 'property', it emerges that property means any property or assets of every description, whether corporeal or incorporeal, movable or immovable, tangible or intangible or includes deeds and instruments evidencing title to, or interest in, such property or assets, wherever located. The Explanation has clarified that the term 'property' includes property of any kind of used in the commission of an offence under the PMLA or any of the Scheduled Offences. 37. It has been settled by Vijay Madanlal Choudhary [supra] that the offence of money-laundering is an independent offence regarding the process or activity connected with the Po....
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....f proceeds of crime. In that case, he can be held guilty of committing an offence under Section 3 of the PMLA. To give a concrete example, the offences under Sections 384 to 389 of the IPC relating to 'extortion' are scheduled offences included in Paragraph 1 of the Schedule to the PMLA. An accused may commit a crime of extortion covered by Sections 384 to 389 of IPC and extort money. Subsequently, a person unconnected with the offence of extortion may assist the said accused in the concealment of the proceeds of extortion. In such a case, the person who assists the accused in the scheduled offence for concealing the proceeds of the crime of extortion can be guilty of the offence of money laundering. Therefore, it is not necessary that a person against whom the offence under Section 3 of the PMLA is alleged must have been shown as the accused in the scheduled offence. [.....] 40. The key elements of PoC are that the property must originate from criminal activity linked to a Scheduled Offence [offences listed in the Schedule] and criminal activity could include corporate crime, tax evasion, corruption, fraud, trafficking in contraband, smuggling, etc. The property can be acquired....
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....stered addresses were returned undelivered with postal endorsement 'no such address exist / insufficient address', except in the case of one entity, which indicated that the entities were not operating from their declared PoBs. Physical verification conducted at the declared addresses revealed that the locations did not correspond to any identifiable commercial establishment and local enquiries confirmed that no such firms had ever operated from the said premises. Such facts have established that the entities are fictitious / paper entities created solely for the purpose of issuing bogus Invoices and facilitating the receipt and circulation of Proceeds of Crime in the form of fraudulent ITC. 43. Some of the conclusions drawn from the facts by the Authorized Officer are as under:- 4.10 Upon thorough scrutiny of the said documents and material evidence, the following facts have prima facie emerged: * * * * * 4.10.3 Fraudulent Availment, Utilisation, and Passing on of Ineligible Input Tax Credit : It has been revealed that M/s Siddhi Vinayak Trade Merchants fraudulently availed Input Tax Credit [ITC] amounting to approximately Rs. 99.31 crore during the F....
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....y purchased TMT bars from M/s Krishti Enterprise. However, upon detailed examination of the tax invoices and the corresponding e-way bills produced by the said entity, several material discrepancies and deficiencies were noticed which indicate that the invoices and e-way bills are self-fabricated and do not represent genuine commercial transactions. 5.8.6.2 It is also observed from the GSTR-3B returns of M/s Fama Marketing, submitted by Shri Mrig Mrinal Dhawan, that during F.Y. 2023-24 the entity completely relied on Input Tax Credit [ITC] to discharge its GST liability, with no tax paid in cash. 5.8.6.3 Investigation has further revealed that the second-layer entities, which are the direct beneficiaries of M/s Siddhi Vinayak Trade Merchant, including M/s Krishti Enterprise and other related entities, have shown supplies not only 'TMT bars' to M/s Fama Marketing, but have also shown [.....]. It is pertinent to mention that during field verification and further investigation it has been found that M/s Krishti Enterprise is not operating from its declared principal place of business and its GST registration is presently inactive, thereby strongly indicating that the....
