Checks in Section 131(1A) must

TAXING MATTERS

Section 131 of the Income Tax Act, 1961, confers power of a court under the Code of Civil Procedure (5 of 1908), while trying a suit in respect of discovery and inspection, issuing of commissions, enforcing the attendance of any person, including any officers of a banking company and examining him on oath and completing the production of books of accounts and documents.

Failure to comply with the summons issued under Section 131(1) has been made punishable with a penalty of Rs 10,000 for each default under Section 272A.

Sub-section (1A) of this section reads: "(1A) If the director-general or director or joint director or assistant director or deputy director, or the authorised officer referred to in sub-section (1) of Section 132 before he takes action under clauses (I) to (v) of that sub-section, has reasons to suspect that any income has been concealed, or is likely to be concealed, by any person or class of persons, within his jurisdiction then, for the purpose of making any enquiry or investigation relating thereto, it shall be competent for him to exercise the powers conferred under sub-section (1) on the income-tax authorities referred to in that sub-section, notwithstanding that no proceedings with respect to such person or class of persons are pending before him or any other income-tax authority".

Recently, a situation was noticed where an assistant director (investigation) functioning in a state issued a notice to a company, who was being assessed in other state to furnish, inter-alia, the following information:

• Acknowledgment receipts of returns of income along with its enclosures, including audit report, report of cost accountant for the assessment years 2001-02, 2002-03 and 2003-04.
• Form No 24 submitted by the company regarding deduction of tax deduction at source for the assessment year 2002-03
• List of employees working with the company in the financial year 2002-03. Also designation of the employees, gross amount of annual payment the amount of provident fund deducted and deposited in banks, the PAN number/ward/circle where the top 25 employees of the company are filing their returns of income and to tell these employees to furnish Xerox copy of returns of their income for the assessment year 2003-04 along with the computation of their income enclosed with their returns of income.
• State whether any action of enquiry/survey/search and seizure was conducted in case of the company during the financial year 2001-01, 2001-02 and 2002-03 by the income-tax department/trade tax department/Customs and central excise department or any other state/central government department. If yes, details of operation and a copy of order passed by the department. Also state whether any penalty/fine exceeding to Rs 50,000 was imposed by any department upon the company during above period. if yes, give details thereof.
• State whether the company was charged fine by electricity department.

The only ground for issuing summons under Section 131 (1A) is that one of the units of the company is functioning within the jurisdiction of the assistant director (investigation) in the first state.

The foregoing discussion regarding the law and the working of the assistant director (investigation) raises the issues whether Section 131 (1A) can be used for proliferating enquiries and subjecting taxpayers to unnecessary work and harassment and whether an assessee can be asked to furnish information in respect of even those matters, which are within the specific knowledge of the income-tax department.

The taxpayers concerned made a request to the assistant director (investigation) saying the company is an assessee and he can send his requisition to the assessing officer, assessing it (whose details were furnished) and the company will furnish the requisite information to its assessing officer.

This will avoid multiplicity of proceedings. But the assistant director (investigation) insisted that he had powers to call for the requisite information and the compliance to summons issued should be made, else he would exercise power for imposing penalty.

It has been well established by judicial decision that an assessing officer can decide matter that fall within the jurisdiction assigned to him. No authority, much less a quasi-judicial authority, can confer jurisdiction on self by interpreting a legal provision wrongly.

It is incomprehensible to think that an income tax authority like the assistant director (investigation) can erroneously decide about his jurisdiction and proceed on that basis.

No officer can claim jurisdiction by construing a provision in the Income-Tax Act erroneously and thereby contend that on the basis of his interpretation of the provision wrongly, the notice must comply as he possess the necessary authority to issue the notice/summons.

The jurisdiction to assess income tax vests in various officers on the basis of area, person, income of the assessee assigned by the competent authority in terms of Section 124 of the Income-Tax Act, 1961, and the jurisdiction to make enquiries, levy tax and make collection of the tax imposed lies with the officer having jurisdiction""not on any other authority.

It has to be appreciated that an income tax authority is not entitled to exercise power under Section 131 (1A) as a mere cloak for making a fishing investigation and a roving inquiry.

It has been held in many cases that in exercising power under Section 131, the authority, invoking the power to seek information, has to apply mind and call for the information that is necessary for the 'purpose of the Act".

The way the points on which information has been called for have been listed in the summons issued indicates that the information has been called for in a routine mechanically and fishing manner without application of mind.

For example, seeking information in regard to matter "whether any action of enquiry/survey/search and seizure was conducted, inter-alia, by the income tax department during 2000-01, 2001-02 and 2002-03" supports this view.

If such measures had been taken, the income tax department should be in full know of such actions and there is no point in asking the company to furnish such information.

Similarly, the query "whether the company was charged fine by electricity department" too does not seem to have any nexus with the income tax assessments of the company. Hence, the information called for is, prima facie, without due care and application of mind and vitiates the very foundation of summons sent.

Such misuse of powers, conferred under sub-section (1A) of Section 131, needs to be checked, else, it would lead to unnecessary duplication/triplication of proceedings and cause unnecessary inconvenience and botheration to taxpayers. Hence, guidelines for the use of powers under Section 131 (1A) need to be issued by the CBDT urgently.