Telangana High Court
M/S R.S. Agro Tech vs Union Of India on 26 June, 2024
*THE HON'BLE SRI JUSTICE SUJOY PAUL
AND
*THE HON'BLE SRI JUSTICE NAMAVARAPU
RAJESHWAR RAO
+WRIT PETITION No.925 of 2024
% 26-06-2024
#M/s.R.S.Agro Tech and others.
...Petitioners
vs.
$Union of India and others.
... Respondents
!Counsel for the Petitioners: Sri Avinash Deshai, Senior Counsel
representing Sri TPS Harsha.
^Counsel for Respondents: Ms. K. Mamatha, Standing Counsel for
Income Tax Department.
<Gist :
>Head Note :
? Cases referred
1. (1992) 194 2 ITR 32.
2. 2000 SCC OnLine Del. 92.
3. 2020 SCC OnLine Del. 424.
4. (2003) 260 ITR 249.
5. (1988) 170 ITR 592.
6. 2024 SCC OnLine Bom. 1319.
7. 1999 SCC OnLine Gau. 268.
8. (1997) 5 SCC 321.
9. (2015) 12 SCC 179.
10. (2022) 446 ITR 18.
11. AIR 1992 SC 1981.
12. (1986) 3 SCC 409.
13. 2024 SCC OnLine Jhar 451.
14. 2004 SCC OnlLine All 1769.
15. 2016 SCC OnLine Bom 15175.
2
SP, J & RRN,J
Wp_925_2024
IN THE HIGH COURT FOR THE STATE OF TELANGANA
HYDERABAD
****
Writ Petition No.925 OF 2024
(Per Hon'ble Sri Justice Sujoy Paul)
Between:
M/s.R.S.Agro Tech and others.
...Petitioners
vs.
Union of India and others.
... Respondents
JUDGMENT PRONOUNCED ON: 26.06.2024
THE HON'BLE SRI JUSTICE SUJOY PAUL
THE HON'BLE SRI JUSTICE NAMAVARAPU RAJESHWAR RAO
1. Whether Reporters of Local newspapers
may be allowed to see the Judgments? :
2. Whether the copies of judgment may be
Marked to Law Reporters/Journals? :
3. Whether His Lordship wishes to
see the fair copy of the Judgment? :
___________________
SUJOY PAUL, J
_____________________________________
NAMAVARAPU RAJESHWAR RAO, J
3
SP, J & RRN,J
Wp_925_2024
THE HONOURABLE SRI JUSTICE SUJOY PAUL
AND
THE HONOURABLE SRI JUSTICE NAMAVARAPU RAJESHWAR RAO
WRIT PETITION No.925 of 2024
ORDER:
(per Hon'ble SP,J) The petitioners have called in question the legality and validity and propriety of the action taken by the respondents for search and seizure in purported exercise of power under Section 132 of the Income Tax Act, 1961 (for short, the Act). Factual background:
2. The petitioners are engaged in running cotton ginning mills situated at Godavalli Village, Asifabad Mandal, Kumarambheem Asifabad District, which were set up in the year 2015. The petitioners stated that they are law abiding bodies/persons and promptly filing returns and making statutory payments under Goods and Services Tax and other Taxes. The Ministry of Finance, Government of India, had issued 'certificates of appreciation' which are filed by the petitioners.
3. In order to run the cotton ginning mills smoothly, the petitioners are required to frequently purchase cotton produce from the farmers. In procuring the cotton from the farmers, the petitioners make payments in cash which is due to the area or 4 SP, J & RRN,J Wp_925_2024 location in which the petitioners operate. Such rural areas are lacking necessary infrastructure including fully developed banking and internet facilities. In particular, the areas in which the petitioners operate are located in proximity to Maharashtra and in these areas, transactions are predominantly made through cash mode of payment. The reliance is placed on document provided by bank management which shows limits have been placed on the quantum of cash which can be kept in the bank chest i.e., upto Rs.13,00,000/-. In this event, the petitioners are often required to make request in advance for withdrawal of large cash amount to enable the bank to arrange for the disbursal and transport of cash. If the cash which is beyond the limit of amount available in the concerned bank is required, the said branch needs to get the cash transported via van services of the bank from Mancherial branch to Asifabad branch of the bank. The distance between Asifabad and Mancherial is approximately is 70 kilometers.
