Bombay High Court
Narayan R. Bandekar vs Second Income-Tax Officer And Others on 28 November, 1988
Equivalent citations: [1989]177ITR207(BOM)
ORDER UNDER S. 132(5)--Order passed for retention of fixed deposit receipts belonging to private companies Income Tax Act 1961 s.132 Search and seizure--ORDER UNDER S. 132(5)--Reliance on statement of witness--Opportunity not given to assessee to cross-examine--Remedy of appeal available HELD: In the first instance the order passed under s. 132(5) is an order of a summary nature and does not conclude the rights of the petitioners, because while passing the assessment order, it is always open to the petitioners to point out that the assets recovered in the search were not undisclosed to point out that the assetsrecovered in the search were not undisclosed income. Secondly, the order passed under s. 132(5) is appealable under the provisions of the Act and if there is any violation in the exercise of the power, then the proper remedy is to lodge an appeal before the appellate authority. Thirdly, even assuming that there is some breach in exercise of power s. 132(5) such breach is not so fatal as to warrant quashing the entire order. Income Tax Act 1961 s.132 Search and seizure--ORDER UNDER S. 132(5)--Validity of--Seized assets handed over the Commissioner Income Tax Act 1961 s.132 Search and seizure--REASON TO BELIEVE--Commissioner considering extensive information and anonymous petitions and undertaking detailed scrutiny Income Tax Act 1961 s.132 JUDGMENT Pendse, J.
1. Writ Petition No. 88 of 1986 is filed by Narayan R. Bandekar. While Writ Petition No. 89 of 1986 is filed by his wife, Mrs, manda Bandekar, and both the petitions can be conveniently disposed of by a common judgment as the controversy raised in both the petitions is identical and arises out of the same set of facts.
2. Narayan Bandekar and his wife are permanent residents of Goa and are assessed to income-tax and wealth-tax of several years. Bandekar and his wife had floated several private limited companies like Harwan Investment and Trading Private Limited, Gulmarg Investment and Trading Private Limited, Bandekar Speciality Valve Corporation, Super Prints, Vasco, and Rashmi Enterprises, Vasco, Harwan Investment and Trading Private Limited and Gulmarg Investment and Trading Private Limited are registered in the state of Jammu and Kashmir and the registered offices of these two companies are situated at Srinagar, while it is not in dispute that the entire business carried on by these companies in Goa. All these private companies are exclusively held by Bandekar, his wife and his children.
3. The residential as well as the business premises of the Bandekars were searched between December 30, 1985, and January 2, 1986, by the income-tax authorities in consequence of an order passed by the Commissioner of Income-tax, respondent No. 3. During the search, fixed deposits receipts in the names of private companies held by the Bandekars and in the names of some other persons to the tune of Rs. 30,01,504 were recovered. Out of these, fixed deposits receipts for Rs. 10,15,000 were standing in the name of Harwan Investment and Trading Private Limited. While of Rs. 16,01,000 in the name of Gulmarg Investment and Trading Private Limited, in addition to the fixed deposits receipts, cash of Rs. 60,000 and jewellery valued approximately at Rs. 12,00,000 was recovered. After search and seizure, the Second Income-tax Officer, Panjim, respondent No. 1 to the petitions, issued notice dated January 16, 1986, in exercise of the power under rule 112A of the Income-tax Rules. 1962, to Bandekar and his wife calling upon them to show cause why an order contemplated under section 132(5) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), should not be passed, After the Bandekars showed cause and were heard the order dated April 29, 1986, came to be passed. The second Income-tax Officer held that the total undisclosed income for the assessment years 1977-78 to 1986-87 amounts to Rs. 73,73,357 and penalty leviable under section 271(1)(c) of the Act would be Rs. 1,47,46,714. The Income-tax Officer directed that as the assets seized are valued at less than the penalty and tax leviable, the same are required to be retained for the purpose of appropriation under section 132B of the Act, the order was passed after securing the previous approval of the Inspecting Assistant Commissioner of Income-tax, Goa Range, Panjim. An order was also passed by the Income-tax Officer against Mrs. Bandekar, though for a different amount. These orders are under challenge in these petitions filed under article 226 of the Constitution of India.
