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Emaar Alloys Pvt. Ltd. Versus Director General of Income Tax (Investigations) And Others

2015 (7) TMI 126 - JHARKHAND HIGH COURT

Legality of search and seizure operations under Section 132 - Held that:- We see no reason to entertain this writ petition mainly for the following facts and reasons: (i) This petitioner has close connection with Ex. Chief Minister of the State. (ii) There was ample materials with the Income Tax Authorities that this petitioner has not disclosed huge income. On the basis of information with the Income Tax Authorities they found need of carrying out search and seizure at the premises of th .....

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The said satisfaction note is then forwarded by JDIT(Inv.)/Addl DIT(Inv) to the DIT(Inv.) and both these officers should independently have reason to believe on the basis of information in possession that a search and seizure activity u/s 132 of Income Tax Act, 1961 is justified.The satisfaction note is administratively approved by the Director General of Income Tax (Investigation) who independently should also have reason to believe that the provisions of Section 132 of the Income Tax Act, 196 .....

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ash & Anand Kumar Sinha, Advs. For the Respondent : Mr Deepak Roshan, Adv. JUDGMENT Per D. N. Patel,J. 1. This writ petition has been preferred challenging the legality of search and seizure operations carried out by the Income Tax Authorities under Section 132 of the Income Tax Act, 1961(hereinafter referred to as 'the Act' for the sake of brevity) and also challenging the legality and validity of the summons issued by the Income Tax Authorities more particularly by Assistant Direct .....

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as been committed by the respondents in carrying out search and seizure under Section 132 of the Act, 1961 and also in issuing summons under Section 131(1A). It is submitted by the counsel for the petitioner that the notice given under Section 131(1A) is subsequent to the search and seizure carried out under Section 132 of the Act, 1961. This is not permissible in the eye of law. Moreover, the satisfaction which ought to be arrived at under Section 131(1A) and under Section 132(1) is not reduced .....

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in contravention of Section 132 of the Act, 1961. 3. Counsel for the petitioner has relied upon a decision rendered by Hon'ble Supreme Court reported in (2015) 370 ITR 180 (SC) . Counsel for the petitioner has also relied upon a decision of the Division Bench rendered by Hon'ble High Court of Delhi in W.P.(C) No. 1417 of 2011 dated 11th January, 2013 in the case of Madhu Gupta Vs Director of IncomeTax (Investigation). On the basis of the aforesaid two decisions, it is submitted by the c .....

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es to be quashed and set aside. 4. Counsel appearing for the respondents vehemently submitted that this petition has been preferred with all ulterior motive. The detailed counter affidavit has been filed by the Additional Director of Income Tax (Investigation) especially in para19 it has been stated that there was ample material with the respondents authorities that this petitioner was in possession of money, bullion, jewellery and other valuable articles represents either wholly or partly incom .....

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sion for search and seizure to be carried out and thereafter, Director General of Income Tax (Investigation) approves "the reason to believe". Thus, all the aforesaid officers are putting a note and their satisfaction with supporting documents for carrying out search and seizure under Section 132 of the Act. This is a reason to believe. In the facts of the present case also, there is noting of these officers which is approved by the Director General of Income Tax (Investigation) that t .....

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November, 2009. 5. It is further submitted by the counsel for the respondents that the writ petition has been preferred on 25th June, 2012 i.e. after several months from the date on which the raid was carried out. Thus, this writ petition is nothing, but, an afterthought and with some ulterior motive this writ petition has been preferred which may not be entertained by this Court and may be dismissed with a heavy cost. 6. Counsel for the respondents further submitted that this petitioner has app .....

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issioner and thereafter, the Assessing Officer passed an order on 28th March, 2014 and a notice issued to this petitioner to meet the payment of ₹ 4.65 crore approximately of Income Tax against which an appeal has been preferred by this appellant petitioner before the Commissioner of Income Tax (Appeals) and therefore, also this writ petition may not be entertained by this Court. 7. Counsel for the respondents has relied upon the decision rendered by Hon'ble Madhya Pradesh High Court r .....

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bmitted by the counsel for the respondents that no illegality has been committed by the respondents in carrying out search and seizure on the basis of subjective satisfaction arrived at by the Income Tax Authorities that there were reasons to believe to carry out search and seizure under Section 132 of the Act. It is further submitted by the counsel for the respondents that this Court is not sitting in appeal against the subjective satisfaction arrived at by the Income Tax Authorities on the bas .....

