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Cited In

RAJ AND RAJ INVESTMENTS vs.INCOME TAX OFFICER & ORS.

HIGH COURT OF KARNATAKA

D.V. Shylendra Kumar, J.

Writ Petn. No. 15553 of 2006

Dec 11, 2006

(2006) 74 CCH 1007 KarHC

(2007) 213 CTR 0206, (2007) 293 ITR 0057, (2008) 166 TAXMAN 0463

Legislation Referred to

Section 133A

Case pertains to

Asst. Year -

Decision in favour of:

Assessee

Survey Impounding of documentsRetention of documents for unreasonable periodVoluminous documents were

impounded during survey of petitioners premises and the same are lying with the respondents for over eighteen
monthsThere is no justification in the plea of the Department that there was non co-operation on the part of the
petitioner for investigation, etc.When the respondents had impounded all the documents, there was nothing that the
petitioner could doIt is not open to the respondents to exercise their powers of survey for continued retention on mere
speculation and possibilitiesThe exercise of power by the authorities is not only arbitrary but also mala fideFurther,
the omnibus permission granted by Chief CIT for retaining the impounded documents for 18 months without indicating any
rhyme or reason or justification therefor is per se badConsequently, respondents are directed to return the impounded
documents with costs of Rs. 5000

Held :

Held

The impounding can be initially for a duration of 10 days, i.e., retention of the impounded documents and thereafter, unless it
had been properly authorised for continued retention, it should be returned. The intention is not to trespass into the privacy of
the citizens and trample upon their private rights unless warranted. The other provisions also indicate that the officer
exercising the power of survey should not remove from the place of survey any cash, stock or other valuable or other things. In
the present case, impounded documents are lying with the respondents for over about six months. Though it is described that
voluminous documents had been impounded and it requires time to process it, the list appended to the impugned order
indicates that they are innumerable. It is not for the IT Department to plead before the Court that for processing the few
impounded documents they require more than six months. The documents are with the respondents. The names which figure
therein could have been recorded in their books and necessary action may be pursued. There is no justification for the
respondents to plead that there was non co-operation on the part of the petitioner for investigation, etc. When the respondents
had impounded all the documents, there was nothing that could be done by the petitioner. The bogey of non co-operation and
pleading that as the justification for continued retention falls flat on its face and cannot be accepted.

(Para 13)

It is no doubt true that the Act empowers the IT authorities to exercise their power for the purpose of the Act and such powers
are wide, drastic in nature and causing invasion into the individual rights and the privacy of the individuals. But, even while
such provisions have been upheld by the Courts, the action would still become illegal if it is shown by the person affected that
such action was resorted to not to advance the object of the Act but only on account of mala fides. If the person affected
succeeds in proving that the power as exercised is not commensurate with the requirement of the situation, the action itself
though permitted in law nevertheless becomes bad as arbitrary exercise of power or mala fide exercise of power. In the present
case, the exercise of power by the authorities under the Act is not only arbitrary but even goes beyond that and is more akin to
mala fide exercise of power. On mere speculation and on mere possibilities, it is not open to the respondents to exercise their
powers for survey for the continued retention just because the statutory provisions enable such retention. When the provisions
of the Act are indicative of the intention of the legislature that the least amount of authority should be exercised, it passes ones
comprehension as to why the impounded documents are required to be retained for well over a period of 18 months. An
omnibus permission of this nature for retaining the documents for 18 months without indicating any rhyme or reason or
justification is something per se bad. Such permission, it appears has been granted by the CIT as part of a wholesale
permission in respect of five such acts by simply nodding his head without examining as to the need or justification. A
permission of this nature while per se is bad in law, the defence put up is also not a bona fide one. It is a well settled principle
of law that while such powers when exercised even as permitted in law, it should be least obtrusive and just commensurate to
the requirement of the given situation. The blind permission of this nature authorising the impounded documents to be retained
for a period of 18 months is definitely an excessive in-road into the privacy and individual rights and when no justification or
bona fides are forthcoming to defend it, the action can never be permitted in law as the exercise of power under the Act can
only be for bona fide purpose and not for whimsical or arbitrary action. The defence put up by the respondents even in terms
of the statement of objections being not tenable in law and also indicating lack of bona fides, it is necessary that the
respondents should be mulcted with costs quantified at a sum of Rs. 5,000. Consequently, the respondents are directed to
return the documents, which they had impounded pursuant to the act of impounding.

