1. This is a petition under article 226 of the Constitution praying for the issue of a writ of certiorari calling for the records of Income-tax Officer, Circle I, Kancheepuram, the second respondent herein, and quashing the order dated January 28, 1972, made by him under Section 132(5) of the Income-tax Act, 1961.
2. Armed with a warrant under Section 132(1), the second respondent searched the premises of the petitioner at No. 36, Kumarichetty Street, Kancheepuram, and seized out of a cash of Rs. 20,654, a sum of Rs. 15,000 and certain sale deeds and promissory notes. A notice under Section 139(2) for the assessment year 1971-72 and also a notice under Section 132(5) read with Rule 112A were served on the petitioner on November 10, 1971, for the hearing of the case on November 30, 1971. At the request of the petitioner, the hearing was adjourned to December, 1971, and later to January 20, 1972. On that date, the petitioner was represented by a chartered accountant and he produced statements of accounts showing the investments made during the period from 1957-58 onwards up to 31st October, 1971. The petitioner also produced certain other records, namely, certificates and affidavits regarding his income during the years between 1957-58 and 1971-72. The value of the total investments as on October 31, 1971, was found to be Rs. 1,58,200. Taking into account the approximate expenditure of the assessee for the maintenance of his family at Rs. 6,000 per annum, he estimated the total 'outlay' at Rs. 2,20,000. The Income-tax Officer was also of the view that the lands of the petitioner would not have yielded much income and he estimated the net agricultural income from his lands at Rs. 60,000 or Rs. 70,000. Regarding the balance of Rs. 1,50,000 out of the total of Rs. 2,20,000 estimated by him, the Income-tax Officer considered that it was not possible for him, on the materials available, to ascertain to which particular previous year or years such income or any part thereof related, and, accordingly, invoking the first proviso to Section 132(5), held that the entire income of Rs. 1,50,000 related to the financial year, corresponding to the assessment year 1971-72, in which the assets were seized, and proceeded to determine the tax that would be payable on the income so estimated and arrived at a sum of Rs. 1,05,800 as the tax payable. As the tax payable on the estimated income was much more than the sum of Rs. 15,000 seized, he made the order of retention of the entire sum of Rs. 15,000.
3. In this writ petition Mr. M. S. Venkatarama lyer, the learned counsel for the petitioner, strenuously contended that the investment of Rs. 1,58,200 evidenced by the document did not relate to any particular year and it was spread over a number of years, and, therefore, the estimation of the entire income as if it was derived in the financial year relevant to the assessment year 1971-72 alone is illegal and unjustifiable. The learned counsel further submitted that he had produced enough materials, which would show the income derived in each year and the investments made. This evidence had not been adverted to by the Income-tax Officer in estimating that the entire income should be deemed to be chargeable in the assessment year 1971-72.
4. The evidence produced by the petitioner before the Income-tax Officer consisted of: (1) a statement containing the particulars of the lands owned by him and those taken by him on lease ; (2) the particulars of income and expenditure from those lands for each of the assessment years 1962-63 to 1970-71 ; (3) the particulars of investments between the accounting years 1957-58 to 1971-72 ; (4) sales tax returns in respect of the sales of coconuts and the sales tax assessment orders ; (5) certificate issued by the Government departments evidencing the supply of coconut seedlings to the Government departments by the petitioner ; and (6) affidavits from the village officers and residents showing the probable income from the petitioner's lands.
5. It is seen from the statements and the supporting records produced by the petitioner that he was owning about 50 acres of garden lands, which the Income-tax Officer would call as 'dry lands' and another 30 acres of leasehold lands. It is also found that about 2,400 yielding coconut trees are in these lands. It was the case of the petitioner that he was deriving about Rs. 30,000 per year by way of income from these lands and the coconut trees. He also admitted that he used to purchase coconuts on occasions in order to satisfy the prior commitments to his clients. But he had stated that the income derived from these sales was very small and compared to the income from the sale of coconuts produced from his own lands and the leasehold lands, the income from the sale of coconuts purchased would be very negligible. With regard to the promissory notes seized from the petitioner, he stated that they related to advances made by him to some of his lessors and that the amounts were advanced only from his agricultural income. He explained about the sales tax assessments stating that though as a producer of the coconuts, he would not be a dealer in respect of the sale of coconuts produced in his garden, such objection had not been taken for one reason or the other. Mr. Venkatarama lyer, the learned counsel for the petitioner, tried to correlate the investments with the income from those particular years and suggested that the Income-taxOfficer has not made an honest attempt to find out whether those investments could not have been from the income of a particular year.
