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2015 (5) TMI 483 - SC - Income TaxScope of section 132 - search and seizure - whether conditions precedent for issuing warrant of authorization under Section 132 does exist in the present case? - High Court held that the satisfaction mandated by Section 132 of the Act was not that of the authority who has issued the search warrant, thereby vitiating the authorization issued also the file containing the satisfaction note(s) was manipulated and thus is of doubtful credibility as each of the satisfaction notes was in loose sheets of paper and not a part of a single file maintained in proper sequence - Held that - In the light of the views expressed by this Court in ITO vs. Seth Brothers (1969 (7) TMI 1 - SUPREME Court) and Pooran Mal (1973 (12) TMI 2 - SUPREME Court), the above opinion expressed by the High Court is plainly incorrect. The necessity of recording of reasons, despite the amendment of Rule 112 (2) with effect from 1st October, 1975, has been repeatedly stressed upon by this Court so as to ensure accountability and responsibility in the decision making process. The necessity of recording of reasons also acts as a cushion in the event of a legal challenge being made to the satisfaction reached. Reasons enable a proper judicial assessment of the decision taken by the Revenue. However, the above, by itself, would not confer in the assessee a right of inspection of the documents or to a communication of the reasons for the belief at the stage of issuing of the authorization. Any such view would be counter productive of the entire exercise contemplated by Section 132 of the Act. It is only at the stage of commencement of the assessment proceedings after completion of the search and seizure, if any, that the requisite material may have to be disclosed to the assessee. At this stage we would like to say that the High Court had committed a serious error in reproducing in great details the contents of the satisfaction note (s) containing the reasons for the satisfaction arrived at by the authorities under the Act. The view expressed by the High Court with regard to the satisfaction note(s); the alleged absence of a final decision to issue the authorization at the level of the Additional Director and the Director; the absence of any satisfaction of the Director General who, according to the High Court took the decision to issue the authorization are all seriously flawed. The different steps in the decision making process is lucidly laid down in the instructions contained in the search and seizure manual published by the department, relevant part of which has been extracted above. The steps delineated have been scrupulously followed. Besides we may take note of the fact that the Additional Director was not one of the competent authorities under Section 132 on 8.6.2009 (date of his note) inasmuch as it is by the Finance Act, 2009 effective from 19th August, 2009 that the Additional Director came to be included amongst the authorized officials though with retrospective effect from 1.10.1998. The reading of the relevant part of the satisfaction note of the Director goes to show that on the basis of materials produced satisfaction was duly recorded by him that authorization for search should be issued. The file was put up before the Director General (Investigation) for accord of administrative approval as required by Notification dated 7.3.2001. In fact, the requirement to obtain administrative approval is prompted by the need to provide an additional safeguard to the tax payer. A careful reading of the order of the Director General would go to show that all that he did was to record the view that the satisfaction of the Director, Income Tax (Investigation) was reasonable and therefore administrative approval should be accorded. The view taken by the High Court, therefore, cannot be sustained. The possibility of manipulation of the records as found by the High Court also does not commend to us for acceptance. There is no basis, whatsoever, for coming to any such conclusion. Suspicion ought not to be the basis of any judicial order and this is where the High Court seems to have erred. - Decided in favour of revenue.
Issues Involved:
1. Validity of the warrant of authorization under Section 132 of the Income Tax Act. 2. Scope of the High Court's power under Article 226 of the Constitution to interfere with the warrant of authorization. 3. Requirement and disclosure of reasons for the belief leading to the issuance of the warrant. 4. Procedural correctness and administrative approval in issuing the warrant of authorization. 5. Sufficiency and adequacy of the reasons recorded for the issuance of the warrant. Issue-Wise Detailed Analysis: 1. Validity of the warrant of authorization under Section 132 of the Income Tax Act: The Supreme Court examined whether the warrant of authorization issued under Section 132 of the Income Tax Act was valid. The Court reiterated that the Commissioner or the Director of Inspection must have, in consequence of information, reason to believe that the statutory conditions for the exercise of the power to order search exist. The reasons for the belief must be recorded, and the authorization must be issued in favor of a designated officer to search the premises and exercise the powers set out therein. The Court found that the necessary conditions for issuing the authorization were met in this case, and the satisfaction of the Director of Income Tax (Investigation) was adequately recorded. 2. Scope of the High Court's power under Article 226 of the Constitution to interfere with the warrant of authorization: The Supreme Court emphasized the limited scope of the High Court's power under Article 226 to interfere with the warrant of authorization. The Court referred to its earlier decisions in ITO vs. Seth Brothers and Pooran Mal vs. Director of Inspection (Investigation), Income Tax, which established that the High Court can examine whether the reasons for the belief have a rational connection or a relevant bearing to the formation of the belief and are not extraneous or irrelevant. However, the sufficiency or adequacy of the reasons is not a matter for the Court to investigate. The Supreme Court found that the High Court had exceeded its jurisdiction by delving into the sufficiency and adequacy of the reasons recorded by the authorities. 3. Requirement and disclosure of reasons for the belief leading to the issuance of the warrant: The Supreme Court clarified that while the reasons for the belief must be recorded, they need not be communicated to the person against whom the warrant is issued at the stage of issuing the authorization. The Court held that the necessity of recording reasons is to ensure accountability and responsibility in the decision-making process and to facilitate judicial assessment in the event of a legal challenge. However, the disclosure of reasons at the stage of issuing the authorization would be counterproductive to the exercise contemplated by Section 132 of the Act. 4. Procedural correctness and administrative approval in issuing the warrant of authorization: The Supreme Court examined the procedural correctness in issuing the warrant of authorization. The Court noted that the satisfaction note was initiated by the Assistant Director of Income Tax (Investigation) and was subsequently considered and recorded by the Additional Director and the Director of Income Tax (Investigation). The Director General of Income Tax (Investigation) provided administrative approval as required by the Notification dated 7.3.2001. The Court found that the steps delineated in the search and seizure manual were scrupulously followed, and the procedural correctness was maintained. 5. Sufficiency and adequacy of the reasons recorded for the issuance of the warrant: The Supreme Court held that the High Court had erred in assessing the sufficiency and adequacy of the reasons recorded for the issuance of the warrant. The Court reiterated that the sufficiency and adequacy of the reasons are not matters for judicial review under Article 226. The High Court's exercise in evaluating the authenticity and acceptability of the information on which the satisfaction was reached was deemed inappropriate. The Supreme Court emphasized that the reasons recorded by the authorities were adequate and met the requirements of Section 132 of the Act. Conclusion: The Supreme Court set aside the High Court's order dated 9.12.2011, which had interfered with the warrant of authorization and the consequential search. The Court allowed the appeal filed by the Revenue, thereby reinstating the proceedings against the respondent-assessee from the stage at which the High Court had intervened. The Supreme Court upheld the validity of the warrant of authorization and the procedural correctness in its issuance, emphasizing the limited scope of judicial review under Article 226 in such matters.
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