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TMI Blog1968 (9) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... of Mamchand and Co. had been completed up to the assessment year 1963-64 an returns had been filed for the assessment years 1964-65 and 1965-66. The assessment in respect of the same has not yet been completed. On the 30th of January, 1967, respondent No. 1, the Commissioner of Income-tax, West Bengal, issued two warrants of authorisation under section 132 of the Income-tax Act, 1961, read with rule 112(1) of the Income-tax Rules, 1962, authorising search at No. 21-A, Canning Street, Calcutta, and 22, Mandaville Gardens, where the Agarwallas reside. A third warrant of authorisation was issued, authorising search at No. 22-A, Canning Street, in respect of " Ramswarup Mamchand ", which is a partnership firm between the two brothers, Mamchand and Murarilal. We are concerned in this case with section 132 of the Income-tax Act, 1961 (hereinafter referred to as the " said Act "), together with the Rules framed under the said Act (hereinafter referred to as the " said Rules ") set out here the relevant part of section 132. " 132. Search and seizure.- (1) Where the Directors of Inspection or the Commissioner, in consequence of information in his possession, has reason to believe that- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome-tax, West Bengal, addressed to Shri Bibek Banerjee, Income-tax Officer, ' E ' Ward, District Howrah (respondent No. 2), S. Das, Income-tax Officer, ' H ' Ward, District I (2) (respondent No. 3), B. R. Biswas, Income-tax Officer, ' I ' Ward, District I (2) (respondent No. 4), and Nagendra Nath Sarkar, Income-tax Officer, ' K ' Ward, District 1 (2) (respondent No. 5), stating (i) that he had reason to believe that if a summons under sub-section (1) of section 37 of the Income-tax Act, 1922, or under sub-section (1) of section 131 of the Income-tax Act, 1961, or a notice under sub-section (4) of section 22 of the Income-tax Act, 1922, or under subsection (1) of section 142 of the Income-tax Act, 1961, was issued to Messrs. Mamchand and Co. of 22-A Canning Street, Calcutta, to produce or cause to be produced, books of account or other documents which would be useful for, or relevant to, any proceeding under the Indian Income-tax Act, 1922, or under the Income-tax Act, 1961, he would not produce or cause to be produced such books of account or other documents as requried by such summons or notice, (ii) that Mamchand and Co. were in possession of money, bullion, jewellery or other va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A similar warrant was issued to Bibek Banerjee, I.T.O., 'E' Ward, District Howrah, S. Das, I.T.O.,' H ' Ward, District I(2), B. R. Biswas, I.T.O., ' I ' Ward, District I(2), and Nagendranath Saba, I.T.O.,'E' Ward, District I(2), in respect of Ramswarup Mamchand, for search at 21-A, Canning Street, Calcutta. The authority given was similar to that contained in the first mentioned warrant. On the strength of the warrants issued as mentioned above, the authorised officers conducted searches and took custody of books of account, documents, etc. On the 31st January, 1967, the respondents Nos. 2 and 5 assisted by some inspectors and clerks entered the office premises of the said firm at No. 21-A, Canning Street, and conducted a search. The search report, or panchnama as it has been called, is set out at pages 49 to 69 of the paper book. This panchnama shows that books of account and documents shown in schedule " A " to the same were found and upon which marks of identification were placed. Articles or things (including money) which were found are set out in schedule " B " to the same, and the books of account and documents set out in schedule " C " were taken possession of. The search ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 22, Mandaville Gardens, Calcutta-19, which have been sealed with your signets and signatures of Sri Benarasilal Gupta and also by us, are being taken with your consent to the income-tax office for the sake of convenience and for being inventorised in the presence of the witnesses. Sd. S. K. Roy Sd. Mamchand Agarwal 1-2-1967. 1-2-1967 " The panchnama in relation to the above is contained at pages 80-81 of the paper book and the inventory is contained at pages 82-101 of the paper book. In the panchnama, we find the following entries : " 2(C) The following books of account and documents were then taken possession of during the course of search." The search could not be completed today and the authorised officers, Sri S. K. Ray and Mr. P. Mahajan, sealed the following: " 1. Eleven steel trunks. 2. Three gunny bags. 3. (Sic). 4. The jewelleries have been kept in three steel boxes. 5. Which have been sealed both by the assessee and the department. 