2022 (7) TMI 639 - SC - Income Tax

Warrant of authorization u/s 132 - assessee challenged act of authorization for search and seizure on the ground that it is a fishing enquiry and the conditions precedent as specified in Section 132 of the Act are not satisfied - High Court found that none of the reasons to believe to issue authorization met the requirement of Section 132(1)(a) (b) and (c) - HELD THAT - As per the Revenue Clauses (b) (c) of Section 132 (1) were satisfied before the warrant of authorization was approved. The satisfaction note was recorded in terms of an assessee whose jurisdictional assessing officer was in the State of the West Bengal. It is the cobweb of accounts of such assessee which are required to be unravelled. It is not unreasonable for the Revenue to apprehend that the assessee would not respond to the summons before the Assessing Officer in the State of West Bengal. It was also alleged that such summons would lead to disclosure of information collected by the Revenue against Sarju Sharma and his group. It was a reasonable belief drawn by the Revenue that the assessee shall not produce or cause to be produced any books of accounts or other documents which would be useful or relevant to the proceedings under the Act. Such believe was not based upon conjectures but on a bona-fide opinion framed in the ordinary conduct of the affairs by the assessee generally. The notice to the assessee to appear before the Income Tax authorities in the State of West Bengal would have been sufficient notice of the material against the Company and its group to defeat the entire attempt to unearth the cobweb of the accounts by the Company and its associates. Even clause (c) of Section 132(1) is satisfied. The assessee was in possession of Rs.10 crores which was advanced as loan to the Company. The Revenue wishes to find out as to whether such amount is an undisclosed income which would include the sources from which such amount of Rs.10 crores was advanced as loan to a totally stranger person unconnected with either the affairs of assessee or any other link to justify as to how a person in Ahmedabad has advanced Rs.10 crores to the Company situated at Kolkata in West Bengal for the purpose of investment in Goa. Revenue may fail or succeed but that would not be a reason to interfere with the search and seizure operations at the threshold denying an opportunity to the Revenue to unravel the mystery surrounding the investment made by the assessee. As the sufficiency or inadequacy of the reasons to believe recorded cannot be gone into while considering the validity of an act of authorization to conduct search and seizure. The belief recorded alone is justiciable but only while keeping in view the Wednesbury Principle of Reasonableness. Such reasonableness is not a power to act as an appellate authority over the reasons to believe recorded. We would like to restate and elaborate the principles in exercising the writ jurisdiction in the matter of search and seizure under Section 132 of the Act as follows i) The formation of opinion and the reasons to believe recorded is not a judicial or quasi-judicial function but administrative in character; ii) The information must be in possession of the authorised official on the basis of the material and that the formation of opinion must be honest and bona fide. It cannot be merely pretence. Consideration of any extraneous or irrelevant material would vitiate the belief/satisfaction; iii) The authority must have information in its possession on the basis of which a reasonable belief can be founded that the person concerned has omitted or failed to produce books of accounts or other documents for production of which summons or notice had been issued or such person will not produce such books of accounts or other documents even if summons or notice is issued to him; or iv) Such person is in possession of any money bullion jewellery or other valuable article which represents either wholly or partly income or property which has not been or would not be disclosed; v) Such reasons may have to be placed before the High Court in the event of a challenge to formation of the belief of the competent authority in which event the Court would be entitled to examine the reasons for the formation of the belief though not the sufficiency or adequacy thereof. In other words the Court will examine whether the reasons recorded are actuated by mala fides or on a mere pretence and that no extraneous or irrelevant material has been considered; vi) Such reasons forming part of the satisfaction note are to satisfy the judicial consciousness of the Court and any part of such satisfaction note is not to be made part of the order; vii) The question as to whether such reasons are adequate or not is not a matter for the Court to review in a writ petition. The sufficiency of the grounds which induced the competent authority to act is not a justiciable issue; viii) The relevance of the reasons for the formation of the belief is to be tested by the judicial restraint as in administrative action as the Court does not sit as a Court of appeal but merely reviews the manner in which the decision was made. The Court shall not examine the sufficiency or adequacy thereof; ix) In terms of the explanation inserted by the Finance Act 2017 with retrospective effect from 1.4.1962 such reasons to believe as recorded by income tax authorities are not required to be disclosed to any person or any authority or the Appellate Tribunal. In view of the above we find that the High Court was not justified in setting aside the authorization of search dated 07.08.2018. Consequently the appeal is allowed and the order passed by the High Court is set aside. As a consequence thereof the Revenue would be at liberty to proceed against the assessee in accordance with law.

Summary

Issues Involved:
1. Validity of the warrant of authorization issued under Section 132 of the Income Tax Act, 1961.
2. Whether the conditions precedent specified in Section 132 of the Act were satisfied.
3. Scope of judicial review in matters of search and seizure under Section 132 of the Act.
4. Adequacy and relevance of the reasons to believe recorded by the Revenue.

Detailed Analysis:

1. Validity of the Warrant of Authorization:
The challenge in the present appeal is to an order dated 22.02.2019 passed by the High Court of Gujarat at Ahmedabad whereby the warrant of authorization dated 07.08.2018 issued by the appellant (Revenue) under Section 132 of the Income Tax Act, 1961 was quashed. Consequently, all actions taken pursuant to such warrant of authorization were ordered to be rendered invalid.

2. Conditions Precedent Specified in Section 132:
The respondent (Assessee) challenged the act of authorization for search and seizure on the ground that it is a fishing enquiry and the conditions precedent as specified in Section 132 of the Act are not satisfied. The High Court found that none of the reasons to believe to issue authorization met the requirement of Section 132(1)(a), (b), and (c). The High Court recorded that the belief that the petitioner would not respond to a summons or notice issued as envisaged under clause (b) of subsection (1) of section 132 is not based upon any information or other material but is based upon conjectures and surmises.

3. Scope of Judicial Review:
The Supreme Court emphasized that the jurisdiction of the High Court while exercising judicial review is very limited. The High Court's role is to examine the existence of reasons, not the legality of the same. The sufficiency or inadequacy of the reasons to believe recorded cannot be gone into while considering the validity of an act of authorization to conduct search and seizure. The belief recorded alone is justiciable but only while keeping in view the Wednesbury Principle of Reasonableness.

4. Adequacy and Relevance of the Reasons to Believe:
The reasons to believe recorded by the Revenue were found to be not whimsical or irrelevant. The detailed satisfaction note showed multiple entries in the account books of Sarju Sharma and others, and the manner in which Sarju Sharma contacted the assessee in Ahmedabad for a loan of Rs.10 crores did not appear to be a normal transaction. The Revenue asserted that the accommodation entry is a common modus operandi to bring the unaccounted black money to books for a brief period. The investment of Rs.10 crores for a short period was not for earning interest income as the same was repaid in the same assessment year. The Revenue intends to investigate the fund trail of the money paid by the assessee.

Conclusion:
The Supreme Court found that the High Court was not justified in setting aside the authorization of search dated 07.08.2018. The appeal was allowed, and the order passed by the High Court was set aside. Consequently, the Revenue would be at liberty to proceed against the assessee in accordance with law. The Court reiterated the principles for exercising writ jurisdiction in the matter of search and seizure under Section 132 of the Act, emphasizing the administrative nature of the formation of opinion and the limited scope of judicial review in such matters.