2004 (2) TMI 55 - HC - Income Tax

Summons - validity of the warrant of authorisation under section 132(1) There existed no material before the Director which could lead to the formation of reason to believe under section 132(1) for issuance of the warrant of authorization If the Director considers this material after issuance of warrant of authorisation it will be illegal, even if the material existed earlier Hence Department was not justified in exercise of powers under section 131(1A) to issue summons on petitioner after the search and seizure operation was over

Issues Involved:

1. Validity of the warrant of authorization under section 132(1) of the Income-tax Act, 1961.
2. Initiation and continuation of block assessment proceedings.
3. Legality of the search and seizure operation.
4. Validity of the prohibitory orders under section 132(3) and section 281B of the Act.
5. Transfer of jurisdiction from Noida to Meerut.

Issue-wise Detailed Analysis:

1. Validity of the Warrant of Authorization under Section 132(1):

The petitioners challenged the warrant of authorization issued under section 132(1) of the Income-tax Act, arguing that the conditions precedent for such action were not fulfilled. The court noted that for a warrant of authorization to be valid, there must be "reason to believe" that the person is in possession of undisclosed income or assets. The court observed that the issuance of summons under section 131(1A) after the search operation indicated that there was no material to justify the "reason to believe" at the time of issuing the warrant. The court held that the absence of such material rendered the warrant of authorization invalid, citing precedents such as Ganga Prasad Maheshwari v. CIT and Dr. Nand Lal Tahiliani v. CIT.

2. Initiation and Continuation of Block Assessment Proceedings:

The petitioners contested the block assessment proceedings initiated by the respondents. The court found that since the initial warrant of authorization was invalid, all subsequent actions, including the block assessment proceedings, were also invalid. The court emphasized that the entire process was tainted by the lack of a valid warrant and thus could not be sustained.

3. Legality of the Search and Seizure Operation:

The court scrutinized the search and seizure operation conducted at the petitioners' premises. It was noted that the search was based on vague and unsubstantiated information, which did not meet the threshold of "reason to believe." The court highlighted that indiscriminate seizures were made without proper investigation, and the actions of the respondents were based on post-search materials, which is not permissible. The court cited Om Parkash Jindal v. Union of India and Balwant Singh v. R.D. Shah to underscore that search and seizure operations must be based on concrete information and not mere suspicion or rumors.

4. Validity of the Prohibitory Orders under Section 132(3) and Section 281B:

The court observed that the prohibitory orders issued under section 132(3) and section 281B had expired and no extensions were recorded. Consequently, the court held that the seizure and restraint orders relating to the bank accounts had become infructuous. The court directed the immediate release of the seized cash, articles, and books to the petitioners.

5. Transfer of Jurisdiction from Noida to Meerut:

Although the petitioners also challenged the transfer of jurisdiction from Noida to Meerut, the court found it unnecessary to decide on this point given the quashing of the entire search and seizure operation and subsequent proceedings.

Conclusion:

The court allowed both petitions, quashing the warrants of authorization and all subsequent proceedings. It directed the return of seized cash, articles, and books to the petitioners and restrained the respondents from proceeding with the notices dated May 9, 2002, and October 26, 2002. The judgment underscored the necessity of adhering to legal requirements and proper procedures in search and seizure operations under the Income-tax Act.

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