M.S. Associates Vs. Union of India (Uoi) and ors. - Court Judgment

Excerpt:
- - the business premises of the petitioner firm as well as the residential and official premises of the persons associated with the firm were searched on june 17/23, 1999 and on october 29, 1999, in pursuance of the warrants of authorisation issued under section 132 of the act, and a large amount of cash, jewellery, investment certificates, fixed deposit receipts and other documents including books of account were seized. 1552 of 2000. according to the writ petitioner, the search and seizure conducted in his premises as well as that of his employer, m/s. it is further averred that the director of income-tax (investigation) after going through the complete details of the case was satisfied that m/s. the warrants of authorisation having been issued in violation of the provisions of..... d. biswas, j.1. the above mentioned writ petitions have been filed before this court by the writ petitioners disputing the legality and validity of the search and seizure operations carried out, by the respondent authorities on different dates. the writ petitions pose common questions of law on identical facts and, therefore, are being disposed of by this common judgment.2. mr. s.s. ray, learned senior counsel appeared for the writ petitioners in w. p. (c) nos. 1552 of 2000, 137 of 2000, 6965 of 2000, 7008 of 2000, 2889 of 2001, 2890 of 2001, 8647 of 2001 and 8648 of 2001 along with mr. k.n. choudhury, learned senior counsel and assisted by mr. s. shyam, learned counsel, mr. p. upadhaya, learned counsel appeared for the petitioner in w. p. (c). no. 3729 of 2001. the respondent.....

Judgment:

D. Biswas, J.

1. The above mentioned writ petitions have been filed before this court by the writ petitioners disputing the legality and validity of the search and seizure operations carried out, by the respondent authorities on different dates. The writ petitions pose common questions of law on identical facts and, therefore, are being disposed of by this common judgment.

2. Mr. S.S. Ray, learned senior counsel appeared for the writ petitioners in W. P. (C) Nos. 1552 of 2000, 137 of 2000, 6965 of 2000, 7008 of 2000, 2889 of 2001, 2890 of 2001, 8647 of 2001 and 8648 of 2001 along with Mr. K.N. Choudhury, learned senior counsel and assisted by Mr. S. Shyam, learned counsel, Mr. P. Upadhaya, learned counsel appeared for the petitioner in W. P. (C). No. 3729 of 2001. The respondent authorities have been represented by Shri R.P. Agarwal, learned senior counsel assisted by Mr. U. Bhuyan, learned counsel.

3. At the very outset, for convenience, the facts in each case and the stand of the Revenue are proposed to be reflected in brief.

Facts in W. P. (C) No. 1552 of 2000:

4. The petitioner, M/s. M. S. Associates, is a partnership firm duly registered under the provisions of the Indian Partnership Act, 1932. Smt. Jyoti Limbu and Smt. Tilmaya Chong are the two partners of the firm having its registered office at Connaught Place, New Delhi, and branch office at GNG Road, Silpukhuri, Guwahatu. The petitioner-firm is engaged in the business of selling of State organised lottery tickets of various States, namely--Assam, Manipur and Meghalaya. The firm's responsibilities are limited to the extent of assisting the State Government to sell lottery tickets. The petitioner firm has been regularly filing income-tax returns before the income-tax authorities which were finalised after scrutiny. The business premises of the petitioner firm as well as the residential and official premises of the persons associated with the firm were searched on June 17/23, 1999 and on October 29, 1999, in pursuance of the warrants of authorisation issued under Section 132 of the Act, and a large amount of cash, jewellery, investment certificates, fixed deposit receipts and other documents including books of account were seized. The search was carried out in the office premises of the petitioner at Guwahati, Tinsukia and other places. Though the warrants were issued in the name of Mr. M.K. Subba, Mr. A.K. Subba and Mr. S.R. Subba, the search was in reality carried out against the petitioner firm. The warrants of authorisation were issued in violation of the provisions of Section 132 by respondents Nos. 2, 3 and 5 without any authority of law on the basis of various news items published in newspapers based on the draft and unsigned report of the Comptroller and Auditor General of India, hereinafter referred to as the 'CAG'. The report of the CAG was in the draft form and did not acquire any legal status. Therefore, it could not be treated as information within the meaning of Sub-section (1) of Section 132. That apart, the Nagaland State Assembly referred the report to the Public Accounts Committee, and the said Committee submitted its recommendations to the Legislative Assembly. The Public Accounts Committee did not recommend any action, against the petitioner firm. The petitioner firm is assessed to tax at New Delhi and respondent No. 5 based at Guwahati without any authority of law issued the warrants of authorisation. The satisfaction for search and seizure in respect of the petitioner firm was that of the Director, Income-tax (Investigation), New Delhi. It is further averred that the CAG carried out an audit pursuant to a complaint filed by one Mr. Munkala Kishna Rao, a business rival of the petitioner firm. The report of the CAG contains sweeping adverse remarks against the petitioner firm indicating that the firm was involved in some sort of scam with the Directorate of Lotteries. The search and seizure were carried out during the period when the matter was pending before the State Legislature. The respondent authorities also initiated proceedings under Section 158BB of the Act. Hence, it has been prayed that the search and seizure conducted in the office premises of the petitioner firm at Tinsukia, Guwahati and other places on June 23, 1999, be declared illegal, unconstitutional and void ab initio, and for further directions to the income-tax authorities not to take any action under the provisions of the Act, and to return the documents/valuables seized in pursuance of the illegal search.

5. In the affidavit-in-opposition, the respondent authority pleaded that the search and seizure operations were carried out as a consequence of information in possession of the Department and in full compliance with the provisions of Section 132 of the Act. It is submitted that during the course of search of the premises of Shri M.K. Subba at Silpukhuri, Guwahati, the office of M/s. Guwahati Agencies was found functioning from the same premises. No office of M/s. M.S. Associates, the petitioner was found at Silpukhuri. The income earned by M/s. Guwahati Agencies has neither been reflected in the regular books of account nor is it reflected in the returns filed by the petitioner firm. Both the partners, Smt. Jyoti Limbu and Smt. Tilmaya Chong, are the wives of Shri M.K. Subba and they are not aware of anything about the lottery business. The entire business is under the control of Shri M.K. Subba and his brother. The proceeds of sale of lottery tickets were never deposited with the Government nor disclosed to tax. The petitioner firm did not file the returns for the accounting years 1998-1999 and 1999-2000. The books of account for those two accounting years were also not audited as per law. Under the above circumstances and in consideration of the information in their possession, the DIT (Investigation), Delhi, Kolkata and Guwahati, issued the warrants under Section 132 of the Act of 1961. The searches were made on independent authorisation by the Directors of Income-tax (Investigation) against Shri Mani Kumar Subba and the groups including the petitioner firm. Discreet inquiries revealed evasion of taxes by the petitioner firm and other groups under control and Shri M.K. Subba. The Directors of Income-tax (Investigation), Delhi, Kolkata and Guwahati, issued the warrants within their respective territorial jurisdiction after an honest evaluation of the information. According to the answering respondents, the report of the CAG is one of the sources of information on the basis of which satisfaction required under Section 132 has been founded. It is submitted that a draft report of the CAG may also provide legal or factual material for forming the requisite belief to the effect that the petitioner firm has acquired asset not disclosed to tax. The warrants of authorisation were issued in the name of the persons and in respect of identifiable premises. Therefore, the provisions of Chapter XVI-B of the Act shall apply in case of all the persons searched for the purpose of correct determination of the petitioner's income after completing the assessment with due opportunity to the petitioner firm. In the additional affidavit filed, the respondent authority reiterating the above submissions further averred that a prima facie case of tax evasion was made out of the information received and the report of the CAG only substantiated the above information.

6. The petitioner firm in their rejoinder affidavit denied the averments made in the affidavit-in-opposition and reiterated the contention of the writ petitioner already highlighted above. According to them, the petitioner has a branch office at Silpukhuri, Guwahati and M/s. Guwahati Agencies are only agents of the petitioner who sell lottery tickets on behalf of the petitioner in the State of Assam, and income derived from such sales has been duly reflected in the books of account.

