Should Presence of Counsel/CA be allowed during the course of Income Tax/GST Search/Survey & during Recording of statement?

It is common knowledge that the officers of the Income Tax/GST Department seldom allow CA/Advocate of the assessees during the course of searches nor are the CA/Advocate allowed during interrogation or recording of statement during Searches/post Searches. The GST & Income Tax Act and the Rules are silent in this respect and there is no circular of the CBDT or CBIC clarifying the stand of the Government in this regard.

It will be trite to refer to Article 22(1) of the Constitution which reads as under:

“1) No person who is arrested shall be detained in custody without being informed, as soon as may be, of the grounds for such arrest nor shall he be denied the right to consult, and to be defended by, a legal practitioner of his choice.”

The apex court in Nandini Satpati v. P.L. Dani 1978 AIR 1025 had an opportunity to deal with Article 22(1) wherein the Court held that presence of lawyer is a constitutional right and observed thus:

“The right to consult an advocate of this choice shall not be denied to any person who is arrested. This does  not mean that persons who are not under arrest or custody can be denied that right. The spirit and sense of Art. 22(1) is that it is fundamental to the rule of law that the service of a lawyer shall be available for consultation to  any accused  person tinder circumstances  of near-custodial interrogation.  Moreover, the  observance of  the right against self-incrimination is best promoted by conceding to the accused the right to consult a legal practitioner of his choice.  Lawyer’s presence is a constitutional claim in some circumstances in our country also, and, in the  context of Art. 20(3), is an assurance of awareness and observance of the right to silence. Art. 20(3) and Art. 22(1) may in a way be  telescoped by making it prudent for the police to permit the advocate of the accused, if there be one, to be present  at the time he is examined. “

Although the rights mandated by the said Article pertains to the arrested person but the same principle can be applied during searches which are conducted by the Income Tax/GST Departments in the presence of Police/ para-military forces and the Departments are known for resorting to coercion/threatening of the searched person in a bid for enabling huge disclosures/surrender of undisclosed Income/stock/sales.

It would be apposite to refer to Madhya Pradesh High Court in the case of Subhash Joshi & Anr. vs. Director General of GST Intelligence (DGGI) & Ors (2020-TIOL-1163-HC-MP-GST) which took the contrary view and held that there is no statutory provision in GST Act that said search proceedings have to be carried out in presence of an Advocate. The same issue also came up before the Delhi High Court in reference to the GST Act in the matter of Sudhir Kumar Aggarwal v. Directorate General of GST Intelligence 2019 SCC OnLine Del 11101 and the Delhi High Court also held that the Provisions of section 67 do not require the presence of an Advocate at time of search proceedings. Both the MP & Delhi High Courts while deciding the issue followed the Apex Court judgment in the case of Poolpandi and Others v. Superintendent, Central Excise & Ors. [1992] 3 SCC 259 wherein during the investigation and interrogation under the provisions of Foreign Exchange Regulations Act 1973 and Customs Act, a prayer was made for assistance of the lawyer and the Apex Court denied such a prayer. With due respect to both the High Courts, FERA is a very strict & different Act and denial of presence of CA/Advocate might be justified under FERA but is violative of the principles of natural justice in both GST & Income Tax matters. Both Income Tax & GST are pure revenue laws and deal with collection of due taxes and the search/survey operations are solely meant for detection of undisclosed sales/stocks/income.

It would be relevant to refer to the single member bench of the Delhi High Court in the case of Oriental Rubber Industries vs Competition Commission of India & Anr. decided on 22 April, 2016 wherein the Court categorically held that presence of counsel is permissible during interrogation/recording of statement before DG of CCI. The Court observed that the case of Poolpandi and Others v. Superintendent, Central Excise & Ors. [1992] 3 SCC 259 was prior to the era when Section 30 of the Advocates Act had come into force and the said case is not applicable now. The Court held thus:

“13. As far as the judgments cited by the counsel for the respondent are concerned, i.e. Poolpandi supra is of an era before Section 30 of the Advocates Act had come into force and hence would not be applicable hereto. Moreover, what was for consideration therein and adjudicated was, whether a person summoned during investigation under the Customs Act is entitled to protection of Article 20(3) of the Constitution of India and suffers mental torture by being called away from the comfort of his house and office and being questioned. Both were answered in the negative. It was held that since the person so summoned is not an accused, Article 20(3) has no application and that there is no constitutional right to claim comforts to which the person is used to, during investigation.

