REPORTABLE IN SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.4394 OF 2015 (Arising out of S.L.P.(C) No. 38611 of 2012) Director General of Income Tax (Investigation) Pune & Ors. . .. Appellants Versus M/s. Spacewood Furnishers Pvt. Ltd. & Ors. ... Respondents JUDGMENT RANJAN GOGOI, J. 1. Leave granted. 2. block assessment of respondent-assessee for assessment years 2004-05 to 2009-10 was sought to be initiated by notices issued under Section 153A of Income Tax Act, 1961 (hereinafter referred to as Act ) following 1 Page 1 search made under provisions of Act. same has been interdicted by High Court of Delhi by interfering with warrant of authorization for search issued under Section 132 of Act and consequential search made between 19th June, 2009 to 21st July, 2009. Aggrieved, Revenue has filed this appeal by special leave under Article 136 of Constitution. 3. We have heard Shri Guru Krishna Kumar, learned senior counsel for appellants and Shri Krishnan Venugopal, learned senior counsel appearing for respondents. 4. issues that arise in present appeal lie within short circumference. As warrant of authorization under Section 132, which is required to be founded on reasonable belief of authorized official regarding existence of conditions precedent to exercise of power to issue same, has been interdicted under Article 226 of Constitution, ambit of power of High Court to do so may be noticed at outset. 2 Page 2 5. classical notion of extent of power that High Court would have in exercise of its writ jurisdiction to cause such interference is formulated in ITO vs. Seth Brothers1 and Pooran Mal vs. Director of Inspection (Investigation), Income Tax2. parameters of permissible interference as laid down in aforesaid two decisions have stood test of time and continue to hold field even today. We may, therefore, advert to ITO vs. Seth Brothers (supra) in first instance. 6. Considering scope of Section 132 of Act in ITO vs. Seth Brothers (supra), this Court at page 843 held that :- section does not confer any arbitrary authority upon Revenue Officers. Commissioner or Director of Inspection must have, in consequence of information, reason to believe that statutory conditions for exercise of power to order search exist. He must record reasons for belief and he must issue authorisation in favour of designated officer to search premises and exercise powers set out therein. condition for entry into and making search of any building or place is reason to believe that any books of account or other documents 1 1969 (74) ITR 836 (SC) 2 (1974) 93 ITR 505 (SC) 3 Page 3 which will be useful for, or relevant to, any proceeding under Act may be found. If Officer has reason to believe that any books of account or other documents would be useful for, or relevant to, any proceedings under Act, he is authorised by law to seize those books of account or other documents, and to place marks of identification therein, to make extracts or copies therefrom and also to make note or inventory of any articles or other things found in course of search. Since by exercise of power serious invasion is made upon rights, privacy and freedom of tax-payer, power must be exercised strictly in accordance with law and only for purposes for which law authorizes it to be exercised. If action of officer issuing authorization, or of designated officer is challenged officer concerned must satisfy Court about regularity of his action. If action is maliciously taken or power under section is exercised for collateral purpose, it is liable to be struck down by Court. If conditions for exercise of power are not satisfied proceeding is liable to be quashed. But where power is exercised bona fide, and in furtherance of statutory duties of tax officers any error of judgment on part of Officers will not vitiate exercise of power. Where Commissioner entertains requisite belief and for reasons recorded by him authorises designated officer to enter and search premises for books of account and documents relevant to or useful for any proceeding under Act, Court in petition by aggrieved person cannot be asked to substitute its own opinion whether order 4 Page 4 authorising search should have been issued. Again, any irregularity in course of entry, search and seizure committed by officer acting in pursuance of authorisation will not be sufficient to vitiate action taken, provided officer has in executing authorisation acted bona fide. Act and Rules do not require that warrant of authorisation should specify particulars of documents and books of accounts general authorisation to search for and seize documents and books of account relevant to or useful for any proceeding complies with requirements of Act and Rules. It is for officer making search to exercise his judgment and seize or not to seize any documents or books of account. error committed by Officer in seizing documents which may ultimately be found not to be useful for or relevant to proceeding under Act will not by itself vitiate search, nor will it entitle aggrieved person to omnibus order releasing all documents seized. 7. In Pooran Mal vs. Director of Inspection (supra) constitutional validity of Section 132 was under challenge. While negating said challenge, this Court at page 515 of its report had held that: Dealing first with challenge under Article 19(1)(f) and (g) of Constitution it is to be 5 Page 5 noted that impugned provisions are evidently directed against persons who are believed on good grounds to have illegally evaded payment of tax on their income and property. Therefore, drastic measures to get at such income and property with view to recover government dues would stand justified in themselves. When one has to consider reasonableness of restrictions or curbs placed on freedoms mentioned in Article 19(1)(f) and (g), one cannot possibly ignore how such evasions eat into vitals of economic life of community. It is well-known fact of our economic life that huge sums of unaccounted money are in circulation endangering its very fabric. In country which has adopted high rates of taxation major portion of unaccounted money should normally fill Government coffers. Instead of doing so it distorts economy. Therefore, in interest of community it is only right that fiscal authorities should have sufficient powers to prevent tax evasion. 