Gujarat High Court
Vapi Care Pharma Pvt Ltd Thro Its ... vs Director Of Income Tax Investigation ... on 25 February, 2014
Bench: Akil Kureshi, Sonia Gokani
C/SCA/15637/2013 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CIVIL APPLICATION No. 15637 of 2013
With
SPECIAL CIVIL APPLICATION No. 15684 of 2013
FOR APPROVAL AND SIGNATURE:
HONOURABLE Mr. JUSTICE AKIL KURESHI
and
HONOURABLE Ms. JUSTICE SONIA GOKANI
================================================================
1 Whether Reporters of Local Papers may be allowed to see the judgment ?
2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the
Constitution of India, 1950 or any order made thereunder ?
5 Whether it is to be circulated to the civil judge ?
================================================================ VAPI CARE PHARMA PVT LTD THRO ITS DIRECTOR KAMAL J SHAH....Petitioner(s) Versus DIRECTOR OF INCOME TAX INVESTIGATION SRUAT & 2....Respondent(s) ================================================================ Appearance:
Mr SN SOPARKAR Sr Advocate with Mr HARDIK V VORA, ADVOCATE for Petitioner Mr M.R BHATT Sr Advocate with Mrs MAUNA M BHATT, Advocates for Respondents ================================================================ CORAM: HONOURABLE Mr. JUSTICE AKIL KURESHI and HONOURABLE Ms. JUSTICE SONIA GOKANI 25th February 2014 COMMON JUDGMENT (PER : HONOURABLE Mr. JUSTICE AKIL KURESHI) These petitions involve similar questions. They have, therefore, been Page 1 of 16 C/SCA/15637/2013 JUDGMENT heard together and are disposed of by this common judgment.
2. At the center of controversy is the validity of authorization issued under Section 132 (1) of the Income Tax Act, 1961 {"the Act" for short}. Brief facts are as under : 2.1 The petitioner of Special Civil Application No. 15637 of 2013 is a private limited company registered under the Companies Act and is engaged in manufacture of pharmaceutical products. On 18th June 2013, the petitioner was subjected to search operation. The petitioner has challenged the authorization under Section 132 (1) of the Act on the ground that the respondents did not possess any information as referred to under Section 132 (1) of the Act, which would lead them to carry the extreme step of search and seizure operation. Relying on the decision of the Delhi High Court in case of L.R Gupta v. Union of India, reported in 194 ITR 32 (Delhi), the petitioner contends that the information referred to under Section 132 (1) of the Act must mean material which existed on the file, on the basis of which, the Incometax authorities were led to believe that action under Section 132 Act was required. 2.2 The petitioner no.1 in Special Civil Application No. 15684 of 2013 were also similarly subjected to search operation on 18 th June 2013. The petitioners no. 1 to 3 are the individuals. Petitioner no. 4 is Hindu Undivided Family. The petitioner no. 1 is the Managing Director of Messrs. Vapi Care Pharma Private Page 2 of 16 C/SCA/15637/2013 JUDGMENT Limited [petitioner in Special Civil Application No. 15637/2013]. The petitioners no. 2 & 3 are his close relatives. Petitioner no. 4 is the HUF, where he is Karta. These petitioners also challenge the validity of search authorization on similar grounds viz., that the Incometax authorities did not have requisite material to form a belief for issuance of the authorization for search. They additionally and independently challenge the action of the respondents in seizing the cash of Rs. 15,50,000/= and the jewellery belonging to the family. It is the case of the petitioners that such jewellery was fully explained in the various Wealth Tax returns filed by the petitioners from time to time. In that view of the matter, in any case, seizure of such jewellery was wholly impermissible.
