TMI Blog1993 (3) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... n Point, Bombay. The company has authorised four persons, including one Mr. Shyam Bhatia, who is neither a shareholder nor a director of the company, as authorised signatories to operate its bank accounts. Sri Bhatia has claimed that he is the chairman of the group of companies, including the petitioner. The Income-tax Department had started an investigation into the allegations of concealed income of Mr. Shyam Bhatia. It conducted search operations and organised raids in aid thereof, of various premises of Mr. Shyam Bhatia, his associates and companies allegedly under his control. Those operations were initiated under section 132 of the Income-tax Act. The operations were conducted on August 27, 1992. The residential premises of Sri Shyam Bhatia at 89,Worli-'C' Phase, Bombay, were searched. The Department found some incriminating material and recorded the statement of Mr. Bhatia. The registered office of the first petitioner was also searched on the same day. At the time of search, the petitioner-company had a balance of Rs. 77,73,803 in its current account and Rs.5,07,56,164.40 in a fixed deposit receipt under an account with the State Bank of India, Bombay. It had a credit bal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the individual--Sri Shyam Bhatia--who was not even a shareholder, much less a director of the company. It submits further that the petitioner-company is a separate legal entity. Its funds are not liable to be seized on the assumption that they belong to an individual. The petitioner submits further that even assuming that search and seizure were legal and permissible, those operations could have been undertaken only with notice to the petitioner and not on the assumption that notice to Sri Shyam Bhatia was notice to the company. Counsel for the petitioner asserts further that even though the registered office of the company was searched under section 132 of the Income-tax Act, it did not yield any incriminating material disclosing any unaccounted income of the petitioner, nor did it disclose any design for evasion of tax. He asserts that the assets or funds of the company should not have been seized or appropriated on the assumption that they belong to Sri Shyam Bhatia. Yet another submission of the petitioner is that the credit balance in the petitioner's account in the two banks and the amount due under the fixed deposit receipt are in the nature of debts which the bank owed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e gains were parked in the accounts of companies of which Sri Shyam Bhatia had absolute control. He was manipulating the bank accounts of the company in his capacity as authorised signatory. It is submitted that the directors of the company were only name-lenders, and had no part to play in the actual administration or affairs of the company. Virtually they were employees in some of the investment companies which were promoters of the front companies like the first petitioner in the group of which Sri Shyam Bhatia was the chairman. Investigations are said to have disclosed that the directors and employees who were appointed had simultaneously submitted letters of resignation as also letters authorising Sri Shyam Bhatia and his wife to operate bank accounts of the company. It is asserted that the search on August 27, 1992, disclosed that some of the investment companies which were promoters of the petitioner-company were non-existent and could not have had control of funds necessary to invest in the promoters' equity. Those investment companies with initial capital of Rs. 1.40 crores were only facades, in which Sri Shyam Bhatia had invested unaccounted income of two other private co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Department that the petitioner was only one of the instruments used by Mr. Shyam Bhatia to conceal his undisclosed income in bank accounts. It was on taking into consideration these facts that the Department issued orders under section 132(3) interdicting the bankers from allowing the company or Sri Shyam Bhatia to operate the bank accounts. The respondents submit that there was sufficient prima facie evidence justifying the action which they took. The respondents submit that subsequent events provided considerable support to the directions issued under section 132(5). The respondents assert that they issued notices to the petitioner requiring it to participate in the proceedings under section 132(5) of the Act, after completing on December 11, 1992, the search operations which were commenced on August 27, 1992, and soon there after, within 120 days of the seizure of the bank accounts, the respondents issued an order under section 132(5) of the Act. The respondents also maintain that there are no bona fides in the petitioner-company filing this writ petition, long after seizure of the assets--as early as on August 31, 1992, since the writ petition was filed only on January 27, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 132(1) and 132(5) of the Income-tax Act, after the authorised signatory had requested in his statement dated August 27, 1992, and in his letters dated October 30, 1992, and December 18, 1992, to adjust the seized amounts, towards arrears of income-tax, penalty, etc., due from him ? Answers to these questions are found in some of the decisions cited before us. In ITO v. Seth Brothers [1969] 74 ITR 836, the Supreme Court held that section 132 did not confer any arbitrary authority upon the Revenue Officers. Since by the exercise of the power, a serious invasion is made into the rights, privacy and freedom of the taxpayer, the power must be exercised strictly in accordance with law and only for the purposes for which the law authorises it to be exercised. The court held (at page 843): "If the action of the officer issuing the authorization or of the designated officer is challenged, the officer concerned must satisfy the court about the regularity of his action. If the action is maliciously taken or power under the section is exercised for a collateral purpose, it is liable to be stuck down by the court. If the conditions for exercise of the power are not satisfied the proceeding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onnection with taxation laws in order that evasion may be checked." In Pooran Mal v. Director of Inspection (Investigation) [1974] 93 ITR 505, the Supreme Court again considered the scope of section 132 of the Income-tax Act. The court held (at page 518): "In the first place, it must be noted that the power to order search and seizure is vested in the highest officers of the