JUDGMENT
1. This writ petition has been filed for a writ of certiorari to quash the impugned warrant of authorisation under Section 132 of the Income-tax Act, 1961, and for a writ of mandamus directing the respondents to restore the possession of the cash amount of Rs. 6 lakhs seized from the petitioner from his residence as well as Rs. 1,40,000 seized from his bank locker No. 66 with the State Bank of India, Brindaban Gate, Mathura. The petitioner has also prayed for a mandamus directing respondents Nos. 3 and 4 to hand over the custody of the seized material to the petitioner including the valuables seized from his residence.
2. Heard learned counsel for the parties.
3. It is alleged in para. 3 of the petition that the petitioner has been carrying on the business of manufacturing of perfumed supari under the brand name of “Sweety Supari” and selling the same in his proprietary set up known as “Shree Girraj Supari Traders”. It is alleged that in relation to such business activities as also other sources of income, he has been regularly assessed to income-tax by the Assessing Officer at Mathura. It is alleged in para. 4 of the petition that in relation to his business activities which are within the purview of the Central Excise Act and Rules made thereunder, the petitioner has been maintaining all such records as are required to be maintained under the Act and Rules and has been complying with all the requirements of the statute and has submitted returns as prescribed under the Excise Rules. It is alleged that no discrepancy was ever found by the excise authorities either in his working or in the records so maintained. In para. 5 of the petition it is alleged that apart from the records which are required to be maintained under the Act, the petitioner has been maintaining financial records in the regular course. Since the turnover of the petitioner for the entire block period April 1, 1996, to the date of the search, i.e., December 10, 2002, exceeded the ceiling limit of Rs. 40 lakhs such records were subjected to tax audit under Section 44AB of the Income-tax Act. It is alleged that on the basis of such records the petitioner has been regularly filing his income-tax returns in accordance with the requirement of the Income-tax Act and there arose no such occasion from which it could be inferred that the petitioner has at any time avoided compliance of statutory notices, etc. During this period his turnover and taxable income is as shown in the columns which are given in para. 5 of the petition. Copies of the balance-sheet and profit and loss account as are relevant for the assessment years 2000-01, 2001-02 and 2002-03 as also the related statements showing computation of income in all these years are annexures I, IA, II, IIA, III and IIIA to the writ petition. As regards the financial year 2002-03 relevant to the assessment year 2003-04, the books of account and other records had been kept in the regular course, and such books of account too disclosed a progressive trend of turnover. The petitioner had made higher payment of advance tax as per chart given in para. 6 of the petition.
4. On December 10, 2002, simultaneously search operations were carried out at the residential premises of the petitioner as also his business premises and the place from which manufacturing activities were being carried on, in his absence. The panchanamas were prepared by the authorised officers and warrants of authorisation were issued by respondents Nos. 2 and 3. Copies of the three panchanamas are annexures V, VI and VII to the petition. On the same date, i.e., December 10, 2002, search operation under Section 132(1) was carried out at the residential premises of Onkar Nath Agarwal who had been working as accountant with the petitioner. True copy of the panchanama is annexure VIII to the petition. It is alleged in para. 8 of the petition that at the time of the search operation, i.e., December 10, 2002, the residential premises of the petitioner were occupied. The petitioner, his wife and one unmarried daughter occupied the ground floor, and the first floor was occupied by his son, Sunil Agarwal, his wife and their five year old son, Lav Agarwal. From the said premises cash sums were found as per the particulars given in the panchanama. The said sums were found as detailed in para. 8 of the petition. In para. 9 of the petition it is alleged that when the petitioner came back from outstation, he explained that as far as the cash amount of Rs. 5,71,673 is concerned the same represented partly cash balance as revealed by the Rokar maintained by Shree Girraj Supari Traders and partly the petitioner’s income of the current year earned by him from speculation in silver. However, in spite of such a cogent explanation having been given by the petitioner, the petitioner was not given back the custody of the cash seized from his residential premises. During the course of search operation at the residential premises of Onkar Nath Agarwal who had been working as accountant with the petitioner and had also been assisting the petitioner’s son, Sunil Agarwal, in handling bank operations, cash amount of Rs. 81,320 was found. As per the information given to the petitioner, Onkar Nath Agarwal had given cogent explanation of the cash found at his residence but yet a sum of Rs. 70,000 was seized from his residence and has not yet been returned. Apart from this cash, jewellery weighing 2,226.500 gms. was found. It is alleged that this jewellery found during the course of the search stood fully covered by the income/ wealth-tax returns of Smt. Rajni Agarwal, wife of the petitioner. It is alleged that the authorised officers carried out indiscriminate seizure of old ornaments weighing 644.400 gms. vide panchanama dated December 10, 2003 (annexure V). Copies of the statement showing computation of net wealth as on March 31, 2001, and the acknowledgment of filing the return under the Wealth-tax Act are annexures IX and X to the petition.
