TaxTMI 
TaxTMI 
2024 (8) TMI 503
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....vocates appearing for the respective parties, the same was taken up for hearing as learned advocates for the respective parties have concluded their submissions and pleadings as recorded in order dated 29th January, 2024. 2. By this petition under Article 226 of JUDGMENT DATED: 05/02/2024 the Constitution of India, the petitioner has prayed for the following reliefs. "(a) Declare the search action u/s. 132 of the Income Tax Act carried out by the Respondents at the residential premises as well as the office premises of the Petitioner as bad, arbitrary, unreasonable, illegal, contrary to law and without jurisdiction. (b) Direct the respondents to return the documents taken from the office of the petitioner without keeping any copy with the respondents and their Income Tax department, also direct the respondents to return all the digital data taken from the devices i.e. ipad(s), Laptop(s), Mobile(s), Desktop(s), Computer(s) and from any other Gadget(s) from petitioner's residence and office without keeping any copy thereof. (c) Direct the respondents to destroy all the copies if the respondent have/kept from the records collected in physical and digital format consequent....
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.... these four days, the petitioner, his wife, son and daughter were not allowed to move freely until the search ended on 06th November, 2023 by the respondent officers. The petitioner has also alleged that daughter of the petitioner was not allowed to attend college during these four days and petitioner was not allowed to attend the court proceedings on 06th November, 2023. 3.6 It is the case of the petitioner that on 03rd November, 2023 at 06.30 a.m., one Mr. Amit Kumar who is later on joined as respondent No.11 by the order of the Court and whose name is not mentioned in the Panchnama and who is later on identified as a notice server along with two police officers having rifles, went to the residence of Ms. Hima Patel, a lady advocate working with the petitioner as a freelancer, to serve the summons under Section 131 of the Income Tax Act, 1961 (for short 'the Act'). According to the petitioner, said officer forcefully took Ms. Hima Patel to the office premises of the petitioner without presence of any female officer. At the residential premises of Ms. Hima Patel, said officer asked all the family members to switch-off their mobile phones by taking away mobile phones of herself, h....
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....h learned Senior Advocate Mr. Jal Soli Unwalla assisted by learned advocate Mr. B.S. Soparkar for the petitioner and learned advocate Mr. Varun K. Patel for the respective respondents. 2. Considering averments made in the petition and submissions made by learned advocates for the petitioner and respondents, the petitioner is directed to join the following Officers as party respondent Nos.5 to 11 in their personal capacity so as to show cause as to why appropriate order should not be passed for exceeding their powers conferred under the provisions of the Income Tax Act, 1961 : (5) Ravjit Singh Arneja, DGIT (Investigation), Ahmedabad. (6) Shri Rakesh Ranjan, ITO; (7) Shri Dhrumil Bhatt, Inspector; (8) Shri Neeraj Kumar Jogi, Inspector; (9) Shri Vivek Kumar, Office Superintendent; (10) Shri Ranjeet Chaudhary, Multi Tasking Staff; (11) Amit Kumar, Inspector; Notice to be served at Aaykar Bhavan, Ashram Road, Ahmedabad. 3. Issue Notice to the newly joined respondent Nos.5 to 11, returnable on 18th December, 2023 so as to enable them to file appropriate reply to this petition. Reply, if any, to be filed on or before 15th December, 2023. Direct service is permitt....
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....the office of the petitioner including various documents drafted by the petitioner and other legal papers which are available in the computers of the office of the petitioner in violation of the doctrine of attorney-client privilege as all such documents are required to be protected from being misused by the respondent authorities under the guise of search under Section 132(1) of the Act,1961. 6.4 It was contended by learned senior advocates for the petitioner that the action of search and seizure carried out by the respondent authority from 03rd November, 2023 to 06th November, 2023 has violated constitutional provision of privacy as well as the doctrine of attorney-client privilege as the respondents have taken copies of confidential documents relating not only between Mr. Vivek Patel and Mr. Trikam Patel but also documents relating to other clients of the petitioner and entire digital data from the office and residence of the petitioner. 6.5 It was emphasised by learned senior advocates that the doctrine of attorney-client privilege is not just any privilege but it is the oldest of the privileges for confidential communication known to the common law and most of the digital da....
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....proceedings was contrary to the prescribed guidelines inasmuch as officers of the search party did not permit the petitioner and his family members to move out of the residential premises or to permit them to attend their daily routine so as to attend the college by the daughter of the petitioner as well as court by the petitioner himself. It was pointed out that respondents have also turned-off the CCTV cameras so that no evidence is available to show that many more persons on the side of the respondents conducted the search and seizure proceedings and who were not named in the Panchnama. 6.10 Ms. Hima Patel who has also filed the affidavit which is placed on record to point out that officer-respondent No.11 picked her up forcefully at 06.30 a.m. without any company of female officer and brought her to the office of the petitioner to open it. It was further submitted that though the entire search operation was over on 03rd November, 2023 itself, the search was prolonged till 06th November, 2023 only to harass the petitioner and coerce him to give original document of transaction between Mr. Vivek Patel and Mr.Trikam Patel. 6.11 Learned senior advocate thereafter submitted that d....
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....er as there is no tax evasion or illegality committed by the petitioner. 6.16 In support of the submissions, reliance was placed on the decision of the Apex Court in case of District Registrar and Collector, Hyderabad v. Canara Bank reported in (2005) 1 SCC 496. "35. The earliest case in India to deal with 'privacy' and 'search and seizure' was M.P. Sharma v. Satish Chandra (1954 SCR 1077) in the context of Art. 19(1)(f) and Art. 20(3) of the Constitution of India. The contention that search and seizure violated Art. 19(1)(f) was rejected, the Court holding that a mere search by itself did not affect any right to property, and though seizure affected it, such effect was only temporary and was a reasonable restriction on the right. The question whether search warrants for the seizure of documents from the accused were unconstitutional was not gone into. The Court, after referring to American authorities, observed that in US, because of the language in the Fourth Amendment, there was a distinction between legal and illegal searches and seizures and that such a distinction need not be imported into our Constitution. The Court opined that a search warrant was address....
