Rajasthan High Court - Jaipur
Harvest Gold Food (India) Private ... vs Union Of India (Uoi) And Ors. on 20 May, 2005
Equivalent citations: (2006)202CTR(RAJ)231, [2006]282ITR83(RAJ), RLW2005(3)RAJ1898, 2005(4)WLC21
Author: K.S. Rathore
Bench: K.S. Rathore
JUDGMENT K.S. Rathore, J.
1. Brief facts of the case are that the petitioner M/s. Harvest Gold Foods (India) Private Limited is a private limited company and is engaged in the trade and business of manufacture of Bread in its factory situated at village Chhapar post Jhiwana Tapukara Tehsil Tijara, District Alwar (Rajasthan).
2. The petitioner company is manufacturing the bread in the name and style "Harvest Gold" and which is sold inside and outside the State of Rajasthan including capital city of Delhi. Earlier the name of petitioner company was Florida Foods (India) Private Limited and subsequently changed to its present name with effect from 13.9.1975.
3. The petitioner company became a deemed public company w.e.f. 1.7.1998 and thereafter became private limited company pursuant to Section 43-A(2A) of the Companies Act 1956.
4. The controversy arose when the respondents conducted search and seizure on 8.1.2004 at the residence of petitioners and their commercial establishments at New Delhi and Rajasthan and also made survey Under Section 133-A at Delhi Depots and subsequently issued notices Under Section 131(1A) to the petitioners and their business constituents.
5. Against the notice dated 8.1.2004 and 9.1.2004 the petitioners preferred this present petition asking for writ order or direction to quash and set aside the search operations and the panch nama dated 8.1.2004 and 9.1.2004.
6. Learned counsel for the petitioner challenged the aforesaid action of the respondents on the ground that the search warrant issued without information in possession, application of mind and also without reason to believe. Before issuing a warrant for searching the premises of any party, there should be 'reason to believe' that the party is not likely to produce material relating to assessment of Income unless a search is carried out. The emphasis in the statute is 'Information in possession, application of mind and reason to believe.' By referring this provision, learned counsel for the petitioner submitted that in the instant case the respondents carried out search and seizure without information in possession, reason to believe and also without the application of mind.
7. In support of his submissions, learned counsel for the petitioner placed reliance on the judgment of Kusum Lata v. Commissioner of Income Tax, 1989 ITR 365 wherein this High Court has laid down that the expression "has reason to believe" in Sub-section (1) of Section 132 of Income-tax act means the bona fide belief based on some reasonable or credible information and not on the information which may be imaginary.
8. Learned counsel for the petitioners also placed reliance on the case of LR Gupta and Ors. v. Union of India and Ors., 1992 ITR 194 page 32 wherein the Division Bench of Delhi High Court observed that expression "information" must be something more than a mere rumour and gossip or a hunch. There must be, some material which can be regarded as information which must exist on the file on the basis of which the authorising officer can have reason to believe that Section 132 is called for any of the reasons mentioned in clause (a), (b), (c).
9. Learned counsel for the petitioner further placed reliance on the judgment of Hon'ble the Supreme Court in the case of ITO v. Seth Bros. 1969 (974) ITR 836 wherein it was observed as under:-
"Since by the exercise of the power a serious invasion is made upon the rights, privacy and freedom of the tax payer the power must be exercised strictly in accordance with the law and only for the purpose for which the law authorized it to be exercised. If the action of the officer issuing the authorization or of the designated officer is challenged the officer concerned must satisfy the court about the legality of his action."
10. By referring the aforesaid judgment of Hon'ble Supreme Court, learned counsel for the petitioner submitted that search can be ordered by authorized officer only if information is given to the Commissioner of Income-tax that such person is keeping money, bullion, jewellery etc. in this building or elsewhere.
11. He also placed reliance on the judgments in the cases Dr. Nand Lal Tahiliani v. CIT ; Ajit Jain v. Union of India and Ors. 2000 ITR 242 and Ganga Prasad Maheshwari and Ors. v. Commissioner of Income-tax 139 ITR 1043. In the case of Ganga Prasad, Allahabad High Court has observed as under:-
"The conditions precedent for action under Section 132 or Section 132-A are : (i) information in the possession of the Director of Inspection or Commissioner; (ii) in consequence of which he should have reason to believe; (iii) that they person is in possession of any money, bullion, jewellery or other valuable article or thing; (iv) and such jewellery, bullion, etc., must represent either wholly or partly undisclosed income. If any of these conditions is not fulfilled the officer concerned can have ho jurisdiction to proceed. The information mentioned in condition (i) must relate to conditions (iii) and (iv) so as to empower the authority concerned to reach the conclusion contemprated in condition (ii). "Reason to believe" has been considered to be the most salutary safeguard on the exercise of power by the officer concerned. It is made up of two words "reason" and "to believe." The word "reason" means cause or jurisdiction and the word "believe" means to accept as true or have faith in it. Before the officer has faith or accepts a fact to exist there must be a jurisdiction for it. The belief may not be open to scrutiny as it is the final conclusion arrived at by the officer concerned as a result of mental exercise made by him on the information received. But the reason due to which the decision is reached can always be examined. When it is said that the reason to believe is, not open in scrutiny, what is meant is that the satisfaction arrived at by the officer concerned is immune from challenge, but, where the satisfaction is not based on any material or it cannot withstand the test of reason, which is an integral part of it, then it falls through and the court is empowered to strike it down."
