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Smart Summary

Structured Summary of the Opinion delivered by Raju, J.

Factual and Procedural Background

Two writ petitions were heard together because they concerned substantially the same subject-matter at different stages of proceedings. Writ Petition No. 21200 of 1993 sought a writ of mandamus directing respondents to return cash of Rs. 2,29,579 (as claimed by the petitioner), together with jewellery and diamonds and interest at 15% per annum. The petitioner asserted that he was employed by Andhra Express Service Private Limited as a courier and that parcels he carried from Hyderabad to Madras in late 1986 were intercepted by police; the statement said to have been recorded on November 4, 1986, and the articles were taken into possession under section 132A of the Income-tax Act. The Department passed an order under section 132(5) on February 25, 1987, determining tax payable at Rs. 3,620.70. A regular assessment accepting the petitioner’s return under section 143(3) was completed on March 30, 1990. A representation by the petitioner dated April 26, 1993, had not received a response, prompting the mandamus petition.

While Writ Petition No. 21200 was pending, the Department sought liberty to proceed with action under section 148 of the Income-tax Act. When proceedings under section 148 were in fact initiated (communication dated January 11, 1994), the petitioner filed Writ Petition No. 2843 of 1994 seeking certiorari to quash the reopening notice, contending mala fide motives and lack of jurisdiction.

The respondents' return/ counter-affidavit contested the petitioner’s account: they said the interception occurred on October 30, 1986, that the petitioner was found with cash (stated in the counter as Rs. 2,25,579), 100 grams of jewellery and 10 carats of diamonds, that he gave conflicting statements, and that enquiries under rule 112A read with section 132(5) were conducted to identify the owner. The Department said the reassessment under section 148 was justified and approved by the appropriate authority.

Legal Issues Presented

  1. Whether a writ of mandamus directing the return of seized cash, jewellery and diamonds to the petitioner should be issued while reassessment/reopening proceedings under section 148 of the Income-tax Act are pending.
  2. Whether the notice/communication issued under section 148 of the Income-tax Act (dated January 11, 1994) for reopening the assessment was prima facie illegal, mala fide, or without jurisdiction so as to warrant quashing by certiorari.

Arguments of the Parties

Petitioner's Arguments

  • The petitioner sought mandamus for return of cash (Rs. 2,29,579 as pleaded), jewellery and diamonds; he claimed the seized parcels were entrusted to him by his employer and did not belong to him.
  • He contended that the representation made to the Commissioner of Income-tax on April 26, 1993, had not been answered.
  • In relation to the reopening under section 148, the petitioner alleged that the proceedings were initiated to get over the earlier writ petition and were mala fide and beyond jurisdiction.
  • Reliance was placed on the decision in R. Malhotra v. Additional Sessions Judge (1976) SCC 430 / AIR 1976 SC 219 to support the claim for return of seized money and documents.

Respondents' (Department's) Arguments

  • The Department disputed aspects of the petitioner’s factual account (e.g., alleged date of interception was October 30, 1986; amount in their account was Rs. 2,25,579) and asserted the petitioner gave conflicting and prevaricating statements.
  • The Department stated that a warrant of authorisation under section 132A had been obtained and that an enquiry under rule 112A read with section 132(5) was conducted to identify the owner of the seized assets; addressees and the employer did not cooperate or denied interest.
  • They asserted that a summary order under section 132(5) dated February 25, 1987 held the petitioner in possession of unexplained cash and valuables and that these were retained; subsequently a regular assessment under section 143(3) on March 30, 1990 also justified reopening because of escapement of income.
  • They produced the reasons-for-reopening file showing the Assistant Commissioner recorded reasons invoking section 147 (Explanation 2(c)(1)) and that the Commissioner (appropriate authority) approved reopening under section 148, arguing that the reopening was therefore procedurally valid and not mala fide.
  • The Department contended that pending finalisation of reassessment the court should not order release of seized articles.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
R. Malhotra v. Additional Sessions Judge, (1976) 1 SCC 430 : AIR 1976 SC 219 Principle that if prosecution is dropped for want of evidence and there is no valid assessment or demand for tax, Revenue authorities cannot retain money seized and cannot indirectly keep money on the plea of a possible future demand. The Court considered and distinguished this authority: it held the ratio did not apply because in the present case reassessment proceedings were initiated and there existed material and procedural steps (including a summary order under section 132(5) and subsequent assessment activity) justifying retention and reassessment; hence the petitioner's reliance on that case was rejected as inapplicable.

