1999 (1) TMI 20 - HC - Income Tax

Block Assessment, Search And Seizure, Power To Prohibit, Capital Gains, Unreasonable Delay, Illegal Search

Summary

Issues Involved:
1. Validity of the search and seizure operation.
2. Legality of the procedures followed during the search.
3. Retention of seized documents beyond the permissible period.
4. Invocation of Chapter XIV-B for block assessment.

Detailed Analysis:

1. Validity of the Search and Seizure Operation:
The petitioners challenged the legality of the search and seizure operation conducted on their premises on October 27, 1995, and November 10, 1995. They contended that the entire exercise was arbitrary and illegal, violating their fundamental rights under Article 21 of the Constitution of India. The search team, led by the second respondent, allegedly collected and carried away documents without issuing a receipt, which were later brought back on November 10, 1995. The court found the search operation to be vitiated due to the failure to follow mandatory guidelines and safeguards under Section 165 of the Criminal Procedure Code.

2. Legality of the Procedures Followed During the Search:
The court scrutinized the procedures adopted by the search team, particularly the collection and sealing of documents in an almirah on October 27, 1995, and the resumption of the search on November 10, 1995. The court noted that there was no satisfactory explanation as to why the documents could not be seized on October 27, 1995, itself. The action of sealing the documents in an almirah and resuming the search after a gap of 14 days was deemed unreasonable and a violation of the mandatory requirements under Section 132(3) of the Income-tax Act. The court held that the prolonged search operation without justification infringed the petitioners' right to freedom and privacy.

3. Retention of Seized Documents Beyond the Permissible Period:
The court observed that the seized documents and records were retained by the authorized officer for more than 15 days, which contravened Section 132(9A) of the Income-tax Act. The documents were supposed to be handed over to the Income-tax Officer within 15 days of the seizure. The court found that the retention of documents by the Assistant Director of Income-tax (Investigation)-1, Calicut, beyond the permissible period was illegal.

4. Invocation of Chapter XIV-B for Block Assessment:
The petitioners argued that since no concealed income was detected during the search, the invocation of Chapter XIV-B for block assessment was unwarranted. The court agreed, stating that without any violation of the Income-tax Act, the respondents had no jurisdiction to invoke Section 158BC of the Act, thereby depriving the petitioners of the right to regular assessment. The court referenced the Division Bench decision in CWT v. N. C. J. John, which supported the view that if no concealment is detected at the time of search, the assessee cannot be deprived of the benefit of regular assessment.

Conclusion:
The court declared all proceedings taken under Section 132 of the Income-tax Act as invalid. The notices issued under Section 158BC were quashed, and the respondents were prohibited from invoking the provisions of Chapter XIV-B against the petitioners. The original petition was allowed with costs, emphasizing that the search and seizure operations were conducted in an arbitrary manner, violating the legal and constitutional rights of the petitioners.