(Paras 14 to 16)

Conclusion

It is not open to the IT authorities to exercise their powers of survey for continued retention of documents on mere speculation
and possibilities; omnibus permission granted by Chief CIT for retaining the impounded documents for 18 months without any
reason or justification therefor is per se bad and can never be permitted in law.

In favour of :

Assessee

Counsel appeared:

K.S. Hanumantha Rao, for the Petitioner : K.V. Aravind for M.V. Seshachala, for the Respondents

D.V. SHYLENDRA KUMAR, J.

JUDGMENT

The writ petitioner, a partnership firm, is an assessee under the provisions of the IT Act, whose premises, it appears, were
survey ed as on 22nd June, 2006, by Sri. P.S. Nagaraja, ITO, Ward I(1) in terms of the authorisation issued in his favour by the
Jt. CIT, Range-II, Mysore, exercising his power under s. 133A(i) of the IT Act, 1961.

2. It appears the survey lasted for not less than 12 hours in the premises during the course of which the IT authorities claim that
they came across voluminous documents, books of account and other incriminating material, which in their opinion were
required to be processed further and as such impounded all the documents in terms of the list appended to the impugned order
of even date, copy of which is produced as Annex. C to the writ petition.

3. The IT Department having not returned the impounded documents even after several requests were made by the petitioner
and more than five months having elapsed after the impounding, the petitioner has approached this Court praying for issuance
of a writ in the nature of certiorari and for quashing the impugned order at Annex. C and holding that the entire proceedings of
survey conducted as on 22nd June, 2006, at the premises belonging to the partnership firm were not in accordance with law
and that it was not duly authorized; that the respondents-IT authorities have no power to take away valuable things such as title
deeds of immovable properties and other stamped documents; that such impounding is not permitted under the provisions of s.
133A(4) of the Act; that the communication dt. 4th Aug., 2006, indicating that the retention is authorised upto 31st Dec., 2007,
by the Chief CIT, Bangalore-III, is not permitted in law; that such authorisation, if any, should be quashed by declaring it as
null and void and for other consequential reliefs in the context.

4. Notice having been issued to the respondents, the respondents have entered appearance through their counsel and have also
filed their statement of objections.

5. In the statement of objections, the action taken is sought to be defended very stoutly by drawing my attention to the relevant
statutory provisions that not only the officer who has conducted the survey had been duly authorised, but the continued
retention of the documents also having been properly permitted by the competent officer, namely, the Chief CIT, Karnataka,
and the respondents having come across considerable material of incriminating nature to indicate that several persons who are
having transactions with the petitioner have indulged in evasion and suppression of facts, the matter was required to be
investigated further and particularly when the provisions of the Act permit such continued retention subject to the proper
authorisation by the competent authority and the said authorisation having been obtained there is no illegal ity in retaining the
document; that the impugned action is sustainable in law and have therefore sought for dismissal of the writ petition.

6. The jurisdiction of the officers who conducted the survey and the officers retaining the document is also sought to be
asserted and it is contended to be in consonance with the provisions of the Act; that the continued retention is attributed to the
non co-operation on the part of the petitioner, namely, Sri S. Paniraj, as it is mentioned at para 11 of the statement of objections
that the said Sri S. Paniraj even when asked to explain the nature of the transaction contained in the several documents that
have been impounded, he was not in a position to give proper explanation of the nature of the transaction; that the documents
related to the agreements/sale deeds for transfer of properties between parties other than Mr. Paniraj and M/s Raj and Raj
Investments and instead of co-operating with the Department by giving full information about such other parties, the
petitioner-firm and the said Sri Paniraj are insisting on return of the documents, and such non co-operation on the part of the
said Paniraj is also indicated as a justifiable circumstance for further retention of the documents.

