E= IN THE HIGH COURT 0F SIKKIM WFtlT PET[T[ON (Ct NO.10 0F 2004 M/s. Sikkim Subba Associates, a Registered Partnership flrm having its Registered Office at Subba Building, Siyari, Gangtok, Sikkim -737101. Petitioner. VERSUS 1. Union of India, . represented by the Secretary to the Government of India, Ministry of Finance, Department of Revenue, North Block, New Delhi. 2. Thesecretary, Income/ Sales Tax Department, Secretariat Annexe I, 1st Floor, Opp. Power Department, Kazi Road, Gangtok -737101. 3. The Director of Income Tax (Investigation) East , Aaykar Bhawan Annexe, P-13, Chowringhee Square, Sid Floor, Kolkata - 700 069. 4. The Director of Income Tax (Investigation), 3rd Floor, E-2, ARA Centre, Jhandewalan Extension , New Delhi - 110 055. 5. The Director of Income Tax (Investigation), N.E. Region, Guwahati. -,,, a `-, 40 rf.\dr7, # / i! `.qB `. a.try\dy, :,- 6. The Deputy commissioner of lncome Tax, Central Circle IV, 3rd Floor, E-2, ARA Centre, Jhandewalan Extension, New Delhi - 110 055 .... WRIT pErmoN Ristrondents. NO.11 0F 2004 M/s. Teesta Rangit Pvi. Ltd., through its authorized Signatory, Shri Man Kumar Subba, Son of late D. 8. Subba, having its Registered Office at - Siyari, Gangtok, sildin -737 ioi. Petitioner, VERSUS 1. Union of India, represented by the Secretary to the Government of India, Ministry of Finance, Department of Revenue, North Block, New Delhi. The Secretary, Income/ Sales Tax Department, Secretariat Annexe I, 1st Floor, Opp. Power Department, Kazi Road, Gangtok -737101. The Director of Income Tax (Investigation) East, Aaykar Bhawan Annexe, P-13, Chowringhee Square, 3rd Floor, Kolkata -700 069. 4. The Director of Income Tax (Investigation), 3rd Floor, E-2, ARA Centre, Jhandewalan Extension, New Delhi - 110 055. i¢J: For the Petitioners 'Ihe Director of Income Tax quvestigation), N.E. Region, Guwahati. ' T'TheDeputyCommissioneroflncomeTax, Central Circle IV, 3rd Floor, E-2, ARA Centre, Jhandewalan Extension , New Delhi - 110 055 .... Resoondents. Mr. K. N. Chaudhury, Senior Advocate assisted by Mr. P. Aggarwal, Mr. P. Upadhyaya, Mr. N. Rat and Miss Jyoti Kharka, Advocates. For the Respondent Nos.1 and 3 to 6. For the Respondent No.2 : Mr. A. Moulik assisted by Mr. N. G. Sherpa, Advocates. Mr. J. 8. Pradhan, Government Advocate. PRESENT : THE HON' BLE SHRI JUSTICE N. SURJAMANI SINGH, ACTING CHIEF JUSTICE. Date of Judgment : 318t May 2005. I H a £-M E HI These two wit petitions involved almost the same and similar common question of facts and law and, as such, this Court propose to dispose of these two writ petitions by this common judgment. . +.rty6\6# 2. These two writ petitions are directed against the issuance of walTant of authorisation dated 17th June 1999 to 23rd June 1999 including warrant of authorisation dated 18th June 1999 by the respondents against the petitioners under Section 132 of the Income Tax Act, 1961, hereinafter referred to as the "Act" for conducting search and seizure in the premises of the petitioners arid the consequent issuance of impugned notice dated 20th February 2001 under Section 158BC of the Act directing the petitioners to file returns etc. by treating the search and seizure operations as valid; for which the petitioners have, inter-aJja, prayed that such warrant of authorisation and the impugned notices dated 20th February 2001 issued under Section 158BC of the Act be quashed as the same is unconstitutional, illegal and void ab- initio and consequently, the petitioners have also prayed that the documents/valuable etc. recovered from them during the impugned illegal search and seizure operations carried out by the respondents be returned to them. 3. In Writ Petition No. 10 of 2004, the petitioner has \ aveITed that it is a partnership firm duly reSstered under the Sikkim Act and having its registered office at Subba Building, Syari, Gangtok, Sikkim. The respondent No.1 is the Union of India; the respondent No.2 is the Secretary, Income/Sales Tax Department, Gangtok, who collects income tax under the d.\D+, Sikkim Act from the residents. Respondent Nos.3 to 5 are Directors of Income Tax (Investigation) situated at Kokata, New Delhi and Guwahati exercising jurisdiction collectively by issuing search warrants on the petitioner and other persons/firms etc. allegedly connected with one firm M/s. M. S. Associates. It is stated that these authorities had acted in concert on the basis of shared information and conducted search and seizure operations at the premises of the petitioner firm at Gangtok. It was further averred that during the relevant period, Shri Moni Kumar Subba was one of the partners of the petitioner firm and his wife Smt. Jyoti Limbu was/is the Manaalng Partner of the firm, M/s. M. S. Associates. The said firm, M/s. M. s. Associates carries on business of selling State organised lotteries and in the past the said M/s. M. S. Associates had been the Sole Distributor of Lotteries organised by various State Governments, namely, Assam, Meghalaya, Nagaland etc. Since 28th September 1993, M/s. M. S. Associates was the Sole Distributor of the Lotteries of the State of Nagaland and the role of the firm was limited to the extent of assisting the concerned State Government to sell its lottery in accordance with the laws laid down by the HonThle Supreme Court in the matter of State of Haryana v. Suman Enterprises reported in (1994) 4 SCC 217. It is further stated that on different dates in the month 1 •.