4. In view of foregoing difficulties and prospect of being cash strapped in the peak season, the petitioners make arrangement to meet any possible shortage of cash during the closure of the bank. Thus, the petitioners utilised their overdraft facility during 14th November, 2023 to 16th November, 2023 and withdrew 5 SP, J & RRN,J Wp_925_2024 substantial amount (by self-cheques) with interest rate and other charges adding upto 12% per annum. On that basis, the petitioners made purchases by paying cash amounts to the farmers and made necessary expenditures. As on 20.11.2023, the petitioners were left with cash amount of Rs.6,51,70,000/-.
The copies of the receipts showing payments to farmers are cumulatively filed as Annexures-P.11 and P.12.
5. In the early morning of 21.11.2023, the respondents conducted search proceedings at the residence of Managing Partner of petitioner No.1 and at the offices of M/s.R.S.Agrotech and M/s.Heena Industries, the petitioners herein. The search exercises were conducted pursuant to separate warrants of authorisation issued under Section 132 of the Act, dated 20.11.2020. It is stated that in the authorisation warrants, no reasons to conduct the search and consequent seizure were mentioned. The petitioners preferred representations to respondent No.2 on 04.12.2023 (Annexure P.15) and 05.12.2023 (Annexure P.16) for return of cash seized by them. Contentions of the petitioners:
6. Sri Avinash Desai, learned Senior Counsel for the petitioners, urged that the aforesaid factual matrix makes it clear that the petitioners have borrowed money in order to utilise the 6 SP, J & RRN,J Wp_925_2024 same in their business. The search and seizure in the instant case is illegal and runs contrary to the manner and method prescribed under Section 132 of the Act. The result of seizure of amount is that on the one hand, the petitioners are not able to utilise the cash to purchase the cotton and run their business smoothly and on the other hand, they are required to pay interest to the bank. This may ruin their business.
7. The petitioners placed heavy reliance on the language employed in Section 132 of the Act by contending that the action of the respondents reflects non-application of mind. The respondents failed to disclose availability of any material with them prior to the search and seizure exercise. The respondents had no reasons to believe that the cash amounts were unaccounted and the petitioners will not deposit tax in due course.
8. The antecedents of the petitioners were evinced from various returns filed over last several years and that background nowhere suggests that the petitioners would not disclose either whole or partly about the income. The exercise of seizure is based on mere suspicion and there is no direct correlation between the existence of information or material and the opinion formed by the authorities before authorising any seizure under 7 SP, J & RRN,J Wp_925_2024 the Act. The emphasis is laid on words "reasons to believe" used under Section 132 (1) of the Act to bolster the submission that this expression has a definite meaning and cannot be used based on mere suspicion. In absence of any incriminating material available prior to the seizure of the cash amount shows complete non-application of mind by the respondents.
9. The next limb of argument is that the alleged inability to provide explanation regarding the cash amount does not satisfy the condition precedent under Section 132(1) authorising search and seizure. The respondents have illegally conducted the search and seizure which runs contrary to law laid down by various High Courts.
10. By relying upon the judgments of Delhi High Court in L.R. Gupta v. Union of India 1, Ajit Jain v. Union of India 2 and Khem Chand Mukim v. PDIT 3, he submitted that the condition precedent for exercising power under Section 132(1) of the Act, (i) the information must be in the possession of the named authority and (ii) in consequence of which, he may have reason to believe that the person concerned is in possession of money, bullion, etc. If either of these conditions are missing, the power under Section 1 (1992) 194 2 ITR 32 2 2000 SCC OnLine Del. 92 3 2020 SCC OnLine Del. 424 8 SP, J & RRN,J Wp_925_2024 132 of the Act cannot be invoked. Mere possession of any amount by the petitioners could hardly be said to constitute an information which could be treated as sufficient by a reasonable person. Even if sole ground for search is an information gathered from investigation wing of Income Tax Department founded upon mere repetition of words and without clear basis, conclusion or satisfaction note does not fall within the ambit of "reasonable belief".
