Court upholds impounding of account books under Income-tax Act for alleged fictitious entries

The court upheld the impounding of the account books under section 131(3) of the Income-tax Act, 1961, due to alleged fictitious entries and Uchanti business activities. It was found that the Income-tax Officer had recorded reasons for impounding the books, although these reasons were not communicated to the petitioner-firm. The court clarified that while reasons must be recorded, there is no statutory obligation to communicate them to the assessee. The petition challenging the impounding was dismissed, emphasizing that communication of reasons to the assessee is not required by law.

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Issues:
1. Impounding of account books under section 131(3) of the Income-tax Act, 1961.
2. Requirement of recording and communicating reasons for impounding the account books to the assessee.

Analysis:
The petitioner-firm, engaged in the business of commission agents and retailers in food-grains, submitted its returns of income up to the assessment year 1968-69. For the assessment year 1969-70, a complaint of income concealment and tax evasion was received by the Income-tax Officer, leading to an inspection of the firm's books of account. The inspection revealed Uchanti entries in the Roznamcha Bahi, not reflected in other books. Consequently, the Income-tax Officer impounded the account books under section 131(3) of the Income-tax Act, 1961, due to alleged fictitious entries and Uchanti business activities.

The petitioner-firm contested the impounding, claiming that no reasons were recorded for the action. However, the court found that the Income-tax Officer did indeed record reasons for impounding the account books on October 3, 1969, during the presence of the firm's partner and advocate. Despite the reasons not being communicated to the petitioner-firm, the court held that compliance with section 131(3) only necessitates the recording of reasons, not their communication to the assessee. A reference was made to a judgment emphasizing the mandatory nature of recording reasons for impounding, without a requirement for communication to the assessee.

The court dismissed the writ petition, noting that the petitioner-firm was misled into filing it due to the absence of stated reasons in the order served upon them. The judgment underscored that the communication of reasons to the assessee was not a statutory requirement under section 131(3) of the Income-tax Act, 1961. As a result, the impounding of the account books was deemed lawful, and the petition was dismissed without costs.

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