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TMI Blog2024 (2) TMI 1283X X X X Extracts X X X X X X X X Extracts X X X X ..... es 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to W.P. No. 11176 of 2023 is concerned, the Show Cause Notice was issued on 01.03.2023 and the reply was filed on 14.03.2023 and 15.03.2023. Subsequently, the assessment order was passed on 30.03.2023. 5. The 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. Further, without providing any opportunity of personal hearing to the petitioner and without any corroborative evidence to corroborate the digital data evidences as mandated in the Digital Evidence Investigation Manual, four non-speaking assessment orders were passed by the respondents. In total, the respondents are intended to initiate 21 proceedings, out of which, now they have only initiated four proceedings and passed the assessment orders on 31.12.2022 in three cases and on 30.03.2023 in one case. 6. The respondents had filed the counter and raised the issue of maintainability of the present writ petitions on the ground that the certain assessments have been completed and the petitioner had also filed the statutory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the same, since the Department has framed the said guidelines based on the past experiences and the law laid down in the various cases by the High Courts and the Hon'ble Apex Court in order to avoid the invalidation of evidences collected by the Department once again before the Court of law. On the other hand, the Assessee can challenge the said guidelines if it is not in accordance with law. Therefore, the guidelines issued by CBDT is mandatory, however, the same has not been followed by the Department. 10. Further, he would contend that the petitioner had made several representations to the respondents for the purpose of getting copies of the materials collected from their premises. However, for a very long period of time, they were refused to provide those documents. Thereafter, even when they provided the documents to some extent, the same was not sufficient and hence, still the petitioner made request with regard to the same, for which the respondents had replied that some of the documents were misplaced and the other documents were not provided till date. 11. Under these circumstances, the Show Cause Notices were issued in three proceedings on 21.12.2022 and 22.12.2022, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional Solicitor General of India, appearing for the respondents on the aspect of maintainability of the present writ petitions. 15. The challenge involved in the present writ petitions was that while conducting search and seizure of the digital data from the premises of the petitioner, the procedure, which was laid down by CBDT by virtue of Digital Evidence Investigation Manual issued under Section 119 of the Act for the purpose of conducting the search and seizure have not been followed. In this regard, the learned counsel for the respondents had submitted that it is only optional for the Department to follow the Digital Evidence Investigation Manual i.e., if the Department finds it convenient to follow the said Manual, they would follow, otherwise it will only be optional. 16. The Department have faced so many issues in collecting and preserving of digital evidences and hence, based on the findings given in various cases by the Hon'ble Apex Court and High Courts with regard to the collection and preservation of digital evidences, so as to avoid the invalidation of the same, the CBDT came with Digital Evidence Investigation Manual, which will have force since it was issued by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent case, if the respondents are relying upon any digital data, they are bound to provide the details of the corroborative evidence. Further, even if the statement of any person is relied, the petitioner is certainly entitled for cross-examination about the trueness of the statement of the said person. All those aspects have not been considered by the respondents while passing the assessment orders and therefore, the impugned assessment orders are purely and totally in violation of principles of natural justice and the same is liable to be set aside on this ground alone. 21. Therefore, the petitioner had filed these writ petitions under the Article 226 of the Constitution of India as an exemption to the alternative remedy and the said aspect was clearly explained in the case of Commissioner of Income Tax vs. Chhabil Dass Agarwal reported in (2013) 36 Taxmann.com 36 (SC) , wherein the Hon'ble Apex Court held as follows: 19. Thus, while it can be said that this Court has recognized some exceptions to the rule of alternative remedy, i.e., where the statutory authority has not acted in accordance with the provisions of the enactment in question, or in defiance of the fundamental pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the Rules and Regulations prescribed thereunder. Since the Department had come across various difficulties, including invalidity of evidences, under the various circumstances, the CBDT had issued the said Manual with regard to the collection and preservation of the digital data and hence, the same will have statutory force in terms of the provisions of Section 119 of the Act. However, the Digital Evidences Investigation Manual has not been followed by the respondents. In this regard, he has narrated the various aspects as stated at paragraph No.4 of the written submission under the head Binding nature of the Digital Investigation Manual issued by CBDT and its non-compliance and submitted that the said Manual was issued by the Committee, which was appointed by CBDT for the proper administration of Act under Section 119 of the Act and the same is statutory, binding and mandatory. 26. The learned Senior counsel further contended that the fundamentals of the proceedings to deal with the digital evidence were not followed by the respondents in the present case and the same was elaborately stated at paragraph No.5 of the written submission and this Court is relying upon the same. 27. