Puspa Ranjan Sahoo vs Assistant Director of Income Tax (Inv.)

B.N. Mahapatra, J.—This writ petition has been filed with a prayer to quash the warrant of authorization and follow up action including search and seizure of stock-in-trade and stock hypothecated and to declare the seizure of stock-in-trade and stock hypothecated as unconstitutional being without jurisdiction and contrary to third proviso to s. 132(1) of IT Act, 1961 (for short ''the Act''). The further prayer of the petitioner is for return of the seized stock-in-trade to the petitioner with compensation. The petitioner''s case in a nutshell is that the petitioner is an assessee bearing Permanent Account Number (PAN) AAMHP1514Q in the files of ITO-W-2(4), Khurda, who exercises jurisdiction over the petitioner. The petitioner assessee has been filing his return of income and is assessed to tax regularly. The petitioner started trading in gold and silver jewellery in a retail counter since the year 2000. On 9th Sept., 2011 basing upon the information provided to the IT Department as a routine procedure by the local police a search and seizure operation was conducted at the residential-cum-business premises of the petitioner. Subsequently, Panchanamas were prepared and statements were recorded under s. 132(4) of the Act. Inventories were made and jewelleries item bearing serial Nos. 1 to 10 and 13 to 22 i.e. totalling 22 items valued at Rs. 62,10,585 (Rupees Sixty two lakhs ten thousand five hundred eighty five) have been seized even though the same represented stock-in-trade of the business and stock hypothecated. Hence, the present writ petition.

Learned counsel appearing on behalf of the petitioner submitted that statements were recorded under s, 132(4) of the Act with regard to books of account, other documents or assets found as a result of search and also in respect of all matters relevant for the purpose of investigation. The petitioner who happens to be the Karta of HUF files the returns in his dual capacity, i.e., Karta of HUF and individual before the ITO, Ward-2(4), Khurda and is assessed to tax regularly and is not a defaulter so far any income tax is concerned. Neither there has been any non-compliance to summons under s. 131(1) nor notice under s. 142(1). There existed no apprehension regarding non-cooperation or attempted evasion or avoidance of tax. The petitioner was not in possession of any undisclosed money, billion, jewellery or other valuable articles or thing which can validate the authorization and subsequent issuance of search warrant. Therefore, the entire action under s. 132(1) of the Act was vitiated. The CBDT, who is empowered by the legislatures to frame rules under s. 132(14), disapproves this kind of search seizure of the present nature vide Instruction No. 7 of 2003 dt. 30th July, 2003, the guidelines of which should have been strictly adhered to. The petitioner is running a jewellery business and its part of business is to purchase old gold items, remaking them for trading purpose. Gold is a precious metal, accumulated by people for its monetary value and easy liquidation and anybody in possession of a gold ornament can dispose of the same in the market without any proof of its ownership as a general practice and being a trader in jewellery, the petitioner purchases old ornaments from people in need. Assuming and not admitting for the moment that the search conducted was valid, the seizure of the items in trade cannot be said to be valid. The seizure of stock-in-trade violates the third proviso of s. 132(1) of the Act. Such action of the authority violates the constitutional right guaranteed to the petitioner under the Constitution. The petitioner who traded with silver jewellery and filigree works in his individual capacity also deals with gold jewellery in his HUF business and to finance his HUF business availed a cash credit facility (CC) by hypothecation of stock-in-trade to State Bank of India prior to the search. The opposite parties-Department is debarred from seizure of stock-in-trade in view of the third proviso of s. 132(1) of the Act whether disclosed or undisclosed, whether explained or unexplained.

It was further submitted that the warrant of authorization and follow up action including search and seizure of stock-in-trade and stock hypothecated are void ab initio and deserve to be quashed on the ground that mere information received from local police and recovery of two items of alleged stolen jewellery from the petitioner who purchased both the items on good faith from the seller, without any further investigation or cogent material or reason, does not constitute information within the meaning of s. 132(1) particularly when search was conducted on the very same day the local police intimated the matter to the Department. Such opinion can at best provide a "reason to suspect" and does not give rise to "reason to believe" and thus does not fulfil any of the conditions precedent for invocation of s. 132 of the Act.

Mr. A. Mohpatra, learned senior standing counsel appearing for the opposite parties submitted that there is valid reason to initiate the search and seizure proceedings as contemplated under s. 132 of the Act and the warrant of authorization issued to conduct search and seizure operation in the residential-cum-business premises of the petitioner is valid in law. In support of his contention, he produced the relevant record for perusal of this Court.

