Commissioner of Income-Tax v. Jawahar Lal Rastogi

Judgment

COMMISSIONER OF INCOME-TAX JAWAHAR LAL RASTOGI May 7, 1970 [J.C. SHAH, K. S. HEGDE AND A. N. GROVER, JJ.J 5 81 Income t<1x Act, 1961, as amend.ed by Finance Act 1965, s. 13:!(5)- St'izure of doc:tonent.\' and retention heyond 180 clay.s-J\/o recor,f of reasons by l.T.O. or appro~·at Df Conunissiuner of such r'1tention--Legality of rt•tt•111ion, On September 14, 1964 the Income tax Officer called upon the as;essee to furnish within I 0 days statements relatin~ to four assessment years ending on March 3 I. 1960. The asse<see did not furnish the infcrmation by the 19th and on that date on the report of the Income-tax Officer. the Commissioner authorised the Income tax Officer to ••arch the premises of the assessee. On September 21st and 22nd the premises were searched and a large number of documentswere scizc<l and retained till May 1966, that is, for a period of 19 months. Jn a writ petition ficl<l by the asscsscc, the High Court, follo\\·ing its own decision in Serh B.ro<. v. CJ.T., 62 J.T.R. 44 held that the searcJo was indiscriminate and beyond the· scope of s.

132 of the Income-tax Act, 1961 In appeal to this Court. HELD: (i) The decision relied on by the High Court was o'errule<l by this Court in /.T.0. v. Seth Bros., 74 I.T.R. 836, but it vas held that the power of search must he exerciseJ strictly in accordanc;;: \\'ith the law and only for the purposes for which the law authorises it to b.:- .:xercised. Whether the action of the Commissioner in a oarticui~tr case amounted to indiscriminate search and hcyond the sCope of -... \\10uld dcpenJ on the cvi<ler.ce in the case. f-583 E: 584 E-F] (2) Jn the present case, there "'·as no or<ler of the authorities rcccrJing reasons for retainin.(! the documents seized beyond 180 days. n0r \\'as there any approval of the Commissioner for such retention. Therci0re the retention \vas contrary to the terms of s. 132(8) of the Act as am~ndcd hy lhe lncomc·lax ( Amcndmenl) Acl. 1965. 1585 C-Dl ( 3)

Though failure to record reasons hy the l.T.0. and want of approval by the Commissioner for retainin.!Z the documants beyond 180 Jay.;. \Vere not urged before the High Court as grounds for release of the documents. when it was found that the documents were retained for 19 month.;;. the department should have tendered evi<.lence of such ·record of re::1-.on.;; or approval hy the Commissioner if it v.:as the case of the dcpartn1cnt that the retention of the documents coul<.l he supported by such rcaso!l;; or approval. 1585 E-C] C1v1t APPELLATE JuR1s01cnoN: Civil Appeal No. 16 of 1970. Appeal bv special leave from the judgment and order dated May 22, 1969 o.f the Allahabad High Court in Civil Misc. Writ No. 588 of 1966. 5UPREME COURT REPORTS [1971] l S.C.R: Jagadish Swarup, Solicitor-General, R. N. Sachthey and B. D. Sharma, for the appellants. G. C. Sharma and P. K. Mukherjee, for the respondent. The Judgment of the Court. was delivered by Shah, J. Jawahar Lal Rastogi--hereinafter called 'the assessee-is a Hindu Undivided Family which carries on the business of money-lending at Lucknow and is also interested as a partner in different firms engaged in the business of manufacturing barbed wire, pharmaceuticals, etc. On September 14, 1964, the Income-tax Officer, A-Ward, ~ailed upon the asses~ee to furnish within 10 days certain information with regard to its income and assets.

On September 17, 1964 the Income-tax Officer submitted to the Comn1issioner of Income-tax a report requesting that he be authorised to emer and search the premises of the assessee. The Commissioner by his order dated September 19, 1964, authorised en\ry and search after recording reasons for his belief that it was necessary to carry out the search. On September 21 and 22, 1964, the premises of the assessee were searched and a large number of documents were seized and were taken away to the Income-tax Officer. The Income-tax Office.r also prepared inventories of the ornaments and other goods kept in the premses searched. After the seizure of the books of account and other documents the case wa~ fixed for hearing before the Income-tax Officer on several occasions, but no substantial step was taken.

In May 1966 the assessee filed a writ petition in the High Court of Allahabad challenging the validity of the search made by the Department contending that it "was illegal and in excess of the power conferred by s. 132 of the Income-tax Act, 1961" and prayed that the documents seized may be ordered to be released. The High Court of Allahabad considered the evidence appearing from the affidavits filed and observed that in the pre·· sent case the assessee had established the following "points" : (I) The Income-tax Officer was apparently interested in investigating transactions prior to 1953. On September 14, 1964, the assessee was directed to furnish statements relating to four years ending on March 31, 1960, yet the Commissioner of Income-tax issued letters of authorisation permitting Incometax Officer to seize documents relevant to nine as,essment years: (2) The raid was ordered arid organised before the dpiry of the period of the notice; ( 3)

More than 300 books and registers were seized during the raid and the Income-tax Officers carried away thousands of promissory notes. Some of the documents seized appear' to. be fl C.I.T. v. JAWAHAR LAL (Shah, J.) irrelevant for assessment pu:oses and some of them were public documents. ( 4) There is reason to believe that all or almost all the documents found on the premises were seized and carried away by the Income-tax Officers; ( 5) Marks of identification were not placed on the docu· rnents in spite of the direction contained in the letters of autho· risatiou; aod ( 6) The documents seized during the raid were detained by the lncome-tax Officers for 19 months before the petition was filed. Jn the view of the Higb Court the circumstances of the case indicated that the Commis~oner of Income-tax and the Incometax Officers acted beyond "the legitimate scope of s. 132 of the Act and the.e was force in the complaint of the assessee that the Allahabad High Court in Seth Brothers'

