Case Law Details
Maulikkumar Satishbhai Sheth Vs ITO Assessment Unit (Gujarat High Court)
Advocate’s Client Data Can Be Examined Because Valid Search Permits Digital Imaging: Gujarat HC; Search Valid but Conduct Deprecated Because Authorities Acted High-Handedly During Operation: Gujarat HC; Attorney-Client Privilege Does Not Protect Documents Linked to Fraud or Illegal Purpose: Gujarat HC; Non-Incriminating Client Data Must Remain Protected Because Professional Privilege Continues: Gujarat HC; Gujarat HC Balances Search Powers and Attorney-Client Privilege in Income Tax Search Case; Search Challenge Fails Because Satisfaction Note Justified Action Under Section 132: Gujarat HC; Gujarat HC Directs Segregation of Incriminating and Non-Incriminating Data Seized from Advocate.
The Gujarat High Court considered a writ petition filed by a practicing advocate challenging a search conducted by the Income Tax Department under Section 132 of the Income-tax Act, 1961 at his residential and office premises. The Court framed four key questions: whether the search was legally valid; whether the authorities could digitally image data stored in computers and electronic devices containing information relating to the advocate’s clients; whether the authorities could use materials collected during the search against third parties; and whether non-incriminating client data should be returned and protected from use by the Department.
The Court examined Section 132 of the Income-tax Act, provisions relating to presumptions under Section 132(4A), Sections 126 and 129 of the Evidence Act concerning professional communications, and CBDT Instruction No. 7 dated 30 July 2003 regarding search and seizure operations. The Court also referred extensively to the Supreme Court decision in Pooran Mal v. Director of Inspection, which upheld the constitutional validity of search and seizure provisions and emphasized the safeguards built into Section 132.
After examining the satisfaction note recorded before the search, which was produced in a sealed cover, the Court held that the satisfaction recorded by the competent authority justified initiation of the search proceedings. Consequently, the challenge to the legality of the search itself failed. The Court was satisfied that the search was initiated in accordance with Section 132 and declined to interfere with the authorization of the search.
However, while upholding the search, the Court strongly criticized the manner in which the search operation was conducted. The Court found the conduct of the authorities during the search to be inappropriate and high-handed. It noted that an officer had gone to serve summons upon a lady advocate at her residence early in the morning accompanied by two armed police personnel. The Court observed that no satisfactory explanation was provided for such conduct and held that the action appeared coercive. It further criticized the absence of a lady constable, the manner in which the lady advocate was compelled to accompany officers to the petitioner’s office, and the disabling of CCTV cameras during the search. Such conduct was deprecated by the Court.
The Court also criticized the prolonged restriction imposed on the petitioner and his family members during the search. Although it accepted that temporary restrictions on communications may be justified to protect the integrity of a search, it held that preventing the petitioner and his family from freely using their mobile phones for several days after completion of the search operation was excessive. The Court observed that continuation of restrictions under the guise of digital data imaging effectively amounted to a form of house arrest and interfered with the petitioner’s ability to attend court and conduct his professional work. The Court held that such conduct was not justified and deprecated the authorities’ actions.
The central issue before the Court concerned the use of physical and digital materials seized during the search, particularly documents belonging to clients of the petitioner who was an advocate. The Court acknowledged that the petitioner was protected by principles underlying attorney-client privilege and Section 126 of the Evidence Act. However, it held that Section 126 could not be applied mechanically because the materials were lawfully obtained during a valid search conducted under Section 132. The Court held that once the search itself was valid, the authorities were entitled to copy and digitally image the data found in computers, servers, and electronic devices belonging to the petitioner.
The Court then examined whether the Department could use materials found during the search against third parties. It referred to the Delhi High Court’s decision in S.R. Batliboi & Co. and the subsequent Supreme Court order dealing with access to data belonging to multiple clients. The Court noted that the Supreme Court had left the underlying question of law open. Therefore, the Gujarat High Court proceeded to examine the issue independently.
The Court analyzed Section 132(4A), which permits a presumption that documents found during a search belong to the person searched and that their contents are true. It observed that documents found during the search of the advocate could be presumed to belong to him for purposes of the statutory provision. The Department argued that it could act on any incriminating material found during the search regardless of whether the petitioner himself was involved. The petitioner, however, argued that attorney-client privilege prevented the Department from using confidential client documents discovered during the search.
The Court held that Section 126 of the Evidence Act must be read together with its illustrations and proviso. It observed that communications made in furtherance of illegal purposes and facts indicating fraud or crime committed after commencement of professional engagement are not protected. Accordingly, the Court distinguished between different categories of documents. Documents covered by Illustration (a) to Section 126, involving confidential professional communications that predated the advocate’s engagement and did not involve fraud or illegality, would continue to enjoy protection. On the other hand, documents falling within Illustrations (b) and (c), or covered by the proviso to Section 126 because they related to fraud, crime, or illegal activity discovered during the professional engagement, could be acted upon by the authorities.
The Court therefore held that the Department could utilize incriminating materials that fell within the exceptions to attorney-client privilege but could not use documents protected by professional privilege as contemplated under Illustration (a) of Section 126. The Court emphasized that any exercise of power by the Department must be undertaken judiciously and consistently with these principles.
The Court also took note of an affidavit filed by a senior Income Tax Department official assuring that digital data would be analyzed, incriminating material would be segregated, and non-incriminating client data would be sealed and not accessed further. The Court accepted this assurance and directed that the authorities adhere to the undertaking given in the affidavit.
Although the Court had initially suggested appointment of an independent agency to determine which documents were incriminating, the Department opposed such a course, contending that it would create an undesirable precedent in tax investigations. The Court accepted the Department’s position and held that the responsibility for exercising discretion remained with the Income Tax authorities, while expecting them to do so judiciously. The Court clarified that third parties against whom any future action may be taken would remain free to raise all legal contentions available to them.
Ultimately, the Court upheld the validity of the search, rejected the challenge to its initiation, criticized the manner in which the search was conducted, and laid down principles governing the treatment and use of client documents seized from an advocate during a search. The petition was disposed of with these observations.
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
1. Heard learned senior advocates Mr. Mukul Rohatgi and Mr. S. N. Soparkar with learned advocate Mr.B.S. Soparkar for the petitioner, learned Additional Solicitor General Mr.N. Venkataraman with learned advocate Ms.Maithili Mehta with learned advocate Mr.Nachiket Mehta and learned advocate Ms.Kinjal Trivedi for respondent Nos.5 to 11, and learned advocate Mr.Varun Patel for respondent Nos.1 to 4.
1.1 Rule, returnable forthwith. Learned advocates for the respective respondents waives service of notice of Rule.
1.2 Having regard to the controversy involved in this petition and with consent of learned advocates appearing for the respective parties, the same was taken up for hearing as learned advocates for the respective parties have concluded their submissions and pleadings as recorded in order dated 29th January, 2024.
2. By this petition under Article 226 of the Constitution of India, the petitioner has prayed for the following reliefs.
“(a) Declare the search action u/s. 132 of the Income Tax Act carried out by the Respondents at the residential premises as well as the office premises of the Petitioner as bad, arbitrary, unreasonable, illegal, contrary to law and without jurisdiction.
b. Direct the respondents to return the documents taken from the office of the petitioner without keeping any copy with the respondents and their Income Tax department, also direct the respondents to return all the digital data taken from the devices i.e. ipad(s), Laptop(s), Mobile(s), Desktop(s), Computer(s) and from any other Gadget(s) from petitioner’s residence and office without keeping any copy thereof.
c. Direct the respondents to destroy all the copies if the respondent have/kept from the records collected in physical and digital format consequent to the search action u/s. 132 of the Income Tax Act carried out at the residential premises as well as the office premises of the Petitioner.
d. Direct the respondents to not use/rely upon any material collected in physical or digital format consequent to the search action u/s 132 of the Income Tax Act in any other proceeding in relation to the Petitioner or any other assessee.
e. Direct the respondents to return the cash seized consequent to the search action u/s. 132 of the Income Tax Act carried out at the residential premises as well as the office premises of the Petitioner.
f. Declare that there was no satisfaction and reason to believe under the act to carried out search action u/s. 132 of the Income Tax act.
(g) Pending the admission, hearing and final disposal of this petition, direct the Respondents not to deal with the evidences collected in any manner whatsoever and to stay further proceedings under the act consequent to the search action u/s. 132 of the Income Tax Act carried out at the residential premises as well as the office premises of the Petitioner.”
3. Brief facts of the case are as under:
3.1 The petitioner is an individual and by profession he is a practicing advocate since 2003 as per the certificate issued by the Bar Council of Gujarat.
3.2 It is the case of the petitioner that in the morning of 03rd November, 2023 at about 06.35 a.m., officers of income tax of Assessment Unit 4(2)(6), Ahmedabad i.e. respondent No.1 along with other officers came to the residence of the petitioner with warrant of authorisation issued by respondent No.3 – Principal Director of Income Tax (Investigation), Ahmedabad.
3.3 It is the case of the petitioner that officers who came for search of the residential premises of the petitioner at 06.35 a.m. on 03rd November, 2023, asked the petitioner and his family members to switch-off the mobile phones and other electronic gadgets and took possession of the same.
3.4 The respondent and their officers thereafter copied the digital data from Iphones, Laptops, Ipad of the petitioner as well as Iphone of wife of the petitioner, minor son and daughter by impounding the same. Inventory of jewellery and cash found during search was made and Panchnama was drawn for this search action.
3.5 Search continued from 03rd November, 2023 and ended on 06th November, 2023. According to the petitioner, during these four days, the petitioner, his wife, son and daughter were not allowed to move freely until the search ended on 06th November, 2023 by the respondent officers. The petitioner has also alleged that daughter of the petitioner was not allowed to attend college during these four days and petitioner was not allowed to attend the court proceedings on 06th November, 2023.
3.6 It is the case of the petitioner that on 03rd November, 2023 at 06.30 a.m., one Mr.Amit Kumar who is later on joined as respondent No.11 by the order of the Court and whose name is not mentioned in the Panchnama and who is later on identified as a notice server along with two police officers having rifles, went to the residence of Ms.Hima Patel, a lady advocate working with the petitioner as a freelancer, to serve the summons under Section 131 of the Income Tax Act, 1961 (for short ‘the Act’). According to the petitioner, said officer forcefully took Ms.Hima Patel to the office premises of the petitioner without presence of any female officer. At the residential premises of Ms. Hima Patel, said officer asked all the family members to switch-off their mobile phones by taking away mobile phones of herself, her father, mother, brother and sister-in-law and thereafter Ms.Hima Patel was compelled to accompany him to open the office premises of the petitioner as one key of the office premises of the petitioner was with Ms.Hima Patel.
3.7 It is also the case of the petitioner that when the said officer brought Ms.Hima Patel to the office of the petitioner, one more team led by respondent No.3 was awaiting at the office. The petitioner has also referred to and relied upon on the CCTV footage of the apartment of Ms.Hima Patel which are available on Google Drive.
3.8 According to the petitioner, Ms.Hima Patel was compelled to open the office of the petitioner, which was done by her calling her brother at 07.00 a.m. on 03rd November, 2023 with office keys.
3.9 It is also the case of the petitioner that Panchnama of the office premises of the petitioner shows that Ms.Hima Patel was already present at the office premises though she was brought to the office by the officer who went to serve the summons.
3.10 The petitioner has also contended that CCTV cameras working in the office of the petitioner were turned-off and officers of the search party took copy of data from loose paper files and copied data from the digital devices available in 13 computers and main servers in the office premises of the petitioner by forensic imaging of the data.
3.11 An inventory of cash found and seized of Rs.60,00,000/- (Rupees Sixty Lakhs) was also mentioned in the Panchnama drawn during the course of search and the search was ended at the office of the petitioner on 06th November, 2023.
4. Being aggrieved by the search carried out by the respondents from 03rd November, 2023 to 06th November, 2023, the petitioner has approached this Court with the aforesaid prayers alleging that the impugned search action and the consequent seizure and other proceedings are contrary to the provision of Section 132 of the Income Tax Act, 1961(hereinafter referred to as ‘the Act,1961’) and has prayed for quashing and setting aside the same being without any jurisdiction.
5. This Court passed following order on 07th December, 2023.
“1. Heard learned Senior Advocate Mr.Mukul Rohatgi assisted by learned advocate Ms.Sayaree Basumallik and learned advocate Mr.Ankur Saighal through video conference with learned Senior Advocate Mr.S.N.Soparkar with learned Senior Advocate Mr.Sudhir Nanavati with learned Senior Advocate Mr.Jal Soli Unwalla assisted by learned advocate Mr.B.S.Soparkar for the petitioner and learned advocate Mr.Varun K. Patel for the respective respondents.
2. Considering averments made in the petition and submissions made by learned advocates for the petitioner and respondents, the petitioner is directed to join the following Officers as party respondent Nos.5 to 11 in their personal capacity so as to show cause as to why appropriate order should not be passed for exceeding their powers conferred under the provisions of the Income Tax Act, 1961 :
(5) Ravjit Singh Arneja, DGIT (Investigation),
6. Shri Rakesh Ranjan, ITO;
7. Shri Dhrumil Bhatt, Inspector;
8. Shri Neeraj Kumar Jogi, Inspector;
9. Shri Vivek Kumar, Office Superintendent;
10. Shri Ranjeet Chaudhary, Multi Tasking Staff;
11. Amit Kumar, Inspector;
Notice to be served at Aaykar Bhavan, Ashram Road, Ahmedabad.
3. Issue Notice to the newly joined respondent Nos.5 to 11, returnable on 18th December, 2023 so as to enable them to file appropriate reply to this petition. Reply, if any, to be filed on or before 15th December, 2023. Direct service is permitted. 4. To be listed on top of the Board.”
5.1 On service of summons to the newly joined respondent Nos.7 to 11, permission was sought by learned senior standing counsel Ms.Maithili Mehta to appear for them on the ground that they were discharging their official duty and therefore, she may be permitted to appear instead of represent them as an advocate of the respondent – Income Tax Department.
5.2 The matter was thereafter heard on 18th December, 2023, 20th December, 2023 and 29th January, 2024.
6. Learned senior advocate Mr.Mukul Rohtagi with learned senior advocate Mr.Saurabh Soparkar submitted that the entire search action at both the premises i.e. residence and office of the petitioner is contrary to the provisions of Section 132 of the Act,1961 and therefore, the same is required to be quashed being without any jurisdiction.
6.1 In support of such contention, it was submitted that the petitioner is a lawyer by profession and there is no case against him and search was conducted only with a sole motive to get the original copies of Memorandum of Understanding for the sale of land between one Mr.Vivek Patel and one Mr.Trilok Patel which was drafted by the petitioner and his assistants in his office.
6.2 It was submitted that none of the ingredients of Section 132(1)(a), (b) and (c) of the Act,1961 are complied with as petitioner was never called upon to produce the said document by the respondent authority. It was submitted that if the petitioner would have been called upon to produce such document, petitioner could not have refused and it was the duty of the petitioner to produce the said document. However, only based on assumption and presumption on part of the respondent authority on the ground that the said document was drafted by the petitioner in his professional capacity for his client, the search action was carried out. It was, therefore, submitted that the requirement of Section 132(1) of the Act,1961 with respect to recording of satisfaction based on objective facts is not satisfied in the facts of the case.
6.3 It was submitted that the documents which are drafted by the petitioner as per the instructions given by his clients, are privileged documents as per the doctrine of attorney-client privilege and the respondent authorities could not have copied by forensic imaging of the entire hard disk containing all the data lying in the office of the petitioner including various documents drafted by the petitioner and other legal papers which are available in the computers of the office of the petitioner in violation of the doctrine of attorney-client privilege as all such documents are required to be protected from being misused by the respondent authorities under the guise of search under Section 132(1) of the Act,1961.