Mr. Mohapatra further submitted that in course of search and seizure operation, if the search party finds that the stock-in-trade and stock hypothecated either wholly or partly represents undisclosed income or property of the assessee, the search party is fully empowered to seize the stock-in-trade.

On the rival contentions urged on behalf of the parties, the questions that fall for consideration by this Court are as follows :

(i) Whether the condition(s) precedent to initiate search and seizure operation as contemplated under s. 132 of the IT Act are fulfilled/satisfied in the present case so as to make the search and seizure operation conducted in residential-cum-business premises valid in law ?

(ii) Whether under s. 132 of the IT Act, no power/authority is vested with the authorized officer to seize any bullion, jewellery or valuable article of thing being stock-in-trade ?

(iii) Whether the authorized officer in course of search and seizure operation cannot seize stock-in-trade even if he comes to a conclusion that the said stock-in-trade represents wholly or partly undisclosed income or property of the assessee ?

In order to decide above questions, it is necessary to examine the scope and ambit of s. 132 of the Act. The relevant provisions of s. 132 are quoted below:

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

(a) any person to whom a summons under sub-s. (1) of s. 37 of the Indian IT Act, 1922 (11 of 1922), or under sub-s. (1) of s. 131 of this Act, or a notice under sub-s. (4) of s. 22 of the Indian IT Act, 1922 (11 of 1922), or under sub-s. (1) of s. 142 of this Act was issued to produce, or cause to be produced, any books of account or other documents has omitted or failed to produce, or cause to be produced such books of account or other documents as required by such summons or notice, or

(b) any person to whom a summons or notice as aforesaid has been or might be issued will not, or would not, produce or cause to be produced, any books of account or other documents which will be useful for, or relevant to, any proceeding under the Indian IT Act. 1922 (11 of 1922), or under this Act, or

(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 IT Act, 1922 (11 of 1922) or this Act (hereinafter in this section referred to as the undisclosed income or property),

then,--

(A) the Director General or Director or the Chief CIT or CIT, as the case may be, may authorize any Joint Director, Joint CIT, Asstt. Director or Dy. Director, Asstt. CIT or Dy. CIT or ITO, or

(B) such Jt. Director or Jt. CIT, as the case may be, may authorize any Asstt. Director or Dy. Director, Asstt. CIT or Dy. CIT or ITO, the officer so authorized in all cases being hereinafter referred to as the authorized officer to--

(i) enter and search any building, place, vessel, vehicle, or aircraft where he has reason to suspect that such books of account, other documents, money, bullion, jewellery or other valuable article or thing are kept;

(ii) break open the lock of any door, box, locker, safe almirah or other receptacle for exercising the powers conferred by cl. (i) where the keys thereof are not available;

(iia) search any person who has got out of or is about to get into, or is in the building, place, vessel, vehicle or aircraft, if the authorized officer has reason to suspect that such person has secreted about his person any such books of account, other documents, money, bullion, jewellery or other valuable article or thing;

(iib) require any person who is found to be in possession or control of any books of account or other documents maintained in the form of electronic record as defined in cl. (t) or sub-s. (1) of s. 2 of the Information Technology Act, 2000 (21 of 2000), to afford the authorized officer the necessary facility to inspect such books of account or other documents;

(iii) seize any such books of account, other documents, money, bullion, jewellery or other valuable article or thing found as a result of such search :

Provided that bullion, jewellery or other valuable article or thing, being stock-in-trade of the business, found as a result of such search shall not be seized but the authorized officer shall make a note or inventory of such stock-in-trade of the business;

(iv) place marks of identification on any books of account or other documents or make or cause to be made extracts or copies there from;

(v) make a note or an inventory of any such money, bullion, jewellery or other valuable article or thing :

.................

Provided further that where it is not possible or practicable to take physical possession of any valuable article or thing and remove it to a safe place due to its volume, weight or other physical characteristics or due to its being of a dangerous nature, the authorised officer may serve an order on the owner or the person who is in immediate possession or control thereof that he shall not remove, part with or otherwise deal with it, except with the previous permission of such authorised officer and such action of the authorised officer shall be deemed to be seizure of such valuable article or thing under cl.

(iii). Provided also that nothing contained in the second proviso shall apply in case of any valuable article or thing, being stock-in-trade of the business.

underlined, italicized in print, for emphasis

Sec. 132 prescribes that the competent authorities are empowered to permit the authorized officers to enter, search, break open, seize, place marks of identification and take other steps as contemplated under sub-cls. (i) to (v). However, such powers can be exercised against a person upon fulfilment of certain conditions. Firstly, the competent authority must have the information in its possession and, secondly, on the basis of such information it must have the reason to believe that the condition as stipulated in sub-cl. (a) or (b) or (c) of s. 132(1) of the Act exists. Search and seizure cannot be sustained unless it is clearly shown that it was done by the authority duly authorized and any of the conditions precedent in relation thereto existed.

