9911796707
TMI Blog2019 (4) TMI 571X X X X Extracts X X X X X X X X Extracts X X X X ..... rety, 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 circumstanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany at the agreed rate of interest and on agreed terms. So as to avoid any technical breach of law, the petitioner was advised to become Director of the borrower company at the time of giving the loan. The petitioner, therefore, became a Director of Goan Recreation Clubs Private Limited on 18.5.2016. However, soon after the loan formalities were completed, the petitioner resigned as a Director of Goan Recreation Clubs Private Limited on 25.6.2016. Accordingly, the petitioner remained as a Director of the borrower company for a little over one month. 4. It is the case of the petitioner that the borrower company which was a new venture was in the process of setting up its business, had yet to start its business when the petitioner resigned as a Director of that company and in fact it did not commence business for a further period of one month after the petitioner resigned as a Director of the company. According to the petitioner, his only role was to give a loan of ₹ 10,00,00,000/- to the company, which amount was completely accounted for and its source was not only disclosed but also very well-known to the department. In due course, the borrower company repaid the loan alo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon sound and credible information available to the department. 5.1 The first respondent has sought to explain the action taken against the petitioner as follows:- a) The authorized officers/ investigating officers conducted search and seizure operation at various spots across various states related to the case of Shri Sarju Sharma & other associated group 'of companies which had financial transactions with Shri Sarju Sharma (PANAKOPS3325A) and M/s. Goan Recreation Clubs Pvt Ltd., Goa (PAN-ANYPS6038F), hereinafter referred to as 'the company'. Shri Sarju Sharma is a leading business entrepreneur of Siliguri, Dist-Jalpaiguri, engaged in the hospitality business of Hotel, Restaurant and Bar running business under the name and style of M/s Hotel Alishan and Restaurant. The flagship company M/s. Goan Recreation Clubs Pvt Ltd. after being incorporated in the year 2015 has stepped into the world of gaming & entertainment unit of Casino industry. The casino business is being operated from the premises of Grand Hyatt Hotel, Bambolin, Goa w.e.f. 29th Ju1y, 2016. b) The name of M/s Goan Recreation Clubs Pvt Ltd. appeared in the credible information on high value cash deposits/ data o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bhakta Sharma ANYPS6038F 28.09.2015 03.03.2017 - Atul Kokas AAAPK5030A 03.03.2017 Active - Hifizurrehman Abdul LahKadiwal AAAPK5030A 03.03.2017 Active - Laljibhai Kanjibhai Mandalia AEJPS5127D 18.05.2016 23.06.2016 Addl. Director f) It came to light that the three new directors had neither been allotted share of the company nor subscribed to by them. On going through the records of M/s. Goan Recreation Clubs Pvt. Ltd. and its relevant Bank account maintained with HDFC & ICICI Bank, it revealed that on 01.06.2016 and 21.06.2016 the petitioner, who was then the director of the company, brought in ₹ 6,00,00,000/- and ₹ 4,00,00,000/- respectively into the books of the company viz. M/s. Goan Recreation Clubs Pvt. Ltd. during the Financial Year 2016- 17, the details of unsecured loan account is highlighted below: Loan account of Shri Laljibhai Kanjibhaiu Mandalia during the F/Y 2016-17 :- Date of transactions Fund credited in the bank account of Goan Recreation Clubs Pvt. Ltd. HDFC A/c. No.50200015405430 Payment by Shri Mandalia through his Bank 01.06.2016 6,00,00,000 Through Kota Mahindra Bank account No.8011674807 21.06.2016 4,00,00,000 -do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the notice. Moreover, in the interest of the revenue, it was judicious that the department was not expected to disclose to any outside agency/body or to any of the members directly or indirectly involved in the cobweb of financial transactions with the core group, viz. Sarju Sharma and associated group of companies; an inkling of any action being contemplated by the Income Tax Department, to keep the confidentiality and secrecy of the case intact in the interest of the revenue. 5.3 In paragraph 4.3 of the affidavit-in-reply it has inter alia been stated thus:- "As far as the investment opportunity is concerned, it is quite glaring that the petitioner invested 10 crore within a span of one month on 01.06.2016 and 21.06.2016 by way of loan on interest given to Ms Goan Recreation Clubs Pvt. Ltd. The investment was made from the Kotak Mahindra Bank a/c No. 80116714807 of the petitioner and deposited into the HDFC Bank a/c No. 50200015405430 of the company, M/s Goan Recreation Clubs Pvt. Ltd. Interestingly, the loan was repaid by the latter in five installments from 06.10.2016 to 31.03.2017 [as shown in point no. (g) of para 4.1]. The apparent investment made by the petitioner is fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not applicable to the facts of the present case as no summons or notice as contemplated therein has been issued to the petitioner. Insofar as circumstance (b) is concerned, it was submitted that there was no reason for the respondent to believe that if any summons or notice was issued to the petitioner, he would not produce or cause to be produced any books of account or other documents which would be useful or relevant to the proceeding under the Act. It was submitted that insofar as circumstance (c) is concerned, it is not the case of the respondents that the petitioner was in possession of any money, bullion, jewellery or other valuable article or thing which had not been or would not be disclosed by him. It was submitted that in the present case, the search action has been taken in respect of a loan advanced by the petitioner to Goan Recreation Clubs Private Limited which was duly shown in the return of income filed by the petitioner. It was submitted that the petitioner had disclosed