Case title – W.P.No.9753, 9757 and 9761 of 2023 – M/s.Saravana Selvarathnam Retails Pvt Ltd, M/s.Shri Rathna Akshaya Estates Pvt Ltd & Ors V/S The Commissioner of Income Tax, The Assistant Commissioner of IT, The Deputy Director of IT
W.P.No.11176 of 2023 – M/s.Saravana Selvarathnam Trading & Manufacturing Pvt Ltd V/S The Assistant Commissioner of Income Tax, The Deputy Director of Income Tax
Case no. – W.P.Nos.9753, 9757, 9761 & 11176 of 2023 and W.M.P.Nos.11043, 9838, 9842 & 11041 of 2023
Decision on – February 23, 2024
Quoram – Justice Krishnan Ramaswamy
Facts of the case
The case of the petitioner is that the respondents-Department had conducted a sudden search under Section 132 of the Income Tax Act, 1961 on different dates. In the said searches, the 2nd respondent had seized the electronic data.
In both the proceedings the Show Cause Notices were issued by the respondent and the responses on the same was filed by the petitioner. Subsequently, the assessment orders were passed on the subject matter of both the proceedings.
In light of such circumstances, the petitioner had made several representations to the respondents for the purpose of getting copies of the materials collected from their premises. The petitioner also provided the additional reply, wherein they had categorically requested the respondents to provide the additional documents collected by them, however the same was not been provided.
At this juncture, the respondents had passed the impugned assessment orders in both the proceedings. However, in all these cases, neither the additional documents nor the opportunity of personal hearing was provided to the petitioner before passing the orders.
Issues
The Petitioner in the first proceedings filed the writ petitions Nos.9753, 9757 and 9761 of 2023 challenging the admissibility of evidence against the orders of the respondents. They sought to declare that the seizure of the .txt files by the 2nd respondent from an undisclosed location without any valid search warrant and without following the guidelines issued by the CBDT is not in accordance with law and therefore inadmissible in evidence.
Whereas, in the second proceedings the petitioner filed the writ petitions No.11176 of 2023 challenging the orders of the respondents that were passed without hearing the petitioner which violates the principles of natural justice.
Submission of the Parties
The Counsel appearing on behalf of the Petitioner submitted that the search and seizure was conducted and the assessment orders were passed in a hasty manner. Further, at the time of search and in the event of collection of electronic data, the respondents failed to comply with the procedures laid down in the Digital Evidence Investigation Manual, which is issued in terms of Section 119 of the Act by CBDT. He contended that the guidelines were framed by CBDT in order to avoid the invalidation of evidences collected by the Department and thus it was mandatory for them follow it.
He also submitted that the petitioner was not given an opportunity to be heard while passing the orders which led to the violation of principles of natural justice.
The Counsel submits that this raises the issue of suspiciousness regarding the manner in which the respondents had collected and preserved the data. He contends that it is the duty of the respondents to corroborate the evidences. Even if it is the oral evidence of any person, they should have allowed the petitioner to cross- examine the said person and must have produced the evidences accordingly. But however, the Counsel submits that the respondents have defaulted in that too.
The Counsel appearing on behalf of the Respondents stated that the writ of declaration regarding the evidentiary value is not maintainable. He contended that the assessment is completed and appeal is pending before the Appellate Authority and hence, petitioner has to agitate all the issues before the Appellate Authority.
The Counsel thus, submitted that the admissibility, nature of evidence and the manner of proof cannot be questioned in the writ petitions. The Counsel further contended that the Manual issued by the CBDT was only optional for the Department to follow and not mandatory.
Court’s Analysis and Judgement
The Court on perusal of the documents on record observed that despite several representations made by the petitioner before the respondents imploring for the copy of the documents and other data collected from their premise of the petitioner, the respondents failed to provide any of the documents. Moreover, the Court observed the lethargic and irresponsible behaviour on the part of the respondents in misplacing the documents, while it was their duty to collect and preserve the evidences as per the procedure laid down in the said Manual.
The Court while pondering upon the issue of maintainability noted that the present writ petitions clearly falls within the purview of the exemptions provided by the Apex Court in the Chabbil Dass case and therefore, upheld the maintainability of the instant writ petitions.
The Court further noted that the respondents while passing the assessment order considered the sale value of 25th December and it throughout the year in a mechanical manner. The Covid pandemic where there was complete closure of shops was not taken into consideration. The Court pointed out such acts to be totally arbitrary and lacks any corroborative evidences. Hence, reliance on such data and evidences is unjustified.
The Court noted that the collection of materials and preservation of the same at the place of the respondents is entirely suspicious and assessments were made by virtue of guess work and without any valid evidence in the eye of law.
The Court asserted that in the present case, necessary documents have not been produced and the assessment orders were passed hurriedly within a short span of 10 days and 30 days. Thus, the impugned order passed by the 2nd respondent is in a serious flaw, which makes the orders nullity inasmuch as it amounted to violation of principles of natural justice because of which the Assessee was adversely affected.
The Court is of the considered view that since the respondents had not followed the procedure under the said Manual, no corroborative evidence was placed on record and hence, the said search and seizure is against the law and ab initio bad.
The Court further noted that neither the opportunity of personal hearing nor the opportunity to cross-examine the witnesses was provided to the petitioner. Therefore, it light of the above defaults the Court set aside the three impugned assessment orders and remitted the matter back to the concerned authority for re-consideration.
The Madras High Court has held that it is mandatory for the income tax department to follow the Digital Evidence Investigation Manual issued by the Central Board of Direct Taxes (CBDT) while conducting searches and seizing electronic evidence.
The Court also issued certain directions to the Respondents in the matter-
- The 2nd respondent is directed to provide all the documents relied upon by them in the Show Cause Notice as requested by the petitioner.
- If any oral/documentary evidence is relied upon to corroborate the electronic data, the 2nd respondent is directed to allow the Assessee to cross-examine the witnesses.
- After completion of the cross-examination and before passing the final assessment order, the 2nd respondent is directed to provide an opportunity of personal hearing to the petitioner to put forth their case before the Assessing Officer;
- The AO is directed to pass the assessment order in detail taking into consideration of the deposition of the witnesses, during the cross-examination, whose statements are relied upon by the 2nd respondent to corroborate the electronic data collected by them.
- The Assessing Officer is directed to follow the above procedures in the event of issuance of any further show cause notices in connection with the present search and seizure relating to other assessment years.
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Judgement Reviewed by – Keerthi K
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