Bombay High Court
M/S. Spacewood Furnishers Pvt. ... vs The Director General Of on 9 December, 2011
Bench: B. P. Dharmadhikari, A.P. Bhangale
1
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
NAGPUR BENCH
WRIT PETITION NO. 2150 OF 2010
1. M/s. Spacewood Furnishers Pvt. Ltd.,
A company registered under the
Companies Act, 1956, having its
Head Office at T-48, MIDC Hingna,
Nagpur, Tah. & Dist. Nagpur,
State of Maharashtra acting through
its directors (I) Shri Kirit s/o Shri
Sharad Joshi, r/o Trambakeshwar,
23, New Verma Layout, Nagpur and
(ii) Shri Vivek s/o Shri Moreshwar
Deshpande, r/o "Madhav", 67-A,
Shivaji Park, Nagpur.
2. Shri Kirit s/o Shri Sharad Joshi,
aged about 39 years, Director of
M/s. Spacewood Furnishers Pvt.
Ltd., residing at "Trambakeshwar",
23, New Verma Lay out, Nagpur,
Tahsil & Dist. Nagpur, State of
Maharashtra.
3. Shri Vivek s/o Shri Moreshwar
Deshpande, aged about 39 years,
Director of M/s. Spacewood
Furnishers Pvt. Ltd. Residing at
"Madhav", 67-A, Shivaji Park,
Nagpur, Tah. & Dist. - Nagpur,
State of Maharashtra. ... PETITIONERS
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1. The Director General of
Income-tax (Investigation),
Pune.
2. The Director of Income-tax
(Investigation), Nagpur, Saraf
Chamber, Mount Road, Sadar,
Nagpur, Tah. & Dist. Nagpur,
State of Maharashtra.
3. Assistant Director of Income-tax
(Investigation), (HQR), Nagpur.
4. Dy. Commissioner of Income-tax,
Central Circle 2(3), Nagpur,
Aaykar Bhawan, Civil Lines,
Nagpur, Tah. & Dist. Nagpur,
State of Maharashtra. ... RESPONDENTS
S/Shri C.J. & S.C. Thakar with Shri S.N. Bhattad, Advocates for
the petitioners.
Shri Anand Parchure, Advocate for the respondents.
.....
CORAM : B.P. DHARMADHIKARI &
A.P. BHANGALE, JJ.
DATE OF RESERVING THE JUDGMENT: NOVEMBER 24, 2011.
DATE OF PRONOUNCING JUDGMENT : DECEMBER 09, 2011.
JUDGMENT : (Per B.P. DHARMADHIKARI, J.)
By this petition filed under Article 226 of Constitution
of India, petitioner No. 1 - A Company under Companies Act,
1956, and petitioner Nos. 2 & 3, who are its Directors, have
prayed for quashing of the warrant of authorization for
conducting search, issued under Section 132 of Income-Tax Act,
1961, (hereinafter referred to as the Act) and consequential
action thereafter in issuing notices under Section 153-A of the
Act, thereafter for the assessment years 2004-05 to 2009-10.
The search operations have been carried out from 19th June 2009
to 21st July 2009. The matter was directed to be listed for final
hearing by orders of this Court dated 22nd July 2011, in the week
commencing from 22nd August 2011. The short contention is
about absence of any material, warranting such search action.
2. Accordingly, we have heard Shri Thakkar with Shri
Bhattad, learned counsel for the petitioners and Shri Parchure,
learned counsel for the respondents.
3. Shri Thakkar, learned counsel has urged that the
petitioners are regular in paying income-tax, in filing return and
have produced books of accounts and supplied all information as
and when demanded. In this situation, there was no reason or
occasion to proceed under Section 132 of the Act against them.
He has contended that the only purpose of search was to fish out
some material to find out why petitioner No. 1 - Company has
registered phenomenal growth over short period. The purpose is
collateral and hence action of search on its basis is
unsustainable. He states that the benefit under Section 80-IA
has been properly claimed and allowed and it appears that
purpose was to withdraw it anyhow. Even in relation to Keyman
Insurance Policies, he explains that the material is on record and
policies have been transferred by Company to such Keyman and
necessary facts are all within the knowledge of the department.
