IN THE HIGH COURT OF JUDICATURE CHHATTISGARH AT BILASPUR Writpetition No$€bo or 2005 Petitioner 1”: Prakash Chand Maioo (Jain) S/o. Late S.M. Jain, aged about 52 years resident of D—35/1 Devendra Nagar, Raipur (C.G.) VERSUS Union of India through Secretary Ministry of Finance North Block New Delhi. Central Board of Direct , niracto: Genera1 o£ income Tax {xnveetigeuom Aaykax Ehavam Hoshangabad mad j/p/gg/ $fg>7 p7a/M/éwf cgMf§m/é§¢%/w Wa} /0-?~0§ Ehapal $1.9.) Road, Bhooal . " (MP. /Va¢7/y$/% 9wQ// /’5. Commissioner of income /Jg[/wca/& 4Q- $5géo/ a5 é77 /8‘03- 09 Ca MWX &/7c'/¢/% QJéc/ Tax @ New Central /& e CJa ~ 0 Revenue Building, Civil Neg w we? Lines, Raipur (C.G.) %p/Voce/& /’6. 0% l/ga— iv /(g K w 09 Tax (investigation), ARK.” ~ Central Revenue Building, Raipur (C.G.) and other authorised officers through him. Joint Director of Income ; l 7. Assistan Commissione f Income Tax Circe 1 Raipur throuh Commissioner of Incme Tax, New Centrl Revenue Buiidin Civil Lines, aipur (C.G.) Petition under Articles 226/227 of the constitution of India for issuance of suitable directions, orders or writ including writs in the nature of certiorari" mandamus, prohibition etc. / t r o l (1) g o a g R HIGH COURTOF CHHATTISGARH : BILASPUR WRIT PETITION No. 800 of 2005 Prakash Chand Maloo (Jain) ‘ PETITIONER RESPONDENTS Versus Union of India & Others. V/ ,{Satish K_ Agnihotr Post fof pronouncement of the judgment on the l} #Hay of De /‘.’\ 7/ Sd/ - Judge cember, I 20 1 0 l i /§/ HIGH COURT OF CHHATTISGARH : BILASPUR WRIT PETITION No. 800 of 2005 PETITIONER Prakash Chand Maloo (Jain) Versus Union of India & Others. (Petition under Article 226/227 ofthe Constitution of India) Single Bench : Hon’ble Shri Satish K. Agnihotri, J. RESPONDENTS Present :- Shri Neelabh Dubey, Advocate for the petitioner. Shri Rajeev Shrivastava, Advocate with Shri Sameer Shrivastava, Advocate for the respondent-Income Tax Department. Shri Venu Gopal, Income Tax Officer (investigation), Bilaspur and Shri N.Khalkho, Inspector (investigation) Raipur, are also present. J U D G M E N T (Delivered on this Lf”day of December, 2010) v By this petition/under Article 226 of the Constitution of India, the petitioner seeks to quash the search warrant issued by the Director General of Income Tax (investigation), [hereinafter referred to as ‘the DGIT(Inv.)’] Bhopal, post search proceedings and compensation for humiliation and harassment suffered by the petitioner. The indisputable facts, in nutshell, are that a search in the residential ‘ premises of the petitionerie D-35/1, MIG, Devendra Nagar, Raipur was conducted by the Joint Director of Income Tax (investigation), Deputy Director of Income Tax (investigation), Assistant Commissioner of Income Tax and Income Tax Officer, on 17.02.2005 in absence of the petitioner. A panchnama was prepared ,;¢3w&§>\ and valuables and loose papers were also inventorised. The search was suspended on 17.02.2005 at about 9 plm‘ by service of prohibitory order under section 132(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act, 1961’) and the same was concluded on the next date Le. on 18.02.2005, afternoon. A survey under section 133A of the Act, 1961 was also conducted in the office premises ofthe firm M/s. Deshpande Malu & Co. wherein the petitioner was a partner. The said survey and search was unauthorized and without there being any material so asto form ‘ reasons to believe that the petitioner was in possession of any money, bullion, jewellery or other valuable articles or thing, as required under the provisions of section 132(1) ofthe Act, 1961. Shri Neelabh Dubey, learned counsel appearing for the petitioner would question the legality and validity of the search on the ground that the respondent No. 3, DGIT (InV.) did not have information in his possession as to form reason to believe that the petitioner was in possession of money, bullion, jewellery or other valuable article or thing representing undisclosed income or property. Thus, the impugned warrant of search was illegal and void. Further, there was no reason to believe that the petitioner would not produce, or had not produced books of accounts whenever requisitioned by the Department. The search was authorized for malafide intention of ‘ depriving the firm of the petitioner from carrying out Special Audit under section 142(2A) of the Act, 1961, of the Chhattisgarh State .. V f5 } x Electricity Board, for which he was appointed auditor. Further, the search was conducted to tarnish the image of the' petitioner. The search caused mental torture and social stigma not to the petitioner V only but to the other family members also. His right to privacy was also violated. Shri Dubey would further submit that there are following requirements to invoke jurisdiction under section 132(1) of the Act, 1961 for authorizing an officer to search a premises: “That there should be information in possession Of the authorities which should be ohjective in nature. That the said information should be more than mere rumor, gossip or hunch. That the authorizing officer must actively apply its mind to the information in his possession and form an opinion that there is reason to believe. That the formation of opinion or belief by the authorized officer