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Saturday, January 10, 2015

Income Tax Act Section 132(1) of the Act enables the competent authority to direct for issue of search and seizure on reasonable formation of opinion= CIVIL APPEAL NO. 7499 OF 2004 Union of India & Ors. ... Appellants Versus M/s. Agarwal Iron Industries ... Respondent


                        CIVIL APPELLATE JURISDICTION

                        CIVIL APPEAL NO. 7499 OF 2004

Union of India & Ors.                        ... Appellants


M/s. Agarwal Iron Industries                       ... Respondent

                        CIVIL APPEAL NO. 7502 OF 2004

                               J U D G M E N T

Dipak Misra, J.

      In these appeals the assail is to the legal tenability  of  the  order
dated 3.9.2003 passed by the Division Bench of the High Court of  Judicature
at Allahabad in Civil Writ Petition No. 275 of 2000 whereby the  High  Court
has quashed the search and seizure conducted on  16.2.2000  in  the  factory
premises of the 1st respondent.
     2. Filtering the unnecessary details, the facts  that  constitute  the
        filament of the controversy is that the 1st respondent  is  engaged
        in the manufacture of C.I. pipes, fittings  and  manholes  and  has
        obtained the licence under the Central Excise Act.  The factory  in
        question has been filing income-tax returns under  the  Income  Tax
        Act, 1961 (for brevity 'the Act').   On  16.2.2000  when  the  sole
        proprietor of the factory Shri Om Prakash Agarwal was  absent,  the
        officer of the Income Tax Department conducted a search both at the
        residential as well as the business premises.  During the search of
        the residential premises, son of the sole proprietor  was  informed
        by the Income Tax Officer that  the  search  operations  were  also
        being conducted at the factory premises.  Despite such  information
        he was not allowed to leave the house.  Assailing  the  search  and
        the seizure, the 1st respondent preferred a  writ  petition  before
        the High Court and contended therein that there was no  information
        in possession  of  the  officer  which  could  have  persuaded  any
        reasonable person  to  form  an  opinion  about  the  existence  of
        undisclosed assets of the writ-petitioner.   It  is  further  urged
        that  the  warrant  of  authorization  was   issued   mechanically,
        arbitrarily  and  there  was  total  non-application  of  mind  and
        moreover there was no formation of opinion about the  existence  of
        undisclosed assets as contemplated under Section 132(1) of the Act.
         On this foundation, the search  and  seizure  were  sought  to  be
     3. A counter affidavit was filed  by  the  revenue  asseverating  that
        there was no illegality in the initiation of the seizure and it had
        been conducted in accordance with law and the  revenue  had  enough
        material against the 1st respondent herein  for  the  assessee  had
        suppressed the vital information pertaining to production and  sale
        and the same was also evidenced during the  search  operation.   It
        was contended that the productions declared by the  1st  respondent
        in the official record was not even 1/5th of the actual  production
        revealed by the seized documents.
     4. It is interesting to note that the High Court by  its  order  dated
        29.3.2000  appointed  an  Advocate  Commissioner  to   prepare   an
        inventory of  the  goods  in  question  in  respect  of  which  the
        restraint order was passed.  The  said  Advocate  Commissioner  had
        submitted a report which was  taken  on  record.   The  High  Court
        placed reliance on  decisions  in  Commissioner  of  Income-Tax  v.
        Vindhya Metal Corporation[1], Dr. N.L. Tahiliani v. Commissioner of
        Income Tax[2], L.R. Gupta v. Union of India v.  Union  of  India[3]
        and Ajit Jain v. Union of India[4] and extensively quoting from Dr.
        Tahiliani's case came to hold as follows:-
      "At this stage it is  relevant  to  refer  to  Para  40  of  the  writ
      petition, which is quoted below:

           "40.  That  in  the  facts  and  circumstances   the   Petitioner
           bonafidely 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-Section (1) of Section 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 Paragraph 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 Rule 5
      of the Code of Civil Procedure 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 a 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  Section  141  of  the
      Code of Civil Procedure provides that the provisions of Code of  Civil
      Procedure shall not be applicable to the writ petition.  However,  the
      principles  as  stated  in  the  Code  of  Civil  Procedure  are  also
      applicable to the writ proceedings."

