Income Tax Act, 1961: ss. 132 and 133 – Search and Seizure under – Reason to believe –Assessee during the financial year transferred a sum of 10 Crores to a company –Assessee secured the loan by way of a mortgage of the property –Assessee became director to the company and ceased to be so the next month – Amount of Rs.10 crores was repaid with interest on different dates and after repayment of the loan, mortgage was released- Assessee filed his income-tax return showing the interest income which has been taxed as well – After recording reasons to believe in the satisfaction note, search was conducted in terms of s.132 – Satisfaction note was not supplied to the assessee nor was required to be disclosed in terms of Explanation to s. 132(1) –Assessee challenged the warrant of authorization issued by Revenue – High Court quashed the warrant of authorization –On appeal, held: The view of the High Court that the authorization to search the premises of the assessee is invalid, cannot be sustained –Detailed satisfaction note shows multiple entries in the account books of Company’s Director –Manner in which Director contacted the assessee in Ahmedabad for a loan of Rs.10 crores does not appear 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 –Investmentof Rs.10 crores for a short period was not for earning interest income as the same was repaid in the same assessment year –Revenue intends to investigate the fund trail of the money paid by the assessee– Such belief is not out of hat or whimsical–It was 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 – Such believe was not based upon conjectures but on a bona-fide opinion framed in the ordinary conduct of the affairs by the assessee generallyRevenue wishes to find out as to whether amount is an undisclosed income – 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 – Thus, the High Court not justified in setting aside the authorization of search.
s. 132 –Search and seizure under – Principles to be followed – Stated.
Allowing the appeal, the Court
HELD: 1. The detailed satisfaction note shows multiple entries in the account books of SS and others. The manner of SS who was either in Siliguri (West Bengal) or in Goa contacting the assessee in Ahmedabad for a loan of Rs.10 crores does not appear 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.The 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 Revenue has asserted that the accommodation entry is a common modus operandi to bring the unaccounted black money to books for a brief period. The investment of Rs.10 crores for a short period was not for earning interest income as the same was repaid in the same assessment year. The Revenue intends to investigate the fund trail of the money paid by the assessee. Such belief is not out of hat or whimsical. [Paras 24 and 25][257B-H; 258-A-B]
2. As per the Revenue, Clauses (b) & (c) of Section 132 (1) were satisfied before the warrant of authorization was approved. The satisfaction note was recorded in terms of an assessee whose jurisdictional assessing officer was in the State of the West Bengal. It is the cobweb of accounts of such assessee which are required to be unravelled. It is not unreasonable for the Revenue to apprehend that the assessee would not respond to the summons before the Assessing Officer in the State of West Bengal. It was also alleged that such summons would lead to disclosure of information collected by the Revenue against SS and his group. Therefore, it was 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 investment in Goa. The Revenue may fail or succeed but that would not be a reason to interfere with the search and seizure operations at the threshold, denying an opportunity to the Revenue to unravel the mystery surrounding the investment made by the assessee. [Paras 27 and 28][258-E-H; 259-A-D]
3. 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 view the Wednesbury Principle of Reasonableness. Such reasonableness is not a power to act as an appellate authority over the reasons to believe recorded. [Para 32][262-E-F]
Tata Cellular v. Union of India (1994) 6 SCC 651 : [1994] 2 Suppl. SCR 122; Indian Oil Corporation Ltd. v. Rajendra D. Harmalkar 2022 SCC Online SC
486;Utkal Suppliers v. Maa Kanak Durga Enterprises 2021 SCC Online SC 301- referred to.
4. The principles in exercising the writ jurisdiction in the matter of search and seizure under Section 132 of the Act are as follows: i) The formation of opinion and the reasons to believe recorded is not a judicial or quasi-judicial function but administrative in character; ii) The information must be in possession of the authorised official on the basis of the material and that the formation of opinion must be honest and bona fide. It cannot be merely pretence. Consideration of any extraneous or irrelevant material would vitiate the belief/satisfaction; iii) The authority 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 noticeis issued to him; or iv) Such person is in possession of any money, bullion, jewellery or other valuable article which represents either wholly or partly income or property which has not been or would not be disclosed; v) Such reasons may have to be placed before the High Court in the event of a challenge to formation of the belief of the competent authority in which event the Court would be entitled to examine the reasons for the formation of the belief, though not the sufficiency or adequacy thereof. The Court will examine whether the reasons recorded are actuated by mala fides or on a mere pretence and that no extraneous or irrelevant material has been considered; vi) Such reasons forming part of the satisfaction note 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. The High Court was not justified in setting aside the authorization of search. The order passed by the High Court is set aside. [Paras 33 and 34][262-FG; 263-A-H; 264-A-C] S. Narayanappa v. CIT, AIR 1967 SC 523 : [1967]
1 SCR 590; N.K. Jewellers and Another v. Commissioner of Income Tax, New Delhi (2018) 12 SCC 627; The Income Tax Officer, I Ward, District VI, Calcutta and Ors. v.LakhmaniMewal Das (1976) 3 SCC 757 : [1976]
3 SCR 956; Partap Singh (Dr) v. Director of
Enforcement (1985) 3 SCC 72 : [1985] 3 SCR 969; Union of India v. Agarwal Iron Industries (2014) 15 SCC 215 : [2014] 11 SCR 181; Commissioner of
Income Tax, Allahabad and Ors. v. Vindhya Metal Corporation and Ors. (1997) 5 SCC 321; Income Tax Officer, Special Investigation Circle-B, Meerut v. Seth Brothers and Ors. (1969) 2 SCC 324 [1970] 1 SCR 601; Director General of Income Tax (Investigation), Pune and Ors. v. Spacewood Furnishers Private Limited and Ors. (2015) 12 SCC 179 : [2015] 6 SCR 807; Union of India v. Ajit Jain & Anr. (2003) 260 ITR 80 (SC); Phool Chand Bajrang Lal and Anr. v. Income Tax Officer and Anr. (1993) 4 SCC 77 : [1993] 1 Suppl. SCR 28; N. Nagendra Rao & Co. v. State of A.P. (1994)
6 SCC 205 : [1994] 3 Suppl. SCR 144; Seth Brothers & Ors. etc.; Vindhya Metal Corporation & Ors; Ajit Jain v. Union of India (2000) 242 ITR 302 (Del.); Dimondstar Exports Ltd. v. Director General of IncomeTax (Investigation) (2005) 278 ITR 36 (Bom.); MECTEC v. Director of Income-Tax (Investigation) (2021) 433 ITR 203 (Telangana); L.R. Gupta & Ors. v. Union of India & Ors. (1991) SCC OnLine Del. 584 : (1992) 194 ITR 32 (Del.); Janak Raj Sharma v. Director of Inspection (Investigation) & Ors. (1995) 215 ITR 234 (P&H) – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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