TMI Blog2013 (2) TMI 120X X X X Extracts X X X X X X X X Extracts X X X X ..... ly do not exist. Respondents fail to notice that the gold ornaments would weight marginally more than the weight of gold from which they are made due to addition of alloys. They also failed to see that such increase in weight was uniform in all cases. Accounts were also maintained regarding labour charges to be paid to different agencies. It can therefore not be stated that there was sufficient information in possession of the Director of Income Tax to have reason to believe that such jewelery had not been or would not be disclosed for the purpose of the Act. There were some discrepancies highlighted by the Department particularly with respect to the agreement dated 14th June 2012. It was argued that such agreement was found in possession of the petitioners and not in possession of the lessee & that the co-relation between the gold actually used in preparation of the ornaments and the one which was available with MG-HUF could not be established but to our mind, these factors would not be sufficient to clothe the authorities with the power to issue search authorization under section 132(1)(c). The Department's doubt about the source of gold of MG-HUF, even if it is genuine, c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come Tax, Chennai. 3. The petition arises in following factual background. 4. Petitioner No. 1 is a company. Petitioner No. 2 is its Director. According to the petitioners, the Company is engaged in the business of wholesale trading in bullion since over 10 years. In the recent past, the Company decided to enter into a new venture of manufacturing and selling wholesale jewelery of 22 carat gold to jewelery show rooms situated across the country. For the purpose of such venture, the petitioner was required to prepare sample jewelery and exhibit them to different show-room owners doing the business of retail selling of jewelery so that the petitioners could get bulk orders from such jewelers. To be able to prepare such large collection of sample jewelery, the Company required sizeable quantity of gold weighing nearly 25 kilos. Since purchasing such gold would have required a huge capital investment on the part of the Company, the petitioners contacted one Meghji Girdhar HUF (hereinafter to be referred to as 'MG-HUF') to take such quantity of gold on lease to be used as stock in trade of the Company. It is the case of the petitioners that the said MG-HUF is engaged in the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cials who were present at the Airport. The Income Tax Authorities, however, did not detain petitioner No. 2 or any other co-passengers. While the passengers were mid-air, Income Tax Authorities started inquiring into the source of the gold. When the flight landed at Chennai, all the five passengers were detained. Their statements were recorded. Simultaneously, inquiries were also conducted at the business premises of petitioner No. 1 company. Statements of various persons were recorded. Income Tax Authorities also carried out inquiries with Karta of MG-HUF at Neemuch. On the basis of such materials collected and the survey report received by the Chennai Officials, search authorization was issued. For such purpose, Deputy Director of Income Tax (Investigation), Air Intelligence Unit, Chennai recorded a satisfaction note on 26th July 2012. Such satisfaction note was placed before the Additional Director of Income Tax, Investigation, Chennai who placed his notings on the same date agreeing that warrant of authorization under section 132 of the Income Tax Act ('the Act' for short) be issued and the gold jewelery be seized. The entire record was thereafter placed before the DGIT(Invest. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lied the gold. The case of the Department also is that the stock statement of books of petitioner No. 1 are not reliable. The seized gold ornaments, therefore, cannot be treated as stock in trade. It is the case of the Department that the vouchers prepared by petitioner No. 1 Company for handing over the gold to the goldsmiths do not carry the signatures of the recipients. There are other anomalies with respect to the quantity of gold handed over and received back as also with respect to labour charges paid, inward and outward registers do not match and only 22 kilos out of total 25 kilos of gold was used for ornaments and balance of the gold was not physically found during the survey. Principally on such basis, the respondents have sought to oppose the petition contending that after sufficient material was available at the command of the competent authority, satisfaction note was prepared suggesting authorization of search and seizure. Such satisfaction note was perused and approved by the higher authorities as required, only upon which search authorization was issued. 7. Learned Senior Advocate Shri Soparkar for the petitioners vehemently contended that the requirements of sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th June 2012 and in presence of both these persons such gold was handed over to the petitioners. The Department confirms the movement of Karta of MG-HUF, Gunwantlal Godawat. With respect to Ravindra Godawat, whatever minor discrepancies in his movements, they have been sufficiently explained in the rejoinder filed by the petitioners pointing out that he had travelled to Ahmedabad via Pune. His mobile phone locations would establish this fact. In any case, some minor discrepancies with respect to the travel schedule of either of the two members of MG-HUF would not clothe the Department with jurisdiction to authorize search and seizure operations. 