Scope and limitation of Prohibitory Orders under Section 132(3) of the Income Tax Act, 1961 where seizure of asset is not possible

Section 132(3) empowers the authorised officer to issue a prohibitory order on a person in control of books of account, documents, valuable articles, etc., directing him not to remove, part with or otherwise deal with them without his permission, if he finds it not practicable to seize them. In this article various contentious issues arising on the law and application of Prohibitory Order are briefly discussed.

During the process of search and seizure certain circumstances arise under which the authorised officers do not find it “possible” or “practicable” to complete the search or to seize the assets. Second proviso to section132(1) and section 132(3) covers such situations. These two provisions provide authority to the authorised officer to place Prohibitory Orders whereunder the owner or the person in whose possession and control such items are found is directed “not to remove, part with or otherwise deal with it, except with the previous permission of authorised officer”.

Distinction between Prohibitory Order under second proviso to section 132(1) and section 132(3)

Second proviso to section 132(1) comes into play only where it is not practicable to take physical possession of the valuable article for any of the four reasons, viz., due to its volume, or weight, or other physical characteristics, or due to its being of a dangerous nature. Thus, if any of these four reasons exists, then the authorized officer need not take physical possession of the articles but can pass a restraint order. Such a restraint order will be deemed to be seizure of such valuable articles. Physical possession is not taken because it is not practicable. On the other hand, where it is not practicable to take physical possession of goods/articles/documents for any other reason, then a restraint order will be regarded as having been validly passed under section 132(3) and the restraint order will continue till a formal seizure is affected.

Thus, for a valid Prohibitory Order under section 132(3), the prime condition is that the authorised officer has to mention in the Prohibitory Order, why it is not practicable to seize goods/articles/documents (likely to result in undisclosed income) for the reasons other than those mentioned in the second proviso to section 132(1). If there is no practical difficulty, then an authorized officer has no option but to affect seizure of books/documents/valuable articles, etc., which are found as a result of the search. It could not be said that because no explanation was being offered, it was impracticable to effect seizure.

Text of section 132(3)

(3) The authorised officer may, where it is not practicable to seize any such books of account, other documents, money, bullion, jewellery or other  valuable article or thing, ^[1][for reasons other than those mentioned in the second proviso to sub-section (1) of section 132,] serve an order on the owner or the person who is in immediate possession or control thereof that he shall not remove, part with or otherwise deal with it except with the previous permission of such officer and such officer may take such steps as may be necessary for ensuring compliance with this sub-section.

^[2][Explanation : For the removal of doubts, it is hereby declared that serving of an order as aforesaid under this sub-section shall not be deemed to be seizure of such books of account, other documents, money, bullion, jewellery or other valuable article or thing under clause (iii) of sub-section (1) of section 132.]

KEY NOTE

1. Inserted by the Finance Act, 1988, with effect from 01.04.1989.

2. Inserted by the Direct Tax Laws (Amendment) Act, 1987, with effect from 01.04.1989.

Duration of restraint Order (Time limit)

Prohibitory order : [132(8A)]

v  The time limit of an order under section 132(3) is 60 days from the date of order.

v  Extension earlier allowed with the approval of DIT/CCIT is no more permissible from 01.06.2002.

What would happen when restraint order passed under section 132(3) is not lifted within 60 days?

As per section 132(8A), a restraint order passed under section 132(3) shall be in force for a period exceeding 60 days from the date of such order. It implies that in case restraint order is not lifted upto 60 days, it shall become ineffective and no seizure of assets/documents can be made thereafter. Moreover, search shall be treated as concluded on the expiry of the period of 60 days.

Restraint order under section 132(3) cannot be passed for stock-in-trade or for restricting movement/production of goods

Restraint order cannot be passed for items which are not required to be seized. Since stock-in-trade cannot be seized, no restraint order with respect to stock-in-trade can be passed. Further there is no power with the authorised officer to restrict or stop movement/production of goods.

Consequences of violation of order under Section 132(3)

If a person contravenes the order made under section 132(3), he shall be liable to be prosecuted under section 275A, such person shall be punishable with rigorous imprisonment which may be extended to 2 years and shall be also liable to fine.

Text of Section 275A

^[1][275A. Contravention of order made under sub-section (3) of section 132

Whoever contravenes any order referred to in (2)[the second proviso to sub-section (1) or] sub-section (3) of section 132 shall be punishable with rigorous imprisonment which may extend to two years and shall also be liable to fine.]

