1986 (9) TMI 53 - HC - Income Tax

Summary

Issues Involved:
1. Legality of search and seizure under Section 132 of the Income-tax Act, 1961.
2. Validity of retention of seized items beyond 180 days.
3. Jurisdiction of the High Court to review actions taken under Section 132.

Issue-wise Detailed Analysis:

1. Legality of Search and Seizure under Section 132 of the Income-tax Act, 1961:
The petitioners challenged the search and seizure conducted by the Income-tax Department on August 29, 1985, arguing that it was without reasonable cause and proper material on record, thereby violating Section 132 of the Income-tax Act, 1961. The search included business and residential premises, as well as bank lockers, resulting in the seizure of books of account, jewellery, and other valuables. The petitioners contended that they were long-time assessees who had disclosed all relevant income and assets, including those seized, under the Voluntary Disclosure of Income and Wealth Ordinance, 1975. They argued that the Commissioner of Income-tax lacked "reason to believe" that they possessed undisclosed income or assets, a condition precedent for action under Section 132. The court found that the Department's action lacked the necessary "reasonable belief" based on cogent material, emphasizing that indiscriminate searches violate fundamental rights and damage reputations. The court concluded that the search and seizure were conducted without jurisdiction and declared them wholly illegal.

2. Validity of Retention of Seized Items Beyond 180 Days:
The petitioners also contested the retention of seized items beyond the statutory period of 180 days as stipulated in Section 132(8) of the Act. The court noted that the books of account and other documents should not be retained beyond 180 days unless reasons for such retention are recorded in writing and approved by the Commissioner. The respondents failed to provide evidence of such an order being passed before the expiry of the peremptory time. Consequently, the court held that the retention of the books of account beyond 180 days was unjustified, and the items must be returned to the petitioners.

3. Jurisdiction of the High Court to Review Actions Taken Under Section 132:
The respondents argued that the High Court lacked jurisdiction to investigate the actions taken under Section 132 of the Act. The court rejected this contention, stating that while the reasons for search and seizure are matters of subjective satisfaction for the Department, they become justiciable when challenged in court. The court emphasized that it is within its competence to examine whether the Department's action was justified and based on reasonable belief. If found violative of the Act's provisions, the court can declare the action void ab initio and issue a writ of mandamus directing the return of seized items.

Conclusion:
The court concluded that the search and seizure conducted by the Income-tax Department were not in accordance with the provisions of Section 132 of the Act and were, therefore, without jurisdiction. The actions were declared wholly illegal, and the Department was directed to return all seized items, including books of account, fixed deposit receipts, and other valuables, to the petitioners. The court also highlighted the importance of the Department acting with restraint and adhering to legal principles to maintain the dignity and rights of honest taxpayers.