TMI Blog2008 (10) TMI 66X X X X Extracts X X X X X X X X Extracts X X X X ..... rvey and retention of those books of account/documents on the ground that the said survey was conducted illegally and all the consequential actions taken by opposite parties Nos. 1 and 2 were in violation of the provisions of section 133A of the Income-tax Act,1961 (hereinafter referred to as "the I.T. Act"). 2. The facts giving rise to this writ petition are that petitioner No. 1 is a chartered accountants firm and petitioners Nos. 2 and 3 are its partners. They are engaged in the practice of accountancy involving auditing, consultancy, financing and other services to their clients under the provisions of the Chartered Accountants Act, 1949 (hereinafter referred to as "the C. A. Act, 1949"). On May 28, 2008, opposite party No. 1 conducted survey under section 133A in the premises of the petitioner-firm. The survey party showed Uttam Kumar Mahapatra one of the partners of the firm the authorization for conducting survey issued in accordance with the proviso below to section 133A(6) of the Income-tax Act by opposite party No. 2 and took the initial of Sri Mahapatra on the said authorization without serving a copy thereof on him. Opposite party No.1 after making search, selected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 133A. Even by the alleged authorization by the Joint Director of Income-tax (Investigation), opposite party No. 1 does not become the assessing authority and is not vested with the power and jurisdiction of an Assessing officer to assess the petitioner. Opposite party No. 1 during the course of the survey impounded the books of account and documents without recording any reason thereof and, therefore, the said impounding order (annexure 2) is illegal and without jurisdiction. The books of account impounded in course of survey cannot be retained for a period exceeding ten days without obtaining approval of the Chief Commissioner of Income-tax (hereinafter referred to as "the CCIT") or the Director General of Income-tax (hereinafter referred to as "the DGIT"). In the present case, no approval from the CCIT or the DGIT has been obtained. In any event, approval, if any, alleged to have been made, the petitioner should have been given an opportunity of hearing before such approval was made, as the same prejudicially affects the rights of the petitioner. In the absence of any such opportunity of hearing to the petitioner, the approval given if given by opposite party No. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f amendment was explained clearly, vide Board's Circular No. 179, dated September 30, 1975 ([1976] 102 ITR (St.) 9). The position as regards of the income-tax authority has been made clear by the Board in clause 3 of the said circular. According to the said circular, the income-tax)authorities have the power to enter any other place in which the person carries on business or profession states that any of his books of account or other documents or any part of cash, stock and valuable articles or thing to his business or profession are kept. This is also explicitly stated in newly inserted Explanation, vide Circular No. 551 dated January 23, 1990[1990] 183 ITR (St.) 7), Circular No. 717, dated August 14, 1995 [1995] 215 ITR (St.) 70), Circular No. 7 of 2003 dated September 5, 2003 ([2003] 263 ITR (St.) 62), the scope of power under section 133A has been enlarged. In the instant case, the Joint Director of Income-tax, Unit-II (opposite party No. 2), the competent authority had authorized the Income-tax Officer (Headquarters) to conduct survey under section 133A. Survey of plot No. 237, Bapuji Nagar was not conducted as business s of a chartered accountant. All documents were impounded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s beyond ten days without obtaining approval from the Chief Commissioner or Director General and such retention, if any, is unauthorized and invalid in law? (v) Whether it is incumbent upon the CCIT/DGIT to give an opportunity of hearing to an assessee whose books of account are intended to be retained for a period exceeding ten days before any approval for such extended period is granted ? (vi) Whether, on the facts and circumstances of the case, impounding of books of account belonging to the client of the petitioner-chartered accountant from his premises by the income-tax authorities in course survey operation under section 133A of Income-tax Act amounts to breach of privileged communication by the petitioner ? 8. At this juncture, it is very much necessary to know various relevant provisions of section 133A, which confer power of survey, inspection impounding and retention of books of account/documents upon the income-tax authorities. The relevant provisions of section 133A are quote below: "133A. Power of survey.- (1) Notwithstanding anything contained -in any other provision of this Act, an income-tax authority may enter— (a) any place within the limits of the ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... custody any such books of account or other documents for a period exceeding ten days (exclusive of holidays) without obtaining the approval of the Chief Commissioner or Director General therefore, as the case may be, (ii) make an inventory of any cash, stock or other valuable article or thing checked or verified by him, (iii) record the statement of any person which may be useful for, or relevant to, any proceeding under this Act. (4) An income-tax authority acting under this section shall, on no account, remove or cause to be removed from the place wherein he has entered, any cash, stock or other valuable article or thing......... (6) If a person under this section is required to afford facility to the income-tax authority to inspect books of account or other documents or to check