Non Release Of Seized Documents, Based On Pendency Of The SLP In The Supreme Court By IT Department, Is Illegal: Kerala High Court

The Single Bench consisting of Justice Bechu Kurian Thomas held that since the Income Tax Act confers the tax authorities the power to retain seized documents beyond the assessment order only till proceedings under the Act are completed, therefore documents seized by the department cannot be retained by them on the ground of pendency of Special Leave Petition (SLP) since an SLP filed under Article 136 of the Constitution of India cannot be regarded as a proceeding under the Income Tax Act.

During the search operations conducted by the income tax officers the title deeds of the Assessee Udaya Sounds were seized by the officers. Consequent to the search and seizure, block assessment proceedings were launched against the Assessee. The assessment proceedings were completed with undisclosed income reckoned in the hands of the Assessee. The Assessee had filed an appeal against the quantum of undisclosed income assessed in its hands. The Kerala High Court had refixed the undisclosed income of the Assessee against which the Assessee had filed a Special Leave Petition before the Supreme Court which is still pending.

Against the continued retention of title deeds the Assessee filed an application under the Right to Information Act, 2005. The reply to the application provided that the department had retained the documents since proceedings before the Supreme Court were pending. Seeking to release the title deeds retained by the income tax department for more than twenty-two years, the Assessee filed a writ petition before the Kerala High Court.

The Counsel for the Assessee/Petitioner Udaya Sounds submitted before the High Court that in view of Section 132(8) of the Act documents seized during search and seizure can be retained by the department for a period beyond 30 days from the date of assessment order only if the reasons for retaining the same are recorded in writing and the approval of the specified officers is obtained. The Counsel averred that none of the orders permitting retention of documents beyond 30 days were communicated to the Assessee/Petitioner. Also, the Counsel contended that authorisation to retain documents could not under any circumstance continue beyond 30 days after all proceedings under the Income Tax Act were completed. The Revenue Department contended before the High Court that approval for detention of documents was granted by the authorised officer. Also, the Department contended that though proceedings under the Income Tax Act were completed, since the Special Leave Petition filed by the Assessee was pending before the Supreme Court, the income tax authorities were justified in authorising the retention of documents.

Section 132(1) of the Income Tax Act, 1961 gives the power of search and seizure to income tax authorities. Section 132(8) of the Act provides that books of account or other documents seized under the Act shall not be retained by the authorised officer for a period exceeding 30 days from the date of the assessment order passed under Section 153A or Section 158BC (c) unless the reasons for retaining the same are recorded by him in writing and the approval of specified tax authorities for such retention is obtained. The Proviso to Section 132(8) provides that the specified tax authorities shall not authorise the retention of books of account and other documents for a period exceeding 30 days after all the proceedings under the Income Tax Act in respect of the relevant years are completed.

The High Court observed that documents seized under Income Tax Act cannot be retained beyond 30 days from the date of assessment order without recording reasons in writing by the authorised officer. Also, the Court noted that the Act mandates that retention of documents shall not be authorised beyond 30 days after proceedings under the Income Tax Act are completed. The Court ruled that the provisions of the Act must be scrupulously adhered to when dealing with retention of title deeds by the income tax department.

"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 Court observed that after the assessment order was passed in 2003 against the Assessee under Section 158 BC of the Act on completion of block assessment, there was nothing on record to assume that orders were issued directing continued retention of documents from the year 2003 till 2018.

The Court ruled that there is an added obligation upon the income tax department to communicate the orders to the Assessee to enable retention of seized documents beyond the period of 30 days under Section 132(8) of the Act. The Court noted that no such communication had been produced for consideration of the Court to convincingly prove that orders for retention were communicated to the Assessee. The Court therefore held that retention of documents beyond 30 days from the order of assessment was illegal.

Also, the High Court observed that the Income Tax Act confers the power to retain documents beyond the assessment order only till the proceedings under the Income Tax Act are completed. The Court ruled that the word 'proceedings' under Section 132(8) of the Act is used in a very comprehensive way to include assessment proceedings, appellate proceedings and revisional proceedings invoked under provisions of the Income Tax Act. However, the Court ruled that a Special Leave Petition filed under Article 136 of the Constitution of India cannot be regarded as a proceeding under the Income Tax Act.

"The proceedings under this Act expired by the disposal of the appeal by this Court, as evidenced by Ext.P4 judgment dated 08-01-2010. Thereafter, no proceedings under this Act are in existence. On the contrary, the special leave petition having been filed under Article 136 of the Constitution of India cannot be regarded as a proceeding under this Act. 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.'"

Therefore, the High Court ruled that the income tax department was not authorised or justified in retaining the title deeds seized by them under Section 132 of the Act.

The High Court thus allowed the writ petition of the Assessee and directed the income tax authorities to return the originals of the seized documents to the Assessee expeditiously.

Case Title: Udaya Sounds versus Principal Commissioner of Income Tax and Others.

Dated: 24.03.2022 (Kerala High Court)

Counsel for the Petitioner: K.I. Mayankutty Mather, R. Jaikrishna, Uthara Asokan, Advocates

Counsel for the Respondent: P. K. Ravindranatha Menon, Senior Advocate and Jose Joseph, Standing Counsel for Income Tax Department

Citation: 2022 LiveLaw (Ker) 155

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