2024 (8) TMI 290 - HC - Income Tax

Validity of search under Section 132 - Lack of jurisdiction in authorizing the search in view of non-existence of the circumstances enumerated in Clauses (a) to (c) to Section 132 which is a condition precedent / sine qua non to invoke the power of search u/s 132 - value of Evidence obtained in illegal search - HELD THAT - Now that it is beyond the pale of any doubt that right to privacy is an intrinsic part of Article 21 of the Constitution of India, and a search without authority / sanction of law or in disregard of the statutory safeguards may constitute an infringement of the right to privacy, thus the need to comply with the statutory safeguards assumes greater significance and any violation would have to be tested applying the Doctrine of Proportionality. We say so, for any violation of the statutory safeguards relating to search may well touch on the right to privacy guaranteed under the Constitution thereby rendering the action susceptible to challenge on the ground of not just being illegal but also being unconstitutional which could change the complexion of the consequences that may ensue. This would be clear if we bear in mind that any action that is unconstitutional is rendered void . Though the validity of Section 132 of the Act, has been upheld, however, the individual search can be questioned as being violative of the statutory conditions or the guarantees under the Constitution. As the various aspects discussed on the use of illegally more importantly unconstitutionally obtained evidence has not been examined through the prism of Articles 21 and 265 of the Constitution of India. That apart there is no reference to the recent judgments of 1st and 2nd Puttaswamy 's case 2018 (9) TMI 1733 - SUPREME COURT , 2017 (8) TMI 938 - SUPREME COURT wherein Right to Privacy was held to be a fundamental right which inheres in Article 21, which may possibly necessitate a paradigm shift as to the nature of enquiry, which Courts may have to undertake while examining cases of search allegedly involving violation of the statutory and constitutional safeguards. In the light of the above discussion, we are of the view that it is necessary to examine closely if the search is made strictly in accordance with law and whether violation of any of the statutory/constitutional safeguards renders the action/search vulnerable to challenge as offending Articles 21 and 265 of the Constitution of India. It may also be necessary to examine the resultant impact, if any, on the decision of the Supreme Court in Pooran Mal 1973 (12) TMI 2 - SUPREME COURT wherein it was held that illegally obtained evidence can be used if the test of relevancy is satisfied. We intend to clarify that the above discussion was for the limited purpose of highlighting the contours of the enquiry that may have to be made while dealing with the allegations of illegal search and violation of human rights offending Article 21 and 265 of the Constitution of India which was not made and also its resultant impact on the decision in Pooran Mal's case insofar as it finds that illegally obtained evidence can be used as long as it satisfies the test of relevance. We have not decided the above aspects on merits. In the circumstances, we are inclined to remand the matter to the learned Judge leaving it open to the parties to raise the contentions on the above aspects before the learned Judge. Challenge to Centralisation of Assessment - as argued appellants that non-communication of the reasons for transfer under Section 127 of the Act vitiates the transfer - We are unable to concur with the order of the learned Judge, insofar as it finds that non-communication of order/ reasons under Section 127 of the Act is only a procedural irregularity inasmuch as it runs contrary to the judgment of the Supreme Court in the case of Ajantha Industries 1975 (12) TMI 1 - SUPREME COURT Though there is no doubt that law is well settled that in respect of the transfer of income-tax cases from one Officer to another Officer, the procedure as laid down under the provisions of Section 127 of the Act is to be followed and opportunities as contemplated thereunder must be afforded to the assessee, failing which, the order of transfer is rendered a nullity. The above view has exceptions. If an assessee has acquiesced in the jurisdiction of the assessing officer to whom a case has been transferred under Section 127 of the Act, he cannot subsequently object to the jurisdiction of the Officer and seek to get the order of transfer quashed by invoking the jurisdiction of the Court under Article 32 or 226 of the Constitution of India. Pannalal Binjraj vs. Union of India 1956 (12) TMI 1 - SUPREME COURT Ram Kumar Sitaram vs. Certificate Officer, 1962 (12) TMI 72 - CALCUTTA HIGH COURT Thus where the assessee has acquiesced in the jurisdiction of the transferee-authority, all statutory rights which the assessee gets by virtue of Section 127 of the Act vanish and therefore, the assessee cannot assert that without affording opportunity as required under Section 127 of the Act, the case has been transferred. Thus it may