Gujarat H.C : In view of the fact that these petitions involve certain common questions of fact as well as law, at the request of the learned advocates, these petitions are heard together and they are also finally decided by this common order.

High Court Of Gujarat

Arti Gases vs. Director Of Income Tax (Inv.)

Sections 131(1A), 132(1), 132(8), 132(9A), 158BC

A.R. Dave & M.S. Shah, JJ.

Special Civil Appln. Nos. 2048, 2049 & 2371 of 2000

9th May, 2000

Counsel Appeared

K.A. Puj, for the Petitioner : B.B. Naik with Manish R. Bhatt, for the Respondent

ORDER

BY THE COURT :

In view of the fact that these petitions involve certain common questions of fact as well as law, at the request of the learned advocates, these petitions are heard together and they are also finally decided by this common order.

2. The facts leading to the petitions are as under : The petitioners are partnership firms whose partners are related to each other. The case of the petitioners is that the search and seizure operations were carried out at the premises of the petitioners and their partners in January, 1999. Though nothing incriminating was found, notices under the provisions of ss. 158BC and 131(1A) of the IT Act, 1961 (hereinafter referred to as ‘the Act’) were served upon them. It is their case that the search was not proper for the reason that the provisions of s. 132 of the Act had not been complied with. In the circumstances, it has been prayed that the entire proceedings with regard to the search and seizure carried out under the provisions of s. 132(1) and the summons issued under the provisions of s. 131(1A) and the notices under s. 158BC of the Act be quashed. We have heard the learned advocate Shri K.A. Puj appearing for the petitioners and the learned advocate Shri B.B. Naik appearing for the respondent authorities. At the time of hearing of these petitions, the learned advocate Shri Puj has firstly submitted that the search and seizure operations initiated against the petitioners under the provisions of s. 132(1) were not valid and legal for the reason that the Director of Income-tax (Inv.) who had issued authorizations for the purpose of search, had not applied his mind before issuance of the authorisations and, he was not having any material for issuance of authorizations. Moreover, he had not recorded any reason for issuance of the authorisations and, therefore, the entire proceedings initiated under the provisions of s. 132 of the Act are invalid and illegal.

He has relied upon the decisions rendered in the cases of Madhya Pradesh Industries Ltd. vs. ITO (1970) 77 ITR 268 (SC) : TC 51R.625, Janak Raj Sharma vs. Director of Inspection (Inv.) (1995) 127 CTR (P&H) 440 : (1995) 215 ITR 234 (P&H) : TC 61R.331, and Ajit Jain vs. Union of India (2000) 150 CTR (Del) 204 : (2000) 242 ITR 302 (Del) in support of the above submission. In reply to the above referred submission made by the learned advocate Shri Puj, it has been submitted by learned advocate Shri B.B. Naik appearing for the respondent authorities that the said submission is incorrect for the reason that only after considering the relevant material and after careful consideration of the facts of the case, the Director of Income-tax (Inv.) had given directions with regard to issuance of authorizations for carrying out the search and seizure operations under the provisions of s.

132 of the Act. He has shown the relevant papers to the Court and upon perusal thereof we have found that before the warrants of authorization were ordered to be issued by the Director of Income-tax (Inv.), he had gone through the submissions made to him by some of his subordinate officers. Upon perusal of the submissions and notes made by the authorised officer and the Director of Income-tax (Inv.), we have found that the concerned officer had received information with regard to financial and social status of the petitioners and their partners and the manner in which the partners of the petitioner firms were living. They had shown some figures to show that there was a reason to believe that the partners of the petitioner firms and the petitioners had undisclosed income and properties. We have seen the comprehensive notes and the figures which were submitted to the Director of Income-tax (Inv.) by the Asstt. Director of Income-tax (Inv.) at Bhavnagar which were scrutinised by the officers in the cadre of Dy. Addl. Director of Income-tax (Inv.). They had agreed with the notes made by the Asstt. Director of Income-tax (Inv.), Bhavnagar and they were also of the view that the search and seizure operations might ultimately reveal that the petitioners were having undisclosed income. On the basis of the submissions and notes made by the officers working under the Director of Income-tax (Inv.) and on the basis of the material produced before him, he was of the view that warrants of authorisation should be issued so that the search and seizure operations can be carried out under the provisions of s. 132. The learned advocate Shri B.B. Naik has also submitted that as per the normal practice, when the notes were placed before the Director of Income-tax (Inv.), the material which is referred to in the note was also placed for his perusal so that upon perusal thereof, he can express his satisfaction and do the needful for the purpose of issuance of authorisation. If this is the normal practice, there is no reason for us to believe in this case that the normal practice was not followed by theauthorised officers and the relevant material was not produced before the Director of Income-tax (Inv.). Upon perusal of the relevant record, we are of the view that there was sufficient material with the Director of Income-tax (Inv.) for issuance of the warrants of the authorisation for carrying out the search and seizure operations against the petitioners. By no stretch of imagination it can be said that there was no application of mind on the part of the

