D.K.Seth, J. - (1.) A notice under Section 132(1) of the Income-tax Act 1961, is the subject matter of challenge in this proceedings. The writ petition, however, was allowed by a judgment dated October 8, 2002 (Mahesh Kumar Agarwal v. Deputy Director of income-tax [2003] 260 ITR 67), quashing the notice. Challenging the said order passed in Writ Petition No. 2506 of 2001, the present appeal has since been filed.
(2.) Mr. Pronab Pal, learned senior counsel for the Revenue/appellant, pointed out the materials on which the opinion as to the existence of reason to believe was formulated, as is appearing from the paper book (pages 422-447). He pointed out that it satisfies the pre-conditions provided in Section 132(1). According to him, the enquiry was conducted by an officer of the rank of the Deputy Director. He had made discreet enquiries, as is recorded in the notes prepared by him. He had given details of the reasons. These were considered by the Director and the Director-General who had authorised the search and seizure. According to him, the materials available on the note were sufficient for the formation of an opinion that there were reasons to believe. A reasonable man could very well form such an opinion on the basis of the materials available. He had relied on the decision in Phool Chand Bajrang Lal v. ITO, in support of his contention. He had also relied on the decision in ITO v. Seth Brothers, for the same proposition. He also relied on the decision in Pooran Mal v. Director of Inspection (Investigation). Elaborating his submission, he had led us through the detailed report and ratio laid down in those decisions. He pointed out that there is no infirmity in the issuance of notice under Section 132(1) of the Act having regard to the facts and circumstances of the case. The court cannot adjudge the sufficiency or adequacy of the materials. It is only the existence of the materials that are to be examined and it is to be seen whether on such materials a reasonable man can form an opinion that there are reasons to believe for the purpose of issuance of notice under Section 132(1) of the Act.
(3.) Mr. Mihir Lal Bhattacharya, learned senior counsel for the respondent, on the other hand, contended that the judgment appealed against is well reasoned and is based on facts and materials. The note seems to be biased and the materials contained therein were not sufficient to form the necessary belief for the purpose of Section 132(1). These were in the nature of rumour, gossip and newspaper reports. These could not form the material. As such there existed no materials. He contended that the search and seizure is in effect a trespass into the privacy of the assessee. Therefore, it has to conform to the strict compliance of the provisions authorising search and seizure. Having regard to the materials that the entire thrust was in respect of "Pratik Food Products Pvt. Ltd.", as is seen from the various materials, to which he had pointed out from the paper book. Inasmuch as the initial report and the authorisation were related to Pratik Food Products Pvt. Ltd., and the seizure list also bears the name of Pratik Food Products Pvt. Ltd. whereas there is no existence of Pratik Food Products Pvt. Ltd., on the other hand, "Pratik Food Products" is a proprietary concern belonging to one Mahesh Kumar Agarwal. Therefore, the authorisation in the name of Pratik Food Products Pvt. Ltd., is not an authorisation. As such so far as the search and seizure in respect of the assessee are concerned, namely, Mahesh Kumar Agarwal and Pratik Food Products, that is wholly invalid and cannot be sustained. Since there was non-application of mind, there could not be any material to form an opinion in the absence of mention of Pratik Food Products. The subsequent authorisation in respect of Pratik Food Products seems to be an afterthought, which is apparent from the fact that in the seizure list, the name of Pratik Food Products does not appear. He referred to page 136 of the paper book and pointed out that there was no reason to form an opinion that there existed any reason to believe that if notices were issued, the said documents would not be produced. Inasmuch as the assessee had been a regular assessee and used to respond to any notice that might have been issued to him. There was no occasion when he did not respond to any notice. Therefore, there was no scope of forming such an opinion with regard thereto. He also pointed out that the expansion of business or improvement in lifestyle of the assessee or the members of his family would not be material for the purpose of exercising power under Section 132. In any event, there is nothing to show that Pratik Food Products or Mahesh Kumar Agarwal was expanding his business. The improvement of lifestyle is not a matter to contribute to the formation of the opinion that there are reasons to believe as contemplated in Section 132(1). Mr. Bhattacharya had relied on the decision in Dr. Nand Lal Tahiliani v. CIT to contend that improvement in the lifestyle is not a ground. Mr. Bhattacharya had also relied on the decision in L. R. Gupta v. Union of India [1992] 194 ITR 32 (Delhi) in support of his contention that search and seizure is a serious invasion into the privacy of the individual which invites application of mind and formation of opinion. Such opinion must be something more than rumour or gossip and not subjective but objective. He also relied on the decision in Ganga Prasad Maheshwari v. CIT, to contend that the "reason to believe" is a salutary safeguard for the assessee preventing the authority from indiscriminate exercise of such power putting an assessee in jeopardy. Therefore, the court has to examine the existence of reasons to believe having regard to the facts and circumstances of the case with somewhat strict compliance with the provisions of law. He had also relied on the decision in ITO v. Lakhmani Mewal Das, to support the said proposition. In order to insist that what would form information is something more than mere apprehension and suspicion, he relied on the decision in H. L Sibal v. CIT. Relying on Shyam Jewellers v. Chief Commissioner (Administration), Mr. Bhattacharya had contended that the information on which the reason to believe was founded must be authentic and related to the person against whom the power was exercised. Relying on Dwarka Prosad Agarwalla v. Director of Inspection, he contended that suspicion, even if supported by subsequent discovery, was irrelevant. He further contended that from the materials, as it appears from the records, the authority had proceeded to make a fishing or roving enquiry under the garb of exercise of power under Section 132(1). Since there were sufficient materials to form an opinion that there were no reasons to believe, the entire exercise was invalid. He also pointed out that by an order of this court, the documents were directed to be returned and that there was no extension of the period of retention after the expiry of the statutory period provided under Section 132(8) of the Act, but yet the authority had not returned the documents. According to him, if there is an order of retention, in that event, that has to be communicated to the assessee as was held in CIT v. Oriental Rubber Works. According to him, the approval of the Commissioner is required to be communicated to the assessee in view of Section 132(10) of the said Act. Therefore, according to him, the appeal should be dismissed and the order of the learned single judge should be affirmed.;