Andhra HC (Pre-Telangana)
Lan Eseda Steels Ltd. And Anr. vs Assistant Commissioner Of Income-Tax ... on 22 March, 1993
Equivalent citations: [1994]209ITR901(AP)
ORDER Sivaraman Nair, J.
1. The first petitioner is a public limited company with about 75,000 shareholders and paid up share capital of Rs. 40.21 crores. The second petitioner is a shareholder of the first petitioner-company. The affairs of the company are managed by a board of five directors. On August 21, 1991, it was registered as a private limited company. It was converted into a public limited company on January 6, 1992. The latest accounting year of the company closed on November 30, 1992. The project cost of the company to manufacture steel castings is estimated to be Rs. 88 crores. The project is being set up at Gondia, Maharashtra, and is to be completed by the year 1994. The company had accounts in the State Bank of India, Commercial Branch, Bombay, and Citibank, N. A. Nariman Point, Bombay. The company was authorised four person, including one Mr. Shyam Bhatia, who is neither a shareholder nor a director of the company, as authorised signatories to operate its bank accounts. Sri Bhatia has claimed that he is the chairman of the group of companies, including the petitioner.
2. The Income-tax Department had started an investigation into the allegations of concealed income of Mr. Shyam Bhatia. It conducted search operations and organised raids in aid thereof, of various premises of Mr. Shyam Bhatia, his associates and companies allegedly under his control. Those operations were initiated under section 132 of the Income-tax Act. The operations were conducted on August 27, 1992. The residential premises of Sri Shyam Bhatia at 89, Worli - 'C' Phase, Bombay, were searched. The Department found some incriminating material and recorded the statement of Mr. Bhatia. The registered office of the first petitioner was also searched on the same day. At the time of search, the petitioner-company had a balance of Rs. 77,73,803 in its current account and Rs. 5,07,56,164.40 in a fixed deposit receipt under an account with the State Bank of India, Bombay. It had a credit balance of Rs. 82,542.34 in its current account in the Citibank, N. A. Nariman Point, Bombay.
3. Apparently on the basis of information revealed by the search of the premises of Mr. Shyam Bhatia and the company, as also other companies of which Sri Shyam Bhatia was alleged to be in control on August 27, 1992, the respondent issued an order on August 30, 1992, under section 132(3) of the Income-tax Act. Those orders were addressed to the State Bank of India, Bombay, and Citibank, Nariman Point, Bombay, requiring the banks not to allow operation of the accounts by the first petitioner. It was asserted that copy of that order was not sent to the company, nor was such order preceded by any notice to the company. On being informed about the above order, the petitioner protested in a representation dated September 2, 1992, to the Director of Inspection (Investigation). The State Bank of India informed the petitioner on September 3, 1992 that the company would not be permitted to operate its accounts. It further informed the first petitioner-company on September 11, 1992, that the entire balance in the current account as also the fixed deposit receipt amount were transferred to the Commissioner of Income-tax, Bombay, on the basis of an order issued under section 132(1) of the Acct. Similar information was conveyed by the Citibank, Nariman Point, Bombay, as well. The petitioner submits that neither the order under section 132(3) nor the further order under section 132(1) was sent to the petitioner. In spite of the representations which the company made persistently, the petitioner did not receive any favourable response. Due to paucity of funds, the day-to-day activities of the company and the execution of the project under taken by it has reached a stalemate. The petitioner submits that without any further notice to it, the respondent passed an order under section 132(5) of the Act without giving it any effective opportunity to be heard. The petitioner then made representations requesting the authorities to release its funds. In reply to one such communication, the Assistant Commissioner of Income-tax informed the petitioner in his letter dated November 23, 1992, that as per his records, the seizures were effected from Sri Shyam Bhatia and notices were to be sent only to him.
4. The petitioner submits that its assets are not liable to be seized and to be treated as those of the individual - Sri Shyam Bhatia - who was not even a shareholder, much less a director of the company. It submits further that the petitioner-company is a separate legal entity. Its funds are not liable to be seized on the assumption that they belong to an individual. The petitioner submits further that even assuming that search and seizure were legal and permissible, those operations could have been undertaken only with notice to the petitioner and not on the assumption that notice to Sri Shyam Bhatia was notice to the company. Counsel for the petitioner asserts further that even though the registered office of the company was searched under section 132 of the Income-tax Act, it did not yield any incriminating material disclosing any unaccounted income of the petitioner, nor did it disclose any design for evasion of tax. He asserts that the assets or funds of the company should not have been seized or appropriated on the assumption that they belong to Sri Shyam Bhatia. Yet another submission of the petitioner is that the credit balance in the petitioner's account in the two banks and the amount due under the fixed deposit receipt are in the nature of debts which the bank owed to the petitioner and are not capable of attachment in exercise of the powers under section 132 of the Income-tax Act. He submits that proceedings under section 132(3) followed by sections 132(1) and 132(5) in respect of debts which are due to the company by the banks aware devoid of jurisdiction. He also submits that refusal to issue notice preceding the above operations vitiates them for violation of the principles of natural justice. He submits that the above operations were illegal, arbitrary and unreasonable.
