IT : Where search proceedings were initiated against assessee as he was carrying gold ornaments belonging to HUF, in view of fact that search proceedings in respect of said gold ornaments had been quashed in case of HUF itself, proceedings so initiated against assessee on basis of same material were also liable to be quashed
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[2013] 35 taxmann.com 508 (Gujarat)
HIGH COURT OF GUJARAT
Dipen Laljibhai Mandalia
v.
Director General of Income-tax*
AKIL KURESHI AND MS. SONIA GOKANI, JJ.
SPECIAL CIVIL APPLICATION NOS. 16855 TO 16857 OF 2012
FEBRUARY 11, 2013
Section 132 of the Income-tax Act, 1961 - Search and Seizure - General [Validity of search proceedings] - Assessee was travelling on a flight carrying sizeable quantity of gold ornaments - Assessee's case was that he was carrying such ornaments for showing them to retail outlet owners hoping to get bulk orders - On basis of information received from security officials at airport, revenue authorities conducted inquiries with assessee and company to which he belonged - Revenue authorities also carried out inquiries with Karta of HUF who according to assessee was owner of gold which was leased to them under certain conditions - On basis of satisfaction note, search and seizure operations were carried out against HUF - On petition filed by HUF, High Court quashed search and seizure operations - Whether since search proceedings in case of HUF were already quashed, said proceedings on very similar grounds would not be sustainable in assessee's case as well - Held, yes [Paras 5 & 6] [In favour of assessee]
P.A. Mehd for the Petitioner. Mrs. Mauna M. Bhatt for the Respondent.
ORDER
Akil Kureshi, J. - Considering the disputes involved, we have heard learned counsel for the parties for final disposal of the petition.
2. The petitioners have challenged the validity of search and seizure operations initiated against them by Revenue in connection with information received from the security personnel of Ahmedabad Airport on 25-7-2012. It appears that some of the members of a group of family were travelling to Chennai on a flight from Ahmedabad. They were found to be carrying sizeable quantity of gold ornaments valued approximately at Rs.6.42 crores. Their case is that they were carrying such ornaments for showing them to retail outlet owners at Chennai hoping to get bulk orders in the process. Revenue authorities alerted by security officials at airport though did not prevent the passengers from boarding the flight, however, when the flight landed at Chennai, all passengers were detained. Their statements were recorded. Simultaneously inquiries were also conducted at the business premises of the company. Statements of various persons were recorded. Authorities also carried out inquiries with Karta of HUF at Neemuch, who according to the petitioners was the owner of gold which was leased to the petitioners under certain conditions. On the basis of satisfaction note recorded on 26-7-2012, search and seizure operations were carried out against the company and the persons who were travelling on the said date from Ahmedabad to Chennai.
3. Such search and seizure operations were challenged before this Court by the affected persons in Special Civil Application No.11593/2012 and connected petitions. Such petitions were allowed by judgment dated 30-10-2012. Search and seizure operations were quashed.
4. In the present round of litigation similar search and seizure operations have been authorised against the son of the Director of the company and two passengers who had accompanied the Director from Ahmedabad to Chennai on 25-7-2012. In the present group of petitions such fresh operations by the department are called in question. Since we had already taken a view with respect to the previous search and seizure action, we had requested the learned counsel for the Revenue to produce before us the basis for authorising the present search and seizure operations. He had supplied necessary documents leading to ultimate recording of the satisfaction and authorisation of the search. We have perused the same. The grounds on which the authority formed an opinion that search was necessary reads as under :
"The factual report on the survey proceedings was faxed to Addl. DIT(Inv.) Chennai on 26/07/12 at about 1:00A.M. Subsequently a warrant u/s132(1) of the Act was executed and the jewellery found from the possession of Shri Laljibhai Soni was seized. The report of Director of Income- tax (Inv.), Chennai was received on 27/07/2012 at 14:39 by FAX.
