2011 (5) TMI 620 - HC - Income Tax

Search and seizure - Writ petition filed for quashing/setting aside prohibitory order passed u/s 132(3) in respect of Current Account of the petitioner-Company maintained with PNB, and for declaratory relief declaring issuance of fresh warrant of authorization and Panchanama and withdrawal of Rs. 12.39 crores from the aforesaid Current Bank Account of the petitioner by opposite party-bank authorities is illegal and without jurisdiction - maintainability of writ petition - Held that - Firstly, When the validity of the seizure is questioned on the ground that seizure is illegal, section 132B of the Act does not come to the picture at all. Therefore, the writ petition is maintainable. On untested allegations and in absence of any findings that source of any deposit in the current bank account has not been explained or not disclosed in the regular books of account, no seizure is sustainable. Further, correctness of allegation has to be assessed in assessment. Therefore, prohibitory order issued u/s 132(3) in respect of Current Account in question without forming any belief and/or without any material to conclude that the amount deposited in the said Current Account is either wholly or partly undisclosed income of the petitioner is unsustainable in law. also, consequential action in converting the money lying in the current account into Demand Draft/pay order in favour of the CIT and withdrawing the same from the current account is also not valid in law. Income-tax Department is directed to bring back Rs. 12.39 crores along with interest accrued thereon into the current of the petitioner-Company - Writ petition allowed.

Issues Involved:
1. Maintainability of the writ petition challenging the validity of search and seizure operation.
2. Validity of the prohibitory order dated 11-11-2010, fresh warrant of authorization dated 7-1-2011, and Panchanama dated 8-1-2011 under the Income-tax Act.
3. Justification of the Income-tax Department in converting Rs. 12.39 crores lying in the current account into a demand draft/pay order in favor of the Commissioner of Income-tax and withdrawing the same.
4. Appropriate order to be passed.

Detailed Analysis:

1. Maintainability of the Writ Petition:
The court held that the writ petition is maintainable as it involves questions of law regarding the interpretation of section 132 of the Income-tax Act and the true effect of "disclosed income" and "undisclosed income". The plea of alternative remedy was found untenable because section 132B, which deals with post-search and seizure operations, does not apply when the validity of the seizure itself is questioned.

2. Validity of the Prohibitory Order, Fresh Warrant of Authorization, and Panchanama:
The court examined the scope and ambit of section 132 of the Income-tax Act, which deals with search and seizure operations. The court emphasized that the competent authority must have information and reason to believe that the conditions stipulated in section 132(1)(a), (b), or (c) exist. The court found that the Income-tax Department did not have valid reasons to believe that the money in the current account represented undisclosed income. The current account had been disclosed in the books of account and the balance sheets for the relevant assessment years. The court noted that the prohibitory order under section 132(3) was issued without forming any reasonable belief that the money represented undisclosed income. The court concluded that the issuance of the prohibitory order, fresh warrant of authorization, and Panchanama was not valid in law.

3. Justification in Converting the Money into Demand Draft/Pay Order:
The court held that the action of converting the money lying in the current account into a demand draft/pay order in favor of the Commissioner of Income-tax and withdrawing the same was not justified. The court emphasized that if an order is bad in its inception, it does not get sanctified at a later stage. Since the prohibitory order and warrant of authorization were found to be invalid, the subsequent action of converting the money and withdrawing it was also held to be illegal.

4. Appropriate Order:
The court quashed the warrant of authorization issued in respect of the current account and the Panchanama dated 8-1-2011. The court directed the Income-tax Department to bring back Rs. 12.39 crores along with interest accrued thereon into the current account of the petitioner-company maintained with Punjab National Bank, Station Square, Bhubaneswar. The court also noted the serious allegations about improper actions of the IT officials and suggested a detailed inquiry into the matter.

Conclusion:
The writ petition was allowed, and the court directed the Income-tax Department to restore the amount of Rs. 12.39 crores along with interest to the petitioner's current account. The court's findings were confined exclusively to the current bank account in question and did not express any opinion on the search and seizure operation conducted in respect of other premises, properties, or assets.

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