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Reportable

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 7499 OF 2004

Union of India & Ors. ... Appellants

Versus

M/s. Agarwal Iron Industries        ...  Respondent

WITH

CIVIL APPEAL NO. 7502 OF 2004

J U D G M E N T

Dipak Misra, J.

In these appeals the assail is to the legal tenability of  

the order dated 3.9.2003 passed by the Division Bench of  

the  High  Court  of  Judicature  at  Allahabad  in  Civil  Writ  

Petition  No.  275  of  2000  whereby  the  High  Court  has  

quashed the search and seizure conducted on 16.2.2000 in  

the factory premises of the 1st respondent.

2. Filtering  the  unnecessary  details,  the  facts  that  

constitute  the  filament  of  the controversy  is  that  the 1st

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respondent  is  engaged  in  the  manufacture  of  C.I.  pipes,  

fittings and manholes and has obtained the licence under  

the Central Excise Act.  The factory in question has been  

filing income-tax returns under the Income Tax Act, 1961  

(for  brevity  ‘the  Act’).   On  16.2.2000  when  the  sole  

proprietor  of  the  factory  Shri  Om  Prakash  Agarwal  was  

absent,  the  officer  of  the  Income  Tax  Department  

conducted a search both at the residential as well as the  

business  premises.   During  the  search  of  the  residential  

premises, son of the sole proprietor was informed by the  

Income Tax Officer  that  the search operations were also  

being  conducted  at  the  factory  premises.   Despite  such  

information  he  was  not  allowed  to  leave  the  house.  

Assailing  the  search  and  the  seizure,  the  1st respondent  

preferred  a  writ  petition  before  the  High  Court  and  

contended  therein  that  there  was  no  information  in  

possession of the officer which could have persuaded any  

reasonable person to form an opinion about the existence  

of  undisclosed assets  of  the writ-petitioner.   It  is  further  

urged  that  the  warrant  of  authorization  was  issued  

mechanically,  arbitrarily  and  there  was  total  non-

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application of mind and moreover there was no formation  

of  opinion  about  the  existence  of  undisclosed  assets  as  

contemplated  under  Section  132(1)  of  the  Act.   On  this  

foundation,  the  search  and  seizure  were  sought  to  be  

quashed.

3. A  counter  affidavit  was  filed  by  the  revenue  

asseverating that there was no illegality in the initiation of  

the seizure and it had been conducted in accordance with  

law and the revenue had enough material against the 1st  

respondent  herein  for  the  assessee  had  suppressed  the  

vital information pertaining to production and sale and the  

same was also evidenced during the search operation.  It  

was  contended  that  the  productions  declared  by  the  1st  

respondent in the official record was not even 1/5th of the  

actual production revealed by the seized documents.

4. It is interesting to note that the High Court by its  

order  dated  29.3.2000  appointed  an  Advocate  

Commissioner  to  prepare  an  inventory  of  the  goods  in  

question in respect of which the restraint order was passed.  

The said Advocate Commissioner had submitted a report  

which was taken on record.  The High Court placed reliance  

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on  decisions  in  Commissioner  of  Income-Tax  v.  

Vindhya  Metal  Corporation1,  Dr.  N.L.  Tahiliani  v.  

Commissioner of Income Tax2, L.R. Gupta v. Union of  

India v. Union of India3 and Ajit Jain v. Union of India4  

and extensively quoting from Dr. Tahiliani’s case came to  

hold as follows:-

“At this stage it is relevant to refer to Para 40  of the writ petition, which is quoted below:

“40. That in the facts and circumstances  the  Petitioner  bonafidely  believes  that  there was no information in possession  of  the  officer  issuing  the  warrant  of  authorization  for  search  which  could  lead any reasonable person to form an  opinion about existence of undisclosed  assets with the Petitioner.  The warrant  of  authorization,  even if  assumed that  there was any, was issued mechanically  arbitrarily  and  without  application  of  mind  and without  forming  the  opinion  about  existence of  undisclosed assets,  as contemplated by Sub-Section (1) of  Section 132.”   

The  reply  of  the  said  paragraph  has  been  given by the Respondents in Para 33 of the  counter affidavit, which reads as under:

“33. That  in  reply  to  Paragraph  40  of  the  writ  petition,  it  is  denied  that  the  warrant  of  authorization  was  issued  

1  (1997) 5 SCC 321 2 (1988) 170 ITR 592 (Allahabad) 3 (1992) 194 ITR 32 (Delhi) 4 (2000) 242 ITR 302 (Delhi)

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mechanically,  arbitrarily  and  without  application of mind.”

