DIRECTOR GENERAL OF INCOME TAX (INVESTIGATION) PUNE & ORS.versusM/S. SPACEWOOD FURNISHERS PVT. LTD. & ORS.

   I •                 (2015] 6 S.C.R. 807


             DIRECTOR GENERAL OF INCOME TAX                      A
                (INVESTIGATION) PUNE &ORS.

                                v.
    MIS. SPACEWOOD FURNISHERS PVT. LTD. & ORS.
                                                                 B
                  (Civil Appeal No.4394 of 2015)

                          May 13, 2015.

  [RANJAN GOGOi AND PINAKI CHANDRA GHOSE, JJ.]
                                                                 c
        Income Tax Act, 1961-s.132-Warrantofauthorization
   for search of the premises of assessee - Interference with by
   High Court - In exercise of jurisdiction u/Art. 226 of the
   Constitution - Propriety of - Held: The assessee is not
   entitled to communication of the reasons for the belief at the D
  stage of issuing of the authorization - High Court committed
  serious error in reproducing in great details the content of
  satisfaction notes containing the reasons - Such exercise of
  High Court was highly premature conferring undue advantage
  to assessee and thereby frustrating the endeavour of the E
  Revenue - The view expressed by High Court with regard to
  satisfaction notes are also flawed- There was also no basis
  for the High Court to hold that there was possibility of
  manipulation of records - The findings of High Court with F
  regard to sufficiency and adequacy of reasons and the
  authenticity and acceptability of the information on which '
  satisfaction had been reached, was in the nature of appellate
· exercise, hence not permissible - Constitution of India, 1950
  -Art. 226.                                                      G

         Allowing the appeal, the Court

         HELD: 1.1 The necessity of recording of reasons,

                              807                                H
808      SUPREME COURT REPORTS               [2015) 6 S.C.R.


A despite the amendment of Rule 112 (2) with effect from
  1•1 October, 1975, has been repeatedly stressed upon so
  as to ensure accountability and responsibility in the
  decision making process. The necessity of recording of
  reasons also acts as a cushion in the event of a legal
B challenge being made to the satisfaction reached.
  Reasons enable a proper judicial assessment of the
  decision taken by the Revenue. However, the above, by
  itself, would not confer in the assessee a right of
  inspection of the documents or to a communication of
C the reasons for the belief at the stage of issuing of the
  authorization. Any such view would be counter
  productive of the entire exercise contemplated by
  Section 132 of the Act. It is only at the stage of
  commencement of the assessment proceedings after
0
  completion of the search and seizure, if any, that the
  requisit!'I material may have to be disclosed to the
  assessee. [para 22] [822-C-F]

      1.2 The High Court had committed a serious error in
E reproducing in great details the contents of the
  satisfaction note(s) containing the reasons for the
  satisfaction arrived at by the authorities under the Act.
  Therefore, the exercise undertaken by the High Court is
F highly premature; having the potential of conferring an
  undue advantage to the assessee, thereby frustrating
  the endeavor of the revenue, even if the High Court is
  eventually not to intervene in favour of the assessee.
  [para 23] [822-G-H; 823-A-B]
G      3. The view expressed by the High Court with regard
  to the satisfaction note(s); the alleged absence of a final
  decision to issue the authorization at the level of the
  Additional Director and the Director; the absence of any
H satisfaction of the Director General who, according to
 D.G OF I. TAX (INVESTIGATION) PUNE v. SPACEWOOD 809
                 FURNISHERS PVT. LTD.

the High Court took the decision to issue the A
authorization are all seriously flawed. The different steps
in the decision making process which is lucidly laid
down in the instructions contained in the search and
seizure manual published by the department, have been
scrupulously followed. [para 24] [823-C-E]                  B

     4. The fact that the Additional Director was not one
of the competent authorities u/s 132 on 8.6.2009 (date of
his note) inasmuch as it is by the Finance Act, 2009
effective from 19'h August, 2009 that the Additional          C
Director came to be included amongst the authorized
officials though with retrospective effectfrom 1.10.1998.
The reading of the relevant part of the satisfaction note
of the Director goes to show that on the basis of materials
produced satisfaction was duly recorded by him that           D
authorization for search should be issued. The file was
put up before the Director General (Investigation) for
accord of administrative approval as required by
Notification dated 7.3.2001. In fact, the requirement to
obtain administrative approval is prompted by the need        E
to provide an additional safeguard to the tax payer. A
careful reading of the order of the Director General would
go to show that all that he did was to record the view
that the satisfaction of the Director, Income Tax             F
(Investigation) was reasonable. and therefore
administrative approval should be accorded. The view
taken by the High Court, therefore, cannot be sustained.
[para 24] [823-E-H; 824-A-B]

