Ameeta Mehra vs. ADIT (Delhi High Court)

The Delhi High Court had to consider two important questions of law:

(a) Was the search conducted on the Locker No. 4979 by issuing an authorization dated 27th February, 2012 under Section 132 of the Act valid?

(b) Was there any justification for issuance of the impugned notice dated 22nd October, 2012 to the Petitioner under Section 153 A of the Act for the AYs 2006-2007 to 2011-2012?

HELD by the High Court:

(i) In one sense both the above questions are interrelated. This is because once a search is conducted under Section 132 of the Act the person in whose name the search authorisation is issued should be served with a notice under Section 153-A of the Act. This is a well settled legal position as explained in a large number of cases including CIT v. Kabul Chawla (2016) 380 ITR 573. Therefore, if question (a) is answered in the negative, then question (b) has to be also answered in then negative. On the other hand, if the answer to question (a) is in the affirmative, the answer to question (b) would be likewise.

(ii) The Satisfaction Note preceding the issuance of the search authorisation has been summarized earlier. The law in relation to searches under Section 132 of the Act has been explained in a large number of decisions of the Supreme Court and the High Courts. The jurisdictional facts that have to be established before a search under Section 132 (1) of the Act can be authorised are that (i) the authority issuing the authorisation is in possession of some credible information, other than surmises and conjectures (ii) that the authority has reason to believe that the conditions stipulated in clauses (a), (b) and (c) of Section 132 (1) qua the person searched exist; and (iii) the said information has nexus to such belief.

(iii) The Courts have laid emphasis on the mandatory nature of the above requirement to be fulfilled under Section 132 (1) of the Act. The Supreme Court in Income Tax Officer v. Seth Brothers (1969) 74 ITR 836 (SC) explained:

“Since by the exercise of the power a serious invasion is made upon the rights, privacy and freedom of the tax-payer, the power must be exercised strictly in accordance with the law and only for the purposes for which the law authorizes it to be exercised. If the action of the Officer issuing the authorization, or of the designated Officer is challenged the Officer concerned must satisfy the Court about the regularity of his action. If the action is maliciously taken or power under the section is exercised for a collateral purpose, it is liable to be struck down by the Court. If the conditions for exercise of the power are not satisfied the proceeding is liable to be quashed. But where power is exercised bona fide, and in furtherance of the statutory duties of the tax officers any error of judgment on the part of the Officers will not vitiate the exercise of the power. Where the Commissioner entertains the requisite belief and for reasons recorded by him authorises a designated Officer to enter and search premises for books of account and documents relevant to or useful for any proceeding under the Act, the Court in a petition by an aggrieved person cannot be asked to substitute its own opinion whether an order authorising search should have been issued. Again, any irregularity in the course of entry, search and seizure committed by the Officer acting in pursuance of the authorisation will not be sufficient to vitiate the action taken, provided the Officer has in executing the authorisation acted bona fide.”

(iv) The need for there to be, prior to issuance of the authorisation for search, of some credible information which leads to formation of a reason to believe that the conditions stipulated in Section 132 (1) (a) to (c) exists is the running theme of several decisions. In CIT v. Vindhya Metal Corporation (1997) 224 ITR 614 it was explained by the Supreme Court that:

“Mere unexplained possession of the amount, without anything more, could hardly be said to constitute information which could be treated as sufficient by a reasonable person, leading to an inference that it was income which would not be disclosed by the person in possession for the purpose of the Act.”

(v) In Smt. Kavita Agarwal v. Director of Income Tax (2003) ITR 472 (All) the search of the premises of the Petitioner’s husband and his family resulted in the finding of keys to three lockers one of which stood in the couple’s joint names. The jewellery found in that specific locker was valued at Rs.6,28,861. Yet, the Court was not prepared to accept that this by itself satisfied the requirement of the law. It held:

“The law is well settled that a warrant of search and seizure under Section 132(1) can only be issued on the basis of some material or information on which the Commissioner/Director has reason to believe that any person is in possession of money, jewellery or other valuable articles representing wholly or partly income or property which has not been or would not be disclosed, under the IT Act. In the present case the respondents have not disclosed what was the material or information on the basis of which the Director/Commissioner entertained the belief that the lockers contained valuable jewellery or other articles representing undisclosed income. It is well settled that the satisfaction of the authorities under Section 132 must be on the basis of relevant material or information. The word used in Section 132(1) are “reason to believe” and not “reason to suspect”. In the counter-affidavit it has been specifically stated in para 18 that the authorized officer had reason to suspect and not reason to believe.”

