In a landmark verdict, the Supreme Court on Wednesday set out principles for high courts in search and seizure under income tax rules, and said the formation of opinions and reasons to believe registered by the Ministry of Revenue is not a judicial or quasi-judicial function. , but of an administrative nature.
A bench of Judges Hemant Gupta and V Ramasubramanian quashed the order of the Gujarat High Court quashing the Search and Seizure Authorization Warrant dated August 7, 2018, issued by the Principal Director of Income Tax ( investigation).
“We note that the High Court was not justified in canceling the search authorization dated August 7, 2018. Consequently, the appeal is allowed and the order made by the High Court is canceled. Accordingly, the tax authorities would be free to prosecute the assessee according to law,” the Supreme Court ruled.
The High Court had issued the order on a plea by an Ahmedabad-based businessman who had invested money in a leisure company in Goa and whose premises were raided and seized by the Revenue Department.
The bench said in light of previous judgments, the sufficiency or insufficiency of recorded grounds to believe cannot be considered when considering the validity of an act of authorization to search and seize. .
“Recorded belief alone is justiciable, but only bearing in mind Wednesbury’s Principle of Reasonableness. Such reasonableness is not a power to act as an appellate authority on reasons to believe recorded,” he said.
The bench said it would like to develop principles for the exercise of judicial jurisdiction in search and seizure under Section 132 of the Income Tax Act.
“Opinion formation and recorded reasons for belief are not a judicial or quasi-judicial function, but administrative in nature,” he said, adding that the information must be in the possession of the authorized official on the basis of the material and that the formation of the opinion must be honest and in good faith and cannot be a mere simulation.
He said that taking into account anything extraneous or irrelevant would vitiate belief/satisfaction.
“The authority must have in its possession information on the basis of which it may reasonably be believed that the person concerned has omitted or omitted to produce books of accounts or other documents for the production of which a summons or notice had been issued, or that such person will not produce such books of accounts or other documents even if a summons or notice is issued to him,” the bench said.
He stated that there should be a reasonable belief that such a person is in possession of money, bullion, jewelry or other items of value which represent in whole or in part income or property, which have not been or would not be disclosed.
“These reasons may need to be brought before the High Court in the event of a challenge to the formation of the belief of the competent authority, in which case the Court would be entitled to consider the reasons for the formation of the belief, but not the sufficiency or their adequacy. In other words, the Court will examine whether the reasons recorded are motivated by bad faith or on a mere pretext and that no extraneous or irrelevant element has been taken into account,” he said. he declares.
The bench said that these reasons forming part of the note of satisfaction must satisfy the judicial conscience of the Court and that no part of this note of satisfaction must form part of the order.
“The question of whether or not these reasons are adequate is not within the scope of the Court’s examination in the context of an application in brief. The sufficiency of the reasons which prompted the competent authority to act is not a justiciable issue,” the bench said.
He added that the relevance of the grounds for the formation of the belief must be tested by judicial deference as in administrative action because the Court does not sit as an appellate court, but merely reviews how the decision has been made.
“The Court will not consider the sufficiency or adequacy of this,” she said, adding that under the terms of the explanation inserted by the Finance Act 2017 with retroactive effect from April 1, 1962 , the reasons for believing recorded by the tax authorities are not to be disclosed to any person or authority or to the court of appeal.
July 14, 2022