Income Tax Officer vs M/S.Seth Brothers: IRAC Analysis
Issue
Whether, under the Indian lncome Tax Act (43 of 1961), in the course of following an order of search and seizure made by the Commissioner Of Income Tax, for the purpose of obtaining books and documents as may be considered relevant or useful for the purpose of reassessment, it is justified for income tax officers that besides seizing the documents belonging to the respondent, to seize papers documents relating to the transactions of their allied concern, which documents were irrelevant to the process of reassessment of the respondent?
Rule
Section 132 in The Income- Tax Act, 1995
132. Search and seizure
Then:
Provided further that where it is not possible or practicable to take physical possession of any valuable article or thing and remove it to a safe place due to its volume, weight or other physical characteristics or due to its being of a dangerous nature, the authorised officer may serve an order on the owner or the person who is in immediate possession or control thereof that he shall not remove, part with or otherwise deal with it, except with the previous permission of such authorised officer and such action of the authorised officer shall be deemed to be seizure of such valuable article or thing under clause (iii):
Provided also that nothing contained in the second proviso shall apply in case of any valuable article or thing, being stock-in-trade of the business:
Provided also that no authorisation shall be issued by the Additional Director or Additional Commissioner or Joint Director or Joint Commissioner on or after the 1st day of October, 2009 unless he has been empowered by the Board to do so.
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Explanation 2: In this section, the word "proceeding" means any proceeding in respect of any year, whether under the Indian Income-tax Act, 1922 (11 of 1922), or this Act, which may be pending on the date on which a search is authorised under this section or which may have been completed on or before such date and includes also all proceedings under this Act which may be commenced after such date in respect of any year.
(1) All citizens shall have the right
(f) It guaranteed to the Indian citizens a right to acquire, hold and dispose of property which was not possible due to economic differences (omitted)
(g) to practise any profession, or to carry on any occupation, trade or business
The Constitution originally provided for the right to property under Articles 19 and 31. Article 19 guaranteed to all citizens the right to acquire, hold and dispose of property. Article 31 provided that "no person shall be deprived of his property save by authority of law." It also provided that compensation would be paid to a person whose property has been taken for public purposes.
The provisions relating to the right to property were changed a number of times. The 44th Amendment of 1978 removed the right to property from the list of fundamental rights. A new provision, Article 300-A, was added to the constitution, which provided that "no person shall be deprived of his property save by authority of law". Thus, if a legislator made a law depriving a person of his property, there would be no obligation on the part of the State to pay anything as compensation.
Furthermore, the aggrieved person would also have no right to move the court under Article 32 due to the right to property no longer being a fundamental right, though it would still be a constitutional one. If the government appeared to have acted unfairly, the action could have been challenged in a court of law by aggrieved citizens before the amendment.
Analysis
In the present case the following happened:
M/s. Seth Brothers operate a "Imperial Flour Mills"-branded flour mill. The company was run by M/s. Seth Brothers, whose partners were Baikunth Nath and Vishwa Nath, from April 1, 1953 until March 1956. The company was run by Baikunth Nath, Vishwa Nath, Dr. Manmohan Nath, Mrs. Rama Rahi, and Mrs. Sushila Devi from March 1956 until March 31, 1957. Mrs. Prem Lata was accepted as a partner on April 7, 1957. In addition to running Meerut Cold Storage and General Mills, the partners also operated additional companies under the names Seth Brothers (Private) Ltd., Nath Brothers (Private) Ltd., etc.
Every year, the proprietors of the company were charged income tax in relation to the income generated by the firm. According to section 148 of the Income-tax Act of 1961, the Income-tax Officer, Meerut, issued a notice on March 14, 1963, informing M/s. Seth Brothers that there was cause to believe their taxable income had escaped assessment and that it was proposed to reassess this income for the assessment year 1954–1955.
Baikunth Nath and Vishwa Nath protested the notice by filing a return. The Income-tax Commissioner, U.P., received information that M/s. Seth Brothers were operating Imperial Flour Mills and other businesses while keeping "duplicate records" and avoiding assessment of their true income, and that it was necessary to seize the records that could be found at "Shanti Niketan," Meerut.
On May 29, 1963, the Commissioner of Income-tax, U.P., drafted a memo stating that he was satisfied that the need for the issuance of the authorization existed after receiving a report from the Income-tax Officer, D-Ward, Meerut, requesting authorization under Section 132 of the Income-tax Act, 1961, to enter and search the premises of M/s. Seth Brothers.
As required by Rule 112 of the Income-tax Rules, 1962, the Commissioner also issued an order in Form 45 authorising two income-tax officers, R. R. Agarwal and R. Kapoor, to enter the "Shanti Niketan" premises in Meerut, search for and seize any books and documents that may be considered relevant or useful for the purpose of the reassessment proceeding, mark them with identification marks, and transport them to the income-tax office. Account books and other papers discovered on the premises mentioned in the order were confiscated and sent to the Income-tax Office on June 7 and 8, 1963.
The acts of the Income-tax authorities were then contested in a petition submitted to the High Court of Allahabad by M/s. Seth Brothers. Seth Brothers (Private) Ltd., Nath Brothers (Private) Ltd., and Seth Brothers, Meerut all filed petitions asking for the same remedy. They asked for writs of prohibition to prevent the Income-tax Department from using any information learned as a result of the search, writs of certiorari to invalidate the letters authorising the search of the Shanti Niketan premises, writs of mandamus to order the Income-tax Officer to return all the books, papers, and items seized during the search, and writs of mandamus to order the return of all the items through the use of these petitions.
