ORDER
R.S. Garg, J.
Pursuant to warrant of authorisation issued by the Director of Income Tax (Investigation), Patna dated 30-4-2003, search and survey operations under section 132(1) and section 133A(1) of the Income Tax Act, 1961 (hereinafter referred to as the Act) were carried on 8-5-2003 at Patna, Delhi and Pune in the business and financial concerns of Sanjiv Kumar and others. While conducting search and survey in the premises of the petitioners M/s. Takshila Educational Society, B-549, New Friends Colony, New Delhi, other premises were searched and certain documents were seized, therefore, the petitioner M/s. Takshila Educational Society has filed this writ application under article 226 of the Constitution of India challenging the actions of the respondents in issuing warrants as bad and mala fide and seeking relief for quashing the search and seizure.
2. It is to be noted that petitioner M/s. Takshila Educational Society claims itself to be registered with the Registrar of Society, New Delhi and it was incorporated on 9-7-1997 with its registered office in New Delhi. According to them, it could obtain franchise to open schools at Patna, Bihar, Pune and Maharashtra under the aegis of Delhi Public School Society, New Delhi. The school at Patna started somewhere in April 1999 whereas at Pune it could be started with effect from April, 2003. it is the submitted that right from the incorporation registration under section 12AA of the Act was granted by the Director of Income Tax (Exemption), New Delhi vide order dated 1-10-1997 and the petitioners society is also registered under section 80G of the Act. According to them, the society is existing to achieve the educational goals. It filed an application for approval under section 10(23)(vi) of the Act and the competent/prescribed authority, that is, the Central Board of Direct Taxes, New Delhi granted exemption from the accounting years 1999-2000 to 2001-2002 vide its order dated 21-3-2002. It is submitted by the society that respondent No. 2 Shri Sanjeev Shankar, the person holding the office of the Deputy Director of Income Tax (Investigation), Patna, some time in January/February, 1999 recommended his friends sons application for admission. However, the said student could not be admitted. Thereafter, for the academic year 2002-2003 the very same respondent made an application in the month of January, 2002 for the admission of his son Master Manas Shankar in class LKG in Delhi Public School, Patna. However, the said Master Manas Shankar could not qualify the standards laid down by the school. He could not be admitted.
3. According to the petitioner, taking refusal to be his personal insult, respondent No. 2 threatened the Principal of the school and stated that the school will have to be closed. It is submitted that some time in April, 2003, respondent No. 2 was posted as Deputy Director of Income Tax (Inves), Patna, with a view to settle the old score, he presented a proposal for taking action against the petitioner under section 132(1) of the Act. Respondent No. 2 acting with malice and mala fide against the petitioner, illegally convinced the higher authorities and thereafter obtained warrants and effected the search. It is submitted that on 8-5-2003, pursuant to warrant of authorisation dated 30-4-2003, issued by respondent No. 1, Director of Income Tax (Inves), Patna, search and seizure operations at Patna and Pun c offices of the petitioners society and other persons connected with the petitioners society were carried out. It is also submitted that the persons searched included one Sanjiv Kumar, who happened to be the Secretary of the present petitioner. According to them, Panchanamas of search were prepared. It is also submitted that besides the search, survey under section 133A of the Act was also undertaken at nine different places/premises. It is submitted by the petitioner that the processes of search and seizure for the purpose of the present matter were absolutely illegal and were with a sinister design to take revenge because of refusal to admit the son of the respondent No. 2. It is also submitted that by no stretch of imagination, the case of the petitioner could be covered within the sweep of sections 132(1)(a), (b) or (c) of the Act, inasmuch as neither there was any failure to comply with any notice nor there was any allegation of suppression of books of accounts and other documents to attract clause (b). It is also submitted that after gathering/receiving information, respondent No. 1 would be obliged to record his satisfaction under clause (c) of section 132(1) of the Act because such a finding or reasons to believe are the basic foundation for an action under clause (c) of section 132 (1) of the Act. According to them the information should be positive one and should be something more than rum our or gossip or a munch. According to them, a bare intimation without something more could not be considered sufficient for an action under section 132 of the Act, because reliance on such simple intimation would not authorise the authorities to direct a search. It is also submitted that the terms reason to believe and reason to suspect are different connotations and have different meaning, therefore, the authorities could not be allowed to confuse between the two and issue a warrant. It is also submitted that while acting upon the warrant, the officer taking the search or effecting seizure has to act in accordance with law and also has to make an investigation into the facts, i.e., whether the assets, funds, during each were disclosed, assets so found were not disclosed; the assets found during search need further verification, i.e., it is in doubt as to whether such assets are disclosed or undisclosed.