\c5¥ of June 1990, namely 17th to 23rd by different warrant of authorisation issued by the respondent Nos.3 to 5 purportedly acting under Section 132 of the Act, the business premises of M/s. M. S. Associates as well as the residence and ofricial premises of persons allegedly associated with the said rirrn including the petitioner firm were searched and amount of cash, jewellery, investment certificates, fined deposit receipts and other documents were seized. In respect of the petitioner rirm the said searches were also conducted at Gangtok pursuant to the wanant of authorisation dated 18th June 1999 issued by the respondent No.3, which fact is evident from Panchnama dated 23rd June 1999. 4. In Writ Petition No.11 of 2004, the facts whereof are identical, it is stated that the petitioner company is a private limited company incorporated and .registered under the Redrstration of Company Act (Slkkim), 1961 and is ha`ving its registered officer at Syari, Gangtok, Sikkim. The petitioner company was incorporated with the object of undertaking Hotel construction at Gangtok. It is stated that during the relevant period, Smt. Jyoti Limbu, Shri S. R. Subba (brother of Shri M. K. Subba) and Shri M. K. Subba were directors of petitioner company. Smt. Jyoti Limbu is wife of Shri M. K. Subba and was/is the ManaSng Partner of the firm, M/s. M. S. Associates. M/s. M. S. Associates carries on business of a.\giv, selling State organised Lotteries. Since 28th September 1993 the said M/s. M. S. Associates was the Sole Distributor of Lotteries organised by State of Nagaland. In this case also, on different dates in the month of June 1999, namely 17th to 23rd by different warrant . of authorisation issued by the respondent Nos.3 to 5 puxportedly acting under Section 132 of the Act, the business premises of M/s. M. S. Associates as wen as the residence and official premises of persons allegedly associated with this firm including the petitioner company were searched at Gangtok pursuant to the warrant of authorisation dated 18th June 1999 and amount of cash, jewellery, investment certificated, fixed deposit receipts and other documents were seized, which is evident from the Panchnama dated 23rd June 1999. 5. In both these matters, it is a.verred that the search and seizure operations against M/s. M. S. Associates and the persons allegedly associated with them including the petitioners were made on the basis of a preliminary, draft and unsigned report of the Comptroller and Auditor General of India (hereinafter referred to as "the CAG") with regard to the business of lotteries of the State of Nagaland in which M/s. M. S. Associates had acted as Sole Distributor. `\cy, 6. Chapter XIV-B consisting of Sections 1588 to 158BH were inserted by the Finance Act, 1995. Relevant portion of Section 158BA of the Act reads as follows: - "158B(A)(1) Notwithstanding anything contained in any other provisions of this Act, were after the 30th day of June,1995 a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A in the case of any person, then, the Assessing Officer shall proceed to assess the undisclosed income in accordance with the provisions of this Chapter. (2) The total undisclosed income relating to the block period shall be charged to tax, at the rate specified in section 113, as income of the block p.eriod irrespective of the previous year or years to which such income relates and irrespective of the fact whether regular assessment for any one or more relevant assessment years is pending or not ................. " Sub-section (a) of Section 1588 defines "block period" as the period comprising previous year relevant to six assessment years preceding the previous year in which search was conducted under section 132 or any requisition was made under section 132A and also includes the period up to the da.te of the commencement of such search or date flf such requisition in the previous year in which search was conducted or` requisition was made. The expression "undisclosed inclome" is defined by sub-section (b) of Section 1588 of the Act. A.