LALJIBHAI KANJIBHAI MANDALIA V. PRINCIPAL DIRECTOR OF INCOME TAX (INVESTIGATION)

SCA/16360/2018

AI Insights

The case involves Laljibhai Kanjibhai Mandalia, who challenged the search and seizure operations conducted by the Income Tax Department at his residence. The operations were based on a warrant of authorisation issued under section 132 of the Income Tax Act, 1961, which the petitioner contended was invalid. The petitioner had previously provided a loan to Goan Recreation Clubs Private Limited, which was under investigation for financial irregularities. The court examined whether the conditions for issuing the search warrant were met, focusing on the 'reason to believe' standard required under section 132(1) of the Act.

• Counselvise Citation: [2019] 140 COUNSELVISE.COM (IT) 769413 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 22-02-2019
• Assessment Year: misc
• Other Referred Cases: LKS Bullion Import and Export Pvt. Ltd. v. Director General of Income Tax, L.R. Gupta v. Union of India, Director General of Income Tax (Investigation) Pune & Ors. v. Spacewood Furnishers Pvt. Ltd. & Ors., Commissioner of Income Tax, Allahabad v. Vindhya Metal Corporation
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: MAUNA BHATT
• Assessee Lawyers: S N SOPARKAR; P A MEHD
• Keywords: Income Tax Act; Loan transaction; Search and seizure; Undisclosed income; Warrant of Authorisation
• Section: 132

Judgement Text

"C/SCA/16360/2018 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 16360 of 2018 FOR APPROVAL AND SIGNATURE: HONOURABLE MS.JUSTICE HARSHA DEVANI and HONOURABLE DR.JUSTICE A. P. THAKER ========================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? Yes 2 To be referred to the Reporter or not ? No 3 Whether their Lordships wish to see the fair copy of the judgment ? No 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ? No ========================================================== LALJIBHAI KANJIBHAI MANDALIA Versus PRINCIPAL DIRECTOR OF INCOME TAX (INVESTIGATION) ========================================================== Appearance: MR SN SOPARKAR, SENIOR ADVOCATE with MR P A MEHD(3489) for the Petitioner(s) No. 1 MRS MAUNA M BHATT(174) for the Respondent(s) No. 4,5 NOTICE SERVED BY DS(5) for the Respondent(s) No. 1,2,3 ========================================================== CORAM: HONOURABLE MS.JUSTICE HARSHA DEVANI and HONOURABLE DR.JUSTICE A. P. THAKER Date : 22/02/2019 ORAL JUDGMENT Page 1 of 33 C/SCA/16360/2018 JUDGMENT (PER : HONOURABLE MS.JUSTICE HARSHA DEVANI) 1. Leave to amend the prayer clause. 2. By this petition under Article 226 of the Constitution of India, the petitioner has prayed to quash the impugned warrant of authorisation and has challenged the proceedings of search initiated against the petitioner and all consequential actions taken pursuant thereto. 3. The facts as averred in the petition are that the petitioner is a high net worth individual and has been paying tax regularly and the accounts of the petitioner are being audited on a regular basis. The petitioner was looking for an avenue to invest some money. By that time, a company by the name of Goan Recreation Clubs Private Limited was in the process of setting up a new business in Goa. The said company was in need of finance for setting up its business and consequently, approached the petitioner for a loan. On the petitioner asking for some sort of security, the said company offered that another company being Royale Recreation Private Limited would give its property bearing Sub Plot No.65 admeasuring 346 square metres and Sub-Plot No.68 admeasuring 463.50 square metres, in all, admeasuring 809.50 square metres constituting a part of Aldeia De Goa of property known as “Nauxim” or “Chicalium Bhat” bearing Survey No.31/1-A admeasuring 1,06,950 square metres situated in village Bambolim, in registration sub-District Ilhas, District North Goa in the State of Goa as security for the said loan. Subsequently, an agreement was reached and a registered deed of mortgage came to be executed for the property between the petitioner, Page 2 of 33 C/SCA/16360/2018 JUDGMENT Goan Recreation Clubs Private Limited (also referred to as the “borrower company”) and Royale Recreation Private Limited (also referred to as the “guarantor company”) on 22.6.2016. Pursuant to the said agreement, an amount of Rs.10,00,00,000/- (rupees ten crore) came to be given by the petitioner to the borrower company at the agreed rate of interest and on agreed terms. So as to avoid any technical breach of law, the petitioner was advised to become Director of the borrower company at the time of giving the loan. The petitioner, therefore, became a Director of Goan Recreation Clubs Private Limited on 18.5.2016. However, soon after the loan formalities were completed, the petitioner resigned as a Director of Goan Recreation Clubs Private Limited on 25.6.2016. Accordingly, the petitioner remained as a Director of the borrower company for a little over one month. 4. It is the case of the petitioner that the borrower company which was a new venture was in the process of setting up its business, had yet to start its business when the petitioner resigned as a Director of that company and in fact it did not commence business for a further period of one month after the petitioner resigned as a Director of the company. According to the petitioner, his only role was to give a loan of Rs.10,00,00,000/- to the company, which amount was completely accounted for and its source was not only disclosed but also very well-known to the department. In due course, the borrower company repaid the loan along with the interest due to the petitioner. Consequently on 10.7.2017, a deed for release of mortgage came to be executed between the petitioner, Royale Recreation Private Limited (the guarantor company) and Goan Recreation Clubs Private Limited (the Page 3 of 33 C/SCA/16360/2018 JUDGMENT borrower company). It is the case of the petitioner that he has diligently paid tax on interest that he had earned from the loan. However, on 10.8.2018, the officers of the Income Tax Department conducted a search on the residential premises of the petitioner which went on till 3.00 a.m. on 11.10.2018. During the course of search, the petitioner was orally informed that the warrant of authorisation in the present matter has been issued by the Principal Director of Income Tax (Investigation), Kolkata. According to the petitioner as such no reason to believe was shown to the petitioner; however, in the course of search, the officials told the petitioner that the reason for the search was the fact that the petitioner was a Director of Goan Recreation Clubs Private Limited and the Income Tax Department was conducting a search on the said company and the present search was being conducted since the petitioner was a Director of that company. It appears that subsequent to the search, the respondents have been raising query after query and calling for details of assets, etc. from the petitioner. It is the case of the petitioner that the respondents are without any rhyme or reason or legal justification harassing the petitioner and his family members and are grossly abusing the power vested in them under the provisions of the Income Tax Act. Being aggrieved, the petitioner has filed the present petition challenging the authorisation issued under section 132 of the Income Tax Act, 1961. 