6. The keys of the boxes have also been sealed in a separate packet as above." This Panchnama was signed by the representative of the firm. We are informed that the signature is that of Benarasilal Gupta. It is st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any other article or thing found in the course of any search under this section which in his opinion will be useful for, or relevant to, any proceedings under this Act; and the provisions of the Code of Criminal Procedure, 1898 (V of 1898), relating to searches shall apply so far as may be to searches under this section." This section was replaced in the Act of 1961, with section 132, and was more or less in the same form. The form was substantially changed by an amendment in 1964, and another in 1965. The relevant section, as it stands after the 1965 amendment, has been set out above. The first significant departure is on the question as to who should have " reason to believe ". Under the Act of 1922, the Commissioner's duty was to authorise an Income-tax Officer, but it was specifically stated that it was the Income-tax Officer who should have " reason to believe " that any books of account or other documents would, in his opinion, be useful or relevant to any income tax proceeding. From this, the power of seizure followed. In the said Act, as amended in 1965, the emphasis has been shifted from the Income-tax Officer to the Commissioner (or the Director of Inspection, as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the " said Rules "), provides that the power of seizure under section 132 shall be exercised in accordance with sub-rules (2) to (14). Subrule (2) provides that the Commissioner must first of all record his reason for issuing a warrant of authority. It then provides as to what should be the form of such warrant. In fact, it is done in accordance with Form No. 45 framed under the said Rules. Form No. 45 shows that it could be in two alternative forms. Where it is under clause (a), then the word " specified " is used. In other words, it deals with the situation where books of account or other documents specified in a summons or notice have not been produced or will not be produced. The alternative form is clause (b) where it is not possible to specify the same. In such a case, the Commissioner would not know before search as to what he wants. The most important thing to consider under this heading is the affidavit filed by the Commissioner himself, affirmed on the 5th June, 1967, a copy whereof is set out in the paper book at pages 125 to 134. Paragraph 2 of the said affidavit shows that some information had been received by the Commissioner. The nature of the information will appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rns including the appellants, were fabricating and forging documents and seals. A large number of fictitious contractS were entered into between various parities for diverting profits so that they would not be detected. He further received written complaints that the appellants were acting in collusion and conspiracy with others for diverting earns profits, to avoid tax liability. The Commissioner, upon information received, was also of the belief that the appellants were in possession of jewellery and other valuable articles representing income and property which had not been disclosed. I might mention here that the reasons were reduced into writing and a copy thereof has been produced and put on record, marked as exhibit . As stated above, the first point argued is that, under the law, it is the Commissioner who must have reason to believe that the assessee would not produce certain books of account or documents if called upon to do so, and it is he who must be of the opinion that they are relevant for the purpose of any income-tax proceeding. Firstly, it is said that the assessees had always filed their returns regularly and there was no reason for the Commissioner to believe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allegations, several instances have been set out in the affidavit affirmed by Bibek Banerjee on the 5th June, 1967. In paragraph 5 of the said affidavit, certain instances have been given of non-payment of dues for which penalty proceedings have been taken and in answer to the allegation made in paragraph 11 of the petition instances have been given where the assessee failed to comply with certain requirements of the income-tax authorities. In answer, it is said that with regard to the instances of non-payment of penalty put forward by the income-tax authorities, it will be found that these related to disputed liabilities and the matters were being contested. With regard to the alllegation of non-compliance with certain notices, it is stated that there might have been. noncompliance in time, but ultimately all requisitions and notices were complied with. In my opinion, the instances of non-compliance or failure to pay are by no means formidable. But the matter should not be looked at merely from the point of view of these specific examples. It should be looked at in the background of the facts against which the extreme step under section 132 has been taken. The two grounds of com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r diverting profits. It appeared to me from the examination of records of the Income-tax Officer relating to assessment of the petitioner-firm that the books produced by the petitioner at different stages of assessment by the Income-tax Officer were doubtful. It also received written complaint that the petitioner was acting in collusion and in conspiracy with others for diverting profits earned to avoid tax liabilities. I am