9911796707
TMI Blog2011 (5) TMI 620X X X X Extracts X X X X X X X X Extracts X X X X ..... ef and/or without any material to conclude that the amount deposited in the said Current Account is either wholly or partly undisclosed income of the petitioner is unsustainable in law. also, consequential action in converting the money lying in the current account into Demand Draft/pay order in favour of the CIT and withdrawing the same from the current account is also not valid in law. Income-tax Department is directed to bring back Rs. 12.39 crores along with interest accrued thereon into the current of the petitioner-Company - Writ petition allowed. - 572 OF 2011 - - - Dated:- 18-5-2011 - V. GOPALA GOWDA, B.N. MAHAPATRA, JJ. N. Venkataraman, S.M. Venkataraman, S. Mohanty, D.K. Mohanty, R.R. Swain and P.K. Muduli for the Petitioner. S.P. Mishra and B. Mohanty for the Respondent. JUDGMENT B.N. Mahapatra, J. This writ petition has been filed with a prayer for quashing/setting aside the prohibitory order dated 11-11-2010 (Annexure-1) passed under section 132(3) of the Income-tax Act, 1961 (for short, 'the Act') in respect of Current Account No. 0553002100028097 of the petitioner-Company maintained with O.P. No. 7-Punjab National Bank, Station Square Branch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he petitioner's registered office and other group of companies. During the course of search and seizure, the officials seized certain documents and issued Panchanama and also took soft copies of accounts maintained on ERP (SAP) as well as on Tally. On 11-11-2010, O.P. No. 5-the Asstt. Director of Income-tax (Investigation) also issued prohibitory orders (Annexure-1) under section 132(3) of the Act on the Bank accounts of all the group of companies of VISA Steel Limited including the petitioner Company, Bank accounts of their promoters and family members including the Account in question of the petitioner Company maintained at the Branch of O.P. No. 7-Bank. vide letter dated 15-11-2010 (Annexure-2), the petitioner-company made a request to O.P. No. 5 for revocation of prohibitory order issued under section 132(3) of the Act. The said letter was communicated along with copy of audited balance sheet as on 31-3-2010, detailed reconciliation statement of Bank account, copy of IT return acknowledgement, Bank statement/confirmation as on 31-3-2010. Pursuant to letter Annexure-2, O.P. No. 5 has withdrawn the prohibitory orders from some of the Bank accounts but did not withdraw the same is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r suppressed any of such income to the Department. The Current Account in question has been regularly disclosed in the books of account for the assessment years 2008-09, 2009-10 and 2010-11. Along with the letter dated 15-11-2010 requesting for revocation of the prohibitory order, the petitioner has submitted audited balance sheet on 31-3-2010 evidencing disclosure of detailed statement of reconciliation of bank account till the date of search, copy of IT return acknowledgement, bank's confirmation as on 31-3-2010 as per Annexure-2. The money in the Current Account in question belongs to O.P. No. 7-Bank and O.P. No. 7 has already incurred liability against the same by discharging Letters of Credit and the petitioner is not in a position to set off/appropriate the said amount lying in Current Account in question because of the prohibitory order issued by the Income-tax Department. 8. Mr. Venkataraman emphatically submitted that the officials of the Income-tax Department threatened O.P. No. 7-Bank officials to the effect that the officials of O.P. No. 7 Bank will be arrested and the Bank may be seized and sealed unless they act in accordance with their direction. The petitioner-com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to take away the money lying in its Current Account in question which was already disclosed to the Income-tax Department. Money lying in the Current Account in question was for discharging the liability in terms of letters of Credit facility extended by O.P. No. 7 Bank towards discharge of letter of credit liabilities to the petitioner-company and the Bank had lien over the said account. Since the action of opp. parties authorities will result in civil consequences, they ought to have issued notice to the petitioner-company before directing O.P. No. 7-Bank for conversion of the said amount of Rs. 12.39 crores into bank draft in favour of the Income-tax Department. Since no material was available during search and seizure the fresh warrant of authorization dated 7-1-2011 was issued under section 132 of the Act with the intention to withdraw the amount lying in the Current Account in question which is not permissible in law. As per Search and Seizure Manual the only thing contemplated for deposit in separate PD account of the Commissioner concerned till final determination of the tax liability by the Assessing Officer relates to "Cash in Hand" and not "Cash in Bank". 10. Placing r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r has been provided in the statute keeping in view that the revenue officials taking advantage of the provisions for extension used to prolong the investigation, search and seizure which resulted in undue harassment of the taxpayer. 