KEY NOTE

1. Inserted by the Income-tax (Amendment) Act, 1965, with effect from 12.03.1965.

2. Inserted by the Finance Act, 1990, with effect from 01.04.1990.

Department could not keep search action in abeyance for a long period of almost one year from date of last authorisation, more so, when after such period of almost one year nothing was searched but only prohibitory order passed one year back was converted into deemed seizure

Time limit for completion of (Computation of limitation period) - A search under section132 was conducted upon premises of assessee company on 07.11.2000 based on authorisation dated 04.11.2000. Said authorisation was executed on 08.11.2000 when search was completed and panchnama was made. On 10.11.2000 a search was conducted on basis of fresh authorisation dated 10.11.2000. On 04.12.2000, investigation team again conducted search upon assessee under same old authorisation dated 10.11.2000 and passed prohibitory order under section 132(3) and items were inventorised. On 07.11.2001, i.e. almost after a period close to one year, investigation team again visited premises under same old authorisation dated 10.11.2000 for conducting search and prohibitory order passed on 04.12.2000 was converted into deemed seizure under section 132(1)(iii) - There was nothing searched on this day except passing of conversion order from section 132(3) to 132(1)(iii). Later on, A block assessment order was passed on 28.11.2003. Assessee submitted that revenue could not conduct search after almost one year on basis of an old authorisation dated 10.11.2000 and draw a panchnama concluding search. It contended that limitation under section 158BE should begin from date of last drawn panchnama i.e. 08.11.2000, and, thus, impugned assessment order passed on 28.11.2003 was barred by limitation. According to revenue, limitation would start from 07.11.2001 when order of deemed seizure was passed under section 132(iii) by virtue of Explanation 2 read with section 158BE and, hence, block assessment framed vide order dated 28.11.2003 was within limitation period. Department could not keep search action in abeyance for a long period of almost one year from date of last authorisation more so when after a period of one year nothing was searched but only prohibitory order passed one year back was converted into deemed seizure. Therefore, panchnama dated 07.11.2001 drawn based on authorisation dated 10.11.2000 was bad in law and, therefore, limitation could not be counted from 07.11.2001 but it was ought to be counted from 10.11.2000 or at most from 04.12.2000. Therefore, assessment order dated 28.11.2003 was barred by limitation. [In favour of assessee] (Block period 01.04.1990 to 07.11.2000) - [Narang International Hotels (P) Ltd. v. DCIT (2020) 185 ITD 324 : 118 taxmann.com 454 (ITAT Mumbai]

Authorized officer is not satisfied that a particular asset found during search is undisclosed property of assessee, he cannot have recourse to provisions of section 132(3)

Law is well-settled that in order to make a seizure of the assets in exercise of power under section 132(1)(iii) assessee’s possession over the assets is not sufficient. The authorized 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 authorized 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). It is only when the authorized officer has reasonably believed that incorporeal assets such as bank deposits or deposits in pass books, documents, 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 mentioned in the second proviso to sub-section (1)] do not permit immediate seizure of the same, the provision of sub-section (3) of section 132 may be resorted to. Thus, section 132(3) can be resorted to only if there is any practical difficulty in seizing the asset which is liable to be seized. During search and seizure operation carried on in premises of assessee-company, the authorized officer issued prohibitory order under section 132(3) in respect of current/saving banks accounts of the assessee. The assessee challenged impugned prohibitory order in instant petition.

Held that it was not the case of the Income Tax authorities that any deposit/transaction made in the various bank accounts, in respect of which prohibitory order under section 132(3) had been issued, represented wholly or partly the undisclosed income of the assessee. On the contrary, the stand of the Income Tax authorities was that the prohibitory order under section 132(3) had been issued for the purpose of finding out whether any transaction made in those accounts represented undisclosed income of the assessees. Moreover, even though in the meantime more than one month passed from the date of issuance of prohibitory order under section 132(3), no material had been produced before the Court to show that any of the deposits/entries made in various bank accounts in question represented wholly or partly the undisclosed income of the assessees. For the reasons stated above, issuance of prohibitory order under section 132(3) in respect of current bank accounts, savings bank accounts and any other type of accounts of the assessee was not valid. [In favour of assessee] - [Maa Vaishnavi Sponge Ltd. v. DGIT (Investigation) (2011) 339 ITR 413  : 244 CTR 603 : (2012) 21 taxmann.com 512 (Orissa)]

