Supreme Court of India
UNION OF INDIA & ORS.versusM/S. AGARWAL IRON INDUSTRIES
- Citation
- 2014 INSC 772
- Decided
- 12 November 2014
- Disposal
- Appeal(s) allowed
- Bench
- DIPAK MISRA
Holding
A search and seizure under Section 132(1) is a valid interim measure provided the competent authority records a reasoned opinion based on material, and the High Court erred in quashing it without examining the file.
Summary
The Union of India challenged the Allahabad High Court's order quashing a search and seizure conducted under Section 132(1) of the Income Tax Act at the premises of M/s Agarwal Iron Industries. The High Court had held that the search warrant was issued mechanically without a reasonable basis. The Supreme Court examined whether the competent authority must form a reasoned opinion, based on material, before authorising a search, and whether the High Court erred in not scrutinising the reasons recorded in the confidential file. It held that Section 132(1) is an interim measure, requiring a reasonable belief, and that the High Court should have examined the file before quashing the order. Consequently, the appeals were allowed, the High Court's order set aside, and the matter remanded for fresh disposal with the revenue required to produce the file.
Issues considered
- Whether a search and seizure under Section 132(1) of the Income Tax Act can be quashed on the ground that the warrant was issued mechanically without a reasonable basis.
- Whether the High Court was obliged to examine the confidential file to ascertain if the competent authority had recorded sufficient reasons for the search.
- Whether the appointment of an Advocate Commissioner to inventory seized goods is permissible under the Act.
Legislation cited
- Income Tax Act, 1961s. 132(1)
Subjects
Search and seizureIncome Tax ActSection 132Interim measureWarrantReason to believeHigh Court reviewAdvocate CommissionerRemand
Judgment
• [2014] 11 S.C.R. 181
UNION OF INDIA & ORS. A
v.
M/S. AGARWAL IRON INDUSTRIES
(Civil Appeal No. 7499 of 2004)
NOVEMBER 12, 2014
B
[DIPAK MISRA AND UDAY UMESH LAUT, JJ.]
Income Tax Act, 1961 - s. 132(1) - Search and seizure
under - Quashed by High Courl - On appeal, held: Search
and seizure is done by way of an interim measure - The C
attic/es seized are subject matter of enquiry - High Court
wrongly quashed the search and seizure without looking into
the reasons for forming the opinion for conducting search and
seizure - Matters remanded to High Courl for disposal afresh.
D
Allowing the appeals and remanding the matters to
High Court for fresh disposal, the Court
HELD: 1. The provision contained in Section 132(1)
of the Income Tax Act enables the competent authority
to direct for issue of search and seizure on the basis of E
formation of an opinion which a reasonable and prudent
man would form for arriving at a conclusion to issue a
warrant. It is done by way of an interim measure. The
search and seizure is not confiscation. The articles that
are seized are the subject of enquiry by the competent F
authority after affording an opportunity of being heard to
the person whose custody it has been seized. The terms
used are 'reason to believe'. Whether the competent
authority had formed the opinion on the basis of any
acceptable material or not, the High Court has not even G
remotely tried to see the reasons. Reasons can be
recorded on the file and the Court can scrutinize the file
and find out whether the authority has appropriately
recorded the reasons for forming of an opinion that there
181 H
182 SUPREME COURT REPORTS [2014] 11 S.C.R.
A are reasons to believe to conduct search and seizure. As
•
is evincible, the High Court has totally misdirected itself
in quashing the search and seizure on the basis of the
principles of non-traverse. [Para 8] [189-E-G; 190-A-B]
Pooran Mal v. The Director of Inspection (Investigation),
8
New Delhi and others 1974 (2) SCR 704 =1974 (1) SCC 345
- followed.
District Registrar and Collector, Hyderabad and Another
v. Canara Bank and Others 2004 (5) Suppl. SCR 833 2005 =
c (1) sec 496 - relied on.
Commissioner of Income-Tax v. Vindhya Metal
Corporation (1997) 5 SCC 321; Dr. N.L. Tahiliani v.