at this stage unable to disclose the said written complaint because that would frustrate and hamper further investigation. I am still in possession of the said written complaint. From the various information in my possession I had reasons to believe and I bonafide believed that the said written complaint is not false or bogus. " Let us first of all come to section 132 of the said Act. The first thing to observe is the distinction between clauses (a) and (b) of sub-section (1). In clause (a), the position considered is when a summons is issued-" to produce, or cause to be produced, any books of account or other documents ", and the assessee had omitted or failed to produce or cause to be produced the same. It is obvious, therefore, that under clause (a) th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of grant of power under section 105 is not search for a particular document but of documents or things which may be useful or necessary for proceeding either pending or contemplated under the Customs Act. At that stage it is not possible for the officer to predict or even to know in advance what documents could be, found in the search and which of them may be useful or necessary for the proceedings. It is only after the search is made and documents found therein are scrutinised, that their relevance or utility can be determined. To require therefore, a specification or description of the documents in advance is to misapprehend the purpose for which the power is granted for effecting a search under section 105 of the Customs Act. We are, therefore, of opinion that the power of search granted under section 105 of the Customs Act is a power of general search. But it is essential that before this power is exercised, the preliminary conditions required by the section must be strictly satisfied, that is, the officer concerned must have reason to believe that any documents or things, which in his opinion are relevant for any proceeding under the Act, are secreted in the place searched ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rds " reason to believe " mean that reasons should exist, but the court will never go into the of such reasons. This question has been decided repeatedly in connection with the provisions of the Income-tax Act relating to the reopening of assessments In S. Narayaxappa v. Commissioner of Income-tax, the position under section 34 of the Income-tax Act, 1922, was dealt with. Under that provision, if the Income-tax Officer had " reason to believe " that there has been an under assessment either by reason of omission or failure on the part of the assessee to make a return of his income or to disclose fully and truly all the material facts unnecessary for his assessment, then the assessment can be reopened. Ramaswami J. said as follows : " But the legal position is that if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non disclosure as regards any fact, which could have a material bearing on the question of under-assessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under section 34. Whether these grounds are adequate or not is not a matter for the court to investigate. In other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Law Board which was the delegate of the Central Government, for exercising power under section 237(b), and other points, which are not relevant for our purposes. In that case, affidavits were filed on behalf of the Board disputing these charges and it was stated that there had been delay, bungling and faulty planning of the project, resulting in double expenditure ; that, since its floatation, the company had been showing losses and nearly one-third of its share capital had been wiped out; that the shares of the company which started with selling at a premium were being quoted in the stock exchange at half their face value and that some eminent persons who had accepted seats in the board af directors had severed their connection with it. It was held that these were extraneous circumstances and did not bring the matter within the scope of section 237(b) of the Companies Act. The faulty administration of the affairs of the company resulting in losses did not establish fraud or any intention to defraud the creditors of the company or the members nor did it amount to misfeasance or other misconduct towards the company or towards any of its members. I do not see how this decision supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the four corners of section 132(1)(b) of the Income-tax Act. The whole question is as to how much of the provisions is subjective and how much objective. In other words, upon being challenged, what is the extent to which the Commissioner must satisfy the court that he had reasons to believe. I think it is fairly well established that he has to show facts which prima facie will convince the court that a reasonable man could, under the circumstances, form a belief which will impel him to take action under the law. The court will not go into the sufficiency or adequacy of such reasons. On the other hand, if the Commissioner failed to disclose even a prima facie case, or it could be established that there were no reasons at all, or that the reasons were irrelevant or extraneous or if