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GAHC010026892021

THE GAUHATI HIGH COURT

(HIGH COURT OF ASSAM, NAGALAND, MIZORAM AND ARUNACHAL PRADESH)

Case No. : WP(C)/969/2021

PAWAN KUMAR GARG

S/O KEDAR NATH AGARWAL, R/O UNIQUE HEIGHTS, ROOM NO. 304, 3RD

FLOOR, OPP BSNL OFFICE, WIRELESS, RUKMANI PATH, DISPUR, ASSAM

781006

VERSUS

THE UNION OF INDIA AND 4 ORS

REPRESENTED BY THE SECY. TO THE GOVT. OF INDIA, MINISTRY OF

FINANCE, DEPTT. OF REVENUE, ROOM NO. 46, NORTH BLOCK, NEW

DELHI 110001

2:THE PRINCIPAL DIRECTOR OF INCOME TAX (INVESTIGATION)

4TH FLOOR

NEW AAYAKAR BHAWAN

CHRISTIAN BASTI

G.S. ROAD

GUWAHATI 781005

3:THE DEPUTY DIRECTOR OF INCOME TAX (INVESTIGATION)

UNIT-2(3)

DIBRUGARH 786008

4:THE ASSTT. DIRECTOR OF INCOME TAX (I AND CI)

U-2

AAYAKAR BHAWAN

CHRISTIAN BASTI

GUWAHATI 781005

5:THE COMMISSIONER OF INCOME TAX

AAYAKAR BHAWAN Page No.# 1/30

GAHC010026892021

THE GAUHATI HIGH COURT

(HIGH COURT OF ASSAM, NAGALAND, MIZORAM AND ARUNACHAL PRADESH)

Case No. : WP(C)/969/2021

PAWAN KUMAR GARG

S/O KEDAR NATH AGARWAL, R/O UNIQUE HEIGHTS, ROOM NO. 304, 3RD

FLOOR, OPP BSNL OFFICE, WIRELESS, RUKMANI PATH, DISPUR, ASSAM

781006

VERSUS

THE UNION OF INDIA AND 4 ORS

REPRESENTED BY THE SECY. TO THE GOVT. OF INDIA, MINISTRY OF

FINANCE, DEPTT. OF REVENUE, ROOM NO. 46, NORTH BLOCK, NEW

DELHI 110001

2:THE PRINCIPAL DIRECTOR OF INCOME TAX (INVESTIGATION)

4TH FLOOR

NEW AAYAKAR BHAWAN

CHRISTIAN BASTI

G.S. ROAD

GUWAHATI 781005

3:THE DEPUTY DIRECTOR OF INCOME TAX (INVESTIGATION)

UNIT-2(3)

DIBRUGARH 786008

4:THE ASSTT. DIRECTOR OF INCOME TAX (I AND CI)

U-2

AAYAKAR BHAWAN

CHRISTIAN BASTI

GUWAHATI 781005

5:THE COMMISSIONER OF INCOME TAX

AAYAKAR BHAWAN

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CHRISTIAN BASTI

GUWAHATI 78100

Advocate for the Petitioner : DR. A SARAF

Advocate for the Respondent : ASSTT.S.G.I.

BEFORE

HONOURABLE MR. JUSTICE KAUSHIK GOSWAMI

ORDER

Date : 08-05-2024

JUDGMENT & ORDER (CAV)

Heard Dr. A. Saraf, learned Senior Counsel assisted by Mr. P.K. Bora,

learned counsel for the petitioner and Mr. S. C. Keyal, learned

Standing Counsel for the Income Tax Department, Government of

India appearing for all the respondents.

2. The present writ petition has been filed by the petitioner

challenging the illegal search and seizure conducted at the

residential premises of the petitioner on 02.12.2020 and the

impugned notices dated 29.12.2020, 05.01.2021, 21.01.2021 and

28.01.2021, issued by the respondent No. 3, on the ground that the

same is absolutely illegal and without jurisdiction and in violation of

the mandatory provisions of the Income Tax Act, 1961(herein after

referred as ‘the Act’)

3. The facts of the case is that the petitioner is an assessee under

the Income Tax Act, 1961 and is regularly filing income tax returns

and discharging tax liabilities by paying income tax and TDS. A

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search and seizure operation was conducted by the Additional

Director of Income tax (Investigation) and his team at the residential

premises of the petitioner on 4-12-2020 on the basis of the

authorization dated 4-12-2020 issued by the Principle Director of

Income Tax (Investigation) dated 4-12-2020. A survey operation was

also conducted at the coal depot of the petitioner on 4-12-2020.

