C.I.T.CENTRAL JAIPUR vs. BADRI RAM

Appellant herein, inter alia, seeks quashing and setting aside of the impugned order dated 19.01.2012 passed by the learned Income Tax Appellate Tribunal, whereby the search conducted under Section 132 of the Income Tax Act, 1961, was held to be invalid on the ground of absence of requisite satisfaction for conversion of survey proceedings under Section 133A into search proceedings.

The brief facts of the case are that a search under Section 132 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act of 1961’) was conducted at the residential and business premises of the assessee and his group on 06.02.2003. The assessee, engaged in the (Uploaded on 16/10/2026 at 04:28:48 PM) (Downloaded on 28/10/2026 at 12:42:18 AM) [2026:RJ-JD:48120-DB] (2 of 10) [ITA-96/2012] transportation business, filed a return for the block period declaring undisclosed income of Rs. 26,94,040/-. The assessment was completed ex parte under Sections 158BC/144 read with Section 142(2A) of the Act of 1961 vide order dated 27.06.2005, determining the total income at Rs. 13,13,31,267/-. In the subsequent appellate proceedings, the learned ITAT, Jodhpur, vide its order dated 25.10.2007, set aside the assessment order dated 27.06.2005 passed by the Assessing Officer.

Thereafter, the assessee filed an application under Section 254(2) of the Act of 1961, seeking adjudication of the validity of the search on the premise that the proceedings initially commenced as a survey under Section 133A of the Act of 1961 had been converted into a search under Section 132 without fulfilment of the requisite conditions.

Meanwhile, the Assessing Officer completed the assessment afresh on 15.04.2009, against which the assessee preferred an appeal, resulting in partial relief being granted by the learned CIT(A) vide order dated 29.01.2010. The Revenue’s appeal against the said order remained pending before the learned ITAT.

The learned ITAT, while deciding the application under Section 254(2) of the Act of 1961 on 29.01.2009, declined to adjudicate upon the validity of the search, observing that the matter was pending before this Court in proceedings under Section 260A of the Act of 1961 and writ juri iction. This Court, vide order dated 25.07.2011 passed in DBITA No.161/2011, directed the learned ITAT to decide the issue concerning the validity of the search within six months.

Subsequently, upon an application moved by the Revenue, this Court, vide order dated 15.12.2011, extended the period for deciding the matter by a further six months, up to 14.06.2012, while the (Uploaded on 16/10/2026 at 04:28:48 PM) (Downloaded on 28/10/2026 at 12:42:18 AM) [2026:RJ-JD:48120-DB] (3 of 10) [ITA-96/2012] Revenue also challenged the order dated 25.07.2011 before the Hon’ble Supreme Court.

As it turned out, the learned ITAT vide an order dated 19.01.2012 held the search action to be invalid.

The Revenue has challenged the aforesaid order vide instant appeal, contending that the learned ITAT had proceeded to decide the matter despite the extension of time granted by this Court and the pending proceedings before the Hon’ble Supreme Court.

Mr. K.K. Bissa, learned counsel for the appellant argues that the learned ITAT has erred in holding the search conducted under Section 132 of the Income Tax Act, 1961, to be invalid, without appreciating the material available on record in its proper perspective. It is submitted that the survey proceedings initiated under Section 133A were converted into search proceedings after incriminating documents and books of account were found and the survey team was subjected to violence and obstruction at the premises of the Transport Union at Kharia Khangar, resulting in the destruction of incriminating material. The competent authority, upon considering the reports received and the prevailing circumstances, recorded its satisfaction and issued the requisite warrants of authorisation. The learned ITAT failed to appreciate that the apprehension of similar resistance and destruction of evidence at other premises justified the action taken by the Department.

He further submits that the learned ITAT erroneously concluded that there was no independent application of mind by the competent authority, despite the information regarding incriminating documents and possible tax evasion having been placed before the authorising authority. It is contended that the Tribunal exceeded its juri iction by (Uploaded on 16/10/2026 at 04:28:48 PM) (Downloaded on 28/10/2026 at 12:42:18 AM) [2026:RJ-JD:48120-DB] (4 of 10) [ITA-96/2012] examining the sufficiency of the reasons for authorising the search, whereas the relevant consideration was whether material existed having a rational nexus with the formation of the requisite belief. The mere fact that the search did not result in the seizure of further incriminating material could not invalidate the authorisation. In support of these submissions, learned counsel relies upon the judicial precedents cited in the grounds of appeal and contends that the impugned order is contrary to the settled principles of law.