He has urged that therefore, real purpose behind this roving
exercise was to deny Section 80-IB benefit to the petitioners. He
has invited attention to pleadings which have come on record in
this respect to argue how there is nothing on record to show any
new information in possession of the respondents necessitating
such action. Attention is invited to the directions dated
17.09.2010 by this Court pointing out that the same were oral
but department was directed to produce the material on the
basis of which satisfaction under Section 132(1) was recorded by
the competent authority. He contends that the satisfaction as
recorded is justiciable and, therefore, the petitioners needed to
be given an opportunity to go through that file. But according to
him, the affidavits filed by the respondents on the strength of
material contained in that file do not show that ingredients of
Section 132(1) are satisfied. He has also invited our attention to
additional affidavits and rejoinders filed by both sides thereafter
from time to time. The judgment of Calcutta High Court in the
case of Smt. Uma Devi Jhawar vs. Income Tax Officer, reported at
(1996) 218 ITR 573 (Cal.) is relied upon to show the entitlement
of the petitioners to inspect said file.
4. The judgments reported in the case of Income Tax
Officer & Ors. vs. Lakhmani Mewal Das, reported at (1976) 103
ITR 437 (SC), L.R. GUPTA & Ors. vs. Union of India & Ors.,
reported at (1992) 194 ITR 32 (Delhi), Vindhya Metal
Corporation & Ors. vs. Commissioner of Income Tax & Ors.,
reported at (1985) 156 ITR 233 (All.), Commissioner of Income
Tax vs. Vindhya Metal Corporation & Ors., reported at (1997) 224
ITR 614 (SC) and the judgment of Division Bench of this Court
in Cartini India Ltd. vs. Additional Commissioner of Income Tax &
Ors., reported at (2009) 314 ITR 275, are pressed into service by
him to show how judicial review of that satisfaction is open.
According to him, if this law is applied, the search operations
and consequential steps under Section 153-A of the Act are
entirely without jurisdiction.
5. Shri Parchure, learned counsel appearing for the
department has produced the Satisfaction Note file and pointed
out how the Assistant Director of Income Tax (Investigation),
Nagpur, Additional Director of Income Tax (Investigation),
Nagpur, Director of Income Tax (Investigation), Pune, have
found such search necessary after considering the facts as
disclosed in those satisfaction notes. He has pointed out that
these authorities are independently given power by S. 132 and
satisfaction of any one such authority is sufficient to sustain the
exercise. The replies as filed on record from time to time are
relied upon to justify the entire action. The learned counsel
states that after discreet enquiries, the action has been taken and
as there is material on record which supports it and its relevance
is already looked into, the petition is without any merit and
liable to be dismissed.
6. The perusal of Division Bench judgment of Calcutta
High Court in the case of Smt. Uma Devi Jhawar vs. Income Tax
Officer, (supra) reveals that the Court found that when Court
allows Income Tax Officer to produce such records and the Court
examines the same to find out whether there are valid reasons,
the Court has to allow inspection of such records to the assessee.
The recorded reasons or material or letter of proposal sent by
Income Tax Officer to Commissioner of Income Tax, was in the
light of provisions of Section 148 of the Act and High Court has
found that it is not a show cause notice and notice thereunder
can be issued only if the conditions precedent for assumption of
jurisdiction under Section 147(a) of the Act, are satisfied.
Though Shri Parchure, learned counsel had opposed arguments
of Shri Thakkar, learned counsel, no precedent taking a view to
the contrary has been pointed out. However, as the petitioners
have not made any express prayer seeking inspection of
satisfaction note file, we do not find it necessary to conclude this
aspect. We, however, express that when the satisfaction recorded
is justiciable, the documents pertaining to such satisfaction may
not be immune and if appropriate prayer is made, the inspection
of such documents may be required to be allowed.
7. Section 132 of the Act deals with search and seizure.
It contemplates & springs to life when the various officers
mentioned therein have, because of information in their
possession, "a reason to believe" that steps as prescribed in its
clauses (a), (b) and (c) thereof are necessary. Thus, this "reason
to believe" is required to be of the Director General or Director or
the Chief Commissioner or the Commissioner or Additional
Director or Additional Commissioner or Joint Director or Joint
Commissioner. This provision has been considered in various
judgments and hence we find it appropriate to find out how the
ingredients therein have been construed.