During the search operation cash amounting to Rs.2,69,920/-,

jewellery amounting to Rs.10,44,695 was found. Inventory of Bank

accounts found was prepared which related to the petitioner and his

family members and a restraint order was passed as regard to book

accounts. Some loose paper, notes books and data of cell phone and

laptop was also seized. Restraint order under Section 132(3) of the

Act was passed in respect of two bank lockers on the date of seizure

i.e. on 4-12-2020. The said lockers were opened on 21-1-2021 and

jewellery contained in the lockers was not seized and the search was

finally concluded.

4. Thereafter, a notice was issued by the Deputy Director of

Income Tax (Investigation), Respondent No.3, being notice dated

29-12-2020 in the purported exercise of powers under Section 131

(1A) of the Income Tax Act 1961 directing the petitioner to attend

his office on 6-1-2021 to give evidence and/or produce either

personally or through an authorized representative, the books of

accounts and other documents specified in the said notice i.e. audit

report, profit and loss account, balance sheet for the financial years

2011-12 till date and other documents and papers.

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5. The petitioner by its reply dated 4-1-2021 to the notice dated

29-12-2020 submitted that since search has already been

conducted, no notice u/s 132(1A) of the Income Tax Act can be

issued to the petitioner. The petitioner also submitted that it was

practically not possible on the part of the petitioner to carry such

huge books of accounts for a period of ten years to Dibrugarh and

that the petitioner was ready to produce the available books of

account at Guwahati.

6. The respondent no.3 however vide notice dated 05.01.2021

rejected the contentions of the petitioner made in its letter dated 4-

1-2021 to the effect that issuance of the notice u/s 131(1A) of the

Income Tax Act 1961 was not within the jurisdiction of the

Respondent No.3 and directed the petitioner to send the soft copy of

the books of account and others documents through email.

7. In reply to the notice dated 5-1-2021 issued by the respondent

no.3, the petitioner sent a reply vide letter dated 16-1- 2021 by

making the submission that the decision in the case of Classic

Builders & Developers v. Union of India 251 ITR 492 (MP) as

referred to its reply dated 05.01.2021 was related to a survey

conducted and was not related to a case where search had already

been conducted. The petitioner in support of its contention that

issuance of the notice u/s 131(1A) of the Act after the search was

illegal relied on a decision of the Allahabad High Court in Anita

Sahani v. DIT (Investigation) 266 ITR 597.

8. The respondent no. 3 however without appreciating the

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provisions of Section 131(1A) of the Act in the correct perspective,

issued another notice dated 21-1-2021 in the purported exercise of

powers u/s 131(1A) of the Act directing the petitioner to appear

before the said authority on 25-1-2021 to give and/or produce either

personally or through an authorized representative the books and

account and other documents specified in the said notice.

9. The petitioner again vide reply dated 25-1-2021 submitted that

since as per Rule 6F and 6F(5) of the Income Tax Rules, the

prescribed period of maintaining and keeping the books of account is

six years from the end of Assessment Years, the books of account

for Assessment Years 2011-12 were not available with the petitioner.

The petitioner also informed the respondent no.3 that the petitioner

had already produced the books of account for the Assessment Years

2013- 14 to 2014-15, which though was not legally required. The

petitioner also provided the data for the financial year 2012-13 to

financial year 2020-2021.

10. The respondent no.3, again, issued another notice dated

28.01.2021 in the purported exercise of powers u/s 131(1A) of the

Act directing the petitioner to appear before the said authority on

02.02.2021 to give and/or produce either personally or through an

authorized representative the books and account and other

documents specified in the said notice.

11. Aggrieved by the action of the respondent authority in

conducting the search and seizure without preceded by Notice under

Section 131(1A) of the Act, the petitioner filed the present writ

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petition under Article 226 of the Constitution of India challenging the

issuance of the notices post search and seizure,under Section

131(1A) of the Act.

12. At the time of hearing of the writ petition, the petitioner has

confined its arguments on the legality and validity of the notice

issued under Section 131(1A) of the Act.

13. Dr. A. Saraf, learned Senior Counsel for the petitioner submits

that that the impugned notices issued by respondent no.3 under

Section 131 (1A) of the Act are illegal and without jurisdiction

inasmuch as Section 131 (1A) of the Act empowers the specific

authority referred to therein to exercise the power under Section 131

(1) notwithstanding the fact that no proceeding are pending before

such authority and the summons so issued could be for the purpose

of conducting an enquiry or investigation thereto provided he has

reason to suspect that any income has been concealed or is likely to

be concealed by a person or class of persons within his jurisdiction.

If there is any reason to suspect concealment of income by any class

of persons within his jurisdiction then he can exercise the power

vested in him under Section 131 of the Act.