Prohibitory order issued under section 132(3) of the Act in respect of Current Account in question without forming any belief and/or without any material to conclude that the amount deposited in the said Current Account is either wholly or partly undisclosed income of the petitioner is unsustainable in law

In order to initiate action for seizure of money lying in bank account of assessee, condition envisaged in clause (c) of sub-section (1) of section 132 should be satisfied.  In order to bring a case within sweep of section 132(1)(c) or section 132A(1)(c), belief of authorized authority as to mere possession of assets mentioned in that section by a person is not sufficient, but information in possession of authorized authority must be such that he may have reason to believe that assets represent undisclosed income of person in whose possession these are. Top most care should be taken before taking seizure action in respect of a bank account already disclosed to Income-tax department. On 11.11.2010, a search and seizure operation was conducted at assessee’s registered office during which certain documents were found. Department issued prohibitory order under section 132(3) on current bank account of assessee. On 07.01.2011, department issued a fresh warrant of authorization under section 132 in name of bank in respect of current account in question pursuant to which revenue officials visited assessee’s bank and got converted entire amount available in said account to demand draft in favour of department in order to withdraw amount from that account. Since prohibitory order under section 132(3) had been issued without forming any reasonable belief that money lying in current account in question was wholly or partly representing undisclosed income of assessee, said prohibitory order and warrant of authorization dated 07.01.2011 were invalid in law. Therefore, consequential action in converting money lying in current account into demand draft/pay order in favour of department and withdrawing same from current account was also not valid in law. [In favour of assessee] - [Visa Comtrade Ltd. v. Union of India & Others (2011) 238 ITR 343 : 243 CTR 348 : 201 Taxman 413 : 13 taxmann.com 44 (Orissa)]

Placing restraint order by non-authorised officer - Where restraint order under section 132(3) was placed by an officer who was not an authorised officer in the warrant of authorization for search, then such an order would be bad in law 

The power of placing restraint order during the course of search and seizure as enumerated in section 132(3) is to be exercised by an authorized officer. Similarly, the power to extend or revoke the prohibitory order under section 132(3) is vested in the authorized officer. Though the initial restraint order under section 132(3) was revoked on 10.08.1996, the said fire safe vault was further restrained on several dates up to 25.10.1996 by officers who were not authorised officers as they were not the persons authorized in the warrant of authorization issued against the assessee. The prohibitory order under section 132 placed on 19.07.1996 was a valid prohibitory order, which was released on 10.08.1996 and all the prohibitory orders placed thereafter by officers other than authorized officers were not valid prohibitory orders. In any case, it is not permissible under law to extend the time of completion of search by passing restraint orders under section 132(3). – [Goldcrest Finance (India) Ltd. v. DCIT (2006) 105 TTJ 926 : (2007) 16 SOT 46 (URO) (ITAT Mumbai)]

Imposing prohibitory order and end of the search - Once all materials and valuables, which are found during search, are appraised, search will come to an end

In order to determine whether the search has come to end or not, what is required to be seen is whether the documents or valuables being kept under prohibitory order have been appraised or not? The passing of prohibitory order under section 132(3) is an administrative act and it is the domain of the authorized officer to decide during the course of search, if any prohibitory order is required to be passed or not. In a case where the house was searched and the shares and debentures found were inventorised and kept in the steel cupboard in the bedroom, the authorized officers came to the conclusion that those shares and debentures were not required to be seized. Placing prohibitory order on such shares and debentures would not be valid. Once all the materials and valuables, which are found during the search, are appraised, the search will come to an end. – [DCIT v. Adolf Patric Pinto (2006) 101 TTJ 1086 : 100 ITD 191 (ITAT Mumbai)]

A second restraint order under section 132(3) extending period of restraint cannot be issued in connection with same search and seizure action

Previously, before the insertion of the Finance Act, 2002, there was a provision under section 132(8A) for extension beyond the period of 60 days. The Finance Act, 2002, deleted the provision of extension of period of restraint considering the difficulties faced by the affected persons. Now a rigid time-limit of 60 days has been fixed by the end of which the restraint order has to be either revoked or will come to an end. If Revenue authorities are allowed to revoke and invoke restraint orders before 60 days and thereby making restraint effective beyond 60 days, then it would amount to circumventing section 132(8A). A fresh restraint order can be issued in relation to fresh and different action and not in relation to the same action previously taken. - [Windson Electronics (P) Ltd. v. UOI (2004) 269 ITR 481 : 191 CTR 542 : 141 Taxman 419 (Cal.)]

