Kerala High Court
Dr. George Philip Modayil vs Assistant Commissioner Of Income-Tax ... on 23 June, 1998
Equivalent citations: [1999]238ITR517(KER)
Author: G. Sivarajan
Bench: G. Sivarajan
JUDGMENT G. Sivarajan, J.
1. The matter arises under the Income-tax Act, 1961. The petitioner is an orthopaedic surgeon. He has filed this 0. P. seeking to quash exhibit P-4 proceedings of the second respondent and for a further direction to the respondents to release the documents and books seized from the petitioner's residence on January 21, 1994.
2. There was a search of the residential premises of the petitioner by the Income-tax Department under Section 132 of the Act on January 21, 1994. In the said search, various documents were seized as mentioned in annexure-A to the panchanama (exhibit P-1). Though the petitioner has sought for return of the seized documents the same was not returned. The petitioner then through his chartered accountant sent a letter dated October 18, 1996 (exhibit P-2), requesting for return of the documents seized as per exhibit P-l. It is stated that the second respondent passed an order under Section 132(8) of the Act on July 7, 1994 (exhibit P-3), according sanction to the first respondent for the retention of books and documents seized on January 21, 1994, from the petitioner's residence up to March 31, 1995, or for a period not exceeding 30 days after all the proceedings under the Act in respect of the years for which the books and documents are relevant are completed, whichever is earlier. It is further stated that subsequently, on March 22, 1996, the second respondent passed another order under Section 132(8) according sanction to the first respondent for the retention of books and documents up to March 31, 1997. The petitioner has filed this 0. P. stating that exhibit P-4 order is void and without jurisdiction.
3. A counter-affidavit is filed by the first respondent on July 29, 1997. In the said counter-affidavit, it is stated that a statement under Section 132 of the Act was recorded during the search and that the petitioner has offered certain amounts as his unaccounted and undisclosed income. It is stated that on a preliminary scrutiny of the seized records even the income disclosed was found to be inadequate and, therefore, the assessment/reassessment proceedings were initiated for the assessment years 1985-86 to 1994-95. It is further stated that since the seized books of account and other incriminating documents were required for detailed scrutiny and investigation in connection with the assessment proceedings, the first respondent after recording the reasons, sought the approval of the Commissioner of Income-tax as per a report dated June 28, 1994, and the second respondent permitted retention of the seized books up to March 31, 1995, by his order dated July 7, 1994, and the same was duly communicated to the petitioner also. Since the assessment could not be completed by March 31, 1995, the first respondent sought the approval of the second respondent for continued retention of the seized books and documents up to March 31, 1996, by a report dated March 13, 1995, and the Commissioner granted approval for retention of the books and seized records up to March 31, 1996, by order dated March 29, 1995. It is stated that though a copy of the said order was marked for the assessee, due to a clerical omission this was not despatched and the same could be issued to the petitioner only on February 26, 1997. It is further stated that since all the proceedings under the Income-tax Act could not be completed by March 31, 1996, the first respondent by report dated March 5, 1996, sought for further approval for the reasons recorded at serial Nos. 8 and 11 in the report, and that on the said basis, the second respondent granted sanction for continued retention of the seized documents up to March 31, 1997, by order dated March 22, 1996, a copy of which was also duly served on the petitioner. It is stated that the second respondent has granted approval for retention of the seized documents for a further period of one year from April 1, 1997, to March 31, 1998, on a report submitted by the first respondent in the prescribed pro forma. All the search assessments for the assessment years from 1985-86 to 1994-95 were completed on March 31, 1997, and a total demand of Rs. 71,10,345 is made. The petitioner, it is stated, has filed appeals against the assessment orders and the said appeals are pending. It is further stated that proceedings under Section 271(1)(c) for concealment of income have also been initiated for all the above assessment years on March 31, 1997, and the said proceedings are pending. The retention of the seized books of account and documents, it is stated, are absolutely necessary for the completion of both the appeals and penalty proceedings as the seized materials will have a direct bearing in such proceedings. The first respondent has also stated that the petitioner was given ample opportunity to peruse the seized records and to take extracts therefrom.