4. Shri Sathe, learned counsel appearing on behalf of the petitioners, raised four contentions to claim that the warrant of authorisation issued by respondent No. 3 was invalid and, therefore, the proceedings initiated thereunder and the orders dated April 29, 1986, are required to be quashed. The first submission of learned counsel is that the search carried out by exercising power under section 132(1) of the Act was illegal, because there was no material or information in the possession of respondent No. 3 and from which respondent No. 3 could have reason to believe that the conditions prerequisite for directing a search existed. To appreciate the submission of learned counsel, it is necessary to set out the relevant portion of section 132(1).
"132. (1) Whether the Director of Inspection or the Commissioner of any such Deputy Director of Inspection of Inspecting Assistant 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 who 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 Indian 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 bows 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 represents either wholly or partly income or property which has not been, or would not be, disclosed for the purposes of the Indian Income-tax Act, 1922 (11 of 1922), or this Act (hereinafter in this section referred to as the undisclosed income or property).
then, -
(A) the Directors of Inspection or the Commissioner, as the case may be, may authorise any Deputy Director of Inspection, Inspecting Assistant Commissioner, Assistant Director of Inspection or Income-tax Officer, or (B) such Deputy Director of Inspection or Inspecting Assistant Commissioner, as the case may be, may authorise any Assistant Director of Inspection or Income-tax Officer, (the officer so authorised in all cases being hereinafter referred to as the authorised officer) to
(i) enter and search any building, place, vessel, vehicle or aircraft where he has reason to suspect that such books of account, other documents, money, bullion, jewellery or other valuable article or thing are kept;
(ii) break open the lock of any door, box, locker, safe, almirah or other receptacle for exercising the powers conferred by clause (i) where the keys thereof are not available;
(iia) search any person who has got out of, or is about to get into, or is in, the building, place, vessel, vehicle or aircraft, if the authorised officer has reason to suspect that such person has secreted about his person any such books of account, other documents, money, bullion, jewellery or other valuable article or thing;
(iii) seize any such books of account. Other documents, money, bullion, jewellery or other valuable article or thing found as a result of such search;
(iv) place marks of identification on any books of account of other document or make or cause to be made extracts or copies therefrom;
(v) make a note or an inventory of any such money, bullion, jewellery or other valuable article or thing;
Provided that where any building, place, vessel, vehicle or aircraft referred to in clause (i) is within the area of jurisdiction of any Commissioner. But such Commissioner has no jurisdiction over the person referred to in clause (a) or clause (b) or clause (c), then, notwithstanding anything contained in section 121, it shall be competent for him to exercise the powers under this sub-section in all cases where he has reason to believe that any delay in getting the authorisation from the Commissioner having jurisdiction over such person may be prejudicial to the interests of the revenue."
5. A plain reading of sub-section (1) of section 132 makes it clear that the powers can be exercised in consequence of information in the possession of the Director of Inspection or the Commissioner of Income-tax and from such information of the Commissioner has reason to believe that (a) any person, in spite of issue of summons, has failed to produce the books of account or other documents, (b) any persop is likely to fail to produce the books if so called upon, and (c) any person is in possession of any money, bullion, jewellery or other valuable articles and which are not accounted for and which represent undisclosed income. It hardly requires to be stated that the power conferred upon the Commissioner under section 132 is of a drastic nature and the exercise of power can only be after serious application of mind to the information in the possession of the Commissioner and from which a reasonable person would come to the conclusion that the conditions prerequisite for the exercise of power existed. Shri Sathe invited our attention to the decision in ITO v.Lakhmani Mewal Das [1976] 103 ITR 437, where the Supreme Court, while examining the provisions of section 147 of the Act. Observed (at p. 448):
"It is not any and every material, however vague and indefinite or distant, remote and far-fetched, which warrant the formation of the belief relating to escapement of the income of the assessee from assessment."