11. For the same purpose, the learned Senior Counsel placed reliance on the judgment of the Allahabad High Court in Dr.Sushil Rastogi v. Director of Investigations, Income Tax 4 and Dr.Nand Lal Tahiliani v. Commissioner of Income Tax 5. He has relied upon the judgment of the Bombay High Court in Echjay Industries Pvt. Ltd. V. Rajendra 6 to submit that any information which is extremely general in nature cannot be formed basis of "reason to believe". The judgment of Gauhati High Court in B.R. Metal Ltd. V. Commissioner of Income Tax 7 is pressed into service to contend that cash found appeared to be undisclosed is a clear case of suspicion which cannot become reason for initiating action under Section 132 of the Act. 4 (2003) 260 ITR 249 5 (1988) 170 ITR 592 6 2024 SCC OnLine Bom. 1319 7 1999 SCC OnLine Gau. 268 9 SP, J & RRN,J Wp_925_2024
12. Lastly, the petitioners relied on the judgments of the Apex Court in CIT v. Vindhya Metal Corpn. 8, DGIT v. Spacewood Furnishers (P) Ltd. 9 and a recent judgment of the Apex Court in Principal DIT (Invest.) v. Laljibhai Kanjibhai Mandalia 10.
13. Another limb of argument is that the respondents should have returned cash to the petitioners. The petitioners by preferring applications dated 04.12.2023 and 05.12.2023 (Annexures P.15 and P.16) prayed for returning the cash, but the respondents failed to complete their exercise within the statutory time limit. Thus, they are bound to return the said amount. The petitioners are even ready to furnish appropriate bank guarantee so that interest of the Department will be protected, and at the same time, the petitioners will be able to run their business. Stand of the Revenue:-
14. Ms. K. Mamatha, learned counsel for the Revenue, supported the impugned action and by taking this Court to sub-sections of Section 132 of the Act submitted that the Revenue has ample power to undertake search and seizure. The seizure has taken place inconsonance with statutory mandate. It is submitted that the respondents in the counter are not 8 (1997) 5 SCC 321 9 (2015) 12 SCC 179 10 (2022) 446 ITR 18 10 SP, J & RRN,J Wp_925_2024 expected to spell out the actual reasons which formed basis for search, instead, the respondents are obliged to give that confidential information in a sealed cover to this Court. Confidentiality and sensitivity are hallmarks of proceedings under Sections 132 and 132-A of the Act. To buttress, this contention, reliance is placed on the Finance Bill, 2017, which ultimately became part of statute book. As per the amendment which took place, the basis for 'reasons to believe' need not be disclosed to any person or any authorities, even to the appellate authority. Interestingly, she also placed reliance on the judgment of the Apex Court in the case of Laljibhai Kanjibhai Mandalia (supra). By placing reliance on the recent Coordinate Bench order dated 21.06.2024, it is argued that the assessee in that case was habitual violator and in the facts of that case, the Court declined interference. It is urged that no case is made out for interference.
15. During the hearing, in obedience of previous orders of this Court "satisfaction note" is placed before us in a sealed cover. Findings:
16. It is apt to refer to relevant part of Section 132 (1) of the Act which reads as under:
11
SP, J & RRN,J Wp_925_2024 "132. Search and seizure.--
(1) Where the Principal Director General or Director General or Principal Director or Director or the Principal Chief Commissioner or Chief Commissioner or Principal 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 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 be produced, any books of account 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 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 Indian Income-tax Act, 1922 (11 of 1922), or under this Act, or
(c) 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 11[which has not been, or would not be, disclosed] for the purposes of the Indian Income-tax Act, 1922 (11 of 1922), or this Act (hereinafter in this section referred to as the undisclosed income or property),"
(Emphasis Supplied)
17. The plain language of the Sub-section (1) of Section 132 shows that the competent authority must be equipped with information or in other words, the information must be in his possession on the strength of which he had reason to believe that the conditions mentioned in clauses a, b and c of Sub-section (1) 12 SP, J & RRN,J Wp_925_2024 may exist. The language of statute is plain and unambiguous. Thus, it must be given effect to irrespective of consequences {see Nelson Motis vs. Union of India 11}.
