Madhu Gupta v. Director Of Income-Tax (Investigation)And Others

THE HIGH COURT OF DELHI AT NEW DELHI %Judgment delivered on: 11.01.2013 +WP (C) No. 1417/2011 MADHU GUPTA ...Petitioner versus DIRECTOR OF INCOME-TAX (Investigation)AND OTHERS ...Respondents Advocates who appeared in this case:For the PetitionerFor the Respondents : Mr Dr Rakesh Gupta with Mr Ashwani Taneja andMr Rani Kiyala: Ms Suruchi Aggarwal CORAM:-HON’BLE MR JUSTICE BADAR DURREZ AHMEDHON’BLE MR JUSTICE V.K. JAIN JUDGMENT BADAR DURREZ AHMED, J 1.In this writ petition, the petitioner has prayed for the following reliefs:- “(I)To declare the authorization of income-tax search u/s 132of the Income Tax Act, 1961 as illegal in the case of thepetitioner.of the Income Tax Act, 1961 as illegal in the case of thepetitioner. (II)To direct the concerned authority of the income taxdepartment to vacate prohibitory order passed u/s 132(3)of the Income Tax Act, 1961 with respect to three banklockers of the petitioner.department to vacate prohibitory order passed u/s 132(3)of the Income Tax Act, 1961 with respect to three banklockers of the petitioner. (III)Todirecttheconcernedauthorityofincometaxdepartment to release the papers / documents seized fromthe residence of the petitioner.department to release the papers / documents seized fromthe residence of the petitioner. (IV)To pass any other order or direction as this Hon’ble courtmay deem fit and proper on the facts and circumstancesof the instant case in order to grant necessary relief to thepetitioner.”may deem fit and proper on the facts and circumstancesof the instant case in order to grant necessary relief to thepetitioner.” 2.Essentially, what the petitioner is seeking is a declaration that the warrant of search issued against the petitioner under Section 132 of theIncome-tax Act, 1961 (herein after referred to as ‘the said Act’) waswithout the authority of law and, therefore, all proceedings pursuant to thesearch conducted at the residential premises of the petitioner at C-18,Sector-26, Noida, U.P. and pertaining to the petitioner ought to be declaredas being illegal and the jewellery, articles and documents in lockersbelonging to the petitioner be released to her unconditionally and theprohibitory orders in respect thereof be vacated. 3.From the affidavit filed on behalf of the respondent / revenue, itappears that an information had been received by the Deputy Director ofthe Income-tax (Investigation), Unit-IV (3), New Delhi from the DirectorGeneral Central Excise Investigation, Delhi (DGCEI) in 2009 with regardto alleged unearthing of unaccounted sales and production as well as alleged clandestine removal / clearing of the products of M/s DharampalSatyapal Group from their units at Noida, Gauhati and Agartala.Theproducts comprised of various brands of paan masala, gutkha, such asRajni Gandha and Tulsi. It is further revealed in the said affidavit on behalfof the revenue that a show cause notice had been issued by the DGCEI tothe said M/s Dharampal Satyapal Group (DS Group) for evasion of CentralExcise Duty.It is further indicated in the affidavit that on the basis of“information” received, “secret discreet inquiries” were carried out by thesaid Director of Income-tax and it was allegedly revealed that the DSGroup was involved in sales which were not accounted for in the books andthat such unaccounted income was being invested in agricultural andimmovable properties and other assets in the names of group concerns ofDS Group. The affidavit further reveals that during “discreet inquiries” thesaid Deputy Director of Income-tax allegedly got information that theundisclosed accounts of DS Groups were being kept at the residence ofSmt. Madhu Gupta, widow of Late Shri R.N. Goela residing at C-18, Sector26, Noida, U.P. It is further indicated in the affidavit that the said DeputyDirector of Income-tax recorded a satisfaction note for the purposes of conducting a search under Section 132 (1) of the said Act on the DS Group. conducting a search under Section 132 (1) of the said Act on the DS Group. The satisfaction note, inter alia, indicated as under:- “That the above facts indicate that the assessee group is in thepossession of unaccounted income in the form of money,bullion, jewellery and other valuables / articles or things /papers related to the undisclosed / benami properties. These arelikely to be found at the residence and business premises of thegroup members, their associates and family members.Keepingin view of the above facts, I am of belief that even if notices u/s142 (1) of the Act or summons u/s 131 of the Act are issued tothe above assesses, they will not produce the documents whichwill be useful for determining the taxability under IT Act, 1961.Therefore, warrant of authorization u/s 132 of the IT Act maybe issued to search the following premises.” (underlining added) 4.In the said affidavit, it is further alleged that Smt. Madhu Goela, thepetitioner herein, who uses the name Madhu Gupta, is the widow of LateShri R.N. Goela, who was one of the major share-holders in the DS Groupof Companies till his death in the year 2006. He was also a director in thesaid Group of Companies till his death. It is alleged in the affidavit that,while inquiring into the allegations against the DS Group, the said DeputyDirector of Income-tax had received information that in view of the closerelationship of the petitioner with the promoters of DS Group, accountscontaining details of undisclosed sales and incomes, etc. were “likely to be kept” at the residence of the petitioner at C-18, Sector 26, Noida, U.P. It isfurther indicated in the said affidavit that the following was mentioned inthe satisfaction note prior to the conduct of the search on the residence ofthe petitioner:- “She is the wife of deceased director and according toinformation her house is used to keep accounts which areunaccounted.” 