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Mamchand and Co. and Others Vs. Commissioner of Income-tax, West Bengal Ii, and Others. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberMatter No. 293 of 1967
Reported in[1968]69ITR631(Cal)
AppellantMamchand and Co. and Others
RespondentCommissioner of Income-tax, West Bengal Ii, and Others.
Cases ReferredBachhittar Singh v. State of Punjab.
Excerpt:
- this is an application for appropriates writs and order of sitting aside, quashing and cancelling severals warrants of authorisation mentioned in the sub-paragraph under paragraph 8 of the petition whereby several income-tax officers were directed to enter, search and seize various account, documents, money, jewellery or other valuable articles which might be found as a result of search, and to take possession thereof.the petitioners nos. 2, 3 and 4 are partner of the petitioner no. 1. the petitioner no.1 was registered under the income-tax act, 1922, as a registered firm. the assessment of the petitioner to income tax had been completed up to the assessment year 1963-64. the returns of the assessment year 1964-65 and 1965-66 have been filed, but the assessment in respect of these two.....
Judgment:

This is an application for appropriates writs and order of sitting aside, quashing and cancelling severals warrants of authorisation mentioned in the sub-paragraph under paragraph 8 of the petition whereby several Income-tax Officers were directed to enter, search and seize various account, documents, money, jewellery or other valuable articles which might be found as a result of search, and to take possession thereof.

The petitioners Nos. 2, 3 and 4 are partner of the petitioner No. 1. The petitioner No.1 was registered under the Income-tax Act, 1922, as a registered firm. The assessment of the petitioner to income tax had been completed up to the assessment year 1963-64. The returns of the assessment year 1964-65 and 1965-66 have been filed, but the assessment in respect of these two years have not yet been completed. The petitioners contention is that on no occasion since the registration of the petitioner No. 1 in 1941, the petitioner failed to provide books of account, documents and vouchers when called upon to do so by the income tax authorities. They claimed to have paid all dues for income tax and never to have failed to comply with any summons under section 37(1) of the Income-tax Act, 1922, or under section 131(1) of the Income-tax Act, 1961 or of any notice under section 22(4) of the Income-tax Act, 1922, or under section 142(1) of the Income-tax Act, 1961.

On January 31, 1967 a number of Income-tax Officers came to the petitioners office at 21A, Canning Street and also to the residence of the petitioners Nos 2, 3 and 4 at 22, Mandaville Gardens, with warrants of authorisation issued under section 132 of the Income-tax Act, 1961, and rule 112(1) of the Income-tax Rules, 1962. The warrant of authorisation were issued by the respondent No. 1 for searching premises No. 21A, canning Street and No. 22, Mandaville Gardens. There was a third warrant for searching premises No. 21A, Canning Street, in connection with the firm of Ramswaroop Mamchand of which the petitioners Nos. 2 and 3 are partners. A search at the premises No. 21A, Canning Street, Calcutta, was made on January 31, 1967, and a search at premises No 22, Mandaville Gardens was also made on the same date. After the search, officers of the department seized books of account, paper and documents of the current year as also of several past years at No. 21A, Canning Street, Calcutta. it is also alleged that the searching officers did not care to look into the books, documents and papers which were seized. Similarly, all books of accounts, papers and documents at No. 22, Mandaville Gardens were also seized. The petitioners contention is that there was a general raid, a general search and a general seizure of all books, documents and papers relating to the business of the petitioner extending over several past years. The raid, search and seizure, it is alleged, were conducted indiscriminately, arbitrarily and without regard to the usefullness of the documents seized, for the purpose of any proceedings under the income-tax law. After the search at Mandaville Gardens on the 2nd day, namely, February 1, 1967, the authorised officers wanted to make an inventory of the documents, but one of the petitioners, namely, Muralilal Agarwalla requested the authorised officer to put the documents, books and papers found on the 2nd day of the search, in steel trunks and in gunny bags, and to seal them and to make the inventory at a later date at the office of the department. An inventory was subsequently prepared at the office of the department between February 10 and February 15, 1967. It is further alleged that besides seizure of the books and documents, the officers seized all the ornaments which were in the possession of the ladies of No. 22, Mandaville Gardens. An inventory was also made of the seized jewellery. Nearly 1,300 documents are alleged to have been seized and the most of these documents, it is alleged were in respect of periods for which assessments had already been completed and the tax due has been paid by the petitioners. It is also alleged that most of the books seized at 22, Mandaville Gardens were not only old books, but were books belonging to outsiders, and were not, and could not be use full for any proceedings against the petitioners.

The petitioners contend that a separate inventory should have been made with regards to book and documents which were seized pursuant to the warrant of authorisation relating to the firm of Ramswroop Mamchand, but no separate inventory was prepared and the inventory prepared covered the books of the petitioner No. 1, as also of Ramswroop Mamchand. The jewellery and the ornaments seized were, however, returned to the ladies after the latter and furnished explanation to the effect that the ornaments and jewellery were not held by them on behalf of any of the petitioners, and had also paid certain arrears of income tax.

On February 8, 1967, the petitioner submitted an application to the Chairman, Central Board of Direct Taxes, complaining that the search and seizure were illegal and requesting returns of the books and documents, or at any rate, to retain only such books of account and documents as might be required, and to return the reset of the documents to the petitioners. It is alleged that no reply as been received by the petitioners from the Central Board of Direct Taxes. On April 17, 1967, however, some books were returned to the petitioners. It is alleged that this books were returned were of no use without the connected books and also the current books of account. Being aggrieved by the search and seizure, the petitioners moved this court and obtained a rule nisi. An ad interim injunction was also issued restraining the respondents, their servants and agents from examining or looking into the books of account seized for the period of seven days with liberty to apply for extension of the interim order. On May 18, 1967, by consent of parties the interim injunction was extended till May 30, 1967, with liberty to petitioners to apply for further extension of the interim injunction. Pursuant to this liberty an application as also been made for extension of the interim order and this application is now before me with the writ petition.

The first contention of the learned counsel of the petitioners was that the power conferred by section 132 of the Income-tax Act, 1961 (hereinafter referred to as the Act) to search for the seize document of a person was subject to a condition precedent, which must be satisfied, before to search and seize could be exercised by the department. it was argued that the Commissioner of Income-tax or the Director of Inspection must have, under sub section (1) of section 132 of the Act, reason to believe, in consequence of information in his possession, that a person to whom a summons or a notice under different sections of the Indian Income-tax Act, 1922, or of the Income-tax Act, 1961, had been issued, would not produce or cause to be produce books of accounts and documents which would be useful for any proceedings under the Act of 1922 or under the Act of 1961, before he could authorise any one to enter, search for and seize documents of such a person. It was urged that the condition precedent, namely, reason to believe in consequence of information in the possession of the Commissioner that books and documents would not be produced when called upon to do so, must be satisfied. But in this case it was arged, the condition precedent was not satisfied as there could not be any ground for any reason to believe that books and documents would not be produced, as in all the assessment proceedings the petitioners had duly produced their books of accounts and documents whenever called upon to do so. There was not one case, it was argued, when the petitioner failed to comply with a notice or a summons for production of books and documents. That being so, it was submitted, that the Commissioner could have no reason to believe that books and documents would not be produced as provided in section 132 of the Act. On the other hand, it is argued, there was ample evidence to show that the petitioner, would produce books and documents, if called upon to do so as they had done in the past.

It was next contended that it was not enough for the Commissioner of Income-tax to state in the warrants of authorisation that he had reason to believe that books and documents would not be produced by the petitioners, if called upon to do so. The argument was that as the petitioners, having thrown a challenge that on the materials, the Commissioner of Income-tax could have no reason to believe, the department must satisfy this court, that there were grounds for a reason to believe that books and documents would not be produced by the petitioners, if called upon to do so. In other word, it was argued that a mere subjective satisfaction of the Commissioner of Income-tax was not enough to justify the issue of the warrants of authorisation. The petitioners having deined and disputed that there could be any reason to believe that documents would not be produced, the respondents must satisfy this court, it was argued, that there was ground for a belief that the petitioners would not produce the books and documents if called upon to do so. In support of the contention, reliance was placed by Mr. R.C. Deb, learned counsel of the petitioners, on the decision of the Supreme Court in Barium Chemicals Limited v. Company Law Board. In that case the Supreme Court considered that the effect of clause (b) of section 237 of the Companies Act, 1956. Clause (b) leaves the direction of an investigation to the subjective satisfaction of the Central Government. After considering the question with the intention of the legislature was to leave without restraint or limitation the power of ordering an investigation to the subjective satisfaction of the Government, it was held that there was no doubt that formation of opinion by the Central Government was a purely subjective process, and such an opinion on the part of the Government could not be subjected to a challenge on the ground of the propriety, reasonableness or sufficiency. But it was further held that the authority was required to form an opinion that circumstances as set out in clauses (ii) and (iii) of sub-section (b) of section 237 of the Companies Act existed and that, if circumstances did not exist for formation of an opinion by the Government, the latter could not say that in its opinion the circumstances does exist. It was also held that circumstances must exit to enable the authority to form an opinion that they were suggestive to the crucial matters set out in clauses (i), (ii) and (iii) of section 237(h) of the Companies Act. In the decision of the Federal Court Emperor v. Sibnath Banerjee, it was held that through the court could not investigate into the sufficiency of the material of the reasonableness of the ground on which the Governor was satisfied, if the contention was that the Governor never applied his mind and could not have been satisfied, the court could enter into the question, the in gredient of the satisfaction being a condition precedent to the exercise of the power by the Governor, notwithstanding the satisfaction being subjective. The Supreme court also followed its earlier decision. in State of Bombay v. Atmaram Vaidya. In that case while dealing with dealing with the Preventive Detention Act, it was held that though the satisfaction necessary under the Act was that of the Central or the State Government and the question of satisfaction could not be challenged except on the ground of mala fides, the ground of satisfaction must have a rational connection with the object which were to be prevented from being attained. On the question of the exercise of power has been made subject to the satisfaction of that authority, it was held at page 322 of the report as follows :

'When a power is exercised for the purpose of with an intention beyond the scope of, or it is not justified by, the instrument creating it, it would be a case of fraud on power, though no corrupt motive or bargain is imputed. In the sense, if it could been showed that an authority exercising power has taken into account, it may even be bona fide and with the best of intentions, as a relevant factor something which it could not properly take into account in deciding whether or not to exercise the power or the manner or extent to which it should be exercised, the exercise of the power would be bad'.