It is settled principle that a judgment is a precedent on what was for decision and decided therein and not for what may be logically deduced therefrom. Supreme Court, in the said judgment, was not concerned with the question, as in this petition i.e. whether a person has been called for giving statement before a person who is authorized to take evidence has a right to avail services of an advocate and whether an advocate under Section 30 has a right to practice before such person.”

Thus, Poolpandi is no longer a good law. The Court also relied on the Delhi High Court in the case of  Punjab National Bank vs. Kingfisher Airlines Limited MANU/DE/4118/2015 wherein the right to be represented by an advocate in the said hearing was duly allowed after noticing Section 30 of the Advocates Act 1961.

The Court also relied on the High Court of Karnataka in M/s. Kothari Industrial Corporation Limited v. The Coffee Board MANU/KA/0414/1999 wherein it was categorically held that the right of an advocate to practice before any Court or Tribunal, contained in Section 30 of the Advocates Act, necessarily means that a litigant before any such Court, Tribunal, Authority or person will have a right to engage and avail the services of an advocate.

Presence of Counsel-CA during Search-Survey or Recording of statement should be allowed

The Court also followed the Supreme Court’s dictum in N.K. Bajpai v/s Union of India & Another (2012) 4 SCC 653 wherein  after noticing Section 30 of the Advocates Act the Apex Court held that the right to practice is not only a statutory right but would also be a fundamental right under Article 19(1)(g) of the Constitution.

The Court also cited the case of Dr. D.C. Saxena, Contemnor v. Hon’ble the Chief Justice of India (1996) 5 SCC 216 wherein it held that advocacy touches and asserts the primary value of freedom of expression so dear in a democracy and freedom of expression produces the benefit of the truth to emerge and assists stability by tempered articulation of grievances and plays its part in securing the protection of fundamental human rights.

The Court’s view was also fortified by the judgment of the  Division Bench of the High Court of Punjab and Haryana in Paramjit Kumar Saroya v. Union of India MANU/PH/0765/2014, wherein in the context of the provision in the Maintenance and Welfare of Parents and Senior Citizens Act, 2007 debarring representation through an advocate before the Tribunals constituted under the said Act, held that after the coming in to force of Section 30 of the Advocates Act, there cannot be an absolute bar to the assistance by legal practitioner to before a Tribunal.

The Delhi High Court  after detailed discussion allowed the petitioner to be accompanied by his advocate when being summoned by DG for investigation. The Court finally summed up thus:

“12. Section 30 of the Advocates Act confers on an advocate a right to practice inter alia before any person legally authorized to take evidence. The DG, by the Competition Act, has been legally authorized to take evidence. Once that is so, in the light of dicta aforesaid of the Division Bench in Kingfisher Airlines Limited supra, has but to be held that an advocate has a right to practice before DG and which right to practice would include accompanying a person who has been summoned before the DG for investigation.

I do not find any of the aforesaid judgments requiring me to take a different view from that emerging from a combined reading of Google Inc. and Kingfisher Airlines Limited surpa.”

In LPA before the Division Bench of the Delhi High Court arising out of the said judgment, the Court on 24 May, 2018 approved the judgment of the Single member bench subject to certain controls & restrictions. The Court observed thus:

“22. Since the DG’s powers are so far-reaching and the consequences of an investigation by the DG so drastic, it would necessary that the right of a party/person to be accompanied by an advocate during the investigations by the DG, when the latter is collecting or recording evidence, not be taken away. This Court, therefore, finds that the Learned Single Judge’s reliance on Google (supra) as well as the decision in Punjab National Bank (supra), to hold that when the consequences of an enquiry or investigation are severe and drastic, the right of a person to be accompanied or represented by an advocate cannot be extinguished, stands to reason and cannot be faulted with.