5.The said affidavit further indicates that, based on the satisfaction noteprepared by the said Deputy Director of Income-tax, the AdditionalDirector of Income-tax (Investigation), Unit-IV recommended search underSection132(1)ontheDSGroup.TheDirectorofIncome-tax(Investigation)-II, New Delhi discussed the matter with the said DeputyDirector of Income-tax as also the said Additional Director of Income-tax(Investigation) and accorded satisfaction that there were strong reasons tobelieve that DS Group of companies were engaged in unaccountedproduction of paan masala and other products resulting in generation ofunaccounted income which was not fully being disclosed in the income-taxreturns. Consequently, the Director of Income-tax (Investigation)-II, Delhiauthorized the search under Section 132(1) of the said Act and after suchauthorization, the said Deputy Director of Income-tax carried out the search on the DS Group on 21.01.2011. The search was also carried out on theresidential premises of the petitioner. 6.From the above, it is clear that the warrant of authorization whichpreceded the search at the residential premises of the petitioner was issuedin the name of the petitioner – Smt. Madhu Gupta / Goela. This is alsoapparent from the copy of the panchnama which is to be found at page 56of the paper book. The second point that is to be noted is that the allegationwas that the petitioner was the wife of a deceased director and that therewas information that her house was being used to keep the accounts of DSGroup which were unaccounted. 7.The search on the premises of the petitioner has been challenged bythe petitioner on the ground that, although the warrant of authorization is inthe name of the petitioner, there could not have been any reason to believethat the pre-conditions stipulated in clauses (a), (b) and (c) of Section132(1) of the said Act had been satisfied. In fact, the exact nature of theinformation is also not disclosed and, therefore, the search could not befounded on mere surmises and conjectures. At this juncture, we may pointout that though the learned counsel for the petitioner submitted that a search 7.The search on the premises of the petitioner has been challenged bythe petitioner on the ground that, although the warrant of authorization is inthe name of the petitioner, there could not have been any reason to believethat the pre-conditions stipulated in clauses (a), (b) and (c) of Section132(1) of the said Act had been satisfied. In fact, the exact nature of theinformation is also not disclosed and, therefore, the search could not befounded on mere surmises and conjectures. At this juncture, we may pointout that though the learned counsel for the petitioner submitted that a search under Section 132 entails serious consequences insofar as the personsearched is concerned inasmuch as the department, by virtue of Section153A of the said Act, can re-open the assessments of six years, the learnedcounsel for the revenue had conceded, on instructions, and this is recordedin our order dated 22.02.2012, that the department shall not be proceedingagainst the petitioner under Section 153A. Thus, the scope of the petition iswith regard to the lifting of the prohibitory orders and the release of thegoods / articles to the petitioner.It was first contended by the learnedcounsel for the petitioner that the mere fact that the revenue had concededthat they would not be proceeding against the petitioner under Section153A itself meant that the initiation of the search was bad. However, therevenue has raised certain arguments which need to be considered. 8.The learned counsel for the petitioner had placed reliance for hissubmissions on the following decisions:- 1)Suresh Chand Agarwal v. Director General of Income-tax(Investigation) & Others: (2004) 269 ITR 22 (All);(Investigation) & Others: (2004) 269 ITR 22 (All); 2)S.R. Batliboi & Co. v. Director of Income-tax (Investigation):(2009) 315 ITR 137;(2009) 315 ITR 137; 3)Dr Sushil Rastogi v. Director of Investigations, Income TaxDepartment & Others: (2003) 260 ITR 249 (All);Department & Others: (2003) 260 ITR 249 (All); 4)Dr Nand Lal Tahiliani v. Commissioner of Income-tax &Others: (1988) 170 ITR 592 (All);Others: (1988) 170 ITR 592 (All); 5)Narayan R. Bandekar & Another: v. Incometax Officer &Others: (1989) 177 ITR 207 (Bom);Others: (1989) 177 ITR 207 (Bom); 6)Smt. Kavita Agarwal & Another v. Director of Income-tax(Investigation) & Others: (2003) 264 ITR 472 (All);(Investigation) & Others: (2003) 264 ITR 472 (All); 7)L.R. Gupta & Others v. Union of India & Others: (1992) 194ITR 32 (Del);ITR 32 (Del); 8)H.L. Sibal v. Commissioner of Income-tax & Others: (1975)101 ITR 112 (P&H).101 ITR 112 (P&H). 