5. According to the respondents, they conducted search and survey operations in respect of the undisclosed income of Mr. Shyam Bhatia, who described himself as the chairman of the group of companies, consisting among others, of the first petitioner-company. Admittedly, he is one of the "authorised signatories" entitled to represent the petitioner-company. It is stated that there was a search of the premises of Sri Shyam Bhatia under section 132 of the Act on August 22, 1989. That search disclosed unaccounted assets to the extent of Rs. 83,27,070 in the form of share certificates in benami names. Subsequent enquiries are said to have reveled that unaccounted funds were channelised into the equity of the said companies by Shri Bhatia in the names of persons who were found to be men of straw. Sri Bhatia had not filed his Income-tax returns from the year 1990-91 onwards till 1992-93. When his activities in Bombay were exposed, Sri Shyam Bhatia is said to have shifted his operations from Bombay to Hyderabad, Madras and Bangalore. He formed private investment companies with registered offices in Andhra Pradesh. On August 27, 1992, the Income-tax Department conducted searches all over India which disclosed the same operations of Mr. Shyam Bhatia of generating more funds, which were unaccounted. Some such operations were said to be of converting private companies, like the first petitioner, into public limited companies promoted by private investment companies. It is stated that the promoter companies obtained share certificates printed in their names without payment of any money and sold them with the assistance of certain chosen brokers at a premium in the secondary market, as a measure of disinvestment. Amounts varying from Rs. 7 to Rs. 13 per share of Rs. 10 were collected in respect of promoters' equity to the extent of Rs. 40 crores and those clandestine gains were parked in the accounts of companies of which Sri Shyam Bhatia had absolute control. He was manipulating the bank accounts of the company in his capacity as authorised signatory. It is submitted that the directors of the company were only name-lenders, and had no part to play in the actual administration or affairs of the company. Virtually the were employees in some of the investment companies which were promoters of the front companies like the first petitioner in the group of which Sri Shyam Bhatia was the chairman. Investigations are said to have disclosed that the directors and employees who were appointed had simultaneously submitted letters of resignation as also letters authorising Sri Shyam Bhatia and his wife to operate bank accounts of the company. It is asserted that the search on August 27, 1992, disclosed that some of the investment companies which were promoters of the petitioner-company were non-existent and could not have had control of funds necessary to invest in the promoters' equity. Those investment companies with initial capital of Rs. 40 crores were only facades, in which Sri Shyam Bhatia had invested unaccounted income of two other private companies "Action Computers Pvt. Ltd. and Action Electronics Pvt. Limited". It is also submitted that unaccounted income of Rs. 3.40 crores were routed through a complicated scheme of transactions involved in some of the investment companies and public limited companies to secure promoters' quota of shares, without actually paying for them. Sri Bhatia, operating under cover of the investment companies who were promoters, sold the promoters' quota of equity shares at a premium and earned enormous amounts of unaccounted income. The respondents maintain that they had conducted search operations relating to unaccounted income of Sri Shyam Bhatia and had reasonably credible information that large amounts of money belonging to Sri Shyam Bhatia as undisclosed income were stashed away in the bank accounts of the petitioner-company. The respondents assert that the very fact that Sri Shyam Bhatia is the chairman of the group of companies and also the "authorised signatory" of the petitioner-company without being a director or even a shareholder of the company speaks volumes about the clandestine operations. In support of the position taken by the Department, the respondents assert that the statements recorded from Sri Shyam Bhatia that he had authority to sign on behalf of the company without being a director or even a member fully disclosed that the amounts found to the credit of the petitioner-company really belonged to him. In his letter dated December 18, 1992, which supplemented his statement dated July 28, 1992, and letter dated October 30, 1992, he had requested the Department to adjust towards Income-tax due from the investment companies from out of the funds of the company which were subject to orders under sections 132(3) and 132(1) of the Income-tax Act. The presumption of the Department is said to have been fully supported by statements recorded from the employees of the company, one of the directors and also the auditors of the company. Reference is also made specifically to a statement of Smt. Sunitha Khilani; the statements recorded from some of the employees of the investment companies in the group also fully supported the case of the respondent. It is asserted that in the state of the records and the mystifying presence of Sri Shyam Bhatia as the "authorised signatory" of the company without being its director or member, fully supported the assumption of the Department that the petitioner was only one of the instruments used by Mr. Shyam Bhatia to conceal his undisclosed income in bank accounts. It was on taking into consideration these facts that the Department issued orders under section 132(3) interdicting the bankers from allowing the company or Sri Shyam Bhatia to operate the bank accounts. The respondents submit that there was sufficient prima facie evidence justifying the action which they took. The respondents submit that subsequent events provided considerable support to the directions issued under section 132(5). The respondents assert that they issued notices to the petitioner requiring it to participate in the proceedings under section 132(5) of the Act, after completing on December 11, 1992, the search operations which were commenced on August 27, 1992, and soon thereafter, within 120 days of thee seizure of the bank accounts, the respondents issued an order under section 132(5) of the Act. The respondents also maintain that there are no bona fides in the petitioner-company filing this writ petition, long after seizure of the assets - as early as on August 31, 1992, since the writ petition was filed only on January 27, 1993. Significantly, the company had not produced any of its books of account, the share register or necessary documents even at this stage to make out its case that the amounts which were in the bank accounts were the proceeds of the public issue of shares. The respondents assert that the inter-corporate transfer of funds itself indicate close nexus between the company and Sri Shyam Bhatia and his wife, to conceal income by ingenious manipulations. It is submitted further that Sri Shyam Bhatia, after having taken advantage of the adjustment of the seized assets towards his tax liability thereby avoiding proceedings for recovery of tax on undisclosed income, has approached this court masquerading as a public limited company, and this design disentitled the petitioner from any relief. It is also submitted that Sri Bhatia has filed an appeal under section 132(11) of the Act assailing the order under section 132(5) of the Act and parallel proceedings in this court at the instance of the company of which he is the authorised signatory may not be countenanced.
6. The points which arise for consideration are :
(i) Whether it is open to the petitioners to maintain this action under article 226 of the Constitution of India, simultaneously with the proceedings initiated by Sri Bhatia under section 132(11) of the Act before the appellate authority ?