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Tax Authorities to formulate an opinion that there is a reason to believe to carry out search and seizure and hence, this writ petition may not be entertained by this Court. Reasons: 9. Having heard counsels for both the sides and looking to the facts and circumstances of the case, we see no reason to entertain this writ petition mainly for the following facts and reasons: (i) This petitioner has close connection with Ex. Chief Minister of the State. These facts have been stated in para9 of the .....

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n 132 of the Act has been followed. Paragraph 19 of the counter affidavit filed by the Additional Director of Income Tax (Investigation) on behalf of the respondent nos. 1 to 4 reads as under: "19. That it is stated that in the instant case the competent had reasons to believe based on information in his possession that M/s Emaar Alloys Pvt Ltd had possession of money, bullion, jewellery or other valuable article or thing and such money, bullion, jewellery or other valuable article or thing .....

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, the concerned ADIT or DDIT has to write a satisfaction note along with supporting documents proposing an action u/s 132 if he has reasons to believe that such an action is justified. The said satisfaction note is then forwarded by JDIT(Inv.)/Addl DIT(Inv) to the DIT(Inv.) and both these officers should independently have reason to believe on the basis of information in possession that a search and seizure activity u/s 132 of Income Tax Act, 1961 is justified. The satisfaction note is administr .....

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t authority as provided under Section 132 of the I.T. Act after following due process of law." (iii) The petitioner has filed rejoinder affidavit, but, the facts stated in paragraph no. 19 has not been controverted at all. Counsels appearing for both the sides have read and reread Section 131 and Section 132 of the Income Tax Act and therefore, relevant portion of Section 131 and 132 of the Act read as under: "131. Power regarding discovery, production of evidence, etc. (1) The Assessi .....

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ing any officer of a banking company and examining him on oath; (c) compelling the production of books of account and other documents; and (d) issuing commissions. (1-A) If the Director General or Director or Joint Director or Assistant Director or Deputy Director, or the authorised officer referred to in Subsection (1) of Section 132 before he takes action under clauses (i) to (v) of that subsection, has reason to suspect that any income has been concealed, or is likely to be concealed, by any .....

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on or class of persons in relation to an agreement referred to in section 90 or section 90A, it shall be competent for any Income-tax authority not below the rank of Assistant Commissioner of Income-tax, as may be notified by the Board on this behalf, to exercise the powers conferred under subsection (1) on the Income-tax authorities referred to in that subsection, notwithstanding that no proceedings with respect to such person or class of persons are pending before it or any other Income-tax au .....

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in his custody any such books or documents for a period exceeding fifteen days (exclusive of holidays) without obtaining the approval of the Chief Commissioner or Director general or Commissioner or Director therefor, as the case may be. 132. Search and seizure (1) Where the Director General or Director or the Chief Commissioner or Commissioner or Additional Director or Additional Commissioner, or Joint Director or Joint Commissioner in consequence of information in his possession, has reason to .....

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uments as required by such summons or notice, or (b) any person to whom a summons or notice as aforesaid has been or might be issued will not, or would not, produce or cause to be produced, any books of account or other documents which will be useful for, or relevant to, any proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act, or (c) any person is in possession of any money, bullion, jewellery or other valuable article or thing and such money, bullion, jewellery or o .....

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, Assistant Director or Deputy Director, Assistant Commissioner or Deputy Commissioner or Income Tax Officer, or (B) such Additional Director or Additional Commissioner or Joint Director or Joint Commissioner, as the case may be, may authorise any Assistant Director or Deputy Director, Assistant Commissioner or Deputy Commissioner or Income-tax Officer, (the officer so authorised in all cases being hereinafter referred to as the authorised officer) to- (i) enter and search any building, place, v .....

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ficer has reason to suspect that such person has secreted about his person any such books of account, other documents, money, bullion, jewellery or other valuable article or thing; (iib) require any person who is found to be in possession or control of any books of account or other documents maintained in the form of electronic record as defined in clause (t) of subsection (1) of Section 2 of the Information Technology Act, 2000 (21 of 2000), to afford the authorised officer the necessary facili .....

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on any books of account or other documents or make or cause to be made extracts or copies therefrom; (v) make a note or an inventory of any such money, bullion, jewellery or other valuable article or thing: Provided that where any building, place, vessel, vehicle or aircraft referred to in clause (i) is within the area of jurisdiction of any Chief Commissioner or Commissioner, but such Chief Commissioner or Commissioner has no jurisdiction over the person referred to in clause (a) or clause (b) .....