15. Placing reliance on the judgment of the High Court of Bombay in Jagdish Prasad M. Joshi v. Dy. CIT [2005] 273 ITR 296 it was argued that the Court did not approve the action of the Income-tax Department in encashing the assets and appropriating the same without order of assessment. 16. Concluding his argument, Mr. N. Venkataraman, learned Senior Counsel submitted that the action of the Income-tax officials directing the Bank to convert the amount of Rs. 12.39 crores available in the Current Account of the petitioner-company in question into demand draft/pay order in favour of the Income-tax Department, fresh warrant of authorization dated 7-1-2011 as well as Panchanama dated 8-1-2011 is illegal, arbitrary, contrary to law, without jurisdiction and smacks mala fide. 17. Learned Additional Solicitor General of Government of India submitted that the present writ petition is not maintainable in law, since it involves several disputed questions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etitioner in question was issued on 11-1-2010 and the same was to expire after 10-1-2011. Before expiry of 60 days, a decision was taken whether to release the money in the bank account or to seize it. A warrant of authorization was issued on 7-1-2011 on the basis of fresh satisfaction note. The allegation of threatening the bank officials is wild and unfounded and the same are denied as baseless. Since there is no provision in the Act to extend the prohibitory order under section 132(3) beyond 60 days, the money could not be kept under prohibitory order till completion of the assessment. If the money was not converted to draft and was left in the bank account, it would amount to release the same without seizing it. Therefore, in order to give effect to the seizure, the bank was asked to make over the money by way of demand draft in favour of the Revenue. In the balance sheet as on 31-3-2010, the petitioner has disclosed the current account in question. However, the provisions of the Act prescribe that it is not the bank account which is relevant, but it is the money which should be examined to ascertain as to whether it is disclosed or not. Once the condition, that the money in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 50/[2009] 179 Taxman 73, it was argued that the bank account can be searched and seized. 21. In the rejoinder, the petitioner submitted that the proceeding under sections 132(3) and 132(1) of the Act is null and void and completely without jurisdiction. Proceeding under section 132 of the Act can be initiated only when there is a non-disclosure of income, assets, bank accounts etc. The petitioner has placed on record its balance sheet evidencing details of the bank accounts including available balance on its account as on the relevant date along with TDS effected through Punjab National Bank, Bhubaneswar. 22. The allegations made in the counter affidavit are either non-issue or of no consequence at this stage of investigation which is yet to be completed by the IT Department. The allegation as made is not corroborated by any factual evidence. The summons dated 29-12-2010 issued under section 131 of the Act was duly replied in full along with details vide petitioner's letter dated 3-1-2011 (Annexure-8). The petitioner was not asked to provide any other document thereafter. The allegation of under invoicing of sale transactions is not supported even by single evidence. All purcha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s only laying foundation for premeditated and prejudged adjudication. 24. Learned counsel appearing for opposite party No. 7 submitted that they received summons to witness under section 131 of the Act vide letter dated 23-11-2010 from O.P. No. 5 and accordingly, the officer of O.P. No. 7-Bank appeared before the IT Authority on 30-11-2010. As desired by the said IT Authority, O.P. No. 7-Bank handed over the desired information in the form of a CD to the ITO on 3-12-2010 and wrote a letter dated 8-12-2010 to O.P. No. 5 stating the details of the FLC position on account of the writ petitioner. 25. It is further submitted that a team of officers of the IT Department led by O.P. No. 5 came to the premises of O.P. No. 7-Bank at about 11.10 AM on 8-1-2011 and showed a warrant of authorization under section 132 of the Act read with rule 112(1) of the Income-tax Rules, 1962 (in short, "the Rules") for seizure of the entire balance lying in the Current Account in question standing in the name of the writ petitioner, but refused to provide a copy of the said warrant of authorization to opp. party-officials and served a letter dated 8-1-2011 for seizure of money lying in the aforesaid ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 32(3) of the Act and issuance of fresh warrant of authorization dated 7-1-2011 and Panchanama dated 8-1-2011 under the Income-tax Act in respect of the current Account No. 0553002100028097 are valid? (iii) Whether opposite party-Income-tax Department Authorities are justified in converting Rs. 12.39 crores lying in the current account in question into demand draft/pay order in favour of the Commissioner of Income-tax and withdrawing the same from the said account? (iv) What order?" 