SCA/4148/1997 1/12 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No. 4148 of 1997 For Approval and Signature: HONOURABLE MR.JUSTICE D.A.MEHTA HONOURABLE MR.JUSTICE H.B.ANTANI ========================================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ========================================================= SUVIDHA ASSOCIATION Versus LR MEENA/ ADDL DIRECTOR OF INCOME TAX (INVESTIGATION) & OTHERS ========================================================= Appearance : MR KH KAJI for Petitioner. MR MANISH R BHATT for Respondents. ========================================================= CORAM : HONOURABLE MR.JUSTICE D.A.MEHTA and HONOURABLE MR.JUSTICE H.B.ANTANI Date : 26/06/2008 SCA/4148/1997 2/12 JUDGMENT ORAL JUDGMENT (Per : HONOURABLE MR.JUSTICE D.A.MEHTA) Mr. K.H. Kaji, learned advocate for the petitioner seeks permission of the Court to amend the prayer clause by making appropriate corrections and deletions. Permission as sought for is granted. The petition is taken up for hearing after the necessary amendments have been carried out. This petition has been preferred by one Suvidha Association, a Non-Trading Corporation, duly registered under the Bombay Non-Trading Corporation Act, 1959 with the following prayers: “16. The petitioner prays: (A). that this Hon'ble Court be pleased to issue an appropriate writ, direction or order under Article 226 of the Constitution of India quashing - (i). the Warrant of Authorisation dated 14.2.1997. (ii). notice dated 18.2.1997 issued u/s. 158BC by the 4th respondent; (iii). notice issued by the 5th respondent dated 19-5-1997 us. 158BC, and (v). transfer order dated 24.4.1997 u/s. 127 of the said Act passed by the 6th respondent. (B). that this Hon'ble Court be pleased to issue an SCA/4148/1997 3/12 JUDGMENT appropriate writ, direction or order under Article 226 of the Constitution of India directing the respondents to return all papers, documents, account books, seized by the respondents in the course of illegal search and seizure proceedings between 13th February, 1997 and 20th February 1997.” Mr. K.H. Kaji, learned advocate appearing on behalf of the petitioner submitted that one Shri Dayabhai Narshibhai Patel is the President of the petitioner Association. It is the say of the petitioner that the petitioner had purchased an immovable property called 'Rupam Talkies' under two different sale deeds dated 28.09.1992 for an aggregate sum of Rs.64 lakhs. For carrying out the aforesaid transaction, necessary certificate was obtained from the appropriate authority in terms of provisions of Chapter XXC of the Income Tax Act, 1961 [the Act]. The vendors had also obtained necessary tax clearance certificate under section 230A of the Act. Some disgruntled relatives of the vendors challenged the sale deed in the Civil Court and the proceedings ultimately culminated in an order dated 27.12.1996 made by this High Court wherein the claim of the relatives of the vendors was rejected. It is further averred in the petition that as the said relatives of the vendors failed in obstructing the transaction by way of proceedings in the Civil Court, the respondent Income Tax Department was instigated to initiate action against the petitioner under section 132 of the Act. That initially a Warrant of Authorisation was issued on 29.01.97 against Shri Dayabhai Narshibhai Patel for carrying out search and seizure proceedings under section 132 of the Act at SCA/4148/1997 4/12 JUDGMENT the residential premises of Shri Dayabhai Narshibhai Patel. Subsequently, another Warrant of Authorisation dated 14.02.97 was issued to search the office premises of the petitioner Corporation. The search proceedings concluded on 20.02.97. It is the grievance of the petitioner that the entire exercise, right from the beginning of issuing Warrant of Authorisation, subsequent search proceedings, issuance of notice under section 158- BC of the Act, transfer of proceedings from Bhavnagar to Rajkot under section 127 of the Act, is malafide and or bad in law as being without jurisdiction. Learned Senior Standing Counsel, Shri M.R. Bhatt appearing for the respondent authorities submitted that the Warrants of Authorisation had rightly been issued in compliance with the requirements of section 132 of the Act; that the authorities had also taken care to comply with the procedural safeguards by recording the requisite reasons before issuing the Warrants of Authorisation, and hence the petition is required to be rejected. The Court requested learned counsel for the respondent authorities to place for perusal the reasons which weighed with the authorities for issuance of the Warrants of Authorisation. On going through the said document, the following facts emerge: Initially, Assistant Director of Income Tax [Investigation], Bhavnagar mooted a proposal in relation to one Valia group of Bhavnagar as per Satisfaction Note dated 11.12.95 wherein four different concerns have been mentioned. The petitioner's name is appearing at Sl. No.4. In relation to the petitioner, it is observed by SCA/4148/1997 5/12 JUDGMENT the ADIT as under: “and forth is in the field of construction which is likely started”. [sic]. After observing this, a proposal has been made for initiating proceedings under section 132 of the Act in relation to (1). Shri Pankajbhai Haribhai Valia and (2). Shri Bharatbhai H. Valia. Further proposal for survey proceedings under section 133.A of the act has been made in relation to the factory premises