- Bookmark
- Share
- CaseIQ
Tin Box Company v. The Income-Tax Appellate Tribunal
Factual and Procedural Background
The petitioner’s business premises were searched pursuant to an order under Section 132 (raid on 23.7.1985). For the assessment year 1984–1985 an assessment order was passed on 31 March 1987. That order was challenged; the first appeal was dismissed on 5 January 1988. A second appeal was filed to the Income Tax Appellate Tribunal (respondent No.1) and applications for adducing additional evidence were made; the Tribunal dismissed the appeal by order dated 30 August 1988. An application under Section 256(1) was filed following that order. The petitioner filed applications under Section 254(2) for recall/rectification of the 30 August 1988 order; one such application was rejected by order dated 2 February 1989 and another miscellaneous application under Section 254(2) filed on 13 March 1989 was dismissed by order dated 29 March 1989. The present writ petition challenges the various orders described above. The petitioner also contends that books of account and other documents seized in the 1985 raid have not been returned; a letter of 23 April 1990 informed the petitioner that an order dated 19 December 1989 had been passed for continued retention, and earlier approval up to 31 December 1989 was said to have been accorded though no earlier letter was produced.
Legal Issues Presented
- Whether the High Court should, in proceedings under Article 226 of the Constitution, interfere with the assessment order and the merged appellate orders culminating in the ITAT order dated 30 August 1988.
- Whether orders dated 2 February 1989 and 29 March 1989 disposing of applications under Section 254(2) without hearing the applicant and without stating reasons were valid.
- Whether continued retention of books and documents seized under Section 132 was warranted where (a) the assessee was not informed of the Section 132(8) order within a reasonable time and (b) the reasons for retention were not communicated, thereby impairing the assessee’s right under Section 132(10).
Arguments of the Parties
Petitioner's Arguments
- The orders dated 2 February 1989 and 29 March 1989 under Section 254(2) were passed without affording the petitioner an opportunity to be heard and without communicating reasons.
- The books of account and other documents seized on 23 July 1985 have not been returned; no notice was served informing the petitioner that an order under Section 132(2) (presumably Section 132(8) in text) had been passed for continued retention, nor were reasons communicated, preventing effective exercise of the right under Section 132(10).
Respondents' Position
- Counsel for the petitioner produced a letter dated 23 April 1990 stating that an order dated 19 December 1989 had been passed by the Commissioner for continued retention of the books; it was further stated that earlier approval for retention up to 31 December 1989 had been accorded, but no earlier letter was produced to the Court.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Smart Pvt. Ltd. v. ITAT (182 ITR 384) | Where an application under Section 254(2) is filed, the applicant must be heard before disposal and reasons for dismissal should be given. | The Court applied this principle to hold that the petitioner was entitled to be heard and to have reasons communicated; since neither occurred, the impugned orders disposing of the Section 254(2) applications were quashed and the Tribunal was directed to hear and dispose of those applications on merits. |
Court's Reasoning and Analysis
The Court proceeded as follows:
- The assessment order merged into the order of the Commissioner of Income-Tax (Appeals), which in turn merged in the ITAT order dated 30 August 1988; accordingly the High Court would not interfere with those orders in proceedings under Article 226. The petitioner had an alternative remedy under the Income-tax Act and had availed of it by filing an application under Section 256(1).
- Concerning the orders dated 2 February 1989 and 29 March 1989 disposing of applications under Section 254(2), the Court noted the precedent in Smart Pvt. Ltd. v. ITAT requiring an opportunity of hearing and reasons for dismissal. The Court found that in the present case the petitioner was not heard and the impugned orders did not state reasons; therefore those orders were invalid.
- On retention of seized books and documents, the Court analysed Section 132(8) (authorising the Commissioner to order retention for reasons to be recorded in writing) and Section 132(10) (right to apply to the Central Board). The Court held that the right under Section 132(10) would be meaningless unless the order under Section 132(8) and the reasons for it are communicated to the assessee within a reasonable time. Mere intimation that an order had been passed is inadequate because the assessee must know the reasons to make a meaningful challenge. Because the petitioner was not informed within a reasonable time and reasons were not communicated, the Court concluded continued retention was not warranted.
- Accordingly, the Court quashed the impugned orders (stated in the judgment) and directed remedial action: the Tribunal should hear and dispose of the Section 254(2) applications on merits; the department should return the seized books and documents within three weeks subject to copying at the department's cost and attestation by the petitioner’s representative; the petitioner must produce the documents when legally required and keep them in safe custody.
- The Court observed it was unnecessary to decide the validity of Rule 46-A for the view taken and ordered no costs.
Holding and Implications
PETITION ALLOWED
Direct effects and orders issued by the Court:
- The orders dated 2nd February, 1979 and 29th March, 1979 (as stated in the judgment) were quashed.
- The Court issued a Writ of Mandamus directing respondent No.1 (the ITAT) to hear and dispose of the two applications under Section 254(2) on merits and in accordance with law.
- The Court issued a Writ of Mandamus directing respondent No.3 to return to the petitioner, within three weeks from the date of the judgment, the books of account and other documents seized from the petitioner’s premises; before return the department may, at its own cost, obtain photocopies of relevant entries and documents and have them attested by the petitioner’s representative. The petitioner is to produce the returned documents as and when required by law and to keep them in safe custody.
- The Court stated it was not necessary to decide the validity of Rule 46-A and ordered that there be no costs.
