Patna High Court
Pawan Solvent & Chemicals And Ors. vs Commissioner Of Income-Tax And Ors. on 8 September, 1986
Equivalent citations: [1987]166ITR67(PATNA)
JUDGMENT M.P. Varma, J.
1. On submission of counsel for the parties and for the sake of convenience, this case and all the other five cases (CWJC Nos. 984, 1121, 1123, 1128 and 1129 of 1986 (R)) have been heard together and this order will, therefore, cover all the cases.
2. The Income-tax Officials on August 29, 1985, formed a raiding party and searched the business premises of the petitioners in purported exercise of the powers under Section 132 of the Income-tax Act, 1961 (for brevity to be referred to as "the Act"). They searched not only the business premises but also the residential premises as well as the premises of the father of petitioner No. 4. In the course of search, the books of account and other relevant papers relating to the business including cash memos, sales tax registers, credit vouchers, challans and many other important papers of the petitioner firm, M/s Pawan Solvent and Chemicals, were seized, vide annexure "C" of the panchanama prepared at the time of the search. A photostat copy of the same has been annexed to this application (CWJC No. 980/86 R) as annexure 1.
3. Similarly, the business premises of petitioner No. 2, M/s Premier Agency, were also searched and many documents were seized, vide annexure C/A of the panchanama marked annexure 2. The business premises of the third petitioner, M/s Bihar Pesticides and Fertilizers, were also searched. The books of account of this firm were also seized under panchanama, vide annexure 3. The officers searched the three lockers of the Central Bank of India at Ramgarh, Locker No. 31 is in the name of Smt. Hansa Banka (petitioner No. 3). Locker No. 37 is in the name of petitioner No. 1, Gobind Lal Agrawal, and locker No. 33 is in the name of Durga Debi, petitioner No. 2. They, in the course of their search, seized ornaments and jewellery including silver utensils weighing 600 grams and also cash of Rs. 8,641. The panchanama was prepared, a photostat copy of which is enclosed with this application as annexure "B" in CWJC No. 984/86(R).
4. Some gold ornaments were seized from the room of Smt. Durga Debi, petitioner No. 2. Nine fixed deposit receipts from locker No. 31 were also seized. These fixed deposits were in the name of Smt. Hansa Banka, petitioner No. 3. Some silver utensils approximately 2.50 kgs. were seized from locker No. 37 in the name of Gobind Lal Agrawal, petitioner No. 1 and 31 items of jewellery weighing approximately 949 grams were seized from locker No. 38, which stood in the name of Durga Devi.
5. In the applications under Articles 226 and 227 of the Constitution of India, the petitioners prayed for issuance of writ of mandamus directing the respondents to return the seized items and also to pass appropriate orders declaring that the search and seizure conducted by the respondents is wholly illegal and without jurisdiction and that any subsequent action done by the respondents on the alleged illegal search and seizure are equally without jurisdiction. All the petitioners in CWJC No. 984/86 R belong to one family. Petitioner No. 1 is the son of petitioner No. 2 and petitioner No. 3 is the daughter of petitioner No. 2. Petitioners Nos. 1, 2 and 3 in CWJC No. 980/86 R are partners of the partnership firm with their business at Ramgarh Cantonment and petitioner No. 4 is a partner in all the three partnership firms.
6. The books of account and other papers belonging to Sarwan Kumar Agrawal of CWJC No. 1128/86 R were seized as per the panchanama, annexure 1, to the application, which includes ledger and cash books. The books of account of Hira Lal Agrawal of writ application No. 1129/86 R has been seized, vide annexure C/l, C/2, C/3 and C/4 of the panchanama marked annexure 1. It is the case of the petitioner that he is a chartered accountant. He was previously a partner of Bihar Pesticides and Fertilizers, but subsequently retired from the partnership.
7. The books of account including ledgers, cash books and registers of the petitioner, Bhagirathmal Agrawal of CWJC No. 1121/86R were seized under the panchanama, vide annexure "C" to the application.
8. There are five petitioners in CWJC No. 1123 of 1986 (R). It is the case of each one of them that petitioner No. 1 is a partnership firm and petitioners Nos. 2 to 5 are partners and that in the search conducted by the Income-tax Department, the officials seized the books of account and other papers including cheque books, some registers and various other important files kept in day-to-day business, vide annexure "C" of the panchanama prepared at the time of search, copy of which has been enclosed as annexure 1 to this application. The respondent officials further issued directions to the various bankers not to allow the petitioners to operate their bank accounts and they could not withdraw any money from the bank.
