2000 (10) TMI 28 - HC - Income Tax

Issues Involved:
1. Quashing of notices issued under section 226(3) of the Income-tax Act, 1961.
2. Quashing of orders declining the request to withdraw the attachment.
3. Quashing the approval for continuing the seizure of books of account and documents under section 132(8) of the Act.
4. Legality of continued retention of books of account and documents beyond 180 days.

Detailed Analysis:

1. Quashing of Notices Issued Under Section 226(3) of the Income-tax Act, 1961:
The petitioners sought to quash the notices issued by the Assistant Commissioner of Income-tax (Investigation Circle II), Ambala, which were for the attachment of their bank accounts. These notices were part of the enforcement actions following a search and seizure operation conducted on September 26, 1995. The court noted that during the pendency of the writ petitions, the respondents had lifted the attachment of the bank accounts, rendering this issue moot.

2. Quashing of Orders Declining the Request to Withdraw the Attachment:
The petitioners also sought to quash the orders passed by the Deputy Commissioner of Income-tax (Investigation Circle-II), Ambala, which declined their request to withdraw the attachment of their bank accounts. The court acknowledged that the attachment of the bank accounts had been lifted, and therefore, this issue did not require further adjudication.

3. Quashing the Approval for Continuing the Seizure of Books of Account and Documents Under Section 132(8) of the Act:
The petitioners challenged the approval granted by the Commissioner of Income-tax under section 132(8) of the Act for continuing the seizure of their books of account and documents. They contended that the action taken by the respondents and the orders passed by them were ultra vires the provisions of section 132(8) of the Act, apart from being wholly illegal, arbitrary, and unjustified.

The court examined the statutory requirements under section 132(8) and (10) of the Act, which mandate that the books of account or other documents seized shall not be retained beyond 180 days unless reasons for retaining the same are recorded in writing and approved by the Commissioner. The court emphasized the necessity of communicating the approval and reasons for retention to the concerned person, as outlined in CIT v. Oriental Rubber Works [1984] 145 ITR 477 (SC).

4. Legality of Continued Retention of Books of Account and Documents Beyond 180 Days:
The primary issue for adjudication was whether the continued retention of the books of account and documents seized on September 26, 1995, was legally sustainable. The court noted that the respondents failed to produce evidence proving that the approval for retention beyond 180 days was communicated to the petitioners in a timely manner. The court highlighted that the statutory obligation to communicate the Commissioner's approval and the recorded reasons was not fulfilled, as required by law.

The court referred to several precedents, including CIT v. Oriental Rubber Works [1984] 145 ITR 477 (SC), Survir Enterprises v. CIT [1986] 157 ITR 206 (Delhi), and Nutan Sahkari Avas Samiti Ltd. v. Director of Income-tax (Investigation) [1994] 208 ITR 843 (Allahabad), which underscored the necessity of timely communication of approval and reasons for retention.

The court concluded that the retention of the books of account and documents beyond March 26, 1996, was illegal due to the failure of the respondents to communicate the approval and reasons for retention in accordance with section 132(8) of the Act. The court directed the concerned authority of the Income-tax Department to release the books of account and other documents seized from the petitioners' premises within one month, allowing the retention of photostat copies after getting them signed by the petitioners or their representatives.

Conclusion:
The writ petitions were allowed, and the court directed the release of the books of account and documents seized on September 26, 1995, within one month, with the provision for retaining photostat copies. The court emphasized the statutory obligation to communicate the approval and reasons for retention, declaring the continued retention beyond 180 days as illegal.

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