TMI Blog2011 (3) TMI 706X X X X Extracts X X X X X X X X Extracts X X X X ..... ek the following substantive reliefs : "(17) The petitioners pray that this hon'ble court be pleased to issue an appropriate writ, order or direction and be pleased : (A) to quash and set aside the warrant of authorization issued under section 132(1) of the Income-tax Act, 1961, and the subsequent action of search and seizure taken by the respondent authorities and to return all the seized material back to the petitioners ; (B) to direct the respondents and the income-tax authorities to restrict their action to the legitimate purview of powers available to them under the provisions of the Income-tax Act and for the legitimate purposes of the Income-tax Act and to restrain them from carrying out any roving or fishing inquiry and further to quash and set aside notices issued under section 133(6) by the respondents to various banks, financial institutions and others ; (C) to restrain the income-tax authorities from issuing the notices under section 153A(1) to the other group companies of Neesa group for furnishing return of income-tax for last six assessment years, mechanically and without application of mind." 2. The facts of the case as stated in the petition are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l as other officials in respect of the action taken by the income-tax authorities alleging that the action is taken with ulterior motive to harm the business interest of the petitioners. Respondent No. 4 had written a letter dated September 23, 2010, to Axis Private Equity Ltd. under the provisions of section 133(6) of the Act calling for the information mentioned therein. According to the petitioners, the information called for is irrelevant for the purposes of the Income-tax Act and appears to be intended to damage the business interest of the petitioners. It is averred in the petition that the petitioners through their advocate had informed Axis Private Equity Ltd. not to supply the information for the reasons stated therein. It is the case of the petitioners, that the petitioners have been filing income-tax returns year after year and have been paying income-tax year after and that they have also been attending all the assessment related proceedings of the Department and submitting information/data, etc., required by the Department from time to time. There has been no occasion of nonappearance or non-furnishing of information or details. Further, all the assets, loans e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easons as mentioned in section 132 of the Act, meaning thereby, the material available and collected by the Income-tax Department. It is further averred that the post-search inquiry by the Investigation Wing is in the nature of a cover up operation to justify the search and that the intention to search was not to unearth unaccounted money, jewellery, benami assets, etc., but to hit the business interest of the petitioners. 3. In response to the petition, respondent No. 2, Director (Investigation) has filed an affidavit-in-reply, denying the averments made in the petition. It is asserted that the action under section 132 of the Act has been carried out after complying with the requirements of section 132(1) of the Act. That pursuant to the information gathered, a specific satisfaction was recorded as required under the said section. It is further averred that the original file containing the satisfaction note had been produced before the court for the perusal of the court and that from the satisfaction note, it can be seen that the pre-search inquiries clearly indicated that the assessee group was in possession of documents which would not be produced by issuance of summons or o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terating that the search was based on satisfaction emanating from inquiries conducted prior to search, it is submitted that the information having been specifically gathered and satisfaction note having been properly recorded the impugned action is legal and valid. 4. Petitioner No. 2 has filed a rejoinder to the affidavit-in-reply filed by the respondents. 5. Mr. S. N. Soparkar, senior advocate, learned counsel appearing on behalf of the petitioners, has made two-fold submissions, firstly, that there was no reason to believe for initiating action under section 132 of the Act, and, secondly, that the very fact that the respondents have issued notices under section 131(1A) of the Act after the search and seizure operation was over, is indicative of the fact that the action taken by the respondents is premature. The learned counsel invited the attention of the court to various decisions of the Supreme Court, this High Court and other High Courts to indicate the considerations which should weigh with the court while considering the challenge to the validity of the authorization issued under section 132 of the Act. The same shall be referred to hereinafter at an appropriate sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in such a belief, the warrant of authorization is illegal. It was submitted that if the search is bad, everything is required to be quashed. Inviting attention to the provisions of section 131(1A) of the Act, the learned counsel submitted that action under sub-section (1A) of section 132 of the Act has to be taken before taking any action under clauses (i) to (v) of section 132(1A) of the Act and as such, the exercise of such powers after search has been carried out under section 132 of the Act is not permissible in law. Reliance was placed upon a decision of the Allahabad High Court in the case of Dr. Mrs. Anita Sahai v. Director of Income-tax (Investigation [2004] 266 ITR 597 (All) for the proposition that a notice under section 131(1A) of the Act can be issued thereunder only before the authorized officer takes action under section 132(1) of the Act. It was held that the very fact that the respondents issued notices under section 131(1A) of the Act after the search and seizure operation under section 132 of the Act goes to show that there was neither reason to believe, nor material before the authorized officer on the basis of which he could issue a warrant under section 132 