2024 (11) TMI 324 - HC - Income Tax

Retention of books of accounts and other documents contrary to the provision of section 132 (8) - Validity of recovery proceedings as well as the retention of the books of accounts and other documents seized during the course of search by the respondent-authority beyond the statutory period - HELD THAT - Respondent-authorities are required to return the books of accounts and other documents within 30 days from the date of passing of the assessment order to the petitioner unless the reasons are recorded in writing for retention of the same with the approval of the higher authority specified in the said provision. On perusal of the facts on record, it is apparent that the respondent-authorities have never communicated the reasons recorded to the petitioner and as such, the petitioner was not aware about the reasons for retention of the books of accounts and other documents which has prevented the petitioner from raising the objections before the Central Board of Direct Taxes as provided under sub-section (10) of section 132 of the Act. The respondents by not providing reasons for almost two years has deprived the petitioner from raising objections for such retention. This itself is enough to hold that the respondents are not authorized to continue retention in spite of the fact that such retention is extended upto 30.04.2025. This Court in case of Cowasjee Nusserwanji Dinshaw 1987 (3) TMI 106 - GUJARAT HIGH COURT after analyzing the provisions of section 132 of the Act and conjoint reading of the provisions of sub-sections (8), (10) and (12) held that the assessee must be communicated reasons recorded by the Authorized Officer on the basis whereof the Commissioner granted necessary approval . Thereafter, considering the decisions of Oriental Rubber Work 1983 (11) TMI 1 - SUPREME COURT it was held that failure to communicate the reasons recorded would render further retention of the account books and documents seized udder sub-section (8) of section 132 illegal, invalid and unlawful. Thus, the respondent-authorities are not justified in continuing the retention of books of accounts and other documents contrary to the provision of section 132 (8) of the Act and the petitioner is entitled to receive the same forthwith from the respondent-authorities. This petition succeeds and the respondent-authorities are directed to return the books of accounts and other documents seized during the course of search under section 132 (1) of the Act forthwith.

Issues Involved:

1. Legality of retention of seized documents beyond the statutory period.
2. Justification for the continued retention of books of accounts and documents.
3. Compliance with procedural requirements under Section 132(8) of the Income Tax Act.
4. Petitioner's entitlement to the return of documents.
5. Consequential reliefs pertaining to attachment over bank accounts and DMAT account.

Issue-wise Detailed Analysis:

1. Legality of Retention of Seized Documents Beyond the Statutory Period:

The petitioner challenged the retention of documents seized during a search conducted under Section 132 of the Income Tax Act, 1961. The court examined the statutory provision under Section 132(8), which mandates that seized documents should not be retained beyond thirty days from the date of the assessment order unless reasons are recorded in writing and approval is obtained from the appropriate authority. The court noted that the respondent-authorities failed to communicate the reasons for retention to the petitioner, which is a statutory obligation as per the Supreme Court's ruling in *Oriental Rubber Works*. This failure deprived the petitioner of the opportunity to object to the retention, rendering the continued retention unlawful.

2. Justification for Continued Retention of Books of Accounts and Documents:

The respondent-authorities argued that the retention was necessary for ongoing appeal proceedings and potential challenges to the CIT (A)'s order. However, the court found that the reasons for retention were not communicated to the petitioner in a timely manner, which violated the statutory requirements. The court emphasized that the reasons for retention must be specific and justifiable, not merely procedural or routine, as highlighted in *Madhupuri Corporation*.

3. Compliance with Procedural Requirements under Section 132(8):

The court scrutinized the compliance with Section 132(8), which requires that reasons for retention must be recorded in writing and approved by a higher authority. The court found that while the respondent-authorities claimed to have recorded reasons and obtained approval, the failure to communicate these reasons to the petitioner was a critical lapse. Citing *Metal Fittings (P.) Ltd.*, the court reiterated that the statutory time limit for retention is mandatory, and any extension must strictly adhere to procedural requirements.

4. Petitioner's Entitlement to the Return of Documents:

Given the procedural lapses by the respondent-authorities, the court concluded that the petitioner is entitled to the return of the seized documents. The court ordered the respondent-authorities to return the books of accounts and other documents forthwith. The court also allowed the respondent-authorities to retain copies of the documents, provided the petitioner supplies them before receiving the originals, along with an undertaking to provide the originals if required.

5. Consequential Reliefs Pertaining to Attachment Over Bank Accounts and DMAT Account:

The court addressed the petitioner's request for lifting the attachment over bank accounts and the DMAT account, noting that this relief would be consequential to the order passed by the CIT (A), which granted substantial relief by reducing the demand significantly. The court directed the petitioner to pursue appropriate proceedings before the respondent-authorities for lifting the attachments, given the reduced demand.

In conclusion, the court ruled in favor of the petitioner, directing the immediate return of the seized documents due to non-compliance with statutory requirements by the respondent-authorities. The court also provided guidance on the procedural steps for addressing the attachment of financial accounts, contingent upon the reduced tax demand.

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