Judgment:
M. Katju, J.
1. Heard learned counsel for the parties.
2. The petitioners in both the aforesaid petitions are husband and wife and are both doctors. Dr. Mrs. Anita Sahai is a gynaecologist running a maternity centre by the name of Manavi Women Clinic and Maternity Centre at B-237, Sector 19, Noida, Dr. Shard B. Sahai, her husband, is a qualified radiologist and is running a diagnostic centre in the name and style of Transmed Diagnostics at A-759, Sector 19, Noida, which is also the residence of both the petitioners.
3. The petitioners have challenged the validity of the warrant of authorisation under Section 132(1) of the Income-tax Act, 1961, and the initiation of block assessment proceedings, by issue of notice under Section 158BC of the Act by respondent No. 5, and continuation thereof by respondent No. 6 by issue of notice dated October 26, 2002, under Section 142(1) of the Act.
4. The facts of the case are that on March 19, 2002, at about 8.00 a.m. the respondents authorities their officers, servants and agents in purported exercise of the powers under Section 132(1) of the Income-tax Act started search at the aforesaid premises of the petitioners as stated in paragraph 7 of the petition. It is alleged in paragraph 7 of the petition that the aforesaid premises have been disclosed in the returns of the petitioners year after year.
5. In paragraph 8 of the petition it is mentioned that during the course of simultaneous search operation at the aforesaid premises the following valuables were found :
(a) Household jewellery valued at Rs. 1.15 lakhs ;
(b) Cash amounting Rs. 2.19 lakhs.
6. A panchnama was prepared for the same by the authorised officers at the conclusion of the search on March 20, 2002, at 3. 00 a.m. In terms of the panchnama cash of Rs. 1.50 lakhs was seized. No valuables were seized from the premises B-237, Sector 19, Noida, as nothing was found there except certain documents and patients records which were seized, in terms of the second panchnama. True copies of the panchnama are annexure 4 and annexure 5, respectively.
7. It is alleged in paragraph 4 of the petition that the petitioner, Dr. Mrs. Anita Sahai, has been carrying on her profession in the clinic, namely, Manvi Women Clinic and Maternity Centre at B-237, Sector 19, Noida, and has been regularly assessed to tax. She filed her latest return for the assessment year 2001-2002 with the Income-tax Officer, Ward-I, Noida. For the assessment year 2002-2003, she made payment of advance tax in three instalments prior to the date of the search. She had purchased a property No. 759, Sector 19, Noida, on July 9, 1999, and the investment in the purchase of the property was disclosed in the relevant balance-sheets accompanying her income-tax return for the assessment years 2000-2001 and 2001-2002, vide annexures I and II to the writ petition.
8. The petitioner's husband, Dr. Sharad B. Sahai, who is the petitioner in Writ Petition No. 3005 of 2002 is also a medical practitioner who resigned from CGHS in the year 1996, where he was working as a professor at that time. He has been assessed to tax regularly and his returns for the assessment year 2001-2002 had been filed before the commencement of the search operation. For the assessment year 2002-2003 he had paid three instalments of advance tax. As his professional receipts were within the purview of Section 44AB of the Income-tax Act his return for that year was duly accompanied by the audited balance-sheet and profit and loss account and the tax audit report under Section 44AB, vide annexure III to the writ petition.
9. It is alleged in paragraph 9 of the petition that the cash found at the time of search was fully explainable being ;
(a) Rs. 1,84,000 cash balance available with the petitioner and her husband out of professional receipts and
(b) Rs. 35,000 belonging to Ms. Sharda Saxena aged aunt of the petitioner's husband who has been living there for quite some time.
