1972 (5) TMI 20 - HC - Income Tax

Search And Seizure - assessee was denied an opportunity of copying the seized documents - order under section 132(5) cannot be sustained

Issues Involved:
1. Legality of the issuance of warrants of authorization for search and seizure.
2. Validity of the search and seizure operations conducted.
3. Compliance with procedural requirements under Section 132 of the Income-tax Act.
4. Right to inspection and making copies of seized documents.
5. Validity of the assessment order dated October 22, 1971.

Detailed Analysis:

1. Legality of the Issuance of Warrants of Authorization for Search and Seizure
The petitioners argued that the issuance of warrants of authorization for the search and seizure of money, books of account, and other documents was contrary to the provisions of Section 132 of the Income-tax Act. The court examined the conditions under Section 132(1) which allow the Commissioner to issue warrants if there is reason to believe that a person possesses undisclosed income or property. The Commissioner of Income-tax issued the warrants based on a telephonic message from a police officer, Balwant Singh, who had recovered Rs. 1,61,000 from Ramesh Chander. The court found that the Commissioner acted in haste without verifying the antecedents of Ramesh Chander or obtaining relevant information from the concerned Income-tax Officer. The court concluded that there was no genuine belief that Ramesh Chander had evaded tax, and the issuance of the warrant was solely to obtain possession of the amount.

2. Validity of the Search and Seizure Operations Conducted
The court scrutinized the search and seizure operations conducted by the Income-tax Officers. It was noted that Balwant Singh had already taken possession of the money and documents from Ramesh Chander, and these were lying in the police station. The court cited the Allahabad High Court's decision in Motilal v. Preventive Intelligence Officer, Central Excise and Customs, Agra, which stated that search and seizure under Section 132 is meant for situations where the location of the items is unknown and they are not readily yielded. Since the money and documents were already in police custody, there was no need for a search and seizure operation. The court held that the search and seizure were illegal and void as the sole purpose was to obtain possession of the money and documents without any basis for believing tax evasion.

3. Compliance with Procedural Requirements under Section 132 of the Income-tax Act
The court examined whether the procedural requirements under Section 132 were followed. It was found that the Commissioner of Income-tax did not have sufficient information to justify the issuance of the warrant. The court referred to the Supreme Court's decision in Income-tax Officer, Special Investigation Circle "B", Meerut v. Seth Brothers, which emphasized that the Commissioner must record reasons for the belief that conditions for search exist. The court found that the Commissioner merely reproduced the words of Section 132(3) without providing substantial reasons. Thus, the procedural requirements were not met.

4. Right to Inspection and Making Copies of Seized Documents
The petitioners were denied the right to inspect and make copies of the ledger book seized from Ramesh Chander before the assessment order was passed. Under Section 132(9), the person from whom documents are seized has the right to make copies or take extracts. The court noted that despite the Motion Bench's order to allow inspection, the Income-tax Officer proceeded with the assessment without complying. The denial of inspection violated the statutory rights of the petitioners and the principles of natural justice.

5. Validity of the Assessment Order Dated October 22, 1971
The assessment order was based on the ledger book seized from Ramesh Chander, which the petitioners were not allowed to inspect. The court found that the assessment was made without affording a reasonable opportunity to the petitioners to be heard and without allowing them to inspect the documents. The assessment order was thus held to be invalid due to the violation of Section 132(5) and (9) and the principles of natural justice. Additionally, since the issuance of the warrant itself was illegal, the assessment order based on the seized documents was also invalid.

Conclusion:
The court accepted the petition, quashed the assessment order dated October 22, 1971, and directed the respondents to return the amount of Rs. 1,61,411 along with the ledger book and other documents seized from Ramesh Chander. The other books of account and documents seized from the business premises and residences of the partners were to be returned in accordance with the provisions of the Act if not already returned. The petitioners were awarded costs of Rs. 300.

← Previous Next →