14. He further submits that the summons under Section 131(1A) of

the Act have been assailed in this petition on the ground that as a

search and seizure had already been taken place under Section

132(1)(i to v) of the Act, a further summons under Section 131(1A)

of the Act would not be maintainable inasmuch as, Section 131(1A)

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of the Act provides that if any of the authorities mentioned therein

has reason to suspect that any income has been concealed or likely

to be concealed, he may before taking action under Section 132(1)(i

to v), may invoke the power under Section 131(1) for making any

enquiry or investigation relating thereof.

15. He further submits that the pre-condition of invoking the power

of Section 131(1) under Section 131(1A) of the Act for making an

enquiry or investigation in respect of there being any reason to

suspect that any income has been concealed or likely to be

concealed is that such power can be invoked only before the

authority concerned had taken any action under Section 132(1)(i to

v) of the Income Tax Act. He further submits that as in the instant

case, the action under Section 132(1)(i to v) had already been

taken, therefore, the condition precedent for invoking Section

131(1A) is absent in the present case.

16. Mr. S. C. Keyal, learned Standing Counsel for the Income Tax

Department, Government of India, on the other hand, submits that

Section 131(1A) of the Act was introduced w.e.f. 1-10-1975 to

empower officers of the Investigation Wing, to exercise the power

mentioned in Section 131(1) of the Act. He further submits that

Section 131(1A) of the Act was introduced to extend similar powers

to an authorized Officer within the meaning of sub-section (1) of

Section 132 before he takes search and seizure action under clauses

(i) to (v) of that sub-section. He further submits that notice under

Section 131(1A) confers powers on the authorities as mentioned

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under Section 131 (1), if he has reason to suspect that any income

has been concealed or is likely to be conceded.

17. He further submits that it is only an enabling power and does

not in any way affect the search and seizure operations carried out

under Section 132 of the Act. He further submits that a recent trend

is that even after conclusion of the search, the Authorized Officer

keep summoning the person searched under Section 131 (1A) to

conduct a 'post-search inquiry'.

18. He further submits that the powers under Section 131(1) of the

Act is exercised for the proper administration of tax laws and for

obtaining further elucidation, on information available with the

authorities, from the assessee concerned. It enables the authorities

to conduct inquiry and collect evidences in support of their

contentions. It also helps to bring to light the correct facts and

circumstances, for the purpose of carrying out proceedings under

the Act and is treated to be equally fair to the Department as well as

the assessee. He further submits that Section 131 is comprised of

two complementary sub-sections relating to two different classes of

officers. Whereas Section 131(1) empowers the jurisdictional

Assessing Officer to issue summons, Section 131(1A) empowers the

officers of the Investigation Wing viz. Assistant Director, Deputy

Director or the Director of Income-Tax (Investigation).

19. He further submits that another point of distinction is that

powers u/s 131(1) of the Act can be exercised by the Assessing

Officer only when any proceedings are pending before him in

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relation to that assessee; whereas power under Section 131(1A) of

the Act can be exercised notwithstanding that no proceeding is

pending before the Investigating Officers. In other words, Section

131(1A) can also be invoked for the purposes of a preliminary

inquiry before carrying out the search operations.He further submits

that issuance of notices under Section 131 (1A) post search would

not, in any manner, render proceedings under Section 132 invalid, if

they were otherwise initiated pursuant to valid authorization issued

after recording satisfaction on basis of material available on record.

He further submits that provisions of Section 131(1A) do not require

that before carrying out search proceedings under Section 132, a

notice is required to be given to assessee.

20. He further submits that it is not required under the provision of

Section 131(1A) that before proceeding with the provision of Section

132 a notice is required to be given to the assessee and it cannot be

because the provision of Section 132 provides power of search and

seizure and if the notice would be given, then the whole purpose of

conducting search and seizure will vanish, as because the assessee

after knowing the fact that a notice for initiating proceeding under

Section 132 will be given, he will destroy all the documents making

the proceeding a futile exercise. In support of the aforesaid

submission, he relies upon the following judgments;

I. Liberty Marine Syndicate (P) Ltd. v. PCIT, Cuttack

(2017) 394 ITR 277:77 taxmann.com 52 (Orissa High

Court.)

II. Classic Builders & Developers V Union of India

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(2001) 251 ITR 492 (MP High Court)

III. Arti Gases Vs DIT (Inv.) (2001) 248 ITR 055

(Gujrat High Court) paragraph 16

IV. Dr. Roop Vs Commissioner Income Tax(2012) 254

CTR 14(High Court of Allahabad)

V. Nessa Leisure Ltd Vs Union of India (2011) 245 CTR

634

VI. Emaar Alloys Pvt Ltd Vs DGIT (2016) 288 CTR 413

paragraph 9(v).

21. Heard the rival submissions made at the bar and perused the

materials available on records.

22. The question that falls for determination is as whether notice

under Section 131 (1A) of the Act to the assessee is an essential

condition to be fulfilled before the search and seizure is conducted.

