Invalidation of Income Tax Act Order for Non-compliance with Natural Justice

The High Court of Bombay invalidated the order passed under Section 132(5) of the Income Tax Act 1961 due to non-compliance with natural justice rules. The court directed the issuance of a fresh Show Cause Notice to the petitioner and ordered the respondent to provide copies of all relevant statements/documents. Failure to comply within the specified timeline would result in the refund of the seized amount to the petitioner with interest.

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Issues:
1. Validity of the order passed under Section 132(5) of the Income Tax Act 1961.
2. Compliance with the rules of natural justice in passing the impugned order.

Analysis:

Issue 1: Validity of the order under Section 132(5)
The petitioner challenged the order dated 22nd December 1987 passed by respondent no.2 under Section 132(5) of the Income Tax Act 1961. The petitioner contended that the respondent had no reason to believe that he was in possession of undisclosed cash. However, the respondent asserted that the search was authorized based on available material, and the petitioner did not specifically deny this assertion. The court found no merit in the petitioner's contention, upholding the respondent's authority to conduct the search.

Issue 2: Compliance with natural justice rules
The petitioner argued that the impugned order was passed without following the mandatory rules of natural justice as he was not provided copies of the statements that formed the basis of the order. The court acknowledged that under Section 132(5), the affected person must be given a reasonable opportunity to be heard. Since the petitioner was not given copies of the statements, the court ruled that the order must be quashed. The matter was directed to be remanded to respondent no.2 for issuing a fresh Show Cause Notice to the petitioner and providing copies of all statements/documents relied upon. The court emphasized the importance of complying with the rules of natural justice in such proceedings.

In conclusion, the High Court of Bombay found the impugned order under Section 132(5) to be invalid due to non-compliance with the rules of natural justice. The court directed the issuance of a fresh Show Cause Notice to the petitioner and ordered the respondent to provide copies of all relevant statements/documents. Failure to comply within the specified timeline would result in the refund of the seized amount to the petitioner with interest.

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