8. What is significant and, therefore, must be noticed is that in both aforesaid two decisions while this Court has emphasized necessity of recording of reasons in support of reasonable belief contemplated by Section 132, nowhere, in either of decisions any view had been expressed that 6 Page 6 reasons recorded prior to authorizing search needs to be disclosed or communicated to person against whom warrant of authorization is issued. same is view expressed by this Court in Dr. Pratap Singh vs. Director of Enforcement3 while considering pari material provision in Foreign Exchange Regulation Act. material on which officer has reasons to believe that any documents will be useful for or relevant to any investigation need not be disclosed in search warrant; such material may be secret, may have been obtained through intelligence, or even conveyed orally by informants. In said case, petitioner contended that, if court is going to look into file produced on behalf of officer who authorized search, it must be disclosed to petitioner so that petitioner can controvert any false or wholly unreasonable material set out in file , but Supreme Court did not accept this submission. Supreme Court also referred to earlier decision in S. Narayanappa v. CIT [1967] 63 ITR 219 (SC), to hold that whether grounds for ordering search were sufficient or not is not matter for court to investigate. However, court may examine question whether reasons for belief have rational connection or relevant bearing to formation of 3 (1985 (155) ITR 166 (SC) 7 Page 7 belief and are not extraneous or irrelevant for purpose of section. 9. principles that can be deduced from aforesaid decisions of this Court which continue to hold field without any departure may be summarized as follows : (i) authority must have information in its possession on basis of which reasonable belief can be founded that- (a) concerned person has omitted or failed to produce books of account or other documents for production of which summons or notice had been issued OR such person will not produce such books of account or other documents even if summons or notice is issued to him. OR (b) such person is in possession of any money, bullion, jewellery or other valuable article which represents 8 Page 8 either wholly or partly income or property which has not been or would not be disclosed. (ii) Such information must be in possession of authorized official before opinion is formed. (iii) There must be application of mind to material and formation of opinion must be honest and bonafide. Consideration of any extraneous or irrelevant material will vitiate belief/satisfaction. (iv) Though Rule 112(2) of Income Tax Rules which specifically prescribed necessity of recording of reasons before issuing warrant of authorization had been repealed on and from 1st October, 1975 reasons for belief found should be recorded. (v) reasons, however, need not be communicated to person against whom warrant is issued at that stage. (vi) Such reasons, however, may have to be placed before Court in event of challenge to formation of belief of authorized official in which event court (exercising jurisdiction under Article 226) would be entitled to examine relevance of reasons for 9 Page 9 formation of belief though not sufficiency or adequacy thereof. 10. Before proceeding further it will be necessary to take note of certain other facts that may have bearing to issues at hand. By Notification No.354 of 2001 dated 3.12.2001 in exercise of powers conferred by Section 120(1) & (2) of Act, Central Board of Direct Taxes had directed Directors of Income Tax (Investigation) specified in Column (2) of Schedule to said Notification to exercise power vested in them under Section 132 of Act in relation to territorial areas specified in Column (3) of Schedule. By virtue of said notification Director of Income Tax (Investigation), Nagpur i.e. Appellant No.2 was authorized to exercise power under Section 132 of Act in respect of territorial areas falling within jurisdiction of CCIT Nagpur and CCIT Nasik in State of Maharashtra. 11. Notice must also be had of certain provisions contained in Search and Seizure Manual published by Directorate 10 Page 10 of Income Tax with regard to preparation of satisfaction note and issuing of warrant of authorization under Section 132 of Act. Para 2.38 of aforesaid Manual being relevant may be usefully extracted : 2.38 satisfaction note should ordinarily be initiated by ADIT (Investigation)/DDIT (Investigation). It should be put up to DIT (Investigation) through Joint/Additional DIT (Investigation), along with detailed comments of latter. note must be recorded in secret file, already prepared for this purpose, containing material like, secret information collected from various sources, statement(s), if any of informant(s), reference to tax evasion petition(s), if any, surveillance reports and information relating to assessment(s), returns of income, wealth, etc, where available. 12. It will also be required to be noticed that by Notification dated 7.3.2001 administrative approval of Director General of Income Tax (investigation) was made mandatory before authorization for search is issued. said requirement appears to have been brought in order to obviate malafide search and to avoid undue harassment of taxpayers. 