23. Section 131 (1A) is reproduced hereunder for ready reference.

”131. Power regarding discovery, production of

evidence, etc.-

(1) The Assessing Officer, Deputy Commissioner (Appeals),

Joint Commissioner (Appeals), [Commissioner (Appeals)],

[Principal Chief Commissioner] or Chief Commissioner or

[Principal Commissioner or] Commissioner and the Dispute

Resolution Panel referred to in clause (a) of sub-section

(15) of section 144C shall, for the purposes of this Act,

have the same powers as are vested in a court under the

Code of Civil Procedure, 1908 (5 of 1908), when trying a

suit in respect of the following matters, namely:-

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(a) discovery and inspection;

(b) enforcing the attendance of any person, including any

officer of a banking company and examining him on oath;

(c) compelling the production of books of account and

other documents; and

(d) issuing commissions.

(1A) [If the Principal Director General or] Director General

or [Principal Director or] Director or [Joint] Director or

Assistant Director or [Deputy Director, or the authorized

officer referred to in sub-section (1) of section 132 before

he takes action under clauses (i) to (v) of that sub-

section,] has reason to suspect that any income has been

concealed, or is likely to be concealed, by any person or

class of persons, within his jurisdiction, then, for the

purposes of making any enquiry or investigation relating

thereto, it shall be competent for him to exercise the

powers conferred under sub-section (1) on the income-tax

authorities referred to in that sub- section, notwithstanding

that no proceedings with respect to such person or class of

persons are pending before him or any other income-tax

authority.]

(2) For the purpose of making an inquiry or investigation in

respect of any person or class of persons in relation to an

agreement referred to in section 90 or section 90A, it shall

be competent for any income-tax authority not below the

rank of Assistant Commissioner of Income-tax, as may be

notified by the Board in this behalf, to exercise the powers

conferred under sub-section (1) on the income-tax

authorities referred to in that sub-section, notwithstanding

that no proceedings with respect to such person or class of

persons are pending before it or any other income-tax

authority.

(3) Subject to any rules made in this behalf, any authority

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referred to in sub-section (1) [or sub-section (1A) or sub-

section (2) may impound and retain in its custody for such

period as it thinks fit any books of account or other

documents produced before it in any proceeding under this

Act:

Provided that an Assessing Officer or an Assistant Director

or Deputy Director shall not—

(a)impound any books of account or other documents

without recording his reasons for so doing, or

(b) retain in his custody any such books or documents

for a period exceeding fifteen days (exclusive of

holidays) without obtaining the approval of the

Principal Chief Commissioner or Chief Commissioner

or Principal Director General or Director General or

Principal Commissioner or Commissioner or Principal

Director or Director therefore, as the case may be.”

24. Section 132 (1) of the said Act is also reproduced hereunder for

ready reference;

“132. Search and seizure.— (1) Where the [Principal

Director General or] Director General or [Principal Director or]

Director or the [Principal Chief Commissioner or] Chief

Commissioner or [Principal Commissioner or] Commissioner]

[or Additional Director or Additional Commissioner] [or Joint

Director or Joint Commissioner] 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

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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 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 [[Principal Director General or] Director General

or [Principal Director or] Director] or the [[Principal Chief

Commissioner or] Chief Commissioner or [Principal

Commissioner or] Commissioner], as the case may be,

may authorise any [Additional Director or Additional

Commissioner or] [Joint Director], [Joint Commissioner,

[Assistant Director [or Deputy Director]], [Assistant

Commissioner [[or Deputy Commissioner] or Income-tax

Officer], or

(B) such [Additional Director or Additional Commissioner

or] [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],

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(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 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 clause (t) 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

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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 [[Principal Chief Commissioner or]

Chief Commissioner or [Principal Commissioner or]

Commissioner], but such [[Principal Chief Commissioner

or] Chief Commissioner or [Principal 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 [[Principal Chief Commissioner or] Chief

Commissioner or [Principal 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 (iii):]

[Provided also that nothing contained in the second

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proviso shall apply in case of any valuable article or

thing, being stock-in-trade of the business:]

[Provided also that no authorisation shall be issued by

the Additional Director or Additional Commissioner or

Joint Director or Joint Commissioner on or after the 1st

day of October, 2009 unless he has been empowered by

the Board to do so.]

[Explanation.—For the removal of doubts, it is hereby

declared that the reason to believe, as recorded by the

income-tax authority under this sub-section, shall not be

disclosed to any person or any authority or the Appellate

Tribunal.]”

