2020 (12) TMI 668 - HC - Income Tax

Challenging order u/s 230(1A) - Tax clearance certificate in case of traveling out of the country - circumstances on the basis of which the satisfaction is recorded - Section 230(1A) offered opportunity to an assessee to represent to the assessing officer that satisfactory arrangements had been made to defray the tax and other liabilities, if any, computed, in which case the necessary Tax Clearance Certificate (TCC) could well be issued by the officer permitting the assessee to travel out of the country - HELD THAT - The satisfaction must be based on tangible material including (i) a history of previous incidents or events that establish the reluctance of the assessee to co-operate with the authorities or comply with statutory requirements, (ii) substantial outstanding arrears under tax enactments (iii) attempts by the assessee to evade the payment of the arrears (iv) difficulties faced by the authorities in collecting outstanding arrears or in ensuring appearance of the assessee in pending proceedings (v) nonco- operation on the part of the assessee in pending proceedings, to name a few illustrative situations. An order under Section 230(1A) cannot be arbitrary or capricious based simply on a mere assumption or presumption of the circumstances referred to therein. A general or overreaching perception of the authority that such circumstances exist is also not sufficient in the absence of more tangible material indicating a cause for alarm. In the present case, there is absolutely no material to indicate the existence of such circumstances as seen from the record. The request seeking approval from the superior authority must contain the details of the circumstances that justify such request. As perused the relevant file and find that it contains the reasons recorded by the respondent authority as well as the approval issued by the DGIT. Nowhere is there any mention any of the circumstances that would justify the invocation of Section 230(1A) as the reasons merely refer to voluminous assets found during search as well as material indicating connections abroad. These, by itself, would not justify invocation of the provision. Section 230(1A) vests substantial power upon an authority to restrain and restrict the mobility of a citizen and with such great power must come great responsibility. One must be conscious of the extent of the power available and ensure that the same is exercised only in those cases where tangible circumstances and evidences justify its deployment. The requirement of prior consent by the superior authority must not be mechanical or automatic but must be preceded by a proper examination as to whether such intrusive and extraordinary measures as advocated under Section 230(1A) are warranted in that specific case. After all, that is the purpose of seeking consent of a superior authority who is expected to examine the circumstances involved and ratify the reasons recorded by the authority. In the present case, both the reasons recorded by the authority as well as the consent of the DGIT are based only on the seizure of substantial assets and the alleged connection of the petitioner with various entities abroad. In my view, these materials do not justify invocation of the rigour of Section 230(1A) that call for evidences and material of a far greater degree and gravity. The impugned order dated 18.10.2019 is set aside and this writ petition allowed.

Issues Involved:
1. Challenge to the order under Section 230(1A) of the Income Tax Act, 1961.
2. Validity of the requirement for a Tax Clearance Certificate (TCC) under Section 230(1A).
3. Examination of the circumstances justifying the issuance of a Look-out Circular (LOC).
4. Proper authority for granting approval under Section 230(1A).
5. Applicability of Section 230 to proceedings under the Black Money Act, 2015.
6. Adequacy of reasons provided in the impugned order.

Issue-wise Detailed Analysis:

1. Challenge to the order under Section 230(1A) of the Income Tax Act, 1961:
The petitioner challenged the order dated 18.10.2019 under Section 230(1A) of the IT Act, which required obtaining a TCC before leaving India. The court noted that the petitioner had approached the respondent for a TCC, which was denied based on the search and seizure operation revealing substantial unaccounted assets. The court found that the petitioner had not adequately engaged with the respondent to resolve the issue before approaching the court.

2. Validity of the requirement for a Tax Clearance Certificate (TCC) under Section 230(1A):
Section 230(1A) requires individuals domiciled in India to obtain a TCC if circumstances, in the opinion of the income-tax authority, necessitate it. The court emphasized that the provision aims to protect revenue interests by preventing individuals with potential tax liabilities from leaving the country without ensuring tax payments. The court highlighted that the provision is intended for cases where there is a tangible risk of tax evasion.

3. Examination of the circumstances justifying the issuance of a Look-out Circular (LOC):
The court examined the circumstances under which an LOC can be issued, as outlined in the Ministry of Home Affairs guidelines and relevant case law. The court noted that an LOC is a coercive measure used when there is a clear intention or possibility of the accused absconding to evade trial or investigation. In this case, the search and seizure operation revealed substantial unaccounted assets, which justified the issuance of the LOC to prevent the petitioner from leaving the country.

4. Proper authority for granting approval under Section 230(1A):
The petitioner argued that the approval for the TCC requirement should have been obtained from the Chief Commissioner of Income Tax (CCIT) and not the Director General of Income Tax (DGIT). The court agreed, noting that Section 230(1A) specifically requires approval from the CCIT. The court emphasized that the roles of CCIT and DGIT are distinct and not interchangeable, and the statutory mandate must be followed.

5. Applicability of Section 230 to proceedings under the Black Money Act, 2015:
The court examined whether Section 230 of the IT Act applies to proceedings under the Black Money Act, 2015. The court noted that Section 84 of the Black Money Act lists specific provisions of the IT Act that apply to it, but Section 230 is not included. The court concluded that Section 230 does not apply to proceedings under the Black Money Act, highlighting the need for legislative amendment to include it if deemed necessary.

6. Adequacy of reasons provided in the impugned order:
The court emphasized that the reasons for requiring a TCC must be based on tangible material indicating a risk of tax evasion or non-cooperation. The court found that the reasons recorded in the impugned order were insufficient, as they primarily referred to the substantial assets found during the search without providing specific circumstances justifying the TCC requirement. The court stressed that the satisfaction of the authority must be based on concrete evidence and not mere assumptions.

Conclusion:
The court set aside the impugned order dated 18.10.2019, finding that it was not justified based on the material available. The court allowed the writ petition, emphasizing that the reasons for requiring a TCC under Section 230(1A) must be based on tangible evidence and proper approval from the CCIT. The court also highlighted the need for legislative amendment to include Section 230 in the Black Money Act, 2015, if deemed necessary.

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