Relying upon the decision Mr. Deb argued that a mere recital in the warrant of authorisation that the Commissioner of Income-tax was satisfied, did not justify the search and seizure of the petitioners office and residence. The respondents must, it was argued, satisfy this court that grounds existed for a belief that books and documents would not be produced by the petitioners, if and when called upon to do so.

The next contention of the learned counsel for the petitioners was that section 132 of the act was ultra virus article 14 and 19 of the Constitution. Learned counsel, however, submitted that as this question was covered by the decision of the Special Bench of the court in Surajmull Nagarmull v. Commissioner of Income-tax, in which a challenge to the constitutional validity of section 37(2) of the Indian Income tax Act, 1922, was considered, he was not pressing this point at this stage, though he made it clear that he was not giving it up or abandoning it. It is not necessary, therefore, for me to considered the second contention raised on behalf of the petitioners.

The next contention of the learned counsel for the petitioners was that the search and seizure of the documents and the papers were illegal and must be struck down as the manner in which it was conducted was excessive, arbitrary and indiscriminate. It was argued that 1,300 documents were seized by the respondents, and some of the documents and the books seized were in respect of business transactions which took place many years ago, and could therefore have no relevancy to any proceeding whatsoever under the Act. The search and seizure, it was argued, were conducted indiscriminately and the respondents did not apply there mind at all to the question if the documents seized were necessary for any proceedings under the Act.

It was argued that the purpose of search and seizure under the section 132 of the Act, the powers of the respondents were confined to those conferred by the section 131 of the Act, and therefore the power of search and seize documents could be exercised in the same manner and to the same extent as a civil court under the Code of Civil Procedure. The search and seizure of books and documents, it was argued, extending to transaction several years past, without specifying the documents and books to be seized and without providing any indication of the books and documents to be searched for the seized were entirely illegal and must, therefore, be struck down.

In support of contention that the search and seizure were excessive, reliance were placed on the Bench decision of the Allahabad High Court in Seth Brothers v. Commissioner of Income-tax. In that case an authorisation for search and seizure was issued under section 132 of the Actas it stood after the amendments in 1964 and 1965, and more than 500 documents were seized from the premises of the assessee. Some of the documents seized were irrelevant for the purpose of any proceedings under the Act and, besides the documents belonging to the assessee, documents belonging to some connected firms and companies were seized. It was held that the Income-tax Officer did not apply his mind and did not form any opinion regarding the relevancy or usefulness of the documents for any proceedings under the Act, and that was no opinion was formed about the relevancy of the documents which were searched for and seized, the search and seizure must be held to have been in excess of the powers conferred upon the Income-tax Officer.

Reliance was also placed by Mr. Deb on the Bench decision of the Punjab High Court N.K. Textile Mills v. Commissioner of Income-tax. In that case also a letter of authorisation was issued under section 132 of the Act as it stood before its amendments in 1964 and in 1965, and various books and documents were seized pursuant thereto. It was contented that the search and seizure were excessive, in total disregard to the relevancy or the usefulness for the purpose for which the seizure was authorised and that there was an abuse of power and arbitrary exercise of the authority. It was held that it was necessary and essential for the Income-tax Officers to take into Custody only such books as were considered relevant to or essential for any proceeding under the Act and it was not open to the Income-tax Officers to indiscriminately, arbitrarily and without regard to the regard to the relevancy seize all books and documents which were lying in the premises and that if that was done the seizure would be beyond the scope of authorisation and must be held to be excessive and an abuse of power.

Relying upon the two decision discussed above, learned counsel for the petitioners contended that in this case more than 1,300 documents were seized and that not only old books relating to transactions that took place several years ago, but also current books were seized. It was further argued that Income-tax Officer did not apply there minds at all to the relevancy or necessity of seizure of the documents and that the search and seizure were made indiscriminately and arbitrarily and must therefore be held to be an abuse of the power conferred upon the Commissioner of Income-tax by section 132 of the Act. It was submitted that 17 officers of the income-tax department were engaged in the search and seizure of the petitioners office and residence, but the affidavit-in-opposition had been affirmed by only one officer and the others had not chosen to affirm any affidavit in support of the allegations made in the affidavit affirmed by Bibek Banerjee on June 5, 1967. It was argued that one officer could not possibly apply his mind to and examine more than 1,300 documents to see if they are necessary or relevant for any proceedings under the Act.

Another point urged by Mr. Deb that was the respondents were till now contending that no seizure of books and documents, which have been found at Mandaville Gardens had been made, but that the search was still going on. He submitted that there was no substance in the contention of the respondents that the books and documents were not seized as the inventory of the books which was an annexure to the petition made it clear that it was in respect of books seized and not merely of books and documents with regard to which the search was made.

The next contention of Mr. Deb was that although three separate letters of authorisation were issued by the respondents No. 1 for the search and seizure at the office premises of Mamchand & Company at 21A, Canning Street, Calcutta, and also at the residence of the partners at 22, Mandaville Gardens, only one inventory was prepared of the books and documents seized at the said two premises under the three warrant of the authorisation. This, was argued, was illegal as two inventories should have been prepared with regard to the documents seized by the respondents under the three different warrants of authorisation.

The next contention of Mr. Deb was that the scheme of section 132, as it stood after its amendments in 1964 and 1965 were entirely different from the scheme of section 37(2) of the Indian Income-tax Act, 1922 and also of section 132 of the Income-tax Act, 1961, as it stood before the amendments of 1964 and 1965. It was argued that under section 37(2) of the 1922 Act and under section 132 of the 1961 Act (as it stood before the amendments), it was for the Income-tax Officer who was authorised to nter and search any building and seize documents therein, to use this discretion in the matter of the search and the seizure. It was the opinion of the Income-tax Officer as to the usefulness or relevancy of books for future proceeding which was decisive in the matter of search and seizure. But, it was argued that after the amendments of section 132 of the Act in 1964 and 1965, it was entirely for the Director of Inspection or the Commissioner of Income-tax to have reason to believe that the matter set out in clauses (a), (b) and (c) of sub section 1 of section 132 of the Act would happen. No discretion, it was submitted, was left after the amendment of the section 132 in 1964 and 1965, to any of the officers who are to be authorised to conduct the search and seizure at any place. The instructions to search for the seize books and documents, it was argued, to be issued by the Director of Inspection or the Commissioner of Income-tax must be specific with regard to the particular documents to be searched for and seized. In other words, the contention of the learned counsel for the petitioners was that an authorisation to search for and seize books and documents would be illegal if the particular documents to be searched for and seized were not specified in the letter of authorisation. In this case the letters of authorisation showed that the respondent No. 1 had left it to the officers authorised to search, to placed identification marks on such books of account and documents as they considered relevant to and useful for the future proceeding and to seize any such books of account, documents, money, etc., found as a result of such search and take possession thereof. It was argued that the authorisation letters in this case were issued in terms of rule 112 of the Income-tax Rules, which laid down the manner and the method in which the power to search and seize under section 132 were to be exercised.

It was next argued that although it was contented on behalf of the respondents that after the amendment of section 132 of the Act in 1964 and 1965, rule 112 was no more applicable to search and seizure under section 132, in the fact rule 112 had been amended from time to time, even as late in 1965. Therefore, it was contended, rule 112 was still intented to govern and control search and seizure under section 132 of the Act even after the amendment in 1964 and 1965.

It was strenuously argued by Mr. Deb that although section 132 of the Act, after the amendment in 1964 and 1965, imperatively required that the respondent No. 1 must was specify the particular documents and books to be searched for and seized, the warrants of authorisation in this case left it to the discretion of the officers authorised to conduct the search and seizure, to place identification marks on such books and documents as they considered relevant or useful for future proceedings and also to examine books of account and documents and to seize among other things such books and documents. Therefore, it was argued the warrants of authorisation in this case were issued in violation of section 132 of the Act, and in total disregard to the provisions thereof and such warrants and the search and seizure of documents conducted thereunder, must be held to be illegal. The respondent No. 1 it was argued had failed to specify the particular documents to be searched for and seized which he was bound to do and had left it to the authorised officers to decide which books were to be searched for and seized. This, it was argued, the respondent No. 1 was not entitled to do. But as there was what was actually done, namely, that the respondent No. 1 did not specify the books and documents to be searched for and seized, but delegated his power to decide as to what documents were to be searched for and seized, to the authorised officers, the warrants of authorisation issued by the respondent No. 1 must be held to be illegal and the search and seizure would accordingly be struck down.