the entire transaction and had paid the tax on the interest earned from the loan. The whole transaction was by way of cheque. The payment was made by cheque and was also received by way of che ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cise of powers under section 131(1) for making inquiry or investigation relating thereto. By contrast, search and seizure authorisation under section 132(1) of the Act can be granted only on satisfaction that in consequence of information in its possession, the competent authority has reason to believe that the circumstances mentioned in clauses (a) to (c) of section (1) have arisen. The court further held that the onus placed on the competent authority to arrive at a satisfaction with regard to the factor contemplated under section 132(1) of the Act is much greater than the one required for exercise of powers under sub-section (1A) of section 131 of the Act. 6.3 The decision of the Delhi High Court in the case of L.R. Gupta v. Union of India, (1992) 194 ITR 32 (Delhi), was cited wherein the court held thus: "(31) Section 132, inter alia, contemplates the issuance of an authorisation under Section 132(1) empowering the authorised officer, inter alia, to search any building, place etc. and to seize books of account, other documents, bullion, jewellery etc. if the officer, issuing the authorisation has, reason to believe that: "(A)any person to whom a summons under section (1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for. But the Court would be acting within jurisdiction in seeing whether the act of issuance of an authorisation under Section 132 is arbitrary or malafide or whether the satisfaction which is recorded is such which shows lack of application of mind by the Appropriate Authority. The reason to believe must be tangible in law and if the information or the reason has no nexus with the belief or there is no material or tangible information for the formation of the belief, then in such a case action taken under Section 132 would be regarded as bad in law. (34) The provisions of sub-Clause (a) of Section 132(1) are not relied upon by the respondents. In the present case. It is admitted that the petitioners are not guilty of non-production of documents or bocks of accounts etc. despite notice referred to in the said sub-Clause having been issued. We may, however, note that sub-clause (a) refers to facts which must actually exist before a belief is formed for taking action under Section 132(1). (35) Sub-clause (b) of Section 132(1) refers to cases where there Is reason to believe that if any summons or notice, as specified in the said sub-clause (a) has been issued or will be issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le articles which either wholly or partly should have been income of an assessed which has not been disclosed for the purpose of the Act. The said subclause pertains only to moveable and not immoveable assets. Secondly it pertains to those assets which wholly or partly represent what should have been income. The expression "which has not been or would not be, disclosed for the purposes of Income Tax Act" would mean that income which is liable to tax, but which the assessed his not returned in his Income Tax return or made known to the Income-Tax Department. The sub Clause itself refers to this as "undisclosed income or property". In our opinion the words "undisclosed", in that context, must mean income which is hidden from the Department. Clause (c) would refer to cases where the assessed knows that the moveable asset is or represents income which is taxable but which asset is not disclosed to the Department for the purpose of taxation. Those assets must be or represent hidden or secreted funds or assets. Where, however, existence of the money or asset is known to the Income Tax Department and where the case of the assessed is that the said money or th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorities at Kolkata are concerned, ordinarily they would have no jurisdiction to take any action to proceed against the petitioner, and hence, it is only with a view to assume jurisdiction over the petitioner that reference has been made to section 132 of the Act without satisfying the requirements thereof. 7. Vehemently opposing the petition, Mrs. Mauna Bhatt, learned senior standing counsel for the respondents, initially submitted that the present case falls under section 132(1)(c) of the Act but subsequently contended that the case falls under section 132(1)(b) of the Act. 7.1 The learned counsel submitted that the authority concerned has recorded satisfaction that the impugned transaction with Goan Recreation Clubs Private Limited is a non-genuine transaction. It was emphatically argued that the satisfaction note clearly reveals the connection of the petitioner with Goan Recreation Clubs Private Limited and that the transaction itself is bogus. It was submitted that the competent authority has properly recorded satisfaction and the link is duly established and, therefore, there is no warrant for interference by this court. It was contended that this court cannot go into t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on for the formation of the belief, action taken under section 132 would be bad in law. If reasons have been recorded and the concerned officer is satisfied that there is reason to believe, the court cannot sit in appeal over the decision of the said officer regarding the existence of the reason to believe nor can the court examine the adequacy of the grounds on which the reason to believe entertained by such officer is based. But there is a limited area within which such reason to believe entertained by the officer can be scrutinised by the court. If the grounds on which "reason to believe" is founded are not relevant to the subject matter of inquiry or are extraneous to the scope and purpose of the statute or are such as no rational human being can consider connected with the fact in respect of which the belief is to be entertained so that no reasonable man can come to such a belief, the exercise of the power would be bad. In appropriate cases a writ petition may lie challenging the validity of the action on the ground of absence of power or on a plea that proceedings were taken maliciously or for a collateral purpose. 