Vivekanand Park, Patliputra Colony, Patna v. Director General Of Investigation, Income Tax, Bihar, Patna

IN THE HIGH COURT OF JUDICATURE AT PATNACivil Writ Jurisdiction Case No.3792 of 2009 ====================================================== Ajay Kumar Singh, son of late Ram Suyash Singh, Vindeshwari Prangan, Vivekanand Park, Patliputra Colony, Patna. ... ... Petitioner/s Versus 1. Director General of Investigation, Income Tax, Bihar, Patna 2. The Director of Income Tax, Investigation, Revenue Building, Vir ChandPatel Path, Patna Bihar.Patel Path, Patna Bihar. 3. Assistant Director of Income Tax, Investigation 1, Office Road,Jamshedpur (Jharkhand).Jamshedpur (Jharkhand). 4. Sri Himanshu Kumar, Income Tax Officer (authorized Officer), RevenueBuilding, Virchand Patel Path, Patna. Building, Virchand Patel Path, Patna. ... ... Respondent/s ====================================================== Appearance :For the Petitioner/s: Mr. Krishna Mohan Mishra, Advocate For the Respondent/s: Mrs. Archana Sinha, Advocate. ====================================================== CORAM: HONOURABLE THE CHIEF JUSTICE and HONOURABLE MR. JUSTICE S. KUMARC.A.V. JUDGMENT (Per: HONOURABLE THE CHIEF JUSTICE) Date : 02-12-2020 The following issues emerge for our consideration: 1) Whether the search and seizure warrant issued underSection 132 of the Income Tax Act, 1961 against thePetitioner is illegal and ultra-vires? Section 132 of the Income Tax Act, 1961 against thePetitioner is illegal and ultra-vires? 2) Whether the High Court under writ jurisdiction canquestion the sufficiency and adequacy of the reasonsrecorded in the satisfaction leading to the issuance ofsearch and seizure warrants?question the sufficiency and adequacy of the reasonsrecorded in the satisfaction leading to the issuance ofsearch and seizure warrants? 2. According to satisfaction note dated 24[th] October, 2008 authored by the Assistant Director of Income Tax (Inv.)Jamshedpur, leading to the issuance of the warrant ofauthorization by the competent authority on 27[th] October, 2008,premises of the persons mentioned therein, including thepresent Petitioner, namely, Ajay Kumar Singh were searchedon 7[th] November, 2008. Undisputedly, certain articles,including cash, jewellery and papers were recovered from thebank locker jointly held by the Petitioner with his wife.Allegedly, reports and documents recovered revealedundisclosed transactions of considerably high value, runninginto thousands of lakh of rupees. 3. Petitioner lays a challenge to the warrant ofauthorization dated 27[th] October, 2008 and consequentialaction of conduct of search and seizure operation on 7[th]November, 2008, to be illegal, unauthorized and ultra vires theprovisions of Section 132 of the Income Tax Act, 1961 andRules 112 of the Income Tax Rules framed thereunder. 4. On facts, Petitioner does admit that four years beforethe conduct of search, he was Director in M/s Apcon HomesPrivate Limited. However, since his resignation in the year2004, Shri Kaushal Kumar Singh and Dhirendra Kumar Singhtook over its affairs, with the Petitioner having nothing to do either with the said Company or any one of the personsmanaging the same or other group companies referred to in thesatisfaction note. To support its case, the Petitioner has placedon individual record returns filed under the Companies Act,indicating his intent of change of Directorship. 4. On facts, Petitioner does admit that four years beforethe conduct of search, he was Director in M/s Apcon HomesPrivate Limited. However, since his resignation in the year2004, Shri Kaushal Kumar Singh and Dhirendra Kumar Singhtook over its affairs, with the Petitioner having nothing to do either with the said Company or any one of the personsmanaging the same or other group companies referred to in thesatisfaction note. To support its case, the Petitioner has placedon individual record returns filed under the Companies Act,indicating his intent of change of Directorship. 5. On facts, the Revenue has refuted and disputed theaverments made in the petition. Allegedly, Petitioner and oneMr. Kaushal Singh were deeply associated with the affairs ofM/s Apcon Homes Private Limited. As on the date of issuanceof search warrants, the Website maintained by the Registrar ofCompanies reflected the Petitioner to be one of its Directors.Further, Kaushal Kumar Singh was indulging into severeviolation of provisions of the Income Tax Act and as such waskept under watch. Investigation reveals that at least sevencompanies, including M/s Aastha Promoters & Developers Pvt.Ltd., M/s Kamini Kaushal Kanchan Construction Pvt. Ltd. andM/s Apcon Homes Pvt. Ltd. had indulged in large scaleevasion of tax, apart from defrauding gullible customers.Allegedly, 30-40 per cent of the amount, valuing the property,was received in cash from them. 6. We have perused the satisfaction note, Annexure-Aannexed along with an affidavit in response, which refers the name of the Petitioner as a Director of M/s Apcon Homes Pvt.Ltd. and the Petitioner to be part of the small but well nit group of persons managing seven companies engaged in thedevelopment of nine projects of constructions at differentlocations in Ranchi, Jamshedpur and Dhanbad. All were fallingwithin the territorial limits of the authority conducting searchand seizure operation. Petitioner's name as also the companiesalong with the premises to be searched are mentioned therein. 