Doctors X-Ray and Pathology Institute P. Ltd. and Others vs Director of Investigation and Others

S.K. Gupta, J.—This writ petition has been filed, inter alia, for the following reliefs:

(i) Issue a writ, order or direction and declare that the search conducted against the petitioners on September 14, 2002, as illegal and in contravention of Section 132 of the Income Tax Act, 1961.

(ii) Issue a writ, order or direction in the nature of certiorari and to quash the consequential block assessment notices dated April 29, 2003, and May 21, 2003 (annexure 5).

The brief facts as enumerated in the writ petition are as follows:

Petitioner No. 1 is a company duly incorporated under the Indian Companies Act, 1913, within the meaning of Section 3 of the Companies Act, 1956. Under the objects of the company/petitioner No. 1 as incorporated in its memorandum of association, works in the field of medical diagnostics by providing facilities of x-ray, pathology and ultrasound images. Dr. H.R. Agarwal, Dr. Sita Ram Agarwal, Dr. K.R. Agarwal and Dr. Mrs. Chitralekha Agarwal are on the board of directors of the said company. The registered office of the company is at 37/17, Westcott Building. The Mall Kanpur. Petitioners Nos. 3 to 6 work for the said company and derive remuneration from the company for the work done by them.

Petitioner No. 2 is a society registered under the provisions of the Societies Registration Act, 1860, and was granted registration on June 30, 1993, having its registered office at 15-257, Civil Lines, Kanpur, and has also been granted registration u/s 80G of the Income Tax Act, 1961 (in short "the Act"), as well as u/s 12A of the Act.

The competent authority appears to have authorised search against the petitioners u/s 132 of the Act and pursuant to such act of authorisation, a search was conducted against each of the petitioners on September 14, 2002. The search was conducted at the registered office of petitioners Nos. 1 and 2 and also at the residential and other addresses of the other petitioners including the Doctor''s X''ray and Pathology Institute P. Ltd. 37/17, Westcott Building, The Mall, Kanpur, 15/257, Civil Lines, Kanpur, 2A/239, Anand Nagar, Kanpur, 4/276-R, 4/276-B, Parwati Bagla Road, Kanpur. Subsequently, the Deputy Commissioner of Income Tax, Central Circle 3, Kanpur, respondent No. 3 (in short the Deputy Commissioner) issued notices for the block assessment to the petitioners for the block period ending September 14, 2002, u/s 158BC of the Act. Hence, the present writ petition.

Learned Counsel for the petitioner has made the following submissions in support of his contention:

(i) The search is without jurisdiction or authority inasmuch as the Director of Investigation, Kanpur (in short Director) issued authorisation for search in the absence of reasons to believe that the petitioner is in possession of money, bullion, valuable article or thing, books of account or other documents either representing or divulging any income which had not been or would not have been disclosed for the purposes of the Act and which may be found at any particular place or premises. Such reason to believe has not been recorded. The authorisation has been issued to conduct a fishing and roving enquiry without any base or substance for totally vague consideration.

(ii) There existed no material on record before the competent authority before authorizing the search, on the basis of which a prudent man could ever entertain reason to believe.

(iii) The entire search conducted u/s 132 of the Act is illegal and as such notices issued u/s 158BC are illegal and without jurisdiction and are liable to be quashed.

(iv) The power of the Income Tax authority regarding discovery, production of evidence, etc., is provided u/s 131 of the Act. The power of survey is provided u/s 133A of the Act and to collect information is provided u/s 133B. Other than the aforesaid provisions there is no power vested with the Income Tax authority to enter the premises or make any inquiry, etc.

On the other hand, Sri Shambhu Chopra, learned standing counsel for the Revenue, has contended that the search operation was legally valid and consequently notices u/s 158BC of the Act was also valid. He has further submitted that there was sufficient material on record and the competent authority had reasons to believe before authorising for search of the disputed premises. He has further submitted that search and seizure has been made strictly in accordance with the statutory provisions and no fault can be found against such search and seizure. There was sufficient material in possession of the authority, on the basis of which opinion was objectively formed and there were reasons to believe that assets had not been and would not be disclosed.

Heard Sri S.D. Singh learned Counsel for the petitioner and Sri Shambhu Chopra, learned standing counsel for the Revenue. We have considered the rival submissions made by learned Counsel for the parties and perused the record including the original record produced before us by the Revenue.