10. Despite this cash of Rs. 1.50 lakhs was seized.
11. In paragraph 10 of the petition it is alleged that from the panchnama it appears that the warrant of authorisation under Section 132 to carry out the search was issued by the Joint Director of Income-tax (Investigation), Meerut, who was present at the time of the search. Locker No. 18, with the Oriental Bank of Commerce, Sector 27, Noida, standing in the joint names of the petitioners was subjected to prohibitory under Section 132(3) of the Act on March 19, 2002, The said locker was opened on March 23, 2002, and cash amounting to Rs. 5 lakhs and some household jewellery was seized, vide panchnama dated March 23, 2002, annexure VI, to the writ petition. It is alleged in paragraph 12 of the petition that the cash found in the locker was part of the withdrawals made by the petitioner Dr. Mrs. Anita Sahai to the extent of Rs. 1.50 lakhs and of Dr. Sharad B. Sahai to the extent of Rs. 3.50 lakhs from their professional receipts. It is alleged that the same being disclosed assets no seizure could have been done in respect of them.
12. It is alleged in paragraph 13 of the petition that with the commencement of search operation on March 19, 2002, the authorised officer issued prohibitory orders under Section 132(3) in relation to various bank accounts belonging to Dr. Mrs. Anita Sahai as mentioned in paragraph 13 of the petition.
13. It is alleged in paragraph 14.01 that at the conclusion of the search the authorised officers in a most unusual behaviour called some person purporting to be the Valuation Officer who made a wild estimate of Rs. 25 lakhs in relation to the property at A-759, Sector 19, Noida. It is alleged that the petitioners were exhausted after a gruesome strain of nearly 19 hours of search and seizure action during which they were even not allowed to sleep. Dr. Sharad B. Sahai was made to surrender a sum of Rs. 10 lakhs as his undisclosed income and the petitioner was made to agree to such surrender. True copies of the statements are annexures VII and VIII to the writ petition. It is alleged in paragraph 15 of the writ petition that the entire search and seizure operation was illegal. The warrant of authorisation stated to have been issued by the Director of Income-tax, Kanpur, was dated March 19, 2002. It is alleged that the said authority while sitting at Kanpur could not possibly have issued the aforesaid warrant of authorisation, as the search operation commenced at 8 a.m. the same day.
14. Moreover it is alleged in paragraph 16 of the petition that none of the three conditions mentioned in Section 132(1) of the Act have been fulfilled. It is alleged in paragraph 17 of the writ petition that there existed no material which could lead to the formation of reason to believe that any of the three conditions mentioned in Section 132(1) of the Act had been fulfilled. It is alleged that there did not exist any material which could lead to formation of reason to believe that any asset owned and possessed by the petitioner was not, or would not be disclosed in due course.
15. In paragraph 23 of the petition it is alleged that the Joint Director of Income-tax (Investigation), respondent No. 3, who is the authority stated to have issued the warrant of authorisation did not have any power to issue such warrant. It is alleged that the Joint Director had not been empowered by the Central Board of Direct Taxes for this purpose vide paragraph 24 of the writ petition. Hence, it is alleged that the entire search and seizure was illegal.
16. The petitioner made a representation dated July 6, 2002, vide annexure 14 to the writ petition to the Director of Income-tax (Investigation), Kanpur, objecting to the validity of the search and requesting that the satisfaction note recorded prior to the issue of warrant of authorisation be supplied to the petitioner so that the petitioner can examine the alleged material on the basis of which the warrant under Section 132 was issued.
17. In paragraph 33 of the petition the petitioner had stated that she had objected to the transfer of jurisdiction from Noida to Meerut. The petitioners have also challenged the continuation of the block assessment proceedings and the notice dated October 26, 2002, issued by respondent No. 5 under Section 142(1) of the Act.
18. The respondents have filed a counter affidavit.
19. In paragraph 3 of the same it has been stated that a valid warrant of authorisation under Section 132(1) was issued by respondents Nos. 1 and 3 and block assessment proceedings were validly initiated. In paragraph 5 of the same it is stated that the petitioner had not fully disclosed her income from the medical profession. In this connection a letter of the Joint Director of Income-tax, Meerut, to the Director of Income-tax, Kanpur, dated June 11, 2002, is annexure 1 to the counter affidavit. It is alleged that the statement on oath of the petitioner was recorded at the time of the search and she admitted that two OPD registers are being maintained in respect of the patients for the same period. In one register on the same date the numbers of patients are more while on the same date in the other register the number of patients has been shown less. On April 2, 2001, the receipts of OPD patients in one register was shown as Rs. 2,350 while the receipts on the same date in the other register was shown only at Rs. 680. True copy of the statement of the petitioner, Dr. Smt. Anita Sahai, is annexure IA to the counter affidavit.