\0„ 7. Thus if the search and seizure is valid and legal, assessments can be made by the Assessing Officer by invoking the provisions of Section 158BC of the Act. However, if the search and seizure are invalid and iuegal than assessment cannot be made by tarfug recourse to the provisions of Section 158BC of the Act. 8. In respect of the petitioners, the respondent No.6 issued two. separate notices both dated 20th February 2001 under Section 158BC of the Act purporting to make Block Assessments of the petitioners for the period ending lst April 1989 to 23rd June 1999. By the said impugned notices, the petitioners were directed to prepare true and correct return of its total income including the alleged undisclosed income for the Block Period in respect of which the petitioners are alleged to be assessable for the Block Period. 9. Being aggrieved by the issuance of the impugned notice dated 20th February 2001, the petitioners preferred two separate Writ Petitions being Writ Petition (Civil) No.2890 of 2001 and Writ Petition (Civil) No.2889 of 2001 before the Gauhati High Court. The Gauhati High Court by orders dated 21st April 2001 was pleased to issue Rule and pass orders staying fiirther proceedings pertaining to search and seizure if any against the petitioners and the operation of the impugned notice dated 20th February 2001. In these matter on 6th LJune `\opr, 1 10 2002 before the Gauhati High Court, one Shri Manjit Sin8h, Dy. Director of Income Tax qnvestigation), Guwahati who was not the concerned ofrlcer ffled separate affidavit in opposition and admitted that one of the infomation in possession of the respondents was the report of CAG and that in the present group of cases including the petitioners no separate satisfaction note is required to be prepared and one satisfaction note is sufficient. The High Court of Gauhati by a common fmal judgment and order dated 318t may 2004, dismissed both these writ petitions on the ground of lack of territorial jurisdiction, which led the petitioners filing the present two Writ Petitions b.efore this Court. 10. In both these Writ Petitions, identical averments are made. It is stated that information in possession of the concerned officer on the basis of which the warrants of authorisation was issued and search and seizure operations were carried out was the draft and `unsigned audit report of C.AG against the working of the Directorate of Lotteries of the State of Nagaland for the period from October 1993 to November 1997 when M/s. M. S. Associates was Sole Distributor of lotteries organised by the State of Nagaland. It is luther stated that the report of CAG did not acquire legal authenticity and cannot be construed as "infomation" within the meaning of Section 132(1) of the Act as the said GAG +.\cpr, 11 report under Article 151(2) of the Constitution of India has to be submitted to the Governor who is required to la.y it before the Legislature of the State. As such, the report of GAG is the property of the house, i.e. I,egislative Assembly of the State of Nagaland under Article 151(2) of the Constitution and the said report cannot be construed or treated as "information" on the basis of which authorisation under Section 132 of the Act can be issued as such an act would be, inter-alia, violative of Constitutional mandate. It is further stated that ` the respondent authorities used CAG report in June 1999 much prior to the same being laid before the House, i.e. in August 1999. 11. The GAG report was laid by the Government before the Legislative Assembly in August 1999 and the Legislative Assembly referred the said GAG report in terms of Rule 235 of the Rules of Procedure and Conduct of Business in Nagaland Legislative Assembly to the Public Accounts. Committee (PAC). In March 2002 the PAC has submitted its report to the Legislative Assembly of the State and with regard to the GAG report regarding the working of the Directorate of State Lotteries has held the said GAG report to be unsustainable on facts. The case of the petitioners in the Writ Petitions is that the executive including the respondents cannot assume jurisdiction and conduct investigation over a matter over b,\ctry, 12 C3 which the House or its Committee is investigating. It is stated that in any event the fmal report of PAC is binding on the executive. It is further averred that the GAG report has become non-est in view of the PAC report in March 2002 as the GAG report begins and terminates within the walls of the House and is a matter relating to internal procedure of the House. In short, the case of the petitioners is that the respondents cannot rely on the GAG report either in full or in part for the pulposes of conducting search and seizure operations on