Vildirect: IncomeTax-caselaws-1989-VIL-547-RAJ-DT

1989-VIL-547-RAJ-DT

Equivalent Citation: [1989] 180 ITR 365, 48 TAXMANN 401

RAJASTHAN HIGH COURT

Date: 18.07.1989

KUSUM LATA

COMMISSIONER OF INCOME-TAX AND OTHERS

BENCH

Judge(s) : M. B. SHARMA., I. S. ISRANI

JUDGMENT

The judgment of the court was delivered by

M. B. SHARMA J. -The petitioner, Smt. Kusum Lata Singhal, carries on a business under the name and style of M/s. Lata and Company and is the authorised stockist of Baba brand tobacco manufactured by Dharampal Premchand Ltd., New Delhi. The petitioner is the wife of Shri R. K. Singhal who owns a house No. E-117, Shastry Nagar, Jaipur, and the petitioner lives with her husband. Shri R. K. Singhal, husband of the petitioner, is partner in Lata Sales Centre and he is said to be a sub-dealer of Lata and Company. A search under section 132 of the Income-tax Act, 1961 (for short, "the Income-tax Act"), was conducted at house No. E-117, Shastri Nagar, Jaipur, on November 25, 1987, and was concluded on November 26, 1987. During the search, valuables and books of account of the petitioner were seized on November 26, 1987, and the notice under rule 112A of the Income-tax Rules, 1962 (for short, "the Rules"), read with sub-section (5) of section 132 of the Income-tax Act, was issued to the petitioner by the Income-tax Officer, H-Ward, Jaipur, on December 10, 1987, and served on the husband of the petitioner, Shri R. K. Singhal, on December. 16, 1987. The file was transferred from the Income-tax Officer, H-Ward, Jaipur, to the Income-tax Officer, Special Investigation, Circle-I, Jaipur, by the Commissioner, of Income-tax, Jaipur, in exercise of his powers under section 127 of the Income-tax Act. The petitioner has claimed return of the account books and other valuables of the petitioner which were seized on November 26, 1987. The return as aforesaid is claimed because, according to the petitioner, the retention of the books and valuables is in violation of the provisions of section 132 of the Income-tax Act.

In the return filed by the non-petitioner, a case has been set up that the petitioner is only a benamidar of her husband so far as the business of Lata and Company being run in the name of the petitioner is concerned and reliance has been placed on the statement recorded on November 25, 1987, of the petitioner as well as of her husband by the authorities at the time of the search. It is also stated that though the assessment was framed under section 143(1), necessary steps are being taken to reopen the assessment as, according to the Department, the income from the firm, Lata and Company, does not belong to her and that she is only a benamidar.

The case of the petitioner that there was no information with the Director of Inspection on the basis of which the authorisation under section 132 of the Income-tax Act, for conducting the search have been issued is denied and it is stated that the Department had definite information on the basis of which the Director of Inspection was satisfied and had issued a warrant of authorisation for the search of the premises belonging to Lata and Company and the petitioner. It is also denied that the statement of the petitioner as well as that of Shri Singhal were obtained by terrorising them. The non-petitioners have dropped the proceedings against the petitioner and no order, so far as the petitioner is concerned, under section 132(5) of the Income-tax Act has been made but they are satisfied that the business of Lata and Company is in fact that of Shri R. K. Singhal, husband of the petitioner, and an order under section 132(5) of the Income-tax Act has been made against Shri R. K. Singhal. The nonpetitioners have also given out that the books of account and cheques which were seized are being retained in accordance with the law with the permission of the Commissioner of Income-tax, Jaipur. The nonpetitioners justify the retention of the books and other documents on the ground that as the final assessment has not been made, the said documents cannot be returned and therefore, the petitioner could not have claimed them.