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....nstitutional scheme, for, without it, these rights could not be enjoyed meaningfully. Mathew, J. also referred to Jane Roe v. Henry Wade (1973) 410 US 113 where it was pointed out that though the right to privacy was not specifically referred to in the US Constitution, the right did exist and "roots of that right may be found in the First, Fourth and Fifth Amendments, in the penumbras of the Bill of rights, in the Ninth Amendment, and in the concept of liberty guaranteed by the first section of the Fourteenth Amendment'. Mathew, J. stated that, however, the 'right to privacy was not absolute' and that the makers of our Constitution wanted to ensure conditions favourable to the pursuit of happiness as explained in Olmstead v. United States (1927) 277 US 438 (471); the privacy right can be denied only when an 'important countervailing interest is shown to be superior', or where a compelling State interest was shown. (Mathew, J. left open the issue whether moral interests could be relied upon by the State as compelling interests). Any right to privacy, the learned Judge said, (see para 24) must encompass and protect the personal intimacies of the home, the family, ....
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....t consistent with the principles set out by the Court in Lavallee. The Attorney General, on the other hand, argues that the searches and seizures authorized by the scheme are reasonable: they relate to a limited class of documents for a narrow, regulatory purpose and there are appropriate safeguards to protect solicitor-client privilege. [35] I respectfully do not accept the Attorney General's position. The regime authorizes sweeping law office searches which inherently risk breaching solicitor-client privilege. It does so in a criminal law setting and for criminal law purposes. In my view, the constitutional principles governing these searches are set out in the Court's decision in Lavallee, and this scheme does not comply with them. (2) Protection of Solicitor-Client Privilege [36] A law office search power is unreasonable unless it provides a high level of protection for material subject to solicitor- client privilege: Lavallee. The Attorney General submits, however, that Lavallee does not dictate the outcome here: the Court in that case was only considering the question of what safeguards are constitutionally required in situations where law enforcement officials ....
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........ any privileged information acquired by the state without the consent of the privilege holder is information that the state is not entitled to as a rule of fundamental justice. [Emphasis added; para. 24.] [39] I see no basis for thinking that solicitor-client communications should be more vulnerable to non-consensual disclosure in the course of a search and seizure by FINTRAC officials than they would be in the course of any other search by other law enforcement authorities. [44] The core principle of the decision is that solicitor-client privilege "must remain as close to absolute as possible if it is to retain relevance": Lavallee, at para. 36. This means that there must be a "stringent" norm to ensure its protection, such that any legislative provisions that interfere with the privilege more than "absolutely necessary" will be found to be unreasonable: para. 36. [46] Both schemes require the official to give a reasonable opportunity for a claim of solicitor-client privilege to be made before examining or copying the material. Section 64(9.1) of the Act enhances this protection somewhat by providing that the official is not to examine or make copies of a document in ....
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....ts, including potentially privileged documents, in the possession of a lawyer. Indeed, s. 8 only protects against unreasonable searches and seizures: Hunter v. Southam Inc., [1984] 2 S.C.R. 145. In commenting on the fact that a reasonable search and seizure is permitted under s. 8 of the Charter, Dickson J. stated, at pp. 159-60: This limitation on the right guaranteed by s. 8, whether it is expressed negatively as freedom from "unreasonable" search and seizure, or positively as an entitlement to a "reasonable" expectation of privacy, indicates that an assessment must be made as to whether in a particular situation the public's interest in being left alone by government must give way to the government's interest in intruding on the individual's privacy in order to advance its goals, notably those of law enforcement. Since Hunter, this Court has striven to strike an appropriate balance between privacy interests on the one hand and the exigencies of law enforcement on the other. See R. v. Araujo, [2000] 2 S.C.R. 992, 2000 SCC 65; R. v. Golden, [2001] 3 S.C.R. 679, 2001 SCC 83. Sometimes, however, the traditional balancing of interests involved in a s. 8 analysis is inapprop....
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.... the safety of the public, per Cory J. at para. 51: Just as no right is absolute so too the privilege, even that between solicitor and client, is subject to clearly defined exceptions. The decision to exclude evidence that would be both relevant and of substantial probative value because it is protected by the solicitor-client privilege represents a policy decision. It is based upon the importance to our legal system in general of the solicitor-client privilege. In certain circumstances, however, other societal values must prevail. However, solicitor-client privilege must be as close to absolute as possible to ensure public confidence and retain relevance. As such, it will only yield in certain clearly defined circumstances, and does not involve a balancing of interests on a case-by-case basis.[Emphasis added.] Indeed, solicitor-client privilege must remain as close to absolute as possible if it is to retain relevance. Accordingly, this Court is compelled in my view to adopt stringent norms to ensure its protection. Such protection is ensured by labeling as unreasonable any legislative provision that interferes with solicitor-client privilege more than is absolutely necessa....
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.... of Canada - (2015) SCC Online Can SC 2 (vi) Regina v. Special Comm. Of Income Tax - (2003) 1 A.C. 563 (vii) Rajesh Bhatia v. G. Parimala - (2005) SCC Online AP 970 (viii) Sri Gangararapu Kameswara Rao v. Gangavarapu Satyanarayana - (1983) SCC Online AP 257 (ix) Larsen & Tubro v. Prime Displays P. Ltd. - (2002) SCC Online Bom 267 (x) The Superintendent Office v. The Registrar, Tamilnadu - (2010) SCC Online Mad 108 (xi) Ajit Jain v. Union of India - (2000) SCC Online Del 92 (xii) Pradeep Kumar Singh v. State of U.P. - (2006) SCC Online AII 1056 (xiii) Department of Income Tax v. S.R. Batliboi & Co. - (2009) 17 SCC 767 (xiv) Jignesh Farshubhai Kakkad v. Director of Income-Tax - (2002) SCC Online Guj 407 7. On the other hand, learned Additional Solicitor General Mr. N. Venkataraman assisted by learned senior standing counsel Ms.Maithili D. Mehta, learned advocate Mr. Nachiket D. Mehta and learned advocate Ms. Kinjal H. Trivedi for respondent Nos. 5 to 11 and learned senior standing counsel Mr. Varun Patel for respondent Nos.1 to 4 vehemently opposed the petition and articulated their submissions in three parts by providing written brief note. 5. The substantial qu....
