9911796707
TMI Blog2024 (2) TMI 1283X X X X Extracts X X X X X X X X Extracts X X X X ..... ndent from an undisclosed location is not in accordance with law and therefore is inadmissible in evidence. 2. The writ petition in W.P. No. 11176 of 2023 has been filed challenging the impugned order dated 30.03.2023 and consequential demand notice dated 30.03.2023. 3. In the present case, the 2nd respondent had passed three assessment orders dated 31.12.2022, against which the writ petitions in W.P. No. 9753, 9757 and 9761 of 2023 have been filed challenging the admissibility of evidence. Subsequent to the filing of the above writ petitions, the respondents had passed another assessment order dated 30.03.2023 without providing any opportunity of personal hearing to the petitioner and in violation of principles of natural justice and hence, challenging the same, the writ petition in W.P. No. 11176 of 2023 has been filed by the petitioner. 4. The case of the petitioner is that the respondents-Department had conducted a sudden search under Section 132 of the Income Tax Act, 1961 (hereinafter called as "the Act") on different dates between 01.12.2021 and 27.01.2022. In the said searches, the 2nd respondent had seized the electronic data and pursuant to the same, the Show Cause Not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mited vs. Commissioner of Income Tax" reported in (1954) 26 ITR 775 (SC). By referring to the said judgement, he would submit that the Income Tax Officer is not fettered by technical rules of evidence and pleadings, and that he is entitled to act on material which may not be accepted as evidence in a Court of law. Therefore, he would submit that the writ petitions are liable to be dismissed. 9. On the other hand, the learned Senior counsel appearing for the petitioner would submit that in the present case, the search was conducted and the assessment orders were passed in a hasty manner. At the time of search and in the event of collection of electronic data, the respondents are supposed to have followed the procedures laid down in the Digital Evidence Investigation Manual. However, the said Manual, which was issued in terms of Section 119 of the Act by CBDT, was not followed by the respondents in letter and spirit. Further, he would contend that it is the duty of the respondents to follow the said Manual while conducting the search and taking steps to seize the materials. Hence, the question of taking exemption, by claiming that it is only optional to follow the said Manual and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the manner in which the respondents had collected and preserved the data by not following the procedures laid down by the Act, Rules and other Manuals, certainly it is the duty of the respondents to corroborate the evidences and they are supposed to have produced the corroborative evidences. If it is oral evidence of any person, the respondents should have allowed the petitioner to cross-examine the said person, however, they had not provided any corroborative materials to corroborate the data relied by them as required under the Digital Evidence Investigation Manual and no opportunities for cross-examination have been provided to the petitioner. Therefore, he would submit that in total violation of principles of natural justice, the entire search and the subsequent procedures have been conducted by the respondents. Hence, the present writ petitions have been filed. 13. He would also submit that this Court always have power to entertain these writ petitions, since the aforesaid circumstance is an exception to the alternative remedy available to the petitioner. In this regard, he referred to the judgement of the Hon'ble Supreme Court in "Dhakeswari Cotton Mills Limited vs. Comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re concerned, they had replied that the same have been misplaced, which is really quite surprising to note, since it is the bound duty of the respondents to preserve the evidences as per the procedure laid down in the Digital Evidence Investigation Manual. The above acts of the respondents would show their lethargic attitude in collection and preserving of evidences. However, with the available documents, the petitioner had filed their reply dated 24.12.2022 for the Show Cause Notices dated 21.12.2022 and 22.12.2022. Even thereafter, the petitioner made representations through the reply dated 25.12.2022 stating that the documents available in digital data .txt files are not sufficient to provide the reply for the Show Cause Notices. Subsequently, within a period of 3 days, the assessment order came to be passed in three cases. 18. In another case, in a similar fashion, the Show Cause Notice was issued on 01.03.2023, for which the reply was filed on 15.03.2023 and thereafter, the assessment order was passed by the respondents on 30.03.2023. 19. In view of the above, it is crystal clear as to how the Show Cause Notices were issued and time limit was provided to the petitioner by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thin the purview of the exemptions provided by the Hon'ble Apex Court in the Chhabil Dass case (referred supra). Hence, as far as the maintainability is concerned, this Court is of the considered view that these writ petitions are maintainable and the submission made by the Department with regard to the maintainability of these writ petition stands rejected. 