Chattisgarh High Court
Prakash Chand Maloo Jain vs Union Of India & Others on 4 December, 2010
HIGH COURT OF CHATTISGARH BILASPUR
WRIT PETITION No 800 of 2005
Prakash Chand Maloo Jain
...Petitioners
Versus
Union of India & Others
...Respondents
! Shri Neelabh Dubey Advocate for the petitioner
^ Shri Rajeev Shrivastava Advocate with Shri Sameer Shrivastava Advocate for the respondent Income Tax Department Shri Venu
CORAM: Honble Shri Satish K Agnihotri J
Dated: 04/12/2010
: Judgement
J U D G M E N T
Delivered on this 4th day of December 2010 Petition under Article 226 227 of the Constitution of India
1. By this petition under Article 226 of the Constitution of India, the petitioner seeks to quash the search warrant issued by the Director General of Income Tax (Investigation), [hereinafter referred to as `the DGIT(Inv.)'] Bhopal, post search proceedings and compensation for humiliation and harassment suffered by the petitioner.
2. The indisputable facts, in nutshell are that a search in the residential premises of the petitioner i.e. D-35/1, MIG, Devendra Nagar, Raipur was conducted by the Joint Director of Income Tax (Investigation), Deputy Director of Income Tax (Investigation), Assistant Commissioner of Income Tax and Income Tax Officer, on 17.02.2005 in absence of the petitioner. A panchnama was prepared and valuables and loose papers were also inventorised. The search was suspended on 17.02.2005 at about 9 p.m. by service of prohibitory order under section 132(3) of the Income Tax Act, 1961 (hereinafter referred to as `the Act, 1961') and the same was concluded on the next date i.e. on 18.02.2005, afternoon. A survey under section 133A of the Act, 1961 was also conducted in the office premises of the firm M/s. Deshpande Malu & Co. wherein the petitioner was a partner. The said survey and search was unauthorized and without there being any material so asto form reasons to believe that the petitioner was in possession of any money, bullion, jewellery or other valuable articles or thing, as required under the provisions of section 132(1) of the Act, 1961.
3. Shri Neelabh Dubey, learned counsel appearing for the petitioner would question the legality and validity of the search on the ground that the respondent No. 3, DGIT (Inv.) did not have information in his possession as to form reason to believe that the petitioner was in possession of money, bullion, jewellery or other valuable article or thing representing undisclosed income or property. Thus, the impugned warrant of search was illegal and void. Further, there was no reason to believe that the petitioner would not produce, or had not produced books of accounts whenever requisitioned by the Department. The search was authorized for malafide intention of depriving the firm of the petitioner from carrying out Special Audit under section 142(2A) of the Act, 1961, of the Chhattisgarh State Electricity Board, for which he was appointed auditor. Further, the search was conducted to tarnish the image of the petitioner. The search caused mental torture and social stigma not to the petitioner only but to the other family members also. His right to privacy was also violated.
4. Shri Dubey would further submit that there are following requirements to invoke jurisdiction under section 132(1) of the Act, 1961 for authorizing an officer to search a premises:
z "That there should be information in possession of the authorities which should be objective in nature. z That the said information should be more than mere rumor, gossip or hunch.
z That the authorizing officer must actively apply its mind to the information in his possession and form an opinion that there is reason to believe. z That the formation of opinion or belief by the authorized officer must be apparent from the note recorded by him.
z That on the basis of such information the authorized officer should be able to have a reason to believe that a person who has been summoned to produce books of account or document has failed to produce such account books. z That person summoned or might be summoned may not or would not produce any document which is relevant for an proceedings under the Act. z That person in possession of any money, bullion jewellery or other valuable article representing part of the property which has not been or would not be disclosed for the purpose of the Act.
z That the material must have rational nexus or bearing to the reasons for formation of belief. It should be bonafide and not actuated by malafides, bias or extraneous or irrelevant material. "
5. Further, the petitioner was a professional of excellence and his residence should not be searched without there being compelling evidences and confirmations of substantial tax evasion, in contravention of the instruction No. 7/2003 issued by the Central Board of Direct Taxes (hereinafter referred to as `the CBDT').
6. On the other hand, Shri Rajeev Shrivastava, learned counsel, on the basis of returned filed on behalf of the respondent-Department would submit that the search was initiated on the ground that the DGIT(Inv) had sufficient information in possession of, inter alia, to form reason to believe that the petitioner was in possession of other valuable articles or things which would not be disclosed for the purpose of income tax and would facilitate evasion of tax. The contention of the petitioner that the tax- payers who are professionals of excellence should not be searched without there being compelling evidences and confirmations of substantial tax evasion, is admittedly a part of the instruction No. 7/2003 issued by the CBDT. But the same does not supplant the provisions of law. In the case on hand, sufficient materials were available indicating that the petitioner was in possession of the materials which warranted search and seizure under section 132 of the Act, 1961. There were compelling evidences and confirmation of substantial tax evasion to abet the tax evasion by Bajrang Group of Raipur. On search, it was found that the petitioner was also involved in evasion of substantial taxes. There was sufficient materials to show that the petitioner indulged into violations of professional ethics. It was revealed on enquiry that the petitioner, an experienced Chartered Accountant was closely associated with Bajrang Group with the business dealings and fund mobilization. Thus, the petitioner cannot claim immunity on the basis of being a professional of excellence. The books of accounts were subsequently impounded on 19.03.2005 for further verification and investigation.