must be apparent from the note recorded by him. ‘ That on the basis of such information the authorized officer should be able to have a reason to believe that a person who has been summoned to produce books of account or document has failed'to produce such account books. That person summoned or might be summoned may not or would not produce any document which is relevant for an proceedings under the Act. ; m o That person in possession of any money, bullion jewellery or other valuable ar’cicle representing part of the property which has not been or would not be disclosed for the purpose of the Act. That the material must have rational nexus or o the reasons for formation of belief‘ It bearingt should be bonaftde and not actuated by malafides, bias or extraneous or irrelevant material. ” 5. Further, the petitioner was a professional of excellence and his ce should not be searched without there being compelling evidences and eontlrmations of substantial tax evasion, in contravention of the instruction No. 7/2003 issued by the Central Board ofDirect Taxes (hereinafter referred to as ‘the CBDT’). learned counsel, on the 6. ' On the other hand, Shri Rajeev Shrivastava, d filed on behalf of the respondent-Department .would submit that the search was initiated on the gr on of, inter alia, to was in possession of other ould not be disclosed for the ould facilitate evasion of tax. The at the tax—payers who are professionals ot be searched without there being compelling is admittedly nfirmations of substantial tax evasion, instruction No. 7/2003 issued by the CBDT. But the In the case on hand, ’ l \\\ sufficient materials , were . available indicating thatthe petitioner was ’ residen ’. basis of returne ound that the DGIT(Inv) had sufficient information in possessi form reasOn to believe that the petitioner valuable articles or things which w purpose of income tax and w , contention of the petitioner th of excellence should i1 evidences and co a part of the \\ same does not supplant the provisions of law. in possession of the materials which warranted search and seizure under section 132 of the Act, 1961. There were compelling evidences and confirmation of substantial tax evasion to abet the tax evasion by Bajrang Group of Raipur. On search, it was found that the petitioner was also involved in evasion of substantial taxes. There was sufficient materials to show that the petitioner indulged into violations of professional ethics. It was revealed on enquiry that the petitioner, an experienced Chartered Accountant was closely ssociated with Bajrang Group with the business dealings and fund mobilization. Thus, the petitioner cannot claim immunityon the basis of being a professional of excellence. The books of accounts were subsequently impounded on 19.032005 for further verification and investigation. Shri Shrivastava would further submit that information in possession of the authorized officer is certainly a matter of judicial review, however, Whether the information was sufficient or not for reasons to believe is a subjective satisfaction of the officer concerned. In support of his contention, he relies on a decision of the High Court of Allahabad, in Ganga Prasad Maheshwari & Others v. Commissioner oflncome Taxl . It is further submitted that the search powers are essentially a procedural power and when the prescribed procedure has been followed, validity of search may not be " examined at this stage. In support of this contention, he would rely l (1981) 21 CTR(ALL) s3 ME a K7) on a decision of High Court of Jammu & Kashmir in Director of Inspection & Ors. v. KC. & Co. & Orsz. Heard learned counsel appearing for the partios, perused the“ pleadings and documents appended thereto. A panchnarna (Annexure R/l) was prepared in the case of warrant of search of the residence of Prakash Chand Maloo (Jain). Inventories (Annexure R/2) were also prepared. Certain pass books were also seized which are at Annexure R/3. Statement of the petitioner as well as his son, Abhishek Jain and wife of the petitioner Smt. Pramila Jain, were also recorded (Annexure R/4 and ’ ws). For ready reference, section 132(1) ofthe Act, 1961 reads as under: “132. Search and seizure. — (1) Where the Director General or Director or the Chief Commissioner or Commissioner or Additional Director or Additional Commissioner or Joint Director or Joint Commissioner in consequence of information in his possession, has reason to believe that — (a) any person to whom a summons under sub section (1) of section 37 of the Indian Income Tax Act, 1922 (11 of 1922), or under sub section (1) of sub section 131 of this Act, or a notice under sub section (4) of section 22 of the Indian Income Tax Act, 1922, or under sub section (1) of section 142 of this Act, was issued to produce, or cause to beproduced, any books of accounts 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 2 i (1987) 64 CTR (J&K) 148 not, or would , produce or cause to be produced any books of account or other documents wich will be useful for, or relevant to, any proceeding under the Indian Income Tax Act, 1922 (11 of 1922), or under this Act, o (c) person is in possession of any oney, bullion, jewellry or other valuab artice or thing and such money, bullion, jellery