Digital evidence safeguards and natural justice violations justified writ intervention and remand in tax assessment proceedings.

CBDT instructions issued under Section 119 of the Income-tax Act were treated as binding on income-tax authorities, and the Digital Evidence Investigation Manual was held to prescribe mandatory safeguards for search, seizure, documentation, hash value recording, chain of custody, and cloning of digital media. Non-compliance rendered the collection and preservation of electronic evidence legally infirm. The writ petitions were maintainable despite an alternate appellate remedy because the challenge concerned alleged statutory non-compliance and breach of procedural fairness. The assessments were set aside as vitiated by denial of relied-upon materials, cross-examination, and personal hearing, and the matter was remanded for fresh consideration.

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Issues: (i) Whether the writ petitions were maintainable notwithstanding the availability of the statutory appellate remedy; (ii) Whether the Digital Evidence Investigation Manual issued by the CBDT was binding on the income-tax authorities and whether non-compliance vitiated the search and seizure of electronic data; (iii) Whether the impugned assessment orders were liable to be set aside for violation of natural justice, including non-supply of relied-upon materials, denial of cross-examination, and denial of personal hearing.

Issue (i): Whether the writ petitions were maintainable notwithstanding the availability of the statutory appellate remedy.

Analysis: The availability of an alternate remedy did not bar writ jurisdiction where the action complained of was alleged to be contrary to statutory procedure and in breach of fundamental procedural fairness. The challenge was not limited to the merits of the assessments but extended to the legality of the search, seizure, preservation, and use of digital evidence, along with denial of a fair opportunity to respond. Such grievances fell within the recognized exceptions to the rule of alternate remedy.

Conclusion: The writ petitions were maintainable.

Issue (ii): Whether the Digital Evidence Investigation Manual issued by the CBDT was binding on the income-tax authorities and whether non-compliance vitiated the search and seizure of electronic data.

Analysis: Instructions issued by the CBDT under Section 119 of the Income-tax Act, 1961 have statutory force and are binding on the authorities administering the Act. The Manual was treated as an instruction issued for proper administration and preservation of digital evidence. The Court found that the prescribed safeguards for search, seizure, documentation, hash value recording, independent witnesses, chain of custody, and cloning of digital media were not followed in the manner required. Non-compliance rendered the collection and preservation of electronic evidence legally infirm.

Conclusion: The Manual was mandatory and the electronic evidence was collected in violation of the prescribed procedure.

Issue (iii): Whether the impugned assessment orders were liable to be set aside for violation of natural justice, including non-supply of relied-upon materials, denial of cross-examination, and denial of personal hearing.

Analysis: The assessment orders were based substantially on electronic data and sworn statements, but the petitioner was not supplied all relied-upon materials and was not given a meaningful opportunity to rebut the material or cross-examine the persons whose statements were used against it. The assessments were also passed hurriedly without a proper personal hearing. In tax proceedings, while strict rules of evidence do not apply, assessments still require some material beyond bare suspicion and must conform to the minimum requirements of fairness. The absence of corroboration and denial of procedural safeguards amounted to a serious breach of natural justice.

Conclusion: The assessment orders were vitiated and liable to be set aside with a remand for fresh consideration.

Final Conclusion: The writ court intervened to protect procedural fairness, upheld the legality of judicial review in the facts, and directed a fresh assessment after supply of materials, opportunity of reply, cross-examination where relied upon, and personal hearing.

Ratio Decidendi: CBDT instructions issued under Section 119 of the Income-tax Act, 1961 are binding on the income-tax authorities, and where digital evidence is collected or relied upon in breach of the prescribed procedure and without affording a fair opportunity to rebut the material, cross-examine witnesses, and be heard, the resulting assessment is liable to be set aside despite the existence of an alternate remedy.

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