Krishnagopal vs Director of Income Tax (Investigation) and Another

Ajit Singh, J.—By this petition, filed under Article 226 of the Constitution, the petitioner has prayed for quashing of warrant of requisition dated August 24, 2007, issued by respondent No. 1 u/s 132A of the Income Tax Act, 1961 (in short, "the Act").

Briefly stated the facts giving rise to this petition are that the petitioner belongs to Mathura (U.P.) wherein he carries on the business in the purchase and sale of raw silver, manufacture and sale of silver ornaments in the name and style of M/s. Goyal Payal Company. He is also regularly assessed to Income Tax on Permanent Account No. ADWPA1767D by the Income Tax Officer, Ward 3 (2), Mathura, and registered with the Trading Tax Authorities of Uttar Pradesh on TIN No. 09427100479. On August 14, 2007, the police of Lordganj Police Station, during routine checking, found the petitioner in Hotel Shyam, Jabalpur (M.P.), in possession of raw silver and silver ornaments weighing 118.426 kg. and cash amounting to Rs. 3,98,450. The police, on suspicion that the silver and cash had nexus with some crime such as theft, etc., seized the same and informed the Income Tax Department of the seizure. Respondent No. 1, on receiving the information from police, issued the warrant of requisition dated August 14, 2007, u/s 132A of the Act which was served on the Town Inspector of Lordganj Police Station, sometime between August 24, 2007, and August 29, 2007. The Town Inspector could not handover the possession of assets as they were in judicial custody under the orders of the Additional Chief Judicial Magistrate, Jabalpur. The respondents, therefore, filed an application before the Magistrate requesting for possession of assets which was opposed by the petitioner. In the meantime, the petitioner moved an application dated September 3, 2007, annexure P2, before respondent No. 2 that he is a regular Income Tax assessee having permanent account number and has been submitting returns before the Income Tax Officer, Ward 3 (2), Mathura, right from the assessment year 1994-95 and enclosed the copies of returns from the assessment years 2002-03 to 2007-08. The petitioner, along with the application, also filed copies of stock register and cash book to establish that the seized assets were his duly accounted business assets. The police, after investigation, found that the seized assets had no nexus with any crime and, therefore, did not register any offence against the petitioner. The Magistrate, however, by order dated September 6, 2007, directed that the assets be handed over to the Income Tax Department. On these circumstances, the petitioner has filed this petition assailing the validity of the warrant of requisition issued by respondent No. 1 on the ground that the conditions precedent for the exercise of the powers u/s 132A(1) of the Act were not satisfied.

On September 14, 2007, this court passed an interim order directing the parties to maintain status quo regarding the seized assets, i he assets are, therefore, still lying in the judicial custody of Magistrate.

The respondents, in their return, have stated that warrant of requisition was issued only after the conditions precedent for its issuance were satisfied and even produced the concerned record for perusal by this court to justify the action of issuance of warrant.

The relevant extract of Section 132A of the Act is as follows:

132A. Powers to requisition books of account, etc.- (1) Where the Director General or Director or the Chief Commissioner or Commissioner, in consequence of information in his possession, has reason to believe that-....

(c) any assets represent either wholly or partly income or property which has not been, or would not have been, disclosed for the purposes of the Indian Income Tax Act, 1922 (11 of 1922), or this Act by any person from whose possession or control such assets have been taken into custody by any officer or authority under any other law for the time being in force,

then, the Director General or Director or the Chief Commissioner or Commissioner may authorize any Joint Director, Joint Commissioner, Assistant Director or Deputy Director, Assistant Commissioner or Deputy Commissioner or Income Tax Officer hereafter in this Section and in Sub-section (2) of Section 278D referred to as the requisitioning officer to require the officer or authority referred to in Clause (a) or Clause (b) or Clause (c), as the case may be, to deliver such books of account, other documents or assets to the requisitioning officer.

A statutory functionary must act in a manner laid down in a statute. A bare reading of Section 132A(1) makes it clear that the power conferred on the authority is conditional and the conditions precedent for authorizing action are possession of information by the authority and in consequence of which the authority must have reason to believe that the person concerned has assets which have not been or would not have been disclosed for the purpose of the Act.

