Tags Income Tax

Supreme Court of India (Division Bench (DB)- Two Judge)

Appeal (Civil), 7499 of 2004, Judgment Date: Nov 12, 2014

                        IN THE SUPREME COURT OF INDIA


                        CIVIL APPELLATE JURISDICTION


                        CIVIL APPEAL NO. 7499 OF 2004



Union of India & Ors.                                    ... Appellants


                                   Versus


M/s. Agarwal Iron Industries                              ... Respondent



                                    WITH

                        CIVIL APPEAL NO. 7502 OF 2004



                               J U D G M E N T


Dipak Misra, J.



      In these appeals the assail is to the legal tenability  of  the  order

dated 3.9.2003 passed by the Division Bench of the High Court of  Judicature

at Allahabad in Civil Writ Petition No. 275 of 2000 whereby the  High  Court

has quashed the search and seizure conducted on  16.2.2000  in  the  factory

premises of the 1st respondent.

     2. Filtering the unnecessary details, the facts  that  constitute  the

        filament of the controversy is that the 1st respondent  is  engaged

        in the manufacture of C.I. pipes, fittings  and  manholes  and  has

        obtained the licence under the Central Excise Act.  The factory  in

        question has been filing income-tax returns under  the  Income  Tax

        Act, 1961 (for brevity 'the Act').   On  16.2.2000  when  the  sole

        proprietor of the factory Shri Om Prakash Agarwal was  absent,  the

        officer of the Income Tax Department conducted a search both at the

        residential as well as the business premises.  During the search of

        the residential premises, son of the sole proprietor  was  informed

        by the Income Tax Officer that  the  search  operations  were  also

        being conducted at the factory premises.  Despite such  information

        he was not allowed to leave the house.  Assailing  the  search  and

        the seizure, the 1st respondent preferred a  writ  petition  before

        the High Court and contended therein that there was no  information

        in possession  of  the  officer  which  could  have  persuaded  any

        reasonable person  to  form  an  opinion  about  the  existence  of

        undisclosed assets of the writ-petitioner.   It  is  further  urged

        that  the  warrant  of  authorization  was   issued   mechanically,

        arbitrarily  and  there  was  total  non-application  of  mind  and

        moreover there was no formation of opinion about the  existence  of

        undisclosed assets as contemplated under Section 132(1) of the Act.

         On this foundation, the search  and  seizure  were  sought  to  be

        quashed.

     3. A counter affidavit was filed  by  the  revenue  asseverating  that

        there was no illegality in the initiation of the seizure and it had

        been conducted in accordance with law and the  revenue  had  enough

        material against the 1st respondent herein  for  the  assessee  had

        suppressed the vital information pertaining to production and  sale

        and the same was also evidenced during the  search  operation.   It

        was contended that the productions declared by the  1st  respondent

        in the official record was not even 1/5th of the actual  production

        revealed by the seized documents.

     4. It is interesting to note that the High Court by  its  order  dated

        29.3.2000  appointed  an  Advocate  Commissioner  to   prepare   an

        inventory of  the  goods  in  question  in  respect  of  which  the

        restraint order was passed.  The  said  Advocate  Commissioner  had

        submitted a report which was  taken  on  record.   The  High  Court

        placed reliance on  decisions  in  Commissioner  of  Income-Tax  v.

        Vindhya Metal Corporation[1], Dr. N.L. Tahiliani v. Commissioner of

        Income Tax[2], L.R. Gupta v. Union of India v.  Union  of  India[3]

        and Ajit Jain v. Union of India[4] and extensively quoting from Dr.

        Tahiliani's case came to hold as follows:-

      "At this stage it is  relevant  to  refer  to  Para  40  of  the  writ

      petition, which is quoted below:



           "40.  That  in  the  facts  and  circumstances   the   Petitioner

           bonafidely believes that there was no information  in  possession

           of the officer issuing the warrant of  authorization  for  search

           which could lead any reasonable person to form an  opinion  about

           existence of undisclosed assets with the Petitioner.  The warrant

           of authorization, even if assumed that there was any, was  issued

           mechanically arbitrarily and  without  application  of  mind  and

           without  forming  the  opinion  about  existence  of  undisclosed

           assets, as contemplated by Sub-Section (1) of Section 132."



