High Court Of Allahabad
Ravi Iron Industries vs. Director Of Investigation, Income Tax & Ors.
Sections 132(1), CPC O. 8, r. 5
M. Katju & Prakash Krishna, JJ.
Civil Writ Petn. No. 275 of 2000
3rd September, 2003
JUDGMENT
PRAKASH KRISHNA, J. :
The petitioner Ravi Iron Industries is a proprietorship concern which has challenged the legality and validity of the search conducted by the IT Department at the factory of the petitioner on 16th Feb., 2000, and has prayed for a writ, order or direction in the nature of certiorari quashing the search memo/Punchnama dt. 26th Feb., 2000, and all the proceedings pursuant to and consequential to the said search. A writ in the nature of mandamus directing the respondents not to initiate any proceeding against the petitioner, consequent upon or arising out of the above search has also been sought for.
The petitioner is engaged in the manufacture of C.I. Pipe fittings and mainholes. The petitioner is also a registered licensee under the Central Excise Act and has to maintain detailed record as prescribed under the said Act and the rules concerning purchases, utilization and stock of raw material, production, clearance and stock of finished goods, etc. These stocks and books of account are being checked by the officials of the Central excise Department from time to time, including by making surprise visit to the factory.
The petitioner’s factory was set up in the year 1971 and has been an income-tax assessee and has indisputably been filing income-tax returns regularly, and the assessments, are up-to-date and have been completed upto the asst. yr. 1998-99. It has been averred in the writ petition, which has not been denied, that the petitioner has never refused to produce the records or documents or the books of account whenever asked for by the Department during assessment proceedings and there are no outstanding income-tax dues against the petitioner.
On 16th Feb., 2000, in absence of the petitioner the officials of the IT Department started search operations simultaneously both at the residential premises of the proprietor of the petitioner as well as on the business premises. The present writ petition is confined to search so made at the factory premises of the proprietor of the petitioner. During the course of search at the residential premises, the son of the petitioner was informed by the IT officials that search operation is also going on at the factory premises. However, he was not allowed to move out of the house. The petitioner in para. 40 of the writ petition has stated that there was no information in possession of the officer issuing the warrant of authorization for search which could have led any reasonable person to form an opinion about the existence of undisclosed assets of the petitioner. The warrant of authorization was issued mechanically, arbitrary and without application of mind and without forming of the opinion about the existence of undisclosed assets as contemplated by s. 132(1) of the IT Act.
5. A counter-affidavit was filed on behalf of the IT Department with the assertion that neither the search was illegal nor the petitioner is entitled to challenge the legality of the said search warrant of authorization. The respondents have sought to justify their action on the ground that gross suppression of production and sale were detected during the search operations. The production declared in the official record of the petitioner is not even one-fifth of the actual production revealed by the seized documents. The allegation that the son of the petitioner was denied a visit to the factory premises, has been controverted in the counter-affidavit. It has been stated that the petitioner’s son, as a matter of fact, was advised to visit the factory premises or depute some responsible officer there, but no heed was paid by him to the said request of Department. It was denied in p. 33 of the counter-affidavit that the warrant of authorization was issued mechanically, arbitrarily without application of mind.
6. Heard learned counsel for the parties and perused the record.
7. By an order dt. 29th March, 2000, an Advocate Commissioner was appointed by this Court to prepare an inventory of the goods in question in respect to which the restraint order has been passed. The said Advocate Commissioner has submitted his report which is on the record of the case.
8. Learned counsel for the petitioner has relied on several decisions of the Supreme Court and of this Court in support of his submission that the action of the respondent was illegal.
9. In CIT vs. Vindhya Metal Corporation & Ors. (1997) 139 CTR (SC) 495 : (1997) 224 ITR 614 (SC) the Supreme Court observed : “Mere unexplained possession of the amount without anything more could hardly be said to constitute information which could be treated as sufficient by a reasonable person, leading to an inference that it was income which would not have been disclosed by the person in possession for purposes of the Act.”
10. In Dr. N.L. Tahiliani vs. CIT (1988) 69 CTR (All) 91 : (1988) 170 ITR 592 (All) the Allahabad High Court held that the averments of information under s. 132 must be in good faith and there must be rational relation between information and the material and reasonable belief. Mere rumour of roaring practice and charging of high rate of fee and living in a posh house, in the absence of any other material, could not be construed as constituting information in consequence of which the director could have reason to believe that the petitioner had not disclosed his income or would not disclose it. The search and consequent actions of the Department were therefore, held to illegal. The Supreme Court dismissed the SLP against the judgment.
