2004 (11) TMI 59 - HC - Income Tax

Requisition of Assets - reason to believe - writ petition has been filed by the petitioners to quash the authorisation issued by the Director of Income-tax (Investigation) u/s 132A and the action of requisitioning the cash from the custody of respondent No. 3/Police Station - Further prayer made is for quashing the notice u/s 131(3), impounding the bank slips found on the cash of petitioner - The prayer has also been made to quash the notice issued under section 131 (1A) - In addition, a writ is sought to quash u/s 131(3) impounding the books of account - In the instant case, I find that it was not mere suspicion but the explanation was found to be incorrect, which has led to formation of the belief. Thus, the submission which has been raised falls down. Resultantly, I find no merit in this petition. Writ petition is dismissed.

Issues Involved:
1. Validity of the authorization under Section 132A of the Income-tax Act.
2. Legitimacy of the requisitioning of cash from police custody.
3. Validity of notices issued under Sections 131(3) and 131(1A) of the Income-tax Act.
4. Authority of the Income-tax Department to impound books of account.
5. Explanation and source of the cash seized.

Issue-wise Detailed Analysis:

1. Validity of the Authorization under Section 132A of the Income-tax Act:
The petitioners challenged the authorization dated January 24, 2003, issued by the Director of Income-tax (Investigation) under Section 132A of the Income-tax Act. The court examined whether there was any "reason to believe" for the formation of such an opinion. The respondents argued that the Director had reason to believe that the amount in question was unexplained and represented income that had not been disclosed. The court found that the Director had based his belief on the information received from the police and the inconsistencies in the petitioners' explanations regarding the source of the cash. The court held that the Director had sufficient material to form a reasonable belief, and thus, the authorization under Section 132A was valid.

2. Legitimacy of the Requisitioning of Cash from Police Custody:
The petitioners sought to quash the action of requisitioning the cash from the custody of the police. The court noted that the police had informed the Income-tax Department about the seizure of cash and that the Director of Income-tax (Investigation) had issued a warrant of authorization under Section 132A based on this information. The court held that the requisitioning of the cash by the Income-tax Department was in accordance with the provisions of the Income-tax Act and was justified.

3. Validity of Notices Issued under Sections 131(3) and 131(1A) of the Income-tax Act:
The petitioners challenged the notices issued under Sections 131(3) and 131(1A) of the Income-tax Act, arguing that the Income-tax Department had no authority to issue such notices. The court found that the notices were issued to ensure the presence of the petitioners and the production of their books of account for examination. The court held that the notices were valid and within the authority of the Income-tax Department.

4. Authority of the Income-tax Department to Impound Books of Account:
The petitioners argued that the Income-tax Department had no authority to impound their books of account. The court examined the provisions of Sections 131(1), 131(1A), and 131(3) of the Income-tax Act, which empower the Assessing Officer to call for discovery and inspection from any person within his jurisdiction. The court held that the Income-tax Department had the authority to impound the books of account under these provisions.

5. Explanation and Source of the Cash Seized:
The petitioners claimed that the cash seized belonged to petitioner No. 2, who had withdrawn it from his bank account for business purposes. The court examined the inconsistencies in the petitioners' explanations and the evidence presented, including the bank slips found on the currency notes. The court found that the petitioners' explanations were contradictory and not credible. The court held that the cash seized represented unaccounted income, and the petitioners had failed to satisfactorily explain its source.

Conclusion:
The court dismissed the writ petition, holding that the authorization under Section 132A of the Income-tax Act was valid, the requisitioning of cash from police custody was justified, the notices issued under Sections 131(3) and 131(1A) were valid, the Income-tax Department had the authority to impound the books of account, and the petitioners had failed to satisfactorily explain the source of the cash seized.

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