Justice Ms. Rekha Palli of the Delhi High Court in a very fine and reasoned order in quashing the look out circular(LOC) in (2022] 442 ITR 119 (Del) held that what prompted in this case is a Foreign Tax (FT)and Tax Research (TR) references to the
Government authorities in Dubai to seek undeclared foreign bank details and investments and transactions which has not culminated into initiation of any criminal proceedings under either the Black Money Act, 2015, Income-tax Act, 1961, or the Prevention of Money-Laundering Act, 2002. And therefore it meant that the LOC has been issued on mere suspicion which thus rightly call for a judicial review.
The respondents side claimed that LOC subject is in the nature of administrative action, with which decision the court ought not to interfere and further referred to Office Memorandum dated December 5, 2017 in their support citing exceptional case situation biz., economic interests of India.
Refuting first plea the learned judge held that there can, however, never be any blanket bar on the court’s powers of judicial review to examine the authority’s decision to issue the look out circular. In the light of the adverse effects that the issuance of a look out circular can have on the individual’s life, the respondent’s plea that the writ court under article 226 of the Constitution of India should not review the decision to issue look out circular cannot be accepted.
Further on the 2017 memorandum reference the Court drawing reference to the 2010 memorandum held that a look out circular can be issued only when a person is involved in a cognizable offence under the Indian Penal Code, 1860 or under any other penal law.
The learned judge more particularly described the damaging effect of LOC action where the petitioner has been made to appear before the Court on nineteen different occasion :
“The continuance of the look out circular for almost three years without any cogent reasons forthcoming from them, was impermissible, and the respondents were not entitled to continue placing fetters on the assessee’s right to travel abroad in such a routine and mechanical manner without due consideration of the fact that even after almost three years there was still no sufficient evidence to charge the assessee under any penal law. The assessee earned his livelihood through export business and an integral part of such business was overseas travel. The look out circular not only curtailed his right to personal liberty but also his right to livelihood, as enshrined in article 21 . Therefore, the issuance of a look out circular against the assessee without any end in sight would definitely cause irreparable and considerable damage to the business interests of the assessee.”
This has been a search matter with few assessments framed and also progressed into appeals etc. At the same time revenue initiated steps to gather information on suspected foreign bank accounts which solely formed reasons for issuance of the look out circular.