25. From a plain reading of Section 131 (1A) of the Act it is crystal

clear that the power under Section 131(1A) cannot be said to be an

independent power in itself but is the power for the purpose of

making enquiry and investigation relating to any income which has

been concealed or is likely to be concealed by any person or class of

persons, equipping him with the powers regarding discovery,

production of evidence, etc., as provided under Section 131(1) of the

Act. The expression 'before he, i.e., Authorized Officer, takes action

under clauses (i) to (v) of section 132(1) of the Act’ is material and

relevant, that is the power regarding discovery, production, etc., as

provided under Section 131(1) can be exercised by the Authorized

Officer before exercise of the power of search and seizure mentioned

in clause (i) to (v) of Section 132(1) of the Act.

26. A bare perusal of sub-section (1A) of Section 131 of the Act

mandates that notice under section 131(1A) is issued before the

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authority, takes action under clauses (i) to (v) of Section 132(1) of

the Act. Pertinent that the designation of officers for exercise of

powers are different as mentioned in Section 131 as compared to

Section 131(1A) of the Act. The designation as mentioned in Section

131 are of the Officers of Assessment Wing who makes assessment

and those mentioned in Section 131(1A) are of the Investigation

Wing who carries out search & survey and as such both the sections

operates in different fields.

27. The Madhya Pradesh High Court in the case of Arjun Singh

vs. Assistant Director of Income Tax [(2000)246 ITR 363]

while examining the provisions of Section 131(1A) and 132 held as

under:

"But, under sub-s. (1A) of s. 131 of the Act, the statutory

officer or the Director General, or Director or Deputy

Director empowered by the Board or Assistant Director or

the authorized officer referred to in sub-s. (1) of s. 132 of

the Act, before he takes action under clauses (i) to (v) of

that sub-section, if he has reason to suspect that any

income has been concealed or is likely to be concealed by

any person or class of persons within his jurisdiction, then,

for the purposes of making any enquiry or investigation

relating thereto, it shall be competent for him to exercise

the powers conferred under sub-s. (1) on the income-tax

authorities referred to in that sub-s, notwithstanding that

no proceedings with respect to such person or class of

persons are pending before him or any other income-tax

authority.

The officers, i.e., the officers mentioned in sub-s.

(1) of s. 131 are also possessed of the power of the

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civil Court regarding discovery, production of

evidence, etc., in relation to the judicial proceedings

before them in regard to the assessment and there

was no question of repetition of those Officers

performing judicial function in sub-s. (1A) of s. 131

of the Act, but the power under s. 131(1A, is

exercised notwithstanding that no proceedings with

respect to such person or class of persons are

pending before him or any other income tax

authority, for the purpose of the items enumerated in

clauses (1) to (v) mentioned therein. But under the power

of such search and seizure under s. 132 of the Act, the

concerned authority cannot exercise power as enumerated

in clauses (a), (b), (c) and (d) of s. 131(1) of the Act, on

the basis of the reasons to believe consequent upon

information in his possession in regard to the undisclosed

income or property in regard to the income or property

which is concealed or is likely to be concealed. Sub-s. (1A)

of s. 131 of the Act empowers him or makes him

competent for exercise of power, in his jurisdiction, as

conferred under sub-s. (1) of s. 131 on the authorities

mentioned under sub-s. (1) for proceeding against such

person or class of persons for making enquiry or

investigation relating to concealed income provided he has

reason to suspect."

28. The Kerala High Court in the case of Amway India

Enterprises vs. Union of India & Anr [(2003) 262 ITR 428]

while examining the provisions of Section 131(1A) of the Act in

paragraph 5 and 7 held as under:

"(5) On a reading of section 131(1A) it can be seen that

various officers referred to therein are vested with powers

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as are vested in the civil court while trying a suit in respect

of discovery and inspection, enforcing the attendance of

any person and examining him on oath, compelling the

production of books of account and other documents and

issuing summons. As per sub-section (1A) if the Director-

General or Director or Joint Director or Assistant Director or

Deputy Director or the authorized officer referred to in sub-

section (1) of section 132 before he takes action under

clauses (i) to (v) of that sub-section, has reason to

suspect that any income has been concealed by any person

or any class of persons within his jurisdiction then, for the

purpose of making any enquiry or investigation relating

thereto, it shall be competent for him to exercise the

powers conferred under sub-section (1) on the income-tax

authorities referred to in that sub-section, notwithstanding

that no proceedings with respect to such person or class of

persons are pending before him or any other income-tax

authority"

(7) Thus, before any action is proceeded to be taken

under section 132 if the officer mentioned under sub-

section (1A) of section 131 has reason to suspect that

anyincome has been concealed or likely to be concealed by

any person or class of persons then, for the purpose of

such enquiry or investigation, it will be open for him to

exercise the powers under section 131 notwithstanding

that no proceedings with respect to such person are

pending before him”.

