2022 (4) TMI 41 - HC - Income Tax

Validity of Search u/s 132 - suppression of income as the profit declared is contrary to the actual profit received. - assessee has been receiving unaccounted cash and making cash payment for the land being alienated/sold/purchased - satisfaction note records that the information has been gathered through telephone enquiry to the effect that the assessee is in possession of undisclosed properties. HELD THAT - Assessee would be in possession of money/bullion/ jewellery/other valuable article or thing which represents partly or wholly the income of the assessee mentioned in Table-1 and accordingly, search and seizure action requires to be carried out. Though the use of the words 'reason to suspect' is found in the said Confidential Note produced before the Court, a perusal of the Note and taking note of the reference to particular transactions, the discrepancy between the income declared and the profits from the projects which is detailed in the material would clearly amount to material being available which would be sufficient for constituting 'reasons to believe' leading to exercise of power under Section 132. It cannot be stated that the exercise of power invoking Section 132 in the present case in light of the material produced before the Court is one that would call for interference in exercise of power under Article 226 of the Constitution of India. The power for re-assessment is no doubt a remedy available to the Authority but in light of the information as detailed in the note, grounds have been made out for exercise of power u/s 132(c) in the present case and it cannot be said that the said action is either malafide/arbitrary/capricious. Accordingly, the Court finds no reason for interfering with the action taken under Section 132. Liberty is however kept open for the petitioner to challenge the impugned orders in appropriate proceedings. Other contentions of the petitioner are kept open

Summary

Issues Involved:
Challenge to search and warrant of authorization under Section 132 of the Income Tax Act, legality of panchnama, assessment order, and demand notices.

Detailed Analysis:

1. Challenge to Search and Warrant of Authorization: The petitioner sought a writ of certiorari to declare the search and warrant of authorization under Section 132 of the Income Tax Act as illegal and without jurisdiction. The petitioner also aimed to strike down the panchnama, assessment order, and demand notices. The petitioner argued that the action under Section 132 must fulfill the legal requirement of 'reasons to believe' by the appropriate authority to be valid.

2. Exercise of Power under Section 132: The petitioner contended that the power under Section 132 of the IT Act should be sparingly exercised and that the material available must have a nexus to the conclusion reached. The petitioner cooperated by responding to departmental summons, providing detailed information about assets, transactions, and properties. The petitioner emphasized that 'reasons to believe' should be based on substantial material, not mere suspicion.

3. Legal Precedents and Arguments: The petitioner cited the judgment of the Allahabad High Court to support the argument that material relied upon must have a rational nexus to 'reasons to believe' and that mere rumor is insufficient. The petitioner suggested that the authority could have used Section 148 for reopening proceedings instead of Section 132 and subsequent Section 153(a).

4. Revenue's Counter-Argument: The Revenue argued that the sufficiency of reasoning and material justifying the invocation of power under Section 132 should not be questioned by the Court unless malice, malafides, or arbitrariness is proven. The Revenue cited a judgment from the Patna High Court to support this position.

5. Court's Analysis and Decision: After hearing both sides and examining the material submitted by the Revenue, the Court noted specific details regarding the petitioner's undisclosed properties, unaccounted cash transactions, suppressed income, and discrepancies in declared profits. The Court found that the material provided was sufficient to constitute 'reasons to believe' under Section 132. The Court concluded that the action taken under Section 132 was justified based on the available material and did not warrant interference under Article 226 of the Constitution.

6. Final Decision and Liberty to Challenge: The Court found no reason to interfere with the action under Section 132 and allowed the petitioner the liberty to challenge the impugned orders through appropriate proceedings. The Court clarified that its inquiry was limited to the grounds for exercising power under Section 132 and did not express an opinion on the material's quality. The parties were free to raise contentions, and the Authorities could make independent decisions without reference to the Court's observations. The petitioner was given two weeks to file an appeal against the impugned orders without objections on the point of limitation.

This comprehensive analysis of the judgment highlights the key legal arguments, precedents cited, the Court's evaluation, and the final decision regarding the challenge to the search and warrant of authorization under Section 132 of the Income Tax Act.