2014 (11) TMI 854 - SC - Income Tax

Validity of Search and seizure - information in possession of the officer - High Court has quashed the search and seizure conducted on 16.2.2000 in the factory premises of assessee Held that - The reasons cannot be accepted it cannot be comprehended as to how an Advocate Commissioner was appointed to take inventory of the goods in respect of which the restraint order was passed by the revenue under the Act - it is difficult to appreciate how the denial in the counter affidavit filed by the revenue could be treated as an admission by implication to come to a conclusion that no reason was ascribed for search and seizure and action taken u/s 132 of the Act was illegal - The relevant confidential file, if required and necessary could have been called for and examined - Revenue in the counter affidavit was not required to elucidate and reproduce the information and details that formed the foundation. The terms used are reason to believe . - Whether the competent authority had formed the opinion on the basis of any acceptable material or not, as is clear as crystal, the High Court has not even remotely tried to see the reasons reasons can be recorded on the file and the Court can scrutinize the file and find out whether the authority has appropriately recorded the reasons for forming of an opinion that there are reasons to believe to conduct search and seizure - the High Court has totally misdirected itself in quashing the search and seizure on the basis of the principles of non-traverse - the High Court would have been well advised to peruse the file to see whether reasons have been recorded or not and whether the same meet the requirement of law thus, the order of the High Court is set aside and the matter is remitted back for fresh disposal Decided in favour of revenue.

Summary

Issues:
Assail to the legal tenability of the order quashing search and seizure conducted in factory premises.

Analysis:
1. The main issue in this case was the legality of the search and seizure conducted by the Income Tax Department at the factory premises of the 1st respondent. The High Court quashed the search and seizure based on the contention that there was no valid reason or formation of opinion about the existence of undisclosed assets as required under Section 132(1) of the Income Tax Act.

2. The 1st respondent argued that the warrant of authorization was issued mechanically and arbitrarily without proper application of mind. The revenue, on the other hand, contended that the search was conducted in accordance with the law and there was enough material to show that the respondent had suppressed vital information related to production and sale.

3. The High Court appointed an Advocate Commissioner to prepare an inventory of the goods in question, and based its decision on various legal precedents. However, the Supreme Court found the reasoning of the High Court unconvincing. The Court highlighted the importance of specific denials in legal proceedings and emphasized the need for proper examination of the confidential file to determine the legality of the search and seizure.

4. The Supreme Court referred to previous judgments to establish the legality and necessity of search and seizure actions in maintaining social security. The Court emphasized the safeguards and procedures in place to ensure that search and seizure actions are conducted lawfully and fairly.

5. Ultimately, the Supreme Court held that the High Court had erred in quashing the search and seizure without proper examination of the reasons recorded for the action. The Court set aside the High Court's order and remanded the matter for fresh disposal, directing the revenue to produce the file for further scrutiny by the High Court.

In conclusion, the Supreme Court allowed the appeals, set aside the High Court's order, and instructed a fresh disposal of the matter in accordance with the law, emphasizing the importance of proper examination of reasons for search and seizure actions.