29. The Allahabad High Court in the case of Dr. Mrs. Anita Sahai

vs. Director of Income-Tax [(2004) 266 ITR 597] while

examining the provisions of Section 131(1A) of the Act in paragraph

27 held as under:

Page No.# 20/30

“Section 131(1A) states: (1A) If the Director General or

Director or Joint Director or Assistant Director or Deputy

Director, or the authorized officer referred to in sub section

(1) of section 132 before he takes action under

clauses (i) to (v) of that sub-section, has reason to

suspect that any income has been concealed, or is likely to

be concealed, by any person or class of persons, within his

jurisdiction, then, for the purposes of making any enquiry

or investigation relating thereto, it shall be competent for

him to exercise the powers conferred under sub-section (1)

on the income-tax authorities referred to in that sub-

section, notwithstanding that no proceedings with respect

to such person or class of persons are pending before him

or any other income-tax authority."

30. In view of the above, it is absolutely clear that before making of

a search, a notice under Section 131(1A) of the Act has to be issued

and since the taxing provisions of the statutes are to be interpreted

strictly, the issuance of the notice under Section 131(1A) of the Act

in the instant case after conducting of the search is absolutely illegal

& without jurisdiction.

TAXING STATUTES ARE TO BE INTERPRETED STRICTLY:

31. It is a well settled law that taxing statutes are to be interpreted

strictly and while interpreting the taxing statue one must have

argued to the strict letter of law and not merely to the spirit of law

and one cannot be taxed by inference or by analogy. In Cape

Brandy Syndicate V. Commissioner of Inland Revenue, was

expressed thus by Rowlatt, J: [1921] 1 K.B. 64 held as under:

Page No.# 21/30

"In a taxing Act one has to look at what is clearly said.

There is no room for any intendment. There is no equity

about a tax. There is no presumption as to a tax. Nothing

is to be read in, nothing is to be implied. One can only look

fairly at the language used."

32. The Apex Court in M/s Murarilal Mahabir Prasad & Ors.

Vs. Shri B.R. Vad & Ors, reported in (1975) 2 SSC 736 has held

that the true implication of the principle that a taxing statute must

fiably extended beyond the legitimate field of its operation.

33. In M/s Murarilal Mahabir Prasad &Ors. (supra) the Apex

Court further held that if the Revenue seeking to tax cannot bring

the subject within the letter of law, the subject is free no matter that

such a construction may cause serious prejudice to the Revenue. In

other words, though what is called equitable construction may be

admissible in relation to other statutes or other provisions of a taxing

statute, such a construction is not admissible in the interpretation of

a charging or taxing provision of a taxing statute.

34. In the C.I.T., Madras V. Ajax Products Ltd reported in AIR

1965 SC 1358 it was held that the subject is not to be taxed unless

the charging provision clearly imposes the obligation.

35. In Srimati Tarulata Shyam & Ors. Vs. Commissioner of

Income-Tax, West Bengal reported in (1977) 3 SCC 305 the

Apex Court held as under:

"35. To us, there appears no justification to depart from the

normal rule of construction according to which the

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intention of the legislature is primarily to be gathered from

the words used in the statute. It will be well to recall the

words of Rowlatt, J., in Cape Brandy

Syndicate v. IRC [(1921) 1 KB 64 at p 71] at p. 71, that “in

a taxing Act one has to look merely at what is clearly said.

There is no room for any intendment. There is no equity

about a tax. There is no presumption as to a tax. Nothing

is to be read in, nothing is to be implied. One can only look

fairly at the language used”. Once it is shown that the case

of the assessee comes within the letter of the law, he must

be taxed, however great the hardship may appear to the

judicial mind to be.".

36. In M/s. Polestar Electronic (Pvt) Ltd. Vs. Additional

Commissioner, Sales Tax & Anr reported in (1978) 1 SCC 636

in paragraph 12 held as under:

"12. ……. it is well-settled rule of interpretation that in

construing a taxing statute “one must have regard to the

strict letter of the law and not merely to spirit of the

statute or the substance of the law…..”

37. The aforesaid law again reiterated in the case of H.H.

Lakshmi Bai & Anr. Vs. Commissioner of Wealth Tax & Ors,

reported in (1994) 2 SCC 534 at paragraph 10 the Apex Court held

that taxation statute in particular has to be strictly construed and

that there is no equity in a taxing provision. In Federation of A.P.

Chambers of Commerce & Industry and Ors. Vs. State of A.P.

and Ors, reported in (2000) 6 SCC 550 at paragraph 7, the Apex

Court held that it is trite law that a taxing statute has to be strictly

construed and nothing can be read into it. In Ajmera Housing

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Corporation &Anr. Vs. Commissioner of Income Tax, reported

in (2010) 8 SCC 739 at paragraph 36 it was held as under:

"36. It is trite law that a taxing statute is to be construed

strictly. In a taxing Act one has to look merely at what is

said in the relevant provision. There is no presumption as

to a tax. Nothing is to be read in, nothing is to be implied.