At this juncture it would be useful to refer to the relevant extract of Section 132(1) of the Act, which reads as under:

Search and seizure. - (1) Where the Director General or Director or the Chief Commissioner or Commissioner or any such Joint Director or Joint Commissioner, as may be empowered in this behalf by the Board in consequence of information in his possession, has reason to believe that....

(c) any person is in possession of any money bullion; jewellery or other valuable article or thing and such money, bullion, jewellery or other valuable article or thing represents either wholly or partly income or property which has not been or would not be disclosed for the purposes of the Indian Income Tax Act, 1922 (11 of 1922), or this Act (hereinafter in this Section referred to as the undisclosed income or property).

It is evident from the aforesaid provision that if the officer has reasons to believe that the person is in possession of money, bullion, jewellery or other valuable article or thing which has not been and would not be disclosed, he may issue warrant of authorisation to the designated officer to search the place, person and seize the documents/amounts. Now, the short question for our consideration is as to whether the search in this case has been conducted in accordance with the provisions of the Act or not.

By order dated August 19, 2008, this Court had directed the learned standing counsel for the Department to produce the record relating to search operation carried on the business premises of the petitioner and in pursuance of the same relevant record relating to search operation carried on the business premises has been placed before us which, inter alia, indicates as follows:

Information has been received that K.R. Agarwal and Dr. Chit-ralekha Agarwal along with Dr. H.R. Agarwal and Dr. S.R. Agarwal are evading huge amount of taxes by way of suppressing the income they are earning from their business centre the Doctor''s X''ray and Pathology Institute P. Ltd. and also from their personal practice.

It is alleged that the main person of the group is Dr. K.R. Agarwal. In the pathology centre when a patient approaches for test of T3, T4 T145 he has to pay Rs. 700 as fees but the patient is asked to pay the fee directly to the doctor. The doctor gives a plain chit in the form of receipt to the patient on which the name of doctor is written to whom he has to report on the date of the report the patient collects his report by showing the chit which is taken back. Thus, the amount so received is not entered in the books of account. The routine tests payment is received on the counter itself for which proper receipts are issued and entered in the books and the important tests where substantial charges received are not entered in the books. It has been further alleged that the reports which are not to be recorded are kept in the drawer of Dr. K.R. Agarwal and in an almirah kept under the table of Dr. Chitralekha Agarwal and also in a small room which is made over the bath room.

Dr. K.R. Agarwal and Dr. Chitralekha Agarwal reside at A/276B, Parwati Bagla Road, Kanpur. The residential building has first class construction and the constructed area must be 3000 to 3500 sq. feet. Dr. S.R. Agarwal and Dr. H.R. Agarwal resides at 15/257, Doodwala Bangla, Civil Lines, Kanpur. Dr. M.R. Agarwal owns four flats in SRI towards Vishnupuri, Kanpur. The flats owned by Dr. Agarwal are given to him in lieu of the land on which the multi storied building is constructed. The flats are on ground and first floor. Two flats are given on rent and the other two are in possession of Dr. H.R. Agarwal. In the ground floor flat the doctor is running ultra sound imaging centre where he imparts training to aspirants. The fourth flat at first floor is vacant.

Further, it has been informed that Dr. K.R. Agarwal solemnised marriage of his daughter in Delhi in which huge sum of money have been spent and also that Dr. K.R. Agarwal and Dr. Chitralekha Agarwal possesses a number of post office accounts on fictitious names and also possess a number of K.V.Ps. in which substantial amount of unaccounted black money has been invested.

I have checked the allegations by visiting the X-ray lab. and gave my blood for blood sugar testing. Rs. 30 were charged from me and receipt for the same was given. The observation revealed that the allegations made has ground. During my presence a patient approached the counter and enquired the rates for elisa test, he was asked to report to doctor K.R. Agarwal. After a few minutes the patient came out of the doctors chamber having a plain paper receipt and invited the place where the test was to be conducted. Meanwhile, I gave my blood and the patient also came out and asked the counter person for proper receipt. He was told that the chit he is holding is sufficient and he need not to have any other receipt. Further enquiry revealed that the elisa test is a costly test for which the fee ranges from Rs. 600 to Rs. 700. The allegation made appears to be correct that the tests where the fee is more are not entered in the books.