5. In response to the averments made in the petition, the respondent No.1 has filed affidavit-in-reply, inter alia, stating that the search was carried out under valid warrant of authorisation under section 132 after proper recording of 'reasons to believe' in the satisfaction note, and the approval Page 4 of 33 C/SCA/16360/2018 JUDGMENT of the same by the competent authority, as prescribed in law. The action under section 132 of the Income Tax Act, 1961 on 10.8.2018 at the residence of the petitioner and other subsequent actions taken by the respondents by way of post search analysis are good in law and sound as per the provisions of the Income Tax Act, 1961 and based upon sound and credible information available to the department. 5.1 The first respondent has sought to explain the action taken against the petitioner as follows:- a) The authorized officers/ investigating officers conducted search and seizure operation at various spots across various states related to the case of Shri Sarju Sharma & other associated group ‘of companies which had financial transactions with Shri Sarju Sharma (PAN- AKOPS3325A) and M/s. Goan Recreation Clubs Pvt Ltd., Goa (PAN-ANYPS6038F), hereinafter referred to as ‘the company’. Shri Sarju Sharma is a leading business entrepreneur of Siliguri, Dist-Jalpaiguri, engaged in the hospitality business of Hotel, Restaurant and Bar running business under the name and style of M/s Hotel Alishan and Restaurant. The flagship company M/s. Goan Recreation Clubs Pvt Ltd. after being incorporated in the year 2015 has stepped into the world of gaming & entertainment unit of Casino industry. The casino business is being operated from the premises of Grand Hyatt Hotel, Bambolin, Goa w.e.f. 29th Ju1y, 2016. b) The name of M/s Goan Recreation Clubs Pvt Ltd. appeared in the credible information on high value cash deposits/ data of suspicious cash deposits post demonetization period disseminated by the DGIT(Inv.), W.B., Sikkim & NER, wherein it was found that the said company had deposited cash to the tune of Rs.13,79,10,500/- into its two bank accounts maintained with ICICI Bank and HDFC Bank, North Goa. c) M/s Goan Recreation Clubs Pvt. Ltd. was incorporated Page 5 of 33 C/SCA/16360/2018 JUDGMENT on 28.09.2015 with a nominal paid up share capital of Rs 2,00,000/-. The initial Directors were Sarju Shanna and Shri Rohit Gurubhakta Sharma. During the initial year of its incorporation, i.e., in the financial year 2015-16 the company raised huge unsecured loan of Rs 5.77 crore from various individuals and companies in a very peculiar manner, as the company at that juncture was yet to commence any substantive business activities. Again, in the financial year 2016- 17 the company raised an unsecured loan of Rs.34.10 crore from various individuals and companies which includes an amount of Rs.10 crore from the petitioner viz. Shri Laljibhai Kanjibhai Mandalia from Ahmedabad. The details of unsecured loan received by the company and credited into the bank accounts of the company are given below: Financial Year Name of the party from whom Loan was taken Loan Amount (in Rs.) Source and Relationship with the company 2015-16 Sarju Sharma 75,00,000/- Director Rajputana General Com. Corp. Pvt Ltd. 4,27,00,000/- Non related entity Fairland Sales Pvt. Ltd. 75,00,000/- Non related entity 2016-17 Laljibhai Kanjibhai Mandalia 10,00,00,000/- Addl. Director Viarra Entertainment Pvt. Ltd. 25,60,00,000/- Associated company Rajputana General Commercial Corporation Pvt. Ltd. 1,50,00,000/- Non related entity d) From the above chart it is noticed that the company raised huge unsecured loans within two years of it incorporation from various individuals and companies. e) Whereas, in the pre search analysis, on going through the records available with the MCA (Ministry of Corporate Affairs) and ITBA (Income Tax Business Application) it came to light that the company M/s Goan Recreation Clubs Pvt. Ltd. During the financial year 2016- Page 6 of 33 C/SCA/16360/2018 JUDGMENT 17 have introduced three new Directors along with the exit of then existing Director Shri Rohit Gurubhakta Sharma on 03.03.2017, the details given in the following table: Name of the Director PAN Date of appointment Date of cessation No. of shares Sarju Sharma AKOPS3325A 28.09.2015 Active 10000 Rohit Gurubhakta Sharma ANYPS6038F 28.09.2015 03.03.2017 – Atul Kokas AAAPK5030A 03.03.2017 Active – Hifizurrehman Abdul LahKadiwal AAAPK5030A 03.03.2017 Active – Laljibhai Kanjibhai Mandalia AEJPS5127D 18.05.2016 23.06.2016 Addl. Director f) It came to light that the three new directors had neither been allotted share of the company nor subscribed to by them. On going through the records of M/s. Goan Recreation Clubs Pvt. Ltd. and its relevant Bank account maintained with HDFC & ICICI Bank, it revealed that on 01.06.2016 and 21.06.2016 the petitioner, who was then the director of the company, brought in Rs.6,00,00,000/- and Rs.4,00,00,000/- respectively into the books of the company viz. M/s. Goan Recreation Clubs Pvt. Ltd. during the Financial Year 2016- 17, the details of unsecured loan account is highlighted below: Loan account of Shri Laljibhai Kanjibhaiu Mandalia during the F/Y 2016-17 : Date of transactions Fund credited in the bank account of Goan Recreation Clubs Pvt. Ltd. HDFC A/c. No.50200015405430 Payment by Shri Mandalia through his Bank 01.06.2016 6,00,00,000 Through Kota Mahindra Page 7 of 33 C/SCA/16360/2018 JUDGMENT Bank account No.8011674807 21.06.2016 4,00,00,000 -do- Total Rs.10,00,00,000/- g) From the above table, it is seen that total loan of Rs.10 Cr was given by Shri Mandalia (then Additional Director) within a short span of two different dates 01.06.2016 & 21.06.2016 respectively. It is seen that Shri Mandalia on 25.06.2016, resigned as additional director from the said company. The loan was again fully repaid by the company in installments on various dates given in the table below: Date of repayment Amount of loan repaid (in Rs.) Source of repayment back of loan through Bank account 06.10.2016 27,00,000 Cash deposit in Bank account on 5.10.2016 and paid through cheque 05.12.2016 5,00,00,000 Sweep in Credit on 03.12.2016 12.01.2017 15,51,946 Cash deposit in ICICI Bank account paid through cheque 31.03.2017 2,50,00,000 Loan from Viarra Entertainment Pvt. Ltd. 31.03.2017 2,50,00,000 Loan from Viarra Entertainment Pvt. Ltd. The search and seizure operation in the premises of the petitioner was contemplated and carried out on the basis of the information gathered as explained in the above point nos. (a) to (g) of this para. From the above though it is found that Shri Mandalia had resigned as Additional Director of the company on 25.06.2016 and the loan was repaid by the company in the same year as noticed from the table Page 8 of 33 C/SCA/16360/2018 JUDGMENT given at point no. (g) of this para but the chain of events raises credible doubt on the transactions entered into by the petitioner with the company in question as it is the familiar modus operandi being practiced by the entry operators. Therefore, from the foregoing paras it can be concluded that the department initiated the search and seizure operation in the premises of the petitioner after conforming to all the criteria mentioned in the Section 132 sub-section 1 clause (s), (b) and (c) of the Income Tax Act, 1961. The search and seizure action was initiated after detailed analysis of information, duly recording of reasons in the Satisfaction Note and approval of the same by the competent authorities.” 