The last contention of Mr. Deb was that the respondents case regarding non-production of books and documents, as made out in the affidavit-in-opposition, to support the issue of the warrants of authorisation, was self-destructive, to use a phraes employed by Mr. Deb. It was argued that the respondents case was that false entries had been made in the books of accounts, of losses arising from fictitious ante-dated bogus transactions to wipe out real profits. That being so, it was argued, the respondent No. 1 could have no reason to believe that the petitioners would not produce these books, which according to respondent No. 1 were carefully prepared to conceal and suppress the real profit made by the petitioners.

Before proceeding to deal with the contentions on behalf of the respondent, I should refer to two other points raised by Mr. Deb. The first point was on sub-section (8) of section 132 which provided that books of account and documents seized should not be retained for more than 180 days from the date of seizure unless the reasons for retaining the same way recorded in writing by authorised officer and the approval of the Commissioner for such retention was obtained. It was argued that 180 days from the date of seizure had expired and there was nothing to show that reasons for retention beyond 180 days were recorded in writing and the Commissioners approval obtained for such retention. Therfore, it was submitted, the books and documents seized must be returned to the petitioners.

It is on the contentions mentioned above that learned counsel for the petitioners submitted that the search of the office premises and the dwelling house, and seizure of the books and documents of the petitioners must be held to be bad on the ground that such search and seizure were excessive, arbitrary and an abuse of the power conferred by the section 132 of the Act. The condition precedent to the exercise of the power conferred by that section, namely, having a reason to believe that books and documents would not be produced when called upon to do so, was not satisfied. There were no materials, it was argued, upon which the Commissioner of Income-tax could have a reason to believe that books and documents would not be produced. Then again, it was argued, there was no proceeding pending against the petitioners and it could not, therefore, be said that the petitioners would not comply with the requisition for the production of books and documents. Further it was submitted, that the respondents did not apply there mind to the necessity or the relevancy of the seizure of the books and documents. It was submitted that, on these grounds, the rule nisi should be made absolute.

The second point was canvassed somewhat faintly by the learned counsel of the petitioners. This contention was that the search and the seizure were made under section 132 of the Act read with rule 112 of the Income-tax Rules, 1962. These rules provided that the powers of search and seizure under section 132 should be exercised in accordance with sub-rules (2) to (14) of rule 112. It was argued that rule 112 was ultra vires section 132 of the Act of the provisions in rule 112 were inconsistent with provisions in section 132 of the Act. It was argued that sub-rule (2) of rule 112 required that the Director of Inspection or the Commissioner might, after recording his reason for doing so, authorise certain officers in writing to enter and search any building. Section 132, on the other hand, it was argued, did not required to be recorded in writing. In this case, it was argued, no reasons were recorded by the Commissioner of Income-tax as required by sub-rule (2) of rule 112. All that has been stated in the warrants of authorisation was that the Commissioner had reason to believe that books and documents would not be produced by the petitioners, if called upon to do so. But, it was argued, no reasons had been set out in the w arrants of authorisation for formation of the belief. This rule, it was argued, had laid down certain conditions which were not required by section 132 of the Act, and must, therefore, be struck down as ultra vires section 132. I shall now proceed to deal with the contentions of the learned Advocate-General who appeared on behalf of the respondents.

The learned Advocate-General submitted that the cause of the search of the petitionersresidence at Mandaville Gardens the search for the seizure of the books and documents at the petitioners office premisses at Canning Street, was that the respondent No. 1 (Commissioner of Income-tax, West Bengal II) had received information that large scale evasion of income-tax by various members of East India Jute & Hessian Exchange Limited, of which the petitioner No. 1 was a member had been taking place over a number of years. It was argued that the petitioners in collusion and conspiracy with other member passed on their profit, by creation of fictitious losses through fictitious back-dated transactions, and by this process of the petitioner No. 1, of which the petitioners Nos. 2, 3 and 4 were partners, had been evading substantial portion of their income-tax liabilities. The procedure followed in evading such liabilities, which were common in every case, it was submitted, was to introduce in the books losses due to non-existent speculative transactions relating to ante-dated bogus contracts. The losses arising out of these bogus transactions, it was argued, neutralised and wiped out the real profit made by the petitioners. The purchaser of the profit, it was argued, was a person of firm having losses a set off and if not, such person or firm passed on the profit by a similar transaction to a third broker in the clain, from whom the actual profit was realised by the principal operator in cash. It was argued that some time five or more person were brought in clain, to give a transaction a colour of genuineness. To put a stop to such malpractices, it was argued, the said Exchange under instructions from the Government passed a bye-law in Augest, 1960 requiring the members to register all their transactions in transferable specific delivery contracts with the said Exchange on the day following the date of such contracts. This rule, however, it was argued, by circumvented by forging the official seal and signatures of the officials of the the Exchange and also by passing contracts without any seal or authentication. In course of diverting profits in this fraudulent manner, the petitioners, it was argued, had fabricated and forged documents and large number of fictitious contracts were entered into by them with various parties for fraudulently diverting profits which were liable to income-tax.

It was next contented that the respondent No. 1 was satisfied from the examination of the records of the Income-tax Officer relating to the petitioners assessment that the entries in the books produced by the petitioners were not genuine and did not reflect the real nature of the transactions.

It was next urged that the respondent No. 1 received written complaints that the petitioners were acting in collusion and conspiracy with others for diverting profits to avoid income tax liabilities. It w as urged that on the information and materials in the possession of the respondent No. 1, he formed the belief that the books of account and other documents of the petitioners would be useful and relevant for proceedings under Indian Income-tax Act, 1922, and the Income-tax Act, 1961. It was further urged that having regard to the modus operandi followed by the petitioners in evading income-tax liabilities and also having regard to the device and method adopted by them to introducing fictitious ante-dated transactions to create losses for neutralising actual profit and also having regard to the fabrication and forgery of documents, the respondent No. 1 had sufficient reason to belive that if a notice or summons was served upon the petitioners to produce books of account and other documents which would incriminate them and would lead to the discovery of fraudulent evasion of income-tax liabilities, the petitioners would secrete or destroy the books of account and other documents and would thereby, destroy all materials of the fraudulent evasion of income-tax over a number of years.

It was next urged that the respondent No. 1 had given express instruction to the Income-tax Officers, to whom warrants of authorisation were given, as to how they were to conduct the search and the books, papers and documents to be seized and also above the facts to be ascertained by examination of witnesses of oath. It was next urged that the respondent No. 1 bona fide formed the belief that the books and documents mentioned in the written instructions in the warrants of the authorisation would be relevant and useful for proceedings against the petitioners.

The learned Advocate-General next contented that, in consequence of the search, duplicate sets of books of account for the same year and for the same period has been recovered and that such books were lying in the custody of the income-tax department. It was argued that in the assessment proceedings of another assessee, it had been found that fictitious transactions with the said assessee involving crores of rupees had been entered into. The documents containing the evidence of such fictitious transactions entered into by the petitioner worth over a crore of rupees had been impounded and were in the possession of the department. Such documents included fictitious brokerage bills, which had been passed between the petitioners and the said assessee. It was next urged by the learned Advocate-General that the respondent No. 1 clearly indicated what kind of books, papers and documents were to be looked for the Income-tax Officers who were to conduct the search and the seizure.

It was on the fact mentioned above, the learned Advocate-General argued that the warrants of authorisation had been issued by the respondent No. 1 for search of the petitioners dwelling house at Mandaville Gardens and of the office premises at Canning Street and the seizure of the books and documents which, in the opinion of the respondent No. 1 would be relevant and the material for the purpose of the proceeding against the petitioners, and which unless seized were likely to be destroyed by the petitioners, and if allowed to be so destroyed, valuable evidence of evasion of income-tax would before ever lost to the department.

The next contention to the learned Advocate-General was that the search and the seizure conducted by the Income tax Officer were by no means indiscriminate and arbitrary. He submitted that instructions is great detail had been given by the respondent No. 1 to the Income-tax Officers regarding in the manner and the method of the search for and the seizure of the books and documents, and these instruction were strictly adhered to. In support of this contention the learned Advocate-General referred to the warrants of authorisation and the written instruction for search. In clause (b) of these warrants, instruction were given to place identification marks on such books and documents as the searching officers might consider relevant or useful. In clause (c) instructions were given to examine books of accounts and documents an make copies or extracts from such books and documents. Clause (d) authorised seizure of books, documents, money, bullion, jewellery or other valuable articles. In the written instructions, it was argued, full and complete instructions regarding the papers and class of books and the transactions were given. Relying upon these instructions in the warrants of authorisation, the learned Advocate-General submitted that the allegations of indiscriminate and reckless search and seizure were altogether groundless. He argued that the searching officers were to scrutinise books and documents in course of the search, and they were to seize only relevant material books, which might upon scrutiny appear to the Income-tax Officers to be necessary for the further proceedings under the provisions of the Act. This was not a case, it was argued, of indiscriminate and wholesale search for and seize of books and documents found at the premises searched. The direction for examination of the books, it was argued, clearly provided a safeguard against a random and indiscriminate search for and seizure of the books.

