ADARSH CREDIT CO-OPERATIVE SOCIETY LIMITED vs. JOINT DIRECTOR OF INCOME TAX(INV.)

By   way   of   present   petition   under   Article   226   of   the Constitution   of   India,   the   petitioner   through   his   authorized signatory  Shri Rahul Modi  has prayed for  an appropriate   writ, direction and order to quash and set aside the search and seizer conducted   by   the   respondent   authorities   from   14.06.2018   to 19.06.2018   at   the   registered  office   and  corporate   office   of   the petitioner society at Ahmedabad. It is also further prayed to direct respondents to return the original seized items from the petitioner society. It is also further prayed to quash and set aside the order dated 19.06.2018 passed by the respondent no.4 under Section 133A(3)(ia) of the Income Tax Act.

It is the case on behalf of the petitioner ­ Adarsh  Credit Cooperative Society Limited is a Multi­ State Cooperative Society registered under the Multi State Cooperative Societies Act, 2002 and is having its corporate office at Ahmedabad. That according to the petitioner, the petitioner society is one of the largest Multi State Co­operative   Societies   in   the   field   of   the   Credit.   That   earlier registered office of the petitioner society was at Palace Road, Sirohi at Rajasthan and thereafter it came to be changed to Ahmedabad. According to the petitioner, as per the last audit balance sheet profit   of   the   petitioner   society   was   Rs.481.28   crores.   That   the respondent no.1 issued warrant of authorization under Section 132 of the Income Tax Act. That the respondent no.4 passed an order under Section 133A(3)(ia) of the Act, by which, the documents as well as electronic media in the form of hard disk/CD/ Pen Drive etc.   seized  during   the   course   of   survey   proceedings   have   been ordered to be impounded. Hence, the petitioner has preferred the present   Special   Civil   Application   under   Article   226   of   the Constitution of India. 3. 0. It is the case on behalf of the petitioner that on 14.06.2018, the respondent no.1 issued warrant of authorization under Section 132 of the Act, pursuant to which, search took place from the 14.06.2018 to 19.06.2018. It is the case on behalf of the petitioner that   the   impugned   search   and   seizer   is   arbitrary,   illegal   and violative of fundamental rights of the petitioner.

Shri Kamal Trivedi, learned counsel for the petitioner has vehemently submitted that as such there is no reasons whatsoever to conduct search and seizer. It is submitted that in the year 2010 on the similar allegation earlier the search and seizer took place, however, thereafter nothing illegal was found against the petitioner and   thereafter   the   assessment   proceedings   were   culminated   in favour of the petitioner. It is submitted that therefore, now again to conduct   search   and   seizer   on   the   similar   set   of   facts   and circumstances be violating the fundamental rights of the petitioner and   same   shall   be   undue   harassment   to   the   petitioner.   It   is submitted that therefore, again and again the petitioner society is not required to face the music.

It is further submitted by Shri Kamal Trivedi, learned counsel for   the   petitioner   that   the   petitioner   society   is   carrying   on   its activity and / or permitted to carry on its activities in view of the order   passed   by   the   Hon'ble   Supreme   Court   against   the   order passed by the Rajasthan High Court order dated 14.5.2015 in DB Civil Writ (PIL) No. 26 of 2013. It is submitted that the petitioner society is  running its  affairs  absolutely  in consonance  with the provisions of the Act and its all activities are legal and permitted under law.

It is further submitted by Shri Kamal Trivedi, learned counsel for the petitioner that assuming that the petitioner may not be entitled   to   reasons   recorded   while   arriving   at   a   subjective satisfaction of the appropriate authority, the petitioner is required to share information on the basis of subjective satisfaction is arrived at.

It is further submitted by Shri Kamal Trivedi, learned counsel for   the   petitioner   that   even   the   petitioner   is   not   returned   the documents impounded and / or seized during the search and due to which, members of the society are suffering and are subjected to harassment. It is further submitted that even the petitioner society is   permitted   to   get   xerox   copies   of   the   document   seized   / impounded, however the same is with such slow speed, it will take number of months. Making above submissions and relying upon the following decisions of the Hon'ble Supreme Court as well as Allahabad High she has heavily relied upon the recent decision  of  the Hon'ble satisfaction note / formation of the belief. the petitioner is not returned the document seized / impounded and / or that the petitioner is permitted to get xerox copy of the relevant document seized / impounded in a very slow speed is concerned, it is submitted that as far as possible authorities are trying their best to give the xerox copy.

