TMI Blog2022 (7) TMI 639X X X X Extracts X X X X X X X X Extracts X X X X ..... s a reasonable belief drawn by the Revenue that the assessee shall not produce or cause to be produced any books of accounts or other documents which would be useful or relevant to the proceedings under the Act. Such believe was not based upon conjectures but on a bona-fide opinion framed in the ordinary conduct of the affairs by the assessee generally. The notice to the assessee to appear before the Income Tax authorities in the State of West Bengal would have been sufficient notice of the material against the Company and its group, to defeat the entire attempt to unearth the cobweb of the accounts by the Company and its associates. Even clause (c) of Section 132(1) is satisfied. The assessee was in possession of Rs.10 crores which was advanced as loan to the Company. The Revenue wishes to find out as to whether such amount is an undisclosed income which would include the sources from which such amount of Rs.10 crores was advanced as loan to a totally stranger person, unconnected with either the affairs of assessee or any other link, to justify as to how a person in Ahmedabad has advanced Rs.10 crores to the Company situated at Kolkata in West Bengal for the purpose of investme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are to satisfy the judicial consciousness of the Court and any part of such satisfaction note is not to be made part of the order; vii) The question as to whether such reasons are adequate or not is not a matter for the Court to review in a writ petition. The sufficiency of the grounds which induced the competent authority to act is not a justiciable issue; viii) The relevance of the reasons for the formation of the belief is to be tested by the judicial restraint as in administrative action as the Court does not sit as a Court of appeal but merely reviews the manner in which the decision was made. The Court shall not examine the sufficiency or adequacy thereof; ix) In terms of the explanation inserted by the Finance Act, 2017 with retrospective effect from 1.4.1962, such reasons to believe as recorded by income tax authorities are not required to be disclosed to any person or any authority or the Appellate Tribunal. In view of the above, we find that the High Court was not justified in setting aside the authorization of search dated 07.08.2018. Consequently, the appeal is allowed and the order passed by the High Court is set aside. As a consequence thereof, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the core groups, viz. Sarju Sharma and associated group of companies. Any inkling of action contemplated by the Revenue was likely to compromise the confidentiality and secrecy of the case intact. It was further stated that the apparent investment made by the assessee was found to be not a judicious investment choice from the point of view of a prudent businessman as the company to which loan was provided by the assessee had no established business, no goodwill in the market, nor was it enlisted in any of the stock exchanges, nor did the assessee had any financial dealings with the company previously. The quick repayment of loan shows that the investment was not meant to earn steady interest income. The investment and nature of transaction entered into by the assessee was akin to the familiar modus operandi employed by the entry operators to provide an accommodation entry to bring the unaccounted black money to books for brief period to run the business till sufficient fund is generated by running the business or some fund from any other unaccounted source comes later on. This is the angle of the investigative process underway in which trail of the money being paid by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nment 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 high value cash deposits/ data of suspicious cash deposits post demonetization period disseminated by the DGIT(Inv.), W.B., Sikkim NER, wherein it was found that the said company had deposited cash to the tune of Rs.13,79,10,500/- into its two bank accounts maintained with ICICI Bank and HDFC Bank, North Goa. c) M/s Goan Recreation Clubs Pvt. Ltd. was incorporated on 28.09.2015 with a nominal paid up share capital of Rs 2,00,000/-. The initial Directors were Sarju Shanna and Shri Rohit Gurubhakta Sharma. During the initial year of its incorporation, i.e., in the financial year 2015-16 the company raised huge unsecured loan of Rs 5.77 crore from various individuals and companies in a very peculiar manner, as the company at that juncture was yet to commence any substantive business activities. Again, in the financial year 2016- 17 the company raised an unsecured loan of Rs.34.10 crore from various individuals and companies which includes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ash deposits of total Rs.13,79,10,500/- soon after demonetization on 08.11.2016. The satisfaction note prepared by DDIT (Investigation), Unit-1, Jalpaiguri was approved by Additional Director of Income Tax (Investigation) Unit- 5, Kolkata and further approved by DGIT (Investigation), Kolkata on 07.08.2018. The High Court also quoted paragraph 4.3 from an affidavit in-reply filed by the Revenue which reads thus: 5.3. As far as the investment opportunity is concerned, it is quite glaring that the petitioner invested 10 crores within a span of one month on 