    5. There is no basis, whatsoever, for coming to the G
conclusion that there was possibility of manipulation of
the records. Suspicion ought not to be the basis of any
judicial order and this is where the High Court seems to
have erred. [para 25) [825-C]
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810         SUPREME COURT REPORTS                 [2015] 6 S.C.R.


A      6. The remaining findings of the High Court with
  regard to the satisfaction recorded by the authorities
  appear to be in the nature of an appellate exercise
  touching upon the sufficiency and adequacy of the
  reasons and the authenticity and acceptability of the
B information on which satisfaction had been reached by
  the authorities. Such an exercise is alien to the
  jurisdiction under Article 226 of the Constitution. [para
  26] [824-0]

C         /TO vs. Seth Brothers 1969 (74) ITR 836 (SC) and
      Pooran Mal vs. Director of Inspection (Investigation), Income
      Tax (1974) 93 ITR 505 (SC); Or. Pratap Singh vs. Director of
      Enforcement (1985 (155) ITR 166 (SC) - referred to.

D                       Case Law Reference

        1969 (74) ITR 836 (SC)         referred to     para 5

        (1974) 93 ITR 505 (SC)         referred to     para 5

E       (1985 (155) ITR 166 (SC)       referred to     para 8

         CIVIL APPELLATE JURISDICTION: Civil Appeal No.
      4394of2015

F         From the Judgment and Order dated 09.12.2011 of the
      High Court of Bombay in W. P. No. 2150 of2010.

         Guru Krishnakumar, Arijit Prasad, Sunita Rani Singh,
      Rupesh Kumar, B. Krishna Prasad (For Anil Katiyar) for the
      Appellants.
G
           Krishnan Venugopal, Sumit Goel, Sanjay Thakkar, Ritesh
      Isaac, Gaurav Ray, Abhishek Vinod Deshmukh (For Parekh &
      Co.) for the Respondents.

H         The Judgment of the Court was delivered by
 D.G. OF I. TAX (INVESTIGATION) PUNE v. SPACEWOOD 811
                  FURNISHERS PVT. LTD.

     RANJAN GOGOi, J.1.Leave granted.                            A

      2. The block assessment of the respondent-assessee for
the assessment years 2004-05 to 2009-10 was sought to be
initiated by notices issued under Section 153A of the Income
Tax Act, 1961 (hereinafter referred to as the 'Act') following a B
search made under the provisions of the Act. The same has
been interdicted by the High Court of Delhi by interfering with
the warrant of authorization for the search issued under Sec-
tion 132 of the Act and the consequential search made be-
tween 19th June, 2009 to 21st July, 2009.Aggrieved, the Rev- C
enue has filed this appeal by special leave under Article 136
of the Constitution.

     3. We have heard Shri Guru Krishna Kumar, learned se-
nior counsel for the appellants and Shri Krishnan Venugor-a:,    o
learned senior counsel appearing for the respondents.

      4. The issues that arise in the present appeal lie within a
short circumference. As the warrant of authorization under
Section 132, which is required to be founded on a reasonable E
belief of the authorized official regarding the existence of the
conditions precedent to the exercise of the power to issue the
same, has been interdicted under Article 226 of the Constitu-
tion, the ambit of the power of the High Court to do so may be
noticed at the outset.                                            F

     5. The "classical" notion of the extent of power that the
High Court would have in the exercise of its writ jurisdiction to
cause such interference is formulated in /TO vs. Seth Broth-
!!§.' and Pooran Mal vs. Director of Inspection Onvesti- G
qationJ, Income Tax2 • The parameters of permissible inter-
ference as laid down in the aforesaid two decisions have stood

1 1969 (7 4) ITR 836 (SC)


2 (1974) 93 ITR 505 (SC)
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812       SUPREME COURT REPORTS                     [2015] 6 S.C.R.


A the test of time and continue to hold the field even today. We
  may, therefore, advert to /TO vs. Seth Brothers (supra) in
  the first instance.

