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2011 Supreme(Ori) 435
IN THE HIGH COURT OF ORISSA
V. Gopala Gowda, B.N. Mahapatra, JJ.
M/S. MAA VAISHNAVI SPONGE LTD. AND ANOTHER - APPELLANT
Versus
DIRECTOR GENERAL OF INCOME TAX AND OTHERS - RESPONDENT
Writ Petition (C) Nos. 20748 and 20749 of 2011
Decided On : 12-08-2011
The main legal point established is that the issuance of prohibitory orders under Section 132(3) of the Income Tax Act requires the authorized officer to have a valid belief that the assets represent undisclosed income, and such orders cannot be issued indiscriminately.
Headnote:
Income Tax Act - Prohibitory Order - Section 132(3)
Fact of the Case:
The petitioners, companies engaged in manufacturing, filed writ petitions to quash a prohibitory order issued under Section 132(3) of the Income Tax Act, 1961, 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 by the Income Tax authorities was not valid as it was not based on a belief that the deposited money represented undisclosed income of the petitioners. The court also emphasized the need for the authorized officer to form a valid opinion before issuing such orders.
Issues: The key issues were whether the prohibitory order was issued based on a prima facie opinion of undisclosed income and whether it was valid in the given circumstances.
Ratio Decidendi: The court held that the issuance of the prohibitory order without a valid belief of undisclosed income was not sustainable in law. It emphasized the need for the authorized officer to apply an intelligent mind and record reasons before taking seizure action in respect of disclosed bank accounts.
Final Decision: The writ petitions were allowed, and the prohibitory order under Section 132(3) of the Income Tax Act in respect of the bank accounts was quashed. The court directed the authorized officer to take a final decision regarding lockers and safe deposit articles 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 dated 6.7.2011 passed under subsection (3) of Section 132 of the Income Tax Act, 1961 (for short, "the Act") as per Annexure-1 in respect of the accounts of the petitioner-Companies maintained with opposite party Nos. 6 to 10 Banks and warrant of authorization dated 18.06.2011 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 Annexure. 1.
2. Since the prayer in both the writ petitions is identical, these are disposed of by this common judgment.
3. 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 income tax returns. On the strength of warrant of authorization dated 18.06.2011, there were search and seizure operations in the business premises of the petitioner-Companies on 6.7.2011 and 7.7.2011. In course of search, by letter dated 6.7.2011 under Annexure-1 the Authorized Officer issued prohibitory order u/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 dated 6.7.2011 (Annexure-3) the Assistant General Manager, Mid Corporate Rourkela intimated the petitioner-Maa Vaishnavi Sponge Ltd. that they have received a notice from the Deputy Director of Income Tax (Investigation) 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 Income Tax authorities or revocation of said notice. On 15.7.2011, the petitioner made a request to opposite party no.2-Director of Income Tax (Investigation), Bhubanerswar to allow the petitioners to operate the Bank Accounts in respect of which prohibitory order u/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 dated 21.7.2011 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.
4. Mr. R.P. Kar, learned counsel appearing for the petitioners submitted that opposite party nos. 4 & 5-Income Tax authorities have illegally issued prohibitory order u/s 132(3) of the Act on 6.7.2011 in respect of cash credit and current account etc. maintained with opposite party nos. 6, 7, 8, 9 & 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 & 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
