S.K. Industries (P) Ltd. vs Director General of Income Tax (Inv.)

Writ Petition CWP 13236/2006 was filed on 22.8.2006 challenging the legal propriety of the Search conducted sixteen months earlier, on

16.2.2005, on the ground (a) for the non-existent reasons to believe on the lines stated in Clauses (a), (b) and (c) of Section 132(1) of the Act; (b)

that the assessment proceedings initiated u/s 153A of the Income Tax Act (''the Act'' for short) pursuant to the Search are illegal. The Petitioner

has prayed for the issuance of a writ of Certiorari quashing the Warrant of Authorisation and the said Search and for the quashing of Notice dated

10.7.2006 issued u/s 153A of the Act. The Petition has been signed and verified by an affidavit of one of its Directors, Shri G.L. Jain, son of Late

G.D. Jain, resident of 11/2A, Pusa Road, New Delhi-110 005. However, the shareholding of the Petitioner company has not been disclosed in the

Petition. CWP 15824/2006 was filed on 5.10.2006 by Shri S.K. Jain (brother of Shri G.L. Jain and resident at the same address) as an individual,

having also been served with the impugned Notice u/s 153A of the Act dated 10.7.2006 praying, in substance, for the same reliefs.

It has been asseverated that S.K. Industries (P) Ltd. was incorporated on 5.1.1991, and is carrying on the business of manufacture of

confectionery; that it has regularly filed its Return of Income and has been assessed to tax each year. It has been pleaded that the Company has

paid its Tax dues. This is also the stand of Shri S.K. Jain. In the Counter Affidavit the Revenue has disclosed that the Petitioners are part of the

Group companies owned and managed by S/Shri Suresh Jain, Sajal Jain, son of Shri S.K. Jain, Ganeshi Jain and Yogesh Jain. This Group

comprises S.K. Industries (P) Ltd., Harsh International (P) Ltd. at 11/2A, Pusa Road, New Delhi-110005, Mansarover Promoters (P) Ltd. at

1/1B, Pusa Road, New Delhi, H.B. Industries (P) Ltd. and Mahak Food (P) Ltd. These facts have not been traversed in the Rejoinder and hence

stand admitted. On a perusal of the Rejoinder it is evident that the shareholding in New Generation Promoters P. Ltd. was transferred in favor of

''Shri G.L. Jain and his family members''. The Petitioners have evaded giving details of the original shareholders in New Generation (P) Ltd. They

have stated that prior to 2002 it had given the ''complexes at Pusa Road'' on rent to Millennium Hospital and Diagnostic Centre P. Ltd. There is a

bald statement that the Shareholders, Directors, Managers and Administrators of New Generation(P) Ltd. and Millennium Hospital and Diagnostic

Centre are completely different. In the Rejoinder it has also not been controverter that Shri Sajal Jain is the son of Shri S.K. Jain [one of the

Directors of the Petitioner company]; or members of his family own 1/8B, Pusa Road, New Delhi and/or 12, Pusa Road, Motor Market, New

Delhi. In order to dispel all doubts pertaining to the common family ownership or Group ownership of these properties their holding ought to have

been clearly and categorically stated. In respect of properties bearing Municipal No. 6013/1 and 6013/3, Dev Nagar, Arya Samaj Road, New

Delhi and 7/A1, W.E.A. Karol Bagh, New Delhi as well as the property at Karol Bagh the Petitioner has made a correction that these properties

were not sold by Shri Sajal Jain but by his father, Shri S.K. Jain [Director of the Petitioner Company]. These pleadings and facts have been

mentioned by us with a view to highlighting the nebulous nature of the dealings and ownership of properties within the Group companies. This will

indubitably have a bearing on the action of the Respondents that has been assailed in these proceedings. The product that is at the fulcrum of the

factual matrix is Chaini Khaini which is manufactured by Harsh International P. Ltd. which is stated to have commenced business from 1.2.2003. It

is indeed remarkable that the shareholding of Harsh has not been disclosed by the Petitioners. However, the records disclose that Shri G.L. Jain

[64 years] is the elder brother of of Shri S.K. Jain [54 years], being the sons of late G.D. Jain, both of whom are residing at the same house i.e.