8. In the case of Income Tax Officer & Ors. vs. Lakhmani
Mewal Das, (supra), the Hon'ble Apex Court has considered
reassessment under Section 147(a) of the Act. Section 147
contemplates an opinion by Assessing Officer that any income
chargeable to tax has escaped assessment and it also employs the
phrase "has reasons to believe". The Hon'ble Apex Court has held
that the reasons to believe must have material bearing on the
question of escapement of income of assessee and it does not
mean a purely subjective satisfaction on the part of the Income
Tax Officer. The existence of belief can be challenged by assessee
but he cannot challenge the sufficiency of reasons for said belief.
In facts before the Hon'ble Apex Court, two grounds were
mentioned in his report by Income Tax Officer for reopening of
assessment. One was that one Mohansingh Kanayalal, one of the
creditors of the assessee had confessed that he was doing only
name-lending. The other ground was other creditors disclosed
by the assessee were known name-lenders. The Hon'ble Apex
Court in para 10, noted that there was nothing to show that
confession by Mohansingh related to a loan to assessee and not
to someone else and it was difficult to infer the period to which
that loan related. The Hon'ble Apex Court has then noted that
the reasons for the formation of belief must have rational
connection with or relevant bearing on the formation of the
belief, a direct nexus or live link between the material coming to
the notice of the Income Tax Officer and the formation of this
belief is found essential. The Hon'ble Apex Court has noted that
the words were not "reason to suspect".
9. In the case of L.R. Gupta & Ors. vs. Union of India &
Ors., (supra), the Hon'ble Division Bench of Delhi High Court has
considered the provisions of Section 132(1) of the Act. In para
3, Division Bench has noticed that search was authorized
because of information allegedly gathered about receipt of
approximately Rs.30 crores by assessee from land acquisition
department. Discreet enquiries were made and it was revealed
to the department that house property at Anand Lok was under
demolition and an apartment building was to be constructed
there. For those apartments, secret bookings were alleged to
have been made and money was received by family members of
the petitioners. The note of Respondents No. 2 & 3 there stated
that the petitioners did not disclose receipt of compensation in
income tax returns. The High Court noticed that the receipt of
money by the petitioners was known to department and failure
to return income because of the belief of the petitioner that it
was not taxable, could not have been a ground for issuing an
authorization under Section 132(1) of the Act. It is noticed that
non filing of return may give right or jurisdiction to the
respondents to invoke provisions of Section 147 and 148 but it
was not a case where money was received surreptitiously or the
department did not have knowledge. The other ground about
failure to disclose immovable properties in the return has been
found equally misconceived as it was not the case of the
department that the properties were purchased from the funds
which were not known to the department.
In para 22, Delhi High Court has relied upon the
judgment of Punjab & Haryana High Court in the case of H.L.
Sibal vs. Commissioner of Income Tax, reported at (1975) 101 ITR
112 (P & H). In that judgment, the Punjab & Haryana High
Court has made the following observations:
"The applicability of S. 165, Cr. P.C, to the
searches made under S. 132(1) gives an indication that
this section is intended to apply in limited circumstances
to persons of a particular bent of mind, who are either
not expected to co-operate with the authorities for the
production of the relevant books or who are in
possession of undisclosed money, bullion and jewellery,
etc. Take for instance, a particular assessee who has
utilized his undisclosed income in constructing a
spacious building. His premises cannot be subjected to a
search under this section on this score alone. A search
would be authorised only if information is given to the
CIT that such a person is keeping money, bullion,
jewellery, etc., in this building or elsewhere. Further, if
an assessee has been regularly producing his books of
account before the assessing authorities who have been
accepting these books as having maintained in the
proper course of business, it would be some-what
unjustified use of power on the part of the CIT to issue a
search warrant for the production of these books of
account unless of course there is information to the effect
that he has been keeping some secret account books also.
