TMI Blog2002 (10) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... Calcutta-700 071. He is residing at a flat being No. 9C/9D, 87, Southern Avenue, Calcutta-700 029. The petitioner alleged that on September 24, 2001, the Deputy Director of Income-tax (Investigation) along with other officers of the Income-tax Department initiated a search at the place of the petitioner's business at No. 58, Jawaharlal Nehru Road, Calcutta-700 071. The search commenced at 8 a.m. of the day and ended at 1.15 a.m. of the next day. Therefore, no business was held on that very day. Respondent No. 1 prepared an inventory of bank accounts, demat accounts, foreign exchange, machineries, shares, finished goods, raw materials and packaging materials. They had seized Rs. 4,50,000 in cash, bunch of loose sheets, computer (C.P.U.) print outs and some documents relevant for preparing final books of account. The panchanama under section 132 of the Income-tax Act, 1961, and list of inventories were served only on September 25, 2001. Simultaneously, with the aforesaid search and seizure on September 24, 2001, at around 8.30 a.m., a similar set of officers took out search and seizure proceeding under section 132 of the Income-tax Act at the residence of the petitioner and after m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is evident that the action on the part of the respondent authority is on the basis of assumption and without fulfilment of the test and requirement of search and seizure. Therefore, the search and seizure is wholly arbitrary, illegal and without jurisdiction. Fishing and roving enquiry in the name of search is not only illegal but also without jurisdiction. The condition precedent for search and seizure is "reason to believe" under section 132 of the Act which cannot be equated with "reason to suspect". The expression "reason to believe" postulates belief and the existence of reasons for that belief. The belief must be held in good faith. It cannot be merely a pretence. It is true to say that the expression "reason to believe" does not mean purely subjective satisfaction on the part of the authority in making the seizure but the reasons for the belief must have a rational connection or a relevant bearing for the formation of the belief, not extraneous or irrelevant for the said purpose. As and when places of persons of diverse activities and unconnected with each other are searched and their bank accounts are freezed by the authority to get or gather materials and information t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d seizure was conducted along with his elder brother since both of them are running the business under the brand name of "Haldiram Bhujiawala". Allegation of tax evasion is there and the information gathered by the Department is that the group does most of the transactions in cash and does not record the actual transactions in the books of account. The petitioner is engaged in the business of manufacturing and selling the products of "Haldiram Bhujiawala". Thirdly, the search and seizure was conducted at the business and residential premises of "Haldiram Bhujiawala Group". The petitioner is one of the key persons of the group. He is selling the goods along with other or others under the brand name of "Haldiram Bhujiawala". Fourthly, the panchanama was drawn tip at the end of search proceedings on the day and a copy along with the annexures were given to the petitioner. Fifthly, satisfaction was recorded in writing by the competent authority prior to the issue of warrants of authorisation for such search. Sixthly, there is no dispute that "Pratik Food Products" is a pro prietorship concern but due to inadvertent mistake "Pratik Food Product (Pvt.) Limited" has been incorporated. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d" having no existence is void ab initio. The provision of search and seizure is made under section 132 of the Act. For the purpose of "reason to believe" three tests are to be satisfied which are given under sub section (1), clauses (a), (b) and (c) of the same are as follows: "(a) any person to whom a summons under sub-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 be produced, 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Das [1976] 103 ITR 437, the Supreme Court, while interpreting a similar expression used in section 147 of the Act, held: "The expression 'reason to believe' does not mean a purely subjective satisfaction on the part of the Income-tax Officer. The reason must be held in good faith. It cannot be merely a pretence". Thereafter he cited ITO v. Seth Brothers [1969] 74 ITR 836, 843 (SC). It appears from there that the Supreme Court held that section 132(1) does not confer any arbitrary authority upon the Revenue officers. The Commissioner or the Director of Inspection must have, in consequence of information, reason to believe that the statutory conditions for the exercise of the power to order search exist. He must record reasons for the belief and he must issue an authorisation in favour of a designated officer to search the premises and exercise the power set out therein. The condition for entry into and making search of any building or place is the reason to believe that any books of account or other documents which will be useful for, or relevant to, any proceeding under the Act may be found. If the officer has reason to believe that any books of account or other documents woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould itself show the application of mind and the formation of opinion by the officer ordering the search. If the reasons which are recorded do not fall under clause (a), (b) or (c), then the authorisation under section 132(1) will have to be quashed. In Dwarka Prosad Agarwalla v. Director of Inspection [1982] 137 ITR 456, 466 (Cal) at page 466 Justice Sabyasachi Mukherjee (as his