TMI Blog1993 (12) TMI 51X X X X Extracts X X X X X X X X Extracts X X X X ..... other details here. According to the petitioner, the company commenced its production on February 26, 1993, and exported the first consignment worth about Rs. 3.27 crores by the end of March, 1993. The petitioner has claimed exemption under section 10B(3) of the Act with effect from the assessment year 1993-94. According to the petitioner, in D view of this exemption, it is not liable to pay any tax under the Act for a period of five years commencing from the assessment year 1993-94. In view of certain financial difficulties of the Registrar for Public Issues, the petitioner has started refunding the money received with share applications for which purpose a separate account has been opened with the E bank. On August 17, 1993, the respondents conducted a search of all the three offices of the petitioner and the residences of the managing director and joint managing director of the company purporting to act under section 132 of the Act. The factory premises was also searched. The petitioner alleges that the officers of the Revenue have destroyed a portion of the F precious imported glass plant of the petitioner-company. They have also destroyed some articles as referred to in the w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valuable articles or things" of each person. Learned counsel relied on a decision in Nenmal Shankarlal Parmer v. Asst. CIT [1992] 195 ITR 582 ; ILR 1991 Kar 4527. In the said decision, the names of the partners of the firm were not mentioned in the warrant of authorisation ; only the firm name was mentioned and residential premises of the partners were searched. This was held as illegal. It was a case of warrant of authorisation not referring to the names of the persons whose premises is sought to be searched ; it was held that mere description of the premises was insufficient and that the authorisation has to be against the owner or possessor of documents or other articles referred to in section 132(1). The authorisation mentioned the name of the firm and the firm is distinct legal entity for purposes of the Act ; the firm did not possess or own the residential premises of the individual partners. This decision is clearly distinguishable. It was a case of a warrant of authorisation issued against a person, not the owner or possessor of the articles or of the premises. In the instant case, the warrant of authorisation mentions the names of all the persons concerned with money or ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... formed on the basis of relevant material (information) ; the court cannot substitute its own opinion as to the reasonableness of the belief. The court has to examine to see whether the belief is an irrational or blind belief, formed out of prejudice or the result of relying on wild gossip or baseless rumours, etc. In this regard, the relevant principles enunciated by the Supreme Court will be referred to, in due course, hereinafter. Suffice if I state here that it is not permissible for the court to sit in appeal over the belief formed by the officer issuing the authorisation and the court cannot venture to reappreciate the materials available to the said officer to see whether the belief formed was correct or erroneous. There is a difference in law between an incorrect inference drawn from certain basic facts and the relevancy of those basic facts to the inference drawn. In the former case, the incorrectness of the inference drawn can be rectified or nullified by a superior authority or court, provided the law permits it to be rectified., The said rectification or nullification is part of the appellate or revisional power which the law should specifically provide for. The writ ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are taken and unearthing of hidden wealth is aimed at by recourse to the power of search and seizure, all that the court can examine is to find out whether there is a relevant basis for the exercise of the said power by the State or its officers. An arbitrary invasion of the rights or liberties of the citizen is not permissible and the court's role as the guardian of the fundamental rights is to see whether the State's action is arbitrary or unauthorised. To form a particular opinion and take decision to act under a given set of circumstances as provided under the law is the exclusive function of the administrators. The process of arriving at the decision should not be vitiated by irrationality or irrelevancy because, in such a case, the resultant decision will become arbitrary. There is a vast and qualitative difference between an administrative act and a judicial act, in spite of the recent dilution of the concept of an administrative action. Assuming that power to order search and seizure is a quasi-judicial power (though I do not think so), the scope for judicial scrutiny of the exercise of the said power is very much limited, bearing in mind the respective roles assigned to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 132 of the Act The premises of Seth Brothers was searched in June, 1963. Certain documents were seized. The proceedings were challenged before the High Court. The extent of seizure was found by the High Court, as far beyond the limits of section 132 and, therefore, it held that there was abuse of the power conferred by the said provision ; hence the proceedings were quashed by the High Court. The Supreme Court did not agree with the approach of the High Court and, therefore, the order of the High Court was set aside and the matter was remanded to the High Court In that connection, the scope of section 132 was considered by the Supreme Court. At page 843, the court held : "The section 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 powers set out therein. The condition for entry into and making search of any building or pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act and the Rules. It is for the officer making the search to exercise his judgment and seize or not to seize any documents or books of account. An error