1972 (11) TMI 13 - HC - Income Tax

Whether the court can go into adequacy of the reasons - Whether search and seizure warrant can be issued against another Government department in respect of the amount seized under another law - whether the order under s 132(5) section passed without giving the assessee an opportunity to take copies of seized documents would be valid

Issues Involved:
1. Jurisdiction of the Commissioner of Income-tax to issue search and seizure warrants.
2. Possession of the seized amount and documents.
3. Legal validity of search and seizure when the location of items is known.
4. Compliance with Section 132(9) of the Income-tax Act regarding allowing the petitioners to take extracts and copies of seized documents.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Commissioner of Income-tax to Issue Search and Seizure Warrants:
The core issue was whether the Commissioner of Income-tax had sufficient material to issue search and seizure warrants under Section 132(1) of the Income-tax Act, 1961. The court examined the note recorded by the Commissioner, which indicated that the police inspector, Balwant Singh, had informed him about the recovery of Rs. 1,61,000 from Ramesh Chander. The court held that the information provided by a credible source, such as a police inspector, was sufficient for the Commissioner to form a "reason to believe" that the money was undisclosed income. The court emphasized that the adequacy of the grounds for the belief could not be scrutinized in a writ petition under Article 226 of the Constitution, provided the information had a rational connection to the belief. Thus, the court concluded that the Commissioner had the jurisdiction to issue the search and seizure warrants.

2. Possession of the Seized Amount and Documents:
The court analyzed whether Ramesh Chander was in possession of the money and documents at the time of the search and seizure. It was found that Balwant Singh, the police inspector, had already taken possession of the amount and documents before the income-tax authorities executed the search warrants. The court noted that the police had detained Ramesh Chander and his companions, and the money and documents were in the custody of the police, not Ramesh Chander. Consequently, the search and seizure warrants issued on the presumption that Ramesh Chander was in possession of the amount and documents were deemed invalid.

3. Legal Validity of Search and Seizure When the Location of Items is Known:
The court addressed the argument that search and seizure warrants could not be issued if the location of the items was known. It disagreed with the reasoning of the Allahabad High Court in Moti Lal's case, which suggested that warrants could not be issued if the items were not concealed. The court clarified that the term "search" in Section 132 of the Income-tax Act did not imply that the items had to be hidden. The court further held that the income-tax authorities could not issue search and seizure warrants to seize items already in possession of another statutory authority, as it would create a conflict between different statutes. Therefore, the search and seizure warrants issued in this case were invalid because the items were already in the custody of the police.

4. Compliance with Section 132(9) of the Income-tax Act:
The court examined whether the petitioners were given an opportunity to take extracts and copies of the seized documents, as required by Section 132(9) of the Income-tax Act. It was found that the petitioners were not allowed to take extracts or copies of the account books and other documents, which prejudiced their defense. The court held that the violation of Section 132(9) rendered the final order under Section 132(5) of the Income-tax Act illegal. However, the court noted that if the search and seizure warrants were valid, the appropriate remedy would be to direct the Income-tax Officer to pass a fresh order after allowing the petitioners to take the necessary extracts and copies.

Conclusion:
The court concluded that the search and seizure warrants were invalid because the money and documents were in the possession of the police, not Ramesh Chander, and the income-tax authorities could not seize items already in the custody of another statutory authority. The court modified the order of the learned single judge, directing the income-tax authorities to return the seized amount and documents to the police authorities, who would proceed in accordance with the law. The court also clarified that the income-tax authorities could approach the court of competent jurisdiction to get the amount adjusted for unpaid income-tax if permissible by law.

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