TaxTMI 
TaxTMI 
2011 (5) TMI 620
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....e Current Account of the petitioner in question maintained with Opposite Party No. 7- Bank. 2. Bereft of unnecessary details the facts and circumstances giving rise to the present writ petition are that the petitioner is a Company incorporated on 9-8-2006 under the provisions of the Companies Act, 1956 (in short, "Companies Act") having its registered office at HUL building, 2nd floor, 9 Shakespeare Sarani, Kolkata-700 071. The petitioner-company is an assessee under the Act, under the jurisdiction of Asstt. Commissioner of Income-tax, Circle-8, Kolkata having Permanent Account No. AACCV3366R and has been assessed to Income-tax since 2006-07. The petitioner-Company is mainly engaged in trading of coal, coke, minerals and metals. The assessment for the assessment year 2007-08 has already been completed and the petitioner-company has submitted its return of Income-tax before the Deputy Commissioner/Asstt. Commissioner of Income-tax for the assessment years 2008-09, 2009-10 and 2010-11. 3. To carry on its business, the petitioner-Company enters into contract with the international supplier for purchase of coal, coke, minerals and metals and the terms of payment to the said supplier ....
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....r section 131 of the Act, the Chairman of the petitioner-Company appeared before O.P. No. 4-the Additional Director of Income-tax (Investigation) personally and examined himself on oath and answered various questions pertaining to VISA Group of Companies put by O.P. No. 4. Thereafter, O.P. No. 5 asked for various details pertaining to the purchase and sales transactions for the year 2009-10. The authorized officer of the petitioner-company being summoned also appeared before the opp. parties and furnished various details. 6. On 7-1-2011, O.P. No. 7 Bank informed O.P. No. 5 that the Bank has already paid Rs. 89.15 crores to the overseas Banks without appropriating any amount from the Fixed Deposits and Current Account earmarked and requested for withdrawal of the prohibitory order. On the same day, the Income-tax Department issued a fresh warrant of authorization under section 132 of the Act in the name of O.P. No. 7 in respect of the Current Account in question. Pursuant to issuance of the said warrant of authorization on 7-1-2011, on 8-1-2011 officials of Income-tax Department including opp. parties 4 and 5 visited O.P. No. 7 Bank. The O.P. No. 5 directed and demanded the Branch ....
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....uring search on 8-1-2011, the petitioner-company faxed a letter at about 2.00 PM on the same day to O.P. No. 7-Bank informing that the Current Account in question is a disclosed account and also enclosed a letter dated 15-11-2010 issued to the Income-tax Department in this regard. The official of the Income-tax Department continued to pressurize O.P. No. 7-Bank officials till late evening despite the fact that it was Saturday. The petitioner Company also sent another fax to O.P. No. 7-Bank informing that the officials of the Income-tax Department do not have power to attach any amount from the Current Account in question which is disclosed in the books of account of the petitioner and in case money is remitted to the Income-tax Department it would be bad in law and O.P. No. 7-Bank would be parting with its own securities for which the Bank will be solely responsible. 9. It was further argued that the audited balance sheet as on 31-3-2010 filed by the petitioner Company along with Income-tax return for the year 2010-11 clearly disclosed regarding the Current Account in question. Hence, the same could not have been made a part of the prohibitory order under section 132(3) of the Act....
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....facts. Once he has done that his duty is over. It is for the Income-tax Officer to draw the correct inference from the primary facts at the time of assessment. 11. Placing reliance on a decision of the Apex Court in K.C.C. Software Ltd. v. DIT (Inv.) [2008] 5 SCC 201 it was submitted that the Apex Court clarified about the impermissibility to convert assets to cash and thereafter impound the same. 12. Placing reliance on a decision of the Punjab and Haryana High Court in H.L. Sibal v. CIT [1975] 101 ITR 112, it was argued that before the Commissioner acts under section 132(1) of the Act, he must be reasonably satisfied that it is necessary to take action contemplated by that section. If the grounds on which the belief is founded are non-existent or are irrelevant, or are such on which no reasonable man can come to that belief, the exercise of the power by the Authorized Officer under the above provisions of the Act would be bad. The authorized officer is required to apply his mind during the seizure of books of account about the relevance and usefulness of these books in any proceedings. 13. Placing reliance on decision of the High Court of Allahabad in Suresh Chand Agarwal v. D....
