2008 (6) TMI 341 - HC - Income Tax

Search and Seizure- the petitioner submitted that one Shri Dayabhai Narshibhai Patel is the president of the petitioner association. It is the say of the petitioner that the petitioner had purchased an immovable property called Rupam Talkies under two different sale deeds, for an aggregate sum of Rs.64 lakhs. For carrying out the aforesaid transaction, necessary certificate was obtained from the Appropriate Authority in terms of the provisions of Chapter XXC of the Income-tax Act, 1961 (the Act).The respondent-Income-tax Department was instigated to initiate action against the petitioner under section 132 of the Act.. The search proceedings concluded on February 20, 1997. It is the grievance of the petitioner that the entire exercise, right from the beginning of issuing warrant of authorisation, subsequent search proceedings, issuance of notice under section 158BC of the Act, transfer of proceedings from Bhavnagar to Rajkot under section 127 of the Act, is mala fide and/or bad in law as being without jurisdiction. Held that- the satisfaction note did not indicate any information in the possession of the authorized officer for initiating the proceedings, thus the warrant of authorization is liable to set aside. Further held that once the proceedings initiated by issuance of warrants of authorization were found to be bad in law, there would be no occasion to continue with the proceedings of the block assessment. Even if the order of transfer were to be upheld, it would not be operative.

Issues Involved:
1. Validity of the warrant of authorization dated February 14, 1997.
2. Validity of notices issued under section 158BC of the Income-tax Act.
3. Validity of the transfer order dated April 24, 1997, under section 127 of the Income-tax Act.
4. Request for the return of documents seized during the search and seizure proceedings.

Detailed Analysis:

1. Validity of the Warrant of Authorization Dated February 14, 1997:
The petitioner, Suvidha Association, challenged the warrant of authorization issued on February 14, 1997, under section 132 of the Income-tax Act. The court examined the satisfaction note and found that until February 14, 1997, there was no prima facie satisfaction to suggest the existence of statutory requirements for issuing the warrant. The court noted that section 132 requires the authority to record reasons to believe that any of the conditions (a), (b), or (c) exist. The court found that condition (c) regarding possession of undisclosed income could not apply to the petitioner, a non-trading corporation. Conditions (a) and (b) were also ruled out as there was no evidence that the petitioner failed to respond to summons or notices. The satisfaction note only mentioned the likelihood of finding incriminating documents, which was insufficient. Thus, the warrant of authorization dated February 14, 1997, was quashed as it did not meet the statutory requirements.

2. Validity of Notices Issued Under Section 158BC of the Income-tax Act:
Consequent to the quashing of the warrant of authorization, the court also quashed the notices dated February 18, 1997, and May 19, 1997, issued under section 158BC of the Income-tax Act. Since the basis for these notices was the invalid warrant of authorization, they could not be sustained.

3. Validity of the Transfer Order Dated April 24, 1997, Under Section 127 of the Income-tax Act:
The petitioner also challenged the transfer order dated April 24, 1997, under section 127 of the Income-tax Act. The court noted that section 127 requires giving the assessee a reasonable opportunity of being heard before transferring proceedings. However, the court found that since the proceedings initiated by the invalid warrant of authorization were quashed, there was no occasion to continue with the assessment proceedings for the block period. Therefore, even if the transfer order could be upheld, it would not be operative.

4. Request for the Return of Documents Seized During the Search and Seizure Proceedings:
The petitioner requested the return of all documents seized during the search and seizure proceedings conducted between February 13, 1997, and February 20, 1997. The court did not explicitly address this request in the judgment. However, given the quashing of the warrant of authorization and related notices, it can be inferred that the petitioner would be entitled to the return of the seized documents.

Conclusion:
The court allowed the petition, quashing the warrant of authorization dated February 14, 1997, and the notices issued under section 158BC of the Income-tax Act. The transfer order under section 127 was also rendered inoperative due to the invalidity of the initial proceedings. The petition was allowed with no order as to costs.

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