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Director General of Income Tax (Investigation) Pune & Others Versus M/s. Spacewood Furnishers Pvt. Ltd. & Others

Scope of section 132 - search and seizure - whether conditions precedent for issuing warrant of authorization under Section 132 does exist in the present case? - High Court held that the satisfaction mandated by Section 132 of the Act was not that of the authority who has issued the search warrant, thereby vitiating the authorization issued also the file containing the satisfaction note(s) was manipulated and thus is of doubtful credibility as each of the satisfaction notes was in loose sheets o .....

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y and responsibility in the decision making process. The necessity of recording of reasons also acts as a cushion in the event of a legal challenge being made to the satisfaction reached. Reasons enable a proper judicial assessment of the decision taken by the Revenue. However, the above, by itself, would not confer in the assessee a right of inspection of the documents or to a communication of the reasons for the belief at the stage of issuing of the authorization. Any such view would be counte .....

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authorities under the Act.

The view expressed by the High Court with regard to the satisfaction note(s); the alleged absence of a final decision to issue the authorization at the level of the Additional Director and the Director; the absence of any satisfaction of the Director General who, according to the High Court took the decision to issue the authorization are all seriously flawed. The different steps in the decision making process is lucidly laid down in the instructions contai .....

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spective effect from 1.10.1998. The reading of the relevant part of the satisfaction note of the Director goes to show that on the basis of materials produced satisfaction was duly recorded by him that authorization for search should be issued. The file was put up before the Director General (Investigation) for accord of administrative approval as required by Notification dated 7.3.2001. In fact, the requirement to obtain administrative approval is prompted by the need to provide an additional s .....

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soever, for coming to any such conclusion. Suspicion ought not to be the basis of any judicial order and this is where the High Court seems to have erred. - Decided in favour of revenue. - Civil Appeal No. 4394 of 2015 (Arising out of S.L.P.(C) No. 38611 of 2012) - Dated:- 13-5-2015 - Ranjan Gogoi And Pinaki Chandra Ghose,JJ. Foe the Petitioner : Mrs. Anil Katiyar For the Respondent : M/s. Parekh & Co. JUDGMENT Ranjan Gogoi, J. 1. Leave granted. 2. The block assessment of the respondent-as .....

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filed this appeal by special leave under Article 136 of the Constitution. 3. We have heard Shri Guru Krishna Kumar, learned senior counsel for the appellants and Shri Krishnan Venugopal, learned senior counsel appearing for the respondents. 4. The issues that arise in the present appeal lie within a short circumference. As the warrant of authorization under Section 132, which is required to be founded on a reasonable belief of the authorized official regarding the existence of the conditions pre .....

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parameters of permissible interference as laid down in the aforesaid two decisions have stood the test of time and continue to hold the field even today. We may, therefore, advert to ITO vs. Seth Brothers (supra) in the first instance. 6. Considering the scope of Section 132 of the Act in ITO vs. Seth Brothers (supra), this Court at page 843 held that :- The section does not confer any arbitrary authority upon the Revenue Officers. The Commissioner or the Director of Inspection must have, in co .....

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er the Act may be found. If the Officer has reason to believe that any books of account or other documents would be useful for, or relevant to, any proceedings under the Act, he is authorised by law to seize those books of account or other documents, and to place marks of identification therein, to make extracts or copies therefrom and also to make a note or an inventory of any articles or other things found in the course of the search. Since by the exercise of the power a serious invasion is ma .....

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uck 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 authorises a designated officer to enter and search premises for books of account and docum .....

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t require that the warrant of authorisation should specify the particulars of documents and books of accounts a general authorisation to search for and seize documents and books of account relevant to or useful for any proceeding complies with the requirements of the Act and the Rules. It is for the officer making the search to exercise his judgment and seize or not to seize any documents or books of account. An error committed by the Officer in seizing documents which may ultimately be found no .....

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that the impugned provisions are evidently directed against persons who are believed on good grounds to have illegally evaded the payment of tax on their income and property. Therefore, drastic measures to get at such income and property with a view to recover the government dues would stand justified in themselves. When one has to consider the reasonableness of the restrictions or curbs placed on the freedoms mentioned in Article 19(1)(f) and (g), one cannot possibly ignore how such evasions ea .....

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tax evasion. 8. What is significant and, therefore, must be noticed is that in both the aforesaid two decisions while this Court has emphasized the necessity of recording of reasons in support of the reasonable belief contemplated by Section 132, nowhere, in either of the decisions any view had been expressed that the reasons recorded prior to authorizing the search needs to be disclosed or communicated to the person against whom the warrant of authorization is issued. The same is the view expr .....

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ended that, if the court is going to look into the file produced on behalf of the officer who authorized the search, it must be disclosed to the petitioner so that the petitioner can controvert any false or wholly unreasonable material set out in the file , but the Supreme Court did not accept this submission. The Supreme Court also referred to an earlier decision in S. Narayanappa v. CIT [1967] 63 ITR 219 (SC), to hold that whether grounds for ordering search were sufficient or not is not a mat .....

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of which a reasonable belief can be founded that- (a) the concerned person has omitted or failed to produce books of account or other documents for production of which summons or notice had been issued OR such person will not produce such books of account or other documents even if summons or notice is issued to him. OR (b) such person is in possession of any money, bullion, jewellery or other valuable article which represents either wholly or partly income or property which has not been or woul .....

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led on and from 1st October, 1975 the reasons for the belief found should be recorded. (v) The reasons, however, need not be communicated to the person against whom the warrant is issued at that stage. (vi) Such reasons, however, may have to be placed before the Court in the event of a challenge to formation of the belief of the authorized official in which event the court (exercising jurisdiction under Article 226) would be entitled to examine the relevance of the reasons for the formation of t .....