01.06.2016 and 21.06.2016 by way of loan on interest given to M/s Goan Recreation Clubs Pvt. Ltd. The investment was made from the Kotak Mahindra Bank A/c No. 80116714807 of the petitioner and deposited into the HDFC Bank A/c No. 50200015405430 of the company, M/s Goan Recreation Clubs Pvt. Ltd. Interestingly, the loan was repaid by the latter in five installments from 06.10.2016 to 31.03.2017 [as shown in point no. (g) of para 4.1]. The apparent investment made by the petitioner is found to be not a judicious investment choice from the point of view of a prudent business man as the company to which the petitioner provided loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bullion, 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 (11 of 1922), or this Act (hereinafter in this section referred to as the undisclosed income or property). 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. .. 9. Mr. Balbir Singh, learned Additional Solicitor General of India, appearing for the Revenue argued that the High Court has completely misdirected itself in quashing the authorization as the jurisdiction of the High Court while exercising judicial review is very limited. It was contended that the High Court erred in law in finding that clauses (b) and (c) of Section 132(1) of the Act are not satisfied when it recorded as under: 16 Thus, as rightly submitted by the learned counsel for the petitioner, the belief that the petitioner would not respond to a summons or notice issued as envisaged under clause (b) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Limited and Ors. (2015) 12 SCC 179 to contend that though it is open to the Court to examine the question whether reasons to believe have any rational connection or a relevant bearing to the formation of the belief and that such reasons are not extraneous or irrelevant as the officer has to produce relevant evidence to sustain his belief in case the reasons to believe are questioned in court, however, it was argued that the jurisdiction of the High Court is to examine the existence of reasons not the legality of the same. 11. On the other hand, Mr. Datar, learned senior advocate appearing for the assessee argued that the High Court has rightly held that none of the pre-requisite conditions for search and seizure under Section 132 of the Act are satisfied. It was argued that it is not the case of the Revenue that clause (a) of sub-section (1) of Section 132 of the Act is applicable, whereas the High Court has recorded a finding that even clause (b) and clause (c) of sub-section (1) of Section 132 of the Act are not satisfied. Since the view of the High Court is based upon established principles of law, no case for interference is made out in the present appeal under Articl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly subjective satisfaction on the part of the Income Tax Officer. The belief must be held in good faith: it cannot be merely a pretence. To put it differently 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. To this limited extent, the action of the Income Tax Officer in starting proceedings under Section 34 of the Act is open to challenge in a court of law. (See Calcutta Discount Co. Ltd. v. Income Tax Officer, Companies District I, Calcutta [41 ITR 191] xxx xxx xxx 4. .. The earlier stage of the proceeding for recording the reasons of the Income Tax Officer and for obtaining the sanction of the Commissioner are administrative in character and are not quasi-judicial. The scheme of Section 34 of the Act is that, if the conditions of the main section are satisfied a notice has to be issued to the assessee containing all or any of the requirements which may be included in a notice under sub-section (2) of Section 22. . 14. Seth Brothers is referred to by both Revenue and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urse of entry, search and seizure committed by the officer acting in pursuance of the authorisation will not be sufficient to vitiate the action taken, provided the officer has in executing the authorisation acted bona fide. xxx xxx xxx 21. These proceedings were brought before the High Court by way of a writ petition under Article 226 of the Constitution before any investigation was made by the Income Tax Officers pursuant to the action taken by them. In appropriate cases a writ petition may lie challenging the validity of the action on the ground of absence of power or on a plea that proceedings were taken maliciously or for a collateral purpose. 15. In The Income Tax Officer, I Ward, District VI, Calcutta and Ors. v. Lakhmani Mewal Das (1976) 3 SCC 757, this Court was examining the scope of the expression reason to believe in the context of reopening of assessment on the ground that income had escaped assessment. It was held that the powers of the Income Tax Officer to reopen assessment, though wide, but are not plenary. The words of the statute are reason to believe and not reason to suspect . It was held that no doubt the Court cannot go into th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edings. It is, therefore, essential that before such action is taken the requirements of the law should be satisfied. The live link or close nexus which should be there between the material before the Income Tax Officer in the present case and the belief which he was to form regarding the escapement of the income of the assessee from assessment because of the latter's failure or omission to disclose fully and truly all material facts was missing in the case. ... 