Court's Reasoning and Analysis

The court examined the material produced by the Department, including the original form recording reasons for initiating proceedings under section 148 and the note file. It found that the Assistant Commissioner had submitted proposals citing escapement of assessment under section 147 (Explanation 2(c)(1)) and that the Commissioner of Income-tax (the appropriate authority) had recorded satisfaction and approved reopening. On that basis the court held that:

  1. Sufficient reasons for reopening had been recorded by a competent officer and statutory approval by the appropriate authority had been obtained; consequently, the allegation of mala fides and lack of basis for action under section 148 had no foundation in law at the prima facie stage.
  2. The decision in R. Malhotra was considered but distinguished: in R. Malhotra prosecution had been dropped and there was no valid assessment/demand, so retention of seized money was impermissible; by contrast, the present matter involved materials, prior summary action under section 132(5), subsequent assessment events and a justified proposal for reopening, so the Malhotra ratio did not apply.
  3. The court evaluated the factual posture: the petitioner had delayed asserting his claim (nearly three years), had given conflicting statements at various stages, and the Department faced difficulty tracing him and securing cooperation from alleged owners or the employer. These facts weighed against ordering immediate return of the seized items.
  4. The court emphasized the need to identify the true owner of the seized assets; if they belonged to the petitioner he would have to explain the source and be liable for tax, if any. Issuing a mandamus now would, in the court's view, defeat the ends of justice because it would preclude completion of the reassessment process and appropriate determination of the ownership and tax consequences.
  5. Accordingly, the court refused to quash the reopening notice at this stage (Writ Petition No. 2843 of 1994) and refused to grant mandamus for immediate return (Writ Petition No. 21200 of 1993), but recognized the Department cannot retain seized articles indefinitely without finally disposing of the matter.
  6. Balancing the Department’s need to gather further materials (including from Bombay and other places) and the petitioner's interest in the timely resolution of the status of seized items, the court considered it appropriate to impose a fixed deadline for final action.

Holding and Implications

Writ Petition No. 2843 of 1994: DISMISSED. The court held that the reopening notice issued under section 148 was not prima facie illegal or mala fide because reasons for reopening had been recorded and statutory approval obtained.

Writ Petition No. 21200 of 1993: NO MANDAMUS GRANTED; LIMITED DIRECTION ISSUED. The court refused to order immediate return of the seized cash, jewellery and diamonds to the petitioner at this stage because doing so would frustrate the reassessment process and the legitimate inquiry into ownership and tax liability.

Consequences and practical implications:

  • The Department was directed to finalise the assessment proceedings initiated under section 148 and to pass final orders on the petitioner's request for return of the cash, jewels and diamonds within six months from the date of the judgment; the Department must dispose of the matter "either way in accordance with law" within that period.
  • If the Department fails to take effective action within the stipulated time, the petitioner is permitted to take appropriate legal steps available in law at that subsequent stage.
  • The court explicitly left open the petitioner's right to oppose any adverse proceedings in the reassessment process and noted that observations made in the writ petition should not be treated as final adjudications against the petitioner.
  • No costs were awarded.

The opinion does not announce a new broad precedent; it applies established principles regarding procedural validity of reopening assessments, the requirement of recorded reasons and appropriate approval, and the court's discretion to refuse immediate restitution where ongoing tax proceedings and questions of ownership and tax liability remain to be resolved.