7. Shri Shrivastava would further submit that information in possession of the authorized officer is certainly a matter of judicial review, however, whether the information was sufficient or not for reasons to believe is a subjective satisfaction of the officer concerned. In support of his contention, he relies on a decision of the High Court of Allahabad, in Ganga Prasad Maheshwari & Others v. Commissioner of Income Tax1. It is further submitted that the search powers are essentially a procedural power and when the prescribed procedure has been followed, validity of search may not be examined at this stage. In support of this contention, he would rely on a decision of High Court of Jammu & Kashmir in Director of Inspection & Ors. v. K.C. & Co. & Ors2.
8. Heard learned counsel appearing for the parties, perused the pleadings and documents appended thereto.
9. A panchnama (Annexure R/1) was prepared in the case of warrant of search of the residence of Prakash Chand Maloo (Jain). Inventories (Annexure R/2) were also prepared. Certain pass books were also seized which are at Annexure R/3. Statement of the petitioner as well as his son, Abhishek Jain and wife of the petitioner Smt. Pramila Jain, were also recorded (Annexure R/4 and R/5).
10. For ready reference, section 132(1) of the Act, 1961 reads as under:
"132. Search and seizure. - (1) Where the Director General or Director or the Chief Commissioner or Commissioner or Additional Director or Additional Commissioner or Joint Director or Joint Commissioner in consequence of information in his possession, has reason to believe that -
(a) any person to whom 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 sub 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 accounts 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 purpose of 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 Director General or Director or the Chief Commissioner or Commissioner, as the case may be, may authorize any Additional Director or Additional Commissioner or Joint Director, Joint Commissioner, Assistant Director or Deputy Director, Assistant Commissioner or Deputy Commissioner, or Income Tax Officer, or (B) such Additional Direct or Additional Commissioner or 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 an 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 existing 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 authorize 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; (iib) require any person who is found to be in possession or control of any books of account or 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 thing found as a result of such search:
Provided that bullion, jewellery or other valuable article or thing, being stock-in- trade of the business, found as 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 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 Chief Commissioner or Commissioner, but such Chief Commissioner or Commissioner has no jurisdiction over the person referred to in clause (a) or clause (b) or clause (c), then, notwithstanding anything contained in section 120 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 authorization from the Chief Commissioner or Commissioner having jurisdiction over such person may be prejudicial to the interest of the revenue:
Provided further that where it is not possible or practicable to take physical possession of any valuable article or thing and remove it to a safe place due to its volume, weight or other physical characteristic or due to its being of a dangerous nature, the authorized officer may serve an order on the owner or the person who is in immediate possession or control thereof that he shall not remove, part with or otherwise deal with it, except with the previous permission of such authorized officer and such action of the authorized officer shall be deemed to be seizure of such valuable article or thing under clause (iii):
Provided also that nothing contained in second proviso shall apply in case of any valuable article or thing, being stock-in-trade of the business.
Provided also that no authorization shall be issued by the Additional Director or Additional Commissioner or Joint Director or Joint Commissioner on or after first day of October, 2009 unless he has been empowered by the Board to do so."
11. Section 133A of the Act, 1961 deals with the power of survey, which according to the petitioner, was done in case of office premises of Deshpande Malu & Co. The same is not under challenge in this petition as the relief clause seeks quashing of search warrant in respect of the residential premises i.e. D-35, Devendra Nagar, Raipur, belonging to the petitioner.
12. The Department has produced the original papers. On perusal, it is found that sufficient materials were produced and were in possession of the DGIT (Inv), Bhopal. It is further found that the DIT(Inv.), Bhopal, JDIT(Inv.), Raipur have prepared report and notes on the basis of materials, and placed before him. The DGIT(Inv.) Bhopal, on examination, came to the conclusion that there was systematic suppression of income and substantial tax evasion by the Bajrag Group of Raipur in his notings on 10.02.2005. Thus, the DGIT (Inv.) recorded reasons to believe that warrant of authorization under section 132 of the Act, 1961 be issued for search in the residential premises of the persons mentioned at `A' of the note.
13. Needless to mention that residential premises at D- 35, MIG, Sector 1, Devendra Nagar, Raipur, belonging to the petitioner was in the list. Thus the contention of learned counsel for the petitioner that there was no sufficient materials to form reason to believe that search was warranted under section 132(1) of the Act, 1961, being unsubstantiated, is rejected.
