D.S. Tewatia, J.
1. The petitioners in Civil Writs Nos. 4392 to 4397, 4465, 4467, 4469, 4562 and 4564 of 1975, whose residential and business premises were simultaneously searched by the I.T. authorities on May 29, 1975, in pursuance of the warrants of authorisation issued by the Commissioner of Income-tax (hereinafter referred to as ' the Commissioner ') under Section 132(1) of the I.T. Act, 1961 (hereinafter referred to as ' the Act'), have in these writ petitions assailed the legality of the said searches and the issuance of the notice under Rule 112A of the I.T. Rules, 1962 (hereinafter referred to as ' the Rules '), requiring some of them, from whose premises seizure of undisclosed income had been effected, to disclose the sources of acquisition of such of the items of undisclosed income, as had been merely listed and not seized by the I.T. authorities that carried out the searches of their respective premises. Since in all of these petitions common questions of law and facts are involved, I propose a common order for the same, and wherever found necessary the reference to facts would be made from Civil Writ Petition No. 4395 of 1975.
2. The submissions advanced on behalf of the petitioners by Mr. Kuldip Singh, their learned counsel, are :
(1) that the searches carried out by the I.T. authorities were illegal for the reason that the order under Section 132(1) of the Act had been passed by the Commissioner (respondent No. 1) mechanically, without application of his mind, as would be clear from the order itself, for he had not given any reason for his satisfaction envisaged in the said provision ;
(2) that such of the petitioners, to whom notice under Rule 112A of the Rules had been issued, could not have been required by respondent No. 4, the ITO, to disclose the source of the acquisition of such items of the undisclosed income as had been merely listed by the searching authorities at the time of carrying out of the searches of their respective premises. According to the learned counsel, provisions of Rule 112A of the Rules limit the query in -this regard to such items of the undisclosed income only as had been seized during the search; and
(3) that there is no jurisdiction with the I.T. authorities to require the petitioners to disclose the sources of acquisition of such items as had been disclosed earlier by them in their wealth-tax returns, because such items cannot be considered to be falling within the category of items of undisclosed income.
3. The aforesaid submissions of the learned counsel have to be considered against the background of the assertions made on behalf of the revenue in their replies and the record made available to the court.
4. It has been asserted on behalf of the revenue in the reply that one Arjan Singh, who was one of the co-directors in the New Samundri Transport Company Ltd., approached the office of the Commissioner of Income-tax, Amritsar, respondent No. 1, and made available to the in-charge of intelligence--a cell working directly under his control and supervision--some duplicate sets of books of account disclosing undisclosed income of the petitioners, who are sister concerns and are inter se inter-linked. He made a statement before Shri Inderjit Singh, Assistant Director of the Intelligence Cell, wherein, inter alia, he disclosed the following pedigree table which the counsel for the revenue read out from the official record in the open court in the presence of the counsel for the petitioners :
| | | |
Mela Singh Daulat Singh Bawa Singh Lal Singh
| | | |
_________|___________ | _________|_______ Bhagat Singh
| | | | | |
Lashkar Sewag Joot | Darshan Gardhara
Singh Singh Singh | Singh Singh
| | | | |
Jaswant Singh Amrik Singh Joginder Singh Balwant singh Piara Singh
5. The said informer had also mentioned in his satement that Swaran Singh was the maternal uncle's son of Bhagat Singh, son of Lal Singh.
6. A look at the petition filed by the petitioners in this court would reveal that Jaswant Singh and Daulat Singh are co-petitioners in Civil Writ No. 4396 of 1975 ; Amrik Singh is the petitioner in Civil Writ No. 4394 of 1975 ; Balwant Singh is the petitioner in Civil Writ No. 4393 of 1975 ; Piara Singh is the petitioner in Civil Writ No. 4397 of 1975 ; Swaran Singh (maternal uncle's son of Bhagat Singh) is the petitioner in Civil Writ No. 4467 of 1975 ; and Gardhara Singh is the petitioner in Civil Writ No. 4395 of 1975, and he is the managing director of the New Samundri Transport Company Ltd., Ferozepore, of which Daulat Singh and Jaswant Singh are also the active shareholders.