Commissioner of Income Tax (1988) 170 ITR 592;
0 (Allahabad), L.R. Gupta v. Union of India v. Union of India
(1992) 194 ITR 32 (Delhi); Ajit Jain v. Union of India (2000)
242 ITR 302 (Delhi) - referred to.
2. High Court could not have appointed Advocate
Commissioner to take inventory of the goods in respect
E of which the restraint order was passed by the revenue
. under the Income Tax Act. That apart, the denial in the
counter affidavit filed by the revenue also could not have
been treated as an admission by implication to come to
a conclusion that no reason was ascribed for search and
F seizure and, therefore, action taken under Section 132 of
the Act was illegal. The relevant confidential file, if
required and necessary could have been called for and
examined. Revenue in the counter affidavit was not
required to elucidate and reproduce the information and
G details that formed the foundation. [Para 5] [186-E-G]
Case Law Reference:
(1997) s sec 321 referred to para 4
H
• UNION OF INDIA v. AGARWAL IRON INDUSTRIES
(1988) 170 ITR 592
(Allahabad)
referred to para 4
183
A
(1992) 194 ITR 32 (Delhi) referred to para 4
(2000) 242 ITR 302 (Delhi) referred to para 4
B
1974 (2) SCR 704 followed para 6
2004 (5) Suppl. SCR 833 relied on para 7
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
7499 of 2004. c
From the Judgment & Order dated 22.09.2003 of the High
Court of Judicature at Allahabad in Civil Misc. Writ Petition No.
276 of 2000.
WITH D·
C.A. No 7502 of 2004.
Guru Krishna Kumar, Madhurima Tatia, Rashmi Malhotra,
Vikas Malhotra, Anil Katiyar, B.V. Balaram Das for the
Appellants. E
Vinay Kr. Garg, Rajendra Singh, K.L. Gautam, lmran
Ahmad Abbasi, Ashok Kumar Singh for the Respondent.
The Judgment of the Court was delivered by F
DIPAK MISRA, J. 1. In these appeals the assail is to the
legal tenability of the order dated 3.9.2003 passed by the
Division Bench of the High Court of Judicature at Allahabad in
Civil Writ Petition No. 275 of 2000 whereby the High Court has
quashed the search and seizure conducted on 16.2.2000 in the G
factory premises of the 1st respondent.
'2. Filtering the unnecessary details, the facts that
constitute the filament of the controversy is that the 1st
H
A
184 SUPREME COURT REPORTS [2014] 11 S.C.R.
respondent is engaged in the manufacture of C. I. pipes, fittings
•
and manholes and has obtained the licence under the Central
Excise Act. The factory in question has been filing income-tax
returns under the Income Tax Act, 1961 (for brevity 'the Act').
On 16.2.2000 when the sole proprietor of the factory Shri Om
B Prakash Agarwal was absent, the officer of the Income Tax
Department conducted a search both at the residential as well
as the business premises. During the search of the residential
premises, son of the sole proprietor was informed· by the
Income Tax Officer that the search operations were also being
c conducted at the factory premises. Despite such information
he was not allowed to leave the house. Assailing the search
and the seizure, the 1st respondent preferred a writ petition
before the High Court and contended therein that there was no
information in possession of the officer which could have
D persuaded any reasonable person to form an opinion about the
existence of undisclosed assets of the writ-petitioner. It is further
urged that the warrant of authorization was issued mechanically,
arbitrarily and there was total non-application of mind and
moreover there was no formation of opinion about the existence
E of undisclosed assets as contemplated under Section 132(1)
of the Act. On this foundation, the search and seizure were
sought to be quashed.
3. A counter affidavit was filed by the revenue
F asseverating that there was no illegality in the initiation of the
seizure and it had been conducted in accordance with law and
the revenue had enough material against the 1st respondent
herein for the assessee had suppressed the vital information
pertaining to production and sale and the same was also
evidenced during the search operation. It was contended that
G the productions declared by the 1st respondent in the official
record was not even 1/5th of the actual production revealed by,
the seized documents.
4. It is interesting to note that the High Court by its order
H
•
• UNION OF INDIA v. AGARWAL IRON INDUSTRIES 185
[DIPAK MISRA, J.]
dated 29.3.2000 appointed an Advocate Commissioner to A
prepare an inventory of the goods in question in respect of
which the restraint order was passed. The said Advocate
Commissioner had submitted a report which was taken on
record. The High Court placed reliance on decisions in
Commissioner of Income-Tax v. Vindhya Metal B
Corporation', Dr. N.L. Tahi/iani v. Commissioneroflncome
Tax2, L.R. Gupta v. Union of India v. Union of lndia 3 and
Ajit Jain v. Union of lndia 4 and extensively quoting from Dr.