9.The contentions of the petitioner were that the opinion or the beliefamounting to a reason to believe, as indicated in Section 132(1) of the saidAct, must clearly show that the belief falls under clauses (a), (b), or (c) ofSection 132(1) and that no search could be ordered except for any of thereasons contained in clauses (a), (b) or (c) of Section 132(1). Furthermore,it was contended that the satisfaction note ought to show the application ofmind and formation of the opinion by the officer ordering the search andthat if the reasons recorded do not fall under clauses (a), (b) or (c), then theauthorization under Section 132(1) would be bad and would be liable to bequashed. It was further contended that where the authorizing authority ischallenged in a judicial review, he would have to prove the basis for hisbelief.Furthermore, the information on the basis of which a belief is formed must be something more than a mere rumour or a gossip or a hunch.There must be some material which can be regarded as information whichmust exist on the file on the basis of which the authorizing officer could besaid to have a reason to believe that an action under Section 132(1) is calledfor on the basis of any of the conditions mentioned in clauses (a), (b) or (c)of Section 132(1). Furthermore, it was contended that the information hasnot only to be authentic, but must be capable of giving rise to the inferencethat the person was in possession of the undisclosed accounts which wouldnot normally be disclosed. It was submitted that before any action is takenunder Section 132(1) of the said Act, the competent authority must do soonly after a serious application of mind on the material before him. It wasalso contended that the facts, which constitute an information, should besuch on the basis of which a reasonable and prudent man could come to therequisite belief or conclusion as required under Section 132(1) of the saidAct.The belief must not be based on mere suspicion.He furthercontended that it would be open in the course of judicial review for thecourt to examine whether there was, in fact, information in the possessionof the authorizing authority and whether there was a rational connectionbetween information and the belief entertained by him.It was further contended that the information has to be of a fairly reliable characterbecause unless the information is of such a character, it could not furnish areliable basis for entertaining the belief that any of the circumstancesmentioned in Section 132(1) existed. The information must have a relevantbearing on the formation of the belief and must not be extraneous orirrelevant. It was contended that in the present case, there is no informationrevealed by the revenue at all. Merely stating that some information hadbeen received is not sufficient. There must be tangible evidence on the file.Secondly, the information must be such that it is reliable and on the basis ofwhich a reasonable and prudent man would come to the conclusion that oneof the conditions mentioned in Section 132(1) has been satisfied and,therefore, a search was warranted. It was submitted by the learned counselfor the petitioner that no such condition existed and, in fact, neither clause(a) nor clause (b) nor clause (c) of Section 132 (1) was satisfied in thepresent case. 10.The learned counsel for the revenue, however, contended that thereason to believe was in respect of the DS Group and clauses (a), (b) and(c) were satisfied insofar as a search was warranted on the DS group.According to the learned counsel for the revenue, the facts on the file 10.The learned counsel for the revenue, however, contended that thereason to believe was in respect of the DS Group and clauses (a), (b) and(c) were satisfied insofar as a search was warranted on the DS group.According to the learned counsel for the revenue, the facts on the file clearly indicate that there was enough reason for the competent authority tobelieve that the condition stipulated in clauses (a), (b) and (c) of Section132(1) existed insofar as the DS Group was concerned.Once that wassatisfied, the provisions of Section 132(1) (i) clearly permitted the search tobe carried out in any building, place, etc. where the officer authorized had“reason to suspect” that the books of accounts, other documents, etc. werekept. It was contended by the learned counsel for the revenue that as therewas ‘reason to believe’ insofar as the DS Group was concerned, theauthorized officer could conduct a search at any place which included theresidential premises of the petitioner at C-18, Sector 26, Noida, U.P. as alsothe three bank lockers belonging to her.For conducting a search underSection 132(1)(i), the authorized officer had only to have a ‘reason tosuspect’ as distinct and different from a ‘reason to believe’ as appearing inSection 132(1). It was contended that the reason to suspect for entering anypremises could not be equated with the reason to believe, which wasnecessary for directing any