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2023 (12) TMI 811 - HC - Income TaxValidity of search proceedings u/s 132 - mandation of recording satisfaction - incriminating material found or not? - whether the exercise of the power u/s 132 (1) (b) was illegal on the grounds alleged that the Respondent Authorities had no reasons to believe the existence of the circumstances for going ahead with the searches, which was a condition precedent for exercise of the power of search and seizure? - HELD THAT - For the purpose of exercising the powers u/s 132(1) the satisfaction ought to be satisfaction of the Authorised Official on the basis of the facts and materials available before it. Such materials must not be arbitrary, irrational, vague, distinct or irrelevant. The standard of reason for formation of the opinion has to be tested as that of an honest and prudent person who would act on reasonable grounds and come to a cogent conclusion. Reasons to believe cannot be said to be the subjective satisfaction of the Authority concerned but would be the objective view on the basis of information/materials in possession of the Authority and must be based on firm and concrete facts as regards the existence of undisclosed income. As upon search and seizure conducted, such information/materials in possession of the Authorised Official which led to the formation of the opinion may or may not lead to the discovery of incriminating materials. But in the opinion of this Court, merely because incriminating materials were not seized/found would not affect the opinion/belief formation for the purpose of exercise of powers under subclauses (i) to (v) of Section 132(1) of the Act of 1961 As in a recent judgment in the case of Principal Commissioner of Income Tax, Central 3 Vs. Abhisar Buildwell P. Ltd. 2023 (4) TMI 1056 - SUPREME COURT categorically held that in case no incriminating materials is/are is unearthed during the search, AO cannot assess or reassess taking into consideration the other materials in respect of completed assessment/unabated assessment or in other words in respect of completed/unabated assessments, no addition can be made by the AO in absence of incriminating material found during search under Section 132 or requisition un/s 132A - having not found incriminating material would not effect the formation of the opinion for going ahead with exercise of powers under Section 132 of the Act of 1961. On the other hand, the consequence of not unearthing incriminating material has to be dealt with as declared by the Supreme Court in paragraph 23(iv) of the judgment in Abhisar Buildwell P. Ltd.(supra). If the Authorised Official is in possession of information and materials for which he has reasons to believe that even if the steps contemplated under Clauses (a), (b) (c) of Section 132(1) are taken, there is no likelihood of unearthing the total income, unless the powers under sub-clauses (i) to (v) of Section 132(1) of the Act of 1961 is exercised, the mere fact that it causes harassment would not render the search and seizure illegal. The statute in question i.e. the Act of 1961 mandates tax on total income from whatever source derived in the case of a resident assessee and the Authorities in terms with the Act of 1961 have been empowered subject to fulfillment of the conditions to exercise such powers seeking compliance to payment of tax on total income. The fulfillment of the condition precedent as held by the Supreme Court in District Registrar and Collector, Hyderabad Vs. Canara Bank Ors. 2004 (11) TMI 569 - SUPREME COURT are adequate safeguards to exercise the powers of search and seizure. Therefore, if the condition for invoking the powers under Section 132 of the Act of 1961 are fulfilled, the exercise of powers to make search and seizure cannot be nullified on the ground of harassment. From all discussions, it cannot be said that the Respondent Authorities did not have materials and/or information for the formation of belief/opinion, more so, when this Court in exercise of powers under Article 226 of the Constitution cannot decide the sufficiency as well as the adequacy of the materials/information for the formation of belief/opinion. This Court does not find any merit in the writ petitions for which the writ petitions stand dismissed.
Issues Involved:
1. Legality of the search and seizure conducted on 20/11/2017. 2. Formation of opinion under Section 132(1)(b) of the Income Tax Act, 1961. 3. Relevance of previous searches conducted in 2015. 4. Judicial review under Article 226 of the Constitution. Summary: Legality of the Search and Seizure Conducted on 20/11/2017: The petitioners challenged the search and seizure operations conducted on 20/11/2017 under Section 132 of the Income Tax Act, 1961. They argued that the search was arbitrary and illegal, as no new incriminating evidence was found during the 2015 search, and the 2017 search was merely a pretence to harass them. The Income Tax Department contended that the search was justified based on new information regarding long-term capital gains and other financial irregularities. Formation of Opinion Under Section 132(1)(b) of the Income Tax Act, 1961: The court examined the formation of the opinion for the 2017 search and found that it was based on information about bogus long-term capital gains and other financial discrepancies. The court referenced the Supreme Court's ruling in Principal Director of Income Tax (Investigation) and Others Vs. Laljibhai Kanjibhai Mandalia, which outlined that the formation of opinion must be honest and bona fide, based on relevant information and materials in possession of the authorized official. Relevance of Previous Searches Conducted in 2015: The court noted that the materials and information leading to the 2015 search were related to suppression of turnover, inflation of prices, and inclusion of bogus creditors. The 2017 search was based on new information regarding long-term capital gains, which was not covered in the 2015 search. The court held that the existence of previous searches does not invalidate the legality of subsequent searches if new information justifies them. Judicial Review Under Article 226 of the Constitution: The court reiterated the limited scope of judicial review in matters of search and seizure under Section 132 of the Income Tax Act, 1961. It emphasized that the court's role is to examine whether the reasons for the formation of the belief were honest and bona fide, not to assess the sufficiency or adequacy of the reasons. The court found that the Income Tax Department had sufficient materials and information to justify the search and seizure operations conducted in 2017. Conclusion: The court dismissed the writ petitions, holding that the search and seizure conducted on 20/11/2017 were within the confines of the law. The court emphasized that the dismissal of the writ petitions does not affect the assessments carried out pursuant to the search and seizure or the decisions rendered by the Appellate Authority. The records produced were returned to the learned counsel for the Income Tax Department.
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