2020 (12) TMI 186 - HC - Income Tax

Valid search - proceedings initiated under Section 132 - whether satisfaction does record reasons calling for necessary authorization to carry out search and seizure - sufficiency and adequacy of the reasons recorded in the note of satisfaction in terms of Section 132 - HELD THAT - Search and seizure proceedings, place considerable power in the hands of the Revenue Department. Hence it becomes essential that a consistent system of checks and balances be maintained against it. This power empowers the Revenue Department to bypass the privacy of an assessee or any individual, whom the Revenue has a 'reason to believe,' would hold some information regarding tax evasion activities. The search and seizure procedure requires the authority to apply their mind and pay heed to all relevant facts while concluding that a warrant of authorization must be issued. The authority, ought to record their reasons in reaching the conclusion that such proceedings ought to be initiated against the assessee. The jurisdiction of this Court merely extends to keeping a check on the relevance of the reasons recorded and not go beyond in assessing the sufficiency or adequacy of the reasons provided. The Satisfaction Note was clearly concerned with tax evasion activities conducted by various companies and persons mentioned therein and the same has been relied upon by the authority to initiate the proceedings under Section 132. Further it must be kept in mind that the Court cannot substitute its own opinion in this regard. Petitioner's assertion of having resigned from the Company and nothing to do with the same, cannot be accepted as a disputed fact in writ jurisdiction, more so when records of the Registrar of Companies reflected the position to be otherwise. In any event, whether Petitioner, any which way was connected with the Company or not; or the documents reflecting huge amounts of cash transactions stood reflected in the books of accounts and was not an undisclosed income is again a question of fact which can be easily taken before the authorities in the adjudicatory proceedings. The same was allowed to be completed by this Court by way of the interim order dated 21st of April, 2010 with the only restraint of not passing a final order. The impugned action is neither malafide nor arbitrary or capricious. Note of satisfaction does record reasons calling for necessary authorization to carry out search and seizure operation. The search and seizure operations carried out by and in terms of Section 132(1) of the Income Tax Act cannot be said to be illegal and ultra vires the Statute.

Issues Involved:
1. Whether the search and seizure warrant issued under Section 132 of the Income Tax Act, 1961 against the Petitioner is illegal and ultra-vires.
2. Whether the High Court under writ jurisdiction can question the sufficiency and adequacy of the reasons recorded in the satisfaction leading to the issuance of search and seizure warrants.

Issue-wise Detailed Analysis:

1. Legality of Search and Seizure Warrant under Section 132 of the Income Tax Act, 1961:

The Petitioner challenged the warrant of authorization dated 27th October 2008 and the consequential search and seizure operation conducted on 7th November 2008, claiming it to be illegal, unauthorized, and ultra vires the provisions of Section 132 of the Income Tax Act, 1961, and the corresponding Income Tax Rules. The Petitioner argued that he had resigned from his position as Director in M/s Apcon Homes Private Limited in 2004, and thus had no connection with the company or the persons managing it at the time of the search.

The Revenue, however, disputed these claims, asserting that the Petitioner was still listed as a Director on the Registrar of Companies' website at the time of the search. The Revenue also alleged that the Petitioner and his associates were involved in severe violations of the Income Tax Act, including large-scale tax evasion and defrauding customers.

The Court examined the satisfaction note, which included the Petitioner’s name and detailed the involvement of various companies in tax evasion activities. The Court found that the satisfaction note provided sufficient reasons for the issuance of the warrant, and the search and seizure operations were conducted within the legal framework of Section 132.

2. High Court's Jurisdiction to Question Sufficiency and Adequacy of Reasons Recorded:

The Court discussed the legal principles governing the issuance of search and seizure warrants under Section 132 of the Income Tax Act. It referred to several precedents, including ITO v. Seth Bros. and Director General of Income Tax (Investigation) v. Spacewood Furnishers Private Limited, which established that the competent authority must have a reasonable belief based on information in its possession to justify the search and seizure.

The Court emphasized that its jurisdiction under Article 226 of the Constitution is limited to examining the relevance of the reasons recorded by the competent authority and not the sufficiency or adequacy of those reasons. The Court cannot substitute its own opinion for that of the competent authority.

The Court further noted that the Petitioner had not explained the unaccounted money reflected in the documents seized during the search. The challenge was limited to the legal ground of there being no material reflecting the satisfaction of the authorized person. However, the Court found that the satisfaction note did record relevant reasons for initiating the search and seizure operation.

The Court also highlighted the importance of maintaining a balance between the powers of the Revenue Department and the protection of individual privacy, as recognized in the case of K.S. Puttaswamy v. Union of India. The Court reiterated that the power of search and seizure must be exercised within the limits of the law to avoid encroaching on fundamental rights.

Conclusion:

The Court concluded that the search and seizure operations conducted under Section 132(1) of the Income Tax Act were not illegal or ultra vires the statute. The satisfaction note recorded sufficient reasons for the authorization, and the Court's jurisdiction did not extend to questioning the sufficiency or adequacy of those reasons. The writ petition was dismissed, and all interlocutory applications were disposed of accordingly.

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