Director of Income-tax (Inv.). Upon Perusal of the comprehensive notes, it is also revealed that there was sufficient application of mind not only on the part of the Director of Income-tax (Inv.), but also on the part of the subordinate officers who had rendered necessary assistance to the Director of Income-tax (Inv.) for arriving at a final conclusion with regard to issuance of warrants of authorisation against the present petitioners. There is no substance in the submissions made by the learned advocate Shri Puj that reasons were not recorded before the authorisations were issued because we have seen the notes and we are satisfied that reasons have been recorded in the relevant file. In the circumstances, we do not agree with the submission that without any application of mind or without recording any reason, the approval or sanction for search and seizure under the provisions of s. 132 of the Act was granted. So far as the judgment cited by the learned advocate Shri Puj in the case of Madhya Pradesh Industries Ltd. (supra) is concerned, in our opinion, the observations made in the said judgment would not help the petitioners for the reason that in the said case looking to the facts of the case, the Court had come to a conclusion that it was not possible to hold that the ITO had any reason to form the necessary belief which was a condition precedent for issuance of notice under s. 34(1)(a) of the IT Act, 1922. For coming to the said conclusion, the Supreme Court had recorded the fact that no affidavit was filed in the said proceedings stating the circumstances in which notice was issued to the assessee. Moreover, notes made or reasons recorded by the concerned officer before issuing the notice had not been produced before the Court and in the circumstances, the Hon’ble Supreme Court had observed that as it was not shown to the Court that the concerned officer had any reason to form a particular belief, the action initiated by the officer was bad in law. The facts in the present case are absolutely different. In the instant case, affidavits have been filed by some of the officers giving details with regard the circumstances in which the proceedings had been initiated under the provisions of s. 132. of the Act. Moreover, original record has been shown to the Court and we are satisfied on perusal of the said record that there was sufficient application of mind and there was sufficient material before the Director of Income-tax (Inv.) for being satisfied for issuance of warrants of authorisation against the petitioners. Shri Puj, the learned advocate for the petitioners has submitted that affidavit of the Director of Income-tax (Inv.) has not been filed in the instant case.

In our opinion, as an affidavit has been filed by a responsible officer after perusal of the record and when the original record was also perused by the Court, we do not think it necessary that the Director of Income-tax (Inv.) ought to have filed an affidavit to support his case. Shri Puj has also relied upon the judgment delivered in the case of Janak Raj Sharma vs. Director of Inspection (Inv.) (supra) to substantiate the above referred submissions. It has been submitted by him that if there is no information in possession of the concerned authority on the basis of which warrant of authorisation is issued, search and seizure carried out in pursuance of such an authorisation would not be valid. The said proposition cannot be disputed but the facts in the instant case are different. As stated hereinabove, the relevant notes were submitted to this Court for its perusal. We have already stated that we are satisfied with the notes and we are of the view that there was sufficient material with the concerned authorities so as to initiate proceedings under the provisions of s. 132. Moreover, the facts of the judgment cited are not relevant in the instant case for the reason that in the case referred to hereinabove the respondents could not produce any record indicating existence of any information received by them on the basis of which the warrant of authorisation had been issued. So far as the case on hand is concerned, as stated hereinabove, we had an opportunity to peruse the relevant notes and, therefore, we are of the view that the judgment cited by the learned advocate is not helpful to him. It is also pertinent to note here that as a result of the search and seizure, some incriminating documents have also been found. It has been submitted in the affidavit in reply filed by the Dy. Director of Income-tax (Inv.) that certain share certificate and Fixed Deposit Receipts have been found in the course of search. Of course, it has been submitted by the petitioners in the rejoinder that the documents seized belong to some other partners. Be that as it may, whether the documents seized during the search procedure reveal anything with regard to undisclosed income would be examined at the time of assessment.