4. I have heard learned counsel appearing for the petitioner and learned standing counsel appearing for the respondents. Learned counsel appearing for the petitioner submitted that as per the provisions of Sub-section (8) of Section 132 of the Act, the first respondent has no authority to retain the seized records beyond a period of 180 days from the date of seizure unless the reasons for retaining the same are recorded by him in writing and the approval of the Commissioner for such retention is obtained. Learned counsel submitted that in the instant case the search was conducted on January 21, 1994, and the books of account and other documents were also seized on the same date. He submitted that though the second respondent granted approval for retention of the seized books of account and other documents up to March 31, 1995, on July 7, 1994, the same was not extended until exhibit P-4 order dated March 22, 1996. Learned counsel submitted that the approval granted by the second respondent on July 7, 1994, expired on March 31, 1995, and, thereafter, there was no extension until March 22, 1996. Learned counsel further submitted that there is an obligation on the first respondent to record the reasons for the retention of the seized documents and to get the approval of the Commissioner, and that it is necessary that the affected person must be appraised of the reasons recorded if it is not given an opportunity to explain the absence of any need for extension. Learned counsel submitted that the petitioner was not given any notice of any of the proceedings nor supplied a copy of the reasons recorded. Learned counsel also relied on the decision of the Supreme Court in CIT v. Oriental Rubber Works [1984] 145 ITR 477, in support of his contention that exhibit P-4 order is null and void. Learned standing counsel for the respondents, on the other hand, submitted that the second respondent has granted approval for the continued retention of the books for the period of 180 days specified in Sub-section (8) after being satisfied of the reasons recorded by the first respondent and that copies of all the proceedings were issued to the petitioner. Learned standing counsel further submitted that retention of the seized books and other records are absolutely necessary till the completion of all the proceedings under the Act and that the assessment orders for the periods in question are pending in appeal besides the penalty proceedings. He further submitted that no prejudice will be caused to the petitioner by the retention of the seized records since the petitioner had been afforded ample opportunity for verifying the seized records and for taking extracts therefrom.
5. The question that arises for consideration in this case is as to whether the first respondent was justified in retaining the books of account and other documents seized from the petitioner's residential premises on January 21, 1994, beyond a period of 180 days specified in Sub-section (8) of Section 132 of the Act. According to the petitioner, though the said subsection authorises the Commissioner to grant approval for retention of the books and other records seized, it can be done only after the reasons for retaining the same are recorded by the assessing authority in writing and after obtaining the approval of the Commissioner for such retention, which has not been done in the instant case. According to the petitioner, the respondents have not complied with the requirements of Section 132(8) for retaining the books beyond the period of 180 days from the date of seizure. In order to see whether the said contention has any force, it is necessary to refer to Section 132(8) of the Act which reads as follows :
"(8) The books of account or other documents seized under Sub-section (1) or Sub-section (1A) shall not be retained by the authorised officer for a period exceeding one hundred and eighty days from the date of the seizure unless the reasons for retaining the same are recorded by him in writing and the approval of the Commissioner for such retention is obtained :
Provided that the Commissioner shall not authorise the retention of the books of account and other documents for a period exceeding thirty days after all the proceedings under the Indian Income-tax Act, 1922 (11 of 1922), or this Act in respect of the years for which the books of account or other documents are relevant are completed."
6. It is also necessary to refer to the provisions of Sub-sections (9), (10) and (11) which read as follows :
"(9) The person from whose custody any books of account or other documents are seized under Sub-section (1) or Sub-section (1A) may make copies thereof, or take extracts therefrom, in the presence of the authorised officer or any other person empowered by him in this behalf, at such place and time as the authorised officer may appoint in this behalf.
(10) If a person legally entitled to the books of account or other documents seized under Sub-section (1) or Sub-section (1A) objects for any reason to the approval given by the Commissioner under Sub-section (8), he may make an application to the Board stating therein the reasons for such objection and requesting for the return of the books of account or other documents, (11) If any person objects for any reason to an order made under Subsection (5), he may, within thirty days of the date of such order, make an application to such authority, as may be notified in this behalf by the Central Government in the Official Gazette (hereinafter in this section referred to as the notified authority), stating therein the reasons for such objection and requesting for appropriate relief in the matter."
7. The scope of Section 132(8) has been considered by various courts. The Supreme Court in CIT v. Oriental Rubber Works [1984] 145 ITR 477, in that context held as follows (page 483) :
"In other words, two conditions must be fulfilled before such extended retention becomes permissible in law : (a) reasons in writing must be recorded by the authorised officer or the concerned Income-tax Officer seeking the Commissioner's approval, and (b) obtaining of the Commissioner's approval for such extended retention and if either of these conditions is not fulfilled, such extended retention will become unlawful and the concerned person (i.e., the person from whose custody such books or documents have been seized or the person to whom those belong) acquires a right to the return of the same forthwith. It is true that Sub-section (8) does not in terms provide that the Commissioner's approval or the recorded reasons on which it might be based should be communicated to the concerned person but in our view since the person concerned is bound to be materially prejudiced in the enforcement of his right to have such books and documents returned to him by being kept ignorant about the factum of fulfilment of either of the conditions, it is obligatory upon the Revenue to communicate the Commissioner's approval as also the recorded reasons to the person concerned. In the absence of such communication the Commissioner's decision according his approval will not become effective."
