TMI Blog2002 (3) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... u undivided family (in short the HUF"), Mool Chand Praveen Kumar and as partner of Parmeshwari Textile Mill, Jasol. As no return for the assessment year 1994-95 was filed, a survey under section 133A of the Income-tax Act, 1961 (in short "the Act of 1961"), was conducted at the premises of Praveen Cotton Mills and Parmeshwari Textiles Mills, Jasol, on November 25, 1994. During the survey operation, the assessee, Mool Chand Salecha, disclosed in his statement that he was drawing a salary of Rs. 30,000 per annum from Praveen Cotton Mills and was also partner of Parmeshwari Textile Mills, jasol, in his Hindu undivided family capacity. The tax authorities also recovered the account books of three concerns, viz., Sumit Textile Mills, Sabarmati Mills India and Arvind Padding Works, for the assessment year 1995-96. With respect to the said firms, the assessee, Mool Chand, admitted that all the three concerns were owned by him and the capital introduced in the three concerns was from his undisclosed income in the form of deposits in the books of account in various names. Accordingly, he offered to surrender the income of rupees five lakhs and rupees six lakhs for the assessment years 1994- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he bank by the assessee, Mool Chand, himself. It further revealed that though the cheques of three accounts were signed by Smt. Damyanti, Shri Surendera Kumar and Shri Ganpat Lal for Sabarmati Mills India, Sumit Textile Mills and Arvind Padding Works, respectively, the withdrawals of cheques of "self" were made mostly by the munim of the assessee, Mool Chand, viz., Siremal and Rajesh Kumar. Summonses under section 131 were issued to Shri Surendera Kumar, Smt. Damyanti Devi and Shri Ganpatlal on February 9, 1995. Surendra Kumar and Smt. Damyanti did not make compliance but Ganpatlal attended on February 10, 1995, and his statement was recorded on oath. He stated that he was doing job work of washing grey cloths on small scale in the name of Arvind Padding Works with the initial investment of Rs. 2,000 taken as loan from his brother-in-law, Shri Mohanlal. He denies to have maintained books of account. When he was confronted with the account books of Arvind Padding Works, he denied to be the owner of such books and stated that as these account books have been found from the premises of Shri Mool Chand, he can only speak about the maintenance and transactions recorded in the said books ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. (i) Net salary income from Praveen Cotton Mills 16,667 (ii) Income from interest, etc. 18,723 (iii) Net income of minors 11,326 Add-- (iv) Capital investment in Sabarmati Mills India and Sumit Textile Mills out of undisclosed sources as discussed above 51,00,000 (v) Capital investment in Arvind Padding Works as surrendered by the assessee 1,00,000 (vi) Bogus liabilities as discussed above (Rs. 10,11,944 + 2,00,781) 12,12,725 (vii) Estimation of income from Sumit Textiles and Sabarmati Mills India, Jasol as discussed above 4,59,675 (viii) Estimation of income from Arvind Padding Works as discussed above 50,000 --------- Total income 69,69,116 Less: Deduction under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer committed an error in not taking into consideration the return filed by the assessee on February 14, 1995. According to learned counsel by issuing notice under section 133(1), the Assessing Officer curtailed the statutory period of submitting return to the assessee. It was also argued that in all fairness, the Assessing Officer should not have proceeded with the assessment proceedings, once it was brought to his notice that the settlement application was submitted under section 245C with the Settlement Commission on February 16, 1995. He also criticised the summary way of dealing by the Assessing Officer as well as the appellate authority with respect to the additions. It was argued that the assessee was denied the opportunity of hearing by refusing to supply the incriminating documents which were illegally seized and impounded during the survey. It was also argued that if the accounts lying with the Department were voluminous or complicated, the Assessing Officer had a power under section 142A to get the accounts audited and could have then determined the income instead of doing so arbitrarily. It was thus urged that the assessment made under section 144 may be annull ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pt of the notice under section 142(1), dated December 15, 1994, reiterated the request of supplying the copies of accounts but the same was rejected arbitrarily. The Assessing Officer made up his mind to frame assessment under section 144 before passing the order of assessment. (iii) The Assessing Officer illegally impounded the books of account. In view of the findings, the Tribunal directed the Assessing Officer to release the entire impounded books of account to the assessee within a period of fifteen days from the receipt of the order. A further