TMI Blog2019 (4) TMI 571X X X X Extracts X X X X X X X X Extracts X X X X ..... itioner is concerned, for the purpose of recording satisfaction u/s 132(1). In the affidavit-in-reply the reason given by the respondent for issuance of search warrant is that the petitioner was not expected to comply with the notice of the respondent No.1 or the respondent No.5 as the petitioner would have brought the alibi of jurisdiction to evade or non-comply with the notice. As rightly submitted by assessee the belief that the petitioner would not respond to a summons or notice issued as envisaged under clause (b) of section 132(1) is not based upon any information or other material but is based upon conjectures and surmises that the petitioner would take the alibi of lack of jurisdiction on the part of the respondents. This contention of the first respondent also lends support to the contention raised on behalf of the petitioner that powers under section 132 of the Act have been resorted to because that is the only provision which vests jurisdiction in the Kolkata authorities for taking action against the petitioner. Evidently, therefore, the circumstance envisaged under clause (b) of section 132(1) does not exist in the present case. Third circumstance as contemplated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chedule to the notification. Respondent authorities have proceeded on the footing that Goan Recreation Clubs Private Limited has received various unsecured advances leading to the belief that the transaction in question is non-genuine - the petitioner has produced on record a mortgage deed dated 22nd June, 2016 executed by and between Royale Recreation Pvt. Ltd. as the First Party, Goan Recreation Clubs Private Limited as the Confirming Party or the Second Party and the petitioner Shri Laljibhai Kanjibhai Mandalia as the Mortgagee or the Third Party, which had been executed by way of a security for repayment of the amount advanced by the petitioner to Goan Recreation Clubss Private Limited. The genuineness of such document has not been disputed by the respondents. Under the circumstances, on the basis of the information referred to hereinabove, no reasonable person could have come to the conclusion that the ingredients contained in clauses (a), (b) or (c) of sub-section (1) of section 132 of the Act were attracted. In the absence of existence of any of the three circumstances envisaged under sub-section (1) of section 132 of the Act, the impugned authorisation is invalid and cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er to the borrower company at the agreed rate of interest and on agreed terms. So as to avoid any technical breach of law, the petitioner was advised to become Director of the borrower company at the time of giving the loan. The petitioner, therefore, became a Director of Goan Recreation Clubs Private Limited on 18.5.2016. However, soon after the loan formalities were completed, the petitioner resigned as a Director of Goan Recreation Clubs Private Limited on 25.6.2016. Accordingly, the petitioner remained as a Director of the borrower company for a little over one month. 4. It is the case of the petitioner that the borrower company which was a new venture was in the process of setting up its business, had yet to start its business when the petitioner resigned as a Director of that company and in fact it did not commence business for a further period of one month after the petitioner resigned as a Director of the company. According to the petitioner, his only role was to give a loan of ₹ 10,00,00,000/- to the company, which amount was completely accounted for and its source was not only disclosed but also very well-known to the department. In due course, the borrower compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Act, 1961 and based upon sound and credible information available to the department. 5.1 The first respondent has sought to explain the action taken against the petitioner as follows:- a) The authorized officers/ investigating officers conducted search and seizure operation at various spots across various states related to the case of Shri Sarju Sharma other associated group of companies which had financial transactions with Shri Sarju Sharma (PANAKOPS3325A) and M/s. Goan Recreation Clubs Pvt Ltd., Goa (PAN-ANYPS6038F), hereinafter referred to as the company . Shri Sarju Sharma is a leading business entrepreneur of Siliguri, Dist-Jalpaiguri, engaged in the hospitality business of Hotel, Restaurant and Bar running business under the name and style of M/s Hotel Alishan and Restaurant. The flagship company M/s. Goan Recreation Clubs Pvt Ltd. after being incorporated in the year 2015 has stepped into the world of gaming entertainment unit of Casino industry. The casino business is being operated from the premises of Grand Hyatt Hotel, Bambolin, Goa w.e.f. 29th Ju1y, 2016. b) The name of M/s Goan Recreation Clubs Pvt Ltd. appeared in the credible information on h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the company M/s Goan Recreation Clubs Pvt. Ltd. During the financial year 2016- 17 have introduced three new Directors along with the exit of then existing Director Shri Rohit Gurubhakta Sharma on 03.03.2017, the details given in the following table:- Name of the Director PAN Date of appointment Date of cessation No. Of shares Sarju Sharma AKOPS3325A 28.09.2015 Active 10000 