There is no room for any intendment”.

AMBIGUITY IN THE PROVISIONS - BENEFIT MUST GO TO THE TAX

PAYER:

38. It is a settled law that in case of an ambiguity in the taxing

provision, the benefit of the same should go to the tax payer. The

Apex Court in M/s Murarilal Mahabir Prasad &Ors. (supra) in

paragraph 28 held as under:

"28. ……... If the statute contains a lacuna or a loop-hole, it is

not the function of the court to plug it by a strained

construction in reference to the supposed intention of the

Legislature. The Legislature must then step in to resolve the

ambiguity and so long as it does not do so, the tax payer will

get the benefit of that ambiguity. But, equally, courts ought

not to be astute to hunt out ambiguities by an unnatural

construction of a taxing section……….”

39. In M/s. Polestar Electronic (Pvt) Ltd. (supra) the Apex

Court held at paragraph 12 that the words of a taxing statute must

never be stretched against a tax-payer and if the legislature has

failed to clarify its meaning by use of appropriate language, the

benefit must go to the tax- payer. The Apex Court held that even if

there is any doubt as to interpretation, it must be resolved in favor

Page No.# 24/30

of the subject.

40. In view of the aforesaid decisions of the Apex Court, it is

manifestly apparent that the taxing provisions has to be interpreted

strictly, and on the strict interpretation of Section 131(1A) of the Act,

it is clear that before making of the search, a notice under Section

131(1A) is mandatorily required to be issued. When the legislature in

clear words under Section 131(1A) of the Act has provided that

notice has to be issued under Section 131(1A) prior to making of the

search, notice under Section 131(1A) cannot be issued after

conducting of the search and thereby, the notice issued under

Section 131(1A) of the Act is illegal and without jurisdiction contrary

to the provision of the Section 131(1A) of the Act.

41. Pertinent to refer to the decision of the Privy Council in the

case of Nazir Ahmad Vs. Emperor reported in 1936 0 AIR (PC)

253; 1936 0 Supreme (SC) 2, wherein it has held that when a

power is given to do a certain thing in a certain way, the thing must

be done in that way or not at all; other methods of performance are

necessarily forbidden.

42. In the present case, the provisions of Section 131(1A) of the

Act is very clear and there is no ambiguity in the provisions of the

Act. However, even for sake of arguments, if there is an ambiguity

the benefit of the same must go the taxpayer. The legislature having

clearly laid down the manner in which the notice under Section

131(1A) is to be issued, the same has to be mandatorily followed.

Any manner other than what is provided in the aforesaid provision is

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necessarily forbidden. Therefore, it is imperative that before

conducting search under sub-clause (i) of sub-section 1 of Section

132 of the Act, a notice under sub-section 1A of Section 131 has to

be issued.

43. The submission of the respondents that Section 131(1A) of the

Act was introduced to extend similar powers to an authorized Officer

within the meaning of sub-section (1) of Section 132 before he takes

search and seizure action under clauses (i) to (v) of that sub-section

which is in conformity with the submissions advanced on behalf of

the petitioner that Section 131(1A) was introduced in the statute

empowering the Authorized Officer before he takes search and

seizure action under clauses (i) to (v) of that sub- section.

44. The decisions of the Orissa High Court in the case of Liberty

Marine Syndicate (P) Ltd. PCIT, Cuttack, [(2017) 394 ITR

277], relied by the respondent is not applicable in the present case

in as much as in the said case, a notice under Section 142(1) of the

Act was issued prior to making of the search.

45. The decision of the Madhya Pradesh High Court in the case of

Classic Builders & Developers vs. Union of India &Ors.,

[(2001) 251 ITR 0492], relied by the respondent is also not

applicable in the present case inasmuch as there was no search in

the said case and only survey was conducted under Section 133 of

the Act.

46. In the decisions of the Gujarat High Court in the case of Arti

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Gases vs. Director of Income Tax [(2001) 248 ITR 0055]

relied by the respondent, it was held that Section 131(1A) can also

be issued after completion of search under Section 132 is in the

context of that case, wherein post search, notices was issued calling

for further information to have better particulars and complete

picture about the seized materials. Decisions rendered are in the

context of a particular case. Since, the facts of the present case is

different, the aforesaid decision of the Gujarat High Court (supra)

decision is not applicable. Further, in the case of Anita Sahal

(supra), the Allahabad High Court, in the context of Summons

being issued under Section 131 (1A) of the said Act, post search and

seizure, has held that failure of reasons to suspect that any income

has been concealed or is likely to be concealed and to enquire

thereof, before taking action of conducting inter-alia, search and

seizure is illegal. The aforesaid decision of the Allahabad High Court

squarely fits in the context of the present case.