Facts in W. P. (C) No. 137 of 2000 :

7. Shri Ajoy Kumar Subba has filed this writ petition challenging the search and seizure conducted by the Income-tax Department under Section 132 of the Act of 1961 in the residence of the petitioner at Tinsukia. He claimed to be an employee of M/s. Jyoti and Company, an agent of lotteries organised by the State Governments. According to him, in addition to his service, he has a business of selling of cassettes under, the name and style of M/s. A. B. Series. His case is that he has been regularly filing income-tax returns before the authority and final assessment has been made thereon after due scrutiny and satisfaction. Though the petitioner is ordinarily a resident of Assam, in view of his service, he has been residing at Ghaziabad, U. P., since 1996. The search was effected in the month of June, 1999, and the income-tax authorities seized cash, investment certificates and books of account belonging to the writ petitioner and his wife, Smt. Archana Subba. The search was conducted primarily because of his employment in the firm of M/s. Jyoti and Company as the proprietor of the said firm has business connection with M/s. M.S. Associates. The search and seizure have been challenged on identical grounds as in the case of W. P. (C) No. 1552 of 2000. According to the writ petitioner, the search and seizure conducted in his premises as well as that of his employer, M/s. M.S. Associates and Shri S.R. Subba are independent and cannot be treated as consequential. Respondents Nos. 4 and 5 issued the authorisation in violation of the provisions of law without any information in its possession as is required under Section 132 of the Act of 1961. The action of respondents Nos. 4 and 5 in issuing warrant of authorisation of search and seizure is, therefore, void ab initio. Directions have been prayed for from return of the documents/ valuables seized during the search.

8. The affidavit-in-opposition filed by the respondents are also based on similar grounds taken in Writ Petition (C) No. 1552 of 2000 already highlighted hereinabove. To avoid repetition, it may be stated in brief that the respondent authorities have reiterated that the warrant of authorisation of search and seizure in the name of Sri M.K. Subba were issued by the competent authority in compliance with the provisions of Section 132 of the Act of 1961.

Facts in W. P. (C.) No. 6965 of 2000:

9. Smt. Jyoti Limbu, a partner of M/s. M.S. Associates, has filed this petition challenging the legality and validity of the warrants of authorisation of search and seizure effected by the income-tax authorities in the office premises of M/s. M.S. Associates situated at Guwahati and New Delhi, on June, 1999. The petitioner also challenged the legality and validity of the impugned notice dated November 13, 2000, issued by respondent No. 4 in purported exercise of powers under Section 158BC of the Act. Cash, jewellery, investment certificates, fixed deposit certificates and other documents were seized by the income-tax authorities during the search. In addition, the authorities also conducted a search in the office premises of M/s. M.S. Associates situated at Guwahati and Tinsukia, and various documents of account relating to M/s. M.S. Associates were seized. The warrants of authorisation were issued in the name of Mr. M.K. Subba, Mr. A.K. Subba, Mr. S.R. Subba and the petitioner. But in fact the search and seizures were effected against the firm and not the individuals named above. The search has been conducted in violation of the provisions of Section 132 of the Act without any information in possession as is required under the law. In brief, the search and seizure have been challenged on identical grounds as in the aforementioned writ petitions which need no repetition.

10. According to the answering respondents, no illegality has been committed by the authority in issuing the warrants of authorisation. It is further submitted that the writ petitioner is a partner having 51 per cent, share in M/s. M.S. Associates with effect from April 1,1994, which is the sole distributor of lottery tickets organised by the State of Nagaland. The petitioner firm did not deposit the sale proceeds with the State Government. The search had to be conducted in pursuance of the information in possession of the Department that documents and valuables representing income were not disclosed for assessment. The respondent also denied that respondent No. 6 who had issued the warrants of authorisation had no jurisdiction. In para. 19 of the affidavit, it has been submitted that the authority was justified in taking consequential action under Sections 158BC and 158BD of the Act of 1961 for the purpose of finalising block assessment. It is further submitted that the assessee, if aggrieved by the block assessment, is entitled to file an appeal to the Commissioner of Income-tax (Appeals) under Section 246A of the Act.

Facts in W. P. (C) No. 7008 of 2000:

11. Shri Sanjay Raj Subba and Shri Moni Kumar Subba have filed this petition challenging the legality and validity of the warrants of authorisation of search and seizure effected by the income-tax authorities in the office premises of M/s. M.S. Associates situated at New Delhi, Guwahati and Harmoti (North Lakhimpur), during June, 1999. The petitioners also challenged the legality and validity of the impugned notice dated November 13, 2000 (annexure XI), issued by respondent No. 4 in purported exercise of powers under Section 158BC of the Act and the note dated October 19, 2000, made by the Deputy Commissioner of Income-tax, New Delhi. Cash, jewellery, investment certificates, fixed deposit certificates and other documents were seized by the income-tax authorities during the search. In addition, the authorities also conducted a search in the office premises of M/s. M.S. Associates situated at Guwahati and Tinsukia, and various documents of account relating to M/s. M.S. Associates wese seized. The warrants of authorisation were issued in the names of Mr. A.K. Subba, Smt. Jyoti Limbu and the petitioners. But in fact the search was effected against the firm and not the individuals named above. The search has been authorised by respondent No. 6 in violation of the provisions of Section 132 of the Act without any information in his possession as is required under the law. The petitioners have prayed for declaring the search and seizure null and void, quashing the notices dated November 13, 2000 and October 19, 2000, and for direction for return of the seized documents/valuables. In addition the affidavit filed by petitioner No. 2, mention has been made of W. P. (C) No. 508 of 1998.

12. The affidavit-in-opposition filed by the respondent authority is also based on identical grounds as in the aforementioned writ petitions. According to the answering respondents, no illegality has been committed by the authority in issuing the warrants of authorisation. It is further submitted that the wife of the writ petitioner No. 2 is a partner having 51 per cent, share in M/s. M.S. Associates with effect from April 1, 1994, which has been appointed by the State of Nagaland as its sole distributor of lottery tickets. The firm, M/s. M. S. Associates, did not deposit the sale proceeds with the State Government. The search was conducted in pursuance of the information in possession of the Department that documents and valuables representing income were not disclosed for assessment. In para. 19 of the affidavit, it has been submitted that the authority was justified in taking consequential action under Sections 158BC and 158BD of the Act of 1961 for the purpose of finalising block assessment in view of seizure of unaccounted valuables and documents. It is further submitted that the assessee, if aggrieved by the block assessment, is entitled to file an appeal to the Commissioner of Income-tax (Appeals) under Section 246A of the Act.

Facts in W. P. (C) No. 2889 of 2001:

13. M/s. Teesta Rangit Private Limited represented by its managing director, Shri Sanjay Raj Subba, has filed this petition challenging the legality and validity of the notice dated February 20, 2001, issued by the Commissioner of Income-tax, Central Zone-VI, New Delhi, whereby the petitioner firm was directed to prepare a true and correct return of the total income including undisclosed income assessable for the block period from April 1, 1989, to June 23, 1999, under Section 158B(a) of the Income-tax Act, 1961. In the month of June, 1999, on different dates, in pursuance of different warrants of authorisation issued by the respondent authority, the business premises of M/s. M.S. Associates at New Delhi, including the residence and official premises of the persons allegedly associated with M/s. M.S. Associates were searched, and a large amount of cash, jewellery, investment certificates, fixed deposit certificates and other documents were seized. In addition, the authorities also conducted the search in the office premises of M/s. M.S. Associates situated at Guwahati, Tinsukia and North Lakhimpur, and various documents of account relating to M/s. M.S. Associates were seized. The income-tax returns filed regularly by the petitioner company had been assessed to tax after due scrutiny of the books of account. The warrants of authorisation were issued in the names of Mr. M.K. Subba, Mr. S.R. Subba, Smt. Jyoti Limbu and Mr. A.K. Subba. But in fact, the search and seizures were effected against M/s. M.S. Associates. The search has been authorised in violation of the provisions of Section 132 of the Act without any lawful information in possession of the Department. The petitioner firm is engaged in the business of construction work at Gangtok, Sikkim, and the company has not earned any income so far. Therefore, no consequential action under Section 158BC of the Act can be initiated. The action initiated against the petitioner firm is without any jurisdiction and in violation of law and, therefore, the notice dated February 20, 2001, is liable to be quashed.

14. According to the respondents, no illegality has been committed by respondent No. 4 in issuing the impugned notice dated February 20, 2001, under Section 158BC of the Act on the basis of the materials seized during the search. The maintainability of the writ petition has been challenged on the ground that the petitioner firm is incorporated in the State of Sikkim where it is assessed to tax and that the concerned income-tax authorities are all stationed outside the territorial limits of this court. It is further stated that the petitioner company did not file its return of income for the assessment year 1999-2000 in response to the notice issued on July 27, 2000. Even for earlier years, no return of income were filed by the petitioner. It is further averred that the Director of Income-tax (Investigation) after going through the complete details of the case was satisfied that M/s. M.S. Associates and persons/ concerns connected or associated with it are involved in tax evasion and, hence, issued the warrants of authorisation.