search of any tax payer. It was submitted thatthe search of the DS Group was based on several allegations, whichaccording to the revenue, were found to be, prima facie, correct and oncethat satisfaction was reached, the authorized officer only needed to have a reason to suspect that some books, assets or other documents or evidencewould be found at the residence of the petitioner. It is accepted that thesearch in the case of DS Group was legal and had been validly authorized.The only issue that requires to be seen is that whether there was any reasonto suspect to enter and search the residence of the petitioner. According tothe learned counsel, there was sufficient reason to suspect and this wasenough for the issuance of a warrant to enter and search the residence of thepetitioner. She submitted that no independent search of the petitioner wasdirected to be conducted and, therefore, the first requirement of Section132(1) of the existence of a reason to believe consequent upon informationin possession was not required to be satisfied. Therefore, it was submittedthat the case law presented by the learned counsel for the petitioner as alsothe propositions advanced by him relating to proper authorization of thesearch based on information in possession were not at all applicable to thefacts of the present case. 11.The provisions of Section 132(1), to the extent relevant, are set outhereinbelow:- “132. Search and seizure. – (1) Where the Director Generalor Director or the Chief Commissioner or Commissioner or Additional Director or Additional Commissioner or JointDirector or Joint Commissioner in consequence of informationin his possession, has reason to believe that— 11.The provisions of Section 132(1), to the extent relevant, are set outhereinbelow:- “132. Search and seizure. – (1) Where the Director Generalor Director or the Chief Commissioner or Commissioner or Additional Director or Additional Commissioner or JointDirector or Joint Commissioner in consequence of informationin his possession, has reason to believe that— (a)any person to whom a summons under sub-section (1) ofsection 37 of the Indian Income-tax Act, 1922 (11 of1922), or under sub-section (1) of section 131 of this Act,or a notice under sub-section (4) of section 22 of theIndian Income-tax Act, 1922, or under sub-section (1) ofsection 142 of this Act was issued to produce, or cause tobe produced, any books of account or other documentshas omitted or failed to produce, or cause to be produced,such books of account or other documents as required bysuch summons or notice, orsection 37 of the Indian Income-tax Act, 1922 (11 of1922), or under sub-section (1) of section 131 of this Act,or a notice under sub-section (4) of section 22 of theIndian Income-tax Act, 1922, or under sub-section (1) ofsection 142 of this Act was issued to produce, or cause tobe produced, any books of account or other documentshas omitted or failed to produce, or cause to be produced,such books of account or other documents as required bysuch summons or notice, or (b)any person to whom a summons or notice as aforesaidhas been or might be issued will not, or would not,produce or cause to be produced, any books of account orother 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, orhas been or might be issued will not, or would not,produce or cause to be produced, any books of account orother 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 suchmoney, bullion, jewellery or other valuable article orthing represents either wholly or partly income orproperty which has not been, or would not be, disclosedfor the purposes of the Indian Income-tax Act, 1922 (11of 1922), or this Act (hereinafter in this section referredto as the undisclosed income or property),jewellery or other valuable article or thing and suchmoney, bullion, jewellery or other valuable article orthing represents either wholly or partly income orproperty which has not been, or would not be, disclosedfor the purposes of the Indian Income-tax Act, 1922 (11of 1922), or this Act (hereinafter in this section referredto as the undisclosed income or property), then,— (A)the Director General or Director or the ChiefCommissioner or Commissioner, as the case maybe, may authorise any Additional Director orAdditional Commissioner or Joint Director, JointCommissioner,AssistantDirectororDeputyCommissioner or Commissioner, as the case maybe, may authorise any Additional Director orAdditional Commissioner or Joint Director, JointCommissioner,AssistantDirectororDeputy Director,AssistantCommissionerorDeputyCommissioner or Income-tax Officer, or (B)suchAdditionalDirectororAdditionalCommissionerorJointDirector,orJointCommissioner, as the case may be, may authoriseanyAssistantDirectororDeputyDirector,Assistant Commissioner or Deputy Commissioneror Income-tax Officer,CommissionerorJointDirector,orJointCommissioner, as the case may be, may authoriseanyAssistantDirectororDeputyDirector,Assistant Commissioner or Deputy Commissioneror Income-tax Officer, (the officer so authorised in all cases being hereinafterreferred to as the authorised officer) to – (i)enter and search any [building, place, vessel,vehicle or aircraft where he has reason