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TMI Blog2011 (2) TMI 360X X X X Extracts X X X X X X X X Extracts X X X X ..... the entire assessment year in which search took place and there is no surrender of any income for the earlier six assessment years for which, assessment can be done under section 153A of the Income-tax Act - A search is conducted under 132 of the Income-tax Act. Earlier, it could be done under section 37 of the Income-tax Act, 1922. Irrespective of the date of search, even if search is illegal, information or material collected during search can be used for making assessment or for any other lawful purpose - 75 of 2010 - - - Dated:- 4-2-2011 - YATINDRA SINGH, PRAKASH KRISHNA, JJ. JUDGMENT Yatindra Singh J.- The main question involved at this stage of the case is, if a search under section 132 of the Income-tax Act, 1961 (the IT Act) is challenged on the ground that information leading to reasons to believe for authorising search was irrelevant then how should this question be resolved ? Should the court, Look into the records and decide it alone ; or Disclose the information to the aggrieved person and then adjudicate upon it, after hearing the parties ? The facts 2. M/s. MD Overseas Limited (the petitioner) was incorporated as a private company u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nge affidavits. Affidavits have been exchanged. 12. Subsequently, the Departmental authorities passed orders centralising the assessment cases of the persons under search at Noida. The petitioner has filed an amendment application challenging the same. 13. Essentially, the writ petition and the amendment application, (i) challenge the search and seizure action ; (ii) question the centralisation of assessment cases at Noida ; and (iii) seek a direction for conducting the assessment proceeding at Delhi, in case the answer to the aforesaid questions is in the negative. 14. The remaining nine companies, the firm, and the nine individuals (out of fifteen) have also filed writ petitions raising similar points. These petitions are connected with the present one. 15. The search by the Department is being challenged on a number of grounds. The main ground of challenge is that there was no relevant information that could lead to reasonable belief to authorise the search. 16. The case was taken up on December 8, 2010. On that date, the officials from the Department were present along with the record of the case. No privilege for not showing the records to the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns to believe for authorising search before the question of their relevancy is decided by the court ; (v) Whether the court can examine the records to adjudge the relevancy of the information/ material or the reasons to believe for authorising search without assistance of the petitioner ; (vi) Whether the petitioner has made out a prima facie case against the search. 1st point : Not necessary to decide 21. Section 132(1) of the Income-tax Act empowers the income-tax authorities of the Department to conduct a search. It states that if, in consequence of the information in their possession, the officers (specified in that section) have reasons to believe that any circumstance as mentioned in section 132(1), clauses (a) to (c) exists, then they could authorise the officers to enter and search a building. Such an authorised officer could also perform other functions as mentioned in section 132(1) clauses (i) to (v). 22. Section 132 of the Income-tax Act does not specifically provide for recording of reasons to believe for authorising the search. Should the reasons to believe be recorded in writing ? 23. Section 127 of the Act is titled "Power to transfer cases". It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 165 of the Criminal Procedure Code mandates recording of reasons for conducting a search. However, the counsel for the Department pointed out that : Section 165 of the Criminal Procedure Code only applies as far as applicable and not verbatim ; It was not a case of applying the section in the same (exact) words ; The circumstances and purpose in both cases were different and the words mandating the reasons to be recorded could not be read under section 132 of the Income-tax Act. 28. The counsel for the Department also stated that : The Central Board of Direct Taxes (the Board) Department had issued instructions that reasons should be recorded and approval of the Director General should be obtained before authorising a search ; In this case, the reasons were recorded ; and This point was academic in this case. 29. In view of the statement of the counsel for the Department, we refrain from deciding this point. 2nd point : DIT(I)-Kanpur had jurisdiction 30. The counsel for the petitioner submitted that : The DIT(I)-Kanpur had territorial jurisdiction over the State of UP and Bihar ; The petitioner or any other person subjected to sear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our opinion, the search cannot be invalidated merely for the reason that it was authorised by the DIT(I)-Kanpur. 