11. In L.R. Gupta vs. Union of India & Ors. (1992) 101 CTR (Del) 179 : (1992) 194 ITR 32 (Del) it was held by the Delhi High Court that the expression “information” 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, which must exist on the file on the basis of which the authorizing officer can have reason to believe that action under s. 132 is called for. It was also observed “…an assessee is under no obligation to disclose in his return of income all the moneys which are received by him which do not partake of the character of income or income liable to tax. If an assessee receives admittedly, a gift from a relation or earns agricultural income, which is not subject to tax, then he would not be liable to show receipt of that money in his IT return. Non disclosure of the same would not attract the provisions of s. 132(1)(c). It may be that the opinion of the assessee that the receipt of such amount is not taxable may be incorrect and, in law, the same may be taxable, but where the Department is aware of the existence of such an asset or the receipt of such an income by the assessee, then the Department may be fully justified in issuing a notice under s. 148 of the Act, but no action can be taken under s. 132(1)(c)…..” In Ajit Jain vs. Union of India & Ors. (2000) 159 CTR (Del) 204 : (2000) 242 ITR 302 (Del) it was observed that “the mere fact that the petitioner was in possession of the said amount could not straightaway lead to the inference that it was his undisclosed income…….The intimation simplicitor by the CBI, that the money was found in possession of the petitioner which, according to the CBI, was undisclosed, in our view, without something more, did not constitute information within the meaning of s. 132 so as to induce a belief that the cash represented the petitioner’s income which has not been or would not be disclosed. A bare intimation by the police or for that matter by any person, without something more, cannot be considered sufficient for action under s. 132 of the Act, for its would be giving naked powers to the authorities to order search against any person and was prone to be abused. This cannot be permitted in a society governed by the rule of law. Even assuming that the said amount was not reflected in the books of account of the company, as claimed by the petitioner, the mere possession of the said amount by the petitioner could hardly be said to constitute information which could be treated as sufficient by a reasonable person, leading
to an inference that it was income which has not been or would not have been disclosed by him for the purposes of the Act, particularly when the petitioner as well as the company were regular assessees with the IT Department.”
In Dr. Tahiliani’s case (supra) the report on the basis of which the CIT formed his opinion under s. 132 read as follows : “Enquiries with regard to the above-mentioned allegations were made by the Investigation Wing at Allahabad. Dr. N.L. Tahiliani has been the most leading surgeon in the town. He is known for his roaring practice in this field of medical profession and also for his high rate of fee for operations. He stays in a posh house owned by him, which is situated in a posh locality of Allahabad. The allegations made above appear to be prima facie correct on the basis of the local enquiries made.
On the basis of the allegations and consequent enquiries made and also on the basis of the standard of living maintained by him and the reputation and number of patients he attracts, there is every reason to believe that in the case of Dr. Nand Lal Tahiliani, action under s. 132 of the IT Act is required. This is so because there is also reason to believe that in the normal course provided under the Act, he will not disclose to the Department his correct income and wealth, which is much more than what he has been declaring to the Department.” Dealing with this report the Court observed : “What was there in the report which was not known to the Department or is not known to it against any doctor? If the reputation of roaring practice and rumour for “charging high rate of fee” can furnish information without any tangible material for formation of a reasonable belief under s. 132, then it would amount to clothing the Department with arbitrary powers to take action against any person even for personal vendetta or through misguided zeal. What could have resulted in an action against the petitioner under s. 132 was a reasonable belief that he was in possession of any money, bullion or jewellery or other valuable article representing wholly or partly income or property which has not been disclosed or would not be disclosed, and not the prima facie satisfaction that the petitioner was having a roaring practice and charging high fee for operations. Further, this prima facie satisfaction was arrived on what ? On no other material apart from the general complaint received as far back as 1985. Impairment of the protection visualized by the Act can be upheld for valid and cogent reasons. Satisfaction of the authorities may be subjective, but it must be arrived at objectively on materials. Not one could be found on record. The expression is “reason to believe that the income has not been disclosed” and not ‘probably it may not have been disclosed’. It is not left to guessing. It carries with it the impress of certainty. The dwelling house of a person is his fortress. ‘Every householder, the good or the bad, the guilty or the innocent is entitled to the protection designed to secure the common interest against unlawful invasion of the house. Ransacking of the house and the act of taking away of property is an inroad on the citizens’ right of privacy’, one of the values of civilization. Any unwarranted intrusion on it cannot be countenanced. Reasonable and sufficient in itself to warrant the conclusion that the provisions of s. 132 were being violated. Because if the exercise of power is bad or unlawful in inception, then it is not validated nor does it change character from its success. It would not, therefore, be asking too much from the authorities to comply with the basic requirements of the section before they are permitted to invade the secrecy of one’s home.”