13. In present case satisfaction note(s) leading to issuing of warrant of authorization against 11 Page 11 respondent-assessee were placed before High Court. As it would appear from impugned order contents thereof were exhaustively reproduced by High Court. said satisfaction note(s) have also been placed before us. perusal of file containing satisfaction note(s) indicate that on 8.6.2009 Assistant Director of Income Tax (Investigation), Nagpur had prepared elaborate note containing several reasons as to why he had considered it reasonable to believe that if summons or notice were issued to respondent to produce necessary books of account and documents, same would not be produced. Assistant Director also recorded detailed reasons why he entertains reasons to believe that promoters of respondent-assessee company would be found to be in possession of money, bullion, jewellery etc. which represents partly or wholly income which has not been disclosed for purposes of Act 14. said note was put up for consideration before Additional Director (Investigation) who on perusal of same once again proceeded to record elaborate reasons for his belief 12 Page 12 that conditions precedent for issuing warrant of authorization under Section 132 does exist in present case. Accordingly, file was put up before Director of Income Tax (Investigation), Nagpur for issuing of warrant of authorization for search of residential as well as business premises of assessee and its Directors, if Director of Income Tax (Investigation), Nagpur is so satisfied. aforesaid note of Additional Director (Investigation) is dated 8.6.2009. 15. notes of two officers i.e. Assistant Director (Investigation) and Additional Director (Investigation) were perused and considered by Director (Investigation). matter was also discussed. Thereafter Director (Investigation) recorded relevant facts of case and came to following conclusion: On overall appreciation of facts of case I am satisfied that M/s. Spacewood Furnishers P Ltd is suppressing its income substantially. I am also satisfied that company is not likely to produce details of such unaccounted income and books of accounts and documents containing details of such unaccounted incomes and assets if notices were to be issued to it u/131 or u/s.142(1) of 13 Page 13 I T Act. It is also reliably learnt that Directors S/Shri. Kirit Joshi and Vivek Deshpande and associated concerns M/S. i3Space Systems (India) P Ltd., Spacewood Exports P ltd., Spacewood Hongkong P Ltd., i3space Hongkong Ltd. and Spacewood Nest P Ltd are also in possession of undisclosed income / assets and books, documents containing details of such unaccounted incomes. It appears that substantial portion of such unaccounted money is being held in cash also. Directors are maintaining luxurious life styles out of such unaccounted income. I am also satisfied that these companies and directors are not likely to furnish details of such unaccounted incomes and assets if notices were to be issued to them u/s.131 or 142(1) of I.T. Act. I am therefore satisfied that this is fit case for exercise of powers vested u/s.132 of Act to search persons (M/S. Spacewood Furnishers P Ltd, its associated concerns and Directors mentioned above) and premises mentioned in note of ADIT to seize unaccounted assets and documents and evidences relating undisclosed income. Director of Income Tax (Investigation), Nagpur thereafter put his signature dated 9.6.2009 on said note. 16. There is endorsement to following effect at bottom of said note again under signature of Director (Investigation) 14 Page 14 DGIT (Inv) Pune may kindly peruse above satisfaction note and grant administrative approval for search and seizure action. 17. On 11.6.2009 matter was considered by Director General of Income Tax (Investigation) Pune who recorded following view : I have gone through notes of ADIT (Inv), Nagpur and Addl.DIT (Inv.), Nagpur. satisfaction note of DIT (Inv.) Nagpur has also been perused. I find that DIT (Inv.) Nagpur has got adequate information to arrive at his satisfaction that search and seizure action is required to be undertaken in case of M/s. Spacewood Furnishers P. Ltd. promoted by Shri Kirit Joshi and Vivek Deshpande. Accordingly, proposal of DIT (Inv.) Nagpur to take action u/s 132(1) of Act is approved. 18. High Court by impugned order dated 9.12.2011 has taken view that in present case there are four satisfaction notes of four different authorities. One of said authority i.e. Assistant Director is not competent authority under Section 132 of Act. Additional Director and Director who are competent authorities to issue warrant of authorization, though had recorded their satisfaction, have not 15 Page 15 taken final decision to issue authorization and each such authority had passed on file to his immediate superior, namely, Additional Director to Director and Director to Director General. High Court further held that it is eventually Director General who took decision to issue search warrant but said decision was not on basis of its own satisfaction but on basis of satisfaction recorded by Director of Income Tax (Investigation). Consequently, High Court held that satisfaction mandated by Section 132 of Act was not that of authority who has issued search warrant, thereby vitiating authorization issued. 19. High Court further held that each of satisfaction notes was in loose sheets of paper and not part of single file maintained in proper sequence and order with due pagination. Therefore, according to High Court, it is possible that file containing satisfaction note(s) was manipulated and thus is of doubtful credibility. 