Madhya HC : once there is an opinion and there is rationality and there is application of mind

High Court Of Madhya Pradesh

Gwalior Citizen Sakh Sahakarita Maryadit Vs. Union Of India

Assessment Year : 2008-09

Section : 132

S.C. Sharma, J.

W.P. No. 1569 Of 2008

June 16, 2008

JUDGMENT

1. The petitioner before this court under article 226/227 of the Constitution is a co-operative society registered under section 8(2) of the Madhya Pradesh Swayatta Sahakarita Adhiniyam, 1999 (hereinafter referred to as the Adhiniyam of 1999). The petitioner is aggrieved by the action on the part of the respondents Nos. 2 to 5/Department (hereinafter referred to as the Department) by which search has been conducted at the business premises of the petitioner.

2. The contention of the petitioner/society is that the Department has without following the procedure contemplated under section 132 of the Income-tax Act, 1961 (hereinafter referred to as the Act of 1961), conducted illegal search. It has been further stated that as per the requirement of law for conducting the search and seizure under section 132 of the Act of 1961, the Department were required to record the reasons regarding the satisfaction in terms of section 132 of the Act of 1961 and thereafter warrant of authorisation should have been issued as per the provisions of section 132 of the Act of 1961. The petitioner has stated that the whole search and seizure made by the Department on March 28 and 29, 2008 are per se illegal and contrary to the statutory provisions and is liable to be set aside.

3. The petitioner/society is registered with its main object and activities to promote co-operative banking transactions only to the members of the society and inter alia to :

(a) inculcate an attitude and habit for saving in the members ;

(b) management of safe investment of the members ;

(c) arranging need based loans and finances to the members ;

(d) providing other economic facilities and services for this purpose the society is having share money of the members, savings accounts, daily deposit accounts, recurring deposit accounts, fixed deposit accounts etc., for which complete accounts and records are maintained ;

(e) to provide other service like payment of telephone, electric bills and preparations of bank drafts as per instructions of the members.

4. It has been stated that the petitioner/society is an assessee under the provisions of the Act of 1961 and submitting income-tax returns since the year 2002-03. It has been further stated that on March 28, 2008, the Additional Director, Income-tax (Investigation) along with other officers of the Department visited the business premises of the petitioner/society and made surprise search in the presence of police personnel. The petitioner has also stated that the warrant of authorization issued by the competent authority under section 132 of the Act of 1961, for conducting the search was not shown by the investigating authority. The petitioner has further pleaded before this court that in view of various pronouncements made by the Hon’ble Apex Court, the provision of section 132 of the Act of 1961 is a complete code in itself and it makes it clear that where the Director General or Director or the Chief Commissioner or Commissioner or any such Joint Director or Joint Commissioner, as the case may be, empowered in this behalf by the Board, in consequence of information has reason to believe that any person to whom the summons under sub-section (1) of section 37 of the Indian Income-tax Act, 1922 or under sub-section (1) of section 131 of the Act of 1961 or a notice under sub-section (4) of section 22 of the Indian Income-tax Act, 1922 or under sub-section (1) of section 142 of the Act of 1961 was issued to produce, or cause to be produced, any books of account or other documents has omitted or failed to produce or cause to be produced, such books of account or other documents as required by such summons or notice and when a person is avoiding the notice issued under section 42(1) or 131, it would be amounting to sufficient reasons to believe for issuance of warrant for search.

5. It is the contention of the petitioner that the provisions of sections 142(1) and 131 of the Act of 1961 have not been followed in the matter and without making a detailed enquiry as required under section 132 of the Act, and without recording reasons to believe the action of the respondents to conduct sudden search in the premises of the petitioner by the Department is bad in law.

