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2024 (2) TMI 1283 - HC - Income TaxProcedure of Conducting the search and seizure of the digital data from the premises of the petitioner - seizure of the .txt files from an undisclosed location - No opportunities of personal hearing to the petitioner provided - denial of natural justice - main grievance of the petitioner was that the digital data evidences were collected by the respondents from unknown locations without any valid search warrant and without following the guidelines issued by the CBDT vide Digital Evidence Investigation Manual - HELD THAT - The search was conducted and the Show Cause Notices dated 21.12.2022 and 22.12.2022 were issued in a hasty manner and the reply was filed on 24.12.2022 and 28.12.2022, for which the assessment order was passed on 30.01.2023 without providing any opportunities of personal hearing to the petitioner. Further, in the present case, an issue of suspicion is involved with regard to the collection and maintenance of data by the Department, whereby more than 52,000 files have been corrupted and some of them have been misplaced by the Department due to the storage of data/files in a very poor and negligent manner. Thus before passing the assessment order, the data, which were relied upon by the respondents, have to be corroborated by any additional evidences since the same is mandatory requirement as per the Digital Evidence Investigation Manual. However, the same was not done. Further, no opportunity of personal hearing was provided to the petitioner before the passing of assessment order. Hence, there is no doubt that the assessment orders were passed in violation of principles of natural justice and accordingly, the same were liable to be quashed. As the electronic data have been collected without following the various procedures laid down in the Digital Evidence Investigation Manual. This Court had already held that following the said Manual is mandatory and the respondents cannot claim any exemptions as held in State of Kerala vs. M/s.Kurian Abraham Pvt. Ltd., and another 2008 (2) TMI 289 - SUPREME COURT and The Commissioner of Customs vs. Indian Oil Corporation 2004 (2) TMI 66 - SUPREME COURT If any electronic data is relied upon by the Department, the same has to be corroborated with the evidences. This Court is of the considered view that since the respondents had not followed the Digital Evidence Investigation Manual while collecting and preserving the evidences, as per the law laid down by the Hon'ble Apex Court, if there is no corroborative evidence and proved in the manner known to law, the digital data collected by the Department in the course of search and seizure and thus, the said search and seizure is against the law and ab initio bad In the present case, within a short span i.e., 10 days of time, after the show cause notice was issued without providing any time limit, the assessment orders were passed. Further, neither the opportunity of personal hearing nor the opportunity to cross-examine the witnesses, was provided to the petitioner. Therefore, no doubt, the assessment orders were passed in violation of principles of natural justice and accordingly, the assessment order is liable to be set aside. Rule 46A of the IT Rules only talks about the production of any additional evidences before the Deputy Commissioner (Appeals) and Commissioner (Appeals). In the present case, there is no question with regard to the production of additional evidences but the entire case is revolving around the failure on the part of the respondents to supply the documents, which they have relied upon in the show cause notice and thereafter, providing an opportunity for cross-examination of the witnesses, who had made sworn statements against the petitioner and also with regard to the failure to provide the opportunity of personal hearing before the passing of assessment orders. 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. ORDER - The Digital Evidence Investigation Manual has been issued by the CBDT by virtue of powers available under Section 119 of the IT Act and hence, the Income Tax Authorities and all the other persons employed in the execution of this Act are bound to observe and follow such orders, instructions and directions issued by CBDT. The electronic data have been collected in .txt files in violation of the provisions of Digital Evidence Investigation Manual. Though the procedures have not been followed while collecting the electronic data in .txt files, the data collected by the respondents can be relied upon only if the said data are supported by the corroborative evidences. 2nd respondent is directed to provide all the documents relied upon by them in the Show Cause Notice as requests by the petitioner. Assessing Officer 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.
Issues Involved:
1. Admissibility of Seized Digital Evidence 2. Violation of Principles of Natural Justice 3. Compliance with Digital Evidence Investigation Manual 4. Validity of Search and Seizure Procedure 5. Right to Cross-Examine Witnesses Summary: 1. Admissibility of Seized Digital Evidence: The petitioner challenged the seizure of .txt files by the 2nd respondent, arguing that the digital data was collected from unknown locations without a valid search warrant and without following the guidelines of the CBDT's Digital Evidence Investigation Manual. The petitioner contended that the evidence lacked corroboration and was thus inadmissible. 2. Violation of Principles of Natural Justice: The petitioner argued that the assessment orders were passed without providing an opportunity for personal hearing and without corroborative evidence, violating principles of natural justice. The court noted that the assessment orders were issued hastily, within a short span of 10 days and 30 days from the issuance of show cause notices, without providing necessary documents or opportunities for cross-examination. 3. Compliance with Digital Evidence Investigation Manual: The petitioner contended that the respondents failed to follow the mandatory procedures laid down in the Digital Evidence Investigation Manual. The court held that the manual, issued under Section 119 of the Income Tax Act, has statutory force and must be followed by the authorities. The court found multiple discrepancies in the collection and preservation of digital evidence, such as the absence of independent witnesses, failure to document the chain of custody, and non-compliance with forensic imaging procedures. 4. Validity of Search and Seizure Procedure: The petitioner argued that the search was conducted without a proper warrant, authorizing the search of premises not included in the warrant. The court noted that the search warrant did not specify the floor number, leading to an unauthorized search of unrelated entities. Additionally, the presence of a non-independent witness from the GST Department further invalidated the search procedure. 5. Right to Cross-Examine Witnesses: The petitioner was denied the opportunity to cross-examine witnesses whose statements were relied upon by the respondents. The court emphasized that the right to cross-examine is an essential part of natural justice and must be granted. The court cited various judgments to support this view, stating that the denial of this right renders the assessment orders null and void. Conclusion: The court set aside the four assessment orders and remitted the matter back to the authority for reconsideration, directing them to follow the procedures laid down in the Digital Evidence Investigation Manual and provide opportunities for cross-examination and personal hearing. The court also emphasized the mandatory nature of the manual and the need for corroborative evidence to support digital data.
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