Punjab & Haryana H.C : The petitioners have prayed for quashing of the notices issued by the Asstt CIT (Investigation Circle-II), Ambala, under s. 226(3) of the IT Act, 1961 (for short “the Act”), for attachment of other accounts.

Counsel Appeared

A.K. Mittal, for the Petitioners : R.P. Sawhney & Rajesh Bindal, for the Respondent

JUDGMENT

G.S. SINGHVI, J. :

In these petitions filed under Art. 226 of the Constitution of India, the petitioners have prayed for quashing of the notices issued by the Asstt CIT (Investigation Circle-II), Ambala, under s. 226(3) of the IT Act, 1961 (for short “the Act”), for attachment of other accounts. They have also prayed for quashing of the orders passed by the Dy. CIT (Investigation Circle-II), Ambala, declining the request made on their behalf to withdraw the attachment. Another prayer made by the petitioners is for quashing the approval granted by the CIT under s. 132(8) of the Act for continuing the seizure of their books of account and documents. The facts :

2. During the course of search and seizure operation conducted on the business and residential premises of the petitioners on 26th Sept., 1995, the officers of the IT Department seized the books of account and documents. This was followed by attachment of their bank accounts. After about one year, the AO passed an order of assessment dt. 27th Sept., 1996, and created a demand of Rs. 85 lakhs. The applications filed by the petitioners for stay of the recovery were dismissed by the Asstt. CIT, the Dy. CIT, Ambala Range, Ambala, and the CIT, Rohtak. However, by an order dt. 29th May, 1998, the Tribunal accepted their applications and stayed the recovery subject to certain conditions. The relevant extract of that order is reproduced below : “After considering the rival submissions, we are of the view that these are fit cases in which the Tribunal can exercise its discretion of granting stay of the demand but only on the basis of the following conditions : (i) Paras Rice Mills shall deposit 10 per cent of the outstanding demand in three equal instalments, the first by 15th June, 1998, and the remaining two by 15th July, 1998, and 14th Aug., 1998. The remaining assessees shall deposit 20 per cent of the outstanding demand once again in instalments on the same dates as decided in the case of Paras Rice Mills. (ii) The assessee shall furnish the security to the satisfaction of the Department within a period of 15 days from the date on which the present order of the Tribunal is received by them. We may, however, mention that we have come across a number of cases asking for bank guarantees and the assessees in the absence of liquid funds cannot meet this requirement. Under such situation, the Department may consider the feasibility of allowing the form of security which the assessee can furnish. (iii) The appeals are directed to be listed for hearing on 2nd Sept., 1998, for which no formal notice will be sent to the parties. (iv) If on the date of hearing, any of the parties request for an adjournment, then the Tribunal may be inclined to modify the terms of the stay order.

We would also ask the IT authorities to consider the request for the release of stock of rice with reference to the case of Paras Rice Mills and subject to the claims and counter-claims being made by the parties vis-a-vis the FIR registered with the police authorities, the Department may examine the request and if it is found feasible, the stock may be released to enable the assessee to sell the same and pay off the money to the Department. We must, however, add that this in noway would be treated as a modification of the condition that we have imposed on Paras Rice Mills to pay 10 per cent. of the demand in three instalments.” Some of the petitioners challenged the order passed by the Tribunal by filing Civil Writ Petitions Nos. 11567, 12501 and 12502 of 1998, which were disposed of by a Division Bench of the High Court on 17th Sept., 1998. The order passed by the High Court in CWP No. 11567 of 1998, reads as under : “During the course of arguments, a consensus has been arrived at between learned counsel for the parties that the petitioner would be permitted to sell the rice/paddy subject-matter of order under s. 132(1) of the IT Act, annexure R-2. However, the sale shall be effected in the presence of a representative of the IT Department and the sale proceeds thereof shall be deposited by the said representative with the Department. It is also agreed between learned counsel for the parties that the amount so deposited would be appropriated by the Department towards the tax liability that may be ultimately fixed, if the appeal preferred by the petitioner is dismissed, otherwise, the same shall be returned to it. In this view of the matter, there is no need for the Tribunal to ask for 10 per cent of the total liability to be deposited. The appeal be heard and decided as early as possible.

