HIGH COURT OF ORISSA: CUTTACK W.P.(C) No.572 of 2011 In the matter of an application under Article 226 of the Constitution of India. -------- M/s VISA COMTRADE LIMITED AT: HUL Building, 2nd Floor, 9 Shakespeare Sarani, Kolkata – 700071, represented through its General Manager (F & A) & Company Secretary Sri Manoj Kumar Khaitan … Petitioner -Versus- Union of India and others … Opp. Parties For Petitioner : M/s N.Venkataraman & S.M.Venkataraman M/s. S.Mohanty, D.K.Mohanty, R.R.Swain & P.K.Muduli. For Opp.Parties : M/s S.P.Mishra & B.Mohanty (for O.P.No.7) Addl. Solicitor General of India Standing Counsel for Income Tax ---------- P R E S E N T: THE HONOURABLE THE CHIEF JUSTICE SHRI.V.GOPALA GOWDA AND THE HONOURABLE SHRI JUSTICE B.N.MAHAPATRA Date of Judgment : 18.05.2011 B.N. MAHAPATRA, J. This writ petition has been filed with a prayer for quashing/ setting aside the prohibitory order dated 11.11.2010 (Annexure-1) passed under Section 132(3) of the Income Tax Act, 1961 (for short, ‘the Act’) in respect of Current Account No.0553002100028097 of the petitioner-Company maintained with O.P. No.7-Punjab National Bank, Station Square Branch, Bhubaneswar and for declaratory relief declaring issuance of fresh warrant of authorization dated 07.01.2011 and Panchanama dated 08.01.2011 and withdrawal of Rs.12.39 crores from the aforesaid Current Bank Account of the petitioner by opposite party- bank authorities is illegal and without jurisdiction. The further prayer of the petitioner is to direct opp. parties to bring back Rs.12.39 crores in the above Current Account of the petitioner in question maintained with Opposite Party No.7- Bank. 2. Bereft of unnecessary details the facts and circumstances giving rise to the present writ petition are that the petitioner is a Company incorporated on 9th August 2006 under the provisions of the Companies Act, 1956 ( in short, “Companies Act”) having its registered office at HUL building, 2nd floor, 9 Shakespeare Sarani, Kolkata-700071. The petitioner-Company is an assessee under the Act, under the jurisdiction of Asst. Commissioner of Income Tax, Circle-8, Kolkata having Permanent Account No.AACCV3366R and has been assessed to income tax since 2006-07. The petitioner-Company is mainly engaged in trading of coal, coke, minerals and metals. The assessment for the assessment year 2007-08 has already been completed and the petitioner- Company has submitted its return of income tax before the Deputy Commissioner/Asst. Commissioner of Income Tax for the assessment years 2008-09, 2009-10 and 2010-11. 3. To carry on its business, the petitioner-Company enters into contract with the international supplier for purchase of coal, coke, 2 minerals and metals and the terms of payment to the said supplier provide that the supply of materials is to be made through Letters of Credit issued by a Bank so that the international supplier is protected of its payment. Upon signing of the contract, the petitioner-Company through its Bank (O.P. No.7) opened issuance of Letters of Credit of 180 days on the Bank of the suppliers which are located overseas. The petitioner-Company maintains a current Account bearing No. 0553002100028097 (for short, ‘the Account in question’) with O.P. No.7- Punjab National Bank, Bhubaneswar and the said Account in question has been earmarked for payment of Letters of Credit due. 4. On 11.11.2010 and 12.11.2010, a search and seizure operation was conducted by O.P. No.3-the Director of Income Tax (Investigation), Bhubaneswar under Section 132 of the Act in the petitioner’s registered office and other group of companies. During the course of search and seizure, the officials seized certain documents and issued Panchanama and also took soft copies of accounts maintained on ERP (SAP) as well as on Tally. On 11.11.2010, O.P. No.5-the Asst. Director of Income Tax (Investigation) also issued prohibitory orders (Annexure-1) under Section 132(3) of the Act on the Bank accounts of all the group of companies of VISA Steel Limited including the petitioner Company, Bank accounts of their promoters and family members including the Account in question of the petitioner Company maintained at the Branch of O.P.No.7-Bank. Vide letter dated 15.11.2010(Annexure- 2), the petitioner-Company made a request to O.P. No.5 for revocation of 3 prohibitory order issued under Section 132(3) of the Act. The said letter was communicated along with copy of audited balance sheet as on 31st March, 2010, detailed reconciliation statement of Bank account, copy of IT return acknowledgement, Bank statement/confirmation as on 31st March, 2010. Pursuant to letter Annexure-2, O.P. No.5 has withdrawn the prohibitory orders from some of the Bank accounts but did not withdraw the same issued against the Current Account in question of the petitioner-Company maintained with O.P. No.7 Bank. On 25.11.2010, petitioner-Company submitted another letter to O.P. No.5 requesting for revocation of the said prohibitory order dated 11.11.2010 issued under Section 132(3) of the Act on the Current Account in question as there was sufficient balance in the said Account. 