Search and seizure under Section 132 of the Income Tax Act requires credible information that justifies belief, and cannot be based on mere suspicion.

ORDER :

1. The petitioners have called in question the legality and validity and propriety of the action taken by the respondents for search and seizure in purported exercise of power under Section 132 of the INCOME TAX ACT , 1961 (for short the Act).

Factual background:

2. The petitioners are engaged in running cotton ginning mills situated at Godavalli Village, Asifabad Mandal, Kumarambheem Asifabad District, which were set up in the year 2015. The petitioners stated that they are law abiding bodies/persons and promptly filing returns and making statutory payments under Goods and Services Tax and other Taxes. The Ministry of Finance, Government of India, had issued ‘certificates of appreciation’ which are filed by the petitioners.

3. In order to run the cotton ginning mills smoothly, the petitioners are required to frequently purchase cotton produce from the farmers. In procuring the cotton from the farmers, the petitioners make payments in cash which is due to the area or location in which the petitioners operate. Such rural areas are lacking necessary infrastructure including fully developed banking and internet facilities. In particular, the areas in which the petitioners operate are located in proximity to Maharashtra and in these areas, transactions are predominantly made through cash mode of payment. The reliance is placed on document provided by bank management which shows limits have been placed on the quantum of cash which can be kept in the bank chest i.e., upto Rs.13,00,000/-. In this event, the petitioners are often required to make request in advance for withdrawal of large cash amount to enable the bank to arrange for the disbursal and transport of cash. If the cash which is beyond the limit of amount available in the concerned bank is required, the said branch needs to get the cash transported via van services of the bank from Mancherial branch to Asifabad branch of the bank. The distance between Asifabad and Mancherial is approximately is 70 kilometers.

4. In view of foregoing difficulties and prospect of being cash strapped in the peak season, the petitioners make arrangement to meet any possible shortage of cash during the closure of the bank. Thus, the petitioners utilised their overdraft facility during 14th November, 2023 to 16th November, 2023 and withdrew substantial amount (by self-cheques) with interest rate and other charges adding upto 12% per annum. On that basis, the petitioners made purchases by paying cash amounts to the farmers and made necessary expenditures. As on 20.11.2023, the petitioners were left with cash amount of Rs.6,51,70,000/-. The copies of the receipts showing payments to farmers are cumulatively filed as Annexures-P.11 and P.12.

5. In the early morning of 21.11.2023, the respondents conducted search proceedings at the residence of Managing Partner of petitioner No.1 and at the offices of M/s. R.S. Agrotech and M/s. Heena Industries, the petitioners herein. The search exercises were conducted pursuant to separate warrants of authorisation issued under Section 132 of the Act, dated 20.11.2020. It is stated that in the authorisation warrants, no reasons to conduct the search and consequent seizure were mentioned. The petitioners preferred representations to respondent No.2 on 04.12.2023 (Annexure P.15) and 05.12.2023 (Annexure P.16) for return of cash seized by them.

Contentions of the petitioners:

6. Sri Avinash Desai, learned Senior Counsel for the petitioners, urged t