       6. Considering the scope of Section 132 of the Act in ITO
B vs. Seth Brothers (supra), this Court at page 843 held that:-

         'The section does not confer any arbitrary authority upon
         the Revenue Officers. The Commissioner or the Direc-
         tor of Inspection must have, in consequence of informa-
c        tion, reason to believe that the statutory conditions for
         the exercise of the power to order search exist. He must
         record reasons for the belief and he must issue an
         authorisation in favour of a designated officer to search
         the premises and exercise the powers set out therein.
D        The condition for entry into and making search of any
         building or place is the reason to believe that any books
         of account or other documents which will be useful for, or
         relevantto, any proceeding under the Act may be found.
         If the Officer has reason to believe that any books of ac-
E        count or other documents would be useful for, or relevant
         to, any proceedings under the Act, he is authorised by
         law to seize those books of account or other documents,
         and to place marks of identification therein, to make ex-
         tracts or copies therefrom and also to make a note or an
F        inventory of any articles or other things found in the course
         of the search. Since by the exercise of the power a seri-
         ous invasion is made upon the rights, privacy and free-
         dom of the tax-payer, the power must be exe~vis:;d strictly
         in accordance with the law and only for the purposes for
G        which the law authorizes it to be exercised. If the action
         of the officer issuing the authorization, or of the desig-
         nated officer is challenged the officer concerned must
         satisfy the Court about the regularity of his action. If the
         action is maliciously taken or power under the section is
H
 D.G OF I. TAX (INVESTIGATION) PUNE v. SPACEWOOD 813
     FURNISHERS PVT. LTD. [RANJAN GOGOi, J.]

     exercised for a collateral purpose, it is liable to be struck    A
     down by the Court. If the conditions for exercise of the
     power are not satisfied the proceeding is liable to be
     quashed. But where power is exercised bona fide, and
     in furtherance of the statutory duties of the tax officers
     any error of judgment on the part of the Officers will not       B
     vitiate the exercise of the power. Where the Commis-
     sioner entertains the requisite belief and for reasons re-
     corded by him authorises a designated officer to enter
     and search premises for books of account and docu-
     ments relevantto or useful for any proceeding under the          C
     Act, the Court in a petition by an aggrieved person can-
     not be asked to substitute its own opinion whether an
     order authorising search should have been issued.
     Again, any irregularity in the course of entry, search ar.d
                                                                      0
     seizure committed by the officer acting in pursuance of
     the authorisation will not be sufficient to vitiate the action
     taken, provided the officer has in executing the
     authorisation acted bona fide.
     The Act and the Rules do not require that the warrant of E
     authorisation should specify the particulars of documents
     and books of accounts a general .authorisation to search
     for and seize documents and books of account relevant
     to or useful for any proceeding complies with the require- F
     ments of the Act and the Rules. It is for the officer making
     the search to exercise his judgment and seize or not to
     seize any documents or books of account. An error com-
     mitted by the Officer in seizing documents which may
     ultimately be found not to be useful for or relevant to the G
     proceeding under the Act will not by itself vitiate the
     search, nor will it entitle the aggrieved person to an om-
     nibus order releasing all documents seized."

    7. In Pooran Mal vs. Director of Inspection (supra) the H
constitutional validity of Section 132 was under challenge. While
814             SUPREME COURT REPORTS               [2015] 6 S.C.R.


A     negating the said challenge, this Court at page 515 of its re-
      port had held that:

  "Dealing first with the challenge under Article 19(1 )(f) and (g)
  of the Constitution it is to be noted thatthe impugned provisions
B are evidently directed against persons who are believed on
  good grounds to have illegally evaded the payment of tax on
  their income and property. Therefore, drastic measures to get
  at such income and property with a view to recover the
  government dues would stand justified in themselves. When
C one has to consider the reasonableness of the restrictions or
  curbs placed on the freedoms mentioned in Article 19(1)(f)
  and (g), one cannot possibly ignore how such evasions eat
  into the vitals of the economic life of the community. It is a well-
  known fact of our economic life that huge sums of unaccounted
D money are in circulation endangering its very fabric. In a country
  which has adopted high rates of taxation a major portion of
  the unaccounted money should normally fill the Government
  coffers. Instead of doing so it distorts the economy. Therefore,
  in the interest of the community it is only right that the fiscal
E authorities should have sufficient powers to prevent tax
  evasion."