5.2 It is further averred in the affidavit-in-reply that in the present instance, the petitioner was not expected to comply with the notice of the respondent No.1 or respondent No.5 as it is evident that the petitioner would again have brought the alibi of 'jurisdiction' to evade or non-comply with the notice. Moreover, in the interest of the revenue, it was judicious that the department was not expected to disclose to any outside agency/body or to any of the members directly or indirectly involved in the cobweb of financial transactions with the core group, viz. Sarju Sharma and associated group of companies; an inkling of any action being contemplated by the Income Tax Department, to keep the confidentiality and secrecy of the case intact in the interest of the revenue. 5.3 In paragraph 4.3 of the affidavit-in-reply it has inter alia been stated thus:- “As far as the investment opportunity is concerned, it is quite glaring that the petitioner invested 10 crore within Page 9 of 33 C/SCA/16360/2018 JUDGMENT a span of one month on 01.06.2016 and 21.06.2016 by way of loan on interest given to Ms Goan Recreation Clubs Pvt. Ltd. The investment was made from the Kotak Mahindra Bank a/c No. 80116714807 of the petitioner and deposited into the HDFC Bank a/c No. 50200015405430 of the company, M/s Goan Recreation Clubs Pvt. Ltd. Interestingly, the loan was repaid by the latter in five installments from 06.10.2016 to 31.03.2017 [as shown in point no. (g) of para 4.1]. The apparent investment made by the petitioner is found to be not a judicious investment choice from the point of view of a prudent business man as the company to which the petitioner provided loan, had no established business, no goodwill in the market, nor was it enlisted in any of the stock exchanges, nor did the petitioner have had any financial dealings with the company previously. The quick repayment of the loan shows that the investment was not meant to earn steady interest income. All this goes on to suggest that the investment and nature of transaction entered into by the petitioner was akin to the familiar modus operandi being employed by the entry operators to provide an accommodation entry to bring the unaccounted black money to books for brief period to run the business till sufficient fund is generated by running the business or some fund from any other unaccounted source came later on. That is the angle of the investigative process underway in which fund trail of the money paid by the petitioner is being investigated.” 5.4. The said respondent has thereafter referred to the post search analysis, which is not relevant for the present purpose Page 10 of 33 C/SCA/16360/2018 JUDGMENT as this court is concerned with the validity of the authorisation issued under section 132 of the Act and the post search analysis has got no bearing in that regard. 6. Mr. S. N. Soparkar, Senior Advocate, learned counsel with Mr. P. A. Mehd, learned advocate for the petitioner submitted that the impugned search action is bad in law and in violation of the provisions of section 132 of the Act. It was submitted that firstly, the conditions precedent for any action under section 132 of the Act have not been satisfied; and secondly, the action under section 132 as well as all further actions of the respondents pursuant to the said action are illegal and deserves to be quashed. The attention of the court was invited to the provisions of section 132 of the Act to submit that for the purpose of issuance of an authorisation for search under section 132 of the Act, the concerned authority in consequence of information in his possession should have reason to believe that either of the three situations mentioned under sub-section (1) of section 132 exist. It was submitted that in the facts of the present case, none of the three situations exist. It was submitted that insofar as the circumstance (a) as envisaged under section 132(1) of the Act is concerned, the same is not applicable to the facts of the present case as no summons or notice as contemplated therein has been issued to the petitioner. Insofar as circumstance (b) is concerned, it was submitted that there was no reason for the respondent to believe that if any summons or notice was issued to the petitioner, he would not produce or cause to be produced any books of account or other documents which would be useful or relevant to the proceeding under the Act. It was submitted that insofar as circumstance (c) is concerned, it is not the case of Page 11 of 33 C/SCA/16360/2018 JUDGMENT the respondents that the petitioner was in possession of any money, bullion, jewellery or other valuable article or thing which had not been or would not be disclosed by him. It was submitted that in the present case, the search action has been taken in respect of a loan advanced by the petitioner to Goan Recreation Clubs Private Limited which was duly shown in the return of income filed by the petitioner. It was submitted that the petitioner had disclosed the entire transaction and had paid the tax on the interest earned from the loan. The whole transaction was by way of cheque. The payment was made by cheque and was also received by way of cheque. It was submitted that from the facts as emerging from the record, it appears that post the petitioner’s resignation as a Director, the company namely, Goan Recreation Clubs Private Limited had entered into suspicious transactions and that having regard to the facts of the case, there was no need to carry out search and that it was always open for the respondents to carry out an inquiry. 6.1 Referring to the affidavit-in-reply filed on behalf of the respondents, it was submitted that according to the respondents, the petitioner was not expected to comply with the notice of the respondents No.1 or 5 as he would have brought the alibi of jurisdiction to evade compliance with the notice. It was submitted that the respondents have acted upon surmises and conjectures in coming to the conclusion that the petitioner would not comply with any summons or notice issued to him as contemplated under clause (b) of sub-section (1) of section 132 of the Act. It was submitted that there was no reason for the Commissioner, Kolkata to form the belief that the petitioner would not respond to the notice and that the Page 12 of 33 C/SCA/16360/2018 JUDGMENT only situation which would be applicable in the facts of the present case is clause (b) of section 132(1) of the Act, which would not be attracted having regard to the facts of the present case. Reference was made to the income tax return of the petitioner filed for assessment year 2017-18, to point out that in the return of income itself, the transaction in question has been reflected. It was pointed out that tax has been deducted at source in respect of the interest paid on the loan given by the petitioner and the department has also given credit to the petitioner. 