or verify any cash, stock or other valuable article or thing or to furnish any information or to have his statement recorded either refuses or evades to do so, the income-tax authority shall have all the powers under sub-section (1) of section 131 for enforcing compliance with the requirement made : Provided that no action under sub-section (1) shall be taken by an Assistant Director or a De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r documents or cash jock or any other thing/article relating to his business or profession are kept in his residential premises or in the premises of some other person, officer can enter those premises for the limited purpose of inspecting those books of account or other documents or cash or stock or other article or thing relating to the business or profession of such person. Thus, the precondition for conducting survey under section 133A in the premises of a chartered accountant, lawyer, tax practitioner in connection with survey of the business place of their client is that the client in se of survey must state that his books of accountant/documents and records are kept in the office of his chartered accountant/lawyer/tax practitioner. Unless this precondition is fulfilled, the income-tax authority not assume any power to enter the business premises/office of the chartered accountant/lawyer/tax practitioner to conduct survey under section 133A of the Income-tax Act in connection with survey of the premises of their client. 10. In the present case, the counter-affidavit and the additional counter affidavit filed by the opposite parties do not reveal that anybody on behalf of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthority of law. 12. So far as the second question is concerned, it is only an income-tax authority as described in Explanation (a) to sub-section (6) of section 133 of the Income-tax Act who can exercise the power of survey under section 133A. Those income-tax authorities are a Commissioner, a Joint Commissioner, a Director, a Joint Director, an Assistant Director or a Deputy Director or an Assessing Officer, or a Tax Recovery Officer, and for the purpose of clause (i) of sub-section (1), clause (i) of sub-section (3) and sub-section (5), includes an Inspector of Income-tax ITO (Headquarters)-opposite party No. 1, who was authorized by opposite party No. 2 to conduct the survey in the premises of the petitioner, is not an income-tax authority under the said Explanation. The contention of Mr. Mohapatra that Assessing Officer includes an Income-tax Officer as per the definition of "Assessing Officer" given in section 2(7A) is not tenable since he has not brought to the notice of this court any direction or order issued under sub-section (1) or (2) of the Income-tax Act by which or any other provisions of the Income-tax Act by which opposite party No.1 is vested with the power a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re impounded on May 28, 2008, the so-called reasons for such impounding were recorded on May 29, 2008. 16. There is some substance in the argument of Dr. Pal. Annexure 2 to the writ petition reveals that the books of account/documents were impounded in course of survey operation under section 133A of the Income-tax Act in the business premises of the petitioner-firm on May 28, 2008. In the counter-affidavit dated October 1, 2008, and the additional counter- affidavit dated October 23, 2008, the opposite parties have not controverted the date of impounding of books of account as May 28, 2008. On the other hand, in paragraph 8 of the counter-affidavit, the opposite parties stated that the reasons for impounding the books of account have been recorded in annexure C/2 to the counter-affidavit. Annexure C/2 to the counter- affidavit reveal that the reasons were recorded on May 29, 2008. This shows the books of account/documents were impounded on May 28, 2008, and the reasons for impounding of such books of account were recorded on May 29, 2008, by opposite parry No. 1, which is a gross violation of the provisions of sub-section (3) of section 133A of the Income-tax Act. 17. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letter dated September 23, 2008 (annexure I/2) to the additional counter- affidavit, the DGIT, Calcutta, approved retention of the same up to October 31, 2008. 19. A perusal of the above two approval letters reveals that the opposite parties had retained the impounded books of account/documents for the period from September 1, 2008, to September 22, 2008, without obtaining any approval either from the DGIT (Investigation) or from the Chief Corn missioner of Income-tax as required under sub-section (3) of section 133A.Thus, the retention of the impounded books of account/documents by the opposite parties from September 1, 2008, to September 22, 2008, is not authorized under the law. 20. Again, retention of the impounded books of account beyond ten days also involves application of mind both by the officer seeking extension of time for retention and the Chief Commissioner or the Director General, as the case may be, while granting such approval. In Raj and Raj Investments v. ITO [2007] 293 ITR 57 (Karn), it was found that the Chief Commissioner had accorded permission to retain documents without examining the need for retention and there was no justification for the Depar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on May 28, 2008, and retained beyond ten days, the petitioner has not been communicated till date, the DGIT's approval and reasons recorded for approving the same. This is certainly unfair. 