      The reply of the said paragraph has been given by the  Respondents  in

      Para 33 of the counter affidavit, which reads as under:



           "33.  That in reply to Paragraph 40 of the writ petition,  it  is

           denied that the warrant of authorization was issued mechanically,

           arbitrarily and without application of mind."



      From the aforesaid reply it is clear that there is no specific  denial

      of the averments made in Para 40 of the writ petition.  Order 8 Rule 5

      of the Code of Civil Procedure provides that every allegation of  fact

      in the plaint if not denied specifically or by  necessary  implication

      or stated to be not admitted in the pleading of the defendant shall be

      taken to be admitted except against the person under  disability.   In

      view of this provision in absence of a specific denial in the  counter

      affidavit to the assertions made in the writ petition, it  can  safely

      be concluded that there is no denial of the facts stated in  the  writ

      petition.  We are aware that the explanation to  Section  141  of  the

      Code of Civil Procedure provides that the provisions of Code of  Civil

      Procedure shall not be applicable to the writ petition.  However,  the

      principles  as  stated  in  the  Code  of  Civil  Procedure  are  also

      applicable to the writ proceedings."



     5. We have no hesitation in opining that the reasons ascribed  in  the

        aforesaid paragraphs, leaves us absolutely unimpressed.  We  really

        cannot comprehend how an Advocate  Commissioner  was  appointed  to

        take inventory of the goods in respect of which the restraint order

        was passed by the  revenue  under  the  Act.   That  apart,  it  is

        difficult to appreciate how the denial  in  the  counter  affidavit

        filed  by  the  revenue  could  be  treated  as  an  admission   by

        implication to come to a conclusion that no reason was ascribed for

        search and seizure and, therefore, action taken under  Section  132

        of the  Act  was  illegal.   The  relevant  confidential  file,  if

        required and necessary could have been  called  for  and  examined.

        Revenue in the counter affidavit was not required to elucidate  and

        reproduce the information and details that formed the foundation.

     6. In this context, we may profitably refer to the decision in  Pooran

        Mal V. The Director of Inspection (Investigation),  New  Delhi  and

        others[5], wherein the  Constitution  Bench,  while  upholding  the

        constitutional validity of Section 132 of the Act opined thus:

      "Search and seizure are not a new weapon in the armoury of those whose

      duty it is to maintain social security  in  its  broadest  sense.  The

      process is widely recognized  in  all  civilized  countries.  Our  own

      Criminal Law accepted its necessity and usefulness in Sections  96  to

      103 and Section 165 of the Criminal Procedure Code. In M.P. Sharma  v.

      Satish Chandra[6] the challenge to  the  power  of  issuing  a  search

      warrant under Section 96(1)  as  violative  of  Article  19(1)(f)  was

      repelled on the ground that a power of search and seizure  is  in  any

      system of jurisprudence an overriding  power  of  the  State  for  the

      protection of social security and that power is necessarily  regulated

      by law. As pointed out in that case  a  search  by  itself  is  not  a

      restriction on the right to hold and enjoy property though  a  seizure

      is a restriction on the right  of  possession  and  enjoyment  of  the

      property seized. That, however, is only temporary and for the  limited

      purpose of investigation".




      Thereafter, proceeding with the ratiocination, the  Court  ruled  that

the provision has inbuilt spheres.  Proceeding to enumerate the spheres  and

other consequent facets, the Court ruled:


      "In the first place, it must be noted that the power to  order  search

      and seizure is vested in  the  highest  officers  of  the  department.

      Secondly, the exercise of this power  can  only  follow  a  reasonable

      belief entertained by such officer that any of  the  three  conditions

      mentioned in Section 132(1)(a),(b) and (c) exists. In this  connection

      it may be further pointed out that under sub-rule (2) of Rule 112, the

      Director of Inspection or the Commissioner, as the case may be, has to

      record his reasons before the authorisation is issued to the  officers

      mentioned in sub-section  (1).  Thirdly,  the  authorisation  for  the

      search cannot be in favour of any officer below the rank of an  Income

      Tax Officer. Fourthly, the  authorisation  is  for  specific  purposes

      enumerated in (i) to (v) in sub-section (1) all of which are  strictly

      limited to the object of the search. Fifthly when money, bullion, etc.