23. At the same time, this Court is alive to the concerns raised by the CCI that if parties are allowed to be accompanied or represented by advocates in investigations before the DG, the efficacy of the investigation may be hampered and the collection of evidence may become onerous or cumbersome. The concern of CCI, furthermore that during the course of investigation and recording of evidence of a witness, the active participation of a counsel may not be conducive to the larger public interest in promoting competition, because the likelihood of a counsel cautioning (either orally, or through non verbal communication) a witness from making or refraining from making a statement. In that regard, the Commission or the DG, as the case may be, lay prescribe, in the order, during the course of proceeding, when a request for representation by counsel is made, an appropriate procedure to be followed during such investigation, where the counsel may be allowed to accompany the party, but not continuously confer with him when the DG is taking his or her testimony or asking questions. Therefore, while the party is allowed his right to be accompanied by an advocate, the DG’s investigations are not unnecessarily hindered. The Commission having regard to the appropriate best practices across jurisdictions in antitrust matters may formulate such procedures and incorporate them in regulations; till then, it is open to the DG to make appropriate procedural orders. This court feels additionally that this precautionary note is essential, because often there can be situations where the prominent presence of a counsel might hinder questioning of the witness by the investigating officers or the Director General. Apart from non-verbal communication, the counsel might restrict the element of surprise that is essential when collecting such evidence. Therefore, the DG shall ensure that the counsel does not sit in front of the witness; but is some distance away and the witness should be not able to confer, or consult her or him. The Court does not deem it necessary or appropriate to say more on this aspect of the matter, leaving it to the Commission to decide the appropriate course.”

It is relevant the principles of natural justice mandate that no person should be condemned unheard and it is indisputable that the Right of being heard includes right of being represented by a counsel of choice. It is important to note that it was in the interest of the Department that the advocate is present during the deposition. An advocate’s presence causes him to be a witness to recorded statement and witness to the fact that neither coercion nor undue influence was exerted on a deponent during the course of the recording of statement/disclosure. This would make it difficult for a deponent to retract his statement and make false claims later on and therefore, the Department should happily allow the presence of an Advocate. It should be borne in mind that an advocate is an officer of the Court and is in fact mandated to assist the Court

It would be apposite to reproduce the following observations of Lord Denning.

“Once it is seen that a man has a right to appear by an agent, then I see no reason why that agent should not be a lawyer. It is not every man who has the ability to defend himself on his own. He cannot bring out the points in his own favour or the weaknesses in the other side. He may be tongue-tied or nervous, confused or wanting in intelligence. He cannot examine or cross-examine witnesses. We see it every day. A magistrate says to a man: ‘You can ask any questions you like’; whereupon the man immediately starts to make a speech. If justice is to be done, he ought to have the help of someone to speak for him; and who better than a lawyer who has been trained for the task? I should have thought, therefore, that when a man’s reputation or livelihood is at stake, he not only has a right to speak by his own mouth. He also has a right to speak by counsel or solicitor.”

The unwritten practice of not allowing authorized advocate to accompany the deponent during the course of recording of statement or during Search operations is illegal, arbitrary & unreasonable,. Allowing CA/Advocate of the assessee would not only prevent harassment/high handedness of the Revenue Departments but also bring sanctity to the statements recorded during the course of search. This would also bring transperancy in the entire proceedings and it would not be possible for the assessees to retract from their statements/disclosure subsequently. An amendment to this effect should be made in both the GST & Income Tax Act and a specific provision should be made to allow CA/Advocate to be present at the business/residential premises of the assessee during search operations & recording of statements.

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