27. Another important aspect of the case is that under sub-section (3) of section 133A of the Income-tax Act only an income-tax authority acting under the said section can retain in his custody the impounded books of account and other documents beyond ten days from the date of impounding (exclusive of holidays) after obtaining approval of the Chief Commissioner or the Director General, as the case may be. The income-tax authority, who conducted the survey and impounded the books of account under section 133A is opposite party No. 1 being authorized by opposite party No. 2. Opposite party No. 1 in his letter dated June 23, 2008 (annexure 4) intimated petitioner No. 1 that the impounded materials/ loose sheet bundles were handed over to B. D. Mishra, JDIT (Investigation)-opposite party No. 2 soon after completion of the survey operation. Therefore, the petitioner could have contacted him for any clarification on the issue of release of those impounded materials/loose sheet bundles. Strangel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riod as envisaged in section 133A(3) (ia) is necessary only to examine the books of account/documents which would not be completed within ten days considering the volume of books of account and documents impounded. This is the preliminary stage of examination of books of account, for which, sometimes ten days' time may not be adequate. Some more time may be necessary to examine the impounded books of account/ documents depending upon the facts of the case. To meet such situation, the Legislature has enacted provisions in proviso (b) to section 133A(3) (ia) for retention of books of account for a period exceeding ten days. In that situation, before giving approval for retention of the books of account for a further period exceeding ten days, there is no need to afford any opportunity of hearing to the person whose books of account are impounded ant intended to be retained for a period exceeding ten days. After such approval is made, the person concerned obviously shall be given an opportunity to explain his books of account which could not be done within ten days from the date of impounding of the books of account/documents. 32. The principles decided by the hon'ble Supreme Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "complexity" in section 142(2A) would mean the state or quality of being intricate or complex or that is difficult to understand. All that is difficult to understand should not be regarded as complex. What is complex to one may appear simple to another. It depends on one's level of understanding or comprehension. Sometimes, what appears to be complex on the face of it, may not be really so if one tries to understand it carefully. Therefore, special audit should not be directed on cursory look at the accounts. There should be an honest attempt to understand the accounts of the assessee. Under these backgrounds, the hon'ble Supreme Court held that before giving any direction for special audit, an opportunity of hearing should be given to the concerned assessee. 34. Thus, in that case, the assessee was saddled with a heavy expenditure of Rs. 1.5 lakh. In the present case no such financial burden is on the assessee. In that case the books of account of the assessee were audited by a qualified chartered accountant and the income-tax authority wanted to get those books of account audited once again applying the provisions of section 142(2A) of the Act on the ground of complexity of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... non-co-operate the statutory authorities while they are discharging their official duty. In Shyam Jewellers v. Chief Commissioner (Administration) [1992] 196 ITR 243, the Allahabad High Court observed as follows (page 269) : "However, as the authorities under the Income-tax Act are the custodians of public money and they have to perform their duties in good faith in accordance with law and the procedure prescribed which rules out any vindictive or malicious action or misuse of authority, no one has a right to interfere in their performance of duty or create hurdles or humiliate or manhandle them. Any such action cannot be appreciated and is to be deprecated and persons taking the law into their hands or committing guilt deserve the prescribed punishment. But at the same time, it is the duty of the officers to see that they act in accordance with law, shorn of all feeling of vindictiveness or ego and in good faith which protects them and grants them full immunity even from any legal action." 36. Besides, the opposite parties in paragraph 9 of the counter stated that the proviso to section 126 of the Act, 1872, clearly mentions that nothing in that section shall protect fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... since the petitioner has not disclosed anything to the survey party voluntarily about his client, the question of breach of communication does not arise. 40. For the reasons stated in paragraphs 7 to 10, the survey operation under section 133A, in the petitioner's premises, impounding of books of account/documents on May 28, 2008, and retention of the same till date being made illegally without following the procedure as laid down in section 133A of the Income-tax Act, the petitioner is entitled to get back the impounded books of account/documents. 41. In CIT v. Kamal and Co. [2007] 213 CTR (Raj) 200 ; [2009] 308 ITR 129 (Raj) it was held that the materials collected during the course of illegal survey can be used for making additions. In Pooran Mal v. Director of Inspection (Investigation) [1974] 93 ITR 505, the hon'ble Supreme Court held even assuming that the search and seizure were in contravention of the provisions of section 132 of the Income-tax Act, still the material seized was liable to be used subject to law before the income-tax authorities against the person from whose custody it was seized. Therefore, if the opposite parties think that the books of acc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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