5. Pursuant to summons issued under Section 131 of the Act, the Chairman of the petitioner-Company appeared before O.P. No.4-the Additional Director of Income Tax (Investigation) personally and examined himself on oath and answered various questions pertaining to VISA Group of Companies put by O.P. No.4. Thereafter, O.P. No. 5 asked for various details pertaining to the purchase and sales transactions for the year 2009-10. The authorized officer of the petitioner-Company being summoned also appeared before the opp. parties and furnished various details. 6. On 07.01.2011, O.P. No.7-Bank informed O.P. No.5 that the Bank has already paid Rs.89.15 crores to the overseas Banks without appropriating any amount from the Fixed Deposits and Current Account 4 earmarked and requested for withdrawal of the prohibitory order. On the same day, the Income Tax Department issued a fresh warrant of authorization under Section 132 of the Act in the name of O.P. No.7 in respect of the Current Account in question. Pursuant to issuance of the said warrant of authorization on 07.01.2011, on 08.01.2011 officials of Income Tax Department including opp. parties 4 and 5 visited O.P. No.7 Bank. The O.P. No.5 directed and demanded the Branch Head of O.P. No.7 Bank to pay a demand draft/pay order in favour of the Income Tax Department for the entire amount of Rs.12.39 crores appearing in the Current Account of the petitioner-Company in question. Officials of the Income Tax Department including O.P. No.5 converted the amount of Rs.12.39 crores available in the Current Account in question to Demand Draft in favour of the Commissioner of Income tax, Bhubaneswar in order to withdraw the amount from the Account and issued a Panchanama date 08.01.2011 to that effect. Hence, this writ petition. 7. Mr. N. Venkataraman, learned Senior Advocate appearing for the petitioner submitted that the petitioner-Company as well as its group of Companies has always correctly disclosed each and every income made by it and has never suppressed any of such income to the Department. The Current Account in question has been regularly disclosed in the books of account for the assessment years 2008-09, 2009-10 and 2010-11. Along with the letter dated 15.11.2010 requesting for revocation of the prohibitory order, the petitioner has submitted audited balance sheet on 31.03.2010 evidencing disclosure of detailed 5 statement of reconciliation of bank account till the date of search, copy of IT return acknowledgement, bank’s confirmation as on 31.03.2010 as per Annexure-2. The money in the Current Account in question belongs to O.P. No.7-Bank and O.P. No.7 has already incurred liability against the same by discharging Letters of Credit and the petitioner is not in a position to set off/appropriate the said amount lying in Current Account in question because of the prohibitory order issued by the Income Tax Department. 8. Mr. Venkataraman emphatically submitted that the officials of the Income Tax Department threatened O.P. No.7-Bank officials to the effect that the officials of O.P. No.7 Bank will be arrested and the Bank may be seized and sealed unless they act in accordance with their direction. The petitioner-Company was not informed about the warrant of authorization dated 07.01.2011 for search of the Current Account of the petitioner Company in question. On being orally informed by the Branch Head of O.P. No.7-Bank to the petitioner Company regarding illegal demand for withdrawal of cash by way of demand draft/pay order from its Current Account in question by O.P.No.5 and other officials of the Income Tax Department during search on 08.01.2011, the petitioner- Company faxed a letter at about 2.00 PM on the same day to O.P. No.7- Bank informing that the Current Account in question is a disclosed account and also enclosed a letter dated 15.11.2010 issued to the Income Tax Department in this regard. The official of the Income Tax Department continued to pressurize O.P. No.7-Bank officials till late 6 evening despite the fact that it was Saturday. The petitioner Company also sent another fax to O.P. No.7-Bank informing that the officials of the Income Tax Department do not have power to attach any amount from the Current Account in question which is disclosed in the books of account of the petitioner and in case money is remitted to the Income Tax Department it would be bad in law and O.P. No.7-Bank would be parting with its own securities for which the Bank will be solely responsible. 