TMI Blog1973 (9) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... . Operation of this order is stayed accordingly for a period of two weeks from to-day - - - - - Dated:- 6-9-1973 - Judge(s) : B. K. MEHTA., B. J. DIVAN. JUDGMENT The judgment of the court was delivered by B. J. DIVAN C.J.-The petitioner herein is a resident of Surat and the respondent is the Income-tax Officer, Ward-C, Surat Circle, Surat. The petitioner is carrying on business of manufacturing cloth and sale of yarn and this business is being carried on at Surat. It is the petitioner's case that he had business and social relations with one Ratilal Desai of Bombay. On or about July 1, 1969, the petitioner had gone to Bombay and had met Ratilal Desai. After some preliminary negotiations, Ratilal Desai suggested to the petitioner that he wanted to invest a sum of Rs. 2,00,000, this being the amount which he had realised from the sale of an ice factory at Hyderabad. Ratilal Desai suggested that he wanted to invest this amount in some business which the petitioner might suggest. The petitioner informed Ratilal Desai that there was a considerable scope for investment of funds in cloth business in Surat and, therefore, Ratilal Desai should invest the said sum of Rs. 2,00,000 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase that ten notes of Rs. 10,000 each were found from the locker and the numbers of those currency notes tallied with the numbers of the 10 notes of Rs. 10,000 each mentioned in the receipt by him to Ratilal Desai. The respondent had also seized the regular books of accounts maintained by the petitioner in which there were relevant entries indicating that the amount of Rs. 1,70,000 belonged to Ratilal Desai. It is the case of the petitioner that he protested to the respondent against the manner in which this raid was carded out and he submitted to the respondent that the action under section 132 was taken for which were extraneous to the Act. Subsequently, the respondent held protracted inquiries and it is the case of the petitioner that pressure was sought to be brought upon the petitioner in order to induce the petitioner to submit to a settlement of the whole case against him but the petitioner declined to submit to any such pressure. It is the case of the petitioner that the respondent examined the petitioner in respect of the prizes won by the petitioner in some prize competitions and about another prize won by the petitioner's wife in a crossword puzzle competition and the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Officer, a Division Bench of this High Court consisting of Bhagwati C.J. and T. U. Mehta J. has held that the provisions of the Income-tax Act, relating to search and seizure contained in sub-sections (1)(c)(iii) and (5) of section 132 are not violative of articles 14 and 19(1)(f) of the Constitution and are not null and void. The restrictions imposed by the impugned provisions on the right of the citizen to hold end enjoy property under article 19(1)(f) are reasonable restrictions in the interests of the general public and are saved by article 19(5) It was also held that the power conferred under section 132, sub-sections(1)(c)(iii) and (5), is not unfettered or uncanalised. It is a power which is hedged in by several conditions and safeguards and it is exercisable only in certain specified circumstances and subject to certain defined conditions and the section clearly indicates the policy or principle which is to guide the exercise of the power. The challenge to the constitutionality of the impugned provisions on the ground of violation of articles 14 and was, therefore, unfounded and could not be sustained. It was further held that the classification made by section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On July 11, 1969, a key was handed over by the petitioner to the respondent but the key did not fit the locker in that particular safe deposit vault. On July 14, 1969, a notice was given by the respondent to the petitioner and thereafter in pursuance of that notice the petitioner's statement on oath was recorded by the respondent. On July 16, 1969, the petitioner wrote a letter to the Income-tax Officer contending that the amount of Rs. 1,70,000 which was in the locker which was yet to be opened, belonged to Ratilal Desai and he also mentioned the circumstances under which the amount of Rs. 1,70,000 came to be in that locker. In the impugned order dated October 9, 1969 the Income-tax Officer, the respondent herein, has observed that this letter or application was handed over by the petitioner after the locker was broken open but in the affidavit-in-reply in terms he has admitted that the letter was handed over or sought to be handed over by the petitioner to the respondent before the locker was broken open. When the locker was broken open, an amount of Rs. 1,70,000.25 and 23 guineas were found in the locker and these amounts were seized by the respondent. On July 17, 1969, the peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e petitioner and his wife represented the petitioner's undisclosed income. It is the petitioner's grievance in paragraph 12(L) that: "Rule 112A(4) was not complied with by the Income-tax Officer. The Income-tax Officer did not give notice of the material to be used against the petitioner nor a chance to cross-examine those whose statements he used against the petitioner, particularly Ratilal, the Commissioner and Harifaiwalas organisers of the prize competitions." In order to appreciate this contention, the second contention urged by the learned Advocate-General on behalf of the petitioner, it would be necessary to refer to some of the provisions of the Act and the Rules. Under section 132(1)(c)(iii), where the Director of Inspection or the Commissioner in consequence of information in his possession, has reason to believe that any person is in possession of any money, bullion, jewellery or other valuable article or thing and such money, bullion, jewellery or other valuable article or thing represents either wholly or partly income or property which has not been disclosed for the purposes of the Indian Income-tax Act, 1922, or this Act, he may authorize any Deputy Director of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ub-section (5), any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded. The Income-tax Rules, 1962, were framed by the Central Board of Revenue and rule 112A is material for the purposes of this judgment. This rule provides the procedure for an inquiry under section 132. Clause (1) of rule 112A provides that where any money, bullion, jewellery or other valuable article or thing are seized, the Income-tax Officer shall within fifteen days of the seizure issue to the person in respect of whom enquiry under sub-section (5) of section 132 is to be made, requiring him on the date to be specified therein (not being earlier than fifteen days from the date of service of such notice) either to attend at the office of the Income-tax Officer to explain or to produce or cause to be there produced evidence on which such person may rely for explaining the nature of the possession and the source of the acquisition of the assets. Clause (3) provides that the Income-tax Officer may examine on oath any other person or make such other inquiry as he may deem fit. Clause (4), which is the material clause, is in these terms: "(4). B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, no