1993 (12) TMI 51 - HC - Income Tax

Court rejects challenge to search & seizure proceedings under Income-tax Act, emphasizing need for reasonable belief

Southern Herbals Limited Versus Director Of Income-Tax (Investigation) And Others

Southern Herbals Limited Versus Director Of Income-Tax (Investigation) And Others - [1994] 207 ITR 55 Issues Involved:1. Legality of the search and seizure proceedings u/s 132(1) of the Income-tax Act, 1961.2. Validity of the prohibitory order u/s 132(3).3. Entitlement to copies of the search warrant and materials collected.4. Sufficiency of the reasons for the formation of belief u/s 132(1).5. Allegations of mala fides and arbitrariness by the Revenue officers.Summary:1. Legality of the search and seizure proceedings u/s 132(1):The petitioner-company challenged the search and seizure proceedings under section 132(1) of the Income-tax Act, 1961. The court noted that the authorisation must be based on a 'reasonable belief' formed from relevant material. The court emphasized that it is not permissible to examine the sufficiency of the reasons leading to the issuance of authorisation, but only to ensure that the belief was reasonable and based on relevant information. The court cited the Supreme Court's decision in ITO v. Seth Brothers [1969] 74 ITR 836, which held that the section does not confer arbitrary authority and must be exercised strictly in accordance with the law.2. Validity of the prohibitory order u/s 132(3):The petitioner also challenged the prohibitory orders issued under section 132(3). The court noted that the prohibitory order was confined to the bank account and had been recently extended. The petitioner's counsel indicated that the latest order would be challenged separately if necessary.3. Entitlement to copies of the search warrant and materials collected:The petitioner sought copies of the search warrant and all materials collected during the search. The court held that law does not require a copy of the warrant of authorisation to be furnished to the person against whom it is issued; it is sufficient if such a person is shown the warrant. The court referenced decisions such as Dr. Partap Singh v. Director of Enforcement [1985] 155 ITR 166 (SC), which held that the materials need not be disclosed in the search warrant as it could hamper the investigation.4. Sufficiency of the reasons for the formation of belief u/s 132(1):The petitioner argued that the reasons for the formation of belief under section 132(1) should be disclosed. The court reiterated that the belief must be based on relevant material and that the court cannot substitute its own opinion for that of the authorising officer. The court reviewed the material in camera and was satisfied that the belief was based on relevant information and reasonably connected to the subjects referred to in section 132(1)(c).5. Allegations of mala fides and arbitrariness by the Revenue officers:The petitioner alleged that the search was conducted to collect trade secrets and that the Revenue officers acted with mala fides. The court found no reason to disbelieve the Revenue's assertion that no such attempt was made. The court also noted that the absence of a statement of objections from the respondents did not automatically validate the petitioner's allegations, as the existence of 'reasons to believe' could be proved by reference to the official records.Conclusion:The petition was rejected, with the court finding no merit in the challenges to the search and seizure proceedings, the prohibitory order, or the allegations of mala fides. The court upheld the principles that the belief for authorisation must be reasonable and based on relevant information, and that the disclosure of materials at the initial stage of search and seizure is not mandatory.