the betitioners on the basis that there are some allegations in the said report in respect of the firln, M/s. M. S. Associates in which one of the Directors is related to the petitioners by treating the petitioners as a part of the Group of M/s. M. S. Associates. It is further a.verred that the "information" in possession of the designated authority was GAG report on the basis of which the said authority formed "reasons to believe". It is futher stated that the CAG report could not be in possession of the said authority cannot be used by it on account of the Constitutional embargo and as such the entire search and seizure operations against the petitioners are unconstitutional, illegal, non-est and void ab- initio. It is further stated that if the searches are declared as illegal than the impugned notices issued under Section 158BC both dated 20th February 2001 were liable to be +tory, 13 quashed as they could be issued only if the search and seizure operations are held to be legal and valid. 12. In both these matters, one Shri Raju Lepcha, Asstt. Director of Income Tax (Investigation), Siliguri a subordinate of the designated authority who had issued the impugned warrants of authorisation ffled separate counter affidavits. In the counter affidavit, it is mentioned that the petitioners are fronts opened by Shri M. K. Subba having their main business in New Delhi. In para 3 (vii), 3 (ri), 9,15,18 to 21, it is admitted that report of CAG was in the possession of the authorities and was used for forlning the belief but it was further stated that GAG report was only a portion of information available with the authorities which led to a reasonable belief that the condition precedent for action under Section 132(1) of the Act were fulfilled. It is further stated that the CAG report was not the only basis for the action under Section 132(1) of the Act and apart from the GAG report, the concerned officer had enough material in their possession from which they could from reason to believe for proceeding under Section 132(1) of the Act. Similar admissions have been made in paras 15, 19 to 21 of the counter affidavit. It was further admitted that the said report was used as part of information prior to it being placed in the House, i.e. in August 1999. It was further admitted that the •,...i(:.`-;i. 14 search operation at Gangtok was pursuant to the warrant of authorisation dated 18th June 1999 and was just a part of the nationwide searc'h conducted against the group. 13. Thus the admitted facts are that the concerned ofricer who had formed the requisite belief that conditions exist for the purposes of initiating action under Section `132 of the Act was also guided by the CAG report which was in his possession prior to the same being laid before the Legislative Assembly of the State of Nagaland in August 1999. The said GAG report was thus part of the information in possession of the designated authority for the purposes of initiating action under Section 132 of the Act and one of the basis for forming the requisite belief. As such, prior to the GAG report, being placed on the floor of the Nagaland Legislative Assembly in August 1999, the respondents obtained a copy of the draft and final report of GAG and based on the said GAG report and other information, which is not disclosed in the counter affldavit, the concerned offlcer forlned a belief that conditions exist for the purposes of resorting to the provisions of Section 132 of the Act and conducting search and sei2mre operations on the petitioners. 14. Apart from the GAG report, it is stated during arguments that one of the information in possession of the concerned officer was an alleged interview published in some +\giv, i:. 15 magazine "Rato Gham" wherein Shri M. K. Subba is alleged to have made tall claims about his wealth/position/status. It was submitted that the said newspaper report was also with the designated authority and was used by the authority to form "reasons to belief' that conditions exist for the purposes of issuance of the walTants of authorisation under Section 132 of the Act. In the written submissions filed by the petitioners, it is submitted that a Writ Petition no. 508 of 1998 was filed by one Niran Rai before this Court seeking declaration that the said publication "Rato Ghaln" was fake. In the Writ Petition No.508 of 1998, interim orders dated 13th November 1998 were passed by this Court directing for a CBI. inquiry. Although interim orders were passed and this Court seized of the matter regarding the genuineness of the said magazine "Rato Gham", the respondents despite the pendency of the writ petition and the orders passed took cognizance of the said newspaper reports much later i.e. in June 1999 [paying