TMI Blog2023 (12) TMI 811X X X X Extracts X X X X X X X X Extracts X X X X ..... , which was a condition precedent for exercise of the power of search and seizure? - HELD THAT:- For the purpose of exercising the powers u/s 132(1) the satisfaction ought to be satisfaction of the Authorised Official on the basis of the facts and materials available before it. Such materials must not be arbitrary, irrational, vague, distinct or irrelevant. The standard of reason for formation of the opinion has to be tested as that of an honest and prudent person who would act on reasonable grounds and come to a cogent conclusion. Reasons to believe cannot be said to be the subjective satisfaction of the Authority concerned but would be the objective view on the basis of information/materials in possession of the Authority and must be based on firm and concrete facts as regards the existence of undisclosed income. As upon search and seizure conducted, such information/materials in possession of the Authorised Official which led to the formation of the opinion may or may not lead to the discovery of incriminating materials. But in the opinion of this Court, merely because incriminating materials were not seized/found would not affect the opinion/belief formation for the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... formation of belief/opinion, more so, when this Court in exercise of powers under Article 226 of the Constitution cannot decide the sufficiency as well as the adequacy of the materials/information for the formation of belief/opinion. This Court does not find any merit in the writ petitions for which the writ petitions stand dismissed. - HONOURABLE MR. JUSTICE DEVASHIS BARUAH FOR THE PETITIONER : MS. M L GOPE FOR THE RESPONDENT : SC INCOME TAX APPEARING FOR THE UNION OF INDIA AND 5 ORS. JUDGMENT Heard Ms.M.L. Gope, the learned counsel appearing on behalf of the petitioners in the present batch of writ petitions. Mr. S.C. Keyal, the learned Standing counsel appears on behalf of the Income Tax Department. 2. The challenge made in the instant batch of writ petitions relates to the searches conducted in the premises belonging to the petitioners on 20/11/2017. The issue involved is whether the exercise of the power under Section 132 (1) (b) of the Income Tax Act, 1961(for short, the Act of 1961) was illegal on the grounds alleged that the Respondent Authorities had no reasons to believe the existence of the circumstances for going ahead with the searches, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artment to produce the records which would justify the formation of the opinion. This was done so in view of the fact that the Affidavit in Opposition so filed by the Respondent Authorities was vague. Accordingly, on 20/4/2023, the learned Standing Counsel appearing on behalf of the Income Tax Department produced the records relating to the search made in the year 2017. On the said date, upon hearing the learned counsels and further taking into consideration that the learned counsel appearing on behalf of the Income Tax Department was not in a position to assist the Court in view of the fact that the records were only received in the morning hours of 20/4/2023, this Court further fixed the matter on 27/4/2023 for further consideration. It is relevant to take note of that when the matter was taken up on 20/4/2023, this Court put a specific question to the learned Standing Counsel for the Income Tax Department as to whether the search in the year 2017 which has been challenged in the instant proceedings had any relation with the search which was conducted by the Income Tax Department upon the petitioners in the year 2015. This query was made as it was the specific and categorical sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in their returns. Subsequent thereto, on 3/9/2015, the Income Tax Department further searched the premises of all the petitioners in the present batch of writ petitions. The search period was from 3/9/2015 to 18/9/2015. On the basis of the said searches carried out and in view of the mandate of Section 153A of the Act of 1961, the assessments which were done for the period of 6 years preceding the period of search stood abated by operation of law and fresh assessments were carried out in terms with Section 153A of the Act of 1961. It has been further mentioned that in respect to those completed assessments, no additions were made and in respect to the other years the assessments were pending at the final stage. 8. Subsequent thereto, on 20/11/2017, another search and seizure operations were conducted which is impugned in the instant proceedings at the premises of the petitioners in the present batch of writ petitions under Section 132 of the Act of 1961. It has been mentioned in the writ petitions that although nothing was found during the search operation in the year 2015 and all assessments/reassessments (which included the period from 2010-11 to 2015- 16) with no additions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e outcome of the search made on 3/9/2015 does not effect the legal validity of the search carried out on 20/11/2017. It was further mentioned that the search and seizure carried out on 20/11/2017 was not arbitrary and illegal because the assessment year covered in the said search are not almost the same assessment years which were covered under the search and seizure dated 3/9/2015. It was mentioned that Section 132 of the Act of 1961 does not put any restriction on conducting searches even when some of the assessment years were covered under the earlier search. Further to that, it was mentioned in paragraph No. 8 of the said affidavit that as per the second proviso to Section 153 A (1), the assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years and for the relevant assessment year or years referred to in Sub-section (1) pending on the date of initiation of search under Section 132 of the Act of 1961 as the case may be shall abate. Hence pendency of assessment as on the date of search does not influence the validity of the search. It was further mentioned that as regards the assessment years for which the assessment/rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he year 2015 and 2017 are not touched upon, to give findings to the issue involved for adjudication would be impossible. However, certain figures are redacted on account of the right of privacy and privilege. 