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....orily prescribed. The petitioner is involved in task of evasive practices. Therefore, the present writ petition is not maintainable. There is a strong reason to believe that the petitioner is involved in illegal practice of causing heavy revenue leakage as it has suppressed its taxable profit by (i) hiking the purchase price made from its foreign goods concerned, (ii) claiming bogus expenses; (iii) under invoicing, (iv) wrong determination of taxable profit. 18. During the course of search, various incriminating documents and books of account relating to group of companies were seized. The actions taken by the Authorized Officer under section 132(1) and 132 (3) are legal, justified and bona fide and in accordance with law. The warrant of authorization was issued by opposite party No. 4-Addl. Director of Income-tax (Investigation), Bhubaneswar, in favour of Authorized Officer only after recording his satisfaction based on incriminating documents found during the search and seizure operation on 11-11-2010 and information/evidence gathered during the post-search investigation. The recorded satisfaction note clearly brought out that the money lying in the current account represented i....
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....able. Sixty days under section 132(3) of the Act has been provided to investigate as to whether the money lying in the account represent undisclosed income and upon finding the same to seize the money therein if necessary. After seizure of money from the bank was carried out, the copies of Panchanama dated 8-1-2011 along with annexures was immediately sent to the petitioner by speed post on 10-1-2011. Before arriving at the satisfaction for issuance of warrant the petitioner company was allowed opportunity to explain the findings of the post search investigation by issuing summons on 10-12-2010 and 29-12-2010. The seizure action carried out on 8-1-2011 was bona fide and to safeguard the interest of the revenue. 19. Relying on the decisions of the Kolkata High Court in the case of Windson Electronics (P.) Ltd. (supra), Jharkhand High Court in Sardar Santoshi Singh v. CIT [2001] 248 ITR 532/118 Taxman 239; Andhra Pradesh High Court in Lan Eseda Steels Ltd. v. Asstt. CIT [1994] 209 ITR 901/[1993] 70 Taxman 46, it is argued that the Income-tax Authorities have power under section 132 of Act to seize money from a bank account of the assessee. 20. It is further argued that section 132(....
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....inder as Annexure 13. On the basis of this statement, it is reconfirmed that the petitioner has never paid anything more than that is rightfully due, following the arm's length policy on its purchase. Further all imports are through notified Ports of customs and the bills of entry are assessed by customs authorities and customs duty is determined on the transaction value which has to be identical on all imports. The question of suppressing any price or value does not arise. Opposite parties have not shown any evidence or document in support of their allegation. The petitioner denies that there is any unaccounted income in the company and as such question of parking such unaccounted income is only a figment of imagination. 23. The assertion made by opposite party that total Income-tax paid by the petitioner-company since its inception is Rs. 1.7 crore is incorrect and erroneous. The actual tax liability was Rs. 3.26 crores and actual amount of tax paid by the company including TDS is Rs. 8.49 crores. The allegation that the most of the L/Cs opened by the petitioner in favour of its overseas suppliers were extended beyond 180 days is wrong and incorrect. Only 30 L/Cs out of 95 L/Cs ....
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....resaid current account of the writ petitioner is towards margin money for the high value LCs already opened and the same is under lien of the Bank. The AGM further informed the IT officials that Bank has already taken liability on behalf of the writ petitioner during the subsistence of the prohibitory order and made payment to the tune of Rs. 88.26 crores and requested the IT officials that the day being a Saturday which is a half working day of the Bank and the server of the computer system was down, it will not be possible on his part to reconcile the accounts of the bank vis-à-vis the writ petitioner had requested vide his letter dated 8-1-2011 to give one working day time to arrive at the actual position of bill outstanding and the free amount available in the aforesaid current account. But the IT officials refused to accept the letter and request thereon. The IT officials did not pay any heed to the request made by O.P. No. 7-Bank officials and continued to pressurize them to issue the demand draft pursuant to the notice made vide letter dated 8-1-2011. O.P. Nos. 3 and 5 thereafter dictated a letter to be signed by the officials of O.P. No. 7 and to prepare the demand d....
