2007 (1) TMI 119 - HC - Income Tax

Summary

Issues Involved:
1. Legality of the search conducted u/s 132(1) of the Income-tax Act, 1961.
2. Validity of the assessment proceedings initiated u/s 153A of the Income-tax Act, 1961.
3. Delay in challenging the search and the issuance of notice u/s 153A.

Summary:

1. Legality of the Search Conducted u/s 132(1):
The petitioners challenged the search conducted on February 16, 2005, arguing that there were no valid "reasons to believe" as required by clauses (a), (b), and (c) of section 132(1) of the Income-tax Act, 1961. The court noted that the petitioners failed to disclose the shareholding details and the interconnected nature of their business dealings, which led to an adverse inference against them. The Revenue argued that the search was based on sufficient information and was conducted in accordance with the law. The court found that the maze of commercial dealings among the Jain group justified a simultaneous search on all businesses, concluding that the search was neither roving nor fishing in nature.

2. Validity of Assessment Proceedings u/s 153A:
The petitioners also contested the assessment proceedings initiated u/s 153A of the Act, claiming them to be illegal. The court observed that the petitioners did not challenge the summons issued u/s 131 of the Act, which were issued subsequent to the search. The court emphasized that the petitioners should participate in the proceedings u/s 153A to vindicate their stand. The court found no reason to exercise its extraordinary powers under article 226 of the Constitution of India to quash the proceedings.

3. Delay in Challenging the Search and Notice u/s 153A:
The Revenue highlighted the significant delay of sixteen months in challenging the search and the issuance of notice u/s 153A. The court was not impressed with the petitioners' argument that the writ petitions became necessary only upon the issuance of the notice dated July 10, 2006. Although the court refrained from dismissing the petitions solely on the grounds of laches, it noted the delay as significant.

Conclusion:
The writ petitions were dismissed, and the court ordered the petitioners to pay nominal costs of Rs. 15,000 to the respondents within six weeks. The period of limitation for the Assessing Officer to conduct and complete the original proceedings was extended by four months due to the pendency of these proceedings.