      is seized the Income Tax Officer is to make a summary enquiry  with  a

      view to determine how much of what is seized will be retained  by  him

      to cover the estimated tax liability and how  much  will  have  to  be

      returned forthwith. The object of the enquiry under sub-section (5) is

      to reduce the inconvenience to the assessee as  much  as  possible  so

      that within a reasonable time what is estimated due to the  Government

      may be retained and what should be returned to  the  assessee  may  be

      immediately returned to him.  Even with regard to the books of account

      and documents seized, their return is guaranteed  after  a  reasonable

      time. In the meantime the person from whose custody they are seized is

      permitted to make copies and  take  extracts.  Sixthly,  where  money,

      bullion, etc. is seized, it can also be immediately  returned  to  the

      person concerned after he makes appropriate provision for the  payment

      of the estimated tax dues under sub-section (5) and lastly,  and  this

      is most important, the  provisions  of  the  Criminal  Procedure  Code

      relating to search and seizure apply, as far as they may  be,  to  all

      searches and seizures under Section 132. Rule  112  provides  for  the

      actual search and seizure being made after observing normal  decencies

      of behaviour. The  person  in  charge  of  the  premises  searched  is

      immediately given a copy of the list of articles seized. One  copy  is

      forwarded to the authorising officer. Provision for the  safe  custody

      of the articles after seizure  is  also  made  in  Rule  112.  In  our

      opinion, the safeguards are  adequate  to  render  the  provisions  of

      search and seizure as less onerous  and  restrictive  as  is  possible

      under the circumstances.


     7. In District Registrar  and  Collector,  Hyderabad  and  Another  V.

        Canara Bank and Others[7],  while referring to Section 132  of  the

        Act, it has been ruled that:

      "There are safeguards. Section 132 uses the words "in  consequence  of

      information in his  possession,  has  reason  to  believe".  (emphasis

      supplied)  Section  132(1-A)  uses  the  words  "in   consequence   of

      information in his possession, has reason to suspect". Section 132(13)

      says that the provisions of the Code of Criminal  Procedure,  relating

      to searches and seizure shall apply, so far as may be, to searches and

      seizures under Sections 132(1) and 132(1-A). There are also Rules made

      under Section 132(14). Likewise Section 132-A(1) uses  the  words  "in

      consequence of information in his possession, has reason to  believe".

      (emphasis supplied) Section 133 which deals with the power to call for

      information from banks and others uses the words "for the purposes  of

      this Act" and Section 133(6) permits a requisition to  be  sent  to  a

      bank or its officer".



     8. The provision contained in Section 132(1) of the  Act  enables  the

        competent authority to direct for issue of search  and  seizure  on

        the basis of formation of an opinion which a reasonable and prudent

        man would form for arriving at a conclusion to issue a warrant.  It

        is done by way of an interim measure.  The search  and  seizure  is

        not confiscation.  The articles that are seized are the subject  of

        enquiry by the competent authority after affording  an  opportunity

        of being heard to the person whose custody it has been seized.  The

        terms  used  are  'reason  to  believe'.   Whether  the   competent

        authority had formed the opinion on the  basis  of  any  acceptable

        material or not, as is clear as crystal, the  High  Court  has  not

        even remotely tried to see the reasons.  Reasons, needless to  say,

        can be recorded on the file and the Court can scrutinize  the  file

        and find out whether the authority has appropriately  recorded  the

        reasons for forming of an opinion that there are reasons to believe

        to conduct search and seizure.  As is evincible, the High Court has

        totally misdirected itself in quashing the search  and  seizure  on

        the basis of the principles of non-traverse.

     9. In our considered opinion, the High  Court  would  have  been  well

        advised to peruse  the  file  to  see  whether  reasons  have  been

        recorded or not and whether the same meet the requirement of law.

    10. In view of our foregoing analysis, we allow the appeals, set  aside

        the impugned order passed by the High Court and remand  the  matter

        to the High Court for fresh disposal in accordance with  law.   The

        revenue shall produce the file before the  High  Court,  whereafter

        the High Court shall proceed to adjudicate the lis.  There shall be

        no order as to costs.


                                             .............................J.

                                                            [Dipak Misra]




                                              ..............................J.

                                                        [Uday Umesh Lalit]


New Delhi;

November 12, 2014

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[1]  (1997) 5 SCC 321

[2] (1988) 170 ITR 592 (Allahabad)

[3] (1992) 194 ITR 32 (Delhi)

[4] (2000) 242 ITR 302 (Delhi)

[5]  (1974) 1 SCC 345

[6]  AIR 1954 SC 300

[7]  (2005) 1 SCC 496