U.K. Mahapatra and Co vs. ITO (Orissa High Court)

DATE: (Date of pronouncement)
DATE: January 18, 2009 (Date of publication)

Premises of a CA cannot be surveyed and clients’ books cannot be impounded

Where the ITO conducted a survey u/s 133A of the Act on the premises of the Petitioner, a practicing Chartered Accountant, and impounded books of account /documents belonging to the Petitioner and retained such books of account/documents and the Petitioner filed a Writ Petition to challenge the same, HELD, allowing the Petition:

(i) The precondition for conducting survey u/s 133A in the premises of a Chartered Accountant, lawyer, Tax, Practitioner in connection with survey of the business place of their client is that the client in course of survey must state that his books of account/documents and records are kept in the office of his CA etc. Unless this precondition is fulfilled, the I.T. authority has no power to enter the business premises/office of the CA etc;

(ii) Under Explanation (a) to s. 133A (6) it is only the authorities specified therein who can exercise the power of survey u/s 133A. The ITO (HQ) was not a competent authority for this purpose;

(iii) U/s 133A(3)(ia) an Income-tax authority cannot impound any books of account or other documents except after inspecting the same and recording reasons for doing so. ‘Inspection’ and recording of reasons involves intelligent application of mind to the facts;

(iv) Under proviso (b) to s. 133A (3)(ia) books of account or other documents cannot be retained for a period exceeding ten days without obtaining the approval of CCIT / DG. Retention of impounded books of account beyond ten days involves application of mind by the authorities. It is the duty of the Revenue to communicate to the person concerned not only the Commissioner’s approval but also the recorded reason on which the same has been approved. The communication should be made as expeditiously as possible after passing the order of approval. In default of such expeditious communication, any further retention of seized books becomes unlawful;

(v) U/s 133A(3)(ia)(b) the CCIT or DGIT is not required to give a personal hearing to the person whose books of account are intended to be retained for a period exceeding ten days before any approval for such extended period of retention is granted. If such hearing is given, the entire purpose for which s. 133A (1) is enacted will be frustrated. Rajesh Kumar v. DCIT 287 ITR 91 (SC) and Sahara India (Firm) v. CIT 300 ITR 403 (SC) distinguished;

(vi) The impounding of books of account belonging to the client does not amount to breach of privileged communication by the CA and he is not entitled to any protection on that score. The CA shall not be right in preventing or non-co-operating the statutory authorities while they are discharging their official duty. The code of ethics requires not to shield a client from the consequences of his tax frauds but it is a guiding principle of professional conduct to discourage tax evasion;

(vii) Though on facts the survey was illegal, the materials collected during the course of illegal survey can be used for making additions. Accordingly, the authorities were entitled to take copy of the documents and books of account before returning the same.