27. The question No. (i) relates to maintainability of the writ petition. Although a preliminary stand was taken that the disputed questions of fact are involved in this petition, in fact, the questions that are raised are questions of law involving interpretation of the various provisions containing in section 132 of the Act and the true effect of the expression "disclosed income" and "undisclosed income". Similarly, the plea urged by the Additional Solicitor General relating to alternative remedy available for the petitioner is untenable. In course of hearing reference has been made to section 132B of the Act. That provision has no application because that is a stage of post search and seizure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Deputy Commissioner or Income-tax Officer, (the officer so authorized in all cases being hereinafter referred to as the authorized officer) to (i) enter and search any building, place, vessel, vehicle, or aircraft where he has reason to suspect that such books of account, other documents, money, bullion, jewellery or other valuable article or thing are kept; (ii) break open the lock of any door, box, locker, safe almirah or other receptacle for exercising the powers conferred by clause (i) where the keys thereof are not available; (iia) search any person who has got out of, or is about to get into, or is in the building, place, vessel, vehicle or aircraft, if the authorized officer has reason to suspect that such person has secreted about his person any such books of account, other documents, money, bullion, jewellery or other valuable article or thing; (iib) require any person who is found to be in possession or control of any books of account or other documents maintained in the form of electronic record as defined in clause (t) or sub-section (1) of section 2 of the Information Technology Act, 2000 (21 of 2000), to afford the authorized officer the necessary fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) of the Act exists. Search and seizure cannot be sustained unless it is clearly shown that it was done by the authority duly authorized and any of the conditions precedent in relation thereto existed. 30. The opinion or the belief so recorded must clearly show whether the belief falls under clause (a) or (b) or (c) of section 132(1) of the Act. The satisfaction note should itself show the application of mind and the formation of opinion by the officer ordering the search. If the reasons which are recorded do not fall within the clause (a), (b) or (c) then the authorization under section 132 (1) would not be valid. In order to justify the action the authority must have relevant materials on the basis of which he can form an opinion that he has reason to believe that action to be initiated against a person under section 132 of the Act is needed. The belief should not be based on some suspicion or doubt. Section 132 speaks of reason to believe and not reason to suspect or reason to doubt. 31. The reason to suspect that the petitioner is having undisclosed asset and there is likelihood that the same would not be disclosed is not equal to "reason to believe" that petitioner is in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are unjustified in issuing prohibitory order under section 132(3) and warrant of authorization dated 7-1-2011 and forcibly taking Rs. 12.39 crores from the said current account by way of draft in favour of the Commissioner of Income-tax. 36. A bare reading of section 132 reveals that the said section deals with concealed income of any person. The specific case of the Income-tax Department is that they have seized current bank account in question by exercising power under section 132(1) (c) of the Act. Said section provides that if any person is in possession of any money, bullion, jewellery or other valuable article or thing and such money, bullion, jewellery or other valuable article or thing represents either wholly or partly income or property which has not been or would not be disclosed for the purpose of the Act, then the authorized person is empowered to seize any such books of account, other documents, money, bullion, jewellery or other valuable article or thing found as a result of such search. Therefore, in order to initiate action for seizure of the money lying in the bank account, the condition envisaged in clause (c) of sub-section (1) of section 132 should be satisfi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roperly applying the mind that the money deposited in the Bank Account represents undisclosed income, then that will cause irreparable loss to the assessee concerned and his business will be jeopardized. The employees will not get their salary, electricity dues cannot be paid, day-to-day expenses of the business cannot be met and the supplier cannot get their dues; various Revenue authorities including the Government authorities will not get their dues/ taxes/duties. Ultimately, the business will come to an end and the assessee shall be deprived of his fundamental right guaranteed under article 19(1)(g) of the Constitution to carry on his business/profession. It is certainly not the object of the search and seizure provided under the Act to close anybody's business. No doubt, the Revenue authorities are watchdogs of the Government Revenue. They are not expected to take any lenient view in respect of unscrupulous and dishonest businessman. Evasion