2024 (5) TMI 609 - HC - Income Tax

Validity of search and seizure u/s 132 - Information and material enough to indicate a reason to believe or not? - basis of which a reasonable belief can be founded? - HELD THAT - The position that the Authority must have information in his possession on the basis of which a reasonable belief can be founded that the person concerned has omitted or failed to produce the books of accounts or other documents for production of which summons or notice has been issued or such person will not produce such books of accounts or other documents even if summons of notice is issued to him or such person is in possession of any money bullion or other valuable articles which represents either wholly or partly income or property which has not been or would not be disclosed has to be the basic fulcrum on which the exercise of the power u/s 132 would revolve. The Hon ble Apex Court in Laljibhai Mandalia 2022 (7) TMI 639 - SUPREME COURT has specifically held that such reasons may have to be placed before the High Court in the event of a challenge to formation of the belief of the Competent Authority in which event the Court would be entitled to examine the reasons for formation of the belief though not the sufficiency or adequacy thereof. We are not satisfied with the satisfaction of the requirement of Section 132 (1) of the said Act. It is also necessary to note that no notice has been issued to the Petitioners soliciting any information from them in this regard at any point of time earlier to the action under Section 132 (1) of the said Act though it may not be necessary in case the file would demonstrate the information and material enough to indicate a reason to believe. In absence of the same we are therefore unable to sustain the action of the Respondents taken under Section 132 (1) of the said Act. The same is therefore hereby quashed and set aside. Referring to original file of the Department having perused the same in extenso we are of the considered opinion that it does not disclose any information which would lead the Authorities to have a reason to believe that any of the contingencies as contemplated by Section 132 (1) (a) to (c) of the said Act are satisfied. That apart the note also does not contain anything altogether regarding any reason to believe as regards what has been stated in Section 132 (1) (a) to (c) of the said Act on account of which in our considered opinion there is total non-compliance with the requirements as contemplated by Section 132 (1) of the said Act which vitiates the search and seizure. Respondents cannot rely upon what has been unearthed on account of opening of the lockers of the Petitioners as the information and reason to believe as contemplated under Section 132 (1) of the said Act has to be prior to such seizure.

Summary

Issues involved:
The legality of a search and seizure conducted u/s 132 of the Income Tax Act, 1961 based on the information available with the Authority.

Summary:
The Petitioner challenged the search and seizure conducted at their premises from 01/11/2023 to 03/11/2023 under Section 132 of the Income Tax Act, 1961. The Petitioner argued that the search was based on transactions already disclosed in their tax returns and therefore lacked grounds for the search and seizure as required by Section 132 of the Act (Para 3).

The Respondents defended the action by pointing out information regarding valuables found during the search, emphasizing the sufficiency of information available to justify the search and seizure. They relied on legal precedents to support their position (Para 4).

The Court examined the provisions of Section 132 of the Income Tax Act, emphasizing the necessity for the Authority to have credible information before conducting a search and seizure. The Court referred to previous judgments to outline the principles guiding such actions (Para 5).

The Court highlighted the importance of the Authority having valid reasons to believe that the person in question has omitted to produce required documents or possesses undisclosed assets, as mandated by Section 132 of the Act. The Court noted that the lack of such valid reasons would render the search and seizure invalid (Para 8).

Upon reviewing the original departmental file provided by the Respondents, the Court found a lack of information justifying the search and seizure, leading to non-compliance with the requirements of Section 132 of the Act. The Court also emphasized that the reasons for the search must precede any seizure of assets (Para 9, 10).

The Court concluded that the Respondents failed to demonstrate a valid reason to believe as required by Section 132 of the Act, leading to the quashing of the search and seizure. Any subsequent actions based on the invalidated search were also deemed unsustainable (Para 11).

The Petition was allowed with no costs, and the Respondents were permitted to take lawful actions against the Petitioners using the seized material. The original files were returned to the Respondents after resealing (Para 12, 13).

In response to a request for a stay on the judgment, the Court granted a stay for three weeks to allow the Respondents to appeal the decision before the Supreme Court (Para 14).