2018 (12) TMI 292 - HC - Income Tax

Assessment u/s 153A - absence of satisfaction - statutory mandate to record reasons to believe - Held that - Reasons to suspect and not reasons to believe were sufficient to conduct a search of the lockers in question. The need and requirement to record reasons to believe , which is the statutory mandate was required and necessary in the present case, in the absence of the satisfaction of the condition and requirements of clause (i) to Section 132(1) of the Act in the satisfaction note. The contention of the respondents that jewellery was found in locker No.7325-A and Nagina Judge has taken contradictory stands is of no avail. Validity or invalidity of search is not to be judged and decided on the basis whether or not anything was found in the locker including locker Nos. 7712-D and 7637-A, which were empty. Validity of search has to be decided and adjudicated on the basis of satisfaction note; whether satisfaction note satisfies the statutory requirements and the respondents have acted in accordance with law. In fact, there is contradiction in the plea raised by the respondents for nothing was found in locker Nos.7712-D and 7637-A. An irregularity in exercise of search and seizure would not affect the authorization or search. It could in a given case vitiate the action taken when the officer executing the search and seizure has acted malafidely. Clearly, therefore, legal validity of issue of warrant of authorization is distinguished from the manner and method in which it has been executed. The respondents have also placed reliance on Section 292CC of the Act. The said section is of no relevance to the present case. It was inserted by Finance Act, 2012 with retrospective effect from 1st April, 1996 in view of some judgments holding that authorization for search must be separately issued in the name of each person and when warrant of authorization is issued in the name of more than one person, the assessment is to be made against all of them as Association of Persons and not as separate individuals. We fail to understand relevance of the said provision in the factual matrix of the present case. Supplementary or secondary contentions raised by the respondents have to be rejected. Authority and power to conduct search and seizure operations is strident and caustic power authorized by law to be taken recourse to when the conditions mentioned under different clauses of Section 132 (1) of the Act are satisfied. Constitutional validity of the said provision has been upheld due to the safeguards provided by the section itself, to prevent and check cases of abuse and misuse. Investigation and detection of economic offences is onerous and a difficult task, for often evidence and material is concealed and subterfuge is adopted to prevent and deflect detection. This, however, does not give liberty to the authorities to disregard and authorize search and seizure operations without formation of requisite belief. Power and authority given to the authorities must be exercised in terms of the statute and not contrary to and in violation of jurisdictional requirements. Power, as given, also imposes an obligation on the authorities to satisfy jurisdictional pre-conditions for the exercise of power to be held to be valid and not bad and contrary to law. We find merit in the present writ petitions and hold that the warrants of authorization for search and seizure operations in respect of the three lockers in the case of three petitioners are vitiated and illegal. Warrants of authorization against the petitioners are quashed and set aside. Consequently, proceedings under Section 153A of the Act are also set aside and quashed. We, however, clarify that we have not commented on evidence, if any, collected during the course of search and whether the said evidence or material can be used in any proceedings initiated by the income-tax authorities in accordance with law. - Decided in favour of assessee.

Issues Involved:
1. Legality of search warrants under Section 132 of the Income Tax Act, 1961.
2. Validity of notices under Section 153A of the Income Tax Act, 1961.
3. Compliance with statutory requirements for search and seizure.
4. The adequacy of the satisfaction note for issuing search warrants.
5. The distinction between "reasons to believe" and "reasons to suspect" in the context of search authorizations.
6. The implications of the findings from the search on subsequent legal proceedings.

Detailed Analysis:

1. Legality of Search Warrants under Section 132 of the Income Tax Act, 1961:
The petitioners challenged the search warrants issued under Section 132, arguing they were illegal, bad in law, and without jurisdiction. The warrants were issued based on the discovery of locker keys during a search at the residence of Karamjit Singh Jaiswal. The court examined whether the statutory requirements for issuing such warrants were met, particularly focusing on the necessity of "reasons to believe" that the lockers contained undisclosed income or property.

2. Validity of Notices under Section 153A of the Income Tax Act, 1961:
The petitioners also contested the notices issued under Section 153A, which relate to the assessment years 2009-10 to 2014-2015. The court scrutinized whether these notices were valid, given the alleged illegality of the preceding search warrants. The court found that the proceedings initiated under Section 153A were contingent on the legality of the search warrants.

3. Compliance with Statutory Requirements for Search and Seizure:
The court emphasized that the search and seizure provisions under Section 132 require a reasonable belief based on credible information that any of the conditions in clauses (a), (b), or (c) are satisfied. The satisfaction note must reflect this belief and its nexus with the statutory conditions. The court found the satisfaction note in this case lacking in specific information and evidence, thus failing to meet the statutory mandate.

4. The Adequacy of the Satisfaction Note for Issuing Search Warrants:
The satisfaction note merely stated that the lockers "may contain valuables" without providing concrete evidence or material to justify this belief. The use of the word "may" indicated a lack of certainty and reliance on conjecture rather than tangible information. The court held that the note did not satisfy the legal requirements for issuing search warrants.

5. The Distinction between "Reasons to Believe" and "Reasons to Suspect" in the Context of Search Authorizations:
The court clarified that while "reasons to suspect" might be sufficient for certain consequential searches under clause (i) to Section 132(1), the initial search must be based on "reasons to believe." The court noted that the satisfaction note did not establish a connection between the petitioners and the Jaiswal Group, nor did it provide sufficient grounds for believing that the lockers contained undisclosed income.

6. The Implications of the Findings from the Search on Subsequent Legal Proceedings:
The court observed that the validity of the search could not be judged based on whether any valuables were found in the lockers. The legality of the search depends on the satisfaction note and whether it met the statutory requirements. The court quashed the search warrants and the subsequent proceedings under Section 153A, stating that the search was not conducted in accordance with the law.

Conclusion:
The court concluded that the search warrants issued for the three lockers were illegal and did not meet the statutory requirements of Section 132 of the Income Tax Act. Consequently, the notices and proceedings under Section 153A were also set aside. The court emphasized that the authority to conduct search and seizure must be exercised in strict compliance with the statutory provisions to prevent abuse and protect individuals' rights.

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