6. The petitioner has further stated that without following the procedure prescribed under section 132 of the Act of 1961, the sudden search and raid was conducted by the officials of the Department and cash amounting to Rs. 30 lakhs was seized by the Department. It has been further stated that the cash found with the petitioner-society was reflected in the cash books and the Department went to the extent of seizing all the accounts of the society. The petitioner-society has raised various grounds challenging the search and seizure conducted by the Department and stated that the action of the Department is absolutely contrary to the well settled procedure as contemplated under section 132 of the Act of 1961. It has been further stated that the Department was not having any knowledge of undisclosed property or undisclosed accounts of the petitioner and the Department was required to go through the returns to arrive at a conclusion that there was reason to believe that the petitioner has some undisclosed income and then only further action could have taken under section 132 of the Act. The petitioner has prayed before this court for quashing the entire proceedings and has also prayed for releasing of the bank accounts and cash which has been seized by the Department.

7. The Department has filed a return and it has been stated in the return that the search and seizure in the case of the petitioner-society was conducted after recording reasons by the competent authority, i.e., the Director, Income-tax (Investigation) and the Additional Director, Income-tax (Investigation) III, Bhopal. It has been submitted by the Department that the petitioner/society was doing the business and the authority was given by the Director, Income-tax (Investigation) and the authorisation of warrant of search under section 132 of the Act of 1961 was issued by the Director, Income-tax (Investigation), Bhopal in respect of the residential premises of the chairman of the society. Shri Akhil Singhal and the survey authorisation under section 133A of the Act of 1961 and subsequently warrant of authorisation under section 132(1) of the Act of 1961 was issued by the Additional Director, Income-tax (Investigation), Bhopal in respect of the business premises of the society. It has been further stated that the search was held and the orders were passed on the basis of credible information/evidence based upon the bank account statement and the secret enquiries conducted in the matter which reveals the modus operandi and functioning of the petitioner-society. After due satisfaction and recording reasons to believe that the conditions stipulated in section 132(1)(a), (b ) and (c) were duly fulfilled and the necessary warrant of authorization was issued.

8. It has been further stated that the reasons for issuing the warrant of authorization are duly available on record and the same shall be produced before this court at the time of hearing. The Department has further stated that it is incorrect on the part of the petitioner to say that the search and seizure was conducted on March 28 and 29, 2008 without any warrant of authorization in the matter.

9. The Department has also denied that the search and seizure made on March 28, 2008 and March 29, 2008 is contrary to the statutory provisions. It has been further stated in the return that the due procedure as prescribed under section 132 of the Act of 1961 for making search to find out the undisclosed income or property with the society was followed and there has been no irregularity of any kind in conducting the search and seizure by the Department. There was sufficient material with the authorities to believe that the conditions prescribed under section 132(1)(a), (b ) and (c) of the Act of 1961 were fulfilled to conduct the search and seizure in the business premises of the petitioner/society.

10. It has also been stated in the return that the society was involved in various activities including providing accommodation payment facilities to its members who are businessmen and traders at Gwalior by issuing cheques and demand drafts to outstation parties in consideration of huge cash deposits on daily basis to effect transactions of their unaccounted money. The society has received payment through inward clearing and it is withdrawn in cash by the concerned person. It has been further stated that very nominal members of the society were effecting payments and receipts through the bank account of the society and not from their own bank account which clearly reflects that these transactions of payments and receipts are probably not recorded in their books of account. The investment and income from such transactions is unaccounted and undisclosed to the Department thereby causing huge revenue loss to the Government by way of evading income-tax, sales tax, VAT, excise duty etc. The Department have further stated in the return as under :

“There is a stark difference between the ‘stated objects and activities’ and the ‘actual object and activities’ undertaken by the society which is clear form the analysis of the balance-sheet as on March 31, 2007 and various bank accounts of the assessee which shows that the volume magnitude of savings deposits, recurring deposits, daily deposits and fixed deposits for the financial year 2006-07 and cumulative figure as on March 31, 2007 are of relatively much smaller amounts.

