2012 (8) TMI 340 - HC - Income Tax

Search and seizure of cash Held that - Deputy Director prepared a satisfaction note and placed it along with statements and other documents before Director of Income-tax (Investigation), who recorded satisfaction and issued warrant of authorisation under section 132A - On basis of warrant of authorisation, Deputy Director collected amount of Rs. 11 lakhs since R had in his statement recorded under section 133A stated that he had given cash to assessee through JJ, then without due verification with JJ, no satisfaction could have been recorded that seized cash represented income which had not been, or would not have been, disclosed for purposes of Act by assessee - condition precedent for the exercise of power under section 132A was lacking and the order made under it was liable to be quashed; and there was no material on record to sustain the order made on the firm - warrant of authorisation under section 132A of the Act cannot be sustained.

Summary

Issues Involved:

1. Validity of the warrant of authorization under Section 132A of the Income Tax Act.
2. Legality of the seizure of Rs. 11 lakhs by the Deputy Director of Income Tax.
3. Entitlement of the petitioner to the return of the seized amount with interest.

Detailed Analysis:

1. Validity of the Warrant of Authorization under Section 132A of the Income Tax Act:

The petitioner challenged the warrant of authorization dated 25th July 2000, issued by the Director of Income Tax (Investigations) under Section 132A of the Income Tax Act. The petitioner contended that the Director had no "reason to believe" that the cash of Rs. 11 lakhs represented income that had not been or would not have been disclosed for tax purposes. It was argued that the authorization was invalid as the Director lacked the requisite information to form such a belief. The court examined whether the Director had any material to justify the issuance of the warrant. The court noted that the existence of information and its relevance to the formation of belief could be scrutinized judicially. The court found that the Director did not have sufficient material to form the belief required under Section 132A, as the petitioner's explanation for the source of cash was corroborated by Rajan Shah and the accounts of M/s. J.J. Shroff. Therefore, the warrant of authorization was deemed invalid.

2. Legality of the Seizure of Rs. 11 lakhs by the Deputy Director of Income Tax:

The petitioner argued that the seizure of Rs. 11 lakhs by the Deputy Director was invalid and without legal authority. The court noted that the police had initially seized the cash under Section 102 of the Code of Criminal Procedure and subsequently informed the income tax authorities. The Deputy Director recorded the statements of the petitioner and Rajan Shah and conducted a survey under Section 133A of the Act. However, the court found that the entire exercise of recording statements, conducting the survey, and issuing the warrant of authorization was completed within a span of five to six hours without proper verification. The court held that without due verification with M/s. J.J. Shroff, the satisfaction required under Section 132A could not have been duly recorded. Thus, the seizure was deemed invalid.

3. Entitlement of the Petitioner to the Return of the Seized Amount with Interest:

The petitioner sought the return of the seized amount of Rs. 11 lakhs with interest. The court directed the respondents to return the seized amount to the petitioner along with interest at the appropriate rate as contemplated under the Act from the date of seizure till the date of repayment. The court emphasized that the seizure and the warrant of authorization were invalid, and therefore, the petitioner was entitled to the return of the seized amount.

Conclusion:

The petition was allowed, and the warrant of authorization dated 25th July 2000, as well as the order under Section 132A of the Act, were quashed and set aside. The respondents were directed to return the seized amount of Rs. 11 lakhs to the petitioner along with interest from the date of seizure till the date of repayment. The court made the rule absolute with no order as to costs.