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United Chemical Agency Vs. R.K. Singh, Income-tax Officer, Ward Ii and ors. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberCivil Misc. Writ Petition No. 2465 of 1974
Judge
Reported in[1974]97ITR14(All)
ActsIncome Tax Act, 1961 - Sections 131, 131(1), 131(2), 131(3), 133A and 133A(2)
AppellantUnited Chemical Agency
RespondentR.K. Singh, Income-tax Officer, Ward Ii and ors.
Appellant AdvocateS.C. Khare and ;R.K. Gulati, Advs.
Respondent AdvocateS.N. Kacker and ;R.R. Misra, Advs.
Excerpt:
.....chemicals, like caustic soda, soda ash, cement, etc. that day, the account books as well as the loose sheets, of which details were given in the notice. 4. according to the petitioner, the respondents seized all the books of account as well as the loose sheets and took them away at about 5 p. in compliance with a notice under section 131, but had failed to do so. 6. in this writ petition the petitioner challenges the validity of the raid as well as the seizure of the books of account and other documents and prays that the respondents be directed to return all the documents seized by them from the premises of the petitioner on 23rd april, 1974. it has also been prayed that the respondents be directed not to make any copy or to make any abstract or note from the documents illegally..........director (investigation), kanpur, and told him that these persons were refusing to sign the loose sheets. it is alleged that sri garg arrived at the shop at about 4 p.m. along with a stenographer and other employees of the department. he threatened murlidhar and jopat that if they did not sign the sheets the godown and the business premises shall be sealed and the residence of the partners of the firm will be searched and sealed. under this strain and coercion, murlidhar and jopat ultimately signed the sheets. thereafter, sri garg examined murlidhar and recorded his statement. this statement was also got signed by murlidhar.3. according to the petitioner, at this stage the respondent issued a notice under section 131 of the income-tax act, addressed to jopat, requiring him to.....
Judgment:

Satish Chandra, J.

1. The petitioner is a partnership-firm. It carries on business of supply of industrial chemicals, like caustic soda, soda ash, cement, etc., in its business premises situate at 49/27, Generalganj, Kanpur.

2. The petitioner's case is that on 23rd April, 1974, respondents Nos. 1 to 4, who are Income-tax Officers of various circles at Kanpur, together with a number of income-tax inspectors and a peon raided the business premises of the petitioner. They searched the business premises and the account books of the petitioner-firm. They took control of the cash box, counted its contents and compared the same with the balances in the books, noted down the same in the statement of the accountant and procured the signature of the cashier on it. At that time Murlidhar, a manager of the firm, was in the office. Satya Narayan Jopat, who is alleged to be the petitioner's agent for doing income-tax cases, was also present there. It is alleged that after the books of account of the petitioner-firm had been seized by therespondent they placed about eleven sheets, some of them in type-script and others in manuscript, and insisted that Murlidhar and Jopat sign them. These persons refused to sign the sheets as they did not know anything about them. Thereupon, the respondents who were present at the shop telephoned Sri H. C. Garg, respondent No. 5, who was Assistant Director (Investigation), Kanpur, and told him that these persons were refusing to sign the loose sheets. It is alleged that Sri Garg arrived at the shop at about 4 p.m. along with a stenographer and other employees of the department. He threatened Murlidhar and Jopat that if they did not sign the sheets the godown and the business premises shall be sealed and the residence of the partners of the firm will be searched and sealed. Under this strain and coercion, Murlidhar and Jopat ultimately signed the sheets. Thereafter, Sri Garg examined Murlidhar and recorded his statement. This statement was also got signed by Murlidhar.

3. According to the petitioner, at this stage the respondent issued a notice under Section 131 of the Income-tax Act, addressed to Jopat, requiring him to produce at the office of respondent No. 1 at 3 p.m. that day, the account books as well as the loose sheets, of which details were given in the notice. At the same time another notice under Section 131 addressed to Chandra Bhushan Shukla was also served on Jopat. Shukla was directed to appear before respondent No. 1 the next day for being examined. He was also asked to produce the documents and accounts mentioned in it. It appears that according to the statement of Murlidhar as recorded by the respondents, Murlidhar stated that the loose sheets were in the handwriting of Chandra Bhushan Shukla, who was the accountant of the firm. Thereupon, Chandra Bhushan Shukla, who was not at that time present in the firm, was required to attend the next day for being examined on oath.

4. According to the petitioner, the respondents seized all the books of account as well as the loose sheets and took them away at about 5 p.m.

