Supreme Court lays Down Principles For Courts While Examining Matters Of Search Seizure Under Income Tax Law

Arjun KumarJuly 14, 2022

In a significant ruling, the Supreme Court on Wednesday laid down principles for high courts to hear cases related to search and seizure under the Income Tax Act. The top court said that forming an opinion or relying on the documents of the Revenue Department is not a judicial or quasi-judicial act but of administrative character.

Gujarat High Court order quashed

A bench of Justices Hemant Gupta and V Ramasubramanian also quashed the order of the Gujarat High Court quashing the search and seizure warrant issued by the Principal Director (Investigation) of the Income Tax Department on August 7, 2018.

The top court said, “We find that the High Court’s quashing of the warrant of leave of search on August 7, 2018 is not justified. Therefore, the appeal is allowed and the order passed by the High Court is set aside. Along with this, the revenue department is allowed to take action against the income tax payer under the law.

The high court had passed the order on a plea by an Ahmedabad-based businessman who had invested in an entertainment company in Goa and the revenue department conducted search and seizure of its premises. The apex court said that while considering the validity of the authorization of search and seizure in the light of earlier judgments, the suitability or unsuitability of the reasons recorded cannot be considered.

The bench observed that “the belief recorded alone is justified, but only taking into account the reasonableness of the Wednesbury Doctrine. Such a justification does not entitle the appellate authority to act on the reasons to believe recorded.”

The bench said that it will give detailed principles for hearing the writ petition in the cases related to search and seizure under Section 132 of the Income Tax Act. The Court said that considering any extraneous or irrelevant material, the trust would be affected.

The bench observed that “the cause of belief to be formed and recorded is not a judicial or quasi-judicial act, but is administrative in character.” Stating that the information should be with the authorized officer on a material basis and opinion should be formed in an honest and authentic manner, it cannot be a mere sham.

The bench said, “The officers should have information on the basis of which a reasonable belief can be formed that the person has suppressed the account or other document or has failed to produce the same, in respect of which the notice has been issued or summoned.” …”