16. In Partap Singh (Dr) v. Director of Enforcement (1985) 3 SCC 72, this Court was considering the action of search and seizure under the Foreign Exchange Regulation Act,1973. It was held that when an officer of the Enforcement Department proposes to act under Section 37, he must have reason to believe that the documents useful for investigation or proceeding under the Act are secreted. It was further held that the reasons must be sufficient for a prudent man to come to the conclusion that income escaped assessment and that the Court can examine the sufficiency or adequacy of the reasons on which the Income Tax Officer has acted. This Court held as under:- 9. When an officer of the Enforcement Departmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . There can be cases in which search may fail or a reasonable explanation in respect of the documents may be forthcoming. .. 17. This Court in a judgment reported as Phool Chand Bajrang Lal and Anr. v. Income Tax Officer and Anr. (1993) 4 SCC 77 was examining the reasons to be recorded for the purpose of re-assessment of the Income Tax already assessed. It was only on the basis of specific, reliable and relevant information coming to the knowledge of Income Tax Officer subsequently, he has reasons which must be recorded, to believe that due to omission or failure on the part of the assessee to make a true and full disclosure of all material facts necessary for his assessment during the concluded assessment proceedings, any part of his income, profit or gains chargeable to income tax has escaped assessment. This Court held as under:- 25. . Since, the belief is that of the Income Tax Officer, the sufficiency of reasons for forming the belief, is not for the Court to judge but it is open to an assessee to establish that there in fact existed no belief or that the belief was not at all a bona fide one or was based on vague, irrelevant and non-specific information. To ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds seized are liable to be confiscated only if the Collector is satisfied about violation of the Control Orders. The language of the section and its setting indicate that every contravention cannot entail confiscation. That is why the section uses the word may . A trader indulging in black marketing or selling adulterated goods etc. should not, in absence of any violation, be treated on a par with technical violations such as failure to put up the price-list etc. or even discrepancies in stock . 19. In a judgment reported as Union of India v. Agarwal Iron Industries (2014) 15 SCC 215 it was noticed that it is difficult to appreciate how the denial in the counter-affidavit filed by the Revenue could be treated as an admission by implication to come to a conclusion that no reason was ascribed for search and seizure and, therefore, action taken under Section 132 of the Act was illegal. The relevant confidential file, if required and necessary, could have been called for and examined. The Revenue in the counter-affidavit was not required to elucidate and reproduce the information and details that formed the foundation of search. It was further held that the issuance of search an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or notice were issued to the respondent to produce the necessary books of account and documents, the same would not be produced. The Assistant Director also recorded detailed reasons why he entertains reasons to believe that the promoters of the respondent assessee company would be found to be in possession of money, bullion, jewellery, etc. which represents partly or wholly income which has not been disclosed for the purposes of the Act. xx xx xx 21. In the light of the views expressed by this Court in ITO v. Seth Bros. [ITO v. Seth Bros., (1969) 2 SCC 324 : (1969) 74 ITR 836] and Pooran Mal [Pooran Mal v. Director of Inspection (Investigation), (1974) 1 SCC 345 : 1974 SCC (Tax) 114 : (1974) 93 ITR 505] , the above opinion expressed by the High Court is plainly incorrect. The necessity of recording of reasons, despite the amendment of Rule 112(2) with effect from 1-10-1975, has been repeatedly stressed upon by this Court so as to ensure accountability and responsibility in the decision-making process. The necessity of recording of reasons also acts as a cushion in the event of a legal challenge being made to the satisfaction reached. Reasons enable a proper judicial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the accounts of the company. The action of respondent No. 4 in issuing the authorisation under Section 132(1) of the Act and seizure of Rs. 8.5 lakhs was challenged on the ground that there was no information on record on the basis whereof respondent No. 4 could form the belief that the said amount recovered from the petitioner represented wholly or partly income which had not been or would not have been disclosed for the purpose of the Act, a condition precedent for exercise of power under Section 132(1) of the Act. The High Court held thus:- Thus, for authorising action under Section 132, the conditions precedent are: (i) the information in the possession of the named authority; and (ii) in consequence of which he may have reason to believe that the person concerned is in possession of