7.3 Counsel further submitted that the books maintained by the petitioner Company scrupulously matched with the quantity of gold handed over to different goldsmiths for preparation of gold ornaments. Outgoing quantity matched perfectly with the total weight of gold ornaments when converted from 24 carat gold into 22 carat gold by addition of alloys. He submitted that in view of the disclosure of the gold in the books of accounts of the Company, it cannot be stated that the petitioners had not or would not have disclosed such gold for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the competent authority having taken into account such discrepancies, prepared a satisfaction note which was placed before the higher authorities who approved the search and seizure operations, upon which the authorization was issued, ultimately leading to the seizure of gold ornaments under a panchnama. 8.2 Counsel highlighted various anomalies and discrepancies which, according to him, were crucial and enabled the competent authority to form an opinion that requirements of section 132(1)(c) of the Act were fulfilled and that therefore, search and seizure operation was necessary. According to the counsel, the lease agreement suffers from various infirmities, which we have already noted earlier. Counsel also highlighted that there was no identification of the gold which was handed over to the petitioners by MG-HUF. In turn, it was not possible to connect the gold ornaments ultimately prepared by different goldsmiths with the gold received by the petitioner from said MG-HUF. Counsel pointed out that there were discrepancies and anomalies in the books of accounts maintained by petitioner No. 1 Company. All the accounts were prepared by one person, apparently with a view to cover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ials, authorization was issued. Thus, it cannot be stated that the entire cause of action had arisen at Chennai. Part of cause of action can certainly stated to have arisen within the local limits of this Court. In this respect, we may refer to the decision of the Apex Court in the case of Rajendran Chingaravelu v. R.K. Mishra, Addl. CIT, 320 ITR 1 (SC). In such case, the petitioner had withdrawn sizeable amount from his bank account at Hyderabad with an intention to purchase property at Chennai. He traveled from Hyderabad to Chennai on 15th June 2007 carrying such cash. At Hyderabad Airport, he disclosed that he was carrying Rs. 65 lacs in cash along with the Bank's certificate certifying the source of withdrawal. He was allowed to board the flight. When he reached Chennai, the Income Tax Officials intercepted him. He was questioned about such large amount of cash that he was carrying. His defence that he had the certificate of the Bank having withdrawn such amount was not accepted. He was subjected to detailed interrogation and search and the money was seized, but later on released. For the harassment that he faced, he filed writ petition at Andhra Pradesh High Court. The High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f this court, the writ issued by the court can extend and run beyond its territorial jurisdiction. Explaining the expression "cause of action" within the meaning of article 226(2) of the Constitution, in State of Rajasthan v. Shaika Properties, AIR 1985 SC 1289, the Supreme Court held that the cause of action is a bundle of facts which, taken with the law applicable to them gives the plaintiff a right to relief. In the instant case, we are of the view that the petitioner being a regular assessee in New Delhi, survey operation under section 133A of the Act having been conducted by the authorities at Delhi and the entire action of the search ultimately culminating in the block assessment under Chapter XIV B by the Assessing Officer based in New Delhi, not only a part of cause of action but substantial cause of action arose within the territorial jurisdiction of this court. Accordingly, we reject the objection." 10. Counsel for the Revenue relied on the decision of the Apex Court in the case of Union of India v. Adani Exports Ltd., AIR 2002 SC 1260. In the said case, however, facts were that the petitioner company had claimed the benefit of duty exemption passbook scheme which was d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to focus our attention on the factors recorded by the Deputy Director of Income Tax, Chennai in his satisfaction note dated 26.7.2012. It cannot be disputed and it has not been disputed that any material collected subsequent to recording of satisfaction note and issuance of authorization of search and seizure cannot be pressed in service for supporting authorization to search. Further, the different factors and discrepancies sought to be highlighted by the Department, through affidavits filed before us and through oral submissions made by the counsel also independently would be of no consequence unless and until the genesis of such discrepancies are found in the satisfaction note. It may be to explain or expand particular factors already noted by the competent officer in his satisfaction note that such factors can be highlighted before us. In short, we have focused our attention to the different aspects noted by the Deputy Director of Income Tax in his satisfaction note dated 26th July 2012 to ascertain whether it can be stated that the requirements of section 132(1)(c) of the Act are satisfied. We may recall that sub-section (1) of section 132 of the Act empowers the officers me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the bullion received from MG-HUF. He recorded that it is highly unlikely that such large quantity of gold jewelery was brought only as samples. The passengers could not give details of customers they were like to meet in Chennai. He further highlighted that it is not possible to establish co-relation between the gold allegedly received from MG-HUF and the gold used for preparation of the ornaments which was found at Chennai Airport. On the basis of above observations, he recorded that "it is clear that the persons do not have an intention to disclose the jewelery of 23915 grams found in the Airport to the Department". On the basis of such conclusion, he suggested that the Director of Income Tax, if satisfied to issue a warrant of authorization for seizing the same by conducting a search and seizure operation under section 132 of the Act. 15. Such satisfaction note was