Tahiliani's case came to hold as follows:- .
c
"At this stage it is relevant to refer to Para 40 of the writ
petition, which is quoted below:
"40. That in the facts and circumstances the
Petitioner bonafidely believes that there was no
information in possession of the officer issuing the D
warrant of authorization for search which could lead
any reasonable person to form an opinion about
existence of undisclosed assets with the Petitioner.
The warrant of authorization, even if assumed that
there was any, was issued mechanically arbitrarily E
and without application of mind and without forming
the opinion about existence of undisclosed assets,
as contemplated by Sub-Section (1) of Section
132."
F
The reply of the said paragraph has been given by the
Respondents in Para 33 of the counter affidavit, which
reads as under:
"33. That in reply to· Paragraph 40 of the writ
petition, it is denied that the warrant of authorization G
1. (1997)5SCC321.
2. (1988) 170 ITR 592 (Allahabad).
3. (1992) 194 ITR 32 (Delhi).
4. (2000) 242 ITR 302 (Delhi). H
A
186 SUPREME COURT REPORTS [2014] 11 S.C.R.
was issued mechanically, arbitrarily and without
•
application of mind."
From the aforesaid reply it is clear that there is no specific
denial -of the averments made in Para 40 of the writ
petition. Order 8 Rule 5 of the Code of Civil Procedure
B
provides that every allegation of fact in the plaint if not
denied specifically or by necessary implication or stated
to be not admitted in the pleading of the defendant shall
be taken to be admitted except against the person under
disability. In view of this provision in absence of a specific
c denial in the counter affidavit to the assertions made in the
writ petition, it can safely be concluded that there is no
denial of the facts stated in the writ petition. We are aware
that the explanation to Section 141 of the Co® of Civil
Procedure provides that the provisions of Catie of Civil
D Procedure shall not be applicable to the writ petition.
However, the principles as stated in the Code of Civil
Procedure are also applicable to the writ proceedings."
5. We have no .hesitation in opining that the r~s·ons
E ascribed in the aforesaid paragraphs, leaves us-@bs~liltely
unimpressed. We really cannot comprehend how an Advocate
Commissioner was appointed to take inventory of the goods
in respect of which the restraint order was passed by the
revenue under the Act. That apart, it is difficult, to appreciate
F how the denial in the counter affidavit filed by the revenue could
be treated as an admission by implication to come to a
conclusion that no reason was ascribed for search and seizure
and, therefore, action taken under Section 132 of the Act was
illegal. The relevant confidential file, if required and necessary
G could have been called for and examined. Revenue in the
counter affidavit was not required to elucidate and reproduce
the information and details that formed the foundation.
6. In this context, we may profitably refer to the decision in
H Pooran Mal V. The Director of Inspection (Investigation),
• UNION OF INDIA v. AGARWAL IRON INDUSTRIES 187
[DIPAK MISRA, J.]
New Delhi and others', wherein the Constitution Bencfi, while A
upholding the constitutional validity of Section 132 of the Act
opined thus:
"Search and seizure are not a new weapon in the armoury
of those whose- duty it is to maintain social security in its 8
broadest sense. The process is widely recognized in all
civilized countries. Our own Criminal Law accepted its
necessity and usefulness in Sections 96 to 103 and
Section 165 of the Criminal Procedure Code. In M.P.
Sharma v. Salish Chandra6 the challenge to the power of C
issuing a search warrant under Section 96(1) as violative
of Article 19(1)(f) was repelled on the ground that a power
of search and seizure is in any system of jurisprudence an
overriding power of the State for the protection of social
security and that power is necessarily regulated by law. As
pointed out in that case a search by itself is not a restriction
D
on the right to hold and enjoy property though a seizure is
a restriction on the right of possession and enjoyment of
the property seized. That, however, is only temporary and
for the limited purpose of investigation".
E
Thereafter, proceeding with the ratiocination, the Court
ruled that the provision has inbuilt spheres. Proceeding to
enumerate the spheres and other consequent facets, the Court
ruled:
F
"In the first place, it must be noted that the power to order
search and seizure is vested in the highest officers of the
department. Secondly, the exercise of this power can only
follow a reasonable belief entertained by such officer that
any of the three conditions mentioned in Section
G
132(1)(a),(b) and (c) exists. In this connection it may be
further pointed out that under sub-rule (2) of Rule 112, the
Director of Inspection or the Commissioner, as the case
5. (1974) 1 sec 345.