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in them under Section 132 of the Act in relation to the territorial areas specified in Column (3) of the Schedule. By virtue of the said notification the Director of Income Tax (Investigation), Nagpur i.e. Appellant No.2 was authorized to exercise the power under Section 132 of the Act in respect of the territorial areas falling within the jurisdiction of the CCIT Nagpur and CCIT Nasik in the State of Maharashtra. 11. Notice must also be had of certain provisions contained in the Search and Seiz .....

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tter. The note must be recorded in the secret file, already prepared for this purpose, containing material like, the secret information collected from various sources, statement(s), if any of the informant(s), reference to tax evasion petition(s), if any, surveillance reports and information relating to assessment(s), returns of income, wealth, etc, where available. 12. It will also be required to be noticed that by Notification dated 7.3.2001 administrative approval of the Director General of I .....

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gh Court. The said satisfaction note(s) have also been placed before us. A perusal of the file containing the satisfaction note(s) indicate that on 8.6.2009 the Assistant Director of Income Tax (Investigation), Nagpur had prepared an elaborate note containing several reasons as to why he had considered it reasonable to believe that if summons or notice were issued to the respondent to produce the necessary books of account and documents, the same would not be produced. The Assistant Director als .....

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for issuing warrant of authorization under Section 132 does exist in the present case. Accordingly, the file was put up before the Director of Income Tax (Investigation), Nagpur for issuing of warrant of authorization for search of the residential as well as business premises of the assessee and its Directors, if the Director of Income Tax (Investigation), Nagpur is so satisfied. The aforesaid note of the Additional Director (Investigation) is dated 8.6.2009. 15. The notes of the two officers i .....

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details of such unaccounted income and the books of accounts and documents containing details of such unaccounted incomes and assets if notices were to be issued to it u/131 or u/s.142(1) of the I T Act. It is also reliably learnt that the Directors S/Shri. Kirit Joshi and Vivek Deshpande and associated concerns M/S. i3Space Systems (India) P Ltd., Spacewood Exports P ltd., Spacewood Hongkong P Ltd., i3space Hongkong Ltd. and Spacewood Nest P Ltd are also in possession of undisclosed income / as .....

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t case for exercise of powers vested u/s.132 of the Act to search the persons (M/S. Spacewood Furnishers P Ltd, its associated concerns and Directors mentioned above) and the premises mentioned in the note of the ADIT to seize unaccounted assets and documents and evidences relating undisclosed income. The Director of Income Tax (Investigation), Nagpur thereafter put his signature dated 9.6.2009 on the said note. 16. There is an endorsement to the following effect at the bottom of the said note a .....

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ur has got adequate information to arrive at his satisfaction that search and seizure action is required to be undertaken in the case of M/s. Spacewood Furnishers P. Ltd. promoted by Shri Kirit Joshi and Vivek Deshpande. Accordingly, the proposal of the DIT (Inv.) Nagpur to take action u/s 132(1) of the Act is approved. 18. The High Court by the impugned order dated 9.12.2011 has taken the view that in the present case there are four satisfaction notes of four different authorities. One of the s .....

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d that it is eventually the Director General who took the decision to issue the search warrant but the said decision was not on the basis of its own satisfaction but on the basis of the satisfaction recorded by the Director of Income Tax (Investigation). Consequently, the High Court held that the satisfaction mandated by Section 132 of the Act was not that of the authority who has issued the search warrant, thereby vitiating the authorization issued. 19. The High Court further held that each of .....

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sfaction note(s) placed before the Court. Even if the satisfaction notes alone are to be gone by, the essential details with regard to source of information; the persons who were interrogated and with whom discreet enquiries were made are not disclosed. The necessary information revealed by such interrogation and discreet enquiries with regard to over invoicing, market information etc. are not indicated. Materials like high growth, high profit margins, doubts about international brand and detail .....

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law in this regard needs to be clarified. The above aspect is highlighted by the following observations of the High Court expressed in paragraph 6 of the impugned order:- We, however, express that when the satisfaction recorded is justiciable, the documents pertaining to such satisfaction may not be immune and if appropriate prayer is made, the inspection of such documents may be required to be allowed. 22. In the light of the views expressed by this Court in ITO vs. Seth Brothers (supra) and Po .....

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essment of the decision taken by the Revenue. However, the above, by itself, would not confer in the assessee a right of inspection of the documents or to a communication of the reasons for the belief at the stage of issuing of the authorization. Any such view would be counter productive of the entire exercise contemplated by Section 132 of the Act. It is only at the stage of commencement of the assessment proceedings after completion of the search and seizure, if any, that the requisite materia .....

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f the exercise undertaken by the High Court which we will understand to be highly premature; having the potential of conferring an undue advantage to the assessee thereby frustrating the endeavor of the revenue, even if the High Court is eventually not to intervene in favour of the assessee. 24. Having clarified the above issue in the manner indicated, we may turn to the reasons assigned by the High Court for its decision. The view expressed by the High Court with regard to the satisfaction note .....

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e. The steps delineated have been scrupulously followed. Besides we may take note of the fact that the Additional Director was not one of the competent authorities under Section 132 on 8.6.2009 (date of his note) inasmuch as it is by the Finance Act, 2009 effective from 19th August, 2009 that the Additional Director came to be included amongst the authorized officials though with retrospective effect from 1.10.1998. The reading of the relevant part of the satisfaction note of the Director goes t .....

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