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...., and not merely an Advocate for the buyer and/or seller. 9. The evidence seized in shocking volumes in-cash and other documents in physical as well as digital at the Writ Petitioner's office/residence to substantiate the above illustration and conclusion, and the fact that this search was not based on a mere conjecture premised on guess-work, but is a result of detailed investigation by the Income-Tax department for more than six-months, forming part of a comprehensive satisfaction note, has already been shown in sealed covers to the Hon'ble Court. A. Allegations with respect to the substantial question of legality of the search action 11. All the averments with respect to satisfaction of section 132 of the Income Tax Act, 1961, were comprehensively dealt with in the Affidavit in reply of Respondent no. 3 dated 13.12.2023 at para no. 71 to 73, para no. 75 to 83, para No, 94, 103, 104. However, the said arguments and the rebuttals made in the court are reiterated and rephrased as below: 1. Petitioner's averment: Conditions of section 132 of the Income Tax Act, 1961, were not fulfilled. Counter Arguments: A. It is respectfully submitted that th....
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....ties is a faint plea without any substance. Also, several incriminating materials have been found vis-à-vis the Petitioner himself, which proves that the belief framed by the department against the petitioner was right on point. B. In arguendo, assuming this to be the case, the provisions of the Income Tax Act, 1961, still supports the Department's case. A search is done for the premises where there is a reason to believe that any material pertaining to Tax evasion would be found. It is not necessary that the search has to be conducted at the place of the person / party who is suspected to evade tax. This is also borne out from a plain construction of Section 132. C. The expression employed in Section 132(1)(b) permits "any person" to be searched in relation to "any document" which will be useful for or relevant to "any proceeding" under the Income Tax Act, where there is a reason to believe that such person would not produce the same. The expression "any person" "any document" and "any proceeding" search action has been permitted against any party, which will include the Petitioner herein, if there is reason to believe that he is possessio....
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....f prima facie found to be in breach of provisions of Income Tax Act. Therefore, search is conducted on a premise to find material involving tax evasion. An officer of income tax can never turn his eyes blind, when he finds incriminating (tax evading) material beyond what is sought for in the satisfaction note. This too can never be the intention of the Parliament. Also, the Hon'ble Supreme Court of India in the case of ITO Vs Seth Brothers, 1969 (74) ITR 836 (SC) (Pgs. 5-14, VOL I of convenience compilation) has held that: "the Act and Rules do not require that the warrant of Authorization should specify the particulars of documents and books of accounts: a general authorization to search for and seize documents and books of account relevant to or useful for any proceedings complies with the requirements of the Act and the Rules. It is for the officer making the search to exercise his judgement and seize or not to seize any documents or books of account. An error committed by the officer in seizing documents which may ultimately be found not to be useful for or relevant to the proceeding under the Act will not by itself vitiate the search, nor will it entitle the aggrieved person....
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....pecified authority, has passed an order under clause (d) of section 148A to the effect that it is a fit case to issue a notice under this section:] Explanation 2.-For the purposes of this section, where,- (iv) the Assessing Officer is satisfied, with the prior approval of Principal Commissioner or Commissioner, that any books of account or documents, seized or requisitioned under section 132 or section 132A in case of any other person on or after the 1st day of April, 2021, pertains or pertain to, or any information contained therein, relate to, the assessee, (emphasis supplied) the Assessing Officer shall be deemed to have information which suggests that the income chargeable to tax has escaped assessment in the case of the assessee [where] the search is initiated or books of account, other documents or any assets are requisitioned or survey is conducted in the case of the assessee or money, bullion, jewellery or other valuable article or thing or books of account or documents are seized or requisitioned in case of any other person. On a plain reading of above provisions of the Income Tax Act, 1961, it emerges that any books of accounts or documents seized or requisitioned un....
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....al transactions aimed at Tax Evasion that the petitioner is facilitating for drafting and secreting at his office premises. B. It is also to submit that this was simply not the case that search was conducted to obtain one single MoU. However, assuming it to be so, the expressions employed in Section 132 would still permit the Department to carry out search actions, even though for a single MoU. It is trite law that warrant of authorization of search is not issued for any particular document or piece of evidence but for an entire premises and the discretion is vested on the searching authorized officer to seize a particular material at the time of search, if the officer is satisfied that the conditions prescribed under Section 132 are met. 4. Petitioner's Averment: The petitioner could have been summoned to produce the documents as the petitioner is a permanent resident of the address mentioned in the cause title and a regular practitioner as an Advocate since 2003. If the petitioner would have been summoned to produce the document, there was no chances of the petitioner fleeing from the summons and therefore there were no satisfactory reasons to conduct search and seizure wit....
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....ating the entire attempt to unearth the documents and materials having large bearing on Income Tax Act, 1961, which have been now unearthed by way of conducting search action. Therefore, it was a reasonable belief drawn by the Respondent No. 03 that the assessee shall not produce or cause to be produced any books of accounts or other documents which would be useful or relevant to the proceedings under the Act. 5. Petitioner's Averment: The search action is without jurisdiction and in violation of Instruction 07 of 2003 dated 30.07.2003. Counter Arguments: A. It is respectfully submitted that Instruction No. 07 of 2003 only regulates the criteria of cases which require to be searched by the investigation wing. This Instruction only operates against the Petitioner as the Petitioner's case would squarely attract criteria conceived in the Instruction. Once the search is valid in terms of Section 132 of the Act, the Petitioner cannot interpret the Instructions selectively in a one- sided and lop-sided manner to escape the applicability of the Act. B. The Instruction is aimed at protecting Professionals of Excellence, without there being compelling evidence and confirm....
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....spect to violation of Attorney client Privilege 15. All the averments with respect to violation of Attorney client Privilege, were comprehensively dealt with in the Affidavit in reply of Respondent no. 3 dated 13.12.2023 at para no. 84 to 87. However, the said arguments and the rebuttals made in the court are reiterated and rephrased as below: 1. Petitioner's averment: Most of the digital data/physical documents seized from the Petitioner's office during the search does not belong to Petitioner but to his clients and have been drafted/documented by the Petitioner in his professional capacity thus covered under the sanctity of attorney- client privilege (Section 126 of the Indian Evidence Act) Counter Argument: A. It was repeatedly contended that since the Writ Petitioner is an advocate, anything and everything within the premises of his office/residence is covered under attorney-client privilege, and that what is incriminating viz-a-viz the three builders may be seized, but what relates to third parties other than the three builders, has to be returned. The same can be countered with Section 126 itself, which states as follows: No barrister, attorney, pleader or v....