Thus, on the basis of allegations and enquiries made by me I am of the opinion that the group of doctors running Doctor''s X''ray and Pathology institution P. Ltd. are suppressing their actual income, has purchased a large number of K. V. Ps. investing substantial amount and have invested in ultra sound imaging centre. The daily receipts made by doctors from X''ray lab and practice is not less than Rs. 12,000 to Rs. 15,000 a day and yearly income of the group can be worked out to Rs. 35 lakhs to 40 lakhs where as none of the doctors of the group figures in the list of top professionals list where in the last doctor listed at serial No. 90 has shown yearly income of Rs. 3.11 lakhs. Thus, the allegation made gains ground that the group of doctors are suppressing their income by a large margin and if at all summons u/s 131 is issued and they are asked to submit the books of account bills vouchers in order to work out their correct income, they will not do so, as such I propose to unearth the true picture of their income and to recover unaccounted money from their possession, an action u/s 132 of the Income Tax Act be approved and if the action proposed is approved search warrants may be issued in the name of persons listed overleaf.

Thus, on the basis of the secret information in writing received by ADIT, Kanpur, and on personal verification made by him by visiting the spot, a detailed note was put by ADIT on September 9, 2002, before JDIT (Investigation) Unit-1, Kanpur. The satisfaction note submitted by the ADIT has been examined thoroughly by JDIT (Investigation), Kanpur, and was of the opinion that a group of doctors are suppressing their income. After submitting the satisfaction report and on the basis of his own observation the JDIT submitted his note before the DIT, (Investigation), Kanpur. The DIT, Kanpur, after discussing the matter with JDIT took up the matter before the DGIT (Investigation) on September 10, 2002. The DGIT (Investigation) after considering all the facts gave his approval on September 11, 2002, and the DIT (Investigation) issued warrants of authorisation u/s 132(1) on September 11, 2002, and in pursuance of the same search was conducted on September 14, 2002.

It has been contended in paragraph 12 of the counter-affidavit filed by the respondents, inter alia, as follows:

(12) that it is incorrect to suggest that not a single document, cash, jewellery was seized by the search party. The fact of the matter is that during the course of search, several incriminating documents were found which showed earning of income outside the books of account and these were seized, which contains total of unaccounted income.

Thus, it is evident from the aforesaid facts that the authorised officer in consequence of the information in his possession had reasons to believe that the petitioners are in possession of money, article or valuable things, books of account or other documents which had not been or would not have been disclosed for the purposes of the Act, he may issue warrant to the designated officer to search and seize the documents/amount.

There is no dispute to this proposition that there must be some material in possession of the Revenue, on the basis of which objective opinion can be formed that the person concerned has undisclosed money for the purposes of the Act. If the action of the officer issuing the authorisation or of the designated officer is challenged, the officer concerned must satisfy the court about the legality of his action. If the action is maliciously taken or power under the Section is exercised for a collateral purpose it is liable to be struck down. If the conditions for exercise of the power are not satisfied the proceeding is liable to be quashed. But where power is exercised bona fide and in furtherance of the statutory duties of the tax officers any error of judgment on the part of the officer will not vitiate the exercise of power. Here in the present matter there is no allegation of mala fide or any malicious exercise of power.

The Delhi High Court in L.R. Gupta and Others Vs. Union of India and Others, explained the expression "information", observing that it must be something more than a mere rumour or a gossip or a hunch. There must be some material which can be regarded as information, which must exist on the file on the basis of which the Authorizing Officer can have reason to believe that action u/s 132 is called for. It has already come on record that detailed secret information with regard to unaccounted black money was received by the concerned authority. The said information contained detailed facts and particulars which could not have been ignored. As a precautionary measure in order to verify the secret information received by the concerned authority, personal visit was made by the Assistant Director of Income Tax (Investigation) and he found the secret information to be correct.

The blood test receipt dated September 7, 2002, issued in the name of N. Hari to N.H. Rao, ADIT (Investigation) for testing the blood of the concerned officer is on the Department''s record which clearly reveals that the concerned officer had visited the business premises of petitioner No. 1 on September 7, 2002, and had paid Rs. 30 for getting his blood tested. Secret information and subsequent verification thereof by the ADIT (Investigation) clearly provide enough foundation and material to the authority to form the basis for reason to believe. Therefore, it cannot be said that the reason to believe, formed by the concerned authority, was on the basis of mere rumour or a gossip or a hunch. There was definite material before the concerned officer before exercising power u/s 132 of the Act.

