Monday, March 14, 2011

Gujarat High Court: The Court not to act as a regular appellate authority in the grant of sanction u/s 132

Neesa Leisure Limited v. Union of India Through Secretary decided on 4 March, 2011

SPECIAL CIVIL APPLICATION No. 13498 of 2010

Assessment Year: 2010-2011

Relevant facts:

A search action came to be conducted under section 132 of the Income Tax Act, 1962 (the Act) on 8.9.2010, 9.9.2010 and 11.9.2010 on various Companies of the Neesa Group.

Subsequent to the search and survey, the respondent authorities issued summons to the Group Companies asking them to file information/documents for the period since 1.4.2004 till date bank book, unsecured loans, ledger accounts of capital assets, land acquisitions details, documents, equity capital received and loans and advances given. After the search, the Assistant Director of Income Tax, in charge of the search operations, issued several notices under section 131(1A) of the Act. The petitioner wrote several letters to the respondent No.4, Deputy Director (Investigations) as well as other officials in respect of the action taken by the income tax authorities alleging that the action is taken with ulterior motive to harm the business interest of the petitioners.

It is the case of the petitioners that, the conditions precedent for exercise of powers under section 132 of the Act have not been satisfied and that the subsequent inquiry under section 131(1A) of the Act is bad in law as the said powers are required to be exercised prior to the search and not subsequent thereto.

Question/s before the Hon’ble Court:

1. Whether the authorization granted u/s 132(1) has been granted validly in the facts and circumstances of the present case?

2. Whether the issue of notice u/s 131(1A) after the search operations carried out u/s 132, shows a malafide intention of the authorities and renders the search operations invalid on such grounds?

Dismissing the petition of the assessee, the Hon’ble Court held that:

Para 8: “From the principles enunciated in the above referred decisions, it is apparent that for the purpose of exercise of powers under section 132 of the Act, two conditions precedent are required to be satisfied. The first condition is that the concerned officer must have some information in his possession, and the second condition is that, in consequence of such information he must have reason to believe that the statutory conditions for exercise of the power to order search exist. The basis for exercise of power must be some material which can be regarded as information which must exist on the file on the basis of which the authorising officer can have reason to believe that action under section 132 is called for. Such information should be fairly reliable and should not be a mere rumour or an unverified piece of gossip or a hunch…

The court will not act as an appellate authority and examine meticulously the information in order to decide for itself as to whether the action under section 132 is called for. But the court would be acting within its jurisdiction in seeing whether the act of issuance of authorization under section 132 is arbitrary or malafide or whether the satisfaction recorded is such which shows lack of application of mind on the part of the appropriate authority.

Para 11: “The main plank of the submissions advanced by the learned counsel for the petitioners was that issuance of notices under section 131(1A) of the Act subsequent to the search proceedings was fatal and would render the search proceedings invalid even if the requisite satisfaction had been recorded prior to issuance of authorization under section 132(1) of the Act. This Court does not find any merit in the said contention, inasmuch as if there is sufficient and tangible material available on record, prior to the search, based on which the concerned officer has formed the requisite belief under section 132(1) of the Act, merely because certain other information has been sought for by the authorised officer or any of the officers mentioned in section 131(1A) of the Act, the same would not render the search proceedings invalid.

The decision is available here.


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