3. The respondents have filed replies and opposed the petitions. In an affidavit dated 26th November 2013 in Special Civil Application No. 15637 of 2013, it is stated inter alia that during the search, statement was recorded to the effect that a sum of Rs. 15.50 lakhs were lying at the residential premises of the Director. Statement of the director could not be recorded, since he was not present at the business premises. At the time of search at the residence, his statement was recorded during which cash of Rs. 16,68,200/= was found. He stated that out of such amount, Rs. 6 lakhs were from cash savings made by his late father; Rs. 3 lakhs were received as gift from friends and relatives; Rs. 2 lakhs were unspend amount from withdrawals made by him and his wife from Page 3 of 16 C/SCA/15637/2013 JUDGMENT the bank accounts; Rs. 5 lakhs belong to the office cash, which was kept at his residence. He, however, could not produce any document in support of such statement. It was, therefore, that the amount of Rs. 15.50 lakhs was seized.
4. In an affidavit dated 26th November 2013 filed in Special Civil Application No. 15684 of 2013, details have been given about the jewellery and ornaments found during the search at the residence of the petitioners and from the banklocker of petitioner no.1. The respondents have also tried to bring about the discrepancy in such jewellery as compared to the stand of the petitioners. Regarding such jewellery, it was highlighted as under : "Moreover, in the balance sheet of Shri Kamal Shah and Smt. Raniben J. Shah, gold of 200 grams and 1454.39 gms respectively is shown as inherited gold. Shri Kamal J. Shah in his statement recorded at the time of search at locker no. 47, stated that the gold has been inherited from his father late Shri Jayantilal Shah. For this, the assessee submitted the copy of Will of Shri Jayantilal Shah. However, this Will is not on a stamp paper and does not appear to be registered as well. As such the authenticity of the Will is doubtful. Also in the said Will 149.200 gms gold jewellery of 1453.800 gms was given to Shri Kamal J. Shah, but the balance sheets submitted show otherwise ie., 200 gms gold in the balance sheet of Kamal Shah and 1454.39 gms in the balance sheet of Smt. Raniben J. Shah. This itself indicates the nongenuineness of the authenticity of the Will. Also the assessee, during the course of search at residence and Locker No. 47 did not identify the jewellery as to which family member Page 4 of 16 C/SCA/15637/2013 JUDGMENT it belongs. It was stated that the entire jewellery belongs to all the family members. However at Locker No. 260, jewellery found in this locker was identified as belonging to Mrs. Raniben J. Shah and Shri Kamal J. Shah and Kamal J. Shah, HUF. I rely upon the Will submitted by the petitioner and the same is enclosed at Annexure R8".
5. In both the affidavits, the respondents also sought to support the authorization under Section 132 (1) of the Act pointing out that after following due procedure and the competent authority having perused the satisfaction note, issued such authorization.
6. Learned counsel Shri Soparkar for the petitioners vehemently contended that the search authorizations were invalid since the Department had no material to form a belief that the petitioners were in possession of any money, bullion, jewellery or other valuable article or thing, which has not been or would not have been disclosed for the purpose of Incometax Act. He submitted that in absence of there being any material, the authorization itself was illegal. Any material found during the search would not cure such defect. 6.1 In the alternative, he contended that in any case, the seizure of the jewellery was wholly impermissible since the entire jewellery was duly reflected in various wealth tax returns filed by the petitioner no. 1 and other members of the family.
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C/SCA/15637/2013 JUDGMENT
6.2 Counsel drew our attention to the following decisions of this Court and
also relied on various decisions cited therein
[a] LKS Bullion Import & Export (P) Limited, reported in 214 Taxman 68
(Guj.); and
[b] Neesa Leisure Limited & Anr. v. Union of India, reported in 338 ITR 460
[Guj].
7. On the other hand, learned counsel Shri Manish Bhatt for the Department placed for our perusal, the original files pertaining to the search authorization. He drew our attention to the satisfaction note and further notings made by the authorities before the search authorization was approved. He contended that the department had sufficient material at its command to form a belief that the petitioners were in possession of such money, bullion, jewellery or other valuable article or thing, which had not been nor would have been disclosed for the purpose of Income tax.