Show full summary ...

    Panchugurumurthy v. Commissioner Of Income-Tax And Another.

    The Judgment of the Court was delivered by

    Raju, J.:— These two writ petitions may be dealt with together, since they relate to almost the same subject-matter, though in respect of two different writ petitions with different reliefs pertaining to the different stages of action.

    2. Writ Petition No. 21200 of 1993 has been filed for a writ of mandamus directing the respondents to return the cash of Rs. 2,29,579, the jewellery and diamonds together with interest at 15 per cent. per annum. The petitioner claims that he was employed in the Andhra Express Service Private Limited, having its registered office at Bombay-400002, that he was working as a courier for carrying parcels between Hyderabad and Madras on behalf of the company, that he had carried parcels from Hyderabad to Madras on November 3, 1986, and the police intercepted him and searched the packets, which were claimed to have been entrusted to the petitioner for carrying and, ultimately they were found to contain cash of Rs. 2,29,579 and some other valuables in other parcels.

    3. It is also stated that these parcels were handed over to the petitioner on behalf of his employers and they do not belong to the petitioner. The statement was said to have been recorded on November 4, 1986, and the money and other articles were said to have been taken possession of by the respondent from the Station House Officer, Flower Bazaar Police Station, Madras-1, under section 132A of the Income-tax Act. It is also stated that the respondent has passed an order on February 25, 1987, under section 132(5) of the Act determining the total tax payable at Rs. 3,620.70. It is also stated that the regular assessment of the petitioner was completed on March 30, 1990, accepting the return of income made by the petitioner under section 143(3) of the Act. In the light of the final orders passed, the petitioner claimed that he is entitled to the return of the money and the jewellery as well as the diamonds seized from him and, consequently, he moved this court with this writ petition, since, according to the petitioner, the representation made before the Commissioner of Income-tax on April 26, 1993, did not evoke any response.

    4. The writ petition was admitted and a short notice was ordered. After service, the respondent entered appearance and filed a counter-affidavit. In the meantime, the respondents represented through their standing counsel on January 24, 1994, that this writ petition has been filed to stall further action by the Department under section 148 of the Act and the authorities may be granted liberty to proceed with the matter notwithstanding the pendency of the writ petition. Consequently, it was clarified in WMP No. 3390 of 1993 that the pendency of the writ petition shall not stand in the way of the Department taking any appropriate action as permissible in law. Since action was taken under section 148 of the Act, the petitioner has filed the second writ petition, namely, Writ Petition No. 2843 of 1994, praying for a writ of certiorari to call for and quash the proceedings of the second respondent dated January 11, 1994, issued under section 148 of the Income-tax Act, for reopening the assessment contending therein that the impugned proceedings were meant to get over the earlier writ petition filed and that the proposed reopening of the assessment was for mala fide reasons and that the respondents have no jurisdiction to reopen the case.

