Department cannot force auditors to part with information of clients not related to search, found in their laptops seized during search
While conducting an audit of EMAAR on 11.9.2007, the laptops of two employees of the Petitioner were seized by the Deputy Director, Income Tax (DDIT) in the course of conducting a Search and Seizure operation against EMAAR. Subsequently on 17.9.2007, the DDIT issued summons under Section 131 of the Income Tax Act, to Ms. Sandhya Sama and Shri Sanjay K. Jain, the employees of the Petitioner firm and their statements were recorded on 18.9.2007. On the request of the DDIT these employees provided him with the electronic data relating to three companies of the EMAAR Group together with the print copies of the data. Nevertheless, the DDIT insisted on securing total and unrestricted access to the laptops obviously in order to gain information and data of all the other clients of the Petitioner. This request was refused by the employees. The seized laptops were sent by the Respondents to Central Forensic Science Laboratory (CFSL) 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 said employees of the Petitioner.
Thereafter, writ petitions were filed by the Petitioner, S.R. Batliboi & Co., reputed Auditors and Accountants against the Department of Income Tax entreating the issuance of an appropriate writ to prevent the Respondents from forcibly gaining or securing access to the data contained in two laptops belonging to them.
In its Order dated 18.11.2008, the previous Division Bench passed the following orders: “The learned counsel appearing on behalf of the respondent submits that as per his instructions he would like to argue the matter with regard to de-sealing of the laptops and having access to the data in the laptops. He submits that to ascertain as to whether the data relates to EMAAR-MGF, the entire data available on the laptops would have to be examined. On the other hand, the learned counsel for the petitioner submits that the data concerning EMAAR-MGF is available on different and distinct files and has nothing to do with its 47 other clients. We had suggested that the laptops be de-sealed and the data be examined by the Assessing Officer in the presence of representatives of the petitioner as well as of the assessee. It was also suggested that the entire inspection of the data on the laptops be done without copying the data in any form for the purposes of informing the Court as to which files were connected with EMAAR-MGF and would be required by the Assessing Officer. Unfortunately, this suggestion is not acceptable to the respondents though the petitioners had accepted the same. Consequently, this matter would have to be heard. The learned counsel for the petitioner requests for some other date for advancing arguments inasmuch as today the respondents were only to report as to whether the suggestion was to be carried out or not”.
Over two score years ago the Division Bench of the Delhi High Court had opined in N.K. Textiles Mills vs. CIT, that it was “necessary and essential for these officers to take into custody only such books as were considered relevant to or useful for the proceedings in question. It was not open to them to indiscriminately, arbitrarily and without any regard for relevancy or usefulness, seize all the books and documents which were lying in the premises, and, if they did so, the seizure would be beyond the scope of the authorization”.
The High Court held that where the laptops of employees of the Auditors had been seized during search of an assessee, the Income Tax Department cannot force auditors to part with information of other parties stored in computers.