       8. What is significant and, therefore, must be noticed is
  that in both the aforesaid two decisions while this Court has
F emphasized the necessity of recording of reasons in support
  of the 'reasonable belief' contemplated by Section 132,
  nowhere, in either of the decisions any view had been
  expressed that the reasons recorded prior to authorizing the
  search needs to be disclosed or communicated to the person
G against whom the warrant of authorization is issued. The same
  is the view expressed by this Court in Dr. Pratap Singh vs.
  Director of Enforcemenf3 while considering a pari material


H     3
          (1985 (155) IT R 166 (SC)
 D.G OF I. TAX (INVESTIGATION) PUNE v. SPACEWOOD 815
     FURNISHERS PVT. LTD. [RANJAN GOGOi, J.]

provision in the Foreign Exchange Regulation Act.                   A

         "The material on which the officer has reasons to believe
that any documents will be useful for or relevant to any
investigation need not be disclosed in the search warrant; such
material may be secret, may have been obtained through B
intelligence, or even conveyed orally by informants. In the said
case, the petitioner contended that, if the court is going to look
into the file produced on behalf of the officer who authorized
the search, it must be disclosed to the petitioner so that the
petitioner "can controvert any false or wholly unreasonable C
material set out in the file", but the Supreme Court did not
accept this submission. The Supreme Court also referred to
an earlier decision in S. Narayanappa v. CIT [1967] 63 ITR
219 (SC), to hold that whether grounds for ordering search
were sufficient or not is not a matter for the court to investigate. D
However, the court may examine the question whether the
reasons for the belief have a rational connection or a relevant
bearing to the formation of the belief and are not extraneous
or irrelevant for the purpose of the section."
                                                                     E
      9. The principles that can be deduced from the aforesaid
decisions of this Court which continue to hold the field without
any departure may be summarized as follows :

(i) The authority must have information in its possession on        F
the basis of which a reasonable belief can be founded that-

(a) the concerned person has omitted or failed to produce
books of account or other documents for production of which
summons or notice had been issued                           G


such person will not produce such books of account or other
documents even if summons or notice is issued to him.
                                                                    H
                                                                         I




816         SUPREME COURT REPORTS                   [2015] 6 S.C.R.


A

  (b) such person is in possession of any money, bullion,
  jewellery or other valuable article which represents either wholly
  or partly income or property which has not been or would not
B be disclosed.

      (ii) Such information must be in possession of the authorized
      official before the opinion is formed.

      (iii) There must be application of mind to the material and the
C     formation of opinion must be honest and bonafide. Consider-
      ation of any extraneous or irrelevant material will vitiate the
      belief/satisfaction.

      (iv) Though Rule 112(2) of the Income Tax Rules which specifi-
D     cally prescribed the necessity of recording of reasons before
      issuing a warrant of authorization had been repealed on and
      from 1' 1 October, 1975 the reasons for the belief found should
      be recorded.

E     (v) The reasons, however, need not be communicated to the
      person against whom the warrant is issued at that stage.

      (vi) Such reasons, however, may have to be placed before the
      Court in the event of a challenge to formation of the belief of
 F    the authorized official in which event the court (exercising ju-
      risdiction under Article 226) would be entitled to examine the
      relevance of the reasons for the formation of the belief though
      not the sufficiency or adequacy thereof.

          10. Before proceeding further it will be necessary to take
G
      note of certain other facts that may have a bearing to the is-
      sues at hand.

       By Notification No.354 of 2001 dated 3.12.2001 in exer-
  cise of the powers conferred by Section 120( 1) & (2) of the
H Act, the Central Board of Direct Taxes had directed the Direc-
 D.G OF I. TAX (INVESTIGATION) PUNE v. SPACEWOOD 817
     FURNISHERS PVT. LTD. [RANJAN GOGOi, J.]

tors of Income Tax (Investigation) specified in Column (2) of A
the Schedule to the said Notification to exercise the power
vested in them under Section 132 of the Act in relation to the
territorial areas specified in Column (3) of the Schedule. By
virtue of the said notification the Director of Income Tax (Inves-
tigation), Nagpur i.e. Appellant No.2 was authorized to exer- B
cise the power under Section 132 of the Act in respect of the
territorial areas falling within the jurisdiction of the CCIT Nagpur
and CCIT Nasik in the State of Maharashtra.

