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2025 Supreme(Ker) 1129
IN THE HIGH COURT OF KERALA AT ERNAKULAM
BECHU KURIAN THOMAS, J.
M.M. Varghese – Petitioner
Versus
Assistant Director Of Income Tax (INV.), Thrissur and Ors. – Respondents
W.P.(C) No.19152 of 2024
Decided On : 02-05-2025
For the Petitioner: Smt. G. Mini, Sri. A. Kumar (Sr.), Sri. P.J. Anilkumar, Sri. P.S. Sree Prasad, Sri. Balasubramaniam R.
For the Respondents: Sri. Navaneeth N. Nath, CGC, Smt. Susie B. Varghese, Sri. Jose Joseph, SR. SC
The court upheld the legality of search and seizure under the Income Tax Act, affirming that reasonable belief based on undisclosed income justified the actions taken by the income tax authorities.
Headnote:
(A) Income Tax Act, 1961 - Sections 132(1), 132(3), and 131(1A) - Search and seizure proceedings against political party - Petitioner challenged legality of search and seizure initiated by income tax department, claiming malafides and lack of reasonable belief - Court held that sufficient information existed for search warrant, and the proceedings were not arbitrary. (Paras 5, 11, 15, 17)
(B) Legal Principles - The authority must have reasonable belief based on information before issuing a search warrant, and any action taken must be in good faith and in accordance with law. (Paras 12, 14)
Facts of the case:
The petitioner, as Secretary of the CPI(M) District Committee, faced search and seizure due to a significant cash withdrawal from a bank account not linked to PAN, which was not disclosed in income tax returns. (Paras 2, 3, 6)
Findings of Court:
The search and seizure were justified based on the information available to the income tax department, and the prohibitory order had expired by operation of law. (Paras 17, 19)
Issues: Whether the search and seizure were legally justified and whether the prohibitory order required interference. (Paras 11, 18)
Ratio Decidendi: The court affirmed that the search was valid as the department had reasonable belief based on undisclosed income and the failure to link the bank account with PAN. (Paras 15, 17)
Result: Writ petition dismissed.
JUDGMENT :
Petitioner challenges the search and seizure proceedings initiated by the income tax department, against him in his capacity as an office bearer of a political party.
2. The circumstances as narrated in the writ petition, in brief, are as follows: Petitioner is a member of the political party called Communist Party of India (Marxist) [for short ‘the CPI(M)’] and is the Secretary of the District Committee, Thrissur. The said political party has a Central Committee with its office at New Delhi and State Committees in various States, apart from District Committees in the States. The 'CPI(M)', is an assessee to income tax and the Central Committee file the returns every year including the accounts of the State and District Committees.
3. The District Committee of Thrissur CPI(M) has an account at the Bank of India, Thrissur Branch. On 05.04.2024, the bank officials requested an office staff of the party to come to the bank to affix his signature in connection with an amount withdrawn on 02-04-2024. However when the said person reached the bank, he was confronted by the income tax officials and an undertaking was obtained not to utilize the amount withdrawn. A prohibitory order was also issued freezing all operations in the particular bank account since it was noticed that the bank account was not linked to the PAN. Thereafter a summons was issued on 09-04-2024 directing production of certain documents and it was then that the petitioner realized that the PAN was not linked to the bank account due to a typographical error. Petitioner even informed the respondents that non-linking of the bank account with the PAN was an error or omission on the part of the bank, which cannot be attributed to the petitioner or the District Committee of the political party.
4. Petitioner was again summoned by the income tax officers on 30-04-2024 and when he appeared before them with the money withdrawn, it was immediately seized by the respondents. Thereafter the petitioner as the Secretary of the District Committee, was questioned by the officials regarding the withdrawal of cash made on 02-04-2024.
5. According to the petitioner, the warrant issued under section 132(1) of the of the Income Tax Act, 1961 (for short 'the Act') and the prohibitory order under section 132(3) of the Act are both illegal and vitiated by malafides especially since, as a political party, the CPI(M) is filing its IT returns regularly. The summons issued under section 131(1A) of the Act, calling for further details to be produced by 20.05.2024 is, according to the petitioner, illegal and without sanction of law. Petitioner has pleaded that before any hasty action, petitioner ought to have been given an opportunity to explain and without initiating such proceedings, indulging in the search is malafide and arbitrary. Petitioner also contends that there was no information in the possession of the income tax authorities which could have constituted a 'reason to believe' that there would be a default or non-compliance of the provisions of the Act and hence the proceedings initiated is an abuse of the authority. Petitioner thus seeks for a declaration that the search and seizure do not satisfy the contingencies contemplated under section 132(1)(a) to (c) of the Act. Petitioner has also prayed to quash the prohibitory order dated 05.04.2024 apart from a direction to return the money seized from him.
6. A statement has been filed on behalf of respondents 1 to 3 pointing out that in the wake of election expenditure monitoring, information was received that a cash withdrawal in excess of one crore rupees had taken place from a specific bank account and it had to be investigated. Telephonic enquiry with the Chief Manager of Bank of India, Thrissur Branch, confirmed the transaction and the owner of the bank account No.855010100001687 from which the amount was withdrawn, was stated to be CPI(M) operated by the petitioner and Annexure A1 statement of the Manager taken on 05.04.2024,
