TMI Blog2009 (5) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 132(1) of the Income Tax Act, 1961 ('Act' for short) on 14/15-5-2008 is in accordance with law and whether the order passed on 24/7/2008 under section 281B of the Act to attach the immovable properties as well as the shares in the demat account held by the petitioner No.2 is valid in law are the basic questions raised in this petition. 2. The petitioner No.1 is a private limited company and the petitioner No.2 who is a non resident Indian ('N.R.I.' for short) is the Chairman and Managing Director ('C.M.D.' for short) of the petitioner No.1 company. The petitioner Nos.3 4 are the Directors of the petitioner No.1 company. The petitioner No.1 company is engaged in the business of manufacturing and exporting pharmaceutical products. 3. The business premises of the petitioner No.1 company as well as the residential premises belonging to the petitioner Nos.2, 3 4 (hereinafter referred to as 'assessee' for short) were searched in the light of the warrant of attachment dated 14/15-5-2008 and incriminating documents found during the course of search were attached under panchanamas drawn from time to time. 4. Thereafter, on 24/7/2008 the Deputy Director of Income Tax (In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny such (Joint Director) or (Joint Commissioner) as may be empowered in this behalf by the Board], in consequence of information in his possession, has reason to believe that- (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 India 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 or other valuable article or thing and such money, bullion, jewellery or other valuable article or thing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion in the Act that the reasonable belief recorded by the designated authority before issuing the warrant of authorisation must be disclosed to the assessee. Therefore, the fact that a copy of the information received or the satisfaction note recorded has not been furnished to the assessee cannot be a ground to hold that the search and seizure is bad in law. However, on the basis of the material placed before us, it is clear that in the present case, specific information was received on 16/4/2008 and after holding preliminary enquiry, the designated authority recorded its reasons on 13/5/2005 as to why search and seizure action is necessary and thereafter issued the warrant of authorisation on 14/15-5-2008. 9. It is contended on behalf of the assessee that none of the three conditions set out in clauses (a), (b) (c) of section 132(1) of the Act existed in the present case, and, therefore, the above preconditions set out in section 132 of the Act being not fulfilled, the entire search and seizure operation is bad in law. It is contended that always in the past the assessee had responded to the summons issued and, therefore, the presumption drawn by the designated authority t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he designated authority that the tax evasion can be unearthed by initiating search and seizure action would be in consonance with the provisions of section 132(1) of the Act. 12. Where the information is that the tax due to the revenue has been evaded by furnishing fake or exaggerated bills, it would be reasonable to believe that the assessee would not disclose the actual modus operandi adopted for such tax evasion. Similarly, if the information received is that the assessee has received undisclosed income, then it would be reasonable to believe that the assessee would not disclose details of the undisclosed income received. In the present case, the information received was that the assessee has been manufacturing fake / exaggerated invoices and, therefore, the designated authority was justified in forming a belief that conditions set out in clause (b) of section 132(1) of the Act is satisfied. Similarly, the information received was that the investments made out of the funds brought to India represented the undisclosed income of the petitioner No.2 and, therefore, the designated authority was justified in forming a belief that conditions set out in clause © of section 132(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iated on the basis of information received from C.B.I. that the assessee therein was in possession of cash amounting to Rs.8.5 lakhs, without any further enquiry. The assessee therein stated on oath that the amount was fully reflected in the books and in any event mere possession of money would not lead to an inference that the said amount was income which is not disclosed or would not be disclosed. In that context, it was held that there has to be a rational connection between the information or materials and the reasonable belief. In the present case, the amount paid by the petitioner No.1 to the foreign companies was claimed to have been received by the petitioner No.2 and admittedly, the petitioner No.2 had brought the said amounts to India and invested but not disclosed in his return of income. Thus, the decision in the case of Ajit Jain (supra) is wholly distinguishable on facts. 