2018 (12) TMI 292 - HC - Income Tax

Search Warrants Invalid: Impact on Section 153A Proceedings

Shah E Naaz Judge, Sahyr Kohli, Sandeep Kohli Versus Additional Director of Income Tax (INV) -Unit VI And Another

Shah E Naaz Judge, Sahyr Kohli, Sandeep Kohli Versus Additional Director of Income Tax (INV) -Unit VI And Another - TMI Issues Involved:1. Legality of search warrants under Section 132 of the Income Tax Act, 1961.2. Validity of notices under Section 153A of the Income Tax Act, 1961.3. Compliance with statutory requirements for search and seizure.4. The adequacy of the satisfaction note for issuing search warrants.5. The distinction between 'reasons to believe' and 'reasons to suspect' in the context of search authorizations.6. The implications of the findings from the search on subsequent legal proceedings.Detailed Analysis:1. Legality of Search Warrants under Section 132 of the Income Tax Act, 1961:The petitioners challenged the search warrants issued under Section 132, arguing they were illegal, bad in law, and without jurisdiction. The warrants were issued based on the discovery of locker keys during a search at the residence of Karamjit Singh Jaiswal. The court examined whether the statutory requirements for issuing such warrants were met, particularly focusing on the necessity of 'reasons to believe' that the lockers contained undisclosed income or property.2. Validity of Notices under Section 153A of the Income Tax Act, 1961:The petitioners also contested the notices issued under Section 153A, which relate to the assessment years 2009-10 to 2014-2015. The court scrutinized whether these notices were valid, given the alleged illegality of the preceding search warrants. The court found that the proceedings initiated under Section 153A were contingent on the legality of the search warrants.3. Compliance with Statutory Requirements for Search and Seizure:The court emphasized that the search and seizure provisions under Section 132 require a reasonable belief based on credible information that any of the conditions in clauses (a), (b), or (c) are satisfied. The satisfaction note must reflect this belief and its nexus with the statutory conditions. The court found the satisfaction note in this case lacking in specific information and evidence, thus failing to meet the statutory mandate.4. The Adequacy of the Satisfaction Note for Issuing Search Warrants:The satisfaction note merely stated that the lockers 'may contain valuables' without providing concrete evidence or material to justify this belief. The use of the word 'may' indicated a lack of certainty and reliance on conjecture rather than tangible information. The court held that the note did not satisfy the legal requirements for issuing search warrants.5. The Distinction between 'Reasons to Believe' and 'Reasons to Suspect' in the Context of Search Authorizations:The court clarified that while 'reasons to suspect' might be sufficient for certain consequential searches under clause (i) to Section 132(1), the initial search must be based on 'reasons to believe.' The court noted that the satisfaction note did not establish a connection between the petitioners and the Jaiswal Group, nor did it provide sufficient grounds for believing that the lockers contained undisclosed income.6. The Implications of the Findings from the Search on Subsequent Legal Proceedings:The court observed that the validity of the search could not be judged based on whether any valuables were found in the lockers. The legality of the search depends on the satisfaction note and whether it met the statutory requirements. The court quashed the search warrants and the subsequent proceedings under Section 153A, stating that the search was not conducted in accordance with the law.Conclusion:The court concluded that the search warrants issued for the three lockers were illegal and did not meet the statutory requirements of Section 132 of the Income Tax Act. Consequently, the notices and proceedings under Section 153A were also set aside. The court emphasized that the authority to conduct search and seizure must be exercised in strict compliance with the statutory provisions to prevent abuse and protect individuals' rights.