In order to authorise such a search u/s 132 there must be two conditions (a) information in the possession of the named authority, and (b) in consequence of which he may have reason to believe that the person concerned is in possession of money, etc., which represents either wholly or partly income which had not been or would not be disclosed for the purposes of the Act. In order to resort to the proceedings u/s 132 both the conditions must be fulfilled. In the present case, there was information in consequence of which the authority proceeded and formed his belief. The sufficiency or otherwise of the information cannot be examined by the court in writ jurisdiction, the existence of information and its relevance to the formation of the belief is only open to judicial scrutiny.

Learned Counsel for the petitioner has vehemently argued that material/information referred to herein, means information or knowledge derived from an external source and has placed relied on the decision of the apex court in Commissioner of Income Tax, Gujarat Vs. A. Raman and Company, . The aforesaid authority cited by learned Counsel for the petitioner is not applicable in the matter. The original record which has been produced before us clearly suggests that the secret information in writing was received from the external source by the authority concerned containing the detailed facts and particulars. Consequent to the said information, which was received from the external source, the authority concerned made a personal visit to the business premises of the petitioners to verify the said information before proceeding against the petitioners and he found that the secret information received was quite authentic. The basis for personal inquiry was the secret information received by the Department. Therefore, the-contention of learned Counsel for the petitioner that information or knowledge derived was not from the external source is not correct.

Learned Counsel for the petitioners has cited the following authorities of the apex court as well as of this Court in support of his contention:

(1) Ganga Prasad Maheshwari and Others Vs. Commissioner of Income Tax,

(2) Dr. Mrs. Anita Sahal Vs. Director of Income Tax (Investigation) and Others,

(3) Ravi Iron Industries Vs. Director of Investigation and Others,

(4) Smt. Kavita Agarwal and Another Vs. Director of Income Tax (Investigation) and Others,

(5) Commissioner of Income Tax, Allahabad and Others Vs. Vindhya Metal Corporation and Others,

(6) AJIT JAIN Vs. UNION OF INDIA and Others,

(7) Union of India (UOI) Vs. Ajit Jain and Another,

(8) Gyanendra Prakash Gupta v. Union of India [2008] UPTC 673

(9) Manish Maheshwari Vs. Asstt. Commissioner of Income Tax and Another,

The aforesaid cases are quite distinguishable and have no bearing on the case in hand. In all the aforesaid cases, the court has held that there was no relevant material before the concerned authority to form the basis to reason to believe. Whereas, in the present case as, we have already discussed that there was relevant material before the concerned authority, warranting issuance of search warrant u/s 132 of the Act. It is not necessary that reasons be supplied to the person concerned, but the same should exist on record. Formation of requisite belief in consequence of such information is the sine qua non for passing such an order for search and seizure. In the present case, the said condition is fully satisfied. The authorisation in the present case has been made by the competent authority and has been issued objectively on the basis of the material in its possession. This Court cannot examine the adequacy or sufficiency of such information.

A perusal of the original record produced before us clearly indicates that there was relevant material before the Director of Income Tax (Investigation) to form the requisite opinion, having reason to believe that there had been unaccounted money/assets with the petitioners. It cannot be said that there was no material to initiate proceeding u/s 132 of the Act. At the stage of authorisation to search and seizure u/s 132 of the Act the consideration is as to whether there is some relevant material so as to warrant proceeding u/s 132 of the Act. The question of sufficiency cannot be gone into at the time of initiation of proceeding u/s 132 of the Act and consequently the notices issued u/s 158BC are valid and have been issued in accordance with law.

In view of the above, we are of the view that the authority has proceeded in accordance with law as the order of search and seizure by the competent authority has been issued strictly in consonance with the statutory provisions and there was sufficient material before the authority concerned to reasonably believe on the basis of the information in his possession, that the action was required to be taken under the provisions of Section 132(1) of the Act. The concerned authority was fully justified to visit the business premises of petitioner No. 1 in order to verify the secret information received by the Department.

Before parting with the judgment it is made clear that the authority below will not be influenced by any of the observations made in this judgment and it will be an independent exercise of the concerned authority to pass an appropriate order in accordance with law in pursuance of notice issued u/s 158BC of the Act.

In the result, we do not find any merit in the writ petition. It is accordingly dismissed. There shall be, however, no order as to costs.