9. It was further argued that the audited balance sheet as on 31.03.2010 filed by the petitioner Company along with income tax return for the year 2010-11 clearly disclosed regarding the Current Account in question. Hence, the same could not have been made a part of the prohibitory order under Section 132(3) of the Act on the ground of undisclosed income. Section 132 of the Act does not authorize the Income Tax Department to direct O.P. No.7 Bank to convert a deposited amount lying in the Current Account in question into bank draft in favour of the Income Tax Department. Since the prohibitory order was passed on 11.11.2010 and the period of sixty days was to expire on 10.01.2011, opp. parties with mala fide intention and only to frustrate the provisions of the statute have illegally issued a fresh warrant of authorization dated 07.01.2011 under Section 132 of the Act for the self same Current Account for which prohibitory order was passed earlier vide Annexure-1 which was in vogue. This action of the I.T. Authorities is nothing but a deliberate attempt to harass the petitioner Company and 7 to take away the money lying in its Current Account in question which was already disclosed to the Income Tax Department. Money lying in the Current Account in question was for discharging the liability in terms of letters of Credit facility extended by O.P. No.7 Bank towards discharge of letter of credit liabilities to the petitioner-Company and the Bank had lien over the said account. Since the action of opp. parties authorities will result in civil consequences, they ought to have issued notice to the petitioner- Company before directing O.P. No.7-Bank for conversion of the said amount of Rs.12.39 crores into bank draft in favour of the Income Tax Department. Since no material was available during search and seizure the fresh warrant of authorization dated 07.01.2011 was issued under section 132 of the Act with the intention to withdraw the amount lying in the Current Account in question which is not permissible in law. As per Search and Seizure Manual the only thing contemplated for deposit in separate PD account of the Commissioner concerned till final determination of the tax liability by the assessing officer relates to “Cash in Hand” and not “Cash in Bank”. 10. Placing reliance on the decision of the apex Court in Parashuram Pottery Works Co. Ltd. Vs. Income-tax Officer, Circle I, Ward A, Rajkot, AIR 1977 SC 429, Mr.N.Venkatraman, learned Senior Counsel for the petitioner argued that the duty which is cast upon the assessee is to make a true and full disclosure of the primary facts at the time of original assessment. The duty of the assessee in any case does not extend beyond making a true and full disclosure of primary facts. Once 8 he has done that his duty is over. It is for the Income-tax Officer to draw the correct inference from the primary facts at the time of assessment. 11. Placing reliance on a decision of the apex Court in K.C.C. Software Ltd. & Ors. Vs. Director of Income Tax (Inv.) & Ors., (2008) 5 SCC 201 it was submitted that the apex Court clarified about the impermissibility to convert assets to cash and thereafter impound the same. 12. Placing reliance on a decision of the Punjab and Haryana High Court in H.L.Sibal Vs. Commissioner of Income-tax & Ors., (1975) 101 ITR 112 (P & H), it was argued that before the Commissioner acts under Section 132(1) of the Act, he must be reasonably satisfied that it is necessary to take action contemplated by that section. If the grounds on which the belief is founded are non-existent or are irrelevant, or are such on which no reasonable man can come to that belief, the exercise of the power by the Authorized Officer under the above provisions of the Act would be bad. The authorized officer is required to apply his mind during the seizure of books of account about the relevance and usefulness of these books in any proceedings. 13. Placing reliance on decision of the High Court of Allahabad in Suresh Chand Agarwal Vs. Director General of Income-tax (Investigation) & Ors., (2004) 269 ITR 22 (All.) it was argued that once the assets are disclosed in the return the same cannot be subjected to seizure by the Income-tax Department. The Income-tax Department Authorities cannot rely on materials found during the search for taking 9 the plea that this was the basis of the reason to believe, unless such material was brought to the knowledge of the authority who signs the warrant of authorization before or at the time when he signs it. 14. Placing reliance on the decision of the High Court of Calcutta in Windson Electronics Pvt. Ltd. & Anr.v. Union of India (UOI) & Ors., (2004) 269 ITR 481 (Cal.), it was argued that the maximum period of sixty days under Sub-section (8A) of Section 132 in respect of restraint order has been provided in the statute keeping in view that the revenue officials taking advantage of the provisions for extension used to prolong the investigation, search and seizure which resulted in undue harassment of the tax payer. 