Department. Secondly, the exercise of this power can only follow a reasonable belief entertained by such officer that any of the three conditions mentioned in section 132(1)(a), (b) and (c) exists. In this connection, it may be further pointed out that under sub-rule (2) of rule 112, the Director of Inspection or the Commissioner, as the case may be, has to record his reasons before the authorisation is issued to the officers mentioned in sub-section (1). Thirdly, the authorisation for the search cannot be in favour of any officer below the rank of an Income-tax Officer. Fourthly, the authorisation is for specific purposes enumerated in (i) to (v) in sub-section (1), all of which are strictly limited to the object of the search. Fifthly, when money, bullion, etc., is seized, the Income-tax Officer is to mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of them were employees of the financing/investment companies which are under the control of Sri Shyam Bhatia. Those are matters which have to be decided in other proceedings. Suffice it for us to say that if the fourth respondent had, in consequence of information in his possession, reason to believe that any person is in possession of any money, bullion, jewellery or other valuable articles or things which either wholly or partly consist of income or property which has not been or would not be disclosed for the purpose of the Indian Income tax Act, 1922, or the Income-tax Act, 1961, search of any building or place or any person and seizure of books of account, other documents, money, bullion, jewellery or other valuable articles or things could be validly authorised. Apparently that was what happened in this case. The question is whether such search shall be confined to the place of business or residence of the person who evades tax and none other. The question was posed quite early before the Supreme Court in Seth Brothers' case [1969] 74 ITR 836 and in Pooran Mal's case [1974] 93 ITR 505. The court observed in Seth Brothers' case [1969] 74 ITR 836 (SC) that (at page 847) : " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nipulative endeavours. He was admittedly the "authorised signatory" on behalf of the company. He could operate the accounts of the company. He had claimed in his statement on August 27, 1992, that he had necessary authority to accept notice and make commitments on behalf of the company in his capacity as "authorised signatory". He had, in his letter dated December 18, 1992, declared that in the statement which he had given under section 132(4) of the Act in the early hours of August 27, 1992, in his capacity as the authorised signatory for various companies, offered an income to the tune of Rs. 10 crores, subject to further verification as income earned by seven investment companies on sale of the shares of Lan Eseda Steels Limited and that following subsequent discus sions at Bombay, he had offered a further income of Rs. 4 crores. It was stated-- "I am herewith offering a further income of Rs. 3 (sic) crores, in the investment companies of which I am the authorised signatory." He clarified in that letter-- "I further wish to clarify that this disclosure has been made not in my personal capacity, but only as authorised signatory of various companies which are covered by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hority to take the action impugned, or (2) where the order prejudicial to the writ petitioner has been passed in violation of the principles of natural justice and could, therefore, be treated as void or non est and that in all other cases, courts should not entertain petitions under article 226 or in any event not grant any relief to such petitioners cannot be accepted." . . . . The court held (at page 1510): "The interpretation they put on the relevant items in the Tariff Schedule might be erroneous, even grossly erroneous, but this error was one committed in the exercise of their jurisdiction and had not the effect of placing the resulting order beyond their jurisdiction. Secondly, as we have already indicated, we must express our dissent from the reasoning by which the learned judges of the High Court held that the writ petitioner was absolved from the normal obligation to exhaust his statutory remedies before invoking the jurisdiction of the High Court under article 226 of the Constitution." Shivram Poddar's case [1964] 51 ITR 823 (SC) precluded interference by courts in exercise of extraordinary jurisdiction in matters relating to levy and collection of income-tax. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oined issue on this point. The assertions of the petitioner are controverted by the Department by stating that the fourth respondent had sufficient reason to believe that Sri Shyam Bhatia had concealed his income, and search and seizure of the premises of the companies with which he was closely associated including the petitioner-company would disclose such income, assets, documents, valuable articles and things. As to whether such information as he had in his possession was sufficient to produce reason to believe that there was concealed income is a matter for other proceedings and not for this court in proceedings under article 226 of the Constitution of India. As a matter of fact, the principal character in the episode--Sri Shyam Bhatia--has filed an appeal under section 132(11) of the Act where substantially similar contentions are urged. We, therefore, decline jurisdiction to interfere with the proceedings at the instance of the petitioner. Since the petitioner has chosen to raise a point that it had no notice at all of the proceedings under section 132 of the Act, and, therefore, the proceedings are vitiated, we feel it our duty to refer to some facts bearing on this aspect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on contained in the judgment of the High Court. The Supreme Court refused to entertain the appeal holding that (at page 58): "In the instant case, the husband and the wife stayed in the same premises. The authorisation for search and seizure in respect of account books and goods which were seized was against the wife, but in the proceedings under section 132(5) of the Act, the husband, Mr. Singhal, has contended and claimed that the ornaments in question or the jewellery belonged to him.... Indeed Mr. R.K.Singhal has stated on oath before the authorised officer at the time of search that the same belonged to him and he has claimed the same to be treated as representing his undisclosed income. Mr. R. K. Singhal, the husband, as his evidence as recorded in the proceedings against him, has disclosed the same and surrendered a total sum