1979 (3) TMI 13 - HC - Income Tax

Summary

Issues Involved:
1. Legality of the searches conducted by the Income Tax (I.T.) authorities.
2. Validity of the notice under Rule 112A of the I.T. Rules.
3. Jurisdiction of I.T. authorities regarding previously disclosed items in wealth-tax returns.

Detailed Analysis:

1. Legality of the Searches Conducted by the I.T. Authorities:
The petitioners challenged the legality of the searches conducted by the I.T. authorities on the grounds that the Commissioner issued the order under Section 132(1) of the I.T. Act mechanically, without applying his mind, as no reasons for his satisfaction were recorded. The court examined the submissions and found that the informer, a co-director of the New Samundri Transport Company Ltd., provided duplicate sets of books of account disclosing undisclosed income of the petitioners. This information was verified by the Assistant Director of the Intelligence Cell, who reported to the Commissioner. The court noted that the Commissioner had relevant material and had applied his mind to the same, although he did not explicitly record his reasons. The court held that the existence of relevant material and the application of mind were sufficient to validate the search order, even if reasons were not explicitly recorded.

2. Validity of the Notice under Rule 112A of the I.T. Rules:
The petitioners contended that the I.T. authorities could not require them to disclose the source of acquisition for items merely listed and not seized during the search. They argued that Rule 112A limits the query to seized items only. The court interpreted Rule 112A in conjunction with Section 132 of the I.T. Act and concluded that the rule's reference to "assets" encompasses all items of undisclosed income, whether seized or merely listed. The court clarified that the notice under Rule 112A is intended to seek an explanation for the source of acquisition of all undisclosed income, not just the seized items. Therefore, the I.T. authorities were within their rights to issue the notice.

3. Jurisdiction of I.T. Authorities Regarding Previously Disclosed Items in Wealth-Tax Returns:
The petitioners argued that items previously disclosed in their wealth-tax returns could not be considered undisclosed income and thus should not be subject to the search and notice. The court agreed with the revenue's position that this is a factual question to be determined by the I.T. Officer during the enquiry under Section 132(5) of the I.T. Act. The court held that raising this contention at this stage was premature and dismissed it.

Specific Contention in Civil Writ No. 4392 of 1975:
The petitioner in Civil Writ No. 4392 of 1975 contended that the premises of the Union Co-operative Transport Society, Hoshiarpur, were searched without a warrant, and documents were seized. The court noted that the transport society, not the petitioner, should have raised this grievance. Furthermore, no notice under Rule 112A regarding those documents had been issued to the petitioners, making it unnecessary to address this issue.

Conclusion:
The court found no merit in the writ petitions and dismissed them with costs. The searches conducted by the I.T. authorities were deemed legal, the notices under Rule 112A were valid, and the jurisdictional challenge regarding previously disclosed items was premature.