Facts in W. P. (C). No. 2890 of 2001:

15. In this petition, the petitioners, M/s. Sikkim Subba Associates, have prayed for quashing the impugned notice dated February 20, 2001 (annexure 6), issued by the Deputy Commissioner of Income-tax, Central Zone-IV, New Delhi. The notice has been issued by the aforementioned respondent No. 4 directing the petitioner firm to prepare a true and correct return of its total income including undisclosed income for the purpose of block assessment for the period beginning April 1, 1989, to June 23, 1999. The petitioner firm registered in the year 1991 has been engaged in the business of lottery of the Government of Sikkim as per agreement dated October 22, 1991. According to the petitioner firm, the provisions of the Income-tax Act, 1961, are not applicable in the State of Sikkim and, therefore, the question of it being amenable to the provisions of the aforesaid Act does not arise. It is submitted that the business premises of M/s. M.S. Associates at New Delhi, Guwahati, Tinsukia and North Lakhimpur, and the official residences of the persons associated with the firm were searched in the month of June, 1999, in pursuance of the warrants of authorisation issued under Section 132 of the Act, and a large amount of cash, jewellery, investment certificates, fixed deposit receipts and other documents were seized. The petitioner firm has been regularly submitting returns before the income-tax authorities in respect of income earned by them outside the State of Sikkim and the same have been assessed after due scrutiny of the books of account. Search and seizure operations against M/s. M.S. Associates were effected on the basis of a preliminary draft report of the Auditor General of India with regard to the Nagaland State Lotteries. The warrants of authorisation were issued against certain individuals without lawful information in the possession of the Department as is required under Section 132 of the Act and the authority in pursuance thereof conducted the search and seizure in the premises of M/s. M.S. Associates. The warrants of authorisation having been issued in violation of the provisions of Section 132 is obviously bad in law. Therefore, there cannot be initiation of any further proceeding under Section 158BC for block assessment as indicated in the impugned notice. It is further submitted that the petitioner firm is not doing any business of lottery since 1992 and has no business connection with M/s. M.S. Associates.

16. The respondents in their affidavit-in-opposition denied the averments made in the writ petition and submitted that there is no illegality in issuing the warrants of authorisation of search and seizure by respondent No. 4. According to them, the cause of action, if any, has arisen outside the territorial jurisdiction of this court and, therefore,, the writ petition is not maintainable. The firm is incorporated in the State of Sikkim and all the concerned income-tax authorities are situated outside the territorial limit of this court. According to them, the petitioner firm did not submit its return of income for earlier years and, as such, this case has been centralised by the Commissioner of Income-tax in its capacity as a new assessee. It is further submitted that the warrants for search and seizure were issued after being satisfied that M/s. M.S. Associates and other persons/concerns connected or associated with it are involved in tax evasion. The notice issued under Section 158BC is nothing but initiation of an assessment proceeding in connection with a search which may or may not eventually result in the assessment of any undisclosed income. Therefore, the impugned notice issued in compliance with the provisions of the Act warrants no interference.

Facts in W. P. (C). No. 3729 0f 2001:

17. Shri Nar Bahadur Khatiwada filed this petition challenging the search and seizure conducted in his premises on June 23, 1999, as illegal and unconstitutional with prayer for quashing the impugned notice dated November 13, 2000 (annexure D), issued by the Deputy Commissioner of Income-tax, Central Circle-IV, New Delhi, calling upon him to prepare true and correct return of total income including undisclosed income for block assessment for the period of April 1, 1989, to June 23, 1999. The petitioner is a practising advocate and has been counsel of M/s. M.S. Associates. The petitioner's case is that he has no connection whatsoever with the business carried on by M/s. M.S. Associates save and except that he is counsel of the said firm. The petitioner is assessed to tax and has been regularly filing his return which are being finalised after scrutiny of the books of account. On June 23, 1999, search was carried out in the premises of M/s. M.S. Associates throughout India and also in the residences of the partners and other relatives. The raid was also carried out illegally on the same day in the residences of the petitioner at Sahibabad, U. P. and two other houses at Siliguri, West Bengal, belonging to his sons. The income-tax authorities acted in flagrant violation of the provisions of Section 132 without any credible information in possession within the meaning of Section 132. The draft report of CAG could not be treated as an information within the meaning of Section 132 till the matter is disposed of by the concerned Legislative Assembly. In pursuance of the impugned notice dated November 13, 2000, the petitioner filed his return before respondent No. 4 on February 22, 2001, and, on receipt thereof, respondent No. 4 issued a questionnaire (dated March 7, 2001) to be answered by the petitioner. The petitioner accordingly submitted his reply (annexure E). Respondent No. 4 instead of closing the file raised irrelevant issues for the purpose of roving and fishing enquiries. That apart, it is pleaded that the petitioner being an advocate cannot be compelled to disclose any communication between him and his client, M/s. M.S. Associates. According to the petitioner, the search and seizure were effected contrary to the provisions of Section 132 and, therefore, further proceedings under Sections 158BC and 158BD for block assessment cannot be initiated.

18. The grounds of objection raised in the affidavit-in-opposition by the respondent authority are similar to the grounds taken in other writ petitions. According to them, the search and seizure in the premises of the writ petitioner were conducted in consequence of the information in possession of the Department that the documents and valuables representing income were not disclosed for assessment. It is also reiterated that the proceedings for block assessment initiated by the Deputy Commissioner became indispensable in view of non-disclosure of documents/valuables unearthed during the search. The respondent authority also challenged the jurisdiction of this court in entertaining the writ petition as, according to them, the cause of action arose outside the territorial jurisdiction of this court.

Facts in W. P. (C.) No. 8647 of 2001 :

19. This writ petition has been filed by M/s. M.S. Associates challenging the notices dated March 15, 2001 (annexure IV), and November 6, 2001 (annexure IX), issued by respondent No. 5 and the special audit report dated September 7, 2001. The notice dated March 15, 2001, has been issued under Section 142(2A) of the Income-tax Act, 1961, for the assessment year 1998-99 directing the petitioner firm to get the accounts for the assessment year 1998-99 audited and to furnish the said report before the income-tax authorities within 60 days. By the notice dated November 6, 2001, the respondent authority directed the petitioner firm to show cause as to why penalty under Section 271B of the Income-tax Act should not be imposed for its failure in getting the accounts audited. The petitioner firm initially a proprietoral firm was converted into a partnership firm with effect from March 24, 1994, and is engaged in the business of selling lottery tickets of various State Governments including Assam and Nagaland. The petitioner firm has been regularly submitting its returns of income-tax which has been assessed to tax after scrutiny of the books of account. It has been submitted that the business premises of the petitioner firm including residences of all concerned were searched and a large amount of cash, jewellery, investment certificates, fixed deposits and other documents were seized. Search was conducted in the office premises of the petitioner firm at Guwahati and Tinsukia, and various documents and books of account pertaining to the petitioner firm were also seized. According to the petitioner firm, the search and seizure has been carried out in complete violation of the provisions of Section 132 of the Income-tax Act. The petitioner firm could not file the return for the year 1998-99 within time for reasons beyond its control and it was filed belatedly on March 29, 2000, under Section 139(4) of the Act. The petitioner declared an income of Rs. 1,41,16,230 with full disclosure which has to be treated as undisclosed income for the purpose of block assessment. Under no circumstances, the regular assessment for the assessment year 1998-99 can precede the block assessment period. On this count, the notice dated April 7, 2000, for regular assessment for the financial year 1997-98 has been controverted. Despite objection, the authority by the order dated November 6, 2001, assessed the tax payable on the enhanced amount of Rs. 2,66,03,763 at Rs. 79,10,848. In addition, show cause notice has been issued for initiation of penalty proceedings under Section 271B for the said assessment year. The petitioner has challenged the assessment order dated November 6, 2001, on the ground that the authority (respondent No. 4) failed to issue directions as prayed for under Section 144A of the Act. The conditions precedent for direction for special audit under Section 142(2A) were also absent in the instant case. The present writ petition has been filed as there is no remedy by way of an appeal against an order passed under Section 142(2A). The writ petition has been filed for the reliefs indicated hereinbefore.