Similarly amounts of loan advanced to the members were of very small amounts which are as under :

As against this, the total deposits and total payments relating to nominal members in the bank accounts of the society for the financial year 2006-07 exceeded Rs. 100 crores and similarly, the total payments and total deposits of the samiti for the financial year 2007-08 exceeds Rs. 200 crores. This shows that the deposits received by the assessee from the members as per the stated objects under the head savings deposit, recurring deposit, fixed deposit and daily deposit were less than 1½ per cent. of the total deposits transacted in the bank account of the samiti and similarly the loan advanced by the samiti to its members were even less than ½ per cent of total payments made by the society from its various bank accounts.

The above facts clearly indicate that the objects mentioned in the objects clause/byelaws of the society are only for the fulfilment of statutory requirement of co-operative laws whereas the actual business activities of the samiti is providing accommodation payments/ deposits facilities to businessmen by making them nominal members thereby assisting and abetting routing of unaccounted money through the bank account of the society which remain undisclosed to the Department as these transactions are not recorded by the members in their books of account. In this regard, the society has specifically amended its objects by incorporating the clause to appoint ‘nominal members’ who are only allowed to avail of the facility of issue of cheques at par and demand draft and at the same time they are not eligible for any dividend on shares, participation in other activities and availing of loan. This amended ‘objects clause’ of the society of issue of cheques at par and demand draft, is the only operative object and activity of the society which is primarily tantamount to a banking activities for which the society is neither a bank registered under the RBI Act nor is it registered as a NBFC with RBI. Thus, the activities undertaken by the samiti of providing facilities of issue at par cheques and demand drafts to its members (mostly nominal members) apparently made for this purpose only is an illegal activity. In these circumstances, the samiti does not retain its co-operative status of a separate entity and the corporate/co-operative veil attached to the society is to be lifted so as to expose any persons who have committed a fraud upon the public from their sheltered position.

In fact the petitioner-society is doing the business on behalf of the nominal members by helping them in concealing unaccounted money and the corporate veil has to be lifted as held by the Hon’ble Supreme Court in the case of Delhi Development Authority v. Skipper Construction Co. P. Ltd. [1997] 89 Comp. Cas. 362 and for this purpose alone the entire search/survey action has been taken and the enquiry is in progress. It may be seen that the activity of the samiti in helping in channelising of apparently unaccounted fund required detailed investigation to lift the corporate veil. In fact the Hon’ble Kolkata High Court in the case of Bijay Kumar Agarwal v. Ratan Lal Bagaria AIR 1999 Cal. 106 has laid down the five principles where lifting of corporate veil can be resorted depending upon :

(a) the relevant statutory or other provisions ;

(b) the object sought to be achieved ;

(c) the impugned conduct ;

(d) the involvement of public interest ;

(e) the interest of the affected parties.

Therefore, in view of the above legal position, this case is a perfect case to lift the co-operative veil and treat the samiti as any other business entity like AOP working in connivance with local traders of Gwalior.”

11. The Department has also given a large number of examples in respect of the irregularities committed by the society and has categorically stated that the search was authorized and has been conducted in accordance with the provisions of section 132(1) of the Act of 1961 after analyzing the credible information gathered by the Department. The competent authority examined the evidence gathered by the Department in accordance with the provisions of section 132 of the Act of 1961 and only thereafter the warrant of authorization was issued for conducting the surprise search in respect of the affairs of the petitioner/society.

12. The basic question involved in this petition is as to whether the action of the Department in conducting the search and seizure is in consonance with the provisions of section 132 of the Act of 1961 or not and whether the proceedings initiated by the Department under section 132 of the Act of 1961 are liable to be quashed by this court or not ?

13. The respondent/Department has produced the entire material before this court at the time of hearing and after hearing the learned senior counsel for the parties and after going through the pleadings including the rejoinder filed by the petitioner, it is evident that the search and seizure was conducted by the respondent on March 28, 2008 and March 29, 2008.