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Evidence Investigation Manual and in violation of principles of natural justice and contrary to the law laid down by this Court in various cases. In this regard, he relied upon the following judgements: i) State of Kerala and others vs. M/s.Kurian Abraham Private Limited and another reported in (2004) 12 KTR 235; ii) Commissioner of Customs vs. Indian Oil Corporation Limited reported in (2004) 3 SCC 488; 30. On the other hand, the learned Senior counsel appearing for the respondents would contend that the entire premises belongs to the petitioner, wherein in one of the floors, the Saravana Selvarathnam Furniture has been functioning according to the petitioner. However, it is not that the search warrant was issued with regard to any particular floor but the search warrant was issued for Door No.33, Natesan Street, T.Nagar, Chennai . Therefore, he would contend that whatever premises available at the aforesaid address is subject to be searched by the Department and accordingly, the respondents had conducted the search and hence, there is no invalidity of the same. 31. As far as the independent witnesses for the search conducted on 27.01.2022 are concerned, he would submit that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Indian Evidence Act, 1872, the General Manager of the petitioner's company stated that the devices imaged for seizure were used by him the company staffs. This certificate was duly signed by the General Manager of the petitioner's company and two independent witnesses. The Chain of Custody form was also recorded mentioning the devices along with the receiving and releasing parties. The master copies were sealed in a separate box and the signatures was obtained on the sealed box from the assessee (the GM of petitioner's Company), the witnesses and the officer in charge. Therefore, he would submit that the seizure procedure has been followed by the respondents. 35. He would also submit that though the database consisting of 61948 .txt files and only 8993 were complete and readable and others were corrupted, based on the 8993 files only, the Department had passed the assessment order. Hence, it is not that the respondents have passed the assessment order without any documentary evidence. Further, he would submit that to corroborate the digital data collected by the respondents, they had relied upon the following statements: i) The sworn statement of S.Sivakumar, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arch was conducted, belongs to the entities of the petitioner mentioned in the search warrant. On the other hand, the said entity, Saravana Selvarathnam Furnitures, was not mentioned in the search warrant. 40. Further, in terms of the provisions of Rule 112(7) of the IT Rules, at the time of search, two independent witnesses are supposed to be present throughout the period of search. In this regard, it would be apposite to extract Rule 112(6) and (7) of the IT Rules, which reads as follows: 112. Search and Seizure: (1) to (5)............... (6) Before making a search, the authorised officer shall,? (a) where a building or place is to be searched, call upon two or more respectable inhabitants of the locality in which the building or place to be searched is situate, and (b) where a vessel, vehicle or aircraft is to be searched, call upon any two or more respectable persons, to attend and witness the search and may issue an order in writing to them or any of them so to do.] (7) The search shall be made in the presence, of the witnesses aforesaid and a list of all things seized in the course of such search and of the places in which they were respectively found shall be prepared by [th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ructions and directions to other income-tax authorities as it may deem fit for the proper administration of this Act, and such authorities and all other persons employed in the execution of this Act shall observe and follow such orders, instructions and directions of the Board: Provided that no such orders, instructions or directions shall be issued (a) so as to require any income-tax authority to make a particular assessment or to dispose of a particular case in a particular manner; or (b) so as to interfere with the discretion of the [Commissioner (Appeals)] in the exercise of his appellate functions. (2) Without prejudice to the generality of the foregoing power, (a) the Board may, if it considers it necessary or expedient so to do, for the purpose of proper and efficient management of the work of assessment and collection of revenue, issue, from time to time (whether by way of relaxation of any of the provisions of sections 3 [115P, 115S, 115WD, 115WE, 115WF, 115WG, 115WH, 115WJ, 115WK,] 4 [139,] 143, 144, 147, 148, 154, 155 5 [, 158BFA], 6 [sub-section (1A) of section 201, sections 210, 211, 234A, 234B, 234C 7 [, 234E]], 8 [270A,] 271 9 [, 271C, 271CA] and 273 or otherwise), g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rities concerned. 46. In the present case, the manual issued by the CBDT would be in the nature of orders, instructions and directions as prescribed under Section 119(1) of the Act and in such case, it is mandatory for the Department to follow it. As far as the reference made to Chapter 1.5 of the Manual by the learned Senior counsel appearing for the respondents is concerned, in the said portion of the Manual, some of the examples were given on various software and hardware that the same has to be used for illustration and in no way recommendatory or mandatory to the users. It only talks about the examples given in the software and hardware and it is not about the Rules prescribed in the Manual. 47. It was also mentioned with regard to the non-availability of the hardware, software and technical support in several stations, for which, the Department is advised to take initiative and create awareness. The Manual was issued in the year 2015 and we are living in digital India, where the entire Department have been computerised and even the ledgers have been maintained in the electronic form. It would applicable for throughout India since even a layman in the corner of the country is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CBDT is pertaining to the proper administration of the Act and it is relatable to the source of power under Section 119 of the Act irrespective of its nomenclature. Further, it was held that sub-section (1), sub-section (2) of Section 119 also enables CBDT 'for the purpose of proper and efficient management of the work of assessment and collection of revenue, to issue appropriate orders, general or special, in respect of any class of income or class of cases. In such