Madhya Pradesh H.C : validity of the warrant issued under section 132A of the Income-tax Act, 1961

High Court Of Madhya Pradesh

Smt. Suman Singhai Vs. Director Of Income-Tax (Investigation)

Section : 132

S.R. Alam, C.J. And Alok Aradhe, J.

Wp No. 6234 Of 2009 (O)

November 8, 2010

JUDGMENT

S.R. Alam, C.J. – In the instant writ petition under article 226 of the Constitution of India, the petitioner has questioned the legality and validity of the warrant issued under section 132A of the Income-tax Act, 1961.

2. The short facts, briefly stated giving rise to the instant petition, are that the petitioner carries on business of sale and purchase of ornaments of silver and gold. The petitioner deals in the business of manufacture of silver and gold ornaments in the name and style of Singhai Jewellers and is regularly assessed to income-tax and has a permanent account number. The petitioner is also a registered dealer under the provisions of the M. P. Value Added Tax Act, 2002.

3. During the course of routine checking by the G.R.P., Katni, the petitioner’s employee, namely, Kamlesh Soni, was found to be in possession of impure silver weighing 54.078 kgs. with pure silver content of 33.738 kgs. and cash of Rs. 16,50,000 in an Indica car bearing registration number M.P.-13/T-5331. The police authorities submitted intimation to the Income-tax Department. On the basis of the information given by the police authorities a warrant of authorization dated December 5, 2008, under section 132A of the Income-tax Act, 1961, was issued. The authorised officer executed the warrant under section 132A of the Act. He was informed by the G. R. P., Katni, that the assets were in the possession of the C. J. M., Katni, and, therefore, the G. R. P., Katni, was not in a position to hand over the assets to the income-tax authorities. The petitioner submitted an application (annexure P/5), dated December 2, 2008, for release of the assets before the C. J. M., Katni. The Income-tax Department also made an application for release of the assets in its favour. Both the applications were decided by the C. J. M., vide order dated January 24, 2009. The application preferred by the petitioner was rejected. However, the application preferred by the Department was allowed and it was directed that the assets be handed over to the Income-tax Department on furnishing security to the tune of Rs. 26 lakhs. Against the aforesaid order, revision has been filed by the Income-tax Department which is pending before the District and Sessions Judge, Katni. The petitioner has assailed the warrant of authorisation issued under section 132A of the Income-tax Act through this petition.

4. Return has been filed by the respondents, inter alia, pleading that the order dated January 24, 2009, passed by the C. J. M., Katni, is illegal in so far as it directs furnishing of security to the tune of Rs. 26 lakhs. Once warrant of authorization is issued under section 132A of the Income-tax Act, the magistrate or police has no jurisdiction to deal with the seized assets in the absence of any crime having been registered and the same should be handed over to the Income-tax Department. Being aggrieved by the order of the C. J. M., the Department has preferred a revision which is pending adjudication before the Sessions Judge, Katni. It is further stated that before issuance of the warrant dated December 5, 2008, appropriate steps were taken by the Income-tax Department and after being satisfied with regard to the credibility of the information possessed by the Department, the Director of Income-tax has issued the warrant of authorization under section 132A of the Income-tax Act. It has further been stated that the competent authority has applied his mind and has exercised the power of issuance of warrant of authorization in accordance with law.

5. We have heard learned counsel for the parties.

6. Shri G.N. Purohit, learned senior counsel appearing for petitioner, vehemently contended that the assets, i.e., impure silver weighing 54.078 kgs. with pure silver content of 33.738 kgs. and cash worth Rs. 16,50,000 found in the possession of the employee of the petitioner were accompanied by a travel memo, a perusal whereof would have disclosed that the seized assets belong to a person assessed to income-tax. Hence, its ownership could have been ascertained. It is further contended that there was no material wherefrom a belief could be formed that the assets were undisclosed assets. Therefore, the identity of the assets was well known. It is also contended that business assets should not be seized. Seizure of trading stock is prohibited under section 132(1)(c)(B)(iii) of the Income-tax Act and, therefore, taking of the possession of the trading stock in exercise of power under section 132A of the Income-tax Act is illegal and the same constitutes violation of the fundamental right contained in article 19(1)(g) of the Constitution of India. Learned senior counsel in support of the above submissions has relied on the decisions in Dwarka Prosad Agarwalla v. Director of Inspection [1982] 137 ITR 456 (Cal), Ganga Prasad Maheshwari v. CIT [1983] 139 ITR 1043 (All), L.R. Gupta  v. Union of India [1992] 194 ITR 32 (Delhi), Ajit Jain  v. Union of India [2000] 242 ITR 302 (Delhi), Union of India  v. Ajit Jain [2003] 260 ITR 80 (SC), CIT  v. Vindhya Metal Corporation [1997] 224 ITR 614  (SC), Amar Agrawal v. Director of Income-tax ( Investigation) [2005] 276 ITR 182  (MP), ITO  v. Seth Brothers [1969] 74 ITR 836 (SC), Naraindas  v. CIT [1984] 148 ITR 567 (MP), Biaora Constructions P. Ltd. v. Director of Income-tax (Investigation) [2006] 281 ITR 247 (MP) and ITO  v. Lakhmani Mewal Das [1976] 103 ITR 437  (SC). He lastly submitted that the action of issuance of the impugned warrant of authorization suffers from the vice of non-application of mind inasmuch as there was no reason to believe that cash and silver which were seized represent assets which would not have been disclosed for the purpose of income-tax. There was no basis for formation of belief leading to issuance of warrant of authorization under section 132A of the Income-tax Act.