13. A perusal of the records pertaining to the search made in the year 2015 would show that the basis on which the opinion was formed is on account of suppression of turnover and inflation of prices and inclusion of bogus creditors as well as the life style in which the petitioners conducted themselves in the public. The officials of the Income Tax Department had based its opinion on the basis that though the marginal profits in the business of jewellery is quite high, but the net income which was shown by the petitioners who belong to the NCP group were not in tune to the scale and area of their business operation. This suppression of turnover is clear and apparent from the reputation the petitioners enjoy in the region. It was also believed that the suppression of sales and inflation of purchases have resulted in showing of low profits and accumulation of unaccounted investments. Further referring to the assessment years of 2011-12, 2012-13, 2013-14 and 2014-15, the net ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ged in the forms of bogus long term capital gains of approximately .. xx crores. There is also an opinion formed that the members of the NCB group were engaged in large scale tax evasion through suppression of diamond value as also the gold jewellery. However, the modus operandi of the tax evasion were such which cannot be brought to book through issue of summons under Section 131 of the Act of 1961. It is on the above basis therefore, the concerned authority of the Respondent had reasons to believe that the search and seizure action under Section 132 was necessary and accordingly it proposed to cover 4 premises under Section 132 of the Act of 1961 and further 4 premises under Section 133 (A) of the Act of 1961. 15. In the backdrop of the above, let this court therefore take into consideration as to whether the exercise of jurisdiction under Section 132 of the Act of 1961 to conduct the search and seizure operation was within the confines of law. In order to do so, it is also required to see the jurisdiction of this Court under Article 226 of the Constitution as to what extent, this Court can exercise the powers of judicial review. In a recent judgment of the Supreme Court in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 16. From a perusal of the above quoted paragraph, it would reveal that the contours of the jurisdiction under Article 226 of the Constitution in respect to search and seizure under Section 132 of the Act of 1961 is circumscribed. The formation of the opinion and the reasons to believe has to be based upon information in the possession of the authorized official as well as the materials in possession. The formation of the opinion must be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e reasons recorded are actuated by mala fides or on a mere pretence or that no extraneous or irrelevant materials have been considered. It has been further mentioned that the analysis of the reasons forming such satisfaction are to only satisfy the judicial consciousness of the Court and any part of such satisfaction note is not to be made a part of the order. The adequacy of the reasons is not a matter for this Court to review in a writ petition inasmuch as the sufficiency of the grounds which induced the competent authority is not a justiciable. Further to that, it has also been mentioned that the relevance of the reasons for the formation of the belief is to be tested by keeping in mind the principles of 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 and the Court shall not examine the sufficiency or adequacy thereof. 19. In the backdrop of the above law laid down by the Supreme Court and the same being applied to the present facts, this Court is only to see as to whether the Respondent Authorities while forming its belief/opinion had done so on the basis of information ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in possession of the Authorized Official, he has reasons to believe that any of the steps mentioned in Sub-Clauses (a), (b) or (c) of Section 132 (1) if taken would not be sufficient to unearth the undisclosed income, the Authorised official can exercise the powers under Sub- Clauses (i) to (v) of Section 132(1) of the Act of 1961. The term reasons to believe have been explained by the Supreme Court in various judgments. Reference can be made to the judgment of the Supreme Court in the case of State of Uttar Pradesh Ors. Vs. Aryaverth Chawal Udyog Ors. Vs. Aryavartha Chawal Udyog Ors. reported in (2015) 17 SCC 324 wherein the Supreme Court dealt with and explained the term reasons to believe after taking into consideration the previous judgments dealing with the term reasons to believe . Paragraphs 19 to 30 of the said judgment is reproduced herein below :- 19. Under Section 21(1) of the Act, the reassessment proceedings can only be initiated if the assessing authority has reason to believe that there is a case of escaped assessment and not otherwise. It is now trite law that whenever a statute provides for reason to believe , either the reasons should appear o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turnover has escaped assessment . The question as to whether that material is sufficient for making assessment or reassessment under Section 21 of the Act would be gone into after notice is issued to the dealer and he has been heard in the matter or given an opportunity for that purpose. The assessing authority would then decide the matter in the light of material already in its possession as well as fresh material procured as a result of the enquiry which may be considered necessary. 