Union of India v. Agarwal Iron Industries (2014) 15 SCC 215

This case explains two things: (1) when a search under Section 132 of the Income Tax Act is valid, and (2) how non-traverse (Order 8 Rule 5 CPC) works. The Supreme Court held that the High Court wrongly quashed the search by treating some denials as admissions, without first checking if the tax authority had formed a reasonable belief.

• Core holding: Examine the authority’s reasons/belief under §132; do not shortcut using non-traverse alone.
• Pleadings rule: Non-traverse is not a magic wand; read the entire counter-affidavit fairly.

1. Was the High Court right in overturning the search and seizure under §132 IT Act?
2. Could the High Court treat the revenue’s counter as an implied admission by using non-traverse (O8 R5 CPC)?

• Income Tax Act, §132(1): Search warrant requires a reasonable belief by a competent authority, based on relevant material, that undisclosed assets/books exist.
• Order 8 Rule 5 CPC (Non-Traverse): A fact not specifically denied may be deemed admitted; but courts must read pleadings as a whole and apply this rule with care.
• Judicial Review Standard: The court checks whether belief was formed on acceptable material—not whether the court itself agrees with the belief on merits.

• HC set aside: Quashing based on non-traverse was incorrect; pleadings must be read as a whole.
• Proper test: Did the competent authority form a reasonable belief on materials available under §132? HC failed to examine this.
• Commissioner issue: Appointing an Advocate-Commissioner to inventory goods did not answer the legality of the search.

Legality of search turns on the existence of a bona fide, reasonable belief under §132 formed on relevant material. Non-traverse cannot be used to manufacture admissions and overturn a search without addressing that core inquiry.

• Clarifies search-warrant scrutiny: focus on belief formation, not inventories or semantics.
• Warns against over-reliance on non-traverse to decide writs.
• Helps frame pleadings and counters in tax search challenges.

• 1 §132 requires reasonable belief on material—check that first.
• 2 O8 R5 is not automatic admission; read the entire counter.
• 3 Commissioner’s inventory ≠ proof of illegality of search.
• 4 HC erred by quashing without engaging with §132 standard.

Mnemonic: “BELIEF BEFORE BRIEFS.”

• BELIEF → Was §132 belief formed on material?
• BEFORE → Check this prior to pleadings shortcuts.
• BRIEFS → Non-traverse cannot replace the §132 test.

3-Step Hook:

1. Locate the material relied on by authority.
2. Verify existence of reasonable belief under §132.
3. Only then assess pleadings like O8 R5 issues.

Section 132 (IT Act)

Power to search and seize based on reasonable belief of undisclosed income/assets.

Non-Traverse (O8 R5)

A fact not specifically denied may be deemed admitted; applied with context.

Reasonable Belief

Good-faith inference drawn by a competent authority from relevant materials.

Advocate-Commissioner

Court-appointed lawyer to perform tasks like inventory; not decisive of warrant legality.