4. It is further submitted that the petitioner vide their letter dated 16-10-2003, requested respondent No. 3 that the reasons recorded by the authorities be supplied to them but unfortunately, despite the request, no response is given by the respondents. The petitioners placing reliance on certain judgment of the Supreme Court, to which we shall refer later on in our judgment, have also submitted that search and seizure were absolutely illegal, motivated, ill-designed, therefore, the same deserves to be declared null and void and the articles seized in the illegal search be ordered to be returned back to the petitioner of the persons from whom the same have been seized.
5. The respondent No. 1 Mr. Vijay Sharma, Director of Income Tax (Inves), Patna, has filed a counter-affidavit. It is to be noted even at this stage that the Director of Income Tax is the highest authority for the purposes of investigation.
6. Justifying the action taken under section 132 (1)(a) of the Act and issuing warrants of authorisation, it is submitted that after receiving certain information’s, the respondents proposed to conduct a preliminary inquiry, therefore, they issued a notice. They have submitted that on 13-3-2000 written permission was granted by the Additional Director of Income Tax (Inves), Patna, to call for information under section 131 of the Act in the case of Delhi Public School, Patna. On the same day, summons along with a letter were issued to the Chairman/Managing Director, Delhi Public School, Patna, for compliance. Certain details on eight points were also called for. The letter/summonses clearly stated that furnishing of the required information would be treated as adequate compliance to the summons under section 131 of the Act.
7. On 31-3-2000, the summons under section 131 were issued to the Chairman, Delhi Public School, Patna with a letter of the even day for furnishing information, as in the opinion of the department, the earlier compliance was partial. On the same day, summons under section 131 of the Act were issued to Sanjiv Kumar, Maurya Techno Securities (P) Ltd. for compliance on 20-4-2000 calling for audited account etc. so that investigation into the unsecured loans from Maurya Techno Securities (P) Ltd. to Takshila Education Society is made. On. 19-4-2000 Sanjiv Kumar on behalf of the Delhi Public School, Patna, prayed for adjournment. On 20-4-2000 Sanjiv Kumar did not comply with the requirement under the summons. On 26-4-2000 a letter was issued to the Chairman, Delhi Public School, Patna, and to Sanjiv Kumar that their respective cases were fixed on 4th and 5-5-2000. On 19-6-2000, summons were again issued to Sanjiv Kumar of Maurya Techno Securities (P) Ltd. with a request to comply with the requirement latest by 23-6-2000. On 23-6-2000, Sanjiv Kumar appeared in person. His statement was partially recorded and the matter was adjourned to 28-6-2000. According to the department, there was no compliance even on that day. On 16-8-2000, summonses were issued to Sanjiv Kumar as Secretary, Takshila Education Society and Md. Alim for compliance on 22-8-2000. On 22-8-2000, there was no compliance. A letter of even date was filed submitting, inter alia, that the case be adjourned to second week of September, 2000.
8. According to the respondents, being disgusted of the delaying tactics adopted by the petitioner society and said Sanjiv Kumar, the direct enquiries were discontinued, however, the investigation continued and revolved around methods of shiphoning of funds etc. from Takshila Society. It was found that major payments were being made to M/s. Aayatan through one Md. Alim. It is submitted that the said Md. Alim in fact is working as Munshi with Mr. Fanish Singh who, ill fact is father of Sanjiv Kumar. According to them, being suspicious about the mode and method of the payments, muster rolls were sent for examination first to Central Forensic Science Laboratory, Bureau of Police Research and Development, Kolkata and then to Central Finger Print Bureau, National Crime Records Bureau, East Block 7, R.K. Puram, New Delhi. The, report of the Director Central Finger Print Bureau, indicated that same thumb impressions were used against different names in preparation of muster roll confirming suspicion of bogus payments by Takshila Education Society and corresponding withdrawal at quick successions by fronts in construction of school buildings.
9. It is further submitted that investigation report in the matter of the petitioner was prepared by the Deputy Director of Income Tax (Inves), Patna on 8-8-2001. Vide letter dated 24-8-2001 the Director of Income Tax (Inves), Patna, forwarded the report of the Deputy Director of Income Tax (Investigation) to Director of Income Tax (Exemption), New Delhi as Takshila Education Society was assessed at New Delhi. The assessing officer at New Delhi initiated an action under section 147 of the Act for various assessment years in the case of tile petitioner. According to them, for the accounting years 1998-99, 1999-2000, 2000-2001 and 2001-2002 the return of income was shown as nil but thereafter orders were passed and notices under section 148 of the Act were issued. According to them, the assessing officer observed that the assessee is found to have sources of income which were undisclosed and which had resulted in un-explained investment in school. The assessing officer also held that the assessee was induldging in activities which were not above board and could not be said to be charitable as per the objects of the Trust. The assessing officer denied exemption under sections 11 and 12 of the Act and made addition on substantive basis in the hands of the trust and also observed that the additions would be made on protective basis in the hands of the main trustee Sri Sanjiv Kumar (Secretary).
