Know about the Observation of the Supreme Court on the phrase “Reason to Believe”

 

The Hon’ble Supreme Court in the case of Principal Direct of Income Tax Vs Laljibhai Khinjibhai Mandaia has laid down very important principles of law for the “Reason to Believe “.

In this case, Hon’ble Court allowing the SLP filed by the revenue laid down the following principles of law:

1. The formation of opinion and the reasons to believe recorded is not a judicial or quasi-judicial function but administrative in character;
2. The information must be in possession of the authorised officer on the basis of the material and the formation of opinion must be honest and bona fide. It cannot be merely pretence. Consideration of any extraneous or irrelevant material would vitiate the belief/satisfaction;
3. The authority must have information in its possession on the basis of which a reasonable belief can be founded that the person concerned has omitted or failed to produce books of accounts or other documents for the production of which summons or notice had been issued, or such person will not produce such books of accounts or other documents even if summons or notice is issued to him;
4. Such person is in possession of any money, bullion, jewellery or another valuable article which represents either wholly or partly income or property which has not been or would not be disclosed;
5. Such reasons may have to be placed before the High Court in the event of a challenge to the formation of the belief of the competent authority in which event the Court would be entitled to examine the reasons for the formation of the belief, though not the sufficiency or adequacy thereof. In other words, the Court will examine whether the reasons recorded are actuated by malafides or on a mere pretence and that no extraneous or irrelevant material has been considered;
6. Such reasons forming part of the satisfaction note are to satisfy the judicial consciousness of the Court and any part of such satisfaction note is not to be made part of the order;
7. The question as to whether such reasons are adequate or not are not a matter for the Court to review in a writ petition. The sufficiency of the grounds which induced the competent authority to act is not a justifiable issue.
8. The relevance of the reasons for the formation of the belief is to be tested by the judicial restraint as in administrative action as the Court does not sit as a Court of appeal but merely reviews the manner in which the decision was made. The Court shall not examine the sufficiency or adequacy thereof;
9. In terms of the explanation inserted by the Finance Act, 2017 with retrospective effect from 1.4.1962, such reasons to believe as recorded by income tax authorities are not required to be disclosed to any person or any authority or the Appellate tribunal.