6.2 Reliance was placed upon the decision of this court in the case of LKS Bullion Import and Export Pvt. Ltd. v. Director General of Income Tax, rendered on 30.10.2012 in Special Civil Application No.11593 of 2012 wherein the court on the basis of the record and the reasons noted by the authority was of the view that 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. The court referred to the provisions of section 131 and more particularly sub-section (1A) thereof and observed that under that sub- section 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 inquiry or investigation relating thereto. By contrast, search and seizure authorisation under section 132(1) of the Act can be granted only on satisfaction that in consequence of information in its possession, the competent authority has reason to believe that the circumstances mentioned in clauses (a) to (c) of section (1) have arisen. The court further held that the onus placed on the competent authority to arrive at a satisfaction with regard to Page 13 of 33 C/SCA/16360/2018 JUDGMENT the factor contemplated under section 132(1) of the Act is much greater than the one required for exercise of powers under sub-section (1A) of section 131 of the Act. 6.3 The decision of the Delhi High Court in the case of L.R. Gupta v. Union of India, (1992) 194 ITR 32 (Delhi), was cited wherein the court held thus: “(31) Section 132, inter alia, contemplates the issuance of an authorisation under Section 132(1) empowering the authorised officer, inter alia, to search any building, place etc. and to seize books of account, other documents, bullion, jewellery etc. if the officer, issuing the authorisation has, reason to believe that: \"(A)any person to whom a summons under section (1) of Section 37 of the Indian Income Tax Act, 1922 (11 of 1922), or under sub-Section (7) of Section 131 of this Act, or a notice under sub-Section (4) of Section 22 of the Indian Income- tax Act, 1922 or under sub-Section (1) of Section 142 of this Act was issued to produced, or cause to be produced, any books of account or other documents has omitted or failed to produce, or cause to be produced, such books of account or other documents as required by such summons or notice, or (b) any person to whom a summons or notice as aforesaid has been or might be issued will not, or would not, produce or cause to be produced, any books of account or other documents which will be useful for, or relevant to, any proceedings under the Indian Income-tax Act, 1922 (II of 1922), or under this Act, or (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 (II of 1922), or this Act (hereinafter in this Section referred to as the undisclosed income or property).\" (32) 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. Page 14 of 33 C/SCA/16360/2018 JUDGMENT (33) The expression ''information\" must be something more than 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 any of the reasons mentioned in Clauses (a), (b) or (c). When an action of the issuance of authorisation under Section 132 is challenged in a Court it will be open to the petitioner to contend that on the facts or 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, whether an action under Section 132 is called for. But the Court would be acting within jurisdiction in seeing whether the act of issuance of an authorisation under Section 132 is arbitrary or malafide or whether the satisfaction which is recorded is such which shows lack of application of mind by 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. (34) The provisions of sub-Clause (a) of Section 132(1) are not relied upon by the respondents. In the present case. It is admitted that the petitioners are not guilty of non-production of documents or bocks of accounts etc. despite notice referred to in the said sub-Clause having been issued. We may, however, note that sub-clause (a) refers to facts which must actually exist before a belief is formed for taking action under Section 132(1). (35) Sub-clause (b) of Section 132(1) refers to cases where there Is reason to believe that if any summons or notice, as specified in the said sub-clause (a) has been issued or will be issued then that person will not produce or cause to be produced the books of accounts etc. In other words, the said provision refers to the belief which may be formed by the Appropriate Authority to the effect that the person concerned is not likely to voluntarily or even after notice produce documents before the Income Page 15 of 33 C/SCA/16360/2018 JUDGMENT Tax authorities. Where, for example, there is information that a person is hiding or likely to hide or destroy documents or books of accounts which are required or are relevant for the purposes of the Act then in such a case it can be said that unless and until search is conducted the said books of account or documents will not be recovered. The belief of the authority must be that the only way in which the Income Tax Department will be in a position to obtain books of accounts and documents from a person is by the conduct of a search and consequent seizure of the documents thereof. In our opinion some facts or circumstances must exit on the basis of which such a belief can be formed. For example, if the Department has information that a person has duplicate sets of account books or documents where havala transactions are recorded then the Department can legitimately come to the conclusion that if a notice is sent then that person is not likely to produce the said documents etc. Duplicate books of accounts and such like documents are maintained primarily for the reason that they are not to be produced before the Income Tax authorities. To put it differently, the nature of the documents may be such which are not, in the normal course, likely to be produced before the Income Tax authorities either voluntarily or on requisition being sent. It may also happen that the documents may exist and be in the custody of a person which would show the existence of immoveable property which he may have acquired from money or income which has been hidden from the Income Tax Department. The past record of the assessed, his status or position in life are also relevant circumstances in this regard. Where, however, documents exist which are not secretly maintained by an assessed, for example pass books, sale deeds which are registered and about the existence of which the Department is aware, then in such a case it will be difficult to believe that an assessed will not produce those documents. (36) Sub-clause (c) refers to money, bullion or jewellery or other valuable articles which either wholly or partly should have been income of an assessed which has not been disclosed for the purpose of the Act. The said sub- clause pertains only to moveable and not immoveable assets. Secondly it pertains to those assets which wholly or partly represent what should have been income. The Page 16 of 33 C/SCA/16360/2018 JUDGMENT expression \"which