order under section 132 sub-section (5), can be passed. It must be remembered in this connection that under section 132(5), before the order contemplated therein can be passed, such inquiry as may be prescribed, has to be held and the inquiry which has been prescribed is under rule 112A. The provision under clause (1) of rule 112A about giving of the show-cause notice within fifteen days of the seizure has been held to be a mandatory provisions. In our opinion, the provision in clause (4) about giving a reasonable notice to the person concerned to show cause why the material gathered by the Income-tax Officer should not be used against him is, as we have observed above, a compliance with the principles of natural justice and it is but fair and proper that such opportunity should be given to the person concerned. Even if a provision like clause (4) of rule 112A had not been there, the courts were bound to read into the provisions of rule 112A or in the provisions regarding the holding of this type of inquiry, a mandatory requirement that materials gathered by the officer on which reliance was to be placed at the time of passing the order against the person concerned, must be d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idavit of Ramaswami has been annexed to the affidavit-in-reply of the respondent filed in the present special civil application and reliance has been sought to be placed on that affidavit of R. V. Ramaswami. This memorandum, dated October 3, 1969, mentions that the present petitioner and Ratilal Desai had seen Ramaswami on October 3, 1969, at 10-15 a.m. and what transpired in the course of that interview has been set out by Ramaswami in that memorandum. It is this memorandum which is referred to and relied upon by the respondent in the two passages which we have referred to above where he has disbelieved. the evidence led on behalf of the petitioner or by Ratilal Desai partly on the basis of the statement made by Ratilal Desai before the Commissioner of Income-tax, Gujarat II. In the affidavit-in-reply specifically dealing with sub-paragraph (L), being affidavit dated October 22, 1971, the respondent has stated: "With reference to the said sub-paragraph (L) of paragraph 12 of the petition, I deny that rule 112A(4), was not complied with by me. I say that notices under rule 112A were given to the petitioner on 24th July, 1969, and 23rd August, 1969. In reply to the said notices th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missions made in the said affidavits of Shri R. V. Ramaswami and of myself and repeat and reiterate the same as if the same were made herein. I deny all the allegations and contentions made in the petition herein which are contrary to or inconsistent with what is stated in the said affidavits of Shri Ramaswami and myself or in the order, dated 9th October, 1969........" Thus, it is obvious that the statement alleged to have been made before Ramaswami on October 3, 1969, has been relied upon by the respondent for disbelieving the version of the petitioner and Ratilal Desai that the amount of Rs. 1,70,000 belonged to Ratilal Desai and for rejecting this particular version of the petitioner. It is true that reliance has been placed on this statement of Ratilal Desai made before Ramaswami on October 3, 1969, only as one of the grounds for rejecting the version of the petitioner and Ratilal Desai regarding the ownership of this amount of Rs. 1,70,000 but it is equally obvious that this statement made or alleged to have been made by Ratilal Desai before Ramaswami was in terms relied upon by the respondent for coming to his conclusion regarding the ownership of this sum of Rs. 1,70,000. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to pay these prizes. The real and original cash books (not to mention the later versions of cash books with many added entries) which were seized during the search showed very small cash balance to the order of about Rs. 300 to Rs. 500 and sometimes going up to Rs. 1,000 throughout the relevant period. The position in respect of Kumkum Harifai with the premises at Indore is also practically the same. My observations about the total collections and the prizes awarded as well as the state of books and the cash balance, apply equally to that Harifai. To justify payments of huge amounts into the bank accounts, just on the day, or immediately before, the cash of the so called prize cheques, bills of sales of Rokad Pavtis for cash were shown. Most of the persons in whose names the sales were shown were non-existent; those who existed have denied the transactions and the statements on oath recorded during the search showed that the sale bills were all bogus. This is further supported by the fact that as stated above, the cash book never showed these sales. Thus, it is clear that this Harifai could not have distributed these prizes. It is thus clear that the huge credits referred to abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the amount of Rs. 2,68,941 which he included in the total undisclosed income of Rs. 4,69,161 was the undisclosed income of the petitioner, was on the basis of the information collected in the course of searches of those different organizers of prize competitions. This material was, as the impugned order shows, certainly utilized by the respondent for coming to his conclusions but no reasonable notice was given to the petitioner to show cause why this material should not be used against him. It is true, as the respondent has contended in his affidavit-in-reply, dated October 22, 1971, that this information of material might not have been gathered by him in the course of examination of any other person or in the course of such other inquiry as he might have held while conducting the case against the petitioner, but both on the ground of non-compliance with the principles of natural justice as well as on the ground that the material which was to be utilised against the petitioner was not disclosed to the petitioner and a reasonable notice to show cause why such material should not be used against the petitioner was not given to him, the impugned order must be held to be void. The ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quires that the inquiry contemplated by that sub-section must be held as may be prescribed by the rules and if the requirements of rule 112A are not satisfied, the inquiry cannot be said to have been held in the manner prescribed. A reading of rule 112A clearly indicates that clauses (1) and (4) of that rule are conditions precedent to the passing of a valid order under section 132(5) and if those conditions precedent are not satisfied the order must be held to illegal and void. We may also point out that it is well-settled that if in any particular inquiry where the principles of natural justice are required to be followed the principles of natural justice are in fact found to have been violated, the order passed as a result of such inquiry would be vitiated and void. Mr. Kaji, on behalf of the respondent, relied upon the decision of the Supreme Court in Zora Singh v. T. M. Tandon. In that case there was no question of violation of principles of natural justice. The Supreme Court has there observed in paragraph 10 at page 1540: " The High Court was right in holding that even if there were, amongst the reasons given by the Commissioner, some which were extraneous, if the rest w ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