16 Page 16 20. High Court also held that materials indicated by department in counter affidavit and additional affidavit filed before it were at variance with what was revealed by satisfaction note(s) placed before Court. Even if satisfaction notes alone are to be gone by, essential details with regard to source of information; persons who were interrogated and with whom discreet enquiries were made are not disclosed. necessary information revealed by such interrogation and discreet enquiries with regard to over invoicing, market information etc. are not indicated. Materials like high growth, high profit margins, doubts about international brand and details thereof etc. as mentioned in satisfaction note(s) are admitted and known facts and therefore could not have induced requisite belief. above constitutes broad basis on which High Court thought it proper to cause inference with measures undertaken by Revenue against assessee. 21. Before we advert to specific reasoning of High Court, one specific aspect of opinion expressed by High 17 Page 17 Court needs to be taken note of inasmuch as precise position in law in this regard needs to be clarified. above aspect is highlighted by following observations of High Court expressed in paragraph 6 of impugned order:- We, however, express that when satisfaction recorded is justiciable, documents pertaining to such satisfaction may not be immune and if appropriate prayer is made, inspection of such documents may be required to be allowed. 22. In light of views expressed by this Court in ITO vs. Seth Brothers (supra) and Pooran Mal (supra), above opinion expressed by High Court is plainly incorrect. necessity of recording of reasons, despite 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 decision making process. necessity of recording of reasons also acts as cushion in event of legal challenge being made to satisfaction reached. Reasons enable proper judicial assessment of decision taken by Revenue. However, 18 Page 18 above, by itself, would not confer in assessee right of inspection of documents or to communication of reasons for belief at stage of issuing of authorization. Any such view would be counter productive of entire exercise contemplated by Section 132 of Act. It is only at stage of commencement of assessment proceedings after completion of search and seizure, if any, that requisite material may have to be disclosed to assessee. 23. At this stage we would like to say that High Court had committed serious error in reproducing in great details contents of satisfaction note (s) containing reasons for satisfaction arrived at by authorities under Act. We have already indicated time and stage at which reasons recorded may be required to be brought to notice of assessee. In light of above, we cannot approve of aforesaid part of exercise undertaken by High Court which we will understand to be highly premature; having potential of conferring undue advantage to 19 Page 19 assessee thereby frustrating endeavor of revenue, even if High Court is eventually not to intervene in favour of assessee. 24. Having clarified above issue in manner indicated, we may turn to reasons assigned by High Court for its decision. view expressed by High Court with regard to satisfaction note(s); alleged absence of final decision to issue authorization at level of Additional Director and Director; absence of any satisfaction of Director General who, according to High Court took decision to issue authorization are all seriously flawed. different steps in decision making process is lucidly laid down in instructions contained in search and seizure manual published by department, relevant part of which has been extracted above. steps delineated have been scrupulously followed. Besides we may take note of fact that Additional Director was not one of competent authorities under Section 132 on 8.6.2009 (date of his note) 20 Page 20 inasmuch as it is by Finance Act, 2009 effective from 19 th August, 2009 that Additional Director came to be included amongst authorized officials though with retrospective effect from 1.10.1998. reading of relevant part of satisfaction note of Director goes to show that on basis of materials produced satisfaction was duly recorded by him that authorization for search should be issued. file was put up before Director General (Investigation) for accord of administrative approval as required by Notification dated 7.3.2001. In fact, requirement to obtain administrative approval is prompted by need to provide additional safeguard to tax payer. careful reading of order of Director General would go to show that all that he did was to record view that satisfaction of Director, Income Tax (Investigation) was reasonable and therefore administrative approval should be accorded. view taken by High Court, therefore, cannot be sustained. 21 Page 21 25. possibility of manipulation of records as found by High Court also does not commend to us for acceptance. There is no basis, whatsoever, for coming to any such conclusion. Suspicion ought not to be basis of any judicial order and this is where High Court seems to have erred. 26. remaining findings of High Court with regard to satisfaction recorded by authorities appear to be in nature of appellate exercise touching upon sufficiency and adequacy of reasons and authenticity and acceptability of information on which satisfaction had been reached by authorities. Such exercise is alien to jurisdiction under Article 226 of Constitution. 27. In view of foregoing discussions and for reasons alluded to, order of High Court dated 9.12.2011passed in W.P. No. 2150 of 2010 is set aside. proceedings against respondent-assessee will now commence from stage at which same was interdicted by High Court by its 22 Page 22 impugned order. Consequently, appeal filed by Revenue is allowed. J. [Ranjan Gogoi] .. J. [Pinaki Chandra Ghose] New Delhi; May 13, 2015. 23 Page 23 Director General of Income-tax (Investigation) Pune & Ors. v. M/s. Spacewood Furnishers Pvt. Ltd. & Or