The next contention of the learned Advocate-General was that so far as the search at No. 22, Mandaville Gardens was concerened, seizure of the books found on the 2 days search could not be made as it was agreed between the petitioner and the searching officers that the books and the documents found at the premises would be removed to the income-tax office in sealed boxes and gunny bags. Referring to the affidavit-in-opposition filed by Subodh Kumar Roy affirmed on June 5, 1967, the learned Advocate-General submitted that on the second day on the search at No. 22, Mandaville Gardens on February 1, 1967, the searching officers found a large number of books of account in steel trunk in cow-shed at 5 p.m., although they were eariler told by the petitioners that the cow-shed was empty. on that day the searching officer were told that a lady of the house had developed heart trouble and complaints were made of inconvenience caused by the prolonged search. As the documents were discovered in the cow-shed very late in the day, and as the examination and the preparation of inventory would have taken a long time, the petitioners representative suggested that the books found on the 2nd day of the search might be taken to the income tax office for examination and preparation of inventory. A list of books were made and they were thereafter removed to the income-tax office. The search of the books found on the second day of the search, it was argued, was still continuing and would be completed after the examination of the documents and the finalisation of the seizure list. The examination of the documents found on the 2nd day of the search, at Mandaville Gardens, it was submitted, could not be completed because of the illness of the one of the inmates of the house, an because the petitioners themselves had suggested that these books should be removed to the income-tax office for scrutiny later. It was for these reason, it was argued, that the search of such books which was removed to the office of the department could not be completed and the scrutiny of the same remained incomplete by reason of the injunction issued by the court. On completion of the scrutiny, the search list would be prepared and the relevant document would be seized.

Regarding the search of the documents and seizure of the same at No. 21A, Canning Street, the learned Advocate-General referred to the statement in the affidavit of Bibek Banerjee affirmed on June 5, 1967. He argued that the business conducted under the two names, namely, Ramswarup Mamchand and Mamchand & Co., belonged to the same persons and was carried on from the same office room, but that as they were two separate entities, two warrants of authorisation were issued. In this affidavit it has been stated that there was not general raid or search for the books of account of papers and documents indiscriminately or arbitrarily. It has been also stated that the books at 21A, Canning Street was examined and the deponent and the other officers engaged in the search left behind a large number of documents which they considered to be unnecessary, and other documents which the petitioner, claimed to retain on the ground that the seizure of the same would hamper day to day work, were also returned to the petitioners. It has been further stated that the search at the said office premises was completed and various documents had been seized, but only such documents has been seized as were found to be relevant and useful for further proceedings against the petitioners. The learned Advocate-General submitted that no current books of account had been seized and that, although, a few current books were brought to the office of the department, they were returned along before April 17, 1967, and that there was not a single current book of account was retained by the department.

The next contention of the learned Advocate-General was that there was no substance whatsoever in the petitioners contention was that there was no ground for reason to believe that books and documents would not be produced, if and when called upon to do so, as the petitioners had always in the past produced books and documents whenever they were called upon to do so. With regards to the assessment years 1956-57, the petitioners, it was argued, failed to comply notice under section 22(2) of the Indian Income-tax Act, 1922. There was a further failure at the part of the petitioners to produce books on May 21, 1958, and time for production was extended till May 23, 1958, on which date also the petitioners failed to produce the books requisitioned. It was next argued that there had been defaults in the past on the part of the petitioners in payment of income-tax. In the assessment year 1964-65, the petitioner failed to pay the provisional demand in answer to notice under section 141 of the Income-tax Act, 1961, and for these failure a penalty of Rs. 570 was imposed upon the petitioners under the section 221 of the said Act. Again for the assessment year 1965-66, the petitioners failed to make payment of the provisional demand and for this failure show cause notices were issued on them on January 24, 1967, and penalty proceeding were pending in respect of the same. The learned Advocate-General, therefore, submitted that there have been in the past default failure and omission on the part of the petitioners both in the matter of the production of books and the documents and also in the matter of payment of demands made in respect of there income-tax dues.

In support of these contention that in the facts of this case, the respondent No. 1 was justified in issuing the warrant of authorisation of search and seize of the books and the documents of the petitioners, the learned Advocate-General relied upon the observations of P.B. Mukharji J. and D.N. Sinha J. (as he then was) Surajmull Nagarmull v. Commissioner of Income-tax. He argued that the search was extensive and books and documents of large number of years were taken procession of as there were ample materials before the respondent No. 1 suggesting that there was conspiracy and collusion with extensive ramification among the petitioners and certain other brokers and members of the East India Jute and Hessian Exchange Limited, which enable to assessees to envade their liabilities for income-tax in huge amounts. The object of search and seizure, it was argued, was to seize books and documents for detection of invasion of income-tax and for recovery of the same. It was rgued that the power to search and seize under section 132 of the Act was exercised, because the normal procedure for the production of books upon requisition or notice would not have produced any result. He further submitted that section 132 of the act was introduced as the normal procedure provided in the Act would not have achieved the object of production of documents and books of account. Reliance was placed in support of this contention upon the observation of P.B. Mukharji J. in Surajmull Nagarmulls case, to effect that power under section 37(2) of the Indian Income-tax Act, 1922, was to be used were the normal procedure under section 37(1) of that Act would not achieve the object of production of documents an the books of account, because that was the very reason why section 37(2) of the Act was introduced. Reliance was also placed on the observations of D.N. Sinha J. (as he then was) at page 599 of the report were it has been held that having regard to the large scale evasion in payment of taxes by businessmen who concealed books of account and documents, and sometimes maintained duplicate sets of books, it was necessary that Income-Tax Officers should be armed with sufficient power to remedy the evil. I respectfully agree with the observations of the learned judges mentioned above. I shall, however, revert to this contention of the learned Advocate-General later in this judgement.

The learned Advocate-General next proceeded to deal with the Bench decision of the Allahabad High Court. Seth Brothers v. Commissioner of Income-tax. He sought to distinguish that decision from the facts of the instant case by referring to the order for search and seizure in that case. He argued that in that case a raid was ordered for search and seizure of all account books and papers which could be found. It was argued that there was no direction upon the searching officers to examine the books and seize such of them as might be relevant and material for the purpose of further proceedings. There was, on the other hand, it was argued, a direction of wholesale and indiscriminate search and seizure of all account books and papers which could be found. Then again in that case there was no evidence of refusal on the part of the assessee to produce books of account and documents when required, but it was alleged that it was a belief of the department that real books of account and documents were not produced by the assessees and that the books produced by them for certain years were false account books. Then again, it was argued in the Allahabad case it was found that the Income-tax Officer did not apply his mind and formed no opinion regarding relevancy and usefulness of the books of account. In this case, on the other hand, the learned Advocate-General contended, there was evidence to show that there was occasions when the petitioners failed to comply with the requisition for production of books of account. The learned Advocate-General contended that it was on the peculiar facts in the Allahabad decision that it was held that the search was not bona fied and that the extent of the seizure was an beyond the limits of the section 132 of the Act and there was an abuse of the power conferred upon the Income-tax Officers by section 132 of the Act.

There is good deal of force in the contention of the learned Advocate-General. In the Allahabad case there was a direction for search and seizure of all books and documents without examining the same and without considering if such books would be relevant and material for further proceedings against the assessee. Further, there was no evidence in the Allahabad case of non-compliance by the assessee with a requisition for production of books of accounts and documents.

The learned Advocate-General next proceeded to deal with the distinguish the Bench decision of the Punjab High Court in N.K. Textile Mills v. Commissioner of Income. In that case, it was contended, the searching officers indiscriminately and arbitrarily seized all books of account and documents without any regard for relevancy or usefulness. No examination of the books and documents before seizure of the same took place and all books and documents which were found in the premises were seized. In the instant case, on the other hand, it was argued, so far as the seizure of the books and the documents At 21A, Canning Street, and those found at the first days search at 22, Mandaville Gardens was concerned the Income-tax Officers had examined the books and had seized only such of them as would be relevant and material for the purpose of future proceedings. Various books and documents were left behind at the office premises and others were returned upon examination. So far as the books found at the 2nd days search at the residential premises at Mandaville Gardens was concerned, it was argued, no seizure had yet been made as the scrutiny and examination of the books could not be completed on account of the heart attack of a lady inmate of the house. These books and the documents were removed to the income-tax office for scrutiny and preparation of the search list and the seizure thereof. The examination and scrutiny, it was argued, could not be completed by the reason of the injunction issued by the court. There was no indiscriminate or arbitrary search and seizure of the books as care was taken, it was argued, to seize only such books as would be relevant and to return such books as would not be material for the purpose of further proceedings.

The learned Advocate-General next contended that the Punjab decision could be of no assistance to the petitioners in this case as in that case the raid was organised and search and seizure of the books were directed because of information received that the assessee in that case was manipulating accounts in his basement with a view to showing a reduced income. It was argued, that it was not a case where warrant of authorisation was issued for search and seizure upon the belief that books and documents would not be produced when called upon to do so, but it was a case where the raid was organised and seizure of books were effected to prevent fabrication of document to prove a smaller income. Therefore, the learned Advocate General submitted, the offence disclosed of an offence of the criminal nature, namely, forgery and fabrication of books of account and documents and the Punjab case was, therefore, not a case which came strictly within the purview of section 132 of the act and that decision, therefore, was not, it was argued, of any assistance to the petitioners.

