1997 (11) TMI 9 - HC - Income Tax

Issues Involved:
1. Mala fide actions of Mr. Dilip Shivpuri.
2. Legality of the search and seizure operation.
3. Validity of the FIR filed against Dr. Tomar.
4. Ownership and inclusion of FDRs in Dr. Tomar's income.
5. Justification of additions in the impugned assessment orders.
6. Alternative remedy and jurisdiction under Article 226 of the Constitution.
7. Guidelines for reassessment.

Detailed Analysis:

1. Mala Fide Actions of Mr. Dilip Shivpuri:
The court found that Mr. Dilip Shivpuri, the then Deputy Director (Investigation), Income-tax Department, conducted the search and seizure at Dr. Tomar's house with mala fide intentions. This view was upheld by the Supreme Court. The court emphasized that the Department should have taken stringent action against Mr. Shivpuri for his actions, which tarnished the image of the entire Department.

2. Legality of the Search and Seizure Operation:
The search and seizure operation conducted on September 17 and 18, 1992, at Dr. Tomar's residence resulted in the discovery of 12 tolas of gold, Rs. 7,162 in cash, and three FDRs in the name of Jayanti Lal Patel. The court found that the operation was conducted with ulterior motives and was not justified.

3. Validity of the FIR Filed Against Dr. Tomar:
The FIR filed by Mr. Shivpuri under sections 13(1)(e) and 13(2) of the Prevention of Corruption Act, 1988, was deemed to be filed with mala fide intentions to harass Dr. Tomar. The High Court quashed the FIR on October 15, 1994, and this decision was upheld by the Supreme Court.

4. Ownership and Inclusion of FDRs in Dr. Tomar's Income:
The court found that the three FDRs were owned by Jayanti Lal Patel, an NRI and a close friend of Dr. Tomar. The Assistant Commissioner of Income-tax (Investigation) had earlier determined that Dr. Tomar had no connection with these FDRs. The court ordered the release of the FDRs to Dr. Tomar, who was their custodian during the search, with the condition that he would pay tax if it was later found that the investment belonged to him.

5. Justification of Additions in the Impugned Assessment Orders:
The court agreed with the learned single judge's finding that there was no justification for the additions made in the impugned assessment orders. The additions were found to be baseless and made out of malice.

6. Alternative Remedy and Jurisdiction Under Article 226 of the Constitution:
The court rejected the Department's argument that the learned single judge erred in exercising power under Article 226 due to the existence of an alternative remedy. The court held that the alternative remedy would not be efficacious in this case due to the mala fide actions involved. The appeal before the Commissioner of Income-tax (Appeals) was deemed ineffective given the circumstances.

7. Guidelines for Reassessment:
The court provided detailed guidelines for reassessment:
- The income/assets declared under the Amnesty Scheme for the assessment year 1984-85 cannot be reopened without a positive finding.
- The three FDRs should be released to Dr. Tomar.
- The value of the house cannot exceed what was shown by the assessees.
- No addition can be made based on entries on a piece of paper found during the search.
- The sale of two plots for Rs. 1,71,000 should be accepted, and no double additions should be made.
- Loans taken from Ashok Kumar Bansal and the sale proceeds of jewelry should be accepted as genuine.
- Any loan from income-tax assessees should be verified before making additions.

Conclusion:
The court dismissed the appeals, emphasizing that the assessing authority must act in accordance with the guidelines and observations provided. The order of remand was deemed just and proper, protecting the interests of the Department while ensuring fair treatment for the assessee.

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