1969 (5) TMI 13 - HC - Income Tax

Summary

Issues Involved:
1. Legality of the search and seizure under section 132 of the Income-tax Act, 1961.
2. Scope and application of section 132 and section 131 of the Income-tax Act.
3. Justification for the search and seizure based on the information possessed by the authorities.
4. Retention period of the seized documents.
5. Relevance and identification of the seized documents.

Detailed Analysis:

1. Legality of the Search and Seizure under Section 132 of the Income-tax Act, 1961:
The petitioner challenged the legality of the search and seizure conducted under section 132 of the Income-tax Act, 1961. The search was carried out on September 21-22, 1964, and a large number of documents were seized. The petitioner contended that the search and seizure were indiscriminate and not warranted by section 132 of the Act. The court examined the true scope of section 132, which was amended by Act No. 1 of 1965, and determined that the search and seizure should be deemed to have been made under the amended section 132.

2. Scope and Application of Section 132 and Section 131 of the Income-tax Act:
Section 132 allows authorities to search and seize documents if they have reason to believe that a person has failed to produce documents relevant to income-tax proceedings. Section 131 provides the Income-tax Officer with powers similar to those of a court under the Code of Civil Procedure, 1908, for discovery and production of evidence. The court noted that while an Income-tax Officer can require specific documents, a general direction to produce all relevant documents is not permissible.

3. Justification for the Search and Seizure Based on the Information Possessed by the Authorities:
The authorities justified the search on the grounds that the petitioner was not likely to produce the documents if summoned. The court reviewed the counter-affidavit of the Income-tax Officer, who stated that the petitioner had shown a large accumulation of capital disproportionate to his disclosed income and had denied the existence of certain books of account. The Commissioner of Income-tax issued letters of authorisation based on this information. However, the court found that the search and seizure were conducted before the expiry of the notice period given to the petitioner to furnish the required statements.

4. Retention Period of the Seized Documents:
Section 132(8) stipulates that seized documents should not be retained for more than 180 days unless reasons for retention are recorded and approved by the Commissioner. In this case, the documents were retained for 19 months before the writ petition was filed. The court noted that the prolonged retention suggested that the authorities were dealing with a mixture of relevant and irrelevant documents.

5. Relevance and Identification of the Seized Documents:
The court found that more than 300 books and registers, along with thousands of promissory notes, were seized, some of which were practically blank or irrelevant for assessment purposes. The petitioner alleged that the documents were seized indiscriminately, and the authorities did not place proper marks of identification on the seized documents. The court observed that the letters of authorisation directed the officers to place identification marks, but this was not done. The presence of irrelevant documents among the seized items indicated an indiscriminate search.

Conclusion:
The court concluded that the search and seizure constituted an abuse of power conferred by section 132 of the Act. The actions of the Commissioner of Income-tax and the Income-tax Officers went beyond the legitimate scope of the section. The court quashed the search and seizure proceedings and directed the authorities to return the seized documents to the petitioner and other persons from whom they were recovered.

Judgment:
The petition was allowed with costs. The search and seizure proceedings of September 1964 were quashed, and the opposite parties were directed to return the documents seized to the petitioner and other persons from whose custody they were recovered.