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....ssional communication moves away from the blanket of privilege when it is made in furtherance of any illegal purpose. (Illustration b) c. the privilege is not available for any transaction which shows that a fraud has been committed, which an Advocate observes during the course of his employment. (Illustration C) Petitioner aiding his clients for furtherance of illegal purpose. C. It is respectfully submitted that the assessee specializes in providing services/advise in land dealings. Gujarat's land pricing framework is peculiar in terms of difference between the jantri rate and the market rate. The huge differences between the price at which the sale deed gets executed and the total consideration actually paid, has direct impact under the income tax proceedings. The assessee specialises in drafting and providing advice for both sets of documents/ MoUs/Banakhats for the same transaction, one having the actual market value of the transaction, and other being the sale deed value. Since the assessee is involved in drafting/advising of such documents, his activity is clearly in furtherance of illegal purpose of helping the assessee in evading income tax and is clearly covered by ....
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.... as Annexure-A to the counter affidavit filed on 23.01.24. During the post search proceedings, the digital data that is prima facie found to be incriminating would pass through a series of investigation like calling for data from the third parties like sub-registrar office, comparing the documents with the land records in the open source and taking statements of the third parties to the transaction before reaching to the conclusion that it is incriminating for the purpose of Income Tax Act. Thus, Appraisal report will be prepared on the basis of such verifications and enquires. The Appraisal report along with the complete seized material will be shared with the Jurisdictional/Central assessing Officer, who will analyze the data and form his own independent opinion with regards to the incriminating nature of the evidence. It is the Assessing Officer who will analyze the data and frame Assessment order after giving enough opportunity to the assessee. The material seized cannot be retained by the assessing officer beyond a certain period and can be released by him only after the assessment order is framed. Thus, two things can be construed: 1. That separation of incriminating and n....
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.... whose documents have been seized. I. There are case laws that also support that the privilege under Section 126 of the Evidence Act, 1872, is available only to the client and not the Advocate. In this regard, reliance is placed on Gurunanak Provisions Stores v. Dulhonumal Savanmal and Others, 1993 SCC OnLine Guj 45 (At Pgs. 315 - 320, VOL II of the convenience compilation), which states the following: "18. The privilege contemplated in the aforesaid provisions is a privilege of the client and not of the professional adviser. The legal adviser, therefore, is bound to claim the privilege unless the client has given consent. The privilege does not depend upon the client being a party to the proceeding. When the client is not a party, neither party to the proceeding can claim the privilege." Also, the same was stated by the Hon'ble Madras High Court in Ayeasha Bi v. Peerkhan Sahib, 1953 SCC OnLine Mad 3 (At Pgs. 295 - 314, VOL II of the convenience compilation), where it was held that: "57. In this connection a strange misconception seems to prevail that the reply notice of the lawyer or his stating that what he did was in accordance with his instructions or not in excess of....
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.... Income-Tax Department to verify if it pertains to the target assessee in question. In fact, vide paras 3 and 4, it held that: "3. The respondents shall provide authenticated hard copies of the data pertaining to EMAAR-MGF Group to the Department. The Income Tax Department is permitted to inspect the data contained on other files/folders relating to the 46 other parties but this data shall not be copied in any form. If, according to the assessing officer, the files/folders pertaining to any of the 46 other parties are connected with the EMAAR- MGF Group and would be required by the assessing officer for making a proper assessment on the EMAAR - MGF Group, this may be pointed out in writing to the representative of S.R. Batliboi & Co. along with the material/reasons relied upon by the Income Tax Department for making its claim. 4. It shall then be open to S.R. Batliboi & Co. after considering the said material/reasons either to consent to the said claim made by the Income Tax Department or, alternatively, to challenge the same by adopting appropriate proceedings for this purpose. In the event of S.R. Batliboi giving its consent or alternatively, failing in its challenge to the....
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..... If such was the standard established by Batliboi (Supra) in ruling in favour of a party who was not even the target assessee, to stretch what the Hon'ble Supreme Court had said and appoint an independent authority to deliberate on the nature of the documents seized in the Writ Petitioner's office/residence will be unheard of in any law. In fact, to solve this problem, the Hon'ble Supreme Court merely states that S.R. Batliboi & Co., had all the liberty to challenge the Assessing Officer's determination on what is relevant to the assessee. G. Further, if for any reason, any of the Writ Petitioner's clients feels that Section 126 has been violated by the Income-Tax Department, the same maybe challenged before the appropriate forum. However, to appoint a middleman to solve the same is to create one more layer of litigation which neither the law, nor the Hon'ble Supreme Court has provided any scope for. Also, only the department has necessary knowledge and expertise to identify, investigate and determine what is incriminating and violative in terms of Tax Laws and it is prayed that at this pre-investigation stage that right of the department may be protected by the Hon'....
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....ents involving unaccounted cash transactions. Thus, the department knew what it was looking for before searching the target assessee. The department was aware of the nature of transactions, documents that will be found at his office/residence and that belief of the department has been proved true as the documents suspected to be found have been actually found and seized, the sample of which was also shown to the hon'ble court in the sealed cover. C. It will not be out of place to mention here that the relationship between a bank and its customer cannot be compared with the relationship between the petitioner and his clients, as the petitioner was involved in aiding his clients in drafting illegal documents and facilitating the storage/secreting of many such illegal documents having bearing on Income Tax Act, 1961. In view of the above, it is clear that the facts in the case of District Registrar and Collector, Hyderabad and Another vs. Canara Bank and Other are not at all identical to the facts in the present case. Thus, reliance of the petitioner's counsel on the judgments and para discussed supra cannot be accepted. 4. Petitioner's Averment: The counsel of the petitioner ....
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....n 132 of the Income Tax Act. It may be important to note that powers of police to search the lawyer's office is well recognised and ruled by the Hon'ble High Court of Allahabad in the case of Ganga Ram Versus habib-Ullah and Another, 1935 SCC Online All 310 (page no 287 to 290, VOL II convenience compilation). Therefore, ruling in favour of the petitioner by relying on Canada (supra) is nothing more than subscribing to a one-size fits all approach, which will lead to devastating legislative consequences. 16. Conclusion: The petitioner's reliance on Section 126 of the Indian Evidence Act, claiming attorney-client privilege, is not tenable and required to rejected on the grounds that the satisfaction recorded, and documents seized from the petitioner's office/residence, which are in corroboration to each other, reveal a pattern of facilitating illegal activities resulting into huge tax evasion and thereby defrauding national exchequer. The petitioner's involvement in drafting documents with varying values for the same property, storing them in a clandestine manner, and potentially aiding clients in evading taxes raises serious concerns. The argument against the b....