From the course of all the above mentioned proceedings the following discrepancies can be observed :
| 1. | The assessee failed to explain the shortage of the physical stock of gold and cash. The assessee did not give any details as to where the extra cash of Rs. 74,19,152 and gold bullion of 5,386.156 gm was kept. | |
| 2. | The assessee has not maintained the item wise details in his stock register. Hence it is difficult to verify whether the jewellery found from the possession of Shri Laljibhai Soni, was the same jewellery as reflected in the stock register of the company LKS Bullions(Import and Export) Pvt. Ltd. | |
| 3. | The discovery of the original lease agreement from the possession of the lessee and not the lessor is quite intriguing because normally the original lease agreement should be with the lessor and not the lessee who has purportedly received such Gold on lease. | |
| 4. | There was no evidence whatsoever to say that he leased gold is converted into gold jewellery found at the Chennai Airport. The verification carried with some of the Karigars, who made jewellery for the assessee, also revealed that no itemwise details of the jewellery is maintained by the Karigar in respect of the jewellery work done for the assessee. | |
| 5. | Further it was claimed that whole of the jewellery was carried as a sample to show to prospective customers. This is highly unlikely that such a huge quantity of 24 kg. of jewellery is brought as samples only. | |
| 6. | In addition, the persons could not tell whom (customers) were they planning to meet in Chennai. No evidence was available for that. | |
| 7. | In view of the above it is clear that the books of account maintained by the company M/s. LKS Bullions (Import and Export) Pvt. Ltd. are not reliable. The lease agreement discovered from the business premises of the company also appears to be a fabricated paper and the leases transaction is also bogus one. The said document has been maintained only to give a cover of genuineness to the suspicious entry through which 25Kg. of Gold has been shown to be received on 14/06/2012. |
In view of above I am satisfied that the persons mentioned above are in possession of bullion and jewellery and other valuable articles or things and the said bullion and jewellery represents either wholly or partially income of the persons which may be unaccounted. It is requested that warrant of authorisation under section 132(1) may kindly be issued in respect of the following premises..."
5. We may notice that in our previous judgment dated 30-10-2012, we had dealt with very similar grounds forming the foundation of search operations. We had by our detailed judgment held that same would not justify search authorisation. Without repeating similar reasonings, we may reproduce our findings arrived at in the previous judgment which reads as under :
"11. Now, adverting to the facts of the case, we find that the sequence of events is not seriously in dispute. To briefly summarise, petitioner No.2 along with co-passengers carried gold ornaments of more than 23 kilos by air from Ahmedabad to Chennai. The fact that he was carrying such ornaments was detected by the Income Tax Authorities at Ahmedabad Airport itself. The passengers were allowed to board the flight. At Chennai, the Income Tax Authorities recorded the statements of petitioner No.2 and other co-passengers. Enquiries were made at the business premises of petitioner No.1 at Ahmedabad and with the Karta of MG-HUF at Neemuch. After collecting materials, satisfaction note was prepared by the competent authority which was duly approved by the two higher authorities before search and seizure operations were authorized. Pursuant to such authorization, the entire quantity of gold ornaments was seized under panchnama dated 26th July 2012.
12. Both sides have presented various factors for and against their cases. In particular, learned counsel for the Revenue has highlighted what, according to him, were the material contradictions and anomalies in the statements of various persons as also in the lease deed entered into between petitioner No.1 and MG-HUF on 14th June 2012 under which allegedly 25 kilos of gold was handed over by MG-HUF to petitioner No.1 Company. He also placed reliance on other factors.