From the aforesaid reply it is clear that there  is no specific denial of the averments made in  Para 40 of the writ petition.  Order 8 Rule 5 of  the  Code  of  Civil  Procedure  provides  that  every  allegation  of  fact  in  the  plaint  if  not  denied  specifically  or  by  necessary  implication  or  stated  to  be not  admitted in  the pleading of the defendant shall be taken  to  be  admitted  except  against  the  person  under disability.  In view of this provision in  absence of  a  specific  denial  in  the  counter  affidavit  to  the assertions  made in  the writ  petition, it can safely be concluded that there  is  no  denial  of  the  facts  stated  in  the  writ  petition.  We are aware that the explanation  to Section 141 of the Code of Civil Procedure  provides that the provisions of Code of Civil  Procedure shall not be applicable to the writ  petition.  However, the principles as stated in  the  Code  of  Civil  Procedure  are  also  applicable to the writ proceedings.”  

   5. We have no hesitation in opining that the reasons  

ascribed in the aforesaid paragraphs, leaves us absolutely  

unimpressed.   We  really  cannot  comprehend  how  an  

Advocate Commissioner was appointed to take inventory of  

the  goods  in  respect  of  which  the  restraint  order  was  

passed by  the  revenue under  the  Act.   That  apart,  it  is  

difficult  to  appreciate  how  the  denial  in  the  counter  

affidavit  filed  by  the  revenue  could  be  treated  as  an  

admission by implication to come to a conclusion that no  

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reason was ascribed for search and seizure and, therefore,  

action taken under Section 132 of the Act was illegal.  The  

relevant confidential  file,  if  required and necessary could  

have  been  called  for  and  examined.   Revenue  in  the  

counter  affidavit  was  not  required  to  elucidate  and  

reproduce  the  information  and  details  that  formed  the  

foundation.  

6. In  this  context,  we  may  profitably  refer  to  the  

decision in  Pooran Mal V. The Director of Inspection  

(Investigation),  New Delhi  and  others5,  wherein  the  

Constitution  Bench,  while  upholding  the  constitutional  

validity of Section 132 of the Act opined thus:  

“Search and seizure are not a new weapon in  the  armoury  of  those  whose  duty  it  is  to  maintain social security in its broadest sense.  The  process  is  widely  recognized  in  all  civilized  countries.  Our  own  Criminal  Law  accepted  its  necessity  and  usefulness  in  Sections  96 to  103 and Section 165 of  the  Criminal Procedure Code. In  M.P. Sharma v.  Satish Chandra6 the challenge to the power of  issuing a search warrant under Section 96(1)  as violative of Article 19(1)(f) was repelled on  the  ground  that  a  power  of  search  and  seizure is in any system of jurisprudence an  overriding  power  of  the  State  for  the  protection of social security and that power is  necessarily regulated by law. As pointed out  in  that  case  a  search  by  itself  is  not  a  

5  (1974) 1 SCC 345 6  AIR 1954 SC 300

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restriction  on  the  right  to  hold  and  enjoy  property though a seizure is a restriction on  the right of possession and enjoyment of the  property  seized.  That,  however,  is  only  temporary  and  for  the  limited  purpose  of  investigation”.  

Thereafter,  proceeding  with  the  ratiocination,  the  

Court  ruled  that  the  provision  has  inbuilt  spheres.  

Proceeding  to  enumerate  the  spheres  and  other  

consequent facets, the Court ruled:  

“In the first place, it must be noted that the  power to order search and seizure is vested  in  the  highest  officers  of  the  department.  Secondly, the exercise of this power can only  follow  a  reasonable  belief  entertained  by  such officer that any of the three conditions  mentioned  in  Section  132(1)(a),(b)  and  (c)  exists.  In  this  connection  it  may be further  pointed out  that  under  sub-rule  (2)  of  Rule  112,  the  Director  of  Inspection  or  the  Commissioner,  as  the  case  may be,  has  to  record his reasons before the authorisation is  issued  to  the  officers  mentioned  in  sub- section (1). Thirdly, the authorisation for the  search  cannot  be  in  favour  of  any  officer  below  the  rank  of  an  Income  Tax  Officer.  Fourthly,  the  authorisation  is  for  specific  purposes  enumerated  in  (i)  to  (v)  in  sub- section (1) all of which are strictly limited to  the object of the search. Fifthly when money,  bullion, etc. is seized the Income Tax Officer  is to make a summary enquiry with a view to  determine how much of what is seized will be  retained by him to cover the estimated tax  liability  and  how  much  will  have  to  be  returned forthwith. The object of the enquiry  