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....fake invoices without any actual supply of goods and fraudulently passing on ITC amounting to approximately Rs. 99.31 Crore to multiple beneficiary shell entities across India. The said ITC was subsequently availed, utilized, layered, and integrated through various entities including M/s Fama Marketing, thereby generating PoC. On the basis of evidence gathered, including statements of key-persons recorded under Section 50 of the PMLA of fictitious non-existent downstream entities, and absence of any evidence of movement of goods such as E-Way bills, transport documents, or genuine commercial records, the Authorized Officer in the PAO has gone on to observe that such facts have conclusively established that- [i] no actual supply or movement of goods took place; [ii] the transactions were devoid of any genuine commercial substance; and [iii] the entire arrangement was structured for the purpose of generation, layering, circulation, and projection of PoC as legitimate business transactions. Routing fake ITC through a network of shell and conduit entities to conceal and project the PoC as untainted property is held to constitute a prima facie offence of money....
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....The properties proposed for attachment are held in the name of [*]***** his wife, Shri Mrig Mrinal Dhawan, [*]***** [W/o ****] & [*]***** [S/o *****] and [*]*****, indicating ease of alienation, transfer, or encumbrance. [iii] Any delay in attachment would provide an opportunity to dissipate or create third-party interests, thereby frustrating confiscation under Section 8 of the PMLA. In view of the above, I am satisfied that the conditions laid down under Section 5[1][a] and 5[1][b] of the PMLA are fully satisfied, and this is a fit case for invoking the provisions of Section 5[1] of the PMLA for provisional attachment of the properties involved in money laundering or the value thereof. 49. The expression 'reason to believe' is a part of a number of statutes. The Income Tax Act, 1961 or its predecessor statute, the Income Tax Act, 1922, the Essential Commodities Act, 1955, the Foreign Exchange Regulation Act, 1973, the Narcotic Drugs and Psychotropic Substances [NDPS] Act, 1985, the Central Goods and Services Tax Act, 2017 or various State Goods and Services Tax Act and the previous statutes on Value Added Tax are a few to name, apart from the PMLA. 50. In P. Chi....
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....king the assessment. The reason to believe is not to be the subjective satisfaction of the Authorized Officer but it has to be an objective view on the material in possession in connection with the concerned case and must be based on them. 'Reason to believe' means a belief which a reasonable person entertains on facts before him. 53. It is only on the basis of specific, reliable and relevant information in his possession and the belief is to be that of the Authorized Officer. Since the belief is to be that of the Authorized Officer, which is to be based on the material in his possession, there must be a rational connection and link between the material in the possession of the Authorized Officer and the formation of belief of the Authorized Officer that the two pre-conditions adumbrated in Section 5[1] are present for him to proceed further for attachment of the property in question provisionally. When the Authorized Officer entertains a requisite belief and for that belief, reasons are recorded in writing by him, no one, not even a constitutional court, can ask the Authorized Officer to substitute his own opinion whether the Authorized Officer on the basis of the material shou....
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....in his possession, two of the entities, M/s Krishti Enterprise and M/s L.S. & Company received Rs. 3,84,21,019/- and Rs. 4,39,15,230/- respectively through fraudulently generated ITC by M/s Sidhi Vinayak Trader. On the basis of materials in his possession, the Authorized Officer has drawn a conclusion that M/s Fama Marketing had availed and utilized fraudulent ITC of Rs. 52.66 lakhs on the strength of Invoices issued by M/s Krishti Enterprise for Rs. 22.48 lakh and M/s L.S. & Company for 30.18 lakh, which he has found to be a part of the PoC of Rs. 99,31,36,975/-. 56. In the considered view of this Court, having regard to the materials in his possession, as reflected in the impugned PAO, and the discussion made therein, the Authorized Officer had adequate, acceptable, reliable and verifiable material, which were verified, to form the above belief that Rs. 99,31,36,975/- was PoC and the same were put into the formal financial system by fraudulent means. A part of the PAO of Rs. 99,31,36,975/- amounting to Rs. 52.66 lakhs has also been percolated down to M/s Fama Marketing through to Shell entities, M/s Krishti Enterprise and M/s L.S. & Company, who received a share each from the ....
