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Carry cash, fear seizure
August, 25th 2007

There is no law which prescribes a ceiling on the cash that one person can accumulate and carry.

Revenue officials belonging to Customs Revenue Intelligence and the Income-Tax Department entertain a peculiar notion that any person found in possession of large amounts of cash must be a tax-evader.

There is no law which prescribes a ceiling on the cash that one person can accumulate and carry.

Yet, there have been several instances where the I-T Department considered the very possession of cash as violation of the law.

Cash seized

Dr D. C. Srivastava, running a nursing home in Lucknow along with his wife, wanted to fly from Lucknow to Delhi by Air Sahara flight on February 21, 2006,. The flight was cancelled and he was advised to board the Jeddah-Delhi international flight. He was required at the security check to submit the requisite declaration form.

He declared before Customs that he was carrying Rs 10 lakh in cash in his briefcase. He produced a photocopy of PAN card and informed the Customs officials that the Rs 10 lakh formed a part of his income. He was made to wait in the chamber of the Customs officials. The officials then faxed an intimation to the Joint Director (Investigation), I-T Department, Lucknow, stating that the doctor was carrying Rs 10 lakh.

After a prolonged wait, officers of the I-T Department arrived on the scene with an authorisation from the Director of Income-tax, (Investigation), Kanpur, and seized the cash from the doctor in spite of his strong protests.

Action challenged

The doctor filed a writ petition before the Allahabad High Court challenging the action of the I-T Department as arbitrary and illegal. He pointed out that the Rs 10 lakh was disclosed to the Customs authorities through the declaration form at the security check. His annual income for 2005-06 was Rs 12,77,926 and that of his wife Rs 23,58,483. The nursing home had declared an income of Rs 7,99,410.

The doctor submitted that there was no material before the tax authorities for initiating proceedings under Section 132 of the I-T Act, 1961 except the information communicated by the Customs officials. The I-T Department argued that there was sufficient material before the Director of Income-tax (Investigation) to authorise the search and seizure.

The doctor was carrying undisclosed money and suspicion was roused because he was trying to cancel the Jeddah-Delhi ticket. According to the Department, the Rs 10 lakh was not mentioned in the books of accounts and hence it would not have been disclosed in the return.

Search warrant

The Allahabad High Court examined the law with regard to the issue of search warrant under Section 132 of the Act.

It pointed out that the mere possession of cash could hardly be said to constitute information sufficient enough to infer that the cash represented income, which would not be disclosed for the purpose of the Act. This will be the position even if it is assumed that the said amount was not reflected in the books of accounts.

The court found that the condition precedent for the exercise of the power under Section 132 was lacking in the instant case. Before search is authorised, the Director must, on the relevant material, have reason to believe that the person concerned would not disclose his income.

Search and seizure cannot be a fishing expedition. If the reason to believe comes into existence later, that is, after issuance of the warrant of authorisation, the entire search and seizure will be illegal.

There was no sufficient material before the tax officials to believe that the doctor has not or would not disclose the income.

The court allowed the writ petition and quashed the proceedings initiated by the issue of a search warrant dated December 21, 2006, in Form No. 45 under Section 132. The I-T Department was directed to refund the Rs 10 lakh to the doctor, but the doctor had to fight a legal battle for 10 months to get back the cash.

Writ petition

Courts have been holding that the validity of search and seizure operations is neither a jurisdictional fact nor adjudicatory fact within the parameters of assessment proceedings.

There can be no appeal against the validity of search and seizure. It cannot be dwelled upon or delved into an appeal.

A search operation can only partake of the nature and character of adjudicatory fact to the limited extent whether such search and seizure had taken place and what had been found during search and seizure (Gaya Prasad Pathak vs Assistant Commissioner of Income-tax 162 Taxman 307 MP).

This means that arbitrary action under Section 132 can be challenged only by way of a writ petition in the High Court, as was done by the Lucknow doctor.

It is necessary that the Central Board of Direct Taxes (CBDT) takes note of the above case and issues instructions to tax officials not to harass passengers carrying cash.

T. C. A. Ramanujam
(The author is a former Chief Commissioner of Income-Tax.)

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