2003 (9) TMI 60 - HC - Income Tax

Validity of search and seizure - In the written submission the search has been sought to be justified on the ground that some incriminating documents were seized from the premises showing actual production between November 1999 to February 2000 as high as five/six times the production recorded in the register and therefore the stock of finished goods on the date of search should not have been less than 700 m.t. This can hardly justify the legality and validity of the search conducted on February 16 2000 the writ petition is allowed. The entire search and seizure operation conducted on February 16 2000 in the factory premises of the petitioner are held to be illegal.

Issues Involved:
1. Legality and validity of the search conducted by the Income-tax Department.
2. Justification for the issuance of the search warrant.
3. Compliance with the procedural requirements under Section 132 of the Income-tax Act.
4. The adequacy of the information leading to the search.

Detailed Analysis:

1. Legality and Validity of the Search Conducted by the Income-tax Department:
The petitioner, a proprietorship concern, challenged the legality and validity of the search conducted by the Income-tax Department at its factory on February 16, 2000. The petitioner contended that the search was conducted without proper authorization and in the absence of any reasonable belief of undisclosed assets. The court noted that the petitioner's factory had been regularly filing income-tax returns and had no outstanding dues.

2. Justification for the Issuance of the Search Warrant:
The petitioner argued that the warrant of authorization for the search was issued mechanically, arbitrarily, and without application of mind. The respondents, in their counter-affidavit, justified the search on the grounds of gross suppression of production and sales detected during the search operations. However, the court found that there was no specific denial of the petitioner's assertion that there was no information in possession of the officer issuing the warrant that could lead any reasonable person to form an opinion about the existence of undisclosed assets.

3. Compliance with Procedural Requirements under Section 132 of the Income-tax Act:
The court referred to several precedents, including CIT v. Vindhya Metal Corporation, Dr. Nand Lal Tahiliani v. CIT, and L.R. Gupta v. Union of India, which emphasized that the information leading to the issuance of a search warrant must be more than mere rumor or gossip. The court reiterated that the satisfaction of the authorities must be based on tangible material and reasonable belief, not on subjective satisfaction or mechanical endorsement of reports.

4. Adequacy of the Information Leading to the Search:
The court scrutinized the information that led to the search and found it lacking in substance. The court highlighted that mere possession of unexplained amounts or high living standards, without more, could not constitute sufficient information for a reasonable belief of undisclosed income. The court cited the case of Ajit Jain v. Union of India, where it was held that a bare intimation by the police or any person, without additional material, could not justify action under Section 132.

Conclusion:
The court concluded that the search and seizure operation conducted on February 16, 2000, was illegal as the Commissioner of Income-tax did not have a reasonable belief that the petitioner was concealing income. The court allowed the writ petition, declaring the entire search and seizure operation invalid and ordered the release of the books and goods seized.

Order:
The writ petition was allowed, and the search and seizure operation conducted on February 16, 2000, at the petitioner's factory premises were held to be illegal. The court ordered the immediate release of the books and goods seized during the search.

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