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... travelled back to him. It was submitted by the learned counsel that though several allegations have been made in the petition alleging mala fide action on the part of the respondent authorities, no personal prejudice of any particular officer is brought on record and that the entire affidavit is presumptuous. Inviting attention to the communication dated October 4, 2010, addressed by the learned advocate for the petitioner to Axis P. Equity Ltd. it was submitted that the petitioners have taken the law in their own hands by informing Axis P. Equity Ltd. not to divulge information sought for by the Department under section 133(6) of the Act. Dealing with the contention that the notices issued under section 131(1A) of the Act indicate that action under section 132 is premature, Mr.Bhatt submitted that section 131(1A) of the Act in so far as the same provides for taking action under clauses (i) to (v) relates only to the authorized officer referred to in sub-section (1) of section 132. In so far as the Director General or the Director or the Joint Director or the Assistant Director or the Deputy Director are concerned, they can take action under section 131(1A) of the Act if they h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acy and freedom of the taxpayer, the power must be exercised strictly in accordance with the law and only for the purposes for which the law authorizes it to be exercised. If the action of the officer issuing the authorization or of the designated officer is challenged, the officer concerned must satisfy the court about the regularity of his action. If the action is maliciously taken or power under the section is exercised for a collateral purpose, it is liable to be struck down by the court. If the conditions for exercise of the power are not satisfied, the proceeding is liable to be quashed. But where power is exercised bona fide, and in furtherance of the statutory duties of the tax officers any error of judgment on the part of the officers will not vitiate the exercise of the power. Where the Commissioner entertains the requisite belief and for reasons recorded by him authorizes a designated officer to enter and search premises for books of account and documents relevant to or useful for any proceeding under the Act, the court in a petition by an aggrieved person cannot be asked to substitute its own opinion whether an order authorizing search should have been issued. Again, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rization under section 132 is challenged in a court, it will be open to the petitioner to contend that, on the facts or information disclosed, no reasonable person could have come to the conclusion that action under section 132 was called for. The opinion which has to be formed is subjective and, therefore, the jurisdiction of the court to interfere is very limited. A court will not act as an appellate authority and examine meticulously the information in order to decide for itself as to whether action under section 132 is called for. But the court would be acting within its jurisdiction in seeing whether the act of issuance of an authorization under section 132 is arbitrary or mala fide or whether the satisfaction which is recorded is such which shows lack of application of mind of the appropriate authority. The reason to believe must be tangible in law and if the information or the reason has no nexus with the belief or there is no material or tangible information for the formation of the belief, then, in such a case, action taken under section 132 would be regarded as bad in law." 8. It was further held that in the light of the provisions of sub-clause (b) of section 132(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xman 395 (Bom) ; (b) The decision of the Supreme Court in the case of Pooran Mal v. Director of Inspection (Investigation) [1974] 93 ITR 505 (SC) ; (c) The decision of the Supreme Court in the case of Rajendran Chingaravelu v. R. K. Mishra, Addl. CIT [2010] 320 ITR 1 (SC) ; 186 Taxman 305 (SC) ; (d) The decision of the Madras High Court in the case of Rugmini Ram Raghav Spinners P. Ltd. v. Union of India [1992] 196 ITR 674 (Mad) ; 53 Taxman 237 (Mad) ; (e) The decision of the Karnataka High Court in the case of Southern Herbels Ltd. v. Director of Income-tax (Investigation) [1994] 207 ITR 55 (Karn) ; (f) The decision of the Calcutta High Court in the case of Deputy Director of Income-tax (Investigation) v. Mahesh Kumar Agarwal [2003] 262 ITR 338 (Cal) ; 130 Taxman 674 (Cal) ; and (g) The decision of the Allahabad High Court in the case of Doctors X-ray and Pathology Institute P. Ltd. v. Director of Investigation [2009] 318 ITR 125 (All) ; 186 Taxman 480 (All.). 10. Since similar principles have been enunciated in the aforesaid decisions, with a view to avoid prolix, the same are not referred to in detail. The aforesaid pronouncements have exhaustivel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve been recorded and the concerned officer is satisfied that there is reason to believe, the court cannot sit in appeal over the decision of the said officer regarding the existence of the reason to believe nor can the court examine the adequacy of the grounds on which the reason to believe entertained by such officer is based. But there is a limited area within which such reason to believe entertained by the officer can be scrutinised by the court. If the grounds on which "reason to believe" is founded are not relevant to the subject-matter of inquiry or are extraneous to the scope and purpose of the statute or are such as no rational human being can consider connected with the fact in respect of which the belief is to be entertained so that no reasonable man can come to such a belief, the exercise of the power would be bad. In appropriate cases a writ petition may lie challenging the validity of the action on the ground of absence of power or on a plea that proceedings were taken maliciously or for a collateral purpose. Examining the facts of the present case in the aforesaid legal back drop, it has been contended on behalf of the petitioners that the authorizations issued by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as also assets as