of over Rs. 4,00,000 consisting of undisclosed cash of Rs. 1,16,550 and excessive jewellery worth Rs. 2,97,750 received from his possession as his income for the purpose of income-tax assessment for the current year, which he claims to have earned from his business. Therefore, it appears that there is a dispute as to who is the owner of the jewellery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty at Bombay in addition to Rs. 10 crores which he had already surrendered. In his letter dated December 18, 1992, he surrendered a further amount of Rs. 3 crores before the third respondent at Hyderabad. A notice was sent on December 17, 1992, to Sri Shyam Bhatia and the concerned companies. That did not evoke any reply from the petitioner. Counsel for the Revenue invited our attention to the fact that the orders under sections 132(3) and 132(5) are produced by the petitioner even though they were addressed only to Sri Shyam Bhatia. The petitioner has also produced letters of Sri Shyam Bhatia to the Director of Income-tax (Investigation). He submits that these circumstances coupled with the fact that Sri Shyam Bhatia all along claimed to represent the company as the authorised signatory supports the case of the Revenue that the petitioner-company was only a front for the designs of Sri Shyam Bhatia to park his clandestine and concealed income. Counsel submits that these revealing facts disentitle the company from claiming the seized assets to belong to itself exclusively and from seeking relief against the search and seizure proceedings for the reason that it was not notified ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irst respondent in each of these cases in terms of what we have indicated earlier, we conceive that these orders could not have been challenged in proceedings under article 226 of the Constitution successfully. The question is whether by the mere fact that the order was directed against the bank, the first respondent in each of these appeals, we should set aside the orders under article 226 of the Constitution. We do not think that in substance they are aggrieved by the order merely because of its bad form more than they would have been aggrieved had the order been issued against them. We may add that any order issued to the first respondent in each of these appeals could have been communicated to the bank as well and any prudent bank, we are sure, would in the light of such an order served on the customer, refuse the customer to operate on the accounts." The same question was considered in Santosh Verma v. Union of India [1991] 189 ITR 549 (Patna). The court held (at page 552) : "It is no doubt well-settled that an amount in credit with the banker is always liable to attachment. An action in that behalf can be taken under sub-section (3) of section 132 of the Act. That provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (8) of the Act. We note that section 132(1A) of the Act which was introduced by the Taxation Laws (Amendment) Act, 1975, with effect from October 1, 1975, is a supplementary provision which authorises seizure of books of account and documents as well. The decision in Bhagwandas' case [1975] 98 ITR 194 (Guj) which was rendered on June 18, 1973, may not have much significance now in this respect. K.E.Johnson's case [1974] 93 ITR 489 (Cal) and Tarsem Kumar's case [1986] 161 ITR 505 (SC) dealt with the question whether there can be seizure of assets which were already seized by the Customs Department and were under their custody to the knowledge of the Department. There were conflicting decisions of various High Courts on this aspect. Parliament intervened and inserted section 132A by enacting the Taxation Laws (Amendment) Act, 1975, with effect from October 1, 1975, enabling the Director-General or Director, Chief Commissioner or Commissioner to require the officer or authority to deliver such books of account, other documents or other assets to the requisitioning officer. Both the above decisions dealt with pre-amendment seizures while the assets were in the possession and custody of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be raised in writ proceedings. We are of the opinion that the person concerned for purposes of section 132 did not consist of all persons who claimed to own the money or other assets which were seized. In the facts of the present case, we are of the opinion that the person concerned was Sri Shyam Bhatia in regard to whose concealed income, the fourth respondent authorised search and seizure. Even assuming that the company itself was the person concerned, we hold that it had sufficient notice. We hold further that the mode or details of the enquiry into this aspect of this matter falls within the purview of section 132(11) of the Act, and not in proceedings under article 226 of the Constitution of India. Counsel for the petitioner referred to the decision of a single judge of the Kerala High Court in K. A. Karim and Sons v. ITO [1984] 149 ITR 172 in support of his submission that the order passed under section 132(5) of the Act without notice to the person concerned was invalid. It is clear from the facts of that case that in proceedings initiated against a partner of the firm, the firm itself had claimed that the money belonged to it by a common affidavit which was filed before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was duly represented by its "authorised signatory". The company acting through its "authorised signatory" had notice of all proceedings at all relevant stages. Even assuming that the company was the person concerned in these proceedings, due notice was given. The petitioner-company though fully aware of what was going on, did not, at any relevant stage, try to intervene in the proceedings. It was all along sitting on the fence. We see force in the contention of counsel for the Revenue that it has waited till such time as the amounts and assets which were seized were adjusted against arrears due from Mr. Shyam Bhatia, and then instituted these proceedings for recovery of the very same amounts, which, to its knowledge, were already adjusted on the basis of the statement of Sri Shyam Bhatia dated August 27, 1992, and his letters dated October 30, 1992, and December 18, 1992. In the view which we take on the question of entertainability of the writ petition, we do not think it is necessary for us to probe any further into the matter on factual details which both parties have burdened the record with. On the basis of the above discussion, our answer to the points mentioned in pa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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