2019 (6) TMI 101 - HC - Income Tax

Seizure of cash carried out by the Flying Squad - cash seized in an exercise conducted under the guidelines of the Election Commission of India - Seeking release the seized cash which was deposited in the District Treasury at Muzaffarpur but has since been transfered to the Income Tax Department - HELD THAT - In view of the conclusion drawn by the three-men Committee constituted under the guidelines of the Election Commission of India, a copy of which is enclosed at Annexure A/9 to the counter affidavit of the Election Commission of India, in accepting the error committed in the seizure of the cash in question and concluding that the seized money had no connection with the Elections which conclusion is accompanied with the recommendation for release of cash by the Income Tax Department, any attempt made by Ms. Sinha to justify either the requisitioning of the cash in question by respondent no.6 vide his letter dated 4.4.2019 at Annexure F/9 or in taking recourse to the provisions of Section 132 or to hold on to the money is absolutely without jurisdiction and without sanction of law because the guidelines nowhere empowers either the Income Tax Department to requisition the cash seized in an exercise conducted under the guidelines of the Election Commission of India nor does guidelines provide that any cash seized in the process is to be deposited with the Income Tax Department. The seizure itself was without sanction of law and which is apparent from the fact that no F.I.R. or complaint was instituted as provided under Clause 4 of the Guidelines nor the case was submitted to the court of competent jurisdiction within 24 hours nor the Committee so constituted under the Guidelines took any decision to order seizure of the cash, in absence of any F.I.R./ complaint instituted in terms of Clause 16(i). The illegality is perpetuated because the guidelines do not empower the authorities connected with conduct of the Elections to transfer money deposited in the Treasury to the Income Tax Department on their dictates. The action of the District Treasury Officer, Muzaffarpur in succumbing to the dictates of the Income Tax Department to transfer the seized cash vide Annexure 5 to the writ petition on 11.4.2019 is dehors the guidelines and even the requisition made by respondent no.6 through his letter dated 4.4.2019 addressed to the District Magistrate, Muzaffarpur at Annexure F/9 vide order dated 11.4.2019 at Annexure 5 is wholly illegal and without sanction of law. What we find surprising is that even when the Committee constituted has accepted vide Annexure J/9 that the seizure was wrong, the Income Tax Department has proceeded to exercise jurisdiction over the cash seized as if the seizure made by the Flying Squad under the guidelines of the Election Commission of India was in fact in furtherance of exercise under section 132 of the Income Tax Act and the Flying Squad was acting as their agency. That the Committee vide its order dated 13.5.2019 has ordered for release of cash with the recommendation to the Income Tax Department to take consequential action, we hereby direct respondents no. 6 to 8 or the authority found responsible more particularly respondent no.6 under whose requisitional order the money was transferred to the Income Tax Department to forthwith take steps for release of the cash in favour of the proprietor of the petitioner within a maximum period of eight weeks of receipt/ production of a copy of this judgment, failing which the petitioner would be entitled to interest @ 10% on the seized cash payable by the Income Tax Department from the date the seizure took place i.e. 27.3.2019 until the money is refunded by the Income Tax Department. Be it noted that we have expressed no opinion on the exercise initiated by the Income Tax Department in purported exercise under section 131 and 132A of the Act and they are at liberty to take it to its logical conclusion.

Issues Involved:
1. Legality of the seizure of cash by the Flying Squad.
2. Authority of the Income Tax Department to requisition and hold the seized cash.
3. Compliance with the guidelines issued by the Election Commission of India.
4. Jurisdiction and procedural adherence under the Income Tax Act, 1961.

Detailed Analysis:

1. Legality of the Seizure of Cash by the Flying Squad:
The writ petition challenges the seizure of ?26,90,000/- by the Flying Squad led by the Executive Magistrate, Muzaffarpur, on the grounds that the seizure lacked foundation and was conducted without prior notice. The petitioner, a proprietorship firm engaged in wholesale trading of ready-made garments, contended that the cash was a collection of payments from customers and not intended for election-related activities. The cash was seized without being counted on-site, and a seizure list was prepared. Subsequently, the cash was counted at the District Treasury Office, Muzaffarpur, and quantified at ?26,90,000/-, with the seizure list signed by the petitioner’s proprietor.

2. Authority of the Income Tax Department to Requisition and Hold the Seized Cash:
The Income Tax Officer, QRT, Muzaffarpur, summoned the petitioner’s proprietor under Section 131 of the Income Tax Act for recording his statement. The seized cash was handed over to the Income Tax Department by the Treasury Officer, Nodal Officer, and the Member of the Flying Squad. The petitioner’s attempts to seek the release of the cash through representations to various authorities, including the Assistant Director of Income Tax and the District Magistrate, Muzaffarpur, were unsuccessful. The Court found that the Income Tax Department assumed jurisdiction over the seized cash without proper authority, as the seizure was not conducted under Section 132 of the Income Tax Act, nor was there a duly constituted proceeding under Section 226(3) of the Act.

3. Compliance with the Guidelines Issued by the Election Commission of India:
The Court noted that the seizure was conducted under the guidelines issued by the Election Commission of India, which required the Flying Squad to seize cash suspected of being used for election-related bribery. However, the guidelines also mandated that the case be submitted to a court of competent jurisdiction within 24 hours and that a complaint or FIR be lodged immediately. The guidelines further required a three-men Committee to examine the validity of the seizure and take steps for the release of cash if it was not linked to any candidate or political party. The Committee concluded that the seized cash had no connection with the election, and the Income Tax Department was asked to release the cash.

4. Jurisdiction and Procedural Adherence under the Income Tax Act, 1961:
The Court held that the Income Tax Department’s requisition of the seized cash was without jurisdiction and sanction of law. The guidelines did not empower the Income Tax Department to requisition cash seized under the Election Commission’s guidelines, nor did they provide for depositing such cash with the Income Tax Department. The Court emphasized that the seizure was not conducted under Section 132 of the Income Tax Act, and the requisition did not satisfy the provisions of Section 226(3) of the Act. The Court directed the Income Tax Department to release the seized cash to the petitioner within eight weeks, failing which the petitioner would be entitled to interest at 10% on the seized cash from the date of seizure until the refund.

The writ petition was allowed with the directions for the release of the seized cash and observations on the lack of jurisdiction and procedural adherence by the Income Tax Department. The Court expressed no opinion on the ongoing proceedings under Sections 131 and 132A of the Income Tax Act.

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