2003 (9) TMI 49 - HC - Income Tax

Court quashes impounding order during tax survey, stresses adherence to legal procedures

The court allowed the writ petition, setting aside the impounding order under section 131(3) of the Income-tax Act, 1961. The judgment emphasized the ... Impounding of documents - it is not disputed that the documents, books of account, files, etc., were removed from the place of survey, kept in a separate room under lock and key and also a paper seal was put on the entry to the room - It is also noticed that the key to the room was taken by the income-tax authority after putting the paper seal - I am of the view that the impounding of the documents purported to have been made u/s 131(3) is only to circumvent the provision of section 133A. Therefore, the action of the respondents is totally in contravention of the provision of section 133A. The order impounding the document, therefore, is not tenable in law and is liable to be set aside Issues Involved:Impounding of documents during income tax survey under section 133A and subsequent actions under section 131 of the Income-tax Act, 1961.Detailed Analysis:1. Impounding of Documents During Survey under Section 133A:The petitioner, as the managing director of a company, challenged the impounding of documents during an income tax survey conducted under section 133A. The petitioner alleged that income tax officials collected files, documents, and books of account during the survey and moved them to a separate room, effectively impounding them. The respondents claimed that the impounding occurred after issuing a notice under section 131 of the Act, not during the survey under section 133A. The court examined the actions of the income tax authorities and noted that the documents were indeed impounded during the survey under section 133A. The court highlighted that under section 133A(4), income tax authorities are prohibited from removing documents from the survey location, which was violated in this case.2. Legal Provisions and Precedents:The judgment referenced legal provisions such as section 133A and section 131(3) of the Income-tax Act, 1961. It also cited precedents like Ram Saroop Pawan Kumar v. ITO and Gheru Lal Bal Chand v. ITO, emphasizing that impounding of documents during a survey under section 133A is not permissible. The court highlighted that the actions of the income tax authorities were in violation of the law, as observed in previous judgments.3. Validity of Impounding Order and Lack of Reasons:The court scrutinized the impounding order issued under section 131(3) of the Act. It noted that the order did not provide any reasons for impounding the documents, contrary to the requirement of the law. The court found that the impounding order was an attempt to circumvent the provisions of section 133A. Consequently, the court deemed the impounding order invalid and quashed it.4. Directive for Return of Documents:Although the court had previously directed the return of impounded documents, the petitioner alleged that some documents were still not returned. The court directed respondent No.3 to return the outstanding documents within a specified timeframe, emphasizing compliance with the court's order.5. Final Decision and Conclusion:Ultimately, the court allowed the writ petition, setting aside the impounding order under section 131(3) of the Act. No costs were awarded in the case. The judgment underscored the importance of adhering to legal procedures and highlighted the illegality of impounding documents during income tax surveys under section 133A without proper justification.This detailed analysis provides a comprehensive overview of the issues involved in the legal judgment, the arguments presented by both parties, the legal provisions and precedents considered by the court, and the final decision rendered by the High Court.