3rd point : Section 22 not enforced-search cannot be invalidated 36. The counsel for the petitioner submitted that : According to the Department, the main business was being transacted from Noida, unit, situate within SEZ ; No approval of the Development Commissioner was obtained under section 22 of the SEZ Act before conducting the search ; The search was invalid. 37. Section 22 is titled "Investigation, inspection and search or seizure". It does place restrictions on search and seizure conducted within the SEZ area. However, it is not necessary to consider the aforesaid submissions as section 22 of the SEZ Act was not enforced on the date of the search. It was enforced from January 13, 2010. 38. In our opinion, the validity of search is not required to be adjudged as section 22 of the SEZ Act was not in force. 4th and 5th point : Petitioner is entitled to know 39. Section 132 of the Income-tax Act is titled "search and seizure". It pro-vides for search and seizure. There are conditions precedent before exercising it. The relevant condition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action. It was enacted to establish a practical regime to secure access to information under the control of public authorities. This was in order to promote the transparency and accountability in the working of public authority. 44. The RTI Act is a very useful and powerful enactment. However, it has limitations. 45. Section 24 of the RTI Act is titled "Act not to apply to certain organizations". It provides exception to obtaining information from intelligence and security organisations specified in the Second Schedule to the RTI Act or any information furnished by them to the Government. 46. Sub-section (2) of section 24 (section 24(2)) of the RTI Act also empowers the Central Government to amend the Second Schedule. This Schedule was amended by the notification dated March 27, 2008 published in the Gazette of India, Extraordinary, Part II section (3) sub-section (i) dated March 28, 2008. The Directorate General of Income-tax (Investigation) has been added at serial number 16. 47. The search is conducted and its records are maintained in the organisation of the Directorate General of Income-tax (Investigation). In view of section 24, the RTI Act does not apply to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provided for in section 74 are private documents. 55. The record relating to search is maintained by the public officers of the Department. It contains the information received and reasons to believe for authorising the search. It is a public document. 56. Section 76 of the Evidence Act is titled "Certified copies of public documents". It requires a public officer to give a copy of the public document together with a certificate that it is a true copy of such a document on payment of the requisite fee. However, the condition precedent is that the person should have right to inspect the same. Has a person right to inspect the information and reasons to believe for authorising the search ? 57. We have already held that this information cannot be supplied under the RTI Act. Though there is no bar under the Income-tax Act restraining inspection of the documents but there is also no provision allowing the same. However, it is not necessary to consider, whether a person has right to inspect it or not as the proceeding are before the court and are governed by the Evidence Act. Sections 123 to 125 of the Evidence Act provide what information may be seen and disclosed by the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no officer shall be compelled to disclose communications made to him in official confidence, if he considers that the public interest would suffer by its disclosure. 65. The information received by the DIT(I)-Kanpur is in unpublished official records relating to the affairs of the State and was in official confidence. It cannot be produced before the court if privilege is claimed. However, the court may inspect the record to consider whether it is rightly claimed or not (S. P. Gupta v. President of India, AIR 1982 SC 149, UOI v. H. S. Parashar, AIR 1978 NOC 253 ; [1978] Raj LR 345, S. N. Rai v. Union of India, AIR 1977 NOC 243 ; [1976] ILR 2 Del 667, State of Rajasthan v. Smt. Kailashwati, AIR 1979 Raj 221, State of Orissa v. Sri Jagannath Jona, AIR 1977 SC 2201. 66. We need not to say anything further regarding section 123 or 124 of the Evidence Act, as yet privilege has not been claimed under these sections. At present, only section 125 of the Evidence Act is relevant. 67. The relevancy of information can only be judged after looking into the information : it cannot be done on mere statement of the officials of the Department or their counsel. In our opinion, in an ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his castle, is a proverbial expression of personal privacy and security. It means, there is nothing more sacred ; more strongly guarded than one's own home : a man's home is his castle where he can be in perfect safety from intrusion. More than 400 hundred years ago, Sir Edward Coke, an English judge, in Semayne's case (1604) 77 Eng. Rep. 194 gave it legal recognition by observing, 74. "The house of every one is to him as his castle and fortress, as well for his defence against injury and violence as for his repose." Since then it is not only part of English jurisprudence but of all democratic nations of the world ; so is the case with us : the Constitution guarantees fundamental rights and protects our privacy under article 21 of the Constitution. 