to suspectthat such books of account, other documents,money, bullion, jewellery or other valuable articleor thing are kept;vehicle or aircraft where he has reason to suspectthat such books of account, other documents,money, bullion, jewellery or other valuable articleor thing are kept; (the officer so authorised in all cases being hereinafterreferred to as the authorised officer) to – (i)enter and search any [building, place, vessel,vehicle or aircraft where he has reason to suspectthat such books of account, other documents,money, bullion, jewellery or other valuable articleor thing are kept;vehicle or aircraft where he has reason to suspectthat such books of account, other documents,money, bullion, jewellery or other valuable articleor thing are kept; (ii)break open the lock of any door, box, locker, safe,almirah or other receptacle for exercising thepowers conferred by clause (i) where the keysthereof are not available;almirah or other receptacle for exercising thepowers conferred by clause (i) where the keysthereof are not available; (iia) search any person who has got out of, or is aboutto get into, or is in, the building, place, vessel,vehicle or aircraft, if the authorised officer hasreason to suspect that such person has secretedabout his person any such books of account, otherdocuments, money, bullion, jewellery or othervaluable article or thing;to get into, or is in, the building, place, vessel,vehicle or aircraft, if the authorised officer hasreason to suspect that such person has secretedabout his person any such books of account, otherdocuments, money, bullion, jewellery or othervaluable article or thing; (iib) require any person who is found to be inpossession or control of any books of account orotherdocumentsmaintainedintheformofelectronic record as defined in clause (t) of sub-section (1) of section 2 of the Informationpossession or control of any books of account orotherdocumentsmaintainedintheformofelectronic record as defined in clause (t) of sub-section (1) of section 2 of the Information Technology Act, 2000 (21 of 2000), to afford theauthorised officer the necessary facility to inspectsuch books of account or other documents; (iii)seize any such books of account, other documents,money, bullion, jewellery or other valuable articleor thing found as a result of such search:money, bullion, jewellery or other valuable articleor thing found as a result of such search: Provided that bullion, jewellery or other valuable articleor thing, being stock-in-trade of the business, found as aresult of such search shall not be seized but theauthorised officer shall make a note or inventory of suchstock-in-trade of the business; (iv)place marks of identification on any books ofaccount or other documents or make or cause to bemade extracts or copies therefrom;account or other documents or make or cause to bemade extracts or copies therefrom; (v)make a note or an inventory of any such money, bullion, jewellery or other valuable article orthing:”thing:” 12.It is apparent that there are several parts to the said provision ofsearch and seizure. In the first part, certain persons have been named, whowould be competent to authorize other officers of the Income-taxDepartment to carry out searches.The first authority or warrant ofauthorization can only be issued by the named persons, namely, theDirector General or Director or the Chief Commissioner or Commissioner or an Additional Director or Additional Commissioner or Joint Director orJoint Commissioner. Such warrant of authorization can only be issued bysuch a person in consonance of information in his possession and after he has formed a reason to believe that the conditions stipulated in clauses (a),(b) and (c) existed. 13.The information must be credible information and there must be anexus between the information and the belief. Furthermore, in our view,the information must not be in the nature of some surmise or conjecture, but it must have some tangible backing. Until and unless information is of thisquality, it would be difficult to formulate a belief because the belief itself isnot just an ipse dixit, but is based on reason and that is why the expressionused is “reason to believe” and not simply ‘believes”. has formed a reason to believe that the conditions stipulated in clauses (a),(b) and (c) existed. 13.The information must be credible information and there must be anexus between the information and the belief. Furthermore, in our view,the information must not be in the nature of some surmise or conjecture, but it must have some tangible backing. Until and unless information is of thisquality, it would be difficult to formulate a belief because the belief itself isnot just an ipse dixit, but is based on reason and that is why the expressionused is “reason to believe” and not simply ‘believes”. 14.We shall now examine the decisions cited by the learned counsel forthe petitioner. In H. L. Sibal (supra), the Punjab & Haryana High Courtobserved as under:- “30.…The word "information" has been defined in theShorter Oxford Dictionary as "that of which one is apprised ortold". The word "reason" has been defined as "a statement offact employed as an argument to justify or condemn some act".On the other hand, the word "conclusion" is defined as "ajudgment arrived at by reasoning; an inference, deduction,etc.”