TMI Blog2011 (8) TMI 678X X X X Extracts X X X X X X X X Extracts X X X X ..... ., MAHAPATRA B. N., JJ. JUDGMENT B. N. Mahapatra J.- 1. Both the writ petitions have been filed with a prayer to quash the prohibitory order dated July 6, 2011, passed under sub-section (3) of section 132 of the Income-tax Act, 1961 (for short, "the Act"), as per annexure I in respect of the accounts of the petitioner-companies maintained with opposite party Nos. 6 to 10 banks and warrant of authorization dated June 18, 2011, on the ground that those are illegal being without jurisdiction. 2. However, in the 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 I. 3. Since the prayer in both the writ petitions is identical, these are disposed of by this common judgment. 4. 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 petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted in the bank accounts, the opposite parties have illegally restrained the petitioners from operating those accounts. The petitioner-assessees availed of loan of crores of rupees from different banks to carry on their business and for illegal action of the opposite parties their business under section 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 section 132(3) of the Act is illegal. The Commercial Taxes Department and the Central Excise Department have also approached the income-tax authorities to allow the petitioner-companies to operate bank accounts in order to carry on their business. The petitioner-companies have entered into contracts with different buyers, traders and Government organizations and to discharge the contractual obligation, the operation of the bank accounts is very much necessary. Due to seizure of the bank accounts of the petitioners, their business got closed and more than 500 daily wage workers were rendered un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the actual cash found during search. Since the investigation is still continuing and each entry is being verified, free operation of the bank accounts may hamper the process of investigation. The prohibitory order under section 132(3) has been issued after due satisfaction of the competent authority. Mr. Mohapatra further argued that the issue involved in the case of the petitioners is similar one with the issue which had come up in the case of Lan Eseda Steels Ltd. v. CIT (Assessment) [1994] 209 ITR 901 (AP). In that case, bank operations were frozen by the officers acting under section 132(3) of the Act. The assessee's case was that its business was being affected by the order and that at any rate the credit balance in the bank account was debts owed by the bank and not capable of attachment under section 132(3). The High Court dismissed the writ petition following the decision in ITO (Special Investigation) v. Seth Brothers [1969] 74 ITR 836 (SC), stating that if the action taken is a regular one in the course of his functions except where the action taken is malicious or for a collateral pur- pose, the court would not interfere merely by substituting its own office for tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppearing in section 132 of the Act refers to the assets mentioned in section 132(1)(c), i.e., assets which are reasonably believed to be undisclosed property of the assessee. Where it is not practicable to seize such assets the provisions of sub-section (3) of section 132 of the Act is resorted to. Law is well settled that in order to make a seizure of the assets in exercise of power under section 132(1)(iii) the assessee's possession over the assets is not sufficient. The authorised officer must have reason to believe that the assets represent wholly or partly the undisclosed income of the person in whose possession the assets are found. Similarly, where the authorised officer is not satisfied or he has doubt to believe that a particular asset found on search is undisclosed property of the assessee, he cannot have recourse to the provisions of section 132(3) of the Act. It is only when the authorised officer has reasonably believed that incorporeal assets such as bank deposits or deposits in pass books, document, etc., found on a search represent wholly or partly the undisclosed property of the assessee and the circumstances of the given case (for reasons other than those mentione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be paid, day-to-day expenses of the business cannot be met and the suppliers cannot get their dues ; various Revenue authorities including the Government authorities will not get their dues/taxes/duties. Ultimately, the business will come to an end and the assessee shall be deprived of his fundamental right guaranteed under article 19(1)(g) of the Constitution to carry on his business/profession. It is certainly not the object of the search and seizure provided under the Act to close anybody's business. No doubt, the Revenue authorities are watch- dogs of the Government revenue. They are not expected to take any lenient view in respect of an unscrupulous and dishonest business-man. Evasion of tax is not to be tolerated and action must be taken against the erring assessee and/or the tax evaders. At the same time, they must see that the honest and bona fide businessmen are not harassed because they are the source of the Government revenue. Therefore, various fiscal statutes provide that before taking any drastic step including search and seizure operation in case of an assessee, the competent authority has to first record its satisfaction for taking such action." 14. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 132(8A) of the Act has been given to the Income-tax Department to examine and find out as to whether the various deposits made in such bank accounts are disclosed or undisclosed income. 17. For the reasons stated above, we are unable to accept the above contention of the learned senior standing counsel justifying the action of the authorised officer in issuing prohibitory order under section 132(3) of the Act. Moreover, even though in the meantime more than one month passed from the date of issuance of the prohibitory order under section 132(3) of the Act, no material has been produced before us to show that any of the deposits/entries made in various bank accounts in question represent wholly or partly the undisclosed income of the assessees. This court in Visa Comtrade Ltd. v. Union of India [2011] 338 ITR 343 (Orissa), referring to the judgment of the Punjab and Haryana High Court in Om Parkash Jindal v. Union of India [1976] 104 ITR 389 (P H) and the decision of the Allahabad High Court in the case of Sriram Jaiswal v. Union of India [1989] 176 ITR 261 (All), held that prohibitory order under section 132(3) of the Act issued in respect of bank accounts without forming any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in Lan Eseda Steels Ltd. [1994] 209 ITR 901 (AP) has no application to the present cases as the facts and issues involved in that case are different from the present cases. 19. For the reasons stated above, we are of the considered view that issuance of prohibitory order dated July 6, 2011, under section 132(3) of the Act in respect of current bank accounts, savings bank accounts, cash credit accounts, loan accounts, over draft accounts, recurring deposit accounts, personal accounts, any other type of accounts of the petitioners are not valid. Therefore, the order under section 132(3) of the Income-tax Act in respect of the above accounts is quashed. So far as lockers and safe deposit articles mentioned in the prohibitory order (annexure 1) are concerned, the authorised officer is directed to take a final decision in accordance with law after giving opportunity of hearing to the petitioner. 20. We make it clear that our observations/findings given above are confined to the order issued under section 132(3) of the Income-tax Act in respect of bank accounts maintained with different banks as indicated supra. We have not expressed any opinion with regard to the validity ..... X X X X Extracts X X X X X X X X Extracts X X X X
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