2008 (10) TMI 66 - HC - Income Tax

Survey in premises of Chartered Accountant of assessee retention of impounded books of account/documents belonging to their clients in absence of statement from client that their account books were kept in the premises of C.A., authorities lacked jurisdiction to enter the premises of petitioner-firm violation of s.133A held that income tax officer was not an authority competent to conduct survey u/s 133A in the premises of petitioner petitioner entitled to get back the impounded books

Issues Involved:
1. Legality of the survey conducted under section 133A of the Income-tax Act in the premises of a chartered accountant.
2. Competency of the Income-tax Officer (Headquarters) to conduct the survey.
3. Validity of the impounding of books of account/documents without recording reasons.
4. Retention of impounded books of account/documents beyond ten days without approval.
5. Requirement of an opportunity of hearing before extending the retention period.
6. Breach of privileged communication by impounding books of account belonging to the client.

Issue-wise Detailed Analysis:

1. Legality of the Survey Conducted Under Section 133A:
The court examined whether the income-tax authorities are empowered to conduct a survey under section 133A in the premises of a chartered accountant. The provisions of section 133A were analyzed, which allow the income-tax authority to enter any place where business or profession is carried on, including any other place where the person states that his books of account or other documents are kept. It was found that the counter-affidavit did not reveal any statement from M/s. Serajuddin and Co. indicating that their books were kept in the petitioner's premises. Thus, the survey conducted in the premises of the petitioner-chartered accountant was deemed unauthorized and without jurisdiction.

2. Competency of the Income-tax Officer (Headquarters) to Conduct the Survey:
The court considered whether the Income-tax Officer (Headquarters) was a competent authority to conduct the survey. According to the Explanation (a) to sub-section (6) of section 133A, only specified income-tax authorities can conduct such surveys. The court concluded that the Income-tax Officer (Headquarters) was not an income-tax authority under the said Explanation and thus was not competent to conduct the survey.

3. Validity of the Impounding of Books of Account/Documents Without Recording Reasons:
Section 133A(3)(ia) mandates that books of account or other documents can only be impounded after recording reasons. The court found that the reasons recorded by the opposite party were general and did not indicate any application of mind. Furthermore, the reasons were recorded a day after the books were impounded, violating the provisions of section 133A(3).

4. Retention of Impounded Books of Account/Documents Beyond Ten Days Without Approval:
The court examined whether the retention of the impounded books beyond ten days was authorized. It was found that the books were retained without obtaining the necessary approval from the Chief Commissioner or Director General for a period from September 1, 2008, to September 22, 2008, making such retention unauthorized and invalid.

5. Requirement of an Opportunity of Hearing Before Extending the Retention Period:
The court analyzed whether it was necessary to provide an opportunity of hearing to the petitioner before extending the retention period of the impounded books. It concluded that section 133A(3)(ia)(b) does not require a personal hearing before granting approval for retention beyond ten days. The court distinguished this case from others where financial burdens or special audits were involved, noting that the current situation only involved the examination of books of account.

6. Breach of Privileged Communication by Impounding Books of Account Belonging to the Client:
The court considered whether impounding the books of account belonging to the petitioner's client breached privileged communication. It was determined that the impounding was done under statutory provisions, and there was no voluntary disclosure by the petitioner. Thus, there was no breach of privileged communication.

Conclusion:
The court concluded that the survey operation, impounding, and retention of books of account/documents were conducted illegally without following the procedure laid down in section 133A of the Income-tax Act. The petitioner was entitled to get back the impounded books/documents. The court directed the return of the books of account/documents within two weeks from the date of production of a certified copy of the order.

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