.In other words, when the information received or thebasic facts are harnessed in support of an argument, theresultant effect assumes the shape of a reason and when anumber of reasons are considered in relation to each other, thefinal result of this consideration assumes the shape of aconclusion. A necessary concomitant of this approach is that the facts constituting the information must be relevant to theenquiry. They must be such from which a reasonable andprudent man can come to the requisite belief or conclusion. Ifeither of the afore-mentioned elements is missing, the action ofthe authority shall be regarded as lying outside the ambit andscope of the Act. Such an action would be liable to be struckdown on the basis of what is commonly known as “legalmalice”.” 15.In Dr Nand Lal Tahiliani (supra), the Allahabad High Court observed as under:- “5.… The expression is “reason to believe that the incomehas not been disclosed and not probably it may not have beendisclosed”.It is not left to guessing. It carries with it theimpress of certainty. The dwelling house of a person is hisfortress. "Every householder, the good or the bad, the guilty orthe innocent, is entitled to the protection designed to secure thecommon interest against unlawful invasion of the house ".Ransacking of the house and the act of taking away theproperty is an inroad on the citizens' right of privacy": one ofthe values of civilization. Any unwarranted intrusion on itcannot be countenanced. Reasonable belief exists if theinformation is not only trustworthy but reasonable andsufficient in itself to warrant the conclusion that the provisionsof Section 132 were being violated. Because, if the exercise ofpower is bad or unlawful in inception, then it is not validatedor nor does it change character from its success. It would not,therefore, be asking too much from the authorities to complywith the basic requirements of the section before they arepermitted to invade the secrecy of one’s home.” 16.In Narayan R. Bandekar (supra), the High Court of Bombay observed as under:- 16.In Narayan R. Bandekar (supra), the High Court of Bombay observed as under:- “3.…Aplainreadingofsub-section(1)ofsection 132 makes it clear that the powers can be exercised inconsequence of information in the possession of the Directorof Inspection or the Commissioner of Income Tax and fromsuch information of the Commissioner has reason to believethat (a) any person, in spite of issue of summons, has failed toproduce the books of account or other documents, (b) anyperson is likely to fail to produce the books if so called upon,and (c) any person is in possession of any money, bullion,jewellery or other valuable articles and which are notaccounted for and which represent undisclosed income. Ithardly requires to be stated that the power conferred upon theCommissioner under section 132 is of a drastic nature and theexercise of power can only be after serious application of mindto the information in the possession of the Commissioner andfrom which a reasonable person would come to the conclusionthat the conditions prerequisite for the exercise of powerexisted.” 17.In L.R. Gupta & Others (supra), the Delhi High Court held as under: “17.A search which is conducted under Section 132 is aserious invasion into the privacy of a citizen. Section 132(1)has to be strictly construed and the formation of the opinion orreason to believe by the authorising officer must be apparentfrom the note recorded by him. The opinion or the belief sorecorded must clearly show whether the belief falls under sub-Clause (a), (b) or (e) of Section 13:(l).No search can beordered except for any of the reasons contained in sub-Clauses(a) (b), or (e). The satisfaction note should itself show theapplication of mind and the formation of the opinion by theofficer ordering the search. If the reasons which are recordeddo not fall under Clauses (a), (b) or (e) then an authorisationunder Section 132(1) will have to be quashed. As observed bythe Supreme Court in Income Tax Officer v. Seth Brothers:(1969) 74 ITR 836 (SC): ‘Since by the exercise of the power a seriousinvasion is made upon the rights, privacy andfreedom of the tax payer, the power must beexercised strictly in accordance with the law andonly for the purposes for which the law authorisesit to be exercised. If the action of the officerissuing the authorisation or of the designatedofficer is challenged, the officer concerned mustsatisfy the Court about the regularity of his action.If the action is maliciously taken or poer underthe Section is exercised for a collateral purpose, itis liable to be struck down by the Court. If theconditions for exercise of the power are notsatisfied the proceeding is liable to be quashed’.” 