2014 (1) TMI 1188 - HC - Income Tax

Legality of seizure operation u/s 132 of the Act Seizure made at the residence and office- Held that - Grammatically, it would make a mockery of the expression or the authorised officer referred to in sub-section (1) of Section 132 before he takes action under clauses (i) to (v) of that sub-section , which has parenthetical commas at either end to suggest such expression being a whole unto itself and an alternative to the cases of the authority under the provision being exercised by the Director General or a Director or a Joint Director or an Assistant Director or a Deputy Director by virtue of the opening lines of the sub-section preceding the relevant clause - It is elementary on any reading of Section 131(1A) of the Act that the five categories of officers, other than the authorised officer referred to in Section 132(1) of the Act, may exercise the authority under such provision, subject to meeting the other statutory requisites but without being impaired by the search and seizure process having been conducted under Section 132(1) of the Act - With respect, the provision admits of no other construction or interpretation. Since the notices under Section 131(1A) of the Act were issued in this case by a Deputy Director, he had due authority therefor - such officer possessed the treasure trove of information pertaining to the aforesaid four companies connected with the EMTA group and the petitioners nexus therewith, he had enough reason to suspect that income had been concealed or was likely to be concealed by the petitioners who were subject to his jurisdiction - There is no requirement, far less any statutory fiat, for the reasons to suspect or the basis for the suspicion to be disclosed in any notice issued under Section 131(1A) of the Act - In any event, the first of such notices that the petitioners assail, the one dated October 28, 2013, refers to a previous notice under Section 131(1A) of the Act that required the petitioners to appear before the Deputy Director on August 2, 2013 - The factum of such previous notice having been issued has been ignored by the petitioners - the petitioners have not been able to demonstrate any averment in the subsequent application filed in court that the petitioners did not receive such notice - Sections 131 and 132 of the Act are but the means to an end and not an end in themselves - It is evident that the petitioners perceived that if the means could be scuttled, the end would not come Decided against Assessee.

Issues Involved:
1. Legality of the search and seizure operation conducted on August 1, 2013.
2. Challenge to the notices issued under Section 131(1A) of the Income Tax Act, 1961.
3. Authority and jurisdiction of the officer issuing the notices under Section 131(1A).
4. Validity of the "reason to believe" for authorizing the search and seizure under Section 132(1) of the Act.
5. Assessment of costs and dismissal of the petition.

Detailed Analysis:

1. Legality of the Search and Seizure Operation:
The petitioners sought a declaration that the search and seizure operation conducted at their residence and office on August 1, 2013, was illegal. They requested writs of mandamus, prohibition, and certiorari to arrest the effect of the perceived illegal process initiated under Section 132 of the Income Tax Act, 1961. The court considered whether the authorization for the search and seizure was based on valid "reason to believe" as required under Section 132(1) of the Act. The court noted that the information available to the Director of Income Tax (Investigation) was substantial and justified the "reason to believe" for initiating the search and seizure operation. The court found that the wealth of information was overwhelming and justified the authorization of the search and seizure.

2. Challenge to the Notices Issued under Section 131(1A):
The petitioners challenged the notices issued under Section 131(1A) of the Act on October 28, 2013, and November 18, 2013, on the grounds of lack of jurisdiction and absence of "reason to suspect." The court examined whether the notices were issued with due authority and whether the officer had sufficient "reason to suspect" that income had been concealed or was likely to be concealed. The court found that the Deputy Director had enough information and reason to suspect that justified the issuance of the notices under Section 131(1A).

3. Authority and Jurisdiction of the Officer Issuing the Notices:
The petitioners questioned the authority of the officer who issued the notices under Section 131(1A) after the search and seizure operation was carried out. They argued that the officer who issued the notices was also the authorized officer under Section 132(1) and thus lacked the authority. The court clarified that the expression "before he takes action under clauses (i) to (v) of that sub-section" only applied to the authorized officer referred to in Section 132(1) and not to the other officers named in Section 131(1A). The court concluded that the Deputy Director had due authority to issue the notices.

4. Validity of the "Reason to Believe":
The court assessed whether the "reason to believe" for authorizing the search and seizure under Section 132(1) was valid. The court emphasized that the "reason to believe" must be based on information in the possession of the high official and that there must be a nexus between the information and the situation envisaged in clauses (b) or (c) of Section 132(1). The court found that the information available to the Director of Income Tax (Investigation) was sufficient to form a reasonable belief that justified the search and seizure operation.

5. Assessment of Costs and Dismissal of the Petition:
The court dismissed the petition and the subsequent application, finding no merit in the petitioners' arguments. The court observed that the petitioners might have instituted the petition to temporarily ward off the inevitable by exploiting the principle of sub judice. The court assessed costs of Rs. 6 lakh to be paid by the petitioners to the department immediately. The court also declined the petitioners' request for a stay of the operation of the order.

Conclusion:
The court upheld the legality of the search and seizure operation conducted on August 1, 2013, and the subsequent notices issued under Section 131(1A) of the Income Tax Act, 1961. The court found that the authorizing officer had valid "reason to believe" based on substantial information and that the Deputy Director had due authority to issue the notices. The petition and the subsequent application were dismissed with costs assessed at Rs. 6 lakh to be paid by the petitioners.

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