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....lf. B. Ms. Hima Patel has categorically submitted in her statement that she has given her statement voluntarily without any undue force or pressure. Relevant portion from statement of Ms. Hima Patel is reproduced hereunder: C. The office of the petitioner was her regular place of work and for which she had keys and on seeing and reading the summons, she voluntarily agreed to go to the office. 2. Petitioner's Averment: The officers of the Department came to Hima Patel's house without any warrant. Counter Arguments: A. It may be noted that at the residence of Ms. Hima Patel, a warrant was not required because, warrant is a warrant of authorization of search u/s 132 of the Act, and the residence of Ms. Hima Patel was not to be covered under search. B. The necessary summons was served to her under Section 131(1A) and she has duly received the same under her signature, without any objection. 3. Petitioner's Averment: No lady officer/constable accompanied Ms. Hima Patel. Counter Arguments: A. The enormity of search operations at hand demanded huge mobilization of the departmental workforce (about 250) as well as police personnel (about 1....
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....ers tried to intimate about the search through use of their mobile phones. In Income tax searches, secrecy is the key element to establish and maintain sanctity of the search. There are instances where information gets passed on about the search action, and very quickly incriminating material indicative of tax evasion, gets removed from the place of search even before the search team reaches such a place. B. There are incidences where the devices are operated remotely and through remote access, the digital data is destroyed; and therefore, only to avoid such compromise in the result of the search, they were requested to not to use their mobiles only for a very brief period of time. 5. Petitioner's Averment: Ms. Hima Patel was compelled to open the office premises of the petitioner. Counter Arguments: A. It was most important to open the office premises as soon as possible because nowadays in the modern digital era, it is a common modus operandi to remotely access the place and wipe out the data available in the digital devices located at the premises being searched. B. Also, as stated by the petitioner himself that Ms. Hima Patel was having the access to the ....
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....nsively put forth in the Affidavit in reply of Respondent no. 3 dated 13.12.2023 at para no. 45 to Para No. 52. However, the said arguments and the rebuttals made in the court are reiterated and rephrased as below: 1. Petitioner's averment: Petitioner was not permitted to go and conduct Court cases Counter Arguments: A. The petitioner was requested to remain present, at every stage of search being carried out at his residence and at his office i.e. drawing of Panchnama, Cash found, Cash Seizure, Jewellery found, Jewelry valuation, Jewelry Seizure, Forensic backup etc. as the presence of the party being searched is needed for establishing the sanctity of search procedure, and accordingly a necessary request was made to the petitioner, which he compiled with, without raising any issues or objections. Copy of Panchanama of his office premises is produced hereunder; B. The statements recorded u/s 132(4) of the Act at his residence and office would indicate that there was no restriction of movement of the petitioner. It may also be noted that the petitioner has never challenged the sanctity of the statement and there is no allegation in the petition that such s....
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....aid requests at the given time were found not to hamper the purpose and conduct of the search action and if the requests were not found to jeopardize the role of authorized officer. F. Also, necessary Panchanama of the search was drawn, which clearly indicates that there was no element of restriction or force or coercion, and no untoward incident took place. Alleging that the movement was restricted at a later stage clearly suggests that this is nothing but an afterthought to taint the sanctity of the search. 4. Petitioner's Averment: The digital devices of the petitioner and his family members were impounded during the duration of the search. Counter Arguments: A. The procedures as laid down in Search & Seizure Manual - 2007, Volume-I have duly been followed in this matter. As per the manual, the mobile devices were taken in control by the search team to avoid any manipulation of data stored in the mobile devices, to avoid remote access and manipulation of data stored remotely in other devices and also to avoid any communication with the persons outside the premises as the same would jeopardize the purpose and the conduct of the search. B. The collectio....
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....g), it is trite that this right is subject to reasonable restrictions and Section 132 would certainly qualify as a reasonable restriction. C. Digital data in the mobile phones and other devices was found to be in large size and to maintain integrity of the digital data and also to facilitate complete forensic analysis, cloning of these devices was done belonging to the petitioner and his wife, while returning the digital devices intact, after the same was completed. This proved to be extremely important as prima facie analysis of the digital data cloned, revealed several incriminating material shared between the Petitioner and his wife, which goes to prove that the Petitioner's wife was also involved in cash transactions and regularly updated the Petitioner in this regard. 2. Petitioner's Averment: CCTV cameras were forcefully shut down at the office premises of the petitioner, which would otherwise show that many more people from the side of the Respondents conducted the search and seizure proceedings that are not named in the Panchnama. Counter Arguments: A. With respect to the allegation about turning off the CCTV camera at the office premises, it is most per....
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....Counter Arguments: A. The chain of events from the strike of search at the Petitioner's residential premises to conclusion is as under: a) The search team struck the premises and showed the warrant of authorization which was signed by the petitioner on 03.11.2023 at 6.35 AM. b) Search at Petitioner's residence was initiated on 03.11.2023 at 08.30 AM after arrival of two independent witnesses from the vicinity. The searching of his residential premises was carried out on 03.11.2023. Cash amounting to Rs. 3,51,700/- was found during search and the same was inventoried. c) The Petitioner was taken to his office on 03.11.2023 at 04:30 PM and returned back to his residence at 08.25 PM on 03.11.2023. Thereafter he had dinner and retired to bed. d) Valuation of Jewelry found during search was carried out on 04.11.2023 and the same was inventoried. e) The process of taking backup of digital devices by the forensic experts was completed on 05.11.2023. f) The Petitioner's statement under 132(4) of the Income Tax Act, 1961 was recorded on 03rd, 04th and 05th November, 2023. g) He was again taken to his office on 06.11.2023 at 02.40 PM and returned to his residence at 1....