7. I have heard Sri K.S. Hanumantha Rao, learned counsel appearing for the petitioner, and Sri Aravind, learned counsel
appearing for the respondents.

8. While the submission of Sri K.S. Hanumantha Rao, learned counsel appearing for the petitioner, is that the very
authorisation is not proper; that the person who is not duly authorised has conducted the survey ; that what has been seized is
certain documents pertaining to the transaction of petitioner-partnership firm, whereas the authorisation was in respect of the
premises of Paniraj; that these two persons are distinct legal persons for the purpose of the IT Act as both are assessed to tax
separately and have separate permanent account numbers; that even the existing authorisation for continued retention of the
documents has not been properly done; that the authorisation is not in favour of the officer who has impounded the documents
at the premises and in respect of the very documents, the subject-matter of impounding in the survey conducted as on 22nd
June, 2006; that in the light of such glaring inconsistencies and this anomaly being obvious even on a perusal of the records
also, the writ petition has to be allowed, the impugned order has to be quashed and the respondents have to be directed to
return the impounded documents forthwith.

9. On the other hand, Sri. Aravind, learned counsel appearing on behalf of the respondents, has vehemently urged that action
taken is a bona fide action; that the respondents were conducting such survey s in respect of many other persons in real estate
business; that the survey at the premises of the petitioner in fact has yielded a wealth of information leading to further detection
of deliberate suppression of income on the part of many other persons involved in real estate business; that for the said reason,
the documents have been retained; that the action taken is wholly within the permitted powers of the IT authorities under the
provisions of s. 133A, particularly the act of initial retention being now authorised by the provisions of s. 133A(3)(ia) and
further retention under proviso (b) to s. 133A(3)(ia) of the Act, no exception can be taken for the continued retention; that
action having been followed up in respect of other persons whose names figured in the documents that have been impounded
from the premises of the petitioner, he cannot insist for return of the documents henceforth and therefore urges for dismissal of
the writ petition itself.

10. The original records of the office of the Jt. CIT who has authorised the survey and the records of the Chief CIT,
Bangalore-3, who has permitted the continued retention of the documents are also placed before the Court.

11. One submission of Sri K.S. Hanumantha Rao, learned counsel for the petitioner, with reference to the record is that as per
the instructions of his client, the original authorisation to which his client had subscribed his signature was only in respect of S.
Paniraj and the later additions like real estate agent and Raj and Raj Investments are insertions which were not in the original
authorisation; that S. Paniraj is not a real estate agent, he is only doing business in money-lending; that it amounts to gross
misuse on the part of the respondents to distort the records before placing them before this Court and as such misuse also calls
for drastic action against them. Though, learned counsel for the petitioner would assert that the petitioner is prepared to place
an affidavit on record to this effect, the point regarding subsequent insertion having been raised only during the course of
arguments, it is not necessary to examine this contention any further. Be that as it may, even if the legality of the action taken
is scrutinized applying the strict standards of compliance with the statutory provisions, particularly in the background of the
fact that the impugned order is an invasion into the rights of the petitioner and is an invasion of the privacy of the citizens, I
find that the justification for continued retention of the document though technically might have been authorised by the Chief
CIT by approving the proposal for their continued retention upto 31st Dec., 2007, is not forthcoming in the statement of
objections filed on behalf of the respondents.