direction was given to make a fresh assessment after affording the adequate opportunity of hearing to the assessee. The Department submitted an application under section 256(1) of the Income-tax Act, before the Tribunal proposing the following questions for referring to this court for its opinion: "(i) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was legally justified in entertaining the ground relating to impounding of the books of account under section 131 in respect of an appeal filed against the order passed under section 144 of the Income-tax Act, 1961? (ii) Whether, on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal dated March 12, 1996, particularly the directions to release the impounded documents. A further direction has been sought to restrain the first respondent from taking any proceeding coercive or otherwise for enforcing the order of release of documents particularly in view of the fact that the settlement application before the Settlement Commission has been admitted. As the summonses issued under section 131 on December 6, 1994, December 16, 1994, December 28, 1994 and January 6, 1995, were not complied with, the Assessing Officer made a reference to Deputy Commissioner of Income tax for imposition of the penalty under section 272A(1)(c) of the Income-tax Act. The Deputy Commissioner inflicted a penalty of Rs. 10,000, for each default, in total Rs. 40,000 by order dated June 23, 1995. The appeal preferred by the assessee was dismissed by the Commissioner of Income-tax (Appeals) by order dated October 13, 1995. However, the Income-tax Appellate Tribunal cancelled the penalty levied under section 272A(1)(c) by order dated December 29, 1997. The Department filed an application for reference under section 256(1) of the Income-tax Act asking the Tribunal to refer the following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the power to inspect registers of companies; section 135 deals with the power of the Director-General or Director, the Chief Commissioner or Commissioner and the Joint Commissioner; and section 136 declares the proceedings before income-tax authorities as judicial proceedings. In the instant case, since the controversy pertains to power of survey, it is necessary to set out section 133A. However, the question posed cannot be answered properly unless section 131 is also read along with section 133A. Thus, for convenience, sections 131 and 133A are set out as follows: "131. Power regarding discovery, production of evidence, etc.--(1) The Assessing Officer, Deputy Commissioner (Appeals), Joint Commissioner, Commissioner (Appeals) and Chief Commissioner or Commissioner shall, for the purposes 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 docu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o afford him the necessary facility to inspect such books of account or other documents as he may require and which may be available at such place, (ii) to afford him the necessary facility to check or verify the cash, stock or other valuable article or thing which may be found therein, and (iii) to furnish such information as he may require as to any matter which may be useful for, or relevant to, any proceeding under this Act. Explanation.--For the purposes of this sub-section, a place where a business or profession is carried on shall also include any other place, whether any business or profession is carried on therein or not, in which the person carrying on the business or profession states that any of his books of account or other documents or any part of his cash or stock or other valuable article or thing relating to his business or profession are or is kept. (2) An income-tax authority may enter any place of business or profession referred to in sub-section (1) only during the hours at which such place is open for the conduct of business or profession and, in the case of any other place, only after sunrise and before sunset. (3) An income-tax authority actin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may be pending on the date on which the powers under this section are exercised or which may have been completed on or before such date and includes also all proceedings under this Act which may be commenced after such date in respect of any year." A perusal of section 131 makes it apparent that the powers of the income-tax authorities concerned under the section are co-extensive with those of a civil court trying a suit and such power can be exercised only if a proceeding is pending before such authority. However, section 131(1A) is free from such fetter, which is an overriding provision. In a case, where there is a reason to suspect that any income has been concealed or is likely to be concealed by any person, even though no proceeding with respect to such person may be pending before him or any other income-tax authority, the officers concerned mentioned therein for the purpose of making any enquiry or investigation relating thereto, can exercise the powers conferred under sub-section (1). Sub-section (3) empowers the Income-tax Officer to issue prohibitory