9. All the petitioners in their respective applications making a common cause have invoked the writ jurisdiction of this court under Articles 226 and 227 of the Constitution of India seeking a declaration that the search and seizure conducted by the respondents is wholly illegal and without jurisdiction, as the same has been done in contravention of the provisions laid down under Section 132 of the Act and to issue mandamus directing the respondents to release the ornaments, jewellery, silver utensils, fixed deposit receipts and the books of account to the respective parties.
10. The short contention is that the powers of search and seizure by the Income-tax Department have been wrongly exercised and the same has been done without reasonable cause and proper material on record and the whole action of the seizure of the jewellery and ornaments, fixed deposits, papers and the books of account is without jurisdiction. It is violative of the provisions laid down in Section 132 of the Act.
11. It was on August 29, 1985, that the income-tax officials searched the business as well as the residential premises of Badri Prasad Agrawal and had also looked into and searched the three lockers in the Central Bank of India, Ramgarh, namely, locker No. 31 which was in the name of his daughter, Smt. Hansa Banka, No. 37 which was in the name of the petitioner, Gobind Lal Agrawal, and locker No. 38 which was in the name of Durga Debi, wife of Badri Prasad Agrawal. It is the case of the petitioners that they made a sudden raid and went round every nook and corner of all the rooms of the residential house, where the members, both males and females, are residing and also the business premises of the respective petitioners located at Ramgarh. The officials, while seizing the articles and also the books, prepared different panchanamas and copies of those panchanamas have been attached with each one of the applications as annexures. In making search of the lockers, they took away nine fixed deposit receipts as well. The learned advocate for the petitioners contends that the petitioners are old assessees submitting income-tax returns from time to time duly accepted by the Department and that it would be incorrect to state that the petitioners had at any time concealed or were in possession of any money, jewellery or other valuable articles, representing either wholly or partly income or property not disclosed to the Department for the purpose of assessment. In other words, the properties seized, by no stretch of imagination, could be described as undisclosed income or properties of the petitioners. It has also been contended that the petitioners were never summoned nor ever required to produce any books of account or any other papers or documents and it cannot be said that the petitioners at any time omitted or failed to produce such books or to declare money, jewellery or any other valuables in their possession. It is not the case of the Department that the petitioners would have failed to comply with the orders in case of service of summons or notices for production of the accounts. In the given circumstances, it was wholly illegal for the Commissioner of Income-tax to pass orders and to direct or authorise the officials to enter and search the residential as well the business premises of the petitioners and that the manner in which it has been done has seriously damaged the reputation of the petitioners both in society and as well as the business community. The ornaments and jewellery seized by the officials were in the list of declared and disclosed properties and the disclosure was made voluntarily under the provisions of Voluntary Disclosure of Income and Wealth Ordinance, 1975. It had been declared to the Department that Durga Debi, wife of Badri Prasad Agrawal, had acquired gold, jewellery and ornaments worth several thousands up to the accounting year on the date of declaration and had paid the taxes in addition to the security for the same. The jewellery were kept in the bank under locker system and the learned advocate contends that it cannot be described to be undisclosed or concealed properties. However, at this stage, it is stated that the officials of the Income-tax Department could have very well inspected and got the jewellery weighed in case of any doubt for the purpose of assessment and there was no reasonable ground to get the jewellery and ornaments, utensils and also cash found in the house seized. It has also been stated that even the silver utensils were declared under the disclosure scheme and the taxes were duly paid on the same in addition to the security deposits by petitioner No. 1 on the basis of market rate of the utensils and on the total wealth calculated thereon. Some of the small utensils seized were in the lockers as would appear from annexure "7" which is a certificate granted by the Central Bank of India. The learned advocate further contends that illegality of seizure of the fixed deposit receipts is quite apparent on the record as the fixed deposit receipts do not fall in any of the categories of the items mentioned in Section 132 of the Act. In other words, the contention is that the fixed deposits could not be deemed to be concealed money or income of the petitioners. The contention is that action of some of the officials of the Department is not only mala fide but it amounts to an invasion on the prestige, dignity and right of the petitioners causing irreparable loss to them in the manner in which the search and seizure has been done. Emphasis has been laid in the argument that under Section 132 of the Act relating to the power of search and seizure the authorised officer must have "reason to believe" that a person is in possession of money, bullion or jewellery or other valuable articles representing his income which he has not or would not disclose for the purpose of the Income-tax Act or that in case of service of summons or notice, the person concerned would not produce or cause to be produced the accounts or the documents, which would be useful for or relevant to the assessment proceeding under the Act or that the person concerned has deliberately omitted and failed to produce or cause to be produced such books of account or other documents, as required by such summons or notices served on any one of them.