Rohit Gurubhakta Sharma ANYPS6038F 28.09.2015 03.03.2017 Atul Kokas AAAPK5030A 03.03.2017 Active Hifizurrehman Abdul LahKadiwal AAAPK5030A 03.03.2017 Active Laljibhai Kanjibhai Mandalia AEJPS5127D 18.05.2016 23.06.2016 Addl. Director f) It came to light that the three new directors had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ises of the petitioner was contemplated and carried out on the basis of the information gathered as explained in the above point nos. (a) to (g) of this para. Therefore, from the foregoing paras it can be concludedFrom the above though it is found that Shri Mandalia had resigned as Additional Director of the company on 25.06.2016 and the loan was repaid by the company in the same year as noticed from the table given at point no. (g) of this para but the chain of events raises credible doubt on the transactions entered into by the petitioner with the company in question as it is the familiar modus operandi being practiced by the entry operators. Therefore, from the foregoing paras it can be concluded that the department initiated the search and seizure operation in the premises of the petitioner after conforming to all the criteria mentioned in the Section 132 sub-section 1 clause (s), (b) and (c) of the Income Tax Act, 1961. The search and seizure action was initiated after detailed analysis of information, duly recording of reasons in the Satisfaction Note and approval of the same by the competent authorities. 5.2 It is further averred in the affidavit-in-reply t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the money paid by the petitioner is being investigated. 5.4. The said respondent has thereafter referred to the post search analysis, which is not relevant for the present purpose as this court is concerned with the validity of the authorisation issued under section 132 of the Act and the post search analysis has got no bearing in that regard. 6. Mr. S. N. Soparkar, Senior Advocate, learned counsel with Mr. P. A. Mehd, learned advocate for the petitioner submitted that the impugned search action is bad in law and in violation of the provisions of section 132 of the Act. It was submitted that firstly, the conditions precedent for any action under section 132 of the Act have not been satisfied; and secondly, the action under section 132 as well as all further actions of the respondents pursuant to the said action are illegal and deserves to be quashed. The attention of the court was invited to the provisions of section 132 of the Act to submit that for the purpose of issuance of an authorisation for search under section 132 of the Act, the concerned authority in consequence of information in his possession should have reason to believe that either of the three situations me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) of section 132 of the Act. It was submitted that there was no reason for the Commissioner, Kolkata to form the belief that the petitioner would not respond to the notice and that the only situation which would be applicable in the facts of the present case is clause (b) of section 132(1) of the Act, which would not be attracted having regard to the facts of the present case. Reference was made to the income tax return of the petitioner filed for assessment year 2017-18, to point out that in the return of income itself, the transaction in question has been reflected. It was pointed out that tax has been deducted at source in respect of the interest paid on the loan given by the petitioner and the department has also given credit to the petitioner. 6.2 Reliance was placed upon the decision of this court in the case of LKS Bullion Import and Export Pvt. Ltd. v. Director General of Income Tax , rendered on 30.10.2012 in Special Civil Application No.11593 of 2012 wherein the court on the basis of the record and the reasons noted by the authority was of the view that it was not possible to come to the conclusion that the petitioners had not or would not have disclosed the jewell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jewellery or other valuable article or thing represents either wholly or partly income or property which has not been, or would not be, disclosed for the purposes of the Indian Income-tax, Act, 1922 (II of 1922), or this Act (hereinafter in this Section referred to as the undisclosed income or property). ( 32) The basis of the exercise of the jurisdiction under Section 132(1) has to be the formation of a belief and the belief is to be formed on the basis of receipt of information by the authorising officer. ( 33) The expression ''information must be something more than mere rumour or a gossip or a hunch. There must be some material, which can be regarded as information, which must exist on the file on the basis of which the authorising officer can have reason to believe that action under Section 132 is called for any of the reasons mentioned in Clauses (a), (b) or (c). When an action of the issuance of authorisation under Section 132 is challenged in a Court it will be open to the petitioner to contend that on the facts or information disclosed, no reasonable person could have come to the conclusion that action under Section 132 was called for. The opinion w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur opinion some facts or circumstances must exit on the basis of which such a belief can be formed. For example, if the Department has