2003 (10) TMI 42 - HC - Income Tax

Search and seizure proceedings - undisclosed income - reason to believe - jewellery found in locker - there was no material on the basis of which there could be a reason to believe that the valuables in locker represented undisclosed income - It may be mentioned that the material on the basis of satisfaction under section 132 has to exist must be material brought to the knowledge of the Commissioner / Director prior to the search and the authorities cannot rely on material found during the search -.the writ petition is allowed

Summary

Issues Involved:
1. Legality of the search and seizure proceedings.
2. Validity of the warrant of authorization.
3. Compliance with Section 132 of the Income-tax Act, 1961.
4. Jurisdiction and authority of the income-tax officers.
5. Entitlement to the return of seized jewellery.

Comprehensive, Issue-wise Detailed Analysis:

1. Legality of the Search and Seizure Proceedings:
The petitioners challenged the legality of the search and seizure proceedings conducted on November 3, 2001, regarding the jewellery found in locker No. B-237 of the Standard Chartered Grindlays Bank, Karol Bagh, New Delhi. The court noted that the search was conducted without providing a copy of the warrant of authorization to the petitioners, which was only hurriedly shown to them. The court emphasized that the satisfaction of the authorities under Section 132 must be based on relevant material or information, and the words used in Section 132(1) are "reason to believe" and not "reason to suspect." The court found that the respondents had not disclosed the material or information on which the Director/Commissioner entertained the belief that the lockers contained valuable jewellery or other articles representing undisclosed income.

2. Validity of the Warrant of Authorization:
The petitioners argued that the warrant of authorization was only in the name of petitioner No. 2 and not in the name of petitioner No. 1, who is not a partner of the firm. The court observed that the warrant of search and seizure under Section 132(1) can only be issued based on some material or information on which the Commissioner/Director has reason to believe that any person is in possession of money, jewellery, or other valuable articles representing undisclosed income. The court referred to several precedents, including CIT v. Vindhya Metal Corporation and Dr. Nand Lal Tahiliani v. CIT, to emphasize that the satisfaction of the authorities must be based on relevant material or information and not merely on suspicion.

3. Compliance with Section 132 of the Income-tax Act, 1961:
The court examined whether the search and seizure proceedings complied with Section 132 of the Income-tax Act, 1961. The court noted that the restraint order under Section 132(3) had ceased to be in force after the expiry of 60 days from April 27, 2000, making the subsequent seizure on November 3, 2001, illegal and without jurisdiction. The court also highlighted that the material on the basis of satisfaction under Section 132 must exist prior to the search, and authorities cannot rely on material found during the search.

4. Jurisdiction and Authority of the Income-tax Officers:
The court scrutinized the jurisdiction and authority of the income-tax officers in conducting the search and seizure. It was found that the respondents had not provided any material or information to justify the belief that the valuables in locker No. B-237 represented undisclosed income. The court reiterated that the information must be more than a mere rumor or hunch and must be tangible material that exists on the file before the search.

5. Entitlement to the Return of Seized Jewellery:
Finally, the court addressed the petitioners' request for the return of the seized jewellery. Given the illegality of the search and seizure proceedings, the court directed the respondents to return the jewellery forthwith to the petitioners. The court quashed the entire search and seizure proceedings in regard to the jewellery found in locker No. B-237.

Conclusion:
The writ petition was allowed, and the entire search and seizure proceedings regarding the jewellery found in locker No. B-237 were quashed. The respondents were directed to return the jewellery to the petitioners, emphasizing the need for compliance with legal procedures and the requirement of tangible material for authorizing searches under Section 132 of the Income-tax Act, 1961.