view, it is clear that the Manual issued by CBDT was in terms of the powers available under Section 119 of the Act and it will have Statutory force. When such being the case, now the Department cannot take a stand that the said Manual is only optional and there is no need to follow the same. 49. Further, as stated above, the CBDT have brought this Digital Evidence Investigation Manual based on the past experience which the Department have faced before the various Courts of law, and upon the conclusion arrived at various orders from the High Courts as well as the Hon'ble Supreme Court, to avoid the invalidity of the evidences due to the certain reasons, which have been culled out by the Department in the form o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the next sentence is as follows: because it is equally clear that in making the assessment under sub-section (3) of section 23 of the Act, the Income-tax Officer is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all. There must be something more than bare suspicion to support the assessment under section 23(3). 53. A reading of the above paragraph makes it clear that the evidences cannot be nullified based on the technical clutches because the Income Tax Officers is not entitled make assessment without reference to any evidence or materials at all. There must be something more than the suspicion to support the assessment under the Act. 54. In the present case, the respondents have not followed the procedure laid down in the Digital Evidence Investigation Manual and collected 61948 documents totally and out of the same, only 8993 documents were complete and readable, whereas the others were corrupted. Out of the said 8993 readable files, the respondents had chosen sale of one particular day i.e., 25.12.2020 as sale value and considered the same as if the entire sale of that day would be the sale of each and every days o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous digital devices that have been identified and about the various procedures used in forensic collection. This procedure was not followed Document, the chain of custody and digital evidence forms. In the present case chain of custody document was not made and the digital evidence collection form was defective and did not contain the requirements. Signature of the assessee and the witness had to be obtained on the hard disk This was not followed Chapter 6.8 of the Digital Evidence Investigation Manual Forensic Imaging/Cloning at page 61 62 The procedure mentioned under this chapter was not followed. Further, it is specifically stated under this chapter that the hash value should be recorded in the panchnama and the assesse can be given an option for seeking a copy of the image/clone of the hard disk. In the present case, the hash value was not recorded in the panchnama and the copy of the image/cloned hard disk was not supplied to the Petitioners. Report generated by the imaging tool which contains the details of the imaging attributes, details of hard disk drive imaged, date and time and the hash value of the hard disk drive should be incorporated in the report and the report sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... implanted without his knowledge, In the present case the same was not done. If the hard disk is removed, a photograph of the hard disk drive should be taken. In the present case the same was not done. If Possible paste a serial number on the digital device so that it can be related to the exact case, date and the section under which it is searched. In the present case the same was not done. Document the chain of custody and Digital Evidence Collection forms. In the present case the same was not done. DIGITAL EVIDENCE COLLECTION FORM Digital Evidence Collection Form ensures proper documentation of all the information about the evidence that is visible to the naked eye. NOT FOLLOWED CHAIN OF CUSTODY FORM Chain of custody refers to the documentation that shows the people who have been entrusted with the evidence. It should NOT FOLLOWED document the details of the people who seized the equipment, the details of people who transferred it from the premise to forensic labs, people who are analyzing the evidence, the details on when all it was opened and so on. FORENSIC DUPLICATION Forensic Duplication is a process of bitstream imaging of the digital evidence by which entire data is transf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LINES Procedure for imaging seized hard disks In cases where hard disks cannot be cloned at site and are therefore seized, two sets of images/clones should be created in the lab in presence of the assessee or his representative and the authorised of fiber following the same procedure as described above. A panchnama shoticer fe prepared for this activity recording the hash value of each of the hard disks imaged and the other particulars mentioned above. The assessee may be given an option to obtain copy of image at his cost. The chain of custody form (enclosed in Annexure-8) should be filed up. This is a key document that should be mandatorily filed up to ensure that integrity of the data cannot be questioned by any court of law. NOT FOLLOWED 57. With the above discrepancies, the respondents had conducted the search and collected the digital data. Further, when they make assessment based on the collected data, the same has to be supported by corroborative evidences and the respondents are supposed to provide opportunities for the petitioner to respond. However, the same was not done in the present case. 58. Further, in terms of the provision of last paragraph of the Chapter 2.6 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s-examination is concerned, no justification need be provided in the form of reasons by a delinquent. The very fact that some statements of some officers are relied upon is good enough reason for permitting cross-examination. The very fact that the right of cross- examination is part of the most essential rights is sufficient to grant the request. But, the enquiry officer cannot test the request for cross-examination on the strength of the reasons. Therefore, the second ground on which the request of the Petitioners is rejected, cannot also be sustained. 