12. Learned counsel for the petitioner further placed reliance on the judgments in the cases Dr. (Mrs.) Anita Sahay v. Director of Income-tax 2004 ITR 136 249; Suresh Chander Aggarwal v. Director General of Income-tax (Investigation) and Ors. 2004 ITR 269; Commissioner of Income Tax Allahabad and Ors. v. Vindhya Metal Corporation and Ors. ; Chhugamal Rajpal v. S.P. Chaliha and Ors. 1971 ITR (79) 603; Income-tax Officers Calcutta and Ors. v. Lakhmani Meal Dass 1976 ITR 103 (437); Raj Kishor Jha v. State of Bihar ; Cyril Lasrado v. Juliana Maria Lasrado, and State of Tamilnadu v. Kanda Swami, .
13. So far non application of mind of seizing officer, learned counsel for the petitioners submits that the authorized officer proceeded to seize of Rs. 4 lacs each at two places in order to give some semblance of jurisdiction to search, notwithstanding the fact that the said amount could not in any manner be termed unaccounted and undisclosed income or property of the petitioner. Attention also drawn towards the 'audited balance sheet' which is reproduced as under:-
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31st March Closing Rupees (Cash balance) ---------------------------------- 1999 64.28 lacs 2000 33.60 lacs 2001 39.99 lacs 2002 51.05 lacs 2003 34.64 lacs 2004 56.05 lacs ----------------------------------
14. After referring the audited balance sheet learned counsel for the petitioners submitted that under the Act Section 132(1), the authorized officer when during the search wishes to seize some particular jewellery, ornament, money etc., he has to form an opinion before seizing the particular ornament, money or jewellery that articles are a part of undisclosed income. Since the respondents have not filed satisfaction note before this Hon'ble Court which gives inference that they had no reason to belief and warrant of search was authorized without any authentic information, application of mind and reason to believe.
15. There was no reason to believe because after initiating action under Section 132(1) respondents in exercise of power under Section 131 (1A) issued summons to petitioners and also to their business constituents and a bare perusal of Section 131 (1A) shows that notice can be issued there under only before the authorized officer takes action under Section 132(1) of the Act. Section 131 (1A) consists of two conditions which are required to be fulfilled before any action is taken under Section 131 (1A) which runs as under:-
(a) the assessing authority has reason to suspect that any income has been concealed or is likely to be concealed and
(b) he can make the enquiry before he takes action under clauses (i) to (v) of Section 132(1).
16. After referring relevant provisions of law learned counsel for the petitioners submits that the respondents are trying to make something, out of nothing which could be substantive evidence in order to validate the illegal search which is legally not possible. Not only this, the respondents have ignored the guidelines laid down by the CBDT that search should be carried out only in cases where there is credible evidence to indicate substantial unaccounted income/assets in relation to the tax normally paid by the assessee where the expected concealment is more than one crore.
17. Per contra, learned counsel for the respondents submits that the search and seizure operations Under Section 132 of the Income tax Act, 1961 were duly authorized by the Director General of Income tax (Inv.) New Delhi after careful examination of information, evidence and material. The search and seizure operations are carried out after the Director General of Income Tax (Inv.) was fully satisfied that the said operations are required. There is full compliance of provisions of Section 132 of the Act in the present case. As further investigations pursuant to material and documents found during the search are still in progress and 'assessment orders' pursuant to the search are yet to be passed, the petitioners were expected to cooperate with the authorities.
18. However, the petitioners never complied with the directions given by the Hon'ble Court vide its order dated 12.3.2004 and neither the petitioners nor any of its agents or employee appeared before the authorities and in the garb of the order of the High Court though the High Court was pleased to direct the petitioners to cooperate with the authorities, but the petitioners never appeared and cooperated or produced any document. In such circumstances the respondents were constrained to submit application. The High Court vide order dated 7.12.2004 vacated the interim order dated 12.3.2004 and respondents were permitted to proceed in accordance with law Still there is no cooperation from the petitioners and the petitioners are only interested to avoid appearance and submitting the record before the assessing officer.