23. The learned Senior counsel appearing for the petitioner would submit that in the present case, the search was made without proper warrant authorising search of the premises of Saravana Selvarathnam Furnitures, whose name was not included in the search warrant. Therefore the search, which was conducted in the premises of third party, is not in accordance with law. 24. Further, he would contend that when the search was conducted on 27.01.2022, there were two witnesses, in which, one of the witnesses, Mr.Praveenkumar Yadhav, was not an independent witness in terms of Rule 112 of the Income Tax Rules (hereinafter called as "the IT Rules"). In terms of the said Rules, at the time of search, there must be two independent witnesses, who would be from the same locality. However in the present case, the said Praveenkumar Yadha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oughout the year in a mechanical manner. Further, though the Covid pandemic was on its peak and during most of the days total lock down was in force, when the shops are closed, the respondents had applied the sale value as if the shop was open and sales were made throughout the year 2020 to the extent at par with the Christmas day, which is totally arbitrary, capricious and in non-application of mind and the same was done without any corroborative evidences. Thus, the reliance of such data and evidences to pass the assessment order is unjustifiable and it will raise the serious doubts with regard to the accuracy of the claims made against the petitioner. Hence, he would contend that the assessment orders have been passed based on the digital data, which has been collected in an illegal manner. 29. Further, he would submit that whatever the documents, data etc., seized at the time of search, the same should have been mentioned in panchanama, however, in the present case, the respondents had not do so and hence, the seizure of electronic data is inadmissible since the hash value was not mentioned in the panchanama, which is mandatory requirement in terms of the Digital Evidence Inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are advised to take initiative and create necessary infrastructure and awareness and follow the recommended procedures as far as possible. Some of the examples given on various softwares/hardwares are only used for illustration and in no way recommendatory or mandatory to be used" 33. By referring the last sentence of the above paragraph, he would submit that it is only illustrative and it is neither recommended nor mandatory. However, though it is not mandatory, the department have followed the same to the extent possible. Further, he would submit that since in the entire manual nothing has been mentioned about Section 119 of the Act, it is not mandatory and it is only optional to follow the said Manual. Therefore, merely not following the procedure laid down in the Manual, while collection of digital data evidences, will not invalidate such evidences to make the Department not to rely upon those evidences. 34. Further, he would contend that the fundamentals of the procedure to deal with the digital evidence has been duly followed and the hash value was calculated using forensic tools and the calculated hash value along with the algorithm was clearly mentioned in the Digital Evi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3) 36 Taxmann.com 36 (SC); 37. I have given due consideration to the submissions made by Mr.P.H.Arvind Pandiyan, and Mr.J.Sivanandaraj, learned Senior counsel appearing for the petitioner and Mr.AR.L.Sundaresan, Additional Solicitor General of India, appearing for the respondents and also perused the materials available on record. 38. As far as the authorisation in issuance of search warrant is concerned, a perusal of the record would show that the search warrant was issued for Door No.33, Natesan Street, T.Nagar, Chennai and in the said search warrant, nothing has been mentioned with regard to floors. In the present case, the search warrant was issued to cover the entire premises, where the entity of the petitioner viz., Saravana Selvarathnam Furnitures, is also situated, where the respondents have conducted the search and seized some of the files and relied upon the same. Since no specific floor number was mentioned in the search warrant but only the plot number, the Department had conducted the search in all the floors, including the Saravana Selvarathnam Furnitures, which is not an entity mentioned in the search warrant. 39. If any search warrant was issued with regard to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said violation, the respondents had submitted that it is a practice of the Department to make one of the officials of other Department as witnesses, since the same would be convenient for the Department to call the witness at the time of trial. 43. However, with regard to the above aspect, the intention of the legislation was different i.e., the witness must be independent and from the same locality. Hence, at the moment, when the respondents made the officials of other departments as witnesses since it is convenient for them to call them at the time of trial, the said witness would loss the character of independent witness and that is not the witness, which was referred under Rule 112(6) of the IT Rules. Therefore, this Court has no other aspect but to conclude that the search was conducted on 27.01.2022 without one of the independent witnesses, out of two. Further, with regard to the aspect of mandatory requirement of the independent witnesses, the Digital Evidence Investigation Manual also deal with the same at chapter 6.2 at par with the Rule 112(6) and (7) of the IT Rules. 