B.N Mahapatra, J.:— In this writ petition, the petitioners challenge the action of opposite parties Nos. 1 and 2 in conducting survey in their business premises and impounding books of account/documents belonging to their clients in course of the survey 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 few files and records available with the petitioner and placed mark of identification on the same bearing Nos. UKM-1 to UKM-6. The survey party impounded those documents. Being aggrieved by the aforesaid action of opposite parties, the petitioner made an application to opposite party No. 1 on June 16, 2008, under annexure 3, inter alia, requesting opposite party No. 1 to release the books of account and loose sheet bundles immediately. In the said letter, it was mentioned that the action taken by opposite party No. 1 not only contravened the Circular issued by opposite party No. 3 but also against the provisions of section 126 of the Indian Evidence Act, 1872 (hereinafter, referred to as “the Act, 1872”), which allows certain privilege to the petitioners and their clients in accordance with the provisions of sections 126, 127, 128 and 129 of the Act, 1872. It was also mentioned therein that books of account/documents were impounded without recording reasons thereof. Opposite party No. 1 did not return the impounded books of account and documents to the petitioner. He in his reply dated June 23, 2008 (annexure 4) intimated the petitioner that the survey operation under section 133A of the Income-tax Act was done as per the existing provisions of law. The petitioner was further informed that soon after completion of the survey operation, the impugned materials/loose sheet bundles were handed over to Sri B.D Mishra, Joint Director (Investigation), Income-tax, Aayakar Bhawan, Bhubaneswar (opposite party No. 2), who might be contacted for any clarification on the issue of release of the impounded materials/loose sheet bundles. Hence, this writ petition. Dr. Debi Pal, learned senior counsel for the petitioners, submitted that Circular No. 7-D(LXIII-7), dated May 3, 1967, under annexure 1 (hereinafter called the Circular dated May 3, 1967) issued by opposite party No. 3 clearly prohibits the income-tax authority to enter the premises of the chartered accountant acting under the provision of section 133A of the Act for the purpose of inspecting the books of account/documents of their clients. The aforesaid instruction though binding on income-tax authorities was violated by opposite party No. 1 while conducting survey under section 133A of the Act in the case of the petitioner. Opposite party No. 1 was not an income-tax authority competent under the Income-tax Act to conduct survey 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 is illegal, invalid and without any authority of law. The opposite parties are not legally permitted to verify the impounded books of account of the clients of the petitioners which are the privileged documents in accordance with the provisions of section 126 of the Act, 1872, as the matter relates to the professional communication between the clients and the petitioners. Dr. Pal further submitted that it is well settled that no court or authority can ask for the privileged documents relating to a client of any professional. In support of his contention he relied upon the decision rendered in the case of Watson v. Cammell Laird and Co. [Shipbuilders and Engineers] Ltd. [1959] 2 All ER 757 (CA) and Council of the Institute of Chartered Accountants of India v. Mani S. Abraham, AIR 2000 Ker 212. The actions of opposite parties violate the basic fundamental rights of the petitioner to carry on his business and is violative of articles 14 and 19(1)(g)(i) of the Constitution of India. Thus, the entire survey operation carried out by opposite party No. 1 is illegal, invalid and without jurisdiction.
3. Mr. Akhila Mohapatra, learned counsel appearing on behalf of opposite parties strenuously argued that a survey under section 133A was conducted at Plot No. 237, Bapuji Nagar, Bhubaneswar in connection with search and survey operation conducted in the case of Serajuddin and Co. and group. The provisions of section 133A(1) empower an income-tax authority to enter the office of a chartered accountant for which he has been authorized to do so and to inspect such books of account and other documents as he may require and may be available at such place. The petitioner's premises was surveyed as one of the business premises of the Serajuddin group, because of the petitioner's involvement in the group to the extent of receiving its sale proceeds in his chambers, keeping blank signed cheques of the key persons of the group, using his address for office purpose for many of the concerned group, etc. In the diary of the assessee group, the same plot number appears to that of the petitioner. The Circular dated May 3, 1967, is an outdated one and it has been superseded by various other circulars issued by the Board subsequently. The Taxation Laws (Amendment) Act, 1975, which came into force with effect from October 1, 1975, brought in a new provision by which powers under section 133A were enlarged and the scope of amendment was explained clearly, vide Board's Circular No. 179, dated September 30, 1975 ([1976] 102 ITR (St.) 9). The position as regards the powers 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 relating to his business or profession are kept. This is also explicitly stated in the 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 premises of a chartered accountant. All documents were impounded from the said premises by recording reason for doing so. The impounded books of account and documents have been retained beyond ten days from the date of impounding with the approval of the Director General of Income-tax (Investigation), Kolkata, as per the provisions of section 133A(3)(ia)(b). He further submitted that “Assessing Officer” appeared in Explanation (a) to sub-section (6) of section 133A includes an Income-tax Officer as per the definition of “Assessing Officer” given in section 2(7A) of the Income-tax Act.