placed before the Additional Director of Income Tax who approved the suggestion noting that in view of the report received from the Additional DIT Unit II, Ahmedabad and the contents of the note of the Deputy Director, Chennai, it is clear that the jewelery found with Shri L.K. Soni at Chennai represents unaccounted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the entries of gold ornaments received from such persons after adding alloys for conversion of gold from 24 carat to 22 carat. The so called discrepancies pointed out by the Revenue in such documents really do not exist. Respondents fail to notice that the gold ornaments would weight marginally more than the weight of gold from which they are made due to addition of alloys. They also failed to see that such increase in weight was uniform in all cases. Accounts were also maintained regarding labour charges to be paid to different agencies. It can therefore not be stated that there was sufficient information in possession of the Director of Income Tax to have reason to believe that such jewelery had not been or would not be disclosed for the purpose of the Act. 18. There were some discrepancies highlighted by the Department particularly with respect to the agreement dated 14th June 2012. It was argued that such agreement was found in possession of the petitioners and not in possession of the lessee. It was further argued that the co-relation between the gold actually used in preparation of the ornaments and the one which was available with MG-HUF could not be established. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany and examining him on oath, compelling production of books of accounts and other documents and issuing commissions. Under sub-section (1A) of section 131, the Director General or Director or Joint Director or Assistant Director or Deputy Director or the authorized officer referred to under sub-section (1) of section 132, if has reason to suspect that any income has been concealed or is likely to be concealed by any person or class of persons within his jurisdiction, then for the purpose of making any inquiry or investigation relating thereto, it would be competent for him to exercise powers conferred under sub-section (1) notwithstanding that no proceedings with respect to such person or class of persons are pending before him or any other Income Tax Authority. 21. It can be immediately noticed that under sub-section (1A) of section 131, the officers mentioned therein have very wide powers of discovery and inspection and enforcing attendance or compelling production of documents and issuing commissions for the purpose of making any inquiry or investigation even when no proceedings are pending before him, if he has reason to suspect that any income has been concealed or is l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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 authorisation 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." ** ** ** "Sub-clause (c) refers to money, bullion or jewellery or other valuable articles which, either wholly or partly, should have been income of an assessee which has not been disclosed for the purpose of the Act. The said sub-clause pertains only to movable and not immovable assets. Secondly, it pertains to those assets which, wholly or partly, represent what should have been his income. The expression income "which has not been, or would not be disclosed for the purposes of the Income-tax Act" would m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. "Not disclosed" must mean the intention of the assessee to hide the existence of the income or the asset from the Income-tax Department while being aware that the same is rightly taxable." 23. In the case Vindhya Metal Corpn. v. C.I.T. 156 ITR 233 (All.), a Division Bench of the Allahabad High Court examined the case where the person was found in possession of cash of Rs. 4,63,000/- while he was travelling by train. Such amount was seized by the Railway Police and the Commissioner of Income Tax was informed about it. Search and seizure operation was carried out. The High Court held that mere fact that the person who was in possession of large amount of cash and he did not have document regarding his ownership or that his name was not found in the list of income tax assessee could not be treated as sufficient information leading to a reasonable mind to infer that the amount would not be disclosed for the purpose of the Act. It was observed that there was nothing before the Commissioner to suggest that the said amount, in fact, was wholly or in part, income of any person connected with the said person so as to induce a belief that if called upon, he would not have disclosed it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notes recorded by the higher Income Tax Authorities was of the opinion that the authorization was not based on isolated material that cash was found from the petitioner's premises. But such authorization was based on additional information which was adequately sufficient for the purpose of satisfying the statutory requirements. 29. In the result, the petition is allowed. Search and seizure operation is declared illegal and it is hereby quashed. Consequently, seizure of the gold ornaments under panchnama dated 26th July 2012 is also quashed. In view of the above findings, we do not go into the question whether the jewelery was stock in trade of petitioner No.1 Company and therefore even in face of valid search and seizure, the same could not have been seized in terms of proviso to section 132 of the Act. Rule is made absolute accordingly. 30. Before closing, we may record that the learned counsel for the Revenue had placed for our perusal the satisfaction note and the connected notings of the different levels of the officers before the search operation was authorized. Along with such documents, he also supplied the copies of the statements and survey reports. Copies thereof may ..... X X X X Extracts X X X X X X X X Extracts X X X X
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