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2011 Supreme(Ori) 433
IN THE HIGH COURT OF ORISSA
V. Gopala Gowda, B.N. Mahapatra, JJ.
MAA VAISHNAVI SPONGE LTD. - APPELLANT
Versus
DIRECTOR GENERAL OF INCOME TAX (INVESTIGATION) - RESPONDENT
Writ Petition No. 20748 of 2011
Decided On : 12-08-2011
R.P. Kar, A.N. Ray, B.P. Mohanty, P.K. Mishra and K.K. Sahoo, for the Appellant; A.K. Mohapatra, for the Respondent
Headnote:
IT Act - Prohibitory Order - s. 132(3) - Summary of Acts and Sections: The court discussed the provisions of s. 132(3) of the IT Act, emphasizing the requirement for the authorized officer to have a reason to believe that the assets represent undisclosed income before issuing a prohibitory order. The court highlighted the need for the officer to apply an intelligent mind and record reasons/satisfaction before seizing assets or issuing prohibitory orders. The judgment also referenced the decision in Visa Comtrade Ltd., emphasizing the importance of not causing irreparable loss to bona fide assessees and the need for the competent authority to record satisfaction before taking drastic steps such as search and seizure operations.
Fact of the Case:
The petitioners, companies engaged in manufacturing, filed writ petitions to quash a prohibitory order issued under s. 132(3) of the IT Act, which restrained them from operating their bank accounts. The petitioners argued that the order was illegal and had paralyzed their business, leading to unemployment and financial difficulties.
Finding of the Court:
The court found that the prohibitory order issued under s. 132(3) of the IT Act in respect of the bank accounts was not valid. It emphasized the requirement for the authorized officer to have a reason to believe that the assets represent undisclosed income before issuing a prohibitory order. The court also clarified that its order did not preclude the IT authorities from examining the deposits/entries made in the bank accounts and utilizing the same for making assessments if permissible under the law.
Issues: The issues before the court included whether the authorized officer had formed a prima facie opinion on the basis of the materials on record before issuing the prohibitory order, and whether the prohibitory order issued by the IT Department in respect of various bank accounts was valid.
Ratio Decidendi: The court held that the issuance of the prohibitory order under s. 132(3) of the IT Act in respect of the bank accounts was not valid, as the authorized officer had not recorded any reason to conclude that the deposits in the bank accounts represented undisclosed income of the petitioners. The court emphasized the need for the competent authority to record satisfaction before taking drastic steps such as search and seizure operations.
Final Decision: The writ petitions were allowed to the extent that the prohibitory order under s. 132(3) of the IT Act in respect of the bank accounts was quashed. The court directed the authorized officer to take a final decision in accordance with the law regarding lockers and safe deposit articles mentioned in the prohibitory order, after giving the petitioners an opportunity of hearing.
JUDGMENT :
B.N. Mahapatra, J. - Both the writ petitions have been filed with a prayer to quash the prohibitory order dt. 6th July, 2011 passed under sub-s. (3) of s. 132 of the IT Act, 1961 (for short, "the Act") as per Annex. 1 in respect of the accounts of the petitioner-companies maintained with opposite party Nos. 6 to 10 banks and warrant of authorization dt. 18th June, 2011 on the ground that those are illegal being without jurisdiction.
However, in course of hearing Mr. R.P. Kar, learned counsel appearing on behalf of the petitioners confined his prayer in both the writ petitions only to quashing of the prohibitory order passed under Annex. 1. Since the prayer in both the writ petitions is identical, these are disposed of by this common judgment.
2. The facts and circumstances giving rise to the present writ petitions are that the petitioners are companies incorporated under the provisions of the Companies Act, 1956, having their registered office at Dua Complex, Panposh Road, Rourkela. The petitioners are mainly engaged in manufacturing sponge iron, TMT and structural steel. The petitioners have been regularly filing their IT returns. On the strength of warrant of authorization dt. 18th June, 2011, there were search and seizure operations in the business premises of the petitioner-companies on 6th July, 2011 and 7th July, 2011. In course of search, by letter dt. 6th July, 2011 under Annex. 1 the authorised officer issued prohibitory order under s. 132(3) of the Act to the Branch Manager, IDBI Bank, Rourkela, directing him not to remove, part with or otherwise deal with the articles mentioned in the said order without his permission. Vide letter dt. 6th July, 2011 (Annex. 3) the Asstt. General Manager, Mid Corporate Rourkela intimated the petitioner-Maa Vaishnavi Sponge Ltd. that they have received a notice from the Dy. Director of IT (Inv.) to disclose information regarding transaction in the accounts and to disclose credit facility sanctioned with details of their terms and conditions and securities thereof and also not to remove, part with or otherwise deal with the accounts/safe deposit lockers/safe deposit articles maintained by them without prior permission of the IT authorities or revocation of said notice. On 15th July, 2011, the petitioner made a request to opposite party No. 2 Director of IT (Inv.), Bhubaneswar to allow the petitioners to operate the bank accounts in respect of which prohibitory order under s. 132(3) of the Act has been issued as they are facing difficulties in carrying on their business. Since no action was taken, the petitioners issued another letter dt. 21st July, 2011 with a request to permit them to operate the bank accounts. As repeated requests to permit the assessees to operate their bank accounts did not yield any result, the present writ petitions have been filed.
3. Mr. R.P. Kar learned counsel appearing for the petitioners submitted that opposite party Nos. 4 and 5 IT authorities have illegally issued prohibitory order under s. 132(3) of the Act on 6th July, 2011 in respect of cash credit and current account etc. maintained with opposite party Nos. 6, 7, 8, 9 and 10 although those accounts are regular accounts of the companies and are disclosed in the return filed by the petitioners for the purpose of assessment. Without forming any opinion that undisclosed income of the assessee-petitioners was deposited in the bank accounts, the opposite parties have illegally restrained the petitioners from operating those accounts. The petitioner-assessees availed loan of crores of rupees from different banks to carry on their business and for illegal action of the opposite parties their business has come to a halt. The search party including opposite party Nos. 4, 5 and 6 transgressed their power and illegally issued order prohibiting the petitioners from operating the bank accounts. The petitioners are not in possession of any undisclosed income and, therefore, the action taken under s. 132(3) of