7. Before this Court, the Petitioner has not tried toexplain unaccounted money reflected in the documents seizedduring the search. The challenge, limited in nature, is on thelegal ground of there being no material germane reflectingsatisfaction of the authorized person. 8. We must first understand the procedure to be followedunder Section 132 of the Act. The relevant portion of theSection is extracted as follows: “132. (1) Wherethe Principal DirectorGeneral or Director General or PrincipalDirector or Director or the Principal ChiefCommissioner or Chief Commissioner orPrincipal Commissioner or Commissioner orAdditional Director or AdditionalCommissioner or Joint Director or JointCommissionerin consequence ofinformation in his possession, has reason to—believe that …(b) any person to whom a summons ornotice as aforesaid has been or might be issued will not, or would not, produce orcause to be produced, any books of accountor other documents which will be useful for,or relevant to, any proceeding under theIndian Income-tax Act, 1922 (11 of 1922),or under this Act, or (c) any person is in possession of anymoney, bullion, jewellery or other valuablearticle or thing and such money, bullion,jewellery or other valuable article or thingrepresents either wholly or partly income orproperty which has not been, or would notbe, disclosed for the purposes of the IndianIncome-tax Act, 1922 (11 of 1922), or thisAct (hereinafter in this Section referred to asthe undisclosed income or property) then,— [the authorized officer may] (i) enter and search any building, place,vessel, vehicle or aircraft where he hasreason to suspect that such books ofaccount, other documents, money, bullion,jewellery or other valuable article or thingare kept; (ii) break open the lock of any door, box,locker, safe, almirah or other receptacle forexercising the powers conferred by clause(i) where the keys thereof are not available; then,— [the authorized officer may] (i) enter and search any building, place,vessel, vehicle or aircraft where he hasreason to suspect that such books ofaccount, other documents, money, bullion,jewellery or other valuable article or thingare kept; (ii) break open the lock of any door, box,locker, safe, almirah or other receptacle forexercising 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 theauthorized officer has reason to suspect thatsuch person has secreted about his personany such books of account, otherdocuments, money, bullion, jewellery orother valuable article or thing; ...” (Emphasis supplied) 9. The Section provides when a competent authority canengage in a search and seizure procedure against any person pursuant to fulfilling the requirement of the 'reason to believe.'The law on the process to be followed under the provisions ofsearch and seizure is now well settled. The principles thereinhave been determined through multiple cases including ITO v.Seth Bros., (1969) 2 SCC 324, Pooran Mal v. Director ofInspection (Investigation), (1974) 1 SCC 345 and PartapSingh v. Director of Enforcement, (1985) 3 SCC 72. 10. In the case of Seth Bros. (supra), the Hon'ble ApexCourt has held that: “8. The Section does not confer any arbitraryauthority upon the Revenue Officers. TheCommissioner or the Director of Inspection musthave, in consequence of information, reason tobelieve that the statutory conditions for theexercise of the power to order search exist….If theaction of the officer issuing the authorization, orof the designated officer is challenged the officerconcerned must satisfy the Court about theregularity of his action. If the action is maliciouslytaken or power under the Section is exercised for acollateral purpose, it is liable to be struck down bythe Court.….Where the Commissioner entertainsthe requisite belief and for reasons recorded byhim authorizes a designated officer to enter andsearch premises for books of account anddocuments relevant to or useful for anyproceeding under the Act, the Court in a petitionby an aggrieved person cannot be asked tosubstitute its own opinion whether an orderauthorizing search should have been issued….” (Emphasis supplied) 11. The Hon'ble Apex Court has discussed these cases in the recent case of Director General of Income Tax(Investigation) v. Space wood Furnishers Private Limited(2015) 12 SCC 179. The relevant portions are extracted asfollows: “8. The principles that can be deduced from theaforesaid decisions of this Court which continueto hold the field without any departure may besummarised as follows: 8.1. The authority must have information in itspossession on the basis of which a reasonablebelief can be founded that— (a) the person concerned has omitted or failed toproduce books of account or other documents forproduction of which summons or notice had beenissued Or such person will not produce such books ofaccount or other documents even if summons ornotice is issued to him Or (b) such person is in possession of any money,bullion, jewellery or other valuable article whichrepresents either wholly or partly income orproperty which has not been or would not bedisclosed… …8.3.There must be application of mind to thematerial and the formation of opinion must behonest and bona fide. Consideration of anyextraneous or irrelevant material will vitiate thebelief/satisfaction… …8.6. Such reasons, however, may