Relying upon the affidavit in reply, it is submitted that in view of the information coming to the possession of the Principal DIT   (Investigation),   Rajasthan   and   the   said   respondent   in consequence of such information, has arrived at a reason to believe that ingredients under Section 132 are fulfilled. 5. 2. It is further submitted by Ms. Bhatt, learned counsel for the revenue that pursuant to the satisfaction arrived at by the Principal Director of Income Tax (Investigation), Jaipur authorizations were issued under Section 132 to search the the registered office as well as the corporate office of the petitioner. It is submitted that search team visited corporate office with the warrant at the given address which was informed that the petitioner has shifted its corporate office to some other place therefore, in continuation of the earlier satisfaction   recorded   and   authorization   issued,   consequential authorization was issued by the respondent no.1­ Joint Director of Income Tax (Investigation), Udaipur. It is submitted by Ms. Bhatt, learned counsel for the revenue that a specific information has been   received   as   to   how   the   petitioner   has   been   indulging   in rotating   money   in   a   very   unspecified   manner   to   various unorganized business groups. It is submitted that information was received that promoters of the petitioner society have siphoned off around 1650 crores and transferred the said amount to about 40 companies which are mostly non operational and allegedly having their   address   at   a   single   place   of   business   of   Gurgaon.   It   is submitted that information was also received that the petitioner though   claiming   to   be   a   cooperative   society   has   not   been functioning on the lines of a cooperative society but as a family concern of Shri Rahul Modi or Shri Mukesh Modi. It is submitted that in this process, the petitioner has been evading payment of taxes by claiming substantial deductions under the provisions of Section 80 P of the Act. It is submitted that therefore, after satisfied and  reasons   to   believe   the   authorization   has   been   issued  after recording reasons in the satisfaction note. Making above submissions and relying upon above decisions, it is requested to dismiss the present petition.

Heard  the   learned  advocates   for   the   respective   parties   at length. At the outset, it is required to be noted that the petitioner has challenged the authorization and impugned search and seizer proceedings   under   Section   132   of   the   Income   Tax   Act   on   the ground stated herein above.

The main contention on behalf of the petitioner is that the impugned authorization and search and seizer proceedings is illegal and violative of fundamental rights of the petitioner and that it is nothing but to point out that even in the year 2010 on the same ground and facts and circumstances search and seizer proceedings have been initiated and nothing illegal was found thereafter and a clean chit was given. It is also the case on behalf of the petitioner that petitioner has not been disclosed / shared the information received by the appropriate authority.

2 While considering the aforesaid, the observation made by the Hon'ble   Supreme   Court   in   the   case   of     Spacewood   Furnishers Private Limited and Ors (supra)  and in the case of  N.K. Jewellers and Another (supra) are required to be referred to and considered. In   the   case   of   Spacewood   Furnishers   Private   Limited   and   Ors (supra)  while considering the very provision of Section 132 of the Income Tax Act and challenged to the warrant of authorization for search   and   seizer,   the   Hon'ble   Supreme   Court   in   para   8   has observed and held as under: 8. The principles that can be deduced from the aforesaid decisions of this Court which continue to hold the field without any departure may be summarized as follows : 8.1.The authority must have information in its possession on the basis of which a reasonable belief can be founded that­ (a)the concerned person has omitted or failed to produce books of account or  other documents for production  of which summons or notice had been issued OR such person will not produce such books of account or other documents even if summons or notice is issued to him. OR such   person   is   in   possession   of   any   money,   bullion, jewellery or other valuable article which represents either wholly or partly income or property which has not been or would not be disclosed.

Such   information   must   be   in   possession   of   the authorized official before the opinion is formed.

There must be application of mind to the material and the formation of opinion must be honest and bonafide. Consideration of any extraneous or irrelevant material will vitiate the belief/satisfaction.

Though Rule 112(2) of the Income Tax Rules which specifically prescribed the necessity of recording of reasons before   issuing   a   warrant   of   authorization   had   been repealed on and from 1st October, 1975 the reasons for the belief found should be recorded.

The reasons, however, need not be communicated to the person against whom the warrant is issued at that stage.

Such reasons, however, may have to be placed before the Court in the event of a challenge to formation of the belief of the authorized official in which event the court (exercising jurisdiction under Article 226) would be entitled to examine the relevance of the reasons for the formation of the belief though not the sufficiency or adequacy thereof.

3 In the recent decision in the case of of N.K. Jewellers and Another   (supra),   the   Hon'ble   Supreme   Court   in   para   7   while confirming   the   authorization   and   not   accepted   the   similar submission that the search person has not been given reasons, the Hon'ble Supreme Court has observed as under: Further, we find that in view of the amendment made in Section 132A of the Income Tax Act, 1961 by Finance Act of 2017, the 'reason to believe' or 'reason to suspect', as the case may be, shall not be disclosed to any person or any authority or   the   Appellate   Tribunal   as   recorded   by   Income   Tax Authority under Section 132 or Section 132A. We, therefore, cannot go into that question at all. Even otherwise, we find that the explanation given by the appellant regarding the amount of cash of Rs.30 lacs found by the GRP and seized by the authorities has been disbelieved and has been treated as income not recorded in the Books of Account maintained by it.