11. The learned advocate appearing for the petitioners has also relied upon the judgment in the case of Ajit Jain vs. Union of India (supra). In our opinion, the said judgment also would not be of any assistance to the petitioners for the reason that in the said case the search and seizure proceedings had been initiated only on the basis of the information to the effect that the concerned person was in possession of money, but the information which was furnished by the Central Bureau of Investigation did not reveal that the money which was in possession of the concerned assessee was undisclosed income. In the said case, information was incomplete and the material on which the concerned officer had acted could not be treated as information within the meaning of s. 132. We are of the view that the said judgment will not help the petitioners for the reason that in the instant case there was sufficient information and material with the Director of Income-tax (Inv.) with regard to undisclosed income of the petitioners and, therefore, warrants for authorisation cannot be treated as invalid or illegal.

12. For the reasons stated hereinabove, we are of the view that it cannot be said that the Director of Income-tax (Inv.) had issued the warrants of the authorisation without having any information with him and without any application of mind. In our opinion, the submission of the learned advocate for the petitioners that the search and seizure proceedings are illegal is not proper and, therefore, is not accepted by us.

13. The learned advocate Shri Puj has submitted that the notices and summons issued under the provisions of s. 131(1A) are bad in law and while issuing the said notices and summons, the officer issuing the summons had exceeded his jurisdiction. Sec. 131(1A) reads as under : “(1A) If the Director General or Director or Deputy Director or Assistant Director, or the authorised officer referred to in sub-s. (1) of s. 132 before he takes action under cls. (i) to (v) of that subsection, has reason to suspect that any income has been concealed, or is likely to be concealed, by any person or class of persons, within his jurisdiction, then, for the purposes of making any enquiry or investigation relating thereto, it shall be competent for him to exercise the powers conferred under sub-s. (1) on the IT authorities referred to in that sub-section, notwithstanding that no proceedings with respect to such person or class of persons are pending before him or any other IT authority.”

14. The learned advocate Shri Puj has submitted that the powers under s. 131(1A) cannot be exercised after initiating proceedings under the provisions of s. 132 and, therefore, the notices issued by the concerned officer are bad in law.

15. It has been submitted by the learned advocate Shri B.B. Naik appearing for the respondents that notices under s. 131(1A) are issued to the petitioners and some of the partners of the petitioner-firms so as to have some more particulars to understand and appreciate the material which was seized during the search proceedings. It has been submitted by him that according to the provisions of the Act, notices under s. 131(1A) can be issued before initiation of search procedure under the provisions of s. 132. Merely because the section reads as “if the Director General or Director or Dy. Director or Asstt. Director, or the authorised officer referred to in sub-s. (1) of s. 132 of the Act, before he takes action under cls. (i) to (v) of that sub-section, has reason to suspect that any income has been concealed”, it does not mean that after the search proceedings are over, notices under s. 131(1A) cannot be issued. According to him, not only before but even after initiation of the proceedings under s. 132 of the Act, notice under s. 131(1A) can be issued. It has been submitted by him that so as to know the nature of the documents found during the search or to understand the contents of the documents, it is open to the concerned officers to issue notice under s. 131(1A).