(vi) In Ajit Jain v. Union of India (2000) 242 ITR 302 (Del), the Petitioner was the managing Director of a company in the business of importing PU synthetic linings and was a regular income-tax Assessee. For clearing some imported goods that had arrived in Chennai he went there with cash of Rs. 8.6 lakhs which he intended to use for payment of the customs duty. The CBI conducted a raid and recovered the said sum from his hotel room in Chennai. This information was passed on by the CBI to the income tax authorities leading to the issuance of a search warrant under Section 132 (1) of the Act. This Court agreed with the Petitioner that: “The intimation simpliciter by the CBI that the money was found in the possession of the petitioner, which according to the CBI was undisclosed, without something more, did not constitute information within the meaning of Section 132 so as to induce a belief that the cash represented the petitioner’s income which had not been or would not be disclosed. The condition precedent for the exercise of the power under Section 132 was lacking in the present case and authorisation issued by Respondent No.4 and the consequent action of the search and seizure of the said amount was without jurisdiction.”

(vii) The above decision of this Court in the Ajit Jain (supra) was affirmed by the Supreme Court by the dismissal of the Revenue’s Special Leave Petition by an order reported as Union of India v. Ajit Jain (2003) 260 ITR 280 (SC).

(viii) Turning to the case on hand, in the first place there is nothing in the Satisfaction Note to indicate that there was any credible information available with the Department that the Petitioner belonged to the “Nanda Group” who were being searched. It must be recalled that the Petitioner is a regular Assessee. The information needed to trigger the search action against the Petitioner had to be such that would show that she is linked in some manner to the business or other activities of the “Nanda Group”. Secondly such information had to have a nexus to the belief that could be reasonably formed that she is in possession of any money, jewellery or valuable representing her income which has not been or would not be disclosed by her. The mere fact that the key to the locker which she was operating was found during the search of her uncle Mr Suresh Nanda would not constitute ‘information’ leading to the reasonable belief that the locker would contain jewellery, or other valuable articles which she would not have disclosed in her returns. There obviously had to be something more. Therefore the jurisdictional pre-condition justifying the invocation of the power of search under Section 132 (1) of the Act against the Petitioner, was not fulfilled in the present case.

(ix) The counter affidavit filed by the Respondents suggests that they were not treating the Petitioner as part of the Nanda Group. In such event, there was no basis at all in proceeding to issue a search authorisation in the name of the Petitioner since the locker key was found during the search of the Nanda Group. Mr. Ruchir Bhatia, learned counsel appearing for the Revenue, however, urged that this Court should not go by what is stated in the counter affidavit but only by what is stated in the Satisfaction Note. Even then, the Satisfaction Note does not throw any further light on how the authority could form a reasonable belief that the Petitioner was connected with the Nanda Group and that her locker would contain money, jewellery etc that constituted her undisclosed income.

(x) Mr. Bhatia repeatedly urged that the mere fact that nothing was found in the locker, would not for that reason alone, render the search illegal. This proposition is unexceptionable and to be fair to Mr M. S. Syali, learned Senior counsel for the Petitioner, he did not contest it. In fact the legal position in this regard stands settled in Income Tax Officer v. Seth Brothers (supra). However, the issue here is not what happened during or after the search but the absence of the jurisdictional pre-condition justifying it. In the absence of any credible information that could lead to the reasonable belief that the Petitioner was in possession of money, jewellery etc that constituted income that she has not or would not have disclosed, no search warrant qua her locker could have been issued. Further, the Satisfaction Note had to reflect the basis on which the reasonable belief was entertained. The one shown to the Court fails on this score.

(xi) The Respondent’s search of the Petitioner was a classic case of a “false start”. It was without legal basis. What were the options available to the Respondents when they came across the locker key when they searched Mr Suresh Nanda? The first step was to seal the locker. In fact they did so by issuing an order under Section 132 (3) of the Act. However, instead of immediately jumping to conclusions against the Petitioner, and before actually searching the locker by lifting the restraint order, the Respondents ought to have investigated further and gathered some credible information that could lead them to form a reasonable belief that (i) she was linked to the activities of the Nanda Group and (ii) her locker might contain money, jewellery etc that constituted undisclosed income. Only then was a search warrant qua her justified. Alternatively, they may have opted to proceed against her under Section 153 C of the Act. That too would have required two Satisfaction Notes: one by the AO of the searched person followed by one by her own AO. However, in the present case, the Respondents did not opt for the alternative.

(xii) For the aforementioned reasons, question (a) is answered in negative. It is held that search conducted on Locker No. 4979 by issuing an authorization dated 27th February, 2012 under Section 132 of the Act against the Petitioner was invalid. The said authorisation is hereby quashed.

(xiii) Consequently, question (b) is also answered in the negative by holding that there was no legal justification for the issuance of the impugned notice dated 22nd October, 2012 to the Petitioner under Section 153 A of the Act for the AYs 2006-2007 to 2011-2012. The said notice is also hereby quashed. All consequential actions of the Respondents are hereby declared invalid.