This order shall, however, not prejudice the rights of the parties in other proceedings that may be launched by them against each other. Disposed of accordingly.” Thereafter, the petitioners filed applications dt. 20th Oct., 1998, and 7th Nov., 1998, through their advocates for lifting of the attachment and return of the books of account. Their prayer was declined by the Dy. CIT, Investigation Circle-II, Ambala, vide communications dt. 16th Nov., 1998, and 2nd Dec., 1998 (filed as annexures P-17 and P-21 with CWP No. 2087 of 1999). The petitioners have challenged the continued attachment of their bank accounts and the retention of books of account and documents beyond the period of 180 days stipulated in s. 132 of the Act by contending that the action taken by the respondents and the orders passed by them are ultra vires the provisions of s. 132(B) of the Act part from being wholly illegal, arbitrary and unjustified. In para. 10 of the Civil Writ Petition No. 2087 of 1999, it has been averred that the approval regarding the retention of the books of account and documents was conveyed to the petitioner for the first time vide letter dt. 1st July, 1997 (annexure P-23), which was delivered to its representative by hand on 4th July, 1997, and the second approval was conveyed to it vide letter dt. 11th Dec., 1998 (annexure P- 29), which was received by registered post. The respondents have controverted the averments made in para 10 of the writ petition by making the following statements : “The approval of retention of seized documents was received on 19th March, 1996, from the CIT, Rohtak, which was well within the statutory period of 180 days from the date of the seizure. Under s. 132(8) of the IT Act, as books of account and other documents seized under sub-s. (1) or sub-s. (1A) could not be retained by the authorised officer for a period of 180 days from the date of the seizure unless the reasons for retaining the same are recorded by him in writing and the approval of the CIT for such retention is obtained. The valid procedure was, therefore, adopted and the approval was obtained before 180 days. Sec. 132(8) does not oblige the answering respondent to communicate the reasons recorded for the retention of the books of approval granted thereon by the CIT, even then the petitioner was intimated about the retention of the books of account from time to time. First such intimation was sent vide letter No. 2112, dt. 1st July, 1997, second intimation vide letter No. 6152, dt. 30th Dec., 1997, and the third and final intimation vide letter No. 6523, dt. 11th Dec., 1998, along with the reasons for retention of these documents and books of account.”

5. In the replication filed on behalf of the petitioner, it has been averred that the communications dt. 19th March,1996, and 30th Dec., 1997, were never received by it. In para. 10 of the replication, the petitioner has averred as under : “That the contents of para. 10 of the written statement are wrong and hence denied except to the extent that the petitioner-firm did receive the approval of the CIT from respondent No. 3 vide his letters Nos. 2112, dt. 1st July, 1997 (received on 4th July, 1997), after 626 days of the search and seizure operation and 6523, dt. 11th Dec., 1998. The petitioner never received any communication prior to 4th July, 1997, and also has not received the alleged communication No. 6152, dt. 30th Dec., 1997, from respondent No. 3. The respondents did not bring on record the alleged approval obtained from the CIT, Rohtak, dt. 19th March, 1996, and the same was not conveyed within 180 days of the search and seizure operation as was required under law.” The respondents have filed a reply to the replication, but the statement made in para. 10 of the replication about the non-receipt of any communication prior to 4th July, 1997, and the letter dt. 30th Dec., 1997, has not been controverted. At this stage, we may mention that during the pendency of the writ petitions, the respondents have lifted the attachment of the bank accounts of the petitioners and to this effect, a statement was made before the Court by Shri R.P. Sawhney, senior advocate for the Revenue, on 9th Aug., 2000. In view of this, the only issue which remains to be considered is whether the continued retention of the books of account and documents seized on 26th Sept., 1995, is legally sustainable. Shri A.K. Mittal argued that the continued retention of the books of account and the documents seized during the search operation should be declared illegal because the approval of the competent authority was not communicated to the petitioners in respect of the period between 26th March, 1996, and 31st Dec., 1997, and the approval conveyed on 1st July, 1997, was highly belated. He further argued that the failure of the concerned authority to communicate the approval for the period after 30th Dec., 1997, should also be treated as sufficient to nullify the continued detention of the books of account and documents. Learned counsel referred to s. 27 of the General Clauses Act and s. 282 of the Act and argued that the alleged sending of the letter dt. 30th Dec., 1997, by ordinary post cannot be treated as sufficient compliance with the requirement of communication of the order of approval. Shri Mittal then submitted that the letter dt. 30th Dec., 1997, appears to have beenfabricated by the respondents in order to justify the continued retention of the books of account and documents. He further submitted that the delivery of letter dt. 1st July, 1997, by hand and the letter dt. 11th Dec., 1998, by registered post should be treated as sufficient to disbelieve the version of the respondents about the sending of letter dt. 30th Dec.,1997, by an ordinary post. Shri R.P. Sawhney candidly stated that the record made available to him does not contain anything from which it could be said that the Department had sent any communication regarding the continued retention of the seized books of account and other documents for the period between 26th March, 1996, and 31st March, 1997. He also conceded that no proof is available with the Department about the delivery of letter dt. 30th Dec., 1997, to the petitioners.