Cancellation of order – Restraint order cannot be cancelled or renewed from time to time

Search was conducted at residential premises of assessee on 16.10.1996 and same was concluded on 20.10.1996. After completion of search, order under section 132(3) was passed covering a cupboard on 26.10.1996. On 13.12.1996, an officer, who was not one of authorised officers mentioned in search warrant, removed seal and made a further order under section 132(3). Assessment was completed on 31.12.1997. According to assessee, last panchanama in execution of search was made on 16.10.1996 and, hence, assessment was barred by limitation on 31.10.1997. According to revenue, search was concluded on 13.12.1996 when last panchanama was drawn. Since a restraint order does not amount to seizure, by passing a restraint order, time-limit available for framing of order cannot be extended. By simply stating in panchanama that search is temporarily suspended, authorised officer can not keep search proceedings in operation by passing a restraint order under section 132(3). Assessment was barred by limitation since proceedings on 26.10.1996 and 13.12.1996 could not be considered as part of execution of search proceedings which concluded on 20.10.1996. - [CIT v. Sandhya P. Naik (2002) 253 ITR 534 : 178 CTR 448: 124 Taxman 384 (Bom.)]

Prohibitory order must be served on the owner or on the person who is in immediate possession or control of documents, valuable articles, etc.

Accused’s premises were searched under section 132 and sealed. Case of income-tax authorities was that subsequently seal was found broken and certain documents were missing from premises. On basis that except accused nobody was interested in premises in question, prosecution under section 275A, read with section 448 of Indian Penal Code, was launched against him. It is the duty of the authorised officer to serve the Prohibitory Order on the owner or on the person who is in immediate possession or control of documents, valuable articles, etc. Where such an order is not served, the owner cannot be held responsible for any mishap, mishandling, theft, etc., which may take place in respect of such documents, valuable articles, etc. In a case where there was no material on record that Prohibitory Order was served on the owner of the premises, nor was he directed to take such steps for ensuring the compliance of the order there, was no evidence that the accused was present during the search operation. There was no inventory/list of articles prepared by income-tax authority to show what was sealed and what was missing when they again checked the premises. Neither alleged missing documents were recovered from accused nor was there any eyewitness who saw assessee breaking lock and entering into premises. Accused was not entrusted with responsibility of guarding seal. On facts and circumstances of case there was no reasonable probability or chance of accused being found guilty of offence charged with so as to continue trial. Therefore, he was to be discharged from offence. The accused could not be charged for criminal offense. – [State v. Rakesh Aggarwal (1995) 80 Taxman 539 (In the Court of Metropolitan Magistrate, Delhi).

Non-completing search - For certain reasons, if search could not be completed then authorised officer would be within his jurisdiction to impose Prohibitory Order under section  

Authorised Officer undertook search of premises of respondent-accused. In course of search raiding party separated pawned jewellery and kept it in almirah. As search remained incomplete, authorised officer issued a prohibitory order under section 132(3). On next day, search party noticed that steel plates on rear side of almirah had been cut at two places. Accused was therefore charged for offences punishable under section 275A read with sections 406 and 461 of Indian Penal Code, 1860. Trial Court observed that prior sanction of Commissioner as envisaged under section 279 to prosecute accused was not obtained. Court further observed that it was not totally impracticable for raiding party to continue and complete search, as such, authorised officer could not resort to section 132(3) for issuing prohibitory order. On aforesaid reasonings, Trial Court acquitted accused. Since prosecution was at instance and on behalf of State, section 279 had no application. Since incompletion of search had affected ultimate act of effecting seizure of property undisclosed, in such a situation, authorised officer was competent to resort to section 132(3) for issuing prohibitory order. Accused’s act of effecting cuts at two places in almirah was derogatory to direction contained in prohibitory order, and, it made him liable for offence punishable under section 275A. In view of aforesaid, prosecution of accused was to be upheld. - [State of Maharashtra v. Narayan Champalal Bajaj (1993) 201 ITR 315 (Bom.)]

