TaxTMI 
TaxTMI 
2008 (6) TMI 366
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....faction 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 per se illegal and contrary to the statutory provisions and is liable to be set aside. 3. The petitioner/society is registered with its main object and activities to promote co-operative banking transactions only to the members of the society and inter alia to : (a) inculcate an attitude and habit for saving in the members ; (b) management of safe investment of the members ; (c) arranging need based loans and finances to the members ; (d) providing other economic facilities and services for this purpose the society is having share money of the members, savings accounts, daily deposit accounts, recurring deposit accounts, fixed deposit accounts etc., for which complete accounts and records are maintained ; (e) to provide other service like payment of telephone, electric bills and preparations of bank drafts as per instructions of the members. 4. It has bee....
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.... 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 search and seizure conducted by the Department and stated that the action of the Department is absolutely contrary to the well settled procedure as contemplated under section 132 of the Act of 1961. It has been further stated that the Department was not having any knowledge of undisclosed property or undisclosed accounts of the petitioner and the Department was required to go through the returns to arrive at a conclusion that there was reason to believe that the petitioner has some undisclosed income and then only further action could have taken under section 132 of the Act. The petitioner has prayed before this court for quashing the entire proceedings and has also prayed for releasing of the bank accounts and cash which has been seized by the Department. 7. The Department has filed a return and it has been stated in the return that the search and seizure in the....
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....ulfilled 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 demand drafts to outstation parties in consideration of huge cash deposits on daily basis to effect transactions of their unaccounted money. The society has received payment through inward clearing and it is withdrawn in cash by the concerned person. It has been further stated that very nominal members of the society were effecting payments and receipts through the bank account of the society and not from their own bank account which clearly reflects that these transactions of payments and receipts are probably not recorded in their books of account. The investment and income from such transactions is unaccounted and undisclosed to the Department thereby causing huge revenue loss to the Government by way of evading income-tax, sales tax, VAT, excise duty etc., The Department have further stated in the return as under : "There is a stark difference b....
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....ransactions are not recorded by the members in their books of account. In this regard, the society has specifically amended its objects by incorporating the clause to appoint 'nominal members' who are only allowed to avail of the facility of issue of cheques at par and demand draft and at the same time they are not eligible for any dividend on shares, participation in other activities and availing of loan. This amended 'objects clause' of the society of issue of cheques at par and demand draft, is the only operative object and activity of the society which is primarily tantamount to a banking activities for which the society is neither a bank registered under the RBI Act nor is it registered as a NBFC with RBI. Thus, the activities under taken by the samiti of providing facilities of issue at par cheques and demand drafts to its members (mostly nominal members) apparently made for this purpose only is an illegal activity. In these circumstances, the samiti does not retain its co-operative status of a separate entity and the corporate/co-operative veil attached to the society is to be lifted so as to expose any persons who have committed a fraud upon the public from their sheltered ....
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....he learned senior counsel for the parties and after going through the pleadings including the rejoinder filed by the petitioner, it is evident that the search and seizure was conducted by the respondent on March 28, 2008 and March 29, 2008. 14. Section 132 of the Act of 1961 reads as under : "132. (1) Where the Director General or Director or the Chief Commissioner or Commissioner or any such Joint Director or Joint Commissioner as may be empowered in this behalf by the Board, in consequence of information in his possession, has reason to believe that- (a) any person to whom a summons under subf section (1) of section 37 of the Indian Income-tax Act 1922 (11 of 1922), or under sub- section (1) of section 131 of this Act, or a notice under sub-section (4) of section 22 of the Indian Income-tax Act, 1922, or under sub-section (1) of section 142 of this Act was issued to produce, or cause to be produced any books of account or other documents has omitted or failed to produce, or cause to beproduced, such books of account or 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 iss....
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.... any relevant material the authority would be acting in excess of his powers and in violation of the mandatory requirements of section 132 and the action of the authority cannot be sustained. If such action is challenged under article 226 of the Constitution of India the court comes to the conclusion that there was no relevant material before the authority to form an opinion under section 132, the court in exercise of powers under article 226 of the Constitution of India can interfere. 18. The High Court of Delhi in L. R. Gupta v. Union of India [1992] 194 ITR 32 ; [1992] 46 DLT 14 (DB) scanning the ingredients of section 132 of the Income-tax Act has opined that jurisdiction under section 132 can be exercised on the formation of a belief and the belief is to be formed on the basis of receipt of information by the authorising officer and the information must be something more than a mere rumour or a gossip or a hunch. There must be some material which can be regarded as information. The satisfaction must be based on the ground what a prudent man would believe. 19. In Dr. Partap Singh v. Director of Enforcement [1985] 155 ITR 166 (SC) the apex court has opined that i....
