Search and seizure under Section 132 of the Income Tax Act 1961 is not confiscation

The provision contained in Section 132(1) of the Income Tax Act 1961 enables the competent authority to direct for issue of search and seizure on the basis of formation of an opinion which a reasonable and prudent man would form for arriving at a conclusion to issue a warrant

Order quashing the search and seizure conducted in the factory premises of the Respondent engaged in the manufacturing business pursuant to licence issued under the Central Excise Act was the subject matter of challenge in the present matter. The factory in question had been filing its income-tax returns. In the absence of sole proprietor of the factory Income Tax Department officials conducted the search both at the residential as well as the business premises. During the search of the residential premises, son of the sole proprietor was informed by the Income Tax Officer that the search operations were also being conducted at the factory premises however, despite such information he was not allowed to leave the house.

The search and the seizure was challenged on the ground that there was no information in possession of the officer which could have persuaded any reasonable person to form an opinion about the existence of undisclosed assets of the Respondent and further the warrant of authorization was issued mechanically, arbitrarily and without application of mind. It was also contended that there was no formation of opinion about the existence of undisclosed assets as contemplated under Section 132(1) of the Income Tax Act, 1961 (Act). 

Revenue on the other hand contended that there was no illegality in the initiation of the seizure and it was conducted in accordance with law and the revenue had enough material against the Respondent alleged of suppressing vital information pertaining to production and sale and the same was also evidenced during the search operation.

High Court appointed an Advocate Commissioner to prepare an inventory of the goods in question in respect of which the restraint order was passed who later as required had submitted the report and was placed on record. 
It was held that High Court was not right in appointing an Advocate Commissioner to take inventory of the goods in respect of which the restraint order was passed by the revenue under the Act. The relevant confidential file, if required and necessary could have been called for and examined. Revenue in the counter affidavit was not required to elucidate and reproduce the information and details that formed the foundation. 

The provision contained in Section 132(1) of the Act enables the competent authority to direct for issue of search and seizure on the basis of formation of an opinion which a reasonable and prudent man would form for arriving at a conclusion to issue a warrant. It is done by way of an interim measure. The search and seizure is not confiscation. The articles that are seized are the subject of enquiry by the competent authority after affording an opportunity of being heard to the person whose custody it has been seized. The terms used are ‘reason to believe’.

High Court did not even remotely try to see the reasons to determine whether the competent authority had formed the opinion on the basis of any acceptable material or not. High Court misdirected itself in quashing the search and seizure on the basis of the principles of non-traverse. 

The matter was accordingly remanded back to High Court for fresh disposal in accordance with law.

[Union of India & Ors. vs. M/s. Agarwal Iron Industries]
(SC, 12.11.2014)