Saturday, May 16, 2015

SC rejects High Court's order quashing search warrant due to non-communication of reasons thereof to assessee


Facts :

a)The block assessment of the assessee was sought to be initiated under Section 153A of the Income-tax Act ('the Act') following a search conducted on the assessee. The same has been interdicted by the High Court rejecting the validity of the warrant authorizing the search under section 132 of the Act;

b)The High Court held that it was the Director General who took the decision to issue the search warrant but the said decision was not on the basis of its own satisfaction but was issued on the basis of the satisfaction recorded by the Director of Income-tax (Investigation). Consequently, the High Court held that the satisfaction mandated by Section 132 of the Act was not that of the authority who issued the search warrant, there by vitiating the authorization issued;

c)Aggrieved by the order of High Court the revenue filed the instant appeal.

Supreme Court held in favour of revenue as under :

1)The necessity of recording of reasons in case of search under Section 132 has been repeatedly stressed upon by the Courts so as to ensure accountability and responsibility in the decision making process;

2)The necessity of recording of reasons also acts as a cushion in the event of a legal challenge being made to the satisfaction reached. Reasons enable a proper judicial assessment of the decision taken by the Revenue. However, it would not confer on the assessee a right of inspection of the documents or to a communication of there a sons at the stage of issuing of the authorization. Any such view would undermine the entire exercise contemplated by Section 132 of the Act. It is only at the stage of commencement of the assessment proceedings after completion of the search and seizure, if any, that the requisite material may have to be disclosed to the assessee;

3)The High Court had committed a serious error in reproducing in great details the contents of the satisfaction notes containing the reasons for the satisfaction arrived at by the authorities under the Act. We have already indicated the time and stage at which the reasons recorded may be required to be brought to the notice of the assessee. Thus, we could not approve of the aforesaid part of the exercise undertaken by the High Court which has the potential of conferring an undue advantage on the assessee;

4)A careful reading of the order of the Director General would go to show that all he did was to record the view that the satisfaction of the Director, Income-tax (Investigation) was reasonable and therefore administrative approval should be accorded. The view taken by the High Court, therefore, could not be sustained. In view of the foregoing discussions the order of the High Court was to be set aside. - DGIT (Investigation) v. Spacewood Furnishers (P.) Ltd. (2015) 57 taxmann.com 292 (SC)
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