7.1 Counsel submitted that after detailed surveillance and collecting basic information, the authorities had initiated action being satisfied that ingredients necessary for issuing authorization under Section 132 of the Act existed. He would drew our attention to the materials on the record and in particular the satisfaction note to highlight the method in which, according to him, the petitioners were indulging in tax evasion. He pointed out that the petitioners Page 6 of 16 C/SCA/15637/2013 JUDGMENT had two manufacturing units - one at Vapi and another at Baddi in Himachal Pradesh - the unit at Baddi being covered under tax exemption. 7.2 With respect to the seizure of jewellery, counsel contended that the entire stock could not be corelated to the declarations made in the Wealth Tax returns on that therefore release of jewellery would not be appropriate.
8. Section 132 of the Act pertains to search and seizure. Subsection (1) thereof permits the departmental authorities to carry out search operation under certain circumstances. In so far as we are concerned, subsection (1) of Section 132 provides that where the Director General or Director or the Chief Commissioner or Commissioner or Additional Director or Additional Commissioner or Joint Director or Joint Commissioner in consequence of information in his possession, has reason to believe that 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 represents either wholly or partly income or property which has not been, or would not be, disclosed for the purpose of the Incometax Act, then such authority may authorize to carry out search operation and take steps mentioned in clause (i) to
(v) of the said subsection. What is therefore important is that the authorities mentioned above should be in possession of such information which gives him reason to believe that the person in possession of money, bullion, jewelery or Page 7 of 16 C/SCA/15637/2013 JUDGMENT other valuable article or thing which represents his income or property, has not been or would not be disclosed for the purpose of the Act. 8.1. In case of LKS Bullion Import & Export (P) Limited [Supra], Division Bench of this Court taking note of the decision of the Supreme Court in case of Rajendran Chingaravelu v. R.K Mishra, Addl. CIT, reported in 320 ITR 1 (SC) and of this Court in case of Neesa Leisure Limited [Supra] and the decision of Delhi High Court in case of L.R Gupta [Supra] quashed the authorization under Section 132 (1) of the Act, making following observations: "27. On the basis of the above decisions, it emerges that mere possession of money, bullion, jewelery or such valuable article or thing per se would not be sufficient to enable the competent officer to form a belief that the same had not been or would not be disclosed for the purpose of the Act. What is required is some concrete material to enable a reasonable person to form such a belief. It is, of course, true that such belief is a mater of subjective satisfaction of the competent authority. Such subjective satisfaction, however, must be formed on the basis of the material on record and objective assessment of such material and cannot be on the basis of a mere suspicion or apprehension that the income had not been or would not be disclosed for the purpose of the Act."
8.2 In case of Neesa Leisure Limited & Anr. [Supra], this Court referred to various decisions of Supreme Court and High Courts and culled out the principles for examining the validity of search operation under Section 132 (1) of the Act in the following terms : Page 8 of 16 C/SCA/15637/2013 JUDGMENT "8. The aforesaid pronouncements have exhaustively settled the guidelines with reference to scrutiny by the Court while examining the legality, propriety or otherwise of the issuance of search warrants under section 132(1) of the Act. From the principles enunciated in the above referred decisions, it is apparent that for the purpose of exercise of powers under section 132 of the Act, two conditions precedent are required to be satisfied. The first condition is that the concerned officer must have some information in his possession, and the second condition is that, in consequence of such information he must have reason to believe that the statutory conditions for exercise of the power to order search exist. The basis for exercise of power must be some material which can be regarded as information which must exist on the file on the basis of which the authorizing officer can have reason to believe that action under section 132 is called for. Such information should be fairly reliable and should not be a mere rumour or an unverified piece of gossip or a hunch. The Court, therefore, while examining the validity of the authorization issued under section 132 of the Act would firstly be required to examine as to whether there exists any information of the nature referred to hereinabove in the possession of the concerned officer, on the basis of which he could have formed a reason to believe. The next requirement which would be required to be satisfied is as to whether before issuance of the authorization, the concerned official has recorded the reasons for his belief. If reasons have been recorded, the opinion which has to be formed being subjective, the jurisdiction of the court to interfere is very limited. The court will not act as an appellate authority and examine meticulously the information in order to decide for itself as to whether the action under section 132 is called for. But the court would be acting within its jurisdiction in seeing whether the act of issuance of authorization under section 132 is arbitrary or mala fide or whether the satisfaction recorded is such which shows lack of application of mind on the part of the appropriate authority. The reason to believe must be tangible in law and if the information or reason has no nexus with the belief or there is no material or tangible information for the formation of the belief, action taken under section 132 would be bad in law. If reasons have been recorded and the concerned officer is satisfied that there is reason to believe, the court cannot sit in appeal over the decision of the said officer regarding the existence of the reason to believe nor can the court examine the Page 9 of 16 C/SCA/15637/2013 JUDGMENT adequacy of the grounds on which the reason to believe entertained by such officer is based. But there is a limited area within which such reason to believe entertained by the officer can be scrutinized by the Court. If the grounds on which "reason to believe" is founded are not relevant to the subject matter of inquiry or are extraneous to the scope and purpose of the statute or are such as no rational human being can consider connected with the fact in respect of which the belief is to be entertained so that no reasonable man can come to such a belief, the exercise of the power would be bad. 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."