16. We have considered the rival submissions made by the learned advocates. We have also perused Circular No. 551, dt. 23rd Jan., 1999, referred to by the learned advocate Shri Puj. Upon considering the rival submissions, we are of the view that notices under s. 131(1A) can also be issued after completion of the search undertaken under the provisions of s. 132 of the Act. In our opinion, it would be absolutely logical to call for information so as to have better particulars or to have complete idea about the materials seized during the search. If some material is seized at the time of the search and the authorised officer wants to have some details so as to understand the nature of the documents, he may issue notice under s. 131(1A) of the Act. In our opinion, in a given case such a notice can not only help the Department but can also help the assessee. If the assessee is in a position to give more explanation so as to satisfy the authorised officer that the documents seized by him do not reveal any undisclosed income, but the income or transactions referred to in the documents had been duly shown by him in his books of account or if the assessee gives any information to the effect that the first impression of the authorised officer with regard to the nature of the documents was not correct, we are sure that such a notice would help the assessee himself. If the assessee is called upon to give some information or to explain certain documents or writings seized during the process of search, in our opinion no harm can be caused to the assessee and as stated hereinabove, such particulars can be helpful not only to the Department but to the assessee also. We, therefore, do not agree with the submission made by the learned advocate Shri Puj that such a notice can be issued only before initiation of proceedings under s. 132 of the Act. Moreover, even under the provisions of s. 133 of the Act, the AO or the officers referred to in the said section are having power to called for information. So issuance of such a notice during or after the search cannot be said to be bad in law.

The next submission which has been made by the learned advocate Shri Puj is that the retention of the books of account and other documents seized by the authorised officer beyond the period of 15 days is in violation of the provisions of s. 132(9A) of the Act. It has been submitted by him that within a period of 15 days from the date of completion of the search, the authorised officer ought to have handed over the papers seized during the search to the ITO having jurisdiction over the assessee. It has been submitted by him that as the authorised officer had not handed over the relevant material seized during the search to the concerned officer, the retention of the books of account and other document is absolutely illegal. He has relied upon the judgments delivered in the case of Dr. C. Balakrishnan Nair vs. CIT (1991) 154 CTR (Ker) 523 : (1999) 237 ITR 70 (Ker) and K.V. Krishnaswamy Naidu & Co. vs. CIT (1987) 166 ITR 244 (Mad) In reply to the said submission made by the learned advocate for the petitioners, it has been submitted by the learned advocate Shri Naik appearing for the respondents that s. 132(9A) is not relevant section for the reason that the authorised officer is also an officer having jurisdiction over the assessee. He has relied upon the affidavit filed by the authorised officer stating the fact that he is also an officer having jurisdiction over the assessee. We find substance in what has been submitted by the learned advocate Shri B.B. Naik. According to the provisions of s. 132(9A), if the authorised officer is an officer who is not having jurisdiction over the assessee, he has to hand over the relevant material seized during the process of search to the ITO having jurisdiction over the assessee within a period of 15 days from the conclusion of such search. All such powers exercisable by the authorised officer under s. 132(8) or 132(9) shall be then exercised by such ITO having jurisdiction over the assessee. In the instant case, as the authorised officer is also an officer having jurisdiction over the assessee, in our opinion, it is not necessary for him to part with the material seized as per the provisions of s. 132 (9A). So far as the judgment delivered in the case of Dr. C. Balakrishnan Nair (supra) is concerned, the facts of the said case cannot be compared with the facts of the present case for the reason that in that case the authorised officer did not part with the record within a period of 15 days. Moreover, unnecessarily the search proceedings had been delayed. It was also found in the said case that retention of the documents and record by the authorised officer was contrary to the provisions of the Act whereas in the instant case the facts are absolutely different. In the instant case, the authorised officer is having jurisdiction over the assessee. There is no allegation that without justifiable reasons the search had been prolonged. In the circumstances, in our opinion, this judgment is not applicable to the facts of the present case. Similarly reference to the judgment delivered in the case of K.V. Krishnaswamy Naidu & Co. (supra) is also not relevant as in the instant case, as per the affidavit filed by the authorised officer, he is also an officer having jurisdiction over the assessee and, therefore, it was not necessary for him to hand over the record or material seized during the search to the officer having jurisdiction over the assessee within 15 days from the date of the conclusion of the search.