(ii) Whether the monies of the petitioners in bank accounts (current account and F. D. R. accounts) are within the purview of "any money or other valuable article" referred to in section 132(1) (c) of the Act?
(iii) Whether the conduct of Sri Shyam Bhatia, the assessee who is none other than the authorised signatory of the petitioner-company, disentitles the company from obtaining any discretionary relief in proceedings under article 226 of the Constitution of India ?
(iv) Whether the corporate personality of the petitioner-company disentitles the respondent from proceeding against its assets on the assumption that such assets do not belong to the company, but are the undisclosed income of Sri Shyam Bhatia ?
(v) Assuming that such proceedings could be taken against the assets of the company, whether it should have been done with notice only to Sri Shyam Bhatia and without notice to the company or its director or employee ?
(vi) Whether the petitioner is entitled to assail the proceedings under sections 132(3), 132(1) and 132(5) of the Income-tax Act, after the authorised signatory had requested in his statement dated August 27, 1992, and in his letters dated October 30, 1992, and December 18, 1992, to adjust the seized amounts, towards arrears of Income-tax, penalty, etc., due from him ?
7. Answers to these questions are found in some of the decisions cited before us. In ITO v. Seth Brothers , the Supreme Court held that section 132 did not confer any arbitrary authority upon the Revenue Officers. Since by the exercise of the power, a serious invasion is made into the rights, privacy and freedom of the taxpayer, the power must be exercised strictly in accordance with law and only for the purposes for which the law authorises it to be exercised. The court held (at page 843) :
"If the action of the officer issuing the authorization or of the designated officer is challenged, the officer concerned must satisfy the court abut the regularity of his action. If the action is maliciously taken or power under the section is exercised for a collateral purpose, it is liable to be struck down by the court. If the conditions for exercise of the power are not satisfied, the proceedings is liable to be quashed. But where power is exercised bona fide and in furtherance of the statutory duties of the tax officers, any error of judgment on the part of the officers will not vitiate the exercise of the power. Where the Commissioner entertains the requisite belief and for reasons recorded by him authorises a designated officer to enter and search premises for books of account and documents relevant to or useful for any proceeding under the Act, the court in a petition by an aggrieved person cannot be asked to substitute its own opinion whether an order authorising search should have been issued. Again, any irregularity in the course of entry, search and seizure committed by the officer acting in pursuance of the authorisation will not be sufficient to vitiate the action taken, provided the officer has in executing the authorisation acted bona fide."
8. The above passage brings out in bold relief the scope of interference by courts in the exercise of the owners under section 132 of the Income-tax Act. Thus far and no further is the message which the above passage indicates. Thus far is in cases where the power is exercised for a collateral purpose or the conditions for exercise of the power are not satisfied, or the power is exercised mala fide. Anything beyond is out of the bounds for courts.
9. Dealing with the inconvenience caused by search and seizure under the Code of Criminal Procedure, the Supreme Court in M. P. Sharma v. Satish Chandra, , held that (at page 302) :
"A search and seizure is, therefore, only a temporary interference with the right to hold the premises searched and the article seized. Statutory regulation in this behalf is a necessary and reasonable restriction and cannot 'per se' be considered to be unconstitutional. The damage, if any, caused by such temporary interference if fund to be in excess of legal authority is a matter for redress in other proceedings."
10. Similar observations were made about the provision contained in section 41 of the Madras General Sales Tax Act, 1959, in Commissioner of Commercial Taxes v. Ramkishan Shrikishan Jhaver . The Supreme Court held (at page 675) :
"It is under this power to check evasion that provision for search and seizure is made in many taxing statutes. It must, therefore, be held that the Legislature has power to provide for search and seizure in connection with taxation laws in order that evasion may be checked."
11. In Pooran Mal v. Director of Inspection (Investigation) , the Supreme Court again considered the scope of section 132 of the Income-tax Act. The court held (at page 518) :
"In the first place, it must be noted that the power to order search and seizure is vested in the highest officers of the Department. Secondly, the exercise of this power can only follow a reasonable belief entertained by such officer that any of the three conditions mentioned in section 132(1) (a), (b) and (c) exists. In this connection, it may be further pointed out that under sub-rule (2) of rule 112, the Director of Inspection or the Commissioner, as the case may be, has to record his reasons before the authorisation is issued to the officers mentioned in sub-section (1). Thirdly, the authorisation for the search cannot be in favour of any officer below the rank of an Income-tax Officer. Fourthly, the authorisation is for specific purposes enumerated in (i) to (v) in sub-section (1), all of which are strictly limited to the object of the search. Fifthly, when money, bullion, etc., is seized, the Income-tax Officer is to make a summary enquiry with a view to determine how much of what is seized will be retained by him to cover the estimated tax liability and how much will have to be returned forthwith.
..... In our opinion, the safeguards are adequate to render the provisions of search and seizure as less onerous and restrictive as possible under the circumstances."
12. Counsel for the petitioner urged that the petitioner-company is yet to earn any income, has not yet been assessed and hence there is no outstanding demand. He, therefore, submits that there would have been no reason for the fourth respondent to believe that the conditions necessary for invoking the jurisdiction under section 132 of the Act would be present. He submits further that unless he had reason to believe on the basis of information received by him of the existence of such conditions, he could not have directed search and seizure in the premises of the company. This submission is sought to be supported by the two decisions which we have referred to above as also J. R. Malhotra v. Additional Sessions Judge, Jullundur, , wherein the court observed that the Revenue could not retain the money without the authority of law or legal order. It could not indirectly keep the money on the plea that there would be a demand and, therefore, the money should be allowed to be kept with it. The court held that :
"Since there is no legal order to keep the money, the plea of the Revenue shall be dismissed."