4. Mr. Mohapatra further submitted that the provisions of section 126 of the Act, 1872, clearly speak that nothing in that section shall protect from disclosure of any such communication in furtherance of any illegal purpose. Evasion of tax is illegal and the petitioner is duty bound to disclose the same. The chartered accountant's code of ethics requires them “… not to shield a client from the consequences of his tax frauds, on the contrary it is guiding principle of professional conduct to discourage tax evasion….”
5. Concluding his argument, Mr. Mohapatra, learned counsel for the Revenue submitted that there was no illegality involved in the survey proceedings conducted by the Department in the premises of the petitioner.
6. In view of the rival contentions of the respective parties, the questions which fall for consideration by this court are as follows:
(i) Whether the income-tax authorities are empowered to conduct survey under section 133A of the Income-tax Act in the premises of a chartered accountant who is the auditor of an assessee in respect of whom survey under section 133A of the Income-tax Act is carried on?
(ii) Whether, on the facts and circumstances of the case, the Income-tax Officer, (Headquarters), opposite party No. 1 is not a competent income-tax authority to conduct survey under section 133A of the Income-tax Act in the premises of the petitioner chartered accountant?
(iii) Whether, on the facts and circumstances of the case, the opposite party No. 1 has impounded the books of account from the business premises of the petitioner only after recording reasons for doing so and thereby has not violated the mandates of section 133A(3)(a) of Income-tax Act?
(iv) Whether, on the facts and circumstances of the case, opposite party No. 1 or 2 has retained the impounded books of account/documents 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 of survey operation under section 133A of Income-tax Act amounts to breach of privileged communication by the petitioner?
7. 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 quoted 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 area assigned to him, or
(b) any place occupied by any person in respect of whom he exercises jurisdiction, or
(c) any place in respect of which he is authorized for the purposes of this section by such income-tax authority/who is assigned the area within which such place is situated or who exercises jurisdiction in respect of any person occupying such place,
at which a business or profession is carried on, whether such place be the principal place or not of such business or profession and require any proprietor, employee or any other person who may at that time and place be attending in any manner to, or helping in, the carrying on of such business or profession—
(i) to 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 acting under this section may,—
(i) if he so deems necessary, place marks of identification on the books of account or other documents inspected by him and make or cause to be made extracts or copies therefrom,
(ia) impound and retain in his custody for such period as he thinks fit any books of account or other documents inspected by him: Provided that such income-tax authority shall not—
(a) impound any books of account or other documents except after recording his reasons for so doing; or
(b) retain in his 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 therefor, 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 Deputy Director or an Assessing Officer or a Tax Recovery Officer or an Inspector of Income-tax without obtaining the approval of the Joint Director or the Joint Commissioner, as the case may be.
Explanation.—In this section,—
(a) ‘Income-tax authority’ means 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 purposes of clause (i) of sub-section (1), clause (i) of sub-section (3) and sub-section (5), includes an Inspector of Income-tax;…..”
8. So far as the first question is concerned, the provisions of section 133A make it clear that the place to which an income-tax authority can enter should either be a place within the limits of the area under the jurisdiction of the said income-tax authority or any place occupied by any person in respect of whom he exercises jurisdiction or any place in respect of which he is authorized for the purpose of the said section by such income-tax authority Who is assigned the area within which such place is situated or who exercises jurisdiction in respect of any person occupying such place. In either case, the place should be one where the business or profession of the assessee is carried on. It is immaterial whether the place of business is the principal or additional or subsidiary place of business or profession of a person in respect of whom survey under section 133A is intended. However, Explanation below sub-section (1) of section 133A of the Income-tax Act clarifies that a place where 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 business or profession states that any of his books of account or documents or any part of his cash or stock or any other valuable article or thing relating to his business or profession are or is kept. Thus, at the time of survey, if the concerned person states that any of his books of account or documents or any part of his cash or stock or any other valuable article is or are kept in the office of his chartered accountant or advocate or income-tax practitioner, the survey officer can enter such office for the limited purpose of inspecting those books of account or other documents. Similarly, if the concerned person states at the time of survey that his books of account or documents or cash or stock 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, the survey officer can enter those premises for the limited purpose of inspecting those books of account or other documents or cash or stock or any 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 course 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 cannot 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.