12. There being none of the aforesaid conditions available on the records, it cannot be said that there was any information in the possession of the Department resulting in the existence of subjective satisfaction for "reason to believe", for getting an authority for conducting the raid, which is a condition precedent for acquiring jurisdiction under Section 132 of the Act.
13. Counter affidavit has been filed on behalf of the respondents. Learned advocate, Sri Rajgarhia, appearing for the Department could not really dispute the contentions raised on behalf of the petitioner. It has, however, been discriminately argued that the search and seizure was authorised by the Commissioner of Income-tax on the basis of information regarding undisclosed cash, jewellery, business and books of account and documents, which were in the possession of the assessees-petitioners. It has also been averred in paragraph 7 that as a result of secret enquiries, the materials which had come to light gave the Commissioner the reasons to believe that such books of account or other documents, as required by the Department would not be produced by issuing summons under Section 131 of the Act or notice under Section 132 of the Act and, therefore, the Commissioner of Income-tax authorised the officials for conducting the search and seizure of the residential and as well as the business premises of Badri Prasad Agrawal and others, who resided there in the houses. It has also been stated that it was not possible at the time of search and seizure to verify the cash and jewellery kept in the premises and that the petitioners having not co-operated and not having filed any reply asked for, had to seize the articles. Sri Rajgarhia contends that the orders of the Commissioner and the action taken by the officials under Section 132 of the Act cannot be a subject-matter for investigation by a High Court in the writ jurisdiction. The application is, therefore, misconceived and not maintainable. It has also been urged that the petitioners should calmly submit to the jurisdiction of the income-tax authorities who will pass appropriate orders in accordance with law. Sri Rajgarhia states that the Department has made investigation and are proceeding with the enquiry for further assessment of the liabilities of the petitioners and the case shall be adjudicated shortly thereafter.
14. Having heard the counsel for the parties, we are of the view that the action under Section 132 of the Act for search and seizure can be taken only in consequence of information in the possession of the Department that the Director of Inspection or the Commissioner or other authority mentioned in the section have reason to believe that the person concerned would not produce or cause to be produced the books of account or would not disclose properties in his possession for the purpose of assessment which may be said to be undisclosed property or income. In other words, the "reasonable belief" is a condition precedent and the Act does not permit indiscriminate search and seizure in order to catch on some books of account and to find some lapses here and there to justify the act of raid and seizure. The "belief" in our opinion, must be honest belief based on cogent materials and not on anonymous calls and letters.
15. The Income-tax Department is the backbone of the economy of the society. Their officials occupy high positions. They are looked upon with reverence and dignity by every member of the society, even by service holders, lawyers, doctors and every business merchant in general. Needless to say that under the scheme of the Act, the officials of the Department wield wide powers. So, it is in their own interest and in the interest of boosting up the economy of the country that they must act with full restraint, strictly adhering to the principles of law and maintain cordial relations with assessees. Raid, search and seizure must be conducted to unearth the hidden wealth and to take out undisclosed properties from unscrupulous tax evaders, smugglers and such other persons who are a pest to the society. They should not be spared. But at the same time, care must be taken that the whip is not used indiscriminately which might cause injury and insult to honest persons. If there is a wanton and indiscriminate raid and seizure on honest taxpayers, it would certainly amount to an attack on fundamental rights of the person living in the society with dignity and grace and such an act touches the honour and prestige.
