Sufficiency Or Inadequacy Of Reasons To Believe Cannot Be Looked Into While Considering Validity Of Search & Seizure U/Sec 132 Income Tax Act: Supreme Court

• In a judgment delivered on Wednesday,The Supreme Court reiterated the essential principles in exercising the writ jurisdiction in the matter of search and seizure under Section 132 of the Income Tax Act.
• The court was taking into consideration an appeal against the judgment of the High Court of Gujarat by which the warrant of authorization issued by the Principal Director Of Income Tax Investigation under Section 132 of the Income Tax Act,1961 was rescinded.
• Before the High Court, the writ petitioner assessee had asserted that it was a fishing enquiry and the conditions precedent as specified in Section 132 of the act are not appeased.
• According to him, he was searching for an avenue to invest some money and the M/s. Goan Recreation Clubs Private Ltd required finance for setting up of its business and consequently, approached the assessee herein for a loan.
• As a security, the borrower organization offered that another organization would give its property to the assessee.
• Before the Apex Court, the Revenue argued that though it is open to the Court to examine the question whether "reasons to believe" have any rational connection or a relevant bearing to the formation of the belief , such reasons are not unessential or irrelevant as the official has to produce pertinent proof to sustain his belief, in case the reasons to believe are questioned in court.
• However, the jurisdiction of the High Court is to analyze the existence of reasons, not the legality of the same.
• The respondent assessee contended that the High Court has rightly held that none of the pre-requisite conditions for search and seizure under Section 132 of the Act are fulfilled.

Applying the following principles to facts of the case in hand, the bench held that the High Court was not justified in setting aside the authorization of search, and noted the following :

• The development of opinion and the reasons to believe recorded is not a judicial or quasi-judicial function but administrative in character.
• The information must be in possession of the authorized official based on the material and that the formation of opinion must be honest and bona fide. It cannot be merely fake.
• The authority must have information in its possession on the basis of which a sensible conviction can be found that the person concerned has omitted or failed or will fail to produce books of accounts or other relevant documents for production of which summons or notice had been issued.
• Such reasons may have to be placed before the High Court in case of a challenge to formation of the belief of the competent authority in which event the Court would be qualified to examine the reasons for the formation of the belief, though not the sufficiency or adequacy thereof.
• Such reasons shaping part of the satisfaction note are to satisfy the judicial consciousness of the Court and any part of such satisfaction note is not to be made part of the order.
• The question as to whether such reasons are sufficient or not is not a matter for the Court to review in a writ petition. The grounds which induced the competent authority to act is not a justiciable issue.
• The relevance of the reasons for the formation of the belief is to be tested by the judicial restraint as in administrative action as the Court does not sit as a Court of appeal but merely surveys how the decision was made. The Court shall not analyse the sufficiency or adequacy thereof.
• In terms of the explanation inserted by the Finance Act, 2017 with retrospective effect from April, 1962, such motivations to believe as recorded by income tax authorities are not required to be revealed to any person or any authority or the Appellate Tribunal.