TaxTMI 
TaxTMI 
2008 (10) TMI 66
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....nd petitioners Nos. 2 and 3 are its partners. They are engaged in the practice of accountancy involving auditing, consultancy, financing and other services to their clients under the provisions of the Chartered Accountants Act, 1949 (hereinafter referred to as "the C. A. Act, 1949"). On May 28, 2008, opposite party No. 1 conducted survey under section 133A in the premises of the petitioner-firm. The survey party showed Uttam Kumar Mahapatra one of the partners of the firm the authorization for conducting survey issued in accordance with the proviso below to section 133A(6) of the Income-tax Act by opposite party No. 2 and took the initial of Sri Mahapatra on the said authorization without serving a copy thereof on him. Opposite party No.1 after making search, selected few files and records with the petitioner and placed mark of identification on the same bearing Nos. UKM-1 to UKM-6. The survey party those documents. Being aggrieved by the aforesaid action of opposite parties, the petitioner made an application to opposite party No.1 on June 16, 2008, under annexure 3, inter alia, requesting opposite party No. 1 to release the books of account and loose sheet bundles immediately. In....
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.... said impounding order (annexure 2) is illegal and without jurisdiction. The books of account impounded in course of survey cannot be retained for a period exceeding ten days without obtaining approval of the Chief Commissioner of Income-tax (hereinafter referred to as "the CCIT") or the Director General of Income-tax (hereinafter referred to as "the DGIT"). In the present case, no approval from the CCIT or the DGIT has been obtained. In any event, approval, if any, alleged to have been made, the petitioner should have been given an opportunity of hearing before such approval was made, as the same prejudicially affects the rights of the petitioner. In the absence of any such opportunity of hearing to the petitioner, the approval given if given by opposite party No. 3 is illegal, invalid and without any authority of law. The opposite parties are not leg permitted to verify the impounded books of account of the clients of the petitioners which are the privileged documents in accordance with the provisions of section 126 of the Act, 1872, as the matter relates to the professional communication between the clients and the petitioners. Dr. Pal further submitted that it is well settled t....
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....ccount or other documents or any part of cash, stock and valuable articles or thing to his business or profession are kept. This is also explicitly stated in newly inserted Explanation, vide Circular No. 551 dated January 23, 1990[1990] 183 ITR (St.) 7), Circular No. 717, dated August 14, 1995 [1995] 215 ITR (St.) 70), Circular No. 7 of 2003 dated September 5, 2003 ([2003] 263 ITR (St.) 62), the scope of power under section 133A has been enlarged. In the instant case, the Joint Director of Income-tax, Unit-II (opposite party No. 2), the competent authority had authorized the Income-tax Officer (Headquarters) to conduct survey under section 133A. Survey of plot No. 237, Bapuji Nagar was not conducted as business s of a chartered accountant. All documents were impounded from the said premises by recording reason for doing so. The impounded books of account and documents have been retained beyond ten days from the date of impounding with the approval of the Director General of Income-tax (Investigation), Kolkata, as per the provisions of section 133A(3) (ia) (b). He further submitted that "Assessing Officer" appeared in Explanation (a) to sub-section (6) of section 133A includes an In....
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....cts and circumstances of the case, impounding of books of account belonging to the client of the petitioner-chartered accountant from his premises by the income-tax authorities in course survey operation under section 133A of Income-tax Act amounts to breach of privileged communication by the petitioner ? 8. At this juncture, it is very much necessary to know various relevant provisions of section 133A, which confer power of survey, inspection impounding and retention of books of account/documents upon the income-tax authorities. The relevant provisions of section 133A are quote below: "133A. Power of survey.- (1) Notwithstanding anything contained -in any other provision of this Act, an income-tax authority may enter— (a) any place within the limits of the area assigned to him, or (b) any place occupied by any person in respect of whom he exercises jurisdiction, or (c) any place in respect of which he is authorized for the purposes of this section by such income-tax authority, who is assigned the area within which such place is situated or who exercises jurisdiction in respect of any person occupying such place, at which a business or profession is carried o....