16. In the counter-affidavit filed on behalf of the respondents, there is no whisper that the petitioners come in any of the three categories i.e. Clauses (a), (b) and (c) of Sub-section (1) of Section 132 of the Act. It has been vaguely submitted that the Commissioner of Income-tax on the basis of some information regarding undisclosed cash, jewellery and books of account, which were in the possession of the petitioners, and that the information came to light as a result of some secret enquiry and the Commissioner, therefore, having reason to believe that the assessee would not produce the relevant papers by issuance of summons and, therefore, authorised the officials to conduct raid, search and seizure, both in residential and business premises. This pleading is not enough. We do not even for a moment pause to state that the Commissioner has no jurisdiction, but the learned advocate could not satisfy the court as to what was the cause of "reasonable belief" and what were such materials before them to entertain such belief in their mind for taking such extreme steps, which should, in all fairness, necessarily be exercised with reasonable care and caution and not loosely. We are not inclined to accept the contention of the learned advocate, Sri Rajgarhia, that it is not within the competence of the High Court to investigate the issue under the writ jurisdiction of this court. We must say that evasion of tax is not to be tolerated and action must be taken against the erring assessees and/or against the tax evaders. But, for taking action under Section 132 of the Act, there must be justifiable reasons to suspect that an assessee is evading by concealment. It is quite true the "reasons" are matters of subjective satisfaction of the Department concerned, but when the matter is brought to court, it must be shown to the court what objectives were there and whether there was satisfactory belief and the cause becomes justiciable and it is within the competence of the court to examine if the action taken by the Department was a justified one. So, we say that any action taken by the Department is quite justiciable to be examined in the court of law and if it is found that the action taken is bad and violative of the provisions of the Act, a writ or mandamus might issue declaring the entire act of search and seizure as void ab initio for want of jurisdiction and consequently the mandamus will follow directing the Department to return the articles seized.
17. At one stage of the argument, learned advocate, Sri Rajgarhia, urged that the Department is not precluded from taking action under Section 143 of the Act. We are not disputing the proposition. We have already said that we do not dispute the authority of the Department even under Section 132 of the Act. We have only said that action under Section 132 can be taken only when the Department has a reasonable belief for taking such action and not otherwise. We find in this case that there was no reasonable cause, much less any belief, for the respondents to embark on making a raid and conducting search and seizure. We feel that in the case of honest assessees, there should be soft-pedalling and not undue harassing action. We agree with the submission made by Sri Rajgarhia that the Department could very well proceed under Section 131 or Section 142 of the Act by issuing summons and notices and could very well proceed under Section 143 of the Act for assessment.
18. In the circumstances referred to above, we find that the action taken against the petitioners was not in consonance with the provisions of the Act or it was in contravention of the provisions laid down under Section 132 of the Act and, therefore, must be deemed to be an act without jurisdiction. This vitiates the act of search and seizure and the same is declared as wholly illegal.
19. While passing the final order, we may again revert to another aspect of the argument that in the instant case the articles have been detained for more than 180 days. Sub-section (8) of Section 132 says that the books of account or other document shall not be retained by the authorised officers for a period exceeding 180 days from the date of the seizure, unless the reasons for retaining the same beyond the period are recorded in writing and approved by the Commissioner. It has been contended by Sri Rajgarhia that, in the instant case, the Commissioner had recorded reasons for the retention of the books of account beyond the statutory period. Since orders have already been passed for the release of the materials including the books of account, we need not give any finding if further detention is valid. But, of course, we must hold that if the Commissioner or the authorities think of retaining the books of account beyond the period of 180 days from the date of seizure, such order for retention must be passed in writing with the approval of the Commissioner before the peremptory time expires and not otherwise. It has not been stated in the counter-affidavit that any such order of retention was passed prior to expiry of the peremptory time and the retention of the books of account beyond the period of 180 days would be quite unjustified and they must be returned to the assessee concerned. It has already been stated in the petition that the assessee-petitioners require the books for submitting proper return and to co-operate with the Department to their best in the assessment proceeding.
20. In the circumstances referred to above, it was on consideration of the facts as discussed above, that we had passed interim orders for the release of the articles and the books of account seized, as per different seizure lists and panchanamas prepared for the same and we expect that the respondent-Department by now must have complied with the orders passed by this court.
21. With the findings as noted above, the application stands disposed of. All the articles, books of account, fixed deposit receipts, etc., if not yet returned, must be returned forthwith.
Madan Mohan Prasad, J.
22. I agree.