1982 (6) TMI 33 - HC - Income Tax

Summary

Issues:
1. Challenge to the order passed under section 132(5) of the Income Tax Act, 1961.
2. Failure to consider explanation offered for part of the funds recovered.
3. Violation of Rule 112A(4) of the Income Tax Rules.

Analysis:

Issue 1:
The petitioner challenged the order passed under section 132(5) of the Income Tax Act, 1961, on three grounds. Firstly, it was argued that the action taken under section 132A(1)(c) by the Commissioner of Income-tax was not in accordance with the law as there was no valid reason to believe that the assets seized represented undisclosed income. However, the court found that the Commissioner had valid reasons based on the petitioner's past income assessments and the substantial amount of money found in his possession. The court emphasized that the belief must be based on relevant and material reasons, and in this case, the Commissioner's belief was justified.

Issue 2:
Regarding the failure to consider the explanation offered for part of the funds recovered, the court agreed with the petitioner's contention. The ITO had not considered the explanation provided by Abdullakunhi, which led to an incorrect assumption that the entire amount represented undisclosed income. The court held that this error invalidated the order and required it to be set aside for proper reassessment.

Issue 3:
The violation of Rule 112A(4) of the Income Tax Rules was also raised by the petitioner. The rule mandates that any material gathered during an inquiry must be presented to the individual concerned before being used against them. The court held that this rule is mandatory and not merely directory. As the ITO had not provided the petitioner with an opportunity to respond to the materials collected during the inquiry, the order was deemed invalid. The court directed that the order be set aside and the amount retained should be refunded, subject to certain conditions to safeguard the interests of the Revenue.

In conclusion, the court upheld the petitioner's contentions on all three issues, setting aside the order passed under section 132(5) of the Income Tax Act, 1961. The court emphasized the importance of following legal procedures and providing individuals with a fair opportunity to respond to materials used against them in such cases.