     11. Notice must also be had of certain provisions con- C
tained in the Search and Seizure Manual published by the Di-
rectorate of Income Tax with regard to the preparation of sat-
isfaction note and issuing of warrant of authorization under Sec-
tion 132 of the Act. Para 2.38 of the aforesaid Manual being
relevant may be usefully extracted :                              D

      "2.38 The "satisfaction note" should ordinarily be initi-
     ated bytheADIT (lnvestigation)/DDIT (Investigation). It
     should be put up to the DIT (Investigation) through the
     JoinUAdditional DIT (Investigation), along with the de- E
     tailed comments of the latter. The note must ~e recorded
     in the secret file, already prepared for this purpose, con-
     taining material like, the secret information collected from
     various sources, statement(s), if any of the informant(s),
     reference to tax evasion petition(s), if any, surveillance F
     reports and information relating to assessment(s), returns
     of income, wealth, etc, where available."

     12. It will also be required to be noticed that by Notifica-
tion dated 7.3.2001 administrative approval of the Director G
General of Income Tax (investigation) was made mandatory
before an authorization for search is issued. The said require-
ment appears to have been brought in order to obviate a
malafide search and to avoid undue harassment of the tax-
                                                                  H
818         SUPREME COURT REPORTS                     [2015] 6 S.C.R.


A     payers.

            13. In the present case the satisfaction note(s) leading to
      the issuing of the warrant of authorization against the respon-
      dent-assessee were placed before the High Court. As it would
B     appear from the impugned order the contents thereof were
      exhaustively reproduced by the High Court. The said satisfac-
      tion note(s) have also been placed before us.A perusal of the
      file containing the satisfaction note(s) indicate that on 8.6.2009
      the Assistant Director of Income Tax (Investigation), Nagpur
C     had prepared an elaborate note containing several reasons
      as to why he had considered it reasonable to believe that if
      summons or notice were issued to the respondent to produce
      the necessary books of account and documents, the same
      would not be produced. The Assistant Director also recorded
D     detailed reasons why he entertains reasons to believe that the
      promoters of the respondent-assessee company would be
      found to be in possession of money, bullion, jewellery etc. which
      represents partly or wholly income which has not been dis-
      closed forthe purposes of the Act
E
       14. The said note was put up for consideration before the
  Additional Director (Investigation) who on perusal of the same
  once again proceeded to record elaborate reasons for his
  belief that the conditions precedent for issuing warrant of au-
F thorization u!)der Section 132 does exist in the present case.
  Accordingly, the file was put up before the Director of Income
  Tax (Investigation), Nagpur for issuing of warrant of authoriza-
  tion for search of the residential as well as business premises
  of the assessee and its Directors, if the Director of Income
G Tax (Investigation), Nagpur is so satisfied. The aforesaid note
  of the Additional Director (Investigation) is dated 8.6.2009.

           15. The notes of the two officers i.e. Assistant Director
      (Investigation) and Additional Director (Investigation) were pe-
H     rused and considered by the Director (Investigation). The
 D.G. OF I. TAX (INVESTIGATION) PUNE v. SPACEWOOD 819
      FURNISHERS PVT. LTD. [RANJAN GOGOi, J.]

matter was also discussed. Thereafter the Director (lnvesti-          A
gation) recorded the relevant facts of the case and came to
the following conclusion:

     "On an overall appreciation of the facts of the case I am
     satisfied that M/s. Spacewood Furnishers P Ltd is sup-           s
     pressing its income substantially. I am also satisfied that
     the company is not likely to produce the details of such
     unaccounted income and the books of accounts and
     documents containing details of such unaccounted in-
     comes and assets if notices were to be issued to it u/           C
     131 or u/s.142(1) of the I TAct. It is also reliably learnt
     that the Directors S/Shri. Kiri! Joshi and Vivek
     Deshpande and associated concerns M/S. i3Space
     Systems (India) P Ltd., Spacewood Exports P ltd.,
     Spacewood Hongkong P Ltd., i3space Hongkong Ltd.                 D
     and Spacewood Nest P Ltd are also in possession of
     undisclosed income I assets and books, documents con-
     taining details of such unaccounted incomes. It appears
     that a substantial portion of such unaccounted money is
     being held in cash also. The Directors are maintaining           E
      luxurious life styles out of such unaccounted income. I
     am also satisfied that these companies and the direc-
     tors are not likely to furnish the details of such unac-
     counted incomes and assets if notices were to be is-             F
     sued to them u/s.131 or 142(1) of the l.T. Act. I am there-
     fore satisfied that this is a fit case for exercise of powP-rs
   · vested u/s.132 of the Act to search the persons (M/S.
     Spacewood Furnishers P Ltd. its associated concerns
     and Directors mentioned above) and the premises men-             G
     tioned in the note of the ADIT to seize unaccounted as-
     sets and documents and evidences relating undisclosed
     income."