44. Thereafter, the petitioner had heavily relied upon the binding nature of Digital Evidence Invest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for any exemption, deduction, refund or any other relief under this Act after the expiry of the period specified by or under this Act for making such application or claim and deal with the same on merits in accordance with law; (c) the Board may, if it considers it desirable or expedient so to do for avoiding genuine hardship in any case or class of cases, by general or special order for reasons to be specified therein, relax any requirement contained in any of the provisions of Chapter IV or Chapter VI-A, where the assessee has failed to comply with any requirement specified in such provision for claiming deduction thereunder, subject to the following conditions, namely:- (i) the default in complying with such requirement was due to circumstances beyond the control of the assessee; and (ii) the assessee has complied with such requirement before the completion of assessment in relation to the previous year in which such deduction is claimed: Provided that the Central Government shall cause every order issued under this clause to be laid before each House of Parliament." 45. A reading of the above provision would show that the CBDT may issue such orders, instructions, direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Reported in (2004) 10 SCC 1 a circular was issued by CBDT under Section 119 of the Income-tax Act, 1961. It was challenged inter alia on the ground that it was ultra vires the provisions of Section 19(1). The argument was rejected by this Court in the following words: "47. It was contended successfully before the High Court that the circular is ultra vires the provisions of Section 119. Sub-section (1) of Section 119 is deliberately worded in a general manner so that CBDT is enabled to issue appropriate orders, instructions or directions to the subordinate authorities "as it may deem fit for the proper administration of this Act". As long as the circular emanates from CBDT and contains orders, instructions or directions pertaining to proper administration of the Act, it is relatable to the source of power under Section 119 irrespective of its nomenclature. Apart from sub-section (1), sub-section (2) of Section 119 also enables CBDT 'for the purpose of proper and efficient management of the work of assessment and collection of revenue, to issue appropriate orders, general or special, in respect of any class of income or class of cases, setting forth directions or instruction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue is bound by it and cannot be allowed to plead that it is not valid nor that it is contrary to the terms of the statute. (2) Despite the decision of this Court, the Department cannot be permitted to take a stand contrary to the instructions issued by the Board. (3) A show cause notice and demand contrary to existing circulars of the Board are ab initio bad. (4) It is not open to the revenue to advance an argument or filed an appeal contrary to the circulars. 51. By applying above ratio in the present case, this Court can conveniently come to the conclusion that if the Manual is not followed, the entire search proceedings would be against the law. However in the case of Dhakeswari Cotton Mills Limited (referred supra), the Constitutional Bench of the Hon'ble Supreme Court had accepted the contention of the learner Solicitor General of India, who appeared for the Department and held as follows: "The Income Tax Officer is not fettered by technical rules of evidences and pleadings, and that he is entitled to act on the materials, which may not be accepted as evidence before the Court of law, but there the agreement ends." 52. By applying the above, one could say that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espondents are not bound by any technical clutches, they are supposed to produce the material evidence corroborated by the other evidences to substantiate the assessment since assessment should be beyond suspicions. 56. In view of the above, it appears that the assessment has been made without corroboration of material evidence and hence, the same is not done in the manner held by the Constitution Bench of the Hon'ble Apex Court. Hence, the same is challenged before this Court. Further, in the present case, how the Department had not followed the Digital Evidence Investigation Manual and other non-compliance at the time of seizure of evidences, has been tabulated hereunder: As per Chapter 6 of the Digital Evidence Investigation Manual at page 52, one person from technical, one from the assesse side and two independent witnesses should be present. In the present case in one of the searches ie on 27.01.2022 one witness was not an independent witness. At the time of seizure a unique device number has to be allotted and the same should be duly reflected in the panchnamas chain of custody and digital evidence collection forms. In the present case, this procedure was not