or other valuable article or thing represents either wholly or partly incom or property which has not been, r would not be, disclosed for the purpos of Indian Income Tax Act, 1922 (11 of 1922), or this Act (hereinaiter in this section referred to as the u (A the Director General or irector or the Chief Commissioner or Commissioner, as th case may be, may authorize any Additional Director or Additional Commissioner or Joint Director, Joint Commissioner, Aiant Dirtor or Deput irector, Assistant Commissioner o Deputy Commissioner, or Income Tax Offic, or c oi se , y D a n e f ndisclosed income or property), then- ) D (B) such Additional Diret or Additional Commissioner or Joint Director or Jnt Commissioner, as the ca may be may authorize an Assistant Director or eputy Director, Assistant Commissioner, or eput Comssioner or Income Tax Dy mi Officer, (the offlcer so uthorized i all cases bing hereinader referred to as the authorized oficer) t0— (i) enter and search an building, place, vessel, vehicle or aircraft where he has reason to suspect that such books of account, other documents, money, bullion, jewellery or other valuable article or thing are kept; (ii) break open the lock of any door, box, locker, safe, almirah or other receptacle for existing the powers conferred by clause (i) where the keys thereof are not available; (iia) search any person who has got out of, or is about to get into or is in, the building place, vessel, vehicle or aircraft, if the authorize officer has reason to suspect that such person has secreted about his person any such books of account, other documents, not h r any m e le l we e o e e ssst ec y D r er money, bullion, jewellery or other valuable article or thing; (iib) require any person who is found to be in possession or control of any books of account or other documents maintained in the form of electronic record as defined in clause (t) of sub section (l) of section 2 of the Information Technology Act, 2000 (21 of 2000), to afford the authorized officer the necessary facility to inspect such books of account or other documents; (iii) seize any such books of account, other documents, money, bullion, jewellery or other valuable article or thing found as a result of such search: Provided that bullion, jewellery or other valuable article or thing, being stock- in- trade of the business, found as a result of such search shall not be seized but the authorized officer shall make a note or inventory of such stock—in—trade of the business; (iv) place marks of identification on any books of account or other documents 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 aircrad referred to in clause (i) is within the area ofjurisdiction of any Chief Commissioner or Commissioner, but such Chief 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 authorization from the Chief Commissioner or Commissioner having jurisdiction over such person may be prejudicial to the interest 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 other physical characteristic or due to its being of a dangerous nature, the authorized officer may serve an order on the owner or the person who is in immediate possession or control thereof that he shall not remove, part with or otherwise deal with it, except with the previous permission of such authorized officer and such action of the authorized officer shall be deemed to be seizure of such valuable article or thing under clause (iii): Provided also that nothing contained in second proviso shall apply in case of any valuable article or thing, being stock-in-trade ofthe business. Provided also that no authorization shall be issued by the Additional Director or Additional Commissioner or Joint Director or Joint Commissioner on or after first day of October, 2009 unless he has been empowered by the Board to do so.” Section 133A of the Act, 1961 deals with the power of survey, which according to the petitioner, was done in case of office premises of Deshpande Malu & Co. The same is not under challenge in this petition as the relief clause seeks quashing of search warrant in respect of the residential premises i.e. D—35, Devendra Nagar, Raipur, belonging to the petitioner. 12. The Department has produced the original papers. On perusal, it is found that sufficient materials were produced and were in possession of the DGIT (Inv), Bhopal. It is further found that the DIT(Inv.), Bhopal, JDIT(Inv.), Raipur have prepared report and notes on the basis of materials, and placed before him. The DGIT(Inv.) Bhopal, on examination, came to the conclusion that there was systematic suppression of income. and substantial tax /éé 10 evasion by the Bajrag Group of Raipur in his notings on 10.02.2005r Thus, the DGIT (Inv.) recorded reasons to believe that warrant of authorization under section 132 ofthe Act, 1961 be issued for search in the residential premises of the persons mentioned at ‘A’ of the note. 13. eedless to mention that residential premises at D—35, MIG, Sector N l, Devendra Nagar, Raipur, belonging to the petitioner was in the list. Thus the contention of leamed counsel for the petitioner that there was no sufficient materials to form reason to believe that search was wairanted under section 132(1) of the Act, 1961, being unsubstantiated, is rejected. 