5. On 25th April, 1974, another notice was issued under Section 131(2) to the petitioner-firm. It was stated in it that Murlidhar had promised to produce Chandra Bhushan Shukla on 24th April, 1974, at 11 a.m. in compliance with a notice under Section 131, but had failed to do so. The petitioner was required to show cause why penalty should not be imposed upon it. The petitioner-firm filed a reply denying the allegations or its liability to produce Chandra Bhushan Shukla.

6. In this writ petition the petitioner challenges the validity of the raid as well as the seizure of the books of account and other documents and prays that the respondents be directed to return all the documents seized by them from the premises of the petitioner on 23rd April, 1974. It has also been prayed that the respondents be directed not to make any copy or to make any abstract or note from the documents illegally seized bythem; and that they be directed not to initiate any proceedings of any kind against the petitioner on the basis of the seized documents.

7. Respondent No. 1 in his counter-affidavit states that he alone conducted the survey of the petitioner-firm's business premises. In the samepremises nineteen other firms carry on business. According to therespondent these firms are inter-related. The other Income-tax Officersaccompanying respondent No. 1 conducted the survey of the various otherfirms. According to him, after he had seen the account books of M/s. YarnTraders and M/s. Vanaspati Agents, the account books of M/s. UnitedChemical Agency (the petitioner-firm) were produced for survey. The stockregister of the petitioner-firm had, however, inside it five typewritten andseven handwritten papers. Respondent No. 1 required Murlidhar toprovide necessary facility to inspect the documents and place marks ofidentification on them, and he further wanted to take extracts therefrom.He also wanted to verify these loose papers with reference to the books ofaccount of the petitioner-firm present at the shop. He required Murlidharto facilitate the doing of these acts, but he evaded and refused to complywith the requirements and did not allow him to place marks of identification and to take extracts from the said loose papers. Thereupon, he issuednotice under Section 131 to S. N. Jopat who was also present at the spot.S. N. Jopat advised Murlidhar to comply with the notice. The notice wasserved on S. N. Jopat at 2-50 p.m. requiring compliance by 3 p.m. Thereupon, Murlidhar effected compliance with the notice then and there. Beforeactual compliance with the notice Murlidhar and Jopat both consulted thepetitioner-firm's income-tax adviser, Sri R. R. Pandey on phone, and,thereafter, produced the account books and loose typed and handwrittensheets in compliance with the said notice. According to respondent No. 1this compliance was made at 4 p.m. Thereupon, the statement ofMurlidhar was recorded. Then Murlidhar and S. N. Jopat were requestedto sign all the account books and loose papers for the purpose of identification which they did sign. It has been stated that Sri Garg was called toassist in the survey proceedings. He did not extend any threats to thepetitioner's employees. After the recording of the statement, the books ofaccount which had been produced by Murlidhar were impounded under Section 131 of the Income-tax Act.

8. Thus according to the respondents the business premises of the petitioner-firm were only surveyed on 23rd April, 1974. No search or seizure as contemplated by Section 132 of the Act was undertaken.

9. The principal question which requires consideration is whether whileconducting a survey the officer has any power to impound or take into hispossession the account books or documents, and whether he can compel theemployees of the business to make statements with regard to the affairs ofthe business or as to the contents of the account books or documents, and also whether the surveying officer can compel the employees to sign documents inspected by him.

10. Section 133A of the Act provides :

'133A. Power of survey.--(1) Notwithstanding anything in any other provision, an Income-tax Officer or any Inspector of Income-tax authorised by him in this behalf may enter-

(a) any place within the limits of the area assigned to him, or

(b) any place occupied by any person in respect of whom the Income-tax Officer exercises jurisdiction,

at which a business or profession is carried on, whether such place be the principal place or not of such business or profession, and require any proprietor, employee or any other person who may at that time and place be attending in any manner to, or helping in the carrying on of, such business or profession to afford him the necessary facility to inspect such books of account or other documents as he may require and which may be available at such place, and on the inspection of such accounts or documents he may, if he so deems necessary, place marks of identification thereon or cause to be made extracts therefrom:

Provided that the Income-tax Officer or such Inspector of Income-tax may enter any place referred to in this section only during such hours as the place is open for the conduct of the business or profession :

Provided further that while acting under this section the Income-tax Officer or such Inspector of Income-tax shall not remove or cause to be removed from the place which he has entered any books of accounts or other documents.

(2) If a person who under Sub-section (1) is required to afford facility to the Income-tax Officer or the Inspector of Income-tax to inspect books of account or other documents either refuses or evades to do so, the Incomer-tax Officer shall have all the powers under Sub-sections (1) and (2) of Section 131 for enforcing compliance of the requirements made.'