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....d seizure.-(1) Where the Director General or Director or the Chief Commissioner or Commissioner or any such Joint Director or Joint Commissioner as may be empowered in this behalf by the Board, in consequence of information in his possession, has reason to believe that : (a) any person to whom a summons under sub-section (1) of section 37 of the Indian Income-tax Act, 1922 (11 of 1922), or under sub-section (1) of section 131 of this Act, or a notice under sub-section (4) of section 22 of the Indian Income-tax Act, 1922 (11 of 1922), or under sub-section (1) of section 142 of this Act was issued to produce, or cause to be produced, any books of account or other documents has omitted or failed to produce, or cause to be produced, such books of account or other documents as required by such summons or notice, or (b) any person to whom a summons or notice as aforesaid has been or might be issued will not, or wouldn't, produce or cause to be produced, any books of account or other documents which will be useful for, or relevant to, any proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act, or (c) any person is in possess....
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....de of the business, found as a result of such search shall not be seized but the authorized officer shall make a note or inventory of such stock-in-trade of the business; (iv) place marks of identification on any books of account or other documents or make or cause to be made extracts or copies there from; (v) make a note or an inventory of any such money, bullion, jewellery or other valuable article or thing : (3) The authorized officer may, where it is not practicable to seize any such books of account, other documents, money bullion, jewellery or other valuable article or thing, for reasons other than those mentioned in the second proviso to sub-section (1) serve an order on the owner or the person who is in immediate possession or control thereof that he shall not remove, part with or otherwise deal with it except with the previous permission of such officer and such officer may take such steps as may be necessary for ensuring compliance with this sub-section. Explanation.-For the removal of doubts, it is hereby declared that serving of an order as aforesaid under this sub-section shall not be deemed to be seizure of such books of account, other documents,....
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..... 32. The words "reason to believe" postulate application of mind and assigning of reasons. There is a rationale nexus between "reason" and "believe"-See Ganga Saran & Sons (HUF) v. ITO [1981] 130 ITR 212/6 Taxman 248 (Delhi). 33. In absence of any relevant material, authority would be acting in excess of his power and in violation of the mandatory power of section 132 of the Act and the action of the authority cannot be sustained. Before taking action under section 132 the competent authority must assure and reassure about the truthfulness and correctness of the information. A search which is conducted under section 132 is a serious invasion into the privacy of the citizen. Therefore, section 132(1) has to be strictly construed and the information of the person or reason to believe by the authorizing officer must be apparent from the note recorded by him. 34. The case of the Revenue is that in course of search and seizure operation they have issued prohibitory order under section 132(3) of the Act in respect of the current account in question. Subsequently, the Authorized Officer recorded his satisfaction as provided under section 132 (1)(c) of the Act to the effect that the mo....
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.... article or thing; and secondly such money, bullion, jewellery or other valuable article or thing represents either wholly or partly income or property which has not been or would not be disclosed for the purpose of the Act. 37. Thus, in order to bring a case within the sweep of section 132(1)(c) or section 132A(1)(c) the belief of the authorizing authority as to mere possession of the assets mentioned in that section by a person is not sufficient. The information in possession of the authorizing authority must be such that he may have reason to believe that the assets represent undisclosed income of the person in whose possession these are. Thus, where the authorizing authority issues warrant of authorization without there being any reason to believe that the asset which was in possession of a person represented wholly or partly his undisclosed income, his action is to be held to be without jurisdiction. 38. Formation of opinion on the basis of reason to believe that a particular property/asset has not been disclosed or would not be disclosed so that the action under section 132 would be taken is not an empty formality. It takes away the valuable right of citizens of the country....
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....rmation or material in his possession for his satisfaction that the money lying in the current account in question represents wholly or partly the income of the petitioner-company and the same had not been disclosed or would not be disclosed to the Income-tax Department. 40. The undisputed fact is that the current account in question was opened on 2-9-2007 and has been disclosed to the Department much before action under section 132 is taken. In paragraph 25 of the writ petition the petitioner averred that audited balance-sheet as on 31-3-2010 filed by the petitioner-company along with the Income-tax return for the assessment year 2010-11 clearly discloses regarding the current account in question maintained with opposite party No. 7-Bank. In reply to the said averment, the Income-tax Department in paragraph 23 of their counter submitted that it is true that the petitioner has disclosed the current account in question in the balance-sheet as on 31-3-2010. The said current bank account has been regularly disclosed in the Books of Account and reflected in the audited account for the assessment years 2008-09, 2009-10 and 2010-11. It is not the case of the department that any assessme....