9. 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 M/s. Serajuddin and Co. and group in whose case survey under section 133A was carried on has stated that their books of account were kept in the premises of the petitioner-chartered accountant. No such statement of M/s. Serajuddin and Co. or group was also produced before this court in course of hearing. In the absence of any such statement, the opposite parties lack jurisdiction to enter the premises of the petitioner-firm and conduct the survey under section 133A of the Income-tax Act. The submission of Mr. Mohapatra, learned counsel for the Income-tax Department that survey under section 133A was conducted in Plot No. 237, Bapuji Nagar, Bhubaneswar as additional place of business of M/s. Serajuddin and Co. and group for which any such statement was not necessary is contrary to the materials available on record. In paragraph 2 of the counter-affidavit, opposite parties Nos. 2 and 4 have admitted that a survey under section 133A has been conducted in the premises of M/s. U.K Mohapatra and Co., Plot No. 237, Bapuji Nagar, Bhubaneswar, in connection with search and seizure operation in the case of Serajuddin and Co. and group. Annexure 2 shows that the Survey Officer has impounded books of account/loose sheet bundles in course of survey under section 133A of the Income-tax Act in the business premises of M/s. U.K Mohapatra and Co. on May 28, 2008. Further, pursuant to the petitioner's letter dated June 16, 2008 (annexure 3) for release of books of account/loose sheet bundles, opposite party No. 1, vide his letter dated June 23, 2008 (annexure-4) intimated the petitioner that survey operation under section 133A of the Income-tax Act was conducted in his premises on May 28, 2008, as per the existing provisions of law. In annexure C/2, opposite party No. 1 recorded reason for impounding the books of account/documents which also reveals that he conducted survey under section 133A of the Income-tax Act in the business premises of M/s. U.K Mohapatra and Co. There are other documents as annexure H/2, dated June 11, 2006; annexure-1/2 dated September 23, 2008, and annexure-J/2 to the counter-affidavit, which also reveal that opposite parties conducted survey under section 133A in the business premises of the petitioner.
10. Therefore, in the present case, survey conducted in the premises of the petitioner-chartered accountant under section 133A is without authority of law.
11. 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 133A 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 purposes 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 or any other provisions of the Income-tax Act by which opposite party No. 1 is vested with the power and jurisdiction of an Assessing Officer to assess the petitioner. sub-section (1) of section 133A of the Income-tax Act authorizes an income-tax authority to conduct survey as provided in the said section. A plain reading of Explanation (a) to sub-section (6) of section 133A which gives the meaning of income-tax authority does not reveal that opposite party No. 1-Income-tax Officer (Headquarters), who was authorized to conduct survey by opposite party No. 2 was an income-tax authority covered under the said Explanation. Thus, in the present case, the Income-tax Officer (Headquarters)-opposite party No. 1 is not an income-tax authority competent to conduct survey and can be authorized to conduct such survey under section 133A of the Income-tax Act in the premises of the petitioner.
12. So far as the third question is concerned, section 133A(3)(ia) makes it clear that the income-tax authority shall not impound any books of account or other documents except after recording his reasons for doing so. Section 133A(3)(ia) of the Act authorizes an income-tax authority to impound only those books of account which are inspected by him. “Inspection” involves intelligent application of mind. Recording of reasons again involves intelligent application of mind. Thus, inspection and recording of reasons are cumulative pre-conditions for impounding books of account or other documents under section 133A(3)(ia) of the Act. Needless to say that impounding is restricted only to inspected books of account/documents. Each book/document before impounding should be inspected. The Survey Officer before impounding books of account or documents must inspect those carefully and record reasons for impounding of the said books of account/documents.
13. In the present case, the reasons recorded by opposite party No. 1 in annexure C/2 to the counter-affidavit do not reveal that before impounding the books of account/documents bearing identification mark UKM-1 to UKM-6, those were inspected/examined. The reasons recorded are general in nature and do not indicate any application of mind by the Survey Officer before the same were impounded.