In our opinion, there can be no doubt that the search and seizure under the provisions of section 132(1)(c) of the Income-tax Act can only be legal if the Commissioner or Director of Inspection, in consequence of information in his possession, has reason to believe that any person is in possession of any money, bullion, jewellery or other valuable article or thing and such money, bullion, jewellery or other article or thing represents either wholly or partly income or property which has not been, or would not be, disclosed for the purposes of the Indian Income-tax Act, 1922 (11 of 1922), or the Income-tax Act (hereinafter referred to as the undisclosed property). Thus, it is clear that the search and seizure under section 132 of the Income-tax Act could be legal only if the Director, of Inspection, in consequence of information in his possession, has reason to believe that 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 or property which is undisclosed. It appears that the authorisation under section 132 of the Income-tax Act by the Director of Inspection was to enter into the house No. E-117 situated at Shastri Nagar, Jaipur, where, as per the record, the office of Lata and Company was situated.'

Mr. Keshote, learned counsel for the petitioner, has challenged the search and seizure under section 132 of the Income-tax Act on the ground that there was no information in the possession of the competent authority on the basis of which he could have reason to believe that the petitioner was in possession of money, bullion, jewellery or other valuable article or thing, etc., which was undisclosed income or property and, therefore, the search and seizure has been illegal. The account books, money, jewellery, etc., which were seized cannot be retained and that at any rate the retention of the account books, money and valuables seized, beyond the period of 180 days is illegal and, therefore, the petitioner has a right to the return of the aforesaid account books, money, jewellery, etc. Mr. Keshote further contended that the authorisation under section 132(1) of the Income-tax Act was in respect of the petitioner and, therefore, once proceedings against the petitioner under section 132(5) of the Income-tax Act have been dropped, the seized articles could not have been retained allegedly on the ground that they belong to Shri R. K. Singhal, husband of the petitioner.

During the course of the arguments, we had directed Mr. V. K. Singhal, learned counsel for the non-petitioners, to place before us the concerned files which contained the information in possession of the competent authority and we may state that it can be said that there was no information or that in consequence of information in his possession, the competent authority could have had a reason to believe that, the petitioner is in possession of money and jewellery, etc., which was undisclosed income or property. The words "information in possession" should be construed as some valid definite information in possession and not any imaginary or invalid information. The information should be credible and if there is some such information, the court cannot go into the sufficiency of the information. In other words, the court cannot go into the sufficiency of the information or the material and all that has to be seen is as to whether some material in fact existed or not for coming to the opinion and to have reason to believe that any person is in possession of any undisclosed income or property. In the case of Om Parkash Jindal v. Union of India [1976] 104 ITR 389, the Punjab and Haryana High Court Was considering the word "information" in section 132(1) of the Income-tax Act. In that case, Om Parkash Jindal was living with his wife in the ground floor of the premises while his son, Prithivi Raj Jindal, along with his wife was living in the upper storey of the premises. As many as four items of ornaments were found from the bed room of Shri Prithivi Raj Jindal. They were seized. The seizure of the ornaments recovered from the bedroom of Prithivi Raj Jindal was challenged on the ground that his name did not figure in the warrant of authorisation. The learned judge said that "information" would mean a statement of facts. It may be supplied to the Director of Inspection or the Commissioner in writing or orally, though when it is made orally to him, propriety demands that he should record notes of the same so as to assist him in coming to the conclusion that there are reasons to believe that there are undisclosed money, ornaments, etc., in the possession of any person, and also to use it to justify the said conclusion in the event of necessity. The learned judge further said that the expression "has reason to believe" would mean that there are grounds for the necessary belief. The said belief is the assent of the mind to the truth of what has been conveyed by the information, whereas mere suspicion may not be sufficient, but then a conviction of the nature required in a criminal case cannot be insisted upon. The learned judge further said that the standard of belief should be that of a reasonable man. But, at the same time, it has to be remembered that it is the belief of the Director of Inspection or the Commissioner that counts and the courts cannot substitute their own opinion for his belief. The learned judge said that it is only when the grounds on which the belief of the Director of Inspection or the Commissioner has been found are non-existent or irrelevant or are such on which no reasonable man can come to that belief, that the exercise of the power to issue the warrant of authorisation by the Director of Inspection or the Commissioner would be bad, but, short of that, the courts would not interfere with the "reason for belief" bona fide arrived at by him (Director of Inspection or the Commissioner). The learned judge concluded that it may not be possible for the Director of Inspection or the Commissioner to predict or even to know in advance what particular jewellery, ornaments or money would be found in the search and which of the same, if found, would be undisclosed property, and therefore, the warrant of authorisation directs a general search. Even the Supreme Court in the case of Pooran Mal v. Director of Inspection (Investigation), Income-tax [1974] 93 ITR 505, 514, referring to the provisions of section 132(1) of the Income-tax Act, said that the power to authorise search and seizure can be exercised only when the Director of Inspection or the Commissioner has reason to believe (1) that in spite of the requisitions under the relevant provisions mentioned in section 132(1)(a), the required books and documents have not been produced, (2) that any person, whether requisition under the above provision is made or not, 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 Income-tax Act ; or (3) that any person is in possession of any money, bullion, jewellery or any other valuable article or thing representing either wholly or partly of undisclosed income or property. In the case of Jain and Jain v. Union of India [1982] 134 ITR 655, the Bombay High Court was dealing with the provisions of section 132(1) of the Act, The court said that formation of belief within the meaning of section 132 is an important step and a condition precedent to the authorisation of search and seizure. It is nevertheless basically a subjective step. It is one essentially of making up I one 's mind as to whether, on the information presented, he had or had not formed the "reason to believe". The court said