13. To our mind, it is not necessary to deal with such contentions and counter contentions. We would prefer to focus our attention on the factors recorded by the Deputy Director of Income Tax, Chennai in his satisfaction note dated 26-7-2012. It cannot be disputed and it has not been disputed that any material collected subsequent to recording of satisfaction note and issuance of authorization of search and seizure cannot be pressed in service for supporting authorization to search. Further, the different factors and discrepancies sought to be highlighted by the Department, through affidavits filed before us and through oral submissions made by the counsel also independently would be of no consequence unless and until the genesis of such discrepancies are found in the satisfaction note. It may be to explain or expand particular factors already noted by the competent officer in his satisfaction note that such factors can be highlighted before us. In short, we have focused our attention to the different aspects noted by the Deputy Director of Income Tax in his satisfaction note dated 26th July 2012 to ascertain whether it can be stated that the requirements of section 132(1)(c) of the Act are satisfied. We may recall that sub-section (1) of section 132 of the Act empowers the officers mentioned therein to authorize an appropriate officer to carry out search and seizure operations if in consequence of information in his possession he has reason to believe that any of the requirements contained in clauses (a) to (c) of sub-section (1) of section 132 are satisfied. Since we are concerned with clause (c) of sub-section (1) of section 132, we may reproduce the same as under :
'132. (1) Where the Director General or Director or the Chief Commissioner or Commissioner or Additional Director or Additional Commissioner or Joint Director or Joint commissioner in consequence of information in his possession has reason to believe that --
| (a) | ... | |
| (b) | ... | |
| (c) | any person is in possession of any money, bullion, jewellery or other valuable article or thing and such money, bullion, jewellery or other valuable article or thing represents either wholly or partly income or property which has not been or would not be disclosed for the purposes of the Indian Income Tax Act, 1922 (11 of 1922) or this Court (hereinafter in this section referred to as the undisclosed income or property'. |
For the purpose of exercising powers under sub-section (1) of section 132 of the Act, therefore, the competent authority had to have in consequence of information in his possession, reason to believe that the person in possession of jewellery represents either wholly or partly income or property which has not been or would not be disclosed for the purpose of the Act. In the satisfaction note, the Deputy Director of Income Tax, referred to the background under which the passengers who had landed at Chennai came to be interrogated and their statements were recorded leading to initiation of survey operations under section 133A of the Act at the business premise of petitioner No.1 Company, during which statements of Shri Dipen Soni, son of petitioner No.2 was recorded. Such statements reveal that the gold was received from MG-HUF of Neemuch under an agreement between MG-HUF and petitioner No.1 Company.
14. It is recorded that such lease agreement was found in possession of the lessee instead of the lessor. Further, that there was no security for leasing out 25 kilos of gold "which makes transaction suspicious". It is further recorded that there was no material evidence to prove that the jewelery in question had been actually manufactured from the bullion received from MG-HUF. He recorded that it is highly unlikely that such large quantity of gold jewellery was brought only as samples. The passengers could not give details of customers they were like to meet in Chennai. He further highlighted that it is not possible to establish co-relation between the gold allegedly received from MG-HUF and the gold used for preparation of the ornaments which was found at Chennai Airport. On the basis of above observations, he recorded that "it is clear that the persons do not have an intention to disclose the jewellery of 23915 grams found in the Airport to the Department". On the basis of such conclusion, he suggested that the Director of Income Tax, if satisfied to issue a warrant of authorization for seizing the same by conducting a search and seizure operation under section 132 of the Act.
15. Such satisfaction note was placed before the Additional Director of Income Tax who approved the suggestion noting that in view of the report received from the Additional DIT Unit II, Ahmedabad and the contents of the note of the Deputy Director, Chennai, it is clear that the jewellery found with Shri L.K. Soni at Chennai represents unaccounted assets.
16. Such notes were placed before the Director of Income Tax, Chennai who recorded his reasons for issuance of warrant of authorization under section 132 of the Act. His reasons primarily were that the gold was leased without any security which is against the normal trade practice and human conduct. According to him, the lease transaction was, therefore, not to be considered as genuine. His other reason was that there was no co-relation between the gold used in preparation of the ornaments with that received allegedly by petitioner No.1 from MG-HUF.
