Search U/s 132 Is Invalid If Material Considered For Authorizing Search Is Irrelevant And Unrelated: Bombay High Court

Finding that the reasons forming part of the satisfaction note must satisfy the judicial conscience, the Division Bench comprising Justice K. R. Shriram and Justice Dr. Neela Gokhale observed that “the note also does not contain anything altogether regarding any reason to believe, on account of which, there is total non-compliance with the requirements as contemplated by Section 132(1) of the said Act which vitiates the search and seizure. It does not fulfil the jurisdictional pre-conditions specified in Section 132 of the Act”.

As per the brief facts of the case, the Assessee was a leading manufacturer of forging and engineering products required in the automobile industry. A search was conducted at the business premises as well as at residential premises of Assessees pursuant to an authorization dated 7th July, 2008 issued u/s 132(1) of the Act. The Authorized officers entered into various premises and conducted the search. However, it was Assessee's case that search was conducted in their premises without any warrant of authorisation being issued. The Assessees stated that by the initiation of search proceedings and also the manner in which the proceedings were conducted, they are apprehensive that respondents will, without jurisdiction or authority of law, proceed against assessees to make assessments and/or reassessments of past six assessment years raise huge demands by way of tax, interest and penalties, which will cause hardship and prejudice. Hence, it is Assessee's case that authorisations dated 7th July, 2008 issued against them are unconstitutional, ultra vires, invalid, without jurisdiction, etc., and are liable to be quashed and set aside.

The Bench observed that the reasons recorded in the file are extremely general in nature (not disclosed) and the satisfaction note does not indicate at all the process of formation of reasonable belief.

The Bench although accepted the contentions of the Revenue for not disclosing the material or make available the copies of material leading to search relying on the Apex Court judgment in case of Principal Director of Income - tax (Investigation) Vs. Laljibhai Kanjibhai Mandalia [(2022) 140 taxmann.com 282(SC)], wherein it was held that “copy of the material leading to the search should not be made available to assessee”.

While expounding on when the authorities can authorize the search and seizure action, consequent to a 'reason to believe', the High Court concluded the search authorization to be invalid, quashing all consequential actions and notices.

However, the High Court allowed the Revenue to utilise the information/ material gathered during the search for making adjustment to the Assessee's income in an appropriate proceeding, as permissible in law.

Case Title: Echjay Industries Pvt Ltd Vs Union of India

Case Number: W.P No. 122 of 2009

Counsel for Taxpayer: Nitesh Joshi

Counsel for Department: N. Venkatraman

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