12. The entire action of conducting the survey is in the context of the power vested under s. 133A. The object of conducting
the survey is to gather information. The provisions of s. 133A, as it stood earlier, did not contain any power of impounding of
documents during the course of search of a premises. The power for impounding documents is a later addition by the
Amending Act 20 of 2002 w.e.f. 1st June, 2002, to which my specific attention has been drawn by Sri Aravind, learned counsel
for the respondents. The provision reads as under :

"Sec. 133A. Power of survey . (1) Notwithstanding anything contained in any other provision of this Act, an IT 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 authorised for the purposes of this section by such IT 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 on, whether such place be the principal place or not of such business or profession,
and require any proprietor, employee or any other person who may at that time and place be attending in any manner to, or
helping in, the carrying on of such business or profession

(i) to afford him the necessary facility to inspect such books of account or other documents as he may require and which may
be available at such place,

(ii) to afford him the necessary facility to check or verify the cash, stock or other valuable article or thing which may be found
therein, and

(iii) to furnish such information as he may require as to any matter which may be useful for, or relevant to, any proceeding
under this Act.

Explanation. : For the purposes of this sub-section, a place where a business or profession is carried on shall also include any
other place, whether any business or profession is carried on therein or not, in which the person carrying on the business or
profession states that any of his books of account or other documents or any part of his cash or stock or other valuable article
or thing relating to his business or profession are or is kept.

(2) An IT authority may enter any place of business or profession referred to in sub-s. (1) only during the hours at which such
place is open for the conduct, of business of profession and, in the case of any other place, only after sunrise and before sunset.

(3) An IT authority acting under this section may,

(i) if he so deems necessary, place marks of identification on the books of account or other documents inspected by him and
make or cause to be made extracts or copies therefrom,

(ia) impound and retain in his custody for such period as he thinks fit any books of account or other documents inspected by
him :

Provided that such IT authority shall not

(a) impound any books of account or other documents except after recording his reasons for so doing; or

(b) retain in his custody any such books of account or other documents for a period exceeding ten days (exclusive of holidays)
without obtaining the approval of the Chief CIT or Director General therefor, as the case may be,

(ii) make an inventory of any cash, stock or other valuable article or thing checked or verified by him,
(iii) record the statement of any person which may be useful for, or relevant to, any proceeding under this Act."

13. The impounding can be initially for a duration of 10 days, i.e., retention of the impounded documents and thereafter, unless
it had been properly authorised for continued retention, it should be returned. The intention is not to trespass into the privacy of
the citizens and trample upon their private rights unless warranted. The other provisions also indicate that the officer exercising
the power of survey should not remove from the place of survey any cash, stock or other valuable or other things. In the
present case, it is a fact that the respondents have removed certain valuable articles, although, it is now submitted that they
have been returned to the petitioner which were in the form of laptops, computers, etc. Be that as it may, it is a fact that
impounded documents are lying with the respondents for over about six months. Though it is described that voluminous
documents had been impounded and it requires time to process it, the list appended to the impugned order indicates that they
are innumerable. It is not for the IT Department to plead before this Court that for processing the few impounded documents
they require more than six months. The documents are with the respondents. The names which figure therein could have been
recorded in their books and necessary action may be pursued. I do not find any justification for the respondents to plead that
there was non co-operation on the part of the petitioner for investigation, etc. When the respondents had impounded all the
documents, there was nothing that could be done by the petitioner. The bogey of non co-operation and pleading that as the
justification for continued retention falls flat on its face and cannot be accepted.

