The Hindu Business Line : Facts, not merely fax

THE sales manager of Diamond Exports Ltd was to fly from Mumbai to Lucknow to participate in a jewellery exhibition. As he was about to board the flight, officers of the Bombay Income-tax Investigation Department intercepted him and questioned him about the gold, diamonds and ornaments in his possession.

The manager was carrying with him an introductory letter from Bank of India, Mumbai, to his branch in Lucknow for opening an account for depositing the sales proceeds of the exhibition, as also certificates relating to income-tax, sales tax and gem and jewellery membership. A declaration was taken from the sales manager and he was allowed to fly to Lucknow.

The following fax message was sent to Lucknow by Mr A. A. Shankar, Additional Director of Income-tax (Inv) Unit IZ, Mumbai, to Mr U. K. Shukla, Additional Director of Income-tax (Inv), Lucknow:

" ... Shri Darmesh Sharma is travelling to Lucknow by Sahara Airlines flight No. S27907 whose scheduled departure time from Mumbai is 4.05 p.m. today, i.e., January 12, 2001. He has stated that he is carrying jewellery items worth Rs 69 lakh. This is for your information and necessary action please."

The officers at Lucknow acted under Section 132 of the I-T Act, 1961 on the basis of this fax message went to the aircraft, served the search warrant, interrogated the manager and seized the diamonds, gold and jewellery. A prohibitory order was issued on the business premises. Notices were issued under Section 158 BC. The company pleaded that the search and seizure was illegal and requested immediate release of seized items.

The company moved the High Court with a writ petition. The company pleaded that the authorisation under Section 132 was illegal since there was no information on record which leads to a reasonable belief that the said gold, diamonds, and so on, represented income which had not been or would not have been disclosed for the purposes of the Act. This is a condition precedent for exercise of powers under Section 132. The contention was that since the authorisation itself was illegal and void ab initio, all proceedings taken consequent thereto were also rendered illegal and void.

In a lucid judgment, Mr Justice A. P. Shah (now Chief Justice of the Madras High Court) clarified the law on the subject with reference to Section 132. He observed that on the basis of the fax message, and without anything more, no reasonable person could entertain a belief that the said gold, diamonds, and so on, in the possession of the sales manager, represented income which had not been or would not be disclosed by the company for the purposes of the Act.

The fax from Mumbai was general in nature. Mere unexplained possession of valuables can 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.

The sales manager had explained the source and pointed out that the gold was taken from the stock-in-trade. Mr Justice Shah quashed the authorisation and directed the Department to return the valuables with interest at 8 per cent. It is not unusual for the Department to target those found with cash and valuables, as if their mere possession is an offence. Dr Vijay Kelkar had even suggested that stock-in-trade should never be seized or put under a prohibitory order. Persons travelling by car, train or aeroplane face the risk of interception and interrogation by revenue officials if they carry valuables. All officers must be instructed not to harass passengers merely on the suspicion that the valuables they carry may not be disclosed for purpose of the I-T Act.

The information in the possession of the officers must lead to the formation of a belief about the unlikelihood of the valuables being disclosed. There must be rational connection between the information or material and the belief about undisclosed income. Satisfaction of the authorities may be subjective, but it must be arrived at objectively. There can be no guessing game.

Search and seizure, though a part of the fiscal statute, can be misused. That is why the legislature has provided inbuilt safeguards. The information must be more than mere rumour, gossip or hunch. The High Court has granted special leave petition (SLP) in the above case.

(The author is a former Chief Commissioner of Income-tax.)

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