THE issue before the Bench is - Whether recording of reasons for issuing warrant of authorization for search, would by itself confer on 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. NO is the answer.
Facts of the case
The assessee is engaged in the business of manufacturing modular furniture. On 8th June, 2009, the Asst. DIT had prepared an elaborate note containing several reasons as to why he had considered it reasonable to believe that if summons or notice were issued to the assessee to produce necessary books of account and documents, the same would not be produced. The Asst. DIT also recorded detailed reasons why he entertains reasons to believe that the promoters of the assessee company would be found to be in possession of money, bullion, jewellery etc. which represents partly or wholly income which had not been disclosed for the purposes of the Act. The said note was put up for consideration before the Add DIT, who on perusal of the same once again proceeded to record elaborate reasons for his belief that the conditions precedent for issuing warrant of authorization u/s 132 does exist in the present case. Accordingly, the file was put up before the DIT, for issuing of warrant of authorization for search of the residential as well as business premises of the assessee and its Directors, if the DIT was so satisfied. The DIT thereafter being satisfied with reasons, came to the conclusion that it was a fit case for exercise of powers vested u/s 132 to search the promoters of assessee, its associated concerns, the directors and the premises mentioned in the note of the ADIT to seize unaccounted assets and documents and evidences relating undisclosed income. Pursuent to the same, the block assessment of assessee for the A.Ys 2004-05 to 2009-10 was sought to be initiated by notices issued u/s 153A following a search made under the provisions of the Act. However, the same was interdicted by the jurisdictional High Court of Delhi by interfering with the warrant of authorization for the search issued u/s 132 and the consequential search made between 19th June to 21st July, 2009.
Having heard the parties, the Supreme Court held that,
++ the issues that arise in the present appeal lie within a short circumference. As the warrant of authorization u/s 132, which is required to be founded on a reasonable belief of the authorized official regarding the existence of the conditions precedent to the exercise of the power to issue the same, has been interdicted under Article 226 of the Constitution, the ambit of the power of the High Court to do so may be noticed at the outset. The "classical" notion of the extent of power that the High Court would have in the exercise of its writ jurisdiction to cause such interference is formulated in the case of ITO vs. Seth Brothers, and Pooran Mal vs. Director of Inspection (Investigation), Income Tax. The parameters of permissible interference as laid down in the aforesaid two decisions have stood the test of time and continue to hold the field even today. Considering the scope of Section 132 in ITO vs. Seth Brothers, this Court had held that the section does not confer any arbitrary authority upon the Revenue Officers. The Commissioner or the Director of Inspection must have, in consequence of information, reason to believe that the statutory conditions for the exercise of the power to order search exist. He must record reasons for the belief and he must issue an authorisation in favour of a designated officer to search the premises and exercise the powers set out therein. This Court also observed that since by the exercise of the power a serious invasion is made upon the rights, privacy and freedom of the tax-payer, the power must be exercised strictly in accordance with the law and only for the purposes for which the law authorizes it to be exercised. If the action of the officer issuing the authorization, or of the designated officer is challenged the officer concerned must satisfy the Court about the regularity of his action. Similarly, in Pooran Mal vs. Director of Inspection, the constitutional validity of Section 132 was under challenge. While negating the said challenge, this Court had held that the impugned provisions are evidently directed against persons who are believed on good grounds to have illegally evaded the payment of tax on their income and property. Therefore, drastic measures to get at such income and property with a view to recover the government dues would stand justified in themselves. What is significant and, therefore, must be noticed is that in both the aforesaid two decisions while this Court has emphasized the necessity of recording of reasons in support of the 'reasonable belief' contemplated by Section 132, nowhere, in either of the decisions any view had been expressed that the reasons recorded prior to authorizing the search needs to be disclosed or communicated to the person against whom the warrant of authorization is issued. The same is the view expressed by this Court in Dr. Pratap Singh vs. Director of Enforcement while considering a pari material provision in the Foreign Exchange Regulation Act;
++ before proceeding further it will be necessary to take note of certain other facts that may have a bearing to the issues at hand. By Notification No.354 of 2001 dated 3.12.2001 in exercise of the powers conferred by Section 120(1) & (2), the CBDT had directed the DIT to exercise the power vested in them u/s 132 in relation to the territorial areas specified in Column (3) of the Schedule. By virtue of the said notification the DIT was authorized to exercise the power u/s 132 in respect of the territorial areas falling within the jurisdiction of the CCIT Nagpur and CCIT Nasik in the State of Maharashtra. Notice must also be had of certain provisions contained in the Search and Seizure Manual published by the DIT with regard to the preparation of satisfaction note and issuing of warrant of authorization u/s 132. It will also be required to be noticed that by Notification dated 7.3.2001 administrative approval of the DGIT was made mandatory before an authorization for search is issued. The said requirement appears to have been brought in order to obviate a malafide search and to avoid undue harassment of the taxpayers. In the present case the satisfaction note(s) leading to the issuing of the warrant of authorization against the assessee were placed before the High Court. The High Court therein has taken the view that in the present case there are four satisfaction notes of four different authorities. One of the said authority i.e. Asst. DIT is not the competent authority under Section 132 of the Act. The Add DIT and the Director who are competent authorities to issue the warrant of authorization, though had recorded their satisfaction, have not taken the final decision to issue the authorization and each such authority had passed on the file to his immediate superior, namely, the Additional Director to the Director and the Director to the Director General. The High Court further held that it is eventually the DGIT who took the decision to issue the search warrant but the said decision was not on the basis of its own satisfaction but on the basis of the satisfaction recorded by the DIT. Consequently, the High Court held that the satisfaction mandated by Section 132 was not that of the authority who has issued the search warrant, thereby vitiating the authorization issued. The High Court further held that each of the satisfaction notes was in loose sheets of paper and not a part of a single file maintained in proper sequence and order with due pagination. Therefore, according to the High Court, it is possible that the file containing the satisfaction note(s) was manipulated and thus is of doubtful credibility;
++ in the light of the views expressed by this Court in ITO vs. Seth Brothers and Pooran Mal, the above opinion expressed by the High Court 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. 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. At this stage, the High Court had 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. 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 Add Director and the Director; the absence of any satisfaction of the DGIT who, according to the High Court took the decision to issue the authorization are all seriously flawed. 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. The steps delineated have been scrupulously followed. The reading of the relevant part of the satisfaction note of the Director goes to show that on the basis of materials produced satisfaction was duly recorded by him that authorization for search should be issued. The file was put up before the DGIT for accord of administrative approval as required by Notification dated 7.3.2001. In fact, the requirement to obtain administrative approval is prompted by the need to provide an additional safeguard to the tax payer. A careful reading of the order of the DGIT would go to show that all that he did was to record the view that the satisfaction of the DIT was reasonable and therefore administrative approval should be accorded. The view taken by the High Court, therefore, cannot be sustained. The possibility of manipulation of the records as found by the High Court also does not commend for acceptance. There is no basis, whatsoever, for coming to any such conclusion. Suspicion ought not to be the basis of any judicial order and this is where the High Court seems to have erred. The remaining findings of the High Court with regard to the satisfaction recorded by the authorities appear to be in the nature of an appellate exercise touching upon the sufficiency and adequacy of the reasons and the authenticity and acceptability of the information on which satisfaction had been reached by the authorities. Such an exercise is alien to the jurisdiction under Article 226 of the Constitution. In view of the foregoing discussions and for the reasons alluded to, the order of the High Court is set aside.
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