2017 (5) TMI 987 - HC - Income Tax

Assessment u/s 153A - pre-condition justifying the invocation of the power of search u/s 132 (1) against the Petitioner - satisfaction note indications - Held that - There is nothing in the Satisfaction Note to indicate that there was any credible information available with the Department that the Petitioner belonged to the Nanda Group who were being searched. It must be recalled that the Petitioner is a regular Assessee. The information needed to trigger the search action against the Petitioner had to be such that would show that she is linked in some manner to the business or other activities of the Nanda Group‟. Secondly such information had to have a nexus to the belief that could be reasonably formed that she is in possession of any money, jewellery or valuable representing her income which has not been or would not be disclosed by her. The mere fact that the key to the locker which she was operating was found during the search of her uncle Mr. Suresh Nanda would not constitute information leading to the reasonable belief that the locker would contain jewellery, or other valuable articles which she would not have disclosed in her returns. There obviously had to be something more. Therefore the jurisdictional pre-condition justifying the invocation of the power of search under Section 132 (1) of the Act against the Petitioner, was not fulfilled in the present case. Satisfaction Note does not throw any further light on how the authority could form a reasonable belief that the Petitioner was connected with the Nanda Group and that her locker would contain money, jewellery etc that constituted her undisclosed income. The Respondent s search of the Petitioner was a classic case of a false start . It was without legal basis. What were the options available to the Respondents when they came across the locker key when they searched Mr Suresh Nanda? - For the aforementioned reasons, question (a) is answered in negative. It is held that search conducted on Locker No. 4979 by issuing an authorization dated 27th February, 2012 under Section 132 of the Act against the Petitioner was invalid. The said authorisation is hereby quashed. Consequently, question (b) is also answered in the negative by holding that there was no legal justification for the issuance of the impugned notice dated 22nd October, 2012 to the Petitioner under Section 153 A of the Act for the AYs 2006-2007 to 2011-2012 - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the search conducted on Locker No. 4979 under Section 132 of the Income Tax Act, 1961.
2. Justification for the issuance of the notice dated 22nd October 2012 under Section 153A of the Income Tax Act for the Assessment Years (AYs) 2006-2007 to 2011-2012.

Issue-wise Detailed Analysis:

1. Validity of the Search Conducted on Locker No. 4979:

The petitioner challenged the warrant of authorization dated 27th February 2012, issued under Section 132 of the Income Tax Act, 1961, for the search of Locker No. 4979. The petitioner argued that the search was invalid as it was based solely on the discovery of the locker key at the premises of Mr. Suresh Nanda, her maternal uncle, without any credible information linking her to undisclosed income.

The court examined the Satisfaction Note and the legal requirements for authorizing a search under Section 132. It emphasized that the authority must possess credible information leading to a reasonable belief that the person is in possession of undisclosed income. The court cited several precedents, including *Income Tax Officer v. Seth Brothers* and *Ajit Jain v. Union of India*, to underscore the necessity of credible information and the distinction between "reason to believe" and "reason to suspect."

The court found that the Satisfaction Note did not provide any credible information linking the petitioner to the Nanda Group's activities or suggesting that her locker contained undisclosed income. The mere possession of the locker key by Mr. Suresh Nanda was insufficient to justify the search. The court concluded that the jurisdictional pre-condition for invoking the power of search under Section 132 was not fulfilled, rendering the search authorization invalid.

2. Justification for the Issuance of Notice under Section 153A:

The petitioner also challenged the notice dated 22nd October 2012, issued under Section 153A, requiring her to file returns for AYs 2006-07 to 2011-12. The court noted that the issuance of a notice under Section 153A is contingent upon a valid search under Section 132. Since the search was deemed invalid, the consequent notice under Section 153A also lacked legal justification.

The court highlighted that the Satisfaction Note did not establish any credible information linking the petitioner to undisclosed income. The counter-affidavit by the respondents failed to provide any additional basis for the search authorization. The court reiterated that the absence of credible information and the failure to establish a reasonable belief rendered the search and the subsequent notice under Section 153A invalid.

Conclusion:

The court concluded that the search conducted on Locker No. 4979 was invalid and quashed the authorization dated 27th February 2012. Consequently, the notice dated 22nd October 2012 under Section 153A was also quashed, and all consequential actions were declared invalid. The writ petition was allowed with costs of ?10,000 to be paid to the petitioner by the respondents within four weeks.