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PETITIONER: COMMISSIONER OF INCOME-TAX

       Vs.

RESPONDENT: JAWAHAR LAL RASTOGI

DATE OF JUDGMENT: 07/05/1970

BENCH: SHAH, J.C. BENCH: SHAH, J.C. HEGDE, K.S. GROVER, A.N.

CITATION:  1970 AIR 1651            1970 SCR  (1) 581  1969 SCC  (2) 227

ACT: Income  tax  Act, 1961, as amended by Finance Act  1965,  s. 132(8)-Seizure of documents and retention beyond 180 days-No record  of reasons by I.T.O. or approval of Commissioner  of such retention--Legality of retention.

HEADNOTE: On   September 14, 1964 the Income tax Officer  called  upon the  assessee to furnish within 10 days statements  relating to  four  assessment years ending on March  31,  1960.   The assessee did not furnish the information by the 19th and  on that  date  on  the report of the  Income-tax  Officer,  the commissioner authorised the Income tax officer to search the premises  of  the. On September 21st and 22nd  the  premises were  searched and a large number of documents  were  seized and  retained  till May 1966, that is, for a  period  of  19 months. In  a writ petition field by the, assessee, the High  Court, following  its  own.decision  in Seth Bros.  v.  C.I.T.,  62 I.T.R.  44  held  that the search  was  ’indiscriminate  and beyond the scope of s. 132 of the Income-tax Act. 1961. In appeal to this Court, HELD  :  (i) The decision relied on by the  High  Court  was overruled  by,this Court in I.T.O. v. Seth Bros., 74  I.T.R. 836,  but  it  was held that the power  of  search  must  be exercised  strictly in accordance with the law and only  for the  purposes  for which the law authorises it to  be  exer- cised.   Whether  the  action  of  the  Commissioner  in   a particular case amounted to indiscriminate search and beyond the scope of s. 132 would depend on the evidence in the case [583 E; 584 E-F] (2)In  the  present  case,  there  was  no  order  of  the authorities  recording reasons for retaining  the  documents seized  beyond 180 days, nor was there any approval  of  the Commissioner  for such retention.  Therefore  the  retention was contrary to the terms of s. 132(8) of the Act as amended ’by the Income-tax (Amendment) Act, 1965. [585 C-D] (3)Though failure to record reasons by the I.T.O. and want of approval by the Commissioner for retaining the  documents beyond  180  days were not urged before the  High  Court  as

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grounds for release of the documents, when it was found that the  documents were retained for 19 months,  the  department should  have tendered evidence of such record of reasons  or approval  by  the  Commissioner if it was the  case  of  the department  that  the retention of the  documents  could  be supported by such reasons or approval. [585 E-C]