19. The warrant of authorization as well as satisfaction note giving details of the materials are submitted for the perusal of the this Court in sealed cover as the same is confidential. It is further submitted that the information and material available were verified in the pre-search inquiries. It is also submitted that the material available with the department was sufficient and issued warrant of authorization for search and seizure operations.
20. A perusal of reply will clearly reveal that the seizure were done after being satisfied that the cash/jewellery are unaccounted. The case/jewellery which were accounted were not seized. It is also submitted that from the inquiry it has been borne out that the assessee petitioner has inflated the expenditure so as to reduce the net profit, resulting into huge reduction in payment of tax. The warrant of authorization were issued after satisfaction and application of mind.
21. Law is settled on this issue that the courts are only concerned with the satisfaction and has to see whether any material was available for issuing warrant of authorization. The sufficiency of material and with regard to application of mind the Hon'ble Court will never substitute its own reason. It is for the authorities to see as to whether there is any material to issue warrant of authorization Under Section 132 of the Act.
22. The assessee petitioner is having all opportunities to submit material and documents to place its case in accordance with law and for which provisions have been made in chapter XIVB of the Act which is special procedure for assessment of search cases. The writ petition is premature and with the intention to pre-empt and stay the proceedings of assessing officer with the simple intention to pass time.
23. Learned counsel for the respondents relied on the following judgment of Apex Court and different High Court which clearly lay down the guidelines.
1. Pooran Mal v. Director of Inspection (Inv.) Income Tax New Delhi and Ors., 93 ITR 505 (SC)
2. Dr. Partap Singh and Anr. v. Director of Enforcement and Ors. (155 ITR 166 (SC)
3. L.R. Gupta v. Union of India (194 ITR 299 (ST)
4. Jai Bhagwan Om Prakash v. Director of Inspection and Ors., (208 ITR 424 (P & H)
5. Sriram Jaiswal v. Union of India and Ors. (176 ITR 261 (All.)
6. Lit Light and Co. v. Commissioner of Income Tax, Lucknow-II and Ors. (136 ITR 513 (All.)
7. Southern Herbals Ltd. v. Director of Income Tax (Inv.) and Ors. (207 ITR 55 (Karn.)
8. Parasnath v. Union of India (225 ITR 365 (M.P.)
9. Prabhubhai Vastabhai Patel v. R.P. Meena (226 ITR 781 (Guj.)
10. Om Prakash Jindal and Anr. v. Union of India and Ors. (104 ITR 389 (P & H)
11. Jain & Jain and Ors. v. Union of India and Ors. (134 ITR 655 (Bom)
12. Mamchand and Co. and Ors. v. Commissioner of Income Tax, West Bengal-II and Ors. (75 ITR 217 (Cal) and;
13. Bandodkar and sons Pvt. Ltd. Union of India and Ors. (210 ITR 896 (Bom) (1) (Orient (Goa) Ltd. and Anr. (2) DB
24. Heard rival submissions of the respective parties and perused the relevant provisions of law of Income Tax Act as well as judgments referred by the respective parties.
25. This petition is filed against the search operation and panchnama dated 8.1.2004 and 9.1.2004 respectively.
26. To resolve the present controversy it is necessary to examine the relevant provisions of law. Section 131 deals with power regarding discovery, production of evidence, etc. which runs as under:-
131-(1) The Assessing Officer, Deputy Commissioner (Appeals), (Joint Commissioner) (Commissioner (Appeals) and (Chief Commissioner or Commissioner) shall, for the purposes of this Act, have the same powers as are vested in a court under the code of Civil Procedure, 1908 (5) of 1908), when trying a suit in respect of the following matters, namely;
(a) discovery and inspection;
(b) enforcing the attendance of any person, including any officer of a banking company and examination him on oath;
(c) compelling the production of books of account and other documents; and
(d) issuing commissions.
"The Director General or Director or (Joint) Director or Assistant Director (or Deputy Director) or the authorized officer referred to in Sub-section (1) of Section 132 before he takes action clauses (i) to (v) of that Sub-section ) has reason to suspect that any income has been concealed, or is likely to be concealed, by any person or class of person, within his jurisdiction, then, for the purposes of making any enquiry or investigation relating thereto, it shall be competent for him to exercise the powers conferred under Sub-section (1) on the income-tax authorities referred to in that Sub-section , notwithstanding that no proceedings with respect to such person or class of persons are pending before him or any other income- tax authority.