20. In paragraph 6 of the counter affidavit it is stated that the petitioner filed a reply dated April 29, 2002, before the Additional Director (Investigation), Ghaziabad, stating that the property at A-759, Sector 19, Noida, was purchased on July 9, 1999, in the joint names of the petitioners for Rs. 21,40,000 and later on further construction was done. The source of the investment in this property was stated to be taxable income/past saving/loans. It is alleged that the petitioner has not filed the copy of the purchase deed, not given the details of the amounts and sources of investment. Thus the petitioner failed to substantiate the investment in this property by documentary evidence. Dr. Mrs. Anita Sahai has declared investment of Rs. 16,79,300 vide annexure 2, to the counter affidavit. It is alleged that the total investment on the purchase of the property is admitted to be Rs. 21,15,000 while the disclosed investment is only Rs. 16,79,300. On March 19, 2002, Dr. Sharad B. Sahai in his preliminary statement alleged that the third floor of the house was constructed up to April, 2000, and investment of Rs. 9 lakhs had been made thereon. It is alleged that the property at A-759, Sector 19, Noida, was not fully disclosed in the return of Dr. Mrs. Anita Sahai.
21. Regarding the property No. B-237, Sector 19, Noida, Dr. Sharad B. Sahai has declared the value of the house to be Rs. 6,21,667 as on April 1, 1997, in his income-tax return. However, the petitioner has not supplied copy of the purchase deed and details of year wise investment made on the constructions. It is alleged that the building at B-237, Sector 19, Noida, is a three storeyed building with basement and this property exclusively belongs to Dr. Sharad B. Sahai for the use of his wife running her clinic. Hence, the fair market value of rent is assessable in the hands of Dr. Sharad B. Sahai. Hence, it is alleged that his income has not been fully or truly declared.
22. In paragraph 11 it is denied that the petitioner has explained the source of cash of Rs. 5 lakhs kept in the locker.
23. In paragraph 14 of the counter affidavit it is alleged that the petitioner has made surrender of his income/investment of his own free will without any force or compulsion by the search party. The search and seizure operation was legal and valid. In paragraph 16 it is denied that there existed no information on the basis of which the warrant could be issued.
24. In paragraph 20 of the counter affidavit it is stated that the original warrants of authorisation were issued by the Director of Income-tax (Investigation), Kanpur, in respect of premises No. A-759, Sector 19, Noida, and B-237, Sector 19, Noida. The Joint Director of Income-tax (Investigation), Meerut, has issued consequential warrant of authorisation only in respect of two lockers as per law. It is settled that the Central Board of Direct Taxes vide Notification, dated October 11, 1990, has empowered all the Deputy Directors of Income-tax (Investigation) to perform the function of the Director. The Deputy Directors of Income-tax (Investigation) have been designated as Joint Director of Income-tax (Investigation) with effect from October 1, 1998. Hence, the Joint Director has power to issue the warrant of authorisation.
25. It is alleged by the respondents that as per his preliminary statement, Dr. Sharad B. Sahai in reply to question No. 8 stated that only cash of Rs. 40,000 to 50,000 was available at the residence at the time of the search. This statement was found to be incorrect as cash amounting to Rs. 2.19 lakhs was found at the residence. In paragraph 20 of the counter affidavit it is stated that the petitioner had deliberately not mentioned in the writ petition that surrender of Rs. 10 lakhs was made at the time of search.
26. A rejoinder affidavit has also been filed and we have perused the same.
27. Learned counsel for the petitioner, Sri Dhruv Agarwal, had submitted that there was no reason to believe for initiating action under Section 132(1) of the Act. This is evident from the fact that after the search and seizure operation was over the respondents in exercise of powers under Section 131(1A) issued summons on April 4, 2002, and May 6, 2002, to the petitioner.