JUDGMENT: CIVIL APPELLATE JURISDICTION: ’Civil Appeal No. 16 of 1970. Appeal  by special leave from the judgment and  order  dated May  22,  1969 of the Allahabad High Court  in  Civil  Misc. Writ No. 588 of 1966. 582 Jagadish  Swarup, Solicitor-General, R. N. Sachthey, and  B. D. Sharma, for the appellants. G. C. Sharma and P. K. Mukherjee, for the respondent. The Judgment of the Court was delivered by Shah,   J.  Jawahar  Lal  Rastogi-hereinafter  called   ’the assessee-is  a Hindu Undivided Family which carries  on  the business of money-lending at Lucknow and is also  interested as  a partner in different firms engaged in the business  of manufacturing barbed wire, pharmaceuticals, etc. On September 14, 1964, the Income-tax Officer, Award, called upon   the  assesee  to  furnish  within  10  days   certain information  with  regard  to its  income  and  assets.   On September  17, 1964 the Income-tax Officer submitted to  the Commissioner  of Income-tax a report requesting that  he  be authorised  to  enter  and  search  the  premises  of,   the assessee.  The Commissioner by his order dated September 19, 1964,  authorised entry and search after  recording  reasons for  his  belief  that it was necessary  to  carry  out  the search.   On September 21 and 22, 1964, the premises of  the assessee were searched and a large number of documents  were seized  and were taken away to the Income-tax Officer.   The Income-tax   Officer  also  prepared  inventories   of   the ornaments  and  other goods kept in the  premises  searched. After  the  seizure  of  the  books  of  account  and  other documents the case was fixed for hearing before the  Income- tax  Officer on several occasions, but no  substantial  step was taken. In  May 1966 the assessee filed a writ petition in the  High Court  of Allahabad challenging the validity of  the  search made  by the Department contending that it "was illegal  and in excess of the power conferred by s. 132 of the Income-tax Act,  1961"  and  prayed that the documents  seized  may  be ordered  to  be  released.   The  High  Court  of  Allahabad considered the evidence appearing from the affidavits  filed and  observed  that  in the present case  the  assessee  had established the following "points" : (1)  The Income-tax Officer was apparently interested in investigating transactions prior to 1953.  On September  14, 1964,-  the  assessee  was directed  to  furnish  statements relating  to  four years ending on March 31, 1960,  yet  the Commissioner  of Income-tax issued letters of  authorisation permitting Income-tax Officer to seize documents relevant to nine assessment years; (2)The  raid was ordered and organised before the expiry  of the period of the notice; (3)More  than 300 books and registers were  seized  during the   raid  and  the  Income-tax.   Officers  carried   away thousands of promissory notes.  Some of the documents seized appear to be 583

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irrelevant  for  assessment purposes and some of  them  were public documents. (4)There  is reason to believe that all or almost all  the documents found on the premises were seized and carried away by the Income-tax Officers; (5)Marks of identification were. not placed on the documents inspite  of-the  direction  contained  in  the  letters   of authorisation; and (6)The  documents seized during the raid were detained  by the  Income-tax Officers for 19 months before, the  petition was filed. In the view of the High Court the circumstances of the  case indicated  that  the  Commissioner  of  Income-tax  and  the Income-tax Officers acted beyond "the legitimate scope of s. 132  of the Act and-there was force in the complaint of  the assesse  that  the Allahabad High Court  in  Seth  Brothers’ Case(1) was overtituted abuse of power conferred on  Income- tax  authorities  by s. 132 of the Act".   In  reaching  its conclusion, the High-.Court relied upon the judgment of  the Allahabad  High  Court in Seth Brothers v.  Commissioner  of Income-tax(1). In this appeal filed by the Commissioner of Income-tax  with special  leave,  the  Solicitor-General  contends  that  the decision  of  the  Allahabad High Court  in  Seth  Brothers’ Case(1)  was overruled by this Court in Income-tax  Officer, Special Investigation Circle "B", Meerut v. Seth Brothers  & Ors.(2)  and on , that account the judgment under appeal  is liable  to  be set aside.  In Seth Brothers’ case  (2)  this Court  examined  the  scheme of s. 132 in  some  detail  and observed               "The  condition  for  entry  into  and  making               search of any building or place is the  reason               to believe that any books of account or  other               documents  which  will be  useful  for,.    or               relevant to, any proceeding under the Act  may               be  found.   If  the  Officer  has  reason  to               believe  that  any books of account  or  other               documents would be   useful  for, or  relevant               to,  any  proceedings  under. the Act,  he  is               authorised  by  law to seize  those  books  of               account or other documents, and to place marks               of  identification therein, to  make  extracts               or. copies, therefrom and also to make a  note               or  an,  inventory of any  articles  or  other               things  found  in the course  of  the  search.               Since  by the exercise of the power a  serious               invasion is made upon the rights, privacy  and               freedom of the taxpayer, the power must be               (1)   62 I.T.R. 44.               584               exercised strictly in accordance with the  law               and  only for the purposes for which  the  law               authorises it to be exercised.............  If               the  conditions for exercise of the power  are               not  satisfied  the proceeding  liable  to  be               quashed.............               The  Act and the.  Rules do not  require  that               the  warrant of authorisation  should  specify               the  particulars  of documents  and  books  of               account : a general authonsation to search for               and  seize  documents  and  books  of  account               relevant  to  or  useful  for  any  proceeding               complies  with the requirement of the Act  and               the  Rules.  It is for the officer making  the               search  to exercise his judgment and seize  or

