2008 (6) TMI 366 - HC - Income Tax

Search and seizure - whether the action of the Department in conducting the search and seizure is in consonance with the provisions of section 132 of the Act of 1961 or not and whether the proceedings initiated by the Department under section 132 of the Act of 1961 are liable to be quashed by this court or not - it is extremely difficult to accept the plea put forth by the learned counsel appearing on behalf of the assessee-petitioner that there is no material on record and the material has no rational nexus or it has been done mala fide - The reason to believe is based on materials available - it is, action under section 132(1) of the Act of 1961 is a serious matter and intrudes in the privacy of a citizen but the fact remains once there is an opinion and there is rationality and there is application of mind, this court under article 226 of the Constitution cannot interfere in the matter at this stage of these proceedings - the petition stands dismissed

Issues Involved:
1. Legality of the search and seizure conducted by the Department.
2. Compliance with the procedural requirements under Section 132 of the Income-tax Act, 1961.
3. Validity of the reasons recorded for the search authorization.
4. Allegations of the petitioner regarding the misuse of power by the Department.

Detailed Analysis:

1. Legality of the Search and Seizure Conducted by the Department:
The petitioner, a co-operative society, challenged the search and seizure conducted by the Department on their business premises, claiming it was illegal and contrary to statutory provisions. The Department argued that the search was conducted after recording reasons by the competent authority and was based on credible information and evidence. The court examined whether the search and seizure were in consonance with Section 132 of the Income-tax Act, 1961.

2. Compliance with the Procedural Requirements under Section 132 of the Income-tax Act, 1961:
The petitioner contended that the Department did not follow the procedures outlined in Section 132, such as recording reasons for the belief that a search was necessary and issuing a warrant of authorization. The Department countered that all procedural requirements were fulfilled, including the issuance of warrants by the Director of Income-tax (Investigation). The court reviewed the material presented by the Department, which included detailed records and evidence supporting the authorization of the search.

3. Validity of the Reasons Recorded for the Search Authorization:
The court analyzed whether the reasons recorded for the search authorization were valid and based on relevant material. The Department provided extensive documentation, including bank account statements and evidence of unaccounted transactions, to justify the search. The court referred to several precedents, such as ITO v. Seth Brothers and L. R. Gupta v. Union of India, which emphasized that the formation of belief must be based on more than mere suspicion and should have a rational nexus to the information received.

4. Allegations of the Petitioner Regarding the Misuse of Power by the Department:
The petitioner alleged that the search was conducted maliciously and for a collateral purpose. The court examined the evidence and found that the Department's actions were based on substantial material and credible information. The court noted that the Department had conducted a secret enquiry and gathered significant evidence of unaccounted transactions and the modus operandi of the society. The court concluded that the formation of opinion by the Department was reasonable and based on material evidence, thus rejecting the petitioner's allegations of misuse of power.

Conclusion:
The court dismissed the petition, finding that the search and seizure conducted by the Department were in accordance with the provisions of Section 132 of the Income-tax Act, 1961. The court held that the Department had sufficient material to form a reasonable belief that the petitioner was in possession of undisclosed income or property. The court emphasized that the sufficiency of the material could not be questioned in writ jurisdiction, and as long as there was a rational nexus and application of mind, the court could not interfere with the Department's actions.

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