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....r relevant to, any proceeding under this Act. (4) An income-tax authority acting under this section shall, on no account, remove or cause to be removed from the place wherein he has entered, any cash, stock or other valuable article or thing......... (6) If a person under this section is required to afford facility to the income-tax authority to inspect books of account or other documents or to check or verify any cash, stock or other valuable article or thing or to furnish any information or to have his statement recorded either refuses or evades to do so, the income-tax authority shall have all the powers under sub-section (1) of section 131 for enforcing compliance with the requirement made : Provided that no action under sub-section (1) shall be taken by an Assistant Director or a Deputy Director or an Assessing Officer or a Tax Recovery Officer or an Inspector of Income-tax without obtaining the approval of the Joint Director or the Joint Commissioner, as the case may be. Explanation.—In this section,— (a) 'Income-tax authority' means a Commissioner, a Joint Commissioner, a Director, a Joint Director, an Assistant Director or a Deputy Director or an Assessin....
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....recondition for conducting survey under section 133A in the premises of a chartered accountant, lawyer, tax practitioner in connection with survey of the business place of their client is that the client in se of survey must state that his books of accountant/documents and records are kept in the office of his chartered accountant/lawyer/tax practitioner. Unless this precondition is fulfilled, the income-tax authority not assume any power to enter the business premises/office of the chartered accountant/lawyer/tax practitioner to conduct survey under section 133A of the Income-tax Act in connection with survey of the premises of their client. 10. In the present case, the counter-affidavit and the additional counter affidavit filed by the opposite parties do not reveal that anybody on behalf of M/s. Serajuddin and Co. and group in whose case survey under section was carried on has stated that their books of account were kept in the premises of the petitioner-chartered accountant. No such statement of M/s. Serajuddin and Co. or group was also produced before this court in course of hearing. In the absence of any such statement, the opposite parties lack jurisdiction to enter the p....
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....ctor or an Assessing Officer, or a Tax Recovery Officer, and for the purpose of clause (i) of sub-section (1), clause (i) of sub-section (3) and sub-section (5), includes an Inspector of Income-tax ITO (Headquarters)-opposite party No. 1, who was authorized by opposite party No. 2 to conduct the survey in the premises of the petitioner, is not an income-tax authority under the said Explanation. The contention of Mr. Mohapatra that Assessing Officer includes an Income-tax Officer as per the definition of "Assessing Officer" given in section 2(7A) is not tenable since he has not brought to the notice of this court any direction or order issued under sub-section (1) or (2) of the Income-tax Act by which or any other provisions of the Income-tax Act by which opposite party No.1 is vested with the power and jurisdiction of an Assessing Officer to assess the petitioner. Sub-section (1) of section 133A of the Income-tax Act authorizes an income-tax authority to conduct survey as provided in the said section. A plain reading of Explanation (a) to sub-section (6) of section 133A which gives the meaning of income-tax authority does not reveal that opposite party No. 1 Income-tax Officer (Hea....
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....the counter-affidavit dated October 1, 2008, and the additional counter- affidavit dated October 23, 2008, the opposite parties have not controverted the date of impounding of books of account as May 28, 2008. On the other hand, in paragraph 8 of the counter-affidavit, the opposite parties stated that the reasons for impounding the books of account have been recorded in annexure C/2 to the counter-affidavit. Annexure C/2 to the counter- affidavit reveal that the reasons were recorded on May 29, 2008. This shows the books of account/documents were impounded on May 28, 2008, and the reasons for impounding of such books of account were recorded on May 29, 2008, by opposite parry No. 1, which is a gross violation of the provisions of sub-section (3) of section 133A of the Income-tax Act. 17. In this context, it may be seen that one of the reasons for impounding the books of account as recorded in annexure C/2 to the counter-affidavit is that the books of account of M/s. Serajuddin and Co. and group, which were found in the premises of the petitioner, could not be cross-tallied with the corresponding cash book, ledger, etc., as the latter were not avail able then. However, a perusal ....
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....her from the DGIT (Investigation) or from the Chief Corn missioner of Income-tax as required under sub-section (3) of section 133A.Thus, the retention of the impounded books of account/documents by the opposite parties from September 1, 2008, to September 22, 2008, is not authorized under the law. 20. Again, retention of the impounded books of account beyond ten days also involves application of mind both by the officer seeking extension of time for retention and the Chief Commissioner or the Director General, as the case may be, while granting such approval. In Raj and Raj Investments v. ITO [2007] 293 ITR 57 (Karn), it was found that the Chief Commissioner had accorded permission to retain documents without examining the need for retention and there was no justification for the Department to plead that the assessee did not co-operate. It was held that retention was not bona fide and was liable to be quashed. 21. The Madhya Pradesh High Court in Sampatlal and Sons v. CIT [1984] 150 ITR 191 held that in a case where 180 days had expired from the date of seizure and no steps were taken to obtain the approval of the Commissioner during that period, but the approval was granted ....