Under it the Income-tax Officer has the power to require a proprietor and employee, etc., who may be present at the time of survey to afford him the necessary facility to inspect the books of account or other documents and on their inspection to place marks of identification thereon or cause to be made extracts therefrom. If the proprietor or employee, etc., who is required to afford facilities refuses or evades to do so, the Income-tax Officer can use his powers under Section 131(1) and (2) for enforcing compliance with the requirements made. Thus, the powers under Sub-sections (1) and (2) of Section 131 can be employed if there is refusal or evasion to afford facility for the three mentioned things and only 'for enforcing compliance of the requirements made'. This would mean thatthese powers can be exercised in order to see that the proprietor or employee gives facility to do one or the other of the three acts mentioned in Sub-section (1), namely, to facilitate the inspection of books or documents, and on their inspection to facilitate the placing of marks of identification on them, and to facilitate the making of extracts therefrom.

11. In paragraph 19 of the counter-affidavit respondent No. 1 says that after he had seen the account books of M/s. Yarn Traders and M/s. Vanaspati Agents, 'the account books of M/s. United Chemical Agencies were produced for survey'. It is thus clear that there was no refusal or evasion to facilitate the inspection of the account books. It is then stated that the stock register of the petitioner-firm had inside it five typed sheets and seven hand-written papers. From this it is apparent that the respondent No. 1 noticed these sheets and papers while inspecting the stock register. It cannot hence be said that the facility for their inspection was refused or evaded. The Income-tax Officer, however, goes on to say that he requested Murlidhar necessary facility to inspect the said documents and place marks of identification on them. He further wanted to take extracts therefrom He also wanted to verify these loose sheets with reference to the account books of the petitioner-firm present at the spot and that Murlidhar refused to allow him to place marks of identification and to take extracts from the said loose papers. Thereupon, at 2-50 p m. he served a notice upon S. N. Jopat under Section 131 of the Act. A copy of this notice is annexure 'I' to the writ petition. This notice stated :

'To

Shri S. N. Jopat,

M/s. United Chemical Agency,

49/27-F, Generalganj, Kanpur.

Whereas your attendance is required in connection with the proceedings under the Income-tax Act in the case of M/s. United Chemical Agency you are hereby required personally to attend my office at Kanpur on the 23rd day of April, 1974, at 3.00 O' clock p.m. there to give evidence and/or to produce either personally or through an authorised representative the books of account or other documents specified overleaf, and not to depart until you receive my permission to do so. Without prejudice to the provisions of any other law for the time being in force, if you intentionally omit to so attend, to give evidence or produce the books of account or documents, a fine up to Rs. 500 may be imposed upon you under Section 131(2) of the Income-tax Act, 1961.'

The list attached to this notice refers to seven documents, of which the first six are references of the loose sheets alleged to have been found in the petitioner's stock book. They give a summary of their contents. The documents at serial No. 7 are the various account books for the year1973-74. This notice belies the counter-affidavit of respondent No. 1 in two significant respects. If the respondent's case that Murlidhar who had produced the account books was hot affording facility for the placing of identification marks and the taking of extracts from the loose sheets and in order to enforce compliance of these requirements notice was issued was correct, then one would have found some mention in the notice of this grievance; and further one would have expected the Income-tax Officer to ask Murlidhar by this notice to afford the requisite facility to enable him to place the marks of identification and to take extracts. On the other hand, the notice only requires him to produce the accounts and documents mentioned in it and to give evidence in respect of them.

12. In the next place, if the officer had not been afforded facility to take extracts from the account books or the loose sheets, how did he get the details of each of those loose sheets which are mentioned in the annexure accompanying this notice. It is evident that the officer had taken extracts from the loose sheets and those extracts are summarised in the annexure to this notice. The case that Murlidhar did not afford facility for placing the identification marks or taking extracts is a complete lie. Consequently, there was no occasion for exercising powers under Section 131 to achieve the placing of identification marks or taking extracts. The notice, on the other hand, required him to produce the account books and the papers which had already been done.

13. Another significant feature of this notice, is that though the counter-affidavit states that initially Murlidhar produced the account books, etc., and that Murlidhar refused to provide the requisite facility, yet the notice was issued to, and served on S. N. Jopat; who, according to respondent No. 1, was not at all involved in this affair at that stage. If the requisite facilities had to be enforced, surely the notice should have been issued to Murlidhar. Looked at from either point of view, the notice is without jurisdiction.