He has to arrive at a decision in the back-ground of the
mental make up of an individual of individuals jointly
interested in a transaction or a venture. A blanket
condemnation of persons of diverse activities
unconnected with each other on the odd chance that if
their premises are searched from incriminating material
might be found is wholly outside the scope of S. 165, Cr.
P.C. This power has to be exercised in an honest manner
and search warrants cannot be indiscriminately issued
purely as a matter of policy."
In para 15 of this judgment, the Delhi High Court has
also found that in his satisfaction note, the Director of
Investigation had recorded only one reason and it was that the
petitioners were not disclosing true income and wealth. This
reason was found not in addition to reasons contained in note of
recommendation put up by other respondents and Delhi High
Court has found that satisfaction of said authority only was
relevant and needed to be examined.
10. In the case of Vindhya Metal Corporation & Ors. vs.
Commissioner of Income Tax & Ors., (supra), the Division Bench
of Allahabad High Court has found that mere possession of an
amount and not having any document of ownership could not
have been treated by the Commissioner of Income Tax as
circumstance relevant to support a conclusion that it represented
income which the person would not have disclosed. The
consequent authorization made by the Commissioner of Income
Tax under Section 132A of the Act and proceedings in
consequence thereof were quashed.
11. In the case of Commissioner of Income Tax vs.
Vindhya Metal Corporation & Ors., (supra), the Hon'ble Apex
Court has found that mere unexplained possession of an amount
without anything more could not be said to constitute
information which can be treated as sufficient by reasonable
person to reach an inference that it was income which would not
have been disclosed by such person. The above mentioned
Allahabad view has been affirmed by the Hon'ble Apex Court.
12. The Division Bench of this Court in the case of Cartini
India Ltd. vs. Additional Commissioner of Income Tax & Ors.,
(supra), has found that reopening of assessment based on
material already considered and adjudicated would amount to
reviewing the assessment order by re-appreciating the material
on record and is not contemplated under Section 147 of the Act.
Shri Thakkar, learned counsel has pressed into service this
judgment to urge that in the absence of any new information in
possession of the respondents, such reassessment by drawing
certain inferences on the strength of material already in its
possession, is illegal.
13. The pleadings of parties in present petition show
assertion by the petitioners of due discharge of all statutory
obligations and no violation or breach of any provisions of
Income Tax Act. This has not been denied or pointed out to be
incorrect by the respondents. The petitioners have contended
that there is no material in possession of respondents which
could have led to a "reason to believe" to take action of search
under Section 132(1) of the Act. The respondents have denied
it. The first affidavit in this respect filed by the respondents on
30th June 2010 is not disclosing any such information gathered
later by the department. It only contains an assertion that
proper procedure has been followed and a positive satisfaction
has been recorded by the Director of Income Tax (Investigation).
There are some contentions revolving around Section 80IB or
Keyman Insurance policy but then it is not the case of the
respondents that said position was not within their knowledge
earlier. It is urged that survey under Section 133A of the Act of a
Labour Contractor to whom majority of labour payments were
made revealed that he had inflated expenses in his book
probably to cover inflated bills raised by him on the petitioners -
company. It is claimed that said labour contractor declared
additional income of Rs. 1.3 crores. The petitioners have then
filed reply to these submissions and pointed out the names of
contractors, regular payment to those contractors. It is
contended that those contractors have been working with other
employers also. The reason pleaded in affidavit reply is,
therefore, stated to be frivolous. The respondents have then
filed additional affidavit on 22.09.2010 and in it, it is mentioned
that satisfaction note was initially recorded by the Assistant
Director of Income Tax on the basis of necessary information on
record. The said Assistant Director is alleged to have personally
conducted discreet enquiries on various occasions before
recording the satisfaction note. It is claimed that he interacted
with employees and managers of the petitioners in a disguise.
The said Assistant Director thereafter prepared note regarding
satisfaction in consultation with the Additional Director of
Income Tax which was approved by the Director of Income Tax.
This Director of Income Tax recorded his personal satisfaction
which culminated into search and seizure warrants. It is also
pointed out that this satisfaction note was also accorded
administrative approval by the Director General of Income Tax.