He also submits that the learned ITAT proceeded to hear the matter on 13.12.2011 and pronounced its order on 19.01.2012, despite the extension granted by this Court permitting the matter to be decided by 14.06.2012 and the Revenue's request to defer the proceedings in view of the challenge pending before the Hon’ble Supreme Court. It is contended that the Tribunal failed to properly appreciate the circumstances surrounding the authorisation of the search and the applicable legal principles. Accordingly, the following substantial questions of law arise for consideration: whether the learned ITAT was justified in holding the search under Section 132 of the Act of 1961 to be invalid for want of proper satisfaction; whether it could examine the sufficiency of the grounds forming the basis of the competent authority’s satisfaction; and whether it was justified in deciding the matter in the aforesaid circumstances despite the extension of time granted by this Court and the Revenue’s request for adjournment.

Per contra, Mr. Pranjul Mehta, learned counsel for the respondent opposes the submissions advanced by the appellant and submits that the learned ITAT has rightly held the search to be invalid in the absence of requisite satisfaction and compliance with the mandatory conditions prescribed under Section 132 of the Income Tax Act, 1961. (Uploaded on 16/10/2026 at 04:28:48 PM) (Downloaded on 28/10/2026 at 12:42:18 AM) [2026:RJ-JD:48120-DB] (5 of 10) [ITA-96/2012]

In the aforesaid backdrop, we have heard the rival contentions.

Appeal was admitted vide order dated 06.01.2015 while framing the question of law. Said order is reproduced herein below:- "The argument advanced by learned counsel for the appellant-Revenue is that the Income Tax Appellate Tribunal while arriving at the conclusion that the condition precedents to invoke the powers under Section 132 of the Income Tax Act, 1961 were not properly and adequately adhered by the survey team is erroneous as a satisfactory note was drawn by the officer competent. It is asserted that at at the time of survey the circumstances existing demanded for having a search instead of survey and a necessary note in this regard was drawn. Having considered all facts of the case, we are of, the opinion that this appeal involves a substantial question of law in the terms that:- "Whether the Income Tax Appellate Tribunal is right in arriving at the conclusion that the process of survey was converted into search without adhering the necessary condition precedents to do so?" Admit. Issue notice."

The revenue is in appeal assailing an order dated 19.01.2012 passed by the learned Income Tax Appellate Tribunal whereby the issue as to whether a survey which was being conducted under Section 133A of IT Act, 1961 against the petitioner could have been converted into a search under Section 132 of the Act, ibid, was decided against the revenue based on the appreciation of the material that was placed on record.

In course of doing so, the learned ITAT also threadbare perused and discussed the satisfaction note of the Additional CIT apart from the supporting material which was relied upon by the revenue.

For ready reference, the relevant extract of the impugned order dated 19.01.2012 passed by the learned ITAT is reproduced herein below:- "

It is true that law does not require the authority in authorizing the survey u/s 133A but it is useful to the revenue because authority authorizing the survey is different from the authority which actually conducts survey and the survey team is apprised of the tax evasion. The issue of authorizing survey was discussed with the Senior Officers and perhaps a decision was taken to go for survey u/s 133A. Normally if a case is fit for search then survey is not conducted because survey can be restricted to premises from where business is carried and in case books of (Uploaded on 16/10/2026 at 04:28:48 PM) (Downloaded on 28/10/2026 at 12:42:18 AM) [2026:RJ-JD:48120-DB] (6 of 10) [ITA-96/2012] account and document or cash or stock are available at any other premises then survey can be authorized for such premises.

We have persued the copy of satisfaction note placed before us by the revenue, Satisfaction note has been prepare after the officials of the department were stoned and incriminating documents were snatched at Kharia Khangar. Addl. CIT put up a note that surveys proceedings should be converted to search proceedings. The Ld. CIT has also referred to the reported information that there are incriminating papers and valuables in the residences. It is also mentioned in the satisfaction note that officer mentioned above (it refers to Addl. CIT) consider it a fit case for action u/s 132 (1) of 1.T. Act.

