2022 (2) TMI 1286 - HC - Income Tax

Look Out Circular quashed - Whether LOC shall be deleted automatically and shall remain in force until and unless a deletion request is received from the Originator? - Learned Single Judge quashed the Look Out Circular ( LOC ) issued against Respondent No.1(Income Tax Department) herein inter alia on the ground that the LOC has not been issued in terms of the Office Memorandum dated 05.12.2017 and that the circumstances of the case did not show that the LOC could be issued due to actions detrimental to the economic interests of the country - HELD THAT - Appellant has made out a prima facie case for grant of interim relief. The balance of convenience is also in favour of the Appellant and in case the impugned judgment is not stayed, irreparable loss shall be caused to the Appellant. We, accordingly, stay the operation, implementation and execution of the impugned judgment dated passed by the learned Single Judge till the next date of hearing. Respondent No.1 is hereby directed to deposit his passport with the Learned Registrar General of this Court, latest by 5.00 PM on 04.02.2022. The passport shall be kept by the Learned Registrar General in safe custody in a sealed cover. Since it is the stand of the Learned Senior Counsels appearing on behalf of Respondent No.1 that on account of business constraints, he is required to frequently travel abroad, we grant liberty to Respondent No.1 to file an appropriate application as and when the need arises to travel abroad, detailing the reasons therein. Needless to state, as and when such an application is preferred, the same shall be decided, based on facts and circumstances brought forth and in accordance with law.

Summary

Issues:
1. Validity of Look Out Circular (LOC) issued against Respondent No.1.
2. Allegations of tax evasion and bogus purchases against Respondent No.1.
3. Prima facie case for grant of interim relief by the Appellant.
4. Balance of convenience favoring the Appellant.
5. Directions regarding the stay of the impugned judgment and deposit of passport by Respondent No.1.

Analysis:

1. The High Court considered the appeal challenging the judgment quashing the Look Out Circular (LOC) issued against Respondent No.1. The Appellant contended that the LOC was issued in accordance with guidelines and was crucial for ongoing investigations into tax evasion. The Appellant argued that the LOC was necessary to prevent Respondent No.1 from fleeing the country, emphasizing the economic interests at stake. On the other hand, Respondent No.1's counsels refuted these claims, asserting that the businessman needed to travel for legitimate business purposes and posed no flight risk. The Court, after hearing both parties, found a prima facie case in favor of the Appellant, granting interim relief by staying the operation of the impugned judgment until the next hearing date.

2. The Appellant presented incriminating evidence found during search and survey operations, alleging tax evasion and bogus purchases amounting to significant sums. The Court noted the pending investigations and assessment proceedings against Respondent No.1, highlighting proposed additions and penalties. The Appellant also mentioned investigations under the Black Money Act and cooperation with authorities in Dubai. These factors were crucial in establishing the necessity of the LOC and the potential harm to economic interests if Respondent No.1 traveled abroad unrestricted.

3. In determining the need for interim relief, the Court assessed the balance of convenience, considering the potential irreparable loss to the Appellant if the impugned judgment was not stayed. The Court acknowledged the seriousness of the allegations and the ongoing investigations, emphasizing the importance of preventing any hindrance to the legal process. By granting the stay, the Court aimed to maintain the status quo and safeguard the integrity of the investigation.

4. To address concerns about Respondent No.1's travel requirements, the Court directed the deposit of the passport with the Registrar General and allowed for future applications detailing the necessity of international travel. This approach aimed to balance the interests of both parties, ensuring that any travel requests would be assessed based on valid reasons and legal considerations.

5. The judgment, delivered by the Hon'ble Chief Justice and Hon'ble Ms. Justice Jyoti Singh, provided clear directions regarding the stay of the impugned judgment, the deposit of the passport, and the process for potential future travel applications by Respondent No.1. The Court set a specific date for further proceedings, maintaining transparency and procedural clarity in the legal process.