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TMI Blog2009 (5) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... he petitioner No.1 company. The petitioner No.1 company is engaged in the business of manufacturing and exporting pharmaceutical products. 3. The business premises of the petitioner No.1 company as well as the residential premises belonging to the petitioner Nos.2, 3 & 4 (hereinafter referred to as 'assessee' for short) were searched in the light of the warrant of attachment dated 14/15-5-2008 and incriminating documents found during the course of search were attached under panchanamas drawn from time to time. 4. Thereafter, on 24/7/2008 the Deputy Director of Income Tax (Investigation) issued a notice under section 153A of the Act calling upon the assessee to file return of income for the past six years. On the same day, i.e. on 24/7/2008 itself, the Asstt. Commissioner of Income Tax, Mumbai passed an order under section 281B(1) of the Act thereby provisionally attaching the immovable properties of the assessee and also shares of various companies held in demat account by the petitioner No.2. The assessee objected to the attachment levied under section 281B of the Act. As the attachment was not lifted, the present petition is filed. 5. Mr. Andhyarujina, learned senior Adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roduced, 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 of property [which has not [which has not been, or would not be, disclosed] for the purposes of the Indian Income-tax Act, 1922 (11 of 1992), or this Act (hereinafter in this section referred to as the undisclosed income of property).then,-- (A) the Director General or Director........ or (B) .......... as the case may be, may authorize any Assistant Director or Deputy Director, Assistant Commissioner or Deputy Commissioner to (i) enter and search any [building, place vessel, vehicle or aircraft] where he has reason to suspect that such books of account, other documents, mon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seizure action is necessary and thereafter issued the warrant of authorisation on 14/15-5-2008. 9. It is contended on behalf of the assessee that none of the three conditions set out in clauses (a), (b) & (c) of section 132(1) of the Act existed in the present case, and, therefore, the above preconditions set out in section 132 of the Act being not fulfilled, the entire search and seizure operation is bad in law. It is contended that always in the past the assessee had responded to the summons issued and, therefore, the presumption drawn by the designated authority that the assessee may not respond to the summons is totally baseless. Similarly, the investments are made in India by the petitioner No.2 and his family members out of the funds transferred from his foreign income brought to India through proper banking channel. Since the petitioner No.2 is an N.R.I., the income earned by him outside India is not taxable in India and, therefore, initiating search and seizure action with a view to tax the amount brought to India as undisclosed income does not arise at all. 10. There is no merit in the above contention, because, the information received in the present case was that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me received. In the present case, the information received was that the assessee has been manufacturing fake / exaggerated invoices and, therefore, the designated authority was justified in forming a belief that conditions set out in clause (b) of section 132(1) of the Act is satisfied. Similarly, the information received was that the investments made out of the funds brought to India represented the undisclosed income of the petitioner No.2 and, therefore, the designated authority was justified in forming a belief that conditions set out in clause © of section 132(1) of the Act are satisfied. 13. The argument that the marketing and advertisement expenses have been allowed in the past by the Transfer Pricing Officer / CIT(A) after detailed enquiry would not affect the reasonable belief formed by the designated authority to initiate search and seizure action, because, neither the Transfer Pricing Officer nor the CIT(A) had occasion to consider the genuineness of the transaction from the point of the petitioner No.2 being the ultimate recipient of the amounts remitted by the petitioner No.1 as marketing and advertisement expenses. In other words, the enquiry in the past relate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed to have been received by the petitioner No.2 and admittedly, the petitioner No.2 had brought the said amounts to India and invested but not disclosed in his return of income. Thus, the decision in the case of Ajit Jain (supra) is wholly distinguishable on facts. 16. Reliance was also placed by the counsel for the assessee on the decision of the Calcutta High Court in the case of Maheshkumar Agarwal V/s. DDIT reported in 260 I.T.R. 67 (Cal.) and the decision of the Allahabad High Court in the case of Sureshchand Aggarwal V/s. DGIT reported in 269 I.T.R. 22 (All) in support of his contention that the material found during the course of search cannot be the basis for issuing the warrant of authorisation and the reason to suspect cannot be construed as reason to believe. As noted earlier, the search and seizure action was initiated by the revenue on the basis of the material received before search and not on the basis of the material received during the course of search. Moreover, the information received being specific regarding the amount of tax evaded and the source from which the tax evasion could be unearthed, the designated authority was justified in forming a rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the payments made by the petitioner No.1 to Cyprus / UK based companies towards marketing and advertisement expenses were further liable to be paid over to Ukrainian advertising agencies who are in fact supposed to have advertised the product of the petitioner No.1 in Ukraine. The documents further reveal that the said Cyprus / UK based companies have credited the amounts received from the petitioner No.1 in the private bank account of the petitioner No.2 in Cyprus. Moreover, during the course of search, incomplete and / or unsigned invoices of the foreign companies along with their seals / stamps were recovered from the office of the petitioner No.1 (see page 544 of the petition). These incriminating documents prima facie establish that large scale tax fraud has been committed. 21. When confronted with the incriminating documents which are seized, the petitioner No.2 while recording his statement on 11/6/2008 promised that he would explain the entire seized materials but he left for UK on 14/6/2008. The petitioner Nos.3 & 4 who are other directors of the petitioner No.1 company expressed their inability to explain the seized materials (see page 191 of the petition). Thereafter, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lose the source of income earned in foreign countries. As a result, there is delay in completing the investigation. Consequently, there is delay in finalising the assessment pursuant to the notice issued under section 153A of the Act. 25. Strong reliance was placed by the counsel for the assessee on the decision of the Andhra Pradesh High Court in the case of Society for Integrated Development in Urban & Rural Areas V/s. C.I.T. reported in 252 ITR 642 (A.P.) and a decision of this Court in the case of Gandhi Trading Company V/s. C.I.T. reported in 239 ITR 337 (Bom.) in support of his contention that power under section 281B of the Act has to be used sparingly and only if the substantive evidence gives rise to the reasonable apprehension that the assessee may thwart the interest of the revenue in collecting the ultimate demand. None of the above decisions support the case of the assessee, because, the substantive evidence in the present case is the recovery of incomplete and / or unsigned invoices of the foreign companies from the office of the petitioner No.1, which clearly demonstrate that the assessee had resorted to tax evasion device and in such a case reasonable formed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Y 2002-03, Rs.25,200/- in AY 2003-04, Rs.63,000/- in AY 2007-08. As against the above income, the petitioner No.2 has invested more than Rs.35 crores in immovable properties and more than Rs.60 crores in acquiring shares of various companies. Since the investments made are disproportionate to the known sources of income and the incriminating documents seized during the course of search prima facie suggest that the funds brought into India are not the foreign income of the petitioner NO.2, but represent the amounts received by the petitioner No.2 under the tax avoidance transactions between the Petitioner No.1 and the Cyprus / UK based companies, the attachment of the immovable / movable properties cannot be faulted. 29. Strong reliance was placed by the Counsel for the revenue on the Board Circular dated 5-11-2004. That circular was issued merely to safeguard against the indiscriminate use of Section 281B of the Act. In the facts of the present case, it cannot be said that invoking Section 281B of the Act is unreasonable or uncalled for, especially when the seized documents show that the petitioner No.2 is the mastermind in siphoning off the funds of the petitioner No. ..... 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