2020 (1) TMI 1114 - HC - Income Tax

Validity of Search and seizure action carried out u/s 132 - stock-in-trade (jewellery) was seized - Denial of release of jewellery - HELD THAT - Reasons were, firstly, not recorded before undertaking the search and was, therefore, completely unauthorized and a high-handed action on the part of the Respondents. The Respondents do not state that jewellery was concealed, or was kept by the Petitioner surreptitiously. Merely because the assessee was in possession of the same, it cannot be said that the same represents income or property which has not been disclosed or will not be disclosed. Section 132(1) as noted above is a serious invasion on the privacy of the citizens, and has to be resorted to when there are pre-existing and pre-recorded good reasons to believe that the action under section 132(1) is called for. While revenue can argue that element of surprise is critical and essential for a successful operation of search and seizure, nevertheless, it has be cognizant that to balance the rights of the citizens, legislature has built in sufficient safeguards. This is to ensure that undue hardship and harassment should not be caused by the arbitrary and unfounded action of the raiding party. Moreover, as discussed above it is not imperative that every article found as a result of search has to be seized. For this purpose, the provision itself restrains and curbs the authority to make seizure of stock-in-trade. No hesitation to observe that the officer in this case has completely ignored the mandate of law. It is also to be mentioned that despite the unlawful action, the Petitioner has been denied release of the jewellery, regardless of his repeatedly representations made to the department. After the seizure, Petitioner has been endlessly writing to the Respondents for the release of the seized articles. He had furnished all the necessary documents to explain as to how the articles seized are indeed his stock-in-trade. In fact, as noted in the preceding paragraphs, we had called upon the Respondents to give a specific response by way of an affidavit to the chart giving details of books of account provisioning for the articles seized. In response thereto, the Respondents have no plausible explanation and with the intent to deny the relief to the Petitioner, they have contended that the purchase invoices of the Petitioner are of bulk goods and cannot be identified with the individual seized items. Petitioner had placed material on record to substantiate the fact that jewellery found in his possession at the time of search was his stock-in-trade. Since the Respondents did not raise any serious dispute in their counter affidavit or in the additional affidavit, therefore, in view of the mandate contained in the proviso to Section 132B(1)(i), the Respondents have no authority to retain the seized jewellery beyond the said period. The outer limit of 120 days as provided under Section 132B has also expired in the month of January 2019. The record produced before us does not show that any action has been taken under Section 131 (1) of the Act. The satisfaction note is for issuance of warrant of authorization under Section 132 (1) of the Act, and there cannot be any two views about the same. The Officer, present in the Court, vaguely submitted that certain information was received prior to interception. However, when confronted with the specific queries in this regard, he admitted that he cannot disclose even to us in confidence, as to what was the information received, and by whom, and conceded that there is no recording of such information. Te petition succeeds and is accordingly allowed. The impugned search and seizure and ex post facto warrant of authorization dated 11.09.2018 issued by Respondent No.2 under Section 132 of the Act is hereby quashed. Consequently, all the actions taken pursuant to such search and seizure are declared illegal. The Respondents shall forthwith return to the Petitioner, the jewellery seized.

Issues Involved:
1. Legality of the search and seizure under Section 132 of the Income Tax Act.
2. Validity of the "reason to believe" for initiating the search.
3. Compliance with procedural requirements for search and seizure.
4. Entitlement to the release of seized stock-in-trade.
5. Assessment of costs and damages due to unlawful actions by the Respondents.

Detailed Analysis:

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

The Petitioner challenged the search and seizure conducted under Section 132 of the Income Tax Act, arguing that the preconditions laid down in Clauses (a) to (c) of Section 132(1) were not met. The Petitioner contended that the jewellery seized was his stock-in-trade and that the seizure was unlawful and hampered his business operations.

2. Validity of the "Reason to Believe" for Initiating the Search:

The court examined whether the Respondents had a valid "reason to believe" before authorizing the search. The court referred to the satisfaction note and found that the note was prepared after the search was conducted, indicating an ex-post facto formation of the "reason to believe." The court emphasized that the "reason to believe" must be based on tangible information and not mere suspicion or conjecture. The court cited the Supreme Court's decision in *Director General of Income Tax (Investigation), Pune vs. Spacewood Furnishers Private Limited and Ors.*, which laid down the principles for authorizing search and seizure under Section 132.

3. Compliance with Procedural Requirements for Search and Seizure:

The court noted that the search and seizure were conducted without prior recording of the "reason to believe," which is a mandatory requirement under Section 132. The court highlighted that the search action was initiated on 10.09.2018, but the satisfaction note and search authorization were dated 11.09.2018, indicating a lack of compliance with procedural requirements. The court also pointed out that the jewellery was seized despite being stock-in-trade, which is prohibited under the proviso to Section 132(1)(iii).

4. Entitlement to the Release of Seized Stock-in-Trade:

The court observed that the Petitioner had repeatedly requested the release of the seized jewellery, providing necessary documents to substantiate that the jewellery was his stock-in-trade. The Respondents failed to provide a plausible explanation for retaining the jewellery beyond the statutory period of 120 days as provided under Section 132B. The court emphasized that the Respondents had no authority to retain the seized jewellery beyond the said period, and the Petitioner was entitled to its release.

5. Assessment of Costs and Damages Due to Unlawful Actions by the Respondents:

The court found the actions of the Respondents to be grossly arbitrary and unlawful. The court noted that the Respondents' actions were in contravention of the law and caused undue hardship and harassment to the Petitioner. Consequently, the court quashed the search and seizure action and ordered the Respondents to return the seized jewellery to the Petitioner. Additionally, the court imposed costs of ?50,000 on the Respondents, payable to the Delhi Legal Service Authority, to discourage unwarranted actions of search and seizure.

Conclusion:

The court concluded that the search and seizure conducted by the Respondents were unlawful due to the lack of a valid "reason to believe" and non-compliance with procedural requirements. The court ordered the immediate return of the seized jewellery to the Petitioner and imposed costs on the Respondents for their arbitrary actions.

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