61. A perusal of the above, it is clear that no justification need to be provided in the form of reasons by the petitioner while seeking for cross-examination of the witnesses. Further, it was made clear that right would arise for an Assessee to peruse the documents relied upon by the Department and thereafter, to ask for the cross-examination. However, in the present case, neither the documents nor the sworn statements are produced to ask for the opportunity of cross-examination by the Assessee. 62. In the case of Andaman Timer Industries versus Commissioner of Central Excise (2015) 94 CCH 0187 ISCC , the Hon'ble Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dealt with the issue of provision opportunity to the petitioner, for cross-examination of persons, those who had provided the sworn statements against the petitioner, pursuant to search where it has been held as under in paragraphs 22 and 23: 22. On the next issue of refusal of cross examination of the persons whose statements were recorded during the time of search under Section 132(4) of the Income Tax Act, it is trite law that the person against whom a statement is used, should be given opportunity to counter and contest the same. I am unable to accept the contention of the learned Senior Counsel that since the statements recorded were of persons who were employees of the assessee and therefore the assessee cannot seek for cross examination of them. The basic principles of jurisprudence governing the law of evidence can in no way interfered and could not be by the Income Tax Act provisions and neither the authorities functioning under the Income Tax Act has any discretion in such matters. The Supreme Court in the judgment Kishan Chadn Chellaram reported in 125 ITR 713 at page 720 which is also followed in the judgments cited by the petitioner in the case of Deputy Commissioner o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings. 66. In the present case, the petitioner's contention was that there are four petitions challenging four proceedings of the respondents, whereas in total the respondents are intend to initiate 21 proceedings and 17 is yet to be completed. Hence, if all the discrepancies are not set right in the present proceedings, the petitioner have to approach this Court for again and again for each proceedings. Therefore, to set right all the irregularities and nullify the evidences, the prayer was sought by the petitioners to pass a comprehensive order to avoid the multiplicity of the proceedings. 67. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment in this case and in the connected appeal, we are told, was above the figure of Rs. 55 lakhs and it was meet and proper when dealing with a matter of this magnitude not to employ *civil Appeal NO- 218 Of 1953, not reported, unnecessary haste and show impatience, particularly when it was known to the department that the books of the assessee were in the custody of, the Sub-Divisional Officer, Narayanganj. We think that both the Income-tax Officer and the Tribunal in estimating the gross profit rate on sales did not act on any material but acted on pure guess and suspicion. It is thus a fit case for the exercise of our power under article 136. 68. As discussed above, the electronic data have been collected without following the various procedures laid down in the Digital Evidence Investigation Manual. Further, this Court had already held that following the said Manual is mandatory and the respondents cannot claim any exemptions as held by the Hon'ble Apex Court in State of Kerala vs. M/s.Kurian Abraham Pvt. Ltd., and another and The Commissioner of Customs vs. Indian Oil Corporation (referred supra). 69. Further, as held by the Constitution Bench of the Hon'ble Supreme C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsons in control of computers/ electronic devices are always very important. 70. Under these circumstances, 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 71. Further, 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 dated 30.03.2023 pertaining to writ petition in W.P. No. 11176 of 2023 is liable to be set aside. Further, in similar way, the other three assessment orders dated 31.12.202 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d (4) of the IT Rules, wherein it has been stated as follows: 46A.Production of additional evidence before the Deputy Commissioner (Appeals) and Commissioner (Appeals).- (1) and (2) ............... (3)The Deputy Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals) shall not take into account any evidence produced under subrule (1) unless the Assessing Officer has been allowed a reasonable opportunity-(a)to examine the evidence or document or to cross-examine the witness produced by the appellant, or(b)to produce any evidence or document or any witness in rebuttal of the additional evidence produced by the appellant. 4) Nothing contained in this rule shall affect the power of the first appellate authority to direct the production of any document, or the examination of any witness, to enable him to dispose of the appeal, or for any other substantial cause including the enhancement of the assessment or penalty (whether on his own motion or on the request of the Assessing Officer under clause (a) of sub-section (1) of section 251 or the imposition of penalty under section 271. 76. On perusal of the above, it is clear that Rule 46A of the IT Rules only talks about t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which has to be followed while conducting search and seizure of evidences and the same has been extracted at paragraph No.50 of this order. Hence, it is mandatory for the respondents to follow the Digital Evidence Investigation Manual issued by CBDT while conducting search and seizure and it is not optional. iv) The electronic data have been collected in .txt files in violation of the provisions of Digital Evidence Investigation Manual. v) 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. vi) The 2nd respondent is directed to provide all the documents relied upon by them in the Show Cause Notice as requests by the petitioner. Further, the 2nd respondent is also directed provide a period of 21 days to the petitioner to file their reply and thereafter, if any request is made by the petitioner for further time, a reasonable time may be provided after considering the reasons assigned by them. vii) If any oral/documentary evidence is relied upon to corroborate the electronic data, the 2nd respondent is directed to al ..... X X X X Extracts X X X X X X X X Extracts X X X X
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