15. Placing reliance on the judgment of the High Court of Bombay in Jagdishprasad M.Joshi Vs. Deputy Commissioner of Income- tax & Ors., (2005) 273 ITR 296 (Bom.) it was argued that the Court did not approve the action of the Income-tax Department in encashing the assets and appropriating the same without order of assessment. 16. Concluding his argument, Mr. N. Venkataraman, learned Senior Counsel submitted that the action of the Income tax officials directing the Bank to convert the amount of Rs.12.39 crores available in the Current Account of the petitioner-Company in question into demand draft/pay order in favour of the Income Tax Department, fresh warrant of authorization dated 07.01.2011 as well as Panchanama dated 08.01.2011 is illegal, arbitrary, contrary to law, without jurisdiction and smacks mala fide. 10 17. Learned Additional Solicitor General of Government of India submitted that the present writ petition is not maintainable in law, since it involves several disputed questions of fact. Whether the money lying in the current account represents the disclosed or unclosed income is a disputed question of fact. Moreover, the said aspect is the very subject matter of investigation which is presently going on. There is an alternative efficacious statutory remedy available for the petitioner and the money is liable to be released in its favour, if the petitioner is found eligible under procedure statutorily prescribed. The petitioner is involved in task of evasive practices. Therefore, the present writ petition is not maintainable. There is a strong reason to believe that the petitioner is involved in illegal practice of causing heavy revenue leakage as it has suppressed its taxable profit by (i) hiking the purchase price made from its foreign goods concerned, (ii) claiming bogus expenses; (iii) under invoicing, (iv) wrong determination of taxable profit. 18. During the course of search, various incriminating documents and books of account relating to group of companies were seized. The actions taken by the Authorized Officer under Section 132(1) and 132 (3) are legal, justified and bona fide and in accordance with law. The warrant of authorization was issued by opposite party no.4-Addl. Director of Income Tax (Investigation), Bhubaneswar, in favour of Authorized Officer only after recording his satisfaction based on incriminating documents found during the search and seizure operation on 11.11.2010 and information/evidence gathered during the post- 11 search investigation. The recorded satisfaction note clearly brought out that the money lying in the current account represented income of the petitioner, which was not disclosed in terms of the Act. The post search investigation conducted by the Directorate clearly shows that the petitioner-company has not disclosed its true income to the Department in its returns. Basing upon the findings of satisfaction note, warrant of authorization dated 07.01.2011 was issued and Rs.12.39 crores was seized from the current account of the petitioner-company maintained at Punjab National Bank, Station Square Branch, Bhubaneswar. The prohibitory order in respect of current account in question was not revoked as post search investigation was in progress. In course of recording of statement, Sri Saran has avoided most of the questions posed to him. The prohibitory order in respect of the bank account of the petitioner in question was issued on 11.01.2010 and the same was to expire after 10.01.2011. Before expiry of 60 days, a decision was taken whether to release the money in the bank account or to seize it. A warrant of authorization was issued on 07.01.2011 on the basis of fresh satisfaction note. The allegation of threatening the bank officials is wild and unfounded and the same are denied as baseless. Since there is no provision in the Act to extend the prohibitory order under Section 132(3) beyond 60 days, the money could not be kept under prohibitory order till completion of the assessment. If the money was not converted to draft and was left in the bank account, it would amount to release the same without seizing it. Therefore, in order to give effect to the seizure, the 12 bank was asked to make over the money by way of demand draft in favour of the Revenue. In the balance sheet as on 31.03.2010, the petitioner has disclosed the current account in question. However, the provisions of the Act prescribe that it is not the bank account which is relevant, but it is the money which should be examined to ascertain as to whether it is disclosed or not. Once the condition, that the money in the bank account represented in the income or property which has not been disclosed for the purpose of the Income Tax, the requirement of section 132(3) of the Act for issuing a warrant of authorization is fulfilled. The petitioner’s contention that since the bank account is disclosed, the authorized officer is forbidden to take any further action under