    The Director of Income Tax (Investigation), Nagpur there- H
820         SUPREME COURT REPORTS                    [2015) 6 S.C.R.


A     after put his signature dated 9.6.2009 on the said note.

            16. There is an endorsement to the following effect at the
      bottom of the said note again under the signature of the Direc-
      tor (lnvestigation)-
B
           "DGIT (Inv) Pune may kindly peruse the above satisfac-
           tion r.Jte and grant administrative approval for the search
           and seizure action."

           17. On 11.6.2009 the matter was considered by the Di-
e     rector General of Income Tax (Investigation) Pune who recorded
      the following view :

           "I have gone through the notes of ADIT (Inv), Nagpur and
           Addl.DIT (Inv.), Nagpur. The satisfaction note of DIT (Inv.)
D          Nagpur has also been perused. I find that DIT (Inv.)
           Nagpur has got adequate information to arrive at his
           satisfaction that search and seizure action is required to
           be undertaken in the case of M/s. Spacewood Furnish-
           ers P. Ltd. promoted by Shri Kirit Joshi and Vivek
E          Deshpande. Accordingly, the proposal of the DIT (Inv.)
           Nagpur to take action u/s 132(1) of the Act is approved."

        18. The High Court by the impugned order dated 9.12.2011
  has taken the view that in the present case there are four sat-
F isfaction notes of four different authorities. One of the said
  authority i.e. Assistant Director is not the competent authority
  under Section 132 of the Act. The Additional Director and the
  Director who are competent authorities to issue the warrant of
  authorization, though had recorded their satisfaction, have not
G taken the final decision to issue the authorization and each
  such authority had passed on the file to his immediate supe-
  rior, namely, the Additional Director to the Director and the
  Director to the Director General. The High Court further held
H that it is eventually the OirP.ctor General who took the dec;~i"n
 D.G. OF I. TAX (INVESTIGATION) PUNE v. SPACEWOOD 821
      FURNISHERS PVT. LTD. [RANJAN GOGOi, J.]

to issue the search warrant but the said decision was not on A
the basis of its own satisfaction but on the basis of the satis-
faction recorded by the Director of Income Tax (Investigation).
Consequently, the High Court held that the satisfaction man-
dated by Section 132 of the Act was not that of the authority
who has issued the search warrant, thereby vitiating the au- B
thorization issued.

      19. The High Court further held that each of the satisfac-
tion notes was in loose sheets of paper and not a part of a
single file maintained in proper sequence and order with due C
pagination. Therefore, according to the High Court, it is pos-
sible that the file containing the satisfaction note(s) was ma-
nipulated and thus is of doubtful credibility.

      20. The High Court also held that the materials indicated  o
by the department in the counter affidavit and the additional
affidavit filed before it were at variance with what was revealed
by the satisfaction note(s) placed before the Court. Even ifthe
satisfaction notes alone are to be gone by, the essential de-
tails with regard to source of information; the persons who were E
interrogated and with whom discreet enquiries were made are
not disclosed. The necessary information revealed by such
interrogation and discreet enquiries with regard to over invoic-
ing, market information etc. are not indicated. Materials like
high growth, high profit margins, doubts about international F
brand and details thereof etc. as mentioned in the satisfacti~:m
note(s) are admitted and known facts and therefore could not
have induced the requisite belief. The above constitutes the
broad basis on which the High Court thought it proper to cause
inference with the measures undertaken by the Revenue G
against the assessee.

    21. Before we advert to the specific reasoning of the High
Court, one specific aspect of the opinion expressed by the
High Court needs to be taken note of inasmuch as the precise     H
822         SUPREME'COURT REPORTS                    [2015] 6 S.C.R.