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e it to a safe place due to its volume, weight or other physical characteristics or due to its being of a dangerous nature, the authorised officer may serve an order on the owner or the person who is in immediate possession or control thereof that he shall not remove, part with or otherwise deal with it, except with the previous permission of such authorised officer and such action of the authorised officer shall be deemed to be seizure of such valuable article or thing under clause (iii): Provi .....

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uspect that any books of account, other documents, money, bullion, jewellery or other valuable article or thing in respect of which an officer has been authorised by the Director General or Director or any other Chief Commissioner or Commissioner or Additional Director or Additional Commissioner or Joint Director or Joint Commissioner to take action under clauses (i) to (v) of subsection (1) are or is kept in any building, place, vessel, vehicle or aircraft not mentioned in the authorisation und .....

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the duty of every such officer to comply with such requisition. (3) The authorised officer may, where it is not practicable to seize any such books of account, other documents, money, bullion, jewellery or other valuable article or thing, for reasons other than those mentioned in the second proviso to subsection (1), serve an order on the owner or the person who is in immediate possession or control thereof that he shall not remove, part with or otherwise deal with it except with the previous pe .....

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, examine on oath any person who is found to be in possession or control of any books of account, documents, money, bullion, jewellery or other valuable article or thing and any statement made by such person during such examination may thereafter be used in evidence in any proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act. Explanation.-For the removal of doubts, it is hereby declared that the examination of any person under this subsection may be not merely in resp .....

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h books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person; (ii) that the contents of such books of account and other documents are true; and (iii) that the signature and every other part of such books of account and other documents which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in the handwriting of, any particular person, are in that perso .....

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reasons for retaining the same are recorded by him in writing and the approval of the Chief Commissioner, Commissioner, Director General or Director for such retention is obtained: Provided that the Chief Commissioner, Commissioner, Director General or Director shall not authorise the retention of the books of account and other documents for a period exceeding thirty days after all the proceedings under the Indian Income-tax Act, 1922 (11 of 1922), or this Act in respect of the years for which .....

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officer may appoint in this behalf. (9A) Where the authorised officer has no jurisdiction over the person referred to in clause (a) or clause (b) or clause (c) of subsection (1), the books of account or other documents, or any money, bullion, jewellery or other valuable article or thing (hereafter in this section and in Sections 132A and 132B referred to as the assets) seized under that subsection shall be handed over by the authorised officer to the Assessing Officer having jurisdiction over s .....

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irector under subsection (8), he may make an application to the Board stating therein the reasons for such objection and requesting for the return of the books of account or other documents and the Board may, after giving the applicant an opportunity of being heard, pass such orders as it thinks fit. [* * *] [* * *] [* * *] (13) The provisions of the Code of Criminal Procedure, 1973 (2 of 1974), relating to searches and seizure shall apply, so far as may be, to searches and seizure under subsect .....

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seized. Explanation 1.-For the purposes of subsection (9A), "execution of an authorisation for search"shall have the same meaning as assigned to it in Explanation 2 to Section 158BE. Explanation 2.-In this section, the word "proceeding"means any proceeding in respect of any year, whether under the Indian Income-tax Act, 1922 (11 of 1922), or this Act, which may be pending on the date on which a search is authorised under this section or which may have been completed on or bef .....

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lieve, to carry out search and seizure at the premises of the petitioner. This contention is devoid of any merit mainly for the following reasons: (a) In paragraph 19 of the counter affidavit, as stated hereinabove, this satisfaction has been arrived at with supporting documents by Assistant Director of Income Tax thereafter, by Joint Director of Income Tax and individually by Director General of Income Tax (Investigation). (b) More than one authorities of the Income Tax have reason to believe o .....

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te by the Assistant Director of Income Tax, also by Joint Director of Income Tax which is finally approved before issuance of warrant of authorization for carrying out search and seizure under Section 132 of the Act by the Director of Income Tax (Investigation), this Court cannot verify those documents, based upon which subjective satisfaction was arrived at by the Income Tax Authorities to formulate an opinion that there are sufficient reasons to believe that a search and seizure is to be carri .....