The last distinguishing feature of the Allahabad case, the learned Advocate-General submitted, was that in that case the warrant was issued under section 132 as it stood before the amendment in 1964 and 1965 and hence it did not require the satisfaction of high officers like the Director of Inspection or the Commissioner of Income-tax, as was required by the section 132 as it stood after the amendment and under which the letters of the authorisation were issued in the instant case. It was argued that the requirement in the statute that the satisfaction should be of the highest officers of the department, namely, the Director of Inspection or the Commissioner of Income-tax was a safeguard that improper or indiscriminate search and seizure would not be restored to. On this question, reliance was placed on the observations of the Supreme Court Pannalal Binjraj v. Union of India. In the Allahabad case neither the Commissioner of Income-tax nor the Director of Inspection applied his mind to the necessity of the search and it was neither of this two officers who had reason to believe that books and documents would not be produced by the assessee, when called upon to do so. It was further argued that in both the Allahabad and the Punjab cases all books and documents which were in the premises were directed to be seized and whatever was found in the premises were taken procession of without considering whether such books would be relevant or useful for the purpose of assessment proceedings.

In this case, on the other hand, it was argued, there was no indiscriminate seizure of the books and documents of the petitioners. So far as the seizure of the books at the office premises at Canning Street, and of books found at the first days search at Mandaville Gardens was concerned, only such books and documents, found on the second days search at the residential premises at Mandaville Gardens was concerned, the examination of the same had not yet been completed and, therefore, it was argued, it could not be said that there had been indiscriminate seizure of the books.

The next contention of the learned Advocate-General was that the decision of the Supreme Court in Barium Chemicals Limited. v. Company Law Board was of no assistance to the petitioners in this case as that decision was based on section 237 of the Companies Act, 1956, which was not pari materia with section 132 of the Income-tax Act, 1961. In that case, the learned Advocate-General submitted, it was held that if the Central Government had in fact not formed an opinion, its ordered could be challenged but if the opinion was formed upon insufficient or inadequate grounds, the court could not go into the question sufficiency or adequacy of the grounds upon which the subjective satisfaction of the authority was based. In the instant case, it was argued, there was not only the evidence that the Commissioner of Income-tax applied his mind to the matter, but there was also evidence, as disclosed in the affidavit-in-opposition filed by the respondent No. 1 affirmed on June 5, 1967, that there were ample materials for forming the belief that the books and documents would not be produced by the petitioners, if called upon to do so. Fictitious transactions were recorded in the books for the purpose of wiping out profits, which were passed on to other brokers and fictitious losses were created in this books of account for this purpose. A ring or chain was formed among various members of the East India Jute and Hessian Exchange Limited for committing a fraud to avoid liability for tax. Fictitious speculative transactions based on ante-dated contracts were recorded for the purpose of wiping out actual profits and creating artificial loss. The official seal and the signatures of the officers of the East India Jute and Hessian Exchange Limited were forged to prove that transferable specific delivery contracts were duly registered by the Exchange. Written complaints were received by the department that the petitioners were acting in collusion and in conspiracy with other for diverting profits. It is on these materials, the learned Advocate General argued that the Commissioner of Income-tax came to the conclusion that the petitioners would not produce books and documents if called upon to do so.

He submitted that the affidavit affirmed by the respondent No. 1 on June 5, 1967, clearly disclosed that there were ample materials and grounds in his possession for the issuing of the warrants of authorisation. He therefore, submitted that the decision of the Supreme Court in Barium Chemicals Limited v. Company Law Board had not application to this case, as the facts in these case were entirely different. In my opinion, there is good deal of force in the contention of the learned Advocate-General. The view of the majority of the Supreme Court in the case of Barium Chemicals Limited was that circumstances must exist which in the opinion of the authority suggested certain things and that if it was shown that circumstances did not exist or that they were such that it was impossible for any one to form an opinion therefrom suggestive of the said things, the opinion could be challenged on the ground of failure to apply the mind of the authority or on the ground that it was formed on collateral grounds and was beyond they scope of the statute. In this case the circumstances that existed before the issue of the warrants of authorisation clearly disclosed that grounds existed for an investigation and it was on these grounds that the respondents No. 1 had formed the belief that a search of the petitioners residential premises and also of the office premises was necessary and also that such books ought to be seized as would be relevant to or useful for further proceeding in law.

On this aspect of the case the learned Advocate-General relied upon the decision of the Supreme Court in Calcutta Discount Company Limited v. Income-tax Officer. In that case, however, the Supreme Court was dealing with section 34(1)(a) of the Indian Income-tax Act, 1922, which deals with the case of an assessee who has failed or omitted to make a full disclosure of his true income. It was held that if there were in fact reasonable grounds for thinking that there had been non-disclosure with regard to any primary fact which could have bearing on the question of under-assessment, such non-disclosure would be sufficient to give jurisdiction to the Income-tax Officer to issue notice under section 34 and that whether such grounds were adequate or not for arriving at the conclusion regarding non-disclosure of material facts would not be open for the courts investigation. In other words, all that was necessary to give jurisdiction to the Income-tax Officer was that there should be some prima facie grounds for thinking that there had non-disclosure of material facts. Although in this case the question of search and seizure of books under section 37(2) of the 1922 Act was neither raised nor discussed and the question for decision of the court was the jurisdiction of the Income-tax Officer to issue notice under section 34 of the 1922 Act, the observations of the Supreme Court mentioned above have, in my view, a good deal of bearing on the jurisdiction of the respondent No. 1 to issue warrants of authorisation under section 132 of the Act.

The next contention of the learned Advocate-General was that section 132(1)(b) of the Act was almost identical with the provisions in section 96(1) of the Code of Criminal Procedure and it was not necessary that the specification of the documents to be seized should to precise or should give the exact description of each and every one of the documents to be searched for and seized. It was also argued that a warrant issued for the production of a particular category of documents would be a valid warrant of authorisation. In this case, it was submitted, the warrants of authorisation clearly indicated the nature of the documents to be searched for and seized. In support of this contention reliance was placed on a decision of the Orissa High Court in Kalinga Tubes v. D. Suri.

The next contention of the learned Advocate-General was that it was argued on behalf of the petitioners that fulfilment of the conditions in section 131 of the Act was a condition precedent to the issed of a warrant of authorisation under section 132 of the Act. In other words, the learned Advocate-General submitted, that it was contended on behalf of the petitioners that the officers of the Income-tax Department had the same powers as were vested in a civil court under the Civil Procedure Code with regard to discovery and inspection of documents, compelling production of books account and other documents, etc. So far as civil court is concerned, discovery, inspection and production of documents could be directed only with regard to particular documents which are specified in order, and not with regard to all the documents in the possession of the party. The learned Advocate-Ganeral submitted that matters dealt with in sections 131 and 132 of the Act were entirely different and that section 131 was not an adjunct of section 132. Section 131 of the Act, it was argued, related to the power regarding discovery, production of evidence, etc., while section 132 of the Act dealt with search and seizure. It was submitted that it could not, therefore, be argued that the condition in which a civil court would direct production and inspection of documents should be treated to be condition precedent which must be fulfilled before a warrant of authorisation was issued by the Commissioner of Income-tax. Sections 131 and 132 of the Act, it was argued, were not supplementary to each other in view of the matters and circumstances contemplated by the two sections, which were entirely different in nature and scope. In my opinion, there is a good deal of force in this contention of the learned Advocate-General. Section 132 of the Act is a comprehensive code in itself and the conditions upon which and the circumstances in which warrants of authorisation could be issued, have been set out in great detail in that section.

The next contention of the learned Advocate-General was that there was no force in the contention of the petitioners that before the search and seizure could be authorised under section 132 of the Act, there must be materials for reopening an assessment. He argued that a search and seizure under section 132 of the Act was authorised on either the one or other of the grounds mentioned in clauses (a), (b) and section 131(1) of the Act. The provisions in clauses (a), (b) and (c) of section 132(1) of the Act nowhere required, it was argued, that their must be material for reopening an assessment of an assessee before a warrant of authorisation could be issed by the Commissioner of the Income-tax or the Director of the Inspection. In support of this contention, relianced was placed on a decision of this court in I. Hoshide v. Emperor. This contention of the learned Advocate-General seems to me to be well-founded. There is nothing in clauses (a), (b) and (c) of section 132(1) of the Act to justify or support the contention that before a warrant of authorisation could be issued there must exit materials for reopening an assessment of an assessee.

Before concluding his argument the learned Advocate-General referred to a decision of the Supreme Court in Commissioner of Income-tax v. A. Raman & Co. (C.A. No. 768 of 1960) (unreported). In that case the Supreme Court considered the jurisdiction of the Income-tax Officer under section 147(1)(b) of the Income-tax Act, 1961. It was held that the word information' in the section meant instruction or knowledge derived from an external source concerning facts relating to a matter bearing on the assessment and that if the Income-tax Officer had reason to believe that income chargeable to tax had escaped assessment, he had jurisdiction to assessee or reassess the income under section 147(1)(b) of the Act. It was further held that to commence proceedings for reassessment, it was not necessary that on the materials which came to the notice of the Income-tax Officer, the assessment could be held to be vitiated by some error of fact or law. This decision, to my mind however, is not of much assessment to the respondents in this case, as the observations were made in a proceeding under section 147(1)(b) of the Act. The jurisdiction of the Income-tax Officer to assessee or reassess income-tax under section 147(1)(b) of the Act depends on facts which are entirely different from the facts upon which jurisdiction to issue warrants of authorisation can be exercised by the Director of Inspection or the Commissioner of Income-tax under section 132 of the Act.

