1987 (6) TMI 24 - HC - Income Tax

Issues Involved:
1. Legality of the search and seizure conducted by the Income-tax Department.
2. Jurisdiction to detain seized assets and demand a bank guarantee.
3. Jurisdiction of respondent No. 3 to enforce the bank guarantee.
4. Jurisdiction of the court to entertain the writ petition.
5. Assessment of the appellant's undisclosed income and tax liability.

Detailed Analysis:

Legality of the Search and Seizure:
The appellant, Smt. Shanti Hora, contended that the search and seizure conducted at premises No. 52, Surya Nagar, Agra, under section 132(1) of the Income-tax Act, 1961, were without any authority of law. The appellant argued that this amounted to a deprivation of property, contravening Article 300A of the Constitution. During the search, "purchies" valued at Rs. 8,30,877 and post-dated cheques for Rs. 1,53,254 were seized from the ground floor where the appellant was residing.

Jurisdiction to Detain Seized Assets and Demand a Bank Guarantee:
The appellant contended that the respondents had no jurisdiction to detain the seized "purchies" and post-dated cheques or to demand a bank guarantee for their release. The seized items were released to the appellant upon furnishing a bank guarantee of Rs. 8 lakhs. The Income-tax Officer (respondent No. 4) assessed Ashok Kumar Hora, the appellant's son, and concluded that he had no connection with the business related to the seized items.

Jurisdiction of Respondent No. 3 to Enforce the Bank Guarantee:
The appellant argued that respondent No. 3, who conducted the search, had no jurisdiction to enforce the bank guarantee, as the assessment of the appellant was to be conducted by respondent No. 6. It was contended that respondent No. 3 should have handed over the seized items or the bank guarantee to respondent No. 6 for further proceedings under section 132 of the Income-tax Act.

Jurisdiction of the Court to Entertain the Writ Petition:
The court noted that part of the cause of action arose within its jurisdiction since the bank guarantee was enforceable at Calcutta, and further steps following the search and seizure were to be taken by respondent No. 6, whose office is situated in Calcutta. The court found that it had jurisdiction to entertain the writ petition as a part of the cause of action arose within its jurisdiction.

Assessment of the Appellant's Undisclosed Income and Tax Liability:
Under section 132(5) of the Income-tax Act, the Income-tax Officer is required to make a summary estimation of the undisclosed income and calculate the tax, interest, and penalty within 90 days of the seizure. The court observed that respondent No. 3 ceased to have any seisin over the assets seized from the appellant, which should have been handed over to respondent No. 6. Respondent No. 6 was responsible for completing the assessment of the appellant's undisclosed income and determining the tax liability.

Judgment:
The court accepted the appellant's case, setting aside the order dated March 13, 1987, which dismissed the writ petition on the ground of jurisdiction. The court issued a rule on the writ petition and granted an interim order to stay the enforcement of the bank guarantee until the disposal of the rule. Respondent No. 6 was entitled to proceed with the assessment of the appellant and invoke the bank guarantee if any tax demand was raised. The appellant was directed to keep the bank guarantee renewed until the disposal of the rule. The court provided directions for the expeditious disposal of the rule, with each party bearing its own costs.

Conclusion:
The court found that respondent No. 3 had no jurisdiction to enforce the bank guarantee and that the assessment of the appellant's undisclosed income should be conducted by respondent No. 6. The court had jurisdiction to entertain the writ petition as part of the cause of action arose within its jurisdiction. The interim order was granted to protect the appellant's interests until the final assessment was made.

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