7. Learned senior counsel appearing for the Revenue while opposing the petition submitted that the warrant of authorization was issued by the Director of Income-tax as he was in possession of information on the basis of which he had reason to believe that cash and silver which were seized represent assets which would not have been disclosed for the purpose of income-tax. Warrant of authorization was issued after due application of mind and after having been satisfied that there is material on record for formation of belief for exercise of power under section 132A of the Income-tax Act. It has further been contended that section 132A(3) of the Act raises a presumption that a person who is in possession of the assets is the owner thereof. It has further been brought to our notice that though the assets were seized on November 29, 2008, yet the warrant of authorization was issued on December 5, 2008. Thus, the competent authority has formed an opinion on the basis of enquiry and relevant material. No fault can be found with the action of the Department and its bona fides cannot be doubted. Learned senior counsel has produced the record for perusal of this court.

8. We have considered the submissions made on behalf of both the sides.

9. Before adverting to the merits of the case, it would be useful to have a quick look at section 132A of the Income-tax Act which deals with power to requisition books of account, etc. The relevant extract of section 132A reads as under :

“132A. Powers to requisition books of account, etc.—(1) Where the Director-General or Director or the Chief Commissioner or Commissioner, in consequence of information in his possession, has reason to believe that— . . .

(c) any assets represent either wholly or partly income or property which has not been, or would not have been, disclosed for the purposes of the Indian Income-tax Act, 1922 (11 of 1922), or this Act by any person from whose possession or control such assets have been taken into custody by any officer or authority under any other law for the time being in force, then,

the Director-General or Director or the Chief Commissioner or Commissioner may authorize any joint Director, Joint Commissioner, Assistant Director or Deputy Director, Assistant Commissioner or Deputy Commissioner or Income-tax Officer hereafter in this section and in sub-section (2) of section 278D referred to as the requisitioning officer to require the officer or authority referred to in clause (a) or clause (b) or clause (c), as the case may be, to deliver such books of account, other documents or assets to the requisitioning officer.”

10. At this stage we deem it appropriate to deal with the scope and ambit of powers under section 132A of the Income-tax Act with regard to search and seizure. In Seth Brothers [1969] 74 ITR 836 (SC), the Supreme Court, while dealing with the provisions of section 132 of the Income-tax Act relating to search and seizure which is in pari materia with section 132A of the Income-tax Act, has held that the section does not confer any arbitrary power on Revenue officers. It was further observed that if the action of the officer issuing the authorization or of the designated officer is challenged, the officer concerned must satisfy the court about the regularity of the action. If it is found that action has been taken maliciously or power is exercised for collateral purpose, the same is liable to be struck down by the court. It has been further held that power exercised by the Commissioner under section 132 is not a judicial or quasi-judicial power and that the court cannot substitute its own opinion for that of the Commissioner.

11. In Lakhmani Mewal Das [1976] 103 ITR 437 (SC), the Supreme Court, while dealing with section 147(a) of the Income-tax Act, held that the grounds or reasons which lead to the formation of the belief contemplated by section 147(a) of the Act must have a material bearing on the question of escapement of income of the assessee from assessment because of his failure or omission to disclose fully and truly all material facts. Whether the grounds are adequate or not is not a matter for the court to investigate. The sufficiency of the grounds which induce the Income-tax Officer to act is, therefore, not a justiciable issue. However, the expression “reason to believe” does not mean a purely subjective satisfaction on the part of the Income-tax Officer. The reason must be held in good faith. It cannot be merely a pretence. It is open to the court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant for the purpose of the section. Thus, reasons for formation of belief must have a rational connection with or relevant bearing on the formation of the belief. The rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income-tax Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment because of his failure to disclose fully and truly all material facts.

12. In Vindhya Metal Corporation [1997] 224 ITR 614  (SC), it was held by the Supreme Court that mere unexplained possession of an amount, without anything more, cannot be said to constitute information which could be treated as sufficient by a reasonable person, leading to an inference that it was income which had not been disclosed by the person in possession for purposes of section 132A of the Act.