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....t and other documents beyond ten days from the date of impounding (exclusive of holidays) after obtaining approval of the Chief Commissioner or the Director General, as the case may be. The income-tax authority, who conducted the survey and impounded the books of account under section 133A is opposite party No. 1 being authorized by opposite party No. 2. Opposite party No. 1 in his letter dated June 23, 2008 (annexure 4) intimated petitioner No. 1 that the impounded materials/ loose sheet bundles were handed over to B. D. Mishra, JDIT (Investigation)-opposite party No. 2 soon after completion of the survey operation. Therefore, the petitioner could have contacted him for any clarification on the issue of release of those impounded materials/loose sheet bundles. Strangely, neither opposite party No. 1 nor opposite party No. 2 sought for any approval either from the DGIT, Calcutta, or from the Chief Commissioner to retain the impounded books of account/documents beyond ten days. It is the ADIT (Investigation), Unit-2(1), Bhubaneswar, who, vide his letters dated June 4, 2008 (annexure K/2) and dated August 19, 2008 (annexure L/2) requested the DGIT, Calcutta, to accord necessary appro....
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....he facts of the case. To meet such situation, the Legislature has enacted provisions in proviso (b) to section 133A(3) (ia) for retention of books of account for a period exceeding ten days. In that situation, before giving approval for retention of the books of account for a further period exceeding ten days, there is no need to afford any opportunity of hearing to the person whose books of account are impounded ant intended to be retained for a period exceeding ten days. After such approval is made, the person concerned obviously shall be given an opportunity to explain his books of account which could not be done within ten days from the date of impounding of the books of account/documents. 32. The principles decided by the hon'ble Supreme Court in Rajesh Kumar v. Deputy CIT [2006] 287 ITR 91 and reaffirmed in Sahara India (Firm) v. CIT [2008] 300 ITR 403 (SC) which has been relied upon by Dr. Pal learned senior counsel appearing for the petitioners have no application t the present case. The facts of that case are completely different from the facts of the present case. In that case, a raid was conducted in the bus premises of an assessee. Some documents including the books ....
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....ial audit should not be directed on cursory look at the accounts. There should be an honest attempt to understand the accounts of the assessee. Under these backgrounds, the hon'ble Supreme Court held that before giving any direction for special audit, an opportunity of hearing should be given to the concerned assessee. 34. Thus, in that case, the assessee was saddled with a heavy expenditure of Rs. 1.5 lakh. In the present case no such financial burden is on the assessee. In that case the books of account of the assessee were audited by a qualified chartered accountant and the income-tax authority wanted to get those books of account audited once again applying the provisions of section 142(2A) of the Act on the ground of complexity of accounts. The assessee had to answer a large number of questions during the audit by a special auditor. In the case at hand, the income-tax authorities want only to examine the books of account impounded by them. These are the distinguished features between the two cases and the principle decided in Rajesh Kumar's case [2006] 287 ITR 91 (SC) and reaffirmed in Sahara India (Firm)'s case [2008] 300 ITR 403 (SC) has no application to the present case....
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.... or malicious action or misuse of authority, no one has a right to interfere in their performance of duty or create hurdles or humiliate or manhandle them. Any such action cannot be appreciated and is to be deprecated and persons taking the law into their hands or committing guilt deserve the prescribed punishment. But at the same time, it is the duty of the officers to see that they act in accordance with law, shorn of all feeling of vindictiveness or ego and in good faith which protects them and grants them full immunity even from any legal action." 36. Besides, the opposite parties in paragraph 9 of the counter stated that the proviso to section 126 of the Act, 1872, clearly mentions that nothing in that section shall protect from disclosure of any such communication in furtherance of any illegal purpose. Similarly, opposite parties in paragraph 10 of the counter-affidavit stated that the chartered accountant's code of ethics requires not to shield a client from the consequences of his tax frauds, on the contrary, it is a guiding principle of professional conduct to discourage tax evasion. Though the petitioner denied the averments made in paragraphs 9 and 10 of the counter, ....