information that a person has duplicate sets of account books or documents where havala transactions are recorded then the Department can legitimately come to the conclusion that if a notice is sent then that person is not likely to produce the said documents etc. Duplicate books of accounts and such like documents are maintained primarily for the reason that they are not to be produced before the Income Tax authorities. To put it differently, the nature of the documents may be such which are not, in the normal course, likely to be produced before the Income Tax authorities either voluntarily or on requisition being sent. It may also happen that the documents may exist and be in the custody of a person which would show the existence of immoveable property which he may have acquired from money or income which has been hidden from the Income Tax Department. The past record of the assessed, his status or position in life are also relevant circumstances in this regard. Where, however, documents exist which are not secretly maintained by an assessed, for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e under Section 148 of the Act, but no action can be taken under Section 132(1)(C). Authorisation under Section 132(1) can be issued if there is a reasonable belief that the assessed does not want the Income Tax Department to know about the existence of such Income or asset in an effort to escape, assessment. Section 132(1)(c) has been incorporated in order to enable the Department to take physical possession of those moveable properties or articles which are or represent undisclosed income or property. The words undisclosed income must mean income which is liable to be taxed under the provisions of the Income Tax Act but which has not been disclosed by an assessed in an effort to escape assessment. Not disclosed must mean the intention of the assessed to hide the existence of the income or the asset from the Income Tax Department while being aware that the same is rightly taxable. It was submitted that in the facts of the present case the petitioner has disclosed the amount in question in its return of income and has duly paid the tax on the interest received thereon. None of the circumstances contemplated under subsection (1) of section 132 of the Act exist in the present ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orising officer can have reason to believe that action under section 132 is called for. Such information should be fairly reliable and should not be a mere rumour or an unverified piece of gossip or a hunch. The court, therefore, while examining the validity of the authorization issued under section 132 of the Act would firstly be required to examine as to whether there exists any information of the nature referred to hereinabove in the possession of the concerned officer, on the basis of which he could have formed a reason to believe. The next factor which would be required to be satisfied is as to whether before issuance of the authorization, the concerned official has recorded the reasons for his belief. If reasons have been recorded, the opinion which has to be formed being subjective, the jurisdiction of the court to interfere is very limited. The court will not act as an appellate authority and examine meticulously the information in order to decide for itself as to whether the action under section 132 is called for. But the court would be acting within its jurisdiction in seeing whether the act of issuance of authorization under section 132 is arbitrary or mala fide or wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd, therefore, authorisation under section 132 of the Act was issued. It was submitted that to realise the entire amount, the real picture would not have emerged otherwise, and, therefore, there was necessity to issue authorisation under section 132 of the Act. It was submitted that today there is a satisfaction note which establishes positive appreciation on the part of the authorities as contemplated under clause (b) of sub-section (1) of section 132 of the Act and hence, there is no warrant for intervention by this court. It was urged that the petition being devoid of any merit or substance, deserves to be dismissed. 7.6 The learned senior standing counsel further produced a copy of the satisfaction note recorded by the concerned authority for the perusal of the court and made submissions on the basis thereof. 8. In rejoinder, Mr. Soparkar, learned counsel for the petitioner submitted that a parrot like reproduction of the statutory provisions will not vest jurisdiction in the respondents and that to vest jurisdiction under section 132 of the Act, there has to be a reason for issuing authorisation for search thereunder. It was contended that the first respondent had no aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... admitted by the respondents. 8.1 Reliance was placed upon the decision of the Supreme Court in the case of Commissioner of Income Tax, Allahabad v. Vindhya Metal Corporation , (1997) 224 ITR 614 , wherein the court in the facts of the said case has held that considering the material on which reliance was placed by the Commissioner, no reasonable person could have entertained the belief that the respondent therein would not have disclosed the amount in question for the purposes of the Act. It was submitted that the case of the petitioner stands on an even stronger footing. It was, accordingly, urged that the petition deserves to be allowed by quashing and setting aside the impugned authorisation. 