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....Scheduled Offences were allegedly committed during the period from October, 2023 to March, 2024, the Attached Property were demonstrably purchased prior to commission of the alleged Scheduled Offences in respect of which FIR no. 182/2024 was registered on 03.10.2024. It is the contention that as the Attached Property were purchased evidently prior to the commission of the Scheduled Offences and registration of the ECIR on 28.03.2025 the Attached Property could not have been provisionally attached by the Authorized Officer in exercise of the powers under Section 5[1] of the PMLA. 59. The contentions raised are in relation to the definitions of 'Proceeds of Crime' and 'Property' as defined in Section 2[1][u] and Section 2[1][v] respectively in the PMLA. Noticeably, in the definition provided in Section 2[1][u], all three parts in PoC are separated by disjunctive 'or'. The word 'or' appears between the expression 'the value of any such property' in [b] above and the expression in [c] where such property is taken or held outside the country. The words 'such property' appearing in [b] is more closely connected and relatable to the first part in [a], that is, property derived or obtai....
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....would further the legislative intent in recovery of the proceeds of crime and vesting it in the Central Government for effective prevention of money laundering. 63. Following Vijay Madanlal Choudhary, the Hon'ble Supreme Court in M/s. Nav Nirman Builders & Developers Pvt. Ltd. vs. the Union of India, 2026 INSC 130, has held that the definition of 'Proceeds of Crime' under Section 2[1][u] of the PMLA is wide enough to include a property which is equivalent in value to the property that is directly or indirectly obtained from a criminal activity relating to the scheduled offence. Thus, such a property can also be attached if the PoC, as such, are not otherwise available. Section 2[1][u] of the PMLA, despite being a definition clause, indicates the very objective of the enactment to secure PoC in any form. 64. Thus, if the actual asset is no longer available, its equivalent value can be considered as PoC and can be attached or confiscated. The term 'PoC' encompasses property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence. Even if PoC is transferred multiple times wholly or partly to one or many to other....
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....ed prima facie that the said part PoC of Rs. 52.66 lakhs is liable to be attached provisionally. As the said amount of Rs. 52.66 lakhs a part of the total PoC, stood infused into the formal financial economy and is not available for attachment, the Attached Property having value at par is permissible to be attached under the provisions of Section 5[1], notwithstanding the fact that the Attached Property were purchased at a period prior to the commission of the Scheduled Offences whereby the proceeds of crime of Rs. 99,31,36,975/- had been found generated. 66. In Seema Garg [supra], it was held that property acquired prior to commission of Scheduled Offence i.e. criminal activity or introduction of PMLA cannot be attached unless property obtained or acquired from Scheduled Offence is held or taken outside the country. The finding so recorded in Seema Garg is found not in alignment in the decisions of the Supreme Court in Vijay Madanlal Choudhary [supra]; Nirman Builders [supra]; and Pavana Dibbur [supra]. 67. In view of the above discourse, the contention of the petitioner that the Attached Property cannot be brought under the scope and ambit of Section 5[1] of the PMLA is fou....
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.... [b] such proceeds of crime are likely to be concealed, transferred or dealt with in any manner which may result in frustrating any proceedings relating to confiscation of such proceeds of crime under Chapter III, he may, by order in writing, provisionally attach such property for a period not exceeding one hundred and fifty days from the date of the order, in such manner as may be prescribed. Section 5 provides that no such order of attachment shall be made unless, in relation to the scheduled offence, a report has been forwarded to a Magistrate under Section 173 of the Code of Criminal Procedure, 1973 [2 of 1974], or a complaint has been filed by a person authorised to investigate the offence mentioned in that Schedule, before a Magistrate or court for taking cognizance of the scheduled offence, as the case may be. 72. On going through the above observations made in Seema Garg [supra] and P. Chidambaram [supra], this Court is not persuaded to reach a view that the same have dealt on the point that the reasons to believe are to be kept confidential and not to be disclosed to the affected person. Seema Garg has specifically referred to 'material' and not to 'reason to believe'. ....