The Court further went on to say : “The statement that the Director of Inspection has sufficient material in his possession to believe that the person to whom summons or notice was issued was in possession of money, bullion or jewellery or other valuable articles or things is a mere reproduction of the section. That is hardly sufficient. If the authorities can be permitted to claim that on “consequent inquiries”, they are empowered to take action without keeping on record anything to support it, then it shall be empowering them with naked powers. Inquiries should have been reduced to writing in black and white or enable the Director to discharge the statutory responsibility of issuing an authorization or warrant after being satisfied that the action suggested was justified and made available to the Court to infer that the exercise of power was reasonable at least. Infact, the Director appears to have mechanically endorsed the report. If the report extracted earlier was sufficient for action under s. 132, then the Director could order a search against any doctor of a metropolitan town. Being known for ‘roaring practice’ and for ‘high rate of fee for operations’ in the absence of any other material could not be construed as constituting information in consequence of which the Director could have reason to believe that the petitioner had not disclosed his income or would not disclose it. Living in a posh house or posh locality by itself was not material which could result in initiation of proceedings under s. 132 of the Act specially when the petitioner is an old assessee. The standard of living maintained by him (petitioner) appears to have been added in the report more as a recital to add gloss to the recommendation than with any sense of responsibility. What led to this inference is not stated. Not a word has been mentioned in the report, nor could any record be shown to demonstrate that the standard of living was out of proportion so as to warrant the conclusion that the petitioner was concealing income. Even if the recommending authority had some notions of his own either on personal knowledge or on any inquiry, it should have been made available to the Director to draw the inference, as the action was to be taken by him. The requirement of ‘reason to believe’ is not an empty formality. The Director and the CIT have been authorized to take action as they, being the senior officers of the Department, are expected to project their experience while invoking power under this section. The Director failed to live up to this expectation. He appears to have surrendered his reason to the report made by his Dy/Asstt. Director, which was an attempt to initiate fishing and roving inquiry for reasons best known to him as he did not consider it proper to place the result of “local inquiry” before the Director. Any complaint made by a person interested or disinterested should not be only about its veracity and authenticity but it must be an information in consequence of which the authority must have reason to believe that income had not been disclosed as action under s. 132 transgresses liberty of a citizen. To say the least, such an adventure should be avoided, as it not only frustrates the objectives sought to be achieved by such salutary provisions but spoils the reputation of the Department and causes incalculable harm to the person concerned. Therefore, the writ petition deserves to be allowed.”
The judgment of this Court in the case of Dr. Tehliani has been confirmed by Supreme Court.
14. At this stage it is relevant to refer para 40 of the writ petition, which is quoted below : “40. That in the facts and circumstances the petitioner bona fide believes that there was no information in possession of the officer issuing the warrant of authorization for search which could lead any reasonable person to form an opinion about existence of undisclosed assets with the petitioner. The warrant of authorization, even if assumed that there was any, was issued mechanically, arbitrarily and without application of mind and without forming the opinion about existence of undisclosed assets, as contemplated by sub-s. (1) of s. 132.”
The reply of the said paragraph has been given by the respondents in para 33 of the counter-affidavit, which reads as under : “33. That in reply to para. 40 of the writ petition, it is denied that the warrant of authorization was issued mechanically, arbitrarily and without application of mind.”
From the aforesaid reply it is clear that there is no specific denial of the averments made in para 40 of the writ petition. Order 8, r. 5 of the CPC provides that every allegation of fact in the plaint if not denied specifically or by necessary implication or stated to be not admitted in the pleading of the defendant shall be taken to be admitted except against the person under disability. In view of this provision in absence of specific denial in the counter- affidavit to the assertions made in the writ petition, it can safely be concluded that there is no denial of the facts stated in the writ petition. We are aware that the Explanation to s. 141 of the CPC, provides that the provisions of the CPC shall not be applicable to the writ petition. However, the provisions of the CPC are nothing but the principles of natural justice, though in greater detail. Hence, the general principles as stated in the CPC are also applicable to writ proceedings, even if the technical rules may not strictly apply.
We have also considered the written submissions submitted on behalf of the respondents. In the written submission the search has been sought to be justified on the ground that some incriminating documents were seized from the premises showing actual production between November, 1999 to February, 2000 as high as five/six times of the production recorded in the register and, therefore, the stock of finished goods on the date of search should not have been less than 700 M.T. This can hardly justify the legality and validity of the search conducted on 16th Feb., 2000. Thus, we are of the opinion that in view of the aforesaid decisions as well as decision given in the case of Dr. Sushil Rastogi vs. Director of Investigation (2003) 182 CTR (All) 194 : 2003 UPTC 167, the action under s. 132 was clearly illegal as it cannot be said that the CIT had reason to believe that the petitioner was concealing his income.
For the reasons given above the writ petition is allowed. The entire search and seizure operation conducted on 16th Feb., 2000, in the factory premises of the petitioner are held to be illegal. The books and goods seized will be released forthwith.
[Citation : 264 ITR 28]