6. It was observed that the reason for the formation of the belief must be held in good faith and should not be a mere pretence. Reference was also made to the decision of the Supreme Court in Madnani Engineering Works Ltd. [1979] 118 ITR 1 to urge that it is not enough for the Income-tax Officer to claim that material was available on the basis of which a reasonable belief could be reached. The court must be satisfied, if a contention is raised that such material was available and from which a reasonable belief could have been reached. Shri Sathe very fairly stated that in view of the catena of decisions, it was not incumbent upon respondent No. 3 to furnish the material or the information available on which respondent No. 3 proceeded to direct search of the premises. Shri Sathe submitted that this court should ascertain whether there was material on which a reasonable belief could have been reached that search was necessary in exercise of powers under section 132 of the Act. We called upon learned counsel appearing for the Department to produce the file to ascertain whether exercise of power was just and proper, and on perusal of the file, we have no hesitation in concluding that exercise of power by respondent No. 3 could not be faulted. The Assistant Director of Inspection-III had submitted a note on February 24, 1985, to respondent No. 3 drawing attention to three anonymous petition dated October 26, 1984, November 15, 1984, and February 22, 1985. The petitions set out the allegation against Bandekar and his wife and the manner in which the income was made and not disclosed to the income-tax authorities. The Assistant Director of Inspection, in his note to respondent No. 3, opined that the contents of the anonymous petitions require investigation and unless powers are exercised under section 132, there is every likelihood that the account books or the undisclosed assets would not be traced. On the strength of the note prepared by the Assistant Director of Inspection, respondent No. 3 perused the three petitions received and also held conference witu the Assistant Director of Inspection and thereafter came to the conclusion that exercise of powers under section 132 is necessary. We are unable to find any infirmity in the conclusion reached by respondent No. 3. Considering the extensive information and detailed scrutiny and analysis undertaken, the conclusion is inescapable that the belief formed by respondent No. 3 was genuine and authentic. It must be remembered that exercise of power under section 132 of the Act is not a judicial or quasi-judicial exercise and it is not possible to sit in appeal over that exercise while exercising power under article 226 of the Constitution. It must be borne in mind that report to power under section 132 is required when the Commissioner, who is a senior officer, comes to the conclusion that but for directing search of the premises, the undisclosed income or accounts in respect of that income would not be available to the income-tax authorities. In our judgment on that facts and circumstances of the case, it is impossible to conclude that the exercise of power was in any manner defective.
7. Shri Sathe also submitted that it was improper for the Commissioner to have exercised power by reference to anonymous petitions received by the income-tax authorities. Learned counsel urged by reference to the decision of the Allahabad High Court in Dr. Nand Lal Tahiliani v. CIT [1988] 170 ITR 5592, that reliance should be placed on anonymous complaints and that the Commissioner should exercise powers only after satisfying himself that the information is true and correct. It is impossible, in our jedgment, to lay down any principle that in no case powers could be exercised on the strength of information received through anonymous petitions. It is not unknown that anonymous petitions, on several occasions, disclose information which is crucial and the reasons for the informant remaining anonymous are not difficult to appreciate. It was also urged by learned counsel that the first anonymous petition was received on October 26, 1984, and over a period of four months, the Commissioner did not think it necessary to exercise the powers. We fail to see any merit in the contention because the Commissioner was not in a hurry to exercise powers as soon as an anonymous complaint was received. The Commissioner exercised power only after more than one complaint was received and the Assistant Director of Inspection, on a careful consideration, recommended that power of search should be exercised. In our judgment, the first submission urged by learned counsel that exercise of power under section 132 of the Act was defective and the search carried out in pursuance thereof was illegal, cannot be accepted.