28. Section 131(1A) states :
'(1A) If the Director General or Director or Joint Director or Assistant Director or Deputy Director, or the authorised officer referred to in Sub-section (1) of Section 132 before he takes action under Clauses (i) to (v) of that sub-section, has reason to suspect that any income has been concealed, or is likely to be concealed, by any person or class of persons, within his jurisdiction, then, for the purposes of making any enquiry or investigation relating thereto, it shall be competent for him to exercise the powers conferred under Sub-section (1) on the income-tax authorities referred to in that sub-section, notwithstanding that no proceedings with respect to such person or class of persons are pending before him or any other income-tax authority.'
29. Learned counsel for the petitioner has submitted that a perusal of Section 131(1A) shows that notice can be issued thereunder only before the authorised officer takes action under Section 132(1) of the Act. He submits that Section 131(1A) consists of two conditions which are required to be fulfilled before any action is taken under Section 132(1). These conditions are :
(a) the Assessing Officer has reason to suspect that any income has been concealed or is likely to be concealed and,
(b) he can make the enquiry before he takes action under clauses (i) to (v) of Section 132(1).
30. Learned counsel for the petitioner has submitted that while Section 131(1A) uses the expression 'reason to suspect', Section 132(1) uses the expression 'reason to believe'. Reason to believe stands on a higher footing than reason to suspect, as held by the Constitution Bench of the Supreme Court in M. Ct. Muthiah v. CIT : [1956]29ITR390(SC) . Similarly in ITO v. Lakhmani Mewal Das : [1976]103ITR437(SC) , the Supreme Court held that the words used in Section 147/148 of the Income-tax Act are reason to believe and not reason to suspect.
31. We are of the opinion that the submission of learned counsel for the petitioner is correct. The respondents in their counter affidavit have stated that it was respondent No. 4 who had sent the material to respondent No. 1 on the basis of which respondent No. 1 had recorded his satisfaction under Section 132(1). It is respondent No. 4 himself who had issued summons under Section 131(1A) of the Act after the search. As such there could not possibly be any material, which can be the basis of having reason to believe in respondent No. 1. The very fact that the respondents issued notices under Section 131(1A) after the search and seizure operation under Section 132 of the Act goes to show that there was neither reason to believe nor material before the authorising officer on the basis of which he could issue a warrant under Section 132 of the Act.
32. It is well settled that before taking any action under Section 132 of the Act the condition precedent which must exist should be information in possession of the Director of Income-tax which gives him reason to believe that a person is in possession of some article, jewellery, bullion or money which represents wholly or partly his income which was not disclosed or would not be disclosed. If the aforesaid condition is missing the Commissioner or Director of Investigation will have no jurisdiction to issue the warrant of authorisation under Section 132(1), vide Ganga Prasad Maheshwari v. CIT : [1983]139ITR1043(All) ; Dr. Nand Lal Tahiliani v. CIT : [1988]170ITR592(All) ; Dr. Sushil Rastogi v. Director of Investigation, Income-tax Department : [2003]260ITR249(All) ; Ravi Iron Industries v. Director of Investigation : [2003]264ITR28(All) and Smt. Kavita Agarwal v. Director of Income-tax (Investigation) [2003] 264 ITR 472.
33. It is submitted by learned counsel for the petitioner that a perusal of Section 132(1) would show that the scheme of Section 132 of the Act postulates that the mind has to be applied by two officers at two different stages, i.e.,
(i) firstly, by the Director of Investigation or the Commissioner while issuing a warrant of search on the basis of his reason to believe that any person is in possession of any jewellery, ornaments or money, etc., which are believed to be an undisclosed property ; and
(ii) secondly, by the authorised officer when during the search any particular jewellery, ornaments or money is found can be reasonably believed to be an undisclosed property.
