THE issue before the Bench is - Whether when the Revenue initially takes approval only for a Survey u/s 133A but finds huge cash at the assessee's premises which one of its Directors fails to explain, the same Survey can be converted into a Search after taking due approval from competent authority. YES is the verdict.
Facts of the case
The assessee is an Indian company. It had contended that the company had been filing its income tax return regularly. For the FY 2013-14, the assessee declared a turnover of Rs.62,08,20,868/-. The present writ petition had been filed praying for the quashing of the search made by the income tax authorities on 28th April, 2015 u/s 132 at premises no.7/125, C-2, Swarup Nagar, Kanpur and HDFC Bank, Civil Lines, Kanpur with a further prayer to return the records so seized under the search. Assessee contended that the revenue arrived at their registered office at around 12.00 noon on 28th April, 2015 for the purpose of conducting a survey u/s 133A and during the course of survey seized cash amounting to Rs.64,56,970/- and also impounded the books of account in the absence of any Panchas. Assessee further contended that the revenue deposited the cash in the assessee's bank account on 28th April, 2015 at 5.00 pm and thereafter, got a demand draft made in their names. It was alleged that initially a survey was conducted u/s 133A but the same was converted into a search u/s 132 without there being any warrant or authorisation to search the premises u/s 132. It was further alleged that the search started on 28th April, 2015 and concluded on 29th April, 2015 at 7.00 am and that the Panchanama was issued on 29th April, 2015. It was also observed that by an earlier order of the Court, the income tax department was directed to produce the original records relating to the recording of the satisfaction for the purpose of conducting a search u/s 132.
Held that,
++ section 132(1) of the Act has to be strictly construed and the formation of the opinion or reason to believe by the Authorising Officer must be apparent from the note recorded by him. The opinion so recorded must clearly show whether the belief falls under clause (a), (b) or (c) of Section 132(1). No search can be ordered except for any of the reasons contained in clause (a), (b) or (c). The satisfaction note should itself show the application of mind and the formation of the opinion by the officer ordering the search. If the reasons, which are recorded, do not fall under clause (a), (b) or (c), in that event, the authorisation issued u/s 132(1) will become illegal and will have to be quashed as held in L.R. Gupta and others Vs. Union of India and others, 194 ITR 32. In order to attract clause (c) of Section 132(1), there must be “information” with the authorising authority relating to two matters, namely, that any person is in possession of money, etc. and secondly, that such money, etc. represents either wholly or partly income or property, which has not been or would not be disclosed for the purposes of the Act. The search would be valid if the authorising authority had reasonable ground for believing that a search was necessary and that he further believes that the required object cannot otherwise be obtained without undue delay. In our opinion, clause (a), (b) and (c) of Section 132(1) of the Act spells out the circumstances under which authorising authority may issue a warrant of authorisation. Such authorisation is possible only if the authorising authority in consequence of information in his possession has reason to believe the existence of the circumstances enumerated in clause (a), (b) and (c) of Section 132(1). In order to justify the action under Section 132, it is incumbent upon the authority to collect relevant material on the basis of which, the authority can form an opinion that he has reasons to believe that an action under Section 132 would be justifiable. The expression “information” must be something more than a mere rumour, gossip or 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 an action under Section 132 of the Act is called for any of the reasons mentioned in clause (a), (b) and (c). The words “has reasons to believe” as provided in Section 132(1) of the Act postulates a belief and existence of reasons for that belief. The belief must be held in good faith: it cannot be a mere pretence. Such belief should not be based on mere suspicion but must be based on information which is in the possession of the authorising authority. The formation of the belief within the meaning of Section 132(1) is a condition precedent to the authorisation of search and seizure. It is basically a subjective step essentially to make up one's mind as to whether on the basis of information available he had or had not formed the reasons to believe. This belief, cannot be a mere pretence nor can it be a mere doubt or suspicion but has to be something more than that;
++ we find that the warrant of authorisation was issued after according approval from the competent authority. The contention of the petitioner that the search was conducted without recording satisfaction since it was only a survey conducted u/s 133A appeared to be attractive in the first blush but upon perusal of the record, we find that the department had definite information about the clandestine activity of the petitioner and upon recording a satisfactory note permission was accorded from the competent authority for a survey under Section 133A. Based on this permission, a survey was made and incriminating evidence was found. The statement of one of the Directors' was recorded in which the said Director failed to provide any explanation with regard to the cash found at the premises in question and also failed to explain various entries in the documents, which indicated that the petitioner was taking cash from various parties and returning the money via cheque to the same parties. This unexplained cash and dubious entries in the documents fortified the belief and gave reasons to believe that there was undisclosed income, which would not have been disclosed in ordinary course and accordingly, a satisfactory note was prepared upon an application of mind and requesting a search to be conducted. We also find that the competent authority, after considering the matter, recorded its satisfaction and issued authorization for conducting a search u/s 132. The contention of the petitioner that merely because the Director failed to explain the possession of the cash was not fatal and could not invite authorization for conducting a search u/s 132 is totally misplaced;
++ the contention that the mere fact that cash was found could have been utilized in assessment proceedings and that the same cannot be a ground to convert the survey into a search operation u/s 132 cannot be accepted. We find that the petitioner's had not brought on record the statement of the Director, who was examined during the course of search but upon perusal of the original record, we find that the Director was repeatedly asked to explain the source of the cash and entries. Since no plausible reply came forward and the Director was unable to explain the entries, which showed that the petitioner was taking cash from various parties and returning the money via cheque to the same parties and vice-versa, the authorities had reasons to believe that the petitioner's would not produce or cause it to produce the books of accounts or documents evidencing true state of affairs, even if summons u/s 131 or notice u/s 142 was issued. In this regard, we find that the CBDT has issued Instructions dated 30th September, 2014 indicating that where cash amounting to more than Rs.10 lacs is found at the premises during the survey u/s 133A, the DIT (Investigation) having territorial jurisdiction over the survey should be intimated to examine the facts for taking recourse to Section 132(1). In the light of this instruction, we have no hesitation in holding that pursuant to the survey and the undisclosed cash and unexplained entries found, steps to convert the survey into a search was rightly taken. We are consequently, of the opinion that in the facts and circumstances of the case, the authorities had information based upon material which led to a valid survey being conducted u/s 133A. Based on further incriminating evidence that came forward during the course of survey, a satisfactory note was placed before the competent authority, who after considering the material recorded his satisfaction. Such satisfaction recorded was in accordance with the provision of Section 132. For the reasons stated aforesaid, we do not find any manifest error in the search conducted by the respondents. The writ petition is dismissed.
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