7. The informer, Arjan Singh, also mentioned in his statement before the Assistant Director of Intelligence Cell that besides the duplicate account books furnished by him the petitioners had a large number of such duplicate account books dealing with the black money and undisclosed transactions with them. According to him, the petitioners had generated crores of black money. The Assistant Director of the Intelligence Cell, in pursuance of the directions of the Commissioner, verified the information so received from the informer and prepared a detailed note for him which runs as follows :
' P.U.C. is information received from an informer of Ferozepore regarding possession of unaccounted assets in the form of cash, jewellery, etc., and documents relating to the acquisition of these assets by persons connected with M/s. Samundri Transport Company (Private) Limited, Ferozepore. The members of this group are living at Ferozepore and Hoshiarpur. Apart from the transport company, these people are carrying on several other businesses also, i.e., a cold storage and a cinema at Hoshiarpur, petrol pumps at Hoshiarpur, Ferozepure, Kotkapura and Muktsar, etc. The unaccounted assets and documents relating thereto are stated to be kept by them at their residential and business premises.
The informer has furnished documentary evidence indicating concealment of income in the case of the transport company to the tune of more than Rs. 40 lakhs, over a period of about ten years. The informer is a former director of the company and has been associated with the business activities of this group for more than 20 years. By utilizing the unaccounted profits of the transport company, these people are stated to have earned much larger unaccounted profits. The total concealment of income, over a period of about ten years, by this group is stated to exceed a crore of rupees.
After detailed discussions with the informer, I have formed the opinion that his reliability is very good. He is a man of means, being acategory-I assessee. His knowledge of these people is very good because he has been associated with them for more than 20 years. The information given by him is quite definite. He has even specified the particular place in the residence of one of the members of this group, where a major portion of the unaccounted cash and jewellery, belonging to the group of persons under consideration, is kept. The motive for giving the information is stated to be a dispute regarding the division of unaccounted profits of the transport company in which the informer and his family had 25% share during the time these people are stated to have misappropriated more than Rs. 40 lakhs of the company's profits as discussed above. A suit filed against the group of persons under consideration by members of the informer's group under the Companies Act, regarding the abovesaid misappropriation of the funds of the company, is stated to be pending in the High Court. Many of the documents showing the misappropriation are stated to have been submitted in original in the High Court. There is, therefore, substantial basis for the informer's allegations.
As per worthy Commissioner of Income-tax's directions, I visited Hoshiarpur and Ferozepore for making local enquiries in the matter in order to verify, as far as possible, the allegations of the informer. The local reputation of these persons is that they have become very rich in the last few years and that they possess very substantial unaccounted wealth. Broadly, the local enquiries made by me confirm the allegations of the informer.
Also, as per worthy CIT's instructions, I discussed the matter with the two Inspecting Assistant Commissioners concerned, i.e., Inspecting Assistant Commissioner, Range-II, Jullundur, and Inspecting Assistant Commissioner, Bhatinda. Both of them were of the view that action under Section 132(1) is immediately called for against this group of persons. The Inspecting Assistant Commissioner, Range-II, Jullundur, told me that he also had heard of the reputation of these people, i.e., that they are in possession of substantial unaccounted wealth.
In view of these facts, action under Section 132(1) is recommended against the abovesaid group of persons. If approved, necessary authorisations may kindly be issued in respect of the following premises :
(1) M/s. Swaran Talkie, Phagwara Road, Hoshiarpur.
(2) M/s. Swaran Cold Storage, Hoshiarpur.
(3) M/s. Jupiter Service Station, Opposite Bus Stand, Hoshiarpur.
(4) M/s. Hoshiarpur Oil Store, Opposite Bus Stand, Hoshiarpur.
(5) M/s. Hoshiarpur Oil Store, Hoshiarpur to Garhshankar Road.
(6) Residence of Shri Avtar Singh, Model Town, Hoshiarpur.
(7) Residence of Shri Balwant Singh, Hoshiarpur to Garhshankar Road.
(8) Residence of Shri Amrik Singh, Opposite Bus Stand, Hoshiarpur.