13. We find it difficult to accept the submission that the statutory conditions necessary to invoke the power under section 132 of the Act did not exist or that the fourth respondent did not have reason to believe that the petitioner-company had concealed income, and to unearth such income, search of its premises was necessary. The definite case of the Department is that the search was conducted in connection with the alleged concealment of income by Sri Shyam Bhatia. The petitioner has no case that Sri Shyam Bhatia is totally unconnected with the company. As a matter of fact, it is admitted that he was its "authorised signatory". The petitioner has produced the resolution containing authorisation in favour of Sri Shyam Bhatia. We are not going into the merits of the contention urged by counsel for the Revenue that five directors of the company were only nominal name lending directors or that some of them were employees of the financing/investment companies which are under the control of Sri Shyam Bhatia. Those are matters which have to be decided in other proceedings. Suffice it for us to say that if the fourth respondent had, in consequence of information in his possession, reason to believe that any person is in possession of any money, bullion, jewellery or other valuable articles or things which either wholly or partly consist of income or property which has not been or would not be disclosed for the purpose of the Indian Income-tax Act, 1922, or the Income-tax Act, 1961, search of any building or place or any person and seizure of books of account, other documents, money, bullion, jewellery or other valuable articles or things could be validly authorised. Apparently that was what happened in this case.
14. The question is whether such search shall be confined to the place of business or residence of the person who evades tax and none other. The question was posed quite early before the Supreme Court in Seth Brothers' case and in Pooran Mal's case . The court observed in Seth Brothers' case that (at page 847) :
"The suggestion that the books of account and other documents which could be taken possession of should only be those which directly related to the business carried on in the name of Messrs. Seth Brothers has, in our judgment, no substance. The books of account and other documents in respect of other businesses carried on by the partners of the firm of the assessee would certainly be relevant, because they would tend to show inter-relation between the dealings and supply materials having a bearing on the case of evasion of Income-tax by the firm. We are unable to hold that because the Income-tax Officers made a search for and seized the books of account and documents in relation to business carried on in the names of other firms and companies, the search and seizure were illegal."
15. In Pooran Mal's case , the petitioner before the Supreme Court was a partner in a number of firms, some of them doing business in Bombay and some in Delhi. His residence and business premises in Delhi were searched on October 15 and 16, 1971, by an authorisation issued by the Director of Inspection. Simultaneously, his premises in Bombay were also searched in his presence. It was contended that the search was not confined to the assets or documents of the petitioner, but of others and of other business entities as well. The court affirmed the search and seizure after examining the grounds recorded by the Director before the authorisation was issued and the order made under section 132(5) of the Act for the reason that the latter order disclosed that assets seized were undisclosed income and property. The court observed (at page 531) :
"Indeed, the accident that undisclosed property is found on a search may not be a justification for the authorisation of a search if, in fact, there had been no grounds for entertaining reasonable belief. But finding of assets as expected by the Director of Inspection on the information received by him would at least support the view that the authority concerned had reliable information on which he could entertain the necessary belief."
16. It is clear from the pleadings that there is some connection - Some substantial connection - between the petitioner-company and Sri Shyam Bhatia, who is indisputably and by self-proclamation, a defaulter in payment of tax, a person who has successfully concealed his income from assessment by manipulative endeavours. He was admittedly the "authorised signatory" on behalf of the company. He could operate the accounts of the company. He had claimed in his statement on August 27, 1992, that he had necessary authority to accept notice and make commitments on behalf of the company in his capacity as "authorised signatory". He had, in his letter dated December 18, 1992, declared that in the statement which he had given under section 132(4) of the Act in the early hours of August 27, 1992, in his capacity as the authorised signatory for various companies, offered an income to the tune of Rs. 10 crores, subject to further verification as income earned by seven investment companies on sale of the shares of Lan Eseda Steels Limited and that following subsequent discussions at Bombay, he had offered a further income of Rs. 4 crores. It was stated -
"I am herewith offering a further income of Rs. 3 (sic) crores, in the investment companies of which I am the authorised signatory."
17. He clarified in that letter -
"I further wish to clarify that this disclosure has been made not in my personal capacity, but only as authorised signatory of various companies which are covered by the concerned search....."
"Since the amount has been seized in my hands, I, as 'authorised signatory' request you to appropriate the taxes due on companies which have disclosed income."
18. We are satisfied that the search and seizure from the premises of the petitioner-company in furtherance of the authorisation issued by the fourth respondent to dig out assets and other materials connected with the undisclosed income of Sri Shyam Bhatia cannot be held to be vitiated by mala fides or were undertaken vindictively to achieve any collateral purpose.
19. Counsel for the Revenue urged before us that the search of the premises of Sri Shyam Bhatia disclosed blank sheets of paper on the letter heads of the petitioner-company and signed by its director, Sri K. M. Pai, and slips of paper disclosing the bank balances and inter-corporate transfer of funds evidencing that his authority was all-pervasive in the various companies under his wing including the petitioner-company. He also invited our attention to the letter dated October 6, 1992, of the petitioner-company signed by another authorised signatory forwarding the bank books from August 1, 1991, to July 31, 1992, to the seconds respondent for verification and records. We do not propose to go into these aspects, as the enquiry into the conclusions to be drawn from these circumstances lies in a different area and not within the jurisdiction of this court under article 226 of the Constitution of India.