It was submitted by the petitioners that K.L. Ananda, Income-tax Officer and Satya Prakash an "ex-employee" of M/s. Seth Brothers had given false information to the Deputy Director of Inspection with a view to blackmail the partners of M/s.Seth Brothers, and that the order of search was made by the Commissioner of Income-tax at the direction of the Deputy Director of Inspection, that the action of the Income-tax Officer in searching the premises and in seizing the books of account was malicious and that in any event s. 132 of the Income-tax Act, 1961, and the rules framed thereunder, were violative of the fundamental freedoms guaranteed by Arts. 14, 19(1)(f) & (g) and 31 of the Constitution.
Affidavits were submitted on M/s. Seth Brothers' behalf. It was confirmed that "the so-called duplicate records" that the income-tax officer had confiscated were duplicates of the books of account and that the income-tax commissioner had taken action not on his own initiative but at the Directorate of Inspection's request. Several affidavits taken under oath by officers of the Income-tax Department were filed in response to the arguments made by the assesses.
In his affidavit, the Commissioner of Income-tax stated that the letters of authorization were not issued at the direction of the Directorate of Inspection and that he had determined that it was necessary to take action in accordance with section 132 of the Indian Income-tax Act, 1961, before issuing both the warrant of search and the letters of authorization.
The income-tax officers claimed that the search resulted in the recovery of several "duplicate account books and documents" kept by M/s. Seth Brothers, that the search was conducted legally and in the presence of two of the firm's partners and their attorneys, that there was a tight relationship between the various business operations of the partners of M/s. Seth Brothers and that all the papers that were confiscated were related to those activities.
That all the documents that were seized were relevant for the purpose of reassessment. In his affidavit, the Deputy Director of Inspection indicated that he did not offer the Commissioner any instructions about the issuance of a warrant for a search and seizure.
The Directorate of Inspection is believed to have issued orders for a general raid and seizure of all account books and papers that may be found at the firm's premises, the High Court of Allahabad held after taking into account the averments made in the affidavits filed on behalf of M/s Seth Brothers and the revenue.
Some of the documents seized by the Income-tax Officers were inconsequential for the purpose of any proceeding, the court ruled. papers pertaining to the transactions of the affiliated firms were also confiscated by the income-tax officers in addition to documents belonging to M/s Seth Brothers; certain documents did not have identification markings when they were taken;that the Income-tax Officer held the documents seized for more than two months, and that the operation used a disproportionate amount of police force. The High Court declared:
It is true that there was no iII-will between the ...... (partners of Seth Brothers) on one side and respondent Nos. 1, 3 and 4 (Commissioners of Income-tax, U.P. & Punjab and Income-tax Officer, Special Investigation Circle A, Meerut) on the other side. But the extent of the seizure was far beyond the limits of s. 132 of the Act. The action was mala fide in the sense that, there was abuse of power conferred on Income-tax Officers by s. 132 of the Act. The act being main fide, the proceedings .should be quashed by this Court by issuing a writ of mandamus.
Let's begin the analysis.
With regards to this particular issue, here are some case laws:
In CIT1 v. Jawahar Lal Rastogi, (1970) 2 SCC 225, It was held "6. It must, however, be stated that the findings that the action of the Commissioner of Income Tax and the Income Tax Officer amounted to "indiscriminate search" and was beyond the "legitimate scope of Section 132" depends upon the evidence in each case and no general rule can be laid down in that behalf.
9. In the present case the premises of the assessee were searched on September 21 and 22, 1964, and the documents were retained till May 1966 i.e. for a period of 19 months. Our attention has not been invited to any order of the authorities recording reasons for retaining the documents seized after the expiry of 180 days, nor is there any approval of the Commissioner for retaining such documents. The retention of the documents without complying with the requirements of the statute after expiry of the period of 180 days would be plainly contrary to law.
In Seth Brothers' case this Court examined the scheme of Section 132 in some detail and observed:
"The condition for entry into and making search of any building or place is the reason to believe that any books of account or other documents which will be useful for, or relevant to, any proceeding under the Act may be found.
If the Officer has reason to believe that any books of account or other documents would be useful for, or relevant to, any proceedings under the Act, he is authorised by law to seize those books of account or other documents and to place marks of identification therein, to make extracts or copies therefrom and also to make a note or an inventory of any articles or other things found in the course of the search. Since by the exercise of the power a serious invasion is made upon the rights, privacy and freedom of the taxpayer, the power must be exercised strictly in accordance with the law and only for the purposes for which the law authorises it to be exercised".
In Pooran Mal v. Director of Inspection (Investigation), (1974) 1 SCC 345 : 1974 SCC (Tax) 114 : (1974) 93 ITR 505] the constitutional validity of Section 132 was under challenge. While negating the said challenge, this Court ITR at p. 515 of its report had held that: (SCC pp. 355-56, para 7)
"7. Dealing first with the challenge under Articles 19(1)(f) and (g) of the Constitution it is to be noted that the impugned provisions are evidently directed against persons who are believed on good grounds to have illegally evaded the payment of tax on their income and property. Therefore, drastic measures to get at such income and property with a view to recover the government dues would stand justified in themselves.
When one has to consider the reasonableness of the restrictions or curbs placed on the freedoms mentioned in Articles 19(1)(f) and (g), one cannot possibly ignore how such evasions eat into the vitals of the economic life of the community. It is a well-known fact of our economic life that huge sums of unaccounted money are in circulation endangering its very fabric.
In a country which has adopted high rates of taxation a major portion of the unaccounted money should normally fill the Government coffers. Instead of doing so it distorts the economy. Therefore, in the interest of the community it is only right that the fiscal authorities should have sufficient powers to prevent tax evasion."
AND
Could there be more vague and completely misleading averments to support serious allegation of personal mala fide against the officer discharging his duties? We are not inclined to dilate any more on this aspect save and except saying that the affidavit of Gyan Chand is not forthcoming, that the name of the friend is not mentioned and the police officer cannot be identified from the material disclosed in the petition. One can only say that a nefarious attempt has been made to cook up a wholly imaginary allegation for attributing personal mala fides to the sixth respondent. The contention must be negatived without further examination.
