Satish Chandra, J. - (1.) THE petition under Article 226 of the Constitution of India has been filed by the Union, of India, the Commissioner of Income-tax, Lucknow, and the Income-tax Officer, Allahabad. It is directed against an order of the Income-tax Appellate Tribunal by which it rejected the claim of privilege raised by the petitioners under Section 124 of the Evidence Act in regard to the production, of certain documents and files.
(2.) THE respondent is the assessee-firm. It carries on business in betel-nuts, etc., at Allahabad. On 21st September, 1964, the income-tax department searched the business and residential premises of the assessee-firm and its partners, and seized certain papers. THE respondent's case is that in order to avoid litigation and loss of reputation and with a view to purchase peace with the department the partners of the firm offered to be assessed on agreed quantums on the basis of materials obtained by the department as a result of the search. THE partners approached the Income-tax Officer, Allahabad, as well as the Inspecting Assistant Commissioner, Varanasi. THE parties held conferences and a settlement was reached. THE departmental authorities assured that no penal action would be taken. This assurance helped the settlement. THE assessee's case is that in the course of settlement proceedings the Income-tax Officer prepared a draft assessment order for the assessment years 1959-60 to 1964-65, on 17th February, 1965, and forwarded it to the Inspecting Assistant Commissioner. THE agreed figures of income for these assessment years were approved by the Commissioner. On 5th March, 1965, the Inspecting Assistant Commissioner drew up a formal order in which it was directed that penalty proceedings would be dropped. He sent this letter to the Commissioner of Income-tax for his approval. Ultimately, the assessee was assessed for these years on the basis of figures agreed to between the parties. In due course the Income-tax Officer drew up penalty proceedings for these years. After hearing the assessee the Income-tax Officer imposed penalties upon it for the aforesaid assessment years. THE assessee went up in appeal but failed. It then filed an appeal before the Tribunal. On 6th September, 1971, the assessee filed an application praying that certain records of the Central Board of Direct Taxes, New Delhi, the Commissioner of Income-tax, Lucknow, the. Inspecting Assistant Commissioner, Varanasi and Allahabad, and the Income-tax Officer, C and B Wards, Allahabad, be summoned under Section 255(6) read with Section 181 of the Income-tax Act in the interest of justice and in order to enable the assessee to establish its grounds of appeal. The principal grievance of the assessee on the merits of the appeal was that the penalty has been imposed in spite of a clear settlement that no penalty will be levied. On 29th October, 1971, the Tribunal held that the fact that there was a settlement has been referred to by the Appellate Assistant Commissioner in his order dated 18th November, 1959. Prima facie, it appears that the materials sought to be summoned are relevant for the purpose of proving that there was a settlement. On this view, it directed the departmental representative to produce the records mentioned in the application. A perusal of the records mentioned in the application shows that the records were in respect of proceedings in connection with the settlement of the case as a result of the search of the premises of the firm and seizure of certain of its papers.
(3.) IN response the Finance Secretary filed an affidavit dated 7th March, 1972, claiming privilege in regard to certain notings and files of his Ministry under Section 123 of the Evidence Act on the ground that these are unpublished records in relation to the affairs of the State and that their disclosure will cause injury to public interest. The Tribunal upheld this claim and rejected the prayer for summoning these documents. Learned counsel for the respondent did not challenge this finding before us. Several officers who had custody of the files and other documents filed affidavits claiming privilege under Section 124 of the Evidence Act on the ground that the documents in question were communications made in official confidence and their disclosure will injure public interest because it will materially affect freedom and candour of expression of opinion by the officers of the department and will impair the proper functioning of the public services.;