(2) Subject to any rules made in this behalf, any authority referred to in Sub-section (1) or Sub-section (1A) may impound and retain in its custody for such period as it thinks fit any books of account or other documents produced before it in any proceeding under this Act:
Provided that an assessing officer or an Assistant Director or Deputy Director shall not-
(a) impound any books of account or other documents without recording his reasons for so doing, or
(b) retain in his custody any such books or documents for a period exceeding fifteen days (exclusive of holidays) without obtaining the approval of the (Chief Commissioner or Director General or Commissioner or Director therefor, as the case may be.
27. Section 132 is with regard to search and seizure which runs as under:-
132(1) Where the (Director General or Director) or the (Chief commissioner or Commissioner) or any such Joint Director) or Joint 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 whom a summons under Sub-section (1) of Section 37 of the Indian Income tax Act, 1922 911 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 books of account or other documents has omitted or failed to produce, or cause to be produced, such books of account of other documents as required by such summons or notice, or
(b) any person to who 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 think 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 or this Act (hereinafter in this section referred to as the undisclosed income or property), then,-
(A) the (Director General or Director) or the Chief Commissioner or Commissioner), as the case may be, may authorize any (Joint Director), (Joint Commissioner), (Assistant Director (or Deputy Director (Assistant Commissioner (or Deputy Director) or Income-tax Officer), or;
(B) such (Joint Director), or (Joint Commissioner), as the case may be, may authorize any (Assistant Director (or Deputy Director), Assistant Commissioner (or Deputy Commissioner) or (Income-tax Officer), (the officer so authorized in all cases being hereinafter referred to as the authorized officer) to-)
(i) enter and search any (building, place, vessel, vehicle or aircraft) where he has reason to suspect that such books of accounts, other documents, money, bullion, jewellery or other valuable article or think 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 aircraft, if the authorized 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 think;
(iib) require any person who is found to be in possession or control of any books of account or to other documents maintained in the form of electronic record as defined in clause (t) of Sub-section (1) of Section 2 of the Information Technology Act, 2000 (21 of 2000) to afford the authorized officer the necessary facility to inspect such books of account or other documents;
(iii) seize any such books of account, other documents, money, bullion, jewellery or other valuable article or think found as a result of such search:
Provided that bullion, jewellery or other valuable article or think, being stock-in-trade of the business, found a result of such search shall not be seized but the authorized officer shall make a note or inventory of such stock-in-trade of the business;
(iv) place marks of identification on any books of account or other documents or make or cause to be made extracts or copies therefrom;
(v) make a note or an inventory of any such money, bullion, jewellery of other valuable article or think:
28. The allegations against the petitioners company were regarding suppression of sales/production, inflation of expenses or incurring the expenditure in cash, which were not reflected in the regular books of accounts maintained by the assessee. The assessee thus generates quite a substantial unaccounted income.
29. As it appears that the main ingredients in manufacture of bread is Maida, besides other raw materials such as yeast, sugar, vegetable oil, salt and water. There is no sales tax or excise duty on manufacture/sale of bread (except rust) and as such the manufacturing activity is not subjected to scrutiny by local/central revenue or excise department. The major part of the sales is in cash, which is collected by the salesmen from retailers/distributors at the time of delivery of bread.
30. To verify these allegations, an action Under Section 132 of the Income Tax Act, 1961 was conducted on 8.1.2004. It resulted in seizure of unaccounted case and jewellery, beside seizure of incriminating documents, books of accounts etc. The main allegation regarding generation of unaccounted income on the part of the assesses stands proved.
31. The concerned authority also prepared inventory of the seized articles like cash, jewellery and other valuables.
32. After carefully reading of the aforesaid provisions it is to be examined whether the search warrant issued without information in possession/application of mind and also without any reason to believe or not. As appeared in the appraisal report prepared by the respondent pursuant to the search conducted on 8.1.2004 that there is ample reason to believe that the petitioner has not produced material relating to assessment of income unless search is carried out and after application of mind and having reason to believe the search was carried out.