20. The respondent authority in their affidavit-in-opposition submitted that at the time of search of the premises of Mr. Moni Kumar Subba at Silpukhuri, Guwahati, the office of M/s. Guwahati Agency was found to be functioning in the said premises and no office of M/s. M.S. Associates was found in the specified place at Guwahati. The income earned by M/s. M.S. Associates is neither reflected in the regular books of account nor in the income-tax returns of M/s. M.S. Associates. Though Smt. Jyoti Limbu and Smt. Tilmaya Chong are partners of M/s. M.S. Associates, they have no knowledge of the lottery business which is absolutely under the control of Mr. Moni Kumar Subba and his brother, Mr. S.R. Subba. The proceeds of lottery tickets were not deposited with the State Government. The respondent authority denied the petitioner's claim that books of account of the petitioner firm were found in order. The search was conducted against Mr. Moni Kumar Subba group, as there was reason to believe that the said group was in possession of the books of account, papers and other documents wherein undisclosed transactions have been recorded and such documents/books of account would never be produced before the income-tax authorities. Besides, there was reason to believe that the group is in possession of money, bullion, jewellery and other valuable articles or things comprising wholly or partly income which would not be disclosed for the purpose of assessment. It was in this context, the warrants of authorisation for search by the respective Director of Income-tax (Investigation), were issued as per the provisions of Section 132 of the Act. The return filed by the petitioner firm under Section 139(4) for the assessment year 1998-99 on March 29, 2000, was processed under Section 143(1)(a) and a notice under Sub-section (2) of the said section for complete assessment was issued. According to the respondents, there is no violation of any provisions of law particularly the provisions of Chapter XIV-B of the Act. The direction for special audit was issued because of various discrepancies noted in the accounts of the assessee. The assessment proceedings for the assessment year 1998-99 had to be completed because of the period of limitation provided in Section 153(1)(a) of the Act. The direction given for special audit and the notice issued under Section 271B, according to the answering respondents, are in accordance with the provisions of law because the petitioner firm failed to comply with the direction for special audit. It is further submitted that there being provisions for appeal against the order of the Assessing Officer and the petitioner firm having duly filed an appeal it is not entitled to any relief. Besides, the respondents also questioned the jurisdiction of this court on the ground that cause of action has not arisen within the territorial limit of this court.

Facts in W. P. (C.) No. 8648 0f 2001:

21. The factual matrix of this writ petition is identical with that of W. P. (C) No. 8647 of 2001. In this petition, the petitioner has challenged the notice dated March 15, 2001, whereby the income-tax authorities nominated M/s. B. Goel and Associates, chartered accountants, to audit the accounts of the petitioner under Section 142(2A) of the Income-tax Act, 1961, and the audit report dated September 7, 2001, submitted by the said firm. In addition, the petitioner also challenged the notice dated November 6, 2001, whereby the income-tax authorities directed the petitioner to show cause as to why the penalty under Section 271B for the assessment year 1998-99 should not be imposed for failure to get the accounts audited as per the provisions of Section 44AB of the Act. The petitioner is a partner of M/s. M.S. Associates and has been filing income-tax returns regularly, and assessments were made after due scrutiny of the books of account including assessment under Section 143(3) for the assessment years 1993-94 to 1996-97. The warrants of authorisation were executed in the month of June, 1999, and a large amount of cash, jewellery, investment certificates, fixed deposit receipts and other documents were seized. The petitioner has also challenged the legality and validity of the warrants of authorisation. The petitioner's books of account, other records and various materials, relevant for the assessment year 1998-99 were also seized. The petitioner could not file the return for the assessment year 1998-99 within the time limit because of seizure of all materials from her possession. It was filed belatedly on March 29, 2000, under Section 139(4) declaring an income of Rs. 35,23,980. The income declared has to be treated as undisclosed income for the block assessment proceedings under Chapter XIV-B of the Act and, therefore, it was wrong on the part of the authority to make assessment for the year 1998-99. The audit report as envisaged under Section 44AB could not be obtained because of the seizure of material documents and the same could not be filed before the authorities within time. Thereafter, the authority issued the notice dated April 7, 2000, for regular assessment for the assessment year 1997-98 under Section 143(2) although the same, as per the provisions of law, has to be assessed in the block assessment proceedings. The notice issued under Section 143(2) preceded the intimation under Section 143(1)(a), impermissible in law. The petitioner also challenged the notice under Section 142(2A) for special audit on the ground that it was issued on objective satisfaction only during the pendency of the block assessment proceedings. The petitioner submitted an application on October 29, 2001, seeking direction under Section 144A which was pending for disposal and despite that assessment was made under Section 143(3) and Rs. 36,17,516 has been assessed as income for the said year and tax of Rs. 6,47,745 levied. It was only, thereafter, the respondent authority by the impugned notice dated November 6, 2001, directed the petitioner to show cause as to why penalty proceedings under Section 271B will not be initiated. The entire action by the income-tax authority has been challenged as contrary to the provisions of law.

22. The respondent authorities in their affidavit-in-opposition resisted the writ petition on the ground as reflected in the affidavit filed in W. P. (C.) No. 8647 of 2001. The grounds of challenge being identical and therefore, not being reflected to avoid repetition.

23. During the course of argument, Sri S.S. Ray, learned senior counsel, argued W. P. (C.) No. 1552 of 2000 as a lead case for the purpose of adjudication of the issues raised in all the writ petitions except W. P. (C.) No. 3729 of 2001. Sri P. Upadhaya, learned counsel argued the case of the petitioner in W. P. (C.) No. 3729 of 2001. The factual details made available in brief hereinbefore relate to legality and validity of the search and seizure, status of the draft report of CAG, objection relating to maintainability of the writ petitions and availability of alternative remedy. The prime questions, answer to which will settle the above issues are formulated as follows :

(1) Whether the writ petition is maintainable for adjudication in this court on the face of the respondents' contention that no cause of action arose within the territorial limit of this court ?

(2) Whether the draft report of the CAG taken into consideration by the respondent authorities for the purpose of determining the existence of circumstances under Section 132(1) of the Act is legally permissible before the report was disposed of by the State Legislature ?

(3) Whether the respondent authorities had, in addition to the draft report of the CAG, any other information in their possession to form reasons to believe as is required under Section 132(1) of the Act ?

24. The issues framed above will also govern the other writ petitions on all material points. At the very beginning, I will like to take up issue No. 1 with reference to the factual matrix of each case in the following order :

25. In W. P. (C). No. 1552 of 2000 as many as five warrants of authorisation were issued against the petitioner firm. The DIT (Investigation), New Delhi, issued three warrants of authorisation on June 23, 1999, and June 22, 1999, against this firm including one against Mr. S.R. Subba and Shri Ajoy Kumar Subba. The Additional DIG (Investigation), Delhi, issued the warrants of authorisation on June 23, 1999, against Mr. M.K. Subba, Mr. S.R. Subba, Smt. Jyoti Limbu, the petitioner firm and M/s. Jyoti and Company. The DIT (Investigation), Calcutta, issued warrant of authorisation on June 18, 1999, against the petitioner firm. In pursuance of the above warrants of authorisation, the premises of the petitioner firm as well as that of other persons were searched at New Delhi and Siliguri. The petitioner's claim that in pursuance of the aforesaid warrants of authorisation search was carried out in the office premises of the petitioner both at Guwahati and Tinsukia have been denied by the respondents in their affidavit-in-opposition. According to them, the DIT (Investigation), North Eastern Region, Guwahati, did not issue any warrant of authorisation against the petitioner firm. The respondents' further case is that the petitioner has no branch office at Silpukhuri, Guwahati-3.

26. Mr. S.S. Ray, learned senior counsel, submitted that the facts available on record have to be evaluated to determine whether a part of the cause of action has arisen within the territorial jurisdiction of this court. According to learned counsel, the facts pleaded in the writ petition would show that a part of the cause of action did arise within the jurisdiction of this court. Referring to the statements made in paragraphs 2, 4, 5, 6, 7, 11, 12, 16 and 17 and the panchnamas read with the counter affidavits, learned counsel argued that there has been search and seizure in the premises of the petitioner firm at different places within the State of Assam in pursuance of the aforesaid warrants of authorisation and, as such, the cause of action has also arisen within the jurisdiction of this court. Shri S.S. Ray, learned senior counsel, in support of the above contention, relied upon the decisions in Navinchandra N. Majithia v. State of Maharashtra : AIR2000SC2966 ; South East Asia Shipping Co. Ltd. v. Nav Bharat Enterprises Pvt. Ltd. : [1996]3SCR405 and State of Maharashtra v. State of Arunachal Pradesh (Writ Appeals Nos. 400 of 2001 and 401 of 2001). I have considered the ratio available in the above three cases. Simultaneously, I have also considered the ratio available in the judgments of the hon'ble Supreme Court relied upon by Shri R.P. Agarwal, learned senior counsel for the respondents, namely--State of Bihar v. Barakar Engineering and Foundary Works Ltd. : (1974)3CTR(SC)209 ; Kajaria Exports Ltd. v. Union of India : AIR1985Cal70 ; Oil and Natural Gas Commission v. Utpal Kumar Basu : (1994)4SCC711 and Subodh Kumar Gupta v. Shrikant Gupta : (1993)4SCC1 The ratio available lay down, the principles which have to be applied on the factual background of a given case. Shri R.P. Agarwal, learned senior counsel, argued that there was no search against the petitioner firm and it was only during the course of search in the premises of others, evidence of undisclosed property/income was unearthed. The office file containing the notes of satisfaction and warrants of authorisation from the Guwahati office also show that no warrant of authorisation for search and seizure was issued against M/s. M.S. Associates by the DIT (Investigation), Guwahati. Search and seizure carried out in different places in the State of Assam on the strength of warrants of authorisation issued by the DIT (Investigation), Guwahati, against other persons cannot be obviously agitated by the writ petitioner before this court. The contention of the petitioner that the Commissioner of Income-tax (Investigation), Guwahati, issued the warrants of authorisation is belied by the materials available in the office file. Therefore, no cause of action arose when the search was carried out against others as per authorisation of the DIT (Investigation), Guwahati. The cause of action for maintainability of a writ petition by the petitioner firm within the jurisdiction of this court will arise as and when the authorities at Guwahati initiate appropriate proceedings under the provisions of the Income-tax Act, 1961, against the petitioner and not before that. For recovery/return of the materials seized, the petitioner-firm has to approach the authority at Delhi where the materials are under scrutiny for further action under the Act. The petition is, therefore, not maintainable.

