2004 (12) TMI 74 - HC - Income Tax

Petitioners have approached this court for quashing the warrant of authorisation issued under section 132 and follow up action including search and seizure of gold diamonds ornaments and jewellery and consequent notices issued u/s 158BC - impugned action under section 132 and further action in consequence thereof including notices under section 158BC are liable to be quashed and set aside. The seizure of the gold diamonds and jewellery etc. was not a valid and legal search and as a necessary corollary the provisions relating to block assessment have no application. The illegal search and seizure and all consequent actions are accordingly quashed and set aside. The respondents are directed to forthwith return the gold diamonds jewellery and ornaments seized from petitioner No. 3 with interest at the rate of 8% p.a. on the value of the jewellery and ornaments,

Summary

Issues Involved:
1. Legality of the warrant of authorization under section 132 of the Income-tax Act.
2. Validity of the search and seizure actions.
3. Consequence of the notices issued under section 158BC of the Income-tax Act.
4. Availability of alternative remedies and the maintainability of the petition.

Detailed Analysis:

1. Legality of the Warrant of Authorization under Section 132 of the Income-tax Act:
The petitioners challenged the warrant of authorization issued under section 132 of the Income-tax Act on the grounds that there was no information on record that could lead to a belief that the gold, diamonds, and jewellery represented undisclosed income. The court emphasized that the existence of information and its relevance to the formation of belief are open to judicial scrutiny. The court referred to precedents such as Dr. Nand Lal Tahiliani v. CIT and L.R. Gupta v. Union of India to underscore that the information must be more than a mere rumour or hunch and must be capable of giving rise to the inference that the person was in possession of undisclosed income.

2. Validity of the Search and Seizure Actions:
The court examined whether the fax message from the Investigation Unit, Mumbai, constituted sufficient information for the authorization of the search and seizure. The court found that the fax message was general in nature and did not provide a reasonable basis for believing that the gold, diamonds, and jewellery were undisclosed income. The court held that the condition precedent for the exercise of power under section 132 was lacking, rendering the authorization without jurisdiction. The court noted that petitioner No. 3 had produced relevant documents showing that the goods were part of the stock-in-trade and were brought to Lucknow for an exhibition, which was not considered by the authorities.

3. Consequence of the Notices Issued under Section 158BC of the Income-tax Act:
Given that the search and seizure were deemed invalid, the court concluded that the consequent notices under section 158BC were also invalid. The court quashed the illegal search and seizure and all consequent actions, including the notices under section 158BC.

4. Availability of Alternative Remedies and the Maintainability of the Petition:
The respondents raised a preliminary objection regarding the maintainability of the petition, arguing that the petitioners had an efficacious alternative remedy under section 158BC of the Act. However, the court proceeded to examine the merits of the case, indicating that the availability of an alternative remedy did not preclude judicial review of the exercise of power under section 132.

Conclusion:
The court quashed the impugned action under section 132 of the Income-tax Act and all consequent actions, including the notices under section 158BC. The court directed the respondents to return the seized gold, diamonds, and jewellery with interest at the rate of 8% per annum from the date of seizure until payment. The judgment underscores the necessity for the information to be reliable and capable of leading to a reasonable belief that the assets represent undisclosed income before exercising powers under section 132. The court stayed its order for six weeks upon the respondents' request for a stay of twelve weeks.