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2022 (1) TMI 553 - HC - Income TaxUndisclosed income - issuance of Look Out Circular (LOC) - pre-condition for issuance of a LOC, fulfilled or not - whether the Court can interfere with the issuance of a LOC or whether it is purely an administrative decision, with which the Court ought not to interfere? - As per the LOC, Undisclosed foreign assets and interests in foreign entities liable for penalty and prosecution under the Income Tax Act - HELD THAT - Even though the respondents are justified in contending that the scope of judicial review to interfere with the decision of the competent authority issuing a LOC is very limited, it cannot be said that the decision is purely an administrative one or that in no situation can the Court examine the reasons provided by the authority for the issuance of a LOC. When considering a challenge to a LOC, the Courts undoubtedly have a secondary role; and as long as it is found that the decision of the authorities to issue a LOC is a reasonable one, the Court will be circumspect in interfering with the authority s decision to issue the same - in case, it is found that the decision of the authorities is without application of mind to the relevant factors, the Court can, and in fact, should come to the rescue of the individual - there are no merit in the respondent s plea that this Court should not examine the legality of the impugned LOC. Whether having made a request for issuance of the LOC under the OM dated 27.10.2010, the respondents can now seek to defend the LOC by relying on a Clause introduced only vide the OM dated 05.12.2017 which for the first time permits issuance of a LOC, even when there is no involvement in a cognizable offence, a pre-condition for issuance of a LOC under the OM dated 27.10.2010? - HELD THAT - Once a request for issuance of the impugned LOC against the petitioner was made in February 2019, his case was necessarily required to be governed by the OM of 2010, along with all up to date amendments, including the amendment introduced in 2017. The respondent no.3 s action, in referring to the OM of 2010, while forwarding its request for issuance of LOC against the petitioner was therefore in order, and cannot be read in such a restrictive manner so as to imply that, no reference having been made to the OM dated 05.12.2017, it must be presumed that the respondent no.3 never intended to invoke the Clause introduced vide the OM dated 05.12.2017 - respondent s action, in justifying the issuance of the LOC against the petitioner by relying on the Clause introduced vide the 2017 amendment, can, therefore, not be faulted. Whether the impugned LOC can be held to have lapsed after one year from the date of its issuance or whether the same still continues to hold the field, as urged by the respondent no. 3, for which purpose reliance has been placed on the consolidated guidelines issued by the respondent no. 1, vide it s OM dated 22.02.2021? - HELD THAT - Merely because the OM dated 05.12.2017 permits the issuance of a LOC, in exceptional circumstances, even when the individual is not involved in any cognizable offence under the IPC or any other penal law, it has to be remembered that this power, is meant to be used in exceptional circumstances and not as a matter of routine, it must therefore, be interpreted in a manner that indicates an offence of such a magnitude so as to significantly affect the economic interests of the country. Mere suspicion of a person opening bank accounts in other countries and of investing in a foreign company cannot, in my view, be accepted as the basis for holding that the petitioner being allowed to travel abroad would be detrimental to the economic interests of India , when it is undisputed that this suspicion has remained a suspicion for such a long period of almost three years. Petition allowed.
Issues Involved:
1. Whether the Court can interfere with the issuance of a Look Out Circular (LOC). 2. Whether the respondents can defend the LOC by relying on a Clause introduced vide the OM dated 05.12.2017. 3. Whether the impugned LOC can be held to have lapsed after one year from the date of its issuance. 4. Whether the petitioner’s case falls within the ambit of the Clause ‘detrimental to the economic interests of the country’ and the legality of continuing the LOC without any proceedings initiated against the petitioner. Issue-wise Detailed Analysis: 1. Whether the Court can interfere with the issuance of a Look Out Circular (LOC): The Court acknowledged that while the scope of judicial review in the issuance of a LOC is limited, it is not purely an administrative decision immune from judicial scrutiny. The Court emphasized that the adverse effects of a LOC on an individual's life necessitate judicial review to ensure that the decision to issue a LOC is reasonable and based on relevant factors. The Court concluded that it could indeed examine the legality of the impugned LOC and intervene if the decision was found to be without proper application of mind. 2. Whether the respondents can defend the LOC by relying on a Clause introduced vide the OM dated 05.12.2017: The Court examined the OM dated 27.10.2010 and the subsequent amendment introduced by the OM dated 05.12.2017. It was determined that the amendment in 2017 was an integral part of the 2010 OM, allowing the issuance of a LOC even in the absence of involvement in a cognizable offence if the departure of the person was deemed detrimental to the economic interests of India. The Court found that the respondent's action in referring to the 2010 OM while invoking the 2017 amendment was appropriate and justified. 3. Whether the impugned LOC can be held to have lapsed after one year from the date of its issuance: The Court referred to Clause 8 (i) of the OM dated 27.10.2010, which stipulated that a LOC is valid for one year unless renewed. However, the guidelines issued on 22.02.2021 reversed this position, stating that a LOC remains in force until a deletion request is received. The Court accepted the respondents' assertion that the LOC was extended from time to time and was in force when the new guidelines came into effect. Therefore, the impugned LOC had not lapsed automatically after one year. 4. Whether the petitioner’s case falls within the ambit of the Clause ‘detrimental to the economic interests of the country’: The Court scrutinized the reasons provided for issuing the LOC, which included an unsigned draft agreement and WhatsApp chats suggesting financial transactions. The Court noted that despite these allegations, no proceedings under the Black Money Act, Income Tax Act, or Prevention of Money Laundering Act had been initiated against the petitioner in almost three years. The Court found that the mere suspicion of the petitioner’s involvement in financial irregularities without substantial evidence did not justify the continued curtailment of his right to travel abroad. The Court emphasized that the issuance of a LOC should be based on exceptional circumstances and not on routine or mechanical grounds. Conclusion: The Court quashed the impugned LOC and its extensions, directing the petitioner to inform respondent no.3 of his travel plans for the next year. The order clarified that this decision would not impact any proceedings that may be initiated against the petitioner in the future.
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