(9) Residence of Shri Jaswant Singh, Afghan Road, Hoshiarpur.
(10) Residence of Shri Daulat Singh, Afghan Road, Hoshiarpur.
(11) Residence of Shri Charan Singh at Muktsar, behind Janta Oil Store.
(12) Residence of Shri Sohan Singh, behind Janta Oil Store, Muktsar.
(13) M/s. Hoshiarpur Oil Store, Muktsar Road, Kotkapura.
(14) M/s. Janta Oil Store, Kotkapura Road, Muktsar.
(15) Residence of Shri Gardhara Singh, Mamdot House, The Mall, Ferozepore.
(16) Residence of Shri Dharam Singh, Mamdot House, The Mall, Ferozepore.
(17) Residence of Shri Udham Singh, behind Janta Oil Store, Ferozepore.
(18) Residence of Shri Piara Singh, at Janta Oil Store, Ferozepore.
(19) Residence of Swarn Singh, behind Janta Oil Store, Ferozepore.
(20) Brick-kiln of Shri Piara Singh at village Satiaswala, District Ferozepore.
(21) M/s. B.S. & Co., City Road, Ferozepore. '(22) M/s. New Samundri Transport Company's Office at Ferozepore.
(23) M/s. Janta Oil Store at Ferozepore Cantonment.
(24) M/s. Ferozepore Automobiles at Janta Oil Store, Ferozepore Cantonment.
(25) M/s. Manjit Singh and Company at Janta Oil Store, Ferozepore. '
8. This note was apparently placed before the Commissioner on May 27, 1975, on which he recorded the following order in his own hand :
' I am satisfied that this is a fit case for action under Section 132(1) and it is necessary to search all the premises mentioned above. Necessary authorisations are accordingly issued.'
and then issued the warrants of authorisations.
9. Reverting to the first contention advanced on behalf of the petitioners, the stress laid by the learned counsel is on the fact that respondent No. 1 had not given reasons for his satisfaction in the order recorded by him. The learned counsel asserted that Rule 112 of the Rules, as also the language of Section 132(1) of the Act, leaves no scope for doubt that before conclusion pertaining to the satisfaction in terms of the said provisions is reached by the authority concerned, he has to record his reasons for being so satisfied. According to the learned counsel, apart from the textual mandate to give reasons, the judicial precedents also envisage the giving of reasons and in this regard, he drew my attention to ITO v. Seth Brothers : 74ITR836(SC) and Chhugamal Rajpal v. S. P. Chaliha : 79ITR603(SC) .From the case of Seth Brothers : 74ITR836(SC) my pointed attention is drawn to the following observations (p. 843) :
' 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 authorization in favour of a designated officer to search the premises and exercise the powers set out therein.'
10. Mr. Awasthy, learned counsel appearing for the revenue, on the contrary, asserted that the order authorising search suffered from no legal infirmity. He maintains that the condition precedent is the existence of material and the application of mind of the authority, which has to take a decision, on that material. Once that is found to be there, the order would not be considered (invalid) on the mere ground that the authority concerned did not couch its satisfaction on the paper in a more expressive and explicit language. The learned counsel argues that the giving of reasons is primarily insisted upon for the reasons that it furnishes inherent evidence of the application of the mind of the authority concerned to the material which satisfied him about the necessity of the passing of the order in question.
11. There is, in my opinion, merit in the submission advanced on behalf of the revenue. The policy underlying the provisions which require the giving of reasons is to provide in the order itself the evidence regarding the application of mind by the authority concerned, because once the reasons are given, it is clearly reflective of the application of mind. But giving of reasons by itself cannot always perform the trick. In a given case, if it is shown that there was no material before the authority, the reasons so given would be considered merely imaginative and the figment of the mind of the authority and not based on a satisfaction of material produced before it and the order, therefore, would be considered mala fide and bad despite the authority in question having indicated its reasons for its satisfaction. Further, even where relevant material is available on the file and reasons for the satisfaction too are indicated, there too, in a given case, the order may be held to be bad, if it is found as a fact that the authority concerned had no occasion to see that material and had merely signed on the dotted line, and the order would be clearly bad because there had been no actual application of the mind of the authority concerned. Hence, what is basic, while considering the legality of the order in question, is the existence of the relevant material and the actual application of mind of the authority which passed the order.