of (1). M/s. Associated Plastic Industries, (2). Hardik Industrial Corporation, (3). Gujarat Packing – both at Bhavnagar at Mumbai. This proposal has been accepted by DDIT [Inv]. Rajkot and the DIT [Inv.], Ahmedabad on 19.12.95 and 20.12.95 respectively. However, on 12.02.96, ADIT [Inv], Bhavnagar has stated: “The above warrants cannot be executed on the administration grounds and non-availability of Authorised Officer who are busy in time-barring cases. Police guard are also not available on various dates. In view of this the warrants may be cancelled at present and same will be put up for necessary action at proper time.” The aforesaid proposal has been accepted by DDIT on 12.02.96 and by DIT on 13.02.96 and the Warrants of Authorisation have accordingly been cancelled. Subsequently, on 02.01.97, ADIT [Inv] Bhavnagar recorded that the grounds stated in the note for SCA/4148/1997 6/12 JUDGMENT cancellation of Warrants of Authorisation are now satisfied and “it is a fit time for issue of Warrants of Authorisation u/s 132 of the I.T. Act”. Thereafter, it is observed in the note dated 02.01.97 by ADIT [Inv] Bhavnagar as under [which is reproduced verbatim]: “In my note dated 11.12.95, I had not included the name of Shri Dayabhai Narshibhai Patel, President of Suvidha Association as concern did not started work. Now discrete inquiries have been conducted and it is found that Suvidha Association has started construction business. It is a Non-trading Corporation. The work of this N.T.C. mainly done by two persons. They are Shri Dayabhai Narshibhai Patel and Shri Haribhai Chhaganlal Valia. The living standard of the Dayabhai Narshibhai Patel is very high level. Since this N.T.C. started the business of construction I am including the name of Shri Dayabhai Narshibhai Patel for issuance of Warrants of Authorisation u/s 132 of the I.T. Act. The name of concern is included for survey action u/s. 133A of the I.T. Act. In view of the above facts and facts narrated on page No. 1 to 3 of this Note. It is considered that if a notice u/s. 142 (1) or summon u/s. 131 is issued the above parties. I have reason to believe that they will failed to produce or cause to produce books of accounts and documents disclosing the true state of affairs of their business. It also appear that these persons are in possession of valuables, assets like jwellery, SCA/4148/1997 7/12 JUDGMENT money, bullion etc. which represents income which is not disclosed or is not likely to be disclosed for the purpose of Income Tax Act. It is therefore proposed that residential premises of persons mentioned in Annexure 'A' may be covered u/s 132 of the I.T. Act and survey u/s 133.A as per annexure 'B'. Put up before Addl DIT [Inv] Rajkot for perusal and necessary action. “ Annexure 'A' which refers to proceedings under section 132 of the Act in relation to residential premises of three persons does not contain the name of the petitioner. The name of the petitioner appears in Annexure 'B' for survey under section 133.A of the Act. The above proposal which was accepted on 29.01.97 related only to carrying out survey at the premises of the petitioner Corporation. Subsequently, on 14.02.97, ADIT [Inv] Bhavnagar has recorded as under, [which is reproduced verbatim]: “During the course of search in Valia and Patel group the business premises of Suvidha Association Ghogha Circle was covered u/s. 133.A of the I.T. Act. It is reported that the business premises remained closed hole day on 13/2/97. The ADIT Jamnagar also reported that G.34 Rameshwar Flats, Ghogha Circle Bhavnagar has the business premises of Mhavir builder proprietorship concern of Shri Dayabhai N. Patel and Suvidha Association. There are likely to found some incrimiting documents. In SCA/4148/1997 8/12 JUDGMENT order to effect to seizure and seal for the above the search warrant u/s. 132 (1) may be issued for G.34 Rameshwar Flats, Ghogha Circle, Bhavnagar Office of Mahavir builder proprietorship concern of Shri Dayabhai N. Patel and Suvidha Association. Put up before Addl DIT [Inv] Rajkot for necessary action”. Therefore, for the first time, on 14.02.97, Warrant of Authorisation has been issued in the case of the petitioner. In the aforesaid set of facts and circumstances of the case, it is apparent that till 14.02.97, there was no satisfaction, even primafacie, to suggest existence of statutory requirements for issuance of Warrant of Authorisation for initiating proceedings under section 132 of the Act via-a-vis the petitioner. Section 132 of the Act as applicable for the relevant period requires that search and seizure proceedings can be undertaken provided: (a). any person to whom a summons was issued, or a notice under section 142 (1) of the Act was issued to produce or cause to be produced 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 was issued as aforesaid has been or might be issued will not produce or cause to be produced any books of accounts etc.,or (c). any person is in possession of any money, bullion, SCA/4148/1997 9/12 JUDGMENT jwellery or other valuable article or thing which represents either wholly or partly income or property which has not been or would not be disclosed for the purpose of the Act, then the authorised officer may issue a Warrant of Authorisation. However, before that, the authority is required to record reasons to believe that any of the aforesaid three conditions, viz. 