2013 (10) TMI 198 - HC - Income Tax

Retention of seized amount by Revenue authorities - Petitioner, who is in the business of commission agent, at Kalanwali, District Sirsa had purchased 380 bags of wheat on account of M/s Jyoti Parshad Sham Lal, Delhi between 15.8.1988 and 19.8.1988. The petitioner had sent its partner Shri Bhushan Kumar to Delhi to collect the payment of Rs.80,000/- from M/s Jyoti Parshad Sham Lal against the aforesaid purchase - Amounts were seized by S.H.O., Railway Police Station, Delhi in the night of 22.8.1988. Thereafter, the Income Tax authorities took the amounts in their possession Held that - Before passing the impugned orders, opportunity of hearing was not given even when that is mandatorily required under Rule 112A of the Income Tax Rules. To the same effect are the provisions of Section 132(5) of the Income Tax Act as well - On this ground alone, the writ petitions are allowed Decided in favor of Assessee.

Summary

Issues:
1. Quashing of orders passed by income tax authorities under Section 132(7) read with Section 132(5) of the Income Tax Act, 1961 without providing an opportunity of hearing as required under Rule 112A of the Income Tax Rules, 1962.

Analysis:

The writ petitions filed in 1989 sought the quashing of orders passed by income tax authorities under Section 132(7) read with Section 132(5) of the Income Tax Act, 1961. The petitioner, a commission agent, had purchased wheat and collected payments amounting to Rs.80,000 and Rs.6,10,581 from different entities. The amounts were seized by the police, and subsequently taken into possession by the Income Tax authorities. The petitioner contended that the orders were passed without providing any opportunity of hearing as required under Rule 112A of the Income Tax Rules, 1962, thus violating the principles of natural justice.

Rule 112A(1) of the Income Tax Rules, 1962 mandates that the person in respect of whom an inquiry is to be made must be issued a notice within fifteen days of seizure, requiring them to attend the Income Tax Officer's office to explain or produce evidence regarding the nature of possession and the source of acquisition of the assets. Despite the writ petitions being filed in 1989, no written statement or reply was filed. The court observed that since the allegations were not contested, it was evident that no opportunity of hearing was provided before passing the impugned orders, contravening the mandatory requirements of Rule 112A of the Income Tax Rules and Section 132(5) of the Income Tax Act. Consequently, the court allowed the writ petitions and quashed the impugned orders, giving the respondents the option to proceed afresh after providing the petitioners with a proper opportunity of hearing.

In conclusion, the judgment emphasized the importance of adhering to procedural fairness and the principles of natural justice in administrative actions, particularly in matters involving the seizure of assets under the Income Tax Act. The decision underscored the necessity of providing affected parties with a meaningful opportunity to present their case before any adverse orders are issued, as mandated by the relevant statutory provisions and rules.