of tax is not to be tolerated and action must be taken against the erring assessee and/or the tax evaders. At the same time, they must see that the honest and bona fide businessmen are not harassed because they are the source of the Govern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee. Though the stand of opposite party-department that the money lying in the current account in question represents the undisclosed income of the assessee, they do not say which particular deposit represents undisclosed income of the assessee. Therefore, such an allegation is vague and general in nature. On the contrary, it is accepted that it has been disclosed in the Books of Account. Further case of the petitioner that there is no cash deposit in the said current account has also not been denied by opposite party-income-tax department. When this Court specifically asked the learned Senior Counsel for the Income-tax Department whether the Department has cross verified the entries in the current account in question with the regular books of account maintained by the assessee-petitioner and any discrepancy was found out, the revenue replied that no such exercise has been made by the Department. On the other hand, in paragraph 2(a) of the counter affidavit dated 25-1-2011, the Income-tax Department stated that investigation on the very subject-matter as to whether the money lying with the current account represents disclosed income or undisclosed income was going on. In such si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t legal basis and not in conformity with section 132 of the Act, which we accordingly hold. 44. In the above illustration, Rs. 5,000 deposited in the bank account out of income of Rs. 10,000 and disclosed in the books of account represents "disclosed income" of the assessee and that cannot be seized exercising power/jurisdiction under section 132 of the Act. On the other hand, in the above illustration, if there is deposit of more than Rs. 10,000 during the given period and the assessee fails to explain the source of the amount deposited exceeding Rs. 10,000 that excess amount deposited will be treated as "undisclosed income" of the assessee and the same can be seized under section 132 of the Act. 45. In the counter affidavit a stand was taken that the petitioner company is suppressing taxable profit by way of : (a) under-invoicing of sale transactions by receiving a part of sales in cash, (b) Transferring its profit to its foreign group concern namely Visa Comtrade AG (VCAG) by inflating purchase price; (c) Transferring its profit to its foreign group concern namely Visa Bulk Shipping Pvt. Ltd., Singapore (VBSPL) by inflating freight payable; (d) Claiming bogus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be kept under prohibition beyond sixty days. 49. Thus, the admitted case of opposite party-Department is that before issuing the prohibitory order under section 132(3) of the Act, no satisfaction has been recorded by the authorized officer that any concealed income is deposited in the Current Account in question. Such satisfaction according to the Department was recorded after issuance of the prohibitory order. 50. A conjoint reading of sub-sections (1) and (3) of section 132 of the Act makes it clear that it is only when the nature or the location of the particular books of account, other documents, money bullion, jewellery, or other valuable articles or thing found on a search, which are reasonably believed to be undisclosed property, does not allow or the circumstances of a given case do not permit immediate seizure of the same, the provisions of sub-section (3) may be resorted to. 51. The Punjab and Haryana High Court in Om Parkash Jindal v. Union of India [1976] 104 ITR 389 held that when the authorized officer is not satisfied or he has doubts to believe that the particular asset found on search is undisclosed property, he cannot have recourse to the provisions contain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... converting the amount in a bank account to Demand Draft is neither desirable nor in conformity with law. Relying on several judicial pronouncements, it was contended that 'seizure' means taking possession of a property by an officer under legal process; taking possession contrary to the wishes of the owner of the property. 58. Placing reliance on the judgment of the Apex Court in the case of K.C.C. Software Ltd. (supra), it was submitted by the revenue that in any event the Court may direct the Department to keep the amount withdrawn from the current account in any interest bearing account which shall be adjusted against the tax that would be assessed in future or in case the assessee succeeds, it would be entitled to return with interest. 59. The factual scenario in that case is entirely different. The Apex Court in the above case has not examined the legality of seizure of the amount lying in the bank account. Moreover, the petitioner is not challenging the power of IT Department in seizing any bank account, wherein the undisclosed amount in case of the assessee is deposited. 60. In the present case, we have examined the legality of seizure and come to the conclusion that t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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