TMI Blog2008 (6) TMI 366X X X X Extracts X X X X X X X X Extracts X X X X ..... a J.- The petitioner before this court under article 226/227 of the Constitution is a co-operative society registered under section 8(2) of the Madhya Pradesh Swayatta Sahakarita Adhiniyam, 1999 (hereinafter referred to as the Adhiniyam of 1999). The petitioner is aggrieved by the action on the part of the respondents Nos. 2 to 5/Department (hereinafter referred to as the Department) by which search has been conducted at the business premises of the petitioner. 2. The contention of the petitioner/society is that the Department has without following the procedure contemplated under section 132 of the Income-tax Act, 1961 (hereinafter referred to as the Act of 1961), conducted illegal search. It has been further stated that as per the requirement of law for conducting the search and seizure under section 132 of the Act of 1961, the Department were required to record the reasons regarding the satisfaction in terms of section 132 of the Act of 1961 and thereafter warrant of authorisation should have been issued as per the provisions of section 132 of the Act of 1961. The petitioner has stated that the whole search and seizure made by the Department on March 28 and 29, 2008 are p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led to produce or cause to be produced, such books of account or other documents as required by such summons or notice and when a person is avoiding the notice issued under section 42(1) or 131, it would be amounting to sufficient reasons to believe for issuance of warrant for search. 5. It is the contention of the petitioner that the provisions of sections 142(1) and 131 of the Act of 1961 have not been followed in the matter and without making a detailed enquiry as required under section 132 of the Act, and without recording reasons to believe the action of the respondents to conduct sudden search in the premises of the petitioner by the Department is bad in law. 6. The petitioner has further stated that without following the procedure prescribed under section 132 of the Act of 1961, the sudden search and raid was conducted by the officials of the Department and cash amounting to Rs. 30 lakhs was seized by the Department. It has been further stated that the cash found with the petitioner-society was reflected in the cash books and the Department went to the extent of seizing all the accounts of the society. The petitioner-society has raised various grounds challenging the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d before this court at the time of hearing. The Department has further stated that it is incorrect on the part of the petitioner to say that the search and seizure was conducted on March 28 and 29, 2008 without any warrant of authorization in the matter. 9. The Department has also denied that the search and seizure made on March 28, 2008 and March 29, 2008 is contrary to the statutory provisions. It has been further stated in the return that the due procedure as prescribed under section 132 of the Act of 1961 for making search to find out the undisclosed income or property with the society was followed and there has been no irregularity of any kind in conducting the search and seizure by the Department. There was sufficient material with the authorities to believe that the conditions prescribed under section 132(1)(a), (b) and (c) of the Act of 1961 were fulfilled to conduct the search and seizure in the business premises of the petitioner/society. 10. It has also been stated in the return that the society was involved in various activities including providing accommodation payment facilities to its members who are businessmen and traders at Gwalior by issuing cheques and d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... minal members in the bank accounts of the society for the financial year 2006-07 exceeded Rs. 100 crores and similarly, the total payments and total deposits of the samiti for the financial year 2007-08 exceeds Rs. 200 crores. This shows that the deposits received by the assessee from the members as per the stated objects under the head savings deposit, recurring deposit, fixed deposit and daily deposit were less than 1 per cent. of the total deposits transacted in the bank account of the samiti and similarly the loan advanced by the samiti to its members were even less than per cent. of total payments made by the society from its various bank accounts. The above facts clearly indicate that the objects mentioned in the objects clause/byelaws of the society are only for the fulfilment of statutory requirement of co-operative laws whereas the actual business activities of the samiti is providing accommodation payments/ deposits facilities to businessmen by making them nominal members thereby assisting and abetting routing of unaccounted money through the bank account of the society which remain undisclosed to the Department as these transactions are not recorded by the members in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11. The Department has also given a large number of examples in respect of the irregularities committed by the society and has categorically stated that the search was authorized and has been conducted in accordance with the provisions of section 132(1) of the Act of 1961 after analyzing the credible information gathered by the Department. The competent authority examined the evidence gathered by the Department in accordance with the provisions of section 132 of the Act of 1961 and only thereafter the warrant of authorization was issued for conducting the surprise search in respect of the affairs of the petitioner/society. 12. The basic question involved in this petition is as to whether the action of the Department in conducting the search and seizure is in consonance with the provisions of section 132 of the Act of 1961 or not and whether the proceedings initiated by the Department under section 132 of the Act of 1961 are liable to be quashed by this court or not ? 13. The respondent/Department has produced the entire material before this court at the time of hearing and after hearing the learned senior counsel for the parties and after going through the pleadings includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an Mohan Damma Mal [1968] 70 ITR 293 (All) wherein it was observed that the issue of a search warrant by the Commissioner is not a judicial or quasi-judicial act. The apex court after analysing various facets in paragraph 21 has dealt with the jurisdiction of the High Court under article 226 of the Constitution of India. In the said paragraph, it has been observed that a writ petition can be entertained where assail is to the validity of the action on the ground of absence of power or on a plea that the proceedings were taken maliciously or for a collateral purpose. But normally the High Court in such a case does not proceed to determine merely on affidavits important issues of fact especially where serious alle- gations of improper conduct are made against public servants. 