11/2A, Pusa Road, New Delhi-110005. Shri S.K. Jain has filed CW No. 15824/2006 in his individual capacity and has not imp leaded any of the

other Group companies. It appears plain to us that if credence is to be given to the Petitioners'' submission that facts pertaining to the manufacture

of Chaini Khaini are irrelevant so far as S.K. Industries or S.K. Jain are concerned, the Petitioners ought to have clearly spelt out the shareholding

in Harsh. A reading of the Rejoinder leads only to the confusion being worse-confounded; it does not set-down any foundation for the ipse dixit

that neither of the Petitioners have any direct or indirect connection with the affairs of Harsh. It is, Therefore, not possible even for us to cull out

any meaningful distinction between the business interest and activities of the Petitioner on the one hand and the shareholders of Harsh. Since the

Petitioners were in the best position to remove and dispel doubts and unravel the skein of common and obscure dealings, an adverse inference

would have to be drawn against them.

On behalf of the Revenue it has been emphasised that there is no valid Explanation as to why the challenge to the Warrant of Authorisation and

the Search conducted thereon in February, 2005 should have been raised after sixteen long months. We are not impressed with the argument that

these writ Petitions became necessary only upon the issuance of the impugned Notice dated 10.7.2006 u/s 153A of the Income Tax Act since the

gravamen of this legal action is predicated on the Search. This would have been sufficient reason for us to dismiss the Writ Petitions as being

barred by laches but since we have heard arguments in detail, we refrain from doing so. Briefly stated, the argument of learned Counsel for the

Petitioners is that a mere suspicion, in contradistinction to the belief that circumstances envisaged u/s 132 of the Act exist, should not be the

motivation for authorising and conducting a Search. The argument is that there must be objective criteria or information having a direct nexus or live

link to the persons subjected to a Search in order to justify such action being carried out by the Revenue, which action invariably has a socially

deleterious impact on the persons subjected to it. This is indeed trite and the Court would always be quick to castigate the Department if it

proceeds to conduct searches and/or seizures for fishing or flippant reasons. One of the facets of the fundamental right to life is that no person shall

be permitted to jeopardise or harm the honour and social standing of an innocent person.

On behalf of the Revenue it has been contended that the Search was initiated and completed in consonance with the law; that there was

sufficient information in the hands of the Department to entertain a reasonable belief that circumstances envisaged u/s 132 in fact existed. It is the

Revenue''s case that the Commissioner properly possessed requisite belief, reasons whereof were duly recorded for initiating proceedings under

the Act; and that the Writ Court ought not to substitute its own opinion on the subject for the one pursued by the Department. Reliance has been

placed on Income Tax Officer, Special Investigation Circle-B, Meerut Vs. Seth Brothers and Others etc., . Mr. Jolly, learned Senior Standing

Counsel, has justifiably underscored the fact that malafides have not been alleged against any of the officers. Drawing strength from the

observations made in the context of Sections 147/148 of the Act in INCOME TAX OFFICER Vs. SELECTED DALURBAND COAL CO. (P)

LTD., it has been contended that the veracity and correctness of the facts which persuaded the authorisation of the Search should not be called

into question in writ proceedings, at least at the present stage. A decision of this Court in BALWANT SINGH AND OTHERS Vs. R. D. SHAH,

DIRECtor OF INSPECTION, Income Tax, NEW DELHI, AND OTHERS., is more directly relevant in this regard.

Mr. Bajpai, learned Counsel for the Petitioners, has relied very heavily on the ratio of L.R. Gupta and Others Vs. Union of India and Others, .

The Division Bench of this Court was confronted with the question of what would constitute tangible material to justify the authorisation of a Search

or Seizure. It was observed that information must be more than mere gossip, or rumour or a hunch. Mere failure to file Returns of net wealth and

income would not justify such an action as it may not invariably disclose the rational connection for concluding that the assessed did not want the

Department to gain knowledge of the existence of his assets or income. It was also observed that a Search conducted u/s 132 of the Act is a

serious invasion into the privacy of a citizen and, Therefore, must stoutly be construed in a manner conducive for the protection of the citizen. The

opinion must be apparent from the Note recorded by the Officer and it must clearly manifest that the belief falls under Clause (a), or (b) or (c) of

Section 132(1). In that case the Petitioner, who is a Senior Advocate of this Court, had received compensation in respect of the acquisition of his

property and this money was utilised by him for the purchase of Bonds and for buying immovable property. This compensation had become

payable in 1987 pursuant to a decision of the Division Bench of this Court and hence could not possibly have partaken of the character of

unaccounted income. This, in our opinion, constitutes the watershed between this case and others. The Department had sought information

regarding the expenses incurred on the marriage of the Petitioner''s son, which had been duly and sufficiently supplied. Nevertheless, two