    5. The respondents have filed a counter-affidavit as earlier noticed in Writ Petition No. 21200 of 1993. It is stated therein that the actual date of interception by the police attached to the Flower Bazaar Police Station (C.I) was on October 30, 1986, and not on November 3, 1986, as claimed by the petitioner, that he was found to be in possession of cash of Rs. 2,25,579 and 100 gms. of jewellery and 10 cs. of diamonds for which possession, no convincing explanation was given to the police authorities, who registered a case, that he was remanded to judicial custody and confined to the Central Jail and it is only on receipt of information from the station house officer concerned, that a warrant of authorisation under section 132A of the Act was obtained for securing the articles and cash in question and that a statement was also obtained from the petitioner on November 4, 1986. It is stated that the statement ran counter to the explanation/statement which he had already deposed before the police authorities and that the materials on record would lead to the inescapable conclusion that the petitioner is giving conflicting statements to mislead the Income-tax Department and also to deliberately refrain from identifying the ostensible owner of the assets found from him. It is also claimed that an enquiry was initiated under rule 112A of the Income-tax Rules read with section 132(5) of the Act to identify and locate the owner of the assets and in spite of three or four letters, there was no co-operation from the employer of the petitioner and likewise some of the addressees to whom certain jewellery and diamonds were said to have been consigned had deposed before the authorities that they had never indented for the transportation of the jewellery and diamonds and they had no interest in these assets. The order under section 132(5) of the Act was said to have been passed in a summary manner within the statutory time provided therefor on February 25, 1987, holding the petitioner to be in possession of unexplained cash, jewellery and diamonds, and that they were ordered to be retained. Reference is also made to the statement said to have been given by the petitioner even on February 18, 1987, that he was never the owner of the assets and that he was only an employee of the courier company with no source at all to own such assets, though he has come before this court for the jewellery in his favour. The period of regular assessment for 1987–88 was getting barred by time on March 30, 1990, and on which date the petitioner has chosen to file a return of income admitting just his salary as income and on the same date hearing of the case was done when the petitioner's representative furnished a xerox copy of the ledger of the petitioner's employer at Bombay in an attempt to explain the availability of cash and that this move was said to be part of the scheme of manipulation for the purpose of such assessment. The information available about the suspicious nature regarding the possession of these articles has also been disclosed in the counter-affidavit. In the light of the fact that the assessment under section 143(3) of the Act made on March 30, 1990, warranted the reopening, invoking powers under section 148 of the Act, it is claimed that the notice was served on the petitioner after obtaining approval from the appropriate authority. On such basis, it is claimed that it is not open to the petitioner to claim return of the assets seized pending finalisation of the reassessment proceedings.

    6. Heard learned counsel for the petitioner and the learned Departmental standing counsel. Since it was vehemently contended that the action under section 148 of the Act is arbitrary and without any justification and without complying with the necessary legal ingredients, the standing counsel for the respondent-Department was directed to produce the relevant files relating to the opinion formed for invoking the provisions of section 148 of the Act. Learned counsel made available the original form for recording the reasons for initiating proceedings under section 148 of the Act and for obtaining the approval of the appropriate authority and also the note file. It is seen from the same that the Assistant Commissioner of Income-tax, City Circle IV(2), Madras-6, has submitted the necessary proposals with the reasons justifying the reopening of the assessment on the ground that there has been an escapement of assessment under section 147, Explanation 2(c)(1) at the time of assessment on September 30, 1990. The Commissioner of Income-tax, Tamil Nadu IV, Madras-34, the appropriate authority, on going through the materials placed before him, recorded his satisfaction and approved further action. It is in such circumstances the impugned communication challenged in Writ Petition No. 2843 of 1994, came to be issued. On going through the materials placed before me, I am satisfied that sufficient reasons have been recorded by the competent authority and the statutory approval has been obtained from the appropriate authority. Consequently, the general and vague allegation of mala fides and want of sufficient basis for the proposed action under section 148 of the Act has no basis in law. As against the plea of learned counsel for the petitioner for return of the jewellery and the cash and diamonds, learned counsel for the respondents would contend that pending finalisation of the escaped assessment, this court should not interfere in the matter by ordering release of the articles, including the cash. Learned counsel for the petitioner has relied upon a decision in/. R. Malhotra v. Additional Sessions Judge, (1976) 1 SCC 430 : AIR 1976 SC 219 : [1976] 2 SCR 993, in support of his claim. That was a case wherein under a search warrant issued under section 132 of the Act, the income-tax authorities seized certain documents and money from the assessee and the Income-tax Officer assessed the person to tax and adjusted the money seized against the tax due. Aggrieved, the said person moved the High Court and the High Court held that the search and seizure were illegal and directed the Revenue authorities to hand over the money and documents to the police to enable them to proceed in accordance with law. The police, however, dropped the proceedings against him for want of evidence. At that stage the said person moved the Magistrate for the return of the documents and money. The Magistrate directed the return of the money to the police and the order was confirmed by the Sessions Court too. Thereupon in a revision, the order of the Sessions Court was set aside and the matter was remanded back to the Magistrate to decide whether the adjustment of the amount against tax was permissible and valid. Meanwhile the person concerned had appealed against the order of assessment and the Appellate Assistant Commissioner stayed the recovery of the tax assessed. The Magistrate, after remand by the High Court, held that the amount seized be retained by the Revenue in partial satisfaction of the tax due from the respondent, but the Additional Sessions Judge in revision directed the income-tax authorities to return the documents and money to the person. A writ petition filed by the Revenue challenging the order was dismissed by the High Court and the matter was pursued before the apex court and in such circumstances it was held that since the prosecution against the person concerned was dropped for want of evidence, the authorities had no right to keep the money seized from him under any provision of law. In the absence of any valid order of assessment and demand for tax, it was also observed that the Revenue authorities cannot indirectly keep the money on the plea that there will or may be a demand and that, therefore, they should be allowed to keep the money. In my view, the ratio of the said decision will have no application to the case on hand.

