1979 (10) TMI 16 - HC - Income Tax

Summary

Issues Involved:
1. Legality of the search and seizure under Section 132(1) of the Income Tax Act.
2. Legality of the order passed under Section 132(5) of the Income Tax Act.
3. Adequacy of the information and material in possession of the Commissioner to justify the search and seizure.

Detailed Analysis:

1. Legality of the Search and Seizure under Section 132(1) of the Income Tax Act:

The petitioners challenged the legality of the search and seizure on the grounds that the respondent had no material justifying the proceedings under Section 132(1) of the Income Tax Act. They argued that no reasonable person could form a belief based on the available material that conditions necessary for directing search and seizure existed. The relevant part of Section 132, as it stood at the time, was cited, emphasizing that the Commissioner or Director of Inspection must have "reason to believe" that statutory conditions for the exercise of power to order search exist. This belief must be based on information in their possession and must be recorded in writing.

The court referred to the Supreme Court's explanation in ITO v. Seth Brothers [1969] 74 ITR 836, which stated that the section does not confer arbitrary authority upon revenue officers. The Commissioner must have reasons for the belief and must issue an authorization in favor of a designated officer. The court emphasized that the power must be exercised strictly in accordance with the law and for the purposes authorized by the law. If challenged, the concerned officer must satisfy the court about the regularity of his action.

The Commissioner had recorded detailed reasons for his belief, based on information received about the possession of undisclosed income or property by the petitioners. This information included details about the wealth acquired by individuals connected to the petitioners, the locations where cash and valuables were likely kept, and the involvement of these individuals in business activities. The court found that the information provided to the Commissioner was reliable and justified the issuance of search warrants. Therefore, the contention that the action was mala fide or without reliable information was rejected.

2. Legality of the Order Passed under Section 132(5) of the Income Tax Act:

In Writ Petitions Nos. 920 of 1975 and 113 of 1976, the legality of the order under Section 132(5) was challenged on the ground that the orders were not passed with the previous approval of the Inspecting Assistant Commissioner (IAC). The court noted that before the amendment of Section 132(5) by the Taxation Laws (Amendment) Act, 1975, the provision required the previous approval of the Commissioner. The impugned orders were passed after obtaining the previous approval of the Commissioner, who was superior in rank to the IAC. The court held that obtaining the approval of the Commissioner amounted to an irregularity that did not prejudice the petitioners, and therefore, the orders were not rendered illegal.

3. Adequacy of the Information and Material in Possession of the Commissioner to Justify the Search and Seizure:

The court examined the information that led the Commissioner to issue the warrants of authorization. This information included statements and details about the wealth and business activities of individuals connected to the petitioners. The Commissioner verified the information and assured himself of its substance before recording the order for the issuance of warrants. The court found that the material furnished by the department was reliable and justified the Commissioner's belief that the petitioners were in possession of undisclosed income or property. The court rejected the contention that there was no reliable information to justify the action under Section 132 of the Act.

The petitioners' reliance on previous judgments where searches were held illegal was found to be misplaced, as the facts and circumstances of those cases were different. In those cases, the searches were found to be illegal due to lack of proper satisfaction by the Commissioner or irregularities in the authorization process, which were not present in the current case.

Conclusion:

The court concluded that the petitions were devoid of any merit and dismissed them with costs. The search and seizure actions were found to be legal, and the orders passed under Section 132(5) were upheld as valid. The information and material in possession of the Commissioner were deemed adequate to justify the search and seizure actions.