The Department cannot access the documents relating to the third party obtained in a search operation
It has been held by the Hon’ ble Delhi High Court in R. Batliboi & Co. vs. The Department Of Income Tax, in W.P.(C) 9479/2007 & CM 9520/2008 that the Department cannot access the documents relating to the third party obtained in a search operation executed by the department against an assessee.
The said judgment was passed on May 27th, 2009 by the bench comprising of Hon’ ble Justice Vikramajit Sen and Hon’ ble Justice Rajiv Shakdher.
Advocates engaged in the case:
The Petitioner was represented by Mr. S. Ganesh, Sr. Adv with Mr. Akhil Anand, Adv. The Respondent was represented by Mr. Vikas Singh, Sr. Adv with Ms. P.L. Bansal, Mr. M.P. Gupta & Mr. Sanjeev Rajpal, Advs.
Date of Hearing:
The hearing was concluded on 21.5. 2009.
Backgrounds of the case:
The writ petition was filed by the petitioner, S.R. Batliboi & Co. which was a company comprising of reputed Auditors and Accountants against the Department of Income Tax challenging the issuance of a writ to prevent the Respondents from forcibly accessing the data contained in two laptops belonging to the petitioner.
The facts were that at the time of conducting an audit on 11.9.2007, the laptops of two employees of the petitioner were seized by the Deputy Director, Income Tax (DDIT) from the premises of EMAAR during a search and seizure conducted against the petitioner.
Later on, summons was issued under Section 131 of the Income Tax Act, 1961 on 17.9.2007 to Ms. Sandhya Sama and Shri Sanjay K. Jain, the employees of the Petitioner. Their statements were recorded on 18.9.2007 by the department.
Upon request the said employees provided the department with the electronic data related with three companies of the EMAAR Group along with the print copies of the data. The department insisted on securing full access to the laptops to gain information of all the other clients of the petitioner which was refused by the said employees.
The seized laptops were sent by the department to Central Forensic Science Laboratory who ultimately could not ascertain the password and as such, could not access the full information stored in the laptops.
The Petitioner was asked to disclose the password which was refused by them. Thereafter the laptops were sealed by the department in the presence of such employees.
Arguments of both the sides:
The learned Senior Advocate for the Petitioner argued that the laptops that have been seized by the department contained confidential information in connection with the accounts of other clients having no relation with the Assessee, and seizure will amount to breach of confidentiality which the petitioner was bound to protect according to professional ethics.
It is also held that the Department cannot make inquiry to initiate proceedings against companies which are the clients of the petitioner. It was argued that the petitioner cannot help someone in violating the law. It was also argued the reasons to believe must be recorded and thereafter warrants should be issued, as such an indiscriminate search violates the whole object of Section 132 and the measures against the Revenue.
Mr. Vikas Singh, learned Senior Advocate for the Revenue, referred Sections 132, 158BD and Section 275B of the Act and argued that if a search or seizure has been operated validly, anyone who has been drawn into the same would have to suffer the normal consequences.
Mr. Singh emphasized on the words “any person” appearing in Section 132 and 158BD of the Act and contended that a search and seizure operation can affect even a third party and the word “any person” can relate to many or limitless persons.
Mr. Vikas Singh, also referred to Section 153C of the Act, which deals with the period within which the assessments or reassessments as per the Act should be completed and the process by which it is to be done. It states that normally within two years from the end of the Assessment Year in question, assessments should be completed. If it appears that an income has escaped taxation and Sections 147 to 149 are applicable, Section 153(2) states that the assessment must be completed within a year.
Section 153C, brings within its jurisdiction “a person other than who is referred to in Section 153A” to whom the assets or books of account or document seized belongs and directs that they shall be handed over to the Assessing Officer who will then proceed in the way stated in Section 153A which extends the limit within which the assessment should be completed.
Several decisions of different High Courts were taken into consideration in cases where the material which was found in a search and seizure was discarded for the purposes of assessment under the Act.
1. In the case of CIT vs. G.K Senniappan,(2006) 284 ITR 220, it was held that the material collected in a Survey as per Section 133 of the Act does not constitute an evidence upon which assessment under Section 158 BB can be done.
2. In the case of CIT vs. Ravi Kumar, it was held that papers found during a Search cannot constitute substantial evidence to apply Section 69A of the Act.
3. In CIT vs. Ravi Kant Jain, (2001) 250 ITR 141, similar views were taken by a Division Bench of the Delhi High Court where it was held that Block Assessment cannot be a substitute for regular assessment and a change of opinion of Revenue based on the accounts seized during search cannot result in a special assessment. If a reliable material cannot be used against an assessee as it was not collected during a Search, a material concerning a third party having no connection with the assessee must be ignored. It was also argued that as per Section 153C of the Act, the Department should act as a post-office, viz. it should merely send the seized material to the Assessing Officer.
The judgment delivered:
Finally, as per prayers of the Writ Petition, it was held that in a situation where fact remains that the Respondents have rejected the offer of the Petitioner as recorded in the Order dated 18.11.2008, the impugned summons of the Writ Petition should rejected. The Respondents are directed to return the laptops to the Petitioner. Accordingly the Writ Petition filed by the petitioner, S.R. Batliboi & Co. was allowed.