12. In the present case, the informer was a co-director of the New Samundri Transport Company (Private) Ltd., of which Gardhara Singh was the managing director. He not only furnished some of the duplicate account books of the petitioners showing transactions regarding the undisclosed income, but also stated that more such duplicate books of accounts were kept in the premises of the said transport company and of its managing director, Gardhara Singh, and in the premises of their sister concerns which are inter-connected belonging to virtually the same family and that huge black income was being generated which had been distributed amongst themselves to the detriment of the revenue and also some of their partners. He, in his statement, also furnished the pedigree table. (Counsel for the revenue had given out the pedigree table to the court as being furnished by the informer, in the presence of the counsel for the petitioners and on seeing the record, I ascertained that the pedigree table, as given by the counsel, was identical with the one which existed at page 1 of the confidential file of the revenue). This information was given to the Assistant Director of Intelligence Cell. He was functioning directly under the supervision, control and direction of the Commissioner, respondent No. 1, as the noting extracted above would show.
13. From the above, it is clear that there was sufficiently reliable and relevant material in the possession of the secret cell functioning under the direct control and supervision of the Commissioner and the noting would further show that at every stage the Commissioner had occasion to know the investigation carried out by the secret cell in the matter. It is thus clear that two out of the three requirements stand satisfied in the present case, that is, availability of relevant material and application of mind by the Commissioner to the same. What is merely lacking is the reasons for his belief that the ' undisclosed income ' and the documents would not be produced by the petitioners if required to do so and, therefore, an immediate search of their premises in question was warranted to get at the same.
14. Seth Brothers' case : 74ITR836(SC) was a case in which the contingency of the consideration of the legality of the order under Section 132(1) of the Act on the score of omission to give reasons did not arise, as in that case reasons were given and to say that reasons for the satisfaction must be given does not amount to saying that when the reasons are not given, that by itself would render the order invalid, even when the other basic requirements as to the availability of the relevant material and the application of mind to the same stand satisfied.
15. In Chhugamal Raj pal's case : 79ITR603(SC) , the ITO had issued notice under Section 148 of the Act, for which the requisite permission had been granted by the Commissioner. The ratio of the said case, in my opinion.primarily rests in the following observations of their Lordships at page 608 :
' We are also of the opinion that the Commissioner has mechanically accorded permission. He did not himself record that he was satisfied that this was a fit case for the issue of a notice under Section 148. To question No. 8 in the report which reads ' Whether the Commissioner is satisfied that it is a fit case for the issue of notice under Section 148 ', he just noted the word ' yes ' and affixed his signature thereunder. We are of the opinion that if only he had read the report carefully, be could never have come to the conclusion on the material before him that this is a fit case to issue notice under Section 148.'
16. From the above, it would be seen that the emphasis is on the relevancy of the material and the application of mind to that before passing the order.
17. Mr. Kuldip Singh, learned counsel for the petitioners, rested his second submission on the language of Rule 112A of the Rules, as in the field of judicial precedents, according to him, the matter was res integra. The relevant portion of Rule 112A of the Rules is in the following terms :
'112A, (1) Where any money, bullion, jewellery or other valuable article or thing (hereinafter referred to as assets) are seized, the Income-tax Officer shall, within fifteen days of the seizure, issue to the person in respect of whom enquiry under Sub-section (5) of Section 132 is to be made requiring him on the date to be specified therein (not being earlier than fifteen days from the date of service of such notice) either to attend at the office of the Income-tax Officer to explain or to produce or cause to be there produced evidence on which such person may rely for explaining the nature of the possession and the source of the acquisition of the assets.'
18. Mr. Kuldip Singh stressed that in Rule 112A of the Rules ' money, bullion, jewellery or other valuable article or thing ' are referred to as 'assets' and the expression occurring at the fag end of Sub-rule (1) of Rule 112A of the Rules ' the acquisition of the assets ' refers to the said assets, that is, the petitioners could be required to explain the source of acquisition of the seized assets only.