20. This takes us to the submission by counsel for the petitioner that it is not in all cases where an alternative remedy is available that the court shall decline jurisdiction. He invited our attention to A. V. Venkateswaran, Collector of Customs v. Ramchand Sobhraj Wadhwani, ; Shivram Poddar v. ITO ; State of Rajasthan v. Karamchand Thappar and Bros., and Baburam Prakash Chandra Maheshwari v. Antarim Zila Parishad, Muzaffarnagar, . The earliest of these four decisions is A. V. Venkateswaran, Collector of Customs, , rendered by a Constitution Bench of five judges of the Supreme Court. The court held that (headnote) :
"The wide proposition that the existence of an alternative remedy is a bar to the entertainment of a petition under article 226 of the constitution unless (1) there was a complete lack of jurisdiction in the officer or authority to take the action impugned, or (2) where the order prejudicial to the writ petitioner has been passed in violation of the principles of natural justice and could, therefore, be treated as void or non est and that in all other cases, courts should not entertain petitions under article 226 or in any event not grant any relief to such petitioners cannot be accepted."
..... The court held (at page 1510) :
"The interpretation they put on the relevant items in the Tariff Schedule might be erroneous, even grossly erroneous, but this error was one committed in the exercise of their jurisdiction and had not the effect of placing the resulting order beyond their jurisdiction. Secondly, as we have already indicated, we must express our dissent from the reasoning by which the learned judges of the High Court held that the writ petitioner was absolved from the normal obligation to exhaust his statutory remedies before invoking the jurisdiction of the High Court under article 226 of the Constitution."
21. Shivram Poddar's case precluded interference by courts in exercise of extraordinary jurisdiction in matters relating to levy and collection of Income-tax. The court held that such attempts may be permitted (at page 829) :
".... only when questions of infringement of fundamental rights arise, or where on undisputed facts the taxing authorities are shown to have assumed jurisdiction which they do not possess. In attempting to bypass the provisions of the Income-tax Act by inviting the High Court to decide questions which are primarily within the jurisdiction of the Revenue authorities. The party approaching the court has often to ask the court to make assumptions of facts which remain to be investigated by the Revenue authorities."
22. In State of Rajasthan's case, , the Supreme Court observed that the authority of the State Government to enact a law whereby tax on the sale of goods outside the State could be levied and the application of the law itself to the circumstances of the case challenged on the ground that the levy of such tax affected the fundamental right of free trade, and the High Court was, therefore, not wrong in granting relief in the writ petition notwithstanding the availability of alternative remedy. We are of the opinion that those observations apply only in such circumstances where the law imposing a levy itself is under challenge on the ground of violation of fundamental rights and cannot apply to cases where action of the taxing authorities under the provisions of law which are not challenged are assailed.
23 . In Baburam Prakash Chandra Maheshwari, , this position was reiterated by stating that where proceedings are taken before the Tribunal under a provision of law which is ultra vires, it is open to a party aggrieved thereby to move the High Court under article 226 of the Constitution of India, for issue of an appropriate writ for quashing them on the ground that they are incompetent, without his being obliged to wait until those proceedings run their full course.
24. Applying these principles, we do not find any reason for interference. We hold as above for more reasons than one.
25. The constitutional validity of section 132 of the Act is not under challenge. The only question which is sought to be raised is whether the fourth respondent had, by reason of information in his possession, reason to believe that the petitioner-company had concealed the income or has secreted assets or documents or money or bullion or other valuable articles or things. The parties have joined issue on this point. The ascertains of the petitioner are controverted by the Department by stating that the fourth respondent had sufficient reason to believe that Sri Shyam Bhatia had concealed his income, and search and seizure of the premises of the companies with which he was closely associated including the petitioner-company would disclose such income, assets, documents, valuable articles and things, As to whether such information as he had in his possession was sufficient to produce reason to believe that there was concealed income is a matter for other proceedings and not for this court in proceedings under article 226 of the Constitution of India. As a matter of fact, the principal character in the episode - Sri Shyam Bhatia - has filed an appeal under section 132(11) of the Act where substantially similar contentions are urged. We, therefore, decline jurisdiction to interfere with the proceedings at the instance of the petitioner.
26. Since the petitioner has chosen to raise a point that it had no notice at all the proceedings under section 132 of the Act, and, therefore, the proceedings are vitiated, we feel it our duty to refer to some facts bearing on this aspect as revealed by the pleadings. Sri Shyam Bhatia, the authorised signatory of the company, who had more authority to represent the company in financial transactions than any of its directors, had given a statement on August 27, 1992. The extent of his authority to represent the company was never disputed. The company had written to the second respondent about seizure of the bank accounts on September 2, 1992. On October 6, 1992, the company wrote to the second respondent forwarding the bank books from August 1, 1991, to July 31, 1992. That communication was signed by one other than the director who has sworn to the affidavit on behalf of the company describing himself as the "authorised signatory". The petitioner had admittedly received notice dated December 17, 1992. If it was received late and there was no sufficient time for it to make an effective representation in proceedings under section 132(5), it could have asked for time. It chose not to do so. We are of the opinion that the petitioner had notice and that it could have more effectively participated in the proceedings. He could as well have filed an appeal under section 132(11) of the Act. The factual controversy involved in this case could have been better decided in those proceedings than entirely on the basis of affidavits before this court. Those proceedings are still pending. Counsel for the Revenue submitted before us that it is even now open to the company to participate in those proceedings if it is so advised.