have to beplaced before the Court in the event of achallenge to formation of the belief of theauthorized official in which event the Court(exercising jurisdiction under Article 226) would be entitled to examine the relevance of thereasons for the formation of the belief though notthe sufficiency or adequacy thereof.” Or (b) such person is in possession of any money,bullion, jewellery or other valuable article whichrepresents either wholly or partly income orproperty which has not been or would not bedisclosed… …8.3.There must be application of mind to thematerial and the formation of opinion must behonest and bona fide. Consideration of anyextraneous or irrelevant material will vitiate thebelief/satisfaction… …8.6. Such reasons, however, may have to beplaced before the Court in the event of achallenge to formation of the belief of theauthorized official in which event the Court(exercising jurisdiction under Article 226) would be entitled to examine the relevance of thereasons for the formation of the belief though notthe sufficiency or adequacy thereof.” (emphasis supplied) 12. From the above-highlighted principles, it is certainthat for the procedure under Section 132 of the Act to be valid,the competent authority ought to apply their mind to theinformation in possession. Also, their actions called intoquestion in a Court of law, they ought to, satisfy itsapplication. The Court therefore only ought to examine therelevance of the reasons provided by the competent authorityand not substitute its own opinion on whether an order oughtto have been issued. 13. As per the law propounded above, it is important toprobe whether the relevance petitioner's resignation from theimpugned Company, is an exercise of questioning the'sufficiency or adequacy' of the decision of the authority.Hence, it becomes imperative to discuss the law on the powerof the Court to examine the "sufficiency or adequacy" of theevidence and the reasons provided by the competent authorityin this regard. 14. In Spacewood (supra), itheld that the High Courtin its exercise of Writ Jurisdiction under Article 226, has the power to examine the, “…the relevance of the reasons for theformation of the belief [of the authority] though not thesufficiency or adequacy thereof.” The interference of theHigh Court was struck down because by reproducing thedetails of the Satisfaction Note the High Court had vitiated theintention of the proceedings under Section 132 and otherproceedings against the assessee. The Hon'ble Apex Courtopinioned that, “25. The remaining findings of the High Courtwith regard to the satisfaction recorded by theauthorities appear to be in the nature of anappellate exercise touching upon the sufficiencyand adequacy of the reasons and the authenticityand acceptability of the information on whichsatisfaction had been reached by the authorities.Such an exercise is alien to the jurisdiction underArticle 226 of the Constitution.” 15. It is therefore apparent that the power of the HighCourt is limited in this context, in that it cannot exhaustivelyreproduce the details of the satisfaction note and in turn stepinto the shoes of an appellate authority of the Revenue. Thus,the power of the High Court is limited only to assessingwhether relevant reasons were recorded while initiatingproceedings. 16. In yet another decision of the Hon’ble Apex Court in the case of Union of India v. Agarwal Iron Industries, (2014) 15 SCC 215, it stoodheld that the High Court can scrutinizethe file where the reasons for the search and seizure have beenrecorded and find whether the authority has appropriatelyobserved and recorded the reasons that form the opinionrequiring search and seizure. The Hon'ble Apex Court hasrecommended that in such instances the High Court shouldperuse the file and see whether the reasons meet therequirement of law. The relevant portions are extracted asfollows: 16. In yet another decision of the Hon’ble Apex Court in the case of Union of India v. Agarwal Iron Industries, (2014) 15 SCC 215, it stoodheld that the High Court can scrutinizethe file where the reasons for the search and seizure have beenrecorded and find whether the authority has appropriatelyobserved and recorded the reasons that form the opinionrequiring search and seizure. The Hon'ble Apex Court hasrecommended that in such instances the High Court shouldperuse the file and see whether the reasons meet therequirement of law. The relevant portions are extracted asfollows: “10. …The terms used are “reason to believe”.Whether the competent authority had formed theopinion on the basis of any acceptable material ornot, as is clear as crystal, the High Court has noteven remotely tried to see the reasons. Reasons,needless to say, can be recorded on the file andthe Court can scrutinize the file and find outwhether the authority has appropriately recordedthe reasons for forming of an opinion that thereare reasons to believe to conduct search andseizure.As is evincible, the High Court hastotally misdirected itself in quashing the searchand seizure on the basis of the principles of non-traverse. 