‘Practicable’ means ‘for some good and valid reason

The restraint orders which had been issued under section 132(3), from time to time, suffer from two infirmities, firstly, it could not be said that it was not practicable to effect seizure. In other words, the conditions necessary for the exercise of the jurisdiction under section 132(3) did not exist. Secondly, the restraint orders had been cancelled and renewed from time to time and, in the instant circumstances, this was not validly done. There were a large number of handicraft items some of which were antique which the petitioners could not identify or co-relate with the purchase vouchers which were available with them. This might be a ground or good reason for effecting seizure but, it could not be said that this was a valid ground for exercising jurisdiction under section 132(3).

Section 132(3) can be resorted to if there is any practical difficulty in seizing the item which is liable to be seized. If there is no practical difficulty, then an authorized officer has the jurisdiction and duty to seize the books of account, other documents, money, bullion, valuable articles, etc. which are found as a result of the search, if no explanation is coming forward in respect thereof. Therefore, when the search was effected and the petitioners were unable to give any valid explanation as demanded by the respondents, then the only power which could have been exercised or should have been exercised by the authorized officer was to effect seizure.

It could not be said that, because no explanation was being offered by the petitioners, it was impracticable to effect seizure. When no explanation or an unsatisfactory explanation is offered and valuable articles are found at the time of search, then the authorized officer would be fully justified in effecting seizure. Once seizure is effected, the period of limitation starts and an order under sub-section (5) of section 132 has to be passed within the stipulated period. The power under section 132(3) cannot be so exercised as to circumvent the provisions of section 132(1) read with sub-section (5) thereof. When a search is conducted and valuable movable articles are found which are liable for seizure, then they should be seized. Because such seizure was not effected due to their physical characteristics, Parliament thought it necessary to enact the second proviso to section 132(1). Whereas previously due to the weight, volume or physical characteristics only restraint orders under section 132(3) were passed, now with effect from 01.04.1989, such restraint orders are being regarded as deemed seizure under sub-clause (iii) of section 132(1). The intention of the Legislature is very clear, viz., it is the duty of the authorized officers to effect seizure wherever any valuable article or thing is found during the course of the search and the words 'not practicable to seizure’ used in section 132(3) have to be understood in this sense, viz., where there is a practicable difficulty in effecting seizure, then an order under section 132(3) can be passed. Not knowing the value of the articles or whether they are antique or not cannot be regarded as a practical difficulty on the part of the authorized officer in effecting seizure. Therefore, the orders which were issued under section 132(3) were not validly issued and the goods which were found at the premises could have been seized by actually seizing the articles or by making an order of restraint under the second proviso to section 132(1). This was not done in the instant case.

There was another reason for ordering the release of the said goods even on the assumption that a valid order under section 132(3) was passed. Firstly, when an order under section 132(3) is issued, it must be recorded as to why it is not practicable to effect seizure. This is for the reason that whenever any such order is passed, then the Commissioner can grant an extension under section 132(8A) after recording reasons in writing. In the instant case, on 20.06.1991, reasons were recorded by the Commissioner while granting extension. Be that as it might, just prior to the expiry of 60 days of the order dated 11.02.1991, the order under section 132(3) was revoked on 09.04.1991, and a fresh order in respect of the same goods was again passed on 09.04.1991. This exercise was repeated on 06.06.1991.

It was not permissible to do so. The orders which are passed under section 132(3) may have a very far-reaching effect on the business of an assessee. The order of restraint may adversely affect the business and, therefore, adequate safeguards are sought to be provided in the Act by the insertion of the provisions of sub-section (8A) in section 132. In order that the restraint order must not be continued indefinitely, sub-section (8A) of section 132 provides that the restraint order can be continued only if, before the expiry of 60 days, and for reasons to be recorded, the Commissioner grants an extension. The provisions of sub-section (8A) cannot be by-passed or rendered nugatory by invoking an order under section 132(3) and thereafter passing another order on the same date. On 11.02.1991, an order under section 132(3) had been passed. The 60 days would expiry on or about 10.04.1991. If the order under section 132(3) was to be continued, then the Commissioner should have granted approval under sub-section (8A). What was done in the instant case was to cancel the order dated 11.02.1991 on 09.04.1991, and then to pass a fresh order under section 132(3) on that very date. No approval of the Commissioner was sought.

The same thing happened on 06.06.1991. The order under section 132(3) was, in effect, extended twice without any concurrence from the Commissioner and merely on the Assistant Director of Income-tax deciding to revoke the order and passing a fresh order. The provisions of sub-section (8A) of section 132 were thereby circumvented. Once an order under section 132(3) has been passed, then the limitation period commences and such order cannot be continued unless and until the provisions of section 132(8A) are satisfied.

