2011 (5) TMI 596 - HC - Income Tax

Undisclosed income or property - Search and seizure - Block assessment - search was concluded on 5-4-2002 while the present writ petition has been filed on 15-3-2004 - Held that - The petitioners are very much associated with the block assessment proceedings but never objected. Thus they presumably accepted the search operation as valid during all this period over a span of two years. Had they ever felt aggrieved they should have challenged the search warrant shortly or immediately after the close of the search which according to the department concluded on 5-4-2002. It is true that no period of limitation for filing a writ petition is prescribed but it is also equally true that an aggrieved person should approach the Court for redressal of his grievances with promptitude - writ petition liable to be dismissed on the ground of laches Whether department had material to have reason to believe that the petitioners have undisclosed income or assets - Held that - The nature of construction the facilities attached to the hospital and the attending and surrounding circumstances were investigated and examined before hand and therefore on being satisfied satisfaction note was drawn - The material thus collected showed that officer concerned could have reason to believe that the petitioners were in possession of money bullion etc. wholly or partly undisclosed income or asset - The exercise of power under section 131(1A) is contemplated in a situation anterior to exercise of power under section 132 - The striking feature of the provision is that the Income-tax Authorities mentioned in sub-section (1A) have been empowered to exercise the power notwithstanding the fact that no proceeding with respect to such person or class of person are pending before him or any other Income-tax Authority - To overcome it section 131(1A) was enacted giving powers of discovery/production of evidence etc. to Director General or Director or Joint Director etc. notwithstanding the fact that no proceeding is pending before them - Decided against the assessee

Summary

Issues Involved:
1. Whether the writ petition is liable to be dismissed on the ground of laches.
2. Whether the concerned officer had material or information to have reason to believe that the petitioners did not disclose the true income or property.

Detailed Analysis:

1. Dismissal on Grounds of Laches:
The search by the Income-tax Department took place on 20-3-2002, with subsequent actions including locker searches and notices under various sections of the Income-tax Act. The petitioners filed the writ petition on 15-3-2004, approximately two years after the search. The Court noted that the petitioners were involved in block assessment proceedings without objection until shortly before the limitation period expired. The Court emphasized that while no specific limitation period is prescribed for filing a writ petition, prompt action is expected from an aggrieved party. The delay of two years without sufficient explanation led the Court to conclude that the writ petition should be dismissed on the ground of laches.

2. Material or Information for Reason to Believe:
The petitioners argued that there was no material for the concerned officer to have reason to believe that they had undisclosed income or assets. They highlighted their disclosed professional receipts in earlier years, which were higher than the estimates in the satisfaction note. However, the satisfaction note detailed substantial investments in properties and facilities, suggesting that these could not have been made from the disclosed income alone. The Court referred to the legal standard that the sufficiency of the material is not to be scrutinized at this stage but rather whether the officer had a reasonable basis for the belief. The Court found that the information gathered, including the nature of investments and the high standard of living, justified the officer's belief that the petitioners had undisclosed income or assets.

Additional Arguments and Court's Findings:
- The petitioners contended that the issuance of a notice under section 131(1A) after the search operation indicated a lack of initial reason to believe. The Court clarified that section 131(1A) is an enabling provision for inquiries before a search and does not affect the validity of a search conducted under section 132. The Court emphasized that section 132 is an independent code and operates in isolation from other provisions of the Act.
- The Court also addressed the incorrect reference to section 133(1A) in the notice, stating that such errors do not invalidate the order if the authority can be traced to a statutory provision. The Court found that the information sought could be justified under section 133(6) read with section 135 of the Act.

Conclusion:
The Court dismissed both writ petitions due to the petitioners' delay in filing and the absence of merit in their arguments. The petitioners were directed to appear before the authority concerned, and the period of the stay order was excluded from the limitation period for completing the block assessment proceedings.