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New Kashmir And Orie... v. Commissioner Of Inco...

Allahabad High Court

Sep 7, 1972

Judgment

Subsequent
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Factual and Procedural Background

This is a petition under article 226 of the Constitution challenging the search and seizure of the petitioner's account books under section 132 of the Income-tax Act, 1961. The petitioner is a private limited company engaged in the transport business at Kanpur. On May 8, 1969, the income-tax department raided the petitioner's business premises and the residential premises of its cashier, S.R. Verma, and seized 61 account books and other documents.

On May 13, 1969 the petitioner requested copies of (a) any reasons on which authorisation for the search was issued, (b) the warrants of authorisation given to persons participating in the search, and (c) copies of statements recorded during the search. The Commissioner of Income-tax replied on June 28, 1969 that the requested copies and information could not be furnished. Subsequent applications by the petitioner (dated August 21 and August 28, 1969) sought inspection of search warrants, complaints and related documents; the respondent replied on October 9, 1969 that there was no provision for inspection and that search warrants had been shown at the time of search, while seized books were under scrutiny and would be returned later.

Additional impoundments of certain documents by the Income-tax Officer under section 131 occurred on May 6, 1971 and October 15, 1971. When seized books and documents were not returned for a prolonged period, the petitioner filed the present writ petition. The seizure was challenged primarily on three grounds (see below).

Legal Issues Presented

Whether the Commissioner recorded reasons before issuing authorisations for search under section 132 and applicable rules (in particular rule 12), and whether the absence of recorded reasons renders the search and seizure illegal.
Whether the petitioner is entitled to inspection of, and copies of, records (such as search warrants and reasons) relating to the search and seizure in the absence of a statutory prohibition.
Whether the books of accounts were retained beyond the period allowed under law without the sanction of the Commissioner of Income-tax.
Whether any sanction by the Commissioner to retain books and documents beyond the initial period was communicated to the petitioner.

Arguments of the Parties

Petitioner's Arguments

The Commissioner did not record any reasons before issuing search warrants under section 132.
The books of accounts were retained beyond the period permitted by law without the Commissioner's sanction.
Where sanction to retain beyond the initial period was given, that sanction was not communicated to the petitioner.

Respondent's Arguments / Department's Position

The Commissioner (through an officer, V.C. Chaturvedi) maintained that there was no provision for inspection of the documents requested and that search warrants were shown at the time of search.
At hearing, Dr. R.R. Misra, counsel for the department, conceded that no reasons had been recorded by the Commissioner.

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

The court's analysis proceeded in the following steps, based strictly on the material in the opinion:

The court observed a recurring misconception in the income-tax department regarding the scope of section 132 and the powers of the authorities exercising search and seizure powers.
The court emphasised that seizure of a trader's books is a serious encroachment on the fundamental right to carry on business and therefore powers under sections 131 and 132 must be exercised strictly in accordance with law and principles of natural justice.
The petitioner had been refused copies and inspection of search records. The court reasoned that unless there is a statutory prohibition, a person subject to action under section 132 is entitled to inspect the record of the proceedings and obtain copies of orders passed; wholesale refusal to grant inspection or copies is not justified. The court recognised that particular documents may, in specific circumstances, be withheld as confidential, but found that the department's wholesale refusal was not supported.
On the substantive legality of the seizure, the court noted that section 132 itself does not require the Commissioner to record reasons, in contrast to section 131 which requires reasons from an Income-tax Officer. However, rule 12 (framed under sub-section (14) of section 132 by the Central Board of Direct Taxes) requires that reasons be recorded by the Commissioner before issuing warrants of authorisation for search and seizure. The court treated these rules as having statutory force because they were framed under the statute.
The court concluded that any search and seizure made in contravention of rule 12 is illegal. Because the initial seizure was effected without reasons recorded as required by rule 12 (a fact conceded by the department's counsel and confirmed by the file), the initial seizure was illegal and consequently any retention of the seized books was also illegal.
The court noted that certain documents impounded by the Income-tax Officer under section 131 had already been returned to the assessee; in those circumstances the court deemed it unnecessary to adjudicate the separate contention regarding impounding and retention under section 131.
Because the petition succeeded on the primary ground (absence of recorded reasons under rule 12 making the search/seizure illegal), the court allowed the petition and directed return of the seized books and documents and awarded costs to the petitioner.

Holding and Implications

PETITION ALLOWED

Direct effect on the parties:

The respondents were directed to return forthwith the books of accounts and documents seized during the search.
The petitioner was awarded its costs.

Broader implications:

The court reiterated that rule 12 (framed under sub-section (14) of section 132) requires reasons to be recorded before issuing authorisations for search and that rules framed under the statute have statutory force; search and seizure in contravention of rule 12 are illegal. The opinion did not purport to lay down a new binding precedent beyond the application of the rules to the facts of this case, and it did not discuss setting any wider precedent beyond these conclusions.

Show all summary ...

R.L Gulati, J.:— This is a petition under article 226 of the Constitution arising out of a proceeding for search and seizure of the account books of the petitioner under section 132 of the Income-tax Act, 1961.

2. At the outset we are constrained to say that this case like some other cases of this nature which have come to our notice reveals a sorry state of affairs. The income-tax department seems to be labouring under a misconception with regard to the scope of section 132 and the powers of the authorities concerned.