14. In Ganga Prasad Maheshwari1, the High Court of Allahabad, held as under:
"6. "Reason to believe" is a common feature in taxing statutes. It has been considered to be the most salutary safeguard on the exercise of power by the officer concerned. It is made of two words "reasons" and "to believe". The word "reason" means cause or justification 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 justification 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 reason to believe is not open to 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. Belief may be subjective but reason is objective. In ITO vs. Lakhamani Mewal Das 1976CTR (SC) 220 : (1976) 103 ITR 437 (SC) :
TC51R.598, the Supreme Court, while interpreting similar expression used in s. 147 of the Act, held:
"The expression `reason to believe' does not mean a purely subjective satisfaction on the part of the ITO. The reason must be held in good faith. It cannot be merely a pretence."
15. In S.K.Industries (P) Ltd. v. Director General of Income Tax (Inv.)3, the High Court of Delhi took the similar view, as aforestated.
16. The Supreme Court, in Income Tax Officer, Special Investigation Circle `B', Meerut v. Seth Brothers & Others4, held that the Commissioner or the Director of Inspection must have, in consequence of information, reason to believe that the statutory conditions for exercise of power to search exists. It is held as under:
"The Commissioner or the Director of Inspection must have, in consequence of information, reason to believe that the statutory conditions for the exercise of the power to order search exists. He must record reasons for the belief and he must issue an authorization in favour of a designated officer to search the premises and exercise the powers set out therein. The condition for entry into and making search of any building or place is the reason to believe that any books of account or other documents which will be useful for, or relevant to, any proceeding under the Act, may be found. If the officer has reason to believe that any books of account or other documents would be useful for, or relevant to, any proceeding under the Act, he is authorized by law to seize those books of accounts or other documents, and to place marks of identification therein, to make extracts or copies therefrom and also to make a note or an inventory of any articles or other things found in the course of the search."
17. In Dr. Nand Lal Tahiliani v. Commissioner of Income Tax & Others5, the High Court of Allahabad, observed as under:
"In order that the information of opinion must be in good faith and not a mere pretence, it is necessary that the information in consequence of which it is found must be valid and linked with the ingredients mentioned in the section. That is, there must be rational connection between the information or material and the belief about undisclosed income"
18. In L.R.Gupta & Others v. Union of India & Others6, the High Court of Delhi held as under:
"The basis of the exercise of the jurisdiction under section 132(1) has to be the formation of a belief and the belief is to be formed on the basis of receipt of an information by the authorizing officer. The expression "information" must be something more than a mere rumor or a 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 authorizing officer can have reason to believe that action under section 132 is called for, for any of the reasons mentioned in clauses (a),
(b) or (c). "
19. There is a common thread running through the cases cited above, it is well settled that the Court has to examine the availability of materials and forming of reasons and not beyond that. If on examination, it is found that there was no material to form reason to believe, the High Court under Article 226 of the Constitution of India, may quash the same. If there are reasons to believe in normal circumstances, sufficiency of reason to believe may not be examined.
20. So far as the contention of learned counsel for the petitioner that the petitioner is a professional of excellence, and the tax payers who are professional of excellence cannot be searched without there being compelling evidences and confirmations of substantial tax evasion is concerned, the same is noticed to be rejected. In the case on hand, I have examined the records produced before the DGIT (Inv.). Sufficient materials were available to establish that there was compelling evidences and confirmations of abetment of tax evasion.
21. In the written submission, the petitioner has raised a new issue that the original papers have been produced before this Court without permitting the petitioner to have inspection of the file, this plea is not permissible, when the same was neither raised nor objected, during the course of argument.
22. During the course of argument when the original papers were produced and kept in a sealed cover by the officers of the Department, it was clearly stated by the counsel for the Revenue that inspection of the records by the petitioner or his counsel may not be permitted at this stage. After having seen the original papers, I do not find any reason to permit inspection of the original documents by other side. The Court has perused the original documents in the Court itself.
23. The Supreme Court, in Miheer H. Mafatlal v. Mafatlal Industries Ltd.7, observed as under:
"43.Some additional points also appear to have been raised in the written submissions pertaining to additional objections which were not pressed before us at the time of oral hearing and, therefore, they obviously cannot be considered in support of the contentions on which the appeal was pressed before us."
24. Without making any observations on the merits of the case, as the same may prejudice cause of the parties, I am of the considered opinion that sufficient materials were present in possession of the DGIT (Inv.) Bhopal, to form reasons to believe that the petitioner was in possession of, inter alia, other valuable articles or things, as required under the provisions of section 132(1) of the Act, 1961, to issue warrant of search..
25. For the reasons and analysis, mentioned hereinabove, the petition is dismissed. No order asto costs.
JUDGE