16. Reliance was also placed by the counsel for the assessee on the decision of the Calcutta High Court in the case of Maheshkumar Agarwal V/s. DDIT reported in 260 I.T.R. 67 (Cal.) and the decision of the Allahabad High Court in the case of Sureshchand Aggarwal V/s. DGIT reported in 269 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en taken for the purpose of investment. In these circumstances, it is argued that attaching the immovable / movable properties of the petitioner No.2 and his family members is wholly unjustified. 19. It is true that attaching the properties of an assessee even before the crystlisation of the demand is a drastic step and has to be exercised only in extreme circumstances. Whether extreme circumstances existed in the present case so as to levy provisional attachment under section 281B of the Act is the question. 20. In the present case, the incriminating documents seized during the course of search and seizure operation reveal that the payments made by the petitioner No.1 to Cyprus / UK based companies towards marketing and advertisement expenses were further liable to be paid over to Ukrainian advertising agencies who are in fact supposed to have advertised the product of the petitioner No.1 in Ukraine. The documents further reveal that the said Cyprus / UK based companies have credited the amounts received from the petitioner No.1 in the private bank account of the petitioner No.2 in Cyprus. Moreover, during the course of search, incomplete and / or unsigned invoices of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts received by the petitioner No.2 which is brought into India and invested, constitute undisclosed income of the petitioner No.2, cannot be faulted. 24. From the investigation carried out so far, it is seen that the assessee has declined to divulge any information as to the circumstances in which the said Cyprus / UK based companies deposited the amounts in the private bank account of the petitioner No.2 in Cyprus after receiving the amounts from the petitioner No.1. During the course of investigation the petitioner No.2 has stoutly refused to answer the questions put to him by merely stating that he being an N.R.I. is not obliged to disclose the source of income earned in foreign countries. As a result, there is delay in completing the investigation. Consequently, there is delay in finalising the assessment pursuant to the notice issued under section 153A of the Act. 25. Strong reliance was placed by the counsel for the assessee on the decision of the Andhra Pradesh High Court in the case of Society for Integrated Development in Urban Rural Areas V/s. C.I.T. reported in 252 ITR 642 (A.P.) and a decision of this Court in the case of Gandhi Trading Company V/s. C.I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e petitioner claims to have acquired assets not only from the funds transferred into India, but also by obtaining loan from local banks, it is difficult to ascertain as to whether the attachment of the immovable properties of the assessee would cover the demand likely to be raised. 28. It is pertinent to note that the petitioner No.2 who is the CMD of the petitioner No.1 had filed the tax returns for AY 2002-03 to AY 2008-09 (see page 188 of the petition) declaring income of Rs.25,200/-, Rs.25,200/-, Rs.25,200/-, Rs.66,800/-, Rs.1,17,440/-, Rs.15,800/- and Rs.4 crores respectively. Similarly, Mrs.Sheila Singh had filed return of income of Rs.50,400/- in AY 2002-03, Rs.25,200/- in AY 2003-04, Rs.63,000/- in AY 2007-08. As against the above income, the petitioner No.2 has invested more than Rs.35 crores in immovable properties and more than Rs.60 crores in acquiring shares of various companies. Since the investments made are disproportionate to the known sources of income and the incriminating documents seized during the course of search prima facie suggest that the funds brought into India are not the foreign income of the petitioner NO.2, but represent the amounts received by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee applies for sale of the attached shares and seeks investment of the sale proceeds in the blue-chip shares, then, the proper officer should consider the said request and pass appropriate orders so that no prejudice is caused to the assessee by reason of attachment of shares and at the same time the interests of the revenue are protected by attaching the blue-chip shares that may be purchased out of the sale proceeds received on sale of the attached shares. The argument that the assessee ought to have been permitted to shift the security from one banker to another banker so as to avail higher facilities cannot be accepted, because, the petitioner No.2 who appears to be the brain behind the massive tax evasion is not co-operating with the department in unfolding the truth. As a result of non co-operation the investigation is hampered. Consequently, there is delay in determining the demand. In these circumstances, permitting the petitioner No.1 company to enhance its liability during the course of investigation would be detrimental to the interest of the revenue. 32. For all the aforesaid reasons, we see no reason to interfere with the orders impugned in the present pet ..... X X X X Extracts X X X X X X X X Extracts X X X X
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