"This belief, of course, cannot be a mere pretence nor can it be mere doubt or suspicion. It is something much more than that. Section 132 speaks of 'reason to believe' and not 'reason to suspect' or 'reason to doubt' 'Reason to believe' is thus a higher test to be fulfilled."

In the facts of that case, the court said that considering the extensive information and its detailed scrutiny and analysis, the conclusion is irresistible that the belief formed by the Director of Inspection was a belief, genuine-and authentic. It was not a mere doubt or a mere suspicion. The court further said that it was not necessary for the Director of Inspection to reach that belief by a process akin to a judicial process. Hip reasons and his belief do not constitute a judicial or a quasi-judicial act nor is the issue of authorisation a judicial or a quasi-judicial function. The court also said that the matter, though to an extent justiciable, extremely limited and circumscribed are the court's power of scrutiny and review in that behalf. One may not like the belief of the Director of Inspection. But if the belief is bona fide, if the same is in good faith, if it is not a pretence and if it is cogently supported, the court will not interfere therewith or sit in appeal over it, rather it has no jurisdiction to interfere. In the case of Dr. Partap Singh v. Director of Enforcement [1985] 155 ITR 166, the Supreme Court, construing the expression "reason to believe", said that the expression "reason to believe" is not synonymous with the subjective satisfaction of the officer. The belief must be held in good faith ; it cannot be merely pretence. In the aforesaid judgment, the court also cited the case of S. Narayanappa v. CIT [1967] 63 ITR 219 (SC), wherein it was held that it is open to the court to examine the question whether the reasons for the belief have a rational connection or a relevant bearing to the formation of the belief and are not extraneous or irrelevant to the purpose of the section. To this limited extent, the action of the Income-tax Officer in starting proceedings under section 34 is open to challenge in a court of law. It can be said, on the basis of authorities, that there should be some material for forming a reasonable belief for the exercise of the powers under section 132(1) of the Income-tax Act to authorise a search and if the Director of Inspection or the Commissioner, as the case may be, holds the belief in good faith, no case for interference by this court shall be made out, but if the belief is only a pretence, then the authorisation under section 132(1) of the Income-tax Act will not be valid and the search conducted on the basis of such authorisation may be illegal, but the question is as to what will be the effect of such illegal search and whether the documents seized during the course of search will have to be returned or are they to be used as evidence in the proceedings under the provisions of the Income-tax Act ?