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under  sub-section  (5)  is  to  reduce  the  inconvenience  to  the  assessee  as  much  as  possible  so  that  within  a  reasonable  time  what  is  estimated  due  to  the  Government  may be retained and what should be returned  to the assessee may be immediately returned  to  him.   Even  with  regard  to  the  books  of  account and documents seized, their return is  guaranteed  after  a  reasonable  time.  In  the  meantime  the  person  from  whose  custody  they are seized is permitted to make copies  and  take  extracts.  Sixthly,  where  money,  bullion,  etc.  is  seized,  it  can  also  be  immediately  returned  to  the  person  concerned  after  he  makes  appropriate  provision for  the payment  of  the estimated  tax dues under sub-section (5) and lastly, and  this is most important, the provisions of the  Criminal  Procedure  Code  relating  to  search  and seizure apply, as far as they may be, to  all searches and seizures under Section 132.  Rule 112 provides for the actual search and  seizure  being  made  after  observing  normal  decencies of behaviour. The person in charge  of  the  premises  searched  is  immediately  given a copy of the list of articles seized. One  copy is forwarded to the authorising officer.  Provision for the safe custody of the articles  after seizure is also made in Rule 112. In our  opinion,  the  safeguards  are  adequate  to  render the provisions of search and seizure  as less onerous and restrictive as is possible  under the circumstances.  

7. In District Registrar and Collector, Hyderabad  

and  Another  V.  Canara  Bank  and  Others7,   while  

referring to Section 132 of the Act, it has been ruled that:

7  (2005) 1 SCC 496

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“There are safeguards. Section 132 uses the  words “in consequence of information in his  possession,  has  reason  to  believe”.  (emphasis  supplied)  Section  132(1-A)  uses  the words “in consequence of information in  his  possession,  has  reason  to  suspect”.  Section 132(13) says that the provisions of  the Code of Criminal Procedure, relating to  searches and seizure shall  apply,  so far as  may  be,  to  searches  and  seizures  under  Sections 132(1) and 132(1-A). There are also  Rules made under Section 132(14). Likewise  Section  132-A(1)  uses  the  words  “in  consequence  of  information in  his  possession,  has  reason  to  believe”.  (emphasis supplied) Section 133 which deals  with the power to call  for information from  banks and others  uses the words  “for  the  purposes  of  this  Act”  and  Section  133(6)  permits a requisition to be sent to a bank or  its officer”.

8. The provision contained in Section 132(1) of the Act  

enables  the  competent  authority  to  direct  for  issue  of  

search and seizure on the basis of formation of an opinion  

which  a  reasonable  and  prudent  man  would  form  for  

arriving at a conclusion to issue a warrant.  It is done by  

way of an interim measure.  The search and seizure is not  

confiscation.  The articles that are seized are the subject of  

enquiry  by  the  competent  authority  after  affording  an  

opportunity of being heard to the person whose custody it  

has been seized.  The terms used are ‘reason to believe’.  

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Whether the competent authority had formed the opinion  

on the basis of any acceptable material or not, as is clear  

as crystal, the High Court has not even remotely tried to  

see  the  reasons.   Reasons,  needless  to  say,  can  be  

recorded on the file and the Court can scrutinize the file  

and  find  out  whether  the  authority  has  appropriately  

recorded the reasons for forming of an opinion that there  

are reasons to believe to conduct search and seizure.  As is  

evincible,  the High Court  has  totally  misdirected itself  in  

quashing  the  search  and  seizure  on  the  basis  of  the  

principles of non-traverse.  

9. In  our  considered  opinion,  the  High  Court  would  

have been well advised to peruse the file to see whether  

reasons have been recorded or not and whether the same  

meet the requirement of law.   

10. In  view  of  our  foregoing  analysis,  we  allow  the  

appeals, set aside the impugned order passed by the High  

Court and remand the matter to the High Court for fresh  

disposal in accordance with law.  The revenue shall produce  

the file before the High Court, whereafter the High Court  

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shall proceed to adjudicate the lis.  There shall be no order  

as to costs.  

.............................J. [Dipak Misra]

..............................J.                                     [Uday Umesh Lalit] New Delhi; November 12, 2014

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