Even when an order under section 132(3) had been passed, the Departmental officials were not restraint from examining the goods. An order under section 132(3) restrains the owner or the person in possession of the goods from removing, parting with possession or dealing with them. The order of restraint is effective against the owner or the person in possession thereof and is not aimed at the Department itself. By issuing an order under section 132(3), the Department is not restrained from examining the goods in respect of which a restraint order has been passed. There was no valid reason, therefore, for seeking to revoke the orders on 09.04.1991 and 06.06.1991. Seeing the dates when such auction was taken, there was considerable force in the contention of the petitioner that this device was resorted to solely with a view to circumvent the provisions of section 132(8A). The first revocation was effected on 09.04.1991, only about one or two days before the expiry of 60 days. Similarly the second revocation of 06.06.1991, was also effected only about one or two days before the expiry of 60 days from 09.04.1991. Therefore, the approval of the Commissioner not having been obtained under section 132(8A), the continuation of the restraint order under section 132(3), even if it could be validly passed, was not warranted.

For the aforesaid reasons this writ petition was partly allowed. While upholding the action of the respondents in issuing the authorisation under section 132(1) and conducting the search, the orders passed under section 132(3) were quashed. The respondents were accordingly directed to release the aforesaid goods, articles or things. [In favour of the assessee] - [B. K. Nowlakha v. Union of India (1991) 192 ITR 436 : (1992) 101 CTR 73 (Del.)]

No prohibitory orders if seizure is not permissible

Section 132(1) does not provide for seizure of any immovable property. Therefore, issuance of prohibitory orders under section 132(3) “restraining assessee in removing, parting or otherwise deal with the shop” in respect of which pagri was allegedly paid was invalid. Assessee-petitioner was in possession of shop in question. On a search in residential premises of S and U who had amassed huge wealth, it was found that aforesaid shop was acquired by them by paying 'pagri' from unexplained sources. Thereupon an order was passed under section 132(3) restraining assessee in removing, parting or otherwise deal with aforesaid shop even though there was no material with the revenue that assessee-petitioner was in possession of any money, bullion, jewellery or other valuable article or thing in the said shop, and no satisfaction was recorded that such money, bullion, etc., represented either wholly or partly income or property which had not been, or would not be, disclosed for the purposes of the Act. Under section 132(1) there could be no seizure of immovable property and, hence, in instant case order under section 132(3) was not justified. Even otherwise in view of provisions of section 132(1) and 132(5) seizure was invalid. Further the action of the respondents in breaking the seals in the absence of the petitioner and handing over possession of the property to the Rehabilitation authorities was also wholly illegal and this action smacked of mala fides and in all probability was done after coming to know of the filing of the present petition. In view of the above, the order passed under section 132(3) was not justified and the Assistant Director of Inspection was directed to handover the possession of the shop in question within 10 days to the assessee. - [Sardar Paraduman Singh v. UOI (1987) 166 ITR 115 : 62 CTR 59 : 31 Taxman 515 (Del.)]

Income-tax authorities issued prohibitory orders to respondent under section 132(3) in respect of goods lying in godowns - Respondent having filed a writ petition obtained ex parte order of injunction against prohibitory orders and removed all goods from godowns - Thereafter, respondent withdrew his petition - By using aforesaid strategy respondent had abused process of court for securing removal of goods from godowns and, he could not be allowed to retain that advantage - Therefore, amount representing value of goods removed from godown was to be recovered from respondent by way of restitution

The strategy of obtaining an ex parte order of injunction from the Court and thereafter removing the goods from the three godowns on the strength of this ex parte order of injunction and then withdrawing the writ petition was adopted by the first respondent with a view to defeating the prohibitory orders issued against him and taking the goods out of the reach of the Income-tax authorities.

There was no doubt that the first respondent had abused the process of the Court for securing removal of the goods from the three godowns and he could not be allowed to retain that advantage. However, before making any order in this respect, it would have to be ascertained as to what was the value of the goods which were removed from the three godowns. The Deputy Director of Inspection, filed an affidavit stating what according to him were the goods removed by the first respondent from the three godowns and what was the value of these goods. This was, however, a matter which would have to be enquired into and therefore, direct that an inquiry should be held for determining the value of the goods removed by the first respondence from the three godowns after obtaining an ex parte order of injunction from the High Court. Such inquiry would be held by an IAC to be nominated by the Chairman of the CBDT and the IAC so nominated would hold an enquiry after giving notice to the first respondent as also to the concerned ITO.

