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2011 (2) TMI 360 - HC - Income TaxSearch and seizure - Neither the satisfaction note was provided nor has any order on the application been intimated to the petitioner - the main business was being transacted from Noida, unit, situate within SEZ ; No approval of the Development Commissioner was obtained under section 22 of the SEZ Act before conducting the search - the validity of search is not required to be adjudged as section 22 of the SEZ Act was not in force The information received by the DIT(I)-Kanpur is in unpublished official records relating to the affairs of the State and was in official confidence - At present, if the search is valid then the assessment is to be made for six earlier years under section 153A of the Income-tax Act - whatever documents or material was seized by the Department is known to the petitioner ; they are in the custody of the Department no manipulation can be done in the same - It is settled law that invalidity of search does not vitiate the evidence collected during search The application surrenders Rs. 11 crore considering the trend in the business for the entire assessment year in which search took place and there is no surrender of any income for the earlier six assessment years for which, assessment can be done under section 153A of the Income-tax Act - A search is conducted under 132 of the Income-tax Act. Earlier, it could be done under section 37 of the Income-tax Act, 1922. Irrespective of the date of search, even if search is illegal, information or material collected during search can be used for making assessment or for any other lawful purpose
Issues Involved:
1. Whether it is mandatory to record the reasons to believe for authorising the search. 2. Whether the DIT(I)-Kanpur had jurisdiction to authorise the search. 3. Whether the search was invalid as no prior approval of the Development Commissioner was taken under section 22 of the SEZ Act. 4. Whether the petitioner is entitled to be informed about the information/material or reasons to believe for authorising search before the question of their relevancy is decided by the court. 5. Whether the court can examine the records to adjudge the relevancy of the information/material or the reasons to believe for authorising search without assistance of the petitioner. 6. Whether the petitioner has made out a prima facie case against the search. Detailed Analysis: 1. Whether it is mandatory to record the reasons to believe for authorising the search: - Section 132 of the Income-tax Act does not specifically require recording reasons to believe. However, other sections like 127 and 147 require reasons to be recorded. The previous rule 112(2) mandated recording reasons, but this requirement was removed in 1975. - The Department argued that the current wording of the law does not require reasons to be recorded, citing the Calcutta High Court decision in Subir Roy v. S. K. Chattopadhyay. - The petitioner's counsel argued that section 165 of the Criminal Procedure Code, which mandates recording reasons for searches, should apply under section 132(13) of the Income-tax Act. - The court refrained from deciding this point as the Department stated that reasons were recorded in this case. 2. Whether the DIT(I)-Kanpur had jurisdiction to authorise the search: - Section 120 of the Income-tax Act allows the Board to direct income-tax authorities to exercise their powers across India. - The Board's directions (SO 703(E)) allow the DIT(I)-Kanpur to authorise searches throughout India, although other powers are limited to UP and Bihar. - The petitioner had a warehouse in Noida, within the jurisdiction of the DIT(I)-Kanpur, making the search valid. 3. Whether the search was invalid as no prior approval of the Development Commissioner was taken under section 22 of the SEZ Act: - Section 22 of the SEZ Act, which restricts searches within SEZs, was not enforced at the time of the search (enforced from January 13, 2010). - The court found no need to adjudicate the search's validity based on section 22 of the SEZ Act. 4. Whether the petitioner is entitled to be informed about the information/material or reasons to believe for authorising search before the question of their relevancy is decided by the court: - Section 132 requires that the belief to authorise a search be based on relevant information/material. - The court held that the petitioner is entitled to know the information/material or reasons to believe for authorising the search to ensure fairness and uphold principles of natural justice. - The RTI Act does not apply to the Directorate General of Income-tax (Investigation), but this does not prevent disclosure in court proceedings. - Section 138 of the Income-tax Act and sections 123-125 of the Evidence Act were considered, with the court concluding that the petitioner should be informed of the information/material (excluding the source) before deciding relevancy. 5. Whether the court can examine the records to adjudge the relevancy of the information/material or the reasons to believe for authorising search without assistance of the petitioner: - The court held that relevancy can only be judged after looking into the information and hearing the petitioner. - The court emphasized fairness and the adversarial system of jurisprudence, requiring the petitioner to be informed and heard before deciding relevancy. - Previous cases and legal principles were cited to support this view. 6. Whether the petitioner has made out a prima facie case against the search: - The petitioner argued that there was no material or information justifying the search and provided details of their business operations and the limited recovery during the search. - The court found that the petitioner had made out a prima facie case, considering the special status of SEZs, the amount of recovery, and the lack of specific denial in the counter-affidavit. - The court directed the Department to produce the record or file a supplementary counter-affidavit indicating the information/material and reasons to believe for authorising the search, excluding the source of information. Conclusions: 1. The DIT(I)-Kanpur had jurisdiction to authorise the search. 2. Section 22 of the SEZ Act was not enforced at the time of the search, so its validity need not be adjudged on that basis. 3. The petitioner is entitled to know the information/material or reasons to believe for authorising the search, subject to privilege under sections 123 or 124 of the Evidence Act. 4. The petitioner has made out a prima facie case for disclosure of the information in the possession of the Department.
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