lack of honesty, that is to say, mala fides, could be established, then the court would have ample jurisdiction to strike down the proceedings initiated by the Commissioner. Coming now to the facts of the present case, we find that the Commissioner had filed an affidavit showing the kind of information that he had, which led him to form the belief that the investigation should be made. In fact, before h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re were two warrants but one panchnama. The charges are contained in clause (a) of paragraph 17 of the petition. It is stated there that the authorised officer conducted a general raid and general search in abuse of the power conferred upon him and, thereafter, seized books of account, papers and documents of the current year and of the past several years indiscriminately, arbitrarily and without any regard for the usefulness or relevancy thereof for any proceedings under the Income-tax Act. It is said that the officers never cared to open or look into the books, documents and papers and merely conducted a fishing enquiry without applying their minds and seized all books, documents and papers which came into their hands, lock, stock and barrel. The charges have been categorically denied. In the affidavit of Bibek Banerjee, Income-tax Officer, respondent No. 2, it is denied that there was any general raid in abuse of the powers conferred under section 132 of the said Act. It is denied that there was any fishing enquiry or that the inspectors did not apply their minds. It has been stated that the Income tax Officers conducted their search in accordance with law, that they were fully ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion that the search has been excessive. So far as excessive search is concerned, the matter necessarily depends on the facts of each case. In the case of Seth Brothers v. Commissioner of Income-tax, it was established as a fact that there were instructions from the Directorate of New Delhi for a general raid and seizure of all account books and papers which could be found at the petitioner's premises. More than 500 documents were seized, some being admittedly irrelevant for the purpose of any proceeding under the Income-tax Act. The police force employed was found to be excessive. It was held that, in view of all these circumstances, the search was not a bona fide one and the extent of the seizure was far beyond the limit of section 132 of the said Act and the action was mala fide in the sense that there was abuse of powers conferred under the said Act and the proceedings were liable to be quashed. We hold that, on the facts of the present case, charge of indiscriminate search and seizure at premises No. 21A, Canning Street, has not been substantiated. With regard to the search at No. 21A, Canning Street, it is said that there were two warrants in respect of two firms, but there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the place in which they are respectively found, shall be prepared and signed by such witnesses. This has in substance been accomplished. In any event, even if there is any irregularity in the panchnama, that does not vitiate the search. In a Bombay case, State v. Kuppuswami, the panchnama was not made out at all. It was held that the mere fact that a pantchnama was not made would not vitiate the search and seizure if the Magistrate was satisfied that the evidence of the police officer was true. In the Supreme Court decision in Sunder Singh v. State of U.P., a room was searched and a blood-stained shirt and bloodstained pant was recovered therefrom. The only witnesses who were available were two rickshawallas. It was held that, although they could not be said to be respectable inhabitants of the locality as required under section 103 of the Criminal Procedure Code, the search was not invalidated. At best, it would be an irregularity and affect the weight of evidence: In Radha Kishan v. State of U.P., it was alleged that the search was illegal and the seizure was, therefore, vitiated. It was held that the alleged illegality could not vitiate the search or seizure. It may be that, be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k is a list which was made later on, has now been dropped. It is admitted that this inventory wits made on 31st January, 1967. This list has not been attacked. The search and seizure which is attacked is the subject-matter of the panchanama at pages 80 to 101 of the paper book. In the affidavit-in-opposition affirmed by Bibek Banerjee these facts have been disputed. As regards the search at No. 22, Mandaville Gardens, it is said that it commenced on 31st January, 1967, at 9 a.m. and closed for the day at about 10 p.m. On the next morning that is to say, on 1st February, 1967, it began at 9 a.m. and closed at 9 p.m. The details of the search at 22, Mandaville Gardens, ae set out in the affidavit-in-opposition affirmed by Subodh Kumar Roy on the 5th June, 1967. He was one of the persons who actually conducted the search. According to his affidavit, the search of Mandaville Gardens commenced on 31st January, 1967, at 9 a.m. and closed at about 10 p.m. in the night. On 1st February, 1967, it ayain commenced on 9 a.m. and closed at 9 p.m. On