We have considered the matter in the backdrop of the facts brought on record. Sec. 132(8) and (10) of the Act, which has been relied upon by the petitioner for seeking a declaration that the retention of the seized books of account and other documents beyond the period of 180 days is unlawful, reads as under : “132. (8) The books of account or other documents seized under sub-s. (1) or sub-s. (1A) shall not be retained by the authorised officer for a period exceeding one hundred and eighty days from the date of the seizure unless the reasons for retaining the same are recorded by him in writing and the approval of the Chief CIT, CIT, Director-General or Director for such retention is obtained : Provided that the Chief CIT, CIT, Director-General 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 IT 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……… (10) If a person legally entitled to the books of account or other documents seized under sub-s. (1) or sub-s. (1A) objects for any reason to the approval given by the Chief CIT, CIT, Director-General or Director under sub-s. (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……”

10. In CIT vs. Oriental Rubber Works (1984) 38 CTR (SC) 154 : (1984) 145 ITR 477 (SC) : TC 62R.172, their Lordships of the Supreme Court considered the question as to whether the Revenue is under a statutory obligation to communicate to the person [from whose custody books of account and documents have been seized under s. 132(1)] the approval obtained from the CIT and the recorded reasons of the authorised officer/ITO on which such approval is based for the retention of the seized books of account and documents by the Department for a period exceeding 180 days from the date of seizure. After analysing sub-ss. (1), (8), (10) and (12) of s. 132 of the Act, their Lordships laid down the following proposition : “On a plain reading of the aforesaid provisions it will be clear that ordinarily the books of account or other documents that may be seized under an authorisation issued under sub-s. (1) of s. 132 can be retained by the authorised officer or the concerned ITO for a period of one hundred and eighty days from the date of seizure, whereafter the person from whose custody such books or documents have been seized or the person to whom such books or documents belong becomes entitled to the return of the same unless the reasons for any extended retention are recorded in writing by the authorised officer/the concerned ITO and approval of the CIT for such retention is obtained. In other words, two conditions must be fulfilled before such extended retention becomes permissible in law : (a) reasons in writing must be recorded by the authorised officer or the concerned ITO seeking the CIT’s approval, and (b) obtaining of the CIT’s approval for such extended retention and if either of these conditions is not fulfilled such extended retention will become unlawful and the concerned person (i.e., the person from whose custody such books or documents have been seized or the person or whom those belong) acquires a right to the return of the same forthwith. It is true that sub-s. (8) does not in terms provide that the CIT’s approval or the recorded reasons on which it might be based should be communicated to the concerned person but in our view since the person concerned is bound to be materially prejudiced in the enforcement of his right to have such books and documents returned to him by being kept ignorant about the factum of fulfilment of either of the conditions, it is obligatory upon the Revenue to communicate the CIT’s approval as also the recorded reasons to the person concerned. In the absence of such communication the CIT’s decision according his approval with not become effective. Moreover, sub-s. (10) confers upon the person legally entitled to the return of the seized books and documents a right to object to the approval given by the CIT under sub-s. (8) by making an application to the Central Board stating therein the reasons for such objection and under sub-s. (12) it is provided that the Central Board may, after giving the applicant an opportunity of being heard, pass such orders as it thinks fit. It is obvious that without the knowledge of the factum of the CIT’s approval as also of the recorded reasons on the basis of which such approval has been obtained it will not be possible for the person to whom the seized books or documents belong to make any effective objection to the approval before the Board and get back his books or documents. In our view the scheme of sub-ss. (8), (10) and (12) of s. 132 makes it amply clear that there is a statutory obligation on the Revenue to communicate to the person concerned not merely the CIT’s approval but the recorded reasons on which the same has been obtained and that such communication must be made as expeditiously as possible after the passing of the order of approval by the CIT and in default of such expeditious communication any further retention of the seized books or documents would become invalid and unlawful. It is obvious that such obligation arises in regard to every approval of the commissioner that might have been accorded from time to time.” [Emphasis, italicised in print, supplied]