10. It is further submitted that respondent No. 2 the Deputy Director of Income Tax (Investigation) on the basis of the detailed investigation presented a satisfaction note to the Additional Director of Income Tax (Inves), Patna on 26-3-2003. The said Additional Director of Income Tax (Inves), Patna, on 26-4-2003 forwarded the report of the Deputy Director of Income Tax Investigation, Pana with his reasons of satisfaction to the Director of Income Tax (Inves), Patna. On 30-4-2003, the Director of Income Tax (Inves), Patna recorded the reasons of satisfaction and issued warrant of authorisation. By order dated 2-5-2003, the Director General of Income Tax (Investigation), Patna approved the proposed action on the group after perusing and approving the satisfaction note as per the instruction of Commissioner of Wealth Tax. It is submitted that the petitioner-society was not paying any tax despite surplus profits in each year by creating facade of a charitable society. According to the respondents, the school had defalcated huge profits which was siphoned by family members under one pretext of the other by the front companies in which family members were at the top. According to them, the revenue expenditure were much less than the revenue receipt and the detailed investigation shows that contributions were received towards capital account/development fund etc. According to them in view of the evidence collected during the course of investigation, they were absolutely justified in issuing authorisation warrant. They have also submitted that a member of documents were sized and their suspicion were translated into positive proof. They also submitted that the action taken by the respondents under section 132(1) of the Act was neither misplaced nor motivated. According to them, the sufficiency of the material or the evidence collected during the course of investigation is not required to be disclosed in all its fullness in the interest of further action by the revenue. According to them, on a direction of the court they would produce the relevant material before the court. In fact during course of argument, they had produced the said material in a sealed cover which we had opened and had gone through the same. So far as the allegation against respondent No. 2 is concerned, the same has been emphatically denied with a submission that any report of respondent No. 2 would not be final because same is to be seen and approved and is to be forwarded by the Additional Director of Income Tax (Investigation) to the Director and the Director, in his turn, after going through both the records has to record his personal satisfaction and if he is personally satisfied only then the warrant of authorisation is issued. According to them, a number of companies are associated with the Directors/Managers of the petitioners society. They submitted that Secretary Mr. Sanjiv Kumar and his mother Smt. Kavita Singh are the Directors of Maurya Realtors (P) Ltd. These two persons again are Directors of Maurya Techno Securities (P) Ltd. Sanjiv Kumar and his brother Rajeev Kumar are Directors in Maurya Enterprises (P) Ltd. Sanjiv Kumar happens to be the proprietor of Centre for Professional Studies which is under the franchiseship of Aakash Institute. Shri Fanish Singh, father of Sanjiv Kumar was the President of Scientific Educational Promotion and Medical Aid Foundation. They submitted that the respondents were absolutely justified in issuing authorisation warrants, making search and effecting seizure in view of the materials available before them.
11. Learned counsel for the petitioner submitted that if the material was available with the respondents in the year 2001, there was no good reasons to conduct the search and seizure on 8-5-2003. It is also submitted that the respondents have not recorded any reason into their satisfaction nor have disclosed any information to the petitioner which led to the belief of the respondents that the petitioners were violating the provisions of law. It is submitted that in fact the whole game was played to vindicate the honour of respondent No. 2. On the same facts that three assessments were reopened and in the reassessment order case of M/s. Aayoton was not referred. It is also submitted that the Secretary of the petitioner in response to the notice issued under section 131 of the Act, appeared before the authority and did not adopt any delaying tactics. It is also contended that the grounds under sections 132(1)(a), (b) and (c) of the Act are not satisfied, therefore, the search and seizure was patently illegal. it was lastly contended that if the order of reassessment shows that the expenditures were not 3 crores but were 5 crores, then there would be no case of siphoning the funds against the petitioner.