14. Section 132 of the Act of 1961 reads as under :

“132. (1) Where the Director General or Director or the Chief Commissioner or Commissioner or any such Joint Director or Joint Commissioner as may be empowered in this behalf by the Board, in consequence of information in his possession, has reason to believe that-

(a) any person to whom a summons under sub-section (1) of section 37 of the Indian Income-tax Act 1922 (11 of 1922), or under sub-section (1) of section 131 of this Act, or a notice under sub-section (4) of section 22 of the Indian Income-tax Act, 1922, or under sub-section (1) of section 142 of this Act was issued to produce, or cause to be produced any books of account or other documents has omitted or failed to produce, or cause to be produced, such books of account or other documents as required by such summons or notice, or

(b) any person to whom a summons or notice as aforesaid has been or might be issued will not, or would not, produce or cause to be produced, any books of account or other documents which will be useful for, or relevant to, any proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act, or

(c) any person is in possession of any money, bullion, jewellery or other valuable article or thing and such money, bullion, jewellery or other valuable article or thing represents either wholly or partly income or property which has not been, or would not be, disclosed for the purposes of the Indian Income-tax Act 1922 (11 of 1922) or this Act (hereinafter in this section referred to as the undisclosed income or property).”

15. To understand and appreciate the power exercised under section 132 of the Income-tax Act, 1961 it is necessary to refer to certain citations in the field.

16. In ITO v. Seth Brothers [1969] 74 ITR 836 (SC) it has been held that the said provision does not confer any mandatory authority upon the Revenue officers. It is incumbent upon the authority to record reasons for the belief and must issue an authorization in favour of the designated officer to search the premises and exercise the powers set out therein. In the said case a reference was made to the case of ITO v. Firm Madan Mohan Damma Mal [1968] 70 ITR 293 (All.) wherein it was observed that the issue of a search warrant by the Commissioner is not a judicial or quasi-judicial act. The Apex Court after analysing various facets in paragraph 21 has dealt with the jurisdiction of the High Court under article 226 of the Constitution of India. In the said paragraph, it has been observed that a writ petition can be entertained where assail is to the validity of the action on the ground of absence of power or on a plea that the proceedings were taken maliciously or for a collateral purpose. But normally the High Court in such a case does not proceed to determine merely on affidavits important issues of fact especially where serious allegations of improper conduct are made against public servants.

17. In Harmel Singh v. Union of India [1993] 204 ITR 334/ 69 Taxman 347 (Punj.&Har.) it has been held that in order to justify the action, the authorities must have relevant material on the basis of which they could form an opinion that they have to believe that action under section 132 would be justifiable. In the absence of any relevant material the authority would be acting in excess of his powers and in violation of the mandatory requirements of section 132 and the action of the authority cannot be sustained. If such action is challenged under article 226 of the Constitution of India the court comes to the conclusion that there was no relevant material before the authority to form an opinion under section 132, the court in exercise of powers under article 226 of the Constitution of India can interfere.

18. The High Court of Delhi in L.R. Gupta v. Union of India [1992] 194 ITR 32 /[1991] 59 Taxman 305 (Delhi) scanning the ingredients of section 132 of the Income-tax Act has opined that jurisdiction under section 132 can be exercised on the formation of a belief and the belief is to be formed on the basis of receipt of information by the authorising officer and the 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. The satisfaction must be based on the ground what a prudent man would believe.

19. In Dr. Partap Singh v. Director of Enforcement [1985] 155 ITR 166 /22 Taxman 30 (SC) the Apex Court has opined that it is not obligatory on the part of the authority while issuing a warrant to disclose the material on which he has reason to believe that search is necessary.

