HIGH COURT OF KARNATAKA
Raj and Raj Investments
v.
Income-tax Officer, Vishveshvarepuram, Mysore
D.V. SHYLENDHRA KUMAR, J.
WRIT PETITION NO. 15553 OF 2006
December 11, 2006
Section 133A of the Income-tax Act, 1961 - Survey - During survey conducted in premises of assessee-firm, income-tax authorities came across voluminous documents, books of accounts and other incriminating material, which in their opinion was required to be processed further and as such, impounded all documents - Despite several requests made by assessee for return of those documents, department did not return same even after five months - Continued retention of those documents by department was attributed to non-cooperation on part of assessee or its partner for investigation etc., failure of assessee, to file return of income offering certain income to be taxed despite giving assurance in respect of same and that documents belong to third parties and not to assessee firm or its partner. Therefore, they could not plead any hardship or disadvantage caused to them by continued retention of documents - Whether since documents were with department, the documents were with respondents names, which figure therein could have been recorded in their books and necessary action might be pursued and, therefore, there was no justification for department to plead that there was non-co-operation on part of assessee for investigation etc. - Held, yes - Whether if assessee had not offered income to tax, there was sufficient power under Act enabling income-tax authorities to take such necessary action as situation warranted and that could not be achieved by coercive method of retention of such impounded documents - Held, yes - Whether since assessee was answerable to his clients, who perhaps had parted with documents in favour of assessee for various business transactions, reposing trust in them, department’s contention that documents belong to third parties and not to assessee firm or its partner - Therefore, they could not plead any hardship or disadvantage caused to them by continued retention of documents was not justified - held, yes - Whether, therefore, defence put up by department was not tenable in law and also indicating lack of bona fides and as such it should be mulcted with costs also to be directed to return documents which they had impounded - Held, Yes
The assessee was a partnership firm whose premises were surveyed by the department. The survey lasted for not less than 12 hours in the premises during the course of which the authorities claimed that they came across voluminous documents/books of accounts and other incriminating material, which in their opinion was required to be processed further and as such impounded all the documents. The assessee made several request for the return of the documents but the department did not return those documents even after five months. The assessee filed writ contending that the respondents-income tax authorities had no power to take away valuable things such as title deeds of immovable properties and other stamped documents; that such impounding was not permitted under the provisions of section 133A(4); that the communication indicating that the retention was authorized up to 31-12-2007 by the Chief Commissioner was not permitted in law. The assessee therefore, prayed for quashing the order of retention of documents. The department, however, attributed the continued retention of documents to non-cooperation of the assessee or its partner for investigation etc., failure of assessee to file return of income despite giving assurance in respect of same and that documents belong to third parties and not to assessee firm or its partner. Therefore, they could not plead any hardship or disadvantage caused to them by continued retention of documents.
The entire action of conducting the survey is in the context of the power vested under section 133A. The object of conducting the survey is to gather information. The provisions of section 133A, as it stood earlier did not contain any power of impounding of documents during the course of search of a premises. The power of impounding documents is a later addition by Amending Act 20/2002 with effect from 1-6-2002.
