2013 (9) TMI 566 - HC - Income Tax

Search and Seizure Operations u/s 132 of Income Tax Act - Privilege u/s 123 and 124 of Evidence Act - The Income Tax department has claimed privilege of disclosing the satisfaction note to the petitioner - Held that - It cannot be denied that the Finance Intelligence Unit (FIU), Ministry of Finance, Government of India - a Central National Agency reporting directly to the Finance Minister, was responsible for receiving, processing, analyzing and disseminating information related to suspected financial transactions - It was also responsible for coordinating and strengthening the efforts of national and international agencies, investigation in pursuance to global efforts against money laundering, terrorist financing and related crimes - The source, method and manner in collecting the information may be relevant for the security of organisation and the personnel involved and the methods adopted by them for collecting and processing the information - The preparation of the satisfaction note on such information could thus be treated as unpublished documents for which the Head of the Department namely the Director General of Income Tax (Investigation), UP and Uttrakhand had validly claimed privilege under Sections 123 and 124 of the Evidence Act - We do not find that claim of privilege was not for bonafide purpose. The information of large amount of cash transactions in foreign bank may have generally raised doubts in bonafide manner on the nature of transactions - A large amount of accounted black money was floating in the market which poses a serious threat to the national economy - The Government of India had adopted several methods to discouraging the parallel economy being run by unscrupulous persons - The Financial Intelligence Unit (FIU), Ministry of Finance, Government of India was engaged in collecting such information against the money laundering, terrorist financing and related crimes - The sources and methods of the organisation collecting and processing such sensitive information cannot be subjected to public scrutiny to jeopardize the interest of the organisation and national interest. Relying upon well-established principles of claiming privilege under Sections 123 and 124 of the Evidence Act in the judgments cited as above, we allow the application filed by the Income Tax department. Decided in favour of Revenue.

Issues Involved:
1. Mandatory recording of reasons to believe for authorizing the search.
2. Jurisdiction of DIT(I)-Kanpur to authorize the search.
3. Validity of the search without prior approval under section 22 of the SEZ Act.
4. Petitioner's right to be informed about the information/material or reasons to believe for authorizing the search.
5. Court's authority to examine records to adjudge relevancy of information/material or reasons to believe for authorizing search without petitioner's assistance.
6. Prima facie case against the search by the petitioner.

Issue-wise Detailed Analysis:

1. Mandatory Recording of Reasons to Believe for Authorizing the Search:
The court examined whether it is mandatory to record the reasons to believe for authorizing the search. The petitioner argued that the search and seizure operations under Section 132 of the Income Tax Act were invalid due to lack of recorded reasons. However, the court concluded that the Director of Income-tax (Investigation) Kanpur had jurisdiction to authorize the search and that the petitioner made out a prima facie case against the validity of the search. The court stated that if a prima facie case is made, the petitioner is entitled to know the information in possession of the Department or the reasons to believe for authorizing the search, except the source of the information.

2. Jurisdiction of DIT(I)-Kanpur to Authorize the Search:
The court confirmed that the Director of Income-tax (Investigation) Kanpur had the jurisdiction to authorize the search. This was a significant point as it validated the authority under which the search was conducted.

3. Validity of the Search Without Prior Approval Under Section 22 of the SEZ Act:
The court found that there was no necessity to adjudge the validity of the search on the parameters of section 22 of the Special Economic Zone Act, 2005, as the section was not enforced on the date of the search.

4. Petitioner's Right to Be Informed About the Information/Material or Reasons to Believe for Authorizing the Search:
The court held that the petitioner is entitled to know the information in possession of the Department or the reasons to believe for authorizing the search, except the source of the information, if a prima facie case against the validity of the search is made out. The court also allowed the Department to produce the record after showing it to the counsel for the petitioner or file a supplementary counter affidavit indicating the information or material and reasons to believe for authorizing the search.

5. Court's Authority to Examine Records to Adjudge Relevancy of Information/Material or Reasons to Believe for Authorizing Search Without Petitioner's Assistance:
The court stated that it can examine the records to adjudge the relevancy of the information/material or the reasons to believe for authorizing the search without the assistance of the petitioner. The Department has not yet claimed privilege under the Evidence Act, but it is open to them to do so.

6. Prima Facie Case Against the Search by the Petitioner:
The court concluded that the petitioner has made out a prima facie case against the validity of the search. This led to the court allowing the Department to either show the record to the petitioner's counsel or file a supplementary counter affidavit.

Additional Points:
The Income Tax department filed a Civil Appeal against the findings recorded by the Court. The writ petition was kept pending with liberty to the department to claim privilege for disclosing the source of information under Sections 123 or 124 of the Evidence Act. The court dismissed a review petition filed by the petitioner, stating that the application was not bona fide and imposed a cost of Rs.10,000.

The Income Tax department later claimed privilege for the unpublished material in public interest under Sections 123, 124, and 125 of the Evidence Act. The court upheld this claim, stating that the information collected by the Financial Intelligence Unit (FIU) is sensitive and its disclosure would be against public interest. The court emphasized the importance of safeguarding the methods and sources of information collection used by national agencies.

Conclusion:
The court dismissed all writ petitions, affirming the legitimacy of the search and seizure operations and the jurisdiction of the Director of Income-tax (Investigation) Kanpur. The court also upheld the claim of privilege by the Income Tax department, highlighting the public interest in maintaining the confidentiality of the information and methods used by the FIU.

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