6.4 It was contended by learned senior advocates for the petitioner that the action of search and seizure carried out by the respondent authority from 03rd November, 2023 to 06th November, 2023 has violated constitutional provision of privacy as well as the doctrine of attorney-client privilege as the respondents have taken copies of confidential documents relating not only between Mr.Vivek Patel and Mr.Trikam Patel but also documents relating to other clients of the petitioner and entire digital data from the office and residence of the petitioner.
6.5 It was emphasised by learned senior advocates that the doctrine of attorney-client privilege is not just any privilege but it is the oldest of the privileges for confidential communication known to the common law and most of the digital data/physical documents seized from the office of the petitioner during the course of search do not belong to the petitioner but to his clients, may have been drafted/documented by the petitioner in his professional capacity and therefore, the same would be covered under the sanctity of doctrine of attorney-client privilege as well as under Section 126 of the Evidence Act, 1872 (for short ‘the Evidence Act’).
6.6 It was therefore submitted that the respondents have no right to analyse the data of third party which do not belong to the petitioner, for which no authority, permission or warrant was sanctioned and as such the question of identifying or analysing such data as incriminating in nature or not would not arise.
6.7 Reliance was placed on Section 126 of the Evidence Act to submit that as per the said provision, an advocate owe a duty towards his clients that when a confidential information was parted to any advocate by his client hoping and trusting to retain it confidential and that when a situation arise that such confidential information is at stake, then in such scenario, an advocate is not permitted to disclose such permission without the consent of his client. It was submitted that the case of the petitioner would fall in Illustration (a) to Section 126 of the Evidence Act as the petitioner is never a party to drafting of any documents which would be a fraud or would be used to defraud the revenue in any circumstances at any place. As the petitioner is never a party to any illegal act of his clients and therefore, the information contained in the documents seized by the respondent authorities is required to be protected and the same would not be without protection as per the Explanation to Section 126 of the Evidence Act.
6.8It was submitted that the respondent authorities cannot assume at the stage of seizure of the documents that all the information possessed by the petitioner in form of digital data and physical documents are incriminating in nature so as to conduct the search and seize all the data and thereafter intend to search and raid all the entities who are clients of the petitioner though they are third parties and not the targeted group contrary to the provisions of Section 126 of the Evidence Act and the doctrine of attorney-client privilege prevailing since ages.
6.9 It was further contended that the entire conduct of the search proceedings was contrary to the prescribed guidelines inasmuch as officers of the search party did not permit the petitioner and his family members to move out of the residential premises or to permit them to attend their daily routine so as to attend the college by the daughter of the petitioner as well as court by the petitioner himself. It was pointed out that respondents have also turned-off the CCTV cameras so that no evidence is available to show that many more persons on the side of the respondents conducted the search and seizure proceedings and who were not named in the Panchnama.
6.10 Ms. Hima Patel who has also filed the affidavit which is placed on record to point out that officer-respondent No.11 picked her up forcefully at 06.30 a.m. without any company of female officer and brought her to the office of the petitioner to open it. It was further submitted that though the entire search operation was over on 03rd November, 2023 itself, the search was prolonged till 06th November, 2023 only to harass the petitioner and coerce him to give original document of transaction between Mr. Vivek Patel and Mr.Trikam Patel.
6.11 Learned senior advocate thereafter submitted that denial of the respondent authorities to permit the petitioner to appear in the courts to conduct his cases on 06th November, 2023 was nothing but violation of fundamental right under Articles 19(1)(f), 19(1)(g) and 21 of the Constitution of India depriving of his right, dignity and privacy.
6.12 Learned senior advocates for the petitioner submitted that the entire search proceedings and consequent action on part of the respondents are, therefore, required to be quashed and set aside as conditions of Section 132 of the Act are not fulfilled and there is no reason to believe that search is warranted as no satisfaction is recorded under the provision of Section 132 of the Act as per the requirement and the entire search operation took place only on the basis of apprehension, presumption and suspicion and therefore, such search operation is initiated without any jurisdiction.
6.13 It was also pointed out by learned senior advocate that after the search proceedings were over, the respondents have not provided the copies of statements recorded nor the access to the digital data copied from the office and residential premises of the petitioner were provided so as to enable the petitioner to contend that respondents can only use the materials which incriminates the petitioner under the provisions of the Income Tax Act as any other materials being privileged and protected under Section 126 of the Evidence Act.
6.14 It was further submitted that the entire search operation is without jurisdiction and violation of Instruction No.7 for matters relating to search dated 30th July, 2003 with regard to the matters relating to search and seizure which stipulates that tax payers who are professionals of excellence need not be searched without there being any compelling evidence and confirmation of substantial tax evasion. It was pointed out that petitioner is a taxpayer and a law abiding citizen and is a professional of excellence and in absence of any compelling evidence or confirmation of substantial tax evasion, the entire search operation would fail and being without jurisdiction, contrary to such Instructions issued by the Central Board of Direct Taxes.
6.15 It was, therefore, submitted that if the case of the petitioner is relating to tax evasion either by Mr. Vivek Patel or Mr.Trikam Patel,search action could not have been initiated at the premises of the petitioner as there is no tax evasion or illegality committed by the petitioner.
6.16 In support of the submissions, reliance was placed on the decision of the Apex Court in case of District Registrar and Collector, Hyderabad v. Canara Bank reported in (2005) 1 SCC 496.
“35.The earliest case in India to deal with ‘privacy’ and ‘search and seizure’ was M.P. Sharma v. Satish Chandra (1954 SCR 1077) in the context of Art. 19(1)(f) and Art. 20(3) of the Constitution of India. The contention that search and seizure violated Art. 19(1)(f) was rejected, the Court holding that a mere search by itself did not affect any right to property, and though seizure affected it, such effect was only temporary and was a reasonable restriction on the right. The question whether search warrants for the seizure of documents from the accused were unconstitutional was not gone into. The Court, after referring to American authorities, observed that in US, because of the language in the Fourth Amendment, there was a distinction between legal and illegal searches and seizures and that such a distinction need not be imported into our Constitution. The Court opined that a search warrant was addressed to an officer and not to the accused and did not violate Art. 20(3). In the present discussion the case is of limited help. In fact, the law as to privacy was developed in latter cases by spelling it out from the right to freedom of speech and expression in Art 19(1)(a) and the right to ‘life’ in Art. 21.
36. Two latter cases decided by the Supreme Court of India where the foundations for the right were laid, concerned the intrusion into the home by the police under State regulations, by way of ‘domiciliary visits’. Such visits could be conducted any time, night or day, to keep a tag on persons for finding out suspicious criminal activity, if any, on their part. The validity of these regulations came under challenge. In the first one, Kharak Singh v. State of UP, 1964(1) SCR 332, the UP Regulations regarding domiciliary visits were in question and the majority referred to Munn v. Illinois (1876) 94 US 113 and held that though our Constitution did not refer to the right to privacy expressly, still it can be traced from the right to ‘life’ in Art. 21. According to the majority, Clause 236 of the relevant Regulations in UP, was bad in law; it offended Art. 21 inasmuch as there was no law permitting interference by such visits. The majority did not go into the question whether these visits violated the ‘right to privacy’. But, Subba Rao J while concurring that the fundamental right to privacy was part of the right to liberty in Art. 21, part of the right to freedom of speech and expression in Art. 19(1)(a), and also of the right to movement in Art. 19(1)(d), held that the Regulations permitting surveillance violated the fundamental right of privacy. In the discussion the learned Judge referred to Wolf v. Colorado: (1948) 338 US 25. In effect, all the seven learned Judges held that the ‘right to privacy’ was part of the right to ‘life’ in Art. 21.
37. We now come to the second case, Govind v. State of MP [1975] 2 SCC 148, in which Mathew, J. developed the law as to privacy from where it was left in Kharak Singh. The learned Judge referred to Griswold v. Connecticut (1965) 381 US 479 where Douglas, J. referred to the theory of penumbras and peripheral rights and had stated that the right to privacy was implied in the right to free speech and could be gathered from the entirety of fundamental rights in the constitutional scheme, for, without it, these rights could not be enjoyed meaningfully. Mathew, J. also referred to Jane Roe v. Henry Wade (1973) 410 US 113 where it was pointed out that though the right to privacy was not specifically referred to in the US Constitution, the right did exist and “roots of that right may be found in the First, Fourth and Fifth Amendments, in the penumbras of the Bill of rights, in the Ninth Amendment, and in the concept of liberty guaranteed by the first section of the Fourteenth Amendment’. Mathew, J. stated that, however, the ‘right to privacy was not absolute’ and that the makers of our Constitution wanted to ensure conditions favourable to the pursuit of happiness as explained in Olmstead v. United States (1927) 277 US 438 (471); the privacy right can be denied only when an ‘important countervailing interest is shown to be superior’, or where a compelling State interest was shown. (Mathew, J. left open the issue whether moral interests could be relied upon by the State as compelling interests). Any right to privacy, the learned Judge said, (see para 24) must encompass and protect the personal intimacies of the home, the family, marriage, motherhood, procreation and child bearing. This list was however not exhaustive. He explained (see para 25) that, if there was State intrusion there must be ‘a reasonable basis for intrusion’. The right to privacy, in any event, (see para 28) would necessarily have to go through a process of case-by-case development.
46. It cannot be denied that there is an element of confidentiality between a Bank and its customers in relation to the latter’s banking transactions. Can the State have unrestricted access to inspect and seize or make roving inquiries into all Bank records, without any reliable information before it prior to such inspection? Further, can the Collector authorize ‘any person’ whatsoever to make the inspection, and permit him to take notes or extracts? These questions arise even in relation to the sec. 73 and have to be decided in the context of privacy rights of customers.
53. Once we have accepted in Govind (supra) and in latter cases that the right to privacy deals with ‘persons and not places’, the documents or copies of documents of the customer which are in Bank, must continue to remain confidential vis-a-vis the person, even if they are no longer at the customer’s house and have been voluntarily sent to a Bank. If that be the correct view of the law, we cannot accept the line of Miller in which the Court proceeded on the basis that the right to privacy is referable to the right of ‘property’ theory. Once that is so, then unless there is some probable or reasonable cause or reasonable basis or material before the Collector for reaching an opinion that the documents in the possession of the Bank tend, to secure any duty or to prove or to lead to the discovery of any fraud or omission in relation to any duty, the search or taking notes or extracts therefore, cannot be valid. The above safeguards must necessarily be read into the provision relating to search and inspection and seizure so as to save it from any unconstitutionality.”
6.17 Reliance was placed on the decision of Seven Judges Bench of the Supreme Court of Canada in case of Attorney General of Canada v. Federation of Law Societies of Canada reported in 2015 SCC Online Can SC 2.
“[34] The Federation says that these provisions violate s. 8 of the Charter, mainly because they permit the search of law offices in ways that are not consistent with the principles set out by the Court in Lavallee. The Attorney General, on the other hand, argues that the searches and seizures authorized by the scheme are reasonable: they relate to a limited class of documents for a narrow, regulatory purpose and there are appropriate safeguards to protect solicitor-client privilege.
35. I respectfully do not accept the Attorney General’s position. The regime authorizes sweeping law office searches which inherently risk breaching solicitor-client privilege. It does so in a criminal law setting and for criminal law purposes. In my view, the constitutional principles governing these searches are set out in the Court’s decision in Lavallee, and this scheme does not comply with them.
(2)Protection of Solicitor-Client Privilege
36. A law office search power is unreasonable unless it provides a high level of protection for material subject to solicitor-client privilege: Lavallee. The Attorney General submits, however, that Lavallee does not dictate the outcome here: the Court in that case was only considering the question of what safeguards are constitutionally required in situations where law enforcement officials are seeking evidence of criminal wrongdoing, not as here, in connection with an administrative law regulatory compliance regime.
37. I accept, of course, that when a search provision is part of a regulatory scheme, the target’s reasonable expectation of privacy may be reduced: Thomson Newspapers Ltd. v. Canada (Director of Investigation and Research, Restrictive Trade Practices Commission), 1990 CanLII 135 (SCC), [1990] 1 S.C.R. 425, at p. 507; R. v. Fitzpatrick, 1995 CanLII 44 (SCC), [1995] 4 S.C.R. 154, at para. However, I do not accept the Attorney General’s contention that this scheme may be properly characterized as “an administrative law regulatory compliance regime”: A.F., at para. 111. Its purposes, as stated in the Act and indeed as described by the Attorney General in his submissions, are to detect and deter the criminal offences of money laundering and terrorist financing and to facilitate the investigation and prosecution of these serious offences: s. 3(a). The regime imposes penal sanctions on lawyers for noncompliance. It therefore has a predominantly criminal law character and its regulatory aspects serve criminal law purposes.
38. I also accept that, as Arbour J. noted in Lavallee, “the need for the full protection of the privilege is activated” in the context of a criminal investigation: para. 23. However, the reasonable expectation of privacy in relation to communications subject to solicitor-client privilege is invariably high, regardless of the context. The main driver of that elevated expectation of privacy is the specially protected nature of the solicitor-client relationship, not the context in which the state seeks to intrude into that specially protected zone. I do not accept the proposition that there is a reduced expectation of privacy in relation to solicitor-client privileged communication when a FINTRAC official searches a law office rather than when a police officer does so in the course of investigating a possible criminal offence. While Arbour J. placed her analysis in the context of criminal investigations (see, e.g., paras. 25 and 49), her reasons, as have many others before and since, strongly affirmed the fundamental importance of solicitor-client privilege. As Arbour J. put it:
It is critical to emphasize here that all information protected by the solicitor-client privilege is out of reach for the state…. any privileged information acquired by the state without the consent of the privilege holder is information that the state is not entitled to as a rule of fundamental justice. [Emphasis added; para. 24.]
39. I see no basis for thinking that solicitor-client communications should be more vulnerable to non-consensual disclosure in the course of a search and seizure by FINTRAC officials than they would be in the course of any other search by other law enforcement authorities.
[44] The core principle of the decision is that solicitor-client privilege “must remain as close to absolute as possible if it is to retain relevance”: Lavallee, at para. 36. This means that there must be a “stringent” norm to ensure its protection, such that any legislative provisions that interfere with the privilege more than “absolutely necessary” will be found to be unreasonable: para. 36.
[46] Both schemes require the official to give a reasonable opportunity for a claim of solicitor-client privilege to be made before examining or copying the material. Section 64(9.1) of the Act enhances this protection somewhat by providing that the official is not to examine or make copies of a document in the possession of a non-lawyer who contends that a claim of solicitor-client privilege may be made by a lawyer without giving the person a reasonable opportunity to contact that lawyer.”
6.18 Reliance was placed on the decision of Nine Judges Bench of the Supreme Court of Canada in case of Her Majesty the Queen v. Lavallee, Rackel & Heintz, Barristers and Solicitors, and Andrew Brent Polo reported in 2002 SCC Online Can SC 61.
“34. The proper approach to the constitutional issues here is under s. 8 of the Charter, and there is no need to undertake an independent s. 7 analysis. This was properly explained in Fink by Goudge J.A., at para. 15:
While a seizure undertaken by the state in the course of a criminal investigation can be said to implicate s. 7 and while solicitor-client privilege is encompassed within the principles of fundamental justice, I think s. 8 provides a sufficient framework for analysis. If the procedure mandated by s. 488.1 results in a reasonable search and seizure of the documents in the possession of a lawyer, it surely accords with the principles of fundamental justice and vice versa.
35. If the procedure set out in s. 488.1 results in an unreasonable search and seizure contrary to s. 8 of the Charter, it follows that s. 488.1 cannot be said to comply with the principles of fundamental justice embodied in s. 7. See also Re B.C. Motor Vehicle Act, [1985] 2 S.C.R. 486. In v. Edwards, [1996] 1 S.C.R. 128, at para. 33, Cory J. stated that “[t]here are two distinct questions which must be answered in any s. 8 challenge. The first is whether the accused had a reasonable expectation of privacy. The second is whether the search was an unreasonable intrusion on that right to privacy.” A client has a reasonable expectation of privacy in all documents in the possession of his or her lawyer, which constitute information that the lawyer is ethically required to keep confidential, and an expectation of privacy of the highest order when such documents are protected by the solicitor-client privilege. This is not at issue in this case. I will therefore proceed immediately to the second step of the s. 8 analysis, namely the reasonableness of the statutory intrusion on the privacy interests of solicitor’s clients.