(PARA 12)
The impounding can be initially for a duration of 10 days and thereafter, unless it had been properly authorised for continued retention, it should be returned. The intention is not to trespass into the privacy of the citizen and trample upon their private rights unless warranted. The other provisions also indicate that the officer exercising the power of survey should not remove from the place of survey any cash, stock or other valuable or other things. In the instant case, it was a fact that the respondents had removed certain valuable articles although, it was submitted that they had been returned to the petitioner. Be that as it may, it was a fact that impounded documents were lying with the respondents for over about six months. Though, it was described that voluminous documents had been impounded and it required time to process it, the list appended to the impugned order indicated that they were innumerable. It was not for the Income-tax Department to plead before this Court that for processing the few impounded documents, they require more than six months. The documents were with the respondents. The names, which figure therein could have been recorded in their books and necessary action might be pursued. There was no justification for the respondents to plead that there was non co-operation on part of assessee for investigation etc. When the respondents had impounded all the documents, there was nothing that could be done by the petitioner. The bogey of non co-operation and pleading that as the justification for continued retention falls flat on its faced could not be accepted. [Para 12]
It is no doubt true that the Act empowers the income-tax authorities to exercise their power for the purpose of Act and such powers are wide, drastic in nature and causing invasion into the individual rights and the privacy of the individuals. But, even while such provisions have been upheld by the Courts, the action would still become illegal if it is shown by the person affected that such action was resorted to not to advance the object of the Act but only on account of mala fides. If the person affected succeeds in proving that the power as exercised is not commensurate to the requirement of the situation, the action itself though permitted in law nevertheless becomes bad as arbitrary exercise of power or mala fide exercise of power. In the instant case, the exercise of power by the authorities under the Act was not only arbitrary but even goes beyond that and was more akin to mala fide exercise of power. The submission of the respondents that the petitioner though had agreed before the second respondent-Joint Commissioner that he would file the return of income offering income of Rs.10 lakhs to be taxed; that he had not complied so far was rather relevant. If at all, the authorities were expecting or hoping that the retention of the document would pressurize the petitioner to abide by what he had agreed, it meant that they were using powers under the Act to coerce the petitioner to submission rather than for any bona fide purpose. It was not for the authorities to embark upon such adventures, rather misadventures, though the intention may still be for gathering revenue to the State. If it was a fact that the petitioner should had offered income and if he had not offered it to tax, there was sufficient power under the Act enabling the income-tax authorities to take such necessary action as the situation warranted and that could not be achieved by coercive method of retention of such impounded documents. No doubt, the investigation was for the purpose of gathering information. The information having been already gathered, it was open to the respondent to follow it up with such action as was permitted under law pursuant to such information, but not to sit tight on the document seized to the detriment of the petitioner. Though it was urged that the documents belong to the third parties and not to the petitioner-partnership firm or the partner and therefore, they could not plead any hardship or disadvantage caused to them by the continued retention of the documents, this argument could not be accepted for the reason that all the documents which had been impounded were from the possession of the petitioner. The petitioner was answerable to his clients, who perhaps had parted with these documents in favour of the petitioner for various business transactions, reposing trust in them. Whether the said business transactions were illegal or were permitted in law were all matters to be separately taken care of and proceeded with. But on mere speculation and on mere possibilities, it was not open to the respondents to exercise their powers for survey for the continued retention just because the statutory provisions enables such retention. When the provisions of the Act is indicative of the intention of the Legislature that the least amount of authority should be exercised, it passes one’s comprehension as to why the impounded documents were required to be retained for well over a period of 18 months and omnibus permission of this nature for retaining the documents for 18 months without indicating any rhyme or reason or justification is something per se bad. Such permission, it appeared, had been granted by the Commissioner as part of a wholesale permission in respect of five such acts by simply nodding his head without examining as to the need or justification. A permission of this nature while per se was bad in law, the defence put up was also not a bona fide one. It is a well settled principle of law that while such powers when exercised even as permitted in law, it should be least obtrusive and just commensurate to the requirement of the given situation. Doctrine of proportionality calls for justifying every action by applying these tests and if it is found that the exercise of power is more than warranted or justified in the sense it results in the imposition of excessive restriction, the action does not withstand scrutiny of judicial review and has to be declared as bad. Though the Courts exercise only the jurisdiction of judicial review of administrative action, the depth of judicial review is proportionate to the gravity of the situation. Greater the affectation of a right by a questioned administrative act, deeper will be the scrutiny. [Para 13]
The blind permission of this nature authorizing the impounded documents to be retained for a period of 18 months was definitely an excessive inroad into the privacy and individual rights and when no justification or bona fides were forthcoming to defend it, the action could never be permitted in law, as the exercise of power under the Act could only be for bona fide purpose and not for whimsical or arbitrary action. [Para 14]
The defence put up by the respondents even in terms of the statement of objections being not tenable in law and also indicating lack of bona fides, it was necessary that the respondents should be mulcted with costs quantified at a sum of Rs.5,000. Consequently, the respondents were directed to return the documents, which they had impounded pursuant to the act of impounding. However, it is open for the respondents to take such other action as is permitted in law in accordance with the law and the provisions of the Act. It is also open to the respondents to retain the copies of the impounded documents which the petitioner shall authenticate at the time of taking back of the originals as true copies. [Para 15]
In the result, the authorization to the statement of objections and the continued retention of the documents pursuant to the impounding orders to the writ petition and all other actions thereafter deserved to be quashed and were accordingly quashed.
The writ petition was allowed. [PARA 16]