has not been or would not be, disclosed for the purposes of Income Tax Act\" would mean that income which is liable to tax, but which the assessed his 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 assessed knows that the moveable asset is 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, existence of the money or asset is known to the Income Tax Department and where the case of the assessed is that the said money or the 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 assessed 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 assessed 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 the receipt of that money in his Income Tax return. Non-disclosure of the same would not attract the provisions of Section 132(c). It may be that the opinion of the assessed 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 assessed 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). Authorisation under Section 132(1) can be issued if there is a reasonable belief that the assessed 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 moveable 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 assessed in an effort to escape assessment. Not Page 17 of 33 C/SCA/16360/2018 JUDGMENT disclosed must mean the intention of the assessed to hide the existence of the income or the asset from the Income Tax Department while being aware that the same is rightly taxable.” It was submitted that in the facts of the present case the petitioner has disclosed the amount in question in its return of income and has duly paid the tax on the interest received thereon. None of the circumstances contemplated under sub- section (1) of section 132 of the Act exist in the present case and hence, there was no valid reason for the respondents to form the requisite belief as contemplated under section 132 of the Act, and hence, the impugned authorisation is required to be quashed and set aside. 6.4 It was submitted that insofar as the authorities at Kolkata are concerned, ordinarily they would have no jurisdiction to take any action to proceed against the petitioner, and hence, it is only with a view to assume jurisdiction over the petitioner that reference has been made to section 132 of the Act without satisfying the requirements thereof. 7. Vehemently opposing the petition, Mrs. Mauna Bhatt, learned senior standing counsel for the respondents, initially submitted that the present case falls under section 132(1)(c) of the Act but subsequently contended that the case falls under section 132(1)(b) of the Act. 7.1 The learned counsel submitted that the authority concerned has recorded satisfaction that the impugned transaction with Goan Recreation Clubs Private Limited is a Page 18 of 33 C/SCA/16360/2018 JUDGMENT non-genuine transaction. It was emphatically argued that the satisfaction note clearly reveals the connection of the petitioner with Goan Recreation Clubs Private Limited and that the transaction itself is bogus. It was submitted that the competent authority has properly recorded satisfaction and the link is duly established and, therefore, there is no warrant for interference by this court. It was contended that this court cannot go into the sufficiency of the satisfaction recorded by the concerned authority. 7.2 Reliance was placed upon the decision of this court in the case of Neesa Leisure Limited & Ors. v. Union of India, (2011) 338 ITR 460, wherein this court after referring to various pronouncements with regard to conditions for issuance of search warrant under section 132(1) of the Act has observed that for the purpose of exercise of powers under section 132 of the Act, two conditions precedent are required to be satisfied. The first condition is that the concerned officer must have some information in his possession, and the second condition is that, in consequence of such information he must have reason to believe that the statutory conditions for exercise of the power to order search exist. The basis for exercise of power 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. Such information should be fairly reliable and should not be a mere rumour or an unverified piece of gossip or a hunch. The court, therefore, while examining the validity of the authorization issued under section 132 of the Act would firstly be required to examine as to whether there exists any information of the nature referred Page 19 of 33 C/SCA/16360/2018 JUDGMENT to hereinabove in the possession of the concerned officer, on the basis of which he could have formed a reason to believe. The next factor which would be required to be satisfied is as to whether before issuance of the authorization, the concerned official has recorded the reasons for his belief. If reasons have been recorded, the opinion which has to be formed being subjective, the jurisdiction of the court to interfere is very limited. The court will not act as an appellate authority and examine meticulously the information in order to decide for itself as to whether the action under section 132 is called for. But the court would be acting within its jurisdiction in seeing whether the act of issuance of authorization under section 132 is arbitrary or mala fide or whether the satisfaction recorded is such which shows lack of application of mind on the part of the appropriate authority. The reason to believe must be tangible in law and if the information or reason has no nexus with the belief or there is no material or tangible information for the formation of the belief, action taken under section 132 would be bad in law. If reasons have been recorded and the concerned officer is satisfied that there is reason to believe, the court cannot sit in appeal over the decision of the said officer regarding the existence of the reason to believe nor can the court examine the adequacy of the grounds on which the reason to believe entertained by such officer is based. But there is a limited area within which such reason to believe entertained by the officer can be scrutinised by the court. If the grounds on which “reason to believe” is founded are not relevant to the subject matter of inquiry or are extraneous to the scope and purpose of the statute or are such as no rational human being can consider connected with the fact in respect of which the belief is to be entertained so that no reasonable Page 20 of 33 C/SCA/16360/2018 JUDGMENT man can come to such a belief, the exercise of the power would be bad. In appropriate cases a writ petition may lie challenging the validity of the action on the ground of absence of power or on a plea that proceedings were taken maliciously or for a collateral purpose. 7.3 It was submitted that in the facts of the present case, the officer concerned, based on tangible information received by him, has recorded satisfaction that there is reason to believe as contemplated under sub-section (1) of section 132 of the Act and hence, the action taken under section 132 of the Act is just, legal and proper and does not warrant interference by this court. 