3. The petitioner is a private limited company which is engaged in the business of transport at Kanpur. On May 8, 1969, the income-tax department carried out a raid at the business premises of the petitioner-company as well as the residential premises of its cashier, Sri S.R Verma, and seized 61 account books and other papers and documents. In its letter dated May 13, 1969 (annexure “I” to the writ petition), the petitioner requested the first respondent, the Commissioner of Income-tax, for the copies of the following documents:

(a) reasons, if any, whether recorded or not, on which authorisation for the search was issued,

(b) copies of the warrant of authorisation to the person/persons participating in the search, and

4. The Commissioner of Income-tax by his letter dated June 28, 1969, informed the petitioner that the copies of the search warrants and the other information asked for could not be furnished. The petitioner then on August 21, 1969, made an application to the Commissioner for the inspection of the following documents:

(I) search warrants;

(II) complaint, if any;

(III) statement or affidavit of the complainant, if any;

(IV) report of the Income-tax Officer or any other officer, if any;

(V) reasons recorded, if any.

5. This was followed by a representation to the Commissioner dated August 28, 1969, in which the petitioner requested that the records of the search and seizure proceedings may be shown to him. Sri V.C Chaturvedi, acting on behalf of the Commissioner of Income-tax, sent the following reply to the petitioner on October 9, 1969:

“Please refer to your petitions dated August 21, 1969, and August 28, 1969, in the matter of inspection of search warrants, etc., and the return of the seized books, etc.

2. I am directed to inform you that in the absence of any provision for the inspection of documents mentioned in your application dated August 21, 1969, your request cannot be acceded to. The search warrants were duly shown at the time of search.

3. As for the request for the return of the seized books, etc., the same are under scrutiny and would be returned thereafter.”

6. The second respondent, the Income-tax Officer, Companies Circle, B-Ward, Kanpur, had also impounded certain documents of the petitioner on May 6, 1971, under section 131 of the Act. Some more documents were impounded on October 15, 1971. When these documents and account books seized were not returned to the petitioner for a long time, he filed the present writ petition. The seizure of the account books and the documents has been challenged mainly on three grounds:

(i) that the Commissioner did not record any reason before issuing the search warrants;

(ii) that the books of accounts were retained beyond the period allowed under the law without the sanction of the Commissioner of Income-tax; and

(iii) that the sanction by the Commissioner to retain the books of accounts and documents beyond the initial period specified in the section was not communicated to the petitioner.

7. Before we deal with these contentions, we wish to observe that the Commissioner of Income-tax appears to be labouring under a great misconception with regard to the scope of section 132. As we have pointed out at an earlier occasion, the seizure of the books of accounts of a businessman is a serious encroachment upon his fundamental right to carry on business. Such an encroachment, of course, is permitted by law in public interest. But it is necessary that the powers under section 132 as also under section 131 should be exercised strictly in accordance with the law and the principles of natural justice. The petitioner asked for copies of the search warrants and the reasons recorded by the Commissioner for authorising the search. This request was refused. The petitioner then applied for inspection. That too was refused by the Commissioner on the ground that there was no provision permitting the inspection of the documents. This approach of the Commissioner is obviously erroneous. Unless there is a statutory prohibition, a person against whom action is being taken under section 132 is entitled to inspect the record of the proceedings and to obtain copies of the orders passed in those proceedings. If such a right is denied to him, he will not be able to satisfy himself that the action against him is justified and to seek redress against any illegal action taken or order passed. It is a well-known maxim that “justice not only should be done, but should be seem to have been done”. An aggrieved person is entitled to know that the requirements of the law have been complied with. We are thus satisfied that the Commissioner was not justified in refusing to the petitioner the inspection of the record or copies asked for by him. We may make it clear that in a given case it may be possible for the Commissioner to treat a particular information or a document as confidential and to withhold its inspection. But that is not the case of the department in the instant case. Wholesale refusal to grant copies or allow inspection is not justified by law.

8. Now, coming to the merits of the case, the first contention on behalf of the petitioner is that the Commissioner recorded no reasons before taking action under section 132 against him. Dr. R.R Misra, counsel for the department, concedes that no reasons have been recorded by the Commissioner. He passed on the file of the Commissioner relating to those proceedings and we do not find any reason recorded by the Commissioner.

9. Section 132 itself does not require the Commissioner to record any reasons unlike section 131 which requires the Income-tax Officer to record reasons before impounding the documents produced before him. However, rule 12 requires that reasons should be recorded by the Commissioner before issuing warrants of authorisation to carry out a search and seizure. Rule 12 has been framed by the Central Board of Direct Taxes in exercise of the powers given to it under sub-section (14) of section 132. These rules, therefore, have statutory force. Any search and seizure made in contravention of rule 12 would thus be illegal. The initial seizure of books of accounts being illegal, their retention would also be illegal.

10. Now, coming to the documents which have been impounded by the Income-tax Officer, we have been informed by the learned standing counsel that those documents have since been returned to the assessee. In the circumstances, it is not necessary to deal with the contention that the impounding and the subsequent retention of the documents was illegal. Since the petition succeeds on the first ground, it is not necessary to deal with the remaining two grounds.

11. For the reasons stated above, we allow this petition. The respondents are directed to return to the petitioner forthwith the books of accounts and documents seized during the search. The petitioner is entitled to its costs.

12. Petition allowed.