14. According to the first respondent, after the service of notice, the books were produced (though according to him those very books had been produced earlier). The officer examined Murlidhar and recorded his statement. In view of Section 133A, the powers under Sub-sections (1) and (2) of Section 131 which include the power to examine a person on bath could be utilised only for enforcing compliance of the requirements made. According to this officer, the requirement made was to provide facility to place marks of identification and to take extracts. The power of the officer to examine a person on oath was thus confined to enforcing compliance of the requirements made. He had no power to examine anyone for any other purpose. A perusal of the statement of Murlidhar as recorded by the surveying officer shows that he did not put a single question with aview to enforce compliance of the requirements aforesaid: all thequestions were directed to elicit information about the contents of theaccounts and the loose sheets as well as the business affairs of the petitioner-firm. For instance, he is alleged to have stated that the loose.sheets are in the handwriting of Chandra Bhushan Shukla, munim of thefirm, that they contain entries of the names to whom chemicals and sodaash had been sold, the quantity and the rates at which they were sold andthe amount of sales recorded in the books and the amount realised asdifference. The statement nowhere relates to enforcing compliance of therequirements. It deals with matters which are wholly outside the purviewof Section 133A. The first respondent blatantly transgressed the limits ofhis powers. He had no power to examine Murlidhar on matters on which,he did.

15. Similarly, the notice issued to Chandra Bhushan Shukla to appear andbe examined the next day had no relation to the problem of enforcingcompliance of the requirements made within the meaning of Sub-section (2)of Section 133A. Moreover, if the officer wanted to examine ChandraBhushan Shukla, he should have served a notice on him rather than onS. N. Jopat, who was certainly not liable or bound to produce anyone else.The notice dated 25th April, 1974, issued to the petitioner-firm asking itto show cause why penalty be not imposed upon it for non-production ofChandra Bhushan Shukla is completely misconceived; The firm had neverbeen asked to produce him. The earlier notice was served on S.N. Jopat.All these notices are liable to be quashed.

16. The petitioner's grievance that at a survey the Income-tax Officer has no jurisdiction to impound or seize books of accounts or other documents found at the business place is also justified. Section 133A authorises an Income-tax Officer to use his powers under Sub-sections (1) and (2) of Section 131 of the Act for the named purpose. Under Sub-sections (1) and (2) of Section 131 there is no power to impound any document. That power is conferred by Sub-section (3) to Section 131. But Sub-section (2) of Section 133A, while specifically conferring powers under Sub-sections (1) and (2) of Section 131, significantly omits to include the powers conferred by Sub-section (3) to Section 131. Evidently, the legislature did not clothe the Income-tax Officer with the powers under Sub-section (3) of Section 131 While he was conducting a survey under Section 133A, to impound any document. The omission from Sub-section (2) to Section 133A, of Sub-section (3) to Section 131 could have no other meaning. This is corroborated by the fact that even the power under Sub-sections (1) and (2) to section till has been conferred upon the surveying officer only to enforce, compliance of the requirements made and for no other purpose. The power to impound books of account or documents mentioned in Sub-section (3) toSection 131 could have no possible relation or relevance for enforcing compliance of the requirements of either facilitating the inspection or placing of the identification marks or causing extracts to be made from the account books or documents. The action of the first respondent in impounding and taking away the books of account or other documents belonging to the petitioner-firm was without the authority of law. They must return them.

17. The loose sheets and papers which the respondents allege were discovered in the stock register of the petitioner-firm pose a curious problem. The petitioner does not accept this case of the respondents. In the writ petition it has been stated :

'16. That after the books mentioned above had been seized and taken away into custody by respondents, they placed about eleven loose sheets, some of them in type-script and others in manuscript, and insisted Sri Murlidhar and Sri Jopat to sign them.

17. That these two persons refused to sign the sheets as they did not know anything about these sheets.'

Further on, it has been stated that when Sri Garg arrived, he threatened and under coercion Murlidhar and S. N. Jopat signed these loose sheets.