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             not  to  seize  any  documents  or  books   of               account.               The  aggrieved  party may undoubtedly  move  a               competent  court  for an order  releasing  the               documents  seized.  In such a  proceeding  the                             Officer who has made the search will b e  called               upon  to  prove how the documents  seized  are               likely  to  be ’useful for or  relevant  to  a               proceeding under the Act. 1 If he is unable to               do   so,  the  court  may  order  that   those               document$  be released.  But the  circumstance               ;hat a large number of documents seized is not               a ground for holding that all documents seized               are irrelevant or the action of the officer is               mala fide." It  must,  however,  be stated that the  findings  that  the action of the Commissioner of Income-tax and the  Income-tax Officer  amounted to "indiscriminate search" and was  beyond the  "legitimate scope of s. 132" depends upon the  evidence in  each case and no general rule can be laid down  in  that behalf. In the present case the High Court has noticed two important circumstances: (1) that where as the notice dated  September 14, 1964, required the assessee to furnish statements  rela- ting to the four assessment years ending on March 31,  1960, the  Commissioner  of  Income-tax authorised  search  for  a period  ,of  nine assessment years even  before  the  period fixed  by the notice had expired; and (2) that  contrary  to the  plain  terms  ,of  S.  132(8)  the  Income-tax  Officer retained  with  him  the  books  of  account  for  a  period exceeding 180 days. Under s. 132(2) as in force on the date on which the  search and seizure took place stood as follows :               "The  books  of  account  or  other  documents               seized  under  sub-section (1)  shall  not  be               retained    by   the   Inspecting    Assistant               Commissioner or the Income-tax               585               Officer for a period exceeding one hundred and               eighty  days  from  the date  of  the  seizure               unless the reasons for retaining the same  are               recorded by him in writing and the approval of               the   Commissioner  for  such   retention   is               obtained :               Provided............. By  the  Finance Act of 1965, sub-s. (2) was  re-eracted  as sub-s   (8)  with  the  modification  that  for  the   words "Inspecting   Assistant  Commissioner  or   the   Income-tax Officer" the words "authorised officer" be substituted. In  the  present  case the premises  of  the  assessee  were searched  on  September 21 and 22, 1964, and  the  documents were  retained  till  May 1966, i.e. for  a  period,  of  19 months.  Our attention has not been invited to any order  of the   authorities  recording  reasons  for   retaining   the documents seized after the expiry of 180 days, nor is  there any   approval  of  the  Commissioner  for  retaining   such documents.  The retention of the documents without complying with  the  requirements of the statute after expiry  of  the period of 180 days would be plainly contrary to law. The Solicitor-General said that it *as not urged before  the High  Court  that  because the authorised  officer  did  not record   reasons  and  the  Commissioner  did  not   approve retention  of  the documents after 180  days,  the  revenue, authorities  were bound to release the  documents.   Counsel

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submitted  that failure to produce evidence on a matter  not put  in issue may not be regarded as a ground in support  of an order releasing documents.  But the High Court has  found that  the documents seized during the raid were detained  by the authorised officer for 19 months before the  application was  filed.   If  it was the case  of  the  Department  that retention of the documents after the expiry of 180 days  was supported  by  good  and adequate reasons  recorded  by  the Income-tax Officer and the. approval of the Commissioner  as required by the Act was obtained, such record of reasons and approval would have been tendered in evidence.  It cannot be said  that the attention of the parties was not directed  to the  circumstance that the Income-tax Officer had failed  to comply with the requirements of the Act. The  order recorded by the High Court must be  sustained  on the  ground that the documents taken possession of were  re- tained  without authority of law for a period exceeding  180 days  contrary to the terms of s. 132(8) as amended  by  the Income-tax (Amendment) Act, 1965. The appeal therefore fails and is dismissed with costs. V.P.S. Appeal dismissed. 5 86