36. At this stage, the issue is whether the procedure set out by s. 488.1 results in a reasonable search and seizure of documents, including potentially privileged documents, in the possession of a lawyer. Indeed, s. 8 only protects against unreasonable searches and seizures: Hunter v. Southam Inc., [1984] 2 S.C.R. 145. In commenting on the fact that a reasonable search and seizure is permitted under s. 8 of the Charter, Dickson J. stated, at pp. 159-60:
This limitation on the right guaranteed by s. 8, whether it is expressed negatively as freedom from “unreasonable” search and seizure, or positively as an entitlement to a “reasonable” expectation of privacy, indicates that an assessment must be made as to whether in a particular situation the public’s interest in being left alone by government must give way to the government’s interest in intruding on the individual’s privacy in order to advance its goals, notably those of law enforcement.
Since Hunter, this Court has striven to strike an appropriate balance between privacy interests on the one hand and the exigencies of law enforcement on the other. See R. v. Araujo, [2000] 2 S.C.R. 992, 2000 SCC 65; R. v. Golden, [2001] 3 S.C.R. 679, 2001 SCC 83. Sometimes, however, the traditional balancing of interests involved in a s. 8 analysis is inappropriate. As it was stated in R. v. Mills, [1999] 3 S.C.R. 668, at para. 86, “the appropriateness of the balance is assessed according to the nature of the interests at stake in a particular context, and the place of these interests within our legal and political traditions”. Where the interest at stake is solicitor-client privilege — a principle of fundamental justice and civil right of supreme importance in Canadian law — the usual balancing exercise referred to above is not particularly helpful. This is so because the privilege favours not only the privacy interests of a potential accused, but also the interests of a fair, just and efficient law enforcement process. In other words, the privilege, properly understood, is a positive feature of law enforcement, not an impediment to it. This was emphasized by this Court in McClure, supra, where Major J., writing for the Court, stated, at paras. 32 and 34-35:
That solicitor-client privilege is of fundamental importance was repeated in Jones, supra, per Cory J., at para. 45:
The solicitor-client privilege has long been regarded as fundamentally important to our judicial system. Well over a century ago in Anderson v. Bank of British Columbia (1876), 2 Ch. D. 644 (C.A.), at p. 649, the importance of the rule was recognized:
The object and meaning of the rule is this: that as, by reason of the complexity and difficulty of our law, litigation can only be properly conducted by professional men, it is absolutely necessary that a man, in order to prosecute his rights or to defend himself from an improper claim, should have recourse to the assistance of professional lawyers, … to use a vulgar phrase, that he should be able to make a clean breast of it to the gentleman whom he consults with a view to the prosecution of his claim, or the substantiating of his defence … that he should be able to place unrestricted and unbounded confidence in the professional agent, and that the communications he so makes to him should be kept secret, unless with his consent (for it is his privilege, and not the privilege of the confidential agent), that he should be enabled properly to conduct his litigation.
…
Despite its importance, solicitor-client privilege is not absolute. It is subject to exceptions in certain circumstances. Jones, supra, examined whether the privilege should be displaced in the interest of protecting the safety of the public, per Cory J. at para. 51:
Just as no right is absolute so too the privilege, even that between solicitor and client, is subject to clearly defined exceptions. The decision to exclude evidence that would be both relevant and of substantial probative value because it is protected by the solicitor-client privilege represents a policy decision. It is based upon the importance to our legal system in general of the solicitor-client privilege. In certain circumstances, however, other societal values must prevail.
However, solicitor-client privilege must be as close to absolute as possible to ensure public confidence and retain relevance. As such, it will only yield in certain clearly defined circumstances, and does not involve a balancing of interests on a case-by-case basis.[Emphasis added.]
Indeed, solicitor-client privilege must remain as close to absolute as possible if it is to retain relevance. Accordingly, this Court is compelled in my view to adopt stringent norms to ensure its protection. Such protection is ensured by labeling as unreasonable any legislative provision that interferes with solicitor-client privilege more than is absolutely necessary. In short, in the specific context of law office searches for documents that are potentially protected by solicitor-client privilege, the procedure set out in s. 488.1 will pass Charter scrutiny if it results in a “minimal impairment” of solicitor-client privilege.
37. Minimal impairment has long been the standard by which this Court has measured the reasonableness of state encroachments on solicitor-client privilege. Recently, in Brown, supra, in defining the scope of the “innocence at stake” exception to solicitor-client privilege, this Court insisted that the judge order the “production of only those communications that are necessary to allow an accused, whose innocence is otherwise at stake, to raise a reasonable doubt as to his guilt” (para. 77). In Jones, supra, this Court held at para. 77 that even where public safety is at stake, there must be a clear and imminent risk of serious bodily harm or death to an identifiable person or group before solicitor- client privilege can be compromised. Moreover, where it is determined that these criteria are met, the majority in Jones held that “[t]he disclosure of the privileged communication should generally be limited as much as possible” (para. 86). Major J., dissenting on another point, agreed at para. 28 that “solicitor-client privilege is a fundamental common law right of Canadians…. Anytime such a fundamental right is eroded the principle of minimal impairment must be observed”. As I noted earlier in these reasons at para. 20, the minimal impairment standard was also applied in Descôteaux, supra, where Lamer J. instructed justices of the peace to be “particularly demanding” when issuing warrants to search law offices, so to “limit the breach of this fundamental right [solicitor-client privilege] to what is strictly inevitable” (p. 891).
6.19 In support of the submissions of violation of fundamental right as well as not following the provisions of Section 132 of the Income Tax Act, reliance was placed on the following decisions.
i. Mectec v. Director of Income Tax Investigation – (2021) 433 ITR 203
ii. Khem Chand Mukim v. Principal Director of Income Tax – (2020) 423 ITR 129
(iii)H.L. Sibal v. Commissioner of Income Tax – (1975) 101 ITR 112
(iv) District Registrar and Collector v. Canara Bank – (2004) SCC Online SC 1381
v. Attorney General of Canada v. Federation of Law Societies of Canada – (2015) SCC Online Can SC 2
vi. Regina v. Special Comm. Of Income Tax – (2003) 1 A.C. 563
(vii) Rajesh Bhatia v. G. Parimala – (2005) SCC Online AP 970
(viii) SriGangararapu KameswaraRao v. Gangavarapu Satyanarayana – (1983) SCC Online AP 257
ix. Larsen & Tubro v. Prime Displays P. Ltd. – (2002) SCC Online Bom 267
x. The Superintendent Office v. The Registrar, Tamilnadu – (2010) SCC Online Mad 108
xi. Ajit Jain v. Union of India – (2000) SCC Online Del 92
(xii)Pradeep Kumar Singh v. State of U.P. – (2006) SCC Online AII 1056
(xiii)Department of Income Tax v. S.R. Batliboi & Co. – (2009) 17 SCC 767
(xiv)Jignesh Farshubhai Kakkad v. Director of Income-Tax – (2002) SCC Online Guj 407
7. On the other hand, learned Additional Solicitor General Mr. N. Venkataraman assisted by learned senior standing counsel Ms.Maithili D. Mehta, learned advocate Mr.Nachiket D. Mehta and learned advocate Ms.Kinjal H. Trivedi for respondent Nos.5 to 11 and learned senior standing counsel Mr. Varun Patel for respondent Nos.1 to 4 vehemently opposed the petition and articulated their submissions in three parts by providing written brief note.
5. The substantial questions of law raised under this part are as follows:
A. Could the Income-Tax department have searched and seized any document that are inside the Advocate’s (Writ Petitioner) office/residence in relation to the said case.
I. Assuming that question (A) is answered on the affirmative, does the Income-tax department have the Right to seize document of third-parties who have benefited by evading tax through the services offered by the Writ Petitioner, that were available in the Writ Petitioner’s office/residence?
II. Assuming that question (A) is answered on the affirmative, does the Income-tax department have the Right to seize documents of other third-parties who have not benefited by evading tax through the services offered by the Writ Petitioner, that were available in the Writ Petitioner’s office/residence?
PRE- SEARCH
6. Before we dwell into the above legal questions, it is important to make note of why the Writ Petitioner who is a practicing Advocate, is a target person as per section 132 of the Income Tax Act, 1961.
Role of the Writ Petitioner in the Present scheme of Evasion
7. The Writ Petitioner specializes in providing services/advise in land dealings. Gujarat’s land pricing framework is peculiar in terms of the difference between the jantri rate and the market rate. The huge differences between the price at which the sale deed gets executed and the total consideration actually paid, paves ways for the running of a parallel black economy.
8. Here comes the significance of drafting documents containing details of actual value of the property/land, which is quite high, as compared to the registered sale deed value of the property. These documents (MOUs/‘Banakhats’ and others) lay down terms and conditions of the total payments made/to be made, and the role of an advisor in drafting these documents is pivotal because the documents, when drafted in a certain way, can aid the parties under the transaction to conceal the unaccounted cash and save themselves from the clutches of the Income-Tax authorities. The Writ Petitioner specializes in drafting such documents and that has been corroborated from the unregistered notarized land documents found and seized from the office/residence.
9. This makes the Writ Petitioner who was searched, a predominant party to the said tax evasion, making him an assessee under the Income Tax Act, 1961, and not merely an Advocate for the buyer and/or seller.
10. The evidence seized in shocking volumes in-cash and other documents in physical as well as digital at the Writ Petitioner’s office/residence to substantiate the above illustration and conclusion, and the fact that this search was not based on a mere conjecture premised on guess-work, but is a result of detailed investigation by the Income-Tax department for more than six-months, forming part of a comprehensive satisfaction note, has already been shown in sealed covers to the Hon’ble Court.
A. Allegations with respect to the substantial question of legality of the search action
11. All the averments with respect to satisfaction of section 132 of the Income Tax Act, 1961, were comprehensively dealt with in the Affidavit in reply of Respondent no. 3 dated 13.12.2023 at para no. 71 to 73, para no. 75 to 83, para No, 94, 103, 104. However, the said arguments and the rebuttals made in the court are reiterated and rephrased as below:
| 1. | Petitioner’s averment:
Conditions of section 132 of the Income Tax Act, 1961, were not fulfilled. |
| Counter Arguments:
A. It is respectfully submitted that the Income Tax Department’s action was in strict compliance with the provisions of Section 132 of the Income Tax Act, 1961.The Respondent No. 3 while exercising powers under Section 132(1) requires reasons to believe to proceed further. The conditions laid down in section 132(1)(b) and (c) were satisfied. B. Section 132(1)(b) pertains to a scenario where any person could be searched, if there are reasons to believe that such person is in possession of any document, which would be useful or relevant for the purpose of proceedings under the Income Tax Act, which if requisitioned by the authority, would not be produced by such person. In the case of the Petitioner, the Respondent No 3, had reasons to believe that the Petitioner was in the possession of documents reflecting unaccounted and clandestine land dealings, entered into between parties to circumvent the rule of law. A detailed narration in this regard is available in the satisfaction note, which stands submitted in a sealed cover and seen by this Hon’ble Court during the course of hearings in the matter. This goes to show that Section 132(1)(b), which is one of the circumstances under which a search can be conducted, stands duly fulfilled in the case of the Petitioner. C. Further, the Respondent No. 3 also had reasons to believe to proceed under Section 132(1)(c). There was sufficient material and information gathered as discussed in the Satisfaction Note, which goes to show that the Petitioner was in possession of money/cash, which has not been disclosed for the purpose of the Income Tax Act, and represents undisclosed income of the Petitioner. The fact that during search operations, cash of INR 65,53,500 (out of which INR 60,00,000 was seized) was found at the office premises of the Petitioner, fortifies this action which was taken under Section 132(1)(c) also. |
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| 2 | Petitioner’s Averment:
The Petitioner cannot be searched to obtain materials pertaining to a third party. |
| Counter Arguments:
A. There was sufficient material and information gathered as discussed in the Satisfaction Note, which goes to show that the Petitioner was in possession of money/cash, which has not been disclosed for the purpose of the Income Tax Act, 1961, and represents undisclosed income of the Petitioner. So, the question of searching the Petitioner to obtain information on third parties is a faint plea without any substance. Also, several incriminating materials have been found vis-à-vis the Petitioner himself, which proves that the belief framed by the department against the petitioner was right on point. B. In arguendo, assuming this to be the case, the provisions of the Income Tax Act, 1961, still supports the Department’s case. A search is done for the premises where there is a reason to believe that any material pertaining to Tax evasion would be found. It is not necessary that the search has to be conducted at the place of the person / party who is suspected to evade tax. This is also borne out from a plain construction of Section 132. C. The expression employed in Section 132(1)(b) permits “any person” to be searched in relation to “any document” which will be useful for or relevant to “any proceeding” under the Income Tax Act, where there is a reason to believe that such person would not produce the same. The expression “any person” “any document” and “any proceeding” search action has been permitted against any party, which will include the Petitioner herein, if there is reason to believe that he is possession of documents which would be useful for or relevant to the Income Tax Act. This condition squarely gets satisfied in the present case. D.Further, Section 132(1)(c) also employs a similar expression and permits “any person” to be searched if there are reasons to believe that he is in possession of “any money bullion, jewelry or other valuable article or thing” and if they represent income for the purpose of the Act. This aspect has also been elaborated above. E. Therefore, Section 132 does not put any embargo on conducting search at a place for gathering evidence with respect to the third parties, especially when clear reasons have been recorded to that effect that documents containing huge unaccounted transactions pertaining to third party will be found at his place. F. The ‘Satisfaction Note’ shown to the Hon’ble Court in the sealed cover would indicate that the satisfaction for the reasons to believe in the case of the petitioner himself is separately and clearly recorded in the Satisfaction Note. The satisfaction clearly draws out that the petitioner has an expertise in providing advice in land related matters. As per the material available on record and also recorded in the Satisfaction note, he not only aids in drafting of land documents having details of unaccounted transactions, but also facilitates the storage/safe keeping of many such documents which interalia includes one such deal between Mr. Vivek Patel and Trikam Patel, wherein two separate MOUs pertaining to the same land and same time indicating two separate transaction values were being secreted at the office of the petitioner. G. The facts recorded in the satisfaction note, as stated above have been squarely corroborated with the findings of the search as the search action has resulted into seizure of Rs 60 lakhs of unexplained cash and recovery of numerous documents pertaining to land deals of the petitioner and many third parties/clients indicating substantial tax evasion, to whom the petitioner has not only aided in providing advice/drafting service but has also provided a safe place for secretly keeping such documents. H.Moreover, it is also to submit that once the search operations begin, whatever incriminating evidence is found by the authorized officers, is liable to be searched and seized if prima facie found to be in breach of provisions of Income Tax Act. Therefore, search is conducted on a premise to find material involving tax evasion. An officer of income tax can never turn his eyes blind, when he finds incriminating (tax evading) material beyond what is sought for in the satisfaction note. This too can never be the intention of the Parliament. Also, the Hon’ble Supreme Court of India in the case of ITO Vs Seth Brothers, 1969 (74) ITR 836 (SC) (Pgs. 5-14, VOL I of convenience compilation) has held that: “the Act and Rules do not require that the warrant of Authorization should specify the particulars of documents and books of accounts: a general authorization to search for and seize documents and books of account relevant to or useful for any proceedings complies with the requirements of the Act and the Rules. It is for the officer making the search to exercise his judgement and seize or not to seize any documents or books of account. An error committed by the officer in seizing documents which may ultimately be found not to be useful for or relevant to the proceeding under the Act will not by itself vitiate the search, nor will it entitle the aggrieved person to an omnibus order releasing all documents seized.” I.As submitted during the course of hearing in High Court on 18.12.2023, section 132 (1) (b) & (c) r.w.s 148 r.w.s 148A w.e.f from 01.04.2021 entitles the respondents to seize the material pertaining to third parties and utilize the same for their assessment purposes. For the sake of ready reference, the prevailing relevant provision of the Income Tax Act, 1961 with respect to dealing with the material/data found & seized during the course of search action in the case of any other persons (not searched), are reproduced hereunder: Issue of notice where income has escaped assessment. 148. Before making the assessment, reassessment or recomputation under section 147, and subject to the provisions of section 148A, the Assessing Officer shall serve on the assessee a notice, along with a copy of the order passed, if required, under clause (d) of section 148A, requiring him to furnish within [a period of three months from the end of the month in which such notice is issued, or such further period as may be allowed by the Assessing Officer on the basis of an application made in this regard by the assessee], a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139: Provided that no notice under this section shall be issued unless there is information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment in the case of the assessee for the relevant assessment year and the Assessing Officer has obtained prior approval of the specified authority to issue such notice: [Provided further that no such approval shall be required where the Assessing Officer, with the prior approval of the specified authority, has passed an order under clause (d) of section 148A to the effect that it is a fit case to issue a notice under this section:] Explanation 2.—For the purposes of this section, where,— (iv) the Assessing Officer is satisfied, with the prior approval of Principal Commissioner or Commissioner, that any books of account or documents, seized or requisitioned under section 132 or section 132A in case of any other person on or after the 1st day of April, 2021, pertains or pertain to, or any information contained therein, relate to, the assessee, (emphasis supplied) the Assessing Officer shall be deemed to have information which suggests that the income chargeable to tax has escaped assessment in the case of the assessee [where] the search is initiated or books of account, other documents or any assets are requisitioned or survey is conducted in the case of the assessee or money, bullion, jewellery or other valuable article or thing or books of account or documents are seized or requisitioned in case of any other person. On a plain reading of above provisions of the Income Tax Act, 1961, it emerges that any books of accounts or documents seized or requisitioned under section 132 or section 132A in case of any other person on or after the 1st day of April, 2021, pertains or pertain to, or any information contained therein, relate to, the assessee, the same is required to be acted upon by the Assessing Officer of such assessee. Here the provisions of the Act is clearly speaking about an assessee who has not been covered during any search action, but any books of accounts or documents pertaining to him have been seized during search action on some other person who has been searched. This necessarily means that such third party data, if seized from premises of another person who has been searched, can be acted upon during the assessment proceedings. Also, prior to enforcement of section 148A since 01.04.2021, the department was entitled to seize and use the material pertaining to third parties (not searched) in assessment proceedings as per the provisions of section 132 (1) (b) & (c) r.w.s. 153C of the Act w.e.f 01/06/2003. The same was also applicable before 01/06/2003 through the provisions of section 132 (1) (b) & (c) r.w.s. 132(7). The above provisions of the Act unambiguously put the intent of the legislature that there is no embargo/restriction whatsoever on seizure of any documents or books of accounts, which pertains to, or any information contained therein, relate to any person other than the person searched. |