27. Kusum Lata Singhal v. CIT had facts which may be very closely proximate to the present case. The premises of the petitioner, where she and her husband were living, were searched pursuant to an authorisation under section 132 of the Act. The petitioner was carrying on business under the name and style of "Latha and Co. ". In an application under article 226 of the Constitution of India, the High Court of Rajasthan found that the authorisation was defective. The Revenue authorities had, in the meantime, passed an order under section 132(5) against her husband by virtue of the power under section 132(7). The High Court held that in spite of the illegality of the authorisation to search the premises of the wife, the valuables, etc., could not be ordered to be returned to the petitioner. The petitioner (wife) filed a special leaves petition against the latter direction contained in the judgment of the High Court. The Supreme Court Court refused to entertain the appeal holding that (at page 58) :
"In the instant case, the husband and the wife stayed in the same premises. The Authorisation for search and seizure in respect of account books and goods which were seized was against the wife, but in the proceedings under section 132(5) of the Act, the husband, Mr. Singhal, has contended and claimed that the ornaments in question or the jewellery belonged to him.... Indeed Mr. R. K. Singhal has stated on oath before the authorised officer at the time of search that the same belonged to him and he has claimed the same to be treated as representing his undisclosed income Mr. R. K. Singhal, the husband, as his evidence as recorded in the proceedings against him, has disclosed the same and surrendered a total sum of over Rs. 4,00,000 consisting of undisclosed cash of Rs. 1,16,550 and excessive jewellery worth Rs. 2,97,750 received from his possession as his income for the purpose of Income-tax assessment for the current year, which he claims to have earned from his business. Therefore, it appears that there is a dispute as to who is the owner of the jewellery and ornaments or, in other words, to whom these belong. If, in such a situation, the High Court has declined to direct return of items of jewellery and ornaments, such decision cannot be faulted. Even though the search and seizure has been declared illegal, it cannot be illegal and the question of dispute about the items not being urged before the High Court, we cannot say that the High Court has committed any error in this case thereby requiring interference by this court, or, in other words, that injustice has been caused to any party."
28. Almost to the same effect are pleadings in this case. The search was ordered against Sri Shyam Bhatia. He claimed that the entire amount of money deposited in the banks in the name of the petitioner-company consisted of undisclosed income of the investment companies which promoted the petitioner-company. He surrendered Rs. 17 crores out of the amounts seized as tax due in respect of such undisclosed income. The present writ petition is filed claiming those amounts to belong to the petitioner-company. In this order under section 132(5) of the Act, the third respondent has found that the amounts really consisted of undisclosed income of Sri Shyam Bhatia which he earned by manipulating the promoters' quota of equity in the petitioner-company. According to the third respondent, in this order under section 132(5) of the Act, such amount of premium clandestinely concealed was to the extent of Rs. 29,88,00,000 of which only Rs. 16,90,00,000 were disclosed by the search and seizure.
29. We are not in a position to accede to the submission that the petitioner was kept in the dark about the proceedings. The search and seizure at the premises of the company were conducted on August 27, 1992. The petitioner-company did not object to those proceedings at any relevant time. On September 16, 1992, Sri Shyam Bhatia participated in the investigation initiated by the fourth respondent and which was transferred to Hyderabad. On October 6, 1992, the petitioner-company, as also the other two companies produced the bank accounts before the Assistant Director of Inspection. On October 16, 1992, notice was sent to Sri Shyam Bhatia representing the petitioner-company, of which he was the authorised signatory. That evoked no reply. On October 30, 1992, he had written to the respondents surrendering an amount of Rs. 4 crores towards his tax liability at Bombay in addition to Rs. 10 crores which he had already surrendered. In his letter dated December 18, 1992, he surrendered a further amount of Rs. 3 crores before the third respondent at Hyderabad. A notice was sent on December 17, 1992, to Sri Shyam Bhatia and the concerned companies. That did not evoke any reply from the petitioner.
30. Conceal for the Revenue invited our attention to the fact that the orders under sections 132(3) and 132(5) are produced by the petitioner even though they were addressed only to Sri Shyam Bhatia. The petitioner has also produced letters of Sri Shyam Bhatia to the Director of Income-tax (Investigation). He submits that these circumstances coupled with the fact that Sri Shyam Bhatia all along claimed to represent the company as the authorised signatory supports the case of the Revenue that the petitioner-company was only a front for the designs of Sri Shyam Bhatia to park his clandestine and concealed income. Conceal submits that these revealing facts disentitle the company from claiming the seized assets to belong to itself exclusively and from seeking relief against the search and seizure proceedings for the reason that it was not notified about the same.
31. An important question which counsel for the petitioner raised was that the amounts in bank deposits do not constitute "any money, bullion, jewellery or other valuable article or thing" comprehended by section 132(1) (c) and, therefore, there could not be any seizure of the amount to the credit of the petitioner in the bank accounts. He submitted that in respect of the monies deposited by the company, the bank was in the position of a debtor and the petitioner was a creditor. Counsel submitted that debts do not constitute "money or other valuable article or thing". He placed reliance on a decision of a single judge of the Kerala High Court in Shajahan v. ITO . He also placed reliance on a passage in Chitty on Contracts - 25th edition, 2588, almost to the same effect, Reliance was also placed on a decision of the Gujarat High Court in Bhagwandas and Narayandas v. CIT , K. E. Johnson v. Laxmipat Choraria of the Calcutta High Court and CIT v. Tarsem Kumar of the Supreme Court.
32. The decision of the Kerala High Court in Shajahan's case was revered by the Division Bench of the same court in ITO v. M. Shajahan . The Division Bench held that : "there is nothing arbitrary or even strange in the authorities having come to the conclusion that the monies deposited in the bank of the ostensible owner by the assessee represented the income of the assessee. The court held (at page 352) :
"We have perused the files and we find there was enough material to have come to the prima facie conclusion that the monies in deposit represented income of the first respondent in W. A. No. 291 of 1975, which had not been disclosed for the purpose of the Indian Income-tax Act, 1922. If that money tough by virtue of the legal relationship between the customer and the banker had become the money of the bank, the second respondent, and was in his control and possession, will nevertheless be answerable to tax if it is ultimately found that the first respondent in each of these appeals is liable to pay Income-tax. Such monies deposited in a bank, we consider, are impracticable to seize. In such cases, we conceive that action can be taken under sub-section (3) of section 132."