In the instant case, we have called upon learned counsel for the Revenue to show to the court what was the information available with the Director of Inspection for issuing the authorisation under section 132(1) of the Income-tax Act. It will not be proper to extract the satisfaction of the Director of Inspection in issuing the authorisation but suffice it to say that it is not possible for us to say that there was any reasonable information on which the Director of Inspection could have any bona fide belief to issue the authorisation under section 132(1) of the Income-tax Act. It may be stated that all that has been stated in the information is that manufacturers of "Baba" brand chewing tobacco, panmasala, etc., are selling it at high premium which is the result of artificial scarcity created by the dealers. It is not possible to say that it was in consequence of the information that the Director of Inspection could have a bona fide belief that he has reason to believe that 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 section 131 of the Income-tax Act, 1961, was issued, would not produce or cause to be produced such books of account or other documents as required or 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 of income or property, which has not been or would not be disclosed for the purposes of the Income-tax Act. In our opinion, the expression "has reason to believe" in sub-section (1) of section 132 of the Income-tax Act means the bona fide belief based on some reasonable or credible information and not on the information which may be imaginary. It was given out by learned counsel for the Revenue that it is not possible to produce the file so far as search of Dharmpal Premchand and its allied sister concerns are concerned. Therefore, after having gone through the file No. DBI (Inv)/Unit I /MB-DLH 1987-88 330-E, we are of the opinion that the authorisation for search in the instant case under section 132(1) of the Income-tax Act cannot be held to be valid or legal.

But this does not conclude the matter here as, as we have said earlier, the question is as to whether the account books, etc., which have been found as a result of search can be used in proceedings under the provisions of the Income-tax Act or not ? R. K. Singhal is the husband of Smt. Kusum Lata Singhal who is said to be the proprietor of Lata and Company. Both are jointly sharing the house situated at E-117, Shastri Nagar, Jaipur. During the course of search, the authorised officer recorded the statement not only of the petitioner but also the statement of her husband, R. K. Singhal, was recorded. On the basis of the above statements, the Income-tax Officer/ Assessing Authority dropped the proceedings under section 132(5) of the Income-tax Act against the petitioner but continued the proceedings against her husband, R. K. Singhal. A bare reading of section 132 (7) of the Income-tax Act would show that if the Assessing Officer is satisfied that the seized assets or any part thereof were held by such person, for or on behalf of any other person, the Assessing Officer may proceed under subsection (5) against such other person and all the provisions of section 132 shall apply accordingly. As already stated earlier, the proceedings were dropped against the petitioner when the Assessing Officer came to the conclusion that she is only a benamidar and ostensible owner of the business of Lata and Company, and, in fact, the real owner was R. K. Singhal. The proceedings, therefore, could have been started against the husband of the petitioner, Shri R. K. Singhal, under section 132(7) of the Income-tax Act. It was given out by learned counsel for the Revenue that an order under section 132(5) of the Income-tax Act has also been made against Shri R. K. Singhal and the appeal, etc., are pending. The law is settled that the seized assets or any part thereof including the account books, etc., can be used as evidence in proceedings under the provisions of the Income-tax Act against the real owner of those assets. In this connection, a reference may be made to the case of Pooran Mal v. Director of Inspection [1974] 93 ITR 505 (SC), wherein it was said by the Supreme Court that (at p. 528) even assuming that the search and seizure were in contravention of the provisions of section 132 of the Income-tax Act, still the material seized was liable to be used subject to law before the income-tax authorities against the person from whose custody it was seized and, therefore, no writ of prohibition in restraint of such use could be granted. Again, in the case of Dr. Partap Singh v. Director of Enforcement [1985] 155 ITR 166 (SC), it was held that illegality of a search does not vitiate the evidence collected during such illegal search. The only requirement is that the court or the authority before which such material or evidence is placed has to be cautious and circumspect in dealing with such material or evidence. In the instant case, at the time of the search, silver and gold ornaments then worth Rs. 4,58,080 were found and some other silver and gold ornaments were also found but they were not seized. It may be stated that we had already ordered the return of the account books on the, petitioner's furnishing photostat copies thereof.

Consequently, though we are of the opinion that the authorisation under section 132(1) of the Income-tax Act was not in accordance with law and, therefore, the search and seizure of the assets cannot be said to be in accordance with law, even then, the proceedings have been dropped against the petitioner and have been started against her husband, Shri R. K. Singhal, by virtue of the powers of the Income-tax Officer/Assessing Authority under section 132(7) of the Income-tax Act and the order under section 132(5) of the Income-tax Act has been made against him and steps have been taken by the authorities in accordance with law, the valuables, etc., cannot be ordered to be returned to the petitioner. The writ petition is hereby dismissed with no order as to costs.

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