27. Now I will deal with Writ Petition (C) No. 137 of 2000. This petition has been filed by Shri Ajoy Kumar Subba claiming himself to be an employee of M/s. Jyoti and Company. He is ordinarily a resident of Assam and presently residing at Ghaziabad (U. P.). According to him, the search was carried out in the month of June, 1999, and cash, investment certificates and books of account of the writ petitioner and his wife, Smt. Archana Subba, were seized. The respondent authority in their affidavit-in-opposition submitted that the DIT (Investigation), Guwahati, issued warrants of authorisation in the name of Mr. M.K. Subba which was executed at Tinsukia and during the course of search, several bank accounts were detected which also include six bank accounts admittedly of the writ petitioner, Shri Ajoy Kumar Subba, and his wife Smt. Archana Subba. The warrants of authorisation available in the office files of the Guwahati office show that the DIT (Investigation), Guwahati, did not issue any warrant of authorisation for search and seizure against the writ petitioners. It was only during the course of search on the strength of the warrant issued by the DIT (Investigation), Guwahati, in the name of Mr. M.K. Subba, the bank accounts belonging to the petitioner and his wife were seized. The action of seizure in so far as it affects the writ petitioners is consequential. As stated by the respondent authority, the petitioners are assessees to tax at New Delhi and, therefore, the documents/valuables belonging to the petitioner and his wife seized during the course of execution of warrants of authorisation issued against Mr. M.K. Subba are accountable to the respondent authorities at New Delhi. The documents/ bank accounts seized are apparently part of undisclosed income and have to be explained before the authority at New Delhi only. The petitioner's claim that his right to property has been invaded during the course of search at Tinsukia will be of no avail since he is an assessee at New Delhi and he has approached this court after receipt of notice dated November 19, 1999, issued by the authorities from Delhi. Since, no action has been taken as yet by the respondent authority at Guwahati, the petitioner cannot claim that the cause of action wholly or in part has arisen within the jurisdiction of this court. Therefore, this writ petition is also not maintainable for lack of jurisdiction.

28. The question of maintainability of Writ Petition (C) No. 6965 of 2000 also stands on similar footing. The warrants of authorisation in this case were issued by the DIT and Additional DIT (Investigation), New Delhi, on June 22,

1999. and June 23, 1999, against M/s. Jyoti and Company, Mr. Ajoy Kumar Subba, Mr. M.K. Subba and M/s. M.S. Associates. The warrants of authorisation available in the office file also indicate that the places ordered to be searched are situate outside the territorial limits of this court. The petitioner, Smt. Jyoti Limbu, is an assessee at New Delhi. The notice dated November 13, 2000. challenged in this petition has been issued from the authorities in New Delhi for the block period from April 1, 1989, to June 23, 1999. The DIT (Investigation), NER, (Guwahati), is in no way connected with the warrants of authorisation mentioned above. The search and seizure in the premises of the writ petitioner at Guwahati have been denied by the respondents. The matter thus becomes disputed which this writ court cannot probe by any roving enquiry. The warrants of authorisation issued by the authorities at New Delhi were meant for search of different premises in Ghaziabad (U. P.) and New Delhi and not at Guwahati. The panchanama (annexure 2) annexed with the writ petition does not indicate that any search was carried out in any of the premises belonging to the writ petitioner in the State of Assam. If any undisclosed property belonging to the writ petitioner has been found and seized during the course of search directed against others, the same being consequential will not be of any assistance to the writ petitioner. The cause of action within the jurisdiction of this court will arise only when the authorities at Guwahati initiate proceedings under the Act. The impugned notice dated November 13, 2000, has been issued by the authorities in New Delhi, which had prompted the petitioner to file this petition. Under the circumstances, it cannot be said that the cause of action has arisen either wholly or in part at Guwahati within the territorial limit of this court.

29. Writ Petition (C) No. 7008 of 2000 has been filed by Shri Sanjay Raj Subba and Shri Moni Kumar Subba. The warrants of authorisation were issued against both the petitioners by the DIT and the Additional DIT (Investigation), Guwahati. The residential premises of the petitioners at Guwahati and Tinsukia and other places within the North East were searched. Therefore, the cause of action has arisen, in the instant case, within the territorial limits of this court. Hence, this petition is maintainable.

30. In Writ Petition (C) No. 2889 of 2001, the warrants of authorisation for search and seizure were issued by the DIT (Investigation), Calcutta, on June 18, 1999, against the petitioner firm. The places indicated for search in the aforesaid warrants of authorisation are at Gangtok, outside the territorial jurisdiction of this court. In this petition, the petitioner has not challenged the search and seizure carried out under Section 132 of the Act of 1961. Only the notice dated February 20, 2001, issued under Section 158BC has been challenged. This notice has been issued by the authorities in New Delhi where the petitioner is assessed to tax. The DIT (Investigation), Calcutta, has also not been impleaded in this petition as respondent. No cause of action appears to have arisen either wholly or in part at any place within the jurisdiction of this court. Hence, this petition is also not maintainable.

31. Writ Petition (C) No. 2890 of 2001 has been filed by M/s. Sikkim Subba Associates challenging the notice dated February 20, 2001, issued by the Commissioner of Income-tax, Calcutta, under Section 158BC of the Act of 1961. The places ordered to be searched are situate outside the jurisdiction of this court. It is evident from the warrants of authorisation that the places ordered to be searched are in the State of Sikkim. Besides, the DIT (Investigation), Calcutta, who had issued the warrants of authorisation has not been made a party. On a careful consideration of the above materials on record, it appears that this court has no jurisdiction to entertain the writ petition, the authorities at Guwahati being in no way connected with the search and seizure.

32. Writ Petition (C) No. 3729 of 2001 has been filed by Shri Nar Bahadur Khatiwada, an advocate. Three warrants of authorisation have been issued by the DIT (Investigation) from New Delhi and Calcutta. The warrants of authorisation indicate that the places intended to be searched are at New Delhi, Siliguri and Gaziabad (U. P.). No authorisation is available in the office file to show that any warrant of authorisation has been issued against the writ petitioner for search of his premises within the jurisdiction of this court. Therefore, it is difficult to accept the petitioner's contention as advanced by Shri P. Upadhaya, learned counsel, that the cause of action has arisen within the territorial limit of this court. The income-tax authorities who have issued the search warrants, and the places ordered to be searched, are beyond the jurisdiction of this court. Moreover, the DIT (Investigation), Calcutta, who had issued two warrants of authorisation has also not been made a party. The authorities of Guwahati are in no way connected with the matter. Under the circumstances, this court is of the opinion that no cause of action has arisen within the jurisdiction of this court.

33. In Writ Petition (C) No. 8647 of 2001, M/s. M.S. Associates have challenged the notice dated March 15, 2001, issued by the Deputy Commissioner of Income-tax, New Delhi, and also the special report dated September 7, 2001, and the notice dated November 6, 2001, issued by the same authority. It appears that both the notices were issued ,by the authorities at New Delhi, and the special report was prepared at New Delhi. The DIT (Investigation), Guwahati, is in no way related to the impugned notices. The petitioner's claim that it has a branch office at GNB Road, Silpukhuri, Guwahati, has been disputed by the respondents in paragraph 3 of their affidavit-in-opposition. No certificate under Section 61 of the Partnership Act has also been placed on record. The said two notices and the audit report are not relatable to any action or any place within the jurisdiction of this court. The question whether the petitioner has a branch office at Guwahati is a matter of fact and cannot be addressed by this court without roving enquiry. This court apparently has no jurisdiction to decide the issues raised in this petition as no cause of action arose within the territorial limits of this court.