6. The question for consideration before the Income-tax Officer was as to whether the entire sum of Rs. 15,000 or any part of it is to be retained. Section 132(5) enables such an order to be made if the tax calculated on the amount of undisclosed income estimated by him under that provision or any amount that may be required to satisfy any existing liability of the petitioner under the Act, exceeds the amount. It, therefore, becomes necessary for the Income-tax Officer to ascertain or estimate the undisclosed income and the particular previous year to which such income is relatable. But the first proviso enables him to treat the entire estimated undisclosed income as the total income chargeable to tax in the financial year in which the assets were seized if it were not possible for him to ascertain to which particular previous year or years such income or part thereof related. In this case, as already stated, the investments which formed the main basis for estimating the income were distributed in the various assessment years between 1957-58 and 1971-72. Though the investment in a particular accounting year could be assumed to be from the proceeds of the income prior to such investments, the Income-tax Officer considered that it is not possible even in such a case to fix the particular accounting year in which the income was actually derived though it might be safely said to have been derived prior to the investment. It is for this reason he was of the view that he is entitled to invoke the first proviso to Section 132(5); and he estimated the entire total income as that relatable to the assessment year 1971-72. Though technically the Income-tax Officer was right in making such an estimate invoking the first proviso to Section 132(5), we expected the Income-tax Officer to deal with the facts in a more detailed manner, which, we think, might have enabled him to determine or ascertain the income from which each of such investments was made. As already stated, the petitioner has produced evidence showing the extent of the lands owned by him, the total number of coconut trees and probable yield from those trees. He had also produced the sales tax orders which showed that the profits from the taxable sales could not be as much as Rs. 1,58,200 during these years. Further, in estimating the agricultural income, the Income-tax Officer proceeded merely on assumptions without any evidence. At any rate, he has not stated anything in the order which he took as the basis for ascertaining such income. Having regard to the extensive power conferred on the Income-tax Officer under Section 132 and the far-reaching consequences on the individual rights of the citizen, one would expect in such matters, though the time available to the Income-tax Officer is so short as three months, to consider the matter with such anxiety and fairness as would be required in order to avoid anyunreasonable or unfair interference with the private rights of the individual. Needless to say that he must estimate the undisclosed income in an honest manner and not capriciously. Especially when the Income-tax Officer invokes the first proviso to Section 132(5), he is expected to exercise too much of caution and only if it is impossible for him to ascertain with reasonable certainty to which particular year or years such income or part thereof related, the proviso should be invoked. Having given our anxious consideration to these aspects, we still consider that, on the facts and circumstances of this case, we would not be inclined to interfere with the order. The proceedings under Section 132(5) are concerned only with the retention of the amount seized. The regular assessment or reassessment will have to be done before the same is finally appropriated to any tax liability that may be found due from the petitioner. In such regular assessment, it is open to the petitioner to rely on this evidence produced by him in support of his contention that the investments related to the proceeds of any particular year or that it did not relate to the assessment year 1971-72 or that it represented any income which has already suffered tax. We have also noted in our judgment in W.P. No. 1870 of 1973 (Gulab and Co. v. Superintendent of Central Excise (Preventive), Tricky : 98ITR581(Mad) that if the order made under Section 132(5) is set aside on any technical ground, it might or might not be possible for the Income-tax Officer to make a fresh order under Section 132(5). Therefore, unless the order is found to be not honest or it is capricious and mala fide exercise of power we shall not normally interfere with such summary orders. It is also stated that an appeal is pending as against the order of the Income-tax Officer before the Central Board of Direct Taxes. Having regard to these circumstances, we are unable to interfere with the order of the Income-tax Officer.
7. The learned counsel for the petitioner stated that some of the documents seized are promissory notes and mortgage deeds and in order to enable the petitioner to realise the moneys before they get barred by limitation, it should be necessary that the department should be directed to return those documents to the petitioner. The learned counsel for the revenue could not seriously dispute this contention. We, therefore, direct the respondents herein to return such of those seized documents which are promissory notes and mortgage deeds to the petitioner after taking copies of the same, attested by the petitioner. Subject to the direction relating to the return of the promissory notes and mortgage deeds, the writ petition is dismissed and the Rule nisi is discharged. No order as to costs.
8. It is needless to point out that every one of the contentions raised by the petitioner in this writ petition, he can raise before the Income-tax Officer in the regular assessment proceedings in the computation of income.