Facts of the Case

The petitioners, members of the same family, filed a writ petition seeking a declaration that the search and seizure conducted on 11.05.2024 under Section 132 of the Income-tax Act, 1961 on three bank lockers bearing Nos. 179, 163 and 175 at South Delhi Vaults, Greater Kailash-II, New Delhi was illegal, and for release of jewellery, bullion and other valuables seized. The lockers were searched pursuant to separate warrants of authorisation issued in the names of different petitioners. Substantial quantities of gold bullion, gold and diamond jewellery were found and seized, aggregating to several crores of rupees.

The petitioners contended that most of the valuables were disclosed, ancestral, or belonged to family members including a minor child, and that the searches were conducted without prior summons or notice and in violation of CBDT Instruction No. 1916 dated 11.05.1994.

Issues Involved

Whether the authorisation of search under Section 132 was issued without valid “reasons to believe”, whether prior issuance of summons or notice was mandatory, whether CBDT Instruction No. 1916 barred seizure of jewellery and bullion, whether the searches amounted to fishing and roving enquiries, and whether the petitioners were entitled to release of seized valuables in writ jurisdiction.

Petitioner’s Arguments

The petitioners argued that the respondent lacked information necessary to form “reasons to believe” as required under Section 132(1)(a), (b) or (c). It was contended that no summons or notices were issued prior to the search, that the petitioners were regular income-tax assessees, and that only locker searches were conducted, indicating a predetermined and roving enquiry. Reliance was placed on CBDT Instruction No. 1916 to submit that jewellery within prescribed limits ought not to have been seized. It was also alleged that the searches violated the petitioners’ right to property under Article 300A of the Constitution.

Respondent’s Arguments

The Revenue submitted that summons under Section 131(1A) were issued and statements were recorded on oath, during which the petitioners failed to produce any documentary evidence explaining the source of bullion and jewellery. It was argued that proper reasons to believe were recorded in writing, approval was obtained from the competent authority, and the statutory conditions of Section 132 were satisfied. The Revenue contended that the three clauses of Section 132(1) are mutually exclusive and that prior summons is not mandatory. It was further submitted that CBDT Instruction No. 1916 applies only to limited quantities of jewellery and does not extend to bullion.

Court Order / Findings

The Delhi High Court called for and examined the original records, including the satisfaction note and approval granted by the Director General of Income Tax (Investigation). The Court found that the authorising authority had material indicating existence of benami lockers, financial profiles of the petitioners inconsistent with the number and size of lockers held, and a likelihood of undisclosed assets being stored therein. The Court held that such material constituted bona fide “reasons to believe” under Section 132(1)(b) and (c).

The Court reiterated that formation of belief under Section 132 is an administrative function and that in writ jurisdiction, courts cannot examine the sufficiency or adequacy of reasons, but only their existence and bona fides. The Court rejected the contention that prior issuance of summons was mandatory, holding that the three clauses of Section 132(1) are independent and disjunctive. It was further held that CBDT Instruction No. 1916 is only a guideline and does not grant absolute protection, particularly where large quantities of bullion and jewellery unsupported by documentation are found. No mala fides or collateral purpose was established.

Important Clarification

The Court clarified that CBDT Instruction No. 1916 does not override statutory powers under Section 132 and does not apply to bullion. It was also clarified that courts will not sit in appeal over the subjective satisfaction of tax authorities in search matters unless the action is shown to be mala fide or based on extraneous considerations.

Final Outcome

The writ petition was dismissed. The Delhi High Court upheld the legality of the search and seizure conducted on 11.05.2024 under Section 132 of the Income-tax Act, 1961. The petitioners were held not entitled to any relief for declaration of invalidity of the search or for release of seized jewellery, bullion, or other valuables. The decision was rendered in favour of the Revenue and against the petitioners.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1769681479_RAJKRISHANGUPTAANDORSVsPRINCIPALDIRECTOROFINCOMETAXINVESTIGATION1NEWDELHI.pdf

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