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....ficer. The scheme of section 132 of the Act provides adequate safeguard to protect the bona fide assessees from any misuse of power vested under section 132 by the IT Authorities. The Act has not given unbridled and arbitrary power to the IT Authorities to invoke power under section 132 of the Act. 42. To justify their action in seizing the Current Account in question the Income-tax Department in paragraph 7 of their written notes made the following submissions : ". . . At the same time, the argument that because an account is disclosed, the income therein cannot represent undisclosed income, is wholly unfounded. To illustrate, say a person X had a total income of Rs. 10,000 in a given period, however he disclosed only Rs. 5,000. On a given date, Rs. 5,000 was found in his account, which account was duly disclosed in his books. Now, could it be said in law, that since such an account was disclosed, therefore the Rs. 5,000 lying in it, cannot and must not represent his undisclosed income? This illustration shows as to how the argument of the assessee, if accepted, would render the whole provision futile and unworkable. Also, this may be taken in the context of the present case, wh....
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....p;(g) Parking of unaccounted income through entry operators for Kolkata in the group concerns. 46. All these above allegations have been denied by the petitioner in its rejoinder affidavit giving several explanations. All the above allegations raised by the I.T. Department to say that the petitioner has suppressed taxable profit can be the subject-matter of the assessment, which is subsequent to search and seizure operation. Without confronting those to the petitioner-assessee and considering its explanation, no adverse view can be drawn against the petitioner. On those untested allegations and in absence of any findings that source of any deposit in the current bank account has not been explained or not disclosed in the regular books of account, no seizure is sustainable. As noted above, the correctness of allegation has to be assessed in assessment. 47. Another glaring illegality committed by opp. party-Income-tax Department that we have noticed that prohibitory order under section 132(3) has been issued without forming any reasonable belief that the money lying in the Current Account in question is wholly or partly representing undisclosed income of the petitioner. 48. ....
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....t whether the asset is disclosed or undisclosed. 53. In view of the above, prohibitory order issued under sub-section (3) of section 132 of the Act in respect of Current Account in question without forming any belief and/or without any material to conclude that the amount deposited in the said Current Account is either wholly or partly undisclosed income of the petitioner is unsustainable in law. 54. The revenue has also produced records relating to search and seizure. On perusal of the same, we are not prima facie satisfied that the revenue has recorded any valid reason to come to a conclusion before issuance of prohibitory order dated 11-11-2010 and fresh authorization dated 7-1-2011 that any transaction in the bank account has not been passed through regular books of account and undisclosed income of the petitioner (wholly or partly) has been parked in the said current account. On the other hand, as stated above in its counter, the Department stated that investigation is going on to ascertain as to whether the money lying in the current bank account in question represents disclosed or undisclosed income. 55. For the reasons stated above, we are of the considered view that iss....
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....der is bad in its inception, it does not get sanctified at a later stage. A subsequent action/ development cannot validate an action which was not lawful at its inception, for the reason that the illegality strikes at the root of the order. It would be beyond the competence of any authority to validate such an order. It would be ironic to permit a person to rely upon a law, in violation of which he has obtained the benefits. If an order at the initial stage is bad in law, then all further proceedings consequent thereto will be non est and have to be necessarily set aside. A right in law exists only and only when it has a lawful origin. (vide : Upen Chandra Gogoi v. State of Assam AIR 1998 SC 1289; Mangal Prasad Tamoli v. Narvedoshwar Mishra AIR 2005 SC 1964; and Ritesh Tiwari v. State of U.P. AIR 2010 SC 3823). 62. Since we have held that issuance of the prohibitory order under section 132(3) and warrant of authorization dated 7-1-2011 and Panchanama dated 8-1-2011 are not valid in law, the consequential action in converting the money lying in the current account into Demand Draft/pay order in favour of the Commissioner of Income-tax and withdrawing the same from the current accou....