committed by the officer in seizing documents which may ultimately be found not to be useful for or relevant to the proceeding under the Act will not by itself vitiate the search, nor will it entitle the aggrieved person to an omnibus order releasing all documents seized. " As to the books of account, etc., that could be seized, the court pointed out the existence of a very wide power in the authorities. At page 847, the court held : "The suggestion that the books of account and other documents which could be taken possession of should only be those which directly related to the business carried on in the name of Messrs. Seth Brothers has, in our judgment, no substance. The books of account and other documents in respect of other businesses carried on by the partners of the firm of the assessees would certainly be relevant because they would tend to show inter-relation between the dealings and supply of materials having a bearing on the case of evasion of income-tax by the firm. We are unable to hold that because the Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should have sufficient powers to prevent tax evasion." It was also held that search and seizure is only a temporary interference with the right to hold the premises searched and the articles seized. The Supreme Court also analysed the relevant provisions to point out the inbuilt safeguards found in section 132 against an arbitrary exercise of the power. Nowhere has the court held that the reasons recorded before authorising the search should be disclosed to the person against whom the warrant was issued. The substance of the power to search and seize conferred by section 37(1) of the Foreign Exchange Regulation Act, 1973, is the same, as under section 132(1) of the Act. The scope of this power was considered in Dr. Partap Singh v. Director of Enforcement [1985] 155 ITR 166 (SC). It was held therein that the materials on which the officer has reasons to believe that any documents will be useful for or relevant to any investigation need not be disclosed in the search warrant ; such material may be secret, may have been obtained through intelligence, or even conveyed orally by informants. In the said case, the petitioner contended that, if the court is going to look into the file ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss. Such an encroachment, of course, is permitted by law in public interest. But it is necessary that the powers under section 132 as also under section 131 should be exercised strictly in accordance with the law and the principles of natural justice. The petitioner asked for copies of the search warrants and the reasons recorded by the Commissioner for authorising the search. This request was refused. The petitioner then applied for inspection. That too was refused by the Commissioner on the ground that there was no provision permitting the inspection of the documents. This approach of the Commissioner is obviously erroneous. Unless there is a statutory prohibition, a person against whom action is being taken under section 132 is entitled to inspect the record of the proceedings and to obtain copies of the orders passed in those proceedings. If such a right is denied to him, he will not be able to satisfy himself that the action against him is justified and to seek redress against any illegal action taken or order passed. It is a well known maxim that 'justice not only should be done, but should be seen to have been done'. An aggrieved person is entitled to know that the requireme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be communicated to the party concerned. Mr. Veerabhadrappa, then, contended, that, in W. A. No. 3300 of 1993, the Bench directed the disclosure of the reason for ordering the search in the instant case, and the reason, as disclosed and found in annexure "E", is no reason at all. When, under law, the basis for the formation of the belief need not be disclosed, it is quite natural not to find it in the ultimate conclusion expressing the belief ; annexure "E" is nothing but the recording of the said belief. The Bench nowhere, and could not have, directed the disclosure of the material leading to the formation of the belief under section 132(1). In fact, the material was placed before me. The petitioner contends that its income is not at all taxable and it is the income earned by exporting the goods manufactured by it. I find that, in substance, the basis for ordering the search is the information available to the Revenue, that the alleged income of the petitioner-company is not such an income as is now sought to be made out by it. I am satisfied that the belief formed by the officer who authorised the search (Director of Income-tax/Investigation) was based on relevant material a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SC 1011 at page 1015) has no relevancy to the present controversy before me. However, I am of the view that it is always proper for the respondents to traverse the averments in the writ petition to the extent it is possible to do so by disclosing materials that could be disclosed in a case of this kind. Actually, under the Rules of this court, the statement of objections is to be filed only when rule nisi is issued and in this writ petition, such a rule has not been issued. Though the prohibitory orders are challenged, Mr. Veerabhadrappa did not pursue the matter, since, as on today, the prohibitory order is confined to the bank account and recently, the period of the prohibitory order has been extended. Learned counsel submitted that the latest order will be challenged separately, if necessary. It is also necessary to note that the chartered accountant of the petitioner-company has been permitted to take xerox copies of all the accounts, etc., of the company required for auditing but so far, the opportunity has not been availed of by the chartered accountant. No other contention survives for consideration. In the result, for the reasons stated above, this petition fails ..... X X X X Extracts X X X X X X X X Extracts X X X X
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