2005 (5) TMI 40 - HC - Income Tax

Issuance of warrant of authorization under section 132 for conducting search and seizure in the premises of the petitioners and the consequent issuance of impugned notice u/s 158BC directing the petitioners to file returns, etc., by treating the search and seizure operations as valid - petitioners prayed that such warrant of authorisation and the impugned notices be quashed as the same is unconstitutional, illegal and void ab initio and, consequently, the petitioners have also prayed that the documents/valuables, etc., recovered from them during the impugned illegal search and seizure operations carried out by the respondents be returned to them Held that impugned warrants of authorization are illegal, unconstitutional and void ab initio. - held that the search and seizure operations are unconstitutional, illegal and void ab initio. I further direct the respondents/authority concerned to return to the petitioners the articles, cash, jewellery, books of account, FDRs, etc., seized during the impugned search and seizure operations

Issues Involved:
1. Legality and constitutionality of the warrants of authorisation issued under Section 132 of the Income-tax Act, 1961.
2. Validity of the search and seizure operations conducted based on these warrants.
3. Legality of the impugned notices issued under Section 158BC of the Income-tax Act.
4. Admissibility and use of the Comptroller and Auditor General (CAG) report as "information" for forming "reasons to believe" under Section 132 of the Income-tax Act.
5. Requirement of disclosure of information in possession of the concerned authority to the petitioners.
6. Return of seized items if the search and seizure are declared unconstitutional.

Issue-wise Detailed Analysis:

1. Legality and Constitutionality of the Warrants of Authorisation:
The court examined whether the warrants of authorisation issued by the respondents under Section 132 of the Income-tax Act were valid. It was found that the warrants were based on the CAG report, which was in the possession of the respondents before being laid before the Legislative Assembly. The court held that the CAG report is a legislative paper and the property of the House, and thus, it cannot be used by the executive for forming "reasons to believe." Consequently, the warrants of authorisation dated June 17, 1999, to June 23, 1999, including the warrant dated June 18, 1999, were declared illegal and unconstitutional.

2. Validity of the Search and Seizure Operations:
The search and seizure operations conducted based on the aforementioned warrants were scrutinized. The court concluded that since the warrants were invalid, the search and seizure operations carried out on the petitioners' premises were also illegal and void ab initio. The court emphasized that the power under Section 132 must be exercised strictly in accordance with the law, as it is a serious invasion of citizens' rights.

3. Legality of the Impugned Notices Issued Under Section 158BC:
The impugned notices dated February 20, 2001, issued under Section 158BC of the Income-tax Act, directing the petitioners to file returns, were examined. The court held that these notices could only be issued if the search and seizure operations were legal and valid. Since the search and seizure were declared illegal, the impugned notices were also quashed.

4. Admissibility and Use of the CAG Report as "Information":
The court analyzed whether the CAG report could be used as "information" for forming "reasons to believe" under Section 132. It was held that the CAG report, being a legislative paper, cannot be in the legal and constitutional possession of the concerned officer before being laid before the House. The court further stated that the executive cannot rely on the CAG report for any collateral purpose, as it falls within the exclusive jurisdiction of the Legislative Assembly. Thus, the use of the CAG report for forming the requisite belief was deemed unconstitutional.

5. Requirement of Disclosure of Information to the Petitioners:
The petitioners argued that the information leading to the formation of belief under Section 132 should be disclosed to them. The court rejected this contention, stating that the information in the possession of the concerned officer need not be disclosed to the petitioners, and it is the court that must be satisfied with the action of the concerned officer.

6. Return of Seized Items:
The court addressed whether the items seized during the unconstitutional search and seizure operations should be returned to the petitioners. It was held that since the search and seizure were unconstitutional, the respondents must return the seized items to the petitioners. The court directed the respondents to return the articles, cash, jewellery, books of account, FDRs, etc., seized during the impugned operations within two weeks.

Conclusion:
The court allowed the writ petitions, declaring the warrants of authorisation and the search and seizure operations as illegal, unconstitutional, and void ab initio. Consequently, the impugned notices issued under Section 158BC were also quashed. The court further directed the respondents to return the seized items to the petitioners within two weeks.

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