be necessary to examine if there has been acquiescence on the part of the assessee in which event the non furnishing of reasons pales into insignificance. The above enquiry was apparently not made by the learned judge inasmuch as the learned judge was of the view that communication of reasons u/s 127 is not mandatory. It may also be required to be examined if the Respondents can take shelter under Section 292B of the Act which provides that no assessment or other proceedings shall be invalid or deemed to be invalid by reason of any mistake, defect or omission, if in substance and effect the assessment / proceeding is in conformity with or according to the intent of the Act. Validity of assessment u/s 153A - Whether assessments u/s 153A ought to be made only on the basis of the seized material and thus transfer of the seized material is a pre-condition to issuance of notice u/s 153A? - As in case, any incriminating material is found in unabated / completed assessments, the assessing officer would assume jurisdiction to assess or reassess on the basis of such incriminating material. However, in case, no incriminating material is unearthed during the search, the assessing officer cannot assess or reassess taking into consideration other materials in respect of completed / unabated assessments. The order of the learned Judge insofar as it finds that even in the absence of seized material being handed over to the assessing officer, the assessing officer is under a mandate to issue a notice under Section 153A of the Act may have to be re-examined in the light of the law laid down by the Supreme Court in Abhisar Buildwell 2023 (4) TMI 1056 - SUPREME COURT where a distinction is made between abated and unabated assessments and the need of incriminating material for assumption of jurisdiction to make the assessment or reassessment. Since we are inclined to remand the matter for reconsideration on the issue whether possession of incriminating material is a sine qua non for issuance of notice under Section 153 A of the Act, we would think that certain aspects of the question raised in the context of Section 132 (9A) of the Act may overlap with the above issue. We are thus inclined to leave it open to both the parties to put forth their submissions with regard to Section 132 (9A) of the Act, as well. Notices u/s 153C - We find that the learned Judge has erred in generalizing the challenge to the notices under Section 153C of the Act issued to 12 entities on the basis of a satisfaction note for a single entity nor has the learned judge applied the principles in Sinhgad 2017 (8) TMI 1298 - SUPREME COURT wherein it was held that seized materials must pertain to relevant assessment years in question. Instead, the learned Judge has chosen to pass an order rejecting the challenge to Section 153C made by Ramamoorthy Srithar, Srithar Sudha, Nandhini Transports Pvt. Ltd., Kandasamy Thirumoorthy, Thirumoorthy Kala, Manickam Karthikayen, Kaycee Distillers, Chandran Somasundaram, C.Mariappan, Shanmugakani Sivajothi, Somasundaram Rishi Sharaan and Leela Distillers on the basis of the notice issued to Anitha Bottles. It is trite law that assessments for each entity have to be made individually and there cannot be generalization. It is also trite law that each assessment year is a distinct unit even with regard to the very same assessee. Thus, generalization on the basis of a note issued to a different entity on the crucial aspect of existence of jurisdictional fact necessary to assume jurisdiction under Section 153C of the Act, vitiates the proceedings necessitating examination of the above aspects independently for each of the assessees / appellants. Challenge to Provisional Attachments u/s 281B - provisional attachment passed during the pendency of assessments was challenged and the same was rejected by the learned judge - As Ld' Judge has rejected the challenge to the provisional attachments for want of clarity and absence of relevant materials being placed. In the light of the fact that we have already expressed our mind to remand the issue on several crucial aspects and this being incidental and the learned judge having rejected the challenge on the ground of lack of clarity and ambiguity, we think it appropriate to permit both the parties to raise contentions, if any, available on the aspect of provisional attachment before the learned Judge. Challenge to notices under Section 143 (2) and orders under Section 143 (3) of the Act - Since the various aspects which were considered and with regard to which we have remanded the matter to the learned judge go to the root of jurisdiction and have a material bearing on the validity of the notices issued under Section 143(2) of the Act and orders of assessment u/s 143(3) of the Act, we leave it open to both the parties to raise the contentions before the learned judge even with regard to the validity of the notices and orders under Section 143(2) and 143 (3) of the Act respectively. Thus, the order passed by the learned Judge in the writ petitions is set aside and the matter is remanded to the learned Judge for reconsideration afresh.