A     position in law in this regard needs to be clarified. The above
      aspect is highlighted by the following observations of the High
      Court expressed in paragraph 6 of the impugned order:-

            "We, however, express that when the satisfaction re-
B           corded is justiciable, the documents pertaining to such
            satisfaction may not be immune and if appropriate prayer
            is made, the inspection of such documents may be re-
            quired to be allowed."

c       22. In the light of the views expressed by this Court in /TO
  vs. Seth Brothers (supra) and Pooran Mal (supra), the above
  opinion expressed by the High Court is plainly incorrect. The
  necessity of recording of reasons, despite the amendment of
  Rule 112 (2) with effect from 1''October, i 975, has been re-
0 peatedly stressed upon by this Court so as to ensure account-
  ability and responsibility in the decision making process. 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
E the decision taken by the Revenue. However, the above, by
  itself, would not confer in the assessee a right of inspection of
  the documents or to a communication of the reasons for the
  belief at the stage of issuing of the authorization. Any such
  view would be counter productive of the entire exercise con-
F templated by Section 132 of the Act. It is only at the stage of
  commencement of the assessment proceedings after comple-
  tion of the search and seizure, if any, thatthe requisite mate-
  rial may have to be disclosed to the assessee.

G          23. At this stage we would like to say that the High Court
      had committed a serious error in reproducing in great details
      the contents of the satisfaction note (s) 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
H
 D.G. OF I. TAX (INVESTIGATION) PUNE v. SPACEVJOOD 823
      FURNISHERS PVT. LTD. [RANJAN GOGOi, J.]

reasons recorded may be required to be brought to the notice A
of the assessee. In the light of the above, we cannot approve
of the aforesaid part of the exercise undertaken by the High
Court which we will understand to be highly premature; having
the potential of conferring an undue advantage to the asses-
see thereby frustrating the endeavor of the revenue, even if B
the High Court is eventually not to intervene in favour of the
assessee.

       24. Having clarified the above issue in the manner indi-
 cated, we may turn to the reasons assigned by the High Court          C
 for its decision. The view expressed by the High Court with
 regard to the satisfaction note(s); the alleged absence of a
 final decision to issue the authorization at the level of the Addi-
tional Director and the Director; the absence of any satisfac-
 tion of the Director General who, according to the High Court         D
 took the decision to issue the authorization are all seriously
flawed. The different steps in the decision making process is
 lucidly laid down in the instructions contained in the search
 and seizure manual published by the department, relevant part
 of which has been extracted above. The steps delineated have          E
 been scrupulously followed. Besides we may take note of the
fact that the Additional Director was not one of the competent
authorities under Section 132 on 8.6.2009 (date of his note)
inasmuch as it is by the FinanceAct, 2009 effective from 19th          F
August, 2009 that the Additional Director came to be included
amongstthe authorized officials though with retrospective ef-
fect from 1.10.1998. The reading of the relevant part of the
satisfaction note of the Director goes to show that on the ba-
sis of materials produced satisfaction was duly recorded by            G
him that authorization for search should be issued. The file
was put up before the Director General (Investigation) for ac-
cord of administrative approval as required by Notification
dated 7.3.2001. In fact, the requirement to obtain administra-
tive approval is prompted by the need to provide an additional         H
824         SUPREME COURT REPORTS                    [2015] 6 S.C.R.


A     safeguard to the tax payer. A careful reading of the order of the
      Director General would go to show that all that he did was to
      record the view that the satisfaction of the Director, Income
      Tax (Investigation) was reasonable and therefore administra-
      tive approval should be accorded. The view taken by the High
B     Court, therefore, cannot be sustained.

       25. The possibility of manipulation of the records as found
  by the High Court also does not commend to us for accep-
  tance. There is no basis, whatsoever, for coming to any such
C conclusion. Suspicion ought not to be the basis of any judicial
  order and this is where the High Court seems to have erred.

           26. The remaining findings of the High Court with regard
      to the satisfaction recorded by the authorities appear to be in
o     the nature of an appellate exercise touching upon the suffi-
      ciency and adequacy of the reasons and the authenticity and
      acceptability of the information on which satisfaction had been
      reached by the authorities. Such an exercise is alien to the
      jurisdiction under Article 226 of the Constitution.
E
          27. In view of the foregoing discussions and for the rea-
      sons alluded to, the order of the High Court dated
      9.12.2011passed in W.P. No. 2150 of 2010 is set aside. The
      proceedings against the respondent-assessee will now com-
 F    mence from the stage at which the same was interdicted by
      the High Court by its impugned order. Consequently, the ap-
      peal filed by the Revenue is allowed.

      Kalpana K Tripathy                                Appeal allowed.