contemplated under clause (c) of section 132(1). It has been categorically averred that the pre-search inquiries formed reason for believing the aspect enumerated in clauses (b) and (c) of section 132(1) and that the satisfaction recorded has been vindicated even from the findings in the search. The record indicates that exhaustive inquiries have been made and it is on the basis of the material collected during the course of such inquiries, that the satisfaction has been recorded. On a perusal of the material, based on which satisfaction has been recorded by respondent No. 2 before issuance of authorization under section 132 of the Act, it cannot be said that based on such material no reasonable person could have formed the opinion that reasons for exercise of powers under section 132 exist. In the opinion, of this court, the record of the case clearly indicates that there was sufficient and relevant material before respondent No. 2 to form the requisite opinion as contemplated under section 132(1) of the Act. As noted hereinabove, at the stage of considering the validity of authorization to search and seize under section 132(1) of the Act, the consideration is as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave exercised powers under section 131(1A) of the Act is indicative of the fact that there was no reason to believe for initiating action under section 132 of the Act. It is also contended that even if there was a belief, if material was gathered to sustain such a belief, the warrant of authorization is illegal. Reliance has been placed upon the decision of the Allahabad High Court in the case of Dr.Mrs. Anita Sahai v. Director of Income-tax Investigation [2004] 266 ITR 597 (All) wherein the court has held thus (page 604) : "We are of the opinion that the submission of learned counsel for the petitioner is correct. The respondents in their counter affidavit have stated that it was respondent No. 4 who had sent the material to respondent No. 1 on the basis of which respondent No. 1 had recorded his satisfaction under section 132(1). It is respondent No. 4 himself who had issued summons under section 131(1A) of the Act after the search. As such there could not possibly be any material, which can be the basis of having reason to believe in respondent No. 1. The very fact that the respondents issued notices under section 131(1A) after the search and seizure operation under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e details so as to understand the nature of the documents, he may issue notice under section 131(1A) of the Act. In our opinion, in a given case such a notice cannot only help the Department but can also help the assessee. If the assessee is in a position to give more explanation so as to satisfy the authorised officer that the documents seized by him do not reveal any undisclosed income, but the income or transactions referred to in the documents had been duly shown by him in his books of account or if the assessee gives any information to the effect that the first impression of the authorised officer with regard to the nature of the documents was not correct, we are sure that such a notice would help the assessee himself. If the assessee is called upon to give some information or to explain certain documents or writings seized during the process of search, in our opinion, no harm can be caused to the assessee and as stated hereinabove, such particulars can be helpful not only to the Department but to the assessee also. We, therefore, do not agree with the submissions made by the learned advocate, Shri Puj that such a notice can be issued only before initiation of proceedings unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he respondents it has been contended that the court at the time of issuance of notice having limited the same to the authorization under section 132 of the Act, which has become final as the petitioners have not challenged the same, the petitioners cannot now be permitted to agitate any other issue before the court. The said contention does not merit acceptance, inasmuch as since the principal challenge in the petition is to the authorization under section 132 of the Act, notice had initially been issued for the purpose to examining as to whether the conditions precedent for exercise of powers under section 132(1) of the Act had been satisfied. However, by the order dated October 11, 2010 whereby notice was issued on the petition, the challenge to the notices under section 133(6) of the Act has not been repelled by the court. Besides, one of the members of this Bench was a party to the said order and it was never the intention of the court to limit the challenge in the petition to the validity of the search proceedings alone. In the circumstances, the petitioners are not prohibited from pursuing their challenge to the said notices. 16. Examining the issue on the merits, it has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the ground of mala fides on the part of the Department. As regards the notices having been issued for the purpose of a roving inquiry, upon considering the nature of the information called for, vide the impugned notices, the court is of the view that the information called for cannot be stated to be irrelevant for the purpose of the inquiry which is required to be made by the concerned officer. Besides, considering the nature of the material collected during the course of search proceedings, it appears that there is sufficient reason for the concerned officer to call for the information, as stated in the notices under section 133(6) of the Act. The court has refrained from expressly stating the reasons for holding that the information sought for is relevant to the inquiry, as any comment in respect thereof may act to the prejudice of the petitioners. In the above circumstances, the challenge to the said notices must also fail. 17. In the light of the aforesaid discussion, the petition fails on both the counts. The court is of the view that the condition precedent for the exercise of powers under section 132(1) has been duly satisfied prior to issuance of authorization under ..... X X X X Extracts X X X X X X X X Extracts X X X X
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