In Partap3 Singh (Dr) v. Director of Enforcement, (1985) 3 SCC 72 : 1985 SCC (Cri) 312 : 1985 SCC (Tax) 352 at page 81
14. Assuming that it was obligatory to record reasons in writing prior to directing the search, the file submitted to the court unmistakably shows that there was material enough before the officer to form a reasonable belief which prompted him to direct the search. That the documents seized during the search did not provide sufficient material to the officer for further action cannot be a ground for holding that the grounds which induced the reasonable belief were either imaginary or fictitious or mala fide conjured up.
If the conditions for exercise of the power are not satisfied the proceeding is liable to be quashed.
The Act and the Rules do not require that the warrant of authorisation should specify the particulars of documents and books of accounts a general authorisation to search for and seize documents and books of account relevant to or useful for any proceeding complies with the requirements of the Act and the Rules. It is for the officer making the search to exercise his judgment and seize or not to seize any documents or books of account.
The aggrieved party may undoubtedly move a competent court for an order releasing the documents seized. In such a proceeding the Officer who has made the search will be called upon to prove how the documents seized are likely to be useful for or relevant to a proceeding under the Act.
If he is unable to do so, the court may order that those documents be released. But the circumstance that a large number of documents seized is not a ground for holding that all documents seized are irrelevant or the action of the officer is mala fide."
In Radha Kishan v. State of U.P.4, 1963 Supp (1) SCR 408 and State of Maharashtra v. Natwarlal Damodardas Soni 5, (1980) 4 SCC 669 the following was held:
"17. It was next urged that if there was no justification for issuing a search warrant, the search under the authority of such a warrant would be illegal and the Respondents 1 to 4 are bound to return the documents. If the officer who issued the search warrant had material for forming a reasonable belief to exercise the power, the search cannot be styled as illegal and therefore, no case is made out for directing return of the documents on the supposition that the search and seizure were illegal."
Now Let Us Analyze The Facts In Light Of The Above Precedents:
In this case, it is evident that on March 14, 1963, the Income-tax Officer in Meerut sent M/s.Seth Brothers a notice under section 148 of the Income-tax Act, 1961, informing them that there was reason to believe their taxable income had escaped assessment and that it was planned to reassess this income for the assessment year 1954–1955.
After receiving trustworthy information that M/s. Seth Brothers was maintaining "duplicate documents" and attempting to conceal their genuine income, the Income-tax Commissioner, U.P., was informed. The records at "Shanti Niketan," Meerut, where M/s. Seth Brothers ran the Imperial Flour Mills and other enterprises, had to be confiscated as a result.
A report from the Income-tax Officer, D-Ward, Meerut requesting permission under Section 132 of the Income-tax Act, 1961, to enter and search the premises of M/s. Seth Brothers led the Commissioner of Income-tax, U.P., to draught a memo stating that he was satisfied that the need for the issuance of the authorization existed on May 29, 1963.
In accordance with Rule 112 of the Income-tax Rules, 1962, the Commissioner also issued an order in Form 45 authorising two income-tax officers, R. R. Agarwal and R. Kapoor, to enter the "Shanti Niketan" premises in Meerut, search for and seize any books and documents that may be considered appropriate or useful for the purpose of the proceeding of reassessment, and then to give them to the Income-tax Office along with stamping identification on them. On June 7 and 8, 1963, account books and other documents found on the property indicated in the order were seized and delivered to the Income-tax Office.
The Income-tax Department's officials then filed a number of affidavits in response to the assessees' arguments. The Commissioner of Income-tax claimed in his affidavit that neither the search warrant nor the letters of authorization were issued at the direction of the Directorate of Inspection. Instead, he determined that it was necessary to act in accordance with section 132 of the Indian Income-tax Act, 1961, before issuing either.
The Income-tax Officers asserted that the search turned up numerous "duplicate account books and records" kept by M/s. Seth Brothers, that the search was legal and carried out in the presence of two partners of the firm and their attorneys, that all the documents seized were relevant for the purpose of reassessment, and that there was a close connection between the partners' various business endeavours. The Deputy Director of Inspection stated in his affidavit that the Commissioner was not given any instructions about the issue of a warrant for a search and seizure.
We can see from the aforementioned circumstances that the police went above and above to justify their search and seizure, even going so far as to file affidavits. It was required to confiscate the documents that could be located at "Shanti Niketan" when the cops got reliable evidence that M/s. Seth Brothers were keeping "duplicate records" and attempting to hide their genuine revenue.
In case, there is information in possession of the authorities that assessee is maintaining duplicate set of books of account containing details of transactions of undisclosed income, it can very reasonably be apprehended that if notice is issued to the assessee to produce such books of account, assessee will not produce the same, and would instead try his best to hide said books, thus frustrating the search and seizure efforts of the Income Tax Department.
Tax evasion is the term used to describe actions people take that are against the law in an effort to pay less tax. It is an extremely horrible crime that results in less tax revenue being paid to the government as a result of the act, which is one of the factors contributing to the decline in GDP. It results in:
In light of above facts and circumstances and precedents related we can say that the appeal against the Income Tax Department is frivolous and malafide on the part of Seth bros. The responsibility of the Income Tax Department is to ensure people pay their dues which are rightfully owed, and to that end, it is allowed for them to seize even seemingly irrelevant documents for their investigations.
To sum it up, I can say that Yes, under the Indian lncome Tax Act (43 of 1961), in the course of following an order of search and seizure made by the Commissioner Of Income Tax, for the purpose of obtaining books and documents as may be considered relevant or useful for the purpose of reassessment, it is justified for income tax officers that besides seizing the documents belonging to the respondent, to seize papers documents relating to the transactions of their allied concern, which documents were irrelevant to the process of reassessment of the respondent.