17. To our mind, on the basis of the record and the reasons noted by the authority, it was not possible to come to the conclusion that the petitioners had not or would not have disclosed the jewellery for the purpose of the Act. We may recall that for authorization of search operations under section 132(1)(c) of the Act, it is required that the competent authority in consequence of the information in his possession has reason to believe that the jewellery, bullion, etc. which represents either wholly or partly income or property has not been or would not be disclosed for the purpose of the Act. The record shows that petitioner No.2 along with co-passengers was carrying gold ornaments along with the certificate issued by petitioner No.1 Company, that such gold ornaments were stock in trade of the Company, that such ornaments were being carried to Chennai and Kolkata for showing samples to the prospective customers. Detailed statement of petitioner No.2, one of the Directors of petitioner No.1 Company was recorded at Chennai itself. In such statement, he at the very outset, gave the version that 25 kilos of gold was received by petitioner No.1 Company from MG-HUF. Statements of various goldsmiths which were recorded by the Income Tax Authorities also supported the version of the petitioners. The records and the books of account maintained by petitioner No.1 Company also matched this version. Vouchers were maintained in detail evidencing the outgoing gold to different goldsmiths and the incoming of the duly prepared gold ornaments from such gold so distributed. Each time, 24 carat gold was shown to have been given, the ornaments were of 22 carat gold by adding necessary quantity of alloys. We have perused such documents. We find that the entries of gold distributed to various goldsmiths matched perfectly with the entries of gold ornaments received from such persons after adding alloys for conversion of gold from 24 carat to 22 carat. The so called discrepancies pointed out by the Revenue in such documents really do not exist. Respondents fail to notice that the gold ornaments would weight marginally more than the weight of gold from which they are made due to addition of alloys. They also failed to see that such increase in weight was uniform in all cases. Accounts were also maintained regarding labour charges to be paid to different agencies. It can therefore not be stated that there was sufficient information in possession of the Director of Income Tax to have reason to believe that such jewellery had not been or would not be disclosed for the purpose of the Act.
18. There were some discrepancies highlighted by the Department particularly with respect to the agreement dated 14th June 2012. It was argued that such agreement was found in possession of the petitioners and not in possession of the lessee. It was further argued that the co-relation between the gold actually used in preparation of the ornaments and the one which was available with MG-HUF could not be established.
19. To our mind, these factors would not be sufficient to clothe the authorities with the power to issue search authorization under section 132(1)(c) of the Act. Prima facie, the petitioners had pointed out that MG-HUF owned and possessed sizeable quantity of gold, part of such quantity had become subject of legal controversy and the Rajasthan High Court through a judgment dated 28-5-1997 had released such gold in favour of MG-HUF. Out of such quantity of gold, 25 kilos was leased out to the petitioners. The Department's doubt about the source of gold of MG-HUF, even if it is genuine, cannot cast any shadow on the question whether the petitioners would or would not have disclosed the same for the purpose of the Act. Further, the contention that the identity of the gold could not be established also, to our mind, is not a sufficient factor. Once the gold was, as claimed by the petitioners, received from MG-HUF and the same was distributed among different goldsmiths for preparation of ornaments, we fail to see how the exact identity of the gold or co-relation thereof could be maintained or established. It was pointed out by the petitioners that the gold received from MG-HUF was 24 carat purity. For preparation of the ornaments, the same had to be mixed with alloys and converted into 22 carat purity. In addition to expecting an unreasonable requirement of establishing the identity of the very same gold being used for preparation of ornaments, we also otherwise see no relevance for the purpose of authorization of search. When it was pointed out that the petitioners had maintained voluminous records right from the beginning and when such record was found from the premises of petitioner No.1 Company, immediately upon the survey operation being conducted, we do not see how the competent authority could form a reasonable belief that such gold jewellery had not been or would not be disclosed for the purpose of the Act.
20. We may notice that section 131 of the Act which pertains to the power regarding discovery, production of evidence, etc. gives wide powers to the Department. Under sub section (1) of section 131, various officers of the Income Tax have been, for the purpose of the Act, clothed with the powers as vested in a Court under the Code of Civil Procedure for discovery and inspection and enforcing attendance of any person including any officer of a banking company and examining him on oath, compelling production of books of account and other documents and issuing commissions. Under sub-section (1A) of section 131, the Director General or Director or Joint Director or Assistant Director or Deputy Director or the authorized officer referred to under sub-section (1) of section 132, if has reason to suspect that any income has been concealed or is likely to be concealed by any person or class of persons within his jurisdiction, then for the purpose of making any inquiry or investigation relating thereto, it would be competent for him to exercise powers conferred under sub-section (1) notwithstanding that no proceedings with respect to such person or class of persons are pending before him or any other Income Tax Authority.