47. The decision of the Allahabad High Court relied by the

respondent in the case of Dr. Roop & Ors vs. Commissioner of

Income Tax, [(2012) 254 CTR 0014), in fact support the case of

the petitioner inasmuch as in paragraph 32 of the said judgment, it

has been clearly held that as under:

"The exercise of powers under section 131(1A) is

contemplated in a situation anterior to the exercise of

power under section 132. Before authoring an officer, the

office referred to in Section 132(1) would exercise power

under section 131(1A) of the Act. Section 131(1A) operates

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in different filed than Section 132."

48. The decision of the Gujarat High Court in the case of Nessa

Leisure Ltd. & Anr vs. Union of India &Ors, [(2011) 338 ITR

0460] relied by the respondent is not applicable in the present case

inasmuch as in the aforesaid case the notice issued under Section

131(1A) of the Act was not the subject matter of challenge in the

writ petition. The Gujarat High Court at paragraph 11, in the last

three line of the paragraph, held as under:

"As noted herein above, the notices under s. 131(1A) of

the Act are not subject-matter of Challenge in the present

petition, hence, it is not necessary to examine the validity

of such notices."

Since the notice under Section 131(1A) was not matter of challenge,

the High Court had not examined the validity of said notice and

thereby, the aforesaid decision cannot said to be have any

applicability in the present case.

49. Pertinent also to refer to the affidavit-in-opposition filed on

behalf of the respondents no.2 and 3, wherein the respondents have

stated that a search and seizure action under Section 132 of the Act

in the case of the petitioner was conducted on 04.12.2020, on the

basis of the authorization dated 02.12.2020, issued by the Principal

of Income Tax (Investigation), NAR, Guwahati (respondent no.2). In

the said affidavit, it is further stated that during the post search

investigation, Deputy Director of Income Tax (Investigation) Unit (2)

(3), Dibrugarh (respondent No.3) issued notices to the petitioner

Page No.# 28/30

under Section 131(1A). It is thus, evident that search was carried on

without issuance of notice under Section 131 (1A) merely on the

basis of the authorization dated 02.12.2020. On this score alone, the

search conducted and subsequent impugned notices are illegal and

without jurisdiction.

50. Further, in the facts of the instant case, there could not have

been any material that could be a reason to suspect that any income

has been concealed or likely to be concealed by the petitioner.

Section 131 (1A) of the Act consist of two conditions which are

required to be fulfilled before any action is taken under Section 131

(1A). Both the conditions has to co-exist before any action of search

and seizure is undertaken. These conditions are; a) Assessing Officer

has reasons to suspect any income that is concealed or likely to be

concealed and, (b)Upon existence of such reasons, issues notice for

the purpose of making enquiry or investigation relating thereto. After

fulfillment of the aforesaid two conditions, the Assessing Officer is

empowered to take action under clauses i to v of sub-section 1 of

Section 132. In other words, it is only after fulfilment of the

aforesaid two conditions the Assessing Officer can conduct a search

and seizure.

51. In the present case, the respondent has not placed any

materials whatsoever to indicate that Assessing Authority had any

materials on the basis of which he has reasons to suspect that the

petitioner has concealed or is likely to conceal any income. The

affidavit filed on behalf of the authority is absolutely silent in this

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regard. The very fact that the respondent issued notices under

Section 131 (1A) of the Act after the search and seizure operation

under Section 132 of the Act was conducted, goes to show that

there was neither any reasons to suspect nor materials before the

Authorizing Officer on the basis of which search operation could

have been conducted under Section 132 of the Act. Thus, the two

essential conditions being absent before the impugned search under

Section 132 was conducted, the same is without jurisdiction. Search

and seizure cannot be a fishing expedition. Before the search is

authorized, the authority must have reasons to believe that the

assessee has not or would not have disclosed his income. As such,

the reasons to believe must exist before the authority to take action

and not after the search is conducted. Since, in the present case,

nothing has been shown, it is assumed that there was no material

whatsoever before the Assessing Officer prior to authorizing the

search.

52. Thus, both the essential conditions have been not fulfilled in

the facts of the instant case before conducting the search and

seizure on 4.12.2020. Non fulfillment of the same has rendered the

search and seizure illegal and without jurisdiction.

53. In view of aforesaid, the subject search is absolutely illegal

inasmuch as it is contrary to the express provisions of Section

131(1A) of the Act.

54. Resultantly, issue of authorization dated 4.12.2020 and

consequence search and seizure conducted on 4.12.2020 and the

subsequent notices dated 29.12.2020, 05.01.2021, 21.01.2021 and

Order downloaded on 24-12-2024 05:32:31 PMPage No.# 30/30

28.01.2021, under Section 131(1A) of the Act are set aside and

quashed.

Accordingly, the writ petition stands disposed of.

JUDGE

Comparing Assistant