14. Dr. Pal, learned senior counsel for the petitioners, submitted that opposite party No. 1 has not recorded any reason before impounding the books of account of the petitioner. According to him, even though the books of account/documents were impounded on May 28, 2008, the so-called reasons for such impounding were recorded on May 29, 2008.
15. 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.
16. In this context, it may be seen that one of the reasons for impounding the books of account as recorded in annexure C/2 to the counter-affidavit is that the books of account of M/s. Serajuddin and Co. and group, which were found in the premises of the petitioner, could not be cross-tallied with the corresponding cash book, ledger, etc., as the latter were not available then. However, a perusal of the documents which were impounded as per the list contained in annexure 2 to the writ application does not reveal that the same belonged to M/s. Serajuddin and Co. and group. The authorized officer in annexure 2 has also not indicated that the said impounded documents belonged to M/s. Serajuddin and Co. and group. There is nothing on record to show that the survey commenced on May 28, 2008, and continued till May 29, 2008, and thus the impounding order was passed at about midnight of May 28, 2008, and simultaneously or immediately after reasons were recorded on May 29, 2008. Thus, suggestion made by Mr. Mohapatra in this regard is not worth acceptance. Therefore, the reasons as recorded on May 29, 2008, in annexure C/2 to the counter-affidavit cannot be considered as a valid reason for impounding the said books of account/documents on May 28, 2008.
17. The fourth question relates to power of income-tax authorities to retain impounded books of account beyond ten days. According to proviso (b) to clause (ia) of sub-section (3) of section 133A of the Act, the income-tax authorities shall not retain any books of account or other documents in their custody for a period exceeding ten days (exclusive of holidays) without obtaining the approval of the Chief Commissioner or the Director General. It was submitted by Dr. Pal that the impounded books of account were retained beyond ten days in contravention of the provisions of subsection (3) of section 133A. Mr. Mohapatra, learned counsel for the Revenue, contended that since the documents impounded were voluminous, they were retained beyond ten days after taking approval of DGIT, Calcutta. According to him, the books of account were impounded on May 29, 2008, and ten days from the date of impounding expired on June 11, 2008. On June 11, 2008, the DGIT (Investigation) approved the retention of the impounded books of account/documents up to August 31, 2008, under annexure H/2 to the additional counter-affidavit. Again, vide letter dated September 23, 2008 (annexure 1/2) to the additional counter-affidavit, the DGIT, Calcutta, approved retention of the same up to October 31, 2008.
18. 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 Commissioner 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.
19. 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 Department to plead that the assessee did not co-operate. It was held that retention was not bona fide and was liable to be quashed.
20. The Madhya Pradesh High Court in Sampatlal and Sons v. CIT [1984] 150 ITR 191 held that in a case where 180 days had expired from the date of seizure and no steps were taken to obtain the approval of the Commissioner during that period, but the approval was granted only after filing of a petition by the petitioner after two years from the date of seizure, such an approval could not validate the retention of books of account and other documents seized from the petitioner which became invalid after the expiry of 180 days.
21. Thus, the income-tax authorities cannot impound books of account or any documents without following the procedure laid down in section 133A of the Income-tax Act.
22. The hon'ble Supreme Court in CIT v. Oriental Rubber Works [1984] 145 ITR 477, arising under section 132 of the Income-tax Act held that it is the duty of the Revenue to communicate to the person concerned not only the Commissioner's approval but also the recorded reason on which the same has been approved. The hon'ble court further held that the communication should be made as expeditiously as possible after passing the order of approval. In default of such expeditious communication, any further retention of seized books of account or other documents would become invalid and unlawful. The concerned person, from whose custody books of account and other documents were taken, acquires a right to get return of the same.
23. This court in Super Construction v. Assistant Commissioner of Sales Tax [2008] 18 VST 387 (CESTAT-Orissa) (OJC No. 1622 of 1998) decided on July 23, 2008, has taken a similar view.
24. Even though section 133A of the Act does not provide for communication of the recorded reason of the Chief Commissioner or Director General and the reason advanced by the officer seeking extension of time for retention of impounded books/documents beyond the prescribed period of ten days to the person from whose custody documents were impounded, in all fairness, it should be communicated to the concerned person who is bound to be materially prejudiced because of such impounding and retention of books of account.