17. In Harmel Singh v. Union of India [1993] 204 ITR 334 (P H) it has been held that in order to justify the action, the authorities must have relevant material on the basis of which they could form an opinion that they have to believe that action under section 132 would be justifiable. In the absence of any relevant material the authority would be acting in excess of his powers and in violation of the mandato ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part which has not been disclosed. Be it noted, in the said case the High Court had found that the CBI had given an information simpliciter that cash was found in the possession of an individual and the search has taken place on the basis of the said information. It is worth- noting that it was held by the High Court that the sufficiency or otherwise of the information cannot be examined by the court in the writ jurisdiction, the existence of information and its relevance to the formation of the belief is open to judicial scrutiny because it is the foundation of the condition precedent for exercise of a serious power of search of a private property or person, and to prevent violation of the privacy of a citizen. The formation of opinion has to be in good faith and not a mere pretence. The words reason to believe mean that a reasonable man under the circumstances, would form a belief which will impel him to take action under the law. 22. In Deputy DIT (Investigation) v. Mahesh Kumar Agarwal [2003] 262 ITR 338 (Cal) it has been held that the conditions precedent which are required to be fulfilled for action to be taken under section 132 of the Act are that the officer must be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Gwalior who deposit their unaccounted cash or cheques in the bank account of these societies to effect the payments. The daily cash and cheques collection and payments made are of huge amount in the ranges of crores of rupees on daily basis. (b) That the very fact that the members of these samities are making payment through the demand draft and pay orders prepared/ issued from the bank accounts of these two samities and not from their own bank account indicates that these payments/ receipts are not disclosed in their bank account or if these are disclosed then the assessee might not have due explanation as to the source of payments/deposits. (c) That the payments in demand drafts, pay orders and through cheques from the bank account of these societies are made primarily to facilitate the local traders of Gwalior to make payments towards their unaccounted unrecorded purchases from outside parties who insist for immediate payments in cash or otherwise. As the large amount of payments in cash cannot be effected due to normal safety reasons, these traders are carrying the demand drafts/pay orders prepared by these two societies from their own bank account and thus settle the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of rupees. (c) In the bank account of these two societies huge amounts are deposited in cash and immediately equivalent amount of cheques or demand draft are issued in favour of certain parties on the instructions of person who deposited the cash. (i) For example at Flag A-2 (Vijaya Bank) on November 16, 2005 cash amounting to Rs. 5,00,000 was deposited against which immediate payment by way of transfer amounting to Rs. 5,00,400 was effected on the same day. Similarly, on October 25, 2005 a cash deposit of Rs. 6,00,000 was made against which payment through cheque amounting to Rs. 6,00,000 was made in favour of M/s. Shakti Trading. (ii) It is seen at Flag A-3-On November 29, 2005 cash deposit of Rs. 12,50,000 was made against which demand draft through self cheque for Rs. 19,87,339 was issued. Again on December 6, 2005 cash deposit of Rs. 10,00,000 was made against which payments were made by issue of cheques favouring yourself for issue of draft amounting to Rs. 21,24,573. (iii) Flag A-4 shows that on December 13, 2005 cash of Rs.10,00,000 was deposited and 3 (three) cheques totalling of Rs.9,83,100 was given to Sriniwas Cable (Rs. 4,00,000) Saroj (Rs.5,83,100). Again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 49,800 2 08/01/07 171500 49,800 3 08/01/07 171751 49,800 4 08/01/07 171752 49,800 5 08/01/07 171753 49,800 6 08/01/07 171754 49,800 7 08/01/07 171755 49,600 Third example : Flag B-3 1 January 2007 205834 2,00,000 2 January 2007 205835 2,00,000 3 January 2007 205836 2,00,000 Fourth example : Flag B-4 1 February 2007 697738 49,815 2 February 2007 697739 49,815 3 February 2007 697740 49,815 4 February 2007 697741 49,815 5 February 2007 697742 49,815 6 February 2007 697651 49,815 7 February 2007 697652 49,815 8 February 2007 697653 49,815 9 February 2007 697654 49,815 10 February 2007 697655 49,815 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re mostly being made to effect the outstation purchases by the local traders. These purchases remain unaccounted and not disclosed in the income-tax return by these traders and the investment in these purchases represents the unaccounted/un disclosed investment of the traders which remain escaped from taxation. The above samities are co-operative societies and are being managed and controlled by Shri Akhil Singhal, Shri Narendra Singhal, Shri Ravindra Singhal and Shri Sumit Goyal. All these persons are relatives of Shri Akhil Singhal. Further, it has been gathered that Shri Narendra Singhal and his son Shri Prashant Singhal are also operating another similar kind of samiti in the name and style of M/s. Hindustan Sakh Sahakarita Maryadit, Dal Bazar, Gwalior. As per local enquiry and market report none of these samities are filing their income-tax returns. The record of the PAN data base of the Department was also searched and it was found that none of the above societies have been allotted any PAN which confirmed that these societies do not file their income-tax returns. The perusal of three bank accounts for around one year period revealed that through these three accounts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irman of the abovementioned co-operative societies. As per local enquiries it has been found that the turnover of the said firm is in crores of rupees and earn huge profit even then no income-tax return is being filed in respect of such firm. The above facts show Shri Akhil Singhal, his father Shri Baboolal Singhal, Shri Ravindra and Shri Narendra Singhal are earning huge income by running of the co-operative society by the name of M/s. The Gwalior Citizen Sakh Sahakarita Maryadit. M/s. New Central Sakh Sahakari Samiti and M/s. Hindustan, Sakh Sahakarita Maryadit and business of M/s. Dwarkadas Baboolal of cloth trading. Through these three samities they are facilitating the local traders of Gwalior and the members of the societies by issue of demand drafts and pay orders in lieu of cash deposits and other inwards clearing for which these traders/ members have no valid sources. Thus, large amount of the income in respect of these three samities, the family of Shri Akhil Singhal, Narendra Singhal, Ravindra Singhal and a large number of members and local/traders of the Gwalior are remained unaccounted and escaped from assessment/taxation. Through these means Shri Akhil Singhal and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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