orders on a person in control of books of account, documents, valuable-article, etc., directing him not to remove, part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... At present, the income-tax authorities have the power to enter only a place where business is carried on. Such entry can be made during the hours at which such place is open for the conduct of business or profession. Under the amendment, the income-tax authorities will also have the power to enter any other place in which the person carrying on business or profession states that any of his books of account or other documents or any part of his cash or stocks or other valuable articles or things relating to his business or profession are kept. The entry to such other place will, however, be made only after sunrise and before sunset. (iv) The Inspecting Assistant Commissioner, the Assistant Director of Inspection and the Income-tax Officer will now have the power to make an inventory of any cash, stocks or other valuable articles or things checked or verified by them and also to record the statement of any person which may be useful for or relevant to any proceeding under the Income-tax Act. (v) The income-tax authorities will also have the power to collect information and record statements of persons concerned at any time after any function, ceremony or event even before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such books of account or other documents as he may require and which may be available at such place or to afford him the necessary facility to check or verify the cash, stock or other valuable article or thing which may be found therein or to furnish such information as he may require as to any matter which may be useful for, or relevant to, any proceeding under the Act. Sub-section (2) empowers the authority to enter into such premises during the hours at which such place is open for the conduct of business or profession and in case of any other place, only after sunrise and before sunset. Sub-section (3) empowers the income-tax authorities, if they deem necessary, to place marks of identification on the books of account or other documents inspected by them and make or cause to be made extracts or copies therefrom. It is also permissible to make an inventory of such cash, stock or other articles. The provision also empowers to record the statement of any person, which may be useful for or relevant to any proceedings under the Act. Sub-section (4) puts a complete ban on removal or causing to be removed from a place where such a tax authority has entered any books of account or doc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hibited or enjoined (Maxwell, 11th edition, page 109)." Thus, it is clear that the income-tax authority cannot impound the books of account or other documents in the proceedings conducting the survey under section 133A. We are buttressed in our view by the decisions of various High Courts, viz; (1) Dr. Vijay Pahwa v. Samir Mukhopadhyay, Deputy CIT [2001] 250 ITR 354 (Cal) (Appex.); (2) N. K. Mohnot v. Deputy CIT [1995] 215 ITR 275 (Mad); (3) Gheru Lal Bal Chand v. ITO [1982] 137 ITR 190 (P H); (4) United Chemical Agency v. R.K. Singh, ITO [1974] 97 ITR 14 (All); (5) Sri Venkateshwara Tourist Home P. Ltd. v. Assistant Director of Income-tax (Inv.) [1998] 233 ITR 736 (Kam); (6) Ram Saroop Pawan Kumar v. ITO [1980] 125 ITR 603 (P H) and (7) Maruti Mills P. Ltd. v. Union of India [2001] 250 ITR 348 (Raj). It is not necessary, to traverse the law, nor to go into the facts of each case. There appears to be unanimity among all the High Courts that during the survey under section 133A, the tax authority, what to talk of impounding the books of account and documents, he cannot even remove them. Of course, during the survey under section 133A(3), the tax authority, if he so deems necess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emitted the matter to the assessing, authority for fresh assessment and directed to release the books of account to the assessee. Thus, the question as to the effect of admission of the application for settlement by the statutory Settlement Commission on the order of the Income-tax Appellate Tribunal dated March 12, 1996, has arisen for consideration. In order to appreciate the question posed, it will be convenient to read sections 245A to 245F, which provide a mechanism for settlement of cases under the Income-tax Act and sections 252 to 254 which deal with the powers of the Income-tax Appellate Tribunal. Chapter XIX-A contains the group of sections from sections 245A to 245M dealing with settlement of cases. It was felt that in the administration of fiscal laws, whose primary aim is to raise revenue, there has to be room for compromise and settlement because a rigid attitude would not only inhibit a one-time tax-evader or an unintending defaulter from making a clean breast of his affairs, but would also unnecessarily strain the investigational resources of the Department in cases of doubtful benefit to the Revenue, while needlessly proliferating litigation and