2023 (3) TMI 618 - HC - Income Tax

Validity of search and seizure conducted - Section 37 of FEMA read with Section 132(1)(C) of the Income-tax Act, 1961 as ultra vires of Articles 14, 19(1)(g) and 21 of the Constitution of India - HELD THAT - On perusal of the provisions of Section 132(8A) of the Act, it is evident that order under Sub-Section (3) of Section 132 of the Income Tax Act would not be in force beyond sixty days from the date of the order. In light of the provisions of Section 132 (8A), the impugned notices dated 25/10/2018 at Annexures-F1 and F2 have lost their efficacy by efflux of time as the period of sixty days has expired. See Greenpeace India Society 2019 (2) TMI 1982 - KARNATAKA HIGH COURT Accordingly, the impugned order at Annexures-F1 and F2 are not sustainable.The writ petition is allowed.The impugned notices are hereby quashed.

Issues:
1. Challenge to the validity of Section 37 of FEMA read with Section 132(1)(C) of the Income-tax Act, 1961.
2. Validity of search and seizure conducted by respondent No.2.
3. Legality of freezing petitioner's bank accounts without notice.
4. Violation of Section 132 of the Income Tax Act, 1961.

Analysis:

1. The petitioner sought declarations regarding the vires of Section 37 of FEMA with Section 132(1)(C) of the Income-tax Act, 1961, alleging violation of constitutional provisions. The petitioner's company, engaged in human rights research, faced a search and seizure on 25/10/2018, leading to the confiscation of documents and freezing of bank accounts without notice. The petitioner challenged these actions as ultra vires the law.

2. The petitioner contended that the search and seizure conducted by respondent No.2 were illegal and violated the Foreign Exchange Management Act, 1999. The petitioner's premises were searched without prior notice, and financial records were scrutinized, leading to the seizure of documents and cell phones. Additionally, respondent No.2 directed banks to halt the petitioner's account operations without proper notification.

3. The freezing of the petitioner's bank accounts by respondent No.2 without prior notice was challenged as a violation of Section 132 of the Income Tax Act, 1961. The petitioner argued that the actions taken by the respondent in freezing the accounts were not in accordance with the law, leading to adverse consequences for the petitioner's business operations.

4. The Court referred to previous judgments, including Greenpeace India Society, to establish the legality of the actions taken by respondent No.2. The Court highlighted the provisions of Section 132(8A) of the Income Tax Act, 1961, which limited the duration of orders under Section 132(3) to sixty days. As the impugned notices dated 25/10/2018 had exceeded this time frame, the Court held them unsustainable and quashed them accordingly.

In conclusion, the Court allowed the writ petition, quashed the impugned notices, and left all contentions open to be raised before the appropriate authority. No costs were awarded in the matter. The judgment provided a detailed analysis of the legal issues raised by the petitioner and established the invalidity of the actions taken by respondent No.2 based on the relevant legal provisions and precedents.

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