25. Admittedly, in the present case, even though the books of account and other documents were impounded 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.
26. 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. Strangely, neither opposite party No. 1 nor opposite party No. 2 sought for any approval either from the DGIT, Calcutta, or from the Chief Commissioner to retain the impounded books of account/documents beyond ten days. It is the ADIT 0nvestigation), Unit-2(1), Bhubaneswar, who, vide his letters dated June 4, 2008 (annexure K/2) and dated August 19, 2008 (annexure L/2) requested the DGIT, Calcutta, to accord necessary approval for retention of the impounded books of account up to June 30, 2008, and October 31, 2008, respectively. Further, annexure J/2 to the additional affidavit dated October 23, 2008, reveals that the DIT (Investigation), Bhubaneswar, requested for approval of the DGIT, Calcutta, for retention of the books of account and documents up to June 30, 2009, for preparation of appraisal report. Thus, it is evident, the opposite parties had not acted in accordance with the provisions of law, which is certainly undesirable on the part of the statutory authorities.
27. The hon'ble Supreme Court in Sangeeta Singh v. Union of India (2005) 7 SCC 484 : [2005] AIR 2005 SC 4459, held that a statute is an edict of the Legislature. The language employed in a statute is the determinative factor of the legislative intent.
28. The hon'ble apex court in Hukam Chand Shyam Lal v. Union of India, (1976) 2 SCC 128 : AIR 1976 SC 789, held that where a power is required to be exercised by a certain authority in a certain way, it should be exercised in that manner or not at all, and all other modes of performance are necessarily forbidden. It is all the more necessary to observe this rule where power is of a drastic nature and its exercise in a mode other than the one provided will be violative of the fundamental principles of natural justice.
29. In Hira Cement Workers Union v. State of Orissa [2001] 92 CLT 184, this court held that where a power has been given to do a certain thing in a certain way, the thing must be done in that way or not at all, and other methods of performance are necessarily forbidden.
30. So far as the fifth question is concerned, a plain reading of section 133A(3)(ia)(b) does not say that the CCIT or the DGIT should give a personal hearing to the person whose books of account are intended to be retained for a period exceeding ten days before any approval for such extended period of retention is granted. Retention of books of account for an extended period 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 and 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.
31. The principles decided by the hon'ble Supreme Court in Rajesh Kumar v. Deputy CIT [2006] 287 ITR 91 and reaffirmed in Sahara India (Firm) v. CIT [2008] 300 ITR 403 (SC) which has been relied upon by Dr. Pal, learned senior counsel appearing for the petitioners have no application to the present case. The facts of that case are completely different from the facts of the present case. In that case, a raid was conducted in the business premises of an assessee. Some documents including the books of account were seized few of which were in the hard disk of the computer. By order dated November 23, 2004, the Deputy Commissioner mooted a proposal for special audit in terms of section 142(2A) of the Act to the Commissioner of Income-tax. The Commissioner of Income-tax approved the said proposal of the Deputy Commissioner of Income-tax by letter dated February 29, 2004. Pursuant thereto, one Dinesh Gupta and Co. was appointed as a special auditor. Only on December 7, 2004, the assessee was informed in regard to appointment of an auditor for special audit of their accounts in terms of section 142(2A) of the Act. The Deputy Commissioner of Income-tax was requested by the assessee to supply the copy of the reasons by letter dated December 11, 2004, which was refused by a letter dated December 13, 2004. The chartered accountant submitted his audited report dated January 17, 2005. A writ petition was filed by the assessee before the Delhi High Court, inter alia, questioning that the order impugned was vitiated in law having been passed without giving any opportunity of hearing to the assessee and also on the same ground it suffered from total non-application of mind. The writ petition was dismissed by the Delhi High Court.
32. The hon'ble Supreme Court analysing the provisions of section 142(2A), inter alia, held that indisputably, the prejudice of the assessee, if an order is passed under section 142(2A) of the Act, is apparent on the face of the statutory provision. He has to undergo the process of further accounting despite the fact that his accounts have been audited by a qualified auditor in terms of section 44AB of the Act. An auditor is a professional person. He has to function independently. He is not an employee of the assessee. The fee of the special auditor has been fixed at Rs. 1.5 lakhs. The assessee during audit of the account by the special auditor had to answer a large number of questions. The expression “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.