     5. We have no hesitation in opining that the reasons ascribed  in  the
        aforesaid paragraphs, leaves us absolutely unimpressed.  We  really
        cannot comprehend how an Advocate  Commissioner  was  appointed  to
        take inventory of the goods in respect of which the restraint order
        was passed by the  revenue  under  the  Act.   That  apart,  it  is
        difficult to appreciate how the denial  in  the  counter  affidavit
        filed  by  the  revenue  could  be  treated  as  an  admission   by
        implication to come to a conclusion that no reason was ascribed for
        search and seizure and, therefore, action taken under  Section  132
        of the  Act  was  illegal.   The  relevant  confidential  file,  if
        required and necessary could have been  called  for  and  examined.
        Revenue in the counter affidavit was not required to elucidate  and
        reproduce the information and details that formed the foundation.
     6. In this context, we may profitably refer to the decision in  Pooran
        Mal V. The Director of Inspection (Investigation),  New  Delhi  and
        others[5], wherein the  Constitution  Bench,  while  upholding  the
        constitutional validity of Section 132 of the Act opined thus:
      "Search and seizure are not a new weapon in the armoury of those whose
      duty it is to maintain social security  in  its  broadest  sense.  The
      process is widely recognized  in  all  civilized  countries.  Our  own
      Criminal Law accepted its necessity and usefulness in Sections  96  to
      103 and Section 165 of the Criminal Procedure Code. In M.P. Sharma  v.
      Satish Chandra[6] the challenge to  the  power  of  issuing  a  search
      warrant under Section 96(1)  as  violative  of  Article  19(1)(f)  was
      repelled on the ground that a power of search and seizure  is  in  any
      system of jurisprudence an overriding  power  of  the  State  for  the
      protection of social security and that power is necessarily  regulated
      by law. As pointed out in that case  a  search  by  itself  is  not  a
      restriction on the right to hold and enjoy property though  a  seizure
      is a restriction on the right  of  possession  and  enjoyment  of  the
      property seized. That, however, is only temporary and for the  limited
      purpose of investigation".

      Thereafter, proceeding with the ratiocination, the  Court  ruled  that
the provision has inbuilt spheres.  Proceeding to enumerate the spheres  and
other consequent facets, the Court ruled:

      "In the first place, it must be noted that the power to  order  search
      and seizure is vested in  the  highest  officers  of  the  department.
      Secondly, the exercise of this power  can  only  follow  a  reasonable
      belief entertained by such officer that any of  the  three  conditions
      mentioned in Section 132(1)(a),(b) and (c) exists. In this  connection
      it may be further pointed out that under sub-rule (2) of Rule 112, the
      Director of Inspection or the Commissioner, as the case may be, has to
      record his reasons before the authorisation is issued to the  officers
      mentioned in sub-section  (1).  Thirdly,  the  authorisation  for  the
      search cannot be in favour of any officer below the rank of an  Income
      Tax Officer. Fourthly, the  authorisation  is  for  specific  purposes
      enumerated in (i) to (v) in sub-section (1) all of which are  strictly
      limited to the object of the search. Fifthly when money, bullion, etc.
      is seized the Income Tax Officer is to make a summary enquiry  with  a
      view to determine how much of what is seized will be retained  by  him
      to cover the estimated tax liability and how  much  will  have  to  be
      returned forthwith. The object of the enquiry under sub-section (5) is
      to reduce the inconvenience to the assessee as  much  as  possible  so
      that within a reasonable time what is estimated due to the  Government
      may be retained and what should be returned to  the  assessee  may  be
      immediately returned to him.  Even with regard to the books of account
      and documents seized, their return is guaranteed  after  a  reasonable
      time. In the meantime the person from whose custody they are seized is
      permitted to make copies and  take  extracts.  Sixthly,  where  money,
      bullion, etc. is seized, it can also be immediately  returned  to  the
      person concerned after he makes appropriate provision for the  payment
      of the estimated tax dues under sub-section (5) and lastly,  and  this
      is most important, the  provisions  of  the  Criminal  Procedure  Code
      relating to search and seizure apply, as far as they may  be,  to  all
      searches and seizures under Section 132. Rule  112  provides  for  the
      actual search and seizure being made after observing normal  decencies
      of behaviour. The  person  in  charge  of  the  premises  searched  is
      immediately given a copy of the list of articles seized. One  copy  is
      forwarded to the authorising officer. Provision for the  safe  custody
      of the articles after seizure  is  also  made  in  Rule  112.  In  our
      opinion, the safeguards are  adequate  to  render  the  provisions  of
      search and seizure as less onerous  and  restrictive  as  is  possible
      under the circumstances.