7.4 Reliance was also placed upon the decision of the Supreme Court in the case of Director General of Income Tax (Investigation) Pune & Ors. v. Spacewood Furnishers Pvt. Ltd. & Ors., (2015) 374 ITR 595, for a similar proposition of law. 7.5 The learned senior standing counsel further submitted that the transaction in question needs verification and that the formation of belief is based on material on record. If the jurisdictional assessing authority had issued summons or notice, the petitioner may not have produced the requisite details for the proceedings under the Income Tax Act and, therefore, authorisation under section 132 of the Act was issued. It was submitted that to realise the entire amount, the real picture would not have emerged otherwise, and, therefore, there was necessity to issue authorisation under section 132 of the Act. It was submitted that today there is a satisfaction note Page 21 of 33 C/SCA/16360/2018 JUDGMENT which establishes positive appreciation on the part of the authorities as contemplated under clause (b) of sub-section (1) of section 132 of the Act and hence, there is no warrant for intervention by this court. It was urged that the petition being devoid of any merit or substance, deserves to be dismissed. 7.6 The learned senior standing counsel further produced a copy of the satisfaction note recorded by the concerned authority for the perusal of the court and made submissions on the basis thereof. 8. In rejoinder, Mr. Soparkar, learned counsel for the petitioner submitted that a parrot like reproduction of the statutory provisions will not vest jurisdiction in the respondents and that to vest jurisdiction under section 132 of the Act, there has to be a reason for issuing authorisation for search thereunder. It was contended that the first respondent had no authority to record the conclusion that the petitioner would not respond to any notice as that may have been issued to the petitioner as the petitioner is not within his jurisdiction. The attention of the court was invited to the scheme of Part-C of Chapter XIII of the Act to point out that there are several provisions under which the authorities can act, namely, section 131(1)(a) under which if the respondent has reason to suspect, he can seek discovery and inspection. Reference was made to section 133 of the Act which empowers the Assessing Officer and other officers referred to therein to call for information as provided thereunder. Reference was also made to section 133A of the Act which provides for power of survey and 133B which deals with power to collect certain information, as well as section 133 which deals with power to call for information Page 22 of 33 C/SCA/16360/2018 JUDGMENT by the prescribed income tax authority. It was submitted that the respondents are vested with a variety of powers; however, power under section 132 of the Act can be exercised only in three situations; firstly, where the assessee fails to produce books of account or other documents; secondly, he does not respond to a summons or notice; and thirdly, he is in possession of undisclosed income. It was submitted that in this case the amount advanced to the borrower company has been duly disclosed by the petitioner in his books of account and the tax has been paid on the interest received by the petitioner. It was contended that what is disclosed cannot be treated as undisclosed. According to the learned counsel, that if the reasons are completely oblivious of these facts, the reasons must fail as the petitioner had duly disclosed the transaction in question. It was pointed out that the borrower company had deducted tax at source while paying such interest and the petitioner has been given credit of the tax deducted at source. It was submitted that at the time of demonetisation, the petitioner was not a director and that between March 2017 and May 2017, his money was paid back to him. It was submitted that there is no question of any accommodation entry, as the petitioner had given the money against a mortgage. It was urged that to inquire into a transaction which is of suspicious nature, the petitioner cannot be searched. It was submitted that the petitioner has limited association with the Sarju Sharma group which is admitted by the respondents. 8.1 Reliance was placed upon the decision of the Supreme Court in the case of Commissioner of Income Tax, Allahabad v. Vindhya Metal Corporation, (1997) 224 ITR 614, wherein the court in the facts of the said case has held Page 23 of 33 C/SCA/16360/2018 JUDGMENT that considering the material on which reliance was placed by the Commissioner, no reasonable person could have entertained the belief that the respondent therein would not have disclosed the amount in question for the purposes of the Act. It was submitted that the case of the petitioner stands on an even stronger footing. It was, accordingly, urged that the petition deserves to be allowed by quashing and setting aside the impugned authorisation. 9. It is in the backdrop of the above facts and contentions that the validity of the authorisation issued by the first respondent under section 132 of the Act is required to be examined. 10. At the outset it would be germane to refer to the provisions of section 132 of the Act, which to the extent the same is relevant for the present purpose reads as under:- “132. Search and seizure.-(1) Where the Principal Director General or Director General or Director or the Principal Chief Commissioner or Chief Commissioner or Principal 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) any person to whom a summons under sub-section (1) of section 37 of the Indian Income Tax Act, 1922 (11 of 1922), or under subsection (1) of section 131 of this Act, or a notice under sub-section (4) of section 22 of the Indian Income Tax Act, 1922 (11 of 1922), or under sub- section (1) of section 142 of this Act was issued to produce, or cause to be produced, any books of account or other documents has omitted or failed to produce, or cause to be produced, such books of account, or other documents as required by such summons or notice, or Page 24 of 33 C/SCA/16360/2018 JUDGMENT (b) any person to whom a summons or notice as aforesaid has been or might be issued will not, or would not, produce or cause to be produced, any books of account or other documents which will be useful for, or relevant to, any proceeding under the Indian Income Tax Act, 1922 (11 of 1922), or under this Act, or (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 Act (hereinafter in this section referred to as the undisclosed income or property), then,- (A) the Principal Director General or Director General or Director or the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, as the case may be may authorise any Additional Director or Additional Commissioner or Joint Director, Joint Commissioner, Assistant Director or Deputy Director, Assistant Commissioner or Deputy Commissioner or Income Tax Officer, or (B) such Additional Director or Additional Commissioner or Joint Director or Joint Commissioner, as the case may be, may authorise any Assistant Director or Deputy Director, Assistant Commissioner or Deputy Commissioner or Income Tax Officer, (the officer so authorised in all cases being hereinafter referred to as the authorised officer) to - (i) enter and search any building, place, vessel, vehicle or aircraft where he has reason to