In a significant ruling, the division bench of the Delhi High Court held that ‘Undisclosed Money’ deposited in a third parties’ Bank Account can be subject to search and seizure under the Income Tax Act even without a Notice.
The bench comprising of Justice S. Muralidhar and Justice Chandra Sekhar was hearing a bunch of writ petitions against the assessment orders passed by the IT department demanding tax and attachment of bank accounts of the petitioners.
The factual settings of the case are that the IT Department conducted survey proceedings against three Companies without giving a warrant, which ultimately resulted in seizure of bank accounts of the petitioners. The Department alleged that the money deposited in the bank accounts of the petitioners were actually belongs to Mr. Mukesh Mukkar. The petitioners submitted that Mr. Mukesh was not at all connected with any of these entities. It was submitted that, “no action could have been initiated under Section 132(3) without there being any action initiated under Section 132.” It is averred that no liability has been established against the Petitioners with there being no tax demand upon them and that even a Show Cause Notice („SCN‟) has not been issued. Before the Court, the petitioners submitted that the action of the Department is arbitrary, illegal and unconstitutional and that on the mere asking of the Department, without issuing an SCN or a demand of assessment being served, debiting the accounts of the Petitioners with a total of Rs.23,14,64,825.30 without instructions was “expropriatory and has no sanction in law”.
The Court rejected the contentions of the petitioners that monies lying in their bank accounts cannot possibly belong to Mr. Mukkar in whose name the search authorization had been issued. The bench found that Prima facie there appears to be a strong case made by the Department that the money in the said bank accounts is, in fact, the undisclosed income of Mr. Mukkar. The bench found this a sufficient justification for the Department to proceed to attach the bank accounts.
According to the bench, Section 132(1)(c) permits search to be undertaken by the Department if there is reason to believe that a person is in possession “of any money, bullion, jewellery or other valuable article or thing and such money, bullion, jewellery or other valuable article or thing represents either wholly or partly income or property which has not been, or would not be, disclosed” for the purposes of the Act, referred to as “the undisclosed income or property”.
It was therefore, held that “for the purposes of the present petitions, the emphasis would be on the expression “any money” and “other valuable article or thing”. The context in which these words occur cannot possibly exclude money in a bank account. The contention that this could only mean „cash‟ and not money in a bank account may be an attractive argument but not in the context in which the above expression occurs. It is certainly a valuable thing. In other words, a sum in a bank account is not outside the ambit of Section 132(1) of the Act and can be subject to search and seizure.”
“As already noticed, a person could be in possession of undisclosed income not only in his or her own account but in someone else’s account. In the context of the present petitions, therefore, when pursuant to the search warrant, the Department proceeded to search and seize not only valuable things etc. found in the premises of Mr. Mukkar but also those in the accounts of the 8 Petitioner companies as well as that of Ms. Veena Singh, they could do so as long as they were satisfied that what constitutes Mr. Mukkar’s undisclosed income was in the accounts of the 8 companies and Ms. Veena Singh.”
Furthermore, the bench said that u/s 132(1) r/w s.132(3), the Department can require the bank in which the account that is subject to search is located to freeze it since it may not be possible “to take physical possession” immediately of such “valuable article or thing and remove it to a safe place.”Section 132B deals with the powers of the authorised officer to deal with the valuable thing which has been so seized and the conditions on which the restraint placed may be lifted.
Read the full text of the Judgment below.
