Look-Out Circulars cannot be continued indefinitely once tax proceedings conclude and no demand remains outstanding.

Following a search at the petitioners’ residential and business premises on March 17, 2021, a Look Out Circular (LOC) was issued against them in early 2021.

The petitioners’ representation to lift travel restraints was rejected on June 10, 2021.

Subsequently, assessment orders for AY 2017-18 to 2020-21 were passed and later quashed by the ITAT between July 2025 and January 2026.

Despite the conclusion of these proceedings and the absence of any outstanding tax demand, the Department maintained the LOC, citing pending references to foreign countries under the Foreign Tax and Tax Research Division (FT&TRD) to identify potential overseas assets.

The Court primarily applied the fundamental rights guaranteed under Articles 14 (Equality), 19(1)(g) (Right to practice profession/business), and 21 (Protection of life and personal liberty) of the Constitution of India.

It adhered to the principle that while the state may issue LOCs to prevent fleeing, such restrictions cannot be indefinite or arbitrary where no statutory demand exists.

The court exercised its discretionary power under Article 226 to balance the Department's investigative interests with the petitioners' right to international travel.

The Court observed that despite the search occurring in 2021, the domestic proceedings under the Income Tax Act, 1961, had culminated in favor of the petitioners, leaving no outstanding demand.

It noted that the petitioners had cooperated with the Department since June 2021.

The Court rejected the Respondents' argument that pending FT&TRD references justified the LOC, reasoning that if the Department is unable to gather information from foreign jurisdictions over a five-year period, the petitioners’ rights cannot remain suspended indefinitely.

The Court found the continued restriction to be "without any reason or rhythm" and a violation of fundamental rights, particularly as the petitioners are renowned businessmen requiring international travel for professional obligations.

The petitions were allowed subject to the condition that both petitioners furnish an undertaking by March 15, 2026, stating they will not alienate or create third-party rights in overseas assets without providing 30 days' advance notice to the Income Tax Department.

The Court clarified that this stipulation does not absolute restrain asset transfer but requires prior intimation, and any violation would allow the Department to initiate contempt proceedings.