suspect that such books of account, other documents, money, bullion, jewellery or other valuable article or thing are kept; (ii) break open the lock of any door, box, locker, safe, almirah or other receptacle for exercising the powers conferred by clause (i) where the keys thereof are not available; (ii-a) search any person who has got out of, or is about to get into, or is in, the building, place, vessel, vehicle or aircraft, if the authorised officer has reason to suspect Page 25 of 33 C/SCA/16360/2018 JUDGMENT that such person has secreted about his person any such books of account, other documents, money, bullion, jewellery or other valuable article or thing; (ii-b) require any person who is found to be in possession or control of any books of account or other documents maintained in the form of electronic record as defined in clause (i) of sub-section (1) of Section 2 of the Information Technology Act, 2000, to afford the authorised officer the necessary facility to inspect such books of account or other documents; (iii) seize any such books of account, other documents, money, bullion, jewellery or other valuable article or thing found as a result of such search: Provided that bullion, jewellery or other valuable article or thing, being stock-in-trade of the business, found as a result of such search shall not be seized but the authorised officer shall make a note or inventory of such stock-in-trade of the business. (iv) place marks of identification on any books of account or other documents or make or cause to be made extracts or copies therefrom; (v) make a note or an inventory of any such money, bullion, jewellery or other valuable article or thing: Provided that where any building, place, vessel, vehicle or aircraft referred to in clause (i) is within the area of jurisdiction of any Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, but such Principal Chief Commissioner or Chief Commissioner] or Principal Commissioner or Commissioner] has no jurisdiction over the person referred to in clause (a) or clause (b) or clause (c), then, notwithstanding anything contained in Section 120, it shall be competent for him to exercise the powers under this sub-section in all cases where he has reason to believe that any delay in getting the authorisation from the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner having jurisdiction over such person may be prejudicial to the interests of the revenue: Provided further that where it is not possible or practicable to take physical possession of any valuable article or thing and remove it to a safe place due to its Page 26 of 33 C/SCA/16360/2018 JUDGMENT volume, weight or other physical characteristics or due to its being of a dangerous nature, the authorised officer may serve an order on the owner or the person who is in immediate possession or control thereof that he shall not remove, part with or otherwise deal with it, except with the previous permission of such authorised officer and such action of the authorised officer shall be deemed to be seizure of such valuable article or thing under clause (iii): Provided also that nothing contained in the second proviso shall apply in case of any valuable article or thing, being stock-in-trade of the business Provided also that no authorisation shall be issued by the Additional Director or Additional Commissioner or Joint Director or Joint Commissioner on or after the 1st day of October, 2009 unless he has been empowered by the Board to do so. Explanation.-For the removal of doubts, it is hereby declared that the reason to believe, as recorded by the income-tax authority under this sub-section, shall not be disclosed to any person or any authority or the Appellate Tribunal.” 11. On a plain reading of sub-section (1) of section 132 of the Act, it is clear that it is in consequence of information in his possession that the concerned authority should have reason to believe that any of the three circumstances provided under sub-section (1) of section 132 exist. Existence of any one of the circumstances is mandatory to justify the exercise of power to issue authorisation. The condition precedent for exercising power to issue authorisation for search and seizure is hedged in by the requirements of these conditions precedent and it is only if these conditions are fulfilled that the power can be exercised. The facts of the present case are required to be examined in the light of the above statutory provision. 12. Insofar as the first circumstance as laid down under Page 27 of 33 C/SCA/16360/2018 JUDGMENT clause (a) of sub-section (1) of section 132 is concerned, the same relates to a case where any person to whom a summons under sub-section (1) of section 131 of the Act or notice under sub-section (1) of section 142 of the Act was issued to produce, or cause to be produced, any books of account or other documents has omitted or failed to produce, or cause to be produced, such books of account, or other documents as required by such summons or notice, in which case an authorisation can be issued. In the facts of the present case, it is an admitted position that no such summons or notice as envisaged under clause (a) of sub-section (1) of section 132 has been issued in the present case. Therefore, the circumstance envisaged under clause (a) of section 132(1) of the Act does not exist in the present case. 13. Before adverting to the requirements of clauses (b) and (c) of sub-section (1) of section 132 of the Act, it may be noted that the learned counsel for the respondents had produced a satisfaction note for the perusal of this court. The satisfaction note which runs into thirty three pages, has been recorded in the case of Shri Sarju Sharma and other related groups. The petitioner’s name finds place in the list of key persons of the Group concern and is shown to be associated with Goan Recreation Clubs Private Limited. The satisfaction note refers to huge deposits made during the periods of demonetisation and introduction of undisclosed income in the form of unsecured loans. Reference to the petitioner finds place in allegations made against Goan Recreation Clubs Private Limited wherein reference is made to the loan given by the petitioner to the said concern, which has given rise to the belief that the transaction of loan was prearranged and was an Page 28 of 33 C/SCA/16360/2018 JUDGMENT accommodation entry provided through some entry operator thereby giving colour of genuineness to an otherwise bogus loan The satisfaction note refers to various other transactions; however, since the same is confidential in nature it would not be prudent to refer to the same. Suffice it to state that the allegation against the petitioner is limited to the above. 14. On reading the satisfaction note in its entirety, except for what is referred to hereinabove, this court could not find any other material whatsoever insofar as the petitioner is concerned, for the purpose of recording satisfaction under section 132(1) of the Act. 15. In the above backdrop, the question as to whether or not the provisions of clause (b) and clause (c) of sub-section (1) of section 132 of the Act are satisfied is required to be considered. 