    7. This is a case where, as noticed earlier, against the perfunctory order passed assessing the petitioner on his own return filed under section 143 of the Act, the authorities have initiated action for reassessment. The petitioner also apparently to keep the authorities bill (sic) have waited for nearly three years before making the claim for return. The materials furnished in the counter-affidavit would go to show that the petitioner was really the mouthpiece of somebodyelse and he has been giving prevaricating statements conflicting with each other at every stage and at times the Department was finding it difficult even to trace him for service of notices. In the light of such facts and circumstances, it would be inappropriate for this court to order the return of the money as well as the jewellery and diamonds to the petitioner. The stand taken in the counter would go to show that at one stage he was denying the ownership of the property himself as is now made before this court and also claiming that he was only a courier carrying things at the behest of his employer. Be that as it may, it becomes necessary to properly identify the owner and if it is to be treated as belonging to the petitioner, he will have to explain the source and pay the tax, if any, due on the same; Issuing a direction in the nature of a writ of mandamus at this stage would defeat the ends of justice. Consequently, I am unable to countenance the claim of the petitioner. So far as Writ Petition No. 2843 of 1994 is concerned, for the reasons already recorded, the action initiated under section 148 of the Act cannot be said to be prima facie illegal to warrant the interference of this court, even at this stage. It is always open to the petitioner to oppose the proceedings and pursue other avenues of remedies available to him under the Act against any proceedings that may go against him leaving liberty to the petitioner to do so and making it clear that the observation, if any, made for the purpose of this writ petition shall not be considered as an expression of any opinion finally against the petitioner. The said writ petition shall stand dismissed.

    8. So far as Writ Petition No. 21200 of 1993 is concerned, in the light of what has been stated above, no writ of mandamus as prayed for could be issued. At the same time, the Department also cannot indefinitely hold the articles seized in their custody without passing final orders regarding the fate of the articles. Therefore, it becomes necessary for this court to fix a time limit within which the respondent should act to pass final orders. Mr. N.V Balasubramaniam, learned counsel for the Department, would contend that the further course of action would depend upon the materials to be gathered from the persons concerned at Bombay and other places and sufficient time may be given. Taking into account all these aspects, I am of the view that the respondent shall have six months' time for finalising the assessment proceedings initiated under section 148 of the Act and also passing orders finally on the request for the return of the cash, jewels and diamonds either way in accordance with law simultaneously. With this limited direction, this writ petition shall stand ordered in the above terms. If the authorities are not taking effective action to finalise the proceedings and dispose of the matter within the time stipulated, it is always open to the petitioner to take appropriate steps at that stage as are permissible in law. No costs.

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    Panchugurumurthy v. Commissioner Of Income-Tax And Another.
    (Mar 7, 1994)