The Commissioner Of Income Tax City-23 v. The Income Tax Appellate Tribunal & Anr

Digitallysigned byMEERAMEERAMAHESHMAHESHJADHAVJADHAVDate:2023.10.1711:09:35+0530 IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTIONWRIT PETITION NO. 2461 OF 2014 The Commissioner of Income Tax City-23 Vs. The Income Tax Appellate Tribunal & Anr ..Petitioner ..Respondents ---- Mr. Siddharth Chandrashekhar for Petitioner.Mr. Jitendra Singh a/w Mr. Om Kandalkar for Respondent No.2. ---- CORAM : K.R. SHRIRAM & RAJESH S. PATIL, JJDATED : 13[th] OCTOBER 2023 P.C. : 1Mr. Chandrashekhar relying on email dated 13[th] October 2023, copywhereof is taken on record and marked “X” for identification, states that therevenue does not have the satisfaction notice. Therefore, the situation willbe similar to that covered by the order passed by this court in Writ PetitionNo.2849 of 2008 on 28[th] July 2023, wherein paragraphs 6 to 9 read asunder: 6 It is settled law that if no reason was ascribed for search andseizure action taken under Section 132 of the Act it would be illegal.The exercise of power under Section 132 of the Act is a seriousinvasion upon the rights, privacy and freedom of the tax-payer. Thecourts have held that this power must be exercised strictly inaccordance with law and only for the purposes for which lawauthorizes it to be exercised. The courts, after scrutiny, can decide onthe correctness of the opinion formed by the Income Tax Officerwhere the action of the officer issuing authorization or of theDesignated officer is challenged. The officer concerned must satisfythe Court about the regularity of his action. If the action is maliciouslytaken or power under the section is exercised for a collateral purpose,it is liable to be struck down by the Court. If the conditions forexercise of the power are not satisfied the proceeding is liable to bequashed. The courts have held that it is only at the stage ofcommencement of the assessment proceedings after completion of thesearch and seizure, if any, that the requisite material may have to be disclosed to the assessee. Though it is settled law that while thesufficiency or otherwise of the information cannot be examined by thecourt in writ jurisdiction, the existence of information and itsrelevance to the formation of the belief is open to judicial scrutinybecause it is the foundation of the condition precedent for exercise ofa serious power of search of a private property or person, to preventviolation of privacy of a citizen. It is also a settled law that the courtcould examine whether the reasons for the belief have a rationalconnection or relevant bearing to the formation of the belief andsearch warrant could not be issued merely with a view to making aroving or fishing enquiry. The reasons will have to be placed before the High Court in theevent of a challenge to formation of the belief of the competentauthority in which event the Court would be entitled to examine thereasons for the formation of the belief, though not the sufficiency oradequacy thereof. In other words, the Court will examine whether thereasons recorded are actuated by malafides or on a mere pretence andthat no extraneous or irrelevant material has been considered. Suchreasons forming part of the satisfaction note are to satisfy the judicialconscience of the Court. (Principal Director of Income-tax(investigation) Vs. Laljibhai Kanjibhai Mandalia)1 7 In view of the above, since the satisfaction note which formed thevery basis for issuance and authorisation of the search warrant undersection 132(1) of the Act has not been made available in spite of aspecific direction given by the Tribunal way back on 17.06.2002 andrepeated by this Hon’ble Court on 30.06.2023 an adverse inferenceneeds to be drawn in respect of the same especially having regard tothe circumstances set out hereinbefore. 7 In view of the above, since the satisfaction note which formed thevery basis for issuance and authorisation of the search warrant undersection 132(1) of the Act has not been made available in spite of aspecific direction given by the Tribunal way back on 17.06.2002 andrepeated by this Hon’ble Court on 30.06.2023 an adverse inferenceneeds to be drawn in respect of the same especially having regard tothe circumstances set out hereinbefore. 8 Since, the Revenue has failed to produce the satisfaction note wehave to and we hereby hold that the search action under section132(1) of the Act and, consequently, the block assessment order dated31.12.1999 passed under section 158BC of the Act, the order dated04.10.2001 levying penalty under section 158BFA and the CriminalCase No. 28/SW/2004 filed by the Revenue before the 4[th] Court of theAdditional Chief Metropolitan Magistrate at Esplanade Mumbai,which is now pending as renumbered Criminal Case No. 28/SW/2013before 38[th] Court of Additional Chief Metropolitan Magistrate cannotsurvive as they are all predicated on the existence of a valid search. Itis ordered accordingly. The complaint being Criminal Case No.28/SW/2013 before 38[th] Court of Additional Chief MetropolitanMagistrate is quashed. 9 Undoubtedly the contention of the Revenue that, even assumingthat the search is to be held invalid the information or materialgathered during the course thereof may be relied upon by them formaking adjustment to the Assessee’s income in an appropriateproceeding has merit. Though, the Assessee disputes that no newinformation or material has been gathered by the Revenue in thepresent case other than what is already available in its books ofaccount, it is clarified that this order does not preclude the Revenue from taking any such proceedings as they may be so advised and toutilise the information or material in such proceeding against theassessee as is permissible in law. 2Therefore, petition stands disposed accordingly. 3By way of clarification, even if the search is held to be invalid, theinformation or material gathered during the course thereof may be reliedupon by revenue by making adjustment to the assessee’s income in anappropriate proceeding, if so advised and revenue may utilise theinformation and material in such proceeding as is permissible in law. 4The Income Tax Appellate Tribunal is directed to dispose the pendingappeal in terms of this order within a period of 12 weeks of this order beingfiled in the registry of ITAT. (RAJESH S. PATIL, J.) (K.R. SHRIRAM, J.)