Pursuant to the aforesaid order made by the Court, the IAC nominated by the Chairman of the CBDT after holding an inquiry submitted his report to the court stating on the basis of the material produced before him as to what was the quantity of stock removed by the first respondent from the three godowns and what was the value of such quantity of stock so removed. The report of the IAC on an analysis of the material which was placed before him, had determined the quantity of stock removed from the three godowns at 235 metric tonnes and the value thereof at Rs. 14 lakhs.

Therefore, the first respondent was directed to pay to the petitioner a sum of Rs. 14 lakhs by way of restitution for the quantity of the goods removed from the three godowns so that the position as it obtained prior to the removal of the goods from the three godowns was restored as far as practicable. However, it would be open to the first respondent to contend in the assessment proceedings before the tax authority that the value of the goods removed by him from the three godowns taking advantage of the ex parte order of injunction obtained by him was less than Rs. 14 lakhs but the burden of proving so would be on the first respondent. [In favour of revenue] – [Deputy Director of Inspection (Intelligence) v. Vinod Kumar Didwania (1986) 160 ITR 969 : 58 CTR 199 (SC)]

No order can be passed under section 132(3) where authorised officer is in doubt whether the asset is disclosed or undisclosed

It is only when nature or location of particular ornaments etc. found on a search, which are reasonably believed to be undisclosed property, does not allow, or circumstances of a given case do not permit immediate seizure of same, that provisions of sub-section (3) may be resorted to. When authorised officer is not satisfied or he has doubts to believe that particular ornaments found on search are undisclosed property, he cannot, have recourse to provisions contained in sub-section (3) of section 132. Certain ornaments were found on search. Authorised Officers placed ornaments in two boxes and then put same with seals in Godrej Almirah. They also served order under section 132(3) upon petitioner. Admittedly, authorised officers had not came to conclusion that ornaments found on search were undisclosed property and they wanted to verify statement of petitioner made at time of search before coming to such finding.  Authorised officers did not take any decision to seize ornaments for about six months when petition was filed. In these circumstances continuation of attachment by authorised officers of ornaments, especially when same was not sanctioned by provisions of section 132(3) would not be permissible and authorised officers should be directed to remove seals and locks of Almirah and also boxes contained therein and restore ornaments to petitioner. - [Om Prakash Jindal v. Union of India (1976) 104 ITR 389 (P&H)]

During search certain pass books were found in name of assessee with certain bank and there was enough material to come to prima facie conclusion that monies in deposit represented income of assessee, which had not been disclosed for purpose of Act, order under section 132(3), could be issued restraining bank from removing, parting with, or otherwise dealing with money in account of assessee

Action under sub-section (3) of section 132 can be taken only ‘where it is not practicable to seize any such books of account, other document, money, bullion, jewellery or other valuable article or thing’. On the facts of the case, there was nothing arbitrary or even strange in having come to the conclusion that the monies deposited in the bank by the 1st respondent represented the income of the 1st respondent. There was enough material to have come to the prima facie conclusion that the monies in deposit represented income of the 1st respondent, which had not been disclosed for the purpose of the Income-tax Act. If that money, though by virtue of the legal relationship between the customer and the banker had become the money of the bank, and was in his control and possession, would nevertheless be answerable to tax if it was ultimately found that the 1st respondent in each of these appeals were liable to pay income-tax. Such monies deposited in a bank, are impracticable to seize. In such cases, action can be taken under sub-section (3) of section 132. There is power to communicate the copy of the bank in view of the last part of sub-section (3) of section 132, reading “and such officer may take such steps as may be necessary for ensuring compliances with this sub-section.” In the circumstances, the impugned order could not be set aside. [In favour of the revenue] – [ITO v. M. Shajahan (1976) 104 ITR 347 (Ker.)]

