2004 (6) TMI 20 - HC - Income Tax

Unlawful Search & Seizure Ruling: Revenue Must Return Seized Materials, Pay Costs

KR. Modi And Co. Versus Deputy Director Of Income-Tax (Investigation) And Others.

The court found the search and seizure of the partnership firm's books of account to be illegal and unauthorized. It held that the Revenue lacked ... Search and seizure - retention of the books of account and other materials - section 158BD does not authorise to retain books of account in contemplation of block assessment for the indefinite period, rather it prescribes a time limit to complete the assessment - In this case had the Revenue intended to proceed against the firm-petitioner, it should have served notice to proceed u/s 158BC read with section 158BD. No such notice has been served - Held that the respondent has no jurisdiction or authority to retain the books of account or other material seized. – respondents are directed to return the books of account and materials seized - It would be open for the Revenue to retain xerox copies of the documents and books of account at their own cost, if so advised Issues:Challenge against search warrant, retention of seized books of account, legality of order of authorization, justification for seizure, authority to retain books of account, validity of search and seizure, jurisdiction to retain seized materials.Challenge against Search Warrant:The petitioner, a partnership firm, initially challenged the search warrant, panchanama, notice, and orders related to income-tax proceedings. The Revenue dropped proceedings under section 158BC against the petitioner, rendering the challenge against the search warrant and panchanama infructuous. The question arose regarding the return of seized books of account and documents to the petitioner.Legality of Order of Authorization:The petitioner's counsel argued that the order of authorization to retain the books of account lacked legal sanction as it was not lawfully communicated and the authorizing person did not have the requisite jurisdiction under section 132(9A) of the Income-tax Act. The counsel cited relevant Supreme Court decisions to support the contention that the order of authorization was null and void.Justification for Seizure and Retention:The Revenue contended that it had the authority to retain the books of account for proceedings under section 158BE after dropping proceedings under section 158BC. The counsel argued that even if the search and seizure were invalid, the collected material could be used for other proceedings. Citing a Supreme Court decision, the Revenue justified the retention of seized materials from the petitioner.Validity of Search and Seizure:The court found that the search and seizure of the partnership firm's books of account were illegal and unauthorized since the firm was not the noticee of the search warrant, and the search was intended for other entities. The court held that the search was unjustified under the provisions of the Income-tax Act.Jurisdiction to Retain Seized Materials:The court analyzed the provisions of section 158BE regarding the period of limitation for block assessment and concluded that since no fresh proceedings were initiated under section 158BD, the Revenue had no authority to retain the seized books of account indefinitely. The court directed the Revenue to return the seized materials to the petitioner within 15 days and pay the costs of the application.Conclusion:The court held that the Revenue had no jurisdiction to retain the seized books of account and materials from the partnership firm. The court directed the return of the seized materials within a specified period and ordered the Revenue to pay the costs of the application. The court denied the request for a stay of the judgment and order.