I have referred to the facts which led to the issue of the warrants of authorisation by the respondent No. 1 at same length earlier in this judgement. Those facts do indeed disclose, prima facie at any rate, that there is a conspiracy among a group of assessees to evade liability for income-tax. It appears that there are written complaints in the possession of the respondent No. 1 that the petitioners were acting in the collusion and conspiracy with certain other persons for diverting profits to avoid income-tax liabilities. The information in the possession of the respondent No. 1 disclosed that for a number of years the petitioners passed on their profit by creating artificial losses through back dated transactions and by this process evaded substantial portion of their income-tax liabilities. Losses were introduced and recorded in the books of account arising out of non-existent speculative and bogus transections. These losses neutralised the real profits made by the petitioners. The official seal of the East India Jute and Hessian Exchange Ltd., as also the signatures of its officials were forged to circumvent the requirement of a bye-law which was brought into force in August, 1960, requiring registration of transection in transferable specific delivery contracts on the day following the date on which the contracts were entered into. The documents bearing evidence of fictitious transections entered into by the petitioners are now claimed to be in the possession of the income-tax department, and these documents include fictitious brokerage bills relating to bogus contracts. It is by reason of these facts that the respondent No. 1 formed the belief that if a notice or summons was served upon the petitioners for the production of books, such books would not be producted and would be secreted or destroyed, to suppress all evidence relating to the activities of the petitioners for evasion of income-tax.

The question before me at this stage is not whether the information and materials in the possession of the respondents No. 1 are true and correct, nor whether upon the further proceedings being taken against the petitioners they would be found to be liable for the evasion of income-tax, but the question is whether the respondent No. 1 was justified, having regards to the terms of section 132(1) of the Income-tax Act, 1961, in issuing the warrants of authorisation, which are the subject-matter of challenge in this application. The answer to this question again, in its turn, must depend on the answer to three other questions, namely :

(1) On the basis of the materials in the possession of the respondent No. 1, could be have reason to believe that the petitioners would not produce books of account and documents in answer to a summons or notice which might be issued to them for such production

(2) Was the search and seizure of books at the petitioners residence and office premises excessive and an abuse of power on the ground that it was indiscriminately and arbitrarily carried out

(3) Was the search and seizure of books and documents at the petitioners residence and office premises bad, having regard to the amendment of section 132, on the ground that the respondent No. 1 in issuing the letters of authorisation did not apply his mind to the question of relevancy of the documents searched for and seized and failed to specify the particular documents to be searched and seized and left it to the officers who conducted to search to determine what documents to search for and seize

On the answer to the questions mentioned above, would depend the legality and validity of the warrants of the authorisation issued by the respondent No. 1 and also of the search for and seizure of the documents effected thereunder.

I shall now proceed to deal with the first question, namely, whether the respondent No. 1 could have, on the materials in his possession, reason to believe that the petitioners would not produce books of account and documents if called upon to do so. The respondent No. 1 in the affidavit-in-opposition affirmed by him, has set out the materials in his possession, upon which he relied before issuing the letters of authorisation. I have referred to those materials, in any view, if true, clearly indicate the existence of a conspiracy to suppress and conceal profits in various transactions. This suppression and concealment was effeted by creating artificial losses arising out of antedated bogus transections. The official seal of the East India Jute and Hessian Exchange Limited, as also the signatures of its officials were forged. Documents had been fabricated to create evidence of fictitious transections entered into by the petitioners. Fictitious brokerage bills relating to bogus contracts were bought into existence in support of contracts which were never entered into. Written complaints regarding such transections are claimed to be in the possession of the income-tax department. These are the materials which were in the possession of the respondent No. 1, and which he took into consideration before issuing the warrants of authorisation. These documents were certainly not produced by the petitioners at the time of their income-tax assessment. It has not been contended by the learned counsel by for the petitioners either that the documents which have been seized from the office primises at Canning Street and the other documents which have been taken possession of from the residential premises at Mandaville Gardens were documents which had been produced before the Income-tax Officer at the time of the petitioners assessment proceeding. As these documents were recovered from the custody and possession of the petitioners and upon scrutiny they had been found to relate to the petitioners transections and as they were not produced by the petitioners in their assessment proceeding, they could not but be held to have been withheld from the income-tax department in petitioners assessment proceeding. Whether examination of these documents would prove evasion of income-tax by the petitioners, is a matter with which I am not concerned in this application, the only question being whether the Commissioner of Income-tax had reason to believe that books and documents would not be produced, if called upon to produced the same.

The materials in the possessions of the respondent No. 1, to which I have already referred, being what they were, if true, clearly indicate a large scale evasion of the materials clearly indicate that the entries in the books of account had been made and fictitious documents and duplicate sets of books had been brought into existence for the purpose of creating losses to wipe out profits actually made. As these materials, prima facie, at any rate, show that they were intended to reduced the income-tax liabilities of the petitioners, the conclusion, decision or opinion of the respondent No. 1 that documents and books of account bearing testimony of fictitious ante-dated transections would not be produced if a summons or notice for such production was issued, cannot be questioned or challenged by the petitioners. The purpose of manufacturing documents being to suppress profits made for avoiding liability for income-tax, it would be idle to except that the petitioners would disclose the real books and documents which would prove the actual profits made by them and, consequently, would make them liable for a much larger amount on account of income-tax. No liability has been imposed upon the petitioners for evasion of income-tax yet. Books and documents have been searched for and seized, for further scrutiny, for further proceeding. It may be that upon scrutiny of the documents and upon the conclusion of further proceeding under the provisions of law, the petitioners would be found not to be liable for evasion of income-tax. It may, on the other hand, be that upon such scrutiny and further proceedings the petitioners would be found to have evaded their liability in large sums on account of income-tax. Those are questions which are outside the scope of the present application, which is confined to the question of validity of letters of authorisation issued by the respondent No. 1.

To turn now to the decision of the Supreme Court in Barium Chemicals Limited v. Company Law Board on which Mr. Deb strongly relied the principle laid down in that case was if the authority which was required to have a reason to believe had not formed an opinion, and not applied its mind to the matter before forming an opinion its order could be challenged. But if the opinion was formed on certain materials, the sufficiency or adequacy of such materials was a matter which could not be gone into by the court. In this case it cannot be said that circumstances did not exist or that they were such as to make it impossible for the respondent No. 1 to have a reason to believe that the books and documents which were to be searched for and seized would not be produced if the petitioners were called upon to do so. The materials in the possession of the respondent No. 1, as disclosed in the affidavit-in- opposition affirmed by him, and to which I have referred earlier in this judgement, cannot but be held to have been ample and sufficient to furnish grounds for a reason to believe that a search for end seizure of such of the books and documents as would be relevant or useful for further proceedings was called for and was justified. The condition precedent to the exercise of the power under section 132 of the Act, namely, possession of material which enabled the respondent No. 1 to have a reason to believe that books and documents would not be produced, if called upon to do so, was, in my view, satisfied. The decision of the Supreme Court in Barium Chemicals Limited v. Company Law Board is, therefore, of no assistance to the petitioners in this case.

I shall now turn to Mr. Debs contention that the respondents case regarding non-production of the books of the petitioners was self-destructive. The argument was that the respondents case was that the petitioners had made false entries in their books of account to create losses from fictitious ante-dated bogus transections to wipe out real profits. If that was so, Mr. Deb argued, there could be no reason to believe that the books which had been manufactured would be withheld. In other words, it was argued that if the books were got up, for the purpose of wiping out real profits by making false entries regarding losses arising from fictitious transections, the petitioners would have readily produced such books of accounts and documents. There is hardly any force in this contention. If false entries have been made in the books of account to show losses from fictitious bogus contracts to wipe out real profits made, such entries must have been made from book and documents which disclosed the real profits made by the petitioners. It was, therefore, all the more necessary that books of account and documents relating to transections, both real and fictitious, must be seized to ascertain the extent and the scope of the evasion. If it is true that the petitioners manufactured a set of books and documents incorporating false entries which they would have been ready and eager to produce to support their case that a smaller income was made, it is equally, if not more true, that they would be eager and anxious to withhold the books of account and documents an which the real transections and real profits made by the petitioners were recorded. The warrants of authorisation had been issued to get at the seize the books of account and documents which would disclose the real state affairs relating to the petitioners business transections.

I shall now turn to the second question, namely whether the search and seizure of the books was excessive and an abuse of power on the ground that it was indiscriminately and arbitrarily carried out. The warrants of authorisation show that the searching officers were to examine the books of account and documents and were to place the identification marks on such books of account and documents as the searching officers would consider relevant to or useful for further proceedings. In addition to the warrants of authorisation, however, written instructions for search were issued to the searching officers in which the books maintained by the petitioners were mentioned. The books and documents to be seized were clearly indicated and such books were classified into two classes, namely :

(1) For speculation or hedging transection and

(2) for transections in ready goods.

The class, nature and types of books to be seized by the searching officers have been specified in these instructions. The written instructions, therefore, made it clear to the searching officers as to what books and documents were to be seized. A suggestion was made by Mr. Deb, though somewhat faintly, that the written instruction have been brought into existence by the respondents No. 1 subsequently, and were not in fact given to the searching officers as a guide for the search and seizure. I cannot accept this contention of Mr. Deb. The reference to the written instructions has been made in paragraph 6 of the affidavit-in-opposition affirmed by the respondent No. 1 on June 5, 1967. This paragraph of the affidavit-in-opposition has been dealt with in paragraph 12 of the affidavit-in-reply affirmed by Muralilal Agarwal on June 12, 1967. Beyond a bare denial that the deponent gave any instructions to the Income-tax Officers to whom the warrants of authorisation were given, there is no allegation that the written instructions were fabricated and brought into existence later on. The charge made by Mr. Deb is a serious one, and if there was any substance in this charge, his clients should have made a specific allegation to the effect that the written instructions have been manufactured and fabricated later on were not given to the searching officers for their guidance. No such charge having been made in the affidavit-in-reply, I cannot accept Mr. Debs contention that the written instructions were fabricated and brought into existence later on for the purpose of this application.