18. The case of the respondents that these loose sheets were found in the stock register and that after service of the notice at 2-50 p. m. Murlidhar and S. N. Jopat signed these loose sheets voluntarily has been denied in the rejoinder-affidavit. Paragraph 18 of the rejoinder-affidavit says that 'the allegation in the paragraph under reply that in the stock register five typed sheets and seven hand-written papers were found are denied as false'. The last sentence of paragraph 29 of the rejoinder-affidavit says: 'No loose sheets were found from the books of the petitioner.' Murlidhar has filed an affidavit, He has annexed to it a copy of the letter sent by him to the Income-tax Officer on 4th May, 1974, after he had been given a certified copy of his statement on 2nd May, 1974. In that he says :

'..... that things that I never stated have been recorded in thealleged statement ...... I have not produced any books or documents asalleged in the statement.... I never stated that there was any profit ordivision in the loose sheets of which absolutely I had no knowledge and on which my signatures were obtained under threats and intimidation. A question was put to me whether I know of the loose sheets and I said 'I do not know'. Another question was asked to me what is meant by R. K. B. and ours ' and I said 'I do not know'. When questions were put to me about various entries, I said since I have no knowledge of these papers and its contents, I cannot say anything on this object.'

So, according to Murlidhar who was the petitioner's manager, he had no knowledge of these loose sheets or their contents, Evidently, his case is that these loose sheets were not part of the accounts of the petitioner-firm and that he did not know that they had any relation to the business affairs of the petitioner-firm.

According to the affidavit of the first respondent, when after the service of notice under Section 131 Murlidhar and S. N. Jopat were asked to sign the loose sheets, they consulted their income-tax adviser, Sri R. R. Pandey, on the telephone, and thereafter they signed those papers. In paragraph 19 of the rejoinder-affidavit it is stated that Sri Jopat consulted Sri Raja Ram Pandey on the phone as the respondent was pressurising Murlidhar and S. N. Jopat to sign on the loose sheets of which they had absolutely no knowledge, that neither Murlidhar nor S. N. Jopat had any knowledge of the contents of those loose sheets and that Sri Pandey advised them not to sign on those sheets. To corroborate this, an affidavit of R. R. Pandey, advocate, has been filed. In this Sri Pandey says that Sri Jopat wanted to know his opinion whether he should sign some loose papers about which he had absolutely no knowledge either of the contents or other whereabouts and for signing of which Sri R. K. Singh and others had been insisting, and that Sri Pandey advised him not to sign those papers.

19. It is thus evident that consistently and persistently the petitioner's case is that these loose sheets were not found in the stock register of the petitioner-firm and that its employees and its manager had no knowledge of their existence or contents. In substance, the petitioner's case is that these loose sheets did not belong to the petitioner-firm but that they were placed in the account books by the surveying officer,

20. As we have seen, the impounding of documents and their being taken into custody by the respondents was illegal because they had no such power while conducting a survey. The petitioner can legitimately ask for the return of the account books and documents belonging to it and which were impounded or seized by the respondents. But the petitioner cannot ask for the return of those documents, which according to it did not belong to it but which were placed by the respondents in the account books. The petitioner does not accept the respondents' case that these documents belonged to it and that they referred to the business affairs of the petitioner-firm. Under the circumstances we are unable to record a positive finding that these loose sheets were either the property of the petitioner-firm or that they related to the affairs of the petitioner-firm. In view of the conflicting state of evidence the ownership of these documents is doubtful. The petitioner cannot be given relief of the return of these loose sheets or of the copies or extracts made therefrom by the respondents unless it affirmatively established that these were the petitioner's properties.

21. The relief, that the respondents be directed not to make any copy orextract from the documents seized, cannot be granted. Section 133Aexpressly authorises the surveying officer to take extracts from the documents. There is no allegation that the respondents have made eitherphotostat copies or other full copies of the account books as distinguished,from the loose sheets in question. If the loose sheets cannot be returned,there is no occasion for directing the return of the copies made from themor of them.

22. The relief, that the respondents be directed not to initiate any proceedings on the basis of the documents seized on 23rd April, 1974, is misconceived. In Pooran Mal v. Director of Inspection (Investigation), Income-tax, [1974] 93 I.T.R. 505 (S.C.)the Supreme Court held that even though a search and seizure may bein contravention of Section 132 of the Income-tax Act, 1961, still thematerial obtained thereby is liable to be used subject to law before theincome-tax authorities against the person from whose custody it is seized,and, therefore, no writ of prohibition in restraint of such use can be granted. If the user of the seized documents cannot be restrained, surely theauthorities cannot be restrained from initiating proceedings on the basis ofinformation gathered from such documents.

23. In the result, the writ petition succeeds and is allowed in part. Theimpugned notices' and the recorded statement of Murlidhar are quashed.The respondents are directed to forthwith return the account books andother documents, except the loose sheets in question or the copies, etc.,made of, or from them, to the petitioner-firm.

24. In iew of divided success, the parties will bear their own costs.


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