Section 132 of the Act is not legally acceptable and accordingly not tenable. Sixty days under Section 132(3) of the Act has been provided to investigate as to whether the money lying in the account represent undisclosed income and upon finding the same to seize the money therein if necessary. After seizure of money from the bank was carried out, the copies of Panchanama dated 08.01.2011 along with annexures was immediately sent to the petitioner by speed post on 10.01.2011. Before arriving at the satisfaction for issuance of warrant the petitioner company was allowed opportunity to explain the findings of the post search investigation by issuing summons on 10.12.2010 and 29.12.2010. The seizure action carried out on 08.01.2011 was bona fide and to safeguard the interest of the revenue. 13 19. Relying on the decisions of the Kolkata High Court in the case of Windson Electronics Pvt. Ltd. vs. Union of India, (2004) 141 Taxman 419 (Cal.), Jharkhand High Court in Sundar Santoshi vs. Commissioner of Income Tax, (2001) 248 ITR 532 (Jharkhand); Andhra Pradesh High Court in Lan ESEDA Ltd. and others vs. Asst. Commissioner of Income Tax and other, (1994) 209 ITR 901, it is argued that the Income Tax Authorities have power under Section 132 of Act to seize money from a bank account of the Assessee. 20. It is further argued that Section 132(1)(c) of the Act requires that a search and seizure can be initiated if the money in possession of a person represents undisclosed income and does not provide any immunity from the search and seizure action if merely, the account is disclosed in income tax returns. Placing reliance on the judgment of the Karnataka High Court in Rudrachar vs. Director of Income Tax (Inv.), (2002) 257 ITR 549 (Karnataka), it was argued that where the satisfaction note shows that there was application of mind and recording of finding that there was reason to believe that the circumstances mentioned in Section 132 exist there was no irregularity or infirmity in the search warrant issued. Relying upon a decision of the Allahabad High Court in Raghuraj Pratap Singh vs. Asst. Commissioner of Income Tax, (2009) 222 CTR (Alld.) 15, it was argued that the bank account can be searched and seized. 21. In the rejoinder, the petitioner submitted that the proceeding under Sections 132( (3) and 132(1) of the Act is null and void and 14 completely without jurisdiction. Proceeding u/s. 132 of the Act can be initiated only when there is a non-disclosure of income, assets, bank accounts etc. The petitioner has placed on record its balance sheet evidencing details of the bank accounts including available balance on its account as on the relevant date along with TDS effected through Punjab National Bank, Bhubaneswar. 22. The allegations made in the counter affidavit are either non- issue or of no consequence at this stage of investigation which is yet to be completed by the I.T. Department. The allegation as made is not corroborated by any factual evidence. The summons dated 29th December, 2010 issued u/s.131 of the Act was duly replied in full along with details vide petitioner’s letter dated 3rd January, 2011 (Annexure-8). The petitioner was not asked to provide any other document thereafter. The allegation of under invoicing of sale transactions is not supported even by single evidence. All purchases from VISA Comtrade AG have been made on arm’s length basis. Whenever VISA Comtrade AG has sold part cargo to the petitioner and has sold the balance quantity from the same ship to an independent third party in India, purchase price of VISA Comtrade Limited is invariably equal or sometimes even lower than the purchase price of the independent third party which is evident from the comprehensive statement enclosed to the rejoinder as Annexure-13. On the basis of this statement, it is reconfirmed that the petitioner has never paid anything more than that is rightfully due, following the arm’s length policy on its purchase. Further all imports are through notified Ports of 15 customs and the bills of entry are assessed by customs authorities and customs duty is determined on the transaction value which has to be identical on all imports. The question of suppressing any price or value does not arise. Opposite parties have not shown any evidence or document in support of their allegation. The petitioner denies that there is any unaccounted income in the company and as such question of parking such unaccounted income is only a figment of imagination. 23. The assertion made by opposite party that total income tax paid by the petitioner-company since its inception is Rs.1.7 crore is incorrect and erroneous. The actual tax liability was Rs.3.26 crores and actual amount of tax paid by the company including TDS is Rs.8.49 crores. The allegation that the most of the L/Cs opened by the petitioner in favour of its overseas suppliers were extended beyond 180 days