1994 (5) TMI 20 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the restraint order under section 132(3) of the Income-tax Act, 1961.
2. Impact of the restraint order on the petitioner's business.
3. Delay in concluding the enquiry by the Revenue authorities.
4. Entitlement of the petitioner to costs due to the alleged arbitrary action of the Revenue authorities.

Detailed Analysis:

1. Validity of the Restraint Order:
The petitioners challenged the restraint order dated April 2, 1991, issued under section 132(3) of the Income-tax Act, 1961, and its subsequent modification on April 25, 1991. The Revenue's case was based on the suspicion that Messrs. Ganesh Enterprises had unexplained money, leading to the impugned restraint orders. The Revenue asserted that the amounts deposited by Ganesh Enterprises with Hindustan Copper Ltd. were from unexplained sources, which justified the restraint order under section 132(3). The court noted that the restraint order became infructuous due to a provisional attachment order under section 281B of the Act issued on December 17, 1992.

2. Impact on Petitioner's Business:
The petitioner-company, engaged in the manufacture and sale of non-ferrous metals, argued that the restraint order adversely affected its business operations. The company had paid substantial amounts to the fifth respondent (Hindustan Copper Ltd.) for raw materials, and the restraint order prevented the release of these materials, thereby halting the company's business. The court acknowledged that the petitioner's business was significantly impacted due to the restraint order.

3. Delay in Concluding the Enquiry:
The court observed that there was an unexplained and unreasonable delay in concluding the enquiry by the Revenue authorities. Despite a court order on June 10, 1991, directing the Revenue to complete the enquiry by July 11, 1991, the enquiry prolonged until December 1992. The court emphasized that the need to expeditiously conclude the enquiry is implicit in the provision of section 132 to mitigate its harsh implications.

4. Entitlement to Costs:
The petitioners sought costs against the Revenue authorities for the arbitrary issuance of the restraint order and the resultant harassment and business disruption. The court agreed with the petitioner's contention, noting that the fault lay with the customer of the petitioner-company and not the petitioner itself. The court held that the petitioners were entitled to costs due to the delay and the adverse impact on their business.

Conclusion:
The court dismissed the writ petition as infructuous due to the cessation of the restraint order but awarded costs of Rs. 3,500 to the petitioners, payable by respondents Nos. 2 to 4. The judgment highlighted the necessity for Revenue authorities to act expeditiously and reasonably when exercising powers under section 132 of the Income-tax Act.