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| 3 | Petitioner’s Averment:
The Search was conducted to get hold of the original copy of a memorandum of Understanding for a sale of land between one Mr. Vivek Patel and one Mr. Trikam Patel which was merely drafted by the Petitioner’s office. No action u/s 132 of the Act can be undertaken upon the petitioner to retrieve the said document. |
| Counter Arguments:
A.As recorded in the Satisfaction Note, there was a discreet information available with the department that the petitioner assists his clients, in an illegal manner, in carrying out land transactions involving huge amounts of unaccounted cash and thereby defrauding national exchequer and facilitating his client in violating various provisions of Income Tax Act, 1961 and his office premises are used not only for facilitating the drafting of such illegal transactions but also as a safe harbor for secreting / secretly keeping the documents involving unaccounted cash transactions. The action of the department was aimed at searching many such illegal transactions aimed at Tax Evasion that the petitioner is facilitating for drafting and secreting at his office premises. B.It is also to submit that this was simply not the case that search was conducted to obtain one single MoU. However, assuming it to be so, the expressions employed in Section 132 would still permit the Department to carry out search actions, even though for a single MoU. It is trite law that warrant of authorization of search is not issued for any particular document or piece of evidence but for an entire premises and the discretion is vested on the searching authorized officer to seize a particular material at the time of search, if the officer is satisfied that the conditions prescribed under Section 132 are met. |
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| 4 | Petitioner’s Averment:
The petitioner could have been summoned to produce the documents as the petitioner is a permanent resident of the address mentioned in the cause title and a regular practitioner as an Advocate since 2003. If the petitioner would have been summoned to produce the document, there was no chances of the petitioner fleeing from the summons and therefore there were no satisfactory reasons to conduct search and seizure without following due procedure of law. |
| Counter Arguments:
A.In the case of the petitioner there was unprejudiced reasons to believe that the petitioner was aiding his clients in drafting and facilitating the storage / secreting of many illegal documents having bearing on Income Tax Act, 1961. The action of the department was aimed at searching many such illegal transactions aimed at Tax Evasion that the petitioner is facilitating for drafting and secreting at his office premises. There is a clear satisfaction noted that he would not produce or cause to be produced any books of account or other documents which will be useful for, or relevant to, any proceeding under the Indian Income-tax Act. A detailednarration in this regard is available in the satisfaction note, which stands submitted in a sealed cover and seen by this Hon’ble Court during earlier hearings in the matter. B. As discussed in the preceding paras, the documents that were believed to be secreted and stored in aclandestine manner by the petitioner in a sealed cover,are neither registered with any authority nor are available in the state government records. Consideringsuch nature of the documents it cannot be expected by any logical mind that they will be provided in response to summons of the department. C.The petitioner specializes in providing advise for landrelated matters including the method of draftingdocuments containing details of huge unaccounted transactions, so the said document even if found by thedepartment would not clearly and easily specify the cash/unaccounted portion of the transactions. Also, it was believed that such clandestine/incriminating documents were stored in a clandestine manner so that they are not easily accessible even to the parties of the transactions. In the backdrop of these facts and also on the basis of years of experience of the department, as has been generally noticed in such casesover the years, unregistered documents are never provided in response to summons. D.Thus, it was reasonably apprehended that petitioner would not respond to the summons or would not produce the documents which may be useful for proceedings under the Income Tax Act before the Department. As a result, issuance of such summons would have lead to disclosure of information available with the department, which might have resulted in destruction of evidences, defeating the entire attempt to unearth the documents and materials having large bearing on Income Tax Act, 1961, which have been now unearthed by way of conducting search action. Therefore, it was areasonable belief drawn by the Respondent No. 03 that the assessee shall not produce or cause to be producedany books of accounts or other documents which would be useful or relevant to the proceedings under the Act. |
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| 5. | Petitioner’s Averment:
The search action is without jurisdiction and in violation of Instruction 07 of 2003 dated 30.07.2003. B.The Instruction is aimed at protecting Professionals Excellence, without there being compelling evidence and confirmation of substantial tax evasion; whereas in the present case the discreet intelligence gathered by the department provide enough evidence indicating substantial tax evasion; and the same have also been produced before the Hon’ble Court. C.The intent behind the instruction was completely different from what is being utilized for by the petitioner. As per the opening statement of this instruction, it becomes evident that the main purpose of bringing the instruction was to focus on high revenue yielding cases and to make optimum use of the available manpower, which has been rightly done so the case of the petitioner as documents suggesting more than 150 crores of unaccounted transactions have been unearthed from just one premises of the petitioner. |
Conclusion:
12. All the ingredients of Section 132 of the Income Tax Act, 1961, have been satisfied in all its form and content. The material available on record and the resultant satisfaction note clearly spells out the reasons to believe with respect to the petitioner himself, the builder group that was searched and also with respect to other third parties. Consequent to the search action, evidences on all the three limbs of the satisfaction note having huge implications on the Income Tax Act have been found and seized. The seizure and consideration of such material is clearly supported by the provisions of the Income Tax Act, 1961, as discussed supra. So, the search action carried out in the case of petitioner u/s 132 of the Act is valid as has also been expressed by the Hon’ble court during the court proceedings.
13. Nowhere in all these years of jurisprudence has any judicial forum even remotely interpreted Section 131(1A), Section 132(2)(b), Section 132(2)(c) and Section 148, to limit an exercise of search and seizure only to the extent of the parties that the Department is aware of, and return anything and everything related to any other party even though they may be involved and may have been benefited in the scheme of tax evasion facilitated by the Petitioner.
14. There is no provision to suggest that the an Advocate under the Advocates Act, 1961, cannot be a target person under Section 132 of the Income Tax Act, 1961 for the purpose of Section 131(1A), Section 132(2)(b), Section 132(2)(c) and Section 148 (which states “any person or class of persons”).
POST- SEARCH
A. Allegations with respect to violation of Attorney client Privilege
15. All the averments with respect to violation of Attorney client Privilege, were comprehensively dealt with in the Affidavit in reply of Respondent 3 dated 13.12.2023 at para no. 84 to 87. However, the said arguments and the rebuttals made in the court are reiterated and rephrased as below:
1. Petitioner’s averment:
Most of the digital data/physical documents seized from the Petitioner’s office during the search does not belong to Petitioner but to his clients and have been drafted/documented by the Petitioner in his professional capacity thus covered under the sanctity of attorney- client privilege (Section 126 of the Indian Evidence Act)
Counter Argument:
A. It was repeatedly contended that since the Writ Petitioner is an advocate, anything and everything within the premises of his office/residence is covered under attorney-client privilege, and that what is incriminating viz-a-viz the three builders may be seized, but what relates to third parties other than the three builders, has to be returned. The same can be countered with Section 126 itself, which states as follows:
No barrister, attorney, pleader or vakil, shall at any time be permitted, unless with his client’s express consent, to disclose any
communication made to him in the course and for the purpose of his employment as such barrister, pleader, attorney or vakil, by or on behalf of his client, or to state the contents or condition of any document with which he has become acquainted in the course and for the purpose of his professional employment, or to disclose any advice given by him to his client in the course and for the purpose of such employment:
Provided that nothing in this section shall protect from disclosure-
1. any such communication made in furtherance of any illegal purpose,
2. any fact observed by any barrister, pleader, attorney or vakil, in the course of his employment as such, showing that any crime or fraud has been committed since the commencement of his employment. It is immaterial whether the attention of such barrister, pleader, attorney or vakil was or was not directed to such fact by or on behalf of his client.
Explanation – The obligation stated in this section continues after the employment has ceased.
Illustrations
a. A, a client, says to B, an attorney –– “I have committed forgery, and I wish you to defend me.” As the defence of a man known to be guilty is not a criminal purpose, this communication is protected from disclosure.
b. A, a client, says to B, an attorney –– “I wish to obtain possession of property by the use of a forged deed on which I request you to sue.” This communication, being made in furtherance of a criminal purpose, is not protected from disclosure.
c. A, being charged with embezzlement, retains B, an attorney, to defend him. In the course of the proceedings, B observes that an entry has been made in A’s account book, charging A with the sum said to have been embezzled, which entry was not in the book at the commencement of his employment. This being a fact observed by B in the course of his employment, showing that a fraud has been committed since the commencement of the proceedings, it is not protected from disclosure.
B.Three things are apparent from the above provision:
a. Any professional communication between a lawyer and a client in the course and for the purpose of such employment by the client of his lawyer is protected by privilege (which is a right enforceable by the client and not by the lawyer).
b. The said professional communication moves away from the blanket of privilege when it is made in furtherance of any illegal purpose. (Illustration b)
c. the privilege is not available for any transaction which shows that a fraud has been committed, which an Advocate observes during the course of his employment. (Illustration C)
Petitioner aiding his clients for furtherance of illegal purpose.
C. It is respectfully submitted that the assessee specializes in providing services/advise in land dealings. Gujarat’s land pricing framework is peculiar in terms of difference between the jantri rate and the market rate. The huge differences between the price at which the sale deed gets executed and the total consideration actually paid, has direct impact under the income tax proceedings. The assessee specialises in drafting and providing advice for both sets of documents/ MoUs/Banakhats for the same transaction, one having the actual market value of the transaction, and other being the sale deed value. Since the assessee is involved in drafting/advising of such documents, his activity is clearly in furtherance of illegal purpose of helping the assessee in evading income tax and is clearly covered by illustration(b) above. Further, since he is involved in the drafting/advising of such illegal documents, the same would have been clearly observed by him during the course of his employment and would clearly fall under illustration (c) above. It has also been held by Hon’ble United States Court of Appeals For the Ninth Circuit (pg. 339, Vol II) and further upheld by the Hon’ble Supreme Court of the United States (pg 340 -353, Vol. II) that the primary purpose should be adopted when any communication/advise is made with a dual purpose. In the instant case, as described supra, the primary purpose of advice by the petitioner was giving advice for drafting of such illegal documents for the furtherance of tax evasion and not legitimate/legal advice. Hence, these communications/documents/advise does not pass the test of ‘primary purpose’.
D. Apart from drafting/advising of illegal documents, his office is also used as a safe place to store such documents in a clandestine manner. Hence, undoubtedly, the petitioner is directly involved in helping his clients to evade tax under the Income Tax Act. Such documents gets squarely covered under the proviso of section 126 of the Indian Evidence Act i.e aiding his clients for furtherance of illegal purpose. Therefore, the claim of the petitioner for protection of third party documents u/s 126 of the Indian Evidence Act is unsustainable. If such blanket immunity is provided to the premises of the petitioner, then in places like Gujarat where there is a huge involvement of unaccounted money in property transactions, all the businessman would prefer to keep all their documents at a place of lawyer or would start cohabitating their offices with the office of the lawyer and such places would turn into tax havens. Thus, it is prayed that the immunity sought by the petitioner merely because he happens to be a lawyer, is ill founded and liable to be rejected.
Separation of Incriminating and non-incriminating digital data
E. Much has been debated about the separation of incriminating and non-incriminating data in the court. It is humbly submitted that the identification and separation of incriminating documents in the digital data was not possible on the premises owing to the fact that the process is quite time consuming and also can lead to changes in hash value. The detailed procedure is described in the technical note annexed as Annexure-A to the counter affidavit filed on 23.01.24. During the post search proceedings, the digital data that is prima facie found to be incriminating would pass through a series of investigation like calling for data from the third parties like sub-registrar office, comparing the documents with the land records in the open source and taking statements of the third parties to the transaction before reaching to the conclusion that it is incriminating for the purpose of Income Tax Act. Thus, Appraisal report will be prepared on the basis of such verifications and enquires. The Appraisal report along with the complete seized material will be shared with the Jurisdictional/Central assessing Officer, who will analyze the data and form his own independent opinion with regards to the incriminating nature of the evidence. It is the Assessing Officer who will analyze the data and frame Assessment order after giving enough opportunity to the assessee. The material seized cannot be retained by the assessing officer beyond a certain period and can be released by him only after the assessment order is framed. Thus, two things can be construed:
1. That separation of incriminating and non-incriminating is not possible at this stage of investigation.
2. That the third parties will get many opportunities of being heard before the data is used against them.
It is premature to term an evidence inadmissible relying on the attorney client privilege u/s 126, when the evidence/data has not been seen/enquired in entirety and when the statutory provisions have not taken its regular course.
Fate of the non-incriminating material
F. It is important to state at this juncture that in all the investigations carried out in the country for all the years, the data that is not found to be incriminating has always been protected by the department and has been kept in safe custody and needless to say, the same will be done in this case, completely protecting the privacy of the petitioner and the third parties involved.
Reliance on section 126 is without any underlying justification
G. Though the petitioner is again and again relying on section 126 of the Indian Evidence Act, he has neither in his affidavit nor during the course of hearing, has provided any list of documents which he contests to be covered by client-attorney privilege. Further, other than making a general claim of being an advocate, the petitioner has not provided any evidence as to how each of such document is covered by such privilege. The blanket claim that all the third-party documents are covered by such privilege, is clearly beyond the provisions of law.