It has been thereafter submitted by the learned advocate Shri Puj that the authorised officer had retained the books of account and other material which were seized by him beyond a period of 180 days without communicating any reason to the petitioners or without recording any reason or without obtaining any order from the Chief CIT or CIT or Director General or Director of Income-tax and, therefore, retention of the documents by the authorised officer is not in accordance with law. It has been submitted by him that even if an appropriate authority had permitted to retain possession of the seized material beyond a period of 180 days, the authorised officer ought to have communicated the reasons recorded by the officer concerned to the petitioners. In reply to the said submission of the learned advocate for the petitioners, it has been submitted by the learned advocate Shri B.B. Naik for the respondents that before retaining the documents beyond a period of 180 days, the authorised officer had asked for necessary permission from the CIT. The said fact has been clearly stated in the affidavit in reply filed by the CIT, Rajkot. Along with his reply, a copy of communication granting permission for retaining the documents, etc. upto 31st Dec., 2001, by the CIT is also annexed. Reasons have also been stated in the affidavit in reply filed by the CIT, Rajkot. It has been submitted by the learned advocate Shri Puj appearing for thepetitioners that the communication at such a belated stage is not justifiable and the said reasons ought to have been communicated to the petitioners at an earlier point of time. Moreover, in the instant case, the said reasons have been communicated to the petitioners along with the affidavit in reply which have been placed on record of the Court but have not been directly communicated to the petitioners.

We do not find any substance in the above submission made by the learned advocate Shri Puj because thepurpose for which the said section is enacted has been served when the petitioners have been informed about the reasons for which the documents were permitted to be retained by the concerned officer beyond the period of 180 days. It is open to the petitioners to challenge the validity of the said reasons in an appropriate proceeding. The intention of the legislature to enact the provision in the section with regard to communication of the reasons is normally to see that the officer passing the order applies his mind and states the reasons for acting in a particular manner so that the higher authority can look into the validity of the reasons recorded by the concerned officer. It is pertinent to note that the section nowhere provides for communication of the reasons but the learned advocate Shri Puj has relied upon the judgment delivered in the case of CIT vs. Oriental Rubber Works (1984) 38 CTR (SC) 154 :(1984) 145 ITR 477 (SC) : TC. 62R.172, laying down law to the effect that the reasons should not only be recorded but also to be communicated to the concerned assessee. As stated hereinabove, the reasons have already beenrecorded and now duly communicated to the petitioners. As the reasons have been communicated, substantial compliance of the law laid down by the Hon’ble Supreme Court has been made in the instant case and, therefore, we do not see that any illegality has been committed by the respondent authorities. Similar view was taken by the Gujarat High Court in Cowasjee Nusserwanji Dinshaw vs. ITO (1987) 63 CTR (Guj) 91 : (1987) 165 ITR 702 (Guj) : TC 62R.182. It is pertinent to note that the petitioners had never demanded from the respondent authorities a copy of the reasons recorded by the CIT. For the first time they have made a grievance in these petitions with regard to non-supply of reasons and in pursuance of the said demand, the respondent authorities have already informed the petitioners about the reasons recorded by the CIT. Had the petitioners made such a request to the concerned authority before filing the petitions, probably they would have been informed about the reasons. It has been submitted by learned advocate Shri B.B. Naik appearing for the respondent authorities that after Oriental Rubber Works’ case (supra) was decided by the Supreme Court, the Hon’ble Supreme Court has taken a view in the case of State Bank of Patiala vs. K. Sharma AIR 1996 SC 1669 and Managing Director ECIL vs. B. Karunakar AIR 1994 SC 1074 that if the principles of natural justice are violated, the impugned action taken or the order passed by the authorities does not become, void. If ultimately the reasons are supplied to the concerned or aggrieved party, the concerned party can very well take appropriate action upon perusal of the said reasons. By mere non- furnishing of the reasons, the order does not become void. Even otherwise, the normal principle is that every violation of principles of natural justice would make the order void but it remains voidable. It depends upon the facts of the case as to whether the violation of the principles of natural justice would not make the order void.