18.In Dr Sushil Rastogi (supra), the decisions in Dr Nand Lal (supra)as also in L.R. Gupta (supra), were followed.The same is the positionwith Smt. Kavita Agarwal (supra) wherein, while considering the saiddecisions in Dr Nand Lal (supra) and L.R. Gupta (supra), a DivisionBench of the High Court of Allahabad observed as under:- “5.On the facts of the case we are of the opinion that thiswrit petition deserves to be allowed. The law is well settledthat a warrant of search and seizure under Section 132(1) canonly be issued on the basis of some material or information onwhich the Commissioner/Director has reason to believe thatany person is in possession of money, jewellery or othervaluable articles representing wholly or partly income orproperty which has not been or would not be disclosed, underthe IT Act. In the present case the respondents have notdisclosed what was the material or information on the basis ofwhich the Director/Commissioner entertained the belief thatthe lockers contained valuable jewellery or other articles “5.On the facts of the case we are of the opinion that thiswrit petition deserves to be allowed. The law is well settledthat a warrant of search and seizure under Section 132(1) canonly be issued on the basis of some material or information onwhich the Commissioner/Director has reason to believe thatany person is in possession of money, jewellery or othervaluable articles representing wholly or partly income orproperty which has not been or would not be disclosed, underthe IT Act. In the present case the respondents have notdisclosed what was the material or information on the basis ofwhich the Director/Commissioner entertained the belief thatthe lockers contained valuable jewellery or other articles representing undisclosed income. It is well settled that thesatisfaction of the authorities under Section 132 must be on thebasis of relevant material or information. The word used inSection 132(1) are "reason to believe" and not "reason tosuspect". In the counter-affidavit it has been specifically statedin para. 18 that the authorized officer had reason to suspectand not reason to believe.” 19.In Suresh Chand Agarwal (supra), the High Court of Allahabad held as under:- “12.As regards the allegations in paragraphs 11, 12, 13, 14 and 15of the counter affidavit to the effect that the assessee could not givea satisfactory explanation regarding certain assets or documentsfound during the search, this court held in the case of Smt. KavitaAgarwal v. Director of Income Tax (Investigation): [2003] 264 ITR472 that the material on the basis of which the reason to believe ofthe Commissioner/Director is said to exist must be such materialwhich was brought to the knowledge of the said authority prior tothe search. In other words, the authorities cannot rely on materialfound during the search for taking the plea that this was the basis ofthe reason to believe, unless such material was brought to theknowledge of the authority who signs the warrant of authorisationbefore or at the time when he signs it. To take a contrary viewwould mean that the Commissioner/Director can issue a warrant ofauthorisationunderSection 132(1) withoutconsideringanymaterial, and thereafter the Income Tax authorities can indulge in afishing enquiry to uncover some undisclosed asset. No such viewcan be countenanced by this court as it would give unbridled andarbitrary powers to the Income Tax authorities to harass thecitizens. 13.For the reasons given above, the writ petition is allowed andthe impugned warrant of authorisation is quashed and the entiresearch and seizure is declared illegal. The respondents are directedto release the cash, articles and documents seized from the petitioner or his wife from their residence as well as the bank lockerforthwith.” 20.Finally, in S.R. Batliboi and Company (supra), the Delhi High Court held as under:- “9.It would be perilous and fatal to lose sight of the realitythat the powers of the Search and Seizure are very wide andthus the legislature has provided a safeguard that the AssessingOfficer should have reasons to believe that a person againstwhom proceedings under Section 132 are to be initiated is inpossession of assets which have not been or would not bedisclosed. Secondly, the authorized officer is also required toapply his mind as to whether the assets found in the Searchhave been disclosed or not, and if no undisclosed asset isfound no action can be taken under Section 132(1)(iii) or (3).An arbitrary seizure cannot be maintainable even where theauthority has seized documents with ulterior motives. xxxxxxxxxxxxxxxxxxxx held as under:- “9.It would be perilous and fatal to lose sight of the realitythat the powers of the Search and Seizure are very wide andthus the legislature has provided a safeguard that the AssessingOfficer should have reasons to believe that a person againstwhom proceedings under Section 132 are to be initiated is inpossession of assets which have not been or would not bedisclosed. Secondly, the authorized officer is also required toapply his mind as to whether the assets found in the Searchhave been disclosed or not, and if no undisclosed asset isfound no action can be taken under Section 132(1)(iii) or (3).An arbitrary seizure cannot be maintainable even where theauthority has seized documents with ulterior motives. xxxxxxxxxxxxxxxxxxxx 12.Over two score years ago the Division Bench of thisCourt had opined in N.K. Textiles Mills v. CIT [1966] 61 ITR58 propounded that it was necessary and