34. Writ Petition (C) No. 8648 of 2001 has been filed by Smt. Jyoti Limbu, proprietor of M/s. Jyoti and Company, Guwahati. The impugned notices dated March 15, 2001 and November 6, 2001, were issued by the authorities at New Delhi. The audit report was also prepared at New Delhi. The petitioner is an assessee at New Delhi. There is nothing on record to show that the DIT (Investigation), Guwahati, is in any way connected with the aforesaid notices and the audit report. The existence of registered office at Guwahati has also been disputed by the respondents in their affidavit-in-opposition. Thus, the existence of a branch office at Guwahati becomes controverted and cannot be looked into by this court in exercise of its powers under article 226. The head office of M/s. Jyoti and Company is at New Delhi and the branch office at Ghaziabad (U. P.) and Parwanoo in Himachal Pradesh. There is nothing on record to show that the aforesaid notices were relatable to the business of the petitioner firm to any place within the jurisdiction of this court. Therefore, this court has no jurisdiction to adjudicate the issues raised in this petition. The petitioner is an assessee at New Delhi and has to take up the matter in accordance with the provisions of the Act of 1961 before the authorities at New Delhi from where the impugned notices were issued.

35. In all the writ petitions except W. P. (C) No. 7008 of 2000 the prayer inter alia includes direction for return of the documents, books of account and valuables seized. The petitions have been filed after a lapse of considerable length of time and only after the authorities based at New Delhi and Calcutta initiated actions and proceedings under the provisions of the Income-tax Act, 1961. Apparently, the seized materials are in the possession of the authorities in New Delhi and Calcutta where the petitioners are assessed to tax. Let it, therefore, also be examined whether a suit for recovery (return) of seized materials would lie in any civil court subordinate to this court. The answer to this question will clear the confusion, if any, relating to the maintainability of the writ petitions. Section 16 of the Code of Civil Procedure reads as follows :

'16. Suits to be instituted where subject-matter situate.--Subject to the pecuniary or other limitations prescribed by any laws, suits,--

(a) for the recovery of immovable property with or without rent or profits,

(b) for the partition of immovable property,

(c) for foreclosure, sale or redemption in the case of a mortgage of or charge upon immovable property,

(d) for the determination of any other right to or interest in immovable property,

(e) for compensation for wrong to immovable property,

(f) for the recovery of movable property actually under distraint or attachment.

shall be instituted in the court within the local limits of whose jurisdiction the property is situate :

Provided that a suit to obtain relief respecting, or compensation for wrong to, immovable property held by or on behalf of the defendant may, where the relief sought can be entirely obtained through his personal obedience, be instituted either in the court within the local limits of whose jurisdiction the property is situate, or in the court within the local limits of whose jurisdiction the defendant actually and voluntarily resides, or carries on business, or personally works for gain.' Clause (f) of Section 16 provides that a suit for recovery of movable property under distraint (seizure) will lie only in the court within whose local limits the movables are situate. The writ petitions have been filed for direction for return of the property/documents seized. Prayer for return (recovery) of the movable property in distraint has to be made before the court where the movable are situate. The seized properties/documents are in the custody of the authorities at Delhi and Calcutta. The authorities at Delhi and Calcutta have initiated follow-up action. No suit for recovery of the seized materials could, therefore, be filed in any 'civil court subordinate to this court. Suit for recovery of the seized materials, therefore, would lie only before the civil courts subordinate to the Delhi or Calcutta High Court. Where a suit does not lie, a writ will also not lie.

36. The above discussion is with regard to the maintainability of the writ petitions. It would appear that this court has jurisdiction only to decide Writ Petition (C) No. 7008 of 2000. The other writ petitions are not maintainable. This decision is arrived at after due consideration of the materials on record and the various judgments relied upon by the parties.

37. The second question relates to the report of the Comptroller and Auditor General of India which was also taken into consideration by the respondent authorities for the purpose of determining the existence of circumstances under Section 132(1) of the Act of 1961.

38. Mr. S.S. Ray, learned senior counsel, laid maximum emphasis on this question and argued at length to justify that the pre-conditions required for issuance of warrants of authorisation were non-existent when the warrants were issued. Mr. Ray further submitted that the draft report of the CAG being a property of the State Legislature could not be treated as an information within the meaning of Section 132(1) for the purpose of issuance of warrants for search and seizure. According to Mr. Ray, the draft report of the CAG cannot be treated as information in the possession of the respondent authorities for invoking the jurisdiction under Section 132. Mr. R.P. Agarwal, learned senior counsel for the respondents, however, submitted that the report of the CAG was one of the sources of information in the possession of the Department and the respondent authorities formed the belief as is required under Section 132 on consideration of various information including the CAG report. According to Mr. Agarwal, there is no illegality or unconstitutionality in considering the CAG report along with other information in possession for the purpose of drawing satisfaction and forming the 'reasons to believe' as contemplated in Section 132.

39. In order to appreciate the respective submissions, it is necessary to reproduce hereinbelow the provisions of Section 132(1). The quote :

'132. Search and seizure.--(1) Where the Director General or Director or the Chief Commissioner or Commissioner or any such Joint Director or Joint Commissioner, as may be empowered in this behalf by the Board, 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 (11 of 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 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 Director General or Director or the Chief Commissioner or Commissioner, as the case may be, may authorise any Joint Director, Joint Commissioner, Assistant Director, Assistant Commissioner or Deputy Commissioner or Income-tax Officer, or . . .'

40. Sub-section (1) of Section 132 speaks of three situations one of which must exist to enable the Director General or the Director or the Chief Commissioner or Commissioner and Joint Commissioner or Deputy Commissioner to issue warrants of authorisation for search and seizure of any building, place, vessel, vehicle or aircraft where the authority issuing such authorisation has reasons to suspect that such books of account, other documents, money, bullion, jewellery or other valuable article or thing are kept. The three situations are embodied in Clauses (a), (b) and (c) of Sub-section (1) of Section 132. In the instant case, we are concerned only with the situation embodied in Clause (c). The conditions precedent in Clauses (a) and (b) were admittedly not there for invoking the powers of authorisation. Clause (e) mandates that the officer so empowered having 'reason to believe' that a person is in possession of any money, bullion, jewellery or other valuable article or thing which represent either wholly or partly income or property and not disclosed, or would not be disclosed for the purpose of the Indian Income-tax Act, 1922, or the Act of 1961 may invoke the powers of authorisation for the purpose of search and seizure.

41. The averments in the writ petitions and the affidavits including counter affidavits and the panchanamas established beyond doubt that the income-tax authorities have seized money, bullion, jewellery and other valuable articles including books of account not disclosed in the returns filed by the assessees (writ petitioners). The seizure of the above articles during the course of search prima facie bear credence to the fact that the petitioners have not disclosed a substantial part of their income or property in their income-tax returns. Though relatable to subsequent events, the seizure of such articles is significant in the sense that the 'belief' formed by the authorities was not totally on myth, rumour or surmises.

42. In so far as the draft report of the CAG is concerned, there cannot be any dispute that it continues to be the property of the concerned State Legislature, and no action can be initiated thereon by any authority except in accordance with the manner in which it is disposed of by the State Legislature, The Nagaland State Legislature referred the report of the CAG to the Public Accounts Committee which in turn submitted its recommendations to the effect that the report of the CAG calls for no action. The State Legislature accepted the report. The question, therefore, arises as to whether this report of the CAG in draft form could be treated as a legal information within the meaning of Sub-section (1) of Section 132 and whether consideration of the report had vitiated the decision making process.

43. Mr. Ray, learned senior counsel, with reference to the decisions in ITO v. Seth Bros. : [1969]74ITR836(SC) , and Dr. Nand Lal Tahiliani v. CIT : [1988]170ITR592(All) submitted that Section 132 of the Act does not confer any arbitrary authority upon the Revenue Officers to issue authorisation for search and seizure which otherwise amounts to invasion of the rights of the citizens ; and the powers available have to be exercised only in strict compliance with the provisions of law. The Revenue Officers must record reasons for the belief before authorisation is issued. Mr. Ray, laid emphasis on the expression 'information' and submitted that a mere rumour or a gossip cannot be treated as an information within the meaning of Section 132. To further justify, learned counsel also relied upon the decisions in L.R. Gupta v. Union of India : [1992]194ITR32(Delhi) ; Dr. Nand Lal Tahiliani v, CIT : [1988]170ITR592(All) and C. Venkata Reddy v. ITO : [1967]66ITR212(KAR) .