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....s been described in the note annexed as Annexure- A to the counter affidavit filed on 23.01.24. However, a gist of the note has been categorized and summarized into three heads as follows: a. Pre-acquisition handling of the devices- At this stage it is ensured that the digital devices are not disturbed by the assessee or by the search team. All precautions are taken to prevent remote or near access of any of the devices on the search premises by switching off the wifi, LAN connection, keeping the devices in the same state as were found i.e. on/off and as a result prevent any kind of data loss/change to maintain the integrity of data before the process of acquisition/cloning/imaging begins. b. Handling of the digital data during the process of acquisition- This stage comprises of using recommended tools/software to carry out forensic imaging/cloning by using Bit stream method. As a result, bit by bit, all the sectors of the digital device are copied including deleted files, free space, slack space. This process is hyper technical and is carried out by Digital Forensic Experts only who are academically qualified from reputed institutes and have enough experience to resolve the ....
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.... on the basis of any procedural infirmities. B. Further, when the search was being conducted, all the procedures as prescribed in the search and seizure manuals for various segments of the search was duly complied with by the authorized officers. Once this condition also gets satisfied, the scope of judicial review into the Search action is extremely limited as laid down by the Hon'ble Supreme Court in several judgments including the latest judgment in the case of Principal Director Of Income Tax (Investigation) & ORS v. Laljibhai Kanjibhai Mandalia in Civil Appeal No. 4081 of 2022 (Pg. 160-176, VOL 1 convenience compilation). No proceeding at the initial investigation stage must be thwarted and stopped entirely especially when they are founded on sound legal basis with supporting prima facie incriminating material. 21. Conclusion: All the points raised by the petitioner concerning the procedures followed during the search action have been rebutted in the table above. It can be construed from the above that the Department made best efforts to follow the principles and guidelines prescribed in the Search and Seizure Manual, 2007 and Digital Evidence Investigation Manual, 2014, in....
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....inted out that the search action taken by the respondent authorities is not on account of the capacity of the petitioner but his clients and therefore, no search action could have been initiated at the premises of the petitioner. 8.1 It was submitted that replies filed on behalf of the respondents are nothing but a fragile attempt to justify the illegal action of search undertaken without authority of law which cannot be validated by the respondents by stating that incriminating material was found at the site search on the principle that ends cannot justify the means. 8.2 It was further submitted that material found by the respondents during the course of search are incriminating or not or having any bearing on the search operation conducted is required to be examined by a neutral third party as recognized by the Apex Court in case of Department of Income Tax v. S.R. Batliboi & Co. reported in (2009) 17 SCC 767 and the attempt on part of the respondents to distinguish the said decision on the facts of the case would not dilute the directions issued by the Apex Court in respect of sub-section (4A) of Section 132 of the Act which permits any document found during the search to be u....
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....same was seized during the course of search from the office and residential premises of the petitioner and therefore, the petitioner is duty-bound to protect such information as the same was forcibly taken by the respondent authorities without the consent, either of the petitioner or of his client. It was emphasized by learned senior advocate that the act of the respondents of arbitrarily seizing all the digital data has no bearing to the search conducted and violates the privilege under Section 126 of the Evidence Act as in violation of attorney-client privilege and any attempt to utilise any material/data which has no relation with the petitioner found to be incriminating by the respondent authorities would whittle away the attorney-client privilege and would render the Section 126 of the Evidence Act otiose. 8.8 It was submitted that there is no explanation tendered by the respondent authorities except a lame excuse that the search proceedings continued upto 06th November, 2023 on other targeted groups and therefore, the search at the office premises of the petitioner was required to be continued till the search operation is over at other places where simultaneous search was co....
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.... pertaining to the target group where the search operations were carried out by the respondent authorities? (c) Whether the respondents can be prevented from using and relying on the materials collected in the physical or digital format consequent to the search action under Section 132 of the Income Tax Act, 1961 which is found incriminating and not involving the petitioner in any manner? (d) Whether the respondents are required to be directed to hand over the entire data which is not incriminating to the petitioner belonging to the clients of the petitioner and to prevent the respondents from utilising such data in any manner whatsoever or not? 10. In order to answer these questions, it would be necessary to refer to the relevant provisions of the Act and the Instructions given by the Central Board of Direct Taxes which are material for conducting the search. Income Tax Act, 1961 132. Search and Seizure--(1) Where the Director of Inspection or the Commissioner, in consequence of information in his possession, has reason to believe that-- (a) any person to whom a summons under sub- section (1) of section 37 of the Indian Income- tax Act, 1922 (11 of 1922), or under sub-....
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....leader, attorney or vakil, by or on behalf of his client, or to state the contents or condition of any document with which he has become acquainted in the course and for the purpose of his professional employment, or to disclose any advice given by him to his client in the course and for the purpose of such employment: Provided that nothing in this section shall protect from disclosure -- (1) any such communication made in furtherance of any illegal purpose, (2) any fact observed by any barrister, pleader, attorney or vakil, in the course of his employment as such, showing that any crime or fraud has been committed since the commencement of his employment. It is immaterial whether the attention of such barrister, pleader, attorney or vakil was or was not directed to such fact by or on behalf of his client. 129. Confidential communications with legal advisers.--No one shall be compelled to disclose to the Court any confidential communication which has taken place between him and his legal professional adviser, unless he offers himself as a witness, in which case he may be compelled to disclose any such communications as may appear to the Court necessary to be known in....
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....d 19(1)(g) of the Constitution of India while upholding the constitutional validity of the provision of Section 132 of the Income Tax Act as under. "8. Search and seizure are not a new weapon in the armory of those whose duty it is to maintain social security in its broadest sense. The Process is widely recognised in all civilized countries Our own 'Criminal Law accepted its necessity and usefulness in sections 96 to 103 and section 165 of the Criminal Procedure, Code. In M. P. Sharma v. Satish Chandra the challenge to the power of issuing a search warrant under section 96(1) as violative of Article 19(1)(f) was repelled on the ground that a power of search and seizure is in any system of jurisprudence an over- riding power of the State for the protection of social security and that power is necessarily regulated by law. As pointed out in that case a search by itself is not a restriction on the right to hold and enjoy property though a seizure is a restriction on the right of possession and enjoyment of the property seized. That however, is only temporary and for the limited purpose of investigation. Then the Court proceeds to say: "A search and seizure is, therefore, only a t....