holding up colle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e pending before an income-tax authority. The contention that if such an application is filed by an assessee under section 245C, no further investigation or enquiry can be carried on by the officer and that he is obliged to stop all further proceedings with effect from the said date, has been negatived by a decision of the apex court in CIT v. Express Newspapers Ltd. [1994] 206 ITR 443. In view of section 245F(2), when an application made under section 245C has been allowed to be proceeded with under section 245D, the Settlement Commission shall have exclusive jurisdiction to exercise the powers and perform the functions of any income-tax authority under the Act in relation to the case till such time a final order under sub-section (4) of section 245D is passed. The only exception is contained in sub-section (3) of section 245D. The order of the Settlement Commission is conclusive in view of the provisions of section 245-I. At this stage, it is also necessary to acquaint with the powers and functions of the Income-tax Appellate Tribunal, hereinafter referred to as "the Tribunal". It came into existence under Part II of the Indian Income-tax Act (Amendment) Act, 1939. Its powers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as an Assessing Officer subject to the limitation, if any, placed on their jurisdiction by the relevant statute. Reference is made to the decision of the apex court in State of Orissa v. Babu Lal Chappolia [1966] 18 STC 17. Though the Tribunal acts as an assessing authority while hearing an appeal it is not an assessing authority under the Income-tax Act. Under section 116 of the Income-tax Act, the different tax authorities have been enumerated. The Tribunal does not figure therein as such the Tribunal though not a court exercises the powers of a court, though not an assessing authority but exercises the powers of an Assessing Officer. It is obligatory on the tax authorities to carry out its judicial directions. The apex court in Bhopal Sugar Industries Ltd. v. ITO [1960] 40 ITR 618, dealing with the case wherein the Income-tax Officer refused to carry out the directions of the Tribunal, while issuing mandamus to carry out the directions, observed as follows: "the Income-tax Officer virtually refused to carry out the directions which a superior tribunal had given him in exercise of its appellate powers in respect of an order of assessment made by him. Such refusal was in effect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceeding on the file of the tax authority it various levels standing transferred automatically. Once the application for settlement is admitted, it is for the Commission to pass an appropriate order looking to the facts of each case to call or not to call or to get the proceedings of the assessment transferred to its own file. In D. B. Income-tax References Nos. 93 of 1999 and 27 of 1999 the question raised is with respect to imposition of penalty under section 272A(1)(c) of the Income-tax Act. It may be recalled that the Assessing Officer issued summons under section 131 on December 6, 1994, December 16, 1994, December 28, 1994 and January 6, 1995, to the respondent-assessee, which were not complied with. Thus, the Deputy Commissioner inflicted a penalty of Rs.10,000 for each default, in total Rs.40,000 by order dated June 23, 1995. The Tribunal cancelled the penalty on the ground that the order of assessment itself has been set aside. The question posed is as to whether in the facts and circumstances of the case, the Tribunal was justified in law in cancelling the penalty levied under section 272A(1)(c) of the Income-tax Act? The Tribunal has found the order of impounding t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principle of justice. Thus, the S.B. Civil Writ Petition No. 2723 of 1997 deserves to be allowed and a mandamus is required to be issued to the assessing authority to comply with the order of the Tribunal dated March 12, 1996. As regards the S.B. Civil Writ Petition No. 1070 of 1997, a direction has been sought to quash the order of the Appellate Tribunal dated March 12, 1996, so far as it relates to the directions as to impounding of the books of account, seized from the possession of the respondent-assessee. We have already held that the tax authority has acted illegally in impounding the books of account during the survey under section 133A of the Income-tax Act. In view of this, the petition deserves to be dismissed. In D.B. Income-tax Reference No. 59 of 1998, the question posed is as to whether the Tribunal was right in its interpretation of sections 131 and 133A and as a consequence thereof, directing release of the impounded books of account? We have already upheld the view taken by the Appellate Tribunal and, as such, the reference application deserves to be rejected against the Revenue and in favour of the assessee. In view of the aforesaid, we pass the order as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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