44. The decisions referred to above clearly indicate that there must be some materials in the possession of the authority which can be regarded as an information and the same must exist on the file on the basis of which the authorising officer must have the 'reason to believe'. The information must be fairly reliable and should not be a guesswork on the word of an 'informer'. Mr. Agarwal, learned senior counsel, on the other hand, relied upon the decisions in CIT v. A. Raman and Co : [1968]67ITR11(SC) ; H.L. Sibal v. CIT ; Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) ; Om Parkash Jindal v. Union of India and Union of India v. Vipan Kumar Jain : [2003]260ITR1(SC) . The decisions relied upon by Shri Agarwal relate to the meaning of the word 'information' which in a generic sense indicate instructions or knowledge derived from an external source concerning facts and circumstances relevant to the enquiry.

45. Mr. Agarwal, learned senior counsel, submitted the office file during the course of argument in order to show that there was information from various sources in the possession of the concerned officers on the basis of which 'belief' as required under Section 132 was formed. Shri Agarwal further added that the report of the CAG was not the lone material in the possession of the concerned officers, as alleged by the writ petitioners.

46. At this stage, it would be relevant to examine the status of the report of the CAG. The scope and power of the CAG is existent, as provided in the Constitution, only for the scrutiny of the accounts of the State and not of any citizen or concern. As such, the report of the CAG cannot be accepted as authentic and acted upon for initiation of consequential proceedings. The CAG report, till disposed of by the concerned Legislature, cannot provide factual or legal material for forming the requisite belief to the fact that an assessee has not disclosed any income or property in his return. The report of the CAG cannot be said to be 'in the possession of the concerned authority' till it is disposed of by the concerned Legislature and, therefore, this cannot form the basis on which belief can be formed. In support of this argument, reference may be made to the decisions in Ajit Jain v. Union of India : [2000]242ITR302(Delhi) ; Coca-Cola Export Corporation v. ITO : [1998]231ITR200(SC) ; Vindhya Metal Corporation v. CIT : [1985]156ITR233(All) and Anand Swaroop v. CIT .

47. The report of the Comptroller and Auditor General relating to the accounts of a State is required to be submitted before the Governor, who shall cause it to be laid before the Legislature of the concerned State, here the State of Nagaland (reference article 151(2)). The State Legislature is required to refer it to the Public Accounts Committee for examination and recommendations. The recommendations of the Public Accounts Committee have to be laid before the Legislative Assembly. In the instant case, the report of the CAG was placed before the Legislative Assembly, State of Nagaland, and it was referred to the Public Accounts Committee under Rule 235 (Volume II) of the Nagaland Legislative Assembly Rules. The Public Accounts Committee examined the correctness of the report and submitted its recommendation in the month of March, 2002, to the effect that the report is not sustainable. The recommendations of the Public Accounts Committee were accepted by the State Legislature. Prior use of such a report would definitely amount to breach of the privilege of the House. In the instant case, as stated earlier, the Public Accounts Committee did not find reason to accept the report of the CAG and the matter thus stood disposed of. The report, during the period when it was exclusively the property of the House, could not be said to be in the possession of the Revenue authorities within the meaning of Section 132(1) of the Act. There is no dispute that the warrants of authorisation were issued during the period when the CAG report was under consideration of the Assembly. This document, in my opinion, could not be treated as in the possession of the taxing authorities. It is also not a public document within the meaning of Section 75 of the Evidence Act read with Section 2(17)(g) and (h) of the Code of Civil Procedure. This view gains support from the decision of the Delhi High Court in B.L. Wadhera v. Union of India (C. W. P. No. 1716 of 2000 decided on May 16, 2001) in which case the Delhi High Court refused to issue any direction to the respondent authorities to perform their Constitutional duty to ensure that all the Ministries/Departments submit respective replies/action taken notes on the report of the CAG. Therefore, any action taken by any authority during the period in which the report of the CAG was under consideration of a State Legislature cannot be sustained in law. The discussion above lead to the conclusion that the report of the CAG could not form the legal basis for the purpose of formation of the 'belief' as required under Section 132(1) of the Act. Thus, in short, is the answer to the second question enumerated in para. 23 (page 132) of this judgment.

48. The third question relates to the availability of other information in the possession of the revenue authorities along with the CAG report. This naturally entails the question as to whether use of any inadmissible material/information along with other admissible materials/information would vitiate the decision making process. Here, we may refer to the decisions of the Supreme Court in Dhirajlal Girdharilal v. CIT : [1954]26ITR736(SC) and in Ram Manohar Lohia v. State of Bihar, AIR 1966 SC 740. In Dhirajlal : [1954]26ITR736(SC) , the Supreme Court observed (page 740) : 'It is well established that when a court of fact acts on material, partly relevant and partly irrelevant, it is impossible to say to what extent the mind of the court was affected by the irrelevant material used by it in arriving at its finding. Such a finding is vitiated because of the use of inadmissible material and thereby an issue of law arises'. In para. 15 (page 747) of the judgment in Ram Manohar Lohia v. State of Bihar, AIR 1966 SC 740, the Supreme Court held as follows :

'15. For these reasons, in my view, the detention order if it had been based only on the ground of prevention of acts prejudicial to the maintenance of law and order, it would not have been in terms of rule 30(1)(b) and would not have justified the detention. As I have earlier pointed out, however, it also mentions as another ground for detention, the prevention of acts prejudicial to public safety. In so far as it does so, it is clearly within the rule. Without more, we have to accept an order made on that ground as a perfectly legal order. The result then is that the detention order mentions two grounds one of which is in terms of the rule while the other is not. What then is the effect of that Does it cure the illegality in the order that I have earlier noticed This question is clearly settled by authorities. In Shibban Lal Saksena v. State of Uttar Pradesh : [1954]1SCR418 , it was held that such an order would be a bad order, the reason being that it could not be said in what manner and to what extent the valid and invalid grounds operated on the mind of the authority concerned and contributed to the creation of his subjective satisfaction which formed the basis of the order. The order has, therefore, to be held illegal though it mentioned a ground on which a legal order of detention could have been based. I should also point out that the District Magistrate has not said in his affidavit that he would have been satisfied of the necessity of the detention order only for the reason that it was necessary to detain Dr. Lohia to prevent him from acting in a manner prejudicial to public safety.'

49. Shri Ray, learned senior counsel relied upon the aforesaid judgments and argued that consideration of the inadmissible information emanating from the CAG report along with other information, if any, have vitiated the decision making process and, as such, the warrants of authorisation issued are bad in law. As against this, Shri Agarwalla, learned senior counsel relied upon the decisions in S. Narayanappa v. CIT : [1967]63ITR219(SC) ; ITO v. Seth Bros. : [1969]74ITR836(SC) ; Ganga Prasad Maheshwari v. CIT : [1983]139ITR1043(All) and Deputy Director of Income-tax (Investigation) v. Mahesh Kumar Agarwal : [2003]262ITR338(Cal) , in order to show that different sets of information for the purpose of formation of belief under Section 132 if independent and severable will not dilute the exercise undertaken as a whole. According to Shri Agarwalla, the decisions relied upon by him would support his view that in a given case, if there are several sets of information in the possession of the authority and one of such information is bad in law, the decision arrived at on consideration of all the information in possession will not stand vitiated if other lawful and valid information is independent, severable and capable of leading to the formation of belief as required under Section 132. Shri Agarwalla, further submitted that the decision in Ram Manohar Lohia v. State of Bihar : 1966CriLJ608 , was rendered in a case under detention laws and the concerned Act has been amended providing for segregation of valid and invalid grounds.

50. We may refer to the decisions relied upon by Shri Agarwalla, learned senior counsel, in order to determine as to whether segregation of valid and invalid grounds is permissible on the factual background of the case at hand. The decision in Dhirajlal : [1954]26ITR736(SC) , is relatable to the framing of questions of law for the purpose of adjudication of an application under Section 66(2) of the Indian Income-tax Act, 1922. The hon'ble Supreme Court by the aforesaid observation in para. 5 of the judgment in Dhirajlal : [1954]26ITR736(SC) apparently did not lay down any law in perpetuity for all cases based on divergent factual background.

51. The decision of the hon'ble Supreme Court in S. Narayanappa v. CIT : [1967]63ITR219(SC) shows that the hon'ble Supreme Court in this case dealt with the expression 'reason to believe' occurring in Section 34 of the Act of 1922. The observation of the Supreme Court is as follows (page 221) :

'. . . But the legal position is that if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under Section 34. Whether these grounds are adequate or not is not a matter for the court to investigate. In other words, the sufficiency of the grounds which induced the Income-tax Officer to act is not a justiciable issue. It is of course open for the assessee to contend that the Income-tax Officer did not hold the belief that there had been such non-disclosure. In other words, the existence of the belief can be challenged by the assessee but not the sufficiency of the reasons for the belief. Again the expression 'reason to believe' in Section 34 of the Income-tax Act does not mean a purely subjective satisfaction on the part of the Income-tax Officer. The belief must be held in good faith : it cannot be merely a pretence. To put it differently, it is open to the court to examine the question whether the reasons for the belief have a rational connection or a relevant bearing to the formation of the belief and are not extraneous or irrelevant to the purpose of the section.'