CONCLUSION
To conclude, I can say that I can say that, in light of legal precedents, reasoning and the facts of the case Yes, under the Indian lncome Tax Act (43 of 1961), in the course of following an order of search and seizure made by the Commissioner Of Income Tax, for the purpose of obtaining books and documents as may be considered relevant or useful for the purpose of reassessment, it is justified for income tax officers that besides seizing the documents belonging to the respondent, to seize papers documents relating to the transactions of their allied concern, which documents were irrelevant to the process of reassessment of the respondent.
BIBLIOGRAPHY:
Whether, under the Indian lncome Tax Act (43 of 1961), in the course of following an order of search and seizure made by the Commissioner Of Income Tax, for the purpose of obtaining books and documents as may be considered relevant or useful for the purpose of reassessment, it is justified for income tax officers that besides seizing the documents belonging to the respondent, to seize papers documents relating to the transactions of their allied concern, which documents were irrelevant to the process of reassessment of the respondent?
Rule
Section 132 in The Income- Tax Act, 1995
132. Search and seizure
- Where the 59[Principal Director General or] Director General or
59[Principal Director or] Director or the 60[Principal Chief Commissioner
or] Chief Commissioner or 60[Principal Commissioner or] Commissioner or
Additional Director or Additional Commissioner or Joint Director or Joint
Commissioner in consequence of information in his possession, has reason to
believe that:
- any person to whom a summons under sub-section (1) of section 37 of the Indian Income-tax Act, 1922 (11 of 1922), or under sub-section (1) of section 131 of this Act, or a notice under sub-section (4) of section 22 of the Indian Income-tax Act, 1922, or under sub-section (1) of section 142 of this Act was issued to produce, or cause to be produced, any books of account or other documents has omitted or failed to produce, or cause to be produced, such books of account or other documents as required by such summons or notice, or
- any person to whom a summons or notice as aforesaid has been or might be issued will not, or would not, produce or cause to be produced, any books of account or other documents which will be useful for, or relevant to, any proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act, or
- any person is in possession of any money, bullion, jewellery or other valuable article or thing and such money, bullion, jewellery or other valuable article or thing represents either wholly or partly income or property which has not been, or would not be, disclosed for the purposes of the Indian Income-tax Act, 1922 (11 of 1922), or this Act (hereinafter in this section referred to as the undisclosed income or property)
Then:
- The 61[Principal Director General or] Director General or 61[Principal
Director or] Director or the 62[Principal Chief Commissioner or] Chief
Commissioner or 62[Principal Commissioner or] Commissioner, as the case may
be, may authorise any Additional Director or Additional Commissioner or Joint
Director, Joint Commissioner, Assistant Director or Deputy Director, Assistant
Commissioner or Deputy Commissioner or Income-tax Officer, or
- such Additional Director or Additional Commissioner or Joint Director,
or Joint Commissioner, as the case may be, may authorise any Assistant Director or
Deputy Director, Assistant Commissioner or Deputy Commissioner or Income-tax
Officer,
(the officer so authorised in all cases being hereinafter referred to as the authorised officer) to:
- Enter and search any building, place, vessel, vehicle or aircraft where he has reason to suspect that such books of account, other documents, money, bullion, jewellery or other valuable article or thing are kept;
- Break open the lock of any door, box, locker, safe, almirah or other
receptacle for exercising the powers conferred by clause (i) where the keys
thereof are not available;
Search any person who has got out of, or is about to get into, or is in, the building, place, vessel, vehicle or aircraft, if the authorised officer has reason to suspect that such person has secreted about his person any such books of account, other documents, money, bullion, jewellery or other valuable article or thing;
(iib) Require any person who is found to be in possession or control of any books of account or other documents maintained in the form of electronic record as defined in clause (t) of sub-section (1) of section 2 of the Information Technology Act, 2000 (21 of 2000), to afford the authorised officer the necessary facility to inspect such books of account or other documents;
- Seize any such books of account, other documents, money, bullion, jewellery or other valuable article or thing found as a result of such search:
Provided that bullion, jewellery or other valuable article or thing, being stock-in-trade of the business, found as a result of such search shall not be seized but the authorised officer shall make a note or inventory of such stock-in-trade of the business;
- Place marks of identification on any books of account or other documents
or make or cause to be made extracts or copies therefrom;
- make a note or an inventory of any such money, bullion, jewellery or other
valuable article or thing:
Provided further that where it is not possible or practicable to take physical possession of any valuable article or thing and remove it to a safe place due to its volume, weight or other physical characteristics or due to its being of a dangerous nature, the authorised officer may serve an order on the owner or the person who is in immediate possession or control thereof that he shall not remove, part with or otherwise deal with it, except with the previous permission of such authorised officer and such action of the authorised officer shall be deemed to be seizure of such valuable article or thing under clause (iii):
Provided also that nothing contained in the second proviso shall apply in case of any valuable article or thing, being stock-in-trade of the business:
Provided also that no authorisation shall be issued by the Additional Director or Additional Commissioner or Joint Director or Joint Commissioner on or after the 1st day of October, 2009 unless he has been empowered by the Board to do so.
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- [(1A) Where any 67[Principal Chief Commissioner or] Chief Commissioner or
67[Principal Commissioner or] Commissioner, in consequence of information in his
possession, has reason to suspect that any books of account, other documents,
money, bullion, jewellery or other valuable article or thing in respect of which
an officer has been authorised by the 68[Principal Director General or] Director
General or 68[Principal Director or] Director or any other 69[Principal Chief
Commissioner or] Chief Commissioner or 69[Principal Commissioner or]
Commissioner or Additional Director or Additional Commissioner or Joint Director
or Joint Commissioner to take action under clauses (i) to (v) of sub-section (1)
are or is kept in any building, place, vessel, vehicle or aircraft not mentioned
in the authorisation under sub-section (1), such 70[Principal Chief Commissioner
or] Chief Commissioner or 70[Principal Commissioner or] Commissioner may,
notwithstanding anything contained in section 120, authorise the said officer to
take action under any of the clauses aforesaid in respect of such building,
place, vessel, vehicle or aircraft.]