essential for theseofficers to take into custody only such books as wereconsidered relevant to or useful for the proceedings inquestion. It was not open to them to indiscriminately,arbitrarily and without any regard for relevancy or usefulness,seize all the books and documents which were lying in thepremises, and, if they did so, the seizure would be beyond thescope ofthe authorization. Our learnedBrothers havedesignedly used the words proceeding in question, in order toclarify that material that may possibly be of relevance to theaffairs of a third party, unconnected with the raided assesseeand beyond the contemplation of the search and seizure exercise, should not be retained. All remaining doubts will bedispelled on a perusal of H.L. Sibal v. CIT: 1975 CTR (P&H)302 in which the Division Bench has, inter alia, analysedCommissioner of Commercial Taxes v. Ramkishan ShrikishanJhaver: [1967] 66 ITR 664 (SC) into four concomitants (1)The authorized officer must have reasonable grounds forbelieving that anything necessary for the purpose of recoveryof tax may be found in any place within his jurisdiction; (2) hemust be of the opinion that such thing cannot be otherwise gotat without undue delay; (3)he must record in writing thegrounds of his belief; and (4) he must specify in such writing,so far as possible, the thing for which search is to be made.Where material or document or assets belong to a third party,totally unconcerned with the person who is raided, none ofthese conditions are fulfilled. In Sibal the belongings of ahouse-guest of Shri Sibal were searched and some moneyfound therein was seized. The Court had concluded that theauthorization for the search of the house-guest was preparedafter the planned search of Shri Sibal. The warrants werequashed partly for this reason.” 21.These are the principles of law which have been set down by severaljudicial pronouncements.In the present case, we find that the so-calledinformation is undisclosed and what exactly that information was, is also not known. At one place in the affidavit of Deputy Director of Income-tax,it has been mentioned that he got information that there was a “likelihood”of the documents belonging to the DS Group being found at the residenceof the petitioner.That by itself would amount only to a surmise andconjecture and not to solid information and since the search on the premises of the petitioner was founded on this so-called information, the searchwould have to be held to be arbitrary. It may also be pointed out that whenthe search was conducted on 21.01.2011, no documents belonging to theDS Group were, in fact, found at the premises of the petitioner. not known. At one place in the affidavit of Deputy Director of Income-tax,it has been mentioned that he got information that there was a “likelihood”of the documents belonging to the DS Group being found at the residenceof the petitioner.That by itself would amount only to a surmise andconjecture and not to solid information and since the search on the premises of the petitioner was founded on this so-called information, the searchwould have to be held to be arbitrary. It may also be pointed out that whenthe search was conducted on 21.01.2011, no documents belonging to theDS Group were, in fact, found at the premises of the petitioner. 22.With regard to the argument raised by the learned counsel for therespondent that there was no need for the competent authority to have anyreason to believe and a mere reason to suspect would be sufficient, we maypoint out that the answer is provided by the fact that the warrant ofauthorization was not in the name of the DS Group but was in the name ofthe petitioner. In other words, the warrant of authorization under Section132(1) had been issued in the name of the petitioner and, therefore, theinformation and the reason to believe were to be formed in connection withthe petitioner and not the DS Group. None of the clauses (a), (b) or (c)mentioned in Section 132(1) stood satisfied in the present case and,therefore, the warrant of authorization was without any authority of lawinsofar as the petitioner was concerned. Had the warrant of authorizationbeen issued in the name of the DS Group and in the course of the searchesconducted by the authorized officer, the premises of the petitioner had alsobeen searched, then the position might have been different.But, in the present case, that is not what has happened. The warrant of authorizationwas in the name of the petitioner and, therefore, it was absolutely necessarythat the pre-conditions set out in Section 132(1) ought to have beenfulfilled. Since those pre-conditions had not been satisfied, the warrant ofauthorisation would have to be quashed.Once that is the position, theconsequence would be that all proceedings pursuant to the searchconducted on 21.01.2011 at the premises of the petitioner would be illegaland, therefore, the prohibitory orders would also be liable to be quashed. Itis ordered accordingly. The jewellery / other articles / documents are to beunconditionally released to the petitioner. The writ petition is allowed asabove. There shall be no order as to costs. BADAR DURREZ AHMED, J JANUARY 11, 2013dutt V.K. JAIN, J