PRINCIPAL DIRECTOR OF INCOME TAX (INVESTIGATION) & ORS. versus LALJIBHAI KANJIBHAI MANDALIA

Citation: [2022] 15 S.C.R. 232 · Decided: 13-07-2022 · Supreme Court of India · Bench: HEMANT GUPTA · Disposal: Appeal(s) allowed

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Judgment (excerpt)

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SUPREME COURT REPORTS
[2022] 15 S.C.R.
   [2022] 15 S.C.R. 232
232
PRINCIPAL DIRECTOR OF INCOME TAX
(INVESTIGATION) & ORS.
v.
LALJIBHAI KANJIBHAI MANDALIA
(Civil Appeal No. 4081 Of 2022)
JULY 13, 2022
[HEMANT GUPTA AND V. RAMASUBRAMANIAN, JJ.]
Income Tax Act, 1961: ss. 132 and 133 – Search and Seizure
under – Reason to believe –Assessee during the financial year
transferred a sum of 10 Crores to a company –Assessee secured the
loan by way of a mortgage of the property –Assessee became director
to the company and ceased to be so the next month – Amount of
Rs.10 crores was repaid with interest on different dates and after
repayment of the loan, mortgage was released- Assessee filed his
income-tax return showing the interest income which has been taxed
as well – After recording reasons to believe in the satisfaction note,
search was conducted in terms of s.132 – Satisfaction note was not
supplied to the assessee nor was required to be disclosed in terms
of Explanation to s. 132(1) –Assessee challenged the warrant of
authorization issued by Revenue – High Court quashed the warrant
of authorization –On appeal, held: The view of the High Court that
the authorization to search the premises of the assessee is invalid,
cannot be sustained –Detailed satisfaction note shows multiple
entries in the account books of Company’s Director –Manner in
which Director contacted the assessee in Ahmedabad for a loan of
Rs.10 crores does not appear to be a normal transaction –
Subsequent repayment of mortgage and the interest income reflected
in the relevant assessment year appears to be the steps taken by the
assessee to give a colour of genuineness –Investmentof Rs.10 crores
for a short period was not for earning interest income as the same
was repaid in the same assessment year –Revenue intends to
investigate the fund trail of the money paid by the assessee– Such
belief is not out of hat or whimsical–It was a reasonable belief drawn
by the Revenue that the assessee shall not produce or cause to be
produced any books of accounts or other documents which would
be useful or relevant to the proceedings – Such believe was
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not based upon conjectures but on a bona-fide opinion framed in
the ordinary conduct of the affairs by the assessee generally-
Revenue wishes to find out as to whether amount is an undisclosed
income – 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 – Thus, the High
Court not justified in setting aside the authorization of search.
s. 132 –Search and seizure under – Principles to be followed
– Stated.
Allowing the appeal, the Court
HELD: 1. The detailed satisfaction note shows multiple
entries in the account books of SS and others. The manner of SS
who was either in Siliguri (West Bengal) or in Goa contacting the
assessee in Ahmedabad for a loan of Rs.10 crores does not appear
to be a normal transaction. Subsequent repayment of mortgage
and the interest income reflected in the relevant assessment year
appears to be the steps taken by the assessee to give a colour of
genuineness but the stand of the Revenue that such entry was an
accommodation entry is required to be found out and also the
cobweb of entries required to be unravelled including the trail of
the money paid by the assessee.The reasons to believe are not
the final conclusions which the revenue would arrive at while
framing block assessment in terms of Chapter XIV-B of the Act.
The test to consider the justiciability of belief is whether such
reasons are totally irrelevant or whimsical. The reply in the
counter affidavit shows that the intention of the Revenue was to
un-layer the layering of money which is suspected to be done by
the assessee. The Revenue has asserted that the accommodation
entry is a common modus operandi to bring the unaccounted black
money to books for a brief period. The investment of Rs.10 crores
for a short period was not for earning interest income as the same
was repaid in the same assessment year. The Revenue intends
to investigate the fund trail of the money paid by the assessee.
Such belief is not out of hat or whimsical. [Paras 24 and 25][257-
B-H; 258-A-B]
2. As per the Revenue, Clauses (b) & (c) of Section 132 (1)
were satisfied before the warrant of authorization was approved.
PRINCIPAL DIRECTOR OF INCOME TAX (INVESTIGATION) &
ORS. v. LALJIBHAI KANJIBHAI MANDALIA
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