Section 126 is the Right of the Client And Not The Advocate
H. Not even a single client whose documents have been seized has approached court or has become a party to the writ petition to challenge such seizure on the grounds of attorney- client privilege. The privilege enshrined in the section 126 of the Indian Evidence Act is of the client per se and not of the attorney in the first place. The client will have multiple opportunities to contest the seizure when being summoned/ questioned by the income tax authorities. Also, the adjudicating authorities on case-to-case basis can decide if the attorney client privilege should be accorded to a particular seizure or not. But at this stage the petitioner is trying to derail the entire process of investigation by invoking section 126 of the Indian Evidence Act, that too without giving any specific reasons/details of the matters to be pleaded in court with respect to third parties whose documents have been seized.
I. There are case laws that also support that the privilege under Section 126 of the Evidence Act, 1872, is available only to the client and not the Advocate. In this regard, reliance is placed on Gurunanak Provisions Stores v. Dulhonumal Savanmal and Others, 1993 SCC OnLine Guj 45 (At Pgs. 315 – 320, VOL II of the convenience compilation), which states the following:
“18. The privilege contemplated in the aforesaid provisions is a privilege of the client and not of the professional adviser. The legal adviser, therefore, is bound to claim the privilege unless the client has given consent. The privilege does not depend upon the client being a party to the proceeding. When the client is not a party, neither party to the proceeding can claim the privilege.”
Also, the same was stated by the Hon’ble Madras High Court in Ayeasha Bi v. Peerkhan Sahib, 1953 SCC OnLine Mad 3 (At Pgs. 295 – 314, VOL II of the convenience compilation), where it was held that:
“57. In this connection a strange misconception seems to prevail that the reply notice of the lawyer or his stating that what he did was in accordance with his instructions or not in excess of his instructions, is a breach of the provisions of Section 126, Evidence Act. Section 126, as has already been explained, has been enacted for the
protection of the client and not of the lawyer; and it is founded on the impossibility of conducting legal business without the professional assistance and on the necessity in order to render that assistance effectual, of securing full and unreserved intercourse between the two. The privilege is the privilege of the client and not of the legal adviser. The latter is therefore bound to claim the privilege unless it is waived by his client expressly under Section 126 or impliedly under Section 128, e.g., by examining the legal adviser as to the privileged communication.
Therefore, even it is being ruled by various courts that contention on Section 126 can only be raised by the client and not by an Advocate, especially when the said Advocate is himself the target assessee of the search action u/s 132 of the I T Act.
2. Petitioner’s averment:
The counsel of the petitioner has relied upon the judgement in the case of Department of Income Tax (Investigation) and Another v. S.R. Batliboi and Company and Others, (2009) 17 SCC 767.
Counter Arguments:
B. The Hon’ble Court relying Section on 126 of the Evidence Act, 1872, and on Batliboi (Supra), insisted to appoint an independent authority to deliberate on what is incriminating and what is non-incriminating, as neither party would be able to come to consensus on the same.
E. However, the present case cannot be seen in the light of Batliboi (Supra) as the facts of petitioner’s case can be clearly distinguished from the facts that led to the case in Batliboi (Supra). The brief facts of the Batliboi case are that when the Income-Tax Department was conducting a search action on the assessee, the EMAAR-MGF Group, one auditor from S.R. Batliboi and Co. firm, who was not at all the target assessee for the department and accidently happened to be at the premises of the target assessee and two laptops belonging to this auditor firm, who happened to be accidently present there were also seized during the search. When the question of whether the laptops could be kept under seizure was deliberated, the Hon’ble Supreme Court held that the laptops will have to be returned, however it also held that all the data on the laptops must be made available for inspection by the Income-Tax Department to verify if it pertains to the target assessee in question. In fact, vide paras 3 and 4, it held that:
“3. The respondents shall provide authenticated hard copies of the data pertaining to EMAAR-MGF Group to the Department. The Income Tax Department is permitted to inspect the data contained on other files/folders relating to the 46 other parties but this data shall not be copied in any form. If, according to the assessing officer, the files/folders pertaining to any of the 46 other parties are connected with the EMAAR-MGF Group and would be required by the assessing officer for making a proper assessment on the EMAAR – MGF Group, this may be pointed out in writing to the representative of S.R. Batliboi & Co. along with the material/reasons relied upon by the Income Tax Department for making its claim.
4. It shall then be open to S.R. Batliboi & Co. after considering the said material/reasons either to consent to the said claim made by the Income Tax Department or, alternatively, to challenge the same by adopting appropriate proceedings for this purpose. In the event of S.R. Batliboi giving its consent or alternatively, failing in its challenge to the said claim made by the Income Tax Department, S.R. Batliboi & Co. shall then make available a hard copy of the contents of the said connected files/folders.”
C. What is clear from the above excerpt is that Firstly, S.R. Batliboi & Co. was never the target assessee in the first place and hence, it is understood that no reasons were recorded against him, there was no material/information with the department to search him. But because he accidently happened to be present at the premises of the target person, the data in the laptops belonging to him were also seized. However, the facts of the petitioner’s case are poles apart as the Petitioner himself was the target assessee whose reasons to believe were clearly recorded, relying upon the material and information available with the department in his own case and so the warrant of Authorization was issued in the name of the Petitioner himself for his office premises and residential premises. The digital data was cloned from the devices which directly belonged to the petitioner which contained petitioner’s data including that of third parties in which he has aided and abetted tax evasion. Thus, there is no question of separating the data pertaining to the target assessee as ruled by the Hon’ble Supreme Court in the case of S. R. Batliboi and Co.
D. Secondly, any document connected to the target assessee which would be required by the assessing officer for making a proper assessment on the target assessee group, was directed to be handed over as per the judgement in the case of S. R. Batliboi and Co. In the facts of the present case, since the digital devices were seized from the office of the petitioner, all the files therein would be connected to the target assessee (petitioner), and would be required by the assessing officer for making a proper income assessment of the petitioner.
E. Thirdly, even in Batliboi (Supra), the Assessing officer was given the liberty to choose what he/she deemed as relevant to the case of target assessee. In case S.R. Batliboi & Co., disagreed, it had the liberty to challenge it. There was no question of appointing an independent authority to deliberate on what files were incriminating and non-incriminating. In fact, the Judgement clearly states that any document related to the target assessee has to be handed over despite it being either incriminating or non-incriminating.
f. If such was the standard established by Batliboi (Supra) in ruling in favour of a party who was not even the target assessee, to stretch what the Hon’ble Supreme Court had said and appoint an independent authority to deliberate on the nature of the documents seized in the Writ Petitioner’s office/residence will be unheard of in any law. In fact, to solve this problem, the Hon’ble Supreme Court merely states that S.R. Batliboi & Co., had all the liberty to challenge the Assessing Officer’s determination on what is relevant to the assessee.
g. Further, if for any reason, any of the Writ Petitioner’s clients feels that Section 126 has been violated by the Income-Tax Department, the same maybe challenged before the appropriate forum. However, to appoint a middleman to solve the same is to create one more layer of litigation which neither the law, nor the Hon’ble Supreme Court has provided any scope for. Also, only the department has necessary knowledge and expertise to identify, investigate and determine what is incriminating and violative in terms of Tax Laws and it is prayed that at this pre-investigation stage that right of the department may be protected by the Hon’ble court.
In light of this, the Writ Petitioner’s reliance on Batliboi (Supra) has to be squarely rejected.
3. Petitioner’s Averment:
The counsel of the petitioner has also relied upon the judgement of hon’ble Supreme Court of India in the case of District Registrar and Collector, Hyderabad and another v. Canara Bank and Others, 2005 1 SCC 496.
Counter Arguments:
C. While relying on this case law, specifically, the petitioner’s counsel had brought the kind attention of the Hon’ble court at Para 46 of the said judgment. Para 46 of the said judgment reads as under:
“Bank and its customers – confidentiality of relationship
46. It cannot be denied that there is an element of confidentiality between a bank and its customers in relation to the latter’s banking transactions. Can the State have unrestricted access to inspect and seize or make roving inquiries into all bank records, without any reliable information before it prior to such inspection?
Further, can the Collector authorize “any person” whatsoever to make the inspection, and permit him to take notes or extracts? These questions arise even in relation to Section 73 and have to be decided in the context of privacy rights of the customers.”
F. One serious point raised by the Hon’ble Supreme court in the aforementioned para is “to make roving enquiry, without any reliable information before the dept prior to such inspection”. It is respectfully submitted that in the case of petitioner no roving or fishing inquiry was made. The dictionary meaning of the phrase “roving enquiry” is “to ask questions which are not at all connected with the subject matter”. In the case of petitioner, there was sufficient material and information on the record and on the basis of which reasons to believe in the case of petitioner himself was separately and clearly recorded in the Satisfaction Note. There was sufficient material and information available on record which suggested that the petitioner assists his clients, in an illegal manner, in carrying out land transactions involving huge amounts of unaccounted cash and thereby defrauding national exchequer and facilitating his client in violating various provisions of Income Tax Act, 1961 and his office premises are used not only for facilitating the drafting of such illegal transactions but also as a safe harbor for secreting / secretly keeping the documents involving unaccounted cash transactions. Thus, the department knew what it was looking for before searching the target assessee. The department was aware of the nature of transactions, documents that will be found at his office/residence and that belief of the department has been proved true as the documents suspected to be found have been actually found and seized, the sample of which was also shown to the hon’ble court in the sealed cover.
C. It will not be out of place to mention here that the relationship between a bank and its customer cannot be compared with the relationship between the petitioner and his clients, as the petitioner was involved in aiding his clients in drafting illegal documents and facilitating the storage/secreting of many such illegal documents having bearing on Income Tax Act, 1961.
In view of the above, it is clear that the facts in the case of District Registrar and Collector, Hyderabad and Another vs. Canara Bank and Other are not at all identical to the facts in the present case. Thus, reliance of the petitioner’s counsel on the judgments and para discussed supra cannot be accepted.
4. Petitioner’s Averment:
The counsel of the petitioner has also relied upon the judgement of hon’ble Supreme Court of Canada in the case of Attorney General of Canada v. Federation of Law Societies of Canada, 2015 SCC OnLine Can SC 2.
Counter Arguments:
A. The Petitioner’s reliance on the case of Attorney General of Canada v. Federation of Law Societies of Canada, 2015 SCC OnLine Can SC 2 is completely flawed and out of context. This is because the facts of the case are completely different from the present matter. In Canada (supra), since there was an apprehension that a lawyer, financier or accountant may be involved in funding of terrorist activities, legal provisions regarding anti- terrorist financing subjected them to unreasonable searches. The facts of the present case cannot be brought under the said judgement as there is no provision in the Income-Tax Act, 1961, or any other legislation that says that Lawyers in India cannot be searched. Moreover, it is respectfully reiterated that this search was not conducted on a guess work, but is one of the biggest searches in recent history based on sufficient information that formed a strong “reason to believe”, which are all recorded in the satisfaction note. Applying this judgement would be to read into Section 132, that Lawyers in India cannot be searched, completely in converse to the legislative intent. For Canada (supra) to be applied, there ought to have either been a law that states that lawyers cannot be searched, or a law that states that lawyers can be searched. Neither is present in the Income-Tax Act, 1961.
B. It is submitted further that, on the contrary, as per Criminal Procedure Code, Section 91, summons can be made for production of documents by the court/police and only the records mentioned in section 123 and 124 of the Indian Evidence Act i.e documents relating to affairs of State and official communications are protected. No such protection is carved out for section 126 of the Indian Evidence Act by the legislature. If there cannot be any immunity for summoning documents protected u/s 126, under section 91 of the CrPC, it can also not be restricted to be searched and seized under CrPC under section 94 or for that matter under Income Tax Act u/s 132, as by virtue of section 132(13) of the Income Tax Act, the provisions of Criminal Procedure Code relating to searches and seizure shall apply to the searches and seizure under section 132 of the Income Tax Act. It may be important to note that powers of police to search the lawyer’s office is well recognised and ruled by the Hon’ble High Court of Allahabad in the case of Ganga Ram Versus habib-Ullah and Another, 1935 SCC Online All 310 (page no 287 to 290, VOL II convenience compilation).
Therefore, ruling in favour of the petitioner by relying on Canada (supra) is nothing more than subscribing to a one-size fits all approach, which will lead to devastating legislative consequences.
Conclusion: The petitioner’s reliance on Section 126 of the Indian Evidence Act, claiming attorney-client privilege, is not tenable and required to rejected on the grounds that the satisfaction recorded, and documents seized from the petitioner’s office/residence, which are in corroboration to each other, reveal a pattern of facilitating illegal activities resulting into huge tax evasion and thereby defrauding national exchequer. The petitioner’s involvement in drafting documents with varying values for the same property, storing them in a clandestine manner, and potentially aiding clients in evading taxes raises serious concerns. The argument against the blanket immunity for lawyers’ premises highlights the potential misuse of such protection, turning them into havens for illicit transactions. The petitioner’s attempt to impede the investigation at this nascent stage is not sustainable, especially considering that none of the Petitioner’s clients have come forward to challenge the seizure based on attorney-client privilege. Ultimately, the conclusion asserts the need to allow the statutory process to unfold, ensuring a fair and thorough examination of the evidences in question.
17. Before moving to justifying the manner in which the search and seizure was conducted, from the above submissions, the following can be ascertained:
a. An Advocate who is the target person, is no different than any other target person when it comes to the provisions related to search and seizure under the Income Tax Act, 1961.
b. Section 131(1A), Section 132(2)(b), Section 132(2) (c) and Section 148, does not limit the jurisdiction of the Department from seizing third-party documents.
c. Section 126 of the Evidence Act, 1872, does not bar the Income-tax Department to seize any document that is made in furtherance of any illegal purpose.
d. Section 126 is not a benefit for an Advocate during a search operation, but the Right of the client to claim privilege. Therefore, the Writ Petitioner’s reliance on the same, lacks locus.
e. All third parties who feel that their Right under Section 126 of the Evidence Act, 1872, is violated have plenty of opportunities to contest the same. It is to be noted that till now, not a single client of the Writ Petitioner has come forward stating the same.
PART- II DURING THE SEARCH ACTION
A. Allegations with respect to Hima Patel
18. All the averments with respect to Ms. Hima Patel were comprehensively dealt with in the Affidavit in reply of Respondent no. 3 dated 13.12.2023 at para no.58 to para 66 and at para No. 69. However, the said arguments and the rebuttals made in the court are reiterated and rephrased as below:
1. Petitioner’s averment:
Ms. Hima Patel was forcefully taken to the office premises of the Petitioner.
Counter Arguments:
A. It is humbly submitted that no iota of threat or coercion or force was used on Ms. Hima Patel and the same can be corroborated by seeing the video footage of CCTV Camera Recording made available by the petitioner himself.
B.Ms. Hima Patel has categorically submitted in her statement that she has given her statement voluntarily without any undue force or pressure. Relevant portion from statement of Ms. Hima Patel is reproduced hereunder:
C. The office of the petitioner was her regular place of work and for which she had keys and on seeing and reading the summons, she voluntarily agreed to go to the office.
2. Petitioner’s Averment:
The officers of the Department came to Hima Patel’s house without any warrant.
Counter Arguments:
I. It may be noted that at the residence of Ms. Hima Patel, a warrant was not required because, warrant is a warrant of authorization of search u/s 132 of the Act, and the residence of Ms. Hima Patel was not to be covered under search.
J. The necessary summons was served to her under Section 131(1A) and she has duly received the same under hersignature, without any objection.
3. Petitioner’s Averment:
No lady officer/constable accompanied Ms. Hima Patel.