It is true that revenue has contended before us that Tribunal has no power to decide the issue of validity of search. Certain decisions have been cited. However, in the instant case, the Hon'ble juri ictional High Court has directed to decide the issue of validity of search.

Another argument is that the validity of search should be limited to the extent that the authority concerned has recorded the reasons before authorizing the search. Sufficiency of reasons can not be looked. Reference is made to the decision of Hon'ble Apex Court in the case of Dr. Pratap Singh & Anr V Director of enforcement. 155 ITR 166. x-x-x-x

So far as the assessee is concerned we feel that requirements of clauses (a), (b) &(c) are not satisfied as per the materials mentioned in the satisfaction note for authorizing the search at the-residential and business premises. Had there been material during the course of survey at the residence of assessee or at the premises owned by business concerns of assessee suggesting of tax evasion and reported to the authority authorized to issue search warrant then there would have been nexus to the authorization of search and material. 35(i). We further noted that there has been no independent application of mind. No reason has been assigned as to why the survey operation would not serve the purpose and the same was required to be converted into search and seizure. No reason to believe has been recorded that if the assessee is called upon to produce any document relevant to the proceedings, the same could not be complied with. Such finding was required to be arrived at. Nothing has been indicated as to which sub- clause of Section 132 would be attracted in the matter. Though it was contended on behalf of the Department that there are various places of the assessee and there is every likelihood that some hidden money has been concealed by the Rassessee, however, we found that whatever inventory was prepared by the survey party, thereafter nothing has been found or noticed by the Department. Therefore, it suggests that there was no application of independent mind that warranted conversion from survey to search. This our view is fortified by the decision of Hon'ble Delhi High Court in the case of Dr.Nalini Mahajan Vs. Director of Income tax (Investigation) 257 ITR 123. For the sake of clarity and brevity we have noticed that there is no material as per inventory to suggest any item found during search and not inventorised during survey as per the copy, which is placed on record at pages 958 to 961 of paper book Vol.

Therefore, we hold that there was no material before the Department to convert the survey into search. We are not reproducing the contents of the satisfaction note so that secrecy of the Department may not be disclosed. However, as stated above, there is nothing in the satisfaction note which shows that there was a necessity to convert the survey into search and seizure. x-x-x-x

After taking into consideration the submissions of the id. AR and the submissions of the Id. DR which are reproduced somewhere above in this order and taking into consideration the satisfaction note, we hold that search in this case was not valid as there was no proper satisfaction to convert the survey into search. (Uploaded on 16/10/2026 at 04:28:48 PM) (Downloaded on 28/10/2026 at 12:42:18 AM) [2026:RJ-JD:48120-DB] (7 of 10) [ITA-96/2012]

On the issue of considering as to whether documents found during survey can be onsidered for block assessment as per additional ground of appeal; the matter was decided by Tribunal vide order dt. 19.9.2008. We cannot review the order vide which additional ground of appeal was dismissed as the block assessment order was set aside.

On merits of addition, the matter is pending before Tribunal as the A.O. has passed order after the assessment was setaside. That appeal is to be decided separately.

We hold that the search in the case of assessee was not valid and ground of appeal No.1(a) stands decided in favour of assessee.

Having perused the order passed by the learned ITAT, we are of the view that the question that was framed by this Court while admitting the appeal is in fact based materially on factual inputs noted in the impugned order and we are of the view that no violation of any mandatory condition precedent in passing of the order under challenge before us is borne out in the absence of any demonstrated perversity or legal mi irection in the Tribunal’s findings.

We find that the controversy essentially concerns the inference drawn by the learned Tribunal from the satisfaction note and the material relied upon in support of the authorisation of search. The scope of interference under Section 260A of the Act is confined to a substantial question of law. A finding resting upon appreciation of the material on record does not become amenable to interference merely because another inference is possible or because the Revenue considers its own appreciation of that material to be preferable. Interference would, however, be warranted where the finding is perverse, rests on no evidence, proceeds upon a misreading or exclusion of material evidence, or results from application of an erroneous legal test.