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....s precedent which are required to be fulfilled for action to be taken under section 132 of the Act are that the officer must be in possession of information on the basis of which he has reason to believe that the concerned person has not produced or would not cause to be produced the books of account and the condition has to be fulfilled before decision to issue a notice under section 132(1) of the Act is taken. The information must exist before the opinion is formed. It has also been held therein that the authorized officer must actively apply his mind to the information in his possession and form an opinion that there are reasons to believe. Such opinion must be formed on the basis of the material available at that time. The material must have rational nexus or bearing to the reasons for formation of the belief. In the said case it has been held that although a matter relating to search is open to judicial scrutiny, the court cannot sit in appeal over the opinion formed, if there are materials and the opinion is formed on such material. The court would not examine whether the material possessed is adequate or sufficient to form an opinion. 23. Regard being had to the afor....
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....ety reasons, these traders are carrying the demand drafts/pay orders prepared by these two societies from their own bank account and thus settle their own account for outstation purchases. For this service, societies must be charging certain fee/commissions from these members. Most of the time the purchase and sales in respect of goods acquired through these DD/pay orders remain unaccounted and the investment and the profit earned from these transactions remain escaped from assessment." 25. The formation of opinion shows that there has been maintenance of accounts in various banks. It has also enumerated evidence. During investigation it has been found that the society as engaged primarily to provide accommodation, payment in terms of DD and cheques on behalf of the members and the local traders. A reference has been made to copies of bank accounts from Punjab National Bank and Vijaya Bank. (I) Vijaya Bank, Gwalior in Account No. OD-250019 (period September 2005 to August, 2006). During this period, the total deposits made in the account were to the tune of Rs. 23,07,16,580 and withdrawals on account of payments to the parties through draft and out ward clearing of cheques ....
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....at 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 on December 27, 2005 cash of Rs. 7,50,000 was deposited and payment through two cheques for Rs. 3 lakhs and Rs.4.50 lakhs were issued in favour of Sriniwas Cable. On December 29, 2005, against cash deposit of Rs. 6,00,000 cheque to Sriniwas Cable was Rs. 3,50,000 and outward transfer through two demand drafts for Rs. 4,19,572 were issued. (iv) At flag A-5, on January 20, 2006 cash deposit of Rs. 10 lakhs was made against which payments were made through two cheques for Rs. 4 lakhs in favour of Sriniwas Cable. On January 21, 2006 cash of Rs. 5,00,000 was deposited and inward transfer for DD was made for Rs. 4,50,405. On January 23, 2006, cash deposit of Rs. 10,00,000 was made and 4 cheques totalling to Rs. 8,90,000 were issued to Srinivas Cable and another two cheques for Rs. 3,44,000 were issued to Saroj. Throughout the period similar transactions have been taken place in these accounts. Further, it has been observed that the samiti has received credits through cheques/inward clearing ....
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.... as under : 1. First example : Flag C-1 S. No. Date Issued cheques Payment amount (Rs ) Name of the party 1 February 2007 928607 5,00,000 M/s C P Industries 2 February 2007 928606 5,00,000 M/s C P Industries 3 February 2007 928605 5,00,000 M/s C P Industries 2. Second example : Flag C-2 1 February 2007 928647 5,00,000 M/s Asha Oil Industries 2 February 2007 928648 5,00,000 M/s Asha Oil Industries 3 February 2007 928649 5,00,000 M/s Asha Oil Industries 27. Thereafter there is reference to the income-tax return on record. On a scrutiny of the same, it transpires that the business of the society and the family members are largely unaccounted and the income earned by providing the payment facilities to the members of the local traders remain unaccounted as income-tax returns are not filed in most of the cases. The authority concerned has drawn inference which is apt to reproduce here in below : "The above facts shows that these societies are being used as facilitator of providing accommodation entries in terms of payments through demand draft, pay orders and cheques on behalf of member....
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....n payment entries are not declared to the Income-tax Department and the income earned in the form of commission/fees for providing such facilities mostly escape from assessment. Further, the sources of these payments contributed by the members of the society and other local traders on whose behalf payments were made are not accounted for by these persons in their books of account which implies that all these transactions represent the unaccounted transaction of these traders/members of the societies. Therefore, the sources of investment in respect of these transactions remain unexplained and met from the undisclosed sources of these members/ traders which have escaped from assessment/taxation. In this regard it may be mentioned that as per the latest amended provisions of section 292C, the assessee has to clearly establish the ownership and belongingness of the entries through which large amount of deposits and withdrawals on account of payments through demand drafts and outwards clearing cheques are transacted, other- wise as per the provisions of section 292C, all the books of account, documents, money and valuable and other part of books of account found during the cours....