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....ny of the requirements which may be included in a notice under sub-section [2] of Section 22. But before issuing the notice, the proviso requires that the officer should record his reasons for initiating action under Section 34 and obtain the sanction of the Commissioner who must be satisfied that the action under Section 34 was justified. There is no requirement in any of the provisions of the Act or any section laying down as a condition for the initiation of the proceedings that the reasons which induced the Commissioner to accord sanction to proceed under Section 34 must also be communicated to the assessee. In Presidency Talkies Ltd. vs. First Additional Income Tax Officer, City Circle II, Madras [25 ITR 447] the Madras High Court has expressed a similar view and we consider that that view is correct. We accordingly reject the argument of the appellant on this aspect of the case. 75. The Court in Aftabuddin Ahmed [supra] has also referred to the Prevention of Money-Laundering [the Manner of Forwarding a Copy of the Order of Provisional Attachment of Property along with the Material, and Copy of the Reasons along with the Material in respect of Survey, to the Adjudicating Au....
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....t process. The Hon'ble Supreme Court interpreted the statutory provision of Section 34[1][a] wherein the dispute involved around the re-assessment of the appellant taxpayer's income for the Assessment Year: 1951-1952. It was observed in the context of Section 34[1][a] of the I.T. Act, 1922 that the statutory provision did not require the ITO to communicate the recorded reasons to the assessee before or at the time of issuing the notice. He was only required to satisfy the Commissioner, and not to the taxpayer, that the re-opening was justified. 78. The Income Tax Act, 1922 was subsequently repealed by the Income Tax Act, 1961 [Act 43 of 1961]. In the Income Tax Act, 1961, the authority and jurisdiction were vested in Section 147 [Income escaping Assessment] and Section 148 [Issue of Notice wherein Income has escaped Assessment] to the ITO to re-open and re-assess previous tax filings. The primary purpose of Section 147 and Section 148 was to prevent tax evasion and ensure that no taxable income should escape assessment. Together, these provisions allowed the Income Tax Department authorities to re-open past returns and re-assess a taxpayer's income if credible new information ha....
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....ng upon him a notice to show cause as to why a notice under Section 148 should not be issued on the basis of information which suggest that income chargeable tax has escaped assessment for the relevant assessment year and results of enquiry conducted, if any. In the case of Union of India vs. Asish Agarwal, [2023] 1 SCC 617, it has been observed that the Assessing Officer is required to provide to the respective assessee information and material relied upon by the revenue so that the assessee can reply to the show cause notice within two weeks and time periods have been stipulated for the same. 82. The expression, 'reason to believe' has been serving as the jurisdictional bedrock for reopening tax assessment in all the statutes pertaining to income tax. Between the decisions in S. Narayanappa [supra] in 1966 and GKN Driveshafts [supra] in 2002, the judicial interpretation has undergone a sea-change fundamentally. The interpretation transformed from a revenue-centric highly confidential administrative process into a taxpayer-centric procedurally transparent mechanism rooted in the principle of natural justice and fair play. During the time in S. Narayanappa [supra], the principle....
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....tion of communication, it would filter out invalid reopenings. The journey from S. Narayanappa [supra] to GKN Driveshafts [supra] represents the shift of reason to believe from a subjective tool at the hand of the revenue into an objective and transparent standard. The Finance Act, 2021 had finally fortified the process into law under Section 148A requiring a mandatory show cause enquiry before any reopening notice can be issued. 85. From an analysis of the provisions of the Income Tax Act in its different avatars, relating to re-assessment of income for escaping assessment and the decisions from S. Narayanappa [supra] to GKN Driveshafts [India] Ltd. [supra], it is easily discernible that the observation in S. Narayanappa [supra] on the procedural aspect that revenue is not required to communicate its recorded reasons to a taxpayer before re-opening has been changed significantly. While S. Narayanappa [supra] considered the situation at the initial stage of issuing the notice whereas GKN Driveshafts [India] Ltd. [supra] is on the subsequent stage of assessment. S. Narayanappa [supra] held that non-communication of reasons at the exact moment of issuing notice is not a fatal proc....