The opinion or the belief so recorded must clearly show whether the belief falls under cls. (a) or (b) or (c) of s. 132(1) of the Act. The satisfaction note should itself show the application of mind and the formation of opinion by the officer ordering the search. If the reasons recorded do not fall within in any one of the cls. (a), (b) or (c) then the authorization under s. 132(1) would not be valid. In order to justify the action the authority must have relevant materials on the basis of which he can form an opinion that he has reason to believe that action to be initiated against a person under s. 132 of the Act is needed. The belief should not be based on some suspicion or doubt. Sec. 132 speaks of reason to believe and not reason to suspect or reason to doubt.

The reason to suspect that the petitioner is having undisclosed asset and there is likelihood that the same would not be disclosed is not equal to "reason to believe" that petitioner is in possession of undisclosed assets and intends to evade tax. Therefore, search and seizure carried out on the basis of reason to suspect is not valid because reason to believe is mandatory requirement of law for search and seizure [see Mahesh Kumar Agarwal Vs. Deputy Director of Income Tax and Others, .

The words "reason to believe" postulate application of mind and assigning of reasons. There is a rationale nexus between "reason" and "believe" [see Ganga Saran & Sons (HUF) vs. ITO (1981) 130 ITR 212 (Del)].

In absence of any relevant material, authority would be acting in excess of his power and in violation of the mandatory power of s. 132 of the Act and the action of the authority cannot be sustained. Before taking action under s. 132 the competent authority must assure and reassure about the truthfulness and correctness of the information. A search which is conducted under s. 132 is a serious invasion into the privacy of the citizen. Therefore, s. 132(1) has to be strictly construed and the information of the person or reason to believe by the authorizing officer must be apparent from the note recorded by him.

Clause (c) of s. 132(1) concerns money, bullion, jewellery or other valuable article or thing. In order to proceed under cl. (c) there must be information with the authorizing authority relating to two matters, firstly, that any person is in possession of money, bullion, jewellery or other valuable article or thing; and secondly 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 purpose of the Act.

Thus, in order to bring a case within the sweep of s. 132(1)(c) or s. 132A(1)(c) the belief of the authorizing authority as to mere possession of the assets mentioned in that section by a person is not sufficient. The information in possession of the authorizing authority must be such that he may have reason to believe that the assets represent undisclosed income of the person in whose possession the asset is possessed. Thus, where the authorizing authority issues warrant of authorization without there being any reason to believe that the asset which was in possession of a person represented wholly or partly his undisclosed income, his action is to be held to be without jurisdiction.

So far the first question is concerned, Mr. Mohapatra, learned senior advocate for the Department produced the connected records for our perusal and we find that there are materials available on record for which the specified authority had reason to believe that the condition precedent to issue the warrant of authorization to conduct search and seizure operation in terms of s. 132 of the IT Act at the residential-cum-business premises of the petitioner existed. Therefore, we are not inclined to quash the warrant of authorization.

Question Nos. (ii) and (iii) relate to seizure of stock-in-trade found in course of search operation by Authorized Officer. These two questions being inter-related they are dealt with together. Sec. 132(1)(iii) empowers the authorized officer to seize any such books of account, other documents, money, bullion, jewellery or other valuable article or thing found as a result of such search which represent either wholly or partly undisclosed income or property of the person.

However, the proviso carves out an exception. It provides that bullion, jewellery or other valuable article or thing, being stock-in-trade of the business, found as a result of such search shall not be seized but the authorized officer shall make a note or inventory of such stock-in-trade of the business. Therefore, even if the authorized officer is of the view that any bullion, jewellery or other valuable article or thing which is in form of stock-in-trade either wholly or partly represents the undisclosed income or property of the person/assessee searched, he cannot seize the same. But he shall make a note or an inventory of such stock-in-trade of business.

Prior to insertion of proviso to s. 132(1)(iii) w.e.f. 1st June, 2003 stock-in-trade can be seized at the time of seizure if it represents either wholly or partly the undisclosed income or property of the person/ assessee searched. However, after insertion of the proviso w.e.f. 1st June, 2003 it shall not be seized but a note or inventory of such stock-in-trade shall be prepared. The obvious purpose is to use it at the time of assessment and for other follow up actions.