Inspectors of the Income Tax Department visited the premises on March 21, 1991 and asked the Petitioner to supply documents in the Office of

the Income Tax Officer on the following day. However, on that day itself a Search took place in the presence of a large police contingent. It was in

those circumstances that the Division Bench opined that merely because the person does not file a Return or does not disclose true income and

wealth, an authorisation u/s 132(1) of the Act cannot be issued. It was noted that no satisfaction had been indicated in the Note that the petitioner

would not produce or cause to be produced any books of accounts, documents etc. Unlike in these cases before us, no convert dealings had been

unearthed that were attributable to Shri L.R. Gupta.

An earlier case, in which another Senior Advocate had to suffer the scourge of a senseless Search, namely H.L. Sibal Vs. Commissioner of

Income Tax and Others, , has also been cited by Mr. Bajpai. What impressed, or rather disturbed, the Division Bench of the Punjab and Haryana

High Court were the pleadings of the Department disclosing the reasons for the Search. So far as the Department was concerned it was obvious

that its actions were predicated on the unsubstantiated belief, or rather suspicion, that advocates in Chandigarh were not disclosing their true

income and wealth; the Petitioner being one of them. In other words no concrete ''information'' particular or personal to the Petitioner, was

available with the Department; the Search was a consequence of a policy decision, and ''the dominant object of the Respondents was to pass an

order u/s 132(5) of the Act regardless of whether such an order could or could not have been passed in the eyes of the law''. The Court extracted

the following passage from the landmark judgment of the Supreme Court in Pooran Mal Vs. The Director of Inspection (Investigation), New Delhi

and Others, in which the constitutionality of Section 132 of the Act was unsuccessfully called into question:- We are, Therefore, to see what are

the inbuilt safeguards in Section 132 of the Income Tax Act. In the first place, it must be noted that the power to order search and seizure is vested

in the highest officers of the department. Secondly, the exercise of this power can only follow a reasonable belief entertained by such officer that

any of the three conditions mentioned in Section 132(1)(a), (b) and (c) exists. In this connection it may be further pointed out that under sub-

rule(2) of Rule 112, the Director of Inspection or the Commissioner, as the case may be, has to record his reasons before the authorisation is

issued to the officers mentioned in Sub-section (1). Thirdly, the authorisation for the search cannot be in favor of any officer below the rank of an

Income Tax Officer. Fourthly, the authorisation is for specific purposes enumerated in (i) to (v) in Sub-section (1), all of which are strictly limited to

the object of the search. Fifthly, when money, bullion, etc. is seized the Income Tax Officer is to make a summary enquiry with a view to determine

how much of what is seized will be retained by him to cover the estimated tax liability and how much will have to be returned forthwith. The object

of the enquiry under Sub-section (5) is to reduce the inconvenience to the assessed as much as possible so that within a reasonable time what is

estimated due to the Government may be retained and what should be returned to the assessed may be immediately returned to him. Even with

regard to the books of account and documents seized, their return is guaranteed after a reasonable time. In the meantime the person from whose

custody they are seized is permitted to make copies and take extracts. Sixthly, where money, bullion, etc., is seized, it can also be immediately

returned to the person concerned after he makes appropriate provision for the payment of the estimated tax dues under Sub-section (5), and,

lastly, and this is most important, the provisions of the Criminal Procedure Code relating to search and seizure apply, as far as they may be, to all

searches and seizures u/s 132. Rule 112 provides for the actual search and seizure being made after observing normal decencies of behavior. The

person in charge of the premises searched is immediately given a copy of the list of articles seized. One copy is forwarded to the authorising

officer. Provision for the safe custody of the articles after seizure is also made in Rule 112. In our opinion, the safeguards are adequate to render

the provisions of search and seizure as less onerous and restrictive as is possible under the circumstances. The provisions, Therefore, relating to

search and seizure in Section 132 and Rule 112 cannot be regarded as vocative of Articles 19(1)(f) and (g).