- The authorised officer may requisition the services of any police officer or
of any officer of the Central Government, or of both, to assist him for all or
any of the purposes specified in sub-section (1) or sub-section (1A) and it
shall be the duty of every such officer to comply with such requisition.
- The authorised officer may, where it is not practicable to seize any such
books of account, other documents, money, bullion, jewellery or other valuable
article or thing, for reasons other than those mentioned in the second proviso
to sub-section (1), serve an order on the owner or the person who is in
immediate possession or control thereof that he shall not remove, part with or
otherwise deal with it except with the previous permission of such officer and
such officer may take such steps as may be necessary for ensuring compliance
with this sub-section.
Explanation: For the removal of doubts, it is hereby declared that serving of an order as aforesaid under this sub-section shall not be deemed to be seizure of such books of account, other documents, money, bullion, jewellery or other valuable article or thing under clause (iii) of sub-section (1).
- The authorised officer may, during the course of the search or seizure,
examine on oath any person who is found to be in possession or control of any
books of account, documents, money, bullion, jewellery or other valuable article
or thing and any statement made by such person during such examination may
thereafter be used in evidence in any proceeding under the Indian Income-tax
Act, 1922 (11 of 1922), or under this Act.
Explanation: For the removal of doubts, it is hereby declared that the examination of any person under this sub-section may be not merely in respect of any books of account, other documents or assets found as a result of the search, but also in respect of all matters relevant for the purposes of any investigation connected with any proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act.
(4A) Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search, it may be presumed:
- That such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person;
- That the contents of such books of account and other documents are true; and
- That the signature and every other part of such books of account and other documents which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in the handwriting of, any particular person, are in that person's handwriting, and in the case of a document stamped, executed or attested, that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested.
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- The books of account or other documents seized under sub-section (1) or
sub-section (1A) shall not be retained by the authorised officer for a period
exceeding thirty days from the date of the order of assessment under section
153A or clause (c) of section 158BC unless the reasons for retaining the same
are recorded by him in writing and the approval of the 71[Principal Chief
Commissioner or] Chief Commissioner, 71[Principal Commissioner or] Commissioner,
71[Principal Director General or Director General or 71[Principal Director or]
Director for such retention is obtained:
Provided that the 71[Principal Chief Commissioner or] Chief Commissioner, 71[Principal Commissioner or] Commissioner, 71[Principal Director General or] Director General or 71[Principal Director or] Director shall not authorise the retention of the books of account and other documents for a period exceeding thirty days after all the proceedings under the Indian Income-tax Act, 1922 (11 of 1922), or this Act in respect of the years for which the books of account or other documents are relevant are completed.
(8A) An order under sub-section (3) shall not be in force for a period exceeding sixty days from the date of the order.
- The person from whose custody any books of account or other documents
are seized under sub-section (1) or sub-section (1A) may make copies
thereof, or take extracts therefrom, in the presence of the authorised officer or any other
person empowered by him in this behalf, at such place and time as the authorised
officer may appoint in this behalf.
(9A) Where the authorised officer has no jurisdiction over the person referred to in clause (a) or clause (b) or clause (c) of sub-section (1), the books of account or other documents, or any money, bullion, jewellery or other valuable article or thing (hereafter in this section and in sections 132A and 132B referred to as the assets) seized under that sub-section shall be handed over by the authorised officer to the Assessing Officer having jurisdiction over such person within a period of sixty days from the date on which the last of the authorisations for search was executed and thereupon the powers exercisable by the authorised officer under sub-section (8) or sub-section (9) shall be exercisable by such Assessing Officer.
- If a person legally entitled to the books of account or other documents seized under sub-section (1) or sub-section (1A) objects for any reason to the approval given by the 72[Principal Chief Commissioner or] Chief Commissioner, 72[Principal Commissioner or] Commissioner, 72[Principal Director General or] Director General or 72[Principal Director or] Director under sub-section (8), he may make an application to the Board stating therein the reasons for such objection and requesting for the return of the books of account or other documents and the Board may, after giving the applicant an opportunity of being heard, pass such orders as it thinks fit.
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[(13) The provisions of the Code of Criminal Procedure, 1973 (2 of 1974), relating to searches and seizure shall apply, so far as may be, to searches and seizure under sub-section (1) or sub-section (1A).]
- For obtaining ingress into any building, place, vessel, vehicle or aircraft to be searched where free ingress thereto is not available;
- For ensuring safe custody of any books of account or other documents or assets seized.
Explanation 2: In this section, the word "proceeding" means any proceeding in respect of any year, whether under the Indian Income-tax Act, 1922 (11 of 1922), or this Act, which may be pending on the date on which a search is authorised under this section or which may have been completed on or before such date and includes also all proceedings under this Act which may be commenced after such date in respect of any year.
Article 14 in The Constitution Of India 1949
14. Equality before law
The State shall not deny to any person equality before the law or the equal protection of the laws within the territory of India Prohibition of discrimination on grounds of religion, race, caste, sex or place of birthArticle 19 in The Constitution Of India 1949
19. Protection of certain rights regarding freedom of speech etc:(1) All citizens shall have the right
(f) It guaranteed to the Indian citizens a right to acquire, hold and dispose of property which was not possible due to economic differences (omitted)
(g) to practise any profession, or to carry on any occupation, trade or business
Article 31 in The Constitution Of India 1949 (omitted)
Explanation: Right to propertyThe Constitution originally provided for the right to property under Articles 19 and 31. Article 19 guaranteed to all citizens the right to acquire, hold and dispose of property. Article 31 provided that "no person shall be deprived of his property save by authority of law." It also provided that compensation would be paid to a person whose property has been taken for public purposes.
