Search and seizure – Condition precedent – Reasonable belief that assets in possession of person would not be disclosed – Application of mind to facts – Cash seized by police and handed over to Income-tax Authorities – Subsequent issue of warrant of authorisation – Seizure and retention of cash – Invalid

Search and seizure – Condition precedent – Reasonable belief that assets in possession of person would not be disclosed – Application of mind to facts – Cash seized by police and handed over to Income-tax Authorities – Subsequent issue of warrant of authorisation – Seizure and retention of cash – Invalid

The petitioner in W.P. No. 23023 of 2019 is a proprietary concern carrying on the business of purchase of agricultural lands and agricultural products throughout the country and claims that it has 46 branches at different places all over the country having an employee strength of about 300. It also deals as a wholesale trader of agricultural products, vegetables, fruits and post-harvest crop activities. The petitioner in W.P. No. 29297 of 2019 is Vipul Kumar Mafatlal Patel, an employee of the petitioner in W.P. No. 23023 of 2019.

The petitioner states that it has business transactions in the State of Telangana also and that it entrusted a sum of Rs. 5 crores to its employee Vipul Kumar Patel for its business purposes. The said individual had come to Hyderabad with friends, and on 23rd August, 2019 their car, a Maruti Ciaz car bearing No. TS09FA 4948, was intercepted by the Task Force Police of the State of Telangana. According to the petitioner, the said employee, his friends, the cash of Rs. 5 crores together with the above vehicle and another car and two-wheeler were detained illegally from 23rd August, 2019 onwards by the Telangana State Police.

The GPA holder of the petitioners filed on 27th August, 2019 a habeas corpus petition for release of the said persons, the cash and vehicles in the High Court of Telangana.

The Task Force Police filed a counter-affidavit in the said writ petition claiming that the discovery of cash with the said persons was made on 26th August, 2019 and that the police had handed over the detenues along with the cash to the Principal Director of Income-tax, Ayakar Bhavan, Hyderabad for taking further action against them.

The Telangana High Court allowed the writ petitions and held as under:

‘i) Admittedly, the Task Force Police addressed a letter under exhibit P5, dated 26th August, 2019 to the Principal Director of Income-tax, Ayakar Bhavan, Hyderabad stating that he is handing over both the cash and the detenues to the latter and the Deputy Director of Income-tax, Unit 1(3), Hyderabad (second respondent in W.P. No. 23023 of 2019) acknowledged receipt of the letter on 27th August, 2019 and put his stamp thereon.

ii) However, a panchanama was prepared by the second respondent on 28th August, 2019 (exhibit R8) as if a search was organised by a search party consisting of eight persons who are employees of the Income-tax Department including the second respondent (without mentioning the place where the alleged search was to be conducted in the panchanama); that there were also two panch witnesses, one from Nalgonda District, Telangana and another from Dabilpura, Hyderabad who witnessed the search at the place of alleged search; that a warrant of authorisation dated 28th August, 2019 was issued to the second respondent u/s 132 to search the place (whose location was not mentioned in the panchanama) by the Principal Director of Income-tax (Inv.), Hyderabad; the search warrant was shown at 9.00 a.m. on 28th August, 2019 to Vipul Kumar Patel who was present at the alleged place (not mentioned specifically); that a search was conducted at the place (not mentioned specifically in the panchanama); and allegedly the cash of Rs. 5 crores was seized at that time from his custody.

iii) Section 132 deals with procedure for search and seizure of cash or gold or jewellery or other valuable things. In DGIT (Investigation) vs. Spacewood Furnishers Pvt. Ltd. [2015] 374 ITR 595 (SC) the Supreme Court dealt with the exercise of power by the competent authority to issue warrant for authorisation for search and seizure as follows: The authority must have information in its possession on the basis of which a reasonable belief can be founded that: (a) the person concerned has omitted or failed to produce books of accounts or other documents for production of which summons or notice had been issued, or such person will not produce such books of accounts or other documents even if summons or notice is issued to him, or such person is in possession of any money, bullion, jewellery or other valuable article which represents either wholly or partly income or property which has not been or would not be disclosed. Such information must be in the possession of the authorised official before the opinion is formed. There must be application of mind to the material and the formation of opinion must be honest and bona fide. Consideration of any extraneous or irrelevant material will vitiate the belief or satisfaction. Mere possession of cash of large quantity, without anything more, could hardly be said to constitute information which could be treated as sufficient by a reasonable person, leading to an inference that it was income which would not have been disclosed by the person in possession for the purpose of the Act.

iv) There were no circumstances existing for the Principal Director (Investigation) to issue any warrant for search or seizure u/s 132 on 28th August, 2019 when the cash had been handed over to the Income-tax Department by the Task Force Police on 27th August, 2019 and therefore the seizure of the cash from Vipul Kumar Patel by the respondents and its retention till date was per se illegal. Intimation by the police to the Income-tax Department on 27th August, 2019 would not confer jurisdiction on the Income-tax Department to retain and withhold cash, that, too, by issuance of an invalid search warrant u/s 132; and there was no basis for the Income-tax Department to invoke the provisions of sections 132, 132A and 132B since there was no “reason to believe” that the assessee had violated any provision of law. In the absence of any rival claim for the cash amount of Rs. 5 crores by any third party, the respondents could not imagine a third-party claimant and on that pretext retain the cash indefinitely from the petitioner, thereby violating article 300A of the Constitution of India.

v) For all the aforesaid reasons, the writ petitions are allowed; the action of the respondents in conducting panchanama dated 28th August, 2019 and seizing cash of Rs. 5 crores from Vipul Kumar Patel, employee of the petitioner in W.P. No. 23023 of 2019, and retaining it till date is illegal and ultra vires the provisions of the Income-tax Act, 1961 and also violative of Articles 14 and 300A of the Constitution of India; the respondents are directed to forbear from conducting any further inquiry pursuant to the said panchanama under the said Act; and they shall refund within four weeks from the date of receipt of a copy of this order the said cash of Rs. 5 crores to the petitioner in W.P. No. 23023 of 2019 with interest at 12% p.a. from 28th August, 2019 till date of payment to the said petitioner. The respondents shall also pay costs of Rs. 20,000 to the petitioner in W.P. No. 23023 of 2019.’