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2021 (1) TMI 24 - HC - Income TaxSearch warrant u/s 132 - Retention of cash seized in search - HELD THAT - There were no circumstances existing for the Principal Director of Income Tax (INV), Hyderabad to issue any warrant for search or seizure under Section 132 of the Act on 28.8.2019 when the cash had been handed over to the Income Tax Department by the Task Force Police on 27.8.2019 and therefore the seizure of the cash from Vipul Kumar Patel by the respondents and its retention till date by them is per se illegal. Intimation by the Police to the Income Tax Department on 27.08.2019 would not confer jurisdiction on the Income Tax Department to detain and withhold cash, that too by issuance of an invalid search warrant under Section 132 of the Act; and there is no basis for the Income Tax Department to invoke the provisions of Section 132, 132A and 132B of the Act since there is no 'reason to believe' that the assessee has violated any provision of Law. This is because, as held in Vindhya Metal Corporation and others 1997 (3) TMI 3 - SUPREME COURT mere possession of cash of large quantity, without anything more, could hardly be said to constitute information which could be treated as sufficient by a reasonable person, leading to an inference that it was income which would not have been disclosed by the person in possession for purpose of the Income Tax Act. In the absence of any rival claim for the cash amount of ₹ 5.00 crores by any third party, the respondents cannot imagine a third party claimant and on that pretext retain the cash indefinitely from M/s.Mectec thereby violating Article 300-A of the Constitution of India. A return of income would be filed by M/s.Mectec, the petitioner for the annual year 2019-20 only after 31st March, 2020. The explanation of the cash transaction can be expected to be found only after such return of income is filed by the petitioner. There is no basis for the respondents to presume that petitioner would not disclose the cash transaction of ₹ 5.00 crore in its Income Tax return which was not filed by the alleged date of seizure of the cash by the Police, i.e., 26.08.2019. As rightly contended by the petitioner, an income tax inspection and/ or investigation would be permissible only in respect of a past event but not for possible future contingencies; and if the petitioner was going to disclose and explain the cash of ₹ 5.00 crore in its income tax returns for 2019-20, there was no basis for proceeding with any coercive action against the petitioner such as retention of cash. Retention of cash by the respondents even before the commencement of an offence under the Income Tax Act, 1961, i.e., possible future non- disclosure by the petitioner in its income tax return which would be filed after 31st March, 2020 would clearly violate Article 300-A of the Constitution of India. Even the statements recorded under Section 132 of the Act from Vipul Kumar Patel cannot be relied upon by the respondents to contend that he is working with M/s. P. Umesh Chandra and Sons or M/s. P. Umesh Chandra and Company and not the petitioner. The very seizure and retention of the cash amount of ₹ 5.00 crore by the respondents from 27.08.2019 till date is illegal and unsustainable. Writ Petitions are allowed.
Issues Involved:
1. Legality of the seizure of cash by the Income Tax Department. 2. Validity of the authorization for search and seizure under Section 132 of the Income-tax Act, 1961. 3. Legitimacy of the retention of cash by the Income Tax Department. 4. Entitlement of the petitioner to the return of the seized cash. Detailed Analysis: 1. Legality of the Seizure of Cash by the Income Tax Department: The petitioner, a proprietary concern involved in the purchase of agricultural lands and products, claimed that ?5.00 Crores was entrusted to its employee, Vipul Kumar Patel, for business purposes. On 23.08.2019, the Task Force Police of Telangana intercepted the car carrying Vipul Kumar Patel and seized the cash. The petitioner contended that the seizure was illegal as there was no valid authorization under Section 132 of the Income-tax Act, 1961, at the time of the seizure. The court noted that the cash was indeed handed over to the Income Tax Department by the police on 27.08.2019, and the subsequent panchanama prepared by the Income Tax Department on 28.08.2019 was fabricated. The court found the seizure and retention of the cash by the respondents to be illegal. 2. Validity of the Authorization for Search and Seizure under Section 132 of the Income-tax Act, 1961: The petitioner argued that the authorization for search and seizure under Section 132 must be given prior to the seizure. The court observed that the Task Force Police admitted to handing over the cash to the Income Tax Department on 27.08.2019, and the authorization for search was issued on 28.08.2019. The court found that the absence of a specific location in the panchanama and the fabricated nature of the search narrative indicated that the authorization was not honest or bona fide. The court held that the authorization issued on 28.08.2019 was invalid as the cash was already in the possession of the Income Tax Department. 3. Legitimacy of the Retention of Cash by the Income Tax Department: The Income Tax Department retained the cash on the basis of the fabricated panchanama and invalid search authorization. The court held that mere possession of a large amount of cash does not constitute sufficient information to infer that it was undisclosed income. The court emphasized that the retention of cash without a valid basis and authorization violated Article 300-A of the Constitution of India, which protects the right to property. The court found the retention of the cash by the respondents to be illegal and unsustainable. 4. Entitlement of the Petitioner to the Return of the Seized Cash: The petitioner in W.P.No.23023 of 2019 was the only claimant for the cash, and Vipul Kumar Patel, in his individual capacity, also asserted that the cash belonged to the petitioner. The court noted that there was no rival claim for the cash from any third party, and the respondents could not retain the cash indefinitely on the pretext of a possible third-party claim. The court directed the respondents to return the cash of ?5.00 Crores to the petitioner with interest at 12% per annum from 28.08.2019 till the date of payment. The court also awarded costs of ?20,000/- to the petitioner. Conclusion: The court allowed the writ petitions, declaring the seizure and retention of the cash by the respondents as illegal and ultra vires the provisions of the Income Tax Act, 1961. The respondents were directed to refund the cash to the petitioner with interest and pay the costs. The court's decision emphasized the importance of adhering to legal procedures and protecting the rights of individuals against arbitrary actions by authorities.
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