The provisions relating to the right to property were changed a number of times. The 44th Amendment of 1978 removed the right to property from the list of fundamental rights. A new provision, Article 300-A, was added to the constitution, which provided that "no person shall be deprived of his property save by authority of law". Thus, if a legislator made a law depriving a person of his property, there would be no obligation on the part of the State to pay anything as compensation.
Furthermore, the aggrieved person would also have no right to move the court under Article 32 due to the right to property no longer being a fundamental right, though it would still be a constitutional one. If the government appeared to have acted unfairly, the action could have been challenged in a court of law by aggrieved citizens before the amendment.
Analysis
In the present case the following happened:
M/s. Seth Brothers operate a "Imperial Flour Mills"-branded flour mill. The company was run by M/s. Seth Brothers, whose partners were Baikunth Nath and Vishwa Nath, from April 1, 1953 until March 1956. The company was run by Baikunth Nath, Vishwa Nath, Dr. Manmohan Nath, Mrs. Rama Rahi, and Mrs. Sushila Devi from March 1956 until March 31, 1957. Mrs. Prem Lata was accepted as a partner on April 7, 1957. In addition to running Meerut Cold Storage and General Mills, the partners also operated additional companies under the names Seth Brothers (Private) Ltd., Nath Brothers (Private) Ltd., etc.
Every year, the proprietors of the company were charged income tax in relation to the income generated by the firm. According to section 148 of the Income-tax Act of 1961, the Income-tax Officer, Meerut, issued a notice on March 14, 1963, informing M/s. Seth Brothers that there was cause to believe their taxable income had escaped assessment and that it was proposed to reassess this income for the assessment year 1954–1955.
Baikunth Nath and Vishwa Nath protested the notice by filing a return. The Income-tax Commissioner, U.P., received information that M/s. Seth Brothers were operating Imperial Flour Mills and other businesses while keeping "duplicate records" and avoiding assessment of their true income, and that it was necessary to seize the records that could be found at "Shanti Niketan," Meerut.
On May 29, 1963, the Commissioner of Income-tax, U.P., drafted a memo stating that he was satisfied that the need for the issuance of the authorization existed after receiving a report from the Income-tax Officer, D-Ward, Meerut, requesting authorization under Section 132 of the Income-tax Act, 1961, to enter and search the premises of M/s. Seth Brothers.
As required by Rule 112 of the Income-tax Rules, 1962, the Commissioner also issued an order in Form 45 authorising two income-tax officers, R. R. Agarwal and R. Kapoor, to enter the "Shanti Niketan" premises in Meerut, search for and seize any books and documents that may be considered relevant or useful for the purpose of the reassessment proceeding, mark them with identification marks, and transport them to the income-tax office. Account books and other papers discovered on the premises mentioned in the order were confiscated and sent to the Income-tax Office on June 7 and 8, 1963.
The acts of the Income-tax authorities were then contested in a petition submitted to the High Court of Allahabad by M/s. Seth Brothers. Seth Brothers (Private) Ltd., Nath Brothers (Private) Ltd., and Seth Brothers, Meerut all filed petitions asking for the same remedy. They asked for writs of prohibition to prevent the Income-tax Department from using any information learned as a result of the search, writs of certiorari to invalidate the letters authorising the search of the Shanti Niketan premises, writs of mandamus to order the Income-tax Officer to return all the books, papers, and items seized during the search, and writs of mandamus to order the return of all the items through the use of these petitions.
It was submitted by the petitioners that K.L. Ananda, Income-tax Officer and Satya Prakash an "ex-employee" of M/s. Seth Brothers had given false information to the Deputy Director of Inspection with a view to blackmail the partners of M/s.Seth Brothers, and that the order of search was made by the Commissioner of Income-tax at the direction of the Deputy Director of Inspection, that the action of the Income-tax Officer in searching the premises and in seizing the books of account was malicious and that in any event s. 132 of the Income-tax Act, 1961, and the rules framed thereunder, were violative of the fundamental freedoms guaranteed by Arts. 14, 19(1)(f) & (g) and 31 of the Constitution.
Affidavits were submitted on M/s. Seth Brothers' behalf. It was confirmed that "the so-called duplicate records" that the income-tax officer had confiscated were duplicates of the books of account and that the income-tax commissioner had taken action not on his own initiative but at the Directorate of Inspection's request. Several affidavits taken under oath by officers of the Income-tax Department were filed in response to the arguments made by the assesses.
In his affidavit, the Commissioner of Income-tax stated that the letters of authorization were not issued at the direction of the Directorate of Inspection and that he had determined that it was necessary to take action in accordance with section 132 of the Indian Income-tax Act, 1961, before issuing both the warrant of search and the letters of authorization.
The income-tax officers claimed that the search resulted in the recovery of several "duplicate account books and documents" kept by M/s. Seth Brothers, that the search was conducted legally and in the presence of two of the firm's partners and their attorneys, that there was a tight relationship between the various business operations of the partners of M/s. Seth Brothers and that all the papers that were confiscated were related to those activities.
That all the documents that were seized were relevant for the purpose of reassessment. In his affidavit, the Deputy Director of Inspection indicated that he did not offer the Commissioner any instructions about the issuance of a warrant for a search and seizure.
The Directorate of Inspection is believed to have issued orders for a general raid and seizure of all account books and papers that may be found at the firm's premises, the High Court of Allahabad held after taking into account the averments made in the affidavits filed on behalf of M/s Seth Brothers and the revenue.
Some of the documents seized by the Income-tax Officers were inconsequential for the purpose of any proceeding, the court ruled. papers pertaining to the transactions of the affiliated firms were also confiscated by the income-tax officers in addition to documents belonging to M/s Seth Brothers; certain documents did not have identification markings when they were taken;that the Income-tax Officer held the documents seized for more than two months, and that the operation used a disproportionate amount of police force. The High Court declared:
It is true that there was no iII-will between the ...... (partners of Seth Brothers) on one side and respondent Nos. 1, 3 and 4 (Commissioners of Income-tax, U.P. & Punjab and Income-tax Officer, Special Investigation Circle A, Meerut) on the other side. But the extent of the seizure was far beyond the limits of s. 132 of the Act. The action was mala fide in the sense that, there was abuse of power conferred on Income-tax Officers by s. 132 of the Act. The act being main fide, the proceedings .should be quashed by this Court by issuing a writ of mandamus.