Summary

Issues Involved:
1. Validity of search under Section 132 of the Income Tax Act.
2. Centralization of assessments.
3. Notices under Section 153A of the Act.
4. Notices under Section 153C of the Act.
5. Attachment orders under Section 281B of the Act.
6. Notices under Section 143(2) of the Act and Orders of Assessment under Section 143(3) of the Act.

Issue-wise Detailed Analysis:

A. Validity of Search Under Section 132 of the Act:
1. Lack of Jurisdiction:
- The appellants contended that the search authorization lacked jurisdiction as the conditions under Clauses (a) to (c) of Section 132(1) were not met.
- The respondents argued that the learned Judge had perused the files and found that the officer had information warranting action under Section 132.
- The court examined the files and affirmed the learned Judge's finding that there were grounds for reasonable belief under Section 132(1).

2. Non-compliance with Safeguards:
- The appellants alleged high-handed and arbitrary actions during the search, including disabling CCTV cameras and denying medical care.
- The respondents denied these allegations, stating that all measures were taken to address medical issues.
- The learned Judge noted the allegations but suggested the appellants seek redressal in Civil Courts.
- The court emphasized the significance of statutory and constitutional safeguards during searches, noting that failure to comply could render the search unconstitutional.

B. Centralization of Assessments:
1. Non-communication of Reasons:
- The appellants argued that non-communication of reasons for transfer under Section 127 vitiated the transfer.
- The respondents contended that communication of reasons was directory.
- The court referred to the Supreme Court's decision in Ajantha Industries, which held that non-communication of reasons invalidates the transfer order.
- The court noted that acquiescence in jurisdiction could negate the need for communication of reasons.

C. Notices Under Section 153A of the Act:
1. Issuance of Notices:
- The appellants challenged the issuance of notices under Section 153A, arguing that they were issued without possession of seized material.
- The respondents maintained that issuance of notices was mandatory once a search was initiated, irrespective of possession of seized materials.
- The court referred to the Supreme Court's decision in Abhisar Buildwell, which clarified that in the absence of incriminating material, the AO cannot assess or reassess completed/unabated assessments.

2. Compliance with Section 132(9A):
- The appellants argued that failure to hand over seized materials within 60 days violated Section 132(9A).
- The respondents countered that the 60-day period was directory.
- The court left it open to the parties to raise contentions on this issue before the learned Judge.

D. Notices Under Section 153C of the Act:
1. Basis for Issuance:
- The appellants contended that the notices under Section 153C were issued based on material found during searches on the noticees themselves, which should have been under Section 153A.
- The respondents argued that proper satisfaction notes were recorded.
- The court found that the learned Judge erred in generalizing the challenge based on a single satisfaction note and emphasized the need for individual assessments.

E. Attachment Orders Under Section 281B of the Act:
1. Provisional Attachments:
- The learned Judge rejected the challenge to provisional attachments due to lack of clarity and relevant materials.
- The court permitted both parties to raise contentions on this issue before the learned Judge.

F. Notices Under Section 143(2) and Orders Under Section 143(3) of the Act:
1. Validity of Notices and Orders:
- The learned Judge dismissed the challenge to notices and orders under Sections 143(2) and 143(3) based on the dismissal of challenges to Sections 153A and 153C.
- The court left it open to the parties to raise contentions on the validity of these notices and orders before the learned Judge.

Conclusion:
The court set aside the order of the learned Judge and remanded the matter for reconsideration on the issues raised, allowing the parties to present their contentions afresh.