19. In my opinion, the submission is based on the misconception of the scope of Rule 112A of the Rules and of the provisions of Section 132 of the Act, the relevant portions whereof are in the following terms :
' 132. (1) Where the director of Inspection or the Commissioner or any such Deputy Director of Inspection or Inspecting Assistant Commissioner as may be empowered in this behalf by the Board, in consequence of information in his possession, has reason to believe that--...
(c) any person is in possession of any money, bullion, jewellery or other valuable article or thing and such money, bullion, jewellery or othervaluable 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),...
(A) the Director of Inspection or the Commissioner, as the case may be, may authorise any Deputy Director of Inspection, Inspecting Assistant Commissioner, Assistant Director of Inspection or Income-tax Officer, or
(B) such Deputy Director of Inspection or Inspecting Assistant Commissioner, as the case may be, may authorise any Assistant Director of Inspection or Income-tax Officer,
(the officer so authorised in all cases being hereinafter referred to as the authorised officer) to--......
(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;......
(v) make a note or an inventory of any such money, bullion, jewellery or other valuable article or thing.......
(5) Where any money, bullion, jewellery or other valuable article or thing (hereafter in this section and in Sections 132A and 132B referred to as the assets) is seized under Sub-section (1) or Sub-section (1A), the Income-tax Officer, after affording a reasonable opportunity to the person concerned of being heard and making such enquiry as may be prescribed, shall, within ninety days of the seizure, make an order, with the previous approval of the Inspecting Assistant Commissioner,--
(i) estimating the undisclosed income (including the income from the undisclosed property) in a summary manner to the best of his judgment on the basis of such materials as are available with him ;
(ii) calculating the amount of tax on the income so estimated in accordance with the provisions of the Indian Income-tax Act, 1922 (11 of 1922), or this Act ;
(iia) determining the amount of interest payable and the amount of penalty imposable in accordance with the provisions of the Indian Income-tax Act, 1922 (11 of 1922), or this Act, as if the order had been the order of regular assessment ;
(iii) specifying the amount that will be required to satisfy any existing liability under this Act and any one or more of the acts specified in Clause (a) of Sub-section (1) of Section 230A in respect of which such person is in default or is deemed to be in default,
and retain in his custody such assets or part thereof as are in his opinion sufficient to satisfy the aggregate of the amounts referred to inclauses (ii), (iia) and (iii) and forthwith release the remaining portion, if any, of the assets to the person from whose custody they were seized :
Provided that if, after taking into account the materials available with him, the Income-tax Officer is of the view that it is not possible to ascertain to which particular previous year or years such income or any part thereof relates, he may calculate the tax on such income or part, as the case may be, as if such income or part were the total income chargeable to tax at the rates in force in the financial year in which the assets were seized and may also determine the interest or penalty, if any, payable or imposable accordingly :
Provided further that where a person has paid or made satisfactory arrangements for payment of all the amounts referred to in Clauses (ii), (iia) and (iii) or any part thereof, the Income-tax Officer may, with the previous approval of the Commissioner, release the assets or such part thereof as he may deem fit in the circumstances of the case.'
20. A perusal of Sub-section (5) of Section 132 of the Act would show that the sine qua non for starting the enquiry thereunder is the seizing of any assets, that is, money, bullion, jewellery or other valuable article or thing, and if there is such a seizure, then after affording a reasonable opportunity to the person concerned pass an order within ninety days, inter alia, estimating the undisclosed income including the income from the undisclosed property in a summary manner to the best of his judgment on the basis of such material as become available to him.
21. Clause (c) of Sub-section (1) of Section 132 of the Act provides the indication regarding the property which is to be considered statutorily as the undisclosed income. Such a property under this class is money, bullion, jewellery or other valuable article or thing, which represents either wholly or partly income or property which had not been or would not be disclosed for the provisions of the Indian I.T. Act of 1922 or the I.T. Act of 1961.