The Sibal case also observes that there is parity between the provisions of Sections 132 and 147 of the Act. Founded thereon, Mr. Bajpai

contends that the extracted opinion of the Apex Court in Income tax Officer, Calcutta and Others Vs. Lakhmani Mewal Das, with regard to

Section 147 is applicable in full force to Section 132 proceedings:- As stated earlier, the reasons for the formation of the belief must have a rational

connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link

between the material coming to the notice of the Income Tax Officer and the formation of his belief that there has been escapement of the income

of the assessed from assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that the

court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the Income Tax Officer on the point as to

whether action should be initiated for reopening assessment. At the same time we have to bear in mind that it is not any and every material,

howsoever vague and indefinite or distant, remote and far-fetched, which would warrant the formation of the belief relating to escapement of the

income of the assessed from assessment. The fact that the words ''definite information'' which were there in Section 34 of the Act of 1922, at one

time before its amendment in 1948, are not there in Section 147 of the Act of 1961, would not lead to the conclusion that action can now be taken

for reopening assessment even if the information is wholly vague, indefinite, far-fetched and remote. The reason for the formation of the belief must

be held in good faith and should not be a mere pretence. Predicated on this passage it is argued that since the Search had its causation in the Chaini

Khaini manufacture, it had no connection with the Petitioner''s business which is preparation of fruit jelly. We cannot accept this argument since it is

obvious that the commonality is not in the nature of the business but in their ownership. As already noticed, at this stage, the operation of the

various Jain businesses are so intermingled and intertwined as to render them almost undistinguishable. The facts in Sardar Parduman Singh Vs.

Union of India and others, were that the Department had received information that two other persons had amassed huge undisclosed wealth which

had been invested in acquiring on pugree premises No. 235, Lajpat Rai Market, Delhi. It was held that the sealing of this property which was in

the possession of the Petitioner was totally unjustified and unsustainable. Reliance on this Judgment is again futile since it has not been adequately

clarified that there are no common business dealings or joint ownership of property between the Petitioners and other members of the Jain family.

For the very same reasons Kusum Lata Vs. Commissioner of Income Tax and Others, in no way advances the Petitioners case. Sunil Kumar Jain

Vs. The Income Tax Officer, The Commissioner of Income Tax and The Commissioner of Income Tax, contains an analysis of the plethora of

precedents on these provisions of the Act and reiterates that the ''reasons'' for action u/s 147 must be based on relevant material which must not be

sustained simply on the subjective satisfaction of the concerned officer.

In Commissioner of Income Tax, Allahabad and Others Vs. Vindhya Metal Corporation and Others, their Lordships were concerned with the

impounding of Rs. 4,63,000/- from the possession of the Munim of a firm while traveling to Calcutta, assuming the money to be stolen property.

The Railway Police thereafter informed the Commissioner of Income Tax who forthwith issued a Warrant of Authorisation u/s 132(1) of the Act

authorising the Income- Tax Officer concerned to receive the money from the Railway Police. Upon a Search being conducted on the premises of

the company the fact that the Munim was in possession of moneys of the firm that were duly accounted for came to be affirmed. It was held that in

this factual matrix no reasonable person could have entertained the belief that the money represented income which would not have been disclosed

had details been asked for. These facts palpably have no relevance to the case before us. The Gauhati High Court in M.S. Associates, Ajoy

Kumar Subba, Smt. Jyoti Limbu and Sanjay Raj Subba and Another Vs. Union of India (UOI) and Others, has gone to the extent of holding that if

information is received from proceedings of the legislature that a Member of the House is involved in evasion of money, if the authorities concerned

have reason to believe the information so received is true, it is their bounden duty to act thereupon. It has been further held that if the authorities are

not in a position to know whether the information/accusation is true or not, they are not barred from making investigations to find out the truth or

veracity of the information received by them. Therefore, the expression ''reason to believe'' u/s 132 is subjective and objective. The dicta in Seth

Brothers, that the power exercised by the Commissioner u/s 132 is not a judicial or quasi-judicial power and the Court cannot substitute its own

opinion for that of the Commissioner, was applied. It was also noted that no malafides or malicious intent attributable to the Department had been

made out. The challenge to the issue of Warrants of Authorisation for Search and Seizure was found to be baseless.