34. Since the authorised officer has to form an opinion before seizing the particular ornaments he will necessarily have to investigate the matter. In the present case it appears that no such investigation has been done by the authorised officer at the time of seizure and indiscriminate seizure has been made by it contrary to the guidelines of the Central Board of Direct Taxes, etc.
35. Learned counsel for the petitioner has relied on the decisions in Om Parkash Jindal v. Union of India and Balwant Singh v. R. D. Shah, Director of Inspection : [1969]71ITR550(Delhi) .
36. In the present case it appears that there has been an indiscriminate seizure without any application of mind in as much as all the books of account which were duly reflected in the balance-sheet, income-tax returns, patient case records which are required for medico-legal cases purposes, computers and other professionally related documents and articles have been seized by the Department.
37. The respondents are trying to justify the seizure on the basis of post search materials, which in our opinion cannot be legally done. It is a well-established law as laid down by the Supreme Court of India that the order originally passed cannot be improved by way of affidavits vide Mohinder Singh Gill v. Chief Election Commissioner : [1978]2SCR272 .
38. Learned counsel for the petitioner has relied on several decisions of the Supreme Court and this court in support of his submission that the action of the respondents was illegal.
39. In CIT v. Vindhya Metal Corporation : [1997]224ITR614(SC) , the Supreme Court observed (page 618) :
'Mere unexplained possession of the amount, without anything more, could hardly be said to, constitute information which could be treated as sufficient by a reasonable person, leading to an inference that it was income which would not have been disclosed by the person in possession for purposes of the Acts.'
40. In Dr. Nand Lal Tahiliani v. CIT : [1988]170ITR592(All) , the Allahabad High Court held that the averments of information under Section 132 must be in good faith and there must be rational relation between the information and the material and reasonable belief. Mere rumour of roaring practice and charging of high rate of fee and living in a posh house, in the absence of any other material could not be construed as constituting information in consequence of which the Director could have reason to believe that the petitioner had not disclosed his income or would not disclose it.
41. The search and consequent actions of the Department were therefore held to be illegal. The Supreme Court dismissed the S.L.P. against this judgment (see [1988] 171 ITR 47).
42. In L.R. Gupta v. Union of India : [1992]194ITR32(Delhi) , it was held by the Delhi High Court that the expression 'information' must be something more than a mere rumour or a gossip or a hunch. There must be some material, which can be regarded as information, which must exist on the file on the basis of which the authorising officer can have reason to believe that action under Section 132 is called for. It was also observed therein (page 47): '... an assessee is under no obligation to disclose in his return of income all the moneys which are received by him which do not partake of the character of income or income liable to tax. If an assessee receives, admittedly, a gift from a relation or earns agricultural income, which is not subject to tax, then he would not be liable to show receipt of that money in his income-tax return. Non-disclosure of the same would not attract the provisions of Section 132(1)(c). It may be that the opinion of the assessee that the receipt of such amount is not taxable may be incorrect and, in law, the same may be taxable, but where the Department is aware of the existence of such an asset or the receipt of such an income by the assessee, then the Department may be fully justified in issuing a notice under Section 148 of the Act, but no action can be taken under Section 132(1)(c). ..'
43. In Ajit Jain v. Union of India : [2000]242ITR302(Delhi) , it was observed (vide page 311) : 'The mere fact that the petitioner was in possession of the said amount could not straightaway lead to the inference that it was his undisclosed income ... the intimation simplicitor by the CBI that the money was found in the possession of the petitioner, which, according to the CBI, was undisclosed, in our view, without something more, did not constitute information within the meaning of Section 132 so as to induce a belief that the cash represented the petitioner's income which has not been or would not be disclosed. A bare intimation by the police or for that matter by any person, without something more, cannot be considered sufficient for action under Section 132 of the Act, for it would be giving naked powers to the authorities to order search against any person and prone to be abused. This cannot be permitted in a society governed by rule of law.