52. In ITO v. Seth Brothers : [1969]74ITR836(SC) , the Supreme Court has held as follows (page 843) :

'The section does not confer any arbitrary authority upon the revenue officers. The Commissioner or the Director of Inspection must have, in consequence of information, reason to believe that the statutory conditions for the exercise of the power to order search exist. He must record reasons for the belief and he must issue an authorization in favour of a designated officer to search the premises and exercise the powers set out therein. The condition for entry into and making search of any building or place is the reason to believe that any books of account or other documents which will be useful for, or relevant to, any proceeding under the Act may be found. If the officer has reason to believe that any books of account or other documents would be useful for, or relevant to, any proceedings under the Act, he is authorised by law to seize those books of account or other documents, and to place marks of identification therein, to make extracts or copies therefrom and also to make a note or an inventory of any articles or other things found in the course of the search. Since by the exercise of the power a serious invasion is made upon the rights, privacy and freedom of the taxpayer, the power must be exercised strictly in accordance with the law and only for the purposes for which the law authorizes it to be exercised. If the action of the officer issuing the authorization or of the designated officer is challenged, the officer concerned must satisfy the court about the regularity of his action. If the action is maliciously taken or power under the section is exercised for a collateral purpose, it is liable to be struck down by the court. If the conditions for exercise of the power are not satisfied the proceeding is liable to be quashed. But where power is exercised bona fide, and in furtherance of the statutory duties of the tax officers any error of judgment on the part of the officers will not vitiate the exercise of the power. Where the Commissioner entertains the requisite belief and for reasons recorded by him authorises a designated officer to enter and search premises for books of account and documents relevant to or useful for any proceeding under the Act, the court in a petition by an aggrieved person cannot be asked to substitute its own opinion whether an order authorising search should have been issued. Again, any irregularity in the course of entry, search and seizure committed by the officer acting in pursuance of the authorisation will not be sufficient to vitiate the action taken, provided the officer has in executing the authorisation acted bona fide.'

53. It would appear from the aforesaid two judgments relied upon by Shri Agarwalla that there must be some reasonable ground for the Income-tax Officer to believe that there has been non-disclosure as regards any fact which led to underassessment. In different sets of information, there may be some information which is reasonable and some information not reasonable. Therefore, segregation of information may be permissible in a given case where the influence exerted by each set of information upon the mind of the authorising officer is capable of being segregated. The court is, however, not to gauge the sufficiency of the grounds. In short, existence of some valid and reasonable grounds must be there and they must have rational connection to the formation of the belief. Such grounds must not be extraneous or irrelevant. There is no dispute that an action initiated maliciously for a collateral purpose is liable to be struck down. But in a case, where the power is exercised bona fide and in furtherance of the statutory duties, any error of judgment on the part of the officers will not vitiate the exercise of the power. The various authorities relied upon by learned counsel for both the parties nowhere suggest that an inadmissible information, even if severable, would render an otherwise decision as invalid. Consideration of the CAG report along with other information cannot, therefore, altogether obliterate the weight of other valid information. This answers the third question.

54. I have perused the decisions of the hon'ble Supreme Court in Dr. Partap Singh v. Director of Enforcement : 1986CriLJ824 and in Pooran Mal v. Director of Inspection (Investigation) : [1974]93ITR505(SC) as well as the decision of the Calcutta High Court in Subir Roy v. S.K. Chattopadhyay : [1986]158ITR472(Cal) . In Dr. Partap Singh : 1986CriLJ824 , the hon'ble Supreme Court held that illegality of a search does not vitiate the evidence collected during such illegal search. Though the decision was rendered in a case under the Foreign Exchange Regulation Act, 1973, yet the ratio available therein has its importance in the case at hand as well. In Pooran Mal : [1974]93ITR505(SC) , the Supreme Court was of the view that even if the search and seizure were in contravention of the provisions of Section 132 of the Income-tax Act, the materials seized were liable to be used subject to law before the income-tax authorities and, therefore, no writ of prohibition could be granted. In Subir Roy : [1986]158ITR472(Cal) , it was held by the Calcutta High Court that there is no necessity to state reasons for invoking powers under Section 132 in the search warrant and that it is also not necessary to specify the documents or books of account, etc., which would be the subject matter of search and seizure. The judgments make it clear that a warrant of authorisation cannot be challenged on the ground that the documents or books of account, etc., which are the subject matter of search have not been specified therein and further that the documents, books of account and other materials seized would not lose their evidentiary value even if search and seizure are illegal.

55. In para. 9 of the counter affidavit filed in W. P. (C) No. 1552 of 2000, the respondent authority stated clearly that the searches were an all India affair in consequence of information in possession of the respondent authority including the reports of discreet inquiries and these reports were considered to conclude that the concerned group was in possession of books of account, papers and documents wherein undisclosed transactions have been recorded, and that the same would never be produced before the income-tax authorities. Necessity, therefore, arises for scrutiny of the office files produced by Shri Agarwalla in order to determine the existence of other information in the possession of the Revenue authorities in forming the required 'belief' and further to ascertain as to whether the minds of the respondent authorities while issuing the warrants of authorisation were influenced solely by the irrelevant material (CAG report). Let us, therefore, traverse through the three office files produced by Shri Agarwalla, learned senior counsel.

56. The file relating to the Directorate in Delhi contains various papers including the note of satisfaction. The DDIT (Investigation), New Delhi, classified the information received from various sources into three groups, namely, (a) information gathered by this Directorate, (b) information received from the DDIT (Investigation), East, and (c) information received by the DDIT (Investigation), New Delhi, from the Comptroller and Auditor General of India. The information gathered by the Directorate as referred to in Clause (a) above cite as many as seven instances of undisclosed property. The information under Clause (b) received from the DDIT, Siliguri, speaks of generation of huge unaccounted income from lottery business. Clause (c) is with regard to the CAG report. Besides this, the DDIT, New Delhi, had also in his possession a number of allegations of tax evasion against this group. These are enumerated in detail in the note of satisfaction. The information in possession of the concerned authority received through discreet inquiries cannot be dubbed as unreasonable. These materials alone were sufficient to form the 'reason to believe' as is required under Section 132. The satisfaction note does not indicate that the 'reason to believe' was founded on the report of the CAG alone.

57. The file relating to the Kolkata office also contains a separate note of satisfaction based on various information obtained from the Delhi Directorate and discreet inquiries. The allegations of tax evasion are relatable to five specific instances. Discreet field inquiries also revealed voluminous information relatable to tax evasion. The report of the CAG was also one of the sources of information which was in addition to the aforesaid information collected from various sources. The note of satisfaction further shows that the authority was satisfied that the concerned group have not disclosed their true income to tax and, as such, even if a notice under Section 131 is issued, the said group will not disclose the true income before the income-tax authorities. The note of satisfaction does not indicate that the report of the CAG was given supremacy in forming the required 'belief'.

58. Similar is the situation with regard to the note of satisfaction of the authorities at Guwahati. The note of satisfaction at Guwahati was drawn on the report of the DDIT (Investigation), Siliguri, wherein information has been recorded of accumulation of property undisclosed to tax. Though this note of satisfaction also refers to the report of the CAG, the satisfaction was drawn primarily on the basis of the information collected from various sources by the DDIT at Siliguri relatable to the concerned group at Guwahati.

59. The details of the information available in the relevant files received from various sources other than the report of the CAG were voluminous, and the same were capable of leading the authorities to conclude that the writ petitioners were in possession of undisclosed property/income which they would never divulge even after service of a notice under Section 131 of the Income-tax Act. The presence of the report of the CAG as one of the sources of the information could not have diluted the gravity of other information in their possession. Any man of ordinary prudence even if not reasonably instructed in law would have on the face of the information without the CAG report come to conclusion that there has been non-disclosure of huge property/income resulting in tax evasion.

60. The discussion above establishes beyond doubt that there was no illegality in issuing the warrants of authorisation of search and seizure under Section 132 of the Income-tax Act in all the cases. The documents/materials recovered and seized during the course of search are evidence of non-disclosure of property/income. Therefore, the petitioners' contention that the respondent authorities acted illegally in issuing the warrants of authorisation of search and seizure has no leg to stand. That apart, as decided in Pooran Mal : [1974]93ITR505(SC) , the materials seized during the course of search have their own evidentiary value for the purpose of consequential action under the Income-tax Act and no writ of prohibition in restraint of such use could be granted. The petitioners have no option but to surrender before the taxing authorities for consequential action under the provisions of law. That apart, they may also take refuge of alternative remedy as provided in the Act of 1961. In the result, all the writ petitions are dismissed.

No costs.