18. Learned counsel for both sides relied on various judgments wherein the expression 'reason to believe' has been considered and also the requirement and character of information which became subject-matter of judicial pronouncements.
19. The Apex Court, way back in Vindhya Metal Corpn. (supra), held that the scrutiny should be on the information in possession of the Commissioner in order to see whether a reasonable person could have entertained a belief that amount in possession of the assessee would not have been disclosed by him for the purposes of the Act.
20. In the case of Spacewood Furnishers (P) Ltd. (supra), the Apex Court culled out the principles on which the validity of exercise of search and seizure can be tested. The relevant portion reads as under:
"8. The principles that can be deduced from the aforesaid decisions of this Court which continue to hold the field without any departure may be authorized as follows:
8.1. The authority must have information in its possession on the basis of which a reasonable belief can be founded that--11
AIR 1992 SC 1981 13 SP, J & RRN,J Wp_925_2024
(a) the person concerned has omitted or failed to produce books of account or other documents for production of which summons or notice had been issued Or such person will not produce such books of account or other documents even if summons or notice is issued to him Or
(b) such person is in possession of any money, bullion, jewellery or other valuable article which represents either wholly or partly income or property which has not been or would not be disclosed.
8.2. Such information must be in possession of the authorized official before the opinion is formed. 8.3. There must be application of mind to the material and the formation of opinion must be honest and bona fide. Consideration of any extraneous or irrelevant material will vitiate the belief/satisfaction. 8.4. Though Rule 112(2) of the Income Tax Rules which specifically prescribed the necessity of recording of reasons before issuing a warrant of authorized13on had been repealed on and from 1-10-1975 the reasons for the belief found should be recorded.
8.5. The reasons, however, need not be communicated to the person against whom the warrant is issued at that stage.
8.6. Such reasons, however, may have to be placed before the Court in the event of a challenge to formation of the belief of the authorized official in which event the court (exercising jurisdiction under Article 226) would be entitled to examine the relevance of the reasons for the formation of the belief though not the sufficiency or adequacy thereof."
(Emphasis Supplied)
21. In Laljibhai Kanjibhai Mandalia (supra), the Apex Court again made some principles which are as under:
"33. We would like to restate and elaborate the principles in exercising the writ jurisdiction in the matter of search and seizure under Section 132 of the Act as follows: 14
SP, J & RRN,J Wp_925_2024
i) The formation of opinion and the reasons to believe recorded is not a judicial or quasi-judicial function but administrative in character;
ii) The information must be in possession of the 14uthorized official on the basis of the material and that the formation of opinion must be honest and bona fide. It cannot be merely pretence.
Consideration of any extraneous or irrelevant material would vitiate the belief/satisfaction;
iii) The authority must have information in its possession on the basis of which a reasonable belief can be founded that the person concerned has omitted or failed to produce books of accounts or other documents for production of which summons or notice had been issued, or such person will not produce such books of accounts or other documents even if summons or notice is issued to him; or
iv) Such person is in possession of any money, bullion, jewellery or other valuable article which represents either wholly or partly income or property which has not been or would not be disclosed;
v) Such reasons may have to be placed before the High Court in the event of a challenge to formation of the belief of the competent authority in which event the Court would be entitled to examine the reasons for the formation of the belief, though not the sufficiency or adequacy thereof. In other words, the Court will examine whether the reasons recorded are actuated by mala fides or on a mere pretence and that no extraneous or irrelevant material has been considered;
vi) Such reasons forming part of the satisfaction note are to satisfy the judicial consciousness of the Court and any part of such satisfaction note is not to be made part of the order;
vii) The question as to whether such reasons are adequate or not is not a matter for the Court to review in a writ petition. The sufficiency of the grounds which induced the competent authority to act is not a justiciable issue;
viii) The relevance of the reasons for the formation of the belief is to be tested by the judicial restraint as in administrative action as the Court does not sit as a Court of 15 SP, J & RRN,J Wp_925_2024 appeal but merely reviews the manner in which the decision was made. The Court shall not examine the sufficiency or adequacy thereof;
ix) In terms of the explanation inserted by the Finance Act, 2017 with retrospective effect from 1.4.1962, such reasons to believe as recorded by income tax authorities are not required to be disclosed to any person or any authority or the Appellate Tribunal."