8.3 The Court, in view of the facts on record, upheld the search operation.
9. In case of Assistant Commissioner of IncomeTax v. A.R Enterprises, reported in [2013] 350 ITR 489 (SC), the Apex Court held that, "...If we were to hold that the payment of advance tax reflects the intention of the assessee to disclose its income, it could result in a situation where the mandatory obligation of filing a return for disclosure of income under the provisions of the Act, would not be necessary. It will be open to an assessee to contend that payment of advance tax is tantamount to disclosure of income. Such a proposition would be contrary to the very purpose of filing of return, which ultimately leads to assessment of total income for the relevant assessment year. Any anomaly in the return entails serious consequences, which may not otherwise be attracted on estimation of income for the purpose of payment of advance tax. It would thus, be difficult to accept the plea that payment of advance tax is tantamount to the disclosure of income or that it indicates the intention of the assessee Page 10 of 16 C/SCA/15637/2013 JUDGMENT to disclose income."
10. In case of Madhu Gupta v. Director of IncomeTax [Investigation] & Ors., reported in [2013] 350 ITR 598 (Delhi), Division Bench of Delhi High Court referred to various leading decisions in the subject; including of Delhi High Court in case of L.R Gupta [Supra]; H.L Sibal v. CIT, reported ion 101 ITR 112 {P&H}, observed as under : "21. These are the principles of law which have been set down by several judicial pronouncements. In the present case, we find that the socalled information is undisclosed and what exactly that information was, is also not known. At one place in the affidavit of the Deputy Director of Incometax, it has been mentioned that he got information that there was a "likelihood" of the documents belonging to the DS group being found at the residence of the petitioner. That by itself would amount only to a surmise and conjecture and not to solid information and since the search on the premises of the petitioner was founded on this socalled information, the search would have to be held to be arbitrary. It may also be pointed out that when the search was conducted on January 21, 2011, no documents belonging to the DS group were, in fact, found at the premises of the petitioner."
11. Bearing in mind such principles, we have perused the files presented by the Revenue authorities. We notice that a detailed report dated 22nd April 2013 was submitted by the Inspector, Valsad to the Deputy Director of Incometax [Investigation], Valsad. For the sake of confidentiality, it would not be possible to discuss in this order in detail the contents thereof. Suffice it to note that the report suggest large scale activities by Shri Kamal Jayantilal Shah, Managing Page 11 of 16 C/SCA/15637/2013 JUDGMENT Director of the Company and had investments made in lands in and around Vapi. He stated that the report was presented for verification and suggestions, if any, with respect to further verification and inquiries. 11.1 A detailed satisfaction note was prepared by the Deputy Director of Incometax [Investigation], Valsad on 11th June 2013. Such satisfaction note covers various activities of the group in the name and banner of Vapi Care Pharma Private Limited, its activities and other relevant data. The satisfaction note concluded that in view of the facts stated above and other information gathered during the course of discreet inquiry, it is believed that the persons mentioned are in possession of sufficient substantial amount of money, bullion, jewellery and other valuable articles or assets representing their income, which has not been or would not be disclosed for the purpose of Incometax Act, 1961. It was therefore suggested that, "therefore, the Director of Income Tax [Investigation], Surat may kindly consider the case for issuance of warrants of authorization under Section 132 of the Incometax Act to undertake search and seizure operation in respect of the premises mentioned in para 4(a) are to be covered under Section 132 of the Income Tax Act".
