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IN THE HIGH COURT OF BOMBAY
K. R. Shriram, Dr. Neela Gokhale, JJ.
Echjay Industries Pvt Ltd. & Ors. - Appellants
Versus
Rajendra & Ors. - Respondents
Writ Petition No. 122 of 2009 with Writ Petition No. 2309 of 2010
Decided On : 10-05-2024
SEARCH AND SEIZURE - INCOME TAX ACT - Section 132 - The court analyzed the provisions of Section 132 of the Income Tax Act, 1961, which allows for search and seizure when there is a reasonable belief of undisclosed income. The court emphasized the necessity for the authorities to have credible information before authorizing such actions. It found that the respondents failed to demonstrate a valid basis for their belief, leading to the conclusion that the search was invalid and the subsequent actions were quashed.
Fact of the Case:
The petitioners, a private limited company and its directors, challenged the constitutionality of search authorizations issued under Section 132 of the Income Tax Act, claiming that the search was conducted without valid reasons or jurisdiction. They argued that the authorities lacked credible information to justify the search and seizure of assets.
Finding of the Court:
The court found that the respondents did not possess sufficient information to form a reasonable belief that the petitioners had undisclosed income. The satisfaction note provided by the authorities was deemed inadequate and irrelevant, failing to meet the jurisdictional requirements of Section 132.
Issues: Whether the search and seizure conducted under Section 132 of the Income Tax Act was valid given the lack of credible information to justify the action.
Ratio Decidendi: The court held that the formation of belief by the authorities must be based on credible information and that the absence of such information renders the search and seizure invalid. The court reiterated that the reasons for such belief must be recorded and are subject to judicial review, although the adequacy of those reasons is not justiciable.
Final Decision: The court quashed the search and seizure actions taken under Section 132, ruling that the actions were invalid due to non-compliance with the statutory requirements. All consequent actions and notices were also quashed.
JUDGMENT
K. R. Shriram, J. - Since the challenge in both these petitions arise out of the same search action under Section 132 of the Income Tax Act 1961 (the Act), we dispose both the petitions by this common order and judgment. For convenience, we treat Writ Petition No. 122 of 2009 as the lead matter.
2. Petitioner no.1 is a private limited company. Petitioner no.2 is the Chairman and Managing Director of petitioner no.1. Petitioner nos. 3, 4 and 5 are Directors of petitioner no.1. Petitioner nos. 5, 6 and 7 are the spouses of petitioner nos. 2, 4 and 3, respectively. Petitioner no.8 is the married daughter of petitioner no. 2.
3. Respondent No. 1 was the officer empowered by the Central Board of Direct Taxes (CBDT) to issue authorization under section 132 of the Act for carrying out search and seizure under the Act. In exercise of his powers under section 132 of the Act, respondent no.1 issued authorisations dated 7th July, 2008 in favour of respondent no.2 and others, authorising them to enter upon and search various premises belonging to petitioners.
4. Petitioner No. 1 was incorporated on 31st December 1960 under the Companies Act 1956 and was a leading manufacturer of forging and engineering products required in the automobile industry. Petitioner no.1 had an annual turnover of over Rs.314 crores for the year ended 31st March 2007. Petitioners were regularly assessed to income-tax and wealth tax. It is stated in the petition that the income tax assessments of petitioner no.1 for the last 20 years have been made under section 143(3) of the Act by way of detailed scrutiny. It is also stated that no penalty under section 271(1)(c) of the Act has ever been levied upon petitioners for any concealment or furnishing inaccurate particulars of income.
5. On or about 9th and 10th July 2008, a search was conducted at the business premises of petitioner no.1 as well as at residential premises of petitioner nos.2 to 7, pursuant to an authorization dated 7th July, 2008 issued by respondent no.1 under section 132(1) of the Act. Respondent no.2 and other authorized officers entered into various premises and conducted the search. Panchnamas were also drawn up in the course of the search proceedings. It is petitioners' case that a search was conducted in the premises of petitioner nos. 6 and 7 on 9th July 2008 without any warrant of authorisation being issued in the names of petitioner nos.6 and 7. The details of premises searched, items seized and the proceedings thereafter are summarized in the petition. It is stated that petitioners submitted various clarifications and explanations to respondents as and when they were called upon to do so. Petitioners stated that by the initiation of search proceedings and also the manner in which the proceedings were conducted, they are apprehensive that respondents will, without jurisdiction or authority of law, proceed against petitioners to make assessments and/or reassessments of past six assessment years in the case of all petitioners and raise huge demands by way of tax, interest and penalties, which will cause hardship and prejudice to petitioner. It is petitioners case that authorisations dated 7th July, 2008 issued against petitioners are unconstitutional, ultra vires, invalid, without jurisdiction, etc., and are liable to be quashed and set aside. The grounds on which petitioners have challenged the authorisations, inter alia are as under:
(B) Non-observance of the safeguards in section 1
The necessity for authorities to possess credible information to form a reasonable belief before conducting search and seizure under Section 132 of the Income Tax Act is essential for the validity of....
Search and seizure under Section 132 of the Income Tax Act requires credible information that justifies belief, and cannot be based on mere suspicion.
The court upheld the legality of search and seizure under Section 132 of the Income Tax Act, asserting that the 'reason to believe' standard is justiciable, but not the adequacy of those grounds.
Searches conducted under Section 132 of the Income Tax Act require valid reasons to believe, which were established in this case, affirming the legality of the searches and seizures.
The main legal point established in the judgment is that the power under Section 131(1A) of the Income Tax Act is not an independent power, but is for the purpose of making an inquiry and investigati....
A person may only be assessed under Section 153C of the Income Tax Act if they are not the 'searched person'; procedural safeguards must precede assessment actions.
Search and seizure under tax laws require careful scrutiny to avoid abuse of power, reflecting the balance between enforcement and constitutional rights.
The court held that a petitioner searched under Section 132 of the Income Tax Act cannot be treated as a non-searched person for proceedings under Section 153C, and thus impugned notices issued again....
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