Let's begin the analysis.
With regards to this particular issue, here are some case laws:
In CIT1 v. Jawahar Lal Rastogi, (1970) 2 SCC 225, It was held "6. It must, however, be stated that the findings that the action of the Commissioner of Income Tax and the Income Tax Officer amounted to "indiscriminate search" and was beyond the "legitimate scope of Section 132" depends upon the evidence in each case and no general rule can be laid down in that behalf.
9. In the present case the premises of the assessee were searched on September 21 and 22, 1964, and the documents were retained till May 1966 i.e. for a period of 19 months. Our attention has not been invited to any order of the authorities recording reasons for retaining the documents seized after the expiry of 180 days, nor is there any approval of the Commissioner for retaining such documents. The retention of the documents without complying with the requirements of the statute after expiry of the period of 180 days would be plainly contrary to law.
In Seth Brothers' case this Court examined the scheme of Section 132 in some detail and observed:
"The condition for entry into and making search of any building or place is the reason to believe that any books of account or other documents which will be useful for, or relevant to, any proceeding under the Act may be found.
If the Officer has reason to believe that any books of account or other documents would be useful for, or relevant to, any proceedings under the Act, he is authorised by law to seize those books of account or other documents and to place marks of identification therein, to make extracts or copies therefrom and also to make a note or an inventory of any articles or other things found in the course of the search. Since by the exercise of the power a serious invasion is made upon the rights, privacy and freedom of the taxpayer, the power must be exercised strictly in accordance with the law and only for the purposes for which the law authorises it to be exercised".
In Pooran Mal v. Director of Inspection (Investigation), (1974) 1 SCC 345 : 1974 SCC (Tax) 114 : (1974) 93 ITR 505] the constitutional validity of Section 132 was under challenge. While negating the said challenge, this Court ITR at p. 515 of its report had held that: (SCC pp. 355-56, para 7)
"7. Dealing first with the challenge under Articles 19(1)(f) and (g) of the Constitution it is to be noted that the impugned provisions are evidently directed against persons who are believed on good grounds to have illegally evaded the payment of tax on their income and property. Therefore, drastic measures to get at such income and property with a view to recover the government dues would stand justified in themselves.
When one has to consider the reasonableness of the restrictions or curbs placed on the freedoms mentioned in Articles 19(1)(f) and (g), one cannot possibly ignore how such evasions eat into the vitals of the economic life of the community. It is a well-known fact of our economic life that huge sums of unaccounted money are in circulation endangering its very fabric.
In a country which has adopted high rates of taxation a major portion of the unaccounted money should normally fill the Government coffers. Instead of doing so it distorts the economy. Therefore, in the interest of the community it is only right that the fiscal authorities should have sufficient powers to prevent tax evasion."
AND
Could there be more vague and completely misleading averments to support serious allegation of personal mala fide against the officer discharging his duties? We are not inclined to dilate any more on this aspect save and except saying that the affidavit of Gyan Chand is not forthcoming, that the name of the friend is not mentioned and the police officer cannot be identified from the material disclosed in the petition. One can only say that a nefarious attempt has been made to cook up a wholly imaginary allegation for attributing personal mala fides to the sixth respondent. The contention must be negatived without further examination.
In Partap3 Singh (Dr) v. Director of Enforcement, (1985) 3 SCC 72 : 1985 SCC (Cri) 312 : 1985 SCC (Tax) 352 at page 81
14. Assuming that it was obligatory to record reasons in writing prior to directing the search, the file submitted to the court unmistakably shows that there was material enough before the officer to form a reasonable belief which prompted him to direct the search. That the documents seized during the search did not provide sufficient material to the officer for further action cannot be a ground for holding that the grounds which induced the reasonable belief were either imaginary or fictitious or mala fide conjured up.
If the conditions for exercise of the power are not satisfied the proceeding is liable to be quashed.
The Act and the Rules do not require that the warrant of authorisation should specify the particulars of documents and books of accounts a general authorisation to search for and seize documents and books of account relevant to or useful for any proceeding complies with the requirements of the Act and the Rules. It is for the officer making the search to exercise his judgment and seize or not to seize any documents or books of account.
The aggrieved party may undoubtedly move a competent court for an order releasing the documents seized. In such a proceeding the Officer who has made the search will be called upon to prove how the documents seized are likely to be useful for or relevant to a proceeding under the Act.
If he is unable to do so, the court may order that those documents be released. But the circumstance that a large number of documents seized is not a ground for holding that all documents seized are irrelevant or the action of the officer is mala fide."
In Radha Kishan v. State of U.P.4, 1963 Supp (1) SCR 408 and State of Maharashtra v. Natwarlal Damodardas Soni 5, (1980) 4 SCC 669 the following was held:
"17. It was next urged that if there was no justification for issuing a search warrant, the search under the authority of such a warrant would be illegal and the Respondents 1 to 4 are bound to return the documents. If the officer who issued the search warrant had material for forming a reasonable belief to exercise the power, the search cannot be styled as illegal and therefore, no case is made out for directing return of the documents on the supposition that the search and seizure were illegal."
Now Let Us Analyze The Facts In Light Of The Above Precedents:
In this case, it is evident that on March 14, 1963, the Income-tax Officer in Meerut sent M/s.Seth Brothers a notice under section 148 of the Income-tax Act, 1961, informing them that there was reason to believe their taxable income had escaped assessment and that it was planned to reassess this income for the assessment year 1954–1955.