12. The respondents have contended that from the original records, it would clearly appear that the Director of Income Tax (Inves), has recorded his satisfaction and as his action has also been approved by the Director General of Investigation, it cannot be said that the action was taken to vindicate the honour of the respondent No. 2. It is submitted that the report of the Forensic Science Laboratory would clinch the issue that time and again money was paid to one Md. Alim in the name of M/s. Aayoton. The said Md. Alim is working as Munshi with the father of Sanjiv Kumar and has admitted during course of investigation that in fact he had nothing to do with M/s. Aayaton. He never received any money. It is submitted that said Md. Alim is also in the managing committee of the petitioner-society which would show that a conspiracy was being hatched up for siphoning the amount. It is also contended that if in the order of reassessment, the case of Aayaton has not been referred to, then the same is not going to effect the validity of the action taken under section 132 of the Act. They submitted that the reasons to believe ought to be recorded on the administrative side and unless it is shown that the same are not bona fide, any allegation would not stand. It is also submitted that the procedure under section 132 of the Act are not judicial proceedings, therefore, the action taken on the administrative side cannot be compared with the action taken on the judicial side. They have submitted that as the Secretary of the society and Md. Alim were applying delaying tactics, the department had to proceed with their own investigation for collecting the information. It is submitted that the requirement of section 132 (1) of the Act is absolutely fulfilled.
13. For the respondent No. 2, it is contended that the allegation would not cut any ice because the said principal after a long time has tried to oblige the society, but the facts would remain that immediately after the incident, the said principal did not make any complaint either to the police or to the management or to the department or to any other authority. It is also submitted that any material collected during the course of search and seizure may not prove sufficient for the purpose of assessment but recovery of materials in itself would not be sufficient to say that the search was conducted with mala fide intention. It is submitted that recovery of any article, it is considered to be foundation for justifying the search it would lead to chaotic results. A search, even in absence of recovery of incriminating articles, would not be illegal because the search is made after recording the reasons. It is also submitted that day to day diary is not to be maintained by the department just like an investigating agency but they have to collect the evidence, information and facts and after scrutinising the same, have to record a finding that given would be a fit case for issuing warrant of authorisation. They have submitted that the materials available in the confidential documents were justifying the action taken by them.
14. We have heard the parties and have gone through the complete records and the judgments on which reliance has been placed.
15. Section 131 of the Act relates to power regarding discovery, production of evidence etc. It says that such officers as defined under section 131 of the Act are vested with the powers of a court under the Code of Civil Procedure, in relation to discovery and inspection; enforcing the attendance etc., compelling the production of books of account and other documents; and issuing commissions. Section 132 of the Act relates to search and seizure. For the purposes of the present matter, section 132(1) would be material. It 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
(a) any person to whom a summons under sub-section (1) of section 37 of the Indian Income Tax Act, 1922 (11 of 1922), or under sub-section (1) of section 131 of this Act, or a notice under sub-section (4) of section 22 of the Indian Income Tax Act, 1922, or under sub-section (1) of section 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 proceedings under the Indian Income Tax 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 Income Tax 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 Commissioner or Commissioner, as the case may be, may authorise any Joint Director, Joint Commissioner, Assistant Director or Deputy Director, Assistant Commissioner or Deputy Commissioner or Income Tax Officer, or
(B) Such Joint Director, or Joint Commissioner, as the case may be, may authorise any Assistant Director or Deputy Director, Assistant Commissioner or Deputy Commissioner or Income Tax Officer,
(the officer so authorised in all cases being hereinafter referred to as the authorised 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 clause (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 authorised officer has reason to suspect that such person has secreted about his person and 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 clause (i) of sub-section (1) of section 2 of the Information Technology Act, 2000 (21 of 2000), to afford the authorised 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 authorised 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 therefrom;
(v) make a note or an inventory of any such money, bullion, jewellery or other valuable article or thing :
Provided that where any building, place, vessel, vehicle or aircraft referred to in clause (i) is within the area of jurisdiction of any Chief Commissioner or Commissioner, but such Chief Commissioner or Commissioner has no jurisdiction over the person referred to in clause (a) or clause (b) or clause (c), then, notwithstanding anything contained in section 120, it shall be competent for him to exercise the powers under this sub-section in all cases where he has reason to believe that any delay in getting the authorisation from the Chief Commissioner or Commissioner having jurisdiction over such person may be prejudicial to the interests of the revenue :
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 clause (Ht).
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.”
16. To appreciate the argument of the parties, and their rival contentions, we must see whether the actions of the respondents were justifiable or not. In the matter of ITO v. Seth Bros. (1969) 74 ITR 836 (SC), the action taken under section 132 of the Indian Income Tax Act, 1961 was taken up for consideration. The Supreme Court observed that since by the exercise of the power under section 132 of the Income Tax Act, 1961, a serious invasion is made upon the rights, privacy and freedom of the taxpayer, the power must be exercised strictly in accordance with the law and only for the purposes for which the law authorises it to be exercised. 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 regularity 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 by the court. If the conditions for the 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 officers will not vitiate the exercise of power. Where the Commissioner entertains the requisite belief and for reasons recorded by him authorises a designated officer to enter and search premises for books of account and documents relevant to or useful for any proceeding under the Act, the court, in a petition by an aggrieved person, cannot be asked to substitute its own opinion whether an order authorising search should have been issued. Any irregularity in the course of entry, search and seizure committed by an officer acting in pursuance of the authorisation will not be sufficient to vitiate the action taken Provided the officer has, in executing the authorisation, acted bona fide.