This affidavit discloses that satisfaction note was submitted to
this Court on 17.09.2010 for its perusal. The material discovered
during search i.e. some agreements of sale are disclosed in para
7 of this affidavit. The petitioners have then filed their affidavit
in reply to it on 12.10.2010. This affidavit of the petitioners
again contains very same assertions with stand that "the reason
now forwarded by the department are really bogy to reverse the
view of assessing authority, which is outside the provisions of
income-tax". It is further stated that agreements and sale deed
mentioned in para 7 by the respondents were pertaining to the
year 2001 and hence beyond purview of search. Similarly,
company opposed use of search material as the same were not
relevant and the source was already fully explained. The
petitioners have claimed that, therefore, there was no new
material. The Additional Director of Income Tax (Investigation)
has filed the additional affidavit on behalf of the respondents on
15.11.2010. Though in said affidavit reply, allegations made in
para 3 & 4 of the above mentioned affidavit of the petitioners
have been denied, the assertions in para 2 thereafter have not
been dealt with. In this reply, the petitioners claimed that
Director of Income Tax (Investigation) had taken note of discreet
enquiries. Thereafter all facts were verified and assesses case
records were sealed and then a satisfaction note was prepared.
In affidavit it is disclosed that discreet enquiries conducted by
Assistant Director of Income Tax revealed that assessee has been
suppressing substantial portion of income by inflating purchases
and other expenses. The assessee was catering to the high end
customers and enjoying very high margins. The company was
availing loans against third party NRI deposits whose identity
and genuineness was doubtful. The substantial unreconciled
amounts were found in the bank account of assessee company.
The petitioners have thereafter filed their reply to this affidavit
on 23.11.2010 which is nothing but reiteration of their earlier
stand. Thereafter the petitioners have filed CAW No. 2587 of
2010 for admission of Additional documents already filed by
them with rejoinder on 20th July 2010. Thereafter they filed
CAW No. 2788 of 2010 for grant of early hearing.
14. The provisions of Section 132(1) of the Act
contemplate a satisfaction of a particular authority and here as
claimed by the respondents, the satisfaction note of Additional
Director of Income Tax approved by Director of Income Tax
(Investigation) has culminated in issuance of search and seizure
warrant. This position is disclosed in para 4 of the additional
affidavit dated 22.09.2010. In affidavit dated 15.11.2010, in
para 6, it is stated that the Director of Income Tax (Investigation)
has recorded his personal satisfaction before issuing the warrant
of authorization under Section 132. The material looked into by
said authority is also disclosed in para 6. Thus, the respondents
claimed that a note was prepared by the Assistant Director in
consultation with the Additional Director. It is claimed that both
these authorities prepared their notice after recording
satisfaction and it was approved by the Director of Income Tax
(Investigation), after recording his personal satisfaction note.
This satisfaction note was accorded administrative approval by
the Director General of Income Tax (Investigation). During
arguments, a question about hypothetical situation in which such
Director General would have refused administrative approval
was put and the learned counsel stated that had administrative
approval been not accorded by the Director General of Income
Tax (Investigation) Pune, the search could not have taken place.
The authorities to whom powers are available are already noted
by us above. The Assistant Director is not mentioned therein.
Here, the authority which does not have that power is claimed to
have conducted discreet enquiries and prepared a satisfaction
note. That note styled as satisfaction note dated 08.06.2009 is
contained in Satisfaction Note file. It is signed by the Assistant
Director of Income Tax (Investigation), Nagpur. Next document
is satisfaction note which is submitted by the Additional Director
of Income Tax (Investigation), Nagpur, on 08.06.2009 to the
Director of Income Tax (Investigation). This note is also dated
08.06.2009. The said note along with note of Assistant Director
then appears to have been looked into by the Director of Income
Tax (Investigation) and there is a separate note running into two
pages signed by said authority on 09.06.2009 at the end of
second page. Next page after this note, in fact an independent
page, is containing a sentence requesting the Director General of
Income Tax (Investigation), Pune, to peruse satisfaction note
(earlier two pages) and grant administrative approval for search
and seizure action. Below it is signature of Director of Income
Tax (Investigation), Nagpur and thereafter a hand written note
of Director General of Income Tax, Pune, approving the same. It
is, therefore, obvious that last and final note in this respect is by
the Director General of Income Tax (Investigation), Pune, on
11.06.2009. Had this authority refused to grant approval, the
matter could not have proceeded further. Hence, this hand
written note dated 11.06.2009 appears to be the only relevant
document. But then the affidavit reply filed on 22.09.2010 by
the respondents show preparation of separate notes by the
Additional Director of Income Tax and by the Assistant Director
of Income Tax after recording satisfaction and its approval by the
Director of Income Tax, again a separate note. It is claimed that
the Director of Income Tax also recorded his personal satisfaction
and it culminated in issuance of search and seizure warrants.