8. The second contention urged by learned counsel is that the provisions of section 132(9A) were violated and, therefore, the order passed under section 132(5) of the Act cannot be sustained. Section 132 provides that when the Commissioner directs carrying out a search, then the officer designated as set out in section 132 should be authorised and such officer then would be known as the "authorised officer". Section 132(9A), inter alia, provides that where the authorised officer has no jurisdiction over the person whose premises are searched, then the books of account or other assets seized shall be handed over by the authorised officer to the Income-tax Officer having jurisdiction over such person within a period of fifteen days of the seizure and thereupon the powers exercisable by the authorised officer under sub-section (8) or sub-section (9) shall be exercisable by such Income-tax Officer. The grievance of Shri Sathe is that the authorised officer in the present case did not hand over the assets secured from the premises of the Bandekar to the Second Income-tax Officer, Panjim, who had jurisdiction over the assessment of the Bandekar. Learned counsel urged that the jurisdiction of the Second Income-tax Officer. Panjim, to exercise power under section 132(5) of the Act would arise provided that authorised officer had handed over the assets to the Income-tax Officer, and that not having been done the Income-tax Officer could not have passed the order dated April 29, 1986. It is not possible to accede to the submission of learned counsel. It is not in dispute that the assets seized from the premises of the Bandekar were handed over by the authorised officer to respondent No. 3, who is holding the post of Commissioner, and thereafter they are in the control and custody of the Commissioner. The Commissioner is an officer who is superior to the Second Income-tax Officer, Panjim, and, therefore, it is futile to urge that the failure of the authorised officer to hand over the assets to the Income-tax Officer deprived the Income-tax Officer from exercising powers under section 132(5) of the Act, the Commissioner, being an officer superior to the Second Income-tax Officer, Panjim, handing over of the assets to the Commissioner for custody is more than sufficient compliance with the requirements of section 132(9A) of the Act, the second submission urged by learned counsel, therefore, is required to be repelled.
9. The third contention urged by Shri Sathe is that while exercising powers under section 132(5) of the Act, the Second Income-tax Officer, Panjim, had violated the principles of natural justice, and in support of the submission reliance was placed on the averments made in paragraph 9 of the petition filed by Narayan Bandekar. The grievance of the petitioners is that reliance was placed by the second Income-tax Officer on certain statements made by witness without affording them any opportunity to cross-examine such witnesses. The Income-tax Officer relied upon the statement of Mrs. Ambujamma Malavalli and on the statement of Smt. Nalini Prabhu and Smt. Rita Ferrao, and the grievance is that the petitioners had no opportunity to cross-examine these witnesses. Reference was made to rule 112 A(4) of the Income-tax Rules, 1962, which, inter alia, provides that before any material gathered in the course of examination or inquiry is used by the Income-tax Officer. The officer shall give reasonable opportunity to the person against whom it is to be used, to show cause. Shri Sathe submits that this safeguard was given a complete go-by by the Second Income-tax Officer and that is why the order is required to be quashed, it is not possible to accede to the submission of learned counsel for more than one reason. In the first instance, the order passed under section 132(5) is an order of a summary nature and does not conclude the rights of the peitioners, because while passing the assessment order, it is always open to the petitioners to point out that the assets recovered in the search were not undisclosed income. Secondly, the order passed under section 132(5) of the Act is appealable under the provisions of the Act and if there is any violation in the exercise of the power, then the proper remedy is to lodge an appeal before the appellate authority. Shri Sathe submits that the remedy of appeal is not efficacious, but it is impossible to accede to the submission. A statutory remedy providing for appeal cannot be treated as in efficacious merely because the petitioners apprehend that the appellate authority may not accept their contention. Thirdly, even assuming that there is some breach in exercise of powers under section 132(5) of the Act, such breach is not so fatal as to warrant quashing the entire order, the effect of passing of the order is that the assets recovered in the search were held in custody by the officer till the assessment proceedings are completed. Taking all the factors into consideration, we are unable to accede to the submission that the order dated April 29, 1986, should be struck down on the ground that the Second Income-tax Officer, Panjim, relied upon certain statements without giving sufficient opportunity to the petitioners to cross-examine the witnesses who made those statements. We wish to make it clear that we are not accepting the claim of the petitioners that the statements relied upon were used without affording them reasonable opportunity, but even otherwise we would not have quashed the order on the facts and circumstances of the case.