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.... by the , Criminal Procedure Code they would be regarded as adequate and render the temporary restrictions imposed by the measure reasonable. In the case just cited there was a proviso to sub-section (2) of section 41 which prescribed that all searches under the sub-section shall, so far as may be, made in accordance with the provisions of the Code of Criminal Procedure. After pointing out that section 165 of the Criminal Procedure Code would apply mutatis mutandis to searches made under sub-section (2), this Court observed : "We are, therefore, of opinion that safeguards provided in S. 165 also apply to searches made under sub-section (2). These safeguards are-(i) the empowered officer must have reasonable grounds for believing that anything necessary for the purpose of recovery of tax may be found in any place within his jurisdiction (ii) he must be of the opinion that such thing cannot be otherwise got without undue delay, (iii) he must record in writing the grounds of his belief, and (iv) he must specify in such writing so far as possible the thing for which search is to be made,. After he has done these things, he can make the search. These safeguards, which in our opinion ....
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....cerned after he makes appropriate provision for the payment of the estimated tax dues under sub-section (5) and lastly, and this is most important, the provisions of the Criminal Procedure Code relating to search and seizure apply, as far as they may be, to all searches and seizures under section 132. Rule 112 provides for the actual search and seizure being made after observing normal decencies of behavior. The person in charge of the premises searched is immediately given a copy of the list of articles seized. One copy is forwarded to the authorising officer. Provision for the safe custody of the articles after seizure is also made in rule 112. In our opinion, the safeguards are adequate to render the provisions of search and seizure as less onerous and restrictive as is possible under the circumstances. The provisions, therefore, relating to search and seizure in section 132 and rule 12 cannot be regarded as violative of articles 19(f) and (g). 12. A minor point was urged in support of the above contention that section 132 contains provisions which are likely to affect even innocent persons. For example, it was submitted, an innocent person who is merely in custody of cash, b....
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....ance by the concerned Director of Inspection. Moreover under section 120 the Director of Inspection is required to perform such functions of any other income-tax authority, apparently, including the Income-tax Officers and his direct superiors, as may, be assigned to Mm by the Board. Under section 135 the Director of Inspection is competent to make any enquiry under the Act and for that purpose he is invested with all the Powers that an income,-tax Officer has under the Act in relation to the making of enquiries. It would, therefore, follow that in the course of his duties the Director of Inspection has ample opportunities to follow the course of Investigation and assessment carried on by the Income-tax Officers and to check the information received from his sources with the actual material produced or not produced before the assessing authorities. It is not, therefore, correct to argue that the Director of Inspection could hardly be expected to entertain, honestly, any reasonable belief for the purposes of section 132(1) (a) (b) &(c). 14. A subsidiary point relating to the entertainment of reasonable belief under section 132 was also raised by Mr. Karkhanis. He submitted that i....
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....able information about which finds its way to the Director of Inspection. In such a case no oracle is needed to tell the Director of Inspection that if a requisition is made on the assessee to produce his documents in connection with these financial deals and investments, the assessee will most certainly omit to produce or cause to be produced such documents. On the other hand, there is danger that all these documents may be destroyed because the very fact that a requisition is made with a view to investigate concealed deals would put the assessee, on his guard and the relevant documents may either disappear or be destroyed. Indeed, it is possible that an assessee may, after knowing that the game is up, produce the requisite documents. But in the nature of things such an assessee would be rare. The question for us to consider is whether the authority under section 132(1) may entertain the reasonable belief that in such circumstances the assessee will not or would not produce the documents. In our opinion though in a very rare case a tax evader may comply with a requisition, the Director of Inspection who has reliable information that the assessee has consistently concealed his inco....
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....and therefore, the same are not repeated for the sake of brevity. Suffice it to say that the glaring conduct or the misconduct in carrying out the search operation has come on record which is required to be deprecated as under. (i) First and foremost, the role of respondent No.11 who has not defended himself by taking recourse to the stereotype affidavits filed by respondent Nos.7 to 11 that they have discharged their duties in official capacity and therefore, no reply is required to be given to the specific averments made in the petition would suggest that there is no answer to the conduct of respondent No.11 who went to serve the summons upon Ms.Hima Patel-the colleague of the petitioner, at her residence at 06.30 a.m. on 03rd November, 2023 with two policemen with rifle which is borne out from the affidavit of Ms.Hima Patel and which has remained uncontroverted. A lame excuse was given by the respondent authority that in order to have protection for respondent No.11, two police personnel accompanied him with rifle so that no untoward incident happens. We fail to understand as to for service of summons by the respondent authorities never police personnel with rifle ever accompa....
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....e keys of the office. It is also found from the record that till 11.00 a.m. no lady constable was available at the office premises and inspite of that, respondents started search operation by switching-off the CCTV cameras, which otherwise would have recorded search operation as well as the condition of alone lady in the office premises of the petitioner. Such high-handed action on part of the respondent authority is, therefore, deprecated. As we have already upheld the search operation, we are not inclined to issue any further direction except a caution to the respondent authority to take care in future if such a situation arises. We also expect the respondent authority to send an apology letter to Ms.Hima Patel for the action taken by them for contrary to the basic human approach by the respondent authority who generally are boasting about conducting search in a very cordial manner and citizen centric approach. (iii) With regard to the contentions and allegations of the petitioner that petitioner and his family members were not permitted to contact any other person during the course of search, it was justified on part of the respondent authorities to see that the petitioner or ....
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.... the citizens of this country. 12. Now, with regard to the main issue in the entire matter is whether the respondents are entitled to use the seized materials in physical and digital form which, according to the respondent authorities, would be incriminating materials against any third party found during the course of search from the office and residential of the petitioner or not. To answer this question, the Court is aware of the fact that petitioner is a practicing advocate and is protected as per the provision of Section 126 of the Evidence Act. On both the sides, reliance is placed on various decisions on the issue of the protection granted to the professional under Section 126 of the Evidence Act, however we are of the opinion that provision of Section 126 of the Evidence Act would not per se apply to the facts of the case inasmuch as, as per the provision of Section 132 of the Income Tax Act, the documents were seized by the respondent authority during the course of search and as per sub-section (4A) of Section 132 of the Income Tax Act, the respondent authorities are entitled to seize the materials available during the course of search. When we have already upheld the init....