money, bullion etc. which represents, either wholly or partly, income which has not been or would not be disclosed for the purpose of the Act. If either of these conditions are missing or have not been adhered to, then power under Section 132 cannot be invoked. Thus, the basis of exercise of power under Section 132(1) has to be formation of belief and the belief has to be formed on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be a normal transaction. Subsequent repayment of mortgage and the interest income reflected in the relevant assessment year appears to be the steps taken by the assessee to give a colour of genuineness but the stand of the Revenue that such entry was an accommodation entry is required to be found out and also the cobweb of entries required to be unravelled including the trail of the money paid by the assessee. 25. The High Court quoted extensively from the counter-affidavit filed by the Revenue as well as quoted para 4.3 of the affidavit-in reply but still returned a finding that the Court could not find any other material whatsoever insofar as the assessee is concerned for the purpose of recording satisfaction under Section 132 of the Act. We find that reasons to believe are not the final conclusions which the revenue would arrive at while framing block assessment in terms of Chapter XIV-B of the Act. The test to consider the justiciability of belief is whether such reasons are totally irrelevant or whimsical. The reply in the counter affidavit shows that the intention of the Revenue was to un-layer the layering of money which is suspected to be done by the assessee. The Rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by the Revenue that the assessee shall not produce or cause to be produced any books of accounts or other documents which would be useful or relevant to the proceedings under the Act. Such believe was not based upon conjectures but on a bona-fide opinion framed in the ordinary conduct of the affairs by the assessee generally. The notice to the assessee to appear before the Income Tax authorities in the State of West Bengal would have been sufficient notice of the material against the Company and its group, to defeat the entire attempt to unearth the cobweb of the accounts by the Company and its associates. 28. Even clause (c) of Section 132(1) is satisfied. The assessee was in possession of Rs.10 crores which was advanced as loan to the Company. The Revenue wishes to find out as to whether such amount is an undisclosed income which would include the sources from which such amount of Rs.10 crores was advanced as loan to a totally stranger person, unconnected with either the affairs of assessee or any other link, to justify as to how a person in Ahmedabad has advanced Rs.10 crores to the Company situated at Kolkata in West Bengal for the purpose of investment in Goa. The Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judicial review proceedings where the court concludes that the decision is such that no authority properly directing itself on the relevant law and acting reasonably could have reached it. (Associated Provincial Picture Houses Ltd. v. Wednesbury Corpn. [(1948) 1 KB 223 : (1947) 2 All ER 680] , per Lord Greene, M.R.) xx xx xx 82. Bernard Schwartz in Administrative Law, 2nd Edn., p. 584 has this to say: If the scope of review is too broad, agencies are turned into little more than media for the transmission of cases to the courts. That would destroy the values of agencies created to secure the benefit of special knowledge acquired through continuous administration in complicated fields. At the same time, the scope of judicial inquiry must not be so restricted that it prevents full inquiry into the question of legality. If that question cannot be properly explored by the judge, the right to review becomes meaningless. It makes judicial review of administrative orders a hopeless formality for the litigant. It reduces the judicial process in such cases to a mere feint. Two overriding considerations have combined to narrow the scope of review. The first is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inistrative decision is permitted it will be substituting its own decision, without the necessary expertise which itself may be fallible. (4) .. 30. The power of judicial review and interference by the Courts in the matters of disciplinary proceedings was being examined in the judgement of this Court reported as Indian Oil Corporation Ltd. v. Rajendra D. Harmalkar 2022 SCC Online SC 486 . It was held that interference was not permissible unless the order was contrary to law, or relevant factors were not considered, or irrelevant factors were considered, or the decision was one which no reasonable person could have taken. 31. In another judgment reported as Utkal Suppliers v. Maa Kanak Durga Enterprises 2021 SCC Online SC 301 , this Court was examining tender conditions in a writ petition. It was held that judicial review in these matters is equivalent to judicial restraint. 32. In the light of judgments referred to above, the sufficiency or inadequacy of the reasons to believe recorded cannot be gone into while considering the validity of an act of authorization to conduct search and seizure. The belief recorded alone is justiciable but only while keeping in vi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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