2010 (9) TMI 601 - HC - Income Tax

Survey - Penalty - whether mere recording of reasons and approval by Chief Commissioner was enough to retain the impounded documents for long period even when it results in prejudice to the assessee - even though photocopies of the books of account and other documents have been made available the same not being legible audit could not be conducted on the basis thereof - even though the officer conducting survey could impound the books of account or other documents and retain the same beyond 10 days after approval of the Chief Commissioner the said power is not an absolute power - Period of filing return and audit will stand extended by two months from the date of availability of the original books of account and other documents - Decided in the favour of assessee

Summary

Issues:
- Direction for return of impounded books of account and documents under section 133A of the Income-tax Act, 1961.
- Justification for retention of books of account beyond the specified period.
- Requirement of recording reasons for retaining documents.
- Judicial review of discretionary powers of an administrative authority.
- Legibility of photocopies for conducting audit.
- Communication of approval for retention of documents to the assessee.
- Prejudice caused to the assessee due to prolonged retention of documents.

The judgment addresses the issue of seeking a direction for the return of books of account and other documents impounded during a survey under section 133A of the Income-tax Act, 1961. The petitioner argued that retention of the documents for an extended period was unjustified, especially considering the requirement for audit before filing returns. The Income-tax Officer, in response, stated that copies of the documents were provided to the assessee, but originals were needed for further investigation and assessment completion, with approval granted for retention. The court considered the arguments and emphasized the need for a valid reason to retain documents for an extended period, subject to judicial review. It was noted that the power to retain documents is not absolute and can be reviewed like any other discretionary power of an administrative authority.

The issue of legibility of photocopies for conducting audits was raised by the petitioner, highlighting that the provided copies were not suitable for audit purposes. The court acknowledged this concern and referenced a previous case where directions were given for the release of impounded documents within a specified period, allowing for the retention of photocopies. Drawing from this precedent, the court directed the respondent to release the books of account and documents within 15 days, with the option to retain photocopies after certification. The petitioner was required to return the original documents within two months, extending the period for filing returns and conducting audits accordingly.

The judgment also delves into the communication aspect of the approval for retention of documents to the assessee. While the revenue argued that conveying reasons for approval to the assessee was not mandatory, relying on a Supreme Court judgment, the court emphasized the need for the assessee to be informed about such approvals. In line with this, the court directed the respondent to release the documents within a specified timeframe, ensuring that the petitioner is aware of the approval and the conditions for retention. This communication aspect was deemed essential to uphold transparency and fairness in the process, aligning with principles of natural justice and procedural fairness in administrative actions.

In conclusion, the judgment provides a comprehensive analysis of the issues surrounding the impounding and retention of documents during tax surveys. It underscores the importance of valid justifications, judicial review, legibility of documents for audit purposes, and transparent communication of approvals to the concerned parties. By balancing the interests of the revenue authorities and the assessee, the court's directions aim to uphold procedural fairness, accountability, and efficiency in tax administration processes.