10. The final contention urged by Shri Sathe is that the order passed under section 132(5) against the Bandekars is bad in law because, in respect of the same assets, the Second Income-tax Officer, Panjim, and the Income-tax Officer, Srinagar, have passed orders in exercise of powers under section 132(7) read with section 132(5) of the Act. To appreciate the submission of learned counsel, it is necessary to refer to the provisions of section 132(4A), 132(5) and 132(7) of the Act. Section 132(4A) provides that where any books of account, other documents, money, bullion, jewelry or other valuable article is found in the possession or control of any person in the course of a search, then it may be presumed that such articles belong to the person from whom they are seized. Sub-section (5) of section 132 prescribe that when such articles are recovered. Then the Income-tax Officer, after making enquiry shall within 120 days of the seizure, make an order estimating the undisclosed income in a summary manner to the best of his judgment on such material as are available. It also confers power upon the Income-tax Officer to retain in his custody such assets or part thereof as are sufficient to satisfy the aggregate amounts which are found due on estimating the undisclosed income. Sub-section (7) of section 132 provides that if the Income-tax Officer is satisfied that the seized assets were held by such person on behalf of any other person, then the Income-tax Officer may proceed under sub-section (5) against such other person on whose behalf the assets were held. In the present case, as mentioned hereinabove, the assets secured were fixed deposit receipts, cash and jewellery. The Bandekars claim that the fixed deposit receipts did not belong to them but belonged to the private limited companies of which they are directors and which are under their exclusive control. Some of the receipts stand in the names of the minor children of the Bandekars. The Bandekars accepted that the cash found belonged to them and so also the jewellery. In the enquiry held under sub-section (5) of section 132, the Income-tax Officer came to the conclusion that the denial by Bandekars that the fixed deposit receipts do not belong to them is not acceptable. Notices were issued by the Income-tax Officer to the private limited companies held by the Bandekars and the companies claimed before the Income-tax Officer that the fixed deposit receipts were held by them and not by the Bandekars. The Income-tax Officer was not prepared to accept the claim of the private limited companies and thereupon directed that in exercise of power under sub-section (5) of section 132, the assets should be held in protective custody till the assessment of the companies was over. The Income-tax Officer also passed an order under section 132(5) against the Bandekars and retained custody of the assets on the basis that the assets belonged to the Bandekars and were the undisclosed income of the assessment years spread over ten years from 1977-78 onwards.
11. Shri Sathe companies that the Income-tax Officer cannot exercise powers under sub-section (5) of section 132 of the Act both against the Bandekars and against the companies. Shri Sathe urged that once an order is passed against the private limited companies, then no order is permissible in respect of the same assets against the Bandekars. The submission cannot be accepted for more than one reason, in the first instance, it is not correct to suggest that the order passed under sub-section (5) of section 132 is in respect of the same assets. As regards the cash and jewellery recovered in the search. It is not the claim of either the Bandekars or the companies that the said assets belong to the companies. The Bandekars accepted that the cash and jewellery belonged to them and claimed that it was disclosed income or has been acquired out of lawful sources. As regards the fixed deposit receipts standing in the names of the companies, it is the claim of the Bandekars that the same belong to the companies and so also is the claim of the private limited companies. The Income-tax Officer was not satisfied with the claim of the Bandekars as well as the companies in respect of these fixed deposit receipts and held that the fixed deposit receipts were the assets of the Bandekars. On the strength of that finding, the order under sub-section (5) of section 132 was passed retaining the custody of the assets for satisfaction of the amounts which would be due from the Bandekars. The Income-tax Officer held that the claim of the companies that the fixed deposit receipts belong to the companies is not acceptable. But passed a protective order to retain custody and this protective order is not strictly in exercise of powers under sub-section (5) of section 132 of the Act, learned counsel for the Department submitted that this protective order was passed because the Supreme Court has observed in the decision in Lalji Haridas v. ITO [1961] 43 ITR 387, that when there is a doubt as to whether the assets belong to one person or the other. The Income-tax Officer has enough power to pass a protective order to retain such assets in custody. We are unable to accede to the submission that the Income-tax Officer had no authority to pass an order under sub-section (5) of section 132 against the Bandekars directing detention of the assets. The Bandekars should have no complaint in respect of the detention of the assets in the shape of fixed deposit receipts standing in the names of the companies, because it is not the claim of the Bandekars that the amounts covered by the fixed deposit receipts belong to the Bandekars. The private limited companies have not challenged the order passed by the Income-tax Officer and in theses circumstances, we fail to see any reason to disturb the order passed by the Income-tax Officer at the behest of the Bandekars. The Bandekars can have no complaint whatsoever when, according to the Bandekars, the assets do not belong to them. In our judgment, the reliefs sought by the petitioners are devoid of any merit and both the petitions must fail.
12. Accordingly, the rule in each of the petitions stands discharged with costs.