Wp/745/2009 Of Marico Ltd v. Director Of Income Tax (Inv.) Unit-Vi And 3 Ors

Digitally signedby MEERA1/7MEERAMAHESHJADHAVMAHESHDate:JADHAV2023.08.0118:06:09+0530 IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTIONWRIT PETITION NO.2849 OF 2008 The Assistant Commissioner of Income Tax,Central Circle-35, ….Petitioner V/s.M/s Marico Industries Ltd. & Anr…Respondents WITH WRIT PETITION NO.745 OF 2009 ---- Mr. Suresh Kumar for Petitioner in WP/2849 of 2008 and for Respondents inWP/745/2009. Mr. P. J. Pardiwalla, Senior Advocate a/w Mr. Nitesh Joshi, Mr. Atul K Jasani and Mr. Ashok Boghani i/b Ashok Boghani & Co. for Respondent No.1 in WP/2849/2008 and for Petitioner in WP/745/2009. ---- CORAM : K.R. SHRIRAM & DATED : 28[th] JULY 2023 FIRDOSH. P. POONIWALLA, JJ P.C. : 1In the present case, on 23.10.1997, a search and seizure action wascarried out at the Assessee’s premises under section 132(1) of the Income-tax Act, 1961 (the Act). Pursuant to the said search action a blockassessment order dated 31.12.1999 was passed under section 158BC of theAct. Further penalty has also been levied under section 158BFA of the Actand prosecution proceeding has been initiated on the basis of such blockassessment order and a complaint filed before the Court of Additional ChiefMetropolitan Magistrate for offences allegedly committed under section276C and 277 read with section 278B of the Act. 2The assessee had objected to the passing of the block assessmentorder by filing an additional ground in the appeal filed by it before theCIT(A) from the block assessment order. In the said additional groundraised on 20.11.2000, it was urged that the jurisdictional pre-conditions insection 132(1) viz., clauses (a) to (c) thereof had not been fulfilled and thatthere ought to have been a valid satisfaction note justifying the fulfillmentof the requirement of the said section before the search was initiated. Acopy of the said satisfaction note was sought from the Assessing Officer. Inthe absence of the satisfaction note, the search and consequently the blockassessment order would be invalid. Since, the said additional ground did notfind favour with the CIT(A), the Assessee had filed an appeal before theTribunal wherein it raised the said ground. As this ground was fundamentalto the issue of exercise of jurisdiction, the Tribunal, on 17.06.2002, waspleased to pass an order whereby they directed the DepartmentalRepresentative to produce the records containing the satisfaction recordedbefore issuance and authorization of the search warrant under section132(1) of the Act. 3The Revenue did not comply with the direction for close to six yearsand, thereafter, after the hearing on 30.10.2008 the Revenue has filed writpetition No. 2849 of 2008 seeking writ of Certiorari for quashing and settingaside the interim order dated 17.06.2002 passed by the Tribunal directingthem to produce the record containing the satisfaction note. According tothem, the Tribunal was not empowered to look into the said matter and, hence, the direction was invalid. As this Court was pleased to issue rule inRevenue’s writ petition, the Assessee has filed writ petition being No.745 of2009 challenging the validity of the search action and seeking quashing andsetting aside of the consequent block assessment order dated 31.12.1999passed under section 158BC of the Act, order dated 04.10.2001 levyingpenalty under section 158BFA and also the complaint being Criminal CaseNo.28/SW/2004 filed by the Revenue before the 4[th] Court of the AdditionalChief Metropolitan Magistrate at Esplanade Mumbai, which is now pendingas renumbered Criminal Case No. 28/SW/2013 before 38[th] Court ofAdditional Chief Metropolitan Magistrate. 4On 30.06.2023, this Court, after hearing both the parties, was pleasedto direct the Revenue to file, in a sealed envelope, the reason to believerecorded before the search action was carried out. Therein, it has also beenclarified that non production of the same will invite an adverse inferencebeing drawn. Paragraph 5 of the said order dated 30[th] June 2023 reads asunder :- 4On 30.06.2023, this Court, after hearing both the parties, was pleasedto direct the Revenue to file, in a sealed envelope, the reason to believerecorded before the search action was carried out. Therein, it has also beenclarified that non production of the same will invite an adverse inferencebeing drawn. Paragraph 5 of the said order dated 30[th] June 2023 reads asunder :- “5Before we proceed further, we direct the Revenue to file in asealed envelope the reasons to believe. It should be made available infour sets and within four weeks with no chance of extension beinggranted. We say this because the order of ITAT was passed way backon 17[th] June 2002. Petition itself has been filed way back on 2008 bythe Revenue and, therefore, since the matter would have been alivein the records of the Revenue, the Revenue should have kept thesereasons to believe in safe custody to be made available in case sodirected. Non production will invite adverse inference being drawn.” 