It was argued by Mr. Deb that no notice should be taken of the written instructions as they were not part of the warrants of authorisation and therefore the question if the search and seizure was indiscriminate and arbitrary must depend on the materials in the warrants of the authorisation only, without any reference to the written instructions. I am not impressed by this contention of Mr. Deb. If the written instructions were given to the searching officers, and on the materials I hold that they were in fact so given, I do not see any reason why the searching officers in conducting the search for and seizure of the books should have ignored the written instructions given by the respondents No. 1. The written instructions were specific with regard to the class and nature of the books and documents to be searched for and seized. They were made over to the officers before the search was commenced. In my opinion, in determining the question if the search for and seizure of the books was arbitrary and indiscriminate, the warrants of authorisation an also written instructions must be considered together.

The warrants of authorisation and the written instructions taken together make it clear that the searching officers were to scrutinise the books and documents in course of the search and they were to seize only relevant and material books which would be necessary for the purpose of further proceedings in law. There was a clear direction upon the searching officers to scrutinise and examine the books and to seize only such of them as would be necessary for further proceedings. It is to be noticed that no current books of petitioners had been seized and although few of these books were brought to the office of the department, they were in fact returned to the petitioners long before April 17, 1967. With regard to the search at the officer premises at 21A, Canning Street, the books and documents were examined by the searching officers, and they did not take possession of a large number of documents which they considered to be unnecessary. Search and seizure with regard to the documents at the said office premises had been completed, and only those documents had been retained which would be necessary for the purpose of further proceedings. The petitioners had claimed with regard to some of these books that their retention by the income-tax department would hamper their day to day work and such books were in fact returned to the petitioners. On the materials it is clear that with regard to search and seizure at the office premises at 21A, Canning Street, it cannot be said that the search and seizure was indiscriminate or arbitrary or excessive. The books and documents were examined, and those which were not necessary were left behind at the office, and certain other books claimed by the petitioners to be necessary for their day to day were also returned and of the other books which were brought to the office for examination, some had been returned already to the petitioners. It cannot, therefore, be said that there was a wholesale, indiscriminate and reckless search and seizure at the petitioners office premises.

The search at the petitioners resident No. 22 Mandaville Gardens stands on a differenting footing. As I have noticed earlier, the scrutiny and examination of books could not be completed by the searching officers as the petitioners had represented that a lady of the house had fallen ill. The documents found at the residence on the second day of the search were, with the consent and approval of the petitioners, brought to the office of the income-tax department, but the examination and scrutiny of the books could not be completed by the income-tax department by reason of the injunction issued by this court. The respondents contention with regard to these books is that the search is not yet complete as a seizure list could not be prepared by them on account of the injunction issued by this court. An inventory, however, had been prepared of these books and this inventory has been annexed to the petition. Learned counsel for the petitioners argued that the respondents case that seizure had not been made with regard to these books could not be accepted as it was mentioned in the inventory that the books were seized from the premises. I cannot, however, accept this contention of the learned counsel for the petitioners. Although the term 'seized' has been mentioned in the inventory, there is no doubt that examination and scrutiny of the books taken possession of by the respondents and brought to the office of the department with the approval of the petitioners, could not be completed by the reason of the injunction issued by this court. But for the injunction, the seizure of the books and documents found at the petitioners residence would have been completed. The term 'seized', it is clear to me, has been somewhat loosely used in the inventory and does not reflect the true state of affairs with regard to the books and documents found at the residence of the petitioners. With regard to these documents, therefore, it cannot, in my view, be said that the seizure has already been made by the respondents. The petitioners applied for and obtained an injunction restraining the respondents from scrutinising the books of account. They also requested the searching officers not to proceed with the scrutiny and examination of the books on the second day of the search at 22, Mandaville Gardens, on the ground that an inmate of the premises had been taken ill. They agreed to the books and documents found at the said premises on the second day of the search, being carried to the office of the department in steel trunks and gunny bags, to be scrutinised and examined later in order to avoid inconvenience to the immates of the dwelling house. In these circumstances, they cannot be heard to complain that books and documents found at the residence at 22, Mandaville Gardens, had been seized, though in fact seizure could not be effected in the circumstances mentioned above.

On this question, namely, if the search for and seizure of the books should be held to be bad on the ground that the search and the seizure were excessive, arbitrary and indiscriminate, learned counsel for the petitioners had relied upon the two decisions mentioned earlier in this judgement, namely, Seth Brothers v. Commissioner of Income-tax and N.K. Textile Mills v. Commissioner of Income-tax. These two decisions, in my view, in my view, were based on facts which were entirely different from the facts of the instant case. In Seth Brother case a raid was ordered for search and seizure of all account books and papers which could be found. There was no direction upon the searching officers to examine the books and seize such of them as might be relevant and then again it was found in that case that the Income-tax Officer did not apply his mind and did not form any opinion regarding the relevancy or usefulness of the books of account. In that case, section 132 of the Act, as it stood before its amendment in 1964 was considered. That section as it stood before its amendment in 1964 made the exercise of the power by the Income-tax Officer subject to the rules made in that behalf. There was in that case a direction to the Income-tax Officer to search for and seize all books and documents without examining the same and without considering if such books would be relevant and material for further proceedings against the assessee. In N.K. Textile Mills v. Commissioner of Income-tax, on the other hand, a raid was organised for search and seizure of books because of information received by the income-tax department that the assessee in that case was manipulating accounts in his basement with a view to showing a reduced income. That was not a case where a letter of authorisation was issued for search and seizure upon the belief that books and documents would not be produced by the assessee when called upon to do so. In that case the warrant of authorisation was issued under section 132 of the Act, as it stood after its amendment in 1965. It was found that no examination of the books and documents before seizure of the same took place and all books and documents were found in the premises were seized. There was no examination or scrutiny of the books during and after search and before seizure of the same. It was on these facts that it was held that the search and seizure was excessive, arbitrary and indiscriminate. In my view, the two decisions mentioned above are clearly distinguishable from the facts of the instant case as the seizure of the books at 21A, Canning Street, had been made after a careful scrutiny and the examination of the books and documents and only such of them had been seized, as had been found to be relevant and materials for further proceedings and various other books were left behind at the premises and certain others were returned to the petitioners. With regard to the search at 22, Mandaville Gardens and documents got held of at the 2nd days search have not been seized yet in the circumstances discussed earlier in this judgement and there cannot, in my view, be any question of excessive, indiscriminate or arbitrary search of the books and documents found at No. 22, Mandaville Gardens. The enormity of the search cannot, in my view, be a ground for condemning the same if such search is otherwise justified.

In my opinion, for the reasons mentioned above the search for and seizure of the books and documents at the petitioners office at 21A, Canning Street, and the search for the books and documents at the petitioners residence at 22, Mandaville Gardens, are not bad on the ground that they were excessive and an abuse of power as they were carried out indiscriminately and arbitrarily.

I shall now proceed to deal with the third question, namely, if the search and seizure was bad having regard to the amendment of section 132, on the ground that the respondent No. 1 in issuing the letters of authorisation did not apply his mind to question of relevancy of the documents to be searched for and seized and failed specify the particular documents to be searched and seized and left it to the officers who conducted the search to determine what documents to search for and seize.

The above contention is based on the terms of section 132 of the Act as it stand after the amendment of that section in 1964 and 1965. After the amendment in section in 1964, it is entirely and solely for the Commissioner of the Income-tax who should have a reason to believe that the conditioned mentioned in clauses (a), (b) and (c) of sub-section (1) of the Act had happened or would happen. By the amendment of the section in 1965 it was provided that either the Director of Inspection or the Commissioner of the Income-tax should have a reason to believe and should thereupon issue the warrants of authorisation. The argument of learned counsel for the petitioners was no discretion was left after the amendment in 1965, to any officer other than the Commissioner of the Income-tax or the Director of Inspection in the matter of search for and seizure of the books. Therefore, if either the Commissioner or the Director of the Inspection had reason to believe that the matter the things mentioned in clause (a), (b) or (c) had happened or would happen, he might, it was argued, issue a warrant of authorisation for search and seizure, but in that case the Commissioner or the Director of Inspection must specify the particular books and documents to be searched for and seized. Until full particulars of the books and documents to be searched for and seized were mentioned in the warrants of authorisation, it was argued, no valid search or seizure could be made. In this case, it was next argued, no particulars of books and documents to be searched for and seized were specified in the warrants of authorisation. A general director was given to the Income-tax Officers to enter and search the premises, to place identification marks on such books and documents as the Income-tax Officers considered relevant, to examine such books of account and documents and made copies and extracts therefrom, to seized such books of account and documents found as a result of search and to convey them to the office of Inspecting Assistance Commissioner. Thus, it was clear, learned counsel for the petitioners argued, that there was no specification of the particular books and documents to be searched for and seized by the Income-tax Officers. These officers, it was argued, were left entirely to act in their own discretion in the matter of search and seizure must be held to be illegal and bad and should be struck down.