75. We are not only exercising writ jurisdiction, but are also sentinel on the qui vive for protections of the rights ; we are on the alert for any encroachment on any freedom. Should we decide a point relevant to intrusion of * See the article. The Just Judge in the book, the Art of a Lawyer published by theUniversity Book Agency, Allahabad. privacy without affording reasonable opportunity to the petitioners ; s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r v. CIT [1990] 186 ITR 617 (Ker) ; and (vii) Southern Herbals Ltd. v. Director of Income-tax (Investigation) [1994] 207 ITR 55 (Karn). 80. The law relating to authorising a search has remained the same but the procedure for assessment after search has undergone a change. At present, if the search is valid then the assessment is to be made for six earlier years under section 153A of the Income-tax Act. This is to be done on the basis of documents or material found in the search and other information, found in the investigation as well as supplied by the assessee. How this material is to be utilised and when it is to be utilised, is entirely dependent on the discretion of the Assessing Officer. It is also up to him to indicate the same as and when he considers appropriate. 81. However, in the assessment proceeding under section 153A of the Income-tax Act, the information or material or reason to believe for authorising search is not relevant. It was only relevant for authorising the search. 82. In the assessment under section 153A of the Income-tax Act, reasons for search will not be disclosed-the only thing that will be disclosed to the petitioner is the material or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 88. The Supreme Court held that : That there was material before the respondents for entertaining the reasonable belief that some documents would be useful in proceeding under the FERA ; It was not necessary to state the grounds that induced the reasonable belief in the search warrant ; Assuming that it was obligatory and non-recording of the reasons would result in the search being illegal, yet the documents could not be returned as the documents seized during illegal search could be used ; There was no malice on the part of the respondent. The counsel for the petitioner submitted that : 89. The legality of search was not relevant as no action was proposed to be taken on the basis of the search under the FERA ; The only relevant question was whether the documents should be returned or not and the documents could not be returned as the authorisation under section 132A was valid ; The wording of section 37 of the FERA and section 132 of the Income-tax Act were different (see below)2. Section 132 of the Income-tax Act used the words, "in consequence of information in his possession". These words were absent under section 37 of the FERA ; The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome-tax Act ; releasing the asset seized under section 132(1) and attached under section 132(3) ; direction to return all the books of account seized under section 132(1) ; (iii) In the order under section 132(5), undisclosed assets were mentioned. There was neither any averment nor any material to show that this undisclosed assets were disclosed in any income-tax return ; 93. In Sriram case no relief was sought for quashing the search but it appears that the question of validity of search was taken up for grant of the prayers claimed in the writ petition. It was for this reason that the court had thought that there was an alternative remedy under section 132(11) by way of filing objection before the Commissioner against the order under section 132(5). The court observed (page 266 of 176 ITR) : ". . . when the petitioner has an alternative remedy under sub-section (11) of section 132 by way of filing objections before the Commissioner, in our view, the courts should be loath to interfere under article 226." 94. The court also did not hold that in an appropriate case, the Department could not be asked to produce the records. It is clear from the following observati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot agree with it. It is not correct to say that no other court has taken the view that we are taking. Two other Division Benches of our court (Shyam Jewellers v. Chief Commissioner (Administration) [1992] 196 ITR 243 (All) and City Montessori School v. Union of India in W. P. No. 2818(MB) of 2000 decided by Lucknow Bench of the Allahabad High Court on 23-5-2007) have taken a similar view. The observations made therein are wide and the reasons are different however, substantially they have held that though it was not necessary that the material information should be disclosed in every case, but when search was challenged then in an appropriate case, such disclosure should be made. 102. In our opinion in an appropriate case, where the petitioner makes out a prima facie case : The court, in an appropriate case, can order the Department to indicate contents or nature of information/material