21. In CIT v. Kelvinator of India Ltd., a three-Judge Bench of this Court has considered the meaning of expression reason to believe in the context of change of language in Section 147 of the Income Tax Act, 1961 (for short the IT Act ). The said provision provides for income that has escaped assessment and lays down the test for ascertainment of the case where reassessment should be performed by the assessing authority. The test being if the assessing officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year . (SCC p. 724, para 4) 22. This Court in Kelvinator case has referred to the legislative intent behind reintroduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t case has reaffirmed the earlier view taken in Phool Chand Bajrang Lal v. ITO, wherein, this Court, after a detailed analysis of the import of the words reason to believe in the phraseology of Section 147 of the IT Act, has observed thus: (Aslam Mohammad case, SCC pp. 205-06, para 51) 51. 25. From a combined review of the judgments of this Court, it follows that an Income Tax Officer acquires jurisdiction to reopen an assessment under Section 147(a) read with Section 148 of the Income Tax Act, 1961, only if on the basis of specific, reliable and relevant information coming to his possession subsequently, he has reasons, which he must record, to believe that, by reason of 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, profits or gains chargeable to income tax has escaped assessment. He may start reassessment proceedings either because some fresh facts come to light which were not previously disclosed or some information with regard to the facts previously disclosed comes into his possession which tends to expose the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 34 of the Income Tax Act, 1922 which also has the same phraseology. It deals with income escaping assessment and confers jurisdiction on the Income Tax Officer to make assessment or reassessment if he had reason to believe that income, profits or gains chargeable to income tax had been underassessed and that such under-assessment had occurred by reason of either omission or failure on the part of the assessee to make a return of his income or to disclose fully and truly all material facts necessary for his assessment. Since other provisions of the said Section 34 are not relevant for the present discussion, we would not saddle the judgment by elaborating on them. 26. Dealing with the said provision, this Court in S. Narayanappa v. CIT, this Court had observed that: (SCR p. 592) But the legal position is that if there are in fact some reasonable grounds for the Income Tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of under-assessment, that would be sufficient to give jurisdiction to the Income Tax Officer to issue the notice under Section 34. Whether these grounds are adequate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and material available or existing at the relevant point of time while making the assessment and again a different or divergent view is reached, it would tantamount to change of opinion . If an assessing authority forms an opinion during the original assessment proceedings on the basis of material facts and subsequently finds it to be erroneous; it is not a valid reason under the law for reassessment. Thus, reason to believe cannot be said to be the subjective satisfaction of the assessing authority but means an objective view on the disclosed information in the particular case and must be based on firm and concrete facts that some income has escaped assessment. 30. In case of there being a change of opinion, there must necessarily be a nexus that requires to be established between the change of opinion and the material present before the assessing authority. Discovery of an inadvertent mistake or non-application of mind during assessment would not be a justified ground to reinitiate proceedings under Section 21(1) of the Act on the basis of change in subjective opinion (CIT v. Dinesh Chandra H. Shah; CIT v. Nawab Mir Barkat Ali Khan Bahadur ). 23. Therefore it woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned counsel for the petitioners further submitted that the Income Tax Authorities have resorted to multiple searches as could be seen i.e. in the year 1999, 2015 and then in 2017 and therefore the said searches made not only is illegal but causes undue harassment to the business and reputation of the petitioners. True, search and seizure proceedings if based upon extraneous and irrelevant materials without being bonafide would be a harassment. But if the Authorised Official is in possession of information and materials for which he has reasons to believe that even if the steps contemplated under Clauses (a), (b) (c) of Section 132(1) are taken, there is no likelihood of unearthing the total income, unless the powers under sub-clauses (i) to (v) of Section 132(1) of the Act of 1961 is exercised, the mere fact that it causes harassment would not render the search and seizure illegal. The statute in question i.e. the Act of 1961 mandates tax on total income from whatever source derived in the case of a resident assessee and the Authorities in terms with the Act of 1961 have been empowered subject to fulfillment of the conditions to exercise such powers seeking compliance to payment ..... X X X X Extracts X X X X X X X X Extracts X X X X
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