16. Clause (b) of sub-section (1) of section 132 of the Act provides for issuance an authorisation in case where the authority in consequence of information in his possession, has reason to believe that such person to whom a summons or notice has been issued or might be issued will not, or would not, produce or cause to be produced, any books of account or other documents which would be useful for, or relevant to, any proceeding under the Act. In the facts of the present case, it may be noted that the first respondent, namely the authority who has issued the authorisation under section 132 of the Act, is not the jurisdictional Assessing Officer. The first respondent Principal Director of Income Tax (Investigation), Kolkata, who has issued the impugned authorisation is based in Kolkata and, Page 29 of 33 C/SCA/16360/2018 JUDGMENT therefore, has no jurisdiction over the petitioner under the normal provisions of the Act. The only provision under which the said respondent can exercise jurisdiction over the petitioner is under section 132 of the Act in view of the CBDT notification dated 3.12.2001 issued under section 120(1) and (2) of the Act, whereby the Director General of Income Tax have been empowered to exercise jurisdiction in respect of territorial areas of the whole of India. In the affidavit-in-reply the reason given by the respondent for issuance of search warrant is that the petitioner was not expected to comply with the notice of the respondent No.1 or the respondent No.5 as the petitioner would have brought the alibi of jurisdiction to evade or non-comply with the notice. Thus, as rightly submitted by the learned counsel for the petitioner, the belief that the petitioner would not respond to a summons or notice issued as envisaged under clause (b) of sub-section (1) of section 132 is not based upon any information or other material but is based upon conjectures and surmises that the petitioner would take the alibi of lack of jurisdiction on the part of the respondents. This contention of the first respondent also lends support to the contention raised on behalf of the petitioner that powers under section 132 of the Act have been resorted to because that is the only provision which vests jurisdiction in the Kolkata authorities for taking action against the petitioner. Evidently, therefore, the circumstance envisaged under clause (b) of sub-section (1) of section 132 of the Act does not exist in the present case. 17. Insofar as the third circumstance as contemplated under clause (c) of section 132(1) of the Act is concerned, the same relates formation of belief that the person concerned is in Page 30 of 33 C/SCA/16360/2018 JUDGMENT 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 Act. In the present case, on a perusal of the satisfaction note as well as the affidavit-in-reply filed on behalf of the respondents and submissions advanced by the learned senior standing counsel for the respondents, it is evident that the sole ground on which the search is sought to be carried out is that the petitioner herein had advanced a loan of Rs.10,00,00,000/- (rupees ten crore) to Goan Recreation Clubs Private Limited. There is nothing on record to indicate that any belief has been formed by the competent authority to the effect that the petitioner has in his possession any money, bullion, jewellery or other valuable article or thing which would not have been disclosed by him for the purposes of the Act. On the contrary, in the facts of the present case, from the record of the case as produced by the respondents as well as by the petitioner, it is evident that the loan transaction whereby the petitioner had advanced Rs.10,00,00,000/- to the borrower company has been duly reflected in the books of account of the petitioner. In his return of income, the petitioner has duly shown the interest income from such transaction. The tax deducted at source in respect of such interest income, has been credited to the account of the petitioner by the concerned authority. Therefore, the entire transaction has been disclosed by the petitioner. There is no other material on record on the basis the respondents could have formed the belief as contemplated under clause (c) of sub-section (1) of section 132 of the Act. Evidently, therefore the circumstance envisaged under clause (c) of section 132(1) of the Act also Page 31 of 33 C/SCA/16360/2018 JUDGMENT does not exist in the present case. 18. In the opinion of this court, on the information which has come on record there is no material on the basis of which a reasonable person could have formed the belief that action under sub-section (1) of section 132 of the Act is called for. It appears that merely because the first respondent does not have any other power under the Act to directly take action against the petitioner herein, resort has been made to the provisions of section 132(1) of Act by taking shelter behind the notification dated 13th November, 2014 issued by the CBDT in exercise of powers under sub-sections (1) and (2) of section 120 of the Act, which vests jurisdiction under Chapter XIII of the Act in respect of the territorial areas of the whole of India in the Director General of Income Tax specified in column (2) or the Principal Director/Director of Income-tax specified in column (4) of the Schedule to the notification. 19. Another aspect of the matter is that the respondent authorities have proceeded on the footing that Goan Recreation Clubs Private Limited has received various unsecured advances leading to the belief that the transaction in question is non-genuine. In the facts of the present case, the petitioner has produced on record a mortgage deed dated 22nd June, 2016 executed by and between Royale Recreation Pvt. Ltd. as the First Party, Goan Recreation Clubs Private Limited as the Confirming Party or the Second Party and the petitioner Shri Laljibhai Kanjibhai Mandalia as the Mortgagee or the Third Party, which had been executed by way of a security for repayment of the amount advanced by the petitioner to Goan Recreation Clubss Private Limited. The genuineness of such Page 32 of 33 C/SCA/16360/2018 JUDGMENT document has not been disputed by the respondents. Under the circumstances, on the basis of the information referred to hereinabove, no reasonable person could have come to the conclusion that the ingredients contained in clauses (a), (b) or (c) of sub-section (1) of section 132 of the Act were attracted. In the absence of existence of any of the three circumstances envisaged under sub-section (1) of section 132 of the Act, the impugned authorisation is invalid and cannot be sustained. 20. For the foregoing reasons, the petition succeeds and is, accordingly, allowed. The impugned warrant of authorisation dated 7.8.2018 issued by the respondent No.1 under section 132 of the Income Tax Act, 1961 and rule 112(1) of the Income Tax Rules, 1962 (Annexure-A to the affidavit-in-reply filed by the respondent No.1) is hereby quashed and set aside. Consequently, all actions taken pursuant to such warrant of authorisation would also be rendered invalid. Rule is made absolute accordingly with no order as to costs. (HARSHA DEVANI, J) (A. P. THAKER, J) Z.G. SHAIKH Page 33 of 33 "