2009 (4) TMI 189 - HC - Income Tax

Power of income tax authorities to impound and retain books and documents u/s 131 - the proviso to sub-section (3) of section 131 says that such documents or books of account cannot be impounded without recording reasons for impounding and further that the retention cannot be beyond the maximum limit of fifteen days - The extension of limit can only be a one-time exercise and supplementing the outer limit of fifteen days for some more days depending on the circumstances. The extension period should be counted only in days and not in months or years as outer limit is indicated in days - That will be the proper understanding of the proviso to sub-section (3) of section 131 of the Act and if so the present orders extending the period of retention are all illegal and without the authority of law and are therefore quashed by issue of a writ of certiorari and the interim order passed earlier is made absolute - the respondents having misused the powers under the Act for retaining the documents for indefinite period and by repeated employment of the power under the proviso to sub-section (3) of section 131 of the Act are required to compensate the petitioner for the hardship and losses suffered.

Summary

Issues Involved:
1. Legality of the initial impounding of books of account and documents.
2. Legality of the subsequent retention of the impounded documents.
3. Petitioner's request for the return of the impounded documents.
4. Imposition of exemplary costs against the respondents for undue hardship and agony endured by the petitioner.

Detailed Analysis:

1. Legality of the Initial Impounding of Books of Account and Documents:
The petitioner, a private limited company involved in real estate, was surveyed by the Income-tax Department on September 20, 2005. During this survey, the officers examined various books of account and documents, and subsequently issued a notice summoning the petitioner to produce specific financial records. The petitioner complied, but the officers retained the documents without returning them. The respondents justified the impounding under section 133A(3) (ia) of the Income-tax Act, 1961, and section 131(3) of the Act, claiming the need for further verification. However, the court found that the initial impounding order dated October 7, 2005, was issued after the statutory period of fifteen days, rendering it legally unsound.

2. Legality of the Subsequent Retention of the Impounded Documents:
The petitioner repeatedly requested the return of the documents, but the respondents extended the retention period multiple times, citing the need for verification and pending appeals. The court scrutinized the statutory provision of section 131(3) of the Act, which allows retention beyond fifteen days only with the Chief Commissioner's approval. The court emphasized that the power to extend retention should not be interpreted to allow indefinite retention. The repeated extensions by the respondents were deemed a misuse of statutory power, violating the statutory limit of fifteen days and the requirement for justifiable reasons. The court rejected the respondents' reliance on precedents from the Patna and Madhya Pradesh High Courts, which allowed extended retention during pending appeals.

3. Petitioner's Request for the Return of the Impounded Documents:
The court noted that the petitioner had been persistently requesting the return of the documents for over four years. The respondents' failure to comply with these requests and their reliance on extended retention orders were found unjustifiable. The court issued an interim direction for the immediate return of the documents, allowing the respondents to retain photocopies if necessary for their purposes. The court emphasized that the statutory provision does not permit indefinite retention and that the respondents' actions were without legal justification.

4. Imposition of Exemplary Costs Against the Respondents:
The court acknowledged the undue hardship and inconvenience suffered by the petitioner due to the respondents' actions. It highlighted the misuse of power under the Act by the respondents and imposed exemplary costs of Rs. 25,000 on the respondents. The court directed that this amount be paid to the petitioner within ten weeks, failing which the petitioner could seek a certificate for realization of this amount as a decree of the civil court.

Conclusion:
The court quashed the orders extending the retention period of the impounded documents as illegal and without authority of law. It made the interim order for the return of documents absolute and imposed costs on the respondents for their misuse of statutory power and the resulting hardship to the petitioner.