Even   considering   the   explanation   to   Section   132   of   the Income Tax Act inserted by Finance Act, 2017 the search person shall not be entitled to the reason to believe. If that be so, there is no question even sharing any information to the petitioner. Now, so far as reliance placed upon the decision of the Allahabad High Court referred to herein above, by the learned counsel for the petitioner is concerned, same shall not be applicable to the facts of the case on hand.

Original note sheet / satisfaction note leading to issuance of authorization over the search has been placed for our perusal. We find   that   the   satisfaction   note   was   recorded   by   the   Principal Director of Income Tax (Investigation), Rajasthan. The same was placed before the Director of Joint Income Tax Office, Rajasthan and   thereafter   before   Deputy   Director   of   Income   Tax (Investigation) I, Udaipur.   A detailed satisfaction note has been prepared on the basis of having information received. A detailed notes was made and recorded his satisfaction that he had reason to believe that the requirements of Section 132(1)(c) are satisfied. The appropriate authority, therefore, proposed to issue warrant of authorization under sub­section (1) of Section 132.

We have perused the satisfaction note. We have also perused further note recorded by the Higher Income Tax Authority, more particularly, conclusion in para 6. It is recorded that in view of the above outcomes of discreet verifications and modus operandi of the group   involves  in   siphoning  of   funds   from  society   to  the   shell companies   by   way   of   advancing   loans   without   any   equivalent collateral securities, the allegation of huge tax evasion by the group has been substantiated. It is recorded that incriminating documents / books of accounts evidencing such huge tax evasion are likely to be   found   in   possession   of   various   entities   of   the   group   of companies. The authorization is based on the definite information and   after   discreet   verifications,   it   can   be   termed   adequately sufficient for the purpose of satisfying the statutory requirement. Since the proceedings consequent to search and seizer operations are going on, at this stage, it would not be appropriate on our part to divulge in detail about the satisfaction note. Suffice it to record, in   our   opinion,   there   were   sufficient   grounds   enabling   the authorities  to hold belief that case of the petitioner is covered under sub­clause (c)of sub­section(1) of Section 132 which permits the authorizing officer to issue authorization of search if he has reason to believe. 7. 2. We further find that satisfaction note place by the Principal Director   of   Income   Tax   (Investigation),   Rajasthan   was   placed before the Director of Joint Income Tax Office, Rajasthan who has considered     and   scrutinized   satisfaction   minutely.   All   the authorities   offered   their   own   comments   and   thereafter authorization be issued. We find that necessary care has been taken and   the   case   properly   scrutinized   before   issuance   of   the authorization.  It is not a case of either hurriedly or perfunctorily issuing   search   authorization.   Therefore,   in   the   facts   and circumstances of the case, we see no reason to interfere with the impugned   authorization   /   search   and   seizer   proceedings   under Section 132 of the Act as well as impounding document etc. under Section 133 A(3)(ia) of the Act.

The   impugned   order   dated   19.06.2018   passed   by   the respondent no.4 under Section 133 A(3)(ia)  of the Act  is also absolutely in consonance with the provisions of Section 133A(3) (ia)   of   the   Act.   Now,   so   far   as   submission   on   behalf   of   the petitioner that  respondent authorities are permitting the petitioner to get xerox copy of the impounded document in a slow speed is concerned, as such aforesaid cannot be a ground to challenge the authorization   under   Section   132   of   the   Act.   Looking   to   the voluminous record and the materials, the Court cannot, without any   material   before   the   Court   with   respect   to   the   available resources can fix any time limit to provide xerox copy.

Now, so far as submission on behalf of the petitioner that earlier in the year 2010 on similar allegations the search and seizer had   taken   place,   however   thereafter   clean   chit   was   given,   the department   held   in   favour   of   the   petitioner   and   therefore, impugned search and seizer is not warranted and therefore, same is required to be quashed and set aside is concerned, the aforesaid has   no   substance.   Merely   because,   in   the   past   for   earlier transaction, the department might have given clean chit,   there does not mean that on fresh cause of action and / or fresh material and / or evidence, search and seizer cannot be undertaken. In the facts and circumstances of the case and as observed herein above, as   such   on   facts   and   considering   the   satisfaction   note,   the impugned search and seizer is absolutely just and proper and after recording the reasons and reason to believe.

In view  of   the  above  and for  the  reasons  stated above, present petition fails and same deserves to be dismissed and is