There is good deal of smoke but scarcely any fire in the contention of the learned counsel for the petitioners. Section 132 of the Income-tax Act, 1961, before its amendment in 1964, reproduced the provisions in section 37(2) of the Indian Income-tax Act, 1922. Under section 37(2) of the 1922 Act, and section 132 of the 1961 Act, before its amendment, discretion undoubtedly was left with the Income-tax Officer in the matter of search and seizure. The amendment of section 132 in 1964, and in 1965 vested the discretion in the matter of search and seizure in the Commissioner of Income-tax by the 1964 amendment, and in the Director of the Inspection or the Commissioner of Income-tax by the 1965 amendment. The warrants of authorisation in this case were issued by the Commissioner of Income-tax. In these warrants directions have been given as to the manner and method of search and the manner in which the books were to be dealt with during the search and after the seizure thereof. There is nothing in section 132 or any of the sub-sections thereof which requires the respondent No. 1 to specify the particular books to be searched for and seized. But, in this case, as I noticed earlier in this judgement, besides the warrants of authorisation written instructions were issued by the respondent No. 1 to the Income-tax Officer. In these instructions the nature of the books to be searched for and seized, with full particulars were set out. In my opinion, in considerating the question if respondent No. 1 issued specific instructions for the search for and seizure of particular books, the warrants of authorisation must be considered together with the written instructions. The warrants have been issued strictly in complaince with section 132 of the Act as it stands after the 1965 amendment. Section 132 does not require that full or any particulars and books and documents to be searched for and seized under a warrant of authorisation should be specified in the warrant. But the respondent No. 1 did not by any means leave by Income-tax Officers in the dark as to the books and documents which they were to search for and seize. All the relevant material particulars with regard to the books to be looked for, examined and thereafter seized have been set out in the written instructions. The Income-tax Officer who were to conduct the search and seizure were fully and clearly informed of the books and documents which were to be searched for and seized. To hold that further particulars of the books and documents should have been given, namely, the year with regard to which the books were to be searched for and seized and particular books recording particular transections were to be specified would postulate that the respondent No. 1 must acquire prior knowledge before the search, of the entries in the books of account for each year and with regard to each transection. Such knowledge and information with regard to the books and documents of an assessee is impossible for the respondent No. 1 or of anyone else to have without a careful examination of the books of account. The language of section 132 of the Act makes it plain that the legislature did not intend that the Commissioner of the Income-tax before issuing warrants of authorisation must have a full and complete knowledge with regard to the entries made in the books of the assessee relating to the particular transections particular years. The object and the purpose of the warrants of authorisation issued in this case were to search for and seize books of account for further proceedings. There was information in the possession of the respondent No. 1 that the petitioners had manufactured their books of account and other documents to wipe out the real profits made by creating losses arising out of fictitious transections. That being the information in the possession of the respondent No. 1 he cannot be expected to have in his possession full details of the transections, the years in which such transections took place, the amount of real prof it made and the amount of fictitious profits created to wipe out the real profits.

On the question of the application of mind of respondent No. 1 to the relevancy of the books and document to be seized, the respondent No. 1 stated in paragraph 5 of the affidavit affirmed by him on June 5, 1967, that he carefully considered the information and materials in his possession and came to form the belief that books of account and various other documents of the petitioners would be useful and relevant for proceeding against the petitioners. In the written instructions for search he indicated the nature and the class of the books to be searched and for seized, which in his opinion would be useful for further proceedings. This, in my view, provide ample materials to hold that the respondent No. 1 applied his mind to the question of the relevance of the books and the documents to be searched for and seized. I see no reason for rejecting the statement made by the respondent No. 1 in his affidavit. The written instruction bear ample testimony to the fact that he applied his mind to the question of relevance of books and documents which the Income-tax Officer were to search for and seize.

For the reason mentioned above, I cannot accept the contention of the learned counsel for the petitioners that the search and seizure was bad either on the ground that the respondent No. 1 did not apply his mind to the question of relevancy of the documents to be searched for and seized or on the ground that he failed to specify the particular documents to be search for and seized by the Income-tax Officers.

Mr. Debs contention that only one inventory was prepared although three warrants of authorisation were issued, the first one relating to 21A, Canning Street, the second one relating to 22, Mandaville Gardens and the third one directed against Ramswarup Mamchand relating to 21A, Canning street, and, therefore, the search and seizure was illegal, has no substance. In the first place, preparation of the inventory of the documents as been nothing to do with the question of validity of the search and seizure. In the second place, it was contented by the learned Advocate-General, and there is a good deal of force in this contention, that the transactions recorded in the books of the petitioner No. 1 and also the Ramswarup Mamchand are so interconnected that no difference can be made regarding the books and documents of the two units. In the third place, the business of the firm was recorded not only in the name of the partnership firm, but also in the name of the petitioners Nos. 2, 3 and 4 and also the Ramswarup Mamchand.

This disposes of all contentions raised by the learned counsel for the parties, but before concluding, I should refer to another question raised by the learned counsel for the petitioners. This contention was based on subsection (8) of section 132 of the Act which provides that book of account and other documents seized under sub-section (1) shall not be retained for any period exceeding 180 days from the date of seizure unless the reasons for retaining such books and documents are recorded by the Income-tax Officers in writing and approval of the Commissioner for such retention was obtained. It was argued that the search and seizure of the books at the office premises at 21A, Canning Street, Calcutta, took place on Jan 31, 1967, and that at the residence at No. 22, Mandaville Gardens was concluded on February 1, 1967, but it was contended that as more than 180 days were expired from the date of search and seizure, the respondents were bound to return the books as no reason for retaining the books beyond the period specified had been recorded by the Income-tax Officers with the approval of the Commissioner. This point has been pleaded in the petition, and obviously it has not been taken in the petition as 180 days has not expired when the petition was moved. Learned counsel for respondents contented that they did not produce materials to repel this contention to behalf of the petitioners as no notice was given that such a point would be taken. He, however, submitted that reasons for retention of the books beyond the period mention in sub-section (8) of section 132 has been recorded in writing and approval of the Commissioner had been duly obtained. A copy of the reasons recorded in writing has been produced in court and has been kept on record.

Learned counsel for the petitioners, however, raised another contention which was based on the provision of the sub-section (8) of the section 132 of the Act. This contention was that, although sub-section (8) of section 132 enabled the Commissioner to approve of the retention of the books seized beyond 180 days of the date of the seizure, the proviso to the sub-section required that the books so retained must be returned within a further period of 30 days after the expiry of 180 days. In other words, it was contended that the books and document seized could not be retained beyond the period of 180 days as provided in sub-section 132 of the further period of 30 days as enjoined by the proviso. Therefore, it was argued that whether the proceeding are completed or not, the books and documents seized could not be retained beyond the period of 180 days and a further period of 30 days, that is to say, altogether 210 days, and upon the expiry of 210 days from the date of seizure of the books, they must be returned as that assessee whether the proceedings contemplated by section 132 were completed or not.

I cannot accept this contention of the learned counsel for the petitioners. Sub-section (8) of section 132 of the Act and the proviso to the sub-section are, in my view, dealing with two entirely different situation. While sub-section (8) is dealing with the retention of the books by the department after the seizure of the books, but before proceedings are commenced or completed, the proviso is dealing with the situation where proceedings contemplated by section 132 of the Act had been completed. Sub-section (8) enables the Commissioner to give his approval to the retention of the books beyond 180 days, if such retention becomes necessary in order to complete the proceedings contemplated by section 132. The proviso to the sub-section, on the other hand, requires that the Commissioner shall not authorise the retention of the books for the period exceeding 30 days, after the proceedings are completed. Sub-section (8) enables the Commissioner to approve of the retention of the books for the entire duration of the proceedings, even though such proceeding take more than 180 days. The proviso requires that once the proceeding are completed, the books must be returned to the assessee within 30 days from the date of completion of the proceedings.

It was next contented that the order by which the Commissioner approved of the retention beyond 180 days and which was produced by the learned counsel of the respondents, was not a valid order as it was never communicated to the petitioners. It was argued that the petitioners has a right to file an objection to the approval given by the Commissioner, under subsection (10) of section 132 of the Act. The approval of the Commissioner, it was argued, not having been communicated to the petitioner, the same was illegal and invalid as an order would not be a valid order until it was communicated to the party against whom the order was made. In support of this contention reliance was placed on the decision of the Supreme court. in Bachhittar Singh v. State of Punjab. I cannot however, accept this contention on behalf of the petitioners. These question are being raised for the first time of the conclusion of the argument and the respondents did not have the opportunity of reply the contention placed by the petitioners. The question whether the approval of the Commissioner was communicated to the petitioners is a question of fact and the respondents did not have the opportunity of dealing with these allegations.

There is, however, one more objection to this contention raised on behalf of the petitioner, which, to my mind, is fatal. The petitioners have obtained a rule nisi in this writ petition, and the rule nisi confined to certain specific matters, namely, a writ in the nature of the mandamus for returns of the books and documents alleged to have been seized illegally under section 132 of the Act, a writ in the nature of certiorari quashing the warrant of authorisation, an order for production of the warrants of authorisation to be quashed and the writ in the nature of prohibition directing the respondents not to take steps pursuant to the search and seizure. There is nothing in the rule nisi issued by this court for a writ or order upon the respondents directing them to return books on the ground that they were being retained in violation of the provision in the subsection (8) of section 132 of the Act. This court, in disposing of the writ petition would go not beyond terms of the rule nisi, which the respondents have been called upon to answer. For this reasons, the contention on behalf of the petitioners must be rejected.

For the reasons mentioned above, This application failed and is dismissed. The rule is discharged. Each party to pay its own costs.

As the writ petition is hereby disposed of no order is necessary on the application for extension of the interim order and accordingly no order is made in that application.

Application dismissed.


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