Supreme Court

Principal Director of Income Tax (Investigation) and Ors. Vs. Laljibhai Kanjibhai Mandalia

MANU/SC/0880/2022

13.07.2022

Direct Taxation

Sufficiency or inadequacy of the ‘reasons to believe’ cannot be gone into while considering the validity of an ‘act of authorization’ to conduct search and seizure

The challenge in the present appeal is to an order passed by the High Court whereby the warrant of authorization issued by the Appellant under Section 132 of the Income Tax Act, 19612 was quashed. Consequently, all actions taken pursuant to such warrant of authorization were ordered to be rendered invalid. It is submitted that, the High Court has completely misdirected itself in quashing the authorization as the jurisdiction of the High Court while exercising judicial review is very limited.

As per the Revenue, Clauses (b) and (c) of Section 132(1) were satisfied before the warrant of authorization was approved. The satisfaction note was recorded in terms of an Assessee whose jurisdictional assessing officer was in the State of the West Bengal. The notice to the Assessee to appear before the Income Tax authorities in the State of West Bengal would have been sufficient notice of the material against the Company and its group, to defeat the entire attempt to unearth the cobweb of the accounts by the Company and its associates.

Even Clause (c) of Section 132(1) is satisfied. The Assessee was in possession of Rs. 10 crores which was advanced as loan to the Company. The Revenue wishes to find out as to whether such amount is an undisclosed income which would include the sources from which such amount of Rs. 10 crores was advanced as loan to a totally stranger person, unconnected with either the affairs of Assessee or any other link, to justify as to how a person in Ahmedabad has advanced Rs. 10 crores to the Company situated at Kolkata in West Bengal for the purpose of investment in Goa. The Revenue may fail or succeed but that would not be a reason to interfere with the search and seizure operations at the threshold, denying an opportunity to the Revenue to unravel the mystery surrounding the investment made by the Assessee.

The formation of opinion and the reasons to believe recorded is not a judicial or quasi-judicial function but administrative in character. The information must be in possession of the authorised 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. 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 appeal but merely reviews the manner in which the decision was made. The Court shall not examine the sufficiency or adequacy thereof.

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. High Court was not justified in setting aside the authorization of search. The order passed by the High Court is set aside. Appeal allowed.

Tags : Authorization Search Adequacy

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