Plycast (Delhi) P. Ltd. vs Income-Tax Officer, Company ...
1986 Latest Caselaw 109 Del

JUDGMENT

D.K. Kapur, C.J.

1. This petition was heard after a show-cause notice was issued to the respondents. On considering the reply, we found that the petition could be disposed of without any further pleadings or affidavits. We accordingly heard both the learned counsels. We also found that the disposal of the petition could not be delayed.

2. We issue Rule D. B. and proceed to deal with the short point involved in the petition. The petitioner has challenged an order passed under section 131 of the Income-tax Act, 1961, on September 23, 1982. The operative part of the order is that certain documents are retained in exercise of powers under section 131. The documents are as follows :

 
 "Journal Vouchers
File No.                         Period
1.                          1-10-1970 to 31-5-1981
2.                          1-06-1981 to 30-9-1981
Bank Vouchers
File No.                        Period
1.                          1-10-1980 to 31-1-1981
2.                          1-02-1981 to 30-3-1981
3.                          1-05-1981 to 31-7-1981
4.                          1-08-1981 to 30-9-1981."
 

3. The order was passed over three years ago. The point for decision is whether these documents can indefinitely be retained or whether there is a time limit. It is also claimed that the documents could have been retained only for fifteen days without obtaining prior approval of the Commissioner of Income-tax. Yet another contention in the petition is that these vouchers pertain to sales and purchases made by the petitioner company from and to suppliers and customers and these documents are required for reference. A parallel was also drawn with the provisions of section 132 of the Act and the judgment of the Supreme Court in CIT v. Oriental Rubber Works [1984] 145 ITR 477 where conditions for retaining the seized documents were considered by the Supreme Court.

4. In the affidavit filed in reply to the petition, it was contended that the petition was very much belated as almost three years had passed without any challenge to the retention of the documents. It was further claimed on merits that the case was before an Inspecting Assistant Commissioner of Income-tax and hence the proviso to section 131 was not applicable. It was further claimed that a further retention of documents was absolutely necessary in this case. One of the reasons for retaining the documents was that a criminal prosecution had been launched and penalty proceedings were also pending. Those documents were required for completing the proceedings. one fact which was mentioned was that the Additional Chief Metropolitan Magistrate had already ordered filing of these documents. It was claimed that filing of this writ petition was misconceived and an abuse of the process of law designed only to get the documents back and thus keep them away from the criminal court or for being used in the penalty case.

5. one other point was taken, namely, that it was not necessary to record any reasons for retaining the documents or communicate the same to the petitioner. This would frustrate the ven object of retaining the documents.

6. Now, turning to the points involved in this case, we think we need not go into the question that the documents are required by the Income-tax Authority but have to confine ourselves to the interpretation of section 131 of the Income-tax Act. This section can be reproduced for convenience here :

"131. (1) The Income-tax Officer, Appellate Assistant Commissioner (Inspecting Assistant Commissioner) Commissioner (Appeals) and Commissioner shall, for the purpose of this Act, have the same powers as are vested in a court under the Code of Civil Procedure, 1908 (5 of 1908), when trying a suit in respect of the following matters, namely :-

a. discovery and inspection;

b. enforcing the attendance of any person including any officer of a banking company and examining him on oath;

c. compelling the production of books of account and other documents; and

d. issuing commissions.

(1A) If the Assistant Director of Inspection has reason to suspect that any income has been concealed, or is likely to be concealed, by any person or class of persons within his jurisdiction then, for the purposes of making any inquiry or investigation relating thereto, it shall be competent for him to exercise the powers conferred under sub-section (1) on the income-tax authorities referred to in that sub-section, notwithstanding that no proceedings with respect to such person or class of persons are pending before him or any other income-tax authority.

(2) Without prejudice to the provisions of any other law for the time being in force, where a person to whom a summons is issued either to attend to give evidence or produce books of account or other documents at a certain place and time, intentionally omits to attend or produce the books of account or documents at the place or time, the income-tax authority may impose upon him such fine not exceeding five hundred rupees as it thinks fit, and the fine so levied may be recovered in the manner provided in Chapter XVII-D.

(3) Subject to any rules made in this behalf, any authority referred to in sub-section (1) or sub-section (1A) may impound and retain in its custody for such period as it thinks fit any books of account or other documents produced before it in any proceeding under this Act :

Provided that an Income-tax Officer (or an Assistant Director of Inspection) shall not -

(a) impound any books of account or other documents without recording his reasons for so doing, or

(b) retain in his custody any such books or documents for a period exceeding fifteen days (exclusive of holidays) without obtaining the approval of the Commissioner therefore."

7. It will be seen that the first sub-section gives to the Income-tax Officer and other authorities the same power as are vested in any court for compelling the production of books of accounts and other documents and for discovery and inspection, etc. Therefore, as far as this section is concerned, we may treat the Income-tax Officer as a kind of court. Naturally, when books of account and other documents are produced in court, it will be necessary for the court to have power to use these documents for the purpose of recording evidence and so on. There is a procedure for retaining copies and returning the original. We feel that the normal procedure would have to be followed for retaining a copy and returning the original. The relevant provision regarding retention of the original appears to be contained in sub-section (3) of this section and that is the provision relied upon by the respondents. This provision is that the Income-tax Officer may impound and retain in his custody any books of account or other documents which may be produced before him. Thus, the order under this provision would have to be one to impound the document and to retain it. It would not involve the question of returning the original and retaining the copy. Then we have the proviso which is to the effect that the Income-tax Officer cannot impound any books of account or other documents without recording his reasons for his so doing and subsequently he cannot retain the documents in his custody for a period exceeding fifteen days without the Commissioner's approval.