20. In Kusum Lata v. CIT [1989] 180 ITR 365/[1990] 48 Taxman 401 (Raj.) the court came to hold that search and seizure under section 132 of the Act would be legal only if the Director of Inspection in consonance of information in his possession has recorded the reason to believe that the income was undisclosed. In the said case the Bench came to hold that relying on the judgment rendered in Jain & Jain v. Union of India [1982] 134 ITR 655 / 8 Taxman 48 (Bom.) wherein it has been held that the belief of the authority cannot be a mere pretence nor can it be a mere doubt or suspicion. A reference was made to the decision rendered in S. Narayanappa v. CIT [1967] 63 ITR 219 (SC) wherein it has been held that it is open to the court to examine the question whether the reasons for the belief have a rational connection or a relevant bearing to the information of the belief and are not extraneous or irrelevant to the purpose of the section.

21. In Union of India v. Ajit Jain [2003] 260 ITR 80/ 129 Taxman 74 (SC) it has been held that for a valid search there should be information which provides reason for believing that the person concerned is in possession of money or other assets either wholly or in part which has not been disclosed. Be it noted, in the said case the High Court had found that the CBI had given an information simpliciter that cash was found in the possession of an individual and the search has taken place on the basis of the said information. It is worth-noting that it was held by the High Court that the sufficiency or otherwise of the information cannot be examined by the court in the writ jurisdiction, the existence of information and its relevance to the formation of the belief is open to judicial scrutiny because it is the foundation of the condition precedent for exercise of a serious power of search of a private property or person, and to prevent violation of the privacy of a citizen. The formation of opinion has to be in good faith and not a mere pretence. The words “reason to believe” mean that a reasonable man under the circumstances, would form a belief which will impel him to take action under the law.

22. In Dy. DIT v. Mahesh Kumar Agarwal [2003] 262 ITR 338/ 130 Taxman 674 (Cal.) it has been held that the conditions precedent which are required to be fulfilled for action to be taken under section 132 of the Act are that the officer must be in possession of information on the basis of which he has reason to believe that the concerned person has not produced or would not cause to be produced the books of account and the condition has to be fulfilled before decision to issue a notice under section 132(1) of the Act is taken. The information must exist before the opinion is formed. It has also been held therein that the authorized officer must actively apply his mind to the information in his possession and form an opinion that there are reasons to believe. Such opinion must be formed on the basis of the material available at that time. The material must have rational nexus or bearing to the reasons for formation of the belief. In the said case it has been held that although a matter relating to search is open to judicial scrutiny, the court cannot sit in appeal over the opinion formed, if there are materials and the opinion is formed on such material. The court would not examine whether the material possessed is adequate or sufficient to form an opinion.

23. Regard being had to the aforesaid position of law it is to be seen whether in the case at hand there are materials on record. The Revenue has produced the record which shows formation of opinion by the Additional Director of Income-tax (Investigation). The said opinion has been confirmed by the higher authorities. The issue that emerges for consideration is whether the formation of opinion is contrary to reasonability or irrelevant having no nexus or the formation of opinion is without any material but some kind of suspicion or there is assumption with regard to existence of material.

24. To apply law to the facts, I have carefully perused the order forming the opinion. In the said order, there is reference to the information received from the FIU Unit along with annexed statements in which large amount of cash deposits and other inward clearings were credited. Copies of printout of the bank transactions of the societies received from FIU Unit have been taken note of. A secret enquiry was carried out by the investigating agency and the modus operandi has been catalogued in the official record as under :

“(a) That through these societies payments are being arranged mostly for outstation payments throughout India. The person/parties on whose behalf these payments are made are ought to be members of the society or are local traders of Gwalior who deposit their unaccounted cash or cheques in the bank account of these societies to effect the payments. The daily cash and cheques collection and payments made are of huge amount in the ranges of crores of rupees on daily basis.

(b) That the very fact that the members of these samities are making payment through the demand draft and pay orders prepared/ issued from the bank accounts of these two samities and not from their own bank account indicates that these payments/ receipts are not disclosed in their bank account or if these are disclosed then the assessee might not have due explanation as to the source of payments/deposits.