Counter Arguments:
A. The enormity of search operations at hand demanded huge mobilization of the departmental workforce (about 250) as well as police personnel (about 165) on one hand and on other hand maintaining absolute covertness of the operation. Bearing these facts in mind, one day prior to the planned search, 90 Male as well as 75 female Police personnel were requisitioned under Section 132(2) of the Act from the State Police Department (copy of letter dated 02.11.2023 is attached as Annexure- A). However, only 60 police personnel i.e. 40 male and 20 female police personnels were allotted, thus, with respect to female police personnels, only 26.6% of the total demanded strength was allotted (copy of order dated 02.11.23 is attached as Annexure- B), late in the evening one day prior to the search when the entire logistics, workforce was already mobilized for the search to be carried out early morning, the next day. The department had no other option but to launch the search while accommodating this acute shortage.
B. As per the procedures laid down in search and seizure manual 2007, presence of lady officer/official is compulsorily required where a premises is found to be occupied only by ladies or children. Also, as per the manual, where residential premises are to be searched or where the personal search of a lady may be required, it should be ensured that there is adequate representation of female officers/officials. Serving of summons did not fall in any of these criterias specified in the Manual. Also it is to mention that neither the residence of Ms. Hima Patel was occupied by only lady/children nor it was to be searched. So, the available lady constables which were hardly 20 in number were sent to the residential premises (where lady officers/officials were not available considering the skewed ratio of females in the workforce of the department) on priority basis, following the guidelines laid down in the search and seizure manual 2007. So, it is appropriate to mention at this juncture that not sending a lady official/officer/constable was not borne out of intention but was borne out of dire and unavoidable limitation. Further, as discussed there was no requirement as per the search and seizure manual, 2007 to send a lady officer/constable to serve a summons.
4. Petitioner’s Averment:
The Department took away mobile phones of her and her family members.
Counter Arguments:
K. When the Inspector went to the place of Ms. Hima patel to serve the summons, it was noted that some of the family members tried to intimate about the search through use of their mobile phones. In Income tax searches, secrecy is the key element to establish and maintain sanctity of the search. There are instances where information gets passed on about the search action, and very quickly incriminating material indicative of tax evasion, gets removed from the place of search even before the search team reaches such a place.
L. There are incidences where the devices are operated remotely and through remote access, the digital data is destroyed; and therefore, only to avoid such compromise in the result of the search, they were requested to not to use their mobiles only for a very brief period of time.
5. Petitioner’s Averment:
Ms. Hima Patel was compelled to open the office premises of the petitioner.
Counter Arguments:
A. It was most important to open the office premises as soon as possible because nowadays in the modern digital era, it is a common modus operandi to remotely access the place and wipe out the data available in the digital devices located at the premises being
searched.
B. Also, as stated by the petitioner himself that Ms. Hima Patel was having the access to the keys of premises,which she called for through her brother’s help. The same would indicate that it is a regular place of her work, which was opened by her on request.
6. Petitioner’s Averment:
The name of the official of the Dept. who came to Hima Patel’s house was not made part of Pachanama
Counter Arguments:
M. The Panchnama records the events from the beginning of the search to the end of the search, of the searched premises and the warrant of search was for the office premises; and therefore panchnama was drawn from the time of beginning of the search at the office premises and not from her residence, which was not covered under search action u/s 132 of the Act.
N. The Inspector was tasked with merely serving the summons on Ms. Hima Patel and that once Ms. Hima Patel made herself available for opening the office premises of the petitioner, only then the search started by the search team of which he was never a part and hence, his name was not mentioned in the Panchanama.
7. Petitioner’s Averment:
Ms. Hima Patel was pressurized to remain in the office premises of the Premises of the Petitioner
Counter Arguments:
A. It may be noted that Department wanted to maintain the sanctity of search and in view of the fact that the petitioner himself could not be available to remain present at office, as he was present at his residence where a parallel search was being conducted and therefore, Ms. Hima Patel, who was inextricably involved in the work of the petitioner at the office of the petitioner regularly and who had access to the key of the office, was summoned at the office to remain present in the search proceedings.
B. Ms. Hima Patel was requested to cooperate in the proceedings, which she did voluntarily without any objection. She returned to her own residence at the end of each day’s search and voluntarily returned back every morning to the office premises of the Petitioner, being the responsible person, in front of whom the premises could be searched, in the absence of the Petitioner being physically present in the premises, since it was her place of work.
C. The office of the petitioner was her regular place of work and for which she had keys and on seeing and reading the summons, she voluntarily agreed to go to the office.
2. Petitioner’s Averment:
The officers of the Department came to Hima Patel’s house without any warrant.
Counter Arguments:
A.It may be noted that at the residence of Ms. Hima Patel, a warrant was not required because, warrant is a warrant of authorization of search u/s 132 of the Act, and the residence of Ms. Hima Patel was not to be covered under search.
B.The necessary summons was served to her under Section131(1A) and she has duly received the same under hersignature, without any objection.
signature, without any objection.
3. Petitioner’s Averment:
No lady officer/constable accompanied Ms. Hima Patel.
Counter Arguments:
A.The enormity of search operations at hand demanded huge mobilization of the departmental workforce (about 250) as well as police personnel (about 165) on one hand and on other hand maintaining absolute covertness of the operation. Bearing these facts in mind, one day prior to the planned search, 90 Male as well as 75 female Police personnel were requisitioned under Section 132(2) of the Act from the State Police Department (copy of letter dated 02.11.2023 isattached as Annexure- A). However, only 60 police personnel i.e. 40 male and 20 female police personnels were allotted, thus, with respect to female police personnels, only 26.6% of the total demanded strength was allotted (copy of order dated 02.11.23 is attached as Annexure- B), late in the evening one day prior to the search when the entire logistics, workforce was already mobilized for the search to be carried out early morning, the next day. The department had no other option but to launch the search while accommodating this acute shortage.
B. As per the procedures laid down in search and seizure manual 2007, presence of lady officer/official is compulsorily required where a premises is found to be occupied only by ladies or children. Also, as per the manual, where residential premises are to be searched or where the personal search of a lady may be required, it should be ensured that there is adequate representation of female officers/officials. Serving of summons did not fall in any of these criterias specified in the Manual. Also it is to mention that neither the residence of Ms. Hima Patel was occupied by only lady/children nor it was to be searched. So, the available lady constables which were hardly 20 in number were sent to the residential premises (where lady officers/officials were not available considering the skewed ratio of females in the workforce of the department) on priority basis, following the guidelines laid down in the search and seizure manual 2007. So, it is appropriate to mention at thisjuncture that not sending a lady official/officer/constable was not borne out of intention but was borne out of dire and unavoidable limitation. Further, as discussed there was no requirement as per the search and seizure manual, 2007 to send a lady officer/constable to serve a summons.
19. All the averments with respect to alleged restrictions made on the petitioner and his family members during the search proceedings, were comprehensively put forth in the Affidavit in reply of Respondent no. 3 dated 13.12.2023 at para no. 45 to Para 52. However, the said arguments and the rebuttals made in the court are reiterated and rephrased as below:
1. Petitioner’s averment:
Petitioner was not permitted to go and conduct Court cases
1. Petitioner’s averment:
Petitioner was not permitted to go and conduct Court cases
Counter Arguments:
A. The petitioner was requested to remain present, at every stage of search being carried out at his residence and at his office i.e. drawing of Panchnama, Cash found, Cash Seizure, Jewellery found, Jewelry valuation, Jewelry Seizure, Forensic backup etc. as the presence of the party being searched is needed for establishing the sanctity of search procedure, and accordingly a necessary request was made to the petitioner, which he compiled with, without raising any issues or objections. Copy of Panchanama of his office premises is produced hereunder;
–
family were allowed, if such movements according to the authorized officer, did not have any prima facie negative implication on the findings of the evidence. (many a times contact with an outside person can cause leakage of important information and can jeopardize the search action)
2. Petitioner’s Averment:
Petitioner’s daughter was not permitted to go to college.
Counter Arguments:
A. The contention of the petitioner that his daughter was not allowed to attend college is baseless, false and bereft of truth. The Petitioner or his daughter had never requested to go and attend college. It is respectfully submitted that, on request of the Petitioner, his son, who is also a student, was allowed to go and attend his coaching classes. It is a matter of record, which can be verified from his coaching class. Needless to say, if the daughter of petitioner had informed about her willingness to go to college, she would have been permitted to attend the same as was done in the case of Petitioner’s son.
1. Petitioner’s Averment:
Movement of Petitioner’s son and wife were also restricted.
Counter Arguments:
A. It is respectfully submitted that all the family members were allowed free movement within the house and all the basic necessities of all the family members were duly taken care of including movements of house help (in and out of the house) after following due procedure.
Petitioner’s son was also allowed to attend his coaching classes during the search after following due procedures.
B. Also, on request, the Petitioner’s son was allowed to meet his friend when he visited the house.
C. It is also submitted that the Petitioner and his wife were also allowed to visit the temple on request on the morning of 06.11.2023.
A. The said facts can also be verified from the twoindependent witnesses who were also present at the time of the search being conducted.
B. It may please be noted that efforts were made to accommodate all the requests made as far as possible, if the said requests at the given time were found not to hamper the purpose and conduct of the search action and if the requests were not found to jeopardize the role of authorized officer.
F. Also, necessary Panchanama of the search was drawn, which clearly indicates that there was no element of restriction or force or coercion, and no untoward incident took place. Alleging that the movement was restricted at a later stage clearly suggests that this is nothing but an afterthought to taint the sanctity of the search.
4. Petitioner’s Averment:
The digital devices of the petitioner and his family members were impounded during the duration of the search.
Counter Arguments:
C. The procedures as laid down in Search & Seizure Manual – 2007, Volume-I have duly been followed in this matter. As per the manual, the mobile devices were taken in control by the search team to avoid any manipulation of data stored in the mobile devices, to avoid remote access and manipulation of data stored remotely in other devices and also to avoid any communication with the persons outside the premises as the same would jeopardize the purpose and the conduct of the search.
D. The collection of Digital Evidence was done as per Income Tax Department Digital Evidence Collection Manual. It is submitted that the Income Tax Department is known for being the most digitized department of the Government of India; and performs seizure of Digital Evidence Collection activity strictly in consonance with international standards. Department never intends to paralyze the operations of person / organization and therefore Department always makes a digital clone of the data and hands over the hardware with digital data intact, to the person/organization being searched. Taking control of the Digital Devices (for taking a backup in accordance with the Digital Evidence Collection Manual); found during the search is necessary for the reason that Digital Data is very big in size and the same cannot be analyzed at the premises because, the process of extraction of the digital data is time consuming and can also disturb the hash value of the data thereby disturbing the evidentiary value of digital evidences.
c. The original devices were handed back to the Petitioner and his family members, before the search was concluded.
C. Allegations with respect to search being conducted in an unreasonable manner
20. All the averments with respect to restrictions made on the petitioner and his family members during the search proceedings, were comprehensively dealt with in the Affidavit in reply of Respondent no. 3 dated 13.12.2023 at para no. 67, para no. 68, Para No. 89 to para no. 93 and para no. 95. However, the said arguments and the rebuttals made in the court are reiterated and rephrased as below:
1. Petitioner’s averment:
The digital data within the personal mobile phone and other personal digital devices of the petitioner as well as his wife was copied and the search was in violation of constitutional right of privacy.
Counter Arguments:
A. The Right to Privacy is recognized only under Article 21 of the Constitution of India. This right can always be taken away with the authority of law. In the present case, the authority of law is expressly manifested by the language employed in Section 132(1) of the Income Tax Act. If at all there has been a breach of the right to privacy, such a breach would have the legal sanctity as it was done under the express authority of law.
B.Regarding the right to employment and occupation under Article 19(1)(g), it is trite that this right is subject to reasonable restrictions and Section 132 would certainly qualify as a reasonable restriction.
C.Digital data in the mobile phones and other devices was found to be in large size and to maintain integrity of the digital data and also to facilitate complete forensic analysis, cloning of these devices was done belonging to the petitioner and his wife, while returning the digital devices intact, after the same was completed. This proved to be extremely important as prima facie analysis of the digital data cloned, revealed several incriminating material shared between the Petitioner and his wife, which goes to prove that the Petitioner’s wife was also involved in cash transactions and regularly updated the Petitioner in this regard.
2. Petitioner’s Averment:
CCTV cameras were forcefully shut down at the office premises of the petitioner, which would otherwise show that many more people from the side of the Respondents conducted the search and seizure proceedings that are not named in the Panchnama.
Counter Arguments:
E. With respect to the allegation about turning off the CCTV camera at the office premises, it is most pertinent to mention here that in today’s digital era, most of the contemporary CCTV cameras are rather IP-based cameras which connect directly to IP networks, and can tilt, pan & zoom, and many have one way or two-way audio capabilities. They also come with monitoring and management software that may trigger alarms and other such alerts even on remote locations or on mobile phones configured with them when certain events occur. Since it is not possible for the search/ survey team to technically identify the type & functionalities in the cameras installed at a premises in a short and rushing span of search/ survey actions. The movements of Income tax team, while the search proceedings are going on at one place, may come under scanner through these CCTV cameras at another important place and any person can remotely delete/ tamper with the data stored in the computer/ main server of the assessee, thereby defeating the whole purpose of the collection of raw incriminating data during search/ survey actions. The same is guided by the SOP issued by the CBDT in this regard vide F. No. 286/55/2015-IT (Inv-II).
A. It may also be noted that CCTV has a limited period of storage capacity and the older recordings get erased / overwritten automatically, so as to view and analyze and to get clarity on the activities carried out at the premises of search, the maximum hours of recordings need to be viewed, therefore the recording was halted to avoid any loss of data.
C.All the procedures and proceedings have been carried out in presence of two independent witnesses and nothing untoward has taken place during the entire course of the proceedings. No sort of high-handedness has been resorted to and the same has also not been alleged by the petitioner, though the CCTV was switched off.
D. The only allegation with respect to CCTV being switched off is that officers not authorized also visited the office of the petitioner during the search. This allegation is false as only the Officers who were authorized as per the Warrant of Authorization had
visited the office premises of the petitioner.
3. Petitioner’s Averment:
Even though, all seizures and inventory were taken on 03.11.2023 itself, search was prolonged to harass the petitioner into giving the original document of transaction between Mr. Vivek Patel and Mr. Trikam Patel which the petitioner did not have.
Counter Arguments:
A. The chain of events from the strike of search at the Petitioner’s residential premises to conclusion is as
under:
a) The search team struck the premises and showed the warrant of authorization which was signed by the petitioner on 03.11.2023 at 6.35 AM.
a) Search at Petitioner’s residence was initiated on 03.11.2023 at 08.30 AM after arrival of two independent witnesses from the vicinity. The searching of his residential premises was carried out on 03.11.2023. Cash amounting to Rs. 3,51,700/- was found during search and the same was inventoried.
b) The Petitioner was taken to his office on 03.11.2023 at 04:30 PM and returned back to his residence at 08.25 PM on 03.11.2023. Thereafter he had dinner and
retired to bed.
d. Valuation of Jewelry found during search was carried out on 04.11.2023 and the same was inventoried.
e. The process of taking backup of digital devices by the forensic experts was completed on 05.11.2023.
f. The Petitioner’s statement under 132(4) of the Income Tax Act, 1961 was recorded on 03rd, 04th and 05th November, 2023.
g. He was again taken to his office on 06.11.2023 at 02.40 PM and returned to his residence at 11:55 PM.
h. The chain of events from the strike of search at the Petitioner’s office premises to conclusion is as under:
i. Search at Petitioner’s office premises was initiated on 03.11.2023 at 08.55 AM and it was concluded on 06.11.2023 at 10.30 PM.
j. Documents/ books of accounts were inventoried and were seized on 05.11.2023.
k. Process of taking backup of digital devices by the forensic experts was completed on 05.11.2023.
l. Cash amounting to Rs. 65,53,500/- was found on 06.11.2023, during search and the same was inventoried as per Annexure CF dated 06.11.2023.
m. Cash amounting to Rs. 60,00,000/- was seized on 06.11.2023, and the same was inventoried as per Annexure CS dated 06.11.2023.
n. Statement of Ms. Hima Patel was recorded on 05.11.2023 and 06.11.2023.
o. Statements of the Petitioner was recorded on 06th November, 2023.
p. This explains why the search action took four/five days as various aspects of the search involved complex procedures as stated above,whileensuring the petitioner got timely meals, adequate day rest and night rest
4. Petitioner’s Averment:
The digital data of computer devices of the petitioner as well as physical data which were found at the office was copied and seized.