44. Even assuming that the said amount was not reflected in the books of account of the company, as claimed by the petitioner, the mere possession of the said amount by the petitioner could hardly be said to constitute information which could be treated as sufficient by a reasonable person, leading to an inference that it was income which had not been or would not have been disclosed by him for the purposes of the Act, particularly when the petitioner as well as the company, of which he was claiming to be the managing director, were regular assessees with the Income-tax Department.'
45. In our opinion these decisions squarely apply to the facts of the present case. It seems to us that the Department has only acted on rumours. The petitioners are admittedly leading doctors in Noida having a huge practice as is evident from annexures I, II and III to the petition. They were regularly assessed to tax and had filed income-tax returns up to date (vide para. 17 to the petition).
46. In paras. 17 and 18 of the writ petition it has been clearly stated that there existed no material before the Director which could lead to the formation of reason to believe under Section 132(1) for issuance of the warrant of authorisation.
47. In para. 16 of the counter affidavit it is stated that the Additional Director of Income-tax (Investigation), Ghaziabad, and the Joint Director of Income-tax (Investigation), Meerut, have brought material on record and they have made an analysis which shows that the petitioner and his wife have been concealing their income in the income-tax returns and were in possession of undisclosed assets. We are of the opinion that the aforesaid averment is very vague. When a positive averment is made in the writ petition that there were no material which could lead to formation of reason to believe in the Director for issuance of warrant of authorisation under Section 132 the respondents must in their counter affidavit give specific details as to what particular facts and materials were taken into consideration by the Director which led to formation of reason to believe under Section 132. This material must be taken into consideration by the Director at the time when he issues warrant of authorisation under Section 132. If the Director considers this material after issuance of warrant of authorisation it will be illegal, even if the material existed earlier. In the present case there is nothing to show that any relevant material was considered by the Director at the time of issuing the impugned warrant of authorisation which led to formation of reason to believe that the petitioners had undisclosed assets or undisclosed income.
48. No doubt para. 16 of the counter affidavit has mentioned that the Director has recorded satisfaction note on February 26, 2002, but the said note has not been annexed to the counter affidavit, and we are unaware of its contents. The case was heard on many dates but yet the respondents have not filed copy of the alleged satisfaction note dated February 26, 2002, and hence no reliance can be placed on the same.
49. It may be mentioned that search and seizure cannot be a fishing expedition. Before search is authorised the Director must on the relevant material have reason to believe that the assessee has not or would not have disclosed his income.
50. In our opinion the reason to believe must exist and must be taken into consideration by the Director/Commissioner at the time of issuing of warrant of authorisation. If the reason to believe comes into existence later, i.e., after issuance of warrant of authorisation, then in our opinion the warrant of authorisation and entire search and seizure will be illegal even if the material on the basis of which the Director formed his opinion that there was reason to believe existed prior to the issuance of warrant of authorisation. In the present case even assuming that there existed relevant material prior to the issuance of warrant of authorisation which could have led to the Commissioner to form his reason to believe under Section 132, it is an illegal warrant of authorisation since the aforesaid material was taken into consideration by the Director/ Commissioner, subsequent to the issuance of the warrant of authorisation.
51. The decision of this court in Dr. Nand Lal Tahiliani v. CIT : [1988]170ITR592(All) , squarely applies to the facts of the present case.
52. The aforesaid decision has been affirmed by the Supreme Court (CIT v. Dr. Nandlal Tahilaini : [1988]172ITR627(SC) ).
53. In view of the above facts the search and seizure in question is illegal and is liable to be quashed. We also find that the prohibitory orders under Section 132(3) read with Section 281B of the Act expired on February 27, 2003, and no extension is on the record. Hence, the entire seizure and restraint order relating to the bank accounts in question have become infructuous and they are directed to be released forthwith.
54. It is not necessary for us in the circumstances to decide the additional point raised by the petitioners challenging the transfer of the case from Noida to Meerut.
55. Both these petitions are therefore allowed.
56. The warrants of authorisation and all proceedings subsequent thereto are quashed. The cash and other articles and books seized from the petitioners shall be returned to them forthwith. The respondents are directed not to proceed with the notices dated May 9, 2002, and October 26, 2002.