5. It is alleged in para. 12 of the writ petition that during the course of search operations at the business premises of the petitioner voluminous records relating to the business were found and were indiscriminately seized by the officer. It is also alleged in para. 13 of the petition that on December 10, 2003, the bank locker of the petitioner being locker No. 66 with the State Bank of India, Brindavan Gate Branch, Mathura, was also attached. The petitioner gave a statement that the locker contained amanat money since long and had been lastly operated on November 9, 1995, which was outside the block period. However, the cash found in the locker of Rs. 1,40,000 was seized vide panchanama dated December 13, 2002, vide annexure XI.
6. The said panchanama shows that the warrant of authorisation relating to locker No. 66 had been issued by the Joint Director of Income-tax (Investigation), Agra, respondent No. 3. The certificate of the bank showing the dates of operation of the said locker is annexure XII. It is evident therefrom that the last date of operation of the locker was November 9, 1995, which fell beyond the block period.
7. It is alleged in para. 16 of the petition that the authorisation was issued by respondent No. 2, the Director of Income-tax (Investigation), Kanpur, which was illegal as none of the conditions mentioned in Section 132(1) existed. It is alleged in para. 17 of the petition that there existed no material which could lead to the formation of reason to believe that any asset owned and possessed by the petitioner had not been disclosed or would not be disclosed in due course.
8. A counter affidavit has been filed by the respondents and we have perused the same. It is alleged in para. 11 of the counter affidavit that Smt. Rajni Agrawal could not satisfactorily explain the cash found in a room. In para. 12 it is stated that Onkar Nath Agarwal could not properly explain the cash found in his premises. As regards the seizure of the gold ornaments it is alleged in para. 13 that Smt. Rajni Agarwal had stated that the above jewellery belonged to herself and her daughter and daughter-in-law and husband. However, it is alleged that Smt. Rajni Agarwal was not clear about the source of this jewellery. In para. 14 it is alleged that incriminatory documents were found in the search. In para. 15 it is stated that the seizure of cash Rs. 1,40,000 was also made which was found from locker No. 66 with the State Bank of India. It is alleged that this was not satisfactorily explained.
9. Rejoinder affidavit has been filed and we have perused the same. It is alleged in para. 4 that prior to the search the account books of the petitioner had always been accepted and his returns had also been accepted. In para. 6 of the rejoinder affidavit it is stated that cash of Rs. 5,71,673 represented partly the cash balance as revealed by Rokar maintained by M/s. Girraj Supari Traders and partly the petitioner’s income of the current year earned by him through speculation in silver. In para 8 it is stated that the entire jewellery weighing 2,226.500 gms. had been duly accounted for and has been disclosed in the income/wealth-tax return of Smt. Rajni Agarwal. Hence, seizure of 644.400 gms. gold jewellery was patently arbitrary and illegal.
10. On the facts of the case, we are of the opinion that this petition deserves to be allowed. Admittedly, the petitioner and his wife are regular income-tax payers and they have been returning a progressive return of income over the last several years as is borne out from the chart in para. 5 of the petition. The computation of balance-sheets are annexures 1 to 3A to the writ petition.
11. The petitioner has alleged in paras. 17, 18 and 19 of the writ petition that there existed no material which could lead to the formation of reasons to believe under Section 132(1) that the petitioner had cash or assets which represented undisclosed income. This averment appears to be correct. No material has been disclosed in the counter affidavit to show that there were reasons to believe in the authority concerned for issuing the warrant of authorisation.
12. The facts of this case are covered by several Division Bench decisions of the Supreme Court and this court vide Dr. Nand Lal Tahiliani v. CIT [1988] 170 ITR 592 (All); CIT v. Vindhya Metal Corporation [1997] 224 ITR 614 (SC); Ajit Jain v. Union of India [2000] 242 ITR 302 (Delhi); Dr. Sushil Rastogi v. Director of Investigation, Income-tax Department [2003] 260 ITR 249 (All) ; Smt. Kavita Agarwal v. Director of Income-tax (Investigation) [2003] 264 ITR 472 (All) and Ravi Iron Industries v. Director of Investigation [2003] 264 ITR 28 (All), etc.
13. As regards the allegations in paragraphs 11, 12, 13, 14 and 15 of the counter affidavit to the effect that the assessee could not give a satisfactory explanation regarding certain assets or documents found during the search, this court held in the case of Smt. Kavita Agarwal v. Director of Income-tax (Investigation) [2003] 264 ITR 472 that the material on the basis of which the reason to believe of the Commissioner/Director is said to exist must be such material which was brought to the knowledge of the said authority prior to the search. In other words, the authorities cannot rely on material found during the search for taking the plea that this was the basis of the reason to believe, unless such material was brought to the knowledge of the authority who signs the warrant of authorisation before or at the time when he signs it. To take a contrary view would mean that the Commissioner/Director can issue a warrant of authorisation under Section 132(1) without considering any material, and thereafter the income-tax authorities can indulge in a fishing enquiry to uncover some undisclosed asset. No such view can be countenanced by this court as it would give unbridled and arbitrary powers to the income-tax authorities to harass the citizens.
14. For the reasons given above, the writ petition is allowed and the impugned warrant of authorisation is quashed and the entire search and seizure is declared illegal. The respondents are directed to release the cash, articles and documents seized from the petitioner or his wife from their residence as well as the bank locker forthwith.