Survey and impounding powers under tax law were limited by jurisdiction, procedure, and retention safeguards; unlawful action was set aside.

Section 133A survey powers were held not to extend to a chartered accountant's premises merely because a client was under survey elsewhere, unless the client stated that relevant books or documents were kept there; the survey was therefore without authority. The officer conducting the survey was also found not to be a competent income-tax authority on the material shown. Impounding required prior inspection of the books and recorded reasons before custody, and retention beyond ten days needed valid approval for the full period; both procedural safeguards were breached, making the impounding and continued retention illegal. No prior hearing was required before approval for extended retention, and no breach of privileged communication was established.

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Issues: (i) whether income-tax authorities could validly conduct survey in a chartered accountant's premises in connection with survey of a client; (ii) whether the officer who conducted the survey was a competent income-tax authority; (iii) whether books of account could be impounded without proper inspection and prior recording of reasons; (iv) whether retention of impounded books beyond ten days without valid approval was lawful; (v) whether prior hearing was required before granting approval for extended retention; and (vi) whether impounding client documents from a chartered accountant's premises amounted to breach of privileged communication.

Issue (i): whether income-tax authorities could validly conduct survey in a chartered accountant's premises in connection with survey of a client?

Analysis: The power of survey under section 133A extends only to premises that satisfy the statutory conditions. A chartered accountant's office can be entered only if the client states that relevant books or documents are kept there. In the absence of any such statement, the officer has no jurisdiction to enter and survey the professional premises merely because the client is under survey elsewhere.

Conclusion: The survey in the petitioner's premises was without authority of law and was invalid.

Issue (ii): whether the officer who conducted the survey was a competent income-tax authority?

Analysis: Section 133A read with the statutory explanation identifies the categories of officers empowered to act. A mere Income-tax Officer (Headquarters) authorised by another officer does not become competent unless he falls within the statutory description or is vested with the relevant powers under the Act. No material showed such vesting in the present case.

Conclusion: The officer who conducted the survey was not competent to exercise the power under section 133A.

Issue (iii): whether books of account could be impounded without proper inspection and prior recording of reasons?

Analysis: Impounding under section 133A(3)(ia) requires prior inspection of the documents and recording of reasons before the documents are taken into custody. The recorded reasons were general and did not show due examination of the specific books before impounding. The record also showed that the reasons were entered after the books had already been impounded.

Conclusion: The impounding was contrary to section 133A(3)(ia) and was illegal.

Issue (iv): whether retention of impounded books beyond ten days without valid approval was lawful?

Analysis: Retention beyond ten days is permissible only on approval by the Chief Commissioner or the Director General. The approvals relied upon did not cover the entire period of custody, and there was an unapproved interval during which the books were retained. The statutory procedure for continued retention was not followed.

Conclusion: The retention beyond ten days was unauthorized and invalid.

Issue (v): whether prior hearing was required before granting approval for extended retention?

Analysis: The statute does not expressly require a pre-decisional hearing before approval for retention beyond ten days. Requiring such a hearing at that stage would defeat the object of the survey power. The person concerned is entitled to explain the documents later, but the approval stage itself does not attract a mandatory hearing requirement.

Conclusion: No prior hearing was necessary before granting approval for extended retention.

Issue (vi): whether impounding client documents from a chartered accountant's premises amounted to breach of privileged communication?

Analysis: Professional privilege under section 126 of the Evidence Act does not prevent lawful statutory action, and no voluntary disclosure of confidential client communication by the petitioner was shown. The impounding was of documents under the survey power and not of privileged advice or confidential communication revealed by the petitioner.

Conclusion: There was no breach of privileged communication on the facts of the case.

Final Conclusion: The survey and impounding action were held unlawful for want of jurisdiction and for non-compliance with the statutory procedure, and the petitioner was entitled to return of the impounded books and documents.

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