Lookout circular cannot be indefinitely sustained when tax proceedings have culminated and no demand remains outstanding.

The petitioners, renowned businessmen, were subjected to a search operation by the Income Tax Department on March 17, 2021

Subsequently, in April/May 2021, a Look Out Circular (LOC) was issued against them without prior intimation

Although assessment orders for AY 2017-18 to 2020-21 were passed, they were eventually quashed or set aside by the ITAT by January 2026, resulting in no outstanding tax demands

Despite the conclusion of domestic proceedings and the petitioners’ continued cooperation, the respondents maintained the LOC, citing pending information requests from foreign jurisdictions under the Double Taxation Avoidance Agreement (DTAA) to identify potential offshore assets

Whether the continued subsistence of a Look Out Circular (LOC) is legally sustainable when domestic tax proceedings have concluded and no tax demand is outstanding

Whether the restriction on the petitioners’ international travel, based on pending foreign tax inquiries, violates fundamental rights under Articles 14, 19, and 21 of the Constitution

The court relied on the fundamental rights guaranteed under Article 14 (Right to Equality), Article 19(1)(g) (Right to practice any profession or carry on any occupation, trade, or business), and Article 21 (Right to Life and Personal Liberty) of the Constitution of India

It applied the principle that the state cannot suspend a citizen's fundamental rights, including the right to travel abroad, for an indefinite period based on the mere possibility of eliciting information from foreign countries

Furthermore, the court emphasized that any restraint on personal liberty must be reasonable and justified by a subsisting legal necessity, such as an outstanding demand or non-cooperation

The court reasoned that since the search took place five years prior and all domestic assessment proceedings had culminated in favor of the petitioners with zero outstanding demand, the basis for the LOC had evaporated

While the Revenue argued that the LOC was necessary pending responses to ‘Foreign Tax and Tax Research Division’ (FT&TRD) references under DTAA, the court held that the petitioners’ rights cannot be held in abeyance indefinitely due to the Department's inability to gather foreign information in a timely manner

The court found the continuation of the LOC "without any reason or rhythm" to be a disproportionate interference with the petitioners' freedom of movement and business rights, rendering it a violation of their constitutional protections

To balance the state's interest, the court determined that an undertaking regarding offshore assets would suffice in lieu of a travel restraint

The Court set aside the Look Out Circulars issued against both petitioners

It directed the petitioners to furnish an undertaking by March 15, 2026, stating they will not alienate or create third-party rights on assets held outside India without giving 30 days' prior notice to the Income Tax Department

The petitions were allowed, with the caveat that the Department remains free to initiate contempt proceedings should the undertaking be breached