2003 (1) TMI 86 - HC - Income Tax

This writ petition has been filed for a writ of certiorari for an appropriate direction declaring as illegal the search and seizure operation and for a mandamus restraining the respondents from proceeding in any manner in pursuance of the said search and seizure and to release the cash of Rs. 6,33,300 and other documents, money and jewellery seized by the Department. - we are of the opinion that in view of the above decisions the action under section 132 was clearly illegal and it could not be said that the Commissioner of Income-tax had reason to believe that the petitioner was concealing his income. As regards the jewellery seized, according to the Central Board of Direct Taxes guidelines the three units residing in the premises could retain 2,500 gms. of net gold jewellery but the total jewellery found was less than 1,000 gms. - The petitioner admittedly has a huge practice in his dental profession and huge income as disclosed in paragraph 2 of the writ petition. In our opinion the cash and articles seized could not be such which could not be due to his income from his profession, and which would not have been disclosed. For the reasons given above, the writ petition is allowed.

Issues Involved:
1. Legality of the search and seizure operation conducted by the Income-tax Department.
2. Validity of the reasons for the search under Section 132 of the Income-tax Act.
3. Justification for the seizure of cash and jewellery.
4. Compliance with Central Board of Direct Taxes guidelines regarding the seizure of jewellery.
5. Petitioner's explanation for the seized assets.

Detailed Analysis:

1. Legality of the Search and Seizure Operation:
The petitioner, a dental surgeon and regular income-tax assessee, challenged the search and seizure operation conducted on November 23, 2001, by the Income-tax Department. The petitioner sought a writ of certiorari declaring the operation illegal and a mandamus restraining further proceedings based on the search, along with the release of seized cash, documents, money, and jewellery.

2. Validity of the Reasons for the Search under Section 132:
The petitioner argued that none of the conditions under Section 132(1) of the Income-tax Act existed to warrant the search and seizure. The petitioner claimed that the search was a mala fide attempt to harass him, as there was no undisclosed income or concealment found in previous assessments. The court examined the reasons recorded under Section 132 and found them to be based on generalities and rumors, lacking tangible material.

3. Justification for the Seizure of Cash and Jewellery:
The petitioner explained that the cash found was either professional receipts or belonged to a charitable society, Prayag Dant Vigyan Anusandhan Sansthan. The jewellery seized was within permissible limits according to the Central Board of Direct Taxes guidelines. The Department, however, alleged that the petitioner did not provide convincing evidence regarding the assets.

4. Compliance with Central Board of Direct Taxes Guidelines:
The petitioner argued that the jewellery seized was below the limit prescribed by the Central Board of Direct Taxes, which allows up to 2,500 gms. for three units residing in the premises. The search party found only 1,283 gms. but still seized 402 gms. of jewellery, violating the guidelines.

5. Petitioner's Explanation for the Seized Assets:
The petitioner provided detailed explanations for the seized cash and jewellery, stating that the cash included amounts received as advance against property sale and professional receipts. The jewellery was explained as received on marriage and other occasions, and some items were gifts from companies. The petitioner maintained complete books of account, which were audited regularly.

Court's Findings and Judgment:
The court found that the Department acted on rumors without sufficient material to form a reasonable belief that the petitioner was concealing income. The court cited several precedents, including CIT v. Vindhya Metal Corporation, Dr. Nand Lal Tahiliani v. CIT, L.R. Gupta v. Union of India, and Ajit Jain v. Union of India, emphasizing that mere possession of unexplained assets does not constitute sufficient information for action under Section 132.

The court concluded that the search and seizure operation was illegal and directed the respondents to release the seized cash, jewellery, and other articles to the petitioner. The writ petition was allowed, and the entire search and seizure conducted on November 23, 2001, was declared illegal.

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