After receiving trustworthy information that M/s. Seth Brothers was maintaining "duplicate documents" and attempting to conceal their genuine income, the Income-tax Commissioner, U.P., was informed. The records at "Shanti Niketan," Meerut, where M/s. Seth Brothers ran the Imperial Flour Mills and other enterprises, had to be confiscated as a result.
A report from the Income-tax Officer, D-Ward, Meerut requesting permission under Section 132 of the Income-tax Act, 1961, to enter and search the premises of M/s. Seth Brothers led the Commissioner of Income-tax, U.P., to draught a memo stating that he was satisfied that the need for the issuance of the authorization existed on May 29, 1963.
In accordance with Rule 112 of the Income-tax Rules, 1962, the Commissioner also issued an order in Form 45 authorising two income-tax officers, R. R. Agarwal and R. Kapoor, to enter the "Shanti Niketan" premises in Meerut, search for and seize any books and documents that may be considered appropriate or useful for the purpose of the proceeding of reassessment, and then to give them to the Income-tax Office along with stamping identification on them. On June 7 and 8, 1963, account books and other documents found on the property indicated in the order were seized and delivered to the Income-tax Office.
The Income-tax Department's officials then filed a number of affidavits in response to the assessees' arguments. The Commissioner of Income-tax claimed in his affidavit that neither the search warrant nor the letters of authorization were issued at the direction of the Directorate of Inspection. Instead, he determined that it was necessary to act in accordance with section 132 of the Indian Income-tax Act, 1961, before issuing either.
The Income-tax Officers asserted that the search turned up numerous "duplicate account books and records" kept by M/s. Seth Brothers, that the search was legal and carried out in the presence of two partners of the firm and their attorneys, that all the documents seized were relevant for the purpose of reassessment, and that there was a close connection between the partners' various business endeavours. The Deputy Director of Inspection stated in his affidavit that the Commissioner was not given any instructions about the issue of a warrant for a search and seizure.
We can see from the aforementioned circumstances that the police went above and above to justify their search and seizure, even going so far as to file affidavits. It was required to confiscate the documents that could be located at "Shanti Niketan" when the cops got reliable evidence that M/s. Seth Brothers were keeping "duplicate records" and attempting to hide their genuine revenue.
In case, there is information in possession of the authorities that assessee is maintaining duplicate set of books of account containing details of transactions of undisclosed income, it can very reasonably be apprehended that if notice is issued to the assessee to produce such books of account, assessee will not produce the same, and would instead try his best to hide said books, thus frustrating the search and seizure efforts of the Income Tax Department.
Tax evasion is the term used to describe actions people take that are against the law in an effort to pay less tax. It is an extremely horrible crime that results in less tax revenue being paid to the government as a result of the act, which is one of the factors contributing to the decline in GDP. It results in:
- Less tax collection:
This is the primary and most important consequence of tax avoidance. As a consequence of their activities, the government is unable to provide the required money for growth and development, which is one of the reasons the GDP is declining. It is partially expected by us that individuals who participate in tax evasion would not pay the full amount of tax.
- A rise in corruption-related activities:
We can say that corruption or deceit has an impact on tax evasion because people engage in it out of corrupt motives and in an effort to make more money. Furthermore, when people witness someone else engaging in tax evasion, they are inspired to follow suit and engage in similar behaviour, which results in the generation of illegal funds.
- Increase in inadequacy:
The unlawful enterprise is encouraged by tax avoidance, which deprives the people of the necessities for their growth and development. Because of this, wealthy people just hoard their money and live life to the utmost, while the plight of the poor gets worse.
- Funding in alternatives:
Most tax evaders try to cover up their unlawful wealth in other ways, one of which is gold jewellery. They are merely protecting their riches by doing this, which can be reclaimed by simply swapping the jewellery for actual money. Attempting to quantify this would surely aggravate the economic condition in our nation.
- Transfer of illicit gains:
One of their key techniques for achieving this is altering the export and import invoicing procedure. They engage the agents that enable this transmission and only save these kinds of tax evaders. Many tax evaders may afford to take this sort of strategy, and by doing so, they simply transfer the safest location—foreign funds—where their illicit earnings from tax evasion in India are kept.
- Trouble for more taxpayers:
The government has no choice but to raise tax rates higher as a result of all the tax avoidance and evasion carried out by these criminals. As a result, honest tax payers suffer greatly, and poverty rises as a result of these criminal acts.
In light of above facts and circumstances and precedents related we can say that the appeal against the Income Tax Department is frivolous and malafide on the part of Seth bros. The responsibility of the Income Tax Department is to ensure people pay their dues which are rightfully owed, and to that end, it is allowed for them to seize even seemingly irrelevant documents for their investigations.
To sum it up, I can say that Yes, under the Indian lncome Tax Act (43 of 1961), in the course of following an order of search and seizure made by the Commissioner Of Income Tax, for the purpose of obtaining books and documents as may be considered relevant or useful for the purpose of reassessment, it is justified for income tax officers that besides seizing the documents belonging to the respondent, to seize papers documents relating to the transactions of their allied concern, which documents were irrelevant to the process of reassessment of the respondent.
CONCLUSION
To conclude, I can say that I can say that, in light of legal precedents, reasoning and the facts of the case Yes, under the Indian lncome Tax Act (43 of 1961), in the course of following an order of search and seizure made by the Commissioner Of Income Tax, for the purpose of obtaining books and documents as may be considered relevant or useful for the purpose of reassessment, it is justified for income tax officers that besides seizing the documents belonging to the respondent, to seize papers documents relating to the transactions of their allied concern, which documents were irrelevant to the process of reassessment of the respondent.
BIBLIOGRAPHY:
- https://indiankanoon.org/doc/751975/
- https://indiankanoon.org/doc/558753/
- https://indiankanoon.org/doc/235313/
- https://indiankanoon.org/doc/1285567/
- https://indiankanoon.org/doc/6596/
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