1981 (3) TMI 53 - HC - Income Tax

Summary

Issues Involved:
1. Jurisdiction and Validity of Search and Seizure Authorization under Section 132 of the Income Tax Act.
2. Requirement and Provision of Copies of Warrants of Authorization.
3. Specificity and General Nature of Warrants of Authorization.
4. Legality of Orders under Section 132(3) of the Income Tax Act.
5. Allegations of Mala Fides and Excessiveness of Search.
6. Applicability of Section 131 of the Income Tax Act.
7. Constitutionality of Provisions under Section 132 and Rule 112.
8. Compliance with Provisions of the Code of Criminal Procedure.

Detailed Analysis:

1. Jurisdiction and Validity of Search and Seizure Authorization under Section 132 of the Income Tax Act:
The court examined the jurisdiction invoked under Article 226 of the Constitution to challenge the search and seizure proceedings initiated under Section 132 of the Income Tax Act. The petitioners argued that the Director of Inspection lacked the necessary information to form a belief as required under Section 132(1) of the Act. The court, however, found ample information and material before the Director of Inspection, including investigations showing that the petitioners were involved in filing returns for non-existent business activities and circulating undisclosed income. The court concluded that the belief formed by the Director of Inspection was genuine and not a mere suspicion or doubt, hence the authorization for search and seizure was valid.

2. Requirement and Provision of Copies of Warrants of Authorization:
The petitioners contended that they were entitled to copies of the warrants of authorization, arguing that the Director of Inspection was a court and the warrants were public documents. The court rejected this argument, distinguishing the role of the Director of Inspection under Section 132 from that of an Income Tax Officer under Section 23 of the repealed Indian Income Tax Act, 1922. The court cited the Delhi High Court's ruling in V. K. Jain v. Union of India, which held that there is no requirement in the Income Tax Rules to provide a copy of the warrant before the search starts. The court noted that the warrants were produced before the search commenced and were signed by the petitioner, thus complying with the legal requirements.

3. Specificity and General Nature of Warrants of Authorization:
The petitioners argued that the warrants were invalid as they did not specify particular items, documents, or books to be seized. The court found no merit in this contention, stating that the law does not require warrants to mention specific items. The authorized officer conducting the search is to decide during the search which documents or items to seize. The court emphasized that the judgment of the authorized officer should be accepted in the absence of mala fides, and the general nature of the warrants does not invalidate them.

4. Legality of Orders under Section 132(3) of the Income Tax Act:
The petitioners challenged the legality of the prohibitory orders issued under Section 132(3) of the Act, which restrained the operation of certain bank accounts. The court upheld the legality of these orders, noting that the Assistant Director of Inspection had reasonable grounds to believe that the accounts represented undisclosed income. The court referenced the Division Bench ruling of the Kerala High Court in ITO v. Shajahan, which supported the issuance of such orders to prevent the frustration of the search and seizure process.

5. Allegations of Mala Fides and Excessiveness of Search:
The petitioners alleged mala fides on the part of the respondents, but the court found no amplification or particulars of mala fides during the hearing. The court also rejected the contention that the search was excessive, noting that only a fraction of the total files found were seized, indicating restraint and reasonableness on the part of the search party. The court cited the Supreme Court's observations in Pooran Mal's case, which allowed a certain amount of latitude to the authorities during searches involving voluminous documents.

6. Applicability of Section 131 of the Income Tax Act:
The petitioners argued that the department should have exercised its power under Section 131 (regarding discovery and production of evidence) instead of conducting a search under Section 132. The court rejected this argument, noting that the Director of Inspection had reason to believe that the petitioners would not comply with summons under Section 131. The court cited instances where the petitioners had previously avoided producing documents despite being summoned, justifying the action under Section 132.

7. Constitutionality of Provisions under Section 132 and Rule 112:
The petitioners initially contended that the search and seizure provisions under Section 132 and Rule 112 were violative of Article 19(1)(f) and (g) of the Constitution. However, this contention was not urged during the hearing, as it stood concluded by the Supreme Court's ruling in Pooran Mal's case, which upheld the constitutionality of these provisions.

8. Compliance with Provisions of the Code of Criminal Procedure:
The petitioners contended that the provisions of the Code of Criminal Procedure, applicable to searches and seizures under Section 132 by virtue of sub-section (13), were not complied with. The court found no specific breach or violation of these provisions. The court reiterated the Supreme Court's position in Seth Brothers' case, which emphasized that the officer conducting the search must follow the procedural requirements of the Code of Criminal Procedure, such as issuing a warrant and keeping respectable persons of the locality to witness the search.

Conclusion:
The court dismissed the petition, upholding the validity and legality of the search and seizure proceedings initiated under Section 132 of the Income Tax Act. The court found that the Director of Inspection had sufficient information to form the requisite belief, the warrants of authorization were valid despite their general nature, and the prohibitory orders under Section 132(3) were justified. The allegations of mala fides and excessiveness of the search were rejected, and the constitutionality of the provisions under Section 132 and Rule 112 was affirmed. The court also found no breach of the procedural requirements of the Code of Criminal Procedure.