No broader legal consequences or new precedent were proclaimed by the Court beyond the application of existing principles to the facts of this petition; the decision's immediate effect is to provide the reliefs listed above to the petitioner.
Disposition: Petition allowed.
B.N Kirpal, J.:—Rule D.B As the question involved is covered by a Full Bench decision of this Court, we are disposing of the writ petition immediately.
2. An order under Section 132 was issued whereafter the business premises of the petitioner was searched. In respect of the assessment year 1984-1985, an assessment order was passed on 31st March 1987. The same was challenged in appeal, but the appeal was dismissed on 5th January, 1988. A second appeal was filed to the Income Tax Appellate Tribunal (respondent No. 1). The petitioner also filed applications for adducing additional evidence. Vide an order dated 30th August, 1988 the said appeal was, however, dismissed. We are informed that an application under Section 256(1) has been filed pursuant to the said order dated 30th August, 1988. The petitioner then filed an application under Section 254(2) for recalling or rectifying the order dated 30th August, 1988. Vide an order dated 2nd February 1989, this application was rejected. Another miscellaneous application under Section 254(2) was filed on 13th March. 1989 and this was dismissed by the order dated 29th March, 1989.
3. In the present writ petition the aforesaid orders passed by the various authorities have been challenged before us.
4. As far as the assessment order and the order of the Commissioner of Income-Tax (Appeals) and the order dated 30 August, 1988 are concerned, there is no question of our interfering with them in these proceedings under Article 226 of the Constitution. The assessment order has merged in the appellate order of the C.I.T (Appeals) and that order has merged in the order dated 30th August, 1988 of the Income Tax Appellate Tribunal.
5. There is an alternative remedy provided to the petitioner under the provisions of the Income-tax Act and the petitioner has availed of the same by filing an application under Section 256(1) of the Act.
6. As far as the orders dated 2nd February, 1989 and 29th March, 1989 are concerned, the contention of the petitioner is that the said orders have been passed without affording any opportunity to be heard in person and without any reasons being indicated in the imppugned orders.
7. This Court in Smart Pvt. Ltd. v. ITAT (182 ITR 384) has held that when an application has under Section 254(2) is filed, the applicant has to be heard before the application is disposed of and secondly, reasons for dismissal should be given.
8. In the present case, admittedly, the applicant was not heard when the said applications were disposed of, and nor do the impugned orders contain any reasons.
9. The other contention which is raised in this petition is that the books of account and other documents which were seized by the respondents pursuant to the raid which was conducted under Section 132 of the Act on 23.7.1985 have not yet been returned. The contention of the petitioner is that no notice was ever served on the petitioner to the effect that any order under Section 132(2) had been passed for continued retention of the books; nor were an reasons communicated.
10. Mr. Rajendra has place before us a copy of the letter dated 23rd April, 1990 informing the petitioner that an order dated 19th December, 1989 had been passed by the Commissioner of Income-tax for continued retention of the books. It is further stated in this letter that earlier approval of the Commissioner for retention of the books etc. up to 31st December, 1989 had been accorded, but the learned counsel is unable to bring to our notice a copy of any earlier letter written to the petitioner prior to 23rd April, 1990.
11. Under sub-section (8) of section 132 the appropriate authority, namely, the Commissioner of Income-tax can order the retention of the books etc. for reasons to be recorded in writing. Against such an order which is passed the assessee has a right to file an application to the Central Board of Direct Taxes under Section 132(10). This right would become meaningless if the passing of the order under Section 132(8) is not made known to the assessee within a reasonable time and, what is more important is that the reasons for continued retention of the books are not communicated to the petitioner. Merely sending intimation to the petitioner that an order for continued retention of the books had been passed cannot give the petitioner adequate opportunity to exercise his right under Section 132(10). Unless and until the petitioner knows what are the reasons which have weighed for passing an order under Section 132(8), he cannot file a meaningful application seeking to challenge the said reasons which may have weighed with the Commissioner of Income-tax. In our opinion, therefore, when an order under Section 132(8) is passed it is imperative that the assessee should be communicated the order itself containing the reasons on which the said order has been passed. Furthermore, this order should be communicated to the petitioner within a reasonable time and as expeditiously as possible so as to enable the assessee to exercise his right under Section 132(10). In view of the fact that there has been a failure on the part of the respondents in informing the petitioner, within a reasonable time, of the passing of the orders under Section 132(8) and, furthermore because no reasons have been communicated to the petitioner, the continued retention of the books of accounts and the other documents are, in our opinion, not warranted.
12. For the aforesaid reasons, we allow this writ petition. We quash the orders dated 2nd February, 1979 and 29th March, 1979 and issue a Writ of Mandamus directing the respondent No. 1 to hear and dispose of the two applications under Section 254(2) on merits and in accordance with law. We further issue of Writ of Mandamus to respondent No. 3 to return to the petitioner, within 3 weeks from today, the books of accounts and other documents which had been seized from the petitioner's premises. Before returning the books and other documents the department will be at liberty, at their own costs, to obtain photo copies of the relevant entries the and documents and they should be attested by the petitioner's representative as true copies. The petitioner will produce the returned documents and account books etc. as and when he is required to do so in accordance with law. The petitioner will keep the documents and other returned material in safe custody.
13. It is not necessary to decide the validity of Rule 46-A for the view which we have taken.
14. There will be no orders as to costs.
Petition allowed.
Alert