In the case of L.R. Gupta and Others Vs. Union of India and Others, , the Delhi High Court held that the expression "information" must be something more than a mere rumour or a gossip or a hunch and there must exist some material on the file which can be regarded as information on the basis of which the authorizing officer can have reason to believe that action u/s 132 is called for any of the reasons mentioned in Clause (a), (b) or (c). It further held that the words "reason to believe" must be tangible in law and if the information or the reason has no nexus with the belief or there is no material or tangible information for the formation of the belief, then, in such a case action taken u/s 132 would be regarded as bad in law. The Delhi High Court followed this view in yet another case AJIT JAIN Vs. UNION OF INDIA and Others, which was later also approved by the Supreme Court in an appeal arising out of that case reported in Union of India (UOI) Vs. Ajit Jain and Another, .

As the expressions "information" and "reason to believe" have been used in similar context in Sections 132 and 132A the cases mentioned above arising u/s 132 are also applicable for construing Section 132A. Both these expressions, therefore, mean that for taking action u/s 132A there has to be a rational connection between the information and belief about the assets which has not been or would not have been disclosed by the person concerned.

From the papers handed over by the police to the Income Tax Officer (Investigation), the Additional Director, Income Tax (Investigation) came to the following conclusions on August 23, 2007:

From the facts and circumstances found in the case and examination of various documents, I am of the opinion that the jewellery, money and other assets have been acquired from undisclosed sources. Shri Krishna Gopal has not provided any evidence that Income Tax has been paid on the money, bullion, jewellery and other assets found in his possession.

In view of the above facts and circumstances of the case, I am of the considered view that it is a fit case for action u/s 132A of the Income Tax Act. DIT (Inv), Bhopal, is, therefore, requested to kindly consider issuance of warrants of requisition u/s 132A to be served on Thana Incharge Lord Ganj, Jabalpur, in respect of the assets seized from Shri Krishna Gopal, S/o Shri Sitaram Agarwal.

The matter was then put up before respondent No. 1 on August 24, 2007, who recorded his satisfaction u/s 132A as under:

I have gone through the notes on pre-page above. The assets (cash and silver) have been seized by the police. The person carrying them has given more than one explanation before the police without any supporting evidence. In fact he first stated to be a resident of one place and then another. He also first stated that he has a cloth business and subsequently stated that he dealt in silver.

From the facts above I have reason to believe that the money and silver seized represents wholly/partially assets which have not been and would not be disclosed for the purpose of taxation.

I am therefore satisfied that this is a fit case for requisitioning the cash and silver u/s 132A.

DGIT (Inv) may kindly accord administrative approval." After the Director General recorded his approval on the same date, the impugned warrant of requisition signed by respondent No. 1 was issued.

It is to be noted that there is no allegation of malice against respondent No. 1 in the petition nor was it argued that he acted mala fide while issuing the warrant of requisition. The record produced by the respondents clearly establishes that respondent No. 1 was in possession of the information from which he had reason to believe that the money and silver seized from the petitioner represent wholly or partly assets which have not or would not have been disclosed for the purposes of Income Tax. From the reasons recorded by respondent No. 1 it is not possible to hold that the information coming to his notice was either not tangible or had no nexus with the formation of his belief about the assets. It cannot be held that the belief of respondent No. 1 was either unreasonable or based on irrelevant information. The belief required u/s 132A is subjective and not open to objective test.

In Income Tax Officer, Special Investigation Circle-B, Meerut Vs. Seth Brothers and Others etc., the Supreme Court has held that the power exercised by the Commissioner u/s 132 is not a judicial or quasi-judicial power and that the court cannot substitute its own opinion for that of the Commissioner. Therefore, where the Commissioner entertains the requisite belief and for reasons recorded by him authorizes a designated officer to enter and search premises for cash and jewellery and books of account and documents and the power is exercised bona fide, any error of judgment on the part of the Commissioner or the authorized officer will not vitiate the exercise of the power. This decision was later also followed by a Division Bench of this court in Naraindas Vs. Commissioner of Income Tax and Others, .

For these reasons, I am unable to hold that the warrant of requisition issued by respondent No. 1 u/s 132A is invalid. The petition fails and is dismissed but without any order as to costs.