33. 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 accounts. The assessee had to answer a large number of questions during the audit by a special auditor. In the case at hand, the income-tax authorities want only to examine the books of account impounded by them. These are the distinguished features between the two cases and the principle decided in Rajesh Kumar's case [2006] 287 ITR 91 (SC) and reaffirmed in Sahara India (Firm)'s case [2008] 300 ITR 403 (SC) has no application to the present case. By the Finance Act, 2007, with effect from June 1, 2007, a proviso has been inserted to section 142(2A) to the effect that the Assessing Officer shall not direct the assessee to get the accounts so audited unless the assessee has been given a reasonable opportunity of being heard. It may be relevant in the present context to say that wherever obtaining of “approval” of higher authority is provided under the Income-tax Act to do certain thing with regard to an assessee, a hearing need not always be given to such assessee merely because some consequences arise. Taxe for example the term “approval” used in the proviso to section 133A(6) of the Income-tax Act. The proviso says, no action under sub-section (1) of section 133A shall be taken by an Assistant Director or a Deputy Director or an Assessing Officer or Tax Recovery Officer or an Inspector of Income-tax without obtaining the approval of a Joint Director or a Joint Commissioner, as the case may be. Here, if a hearing is given to an assessee before granting approval for taking action under section 133A(1) in his case, then the entire purpose for which section 133A(1) is enacted will be frustrated.
34. So far as the sixth question is concerned, there would be no breach of privileged communication even if books of account belonging to the client of the petitioner were impounded by the income-tax authorities from the petitioner-firm who is the auditor of the said client. In the present case, the Survey Officer has only impounded the books of account belonging to the petitioner's client in respect of whom survey and search operation was conducted on the same day. The books of account/documents were impounded by operation of the statutory provisions contained in section 133A of the Act. The partner of the petitioner-firm did not volunteer to disclose anything about his client to the survey officers. The petitioner shall also not be right in his duty to prevent or 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.”
35. 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 from disclosure of any such communication in furtherance of any illegal purpose. Similarly, opposite parties in paragraph 10 of the counter-affidavit stated that the chartered accountant's code of ethics requires not to shield a client from the consequences of his tax frauds, on the contrary, it is a guiding principle of professional conduct to discourage tax evasion. Though the petitioner denied the averments made in paragraphs 9 and 10 of the counter, has not stated under what circumstance the legal provisions referred to by the opposite parties are not applicable. Apart from that, in paragraph 8 of the writ petition, the petitioner has stated that no question was put to him by the survey party regarding books of account/documents of his profession. Be that as it may, in the present case, since the partner of the petitioner-firm has not voluntarily disclosed any privileged communication between himself and his clients to the survey party, the question of breach of privileged communication does not arise.
36. In Watson v. Cammell Laird and Co. [Shipbuilders and Engineers] Ltd. [1959] 2 All ER 757, relied upon by the petitioner, it has been held that on the plaintiffs claim against the defendant in respect of an accident, his solicitors obtained copies of hospital records concerned with the plaintiffs treatment. The Court of Appeal held that these copies were privileged notwithstanding that the originals could be obtained by the defendant from the hospital by means of a court order. This is a part of the privilege that the advice given by a lawyer to his client is not disclosable, the reason being that by revealing the lawyer's copies, the lawyer's advice or strategy would emerge. Copies made by lawyer are the fruits of his expertise; in so far as skill is involved it was part of his professional skill in assisting his client to go to the hospital and get copies.
37. In Council of the Institute of Chartered Accountants of India v. Mani S. Abraham, AIR 2000 Ker 212, the hon'ble Kerala High Court has held that a chartered accountant disclosed information which had come to him during the statutory audit of a banking company. Communications were made to several persons including the Prime Minister about the alleged irregularities by the bank. This was held to be a grave professional misconduct.
38. In the present case, since the petitioner has not disclosed anything to the survey party voluntarily about his client, the question of breach of communication does not arise.
39. 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.
40. 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 account or any portion thereof are or is relevant for their purpose, they are entitled to take copy of such documents or portion of such books of account.
41. In the above fact situation, we direct opposite party No. 2 to return the books of account/documents as impounded from the premises of the petitioner in course of survey under section 133A by opposite party No. 1 within a period of two weeks from the date of production of a certified copy of this order before him by the petitioner. With the above direction, the writ petition is disposed of.
Dr. B.S Chauhan, C.J:— I agree.
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