and reasons to believe authorising the search (without disclosing the source of information) to the aggrieved person ; The question of relevancy of information/material and reasons to believe is to be judged after hearing the aggrieved person ; The question of their relevancy is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zed "Premier Trading House/ Five Star Export House" and has been accorded the status of "Nominated agency under the Foreign Trade Policy of the Government of India ; The business activities of the petitioner are being regulated by the Foreign Trade Policy and Customs Regulations. They are maintained and monitored by the Reserve Bank of India. The import of precious metals goes through custom checks ; The imports are through "foreign letters of credit". Stock of bullion are procured through nominated agencies, MCX and NCDEX. The volume of purchase is reflected in the quantitative tally ; The petitioner also purchases stock-in-trade from the domestic market but it is only through the nominated agencies Multi Commodity Exchange (MCX) and National Commodities and Derivatives Exchange (NCDEX) ; The domestic sales are through cheques and some are through cash. However, they are fully reflected in their quantitative tally. The part of the turnover by cash is through the regular bank accounts and is duly entered in the account books. There is no hidden bank account. 111. In paragraphs 62 to 64 of the writ petitions, the facts regarding recovery have been asserted. They ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well as reasons to believe then after hearing the parties the question of its relevancy should be adjudged. 118. The counsel for the Department laid emphasis on certain assertions in the counter-affidavit that the petitioner had surrendered a sum of Rs. 11 crores. According to him, it shows that there was undisclosed money in the hands of the petitioner. 119. There is nothing to show that the petitioner had surrendered a sum of Rs. 11 crores for the period prior to search. 120. Sri Satish Bansal is one of the directors in the petitioner. He filed an application dated October 30, 2009 before the Assistant Director of Income-tax (Investigation), Noida, UP (the ADIT(I)-Noida). This application is in reference to the discussion held in connection with a proceeding related to search and seizure. 121. The aforesaid application is four pages long and has 11 paragraphs. In different paragraphs it gave information sought by the ADIT(I)-Noida. Paragraph 7 of this application is as follows : "At the same time ; it is gathered that, looking to overall trends of business that are being carried on by the `persons' as aforesaid and/or the activities with which they are connect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e reasons to believe for authorising the search except the source of the information ; (d) In the present case the petitioner has made out a prima facie case. 127. In view of our conclusions, the Department may produce the record after showing it to the counsel for the petitioner or file a supplementary counter-affidavit indicating therein the information or material and reasons to believe for authorising the search. In case record is shown to the petitioner or a supplementary counter-affidavit is filed then, it will be open to the Department not to show or state that part of information that might indicate source of the information. We also clarify that : 128. The Department has not claimed privilege under the Evidence Act as yet. It will also be open to the Department to claim privilege under section 123 or 124 of the Evidence Act ; There are other points in the writ petition that we have not considered at this stage. They may be considered subsequently. Appendix I In case of search, pre and post Finance Act 1995 position regarding search, as stated by the counsel for the petitioner, is as follows : (i) A search is conducted under 132 of the Income-t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed is charged to tax at the rate applicable to the respective years. The base for tax is total income as for a normal assessment and not for the undisclosed income as for block period. There is also no exemption for interest and penalty. (ix) The position of assessment in post Finance Act, 1995, is as follows: (a) In case a search is valid then assessment for the block period under Chapter XIV-B or assessment for six previous assessment years under sections 153A to 153C can be done ; (b) If the search is invalid then neither the block assessment under Chapter XIV-B nor assessment of previous six assessment years under sections 153A to 153C can be done (Ajit Jain v. Union of India [2000] 242 ITR 302) though the material found during search may be utilised for making assessment for that year or reassessment proceeding may be started if otherwise permissible under law ; In substance there is material difference if the search is valid or invalid so far as assessment and reassessment are concerned. Result (x) In a nutshell, earlier in practice, it did not make any difference whether the search was valid or not but at present the validity of the search does m ..... 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