2012 (4) TMI 228 - HC - Income Tax

Court validates Income Tax Department's search, seizure operations based on credible evidence with valid authorization. Seized assets retained for undisclosed income.

The court upheld the legality and validity of the search and seizure operations conducted by the Income Tax Department. It found that the operations were ... Search & Seizure - Writ petitions prayed for directions of certiorari to quash the illegal search and seizure operation and also prayed for releasing the cash and jewelery found and provide copy of computer data containing medico legal records, and title deeds of property already disclosed in the income tax return - held that:- Director after visiting the clinic in 2005 on four occasions along with decoy patients, and having examined the income tax returns and balance sheets in which negligible income was returned, authorised the search. There was no illegality in recording the satisfaction note by the competent authorities based on relevant and credible evidence collected by the department. The satisfaction that the doctor couple was disclosing only the part of their income and that they had amassed huge wealth by receipts of crores of rupees every year, does not suffer from any error of law. Notice under Section 131 (1A) confers power on the authorities as mentioned in Section 131 (1), if he has reason to suspect that any income has been concealed or is likely to be concealed. It is only an enabling power and does not in any way affect the search and seizure operations carried out under Section 132 of the Act. Section 132 is an independent code in itself. The exercise of powers under Section 131 (1A) is contemplated in a situation anterior to the exercise of power under Section 132. Before authorsing an officer, the officer referred to in Section 132 (1) would exercise power under Section 131 (A) of the Act. Section 131 (1A) operates in different field than Section 132. - writ petitions dismissed. Issues Involved:1. Legality of the search and seizure operations conducted by the Income Tax Department.2. Validity of the authorization for search and seizure.3. Compliance with procedural requirements during the search and seizure.4. Justification for the retention of seized assets.Issue-wise Detailed Analysis:Legality of the Search and Seizure Operations:The petitioners challenged the search and seizure operations conducted on 27th/28th October 2005 and 14th November 2005, claiming they were illegal. The petitioners argued that the Income Tax Department did not verify past income tax returns before issuing the search warrants, and the operations were based on mere suspicion rather than a 'reason to believe' as required under Section 132 of the Income Tax Act, 1961. The court examined the detailed satisfaction note and found that there was credible and reliable evidence before the competent authority, which justified the search and seizure operations. The Addl. Director had visited the clinic multiple times, collected receipts, and observed the number of patients and payments, which indicated substantial undisclosed income. The court concluded that the search and seizure operations were conducted in accordance with the law and did not violate the petitioners' rights.Validity of the Authorization for Search and Seizure:The petitioners contended that the authorization for the search was void ab initio as it was not issued by the concerned Director General of Income Tax as required by CBDT Instruction No.7 of 2003. However, the court found that the authorization was issued by the Director of Investigation on 18.10.2005, and the satisfaction note was based on credible evidence. The Director General of Income Tax (Investigation) had also recorded his administrative approval. The court held that the authorization was valid and in compliance with the procedural requirements.Compliance with Procedural Requirements:The petitioners alleged several procedural lapses during the search and seizure operations, including the non-disclosure of the warrant of authorization, seizure of irrelevant documents, and violation of the mandatory requirement of calling two witnesses. The court noted that the search warrant was shown to the petitioners and independent witnesses before the commencement of the search, and their satisfaction was obtained. The court also found that the seized CPU contained information related to the petitioners' business and was relevant to the investigation. The court concluded that the search and seizure operations were conducted following due procedure and in an orderly manner.Justification for the Retention of Seized Assets:The petitioners argued that the retention of seized assets was unjustified as the assets were already disclosed in their income tax returns. The court acknowledged the petitioners' compliance with the orders to release the seized articles after accepting security for an amount of Rs.15 lacs. However, the court found that the department had credible evidence of substantial undisclosed income, justifying the seizure and retention of assets. The court directed the department to return the seized articles, including the hard disc, documents, jewelry, cash, and FDRs, within 15 days from the date the security was furnished.Conclusion:The court dismissed all the writ petitions, upholding the legality and validity of the search and seizure operations conducted by the Income Tax Department. The court found that the operations were based on credible evidence, the authorization was valid, and the procedural requirements were followed. The retention of seized assets was justified based on the evidence of substantial undisclosed income.