     7. In District Registrar  and  Collector,  Hyderabad  and  Another  V.
        Canara Bank and Others[7],  while referring to Section 132  of  the
        Act, it has been ruled that:
      "There are safeguards. Section 132 uses the words "in  consequence  of
      information in his  possession,  has  reason  to  believe".  (emphasis
      supplied)  Section  132(1-A)  uses  the  words  "in   consequence   of
      information in his possession, has reason to suspect". Section 132(13)
      says that the provisions of the Code of Criminal  Procedure,  relating
      to searches and seizure shall apply, so far as may be, to searches and
      seizures under Sections 132(1) and 132(1-A). There are also Rules made
      under Section 132(14). Likewise Section 132-A(1) uses  the  words  "in
      consequence of information in his possession, has reason to  believe".
      (emphasis supplied) Section 133 which deals with the power to call for
      information from banks and others uses the words "for the purposes  of
      this Act" and Section 133(6) permits a requisition to  be  sent  to  a
      bank or its officer".

     8. The provision contained in Section 132(1) of the  Act  enables  the
        competent authority to direct for issue of search  and  seizure  on
        the basis of formation of an opinion which a reasonable and prudent
        man would form for arriving at a conclusion to issue a warrant.  It
        is done by way of an interim measure.  The search  and  seizure  is
        not confiscation.  The articles that are seized are the subject  of
        enquiry by the competent authority after affording  an  opportunity
        of being heard to the person whose custody it has been seized.  The
        terms  used  are  'reason  to  believe'.   Whether  the   competent
        authority had formed the opinion on the  basis  of  any  acceptable
        material or not, as is clear as crystal, the  High  Court  has  not
        even remotely tried to see the reasons.  Reasons, needless to  say,
        can be recorded on the file and the Court can scrutinize  the  file
        and find out whether the authority has appropriately  recorded  the
        reasons for forming of an opinion that there are reasons to believe
        to conduct search and seizure.  As is evincible, the High Court has
        totally misdirected itself in quashing the search  and  seizure  on
        the basis of the principles of non-traverse.
     9. In our considered opinion, the High  Court  would  have  been  well
        advised to peruse  the  file  to  see  whether  reasons  have  been
        recorded or not and whether the same meet the requirement of law.
    10. In view of our foregoing analysis, we allow the appeals, set  aside
        the impugned order passed by the High Court and remand  the  matter
        to the High Court for fresh disposal in accordance with  law.   The
        revenue shall produce the file before the  High  Court,  whereafter
        the High Court shall proceed to adjudicate the lis.  There shall be
        no order as to costs.

                                                               [Dipak Misra]

                                                             [Uday     Umesh
New Delhi;
November 12, 2014
[1]  (1997) 5 SCC 321
[2] (1988) 170 ITR 592 (Allahabad)
[3] (1992) 194 ITR 32 (Delhi)
[4] (2000) 242 ITR 302 (Delhi)
[5]  (1974) 1 SCC 345
[6]  AIR 1954 SC 300
[7]  (2005) 1 SCC 496

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