PCIT (Investigation) & Ors Vs Laljibhai Kanjibhai Mandalia (Supreme Court)
Date-13th July,2022

Sub-Whether the sufficiency or inadequacy of the reasons to believe recorded can be gone into while considering the validity of an act of authorization to conduct search and seizure- Supreme Court lays down principles on which the Courts can interfere when action is taken u/s 132 to conduct search and seizure?

The highest court of the Country in this case was considering SLP of the department when the high court quashed the search proceedings on the basis that the conditions for issuance of warrant of authorisation as per the provisions of Section 132 of the Income-tax Act,1961 did not exist. The basis for search warrant was an amount of loan of Rs 10 crores which was given by the assessee to a Company which was running Casino and other gambling activities in the Goa, was nothing but an act of entry operator. The period coincided with demonetisation period when high value notes worth Rs 13.79 crores were deposited in two bank accounts in Goa. The revenue argued that the jurisdiction of the Courts was limited to examine the existence of the reasons and not the legality of the same. The Court after referring to the decisions in the case of S. Narayanappa ,Seth Brothers, Lakhmani Mewal das, Phool Chand Bajrang lal etc held that reasons to believe are not the final conclusions which the revenue would arrive at while framing block assessment in terms of Chapter XIV-B of the Act. The test to consider the justiciability of belief is whether such reasons are totally irrelevant or whimsical. Finally relying on the decision in the case of Tata Cellular on the scope of judicial review under article 226 applied the Wednesbury principle to hold that the sufficiency or inadequacy of the reasons to believe recorded cannot be gone into while considering the validity of an act of authorization to conduct search and seizure. The belief recorded alone is justiciable but only while keeping in view the Wednesbury Principle of Reasonableness. Thus the department’s SLP was allowed.

This decision will have repercussions in the context of general writ under Article 226 as well as writ in the context of reassessment proceedings

Ramesh Patodia
13-07-2022