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High Court Of Calcutta
Amitava Lala, J.
Mahesh Kumar Agarwal : Appellant
Versus
Deputy Director Of Income-Tax : Respondent
W.P. 2506 of 2001
Decided On : Oct 08, 2002
INCOME TAX - SEARCH AND SEIZURE - REASON TO BELIEVE - INTERPRETATION - SECTION 132 OF THE INCOME-TAX ACT, 1961 - Held, the search and seizure proceeding has to be quashed and accordingly quashed without affecting any assessment by the Assessing Officer independently.
Fact of the Case:
The petitioner, an individual, claimed to be the sole proprietor of a business under the name and style of "Pratik Food Products", at No. 58, Jawaharlal Nehru Road, Calcutta-700 071. On September 24, 2001, the Deputy Director of Income-tax (Investigation) along with other officers of the Income-tax Department initiated a search at the petitioner's place of business and residence. The petitioner alleged that the search and seizure was wholly arbitrary, illegal, and without jurisdiction. The respondents contended that the search and seizure was conducted based on "reason to believe" under Section 132 of the Income-tax Act, 1961, and that the petitioner was a key person of the "Haldiram Bhujiawala group" engaged in tax evasion.
Finding of the Court:
The court held that the respondents failed to establish a "reason to believe" prior to the search and seizure, as required under Section 132(1) of the Income-tax Act, 1961. The court found that the purported reasons for the search and seizure were mere statements and did not constitute a rational connection or relevant bearing to the formation of the belief. The court also held that the block assessment was subsequent to the search and seizure and could not stand if the search and seizure failed due to the test of law.
Issues: 1. Whether the respondents had a "reason to believe" prior to the search and seizure under Section 132 of the Income-tax Act, 1961. 2. Whether the petitioner's case fell under the zone of block assessment.
Ratio Decidendi: 1. The court held that "reason to believe" under Section 132(1) of the Income-tax Act, 1961, is a mandatory requirement for search and seizure. The court interpreted "reason to believe" as a common feature of taxing statutes, which must be held in good faith and cannot be a mere pretence. The court further held that "reason to suspect" under Section 132(1A) of the Act is subject to the satisfaction of the primary test of "reason to believe" under Section 132(1). 2. The court held that block assessment is a subsequent event to search and seizure and cannot stand if the search and seizure fails due to the test of law.
Final Decision: The court quashed the search and seizure proceeding and directed the respondents to return the seized articles to the petitioner within a period of fortnight from the date of making application on his behalf.
Amitava Lala, J.
1. THIS writ petition is made by an individual who claims to be the sole proprietor of a business under the name and style of "Pratik Food Products", at No. 58, Jawaharlal Nehru Road, Calcutta-700 071. He is residing at a flat being No. 9C/9D, 87, Southern Avenue, Calcutta-700 029.
2. THE petitioner alleged that on September 24, 2001, the Deputy Director of Income-tax (Investigation) along with other officers of the Income-tax Department initiated a search at the place of the petitioner's business at No. 58, Jawaharlal Nehru Road, Calcutta-700 071. THE search commenced at 8 a.m. of the day and ended at 1.15 a.m. of the next day. THErefore, no business was held on that very day. Respondent No. 1 prepared an inventory of bank accounts, demat accounts, foreign exchange, machineries, shares, finished goods, raw materials and packaging materials. THEy had seized Rs. 4,50,000 in cash, bunch of loose sheets, computer (C.P.U.) print outs and some documents relevant for preparing final books of account. THE panchanama under Section 132 of the Income-tax Act, 1961, and list of inventories were served only on September 25, 2001. Simultaneously, with the aforesaid search and seizure on September 24, 2001, at around 8.30 a.m., a similar set of officers took out search and seizure proceeding under Section 132 of the Income-tax Act at the residence of the petitioner and after making an inventory of the articles, namely, credit card, jewellery, books of account, documents, cash and seized a bunch of loose papers, cash of Rs. 50,000 and jewellery estimated at Rs. 78,313. THE panchanama in respect of such inventory was also served along with the list of inventories on the same day.
It is significant to note hereunder that both the panchanamas and the list of inventories are made in the name of Pratik Food Products (Pvt.) Ltd. but not in the name of Pratik Food Products, the proprietorship concern of the petitioner.
3. ON September 26, 2001, the petitioner received letter from his two bankers that pursuant to the prohibitory order of respondent No. 1, dated September 26, 2001, under Section 132(3) of the said Act, the bankers are not in a position to allow the operations of the bank accounts of the petitioner along with bank accounts of some others.
4. ON October 10, 2001, the petitioner made a request to respondent No. 1 to release all the bank accounts of other individuals as the petitioners have no personal connection with the other and they are individual assessees and their bank accounts are reflected in their respective balance-sheets and submitted by them along with the return. The petitioner further stated that those asses-sees have also individually applied to respondent No. 1 on September 11, 2001, for revocation of the prohibitory order but no action has been taken.
By two letters dated October 11, 2001, and October 17, 2001, the petitioner clarified that his concern "Pratik Food Products" is a proprietorship concern but not a private limited company against whom the search and seizure was conducted. It is also mentioned that the bank accounts under the prohibitory order are all disclosed bank accounts and explained the true legal ownership of the seized goods and prayed for copies of the seized documents. In response thereto, by a letter dated October 15, 2001, the petitioner had given details of the petitioner's business, bank accounts, family members and their income-tax returns with balance-sheets and profit and loss accounts.
5. UPON being satisfied with the reply to the queries respondent No. 1 revoked the prohibitory order under Section 132(3) of the Act in connection with the bank accounts of Pratik Food Products but did not revoke such prohibitory order in respect of other assessees.
6. UNDER such circumstances, it is evident that the action on the part of the respondent authority is on the basis of assumption and without fulfilment of the test and requirement of search and seizure. Therefore, the sear
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