2015 (7) TMI 696 - HC - Income Tax

Conversion of survey under Section 133A into a search under Section 132 - Held that - The contention that the mere fact that cash was found could have been utilized in assessment proceedings and that the same cannot be a ground to convert the survey into a search operation under Section 132 of the Act cannot be accepted. We find that the petitioner s had not brought on record the statement of the Director, who was examined during the course of search but upon perusal of the original record, we find that the Director was repeatedly asked to explain the source of the cash and entries. Since no plausible reply came forward and the Director was unable to explain the entries, which showed that the petitioner was taking cash from various parties and returning the money via cheque to the same parties and vice-versa, the authorities had reasons to believe that the petitioner s would not produce or cause it to produce the books of accounts or documents evidencing true state of affairs, even if summons under Section 131 or notice under Section 142 of the Act was issued. In this regard, we find that the Central Board of Direct Taxes has issued Instructions dated 30th September, 2014 indicating that where cash amounting to more than ₹ 10 lacs is found at the premises during the survey under Section 133A of the Act, the Director of Income Tax (Investigation) having territorial jurisdiction over the survey should be intimated to examine the facts for taking recourse to Section 132(1) of the Act. In the light of this instruction, we have no hesitation in holding that pursuant to the survey and the undisclosed cash and unexplained entries found, steps to convert the survey into a search was rightly taken. We are consequently, of the opinion that in the facts and circumstances of the case, the authorities had information based upon material which led to a valid survey being conducted under Section 133A of the Act. Based on further incriminating evidence that came forward during the course of survey, a satisfactory note was placed before the competent authority, who after considering the material recorded his satisfaction. Such satisfaction recorded was in accordance with the provision of Section 132 of the Act.- Decided against assessee.

Issues Involved:
1. Legality of converting a survey under Section 133A into a search under Section 132 of the Income Tax Act.
2. Validity of the search operation based on the satisfaction and authorization process.
3. Adequacy of the information and material leading to the search.
4. Compliance with procedural requirements and administrative approvals.

Issue-Wise Detailed Analysis:

1. Legality of Converting a Survey under Section 133A into a Search under Section 132 of the Income Tax Act:
The petitioner contended that the conversion of the survey into a search was "wholly illegal and without jurisdiction." They argued that the conditions precedent for initiating action under Section 132 were lacking, as there was no information that could lead the authority to believe that the petitioner possessed undisclosed income. The petitioner cited several cases to support their argument that merely finding cash does not justify converting a survey into a search operation. The court, however, found that the conversion was justified based on the information and material obtained during the survey, which indicated that the petitioner was engaged in dubious cash transactions.

2. Validity of the Search Operation Based on the Satisfaction and Authorization Process:
The court examined whether the satisfaction note and authorization process complied with legal requirements. It noted that the Director of Income Tax (Investigation) had provided information about the cash deposits, leading to the survey under Section 133A. During the survey, incriminating documents and unexplained cash were found, prompting the preparation of a satisfaction note. The court confirmed that the satisfaction note was duly approved by the competent authority, and a warrant of authorization was issued under Section 132(1). The court emphasized that the formation of the opinion or reason to believe must be apparent from the note recorded by the authorizing officer.

3. Adequacy of the Information and Material Leading to the Search:
The court found that the information leading to the search was based on valid material. The survey revealed unexplained cash and documents indicating that the petitioner was engaged in providing bogus entries and money laundering. The court noted that the Director's failure to explain the cash and entries during the survey fortified the belief that there was undisclosed income. The court held that the information must be more than mere rumor or suspicion and should be based on material that can be regarded as "information" leading to a reason to believe that action under Section 132 was justified.

4. Compliance with Procedural Requirements and Administrative Approvals:
The court reviewed the procedural compliance and found that the administrative approval was obtained from the Director General of Income Tax (Investigation), Lucknow. The warrant of authorization was issued after recording satisfaction and obtaining necessary approvals. The court also referred to the Central Board of Direct Taxes' instructions, which supported the conversion of the survey into a search when cash exceeding Rs. 10 lakhs was found. The court concluded that the procedural requirements were met, and the satisfaction recorded was in accordance with Section 132 of the Act.

Conclusion:
The court dismissed the writ petition, holding that the search conducted by the respondents was valid. The court found no manifest error in the conversion of the survey into a search, the satisfaction and authorization process, the adequacy of the information and material, and the compliance with procedural requirements. The authorities had sufficient information and material to justify the search, and the procedural steps were duly followed.

← Previous Next →