scant regard to the earlier directions issued] and used the said information for purposes of forming the requisite belief under Section 132 of the Act. It is further submitted that rinally this Court by judgment and order dated llth October 2001 held tliat the said publication was fake and fabricated and issued various directions to authorities. ` +boy, \j@' 16 15. The case of the respondents that a fmding in the GAG report can be used against the citizen as there is no bar to suck user under the Constitution. It was further submitted that a copy of the GAG report was forwarded by the GAG to the Union Finance Ministry and as such the concerned officer came into possession of the said GAG report and used the same for forming the requisite belief and as such there is no breach of privilege as the said report was obtained legally. It was further submitted that if GAG report gives indication of evasion of tax than the same can be used by the concerned officer. It is further submitted that the words "information" should be given a wide and not restricted meaning and the executive can use all the "information" from Legislative documents or proceedings in Legislative Assembly etc. in a civil or a criminal matter and the proceedings before the Legislative Assembly would not be a bar to investigation in any matter. It is further submitted that as there is no legal or constitutional impediments to the use of the GAG report, the action of the respondents cannot be said to be unreasonable or unwalTanted. It is further the case of the respondents that they had 'inforlnation other than GAG report and even if GAG report could not be replied upon, the other inforlnation was sufficient on the basis of which it can be said that the concerned officer rightly formed the requisite belief and +.\6J,?, ``S. 17 issued the warrants of search and sei2mre under Section 132 of the Act. Thus, the contention of the respondents is that the information can be segregated i.e. GAG report and "other / information" and the warrants of authorisation under Section 132 cannot be found fault with if it is based on "other information" even if it were to be held that GAG report cannot be said to be information in possession of the concerned olrlcer. 16. I have heard the leaned counsel for the parties to the various issues raised in the pleadings and those specifically argued before me. I have also gone through the written submissions ffled by the parties pursuant to the directions issued by this Court. 17. Shri Chaudhary, leaned Senior Counsel and Shri P. Aggarwal, learned Counsel for the petitioners, inter-alia, made the following submissions: - [a] The information on the basis of which the designated / authority has formed "reasons to believe should be legal and constitutional and further the possession over such information of the concerned autriority should also be legal, constitutional. The GAG report, which is the property of the House and her to be dealt by the house only cannot constitute a piece of legal and constitutional information to generate the requisite ., +\0?, 18 belief to the desigriated authority for initiating action •imder Section 132 of the Act. Further, no reliance can be p.laced on newspaper reports i.e. Rato Ghank as firstly, the newspaper reports do not constitute "information" in the eyes of law and secondly the said magazine Rato Gham was found to be fake by this Court in Writ .Petition No.508 of 1998. H.I The extent of reliance on the report and other information for the purposes of formation of belief cannot be segregated between relevant, legal and constitutional and irrelevant, illegal and unconstitutional. In cases of search and seizure the ground is one i.e. on the basis of the information in his possession, the concerned officer could form the requisite belief that conditions contained in Section 132 exist for issuing search and seizure warants. As the satisfaction of the concerned officer is "subjectivp satisfaction" based on the information i.e. documents etc. before him on whicb he forms belief the same cannot be segregated. As such if the designated authority has relied upon the GAG report, which it could not ha.ve relied upon than the entire action, is unconstitutional, illegal and unsustainable. ., -`- .` - 19 [c] As the respondents have neither claimed privilege nor disclosed the other information in their possession [other than GAG report], they are required to provide inspection and give copies of the information in their possession to the petitioners. [d] The counter afridavit has not been filed by persons/a.uthority who had issued the warrants of authorisation and as the formation of belief being a mental satisfaction of the concerned superior officer of the rank as mentioned