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ind out, evasion of income tax, if need arises, by carrying out raids at the premises of tax evader, on the basis of the documents on record, after formulating necessary opinion which is known in the eye of law either "satisfaction"or "reason to believe". This Court cannot check the weightage of those documents which have been relied upon by the Income Tax Authorities, before carrying out, search and seizure and therefore, the arguments canvassed by the counsel for the petiti .....

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t October, 2009 to 4th November, 2009. This argument is also not accepted by this Court mainly for the following reasons: (a) The powers under Section 131(1A) can be exercised by authorized officer if he has reason to suspect that any income has been concealed and before he takes action under clauses (i) to (v) of Section 132 (1) of I.T. Act is legally flawed. (b) There are two distinct sub sections, each with its precondition, under which the Income-tax Authorities have been given the power to .....

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1975 w.e.f. 01101975. Originally inserted the powers of the civil court were given to Assistant Directors of Inspection only. Circular179 dated 30.09.1975 explains the purpose of introduction of the sub section, which is as follows: "At present Income-tax Officers, Appellate Assistant Commissioners, Inspecting Assistant Commissioners, and Commissioners exercise powers of discovery and inspection, enforcing attendance of persons, compelling production of books of account, etc, and issuing co .....

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pect that any income has been concealed or is likely to be concealed by any person or class of persons within his jurisdiction, even though no proceedings with respect of such persons or classes of persons may be pending before him or any other income-tax authority." (c) The sub section was amended most notably by the Finance Act, 1988 w.e.f 01061988 to include other officers/class of officers. Section 131(1A) as it stands today specifies six different I.T. Authorities who can exercise acti .....

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mentioned in the warrant of authorisation before action under Section 132 is taken. It is due to this power that the preliminary statement under Section 131 is recorded during the course of search. The clause "before he takes action under clauses (i) to (v) of section 132(1)"has a very limited application. (d) Circular 551 dated 23011990 explains the introduction of this particular clause in sub section (1A) of section 131 which is as follows: "............Under the old provisions .....

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en when no proceedings were pending. However, these powers were not available to the Directors and Deputy Directors, who are generally associated with investigation of cases and intelligence work in connection with searches and seizures under section 132. Another difficulty felt was that an authorised officer could record a statement on oath only during the course of search under the provisions of section 132(4). Sometimes it becomes necessary to record a preliminary statement before the commenc .....

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the Adddl. DIT/JDIT issues the warrant the authorised officers could be the DCIT/DDIT/ADIT/ACIT/ITO. (f) Thus an "Authorised Officer"could be an officer engaged in assessment related work or an Income-Tax Officer. It must be emphasized that these officers, in contradistinction to DDIT/ADIT do not have any power to issue summons other than before the commencement of search and seizure action. The powers given to the five hierarchical officers of the Investigation Wing are not encumbere .....

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y the High Court of Madhya Pradesh in Classic Builders & Developers v. Union of India [2001] 251 ITR 492 (MP). (g) Section 132(4) authorises the "Authorised Officer"to examine on oath any person who is found to be in possession or control of any books of account, documents or any valuable articles. It did not empower the recording of the statement of a person who had not yet been found to be in possession of documents or valuable articles. The preliminary statements of the occupant .....

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e instances of the issue of summons. The summons is required to be issued by three classes of Assessing Officers viz: The DCIT, the ACIT and the ITO. The warrant therefore presupposes the issue of summons/notice during the course of assessment proceedings as the power to issue summons, without the pendency of proceedings has not been given to the Assessing Officers. Reading both section 132 and Form45 makes it amply clear that issue of summons under Section 131(IA) is not even discussed in secti .....

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132 of the Act. In section 132 the issue of summons under Section 131(1) and the issue of notice under Section 142(1) have been mentioned together. Since contextually both are together so also is their fate. If one fails, so would the other. If summons [sub section has not been mentioned] cannot be issued after the conduct of the search then notice under Section 142(1) cannot also be issued after the conduct of search. If this argument is extended then, assessment under Section 153A of the Act .....

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son to suspect and is supported by some evidence or the other. The argument therefore, that once reason to believe has been formed [i.e. prior to the issue of warrant] no reason to suspect can be formed is incorrect, inconsistent and beset with many fatal complications, if the argument is agreed upon, it would mean that although a summons can be issued only upon suspicion, one would be precluded from doing so if there were some evidence to support the suspicion. (j) Therefore, the powers under S .....