(c) That the payments in demand drafts, pay orders and through cheques from the bank account of these societies are made primarily to facilitate the local traders of Gwalior to make payments towards their unaccounted unrecorded purchases from outside parties who insist for immediate payments in cash or otherwise. As the large amount of payments in cash cannot be effected due to normal safety reasons, these traders are carrying the demand drafts/pay orders prepared by these two societies from their own bank account and thus settle their own account for outstation purchases. For this service, societies must be charging certain fee/commissions from these members. Most of the time the purchase and sales in respect of goods acquired through these DD/pay orders remain unaccounted and the investment and the profit earned from these transactions remain escaped from assessment.”

25. The formation of opinion shows that there has been maintenance of accounts in various banks. It has also enumerated evidence. During investigation it has been found that the society as engaged primarily to provide accommodation, payment in terms of DD and cheques on behalf of the members and the local traders. A reference has been made to copies of bank accounts from Punjab National Bank and Vijaya Bank.

“(I) Vijaya Bank, Gwalior in Account No. OD-250019 (period September 2005 to August, 2006). During this period, the total deposits made in the account were to the tune of Rs. 23,07,16,580 and withdrawals on account of payments to the parties through draft and out ward clearing of cheques were of Rs. 23,33,68,866. Out of the total deposits the amount deposited in cash is to the tune of Rs. 10 crores.

(II) Punjab National Bank in A/c No. 1965 (period July 5, 2006 to August 16, 2007). During this period the total deposits made in this account were to the tune of Rs. 41,51,37,361 and withdrawals by way of cheques for preparing the drafts were of Rs. 41,30,16,252. Out of the total deposits, the amount deposited in cash is to the tune of Rs. 9 crores.

(III) Punjab National Bank in Account No. 55916 (period December, 2006 to August, 2007). During this period, the deposits were to the tune of Rs. 65,89,58,166 and the withdrawals by way of payments through demand draft and outward clearing cheques were of Rs.66,79,51,302. Out of the total deposits, the amount deposited in cash is to the tune of Rs. 2 crores.

Further it is also gathered that the society has bank accounts with UCO Bank, State Bank of India, ICICI and Bank of Rajasthan.”

26. The salient features of these bank accounts have been noted. They read as under :

“(b) The modus operandi of the societies is that they collect cash or cheques from traders of Gwalior and give them demand drafts in the name of outstation parties for their trading business through the bank accounts of the society. Daily deposits both in cash and through cheques run into crores of rupees.

(c) In the bank account of these two societies huge amounts are deposited in cash and immediately equivalent amount of cheques or demand draft are issued in favour of certain parties on the instructions of person who deposited the cash.

(i) For example at Flag A-2 (Vijaya Bank) on November 16, 2005 cash amounting to Rs. 5,00,000 was deposited against which immediate payment by way of transfer amounting to Rs. 5,00,400 was effected on the same day. Similarly, on October 25, 2005 a cash deposit of Rs. 6,00,000 was made against which payment through cheque amounting to Rs. 6,00,000 was made in favour of M/s. Shakti Trading.

(ii) It is seen at Flag A-3-On November 29, 2005 cash deposit of Rs. 12,50,000 was made against which demand draft through self cheque for Rs. 19,87,339 was issued. Again on December 6, 2005 cash deposit of Rs. 10,00,000 was made against which payments were made by issue of cheques favouring yourself for issue of draft amounting to Rs. 21,24,573.

(iii) Flag A-4 shows that on December 13, 2005 cash of Rs.10,00,000 was deposited and 3 (three) cheques totalling of Rs.9,83,100 was given to Sriniwas Cable (Rs. 4,00,000) Saroj (Rs.5,83,100). Again on December 27, 2005 cash of Rs. 7,50,000 was deposited and payment through two cheques for Rs. 3 lakhs and Rs.4.50 lakhs were issued in favour of Sriniwas Cable. On December 29, 2005, against cash deposit of Rs. 6,00,000 cheque to Sriniwas Cable was Rs. 3,50,000 and outward transfer through two demand drafts for Rs. 4,19,572 were issued.