13. A Division Bench of the Delhi High Court in Ajit Jain v. Union of India [2000] 242 ITR 302  (Delhi) held that the expression “reason to believe” mean that a reasonable man, under the circumstances, would form a belief which would impel him to take action under the law. The formation of opinion has to be in good faith and not on mere pretence. For the purpose of section 132 of the Act, there has to be a rational connection between the information or material and the belief about undisclosed income which is not likely to be disclosed by the person concerned. The aforesaid decision was affirmed by the Supreme Court in Union of India v. Ajit Jain [2003] 260 ITR 80  (SC).

14. The learned single judge of this court in Biaora Constructions P. Ltd. v. Director of Income-tax ( Investigation) [2006] 281 ITR 247  (MP) has held that it is only when the assessee fails to explain its source when called upon to do so or when the source to acquire the assets is found to be not legal or when it could not be explained satisfactorily that formation of belief is made out in favour of the Revenue resulting in attracting the rigour of section 132A.

15. Keeping in view the above well-settled principles of law, we may now advert to the facts of the present case. Pursuant to the order dated February 25, 2009, the record has been produced by the respondents for our perusal. We find that a note was prepared by the Director of Income-tax (Investigation), Bhopal, running into eleven pages. On December 4, 2008, on the basis of the aforesaid note, another note dated December 5, 2008, was prepared which is mentioned below :

“DIT (Inv), Bhopal, may kindly peruse the secret note dated December 4, 2008, prepared by Arvind Nashkar, ITO (Inv), Jabalpur, on prepage 1-11.

As per information received from the Collector and the District Magistrate, Katni, the Railway Police, Katni, has seized cash Rs.16,50,000 along with silver claimed to be 33.738 kgs. (on weighing it is found to be 54.118 kgs.) from one Shri Kamlesh Soni, S/o Shri Krishnand Soni, Shiv Nagar, Nadipur, Katni who has claimed to have been given to him by one Shri Vipul Jain of Ujjain. As detailed in the report of the ITO (Inv), Jabalpur, investigation by Police, ITO, Katni, ITO (Inv), Jabalpur and DDIT (Inv), Indore, it emerges that the cash and silver seized by GRPF is undisclosed as there are no signs of activity of manufacturing at the shop in Ujjain, no books of account were available and the same were not produced or claimed to exist by Shri Vipul Jain in his telephonic conversation with ITO (Inv), Jabalpur, and DDIT (Inv), Indore, no return of income pertaining to Shri Kamlesh Soni or Shri Vipul Jain or his alleged concern, M/s. Singhai Jewellers, Ujjain, has been evidenced/produced and none has responded to the summons under section 131 served by affixture on the shop of M/s. Singhai Jewellers (since mother of Shri Vipul Jain had refused to receive the summons).

On the basis of the above, it is clear that the cash and silver seized by GRPF, Katni, is undisclosed and that Shri Vipul Jain or Shri Kamlesh Soni have not disclosed to the Department the true nature of it and thus there is reason to believe that they will not disclose their affairs of business to the Department in response to statutory notices.

Under the circumstances, it is proposed that warrant of authorization under section 132A in respect of the abovestated cash and silver be issued to Thana Incharge Railway Police, Katni, so as to seize the undisclosed cash and jewellery.”

16. The matter was then put up before respondent No. 1 who recorded his satisfaction under section 132A as under :

“I have perused the notes of the Additional DIT (Inv), Jabalpur, and the ITO (Inv), Jabalpur. I have also discussed the details of the case with both of them.

In this case, after the receipt of information regarding seizure of cash and silver by the police, subsequent enquiries were conducted by the Income-tax Department to establish the nature of cash and silver. As per the details given in the notice of the ITO (Inv), investigation and enquiry have been carried out from the persons carrying cash and silver and also at place, i.e., Ujjain, where the claim of carrying business was stated. The contradictions in statement, in the challan and the actual measurement of silver, non-existence of working business as pointed out in the above notes along with the absence of supporting documents regarding cash and silver clearly indicate that the assets are unaccounted and they would not be disclosed for the purpose of the Income-tax Act. Therefore, I have reason to believe that this is a fit case for issue of authorization under section 132A.”

17. It is worth mentioning here that neither there is any allegation of malice against respondent No. 1 in the petition nor was it argued that he acted with malice while issuing warrant of authorization. The record produced by the respondents clearly establishes that respondent No. 1 was in possession of the information on the basis of which he had reason to believe that cash and silver which were seized represented assets which would not have been disclosed for the purpose of income-tax. From the reasons recorded by respondent No. 1, it is apparent that it has rational connection and relevant bearing on the formation of belief leading to issuance of warrant of authorization under section 132A of the Income-tax Act. There is a direct nexus between material coming notice of the authority and formation of belief for issuance of warrant under section 132A of the Income-tax Act.

18. For the aforesaid reasons, we are unable to hold that the issuance of warrant of authorization under section 132A of the Income-tax Act, in the facts and circumstances of the case is illegal. The writ petition fails and is hereby dismissed. However, there shall be no order as to costs.

[Citation : 335 ITR 188]