14. In Ganga Prasad Maheshwaril, the High Court of Allahabad, held as under: “6. “Reason to believe” is a common feature in taxing statutes. It has been considered to be the most salutary safeguard on the exercise of power by the officer concerned. It is made of two words “reasons” and “to believe”. The word “reason” means cause or justification and the word “believe” means to accept as true or have faith in it. Before the officer has faith or accepts a fact to exist there must be a justification for it. The belief may not be open to scrutiny as it is the final conclusion arrived at by the officer concerned, as ’a result of mental exercise made by him on the. information received. But, the reason due to which the decision is reached can always be examined. When it is said that reason to believe is not open to scrutiny what is meant is that the satisfaction arrived at by the officer concemed is immune from challenge but where the satisfaction is not based on any material or it cannot withstand the test of 12 accounts or other documents, and to place marks of identification therein, to make extracts or copies therefrom and also to make a note or an inventory of any articles or other things found in the course ofthe search.” l7. In Dr. Nand Lal Tahiliani vi Commissioner of Income Tax & 0thers5, the High Court of Allahabad, observed as under: “In order that the information of opinion must be in good faith and not a mere pretence, it is necessary that the information in consequence of which it is found must be valid and linked with the ingredients mentioned in the section. That is, there must be rational connection between the information or material and the belief about undisclosed income” l8. In L.R. Gupta & Others v. Union oflndia & 0thers6; the High Court of Delhi held as under : “The basis of the exercise of the jurisdiction under section 132(1) has to be the formation of a belief and the belief is t0 be formed 0n the basis of receipt of an information by the authorizing officer. The expression “information” must be something more than a mere rumor or a gossip or a hunch. There must be some material which can be regarded as information which must exist on the file on the basis of which the authorizing officer can have reason to believe that action under section 132 is called for, for any of the reasons mentioned in clauses (a), (b) or (C). ” There is a common thread running through the cases cited above, it is well settled that the Court has to examine the availability of materials and fonning of reasons and not beyond that. If on examination, it is found that there was no material to form reason to believe, the High Court under Article 226 of the Constitution of S 6 (1988) 17o ITR 592 (1992) 194 ITR 32 2w 13 India, may quash the same. If there are reasons to believe in normal circumstances, sufficiency of reason to believe may not be examined. So far as the contention of learned counsel for the petitioner that the petitioner is a professional of excellence, and the tax payers who are professional of excellence cannot be searched without there being compelling evidences and confirmations of substantial tax evasion is f concerned, the same is noticed to be rejected. In the case on hand, I have examined the records produced before the DGIT (Inv.). Sufficient materials were available to establish that there was compelling evidences and confirmations of abetment of tax evasion. 21. In the written submission, the petitioner has raised a new issue that the original papers have been produced before this Court without permitting the petitioner to have inspection of the file, this plea is not permissible, when the same was neither raised nor objected, during the course of argument. 22. During the course of argument when the original papers were produced and kept in a sealed cover by the officers of the Department, it was clearly stated by the counsel for the Revenue that inspection of the records by the petitioner or his counsel may not be permitted at this stage. After having seen the original papers, I do not find any reason to permit inspection of the original’documents by other side. The Court has perused the original documents in the ‘\ Court itself. \ \< 14 23. The Supreme Court, in Miheer H Mafatlal v. Mafatlal Industries Ltd 7, observed as under: “43...Some additional points also appear to have been raised in the written submissions pertaining to additional objections which were not pressed before us at the time of oral hearing and, therefore, they obviously cannot be considered in support of the contentions on which the appeal was pressed before us.” 24. Without making any observations on the merits of the case, as the same may prejudice cause of the parties, I am of the considered opinion that sufficient materials were present in possession of the DGIT (Inv.) Bhopal, to form reasons to believe that the petitioner was in possession of, inter alia, other valuable articles or things, as required under the provisions of section 132(1) of the Act, 1961, to issue warrant of search. 25. For the reasons and analysis, mentioned hereinabove, the petition is dismissed. No order asto costs. Sdl- :Satish K. Agnihotri Judge t ‘ \ Amit 7 (1997) 1 SCC 579 .. . .