Case(') was overtituted abuse of power conferred on Income-tax authorities by s. 132 of the Act". In reaching its conclusion, the High Court relied upon the judgment of the Allahabad High Court in Seth Brothers v. Commissioner of Income-tax('). In this appeal filed by the Commissioner of Income-tax with special leave, the Solicitor-General contends that the decision of the Allahabad High Court in Seth Brothers' Case(') was over· ruled by this Court in Income-tax Officer, Special Investigation Circle "B", Meerut v. Seth Brothers & Ors.(2). and on that account the judgment under appeal is liable to be oet aside. In Seth Brothers' case( 2) this Court examined the scheme of s. 131 in some detail and observed : "The condition for entry into and making <earch of any building or place is the reason to believe that any books of account or other documents which wil! be useful for, or relevant to, any proceeding under the Act may be found.

If the Officer has reason to believe that any books of account or other documents would be useful for, or relevant to, any proceedings under the Act, he is authorisw by law to seize those books of account or other documents, and to place marks of identification therein, to make extracts or copies therefrom and also to make a note or an inventory of any articles or other things found ia the course of the search. Since by the exercise of the power a serious invasion is made upon the rights, privacy and freedom of the taxpayer, the power must be (I) 62 LT.R. 44. (1971] l S.C.R. exercised strictly in accordanc~ with the law and only for the purposes for which the law authorises it to be exercised. . If the conditions for exercise of the power are not satisfied the proceeding liable to be quashed.

The Act and the Rules do not require that the warrant of authorisation should specify the particulars of documents and books of account : a general authorisation to search for and seize documents and books of account relevant to or useful for any proceeding complies with the requirement of the Act and· the Rules. It is for the officer making the search to exercise his judgment and seize or not to seize any doucments or books of account. The aggrieved party may undoubted! y mo~e a competent court for an order releasing the documents seized. In such a proceeding the Officer who has made the search will be called upon to prove how the documents seized are likely to be useful for or rekvant to a proceeding under the Act. If he is unable to do so, the court may order that those document> be •eleased. But the circumstance that a large number of documents seized is not a ground for holding ihat all documents seized are irrelevant or the action of the officer is ma/a fide."

It must, however, be stated that the findings that the action of the Commissioner of Income-tax and the Income-tax Officer amounted to "indiscriminate search" and was beyond the "le~i­ timate scope of s. 132" depends upon the evidence ea~h case and no general rule can be laid down in that behalf. In the present case the High Court has no!Iced two important circumstances : ( 1) that where as the notice dated September 14, 1964, required the assessee to furnish statements relating to the four assessment years ending on March 31, 1960. the Commissioner of Income-tax authorised search for a period of nine assessment years even before the period fixed by the notice had ·expired; and ( 2) that contrary to the plain terms of s. 132 ( 8) the Income-tax Officer retained with him the books of account for a period exceeding 180 days. Under s. 132(2) as in force on the date on which the search and seizure took place stood as follows :

"The books of account or other documents seized under sub-section ( 1) shall not be retained by the Inspecting Assistant Commissioner or the Income-tax 0 C.l.T. v. JAWAHAR LAL (Shah, J.) Officer for a period .exceeding one hundred end eighty days from the date of the seizure unless the reasom for retaining the same are recorded by him in writing and the approval of the Commissioner for such .retention is obtained : Provided By th~ Finance Act of 1965, sub-s. (2) was re-~11acted as sub-s. ( 8) with the modification that for the words "Inspecting Assis· tal)t Commissioner or the Income-tax Officer" the words .. authorised officer" be substituted. In the present. case the premises of the assessee were sear~h­ ed on September 21 and 22, 1964, and the document; were retained till May 1966, i.e. for a period of 19 months.

Our attention has not been invited to any order of the authorities recording reasons for retaining the documents seized after the expiry of 180 days, nor is there any approval of the Commissioner for retaining such documents. The retention of the documents without complying with the . requirements of the statute after expiry of the period of 180 days would be plainly contrary to Jaw. The Solicitor-General said !\lat it was not urged before the High Co.irt that because the authorised officer did not record reasons and the Commissioner did not approve retention of the documents after 180 days, the revenue authorities were bound to release the documents. Counsel submitted that failure 10 produce evidence on a matter not put in issue may not be ngarded as a ground in support of an order releasing document,. But the High Court has found that the documents sci?ed d:uir·g the raid were detained by the authorised officer 'or 19 months before the application was filed.

If it was the case of the Department that retention of the documents after the e\piry or 180 days was. supported by good and adequate r~asons record~d by the Income-tax Officer and th.~ approval of the Commissior•er as required by the Act was obtained, such recorci of reasons and approval would have been tendered in evidence. It cannot be said that the attention of the parties was not directed to the circumstance that the Income-tax Officer had failed to comp1v with the requirements of the Act. The order recorded by the High Court must be sustained on the ground that the documents taken possession cf were retai,ned without authority of law for a period exceeding 180 days contrary to the terms of s. 132 ( 8) as amended by the Income-tax (Amendment) Act, 1965. Th.~ appeal therefore fails ai1d is dismissed with cost<.. V.P.S Appeal dismissed.