14. It is no doubt true that the Act empowers the IT authorities to exercise their power for the purpose of the Act and such
powers are wide, drastic in nature and causing invasion into the individual rights and the privacy of the individuals. But, even
while such provisions have been upheld by the Courts, the action would still become illegal if it is shown by the person
affected that such action was resorted to not to advance the object of the Act but only on account of mala fide s. If the person
affected succeeds in proving that the power as exercised is not commensurate with the requirement of the situation, the action
itself though permitted in law nevertheless becomes bad as arbitrary exercise of power or mala fide exercise of power. In the
present case, the exercise of power by the authorities under the Act is not only arbitrary but even goes beyond that and is more
akin to mala fide exercise of power. The submission of Sri Aravind, learned counsel for the respondents, that the petitioner
though had agreed before the second respondent-Jt. CIT that he will file the return of income offering income of Rs. 10 lakhs
to be taxed; that he has not complied so far is rather relevant. If at all, the authorities are expecting or hoping that the retention
of the document would pressurise the petitioner to abide by what he has agreed, it means that they are using powers under the
Act to coerce the petitioner to submission rather than for any bona fide purpose. It is not for the authorities to embark upon
such adventures, rather misadventures, though the intention may still be for gathering revenue to the State. If it is a fact that the
petitioner should have offered income of Rs. 10 lakhs and if he had not offered it to tax, there is sufficient power under the Act
enabling the IT authorities to take such necessary action as the situation warrants and that cannot be achieved by coercive
method of retention of such impounded documents. No doubt, the investigation is for the purpose of gathering information.
The information having been already gathered, it is open to the respondent to follow it up with such action as is permitted
under law pursuant to such information, but not to sit tight on the document seized to the detriment of the petitioner. Though it
is urged that the documents belong to third parties and not to the petitioner-partnership firm or the partner-Paniraj and therefore
they cannot plead any hardship or disadvantage caused to them by the continued retention of the documents, this argument
cannot be accepted for the reason that all the documents which have been impounded are from the possession of the petitioner.
As submitted by learned counsel for the petitioner, the petitioner is answerable to his clients, who perhaps has parted with
these documents in favour of the petitioner for various business transactions, reposing trust in them. Whether the said business
transactions are illegal or are permitted in law are all matters to be separately taken care of and proceeded with. But on mere
speculation and on mere possibilities, it is not open to the respondents to exercise their powers for survey for the continued
retention just because the statutory provisions enable such retention. When the provisions of the Act are indicative of the
intention of the legislature that the least amount of authority should be exercised, it passes ones comprehension as to why the
impounded documents are required to be retained for well over a period of 18 months. An omnibus permission of this nature
for retaining the documents for 18 months without indicating any rhyme or reason or justification is something per se bad.
Such permission, it appears has been granted by the CIT as part of a wholesale permission in respect of five such acts by
simply nodding his head without examining as to the need or justification. A permission of this nature while per se is bad in
law, the defence put up is also not a bona fide one. It is a well-settled principle of law that while such powers when exercised
even as permitted in law, it should be least obtrusive and just commensurate to the requirement of the given situation. The
doctrine of proportionality calls for justifying every action by applying these tests and if it is found that the exercise of power
is more than warranted or justified in the sense it results in the imposition of excessive restriction, the action does not
withstand scrutiny of judicial review and has to be declared as bad. Though the Courts exercise only the jurisdiction of judicial
review of administrative action, the depth of judicial review is proportionate to the gravity of the situation. The greater the
affectation of a right by a questioned administrative act, the deeper will be the scrutiny.

15. The blind permission of this nature authorising the impounded documents to be retained for a period of 18 months is
definitely an excessive in-road into the privacy and individual rights and when no justification or bona fide s are forthcoming
to defend it, the action can never be permitted in law as the exercise of power under the Act can only be for bona fide purpose
and not for whimsical or arbitrary action.

16. The defence put up by the respondents even in terms of the statement of objections being not tenable in law and also
indicating lack of bona fide s, it is necessary that the respondents should be mulcted with costs quantified at a sum of Rs.
5,000. Consequently, the respondents are directed to return the documents, which they had impounded pursuant to the act of
impounding as on 22nd June, 2006. However, it is open for the respondents to take such other action as is permitted in law in
accordance with the law and the provisions of the Act. It is also open to the respondents to retain the copies of the impounded
 documents which the petitioner shall authenticate at the time of taking back of the originals as true copies and such action to be
taken within two weeks from the date of receipt of a copy of this order. The petitioner shall co-operate in future investigation
in the context of assessment of such persons whose income is found to have been suppressed pursuant to the information that
has already been gathered and the follow up action, if any.

17. In the result, the authorisation under Annex. R1 to the statement of objections and the continued retention of the documents
pursuant to the impounding order at Annex. C to the writ petition and all other actions thereafter deserve to be quashed and are
accordingly quashed. Rule issued and made absolute. The writ petition is allowed.

*****

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