TaxTMI 
TaxTMI 
2023 (12) TMI 811
X X X X Extracts X X X X
X X X X Extracts X X X X
....ppears 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, which was a condition precedent for exercise of the power of search and seizure. 3. As the issue involved pertains to as to whether the formation of the opinion for going ahead with the searches were in accordance with the provisions of Section 132 (1) (b) of the Act of 1961, this Court finds it pertinent to reproduce the relevant portion of Section 132 (1) of the Act of 1961 :- 132. Search and seizure - (1) Where the Principal Director General or Director General or Director or the Principal Chief Commissioner or Chief Commissioner or Principal Chief Commissioner or Commissioner or Additional Director or Additional Commissioner, or Joint Director or Joint Commissioner in consequence ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he 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 submission made by the learned counsel for the petitioners that after the searches made in the year 2015 to the premises of the petitioners there could be no reasons to again search at the premises of the petitioners and the searches carried out in the year 2017 was not bonafide and was a mere pretence to harass the petitioners. 5. The learned Standing Counsel for the Income Tax Department sought for some accommodation so that he could obtain the necessary instructions in that regard. Today when the matters were taken up, the learned Standing Counsel for the Income Tax Department not only produced the materials on the basis of which the opinion was formed for the searches in respect to the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 in income, were calculated as either nil or normal figures and some were at its final stage. It is the case of the petitioners that the respondents authorities had most arbitrarily and illegally conducted the search and seizure on 20/11/2017 and prepared a Paanchnama to that effect. It has been further mentioned that the Principal Commissioner of Income Tax, Dibrugarh following the search and seizure, most arbitrarily and illegally proposed to transfer the files of the petitioners to Kolkata by centralization and issued notice dated 14/2/2018. It is the case of the petitioners that the said steps were taken by the Income Tax Department only to harass the petitioners and the search so carried out....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ent 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/reassessment were completed, the matter is required to be raised before the Appellate Authority i.e. the Commissioner of Income Tax (Appeals) instead of a writ petition filed before this Court. In support of the search so carried out, it was mentioned that the circumstances under which a search and seizure can be conducted under Section 132(1) of the Act of 1961 is that the authorized Officer who is duly empowered by the Board has in his possession materials through which he has reason to believe that such person to whom a summon or notice might be issued will not or would not cause to produce any books of accounts etc. It was further mentioned that filing of a writ petition in the year 2020 against th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 profits which were shown were xx %, xx %, xx % and xx % respectively but from the lavish life style maintained by the petitioners who were the members of the NCP groups having posh residential flats in Kolkata, and other immovable assets plus the personal foreign travel expenses led to the formation of the opinion that the NCP group have unaccounted income on which they were evading tax and the total income on which the tax have been evaded by them would be in crores of rupees. It was on the basis of that and the specific information of investments in undisclosed stock/bullion and as gold prices were still stagnant, there is every possibility that the said investments could be discovered only if searches ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 the case of the Principal Director of Income Tax (Investigation) and Others Vs. Laljibhai Kanjibhai Mandalia reported in 2022 SCC Online SC 872, the Supreme Court after making a copious of analysis the various judgments of the Supreme Court in respect to Section 132 of the Act of 1961 culled out the various propositions including the extent of the powers of the Court in exercise of writ jurisdiction in matters concerning search and seizure. Paragraph 33 of the said judgment being relevant is reproduced hereinunder :- "33. We would like to restate and elaborate the principles in exercising the writ jurisdiction in the matter of search and seizure under Section 132 of the Act as follows: i) The formation of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nal." 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 honest and bona fide. It was also made clear that such formation of the opinion cannot be merely a pretence. Basing the opinion upon consideration of any extraneous or irrelevant material would vitiate the belief/satisfaction. It was further observed by the Supreme Court that the authority prior to formation of the opinion must have information in its possession on the basis of which a reasonable belief can be founded that the person concerned has omitted or failed to produce books of accounts or other documents for production of which summons or notice had been issued or such person will not produce such books of accounts or other documents even if summons or notice is issued to him or such person is in possession of any money, bullion, j....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ve 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 and/or materials in its possession which are relevant to the object of discovering undisclosed income which cannot be unearth without the exercise of the extraordinary powers of search and seizure. In the preceding segments of the instant judgment, this Court duly noted the reasons which led to the search and seizure in the year 2015 and 2017. The materials and information in possession of the Respondent Authorities which led to the formation of the belief have also been discussed above. From the said discussion, it cannot be said that the Respondent Authorities did not have materials and/or information for the formation of belief/opinion, more so, when this Court in exercise of powers under Article 226 of the Constitution cannot decide the suff....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ments 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 on the face of the notice or they must be available on the materials which have been placed before him. (See Aslam Mohammad Merchant v. Competent Authority) 20. In context of Section 21 of the Act, the position of law was explained succinctly by this Court in CST v. Bhagwan Industries (P) Ltd. as follows: (SCC pp. 271-72, paras 11-12) "11. The controversy between the parties has centered on the point as to whether assessing authority in the present case had reason to believe that any part of the turnover of the respondent had escaped assessment to tax for Assessment Year 1957- 1958. Question in the circumstances arises as to what is the import of the words "reason to believe", as used in the section . In our opinion, these words convey that there mu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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 of condition of "reason to believe" in the said section and observed that: (SCC pp. 724-25, paras 5-7) "5. On going through the changes, quoted above, made to Section 147 of the Act we find that, prior to the Direct Tax Laws (Amendment) Act, 1987, reopening could be done under the above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the assessing officer to make a back assessment, but in Section 147 of the Act (with effect from 1-4-1989), they are given a go-by and only one condition has remained viz. that where the assessing officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post 1-4-1989, power to reopen is much wider. However, one needs to give a schema....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l 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 untruthfulness of those facts. In such situations, it is not a case of mere change of opinion or the drawing of a different inference from the same facts as were earlier available but acting on fresh information. Since the belief is that of the Income Tax Officer, the sufficiency of reasons for forming this 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 that limited extent, the Court may look into the conclusion arrived at by the Income Tax Officer and examine whether there was any material available on the record from which the requisite belief could be formed by the Income Tax Officer and furth....
X X X X Extracts X X X X
X X X X Extracts X X X X
...... 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 or not is not a matter for the Court to investigate. In other words, the sufficiency of the grounds which induced the Income Tax Officer to act is not a justiciable issue. It is of course open for the assessee to contend that the Income Tax Officer did not hold the belief that there had been such non-disclosure. In other words, the existence of the belief can be challenged by the assessee but not the sufficiency of the reasons for the belief. Again the expression "reason to believe" in Section 34 of the Income Tax Act does not mean a purely subjective satisfaction on the part of the Income Tax Officer." 27. Therefore, the said satisfaction ought to be a satisfaction reached by the assessing authority on the basis of facts or materials available before it. The said position is also discussed ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....inion" 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 would be seen that for the purpose of exercising the powers under Section 132(1) of the Act of 1961, 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. Further the 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. On the other hand, upon search and....