Revenue cannot have access to data in laptops pertaining to third parties unconnected with person searched

Yash Shah

Whether revenue NOT entitled to demand unrestricted access to acquire electronic records present in laptops pertaining to third parties unconnected with person searched.

Equivalent Citation- (2009) 315 ITR 137 (Del.) 

Relevant Section – 132

• The petitioner was a firm of auditors. During the course of search and seizure operations conducted against EMAAR, the laptop computers of two employees of the petitioner, who were conducting an audit of EMAAR, were seized by the Deputy Director.

• Subsequently, the Deputy Director issued summons under section 131 to the employees of the petitioner and their statements were recorded. On the request of the Deputy Director these employees provided him with the electronic data relating to three companies of the EMAAR group together with the print copies of the data. The Deputy Director insisted on securing total and unrestricted access to the laptops of all the other clients of the petitioner.

It has argued that the laptops that have been seized by the Respondent have confidential information relating to the accounts of 46 other clients, having no relation or business dealings with the Assessee, and seizure of these accounts will amount to serious breach of confidentiality which they are bound to protect by the principles of professional ethics.

 Income Tax Department cannot make fishing or roving inquiry to initiate proceedings against all these companies which are the clients of the Petitioner.

Revenue argued  that the Petitioner cannot assist any party in breaking the law; this submission is illogical since it cannot be presumed that the accounts relating to 46 other clients of the Petitioner contained in the two laptops are of this character. The rigours of the law, inter alia the necessity to have reasons to believe so must be recorded and be followed by warrants. An indiscriminate search frustrates the whole scheme of Section 132 and emasculates the protective measures against these draconian powers.

• So request for unrestricted access to data of all 46 Clients was refused by the employees. The seized laptops were sent by the Deputy Director to the Central Forensic Science Laboratory who, however, could not ascertain the password and accordingly could not access the entire data on the laptops. The petitioner was thereupon asked to disclose the password, which it again declined and thereafter the laptops were sealed in the presence of the employees of the petitioner.

• On a writ petition the High Court held that the powers of search and seizure are very wide and the Legislature has provided a safeguard that the Assessing Officer should have reason to believe that a person against whom proceedings under section 132 of the Income-tax Act, 1961, are to be initiated is in possession of assets which have not been or would not be disclosed.

• Secondly, the authorised officer is also required to apply his mind as to whether the assets found in the search have been disclosed or not, and if no undisclosed asset is found no action can be taken under section 132(1)(iii) or (3). An arbitrary seizure is not maintainable.

• The objection of the petitioner was vis-à-vis only the material relating to its other clients and not to material which had causal connection with EMAAR against whom the search and seizure operation was directed. The offer in this regard had been spurned by the Revenue.

• In view of the fact that the Deputy Director had rejected the offer made by the petitioner the summons had to be set aside and the Deputy Director had to forthwith return the laptops to the petitioner.