17. The Supreme Court has further observed that warrant of authorisation is not required to specify the particulars of documents and books of account. A general authorisation to search for and seize documents and books of account relevant to or useful for any proceeding complies with the requirements of the Act and the Rules. It would also be for the officer making the search to exercise his judgment and seize or not seize any documents or books of account. The Supreme Court in clear terms observed that an error committed by the officer in seizing the documents which may ultimately be found not to be useful for or relevant to the proceeding under the Act will not by itself vitiate the search nor will it entitle the aggrieved person to an omnibus order releasing all documents seized. The Supreme Court observed that when a warrant is issued in relation to a firm, the officer authorised thereunder is not restricted to searching for and taking possession of only those books of account and other documents which directly relate to the business carried on by the partners in the name of the firm. It was also observed by the Supreme Court that in appropriate cases a writ petition may lie challenging the validity of action taken under section 132, even before the investigation pursuant to the action taken by the Income Tax Officer is made, on the ground of absence of power or on a plea that the proceedings were taken maliciously or for a collateral purpose. But normally the High Court in such a case should not proceed to determine merely on affidavits important issues of facts especially where serious allegations of improper conduct are made against public servants and the officers assert that they acted in good faith in the discharge of their duties. If the High Court is of the view that the question is one in respect of which an investigation should be made it should direct oral evidence to be taken.
18. From the said judgment of the Supreme Court, it would be clear that an action can be taken for issuance of warrant of authorisation and action must be taken in good faith, bona fide and on the basis of genuine material. Aggrieved party can challenge the action before a competent court alleging, inter alia, that the action was ill motivated, it was taken with vengeance and it was mala fide and actuated with malice. The Supreme Court further observed that the High Court in such a case where there are allegations and counter allegations should not proceed to determine merely on affidavits important issues on facts especially where serious allegations of improper conduct are made against the public servants and the officers assert that they acted in good faith in discharge of their duties.
19. From the above referred judgment, it would also be clear that the authorities have to record their personal satisfaction and there is always scope or margin of error of the judgment. If there is no malice or allegation of malice fails then the action cannot be termed to be bad.
20. In the matter of Pooran Mal v. Director of Inspection (Investigation) (1974) 93 ITR 505, the validity of the provisions were challenged and the Supreme Court observed that the provisions relating to search and seizure in section 132 of the Income Tax Act, 1961, and rule 112 of the Income Tax Rules, 1962, do not violate the fundamental rights enshrined under articles 19(1)(f) and (g) of the Constitution of India. The restrictions placed by any of the provisions of section 132, section 132A or rule 112A are reasonable restrictions on the freedom under articles 19(1)(f) and (g). The Supreme Court also observed that when in course of search voluminous documents and books of account are to be examined with a view to judge whether they would be relevant, a certain amount of latitude must be permitted to the authorities. The Supreme Court also observed that when 100 of documents were seized which may not be material, then such seizure may be termed to be an irregularity but would not be illegal. The Supreme Court also observed :
“(i) The provisions of section 132 are evidently directed against persons who are believed on good grounds to have illegally evaded payment of tax on their income and property. Therefore, drastic measures to get at such income and property with a view to recover the Government dues would stand justified in themselves. When one has to consider the reasonableness of the restrictions or curbs placed on the freedoms mentioned in article 19(1)(f) and (g), one cannot possibly ignore how such evasions cat into the vitals of the economic life of the community. It is well known fact of our economic life that huge sums of unaccounted money are in circulation endangering its very fabric. In a country which has adopted high rates of taxation a major portion of the unaccounted money should normally fill the Government coffers. Instead of doing so, it distorts the economy. Therefore, in the interest of the community it is only right that the fiscal authorities should have sufficient powers to prevent tax evasion.
(ii) Search and seizure are not a new weapon in the armoury of those whose duty it is to maintain social security in its broadest sense. The process is widely recognised in all civilized countries.
(iii) It is now too late in the day to challenge the measures of search and seizure when it is entrusted to income-tax authorities with a view to prevent large scale tax evasion. Indeed, the measure would be objectionable if its implementation is not accompanied by safeguards against its undue and improper exercise. As a broad proposition it is now possible to state that if the safeguards are generally on the lines adopted by the Criminal Procedure Code they would be regarded as adequate and render the temporary restrictions imposed by the measure reasonable.