Looking to the facts of the case we do not think that the action taken by the authorities would become void simply because the reasons were not furnished at an earlier stage and more particularly when the reasons have been now communicated to the petitioners. The learned advocate Shri Puj has also relied upon the judgment delivered in the case of Thanthi Trust vs. CIT (1987) 62 CTR (Del) 167 : (1987) 167 ITR 397 (Del) : TC 62R.184,. As per the law laid down in the said judgment, it is very clear that if the documents are retained beyond the period of 180 days from the date of the seizure without obtaining permission from the CIT, the seizure of documents is bad in law. As stated hereinabove, in the instant case, as necessary permission was obtained from the CIT for the purpose of retaining the material beyond the period of 180 days, we do not think that this judgment is applicable in the instant case. In the case of Tin Box Co. vs. ITAT (1990) 84 CTR (Del) 187 : (1990) 185 ITR 630 (Del) : TC.8R.1409, 62 R.189, a similar view was taken by the Delhi High Court. In that case, necessary permission under s. 132(8) was not obtained by the concerned officer. In the instant case, as the necessary permission has already been obtained and as the reasons have already been recorded by the CIT, we do not think the said judgment is relevant. Similarly the judgment in the case of Rajendra Prasad Agarwalla vs. IAC (1994) 209 ITR 784 (Cal) : TC 62R.184, cited by the learned advocate Shri Puj also lays down the law to the effect that the reasons should be recorded and communicated by the CIT to the concerned assessee. We have already stated hereinabove that when the said reasons were demanded by filing the petitions before this Court, along with the affidavit in reply the said reasons have been supplied to the petitioners and they have been placed on record of this Court by the respondent authorities.

It has been lastly submitted by the learned advocate Shri Puj that because of the illegalities referred tohereinabove, notices issued under s. 158BC are illegal and invalid and, therefore, the said notices should be quashed. We have already dealt with the submissions made by the learned advocate Shri Puj and have come to the conclusion that the said submissions are without any substance. In the circumstances, we are not inclined to entertain these petitions and, therefore, we also come to the conclusion that notices under s. 158BC are not illegal or invalid. The learned advocate for the petitioners has also tried to show certain anomalies in the calculations made by the officers of the respondents. We do not desire to go into those anomalies because the petitioners can very well represent their cases before the AO or the concerned officer as and when the assessment is to be made. We are sure that the AO will give an opportunity to the petitioners to place the relevant facts on record and plead their case before the respondent authorities so that no injustice may be caused to them in the process of assessment. It is also pertinent to note that even after the assessment order is passed, it would be open to the petitioners tochallenge the validity of the assessment order if they are aggrieved by the same. Though the petitioners have taken some other points in the petitions with regard to transfer of cases from one place to another and the order passed under the provisions of s. 127(2) of the Act has been challenged, it has been submitted by the learned advocate Shri Puj that another petition has been filed by the petitioners and some other persons challenging the validity of the order whereby the cases of the petitioners and other persons were transferred from Bhavnagar to Rajkot and, therefore, at present the petitioners do not press the said point in these petitions. We, therefore, do not deal with the said contention raised in the petitions.

It is pertinent to note here that the petitions have been filed at a belated stage. Though the search and seizure proceedings had taken place in January, 1999, these petitions have been filed in the month of April, 2000. Normally a vigilant litigant would rush to the Court immediately if his right is violated. In the instant case, the petitioners are neither illiterate nor persons without means. They have availed services of competent lawyers throughout the search proceedings and, therefore, it cannot be said that they did not know legal provisions or did not know whom to approach for the purpose of redressal of their grievances. Moreover, the petitioners have made absolutely incorrect statements to the effect that without recording any reason or without any application of mind the search proceedings had been initiated. Upon perusal of the original record and the affidavit filed by the respondent authorities it was very clear that the said statements have been made very rashly and in fact the petitions ought to have been rejected on the ground of suggestio falsi, however, we have examined all the submissions made by the learned advocate for the petitioners but we have not found any substance in those submissions. The search is over and the documents seized during the search are being scrutinised by the respondent authorities and when they have found certain incriminating documents, we also think that at this stage this Court should not interfere with the proceedings, especially when the proceedings appear to have been initiated in accordance with law. We, however, hope that the respondent authorities shall conclude the proceedings as soon as possible. Looking to the facts and the circumstances of the case, we do not find any illegality or irregularity committed by the respondent authorities and, therefore, we do not interfere with the process which is going on under the provisions of s. 132 and, therefore, these petitions are rejected with no order as to costs.

[Citation : 248 ITR 55]

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