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Power of ito u/s 131

SUNIL GARG (CHARTERED ACCOUNTANT) (175 Points)

05 September 2011

Dear Friends,

I need your opinion on following:

My Client was asked to file his ITR u/s 142(1). We filed his ITR and Statement of Affairs as asked by the ITO. Then ITO issued summon u/s 131 and recorded my client's statement. After recordiing his statement, he asked for :

1) Bank Statement of last 5 years :

2) Confirmation of Current Loan and previous repaid loan:

3) The ITR of the company in which he was a director and which has been dissolved.

Now my thinking is that he cannot ask for these things as these do not belong to the AY 10-11. If he want the above thing, then he should issue me 148. I don't think 131 given such huge power to ITO.

I need your opinion so that I can refuse him in writing.

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(Guest)

Under section 131(1) of the I.T. Act, 1961 the ITO can issue a summons for the discovery of documents etc. Various courts have held that the said powers can be exercised by the ITO only when proceedings are pending before him. The phrase "during the pendency of proceedings" is not to be narrowly understood as proceeding that arise after filing of return of income. Non-filing of ITR and consequences arising thereof is a sufficient cause.

However, in the case law of GM Breweries [2000] 108 TAXMAN 547 (BOM.), the court held that sending the notice was bad in law, because Revenue did not respond or challenge GM Breweries' petition challenging such a notice.

in the case of Dwijendra Lal Brahmachari v. New Central Jute Mills Co. Ltd. [1978] 112 ITR 568, it was said that the power can be exercised provided the officer is satisfied that the order made is relevant for the purpose of deciding the case pending before him. That power cannot be exercised in a naked or arbitrary manner. Therefore, information under section 131(1) cannot be asked for in order to decide whether any proceeding should be initiated in future.