33. I have carefully perused the judgments referred by the learned counsel for the petitioners in respect of his submission in the case of Kusum Lata v. Commissioner of Income Tax wherein Rajasthan High Court expressed opinion with regard to "has reason to believe" in Sub-section (1) of Section 132 of Income- tax Act means the bona fide belief based on some reasonable or credible information. Here in the instant case the respondents have reasonable and credible information and have ample reason to believe for search and seizure. The Division Bench of Delhi High Court in the case of LR Gupta (supra) reiterated the view taken by this court that "expression "information" must be something more than a mere rumour and gossip or a hunch. The petitioner has failed to established his case that the search which was conducted by the respondent is on the basis of rumour and gossip or a hunch. As already stated hereinabove that there is a credible information which is necessary for search and seizure. The case of H.L. Sibbal and Dr. Nand Lal Tahiliani is also carefully considered and the case of Ajij Jain wherein Delhi High Court observed that "in view of the foregoing discussion, the impugned authorization issued by respondent No. 4 under Section 132 and all further actions/proceedings in consequence thereof, including the block assessment are quashed and the rule is made absolute. Applying the ratio decided by the Delhi High Court it appears that the ratio decided by the Delhi High is not applicable to the instant case. As I have carefully perused the authorization provided under Section 132 and the search and seizure was conducted by the respondent on the cogent reason and reason to believe and on the basis of credible information. Similarly, the ratio decided by the Allahabad High Court in the case of Ganga Prasad Maheshwari and Smt. Kavita Aggarwal also not applicable to the present case.
34. I have also perused the judgments referred by the respondents. Hon'ble the Supreme Court in the case of Pooran Mal v. Director of Inspection (SC) 505 held as under:-
(i) "The provisions of Section 132 are evidently directed against persons who are believed on good grounds to have illegally evaded payment of tax on their income and property. Therefore, drastic measures to get at such income and property with a view to recover the Government dues would stand justified in themselves. When one has to consider the reasonableness of the restrictions or curbs placed on the freedoms mentioned in article (19)(1)(f) and (g), one cannot possibly ignore how such evasions eat into the vitals of the economic life that huge sums of unaccounted money are in circulation endangering its very fabric. In a country which has adopted high rates of taxation a major portion of the unaccounted money should normally fill the Government coffers. Instead of doing so sit distorts the economy. Therefore, in the interest of the community it is only right that the fiscal authorities should have sufficient powers to prevent tax evasion."
(ii) "Search and seizure are not a new weapon in the armory of those whose duty it is to maintain social security in its broadest sense. The process is widely recognized in all civilized countries."
(iii) "It is now too late in the day to challenge the measure of search and seizure when it is entrusted to income-tax authorities with a view to prevent large scale tax evasion. Indeed, the measure would be objectionable if its implementation is not accompanies by safeguards against its undue and improper exercise. As a broad proposition it is now possible to state that if the safeguards are generally on the lines adopted by the Criminal Procedure Code they would be regarded as adequate and render the temporary restrictions imposed by the measure reasonable."
(iv) "An innocent person who is merely in custody of cash, bullion or other valuables, etc., not knowing that it was concealed income is likely to be harassed by a raid for the purpose of search and seizure. That cannot be helped. Since the object of the search is to get at concealed incomes, any person who is in custody without enquiring about its true nature, exposes himself to search. Sub-section (4) of Section 132 shows the way how such an innocent person can make the impact of the search on him bearable. All that he has to do is to tell the true facts to the searching officer explaining on whose behalf he held the custody of the valuables. It will be then for the Income-tax Officer to ascertain the person concerned under sub-section (5)".
(v) "Though in a very rare case a tax evader may comply with a requisition, the Director of Inspection who has reliable information that the assessee has consistently concealed his income derived from certain financial deals may be justified in entertaining the reasonable belief that the assessee, if called upon to produce the necessary documents, will not produce the same." It cannot, therefore, be said that clause (b) of Section 132(1) has over-reached itself.
35. The same view is taken by Hon'ble the Supreme Court in the case of Dr. Pratap Singh and Anr. (supra) as under:-
"The material on which an Officer of Enforcement has reason to believe that any documents will be useful for or relevant to any investigation or proceedings under the Foreign Exchange Regulation Act, 1973, need not be disclosed in the search warrant issued by him under Section 37(1) of that Act. The material on which the belief is grounded may be secret, may be obtained through intelligence, or occasionally may be conveyed orally by informants. It is not obligatory upon the Officer to disclose his material on the mere allegation of the petitioner in his writ petition that there was no material before him on which his reason to believe can be grounded.
36. In view of the ratio decided by Hon'ble the Supreme Court it is well established that there is reason to believe to conduct search and seizure invoking the provisions of Section 131 and 132 and the power of search and seizure has been exercised after taking due care of the provisions and on the basis of credible information and after applying mind and there was reason to believe to conduct search operation.
37. In view of the aforesaid discussions, search operation dated on 8.1.2004 and panchnama dated 9.1.2004 have rightly been conducted/prepared and no interference whatsoever is required by this court while exercising extra ordinary jurisdiction under Article 226 of the Constitution of India. Consequently, this writ petition fails and is hereby dismissed with no order as to costs.