2006 (3) TMI 134 - HC - Income Tax

Summary

Issues:
1. Challenge to the prohibitory order issued under section 132(3) of the Income-tax Act, 1961.
2. Claim for refund of a sum of Rs. 17,78,326 recovered by the tax authorities.

Analysis:

Issue 1: Challenge to the Prohibitory Order
The petitioner challenged the prohibitory order issued under section 132(3) of the Income-tax Act, 1961, on the grounds that the necessary conditions for invoking section 132 were not satisfied in their case. The petitioner argued that the search in their premises was invalid as the conditions for the prohibitory order were not met. The respondents, in their counter-affidavit, defended the warrant of authorization issued by the Director of Income-tax, stating that it was done after due diligence and concurrence from the senior-most official. The respondents further justified the prohibitory order by stating that due to practical constraints, it was not possible to verify all documents and lockers at once, hence the order was necessary.

Issue 2: Claim for Refund
The petitioner sought a writ of mandamus directing the tax authorities to refund a sum of Rs. 17,78,326 recovered from the petitioner's credit with a bank, along with interest. The petitioner contended that they had no outstanding tax demands and that the tax authorities were not authorized to attach bank accounts or demand payment unless taxes were due. The respondents, in their counter-affidavit, defended the actions taken, including the seizure of cash and amounts withdrawn from the current account, stating that certain funds were not reflected in the petitioner's books of account.

In a joint memo filed by both parties, various agreements were reached, including the opening of a strong room, depositing amounts in fixed deposits, and retaining seized gold and jewelry. The court directed the tax authorities to refund the cash seized and amounts withdrawn from the current account to the petitioner, emphasizing the need to protect the interests of genuine depositors. The court also highlighted that it had not expressed any opinion on the case's merits, allowing the respondents to proceed in accordance with the law.

In conclusion, the court disposed of the writ petitions with specific directives for refund and compliance with the agreements outlined in the joint memo, ensuring the protection of interests while refraining from expressing any opinion on the case's merits.