6. AIR 1954 SC 300. H
A
188 · SUPREME COURT REPORTS (2014] 11 S.C.R.
may be, has to record his reasons before the authorisation
•
is issued to the officers mentioned in sub-section (1 ).
Thirdly, the authorisation for the search cannot be in favour
of any officer below the rank of an Income Tax Officer.
Fourthly, the authorisation is for specific purposes
B enumerated in (1) to (v) in sub-section (1) all of which are
strictly limited to the object of the search. Fifthly when
money, bullion, etc. is seized the Income Tax Officer is to
make a summary enquiry with a view to determine how
much of what is seized will be retained by him to cover the
c estimated tax liability and how much will have to be
returned forthwith. The object of the enquiry under sub-
section (5) is to reduce the inconvenience to the assessee
as much as possible so that within a reasonable time
what is estimated due to the Government may be retained
and what should be returned to the assessee may be
D
immediately returned to him. Even with regard to the books
of account and documents seized, their return is
guaranteed after a reasonable time. In the meantime the
person from whose custody they are seized is permitted
to make copies and take extracts. Sixthly, where money,
E bullion, etc. is seized, it can also be immediately returned
to the person concerned after he makes appropriate
provision for the payment of the 'estimated tax dues under
sub-section (5) and lastly, and this is most important, the
provisions of the Criminal Procedure Code relating to
F search and seizure apply, as far as they may be, to all
searches and seizures under Section 132. Rule 112
provides for the actual search and seizure being made
after observing normal decencies of behaviour. The
person in charge of the premises searched is immediately
G given a copy of the list of articles seized. One copy is
forwarded to the authorising officer. Provision for the safe
custody of the articles after seizure is also made in Rule
112. In our opinion, the safeguards are adequate to render
the provisions of search and seizure as less onerous and
H restrictive as is possible under the circumstances.
• UNION OF INDIA v. AGARWAL IRON INDUSTRIES
[DIPAK MISRA, J.]
7. In District Registrar and Collector, Hyderabad and
189
A
Another V. Canara Bank and Others7 , while referring to
Sectior. 132 of the Act, it has been ruled that:
"There are safeguards. Section 132 uses the words "in
consequence of information in his possession, has B
reason to believe". (emphasis supplied) Section 132(1-
A) uses the words "in consequence of information in his
possession, has reason to suspect". Section 132(13) says
that the provisions of the Code of Criminal Procedure,
relating to searches and seizure shall apply, so far as may c
be, to'searches and seizures under Sections 132(1) and
132(1-A). There are also Rules made under Section
132(14). Likewise Section 132-A(1) uses the words "in
consequence of information in his possession, has
reason to believe". (emphasis supplied) Section 133
D
which deals with the power to call for information from
banks and others uses the words "for the purposes of this
Acf' and Sectior:i 133(6) permits a requisition to be sent
to a bank or its officer".
8. The provision contained in Section 132(1) of the Act E
enables the competent authority to direct for issue of search
and seizure on the basis of formation of an opinion which a
reasonable and prudent man would form for arriving at a
conclusion to issue a warrant. It is done by way of an interim
measure. The search and seizure is not confiscation. The F
articles that are seized are the subject of enquiry by the
competent authority after affording an opportunity of being
heard to the person whose custody it has been seized. The
terms used are 'reason to believe'. Whether the competent
authority had formed the opinion on the basis of any acceptable G
material or not, as is clear as crystal, the High Court has not
even remotely tried to see the reasons. Reasons, needless to
say, can be recorded on the file and the Court can scrutinize
7. (2005) 1 sec 496. H
190 SUPREME COURT REPORTS
-
(2014] 11 S.C.R
.•
A the file and find out whether the authority has appropriately
recorded the reasons for forming of an opinion that there are
reasons to believe to conduct search and seizure. As is
evincible, the High Court has totally misdirected itself in
qu_ashing the search and seizure on the basis of the principles
B of non-traverse.
9. In our considered opinion, the High Court would have
been well a_dvised to peruse the file to see whether reasons
have been recorded or not and whether the same meet the
c requirement of law.
10. In view of our foregoing analysis, we allow the appeals,
set aside the impugned order passed by the High Court and
remand the matter to the High Court for fresh disposal in
accordance with law. The revenue shall produce the file before
D the High Court, whereafter the High Court shall proceed to
adjudicate the lis. There shall be no order as to costs.
Kalpana K. Tripathy Appeals allowed and matter
remanded back to High Court.
I .
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