followe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2-hash value of each disk should be mentioned in the panchnama In the present case the same was not followed. The following information has to be incorporated in the panchnama :- Inventory of all computer hard disks/media found The time displayed in the CPU clock of the PC/Server and the actual local time at that time Inventory of all disks which were cloned/imaged with number of clones created/seized giving hash value of each disk. Inventory of all disks found and seized without cloning In the present case all the above were not followed SEIZURE MEMO Proper Seizure memo and Seizure Proceedings must be drawn and the following things should be reflected in the Seizure Memo: Before seizing any of the digital evidence, their hash value must be calculated using forensic tools such as cyber check or duplicator or anything else. There will be a report generated by these tools which can be attached along with the panchnama. [Refer Section 3 of IT Act, 2000). In the present case the same was not done Make sure that one person from the technical side, one from the assessee side and two independent witnesses are part of the search and seizure proceedings. In the present case the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p can be taken. The following steps should be taken at the time of cloning * As part of preparatory work, it is necessary to start with preparation of blank disks for use in cloning. This will ensure that no changes take place in the data being acquired at the time of viewing, analysing or cloning. Report: Take printout of report generated by the imaging tool which contains the details of imaging attributes, details of Hard Disk Drives imaged, date and time and the most important thing the hash value of the Hard Disk Drive. Attach the report along with panchnama as an annexure to it. THE PROCEDURE FOR DUPLICATION OF THE DATA FINDS NO MENTION IN THE PANCHAMA STEPS FOR SEIZURE Collect all the digital evidence: either the original or the cloned copies. Separate out the main copy and working copies. Pack all the working copies in a separate box, which would later be used in the office for analysis. For the main copies, wrap a white tape on the connecting ports of each Hard Disk Drive along with department's seal. The seal and the tape will ensure that no one has accessed the Hard Disk Drives. Seal the main copies by putting them in a bubble bag and then in a storage box ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eferred supra). In support of the same, the Department has also brought the Digital Evidence Investigation Manual with regard to all the digital data, wherein it has been stated that the gathering of electronic evidences alone is not sufficient to prove and make the assessment, but, efforts have to be made to corroborate the contents therein with other evidences, such as material or oral evidences. 60. Further, the law has been well settled by this Court as well as Apex Court in umpteen number of cases that the right of cross-examination is part of one of the most essential rights and whenever a request is made for cross-examination of the witnesses to test the veracity of their statements, the authority have to necessarily grant the said request. In the case of "Thilagarathinam Match Works & others vs CCE" (2013) 2 CTC 369 = 2013 SCCOL Mad 333, this Court has held in para 9 as under: "9. Petitioners have not stated any reason for cross-examination of those persons No reason need be stated by any person for requiring cross-examination in an enquiry a person gets two kinds of rights. The first set of right revolves around the right to peruse the documents relied upon by the depar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross-examination of the said dealers could not have brought out any material which would not be in possession of the appellant themselves to explain as to why their ex-factory prices remain static. It was not for the Tribunal to have guess work as to for what purposes the appellant wanted to cross-examine those dealers and what extraction the appellant wanted from them." 63. A perusal of the above judgement would make it clear that when the impugned order was passed based on the data and with the strength of the sworn statements made by the three persons, the respondents should have provided all the documents and thereafter, the opportunities would arise for the petitioner to demand for the cross-examination. However, in the present case, the necessary docu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opportunity to cross examine the Manager of the bank with reference to the statement made by him." "23. The counsel for the petitioners also placed the recent judgment of the Supreme Court in the case of ICDS Ltd., reported in 2020 10 SCC 529, wherein, the Apex Court has remanded back the matter on account of the assessee being deprived of cross examination. Therefore, the respondent either should not have relied on the statements recorded under Section 132(4) or in case, if they want to rely on the same, they should not have denied the opportunity to the petitioners when they demanded of cross examining the persons who gave the statement. When the department has taken a stand that there are two groups which were searched by a single warrant and that the companies of one group should not be given to another, as rightly pointed out by the learned counsel for the petitioners, the assessing officer should not have discussed the statement of the other group for framing the assessment of the petitioners. This completely vitiates the entire assessment proceedings." 