this day, the second day of the search, a lady of the house complained that she had developed heart trouble and the search was creating great incon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as at the instance of the assessee that the Income-tax Officers agreed to put all the materials inside 11 steel trunks and 3 gunny bags and to carry them to the income-tax office. Accordingly, books of account and documents, etc., were put in 11 steel trunks and 3 gunny bags, sealed with the seals and signatures of the income-tax authorities as well as the assessees and taken away to the income-tax office where they were to be scrutinised and, a proper inventory prepared. Thus, according to the respondents, the search has not yet been completed and there has been no " seizure " according to the technical meaning of that expression. The inventory is not a complete inventory, but only a list of the goods that were taken to the income-tax office. Let us now proceed to see whether the evidence placed before us supports the one story or the other. A great point is made by the appellants of the word " seized " used in the inventory, as it appears at page 82 of the paper book. It speaks about the " inventory of the account books of Mamchand Murlidhar seized from the premises of Mamchand Agarwalla at 22, Mandaville Gardens, Calcutta-19, on February 1, 1967, and kept in trunk No. 1114. " Si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sake of convenience and for being inventorised in the presence of the witnesses. " Annexure " E " to the petition shows on the face of it that on the 1st February, 1967, when the books of account, documents, etc., had been taken away in 11 steel trunks and 3 gunny bags, the search had not been completed and no " seizure " after scrutiny of the books and documents had taken place. If such had been the case, and there was " seizure " in the real sense of the term, then there was no necessity of taking the consent of the assessees for such removal. Secondly, if there was such seizure, then there was no necessity of the assessees putting their seals and signatures on the containers. Thirdly, if it was seized and taken away, there could be no question of subsequent inventorisation. The very tenor of the document, which is annexure " E ", shows that it was the record of an act done by consent of parties. When the search would be completed the question of the Income-tax Officers applying their minds to the question as to which books and documents should be seized and which returned to the parties will arise. If the search had been concluded, there is no reason why the boxes and bags wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... books of account and documents, the relevancy of which have not yet been prima facie established. However, since we accept the explanation of the respondents we must hold that this point on behalf of the appellants must fail. I will now deal with some authorities cited on behalf of the parties. In Jagannath Misra v. State of Orissa, the court was dealing with the provisions of the Defence of India Act, 1962, and the Rules made thereunder. It was stated that there was detention made under the Act, and it was held that the authority ordering the detention should act with a full sense of responsibility and that the order of detention itself should show that it acted with due care and caution. It was pointed out by Wanchoo J. that, out of seven possible grounds, the order set out six, but it was quite clear that the authority concerned Aid not apply its mind to these grounds before passing the order. In the affidavit filed in court, there was only mention of two of these grounds. This showed casualness in passing the order of detention and the order was struck down. Another case cited is State of Bombay v. Atma Ram Sridhar Vaidya. This was a case which dealt with the Preventive Dete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e produced rather than withheld. In my opinion, this is not strictly correct. It is reasonable to expect that when fictitious debits had been introduced to wash away the real credits, some kind of false books will be produced. But the falsification of books is not a simple process. If the object is to suppress the true information as to income, it can be achieved in many diverse ways. It is impossible to state what particular procedure will be adopted in a given case. There may be duplicate books, that is to say, a genuine set of books and a false set of books. What may be disclosed may be partly true and partly false. It is improbable under the circumstances that the assessee will completely disclose his hands. On the other hand, if the information is correct then it follows that a great deal of secrecy will be maintained. We might mention here that the learned standing counsel offered to produce for our inspection certain duplicate set of accounts kept by the assessees but learned counsel for the appellants did not agree to this. In our opinion, the challenge to the vires of section 132 of the said Act and the Rules made thereunder have failed. For the reasons mentioned above, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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