M. L. Enterprises v. Commissioner Of Income Tax — 1993 DIGILAW 520 (PAT)

Judgment G.C.Bharuka, J. 1. In these three writ applications which are based on identical foundational facts involving similar questions of law and reliefs claimed, the prayer is for a direction upon the respondents to forthwith release the books of account pertaining to the transactions of the petitioner firms which had been impounded on August 24, 1992, under the provisions of Sec.131(3) of the Income-tax Act, 1961 (hereinafter in short "the Act" only). 2. The petitioners are partnership firms registered under the provisions of the Act and are engaged in the business of sale and purchase of various agricultural produce either of their own account or as commission agents. 3. Pursuant to the notices issued to the petitioners under Sec.131(1) of the Act, they produced their books of account in question before the respondent Assistant Commissioner (Inspection) which were impounded by him under Sub-section (3) of the aforesaid section. Since respondent No. 2 felt it necessary to retain the books of account for a period exceeding 15 days, as required under the proviso to Sec.131(3), the Commissioner of Income-tax accorded his approval permitting the retention of the books of account in question till March 31, 1993, which was duly communicated to the petitioner firms under letter dated September 23, 1992 (annexure 2). Since respondent No. 2 felt the necessity of retention of the said books of account even beyond the period originally approved, further retention was permitted by the Commissioner by his order dated March 23, 1993, till the period September 30, 1993, and lastly up to March 31, 1994, under his order dated September 20, 1993, as is evident from annexure 4. 4. A counter-affidavit and supplementary thereto have been filed by the respondent-income-tax authorities wherein it has been disclosed by them that some persons, namely, Ashok Kumar and Ram Prasad of Upper Bazar, Ranchi, had remitted huge amounts to the tune of Rs. 60 lakhs or above to various out-station parties through bank drafts purchased in their favour in cash from the State Bank of India, Ranchi. The said remittances had taken place during the financial year 1989-90. 60 lakhs or above to various out-station parties through bank drafts purchased in their favour in cash from the State Bank of India, Ranchi. The said remittances had taken place during the financial year 1989-90. On enquiry from the recipients of these drafts, which were of Dhamtari/Raipur, etc., it was revealed that the drafts had been purchased by the petitioner firms and, accordingly, since these transactions had not been disclosed by these petitioners in their books of account, the same were impounded as stated above and reassessment proceedings have been initiated against them. The petitioners have filed their returns on December 6, 1993. Respondent No. 2 has stated that, keeping in view the factum of the transactions involved, detailed enquiry and the finalisation of the assessment proceedings may take a further 8 to 10 months. 5. Mr. B.K. Poddar, learned counsel appearing for the petitioners, has submitted that the retention of the impounded books of account is contrary to the mandatory provisions contained in Sub-section (3) of Sec.131 of the Act which, according to him, is pari materia with Sub-sections (1) and (8) of Sec.132 of the Act and, therefore, the same should be directed to be released in favour of the petitioner firms forthwith. By relying on the decision of the Supreme Court in the case of CIT V/s. Oriental Rubber Works [1984] 145 ITR 477, learned counsel for the petitioners has further submitted that, in law, unless the reasons recorded for retention of the books of account and the order of the Commissioner approving such retention for a period exceeding 15 days are communicated to the person from whom such books of account have been impounded, the retention of the same will become invalid and unlawful. According to him, in the present case, at least the reasons which had prompted the respondent Assistant Commissioner for impounding the books of account had not been communicated to the petitioners and, therefore, they are entitled to the reliefs claimed in these writ petitions. 6. Since the main thrust of the submissions of Mr. Poddar is based on the construction of Sec.131(3) of the Act, I may first reproduce the same hereunder : "131. 6. Since the main thrust of the submissions of Mr. Poddar is based on the construction of Sec.131(3) of the Act, I may first reproduce the same hereunder : "131. (3) Subject to any rules made in this behalf, any authority referred to in Sub-section (1) or Sub-section (1A) may impound and retain in its custody for such period as it thinks fit any books of account or other documents produced before it in any proceeding under this Act : Provided that an Assessing Officer or an Assistant Director shall not- (a) impound any books of account or other documents without recording his reasons for so doing, or (b) retain in his custody any such books or documents for a period exceeding fifteen days (exclusive of holidays) without obtaining the approval of the Chief Commissioner or Director-General or Commissioner or Director therefor, as the case may be." 7. On a plain reading of the aforesaid provision, it is amply clear that for the reasons recorded by the concerned income-tax authority he can retain in his custody the books of account impounded by him for such period as he thinks fit provided for retaining the same for a period exceeding fifteen days he has to obtain approval of the authorities mentioned in Clause (b) of the proviso to Sub-section (3) of Sec.131 as quoted above. It does not, on the face of it, provide that either the reasons so recorded or the order of approval has to be communicated to the person concerned. 