8. It is now necessary again to see whether the order under section 131 is in accordance with law. The opening words of the order can now be reproduced. They are as follows :

"The following documents produced before me in connection with the assessment proceedings for the assessment year 1982-83 by Sarvashri K. L. Seth, C. A. and P. K. Shungloo, accountant of the company are retained in exercise of my power under section 131 of the Income-tax Act, 1961."

9. Below this follows the list of documents which have been reproduced earlier. It is impossible to hold that these are reasons. There is a total absence of reasons. The proviso to section 131 is in very definite terms which is reproduced again :

"Provided that an Income-tax Officer (or an Assistant Director of Inspection) shall not -

(a) impound any books of account or other documents without recording his reasons for so doing, or

(b) retain in his custody any such books or documents for a period exceeding fifteen days (exclusive of holidays) without obtaining the approval of the Commissioner therefore."

10. This proviso shows that if the Income-tax Officer or the Assistant Director of Inspection wants to retain any document, he must first record his reasons and after impounding the documents, he can retain the same only for 15 days unless he obtains the approval of the Commissioner. In the present case, there is no order impounding the documents. There is no order giving any reasons. In fact, the stand taken by the respondent is that reasons have not to be disclosed and there is no approval of the Commissioner for retaining the books beyond 15 days. The order is contrary to law. Turning now to the judgment of the Supreme Court in CIT v. Oriental Rubber Works [1984] 145 ITR 477, it was held that reasons recorded by an officer and approved by the Commissioner should be communicated expeditiously to the assessed. This was in relation to section 132, where books are retained beyond a period of 180 days. We can find no difference between the intention of section 132 and the intention of section 131. Here also, the reasons have to be recorded and if retention is beyond 15 days, then approval has to be obtained. Learned counsel for the respondents has contended that reasons are to be kept secret. This defeats the section altogether. This is no compliance of the section if reasons are not recorded and not communicated. Similarly, the approval of the Commissioner for retention beyond 15 days has also to be communicated. Learned counsel for the Department has relied on a judgment of a single judge of the Punjab High Court in Ramji Dass Om Parkash v. ITO [1970] 77 ITR 1010. According to this judgment, it is only necessary for the Income-tax Officer to record the reasons but he need not disclose the same to the assessed. In that case the operative part was (p. 1011) :

"I hereby impound and retain in my custody the following books of accounts which have been produced before me during the course of assessment proceedings."

11. It was further stated in the judgment as follows (p. 1012) :

The only point for determination is whether respondent No. 1 had recorded the reasons in support of his order impounding the account books. I have seen the original order sheet and have no doubt that the order in which reasons were recorded was passed on October 3, 1969, in the presence of Shri Parkash Chand and his counsel, Shri R. K. Goel. It may be that the reasons were not communicated to them, which led the petitioner-firm and its counsel to believe that no reasons were recorded as the order delivered to them did not contain any reasons."

12. We regret that this reasoning does not appeal to us. If the order was recorded in the presence of the counsel, we fail to understand how they could not have heard the reasons. In any case, the solitary object of the provision is to make a departure from the normal practice of production of documents. It is absolutely necessary that this statute should be complied with. It cannot be left to the Income-tax Officer to record the reasons if he wants to and not as he wishes. That would be against the law enacted by Parliament. We think, with respect, that the judgment of the Punjab High Court is not well-founded. The learned single judge of the Punjab High Court did not follow the Division Bench judgment of the Allahabad High Court in Kanodia Brothers v. S. S. Seth, ITO [1960] 39 ITR 228. The provision under examination was section 37(2) of the Indian Income-tax Act, 1922, which, as far as we can see, is exactly the same as section 131(3) of the Income-tax Act, 1961. The Allahabad High Court held that a valid exercise of power under section 131 involves compliance with the conditions mentioned in the proviso to the section. It was, therefore, necessary that the Income-tax Officer had to record the reasons in writing for impounding the books and had also to get the permission of the Commissioner for retention for a period beyond 15 days. It was held in that case that retention was illegal and the petitioner was entitled to have the books returned.

13. We concur with the judgment of the Allahabad High Court. We also hold that (a) there is no order for impounding the documents, and (b) the Income-tax Officer appears to have misread the provision of section 131 and, therefore, the order has to be struck down as being invalid. As far as the petitioner is concerned, we think that the party concerned had a right to move the court because the continuance of the illegality over a period of time Cannot possibly legalise the same.

14. Before concluding this case, we may say that we have reserved the judgment to enable the authorities concerned to make relevant copies of the vouchers if so required and also to get suitable orders from the criminal Courts for production of these documents. We did so because we did not want this petition to be used as a means of doing away with evidence that might be necessary in a criminal trial. With these remarks we grant the writ and direct the return of the vouchers mentioned in the order under section 131 forthwith, unless there is an order to the contrary by any criminal or other court. Due to the delay in the institution of the writ petition, we refrain from passing any order regarding costs in favor of the petitioner.