11.2 When such satisfaction note was placed before the Additional Director of Incometax [Investigation], Surat, he made his own detailed notes taking Page 12 of 16 C/SCA/15637/2013 JUDGMENT note of the contents of the satisfaction note and further satisfying himself that he had reason to believe that the money, bullion, jewellery or other valuable articles or things which represent the income or property of the persons concerned has not been, or would not be disclosed for the purpose of Income tax Act. He, therefore, suggested that necessary approval be given and warrants of authorization under Section 132 of the Act may be issued. 11.3 Thereupon, under the said note of Additional Director [Investigation], Surat, the Director of Incometax [Investigation], Surat on 11th June 2013 itself put his detailed noting. In addition to taking note of the satisfactionnote, the notes of Additional Director of Incometax [Investigation], Surat, he recorded that in consequence of the above information in his possession and detailed discussion made in the note, he has reason to believe that the conditions prescribed in subsections (b) and (c) of Section 132 (1) of the Act are fulfilled. He stated that he was, therefore, satisfied that it is a fit case for action under Section 132 of the Incometax Act, 1961. This note was thereupon placed before the Director General of Incometax [Investigation], Ahmedabad who had authorized the search operation noting that he had perused the notes above. He also discussed the case with DDIT/Addl. DIT {Investigation} and DIT {Investigation}. He was thus satisfied that it was a fit case to initiate action Page 13 of 16 C/SCA/15637/2013 JUDGMENT under Section 132 (1) of the Act. He thereupon approved the authorization. It was thereupon the authorization was issued.
12. From the sequence of events noted above, it can be seen that all procedural steps necessary for issuance of search warrant were undertaken. There was sufficient material information with the authorities to come to the conclusion that all requirements of Section 132 [1](c) were fulfilled. On the basis of detailed satisfaction note, which was drawn after extensive inquiry and collection of materials, the search operation was proposed. This was perused and agreed to by the three authorities before it was placed for final approval of the Director General of Incometax. Each authority placed his own remarks and it cannot be stated that the authorization was recommended or later on approved mechanically without application of mind. On the basis of satisfaction note and the recommendations made by the three Incometax authorities, the Director General of Incometax formed his opinion that the persons concerned were in possession of money, bullion, jewellery or other valuable article or thing which represented their income and which has not been, or would not be, disclosed for the purposes of the Incometax Act. In our opinion, therefore, it is not a case where the search authorization needs to be interfered.
13. The question of seizure of jewellery, however, stands on different Page 14 of 16 C/SCA/15637/2013 JUDGMENT footing. We have noticed that necessary notes were placed before the competent authority for authorizing the search of the bank locker on 19th June 2013 after the search started at the residential and business premises on 18 th June 2013. However, when it is pointed out that substantial portion of jewellery seized has already been declared in the wealth tax returns filed by the petitioners, in our opinion, it can not be stated that such jewellery and valuable articles represented income of the assessee which had not been disclosed for the purpose of Income tax Act. Having said that, the task of reconciliation is yet to be completed. For such purpose, we permit the petitioners to point out to the Assessing Officer that all or any of the jewellery seized by the respondents under the said authorization was already declared in the wealth tax returns filed by any of the petitioners. If that be so, the Assessing Officer shall release the same, upon being satisfied about such declaration. We clarify that even if it is not possible to corelate every piece of jewellery, by precise description as long as such jewellery has been with sufficient particulars disclosed in the wealth tax returns which can be corelated with the seized jewellery, the same shall also be released.
14. Subject to the above directions, both the petitions are disposed of.
{Akil Kureshi, J.}
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C/SCA/15637/2013 JUDGMENT
{Ms. Sonia Gokani, J.}
Prakash*
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