Counter Arguments:
F. With respect to seizure of physical documents:
Only two loose Paper files, containing photo copy of original document, found during search, approximately 700 pages in numbers have been taken in the custody of the department; and the same is indicated at Annexure A1 and Annexure A2, as mentioned in the Panchanama. Only the documents which were prima facie found to be useful for the purposes of the Income Tax Act, were photocopied and seized by the Department. It is clarified that no seizure of any original document of the Petitioner was made by the Department, so as not to paralyze his operation.
G. With respect to the seizure of the digital data:
While dealing with the digital data, utmost care was taken to maintain the integrity of the digital data by following all the techniques and methods prescribed by the Digital Evidence Investigation Manual, 2014, issued by CBDT (also prescribed by the CBI Manual, 2020 with the difference that original devices are not seized by Income Tax department). The detailed note on the legal and procedural aspects of handling of digital evidence has been described in the note annexed as Annexure- A to the counter affidavit filed on 23.01.24. However, a gist of the note has been categorized and summarized into three heads as
follows:
a. Pre-acquisition handling of the devices- At this stage it is ensured that the digital devices are not disturbed by the assessee or by the search team. All precautions are taken to prevent remote or near access of any of the devices on the search premises by switching off the wifi, LAN connection, keeping the devices in the same state as were found i.e. on/off and as a result prevent any kind of data loss/change to maintain the integrity of data before the process of acquisition/cloning/imaging begins.
b. Handling of the digital data during the process of acquisition- This stage comprises of using recommended tools/software to carry out forensic imaging/cloning by using Bit stream method. As a result, bit by bit, all the sectors of the digital device are copied including deleted files, free space, slack space. This process is hyper technical and is carried out by Digital Forensic Experts only who are academically qualified from reputed institutes and have enough experience to resolve the complexities that may arise during the process. During this stage ‘Hash value’ of the forensic image is also computed. The hash value of the original device and the cloned image is the same. This hash value is documented in certificate u/s 65B (4)(c) of the Indian Evidence Act, 1872, which can be used to check the integrity of the digital data cloned.
c. Handling of the digital data post acquisition/imaging-Two images of each digital device are taken – one for archival and reference (called as master copy hard disc) and the other for use as a working copy hard disc. The master copy is sealed during the search in presence of the assessee and two witnesses and is never accessed(to preserve the integrity of data if challenged in court of law). All the further processes are done in the working copy hard disc. Post acquisition, extraction of digital data is carried out to bring the files in viewable format and to recover the deleted and encrypted files. A team of technical experts are engaged for this process also. Post extraction the digital data is analysed to identify the incriminating evidence and corroborate with the facts of the case to reach to a conclusion that the data is useful for or relevant to the proceedings under Income Tax Act, 1961.
These methods and processes are being followed all over India, in all the jurisdictions, from all these years in all the search and seizure actions carried out by the department. Similar methods are followed by other Central Investigation Agencies also. Such techniques and methods have become quite essential in the current digital scenario and serves two-fold purpose of finding the right evidence and maintaining the integrity and evidentiary
value of the digital evidence found.
5. Petitioner’s Averment:
Search was conducted in unreasonable manner
Counter Arguments:
A. The Petitioner cannot dispute three aspects.
Firstly, the search was preceded by a valid recording of the reasons to believe under Section 132(1) on the
basis of material and information available.
Secondly, a satisfaction note in this regard was also prepared and obtained valid approvals under the Act.
Thirdly, the persons who conducted search operations
were duly authorized under warrants of authorization issued by the concerned authority under the Act. Once this triple test gets satisfied, the search cannot be questioned on the basis of any procedural
infirmities.
B. Further, when the search was being conducted, all the procedures as prescribed in the search and seizure manuals for various segments of the search was duly complied with by the authorized officers. Once this condition also gets satisfied, the scope of judicial review into the Search action is extremely limited as laid down by the Hon’ble Supreme Court in several judgments including the latest judgment in the case of Principal Director Of Income Tax (Investigation) & ORS
v. Laljibhai Kanjibhai Mandalia in Civil Appeal No. 4081 of 2022 (Pg. 160-176, VOL 1 convenience compilation). No proceeding at the initial investigation stage must be thwarted and stopped entirely especially when they are founded on sound legal basis with supporting prima facie incriminating material.
21. Conclusion: All the points raised by the petitioner concerning the procedures followed during the search action have been rebutted in the table above. It can be construed from the above that the Department made best efforts to follow the principles and guidelines prescribed in the Search and Seizure Manual, 2007 and Digital Evidence Investigation Manual, 2014, in true letter and spirit. The search teams acted well within the confines of Income Tax Law and other allied rules and instructions. At this stage it becomes important to make out a case for the overall search operation carried out on 3rd of November 2023, in which petitioner was one of the 60 other persons being searched u/s 132 of the Income Tax Act at 43 places simultaneously with a manpower of more than 300 people put together. The only purpose to highlight the massive scale of this operation is to pray to the Hon’ble court and to bring to the Hon’ble court’s kind notice that when something of this scale is planned and executed with a bonafide intention to unearth tax evasion of huge scale, some inadvertent minor fallouts in the course of such operation should not be considered as sufficient to vitiate the search action or should not be inappropriately allowed to be used to create an outrage amongst the citizens of the country against the working of Government department.
22. Additional Prayer: The Hon’ble Court’s kind attention is invited to the legal provision of the Income Tax Act, 1961, whereby in a case, if any escapement of income is found for AY 2020-21 (FY 2019-20) and for AY 2017-18 (FY 2016-17), where escapement of income is Rs. 50 Lakhs or more, the time limit for issuance of notice u/s 148 (for initiating remedial action), expires on 31.03.2024 as per section 149(1) of the Income Tax Act, 1961. However, for this purpose the Investigation Wing needs to disseminate such information to the Jurisdictional Assessing Officer well before the expiry of the limitation period. Therefore, necessary observations may be made by this Hon’ble Court, with regards to the exclusion of the period of litigation while calculating the limitation period under the Income Tax Act, 1961.
21. In rejoinder, learned senior advocate Mr. Soparkar submitted that respondent No.3 in his reply at Page No.288 has averred that one of the various sources based on which the targets were identified are social media and digital media and therefore, raised a very important question as to how and under which provision of law the respondents have accessed the digital media of the petitioner i.e. laptops etc. prior to the search. It was, therefore, submitted that the respondents have illegally tapped the digital media of the petitioner and his colleagues which is not legal. It was pointed out that the search action taken by the respondent authorities is not on account of the capacity of the petitioner but his clients and therefore, no search action could have been initiated at the premises of the petitioner.
8.1 It was submitted that replies filed on behalf of the respondents are nothing but a fragile attempt to justify the illegal action of search undertaken without authority of law which cannot be validated by the respondents by stating that incriminating material was found at the site search on the principle that ends cannot justify the means.
8.2 It was further submitted that material found by the respondents during the course of search are incriminating or not or having any bearing on the search operation conducted is required to be examined by a neutral third party as recognized by the Apex Court in case of Department of Income Tax v. S.R. Batliboi & Co. reported in (2009) 17 SCC 767 and the attempt on part of the respondents to distinguish the said decision on the facts of the case would not dilute the directions issued by the Apex Court in respect of sub-section (4A) of Section 132 of the Act which permits any document found during the search to be utilized if it is found incriminating in any manner by the respondent authorities.
8.3 It was reiterated by learned senior advocate Mr. Soparkar that the petitioner who is an advocate providing legal services such as drafting, conveyancing, title clearance, land revenue proceedings, civil, criminal and revenue litigations, familydisputes, matrimonial disputes,mediation,conciliation and arbitration, the petitioner has acted only in his professional capacity while dealing with his clients and he has no further role to play in the transaction of his clients contrary to what is canvassed by the respondents before the Court. It was submitted that the respondents have tried to justify their illegal action by taking the facts which are not part of the record and making averments on affidavits contrary to the facts as none of the averments show any active participation of the petitioner except providing legal services to his clients.
8.4 It was, therefore, submitted that the petitioner, even during the course of search as well as in his statement recorded, has only discharged his duty as a professional and his involvement if any, is limited to the role as a professional and therefore, he cannot be roped in an on-going investigation on the target groups as mentioned in the affidavit-in-reply filed by the respondents.
8.5It was submitted that it is established law that search cannot be conducted on the basis of mere suspicion as the same would then become a roving and fishing inquiry which is prohibited under the law. Reliance was placed on the decision in case of Ajit Jain v. Union of India reported in (2000) 242 ITR 302 (Del.) which was upheld by the Apex Court reported in 2003 SCC Online (SC) 1464.
8.6 Learned senior advocate thereafter referred to and relied upon the decision of the Bombay High Court in case of Municipal Corporation of Greater Bombay v. Vijay Metal Works reported in AIR 1982 Bom. 6 wherein the Bombay High Court has stressed upon the duty of an advocate to protect confidential information of his client by observing that the only way of such information can be disclosed is when the client consents to disclosure of the same.
8.7 It was submitted by learned senior advocate Mr.Soparkar that in the facts of the case, the information in form of the data seized by the respondent authority is admittedly without the consent of the petitioner as the same was seized during the course of search from the office and residential premises of the petitioner and therefore, the petitioner is duty-bound to protect such information as the same was forcibly taken by the respondent authorities without the consent, either of the petitioner or of his client. It was emphasized by learned senior advocate that the act of the respondents of arbitrarily seizing all the digital data has no bearing to the search conducted and violates the privilege under Section 126 of the Evidence Act as in violation of attorney-client privilege and any attempt to utilise any material/data which has no relation with the petitioner found to be incriminating by the respondent authorities would whittle away the attorney-client privilege and would render the Section 126 of the Evidence Act otiose.
8.8 It was submitted that there is no explanation tendered by the respondent authorities except a lame excuse that the search proceedings continued upto 06th November, 2023 on other targeted groups and therefore, the search at the office premises of the petitioner was required to be continued till the search operation is over at other places where simultaneous search was conducted as per the information gathered by the respondent authorities. It was, therefore, submitted that such action on part of the respondent authorities is nothing but a violation of privacy of the petitioner and his family members and continuing the search under the guise of copying the data gathered from the office premises of the petitioner even at the residence upto 06th November, 2023 is nothing but harassment to the petitioner. It was, therefore, submitted that such action on part of the respondent authorities is nothing but a grave abuse of the power and is a shocking violation of the right of the petitioner to life and privacy of the petitioner as violation of Article 21 of the Constitution of India.
8.9Learned senior advocate Mr. Soparkar further submitted that the respondents have tried to make vague and incorrect statements and vague arguments by assumption and presumption including the statements against the record to suggest that gold bars in kilograms amounting to crores of rupees have been found and the digital data seized from the petitioner’s house and such statements are complete fabrication and without any basis in view of the fact that gold of 211 gms. was only found during the course of search which is seized by the respondents which is evident from the Panchnama placed on record.
8.10It was, therefore, submitted that the respondent authorities are not required to be permitted to abuse the process of law for conducting such illegal search by taking away the data from the office premises of the petitioner, who is a professional advocate, under the guise of incriminating material. It was, therefore, prayed that petition be allowed as prayed for.
9. Having heard learned advocates for the respective parties and having considered the submissions made by both the sides, the following questions would arise for our consideration.
a. Whether the search initiated by the respondent authorities at the residential and office premises of the petitioner is just, proper, legal and in accordance with provision of Section 132 of the Income Tax Act or not?
b. Whether the respondents are entitled to have the digital imaging of the data contained in various computers, laptops, electronic gadgets of the petitioner pertaining to third parties who are clients of the petitioner who is an advocate by profession, under the guise of collecting the data pertaining to the target group where the search operations were carried out by the respondent authorities?
c. Whether the respondents can be prevented from using and relying on the materials collected in the physical or digital format consequent to the search action under Section 132 of the Income Tax Act, 1961 which is found incriminating and not involving the petitioner in any manner?
(d) Whether the respondents are required to be directed to hand over the entire data which is not incriminating to the petitioner belonging to the clients of the petitioner and to prevent the respondents from utilising such data in any manner whatsoever or not?
10. In order to answer these questions, it would be necessary to refer to the relevant provisions of the Act and the Instructions given by the Central Board of Direct Taxes which are material for conducting the search.
Income Tax Act, 1961
132. Search and Seizure–(1) Where the Director of Inspection or the Commissioner, in consequence of information in his possession, has reason to believe that–
(a) any person to whom a summons under subsection (1) of section 37 of the Indian Income-tax Act, 1922 (11 of 1922), or under sub- section (1) of section 131 of this Act, or a notice under sub-section (4) of section 22 of the Indian Income-tax Act, 1922, or under subsection (1) of section 142 of this Act was issued to produce, or cause to be produced, any books of account or other documents has omitted or failed to produce, or cause to be produced, such books of account or other documents as required by such summons or notice, or
b. any person to whom a summons or notice as aforesaid has been or might be issued will not, or would not, produce or cause to be produced, any books of account or other documents which will be useful for, or relevant to, any proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act, or
c. any person is in possession of any money, bullion, jewellery or other valuable article or thing and such money, bullion, jewellery or other valuable article or thing represents either wholly or partly income or property 11[which has not been, or would not be, disclosed] for the purposes of the Indian Income-tax Act, 1922 (11 of 1922), or this Act (hereinafter in this section referred to as the undisclosed income or property).
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(4A) Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search, it may be presumed—
i. that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person;
ii. that the contents of such books of account and other documents are true; and
iii. that the signature and every other part of such books of account and other documents which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in the handwriting of, any particular person, are in that person’s handwriting, and in the case of a document stamped, executed or attested, that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested.
Evidence Act, 1872
126. Professional communications.–– No barrister, attorney, pleader or vakil, shall at any time be permitted, unless with his client’s express consent, to disclose any communication made to him in the course and for the purpose of his employment as such barrister, pleader, attorney or vakil, by or on behalf of his client, or to state the contents or condition of any document with which he has become acquainted in the course and for the purpose of his professional employment, or to disclose any advice given by him to his client in the course and for the purpose of such employment:
Provided that nothing in this section shall protect from disclosure ––
1. any such communication made in furtherance of any illegal purpose,
2. any fact observed by any barrister, pleader, attorney or vakil, in the course of his employment as such, showing that any crime or fraud has been committed since the commencement of his employment.
It is immaterial whether the attention of such barrister, pleader, attorney or vakil was or was not directed to such fact by or on behalf of his client.
129. Confidential communications with legal advisers.––No one shall be compelled to disclose to the Court any confidential communication which has taken place between him and his legal professional adviser, unless he offers himself as a witness, in which case he may be compelled to disclose any such communications as may appear to the Court necessary to be known in order to explain any evidence which he has given, but no others.
INSTRUCTION : No.7
MATTERS RELATING TO SEARCH AND SEIZURE INSTRUCTION: No. 7, DATED 30-7-2003
1. With a view to focus on high revenue yielding cases and to make the optimum use of manpower, the Board is desided that officers deployed in the Investigation Wing should restructure their activities. They should forth strictly adhere to the following guidelines:
(1) Searches should be carried out only in cases where there is credible evidence to indicate substantial unaccounted income/assets in relation to the tax normally paid by the assessee or where the expected concealment is more thanks. I crore;
(#)Search operation will also be mounted when there is evidence of hidden unaccounted assets arising out of a conspiracy to cause public harm, terrorism,smuggling, narcotics, fraud, gangsterism, fake currency, fake stamp papers and such other manifestations;
Taxpayers who are professionals of excellence should not be searched without there being compelling evidence and confirmation of substantial tax evasion.
