2019 (4) TMI 571 - HC - Income Tax

Warrant of authorisation u/s 132 - Validity of search proceedings u/s 132(1) - sufficiency of the satisfaction recorded by the concerned authority - mandation of following summons u/s 131(1) or notice u/s 142(1) - HELD THAT - Existence of any one of the circumstances is mandatory to justify the exercise of power to issue authorisation. The condition precedent for exercising power to issue authorisation for search and seizure is hedged in by the requirements of these conditions precedent and it is only if these conditions are fulfilled that the power can be exercised. In the facts of the present case, it is an admitted position that no such summons or notice as envisaged under clause (a) of section 132(1) has been issued in the present case. Therefore, the circumstance envisaged under clause (a) of section 132(1) of the Act does not exist in the present case. On reading the satisfaction note in its entirety, except for what is referred to hereinabove, this court could not find any other material whatsoever insofar as the petitioner is concerned, for the purpose of recording satisfaction u/s 132(1). In the affidavit-in-reply the reason given by the respondent for issuance of search warrant is that the petitioner was not expected to comply with the notice of the respondent No.1 or the respondent No.5 as the petitioner would have brought the alibi of jurisdiction to evade or non-comply with the notice. As rightly submitted by assessee the belief that the petitioner would not respond to a summons or notice issued as envisaged under clause (b) of section 132(1) is not based upon any information or other material but is based upon conjectures and surmises that the petitioner would take the alibi of lack of jurisdiction on the part of the respondents. This contention of the first respondent also lends support to the contention raised on behalf of the petitioner that powers under section 132 of the Act have been resorted to because that is the only provision which vests jurisdiction in the Kolkata authorities for taking action against the petitioner. Evidently, therefore, the circumstance envisaged under clause (b) of section 132(1) does not exist in the present case. Third circumstance as contemplated under clause (c) of section 132(1) on a perusal of the satisfaction note as well as the affidavit-in-reply filed on behalf of the respondents and submissions advanced by the learned senior standing counsel for the respondents, it is evident that the sole ground on which the search is sought to be carried out is that the petitioner herein had advanced a loan of ₹ 10,00,00,000/- (rupees ten crore) to Goan Recreation Clubs Private Limited. There is nothing on record to indicate that any belief has been formed by the competent authority to the effect that the petitioner has in his possession any money, bullion, jewellery or other valuable article or thing which would not have been disclosed by him for the purposes of the Act. From the record of the case as produced by the respondents as well as by the petitioner, it is evident that the loan transaction whereby the petitioner had advanced ₹ 10,00,00,000/- to the borrower company has been duly reflected in the books of account of the petitioner. In his return of income, the petitioner has duly shown the interest income from such transaction. The tax deducted at source in respect of such interest income, has been credited to the account of the petitioner by the concerned authority. The entire transaction has been disclosed by the petitioner. There is no other material on record on the basis the respondents could have formed the belief as contemplated under clause (c) of section 132(1). Evidently, therefore the circumstance envisaged under clause (c) of section 132(1) also does not exist in the present case. There is no material on the basis of which a reasonable person could have formed the belief that action under sub-section (1) of section 132 of the Act is called for. It appears that merely because the first respondent does not have any other power under the Act to directly take action against the petitioner herein, resort has been made to the provisions of section 132(1) of Act by taking shelter behind the notification dated 13th November, 2014 issued by the CBDT in exercise of powers under sub-sections (1) and (2) of section 120 of the Act, which vests jurisdiction under Chapter XIII of the Act in respect of the territorial areas of the whole of India in the Director General of Income Tax specified in column (2) or the Principal Director/Director of Income-tax specified in column (4) of the Schedule to the notification. Respondent authorities have proceeded on the footing that Goan Recreation Clubs Private Limited has received various unsecured advances leading to the belief that the transaction in question is non-genuine - the petitioner has produced on record a mortgage deed dated 22nd June, 2016 executed by and between Royale Recreation Pvt. Ltd. as the First Party, Goan Recreation Clubs Private Limited as the Confirming Party or the Second Party and the petitioner Shri Laljibhai Kanjibhai Mandalia as the Mortgagee or the Third Party, which had been executed by way of a security for repayment of the amount advanced by the petitioner to Goan Recreation Clubss Private Limited. The genuineness of such document has not been disputed by the respondents. Under the circumstances, on the basis of the information referred to hereinabove, no reasonable person could have come to the conclusion that the ingredients contained in clauses (a), (b) or (c) of sub-section (1) of section 132 of the Act were attracted. In the absence of existence of any of the three circumstances envisaged under sub-section (1) of section 132 of the Act, the impugned authorisation is invalid and cannot be sustained. For the foregoing reasons, the petition succeeds and is, accordingly, allowed. The impugned warrant of authorisation under section 132 is hereby quashed and set aside. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the warrant of authorization under Section 132 of the Income Tax Act, 1961.
2. Compliance with conditions precedent for action under Section 132.
3. Jurisdiction of the authorities in issuing the warrant.
4. Sufficiency and reliability of information for forming the reason to believe.
5. Legality of the search and seizure operation.

Detailed Analysis:

1. Validity of the Warrant of Authorization under Section 132 of the Income Tax Act, 1961:
The petitioner challenged the warrant of authorization issued under Section 132, seeking its quashing and all consequential actions. The court examined whether the conditions under Section 132 were met and whether the authorization was validly issued.

2. Compliance with Conditions Precedent for Action under Section 132:
The court noted that for issuing a warrant under Section 132, the authority must have "reason to believe" based on information in possession. The court examined three conditions under Section 132(1):
- Clause (a): No summons or notice was issued to the petitioner, thus this condition was not applicable.
- Clause (b): The court found that the belief that the petitioner would not produce documents if summoned was based on conjectures and not on tangible information.
- Clause (c): There was no evidence that the petitioner possessed undisclosed income or property. The petitioner had disclosed the loan transaction in his tax returns and paid taxes on the interest earned.

3. Jurisdiction of the Authorities in Issuing the Warrant:
The court observed that the Principal Director of Income Tax (Investigation), Kolkata, who issued the warrant, lacked jurisdiction over the petitioner under normal provisions. The jurisdiction was assumed under Section 132 due to a CBDT notification. The court found that the reason to believe was based on the assumption that the petitioner would evade compliance by questioning jurisdiction, which was not a valid ground.

4. Sufficiency and Reliability of Information for Forming the Reason to Believe:
The court scrutinized the satisfaction note and found it lacked substantial material specific to the petitioner. The note primarily referred to transactions involving other entities and did not justify the belief that the petitioner was involved in undisclosed income or property. The court emphasized that the belief must be based on tangible information and not on mere conjectures or assumptions.

5. Legality of the Search and Seizure Operation:
The court concluded that the search and seizure operation was based on an invalid authorization, as the conditions under Section 132 were not met. The court highlighted that the petitioner had disclosed the loan transaction and paid taxes, and there was no basis for believing that the petitioner had undisclosed income.

Conclusion:
The court quashed the warrant of authorization and all consequential actions, ruling that the conditions for issuing the warrant under Section 132 were not met. The court emphasized the need for tangible information and valid jurisdiction for such actions, ensuring that powers under Section 132 are not misused. The petition was allowed, and the rule was made absolute with no order as to costs.