2020 (11) TMI 383 - HC - Income Tax

Seizure of jewellery - Search proceedings - Revenue carried out the investigation under Section 131 (1A) of the Income Tax Act, prior to carrying out the search action u/s 132 (1) - HELD THAT - Even if the proceedings conducted on 10.9.2018 had indeed been carried out under Section 131 (1A) of the Act, and action under Section 132 of the Act was taken subsequent thereto, such an exercise by the Revenue was nevertheless contrary to the scheme of the Act. Section 131 (1A) stipulates that if the officer named in the said statute, before taking action under Clauses (i) to (v) of Sub-Section (1) of Section 132, has reason to suspect that any income has been concealed or is likely to be concealed, by any person or class of persons within his jurisdiction, then for the purpose of making an enquiry or investigation relating thereto, it shall be competent for him to exercise the powers conferred under Sub-Section (1) of Section 131, notwithstanding that no proceedings with respect to such persons are pending before any Income Tax Authority. We repeatedly called upon Ms. Malhotra to show us any material on record of the Revenue that sets down the reason to suspect that any income had been concealed, or was likely to be concealed by the non-applicant, before initiating action under section 131(1A) of the Act. She very fairly submits that, indeed, there was no such material on record of the Revenue. Notwithstanding the contention of the Revenue that the proceedings conducted on 10.09.2018 were under Section 131 (1A) of the Act, our reasons recorded in our judgment and its final outcome are not affected in any manner. Review Petition dismissed.

Summary

Issues:
Review petition under Article 226 - Seeking review of final judgment setting aside search action and seizure of jewellery - Allegations of illegal proceedings under Income Tax Act - Lack of material to suspect concealed income before initiating action.

Analysis:
The review petition under Article 226 sought to challenge the final judgment that set aside the search action and seizure of jewellery, declaring them illegal. The Revenue filed the review petition, arguing that the actions taken were in accordance with the law. The Revenue contended that the jewellery seized had been returned as directed by the Court, and a demand draft was prepared towards legal costs. However, discrepancies arose regarding the sequence of events leading to the search action. The Revenue claimed that the action under Section 132 of the Income Tax Act was preceded by an investigation under Section 131(1A), while the petitioner's counsel disputed this account. The Court examined the statutory provisions and noted that even if the proceedings were conducted under Section 131(1A) before Section 132, there was no material to suspect concealed income, as required by the law. The Court repeatedly asked the Revenue to provide evidence of such suspicion, but none was presented.

The Court emphasized that the lack of material to suspect concealed income before initiating action under Section 131(1A) was a critical flaw in the Revenue's case. Despite the Revenue's contentions, the Court found that the legal requirements had not been met, rendering the actions taken by the Revenue contrary to the statutory scheme of the Income Tax Act. The Court highlighted that the absence of any material on record to support the suspicion of concealed income undermined the legality of the proceedings. Ultimately, the Court dismissed the review petition, stating that no grounds for review were established. The petition was dismissed without any order as to costs, affirming the previous judgment that declared the search action and seizure of jewellery illegal.