This is reiterated by the respondents in para 6 of their additional
affidavit dated 15.11.2010.
15. It is, therefore, obvious hat the authority which has
given its final nod and in absence of which the action under
Section 132(1) was not possible, is not claimed to have recorded
personal satisfaction in this respect. Its handwritten note does
not record any such satisfaction. Thus "reason to believe" being
pressed into service is not of that authority. This is final
authority who has stated that it has gone through the note and it
has also perused the satisfaction note of Director of Income Tax
(Investigation). It has recorded that the "Director of Income Tax
(Investigation), Nagpur, has got adequate information to arrive
at his satisfaction that search and seizure action is required to be
undertaken". Accordingly, the proposal of the Director of Income
Tax (Investigation), Nagpur, to take action under Section 132(1)
is approved by the Director General of Income Tax
(Investigation), Pune. Thus, hand written note of Director
General of Income Tax dated 11.06.2009 appears as last
unnumbered page. The note of Director of Income Tax
(Investigation) dated 09.06.2009 runs into two pages and if it is
perused, there is nothing to show that the same was a proposal
to be submitted to the Director General of Income Tax, Pune.
The last page i.e. after page 2 which contains a sentence already
noted above, again bears signature of the Director of Income Tax,
Nagpur and then it is marked to the Director General of Income
Tax (Investigation), Pune. Thus, in the absence of this last page
also, note of Director of Income Tax (Investigation), Nagpur,
appears to be a complete document. But then it does not itself
recommend any action. This note also does not contain any page
numbers.
16. The Satisfaction note file produced before us contains
a note running into seven pages by the Assistant Director of
Income Tax, a note running into three pages prepared by the
Additional Director (Investigation), Nagpur, addressed to the
Director of Income Tax (Investigation), Nagpur and then the last
note mentioned above by the Director of Income Tax, Nagpur,
dated 09.06.2009. The hand written portion below endorsement
by the Director of Income Tax, Nagpur, put by the Director
General of Income Tax (Investigation), Pune on 11.06.2009 can
be stated to be fourth note by the Director General of Income
Tax. The note dated 08.06.2009 by the Assistant Director of
Income Tax is stated to be satisfaction note. Similarly, the
document dated 08.06.2009 prepared by the Additional Director
(Investigation), Nagpur, has also got heading satisfaction note.
The other two documents do not show any such specific heading.
All these four documents are independent and page number
upon it has been put in hand. The documents, therefore, are not
from a file after perusal of which one can easily gather that
particular note cold not have been prepared on some other date
because of chronology and number of running pages in it. Here,
all four documents are independent of each other and can be
easily substituted.
17. The discreet enquiries are claimed to have been
undertaken by the Assistant Director of Income Tax
(Investigation), Nagpur. The note running into seven pages
prepared by the said officer prepared in consultation with the
Additional Director (Investigation), Nagpur, does not show any
date, time or place of any such discreet enquiry or even does not
name the person with whom it was made. This satisfaction note
mentions high margins up to 40% gross profit and less profit
margins. It is noted that gross profit ratio for the financial year
2005-06 was 33%, for 2006-07 it was 25% and for the year
2007-08 it was 27%. It is also noted that books show steep fall
in gross profit even though turn over of the company increased
by leaps and bound. The next sentence is "it is learnt that
substantial portion of gross sales of the company is not recorded
in the books of company. It is also gathered that the company is
over invoicing its purchases in order to lower its taxable profits".