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....ch and seizure exercise, should not be retained. All remaining doubts will be dispelled on a perusal of H.L. Sibal -vs- CIT, [1975] 101 ITR 112 in which the Division Bench has, inter alia, analysed Commissioner of Commercial Taxes -vs- Ramkishan Shrikishan Jhaver, [1967] 66 ITR 664 into four concomitants - (1)The authorized officer must have reasonable grounds for believing that anything necessary for the purpose of recovery of tax may be found in any place within his jurisdiction; (2) he must be of the opinion that such thing cannot be otherwise got at without undue delay; (3)he must record in writing the grounds of his belief; and (4) he must specify in such writing, so far as possible, the thing for which search is to be made. Where material or document or assets belong to a third party, totally unconcerned with the person who is raided, none of these conditions are fulfilled. In Sibal the belongings of a house-guest of Shri Sibal were searched and some money found therein was seized. The Court had concluded that the authorization for the search of the house-guest was prepared after the planned search of Shri Sibal. The warrants were quashed partly for this reason. 13. An ind....
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....red by Courts panning the globe, but also the Article 12 of the Universal Declaration of Human Rights, Article 17 of the International Covenant of Civil and Political Rights, the European Convention on Human Rights; and the Canadian Charter of Rights and Freedoms which emblazons that "Everyone has the right to be secure against unreasonable search and seizure"; and the New Zealand Bill of Rights which additionally qualifies that the said rights encompass the person, property or correspondence; and the Fourth Amendment of the US Constitution. Their Lordships emphasized upon Govind - vs- State of MP, AIR 1975 SC 1378, [1975] 2 SCC 148 in which the need to guard against the pernicious possibility of a "police-raj" was forcefully articulated. The triple tests distilled by the 7 Judge Bench in Maneka Gandhi -vs- Union of India, (1978) 1 SCC 248: AIR 1978 SC 597 were reiterated viz. that a law interfering with personal liberty must (a) be consonant with a prescribed procedure which should, (b) be compliant with one or more rights mentioned in Article 19 and (c) with Article 14 additionally. Their Lordships thought it to be essential that documents deposited or stored in a Bank must remai....
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.... found during a Search cannot constitute substantial evidence to invoke Section 69A of the Act. Similar views have been endorsed by a Division Bench of this Court in CIT -vs- Ravi Kant Jain: [2001] 250 ITR 141, where the Court emphasized on the fact that Block Assessment under Chapter XIV-B cannot be a substitute for regular assessment and thus the change of opinion of Revenue on audited accounts seized during search cannot form the basis for a special assessment. If apparently reliable material cannot be directly used against an assessee solely because it was not collected during a Search of that assessee, a fortiori, material palpably concerning a third party with no connection with the raided party must be ignored. It is also illogical that the rigours which apply to the Search of a particular notified person can be flagrantly ignored so far as an unconnected person is concerned. It is argued that under Section 153C the Department acts as a post-office, viz. it sends the seized material to the concerned Assessing Officer. This proposition advanced by the Revenue is legally acceptable so long as it is restricted to any person having dealings or transactions with the person who is....
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....natively, to challenge the same by adopting appropriate proceedings for this purpose. In the event S.R. Batliboi giving its consent or alternatively, failing in its challenge to the said claim made by the Income Tax Department, S.R. Batliboi & Co. shall then make available a hard copy of the contents of the said connected filed/folders. The Civil Appeal is disposed of in the abovementioned terms. However, the question of law sought to be raised in the appeal is kept open." 12.3 It is pertinent to note that while disposing of the Civil Appeal, the Apex Court has kept the question of law sought to be raised as open. In such circumstances, it would be incumbent upon this Court to go into the question of law which was raised before the Apex Court by the Income Tax Department as to whether the material which was seized from the professional during the course of search can be utilized against the third party or not. 13. Sub-section (4A) of Section 132 of the Act provides that where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search, it may be presume....
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....idence Act, as, such protection is available to the clients of an attorney. The petitioner wants to have aid under Section 126, which stipulates that the petitioner cannot be compelled to give copies of documents which is a privileged communication, if the petitioner is not in knowledge of as to whether such document would give rise to any fraud or any other illegalities. Reference was made to the Illustrations (b) and (c) of Section 126 which shows that client's say to the attorney that he wishes to obtain possession of property by use of forged deed or being charged with embezzlement and client retains the attorney to defend him in the course of the proceedings and it was observed by the attorney that entry has been made in the account of the client where the sum said to have been embezzled, which entry was not in the book at the commencement of his engagement, then in such circumstances, the obligation in the Section would not apply. It was also submitted that the Proviso to Section 126 also restricts the applicability of the same to any communication made in furtherance of any illegal purpose or in facts observed by the barrister, pleader or attorney or vakil in the course of h....
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..... Likewise sec. 132A(1) uses the words "in consequence of information in his possession, has reason to believe". Sec. 133 which deals with the power to call for information from Banks and others uses the words "for the purpose of this Act" and sec. 133(6) permits a requisition to be sent to a Bank or its officer. There are other Central and State statutes dealing with procedure for 'search and seizure' for the purposes of the respective statutes." 13.4 The Apex Court thereafter considered the right to privacy dealing with the person and not the places and the copies of documents of the customers which are in the Bank must continue to remain confidential with regard to the person even if they are no longer at the customer's house and may be voluntarily sent to the Bank. It was, therefore, submitted that when clients of the petitioner have parted with the documents which are confidential would remain confidential vis-a-vis the clients even if they are no longer on the place of the clients and have been voluntarily given to the petitioner by the clients of the petitioner and the respondent authorities, under the guise of presumption by invoking the provision of sub-section (4....
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....n be taken against such documents. Whereas, if it is found by the respondent authorities that the petitioner has come to the knowledge of fraud or illegal activity, if any, to be committed by the client during the course of his engagement as illustrated by Illustrations (b) and (c) to Section 126, the respondent authorities invoking provision of sub-section (4A) of Section 132 of the Act can take appropriate action in accordance with law. Of course, these findings are arrived at keeping in mind the Proviso to Section 126 which makes it inapplicable in the communication made in furtherance of any illegal purpose or showing that the crime or fraud has been committed since the commencement of the employment of the attorney. Therefore, Illustrations (b) and (c) are in consonance with the Proviso to Section 126 of the Evidence Act. 14.2 The above observations are also highlighted by the respondent No.3 in the affidavit dated 19th December, 2023, wherein it is averred as under. "9. Further, the Deponent hereby assures, that the seized digital data extracted on a separate hard disk from the working copy of the data, shall be analyzed on priority for the purpose of identifying data whic....