65. Further, it was mandated that the preliminary and detailed statements of the persons in control of computers/electr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it would be apposite to rely upon the judgment of the Hon'ble Apex Court in Dhakeswari Cotton Mills Limited case, wherein it has been held as follows: "In this case we are of the opinion that the Tribunal violated certain fundamental rules of justice in reaching its conclusions. Firstly, it did not disclose to the assessee what information had been supplied to it by the departmental representative. Next, it did not give any opportunity to the company to rebut the material furnished to it by him, and, lastly, it declined to take all the material that the assessee wanted to produce in support of its case. The result is that the assessee had not had a fair hearing. The estimate of the gross rate of profit on sales, both by the Income-tax Officer and the Tribunal seems to be based on surmises, suspicions and conjectures. It is somewhat surprising that the Tribunal took from the representative of the department a statement of gross profit rates of other cotton mills without showing that statement to the assessee and without giving him an opportunity to show that statement had no relevancy whatsoever to the case of the mill in question. It is not known whether the mills which had d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of Digital Evidence. As in the case of written or oral evidence, digital evidence can also be classified into three main categories: i. Material evidence: Material evidence is any evidence that speaks for itself without relying on anything else. In digital terms, this could be a log produced by an audit function in a computer system, the books of account maintained a day-to-day basis on the computer, or any inventory management accom maintained on the computer etc, if it can be shown to be free from contamination ii. Testimonial evidence: Testimonial evidence is evidence supplied by a witness. This type of evidence is subject to the perceived reliability of the witness, But if the witness is considered reliable, testimonial evidence can be almost as powerful as material evidence. For example, word processor documents written by a witness could be considered testimonial as long as the author is willing to depose that he wrote the same. iii. Hearsay: Hearsay is any evidence presented by a person who is not a direct witness. Word processor documents written by someone without direct knowledge of the incident or documents whose authors cannot be traced fall in this category ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owers of the High Court to issue writs. When a litigant approaches the High Court with a prayer to issue a particular writ and on an examination of the material facts, if it is found that he is not entitled for the said writ, it is open to the High Court to issue an appropriate writ. The attempt of the Court in such cases should be to mould the relief rather than dismissing the writ petition on account of a formal defect in couching the prayer. Technicalities have no say in exercising the writ jurisdiction by the High Court. The Courts are functioning only for rendering justice. It should be the attempt of the Courts to avoid multiplicity of proceedings." 73. As held in the above judgement, this Court can mould the reliefs sought for in these writ petitions rather than dismissing the same on the account of a formal defect in couching the prayer. 74. In such view of the matter, this Court is not inclined to allow the petitioner to go before the Appellate Authority, since the Appellate Authority will not have complete power in entirety to remit the matter back for re-consideration, which would be ultimately against the interest of the revenue. In this regard, it would be apposite t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs. Therefore, it is not that a particular evidence alone needs to be produced or cross-examined by the petitioner and for that extent alone, the Appellate Authority can ask the Assessing Officer to provide the opportunity of personal hearing or cross-examination, etc. On the other hand, in the present case, the matter has to be re-adjudicated in its entirety since no procedure has been followed, which is complete violation of principles of natural justice as discussed above. Taking all these aspects into consideration and to avoid the multiplicity of proceedings, it would be appropriate to set aside all the assessment orders, which are under challenge in the present writ petitions and thereafter, remit the matter back for re-consideration to the Authority concerned and to pass appropriate orders in accordance with law. 78. Accordingly, this Court is inclined to pass the following orders: i) The four assessment orders in DIN.Nos.ITBA/AST/M/143(3)/2022-23/1048382622(1), ITBA/AST/M/143(3)/2022-23/1048382560(1) and ITBA/AST/M/143(3)/2022-23/1048382654(1) dated 31.12.2022 and DIN.No.ITBA/AST/S/147/2022- 23/1051677092(1) dated 30.03.2023 passed by the 2nd respondent is hereby set asi ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
