2010 (11) TMI 403 - HC - Income Tax

Power to requisition books of account, etc - it is clear that the cash and silver seized by GRPF, Katni, is undisclosed and that Shri Vipul Jain or Shri Kamlesh Soni have not disclosed to the Department the true nature of it and thus there is reason to believe that they will not disclose their affairs of business to the Department in response to statutory notices - The record produced by the respondents clearly establishes that respondent No. 1 was in possession of the information on the basis of which he had reason to believe that cash and silver which were seized represented assets which would not have been disclosed for the purpose of income-tax - There is a direct nexus between material coming notice of the authority and formation of belief for issuance of warrant under section 132A - Decided against the assessee

Issues Involved:
1. Legality and validity of the warrant issued under section 132A of the Income-tax Act, 1961.
2. Jurisdiction of the magistrate or police to deal with seized assets once a warrant under section 132A is issued.
3. Whether the assets seized were undisclosed assets.
4. Application of mind by the competent authority in issuing the warrant of authorization under section 132A.
5. Violation of fundamental rights under Article 19(1)(g) of the Constitution of India due to seizure of business assets.

Detailed Analysis:

1. Legality and Validity of the Warrant Issued Under Section 132A of the Income-tax Act, 1961:
The petitioner challenged the legality of the warrant issued under section 132A of the Income-tax Act, 1961. The petitioner argued that the assets seized were accompanied by a travel memo indicating ownership and regular assessment to income-tax. The petitioner contended that there was no material to form a belief that the assets were undisclosed. The court noted that the Director of Income-tax issued the warrant based on credible information and after due application of mind, satisfying the legal requirements under section 132A.

2. Jurisdiction of the Magistrate or Police to Deal with Seized Assets Once a Warrant Under Section 132A is Issued:
The respondents argued that once a warrant of authorization is issued under section 132A, the magistrate or police has no jurisdiction over the seized assets unless a crime is registered. The assets should be handed over to the Income-tax Department. The court observed that the Income-tax Department's application for release of assets was allowed by the C.J.M., Katni, directing security furnishing of Rs. 26 lakhs, and the Department's revision against this order was pending.

3. Whether the Assets Seized Were Undisclosed Assets:
The petitioner argued that the seized assets were business assets and should not be seized under section 132(1)(c)(B)(iii) of the Income-tax Act. The court reviewed the information and notes prepared by the Income-tax Department, which indicated that the assets were undisclosed. The contradictions in statements, lack of supporting documents, and absence of business activity at the claimed location led to the conclusion that the assets were unaccounted for and would not be disclosed for income-tax purposes.

4. Application of Mind by the Competent Authority in Issuing the Warrant of Authorization Under Section 132A:
The petitioner contended that the issuance of the warrant of authorization suffered from non-application of mind. The court examined the notes and reasons recorded by the Director of Income-tax, which demonstrated a rational connection and relevant bearing on the formation of belief. The court found that the competent authority had applied its mind and issued the warrant based on credible information and material on record.

5. Violation of Fundamental Rights Under Article 19(1)(g) of the Constitution of India Due to Seizure of Business Assets:
The petitioner argued that the seizure of trading stock violated the fundamental right to practice any profession or carry on any occupation, trade, or business under Article 19(1)(g) of the Constitution. The court referred to various judgments, including those of the Supreme Court, which held that the power under section 132A is not arbitrary and must be exercised in good faith. The court concluded that the seizure was justified as the assets were undisclosed and the action was taken in accordance with the law.

Conclusion:
The court dismissed the writ petition, holding that the issuance of the warrant of authorization under section 132A of the Income-tax Act was legal and valid. The court found no fault with the action of the Income-tax Department and concluded that the competent authority had acted with due application of mind. The petitioner's arguments regarding the violation of fundamental rights and the jurisdiction of the magistrate or police were also rejected. The writ petition failed, and there was no order as to costs.

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