7.3 It was submitted that in the facts of the present case, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there are several provisions under which the authorities can act, namely, section 131(1)(a) under which if the respondent has reason to suspect, he can seek discovery and inspection. Reference was made to section 133 of the Act which empowers the Assessing Officer and other officers referred to therein to call for information as provided thereunder. Reference was also made to section 133A of the Act which provides for power of survey and 133B which deals with power to collect certain information, as well as section 133 which deals with power to call for information by the prescribed income tax authority. It was submitted that the respondents are vested with a variety of powers; however, power under section 132 of the Act can be exercised only in three situations; firstly, where the assessee fails to produce books of account or other documents; secondly, he does not respond to a summons or notice; and thirdly, he is in possession of undisclosed income. It was submitted that in this case the amount advanced to the borrower company has been duly disclosed by the petitioner in his books of account and the tax has been paid on the interest received by the petitioner. It was contended t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on (1) of section 37 of the Indian Income Tax Act, 1922 (11 of 1922), or under subsection (1) of section 131 of this Act, or a notice under sub-section (4) of section 22 of the Indian Income Tax Act, 1922 (11 of 1922), or under subsection (1) of section 142 of this Act was issued to produce, or cause to be produced, any books of account or other documents has omitted or failed to produce, or cause to be produced, such books of account, or other documents as required by such summons or notice, or (b) any person to whom a summons or notice as aforesaid has been or might be issued will not, or would not, produce or cause to be produced, any books of account or other documents which will be useful for, or relevant to, any proceeding under the Indian Income Tax Act, 1922 (11 of 1922), or under this Act, or (c) any person is in possession of any money, bullion, jewellery or other valuable article or thing and such money, bullion, jewellery or other valuable article or thing represents either wholly or partly income or property which has not been, or would not be, disclosed for the purposes of the Indian Income Tax Act, 1922 (11 of 1922), or this Act (hereinafter in this section ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments or make or cause to be made extracts or copies therefrom; (v) make a note or an inventory of any such money, bullion, jewellery or other valuable article or thing: Provided that where any building, place, vessel, vehicle or aircraft referred to in clause (i) is within the area of jurisdiction of any Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, but such Principal Chief Commissioner or Chief Commissioner] or Principal Commissioner or Commissioner] has no jurisdiction over the person referred to in clause (a) or clause (b) or clause (c), then, notwithstanding anything contained in Section 120, it shall be competent for him to exercise the powers under this sub-section in all cases where he has reason to believe that any delay in getting the authorisation from the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner having jurisdiction over such person may be prejudicial to the interests of the revenue: Provided further that where it is not possible or practicable to take physical possession of any valuable article or thing and remove it to a safe place due to its volume, weight or o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present case, it is an admitted position that no such summons or notice as envisaged under clause (a) of sub-section (1) of section 132 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. 13. Before adverting to the requirements of clauses (b) and (c) of sub-section (1) of section 132 of the Act, it may be noted that the learned counsel for the respondents had produced a satisfaction note for the perusal of this court. The satisfaction note which runs into thirty three pages, has been recorded in the case of Shri Sarju Sharma and other related groups. The petitioner's name finds place in the list of key persons of the Group concern and is shown to be associated with Goan Recreation Clubs Private Limited. The satisfaction note refers to huge deposits made during the periods of demonetisation and introduction of undisclosed income in the form of unsecured loans. Reference to the petitioner finds place in allegations made against Goan Recreation Clubs Private Limited wherein reference is made to the loan given by the petitioner to the said concern, which has given rise to the beli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i of jurisdiction to evade or non-comply with the notice. Thus, as rightly submitted by the learned counsel for the petitioner, the belief that the petitioner would not respond to a summons or notice issued as envisaged under clause (b) of sub-section (1) of section 132 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 sub-section (1) of section 132 of the Act does not exist in the present case. 17. Insofar as the third circumstance as contemplated under clause (c) of section 132(1) of the Act is concerned, the same relates formation of belief that the person concerned is in possession of any money, bullion, jewellery or other valuable article or thing and such money, bullion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 19. Another aspect of the matter is that the 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. In the facts of the present case, 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 ci ..... X X X X Extracts X X X X X X X X Extracts X X X X
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