33. The court held further that (at page 353) :
"If orders had been directly issued to the first respondent in each of these cases in terms of what we have indicated earlier, we conceive that these orders could not have been challenged in proceedings under article 226 of the Constitution successfully. The question is whether by the mere fact that the order was directed against the bank, the first respondent in each of these appeals, we should set aside the orders under article 226 of the Constitution. We do not think that in substance they are aggrieved by the order merely because of its bad form more than they would have been aggrieved had the order been issued against them. We may add that any order issued to the first respondent in each of these appeals could have been communicated to the bank as well and any prudent bank, we are sure, would in the light of such an order served on the customer, refuse the customer to operate on the accounts."
34. The same question was considered in Santosh Verma v. Union of India . The court held (at page 552) :
"It is no doubt well-settled that an amount in credit with the banker is always liable to attachment. An action in that behalf can be taken under sub-section (3) of section 132 of the Act. That provision contemplates a prohibitory order not to deal with the monies deposited by the petitioner except with the prior permission of the authority. Such an order would have been undoubtedly justified, but the bank, in my opinion, could not have been directed under section 132(3) of the Act to covert the amount deposited by the petitioner by preparing a draft in favour of the Commissioner of Income-tax. No provision of law was brought to our notice to support this action."
35. Counsel for the petitioner placed considerable reliance on the above observations. His submission is that monies deposited in bank do not fall within the terms - "money, bullion, jewel or other valuable article or thing".
36. The curt adverted to the conduct of the petitioner in not visiting the bank any time after February 10, 1988, even though he had deposited Rs. 5 crores for a period of six months only. He did not appear before the respondent authorities at Patna but his partners instituted proceedings in the Calcutta High Court for recovery of the amounts seized by the respondent-authorities. It was only after the ex parte order passed in those proceedings was vacated that the petitioner chose to file the petition. The court observed (at page 553) :
"In view of this conduct of the petitioner and in view of the fact that the order of assessment and the order imposing penalty have been passed against the petitioner, which create a demand against the petitioner, in excess of the amount deposited, it would not be in the interest of justice to give any direction to the respondent authorities in this petition to refund the amount seized from the bank in pursuance of annexure '5'. In the circumstances of the case, therefore, no relief can be granted to the petitioner in this petition."
37. In Bhagwandas Narayandas' case , the Gujarat High Court had to consider the question whether non-issue of notice under rule 112A of the rules relating to some fixed deposit receipts which were seized along with cash was justified. The Revenue maintained that fixed deposit receipts and title deeds have only evidentiary value and had no value as "money or other valuable article or thing" and did not fall within the term "assets" mentioned in section 152(5) of the Act. The court, however, held that fixed deposit receipts and title deeds may be "documents" subject to seizure under section 132(8) of the Act. We note that section 132(1A) of the Act which was introduced by the Taxation Laws (Amendment) Act, 1975, with effect from October 1, 1975, is a supplementary provision which authorises seizure of books of account and documents as well. The decision in Bhagwandas' case which was rendered on June 18, 1973, may not have much significance now in this respect. K. E. Johnson's case and Tarsem Kumar's case dealt with the question whether there can be seizure of assets which were already seized by the Customs Department and were under their custody to the knowledge of the Department. There were conflicting decisions of various High Courts on this aspect. Parliament intervened and inserted section 132A by enacting the Taxation Laws (Amendment) Act, 1975, with effect from October 1, 1975, enabling the Director-General or Director, Chief Commissioner of Commissioner to require the officer or authority to deliver such books of account, other documents or other assets to the requisitioning officer. Both the above decisions dealt with pre-amendment seizures while the assets were in the possession and custody of the Customs Department. Sabyasachi Mukherjee J., in Tarsem Kumar's case observed that (at page 515) :
"In view of the law as it stood at the relevant time, we are unable to sustain the challenge to the order impugned in this appeal."
38. We hold that in view of the enactment of section 132A of the Act, the petitioner cannot have any relief on the basis of the three decisions mentioned above.
39. The view of the Kerala High Court in ITO v. M. Shajahan support in the decision of the Madras High Court in I. Devarajan v. Tamil Nadu Farmers Service Co-operative Federation . The court held that a debt is a "valuable thing". We are inclined to agree with the decisions of the High Court of Kerala in ITO v. M. Shajahan and of the High Court of Madras in Devarajan's case .
40. This also disposes of the objection raised by the petitioner that amounts which stand to the credit of the petitioner-company in its accounts do not require nor justify "search", because, they are there for all to see, they are obvious and exposed to every one and do not require any covert operation to unearth or dispose them. The decisions in Shajahan's case , Devarajan's case and Santosh Verma's case which uphold seizure of amounts to the credit of the defaulting assessee, with which we agree, definitely negatives this proposition.