The second proviso to s. 132(1)(V) provides that where it is not possible or practicable to take physical possession of any valuable article or thing and remove it to a safe place due to its volume, weight or other physical characteristics or due to its being of a dangerous nature, the authorised officer may serve an order on the owner or the person who is in immediate possession or control thereof that he shall not remove, part with or otherwise deal with it, except with the previous permission of such authorised officer and such action of the authorised officer shall be deemed to be seizure of such valuable article or thing under cl. (iii).

The third proviso to s. 132(1)(v) provides that nothing contained in the second proviso shall apply in case of any valuable article or thing, being stock-in-trade of the business.

At this juncture, it is necessary to refer to Circular No. 8 of 2003 dt. 18th Sept., 2003 [ (2003) 184 CTR (St) 22] issued by the CBDT, which read as follows :

Amendment in s. 132 to provide that stock-in-trade not to be seized during search.

60.1 The existing provisions of cl. (iii) in sub-s. (1) of s. 132 provide for seizure of any books of account, other documents, money, bullion jewellery or other valuable article or thing found as a result of search.

60.2 The Finance Act, 2003, has amended s. 132 to provide that any bullion, jewellery or other valuable article or thing being stock-in-trade of the business, found as a result of search shall not be seized but the authorized officer shall make a note or inventory of such stock-in-trade. Thus, stock-in-trade of business cannot be seized during search and seizure operations conducted on or after 1st June, 2003.

60.3 The existing provisions of the second proviso to sub-s. (1) of s. 132 provide that where it is not possible or practicable to take physical possession of any valuable article or thing and remove it to a safe place due to its volume, weight or other physical characteristics or due to its being of a dangerous nature, the same could not be placed under deemed seizure, wherein the authorized officer may serve an order on the owner or the person in immediate possession that he shall not remove or part with it except with the previous permission of the authorized officer.

60.4 The Finance Act, 2003, has inserted a third proviso providing that nothing contained in the second proviso shall apply in case of any valuable article or thing, being stock-in-trade of the business.

60.5 These amendments will take effect from 1st June, 2003 [s. 59(a)].

In view of the specific provision contained in proviso to s. 132(1)(iii) and third proviso to s. 132(1)(v) of the IT Act that bullion, jewellery or other valuable article or things being stock-in-trade of business found as a result of search shall not be seized, contention of Mr. Mohapatra that the authorized officer is fully empowered to seize stock-in-trade if he comes to the conclusion in course of seizure that said stock-in-trade represents wholly or partly undisclosed income or property of the assessee is not tenable in law.

Law is well-settled that interpreting a statute, effort should be made to give effect to each and every word used by the legislature. The Courts always presume that the legislature inserted every part thereof for a purpose and legislative intention is that every part of the statute should have effect, [see Nathi Devi vs. Radha Devi Gupta AIR 2005 SC G48].

Courts being custodian of law have a solemn duty to uphold the rule of law under all circumstances by directing the authorities concerned to act in accordance with law. If the rule of law is not enforced, it will certainly become a casualty in the process a costly consequence to be zealously averted by all, and at any rate, by the Court, [see Salkia Businessmen''s Association and Others Vs. Howrah, Municipal Corporation and Others, .

The Hon''ble Supreme Court in Goodyear India Ltd., Gedore (India) Pvt. Ltd., Kelvinator of India Ltd. and the Food Corporation of India and Another Vs. State of Haryana and Another, , held as fiscal laws must be strictly construed, words must say what these means, nothing should be presumed or implied, these must say so. True test must always be language used. Assumptions and presumptions are not permissible under fiscal provision.

A Constitution Bench of the Hon''ble Supreme Court in G. Narayanaswami Vs. G. Pannerselvam and Others, held that the statute requires to be interpreted giving plain meaning of literal construction, and modification of words used in statutory provisions is not permissible.

In Union of India (UOI) and Another Vs. Hansoli Devi and Others, the Hon''ble Supreme Court held that if the words of the statute are in themselves precise and unambiguous, then no more can be necessary than to expound those words in their natural and ordinary sense. The words themselves alone do, in such case, best declare the intention of the lawgivers.

In view of the above, we are of the view that the seizure of jewellery being stock-in-trade by the authorized officer is wholly without authority of law and contrary to the statutory provision contained in proviso to s. 132(1)(iii) and third proviso to s. 132(1)(v). Therefore, the opposite parties-IT Department are directed to return the jewellery (gold and silver ornaments) seized by the authorized officer in course of search on 9th Sept., 2011 forthwith to the petitioner-assessee after complying with the requirement provided, i.e., making a note or inventory. In the result, the writ petition is allowed to the aforesaid extent.