Lordship then was) has also taken the ri similar view. In addition to the aforesaid judgment the petitioner has relied upon an unreported judgment of this court in W.P. No. 18191 (W) of 2001 along with the other connected matters in Sugandha Industries (Pvt.) Limited v. Chief Commissioner of Customs, delivered by this court on March 6, 2002, on the self-same point. So far as the subsequent point is concerned, learned counsel appearing for the petitioner relied upon the judgment reported in Dr. C. Balakrishnan Nair v. CIT [1999] 237 ITR 70 (Ker) at its page 82 and contended that if the proceedings taken under section 132 of the Act fail and/or are declared invalid the block assessment, if any, will automatically fail. However, I do not want to go to such controversy for the simple reason that Mr. Shome, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Signatures and handwritings, stamp, execution or attestation have been done by such person from whose possession or custody these documents were found available. Therefore, when "reason to suspect" is not exclusive bar and when certain things are found available from the custody of the petitioner, the law does not prohibit the income-tax authorities from proceeding in accordance with law. He has further drawn my attention to section 132(1)(c)(B)(i) and stated that the officer so authorised is entitled to enter and search any building, place, vessel, vehicle or aircraft where he has reason to suspect that such books of account, other documents, money, bullion, jewellery or other available article or thing are kept. He relied upon various judgments in support of his case. Firstly, he relied upon Sriram jaiswal v. Union of India [1989] 176 ITR 261 in its pages 265 and 266 whereunder a Division Bench of the Allahabad High Court held that merely on the basis of the denial of the petitioner, the respondents cannot be called upon to disclose the information they received for having acted under section 132(1) of the Act. If it is taken from another angle it can be seen that certain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to make a search and seizure. The notice for block assessment has already been served. In reply thereto, Mr. Bhattarcharjee contended that when there is non fulfilment of condition prescribed under section 132(1) of the Act precised by clause (c), no proceeding shall lie under sub-section (1A). The question of block assessment cannot arise if search and seizure of a company known as "Pratik Food Products (Pvt.) Limited" appears to be wrong or erroneous. I have carefully considered the respective submissions of counsel appearing for the parties. I have gone through the records produced by the reason dents in this court. I am very much candid to say that steps of the income-tax authorities to make "Haldiram Bhujiawala" block to get attracted an individual assessee and then proceeded for search and seizure is misconceived in nature. Block assessment is made for the block period. As because one is running business of selling products of "Haldiram Bhujiawala" in the name of "Pratik Food Products" cannot be said that he will be liable for block assessment. If the brand name "Haldiram Bhujiawala" is taken for judicial notice then whosoever is selling the product either in India or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exercised. If either of the conditions under sub-section (1) of section 132 is not fulfilled then the authority is pre cluded from invoking any powers under this section. "Reason to believe" is a common feature of taxing statutes. It has been considered to be the most salutory safeguard on the exercise of the power by the authorities. On the other hand, adequacy or sufficiency of the materials cannot be the subject matter of scrutiny of the court. The belief must be held in good faith. Therefore, there should have to be a balance. Against this background when I go through the record, being satisfaction notes, I find it more difficult to construe that there was a reason to believe. The purported reason is in the form of statement. Some of the examples are given hereunder. Although the petitioner and his brother are doing business separately but both are doing under the same brand name. The business of No. 58, Jawaharlal Nehru Road is closely monitered by the petitioner. The entire affairs are controlled by the petitioner along with his brother. As per information gathered documents, papers, undisclosed cash, jewellery and other assets are likely to be found at his residence. Therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve" under section 132(1)(c) of the Act. Thereafter, the question of nexus or connection with others will arise. Therefore, the ratio of one of the cited decisions of Mr. Shome does not help him. The ratio speaks it is open to the court to examine the question whether the reasons for the belief have a rational connection or a relevant bearing to the formation of the belief and are not extraneous or irrelevant to the purpose of the section. Against this background even if remedy lies before the authorities under sub-sections (5) and (11) of the section 132 of the Act as per the respondents but the writ court cannot avoid its responsibility to adjudge the merits in view of the question of serious invasion of the personal right of a citizen. Lastly the 60 days period provided under section 132(8A) is mandatory in nature which shall not be in force after the expiry of the period. It is an admitted position that such period has expired before filing of the writ petition. There is no indication as to whether such seized articles or things handed over to the Assessing Officer within a period of 60 days from the date on which the last of the authorisation for search was executed. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X
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