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....Hon'ble Supreme Court in Arvind Kejriwal vs. Directorate of Enforcement, [2025] 2 SCC 248, has observed in the following manner :- 32. [......] Existence and validity of the 'reasons to believe' goes to the root of the power to arrest. The subjective opinion of the arresting officer must be founded and based upon fair and objective consideration of the material, as available with them on the date of arrest. On the reading of the 'reasons to believe" the court must form the 'secondary opinion' on the validity of the exercise undertaken for compliance of Section 19[1] of the PML Act when the arrest was made. The reasons to believe' that the person is guilty of an offence under the PML Act should be founded on the material in the form of documents and oral statements. 41. Once we hold that the accused is entitled to challenge his arrest under Section 19[1] of the PML Act, the court to examine the validity of arrest must catechise both the existence and soundness of the 'reasons to believe', based upon the material available with the authorised officer. It is difficult to accept that the 'reasons to believe', as recorded in writing, are not to be furnished. As observe....
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.... reasons to be recorded in writing, then in our opinion it is incumbent on the respondents to produce the said reasons before the court so that the same can be scrutinised in order to verify whether they are relevant and germane or not. This can be done either by annexing the copy of the reasons along with the counter-affidavit or by quoting the reasons somewhere in the counter-affidavit. Alternatively, if the notice itself contains the reason of belief, that notice can be annexed to the counter-affidavit or quoted in it. [.....] 91. In Kaushalya Infrastructure Development Corporation Limited vs. Union of India and others, [2023] 18 SCC 526, the petitioner succeeded before the High Court on the ground that the PAO does not record proper satisfaction as required under Section 5[1] of the PMLA as the order has only reproduced the provisions of the PMLA. The Hon'ble Supreme Court dismissed the Special Leave Petition [SLP] preferred by the petitioner against the PAO whereby the High Court directed the authority concerned to pass a fresh order recording reasons. While dismissing, the Hon'ble Supreme Court observed that the dismissal would not come in the way of the petitioner in purs....
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....uthority shall keep such order and material for such period as may be prescribed. After going through the provisions of the PMLA RULES, 2005 including Rule 3, it is noticed that nothing has been prescribed therein as regards the manner in which an order of provisional attachment of property is to be passed and the manner of release. No amendment had been made in the PMLA Rules, 2005 after insertion of Clause [aa] in sub-section [2] of Section 73 of the PMLA by Act 2 of 2013 w.e.f. 15.02.2013. 95. Clause [aa] in sub-section [2] of Section 73 has been incorporated in the PMLA Act by Act 2 of 2013. By sub-clause [aa], the Central Government has been empowered to make rules providing for the manner of provisional attachment of property under sub-section [1] of Section 5. 96. After insertion of Clause [aa] in sub-section [2] of Section 73 by Act 2 of 2013, the Central Government has notified a set of rules, 'the Prevention of Money-Laundering [Issuance of Provisional Attachment Order] Rules, 2013 ['the PMLA Rules, 2013, for short] in exercise of the powers conferred by sub-section [1] read with Clause [aa] of sub-section [2] of Section 73 of the PMLA. Rule 3 of the PMLA Rules, 201....
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....on to believe. As per the PMLA Rules, 2005, the Authorized Officer would be required to send a copy of the PAO and the material to the Adjudicating Authority in a sealed envelope. Then, the PAO sans the reason to believe recorded by the Authorized Officer would be made available to the Adjudicating Authority along with the material. Meaning thereby, the reason to believe would not be made available to the Adjudicating Authority at any time. It is not the mandate of the PMLA Rules, 2005 to send the concerned file where the Authorized Officer had recorded the reason to believe at an anterior point of time. The PMLA Rules, 2013 require the Authorized Officer to endorse a copy of the PAO to all concerned including the persons in possession of the properties and the Adjudicating Authority. 98. The Court cannot read into a restriction which the legislature itself has not incorporated. From the above analysis, this Court does not reach a conclusion that if the reason to believe, which if recorded by the Authorized Officer to exercise the power under Section 5[1] of the PMLA in a file at a prior point of time, is made part of the PAO, the PAO would suffer from any kind of illegality. Ra....