(iv) An innocent person who is merely in custody of cash, bullion or other valuables, etc., not knowing that it was concealed income is likely to be harassed by a raid for the purpose of search and seizure. That cannot be helped. Since the object of the search is to get at concealed income, any person who is in custody without enquiring about its true nature, exposes himself to search. Sub-section (4) of section 132 shows the way how such an innocent person can make the impact of the search on him bearable. All that he has to do is to tell the true facts to the searching officer explaining on whose behalf he held the custody of the valuables. It will be then for the Income Tax Officer to ascertain the person concerned under subsection (5).
(v) Though in a very rare case a tax evader may comply with a requisition, the Director of Inspection who has reliable information that the assessee has consistently concealed his income derived from certain financial deals may be justified in entertaining the reasonable belief that the assessee, if called upon to produce the necessary documents, will not produce the same. It cannot, therefore, be said that clause (b) of section 132(1) has over-reached itself.” (p. 506)
21. From the said judgment it would be clear that drastic measures had to be taken by the Government because in a very rare case a tax evader may comply with a requisition.
22. Learned counsel for the petitioner has placed his strong reliance upon the judgment of the Allahabad High Court in the matter of Dr. Nand Lal Tahiliani v. CIT (1988) 170 ITR 592 (All) to contend that the authorities are required to record the reasons to believe and mere rumours that a person was possessed of undisclosed income would not be sufficient to confirm the opinion or would not provide any ground or reason to believe. In the said matter, the authorities conducted a search only on the ground that they had heard that the assessee who was a practising doctor, was charging high charge and living in a posh house. The Allahabad High Court, in the said matter, held that the information remained in the cold storage for a long time and thereafter, the warrant of search was issued and the search was conducted. The Allahabad High Court observed that the informations collected were not sufficient to confirm the information to issue warrant of authorisation. The High Court observed that the fact that the assessee was known for his ‘roaring practice and for high rate of fee for operations could not be construed for constituting information in consequence of which the Director could have reason to believe that the petitioner had not disclosed his income or would not disclose it. It is to be seen that the said judgment of the Allahabad High Court was challenged before the Supreme Court but the Supreme Court refused to interfere in the matter only on the ground that the articles seized in course of the search had already been released, therefore, the department would be free to resort to other proceedings which were permissible in law. The judgment of the Supreme Court in CIT v. Dr. Nandlal Tahiliani (1988) 172 ITR 627 (SC). The said judgment in the matter of Dr. Nandlal Tahiliani proceeds on its own facts. On facts, the High Court found that that was not a case where on the information which in fact was in form of rumour or gossip, the authorities could record their satisfaction or record reason to believe that the assessee has not disclosed the income and on being asked is not going to disclose the same.
23. The department has placed its reliance upon a judgment of the Karnataka High Court in the matter of Southern Herbals Ltd. v. Director of Income Tax (Investigation) (1994) 207 ITR 55 (ker). The High Court has observed that the law does not require a copy of the warrant of authorisation to be delivered or furnished to the persons against whom it is issued. It is sufficient if such a person is shown the warrant of authorisation. The High Court further observed that it is not for the court to examine the sufficiency of the material leading to the belief of the authority that search shall have to be conducted, the court has to see that the belief was reasonable, in the sense, it was formed on the basis of relevant material (information). The court cannot substitute its own opinion as to the reasonableness of the belief. The court has to examine to see whether the belief is an irrational or blind belief formed out of prejudice or the result of relying on wild gossip or baseless rumours. It was also observed that there is difference in law between an incorrect inference drawn from certain basic facts and the relevancy of those basic facts to the inference drawn. In the former case, the incorrectness of the inference drawn can be rectified or nullified by a superior authority or court Provided the law permits it to be rectified. The said rectification or nullification is part of the appellate or revisional power, which the law should specifically provide for and the High Court in its writ jurisdiction cannot exercise such powers. The power of the High Court in its writ jurisdiction are limited to see whether the belief formed by the authority issuing the authorisation was a reasonable belief, in the sense whether the said belief was formed only on the basis of relevant material/information.