'a', 'b' or 'c' exists and such belief is entertained in consequence of information in possession of the authority. In the present case, admittedly, so far as the petitioner Corporation is concerned, existence of condition No. 'c' regarding possession of money, bullion, jwellery or other valuable article or thing etc. cannot come into play – the petitioner being a Non Trading Corporation. The only contingencies therefore would be a representative of the petitioner Corporation not responding to a summons or a notice or not likely to respond to a summons or a notice. When one considers the contents of the Satisfaction Note referred to herein above, it become apparent that it is not possible to state, even primafaie, that the representative of the petitioner Corporation would not have responded to the summons or notice that might have been issued. Obviously, condition no. (a) cannot be invoked because it is nobody's case that summons or notice was issued and the petitioner had failed to comply with the same. The only whisper that one finds in the Satisfaction Note dated 14.02.97 recorded by ADIT [Inv] Bhavnagar is “there are likely to found some incrimiting, (sic) [incriminating] documents”. SCA/4148/1997 10/12 JUDGMENT In the aforesaid factual matrix, none of the conditions stipulated by section 132 (1) of the Act is shown to be satisfied as per the record of the respondent Department. The respondent authorities, therefore, could not have any reason to believe that the petitioner Corporation would not respond to a summons or notice as stipulated by condition (b) and conditions (a) and (c) have already been ruled out, in the peculiar facts and circumstances of the case. In fact, the Satisfaction Note does not indicate any information in possession of the Authorised Officer for initiating the proceedings. Hence, on this count alone, the Warrant of Authorisation dated 14.02.97 cannot be sustained, and is required to be quashed and set side. There is one more aspect of the matter. During the course of hearing, it was contended on behalf of the respondent authorities that the entire chain of events from 1995, i.e. when the first satisfaction was recored, has to be taken into consideration. It is for this very purpose that the Court has reproduced hereinabove and referred to the first Satisfaction Note dated 11.12.95 and the subsequent noting. The said historical backdrop, instead of assisting the case of the respondent authorities, gives a contrary picture. It is accepted that on the said date, i.e. 11.12.95, the petitioner Corporation was yet to commence its business. The proposal was, at the cost of repetition, to take proceedings under section 132 of the Act at the residential premises of two members of Valia family and proceedings under section 133.A of the Act at the factory and office premises of three different concerns unrelated SCA/4148/1997 11/12 JUDGMENT to the petitioner Corporation. Thus, the satisfaction recorded in December 1995, except for the factum of noting the existence of the petitioner Corporation as an entity, does not indicate any satisfaction – much less any information which would lead the authorities to form a belief to initiate any proceedings against the petitioner Corporation. The Warrants of Authorisation which were originally issued on 20.12.95 against persons other than the petitioner were cancelled on 13.02.96. The law does not permit revival of Warrants of Authorisation which are cancelled once. In fact, there could be no occasion for such revival considering the fact that the basis for issuance of Warrant of Authorisation is that the authority has reason to believe, in consequence of information in possession of the authority, that there is violation of or there might be violation of any one of the conditions stipulated by clauses [a], [b] and [c] of sub-section (1) of section 132 of the Act. A satisfaction which is recorded in December 1995 cannot be efficacious and operative in January 1997 – after one year. The satisfaction and the resultant action under section 132 of the Act have to be imminent and proximate, and based on information in possession at the point of time when the reason to believe is formed and recorded. Therefore, the attempt to link the satisfaction of December 1995 with the satisfaction of February 1997 also cannot be countenanced in law. In the light of what is stated hereinbefore, the Warrant of Authorisation dated 14.02.97 is bad in law, and is hereby quashed and set aside. SCA/4148/1997 12/12 JUDGMENT As a consequence, the notices dated 18.02.97 and 19.05.97 issued under section 158-BC of the Act are also quashed and set aside. Insofar as transfer of proceedings under section 127 of the Act is concerned, the provision itself requires that such an order may be made after giving the assessee a reasonable opportunity of being heard in the matter wherever it is possible to do so. If the respondent authority felt that the proceedings were at such a stage that it was not possible to grant an opportunity of hearing, in law, no fault could be found. However, in the facts and circumstances of the present case, once the proceedings initiated by issuance of Warrants of Authorisation are found to be bad in law, there would be no occasion to continue with the proceedings of assessment for the block period, and hence, even if the order of transfer could be upheld, such an order would not be operative. The petition is accordingly allowed in the aforesaid terms. Rule made absolute. There shall be no order as to costs. [D.A.MEHTA, J.] mathew [H.B.ANTANI, J.]