In Survir Enterprises vs. CIT (1985) 46 CTR (Del) 4 : (1986) 157 ITR 206 (Del) : TC 62R.132, a Division Bench of the Delhi High Court held that once the bar set out in s. 132(8) of the 1961 Act operated, the Department had to return the books of account or other seized documents to the person concerned. In Nutan Sahkari Avas Samiti Ltd. vs. Director of Income-tax (Investigation) (1994) 208 ITR 843 (All) : TC 62R.128 a Division Bench of the Allahabad High Court relied on the decisions of the Supreme Court in the case of Oriental Rubber Works (supra) and of the Delhi High Court in Survir Enterprises’s case (1986) 157 ITR 206 (supra) and held that noncompliance with the requirement of passing of a reasoned order by the authority concerned, approval by the CIT and communication of such approval together with reasons to the assessee would vitiate the retention of the books of account and documents beyond 180 days. In Rajendra Prasad Agarwall vs. IAC (1994) 209 ITR 784 (Cal) : TC 62R.184 a learned single Judge of the Calcutta High Court followed the proposition laid down in Oriental Rubber Works’ (supra) and proceeded to observe that no presumption can be drawn about the recording of reasons, grant of approval and communication thereof and it is the duty of the Revenue to prove all the three things, namely, recording of reasons in writing by the AO for retention of the documents beyond 180 days, approval of such retention by the CIT and communication of the reasons recorded by the AO as well as the CIT’s approval. In Dr. George Philip Modayil vs. Asstt. CIT (1998) 149 CTR (Ker) 262 : (1999) 238 ITR 517 (Ker) : TCS62.4522 a learned single Judge of the Kerala High Court highlighted the necessity of recording of reasons and communication thereof in the following words : “The object of communicating the order granting approval for retention of the seized records and the reasons recorded by the assessing authority is to enable to petitioner, if he is aggrieved, to file objection to the CIT as contemplated under sub-s. (10) of s. 132. Sub-s. (10) of s. 132 provides that, if a person legally entitled to the books of account or other documents seized under sub-s. (1) or sub-s. (1A) objects for any reason to the approval given by the CIT under sub-s. (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. Sub-s. (1) provides the procedure also. From the provisions of sub-s. (10) of s. 132 it is clear that it is mandatory that the order granting approval for the continued retention of the seized records together with the reasons recorded by the assessing authority are communicated to the petitioner and that too expeditiously.”

The learned single Judge then examined the petitioner’s plea on the merits and held that retention of the books of account and other records seized during the search operation was illegal and directed that while returning the documents, the respondents may take photostat copies of the seized record and get the signatures of the petitioner on all the pages of such photostat copies before returning the originals. In Spring Dale Educational Society vs. Union of India, C.W.P. No. 9287 of 1999, decided on 14th Sept., 2000 [reported at (2000) 163 CTR (P&H) 537], this Court has held that unexplained delay in the communication of approval for the retention of the books of account and documents beyond a period of 180 days is liable to be nullified. By applying the propositions laid down in the aforementioned decisions to the facts of this case, we hold that the retention of the books of account and documents seized from the premises of the petitioners beyond 26th March, 1996, is liable to be declared illegal because the respondents have failed to produce any evidence to prove that after receiving the approval from the CIT, Rohtak, on 19th March, 1996, any communication was sent to them in terms of s. 132(8) of the Act or that the letter dt. 30th Dec., 1997, was, in fact, delivered to the petitioners. The respondents have also not explained the long time gap of about four months between the commencement of retention of documents, etc. from 1st April, 1997, and the delivery of the letter dt. 1st July, 1997. In the result, the writ petitions are allowed. The concerned authority of the IT Department is directed to release the books of account and other documents seized from the premises of the petitioners on 26th Sept., 1995. This shall be done within one month of the presentation of a certified copy of this order. However, we make it clear that it will be open to the concerned authority to retain photostat copies of the documents after getting them signed by the petitioners or their representatives, who shall certify the same to be true copies. The petitioners are also directed to make available the original documents as and when the same are required by the competent authority or any Court.

[Citation : 248 ITR 353]