(iv) At flag A-5, on January 20, 2006 cash deposit of Rs. 10 lakhs was made against which payments were made through two cheques for Rs. 4 lakhs in favour of Sriniwas Cable. On January 21, 2006 cash of Rs. 5,00,000 was deposited and inward transfer for DD was made for Rs. 4,50,405. On January 23, 2006, cash deposit of Rs. 10,00,000 was made and 4 cheques totalling to Rs. 8,90,000 were issued to Srinivas Cable and another two cheques for Rs. 3,44,000 were issued to Saroj.

Throughout the period similar transactions have been taken place in these accounts.

Further, it has been observed that the samiti has received credits through cheques/inward clearing in small amount of Rs. 5 to 6 cheques of equivalent amount say Rs. 49,000 and all the cheques are in the same sequential number issued by one person/party from his cheque book which indicate that the bank account from which the payments are received/credited in the society account is not disclosed by the assessee in his books of account and he wants to make the payments in small amount to remain unnoticed as otherwise that person could have made payment by one cheque of Rs. 2,94,000 (Rs. 49,000 × 6 cheques). These facts are evidenced by various entries appearing in the account No. 55916 of Punjab National Bank, Gwalior.”

(d) Similarly, it has been observed that while making payments by demand drafts through cheques though the payments are made to one party at one particular point of time the same have been made by making different cheques of equivalent amount of the same date which indicates that the person does not want to make a single payment of a big consolidated amount just to avoid being noticed from tax authority implying that such transactions are unaccounted transactions for which the assessee (concerned parties) do not have any valid source. The examples are as under :

27. Thereafter there is reference to the income-tax return on record. On a scrutiny of the same, it transpires that the business of the society and the family members are largely unaccounted and the income earned by providing the payment facilities to the members of the local traders remain unaccounted as income-tax returns are not filed in most of the cases. The authority concerned has drawn inference which is apt to reproduce here-inbelow :

“The above facts shows that these societies are being used as facilitator of providing accommodation entries in terms of payments through demand draft, pay orders and cheques on behalf of members and traders of Gwalior from the bank account of the societies. These payments most likely are not reflected in the bank accounts of the persons/parties on whose behalf these payments are made as had these payments been accounted for by these traders then there is no reason why they have not routed these payments from their own bank accounts rather than the accounts of the societies. These payment transaction are mostly being made to effect the outstation purchases by the local traders. These purchases remain unaccounted and not disclosed in the income-tax return by these traders and the investment in these purchases represents the unaccounted/undisclosed investment of the traders which remain escaped from taxation.

The above samities are co-operative societies and are being managed and controlled by Shri Akhil Singhal, Shri Narendra Singhal, Shri Ravindra Singhal and Shri Sumit Goyal. All these persons are relatives of Shri Akhil Singhal. Further, it has been gathered that Shri Narendra Singhal and his son Shri Prashant Singhal are also operating another similar kind of samiti in the name and style of M/s. Hindustan Sakh Sahakarita Maryadit, Dal Bazar, Gwalior. As per local enquiry and market report none of these samities are filing their income-tax returns. The record of the PAN data base of the Department was also searched and it was found that none of the above societies have been allotted any PAN which confirmed that these societies do not file their income-tax returns.

The perusal of three bank accounts for around one year period revealed that through these three accounts total accommodation payments in terms of cheques and demand drafts were issued to the extent of Rs. 130 crores. The samities charge commission on his service charges for providing this services. In the similar case at Katni, it has been found that the rate of commission/service charges for providing these accommodation payments is at Rs. 1 per thousand. If this rate is applied then a minimum of Rs. 13,00,000 income has accrued to the society in respect of these three bank account transactions. Similar income are accruing to other societies most of these societies and person who are managing them are not filing their income-tax returns therefore, this commission income remain escaped from taxation.

