2013 (8) TMI 634 - HC - Income Tax

Legality of search & seizure operations Held that - As per judgment in the case of Ajit Jain v. Union of India 2000 (1) TMI 41 - DELHI High Court , wherein it was held that even assuming that the amount found from the person was not reflected in the books of account of the Company, mere possession of such amount by the petitioner could hardly be said to constitute information which could be treated as sufficient by a reasonable person. Further, in the case of Dr. Mrs. Anita Sahai v. Director of Income Tax, 2004 (2) TMI 55 - ALLAHABAD High Court , search and seizure operations were quashed observing that search and seizure can not be fishing expedition. Before search is authorized, the Director must on the relevant material have reason to believe that the assessee has not and would not have disclosed his income. On the basis of the above decisions, it has been held that mere possession of money, bullion, jewellery or such valuable article or thing per-se would not be sufficient to enable the competent officer to form a belief that the same had not been or would not be disclosed for the purpose of the Act. What is required is some concrete material to enable a reasonable person to form such a belief. It is, of course, true that such belief is a matter of subjective satisfaction of the competent authority. Such subjective satisfaction, however, must be formed on the basis of the material on record and objective assessment of such material and cannot be on the basis of a mere suspicion or apprehension that the income had not been or would not be disclosed for the purpose of the Act - In the result, the petition is allowed. Search and seizure operation is declared illegal and it is hereby quashed. Consequently, seizure of the gold ornaments under panchnama dated 26th July, 2012 is also quashed Decided in favor of Assessee.

Issues Involved:
1. Validity of search and seizure operations.
2. Grounds for authorizing search and seizure.
3. Previous judgment's relevance to the current case.
4. Compliance with Section 132(1) of the Income Tax Act.
5. Requirement of concrete material for forming a belief for search and seizure.

Detailed Analysis:

1. Validity of Search and Seizure Operations:
The petitioners challenged the validity of search and seizure operations initiated by the Revenue based on information from security personnel at Ahmedabad Airport. The operations were conducted based on a satisfaction note recorded on 26-7-2012, leading to the search and seizure of gold ornaments valued at approximately Rs.6.42 crores. The petitioners argued that the gold was being transported for business purposes to show to retail outlet owners in Chennai. The High Court had previously quashed similar search and seizure operations in Special Civil Application No.11593/2012 and connected petitions by judgment dated 30-10-2012.

2. Grounds for Authorizing Search and Seizure:
The grounds for authorizing the present search and seizure operations included:
- Failure to explain the shortage of physical stock of gold and cash.
- Lack of item-wise details in the stock register, making it difficult to verify the jewelry found.
- Discovery of the original lease agreement with the lessee instead of the lessor.
- No evidence that the leased gold was converted into the jewelry found.
- Implausibility of carrying such a large quantity of jewelry as samples.
- Inability to identify prospective customers in Chennai.
- Unreliability of the company's books of account and suspicion of the lease agreement being fabricated.

3. Previous Judgment's Relevance to the Current Case:
The Court referred to its previous judgment dated 30-10-2012, which dealt with similar grounds forming the foundation of the search operations. The previous judgment concluded that the grounds did not justify the search authorization. The Court reiterated its findings, emphasizing that the reasons recorded by the authority did not meet the requirements of Section 132(1)(c) of the Income Tax Act.

4. Compliance with Section 132(1) of the Income Tax Act:
Section 132(1) empowers officers to authorize search and seizure operations if they have reason to believe that any of the conditions in clauses (a) to (c) are satisfied. The Court focused on clause (c), which requires a belief that the person in possession of money, bullion, jewelry, or other valuable articles represents income or property that has not been or would not be disclosed for tax purposes. The Court found that the reasons recorded by the authorities did not provide sufficient grounds to form such a belief.

5. Requirement of Concrete Material for Forming a Belief for Search and Seizure:
The Court emphasized that mere possession of money, bullion, jewelry, or other valuable articles is insufficient to justify search and seizure. There must be concrete material enabling a reasonable person to believe that such items represent undisclosed income or property. The Court cited various judgments, including L.R. Gupta v. Union of India and Vindhya Metal Corpn. v. CIT, to support its conclusion that the belief must be based on tangible information and not mere suspicion or apprehension.

Conclusion:
The Court allowed the petitions, quashing the search and seizure operations. It reiterated that the reasons recorded by the authorities did not justify the search authorization under Section 132(1)(c) of the Income Tax Act. Consequently, the seizure of the gold ornaments was also quashed, and the rule was made absolute. The Court also noted that the satisfaction note and connected notings provided by the Revenue did not alter its conclusion.

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