There is also reference to liberal tax structure of Hong Kong and
to over invoicing of imports which is easily possible there. Huge
deductions from the taxable profits from Section 80IB, dubious
nature of international transactions and in balance sheet of the
company, huge amounts under bank reconciliation account are
also mentioned. It is stated that claim of manufacturing for an
international brand appears to be false as there is no such
international company or brand. It is also stated that the enquiry
with the Director General (International Taxation) also
confirmed that there was no such foreign company filing return
in respect of its transactions/ operations in India. It is stated
that therefore it was crucial to uncover this disguised nexus
between petitioner No. 1 - Company and its associated company
registered at Hong Kong. Thereafter reference is to lavish life
style. Lastly, language of Section 132(1) is inserted by this
Assistant Director. It is at once clear that dubious nature of
transactions and other material noted above has not been
pressed into service in reply affidavit filed before this Court. The
department has not permitted the petitioners to inspect this
satisfaction note, however, this note does not disclose any
enquiry with any Labour contractor or any specific instance of
over invoicing. The entire material already available on record,
therefore, has been used to draw inferences by said Assistant
Director of Income Tax. This authority has also not filed any
reply affidavit before this Court.
18. The next satisfaction note also dated 08.06.2009 is by
the Additional Director (Investigation), Nagpur. It is not in
dispute that he has necessary authority under Section 132(1) of
the Act to form his belief thereunder. However, this officer
instead of honouring that statutory obligation, has prepared the
satisfaction note and placed it before the Director of Income Tax
(Investigation), Nagpur. This officer has mentioned that it is suo
motu exercise without the aid of informant and by collecting
marketing information, conducing discreet enquiries in the
group. No market information finds mention anywhere and no
discreet enquiries conducted in the group are also disclosed. On
the contrary, this authority requests the Director of Income Tax
(Investigation) to peruse the note of the Assistant Director
(Investigation) "in the pre-pages". The consideration of this note
of the Director of Income Tax (Investigation), Nagpur, is on
independent two pages. This consideration mentions that
assessee was suppressing the substantial portion of income.
However, as already noted, no such secret enquiries or outcome
thereof is apparent from any of the earlier notes. This officer has
again mentioned "notes on pre-pages have been perused". This
note also does not contain any reference to any labour
contractor.
19. The mode and manner in which all these notes are
prepared, therefore, show the absence of any relevant material
with authorities which would have enabled them to have "a
reason to believe" that action under Section 132(1) of the Act
was essential. No new material as such has been disclosed
anywhere. No document or report of alleged discreet inquiry
forms part of these notes. It is apparent that the entire exercise
has been undertaken only because of the high growth noted by
the respondents. The material like high growth, high profit
margins, the contention in respect of or doubt about
international brand and details thereof is available with the
authorities. It is not their case that they had obtained any other
information which was suppressed by the petitioners from them.
The effort, therefore, was to find out some material to support
the doubt entertained by the department. Whether such doubt
entertained can be said to be bonafide is itself a moot question.
The fact that authorities competent under Section 132(1) of the
Act have avoided to shoulder the responsibility of taking decision
, have unnecessarily placed the note before the higher
authorities, clearly show that the exercise has not been
undertaken as required by Section 132(1) of the Act in
transparent mode. The satisfaction note contemplated therein
must be based upon contemporaneous material, information
becoming available to the competent authorities prescribed in
that Section. Its availability and nature as also time factor must
also be ascertainable from relevant records containing such
satisfaction note. Loose satisfaction notes as produced before us,
placed by authorities before each other cannot meet these
requirements & said provision. The necessary live link and
availability of relevant material for considering it, has not been
brought before this Court. We, therefore, find substance in the
contention of the petitioners that it was a roving exercise.
20. In view of this discussion, the petition is allowed.
The authorization issued under Section 132(1) of the Income Tax
Act, 1961, is found bad and unsustainable. Consequently,
exercise of search undertaken in pursuance thereof from
19.06.2009 to 21.07.2009 is illegal. Notice action under Section
153A of the Act, issued on 16.02.2010 is also, therefore, bad in
law. The same are accordingly stand quashed and set aside. Rule
is made absolutely accordingly. However, in the facts and
circumstances of the case, there shall be no order as to costs.
JUDGE JUDGE
*******
*GS.