21. It can be immediately noticed that under sub-section (1A) of section 131, the officers mentioned therein have very wide powers of discovery and inspection and enforcing attendance or compelling production of documents and issuing commissions for the purpose of making any inquiry or investigation even when no proceedings are pending before him, if he has reason to suspect that any income has been concealed or is likely to be concealed by any person or class of persons. Thus, under section 131 and in particular under sub-section (1A) thereof, mere suspicion that income is concealed or is likely to be concealed is sufficient to trigger the exercise of powers under section 131(1) for making any inquiry or investigation relating thereto. By contrast, search and seizure authorization under section 132(1) of the Act can be granted only on satisfaction that in consequence of information in possession of the competent authority has reason to believe that the circumstances mentioned in clauses (a) to (c) to sub-section (1) have arisen. In particular, clause (c) with which we are concerned, requires that the reason to believe should be that person in possession of the money, bullion, jewellery or other valuable article or thing which represents either wholly or partly income or property which has not been or would not be disclosed for the purpose of the Act. The onus placed on the competent authority to arrive at a satisfaction with respect to above factors thus is much greater than one required for exercise of powers under sub-section (1A) of section 131 of the Act.
22. In the case of L.R. Gupta v. Union of India, 194 ITR 32, a Division Bench of the Delhi High Court in connection with section 132(1) of the Act observed as under :
'The basis of the exercise of the jurisdiction under section 132(1) has to be the formation of a belief and the belief is to be formed on the basis of receipt of information by the authorising officer.
The expression "information" must be something more than a mere rumour or a gossip or a hunch. There must be some material which can be regarded as information which must exist on the file on the basis of which the authorising officer can have reason to believe that action under section 132 is called for for any of the reasons mentioned in clauses (a), (b) or (c). When the action of issuance of an authorization under section 132 is challenged in a Court, it will be open to the petitioner to contend that, on the facts and information disclosed, no reasonable person could have come to the conclusion that action under section 132 was called for. The opinion which has to be formed is subjective and, therefore, the jurisdiction of the Court to interfere is very limited. A Court will not act as an appellate authority and examine meticulously the information in order to decide for itself as to whether action under section 132 is called for. But the Court would be acting within its jurisdiction in seeing whether the Act of issuance of an authorisation under section 132 is arbitrary or mala fide or whether the satisfaction which is recorded is such which shows lack of application of mind of the appropriate authority. The reason to believe must be tangible in law and if the information or the reason has no nexus with the belief or there is no material or tangible information for the formation of the belief, then in such a case, action taken under section 132 would be regarded as bad in law.'
....
....
'Sub-clause (c) refers to money, bullion or jewellery or other valuable articles which, either wholly or partly, should have been income of an assessee which has not been disclosed for the purpose of the Act. The said sub-clause pertains only to movable and not immovable assets. Secondly, it pertains to those assets which, wholly or partly, represent what should have been his income. The expression income "which has not been, or would not be disclosed for the purposes of the Income-tax Act" would mean that income which is liable to tax but which the assessee has not returned in his income-tax return or made known to the Income-tax Department. The sub-clause itself refers to this as "undisclosed income or property". In our opinion, the words "undisclosed" in that context, must mean income which is hidden from the Department. Clause (c) would refer to cases where the assessee knows that the movable asset is income or represents income which is taxable but which asset is not disclosed to the Department for the purpose of taxation. Those assets must be or represent hidden or secreted funds or assets. Where, however, the existence of the money or asset is known to the Income-tax Department and where the case of the assessee is that the said money or valuable asset is not liable to be taxed, then in our opinion, the provisions of sub-clause (c) of section 132(1) would not be attracted. An assessee is under no obligation to disclose in his return of income all the moneys which are received by him which do not partake of the character of income or income liable to tax. If an assessee receives, admittedly, a gift from a relation or earns agricultural income which is not subject to tax, then he would not be liable to show receipt of that money in his income-tax return. Nondisclosure of the same would not attract the provisions of section 132(1)(c). It may be that the opinion of the assessee that the receipt of such amount is not taxable may be incorrect and, in law, the same may be taxable but where the Department is aware of the existence of such an asset or the receipt of such an income by the assessee, then the Department may be fully justified in issuing a notice under section 148 of the Act, but no action can be taken under section 132(1)(c). An authorisation under section 132(1) can be issued if there is a reasonable belief that the assessee does not want the Income-tax Department to know about the existence of such income or asset in an effort to escape assessment. Section 132(1)(c) has been incorporated in order to enable the Department to take physical possession of those movable properties or articles which are or represent undisclosed income or property. The words "undisclosed income" must mean income which is liable to be taxed under the provisions of the Income-tax Act but which has not been disclosed by an assessee in an effort to escape assessment. "Not disclosed" must mean the intention of the assessee to hide the existence of the income or the asset from the Income-tax Department while being aware that the same is rightly taxable.'