(Emphasis Supplied)
22. In view of "litmus test" laid down in the aforesaid judgments, "satisfaction note" is to be tested. In view of element of confidentiality involved, we are not reproducing any portion of the satisfaction note.
23. We have gone through the said note carefully. The 'satisfaction note' talks about discrete enquiry, but no such material relating to discrete enquiry and information gathered thereupon became part of the 'satisfaction note'. Thus, nature and character of information cannot be gathered from perusal of the 'satisfaction note' which ultimately became reason for recording "satisfaction". In both the judgments of Spacewood Furnishers (P) Ltd. (supra) and Laljibhai Kanjibhai Mandalia (supra), it was held that the authority must have information in its possession on the basis of which a reasonable belief can be formed.
16
SP, J & RRN,J Wp_925_2024
24. The 'satisfaction note' nowhere reflects the basis to derive a satisfaction that the petitioners who were in possession of money will not disclose the same in due course. The petitioners, as noticed, received appreciation certificates for their prompt payment of the taxes. The 'satisfaction' cannot be recorded merely because the authority is of the opinion that the true financial affairs will never be revealed unless search seizure operation is carried out.
25. In catena of judgments, the Apex Court opined that "reasons to believe" cannot be equated with "reasons to suspect". Thus, the competent authority must be equipped with some cogent incriminating material prior to the seizure on the strength of which a satisfaction can be recorded. The said satisfaction neither can be tested on suspicion nor can be justified on the basis of unexplained possession of amount. In the instant case, we are constrained to observe that satisfaction note is based on suspicion and is not pregnant with any cogent incriminating material which can form basis for an action under Section 132 of the Act {see Indian Oil Corpn. v. ITO 12, Pasari Casting & Rolling Mills (P) Ltd. v. ITD 13, Anita Sahai v. Director of 12 (1986) 3 SCC 409 13 2024 SCC OnLine Jhar 451 17 SP, J & RRN,J Wp_925_2024 Income-Tax (Investigation) 14 and M/S Coronation Agro Industries Ltd. v. Deputy Commissioner of Income Tax Circle 15}.
26. We will be failing in our duty if the Division Bench judgment cited by the learned counsel for the respondents is not considered. In W.P.No.11667 of 2021, the interference was declined because after opening the sealed cover provided by the Income Tax Department, and on perusal of the record, the Court opined that preliminary search and subsequent proceedings were in accordance with law. Thus, the said finding is based on the record of the said case, and therefore, this order is of no assistance to the respondents in the present case.
27. In view of foregoing discussion, the impugned action of the respondents in seizing and withholding Rs.6,51,00,000/- cannot be countenanced. Resultantly, the impugned search and seizure is set aside. The said amount be returned to the petitioners forthwith. However, it is made clear that this order will not come in the way of the respondents to proceed against the petitioners in accordance with law.
14
2004 SCC OnlLine All 1769 15 2016 SCC OnLine Bom 15175 18 SP, J & RRN,J Wp_925_2024
28. The Writ Petition is allowed to the extent indicated above. There shall be no order as to costs. Miscellaneous applications pending, if any, shall stand closed.
________________ SUJOY PAUL, J _____________________________________ NAMAVARAPU RAJESHWAR RAO, J Date: 26.06.2024 Note: L.R. marked.
B/o. TJMR Note: The I.T. Dept. had handed over a sealed cover containing the original records. After perusal, the same was again sealed and handed over to the learned Standing Counsel for the I.T. Department.