11. In our considered opinion, the High Courtwould have been well advised to peruse the fileto see whether reasons have been recorded or notand whether the same meet the requirement oflaw.” (emphasis supplied) 17. The case of Manish Maheshwari v. ACIT (2007) 3 SCC 794, has also observed as under: “17. The provisions contained in ChapterXIV-B are drastic in nature. It has draconianconsequences. Such a proceeding can beinitiated, it would bear repetition to state,only if a raid is conducted. When theprovisions are attracted, legal presumptionsare raised against the assessee. The burdenshifts on the assessee. Audited accounts fora period of ten years may have to bereopened.” 18. The nine Judge bench of the Hon’ble Apex Court inthe case, K.S. Puttaswamy v. Union of India, (2017) 10SCC 1, has clearly placed substantial importance on theprotection of the privacy of an individual and has read it to bepart of their fundamental rights under Article 21 of theConstitution of India. They have also recognized the waysearch and seizure proceedings under the Act encroach uponthis fundamental right. The relevant portion is extracted asfollows: “78. After the decision in Canara Bank(District Registrar and Collector v.Canara Bank, (2005) 1 SCC 496) , theprovisions for search and seizure underSection 132(5) of the Income Tax Act, 1961were construed strictly by this Court in P.R. Metrani v. CIT (2007) 1 SCC 789 on theground that they constitute a “seriousintrusion into the privacy of a citizen”.Adverting to Canara Bank among otherdecisions, the Court held that the right toprivacy is crucial and imposes a requirementof a written recording of reasons before asearch and seizure could be carried out.” 19. Search and seizure proceedings, place considerable power in the hands of the Revenue Department. Hence itbecomes essential that a consistent system of checks andbalances be maintained against it. This power empowers theRevenue Department to bypass the privacy of an assessee orany individual, whom the Revenue has a ‘reason to believe,’would hold some information regarding tax evasion activities.In light of this power which clearly encroaches against thefundamental right to life and personal liberty, in as much astheir privacy is concerned, must be contained within the limitsof the law. Hence a strict reading of these empoweringsections is necessary to avoid the pitfall of granting unfetteredpowers to the Revenue Department. 20. Therefore, it would only be amenable to apply thesedraconian consequences of the invasion of one's privacy whena valid search has been conducted. These cases mentioned above serve to instil the gravity of the proceedings initiatedunder Section 132. 20. Therefore, it would only be amenable to apply thesedraconian consequences of the invasion of one's privacy whena valid search has been conducted. These cases mentioned above serve to instil the gravity of the proceedings initiatedunder Section 132. 21. The search and seizure procedure requires theauthority to apply their mind and pay heed to all relevant factswhile concluding that a warrant of authorization must beissued. The authority, ought to record their reasons in reachingthe conclusion that such proceedings ought to be initiatedagainst the assessee. The jurisdiction of this Court merelyextends to keeping a check on the relevance of the reasonsrecorded and not go beyond in assessing the sufficiency oradequacy of the reasons provided. 22. The Satisfaction Note was clearly concerned withtax evasion activities conducted by various companies andpersons mentioned therein and the same has been relied uponby the authority to initiate the proceedings under Section 132.Further it must be kept in mind that the Court cannotsubstitute its own opinion in this regard. 23. Petitioner’s assertion of having resigned from theCompany and nothing to do with the same, cannot be acceptedas a disputed fact in writ jurisdiction, more so when records ofthe Registrar of Companies reflected the position to beotherwise. In any event, whether Petitioner, any which way was connected with the Company or not; or the documentsreflecting huge amounts of cash transactions stood reflected inthe books of accounts and was not an undisclosed income isagain a question of fact which can be easily taken before theauthorities in the adjudicatory proceedings. The same wasallowed to be completed by this Court by way of the interimorder dated 21st of April, 2010 with the only restraint of notpassing a final order. 24. The impugned action is neither malafide norarbitrary or capricious. 25. The decisions rendered by the learned counsel forthe Petitioner in para 5 of the written submission, is onlyreflective of the industry of the counsel which we find notnecessary to deal with given our having noticed the decisionsrendered by the Hon'ble Apex Court referred to supra. 26. Learned counsel for the parties raises no other point. 27. In our considered view, the note of satisfaction doesrecord reasons calling for necessary authorization to carry outsearch and seizure operation. 28. The search and seizure operations carried out by andin terms of Section 132(1) of the Income Tax Act cannot besaid to be illegal and ultra vires the Statute. 29. The Writ Court cannot go into the sufficiency andadequacy of the reasons recorded in the note of satisfaction interms of Section 132 of the Income Tax Act. 30. For all the reasons mentioned above, the writpetition stands dismissed. 31. Interlocutory application, if any, shall stand disposed of. sujit/- (Sanjay Karol, CJ) S. Kumar, J. I agree. (S. Kumar, J) AFR/NAFRAFRCAV DATE31.08.2020Uploading Date02.12.2020Transmission Date