The decision in Lajpat Rai and Others Vs. Commissioner of Income Tax and Others, , is indeed apposite. The Writ Petition was filed by Lajpat

Rai, and his wife and mother as Petitioners No. 2 and 3. It appears that the Search was primarily directed towards the business and residential

premises of Shri Subhash Chandra Varshani at Kandra, Calcutta, Madras and Baroda and at his other sales and business premises in different

parts of the country. It was in that regard that the residential premises of the Petitioners were also raided. However, no ''appreciable'' properties or

documents were found so far as the Petitioners were concerned, but the key of a locker of Petitioners No. 2 and 3 was impounded. The case of

the Department was that Petitioner No. 1 was supplying silica to Shri Subhash Chandra Varshani. Mrs. Varshani was a Director in the

Petitioner/Lajpat Rai''s Company and they had mutual business transactions. The Court concluded that the close relationship between Lajpat Rai

and Varshani who was the focus of the Search ''would certainly lead one to believe that, in the ordinary course, petitioner No. 1 [Lajpat Rai]

would not comply with the notice under the Income- Tax Act and produce the material in his possession which would be adverse to the company

and the said relatives,. The Search which had already been simultaneously conducted was found to be legal and impervious to quashing. However,

so far as the Locker was concerned, the Court came to the conclusion that it did not bear direct nexus to the Varshani businesses and hence could

not be searched. This decision obviously supports the action of the Revenue.

Our attention has been drawn by Mr. Jolly to Harvest Gold Food (India) Private Limited and Others Vs. Union of India (UOI) and Others,

where the Court returned the finding that the Department was in possession of reasonable and credible information to justify a Search. The entire

case law was set down by the learned Judge and thereafter applied. Significantly, reference has been made by the Petitioners to the Guidelines laid

down by the Central Board of Direct Taxes that a Search should be carried out only where there is credible evidence to indicate substantial

unaccounted income/assets in relation to the tax normally paid by the assessed where the expected concealment is more than one crore. So far as

the Department was concerned it had stated that the Search and Seizure had been authorised by the Director General of Income Tax

[Investigations] after careful examination of information, evidence and material.

It is in the backdrop of this exposition of the law that we have to decide the rule whether the Search that has been conducted was legal. As has

already been indicated above, the maze of commercial dealings between various companies owned by the Jain Group, of which the Petitioners

presently appear to be an integral and inseparable part, was sufficient justification for a simultaneous Search being conducted on all the businesses.

In our considered opinion it is not possible to conclude that the Department had initiated a roving enquiry to allay or satiate their suspicions. It has

been sufficiently pleaded that as a consequence of the surveillance carefully carried out over a period of time it had been noted that the Returns

filed in the Chaini Khaini business did not match either the output capacity of the packaging machinery or the numerous assets built-up and

acquired by the Jain family. In these circumstances it would be unreasonable to expect that a Search would have been restricted only to the family

concerns dealing in the Chaini Khaini business since income or profits or assets could well have been spread, or for that matter concealed,

throughout the family concerns. It is conceivable that if all the group companies and shareholders had not been simultaneously searched the

exercise would have remained stillborn and futile. There was, in our opinion, sufficient material to come to an objective as well as subjective

reasonable belief that a Search u/s 132 was justified and necessary. The information available with the Department need not have been disclosed

as has been held in Dr Partap Singh and Another Vs. Director of Enforcement, Foreign Exchange Regulation Act and Others, . The Search was

not in the nature of a roving or fishing enquiry.

Writ proceedings cannot be employed as a surrogate or indirect challenge to the existence or the adequacy of reasons to believe that action u/s

132 was called for. It has not been controverter that in the Notice issued u/s 153A of the Act all materials and particulars relied upon by the

Department have been disclosed. We also find the delay in approaching this Court to be significant. We cannot ignore the fact that the Petitioners

have not challenged the Summons issued u/s 131 of the Act which were issued subsequent to the Search. Instead of approaching this Court the

Petitioners should fully participate in the proceedings u/s 153A and vindicate its stand that it has no appreciable connection with the other business

family concerns. We find no reasons to exercise the extraordinary powers vested in this Court under Article 226 of the Constitution of India.

The writ proceedings were filed on 22.8.2006[CWP No. 13236/2006] and on 5.10.2006[CWP No. 15824/2006]. During the pendency of

these proceedings the Assessing Officer, in our opinion, would not have been able to conduct and complete the original proceedings. Hence the

period of limitation set-down in the statute stands extended by four months.

Writ Petitions are dismissed. This is a fit case for the imposition of exemplary costs against the Petitioners, but we order the Petitioners to

paynominal costs of Rs. 15,000/- to the Respondents within six weeks.