An asset which is already known cannot be subject to search and seizure and consequently, cannot be subject of an order under section 132(3) of the Act

The articles or things referred to in section 132(3) are those which the authorised officer was empowered to search for and seize and no other. They must be articles or things which it may be necessary to search for before they can be seized. The power conferred under section 132(1) is contemplated in relation to those cases where the precise location of the article or thing is not known to the Income Tax Department and, therefore, a search has to be made for it, and where it will not ordinarily be yielded over by the person having possession of it and, therefore, it is necessary to seize it. It is such article or thing alone which can be the subject of an order under section 132(3). Therefore, it would not include a case where it is already known that the article or thing is kept in a certain building or place and will ordinarily be yielded up by the person holding custody of such article or thing. Under section 132, the power to search and seize go together. If no search is called for, no seizure can be made. Therefore, a search must be carried out under section 132(1) before an order under section 132(3) can be passed.—[Ramesh Chander v. CIT (1974) 93 ITR 244 (P&H)]

Power conferred under section 132 (1) is contemplated in relation to those cases where precise location of article or thing is not known to income-tax department and, therefore, a search must be made for it, and where it will not be ordinarily yielded over by person having possession of it and, therefore, it is necessary to seize it - Section 132(3) will not include case where location of article or thing is known and where ordinarily person holding custody of it will readily deliver it up to income-tax department - Therefore, silver in custody of Assistant Collector of Customs and Central Excise was not an article or thing which could be subject of order under section 132(3)

On 05.06.1969, the Customs and CentralExcise Department searched the residential and business premises of the petitioners and carried away some silver bars, pieces of silver and currency notes. The customsofficers also arrested the petitioners, but subsequently, upon a habeas corpus application, the High Court directed their release. Thereafter in July, 1969, the petitioners applied to the customs authorities for return of the silver but despite repeated requests in that behalf the silver was not returned to them. On 04.09.1969, the petitioners filed a petition under article 226 of the Constitution praying for a direction to the customs authorities to return their silver. On 29.09.1969, the ITO authorised under section 132(1), made an order, purporting to be under section 132(3), directing the Assistant Collector, Customs and Central Excise, not to remove, part with or otherwise deal with the silver seized by the customs authorities from the business and residential premises of the petitioners. On writ:

The power conferred under section 132(1) of the Income Tax Act is contemplated in relation to those cases where the precise location of the article or thing is not known to the Income Tax Department and, therefore, a search must be made for it, and where it will not be ordinarily yielded over by the person having possession of it. The view that section 132(3) will include a case where the location of the article or thing is known and where ordinarily the person holding custody of it will readily deliver it up to the Income Tax Department is not correct. Consequently, goods in the custody of the Assistant Collector of Customs and Central Excise are not things which could be the subject of an order under section 132(3).—[Motilal v. Preventive Intelligence Officer, Central Excise and Customs, Agra (1971) 80 ITR 418 (All)]

NOTE : This case is Approved in (1986) 27 Taxman 305 (SC)]

Prohibitory Order can be imposed by Authorised officer in a search carried out under section 132(1) - If goods are in the custody of other department, Prohibitory Order under section 132(3) cannot be placed on the officers of other Departments

The articles or things referred to in sub-section (3) of section 132 are those which the authorised officer was empowered to search for the seize and no other. That is plain from the language of sub-section (3), which refers to such books of account, other document, money, bullion, jewellery., that is, those articles or things which are the subject of authorisation under section 132(1)(c). The department’s contention that section 132(3) will include case where location of article or thing is known and where ordinarily person holding custody of it will readily deliver it up to income-tax department, could not be accepted such article or thing requires neither search nor seizure.

In the instant case, the silver in the custody of the Assistant Collector of Customs and Central Excise was not an article or thing which could be the subject of an order under section 132(3). Clearly, the location of the silver was known to the income-tax department, and it could not be disputed that as it was in the custody of a public officer if would have been readily handed over to the income-tax department upon proper requisition made in that behalf. There was no material whatever on the record to suggest that the customs authorities would refuse to co-operate with the income-tax department and decline to comply with any reasonable request made to them. On the contrary, it would appear that the two departments were acting in co-operation. On 05.06.1969, when the customs officers effected the search and seizure of the petitioners’ premises they were accompanied by an ITO. The warrants of authorization issued by the Commissioner could not in law include the authority to search for an seize the silver already with the Assistant Collector, Customs and Central Excise. And if, the ITO proceeded, pursuant to the warrants of authorization, to search for and seize that silver in the officer of the Assistant Collector, it was a meaningless gesture. The impression gained was that the income-tax department considered it necessary to comply with the form of law in order to be able to make an order under section 132(3). The form of the law was satisfied, its substance was not. The order under section 132(3) was an order without the authority of law. The petition was allowed. The order dated 29.09.1969, made by the ITO was quashed. The petitioners were entitled to their cost. – [Motilal v. Preventive Intelligence Officer (1971) 80 ITR 418 (All.)]