24. At this stage, we must observe that we have gone through the original records. The files were produced before us. One of the files contained the statement of the witnesses which were recorded by the authorities during course of investigation. Md. Alim himself had been examined and he made certain specific admissions. After making complete investigation, the Deputy Director of Income Tax (Investigation) submitted his report in his own handwriting keeping the same to be very confidential, to the Additional Director (Investigation). The said Additional Director after going through the said report of the Deputy Director, recorded his own satisfaction, approved the report and forwarded the matter to the Director (Inves). The allegation of the petitioner that respondent No. 2 was the kingpin behind the action certainly would have assumed importance if a warrant of authorisation was issued by respondent No. 2 or on his fanciful report. Unfortunately, while making allegation against respondent No. 2 and other respondents, the petitioner did not look into the instructions issued by the higher authorities of the department. In accordance with the direction and policy, the report of the Deputy Director is to be placed before the Additional Director and the Additional Director after scrutinising the report of the Deputy Director has to submit his own report to the Director (Inves). The Director (Investigation) in his own turn has to look into the material collected during course of investigation, has also to go through the two reports prepared by the Deputy Director and the Additional Director and thereafter has to record his own satisfaction before warrant of authorisation is issued.
25. In the present matter, the Director of Investigation has recorded his own satisfaction and the reasons to believe in his own handwriting. After going through the said three reports, we must hold that the action was not actuated with malice. It was not mala fide nor was it to vindicate the honour of respondent No. 2. The department has sufficient material with it. Some of the materials have already been disclosed in the counter affidavit filed by the respondents and they have claimed privilege in relation to the other materials so that any other subsequent action is not otherwise prejudiced. In our opinion, the respondent could not be compelled by the petitioners to divulge or disclose any material collected by the department. The petitioners could not justifiably ask the department to supply the reports of the three officers. The reasons to believe are to be recorded after marshalling the evidence collected during course of investigation. If such material is brought to the notice of the petitioner/assessee in whose premises search was conducted and seizure was made then it would amount to giving an opportunity to such a person who is engaged in evading taxes or siphoning any amount from the funds of the petitioner-society. In our opinion, the respondents are absolutely justified in not disclosing the material to the petitioner and also not providing the reasons which led to their belief that the petitioners were not disclosing their income and were not likely to disclose.
26. It is also to be seen that an opinion is recorded by an officer on basis of the facts and evidence produced before him. Whether a reasonable opinion has been recorded would depend upon reasonable approach. If the approach cannot be said to be perverse, vindictive, bad, mala fide, or motivated, then said opinion cannot be condemned. At this stage, we must record even if the report of respondent No. 2 is ignored and the reports of the Additional Director and Director (Investigation) are taken into consideration then in these two reports sufficient reasons have been given to believe that the petitioners were not disclosing their. income and were not likely to disclose their activities even on notice. The court can quash the said report if it finds that the approach is absolutely bad and the findings are perverse. It is settled law that the High Court does not examine the report etc. with administrative approach. The High Court examines the records with a judicial approach. If the High Court is prima facie satisfied that the administrative approach can be justified to a good extent then the High court would not be required to substitute its opinion for the opinion recorded at the administrative side. The same logic would also apply to turn down the argument that the assessing officer in the re-assessment proceedings did not find any material nor used the material relating to Aayaton. In our considered opinion, the material collected by the department in issuing the authorisation warrant must be taken into consideration to form an opinion or record reasons to believe whether warrant of authorisation could be issued or not. The result of the search in f act would not be so material to justify the issuance of warrant. If the argument of the petitioner is allowed to stand, it would lead to chaotic situation. In a given case, if there are strong reasons to believe that on search incriminating articles would be recovered, but the searching party does not recover any article, in that case if accepting the argument of the petitioner, search is held to be illegal then it would virtually be violation of the Act itself. Reasons to believe cannot be equated with positive proof. Reasons to suspect if it is something less than ‘reasons to believe then positive proof would be of much higher standard than ‘reason to believe in a given case, the reason to believe may be founded on certain information which prima facie appears to be valid and genuine. In a given case, the reasons may not prove the test of bona fide or genuineness but the court is required to see first whether the officer acted honestly and had no reason to create or concoct the reasons or manufacture or forge the grounds to believe.
27. In our considered opinion, the disclosure of the materials or information to the persons against whom action under section 132 is proposed is not mandatory because the very disclosure of the facts already collected by the department would adversely affect or hamper the investigation. It would also be necessary to say that the material produced before the department in the valid exercise of the discretion of the officer may be found to be sufficient.
28. So far as the question of personal bias of respondent No. 2 is concerned we must immediately observe that the said Principal after receiving the threat or intimidation, did not in writing inform the matter to the management of the petitioner-society or the school authority. He did not lodge a report before Police. He did not make a complaint in writing to the higher authorities of the respondent No. 2. The matter of admission is said to be for the academic year 2002-03 and the affidavit has been sworn for the first time on 5-4-2004. Even in the said affidavit, the said Principal Dr. K.B.L. Shrivastava has nowhere stated why he kept silence in relation to the matter for a period of two years and three months. The allegation of bias and prejudice against respondent No. 1 must be turned down. We must also observe that if the said Principal of the School did not react, retaliate or retort to the action of the respondent No. 2, in threatening him that the school would be closed then, the petitioner cannot be allowed to raise a question of administrative atrocities or executive excess.