8. In the present case, as stated in the counter-affidavit and as is also apparent from the records produced before us, before impounding the books of account in question, respondent No. 2 has recorded reasons for doing so. As stated above, the retention has also been duly approved by the Commissioner of Income-tax for the period till March 31, 1994. Therefore, the only question which remains to be considered is as to whether the mere non-communication of the reasons within a particular period can make the retention of the books of account invalid ? 9. The submission of Mr. Therefore, the only question which remains to be considered is as to whether the mere non-communication of the reasons within a particular period can make the retention of the books of account invalid ? 9. The submission of Mr. Poddar is that keeping in view the law laid down by the Supreme Court in the case of CIT V/s. Oriental Rubber Works [1984] 145 ITR 477, the requirement of communication of the reasons and the order of approval should be read as an implicit mandatory requirement even under Sec.131(3) of the Act, since according to him the provisions pertaining to seizure of books of account as also retention as envisaged under Sub-sections (1), (1)(a) and (8) of Sec.132 are pari materia with the provisions of Sec.131(3) which are under consideration in this case. 10. The Supreme Court while considering the various relevant provisions pertaining to seizure of books of account as incorporated under Sec.132 of the Act particularly Sub-section (8) thereof, which requires recording of reasons has observed in the above-referred case as follows (at page 483) : "It is true that Sub-section (8) does not in terms provide that the Commissioners approval or the recorded reasons on which it might be based should be communicated to the concerned person but in our view since the person concerned is bound to be materially prejudiced in the enforcement of his right to have such books and documents returned to him by being kept ignorant about the factum of fulfilment of either of the conditions, it is obligatory upon the Revenue to communicate the Commissioners approval as also the recorded reasons to the person concerned. In the absence of such communication the Commissioners decision according his approval will not become effective." 11. While taking the aforesaid view, the Supreme Court has taken note of Sub-section (10) of Sec.132 of the Act which confers upon the person legally entitled to the return of the seized books and documents, a right to object to the approval given by the Commissioner under Sub-section (8) by making an application to the Central Board stating therein the reasons for such objection. Under Sub-section (12) it is provided that the Central Board may, after giving the applicant an opportunity of being heard, pass such orders as it thinks fit. Under Sub-section (12) it is provided that the Central Board may, after giving the applicant an opportunity of being heard, pass such orders as it thinks fit. The court has observed that without the knowledge of the factum of the Commissioners approval as also of the recorded reasons on the basis of which such approval has been obtained, it will not be possible for the person to whom the seized books or documents belong to make any effective objection to the approval before the Board and get back his books or documents. Keeping in view all these aspects, it has ultimately been held by the Supreme Court in the said case as follows (at page 484) : "In our view the scheme of Sub-sections (8), (10) and (12) of Sec.132 makes it amply clear that there is a statutory obligation on the Revenue to communicate to the person concerned not merely the Commissioners approval but the recorded reasons on which the same has been obtained and that such communication must be made as expeditiously as possible after the passing of the order of approval by the Commissioner and in default of such expeditious communication any further retention of the seized books or documents would become invalid and unlawful, it is obvious that such obligation arises in regard to every approval of the Commissioner that might have been accorded from time to time." 12. Admittedly, against the order of retention under Sec.131(3) of the Act, there is no statutory remedy like the one provided under Sec.132(10) read with Sec.132(12) of the Act. Moreover, the Supreme Court, as noticed above, has merely held that the recorded reasons and the order of approval of the Commissioner should he communicated to the person concerned expeditiously. It has not laid down that if such communication is not made within a given period, then any further retention will become invalid. None the less in view of the law laid down by the apex court, expeditious communication of the recorded reasons and the order of approval has to he held as implicit even under Sub-section (3) of Sec.131 of the Act. None the less in view of the law laid down by the apex court, expeditious communication of the recorded reasons and the order of approval has to he held as implicit even under Sub-section (3) of Sec.131 of the Act. But since the statutory provision docs not expressly contemplate any such requirement and there has been no binding judicial pronouncement in this regard so far, in the present cases, we are not inclined to declare the retention of the books of account in question -as invalid particularly keeping in view the fact that the orders of approval have admittedly been communicated and the recorded reasons have been duly disclosed in the counter-affidavit. It is also important to note that the petitioners have already preferred a revision under Sec.264 of the Act before the Commissioner which is pending consideration. Moreover, pursuant to the directions of this court in CWJC No. 2501 of 1993(R) and analogous cases (annexure 3) filed by these petitioners, xerox copies of the impounded books of account have already been given to the petitioner firms. 13. In the above view of the matter, I do not feel inclined to grant any relief to the petitioners at this stage. The writ applications are, accordingly, dismissed but without any order as to costs. N.S.Rao, J. 14 I agree.