23. In the case Vindhya Metal Corpn. v. CIT 156 ITR 233 (All.), a Division Bench of the Allahabad High Court examined the case where the person was found in possession of cash of Rs.4,63,000/- while he was travelling by train. Such amount was seized by the Railway Police and the Commissioner of Income Tax was informed about it. Search and seizure operation was carried out. The High Court held that mere fact that the person who was in possession of large amount of cash and he did not have document regarding his ownership or that his name was not found in the list of income-tax assessee could not be treated as sufficient information leading to a reasonable mind to infer that the amount would not be disclosed for the purpose of the Act. It was observed that there was nothing before the Commissioner to suggest that the said amount, in fact, was wholly or in part, income of any person connected with the said person so as to induce a belief that if called upon, he would not have disclosed it for the purpose of the Act.
24. In the case of CIT v. Vindhya Metal Corporation, 224 ITR 614 (SC), the Apex Court upheld the decision of the Allahabad High Court in the case Vindhya Metal Corporation (supra).
25. In the case of Ajit Jain v. Union of India, 242 ITR 302 (Delhi), a Division Bench of the Delhi High Court quashed the search and seizure authorization observing that even assuming that the amount found from the person was not reflected in the books of account of the Company, mere possession of such amount by the petitioner could hardly be said to constitute information which could be treated as sufficient by a reasonable person. It is pointed out that such decision of the Delhi High Court came to be approved by the Supreme Court in the case of Union of India v.Ajit Jain, 260 ITR 80.
26. In the case of Dr. Mrs. Anita Sahai v. Director of Income Tax, 266 ITR 597 (All.), search and seizure operations were quashed observing that search and seizure can not be fishing expedition. Before search is authorized, the Director must on the relevant material have reason to believe that the assessee has not and would not have disclosed his income.
27. On the basis of the above decisions, it emerges that mere possession of money, bullion, jewellery or such valuable article or thing per-se would not be sufficient to enable the competent officer to form a belief that the same had not been or would not be disclosed for the purpose of the Act. What is required is some concrete material to enable a reasonable person to form such a belief. It is, of course, true that such belief is a matter of subjective satisfaction of the competent authority. Such subjective satisfaction, however, must be formed on the basis of the material on record and objective assessment of such material and cannot be on the basis of a mere suspicion or apprehension that the income had not been or would not be disclosed for the purpose of the Act.
28. The decisions referred to by the counsel for the Revenue were rendered in different fact situations. In the case of Neesa Leisure Ltd (supra) a Division Bench of this Court upheld the search operations when it was found that there was sufficient material enabling the competent authority to form such a belief. So also were the facts in case of Dipin G. Patel (supra) wherein, the Division Bench having perused the satisfaction note and further notes recorded by the higher Income Tax Authorities was of the opinion that the authorization was not based on isolated material that cash was found from the petitioner's premises. But such authorization was based on additional information which was adequately sufficient for the purpose of satisfying the statutory requirements.
29. In the result, the petition is allowed. Search and seizure operation is declared illegal and it is hereby quashed. Consequently, seizure of the gold ornaments under panchnama dated 26th July, 2012 is also quashed. In view of the above findings, we do not go into the question whether the jewellery was stock in trade of petitioner No.1 Company and therefore even in face of valid search and seizure, the same could not have been seized in terms of proviso to section 132 of the Act. Rule is made absolute accordingly.
30. Before closing, we may record that the learned counsel for the Revenue had placed for our perusal the satisfaction note and the connected notings of the different levels of the officers before the search operation was authorized. Along with such documents, he also supplied the copies of the statements and survey reports. Copies thereof may be retained in a sealed cover by the Registry.
31. In view of the above order, counsel for the petitioners did not press the Civil Application and the same stands disposed of accordingly."
6. In the result, all the petitions are allowed. Search and seizure operations in question are quashed.
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