22. When a search is effected in pursuance of the warrant of search, capital Clause (B) of Sub-section (1) of Section 132 of the Act envisages that the searching officer may either seize any such books of account, other documents, money, bullion, jewellery or other valuable article or thing (which is referred to in Clause (c) of Sub-section (1) of Section 132 of the Act as the ' undisclosed income or property ') found as a result of such search or make a note or an inventory thereof.
23. The object of Sub-section (5) of Section 132 of the Act is to estimate the undisclosed income. The undisclosed income herein would relate to that income, which is described in Clause (c) of Sub-section (1) of Section 132 of the Act. That undisclosed income may have been wholly seized during the search or partly it may have been seized or partly it may have been listed.
24. Notice under Rule 112A of the Rules is issued to seek explanation for the source of acquisition of the said undisclosed income or property. The expression ' the assets ' used in Rule 112A of the Rules at the fag end refers to said undisclosed income and not to those items of the undisclosed income which had been seized by the searching officer. Had the intention been to limit the expression ' the assets ' at the fag end of Rule 112A of the Rules to those items, which, in the first portion of the said rule, were referred to as 'assets', then instead of the use of the expression 'the assets', there would have been used the expression ' such assets ', in the said rule. Further, in case the expression ' the assets ' occurring in Rule 112A of the Rules is held to refer to the items of undisclosed income which had been seized and referred to as ' assets ', then that would amount to the limiting of the scope of the provisions of Sub-section (5) of Section 132 of the Act to the estimating of the value of the seized items known as ' assets ', while, in my opinion, the true scope of Sub-section (5) of Section 132 of the Act is not to be limited, as the duty cast on the ITO, inter alia, is to estimate the undisclosed income and not merely to estimate the value of the ' assets ' which had been seized in the search. Hence, the expression ' the assets ' occurring in Rule 112A of the Rules refers to all the items of undisclosed income as referred to in Clause (c) of Sub-section (1) of Section 132 of the Act.
25. For the reasons aforesaid, the contention advanced on behalf of the petitioners is repelled and it is held that the ITO, respondent No. 4, was well within his right to call upon the petitioners to explain the source of acquisition of even of such items of undisclosed income as during the search of their premises had merely been listed.
26. As regards the third contention that such of the items as had been disclosed in the wealth-tax returns by the petitioners, the same, if found in the premises during the search, could not be considered to have been discovered for the purposes of the I.T. Act as a result of the search carried out under the orders of the Commissioner under Section 132(1) of the Act, the reply on behalf of the revenue is that that would be a question of fact which has to be dealt with and decided by the ITO under the enquiry to be held in terms of Sub-section (5) of Section 132 of the Act and, therefore, the raising of this contention before this court at this stage is premature. I find merit in the argument on behalf ;of the revenue and, therefore, this contention of the petitioners is also repelled.
27. Before parting with the judgment, learned counsel for the petitioners' specific contention pertaining to only Civil Writ No, 4392 of 1975 may also be noticed. The contention is that the Commissioner, respondent No. 1, had not issued warrant of search regarding the premises of the Union Co-operative Transport Society, Hoshiarpur, hereinafter referred to as the transport society, and yet the premises of the said transport society, whichadjoins the premises of the petitioner, were searched and certain documents were seized. The respondents in the written statement had taken up a two-fold stand (1) that if the premises of the transport society had been searched without any search warrants, then it is that transport society which ought to have made the grievance and not the petitioner, and (2) that the premises, which were searched, were that of the petitioner and it is from there that the documents referred to in annex. P-5 belonging to the said transport society were recovered and not from the premises of the said transport society.
28. Even if for the sake of argument it is taken that the premises of the said transport society had been searched without there being any search warrants from the Commissioner, respondent No. 1, then it is that transport society which is entitled to make a grievance and not the petitioner and, therefore, it is unnecessary to go into the question as to whether the documents in question had been seized from the premises of the petitioner or from the premises of the said transport society at Hoshiarpur, when no notice under Rule 112A. of the Rules regarding those documents and the undisclosed income has been issued to the petitioners.
29. For the reasons aforesaid, I find no merit in these writ petitions (Civil Writs Nos. 4392 to 4397, 4465, 4467, 4469, 4562 and 4564 of 1975) and they are dismissed with costs.