2026 (2) TMI 96 - HC - Income Tax

Inspection of seized assets: court affirms inspections need reasonable notice only; search standards not required, notices upheld.

A search requires pre-existing information giving rise to a reason to believe; those jurisdictional facts are mandatory for conducting searches, but not ... Inspection of seized assets - non-furnishing of information at the stage of search and seizure - whether the information or the reason that have prompted the inspection of seized assets should be supplied to the petitioner and secondly whether the impugned notices informing the petitioner about the inspection intended to be conducted have been issued for “any of the purposes of the Act” HELD THAT:- A search u/s 132 must be based on 'information' that gives rise to “reason to believe” that either all or any of the conditions mentioned in clauses (a), (b) and (c) of Section 132 (1) of the said Act of 1961 exist. Such aspect would be clear from a bare perusal of Section 132 (1) of the said Act of 1961 itself. Constitutional Courts consistently held that search and seizure operations are invasive acts. The Courts have therefore ruled that such act(s) must be based on some material or information in possession of the revenue that justifies the operation. If any jewellery, bullion or other valuable article is seized during the search operation, the same is required to be inventoried/inventorised and secured in sealed packages in the manner prescribed in Rule 112(10) of the said Rules. Inspection of a seized article is not an invasive act like search since it does not constitute any intrusion into someone’s private and untainted space. Inspection is usually verificatory in nature and the power to inspect a seized article can therefore be exercised even without “information” and “reason to believe” which are the sine qua non for a search operation. Accordingly unlike in a search operation, in cases of inspection of a seized asset “information” and “reason to believe” cannot be said to be jurisdictional facts for undertaking the exercise of inspection. If an inspection is done for “any of the purposes of the Act”, the statutory criterion is met; once the statutory criterion gets fulfilled there can be no warrant for interference. Likewise if a notice is issued in terms of the statutory provisions, the same cannot be termed arbitrary. In such view of the matter there is nothing that may persuade the Court to direct the revenue to part with the information and reason that might have induced the inspection. It is true that none of the notices has stated, with the desired specificity, that the inspection of the seized assets is required for the purpose of the pending proceeding under Section 263 of the said Act of 1961 but on a careful reading of the notice dated November 07, 2025 issued by the revenue in the light of the pleadings in the writ petition (i.e. paragraphs 26 and 30 thereof) and the submissions made on behalf of the respective parties it is almost clear that the impugned inspection is sought to be conducted for the purpose of pending Section 263 proceeding only. This Court is cognizant of the fact that the petitioner has questioned the nexus of the proposed inspection with the pending 263 proceeding in the writ petition especially in the pleadings in paragraphs 26 and 30 thereof but the very assertion that the proposed inspection has no nexus of with the said proceeding indicates that the petitioner has understood the notice have been issued in respect of or for the purpose of the said proceeding itself. Thus in a proceeding under Section 263 of the said Act of 1961, the PCIT is empowered to make such inquiry as he deems necessary and inspection of seized assets may very well form part of such inquiry. Whether a notice issued to the person concerned indicating that the same has been issued in connection with a pending 263 proceeding would satisfy the requirement of the notice contemplated under Rule 112(13) of the said Rules? - Inspection or inquiry conducted by statutory authorities can seldom be interfered with in situations where the person against whom such inspection or inquiry is directed or to whom the same is relevant, has opportunity to state his case before the appropriate authority prior to the final decision being taken. A notice calling upon a person to attend an inspection of a seized article cannot be treated as a decision and made justiciable. What is required to be issued in terms of Rule 112(13) of the said Rules is a “reasonable notice to the person from whose custody the contents were seized to be present” and not a reasoned notice. Of course if a statutory authority acts arbitrarily or in contravention of the law, the same would certainly be liable to be dealt with by the Courts but not otherwise. In the case at hand there is a pending proceeding under Section 263 of the said Act of 1961 and a notice of inspection issued for such purpose has to be seen as one for “any of the purposes of the Act”. If there had been no proceeding pending or the revenue could not connect the notice to “any of the purposes of the Act” even otherwise, the notice could certainly be interfered with on the ground of arbitrariness. This Court does not find any reason to hold that the notices impugned have been issued dehors the law. The writ petition therefore stands dismissed. Later:- After delivery of the judgment and order today, Mr. Mazumdar, learned Advocate appearing for the petitioner seeks stay of operation of this order. The same is opposed by Mr. Dutt, learned Advocate appearing for the respondent revenue authorities. Considering the facts of the case, operation of this order is stayed for a period of seven days from date. Issues: (i) Whether the information or reasons that prompted inspection of seized assets must be supplied to the person from whose custody the contents were seized; (ii) Whether the impugned notices for inspection were issued for 'any of the purposes of the Act' and therefore valid under Rule 112(13) and Section 263.Issue (i): Whether the information/reasons prompting inspection must be communicated to the person concerned.Analysis: The Court contrasted the jurisdictional requirements for a search (which require information giving rise to reason to believe under Section 132) with the statutory scheme under Rule 112(13) allowing reopening of sealed packages 'for any of the purposes of the Act'. Inspection of seized articles is described as verificatory and not an invasive act equivalent to search; the power to inspect does not depend on the existence of information or a reason to believe. The Rules and Section 263 do not mandate disclosure of the information/reasons that triggered the inspection; Rule 112(13) requires only that a 'reasonable notice' be given to enable presence. The petitioners interest in being prepared does not translate into a statutory right to pre-disclosure of the triggering information.Conclusion: The Court held that the revenue is not required to supply the information or reasons that prompted the inspection. Conclusion in favour of Revenue.Issue (ii): Whether the impugned notices were issued for 'any of the purposes of the Act' and thus valid under Rule 112(13) and Section 263.Analysis: The Court observed that Section 263 empowers the revising authority to 'make or cause to be made such inquiry as he deems necessary' and that inspection of seized assets can legitimately form part of such inquiry. The notices, when read with the pleadings and submissions, reasonably connected the proposed inspection to the ongoing Section 263 proceeding. Rule 112(13) requires a reasonable notice to enable presence during inspection; it does not require a reasoned or detailed show-cause notice prior to initiating inspection. Authorities cited (including Amitabh Bachchan) support that Section 263 is not confined to the terms of the initial notice and that the assessee must be given opportunity to be heard before final order, not necessarily to receive pre-disclosure of every trigger for inquiry.Conclusion: The Court held that the impugned notices were referable to 'any of the purposes of the Act' (namely the pending Section 263 proceeding) and thus valid. Conclusion in favour of Revenue.Final Conclusion: The writ petition challenging the inspection notices is dismissed; the notices are not unlawful, but fresh notices may be issued if necessary since the dates in the impugned notices have lapsed.Ratio Decidendi: Under Rule 112(13) and Section 263, inspection of seized sealed packages may be carried out 'for any of the purposes of the Act' without prior disclosure of the information/reasons that prompted inspection; the statutory requirement is a reasonable notice to the person from whose custody the contents were seized and an opportunity to be present and heard during the inspection.