Assessee's Recourse To Constitutional Provisions Not A 'Proceeding Under Income Tax Act' : Kerala High Court

The Kerala High Court on Thursday ruled that a Special Leave Petition filed by an assessee under Article 136 of the Constitution of India cannot be regarded as a proceeding under the Income Tax Act. 

Justice Bechu Kurian Thomas held that while an assessment, appellate, and even revisional proceeding qualify as "proceedings under this Act', one instituted under the Constitution did not. 

"As a taxing statute, strict interpretation is to be adopted and that being so, recourse by the assessee to the provisions of the Constitution by filing a special leave petition before the Supreme Court cannot be regarded as 'a proceeding under this Act'."

Further, the Court added that title deeds are the choicest of possessions of an owner since ownership of property and its absolute dominion are reflected in the possession of such deeds.

"When the owner is denuded of its choicest possession, under the facade of statutory prescriptions, such provisions must scrupulously be adhered to."

The petitioner's title deeds were seized by the Income Tax Department in 2001 after a search. Although the assessment proceedings revealed undisclosed income, the quantum of the same was reduced subsequently up to 25% from the originally assessed figure. The petitioner has preferred a Special Leave Petition before the Supreme Court which is still pending.

His allegation here was that his title deeds have been retained for more than twenty-two years by the Income Tax Department. Citing such retention to be contrary to law, the petitioner approached the Court seeking directions to return the original documents.

The petitioner contended that the retention beyond 30 days was without authority of law since no order had been recorded by any officer approving such retention as contemplated under section 132(8).

Meanwhile, the respondents produced an order of the Principal Commissioner of Income Tax that accorded permission to retain the seized material till 28-02-2022. Upon coming to know of the same, the petitioner amended the plea and a challenge was raised against the Principal Commissioner's order. 

Advocate Uthara Asokan appearing for the petitioner argued that such an order was never communicated to him and that no proceedings under the Act were pending that warranted continued retention of the documents. She further asserted that the impugned order was issued 17 years after the prescribed date under section 132(8) and its authenticity was doubted due to the absence of the mandatory document identification number (DIN).

However, Senior Advocate P.K. Ravindranatha Menon and Standing Counsel Jose Joseph for Income Tax Department appearing for the respondents denied these allegations and added that the assessment proceedings had not been finalised yet due to the petitioner's SLP pending before the Supreme Court.  

After perusing Section 132(8) of the Act, the Court found that retention of the documents shall not be authorised beyond 30 days after proceedings under the Income Tax Act are completed. 

"Once the statutory proceedings are completed, the authorities under the statute are denuded of the power to grant further authorisation."

This implied that the statutory authority lost its power to grant further authorisation to retain the documents after the proceedings under the Act came to a halt. Therefore, the respondents were not authorised to retain the documents of title seized by them under section 132.

Obligation To Communicate Approval For Extended Retention To Assessee

Significantly, the Judge observed that there was an added obligation upon the Department to communicate orders to the assessee to enable retention of documents beyond 30 days specified in section 132(8).  

Referring to a few precedents, it was held that there was a bounden duty upon the Department to establish that the orders recording the reasons and grant of approval were communicated to the assessee, which was absent in this case. 

"Except for vague averments, that too, in the form of a statement instead of an affidavit, that orders were communicated to the assessee, nothing has been produced to convincingly prove that the orders for retention were communicated to the petitioner. In such a view of the matter, retention of documents beyond 30 days of the order of assessment is illegal."

As such, the Court allowed the plea, quashing all proceedings with a direction to the respondents to return to the petitioner the originals of documents within 30 days

Case Title: Udaya Sounds v. Principal Commissioner of Income Tax & Ors.

Citation: 2022 LiveLaw (Ker) 142

Click Here To Read/Download The Order