29. In the matter of Union of India v. Vipan Kumar Jain (2003) 260 ITR 11 (SC) it has been observed that though the principles of natural justice provide that no one shall be a judge in his own case but said provision may be excluded by statute and a person can be a judge in his own cause. The Supreme Court has observed that if the assessing officer is authorised to gather information and assess the value of the information himself and the provisions of the Act did not impose restriction then such an action of the officer would not be bad. The Supreme Court further observed that existence of judicial bias has to be established as a matter of fact. In the said matter, the Supreme Court observed that mode of gathering information may vary from the mere issuance of notice under section 142 to the more intrusive method of entry and search envisaged under sections 133A and 133B and seizure under section 132. The Supreme Court observed that sections of the Act impose no limitation on the Assessing officer and the authorised officer for a search being the same person and it cannot be said that action taken pursuant to such statutory empowerment was coloured, only by reason thereof, by any bias. The Supreme Court observed that bias cannot be said to be established only because the authorised officer and the assessing officer are one and the same person.
30. So far as the question of bias is concerned, it goes without saying that the said question will have to be decided on facts of each case whether there is judicial bias or administrative bias or personal bias. The evidence will have to be led and facts proved. In a case of allegation of bias the evidence must be strong. The party alleging bias must prove the fact and should leave no scope for any other finding. Where an officer is sought to be condemned on the ground that he was personally biased then the character of such officer is under assassination. Every person who acts as an officer has to face such situation. Every person who is aggrieved by the action of such an officer would always raise such allegation. If the simple allegations which are devoid of legal proof are allowed to stand then it would become impossible for an officer specially administrative officer to work. The allegation that an officer is prejudiced or biased would not be sufficient unless the evidence is brought on the record leading to the positive conclusion that bias is established. If the person who raises all allegation is able to establish that the officer in fact is biased, then the court would give weight age to the allegation. In the present case, unfortunately, but for making simple allegation in the form of affidavit of the principal, the petitioner has failed to prove that respondent No. 2 is involved or interested in his personal capacity in the outcome of the search or seizure. If the facts could be proved in accordance with law, we would have no hesitation in quashing the search and seizure. We have already recorded that after going through the records we are unable to hold that the satisfaction recorded by the three officers can be condemned on any ground.
31. The learned counsel for the petitioner has relied upon a judgment of the Supreme Court in the matter of Mahesh Kumar Agarwal v. Dy. Director of Income Tax (2003) 260 ITR 67 (SC). In the said matter, the expressions reason to believe and reason to suspect were considered. The Calcutta High Court observed that reason to believe is a common feature of taxing statutes. It has been considered to be the most salutary safeguard on the exercise of the power by the authorities. The condition precedent for search and seizure is reason to believe under section 132 of the Act which cannot be equated with reason to suspect. The expression reason to believe postulates belief and the existence of the reasons for that belief. The belief must be held in good faith. It cannot be merely a pretence. The reason to suspect under sub-sections (1A) and (4A) of section 132 are subject to satisfaction of the primary test of reason to believe under section 132(1), The reason to believe is the mandatory requirement of law for search and seizure. Each case has to be independently established within the norm of reason to believe under section 132(1)(c).
32. In the opinion of this court, the said observation made by the Calcutta High Court would be of no assistance to the petitioner. Present is not a case of reason to suspect. Present is a case where the respondents have recorded the reasons to believe and after going through the records specially the reports, we must also observe that they had valid reasons to believe.
33. So far as question of applicability of section 132(1)(a), (b) and (c) of the Act is concerned, we must observe that the present case falls within the purview of clauses (b) and (c) of the Act. So far as the recovery of sum of Rs. 50,000 only from Sanjiv Kumar is concerned, in our opinion, the same should not provide any ground in favour of the petitioner. We have already observed that non-recovery of articles would not unjustify the search. The order of authorization and the search is to be justified on the material available with the department and the reasons which led to be belief of the authority.
34. After going through the complete records including the reports submitted to us, we are of the opinion that the petitioner has failed to make out a case for interference under article 226 of the Constitution of India rather the respondents have proved to hold that they had sufficient reasons to proceed in the matter.
35. This writ application is dismissed.
S.K. Singh, J.
I agree.
OPEN