2. Henceforth, search operations shall be authorised only by the concerned DGIT (Inv.), who will be accountable for the action initiated by the officers working under him. He should also ensure that all the work relating to search & seizure, like post-search inquiries, preparation of appraisal report and handing over of seized books of account, etc., should be completed by the Investigation Wing within a period of 60 days from the date on which the last of the authorisations for search was executed.
3. DGs IT (Inv.) are requested to ensure that officers of competence and proven integrity are taken in the Investigation Wing. The officers posted in the Investigation Wing will be trained at NADT in a special course for which arrangements will be separately made.
4. DGs IT (Inv.) are required to ensure strict compliance of theabove guidelines /instructions.
11. On perusal of the provision of Section 132 of the Act, the issue with regard to interference by this Court while exercising Article 226 of the Constitution of India is no more res integra in view of the decision of the Apex Court in case of Pooran Mal v. The Director of Inspection (Investigation), New Delhi reported in (1974) 1 SCC 345, wherein the Apex Court has considered violation with regard to Articles 19(1)(f) and 19(1)(g) of the Constitution of India while upholding the constitutional validity of the provision of Section 132 of the Income Tax Act as under.
“8. Search and seizure are not a new weapon in the armory of those whose duty it is to maintain social security in its broadest sense. The Process is widely recognised in all civilized countries Our own ‘Criminal Law accepted its necessity and usefulness in sections 96 to 103 and section 165 of the Criminal Procedure, Code. In M. P. Sharma v. Satish Chandra the challenge to the power of issuing a search warrant under section 96(1) as violative of Article 19(1)(f) was repelled on the ground that a power of search and seizure is in any system of jurisprudence an overriding power of the State for the protection of social security and that power is necessarily regulated by law. As pointed out in that case a search by itself is not a restriction on the right to hold and enjoy property though a seizure is a restriction on the right of possession and enjoyment of the property seized. That however, is only temporary and for the limited purpose of investigation. Then the Court proceeds to say:
“A search and seizure is, therefore, only a temporary interference with the right to hold the premises searched and the articles seized. Statutory regulation in this behalf is necessary and reasonable restriction cannot per se. be considered to be unconstitutional. The damage, if any, caused by such temporary interference if found to be in excess of legal authority is a matter for redress in other proceedings. We are unable to see how any question of violation of article 19(1)(f) is involved in this case in respect of the warrants in question which purport to be under the first alternative of section 96(1) of the Criminal Procedure Code-”
9. Similar powers entrusted to those whose duty it was to enforce taxation laws were upheld by this Court in The Commissioner of Commercial Taxes and others v. R. S. Jhaver and others. In that case section 41 of the Madras General Sales Tax Act of 1969 was. under challenge. It was held by this Court that an officer empowered by the Government under sub-section(1) of section 41 was entitled to effect a search and seize goods and articles as provided in that section. Dealing with the question of search and seizure in a taxing statute the court observed at page 158:
“Now it has not been and cannot be disputed that the entries in the various Lists of the Seventh Schedule must be given the widest possible interpretation. It is also not in doubt that while making a law under any entry in the Schedule it is competent to the legislature to make all such incidental and ancillary provisions as may be necessary to effectuate the law; particularly it cannot be disputed that in the case of a taxing statute it is open to the legislature to enact provisions which would check evasion of tax. It is under this power to check evasion that provision for search and seizure is made in many taxing statutes. It must therefore be held that the legislature has power to provide for search and seizure in connection with taxation laws in order that evasion may be checked.”
It is, now too late in the day to challenge the measure of search and seizure when it is entrusted to income-tax authorities with a view to prevent large sale tax evasion.
10. Indeed the measurewould be objectionable if its implement is not accompanied by safeguards against its undue and improper exercise. As a broad proposition it is now possible to state that if the safeguards are generally on the lines adopted by the , Criminal Procedure Code they would be regarded as adequate and render the temporary restrictions imposed by the measure reasonable. In the case just cited there was a proviso to sub-section (2) of section 41 which prescribed that all searches under the sub-section shall, so far as may be, made in accordance with the provisions of the Code of Criminal Procedure. After pointing out that section 165 of the Criminal Procedure Code would apply mutatis mutandis to searches made under sub-section (2), this Court observed :
“We are, therefore, of opinion that safeguards provided in S. 165 also apply to searches made under sub-section (2). These safeguards are-(i) the empowered officer must have reasonable grounds for believing that anything necessary for the purpose of recovery of tax may be found in any place within his jurisdiction (ii) he must be of the opinion that such thing cannot be otherwise got without undue delay, (iii) he must record in writing the grounds of his belief, and (iv) he must specify in such writing so far as possible the thing for which search is to be made,. After he has done these things, he can make the search. These safeguards, which in our opinion apply to searches under sub-section (2) also clearly show that the power to search under sub-section (2) is not arbitrary. In view of these safeguards and other safeguards provided in Chapter VII of the Code of Criminal Procedure, which also apply so far as may be to searches made under sub-section (2), we can see no reason to hold that the restriction, if any, on the right to hold property and to carry on trade, by the search provided in sub-section (2) is not a reasonable restriction keeping in view the object of the search, namely, prevention of evasion of tax.”
11. We are, therefore, to see what are the inbuilt safeguards in section 132 of the Income-tax Act. In the first place, it must be noted that the power to order search and seizure is vested in the highest officers of the department. Secondly the exercise of this power can only follow a reasonable belief entertained by such officer that any of the three conditions mentioned in section 132(1) (a), (b) and (c), exists. In this connection it may be further pointed out that under sub-rule (2) of rule 112, the Director of Inspection or the Commissioner, as the case may be, has to record his reasons before the authorisation is issued to the officers mentioned in sub-section (1). Thirdly, the authorisation for the search cannot be in favour of any officer below the rank of an Income-tax Officer. Fourthly, the authorisation is for specific purposes enumerated in (i) to (v) in sub-section (1) all of which are. strictly limited to the object of the search. Fifthly when money, bullion etc. is seized the Income-tax Officer is to make a summary enquiry with a view to determine how much of what is seized will be retained by him to cover the estimated tax liability and how much will have to be returned forthwith. The object of the enquiry under subsection (5) is to reduce the, inconvenience to the assessee as much as possible so that within a reasonable time what is estimated due to the Government may be retained and what should be returned to the assessee may be immediately returned to him. Even with regard to the, books of account and documents seized, their return is guaranteed after a reasonable time. In the meantime the person from whose custody they are seized is permitted to make copies and take extracts. Sixthly, where money, bullion etc. is seized, it can also be. immediately returned to the person concerned after he makes appropriate provision for the payment of the estimated tax dues under sub-section (5) and lastly, and this is most important, the provisions of the Criminal Procedure Code relating to search and seizure apply, as far as they may be, to all searches and seizures under section 132. Rule 112 provides for the actual search and seizure being made after observing normal decencies of behavior. The person in charge of the premises searched is immediately given a copy of the list of articles seized. One copy is forwarded to the authorising officer. Provision for the safe custody of the articles after seizure is also made in rule 112. In our opinion, the safeguards are adequate to render the provisions of search and seizure as less onerous and restrictive as is possible under the circumstances. The provisions, therefore, relating to search and seizure in section 132 and rule 12 cannot be regarded as violative of articles 19(f) and (g).
12. A minor point was urged in support of the above contention that section 132 contains provisions which are likely to affect even innocent persons. For example, it was submitted, an innocent person who is merely in custody of cash, bullion or other valuables etc. not knowing that it was concealed income is likely to be harassed by a raid for the purposes of search and seizure. That cannot be helped. Since the object of the search is to get at concealed incomes, any person, who is in custody without enquiring about its true nature, exposes himself to search. Sub-section (4) of section 132 shows the way how such an innocent person can make the impact of the (search on him bearable. All that he has to do is to tell the facts to the searching officer explaining on whose behalf he held the custody of the valuables. It will be then for the Income-tax Officer to ascertain the person concerned under sub-section (5).
13. It was next argued that the power for directing a search is given to an authority like the Director of Inspection who, it is submitted, is, in the very nature of things, incapable of forming any reasonable belief with regard to the requirements of section 132(1) (a) (b) & (c). The contention was that the assessee has no contact in the matter of assessment with the Director and, therefore, he can hardly entertain any belief, reasonable or otherwise. It is conceded that the Income-tax Officer or his superiors in the direct line, like the Inspecting Assistant Commissioner or the Commissioner, may be in a position to entertain the requisite belief on account of their having direct and first hand knowledge of the financial circumstances of the assessee, the defaults he has committed or is likely to commit, etc. But the Director of Inspection has no opportunity and is, therefore, thoroughly unable to form any opinion. This would only mean that any belief entertained by him would be an arbitrary belief and legislation investing such an officer with the power to direct a search is per se unreasonable. in our opinions there is no substance in this argument. The Director of Inspection, as already seen in section 116 of the Income-tax Act, is an officer in the Income-tax Department next only in authority to the Board of Direct Taxes. Section 118 shows that all Inspecting Assistant Commissionersand Income-tax officers, besides being subordinate to the Commissioners, are also subordinate to the Director of Inspection. Under section 119(2) every income-tax officer employed in the execution of the Act is required to observe and follow such instructions as May be issued to him for, his guidance by the concerned Director of Inspection. Moreover under section 120 the Director of Inspection is required to perform such functions of any other income-tax authority, apparently, including the Income-tax Officers and his direct superiors, as may, be assigned to Mm by the Board. Under section 135 the Director of Inspection is competent to make any enquiry under the Act and for that purpose he is invested with all the Powers that an income,-tax Officer has under the Act in relation to the making of enquiries. It would, therefore, follow that in the course of his duties the Director of Inspection has ample opportunities to follow the course of Investigation and assessment carried on by the Income-tax Officers and to check the information received from his sources with the actual material produced or not produced before the assessing authorities. It is not, therefore, correct to argue that the Director of Inspection could hardly be expected to entertain, honestly, any reasonable belief for the purposes of section 132(1) (a) (b) &(c).
14. A subsidiary point relating to the entertainment of reasonable belief under section 132 was also raised by Mr. Karkhanis. He submitted that it was possible to say that the Director of Inspection or the Commissioner, as the case may be, could, in conceivable cases, entertain reason to believe the existence of conditions referred to in sub-clauses (a) and (c) of sub-section (1). For example, where the necessary requisition is made under sub-clause (a) the authority concerned may from the record ascertain whether the person to whom the requisition is issued has omitted or failed to produce or cause to be Produced the required documents. Similarly under sub-clause(c) if the authority, has received any secret information ,which, in its opinion, was reliable, it may be possible for it to have reason to believe that any person is in possession ‘of any money, bullion, jewellery etc. which is undisclosed income or property and such property is secreted in some place. But Mr. Karkhanis submitted that so far as sub-clause (b) is concerned, it win be impossible for one to say that the authority can reasonably entertain the belief that if a requisition is made the person concerned will not or would not produce or cause to be produced the required documents. In his submission, the authority, can entertain that belief only when a requisition is made and within reasonable time given the document is not produced. That is provided for in sub-clause (a). But to say. that the authority can also have reason to believe that if a requisition is made the person concerned will not in future produce the document is, according to Mr. Karkhanis, a conclusion which is impossible to draw on any conceivable facts. We must say that if Mr. Karkhanis really thinks that there is substance in this argument, than he must be blissfully unaware of the manner in which income-tax is evaded. It is impossible to enumerate all the circumstances in which the necessary reasonable belief may be entertained under sub-clause (b). As an illustration, however, we may point out a case which fans completely under sub-clause (b). An assessee may be filing his returns from year to year regularly and his Assessments may be also completed in due course over years. Ms books of account and documents have been duly checked from year to year and the assessing officer is also completely satisfied that the returns are correct. But it might so happen that this apparently honest assessee has invested large funds in properties and other financial deals, reliable information about which finds its way to the Director of Inspection. In such a case no oracle is needed to tell the Director of Inspection that if a requisition is made on the assessee to produce his documents in connection with these financial deals and investments, the assessee will most certainly omit to produce or cause to be produced such documents. On the other hand, there is danger that all these documents may be destroyed because the very fact that a requisition is made with a view to investigate concealed deals would put the assessee, on his guard and the relevant documents may either disappear or be destroyed. Indeed, it is possible that an assessee may, after knowing that the game is up, produce the requisite documents. But in the nature of things such an assessee would be rare. The question for us to consider is whether the authority under section 132(1) may entertain the reasonable belief that in such circumstances the assessee will not or would not produce the documents. In our opinion though in a very rare case a tax evader may comply with a requisition, the Director of Inspection who has reliable information that the assessee has consistently concealed his income derived from certain financial deals may be justified in entertaining the reasonable belief that the assessee, if called upon to produce the necessary documents, will not produce the same. There is no substance, therefore, in the contention that sub-clause (b) has over-reached itself.”
11.1 In view of the above dictum of law prevailing since 1974 with regard to the validity of search action carried out by the respondent authority, this Court is only required to be satisfied as to whether the satisfaction recorded by the respondent authority for initiation of the search proceedings are justified or not.
11.2 During the course of hearing, learned Additional Solicitor General has provided the satisfaction note recorded prior to initiation of the search by the competent authority in a sealed cover to this Court. Learned Additional Solicitor General has also provided copies of other seized materials and documents during the course of hearing to demonstrate that what is recorded in the satisfaction note prior to the search was actually found to be true during the course of search. We are, therefore, of the opinion that on perusal of the satisfaction recorded by the respondent authority for initiation of the search,it does not require any interference by this Court and this Court is satisfied for the satisfaction recorded by the respondent authority for initiation of the search against the petitioner and therefore, challenge by the petitioner to the search initiated under Section 132 of the Act would fail. Therefore, without going into the further details with regard to the submissions made by both the sides on pre-search action of the respondent authorities, we are of the opinion that the petition would fail so far as challenge to the search operation qua petitioner is concerned.
11.3 However, at the same time, the way in which the search has proceeded from 03rd November, 2023 to 06th November, 2023 would require specific observations by this Court, more particularly the way in which the search proceedings were conducted by the respondent authorities and the explanation tendered by the respondent authorities by way of affidavit-in-reply and the averments made therein. The contentions of the respondent authorities and the allegations and the averments made by the petitioner with regard to conduct of the search is concerned, are already recorded hereinabove and therefore, the same are not repeated for the sake of brevity. Suffice it to say that the glaring conduct or the misconduct in carrying out the search operation has come on record which is required to be deprecated as under.
(i) First and foremost, the role of respondent No.11 who has not defended himself by taking recourse to the stereotype affidavits filed by respondent Nos.7 to 11 that they have discharged their duties in official capacity and therefore, no reply is required to be given to the specific averments made in the petition would suggest that there is no answer to the conduct of respondent No.11 who went to serve the summons upon Ms.Hima Patel–the colleague of the petitioner, at her residence at 06.30 a.m. on 03rd November, 2023 with two policemen with rifle which is borne out from the affidavit of Ms.Hima Patel and which has remained uncontroverted. A lame excuse was given by the respondent authority that in order to have protection for respondent No.11, two police personnel accompanied him with rifle so that no untoward incident happens. We fail to understand as to for service of summons by the respondent authorities never police personnel with rifle ever accompany the notice server. It is not in dispute that respondent No.11 went to the residential premises of Ms.Hima Patel to serve the summons and no search action was carried out at her place which is an admitted position. It is also surprising and astonishing the way in which Ms.Hima Patel was coerced and her family members were handled by respondent No.11 in presence of two police personnel with rifle by impounding their mobile phones switching-off on the pretext that they may not give information to any other persons with regard to the search operation. It is very difficult to understand by any stretch of imