|CORAM:||Pinaki Chandra Ghose J, Ranjan Gogoi J|
|CATCH WORDS:||satisfaction, search and seizure|
|DATE:||May 13, 2015 (Date of pronouncement)|
|DATE:||May 19, 2015 (Date of publication)|
|AY:||2004-05 to 2009-10|
|FILE:||Click here to download the file in pdf format|
|S. 132: While the revenue has to record reasons to show that “satisfaction” for the search was proper and the same is justiciable, the assessee is not entitled (till the start of the assessment proceedings) to inspect the documents or the reasons as it would be counter-productive and confer an unfair advantage on the assessee|
The principles that can be deduced from the decisions of this Court ITO vs. Seth Brothers 1969 (74) ITR 836 (SC) and Pooran Mal vs. Director of Inspection (Investigation) (1974) 93 ITR 505 (SC) may be summarized as follows:
(i) The authority must have information in its possession on the basis of which a reasonable belief can be founded that-
(a) the concerned person has omitted or failed to produce books of account or other documents for production of which summons or notice had been issued
such person will not produce such books of account or other documents even if summons or notice is issued to him.
(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.
(ii) Such information must be in possession of the authorized official before the opinion is formed.
(iii) There must be application of mind to the material and the formation of opinion must be honest and bonafide.
Consideration of any extraneous or irrelevant material will vitiate the belief/satisfaction.
(iv) Though Rule 112(2) of the Income Tax Rules which specifically prescribed the necessity of recording of reasons before issuing a warrant of authorization had been repealed on and from 1st October, 1975 the reasons for the belief found should be recorded.
(v) The reasons, however, need not be communicated to the person against whom the warrant is issued at that stage.
(vi) 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.
(b) The finding of the High Court that as the satisfaction recorded is justiciable, the documents pertaining to such satisfaction can be allowed to be inspected by the assessee is plainly incorrect. The necessity of recording of reasons, despite the amendment of Rule 112 (2) with effect from 1st October, 1975, has been repeatedly stressed upon by this Court so as to ensure accountability and responsibility in the decision making process. The necessity of recording of reasons also acts as a cushion in the event of a legal challenge being made to the satisfaction reached. Reasons enable a proper judicial assessment of the decision taken by the Revenue. However, the above, by itself, would not confer in the assessee a right of inspection of the documents or to a communication of the reasons for the belief at the stage of issuing of the authorization. Any such view would be counter productive of the entire exercise contemplated by Section 132 of the Act. It is only at the stage of commencement of the assessment proceedings after completion of the search and seizure, if any, that the requisite material may have to be disclosed to the assessee.
(b) The High Court committed a serious error in reproducing in great details the contents of the satisfaction note (s) containing the reasons for the satisfaction arrived at by the authorities under the Act. We have already indicated the time and stage at which the reasons recorded may be required to be brought to the notice of the assessee. In the light of the above, we cannot approve of the aforesaid part of the exercise undertaken by the High Court which we will understand to be highly premature; having the potential of conferring an undue advantage to the assessee thereby frustrating the endeavor of the revenue, even if the High Court is eventually not to intervene in favour of the assessee.
(c) The view expressed by the High Court with regard to the satisfaction note(s); the alleged absence of a final decision to issue the authorization at the level of the Additional Director and the Director; the absence of any satisfaction of the Director General who, according to the High Court took the decision to issue the authorization are all seriously flawed.
(d) The different steps in the decision making process is lucidly laid down in the instructions contained in the search and seizure manual published by the department, relevant part of which has been extracted above. The steps delineated have been scrupulously followed.