The distinction material to the present controversy is between the existence and relevance of information necessary for formation of the belief contemplated by Section 132(1), on the one hand, and the sufficiency or adequacy of such information, on the other. While the latter cannot be reassessed by substituting an appellate view for that of (Uploaded on 16/10/2026 at 04:28:48 PM) (Downloaded on 28/10/2026 at 12:42:18 AM) [2026:RJ-JD:48120-DB] (8 of 10) [ITA-96/2012] the authorising authority, the former remains open to examination. The mere preparation of a satisfaction note does not, by itself, conclude the enquiry; the information referred to therein must bear a rational connection with the statutory belief. Equally, the enquiry cannot assume the character of an appeal over the weight or persuasive value of the information before the competent authority.

In the present case, the learned Tribunal did not proceed merely on the premise that a survey could not be followed by a search. It examined the satisfaction note produced by the Department, the circumstances relied upon for issuing the authorisation, and the supporting material. Its principal finding was that the material referred to in the note did not establish the requisite nexus with the eventualities contemplated by Section 132(1), and that the necessary independent application of mind by the competent authority was not disclosed. The Revenue’s submissions principally seek a different inference from the same material. No specific material has been shown to us which was overlooked or misread by the Tribunal and which renders its principal finding untenable; nor has it been demonstrated that the Tribunal’s conclusion, so understood, rests merely upon a reassessment of the sufficiency of otherwise relevant information.

The reported obstruction of the survey proceedings and destruction or snatching of documents at Kharia Khangar were undoubtedly circumstances requiring consideration. Nevertheless, the existence of those circumstances and the existence of the statutory grounds for authorising a search are distinct enquiries. The material had to disclose a rational connection between the reported occurrence and the belief required under Section 132(1) in relation to the assessee and the premises covered by the authorisation. The Tribunal considered the (Uploaded on 16/10/2026 at 04:28:48 PM) (Downloaded on 28/10/2026 at 12:42:18 AM) [2026:RJ-JD:48120-DB] (9 of 10) [ITA-96/2012] incident and the Department’s contention concerning the likelihood of similar obstruction at other premises, but found the requisite connection wanting. Unless that finding is shown to suffer from perversity or legal mi irection, disagreement with the inference drawn does not furnish a substantial question of law.

We also clarify that the validity of an authorisation must be examined with reference to the information available and the belief formed when the authorisation was issued. Consequently, the circumstance that the subsequent search yielded no additional incriminating material cannot, by itself, establish that the authorisation was invalid. We do not, therefore, rest our conclusion upon that circumstance or endorse any suggestion that the validity of a search depends upon its eventual outcome. The decisive consideration is the Tribunal’s finding concerning the absence of the requisite statutory nexus in the material supporting the authorisation.

The formulation of a substantial question of law at the stage of admission does not preclude examination, at the final hearing, of whether the case in fact involves such a question. Section 260A(4) expressly permits the respondent to contend that the case does not involve the question formulated. Upon consideration of the submissions advanced and the findings recorded by the Tribunal, we are not persuaded that the Revenue has demonstrated any perversity, application of an erroneous legal standard, or other substantial error of law warranting interference. The question framed at admission, insofar as it seeks reconsideration of the factual inference drawn from the satisfaction note and supporting material, therefore affords no ground for allowing the appeal. (Uploaded on 16/10/2026 at 04:28:48 PM) (Downloaded on 28/10/2026 at 12:42:18 AM) [2026:RJ-JD:48120-DB] (10 of 10) [ITA-96/2012]

Accordingly, the question framed at the stage of admission is answered against the Revenue in the terms discussed above. No other substantial question of law warranting interference has been demonstrated. The appeal is, therefore, dismissed.

All pending applications also stand disposed of. (YOGENDRA KUMAR PUROHIT),J (ARUN MONGA),J 58-59/KP Singh Dewasi Powered by TCPDF (www.tcpdf.org) (Uploaded on 16/10/2026 at 04:28:48 PM) (Downloaded on 28/10/2026 at 12:42:18 AM)