9. It is in the backdrop of the above facts and contentions that the validity of the authorisation issued by the first respondent under section 132 of the Act is required to be examined. 10. At the outset it would be germane to refer to the provisions of section 132 of the Act, which to the extent the same is relevant for the present purpose reads as under:- 132. Search and seizure .-( 1) Where the Principal Director General or Director General or Director or the Princ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vehicle or aircraft where he has reason to suspect that such books of account, other documents, money, bullion, jewellery or other valuable article or thing are kept; ( ii) break open the lock of any door, box, locker, safe, almirah or other receptacle for exercising the powers conferred by clause (i) where the keys thereof are not available; ( ii-a) search any person who has got out of, or is about to get into, or is in, the building, place, vessel, vehicle or aircraft, if the authorised officer 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; ( ii-b) 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 (i) of sub-section (1) of Section 2 of the Information Technology Act, 2000, to afford the authorised officer the necessary facility to inspect such books of account or other documents; ( iii) seize any such books of account, other documents, money, bullion, jewellery or other valuable article or thing found as a r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been empowered by the Board to do so. Explanation.-For the removal of doubts, it is hereby declared that the reason to believe, as recorded by the income-tax authority under this sub-section, shall not be disclosed to any person or any authority or the Appellate Tribunal. 11. On a plain reading of sub-section (1) of section 132 of the Act, it is clear that it is in consequence of information in his possession that the concerned authority should have reason to believe that any of the three circumstances provided under sub-section (1) of section 132 exist. Existence of any one of the circumstances is mandatory to justify the exercise of power to issue authorisation. The condition precedent for exercising power to issue authorisation for search and seizure is hedged in by the requirements of these conditions precedent and it is only if these conditions are fulfilled that the power can be exercised. The facts of the present case are required to be examined in the light of the above statutory provision. 12. Insofar as the first circumstance as laid down under clause (a) of sub-section (1) of section 132 is concerned, the same relates to a case where any person to whom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) and clause (c) of sub-section (1) of section 132 of the Act are satisfied is required to be considered. 16. Clause (b) of sub-section (1) of section 132 of the Act provides for issuance an authorisation in case where the authority in consequence of information in his possession, has reason to believe that such person to whom a summons or notice has been issued or might be issued will not, or would not, produce or cause to be produced, any books of account or other documents which would be useful for, or relevant to, any proceeding under the Act. In the facts of the present case, it may be noted that the first respondent, namely the authority who has issued the authorisation under section 132 of the Act, is not the jurisdictional Assessing Officer. The first respondent Principal Director of Income Tax (Investigation), Kolkata, who has issued the impugned authorisation is based in Kolkata and, therefore, has no jurisdiction over the petitioner under the normal provisions of the Act. The only provision under which the said respondent can exercise jurisdiction over the petitioner is under section 132 of the Act in view of the CBDT notification dated 3.12.2001 issued under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, jewellery or other valuable article or thing which would not have been disclosed by him for the purposes of the Act. On the contrary, in the facts of the present case, from the record of the case as produced by the respondents as well as by the petitioner, it is evident that the loan transaction whereby the petitioner had advanced ₹ 10,00,00,000/- to the borrower company has been duly reflected in the books of account of the petitioner. In his return of income, the petitioner has duly shown the interest income from such transaction. The tax deducted at source in respect of such interest income, has been credited to the account of the petitioner by the concerned authority. Therefore, the entire transaction has been disclosed by the petitioner. There is no other material on record on the basis the respondents could have formed the belief as contemplated under clause (c) of sub-section (1) of section 132 of the Act. Evidently, therefore the circumstance envisaged under clause (c) of section 132(1) of the Act also does not exist in the present case. 18. In the opinion of this court, on the information which has come on record there is no material on the basis of which a rea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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