Thus the entire operations of the societies of providing accommodation payment entries are not declared to the Income-tax Department and the income earned in the form of commission/fees for providing such facilities mostly escape from assessment. Further, the sources of these payments contributed by the members of the society and other local traders on whose behalf payments were made are not accounted for by these persons in their books of account which implies that all these transactions represent the unaccounted transaction of these traders/members of the societies. Therefore, the sources of investment in respect of these transactions remain unexplained and met from the undisclosed sources of these members/ traders which have escaped from assessment/taxation.

In this regard it may be mentioned that as per the latest amended provisions of section 292C, the assessee has to clearly establish the ownership and belongingness of the entries through which large amount of deposits and withdrawals on account of payments through demand drafts and outwards clearing cheques are transacted, otherwise as per the provisions of section 292C, all the books of account, documents, money and valuable and other part of books of account found during the course of search and survey under section 132(1)/ 133A shall be presumed to belong to such person and the content of those documents shall be treated as true.

Further on the ground floor of the building at Naya Bazar, Gwalior, cloth trading business is being carried out in the name and style of M/s. Dwarkadas Baboolal. The said firm is found to be owned by Shri Baboolal Singhal who is a father of Shri Akhil Singhal, the chairman of the abovementioned co-operative societies. As per local enquiries it has been found that the turnover of the said firm is in crores of rupees and earn huge profit even then no income-tax return is being filed in respect of such firm.

The above facts show Shri Akhil Singhal, his father Shri Baboolal Singhal, Shri Ravindra and Shri Narendra Singhal are earning huge income by running of the co-operative society by the name of M/s. The Gwalior Citizen Sakh Sahakarita Maryadit. M/s. New Central Sakh Sahakari Samiti and M/s. Hindustan, Sakh Sahakarita Maryadit and business of M/s. Dwarkadas Baboolal of cloth trading. Through these three samities they are facilitating the local traders of Gwalior and the members of the societies by issue of demand drafts and pay orders in lieu of cash deposits and other inwards clearing for which these traders/ members have no valid sources. Thus, large amount of the income in respect of these three samities, the family of Shri Akhil Singhal, Narendra Singhal, Ravindra Singhal and a large number of members and local/traders of the Gwalior are remained unaccounted and escaped from assessment/taxation. Through these means Shri Akhil Singhal and his family members have generated huge incomes and created assets and wealth which are not disclosed to the Income-tax Department. These investments and valuables will never be revealed to the department if notice under section 142(1) or Summons under section 131 are issued to them. Therefore, it would be in the fitness of things, that if the Director of Income-tax (Investigation) Bhopal deemed it fit, then the warrant of authorization under section 132(1) may be issued in respect of the following persons/premises as detailed in the note.”

28. Be it noted that the decision of the Deputy Director (Investigation) has concurred with by the Additional Director (Investigation). From the aforesaid facts which have been brought on record it is extremely difficult to accept the plea put forth by the learned counsel appearing on behalf of the assessee-petitioner that there is no material on record and the material has no rational nexus or it has been done mala fide. In fact ample data has been given. The reason to believe is based on materials available. There is application of mind and there is a rational nexus. It is not a case where action has been taken on mere suspicion. It is not a case where on receipt of such information from a third source action has been taken. In the case at hand the Revenue has formed an opinion on the basis of material collected. Sufficiency of materials cannot be gone into by this court. True it is, action under section 132(1) of the Act of 1961 is a serious matter and intrudes in the privacy of a citizen but the fact remains once there is an opinion and there is rationality and there is application of mind, this court under article 226 of the Constitution cannot interfere in the matter at this stage of these proceedings.

29. In view of the above, finding no case made out for interference, the petition stands dismissed.

[Citation : 333 ITR 196 ]