5One Preeti Hooda, the Deputy Commissioner of Income tax Circle –4(3)(1), Mumbai has filed an affidavit dated 27.07.2023 to which is annexed, a letter dated 25.07.2023 from the Deputy Director of the Incometax (Investigation) Unit – 6(1), Mumbai wherein it is stated that most of theofficial record pertaining to the charge of the Additional Director of theIncome tax (Investigation) Unit – 6, Mumbai were gutted in a fire incidenton 01.06.2018. Though, it is not clear whether the concerned satisfactionnote was part of the record which got destroyed by fire, it has beenobserved that the said satisfaction note could not be traced despite effortsmade to locate the same. It may also be noted that right since the date ofthe fire in 2018 till today nowhere has the Revenue adverted to this incidenton any of the earlier hearings. 6It is settled law that if no reason was ascribed for search and seizureaction taken under Section 132 of the Act it would be illegal. The exercise ofpower under Section 132 of the Act is a serious invasion upon the rights,privacy and freedom of the tax-payer. The courts have held that this powermust be exercised strictly in accordance with law and only for the purposesfor which law authorizes it to be exercised. The courts, after scrutiny, candecide on the correctness of the opinion formed by the Income Tax Officerwhere the action of the officer issuing authorization or of the Designatedofficer is challenged. The officer concerned must satisfy the Court about theregularity of his action. If the action is maliciously taken or power under thesection is exercised for a collateral purpose, it is liable to be struck down bythe Court. If the conditions for exercise of the power are not satisfied theproceeding is liable to be quashed. The courts have held that it is only at the stage of commencement of the assessment proceedings after completion ofthe search and seizure, if any, that the requisite material may have to bedisclosed to the assessee. Though it is settled law that while the sufficiencyor otherwise of the information cannot be examined by the court in writjurisdiction, the existence of information and its relevance to the formationof the belief is open to judicial scrutiny because it is the foundation of thecondition precedent for exercise of a serious power of search of a privateproperty or person, to prevent violation of privacy of a citizen. It is also asettled law that the court could examine whether the reasons for the beliefhave a rational connection or relevant bearing to the formation of the beliefand search 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 the eventof a challenge to formation of the belief of the competent authority in whichevent the Court would be entitled to examine the reasons for the formationof the belief, though not the sufficiency or adequacy thereof. In other words,the Court will examine whether the reasons recorded are actuated bymalafides or on a mere pretence and that no extraneous or irrelevantmaterial has been considered. Such reasons forming part of the satisfactionnote are to satisfy the judicial conscience of the Court. (Principal Director of 1 Income-tax (investigation) Vs. Laljibhai Kanjibhai Mandalia)1 7In view of the above, since the satisfaction note which formed the 1. (2022) 140 taxmann.com 282 (SC) very basis for issuance and authorisation of the search warrant undersection 132(1) of the Act has not been made available in spite of a specificdirection given by the Tribunal way back on 17.06.2002 and repeated bythis Hon’ble Court on 30.06.2023 an adverse inference needs to be drawn inrespect of the same especially having regard to the circumstances set outhereinbefore. 8Since, the Revenue has failed to produce the satisfaction note we haveto and we hereby hold that the search action under section 132(1) of theAct and, consequently, the block assessment order dated 31.12.1999 passedunder section 158BC of the Act, the order dated 04.10.2001 levying penaltyunder section 158BFA and the Criminal Case No. 28/SW/2004 filed by theRevenue before the 4[th] Court of the Additional Chief MetropolitanMagistrate at Esplanade Mumbai, which is now pending as renumberedCriminal Case No. 28/SW/2013 before 38[th] Court of Additional ChiefMetropolitan Magistrate cannot survive as they are all predicated on theexistence of a valid search. It is ordered accordingly. The complaint beingCriminal Case No. 28/SW/2013 before 38[th] Court of Additional ChiefMetropolitan Magistrate is quashed. 9Undoubtedly the contention of the Revenue that, even assuming thatthe search is to be held invalid the information or material gathered duringthe course thereof may be relied upon by them for making adjustment to theAssessee’s income in an appropriate proceeding has merit. Though, theAssessee disputes that no new information or material has been gathered by the Revenue in the present case other than what is already available in itsbooks of account, it is clarified that this order does not preclude theRevenue from taking any such proceedings as they may be so advised and toutilise the information or material in such proceeding against the assessee asis permissible in law. 10Accordingly, the Tribunal is directed to dispose of the pending appealin terms of this order within a period of 12 weeks from the date of thisOrder. 11Both petitions disposed. (FIRDOSH P POONIWALLA, J.) (K.R. SHRIRAM, J.)