2012 (4) TMI 250 - HC - Income Tax

Search & seizure partnership firm engaged in providing security services dissolution of firm - legality of warrant of authorization issued in name of dissolved firm legality of search conducted at place of erstwhile partners sufficiency of reasons to issue summon by DIT - time limit for release of documents seized - Held that - It is found that profits were deflated and money siphoned off were invested in fixed deposits taken in name of individual names of the partners and were never disclosed to the Department. Therefore, satisfaction has been arrived at by DIT (Investigation) on the basis of relevant and material circumstances which are recorded and DIT had reason to believe within meaning of Section 132. The sufficiency of these reasons cannot be questioned by this Court in exercise of the writ jurisdiction under Article 226 of the Constitution.See ITO, Special Investigation Circle B Meerut Versus Seth Brothers and Ors (1969 (7) TMI 1 - SUPREME Court), Pooran Mal Versus Director of Inspection (1973 (12) TMI 2 - SUPREME Court - Income Tax) Section 189 states that notwithstanding the discontinuance of firm or its business, assessment has to be made of the total income of the firm as if no such discontinuance or dissolution has taken place and every person who was at the time of such discontinuance or dissolution a partner of the firm, shall be jointly and severally liable. Also, warrants of authorization were not merely issued in the names of the firms, but also separately issued in the name of the petitioner and his spouse. Further, documents have been retained having regard to the pendency of the appeal proceedings. Thus no illegality is found. For the aforesaid reasons, no meit is found in the petition Petition dismissed.

Issues Involved:
1. Legality of the warrant of authorization under Section 132 of the Income Tax Act, 1961.
2. Validity of search and seizure proceedings.
3. Assessment proceedings consequent to the warrant of authorization.
4. Issuance of warrants in the name of a dissolved firm.
5. Legality of search of residential premises of erstwhile partners.
6. Return of seized documents.

Issue-wise Detailed Analysis:

1. Legality of the warrant of authorization under Section 132 of the Income Tax Act, 1961:
The petitioner questioned the legality of the warrant of authorization issued under Section 132 of the Income Tax Act, 1961. The court noted that Section 132(1) empowers the Commissioner and Director to issue a warrant of authorization if they have "reason to believe" that any person might not produce documents useful for proceedings under the Act. The court emphasized that the formation of "reason to believe" is the foundation of an authorization issued under Section 132(1). The satisfaction note recorded by the Assistant Director of Income Tax (Investigation) provided adequate material on the basis of which the Director of Income Tax (Investigation) formed a reason to believe within the meaning of Section 132(1)(b). The court concluded that the power was exercised bona fide and in furtherance of statutory duties, and the sufficiency of these reasons cannot be questioned under writ jurisdiction.

2. Validity of search and seizure proceedings:
The petitioner contended that the search and seizure proceedings were unlawful. The court referred to the Supreme Court's judgment in Income Tax Officer, Special Investigation Circle "B" Meerut vs. Seth Brothers and Others, which stated that if the conditions for exercising the power are not satisfied, the proceedings are liable to be quashed. However, if the power is exercised bona fide, any error of judgment will not vitiate the exercise of power. The court found that the Director of Income Tax (Investigation) had entertained the requisite belief for bona fide reasons within the ambit of Section 132(1)(b), and therefore, the search and seizure proceedings were valid.

3. Assessment proceedings consequent to the warrant of authorization:
The petitioner argued that all assessment proceedings commenced pursuant to illegal warrants of authorization should be quashed. The court noted that Section 189 of the Income Tax Act, 1961 provides for the assessment of a dissolved firm as if no dissolution had taken place. The court highlighted that the petitioner was aware of and participated in the assessment proceedings. The court's jurisdiction was limited to determining whether the Director of Income Tax (Investigation) had a reason to believe within the meaning of Section 132(1). The court found that the satisfaction note provided adequate material for the Director's belief, and thus, the assessment proceedings were valid.

4. Issuance of warrants in the name of a dissolved firm:
The petitioner contended that the warrants of authorization were issued in the name of a dissolved firm, making them null and void. The court noted that Section 189 creates a legal fiction that allows for the assessment of a dissolved firm as if it had not been dissolved. Additionally, the court observed that the warrants were also issued in the individual names of the petitioner and his spouse, thus addressing the issue of the dissolved firm.

5. Legality of search of residential premises of erstwhile partners:
The petitioner argued that the residential premises of the erstwhile partners could not be searched based on warrants issued in the name of a dissolved firm. The court noted that the warrants were issued not only in the name of the firm but also in the individual names of the petitioner and his spouse. Therefore, the search of the residential premises was valid.

6. Return of seized documents:
The petitioner requested the return of documents seized during the search and seizure operation. The court referred to Section 132(8) of the Income Tax Act, which allows the retention of seized documents for a period not exceeding thirty days from the date of the order of assessment unless reasons for retention are recorded and approved by the relevant authority. The court noted that an order had been passed extending the retention period until 31 March 2013 or until the pending proceedings were disposed of, whichever was earlier. The court found this direction lawful and allowed the petitioner to take copies of the documents.

Conclusion:
The court dismissed the petition, finding no merit in the petitioner's arguments. The warrant of authorization and subsequent search and seizure proceedings were deemed valid, and the assessment proceedings were upheld. The court also found the retention of seized documents lawful, subject to the petitioner's right to take copies. The petition was dismissed with no order as to costs.

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