41. Counsel for the petitioner submitted that the order under section 132(5) of the Act which was passed without notice to the petitioner is invalid. He also submitted that failure to pass a lawful order complying with the provisions of section 132 and the principles of natural justice render all subsequent proceedings illegal and unforceable. Counsel invited our attention to a number of decisions in this regard. We do not propose to deal with this aspect in view of our finding that the authorised signatory of the petitioner-company had notice and the company itself had participated in the proceedings. We may incidentally refer to the decision of the Kerala High Court in P. M. Kunhabdulla Haji v. ITO wherein the court held that refusal to serve notice on a third party who claimed that the amounts seized during the course of search under section 132 belonged to him could not be raised in writ proceedings. We are of the opinion that the person concerned for purposes of section 132 did not consist of all person who claimed to own the money or other assets which were seized. In the facts of the present case, we are of the opinion that the person concerned was Sri Sham Bhatia in regard to whose concealed income, the fourth respondent authorised search and seizure. Even assuming that the company itself was the person concerned, we hold that it had sufficient notice. We hold further that the mode or details of the enquiry into this aspect of this matter falls within the purview of section 132(11) of the Act, and not in proceedings under article 226 of the Constitution of India.
42. Counsel for the petitioner referred to the decision of a single judge of the Kerala High Court in K. A. Karim and Sons v. ITO in support of his submission that the order passed under section 132(5) of the Act without notice to the person concerned was invalid. It is clear from the facts of that case that in proceedings initiated against a partner of the firm, the firm itself had claimed that the money belonged to it by a common affidavit which was filed before the Income-tax Officer. It had also produced accounts and documents in support of its claim. But the Income-tax Officer passed an order under section 132(5) without giving an opportunity to the firm to be heard. We are of the opinion that the above extraordinary facts fully justified the observations in that decision. We do not understand that decision to lay down a general principle that a person is entitled to claim to be the real owner of money that was seized under section 132 of the Act, by filing a writ petition in the court and seeking relief against the order passed under section 132(5) on that ground alone.
43. We are also of the opinion that counsel for the Revenue was right in placing reliance on the decision in Girija Shanker Sharma v. Union of India , wherein the Madhya Pradesh High Court held (headnote) :
"The 'person concerned' is the person concerning whom the Income-tax Officer makes an order under that sub-section estimating the undisclosed income, calculating the amount of tax on the income so estimated, determining the amount of interest payable and the amount of penalty impossible, and specifying the amount that will be required to satisfy an existing liability." and "The person from whose custody the assets are seized will normally be presumed to be the owner thereof under sub-section (4A) and he would be the person concerned against ho proceedings would be taken under sub-section (5). Such a person, however, may make a statement under sub-section (4) that the seized assets or any part thereof were held by him for and on behalf of any other person. If the Income-tax Officer is satisfied as to the correctness of this statement, he may, as contemplated by sub-section (7), proceed under sub-section (5) against such other person. The person concerned under sub-section (5) would then be the person for and on whose behalf the assets were held by the person from whom they were seized. If only part of the assets were held by the person from whom they were seized on behalf of any other person and if the Income-tax Officer decides to proceed against both of them, then both of them would be the persons concerned under sub-section (5)."
44. We are of the opinion that the person from whom the amounts and assets were seized was Sri Shyam Bhatia. Even assuming that the company was in immediate possession of the assets and documents, it was duly represented by its "authorised signatory". The company acting through its "authorised signatory" had notice of all proceedings at all relevant stages. Even assuming that the company was the person concerned in these proceedings, due notice was given. The petitioner-company though fully aware of what was going on, did not, at any relevant stage, try to intervene in the proceedings. It was all along sitting on the fence. We see force in the contention of counsel for the Revenue that it has waited till such time as the amounts and assets which were seized were adjusted against arrears due from Mr. Shyam Bhatia, and then instituted these proceedings for recovery of the very same amounts, which, to its knowledge, were already adjusted on the basis of the statement of Sri Shyam Bhatia dated August 27, 1992, and his letters dated October 30, 1992, and December 18, 1992.
45. In the view which we take on the question of entertainability of the writ petition, we do not think it is necessary for us to probe any further into the matter on the factual details which both parties have burdened the record with.
46. On the basis of the above discussion, our answer to the points mentioned in paragraph 6 (see page 911 supra) are the following :
(i) The petitioner is not entitled to maintain this action under article 226 of the Constitution of India as parallel proceedings to those initiated by Sri Shyam Bhatia, under section 132(11) of the Income-tax Act.
(ii) The amounts in the bank accounts of the petitioner (current account and fixed deposit receipts account) were "valuable thing" and, therefore, "assets" referred to in section 132 or documents covered by sections 132(1A) and section 132(8) of the Act.
(iii) The conduct of the company acting through its authorised signatory disentitled itself from seeking or obtaining any discretionary relief in these proceedings.
(iv) The corporate personality of the petitioner-company has no significance in view of the fact that such personality was duly represented in the proceedings under section 132(1), 132(3) and 132(5) by its "authorised signatory".
(v) The petitioner had sufficient notice through its authorised signatory even otherwise, and, therefore, there is no infirmity in the proceedings for non-issue of notice.
(vi) In view of the submission of counsel for the Revenue that any claim of the petitioner will be considered in the appeal filed by Sri Shyam Bhatia under section 132(11) of the Income-tax Act, it is not necessary for us to pronounce on this aspect.
47. In the light of the above discussion, we hold that the petitioner-company is not entitled to maintain this action under article 226 of the Constitution of India. We, therefor, dismiss the writ petition without prejudice to its rights to urge all the contentions before the appellate authority under section 132(11) of the Income-tax Act. Parties will suffer their respective costs.
48. After the judgment is pronounced, counsel for the petitioners made an oral application for leave to file an appeal before the Supreme Court under article 134A of the Constitution of India. Since the points raised are covered against the petitioners mostly on the basis of the decisions of the Supreme Court which we have referred to, we do not find that any such question of law of public importance as requires to be decided by the Supreme Court arises in these proceedings. Therefore, we decline leave to file an appeal before the Supreme Court.