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sequent to the search is perfectly legal. This view has been further affirmed by a subsequent judgment of the Gujarat High Court in the case ofNeesa Leisure Limited & ANR v Union of India (2011) 245 CTR (Guj) 634. (l) In Mamchand & Co. Vs CIT [1968] 69 ITR 631 [Cal], the High Court has held that section 132 is a comprehensive code in itself. The operative part of the judgment is reproduced as under: "The next contention of the learned Advocate General was that it was argued on behal .....

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of account and other documents, etc. So far as civil court is concerned, discovery, inspection and production of documents could be directed only with regard to particular documents which are specified in the order, and not with regard to all the documents in the possession of a party. The learned Advocate General submitted that matters dealt with in sections 131 and 132 of the Act were entirely different and that section 131 was not an adjunct of section 132. Section 131 of the Act, it was arg .....

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ntary to each other in view of the matters and circumstances contemplated by the two sections, which were entirely different in nature and scope. In my opinion, there is a good deal of force in this contention of the learned Advocate General.Section 132 of the Act is a comprehensive code in itself and the conditions upon which and the circumstances in which warrants of authoristion could be issued, have been set out in great detail in that section." (Emphasis Supplied) (m) It may be kept in .....

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the Settlement Commissioner under Section 245C of the Income Tax Act, 1961. Nothing is wrong in issuing such type of notices or summons even after the search and seizure is carried out. (n) In the facts of the present case also the search and seizure was carried out during 31st October, 2009 to 4th November, 2009. Lot of documents were seized. Analysis whereof took some time due to paucity of staff. Like other departments, Income Tax Department has lot of vacancies. After some time, summon was i .....

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ued by the Assistant Director of Income Tax (Investigation), Ranchi is for enforcing the attendance which is permissible under Section 131 (1)(b) of the Act, 1961. (vi) Moreover, this writ petitioner has also preferred application before the Settlement Commission on 16th July, 2012 under Section 245C of the Act, 1961. Thereafter, the Settlement Commission passed an order under Section 245D(4) of the Act, 1961 dated 27th January, 2014 to the effect that there is no "true and full disclosure& .....

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e Commissioner of Income Tax (Appeal). These facts reveals that there is sufficient materials with the Income Tax Authorities which has provided reason to believe to these authorities to carry out search and seizure because this petitioner has preferred an application before the Settlement Commission under Section 245C. Normally this type of applications are being preferred by those assessee who have not disclosed their huge income. This applicant has also preferred such type of "repent app .....

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961. (vii) For this reason it appears that this writ petition has been preferred with all ulterior motive to cause delay in finalisation of process of payment of the income tax. Even the application preferred before the Settlement Commission was an afterthought just to cause delay in payment of true and correct income tax. Evey type of proceedings has been misused by this petitioner either by way of this writ petition or which was available before the Settlement Commission as there was not true .....

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notices under Section 131(1A) can also be issued after completion of the search undertaken under the provisions of Section 132 of the Act. In our opinion, it would be absolutely logical to call for information so as to have better particulars or to have a complete idea about the material seized during the search. If some material is. seized at the time of the search and the authorised officer wants to have some details so as to understand the nature of the documents, he may issue notice under Se .....

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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 m .....

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e Ltd. & Anr Vs. Union of India & Ors reported in [2011] 338 ITR 460 (Guj) paragraph no. 11 as under: "11. In this regard, it may be pertinent to note that in the concluding subpara of para 3 of the petition, it has been averred that after search, the Asstt. Director of IT, incharge of search operations has issued several notices under s. 131(1A) to the persons searched for production of books of accounts and other information, which are already with him in the seized books of accou .....

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"Copies of some of the notices under s. 131(1A) of the Act have been placed on record along with the affidavit dt. 16th Oct., 2010 made by the petitioner No. 2. A perusal of the prayer clause indicates that there is no challenge to the said notices. In the circumstances, there is no question of going into the validity of the said notices. Moreover, the said issue already stands concluded in favour of the Revenue by the decision of this High Court in the case of Arti Gases v. Director of IT .....

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he 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 .....

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ion of proceedings under s. 132 of the Act. Moreover, even under the provisions of s. 133 of the Act, the AOs or the officers referred to in the said section are having power to call for information. So issuance of such a notice during or after the search cannot be said to be bad in law". The main plank of the submissions advanced by the learned counsel for the petitioners was that issuance of notices under s. 131(1A) of the Act subsequent to the search proceedings was fatal and would rende .....

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