The division bench of the Supreme Court has held that sufficiency or adequacy of “reason to believe” need not be considered to determine the validity of search under section 132 of the Income Tax Act 1961.
The assessee, Laljibhai Kanjibhai Mandalia provide loan to M/s. Goan Recreation Clubs Private Ltd. on the security of the property of another company. The loan was repaid by the latter in five installments. The appellant believed that the investment and nature of the transaction entered into by the assessee was akin to the familiar modus operandi employed by the entry operators to provide accommodation entry.
The appellant conducted a search under section 132 in the residential premises of the assessee without supplying a satisfaction note. The aggrieved assessee filed a Writ petition before the jurisdictional High Court alleging that the conditions precedent as specified in Section 132 of the Act are not satisfied. Thus, the High Court quashed the warrant of authorization issued by the appellant under Section 132 of the Income Tax Act,1961. Aggrieved revenue filed an appeal before the Supreme Court.
The counsel for the revenue submitted that though it is open to the Court to examine the question of whether “reasons to believe” have any rational connection or a relevant bearing to the formation of the belief and that such reasons are not extraneous or irrelevant as the officer has to produce relevant evidence to sustain his belief in case the reasons to believe are questioned in court, however, it was argued that the jurisdiction of the High Court is to examine the existence of reasons not the legality of the same.
The division bench observed that the sufficiency or inadequacy of the reasons to believe recorded cannot be gone into while considering the validity of an act of authorization to conduct search and seizure. The belief recorded alone is justiciable but only while keeping in view the Wednesbury Principle of Reasonableness. Such reasonableness is not a power to act as an appellate authority over the reasons to believe recorded.
The Coram of Mr. Justice Hemant Gupta and Mr. Justice V. Ramasubramanian has held that “we find that the High Court was not justified in setting aside the authorization of search dated 07.08.2018. Consequently, the appeal is allowed and the order passed by the High Court is set aside. As a consequence, thereof, the Revenue would be at liberty to proceed against the assessee by law”.
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