8. From the aforesaid observations of the Supreme Court, it is clear that the assessing authority is justified in retaining the seized books and records under Section 132(8) only if the following conditions are satisfied : (i) reasons are recorded in writing by the Assessing Officer seeking the Commissioner's approval, fii) the Commissioner grants approval for the retention, (iii) reasons recorded by the Assessing Officer as well as the Commissioner's approval are communicated to the assessee concerned, and (iv) the communication is made as expeditiously as possible. Various other High Courts have also taken the view that unless the authority retaining the books satisfied all the aforesaid conditions the retention of the seized books and accounts beyond the period of 180 days will be illegal and invalid. (vide Thanthi Trust v. C1T [1987] 167 ITR 397 (Delhi), Jorawar Singh Baid v. Asst. CIT [1991] 192 ITR 502 (Cal) and Nutan Sahkari Avas Samiti Ltd. v. Director of Income-tax (Investigation) [1994] 208 ITR 843 (All)).
9. In the present case, as already stated, the search of the residential premises of the petitioner and the seizure of the books and documents was on January 21, 1994. The order granting approval for continued retention of the books and documents was first issued by the second respondent on July 7, 1994 up to March 31, 1995. It is stated by the first respondent that the second respondent passed an order under Section 132(8) on March 29, 1995, on a report submitted by the first respondent dated March 13, 1995. This order was for continued retention of the seized records up to March 31, 1996. Admittedly, the order of approval issued by the second respondent or the reasons recorded by the first respondent was not served on the petitioner till February 26, 1997.
10. As already stated, in order to enable the first respondent to retain the seized records, it is necessary that the order granting approval and the reasons recorded by the assessing authority has to be communicated to the assessee and that too expeditiously. Admittedly, the copy of the order granting approval or the reasons recorded by the assessing authority has not been communicated to the petitioner during the currency of the said order. The order dated March 29, 1995, stated to have been issued by the second respondent was for the continued retention of the records till March 31, 1996, whereas the said order was communicated even according to the respondents only on February 26, 1997. The object of communicating the order granting approval for retention of the seized records and the reasons recorded by the assessing authority is to enable the petitioner, if he is aggrieved, to file objection to the Commissioner as contemplated under Sub-section (10) of Section 132. Sub-section (10) of Section 132 provides that if a person legally entitled to the books of account or other documents seized under Sub-section (1) or Sub-section (1A) objects for any reason to the approval given by the Commissioner under Sub-section (8), he may make an application to the Board stating therein the reasons for such objection and requesting for the return of the books of account or other documents. Sub-section (11) provides the procedure also. From the provisions of Sub-section (10) of Section 132 it is clear that it is mandatory that the order granting approval for the continued retention of the seized records together with the reasons recorded by the assessing authority are communicated to the petitioner and that too expeditiously. In the instant case, even assuming that the Commissioner has passed an order granting approval for retention of the seized records up to March 31, 1996, since the said order has not been communicated to the petitioner during the period of its efficacy it suffers from the infirmity pointed out by the Supreme Court in Oriental Rubber Works' case [1984] 145 ITR 477. Though the second respondent has subsequently passed exhibit P-4 and other orders granting approval for continued retention of the seized records up to March 31, 1997, it cannot cure the illegality in the order granting approval for retention of the books up to March 31, 1996.
11. Accordingly, I hold that the continued retention of the books of account and other records seized as per exhibit P-l panchanama beyond March 29, 1996 was illegal. In this view of the matter, exhibit P-4 and subsequent orders passed by the second respondent granting approval for continued retention of the books up to March 31, 1998 also cannot stand.
12. Now the fact remains that the books of account and other documents seized as per exhibit P-l are with the first respondent. The assessments for the years 1985-86 to 1994-95 have also been completed after perusing the seized records. No further investigation or perusal of the seized records are necessary. There is no case for the respondents that any prosecution proceedings are initiated against the petitioner with reference to the seized records. The only case is that the appeals against the assessment orders and the penalty proceedings initiated pursuant to the completion of assessment are pending and that the seized documents are required in connection therewith. If this be the position, the respondents can return the seized records after taking photocopies of the same and getting the signature of the petitioner on all the pages of the photocopies. If the respondents apprehend that any manipulation will be made by the petitioner in the seized records, if it is returned, it will also be open to the respondents to put the seal of the Department on all the pages of the seized records before returning the same. Now that I have declared that the continued retention of the seized records mentioned in exhibit P-l are illegal, there will be a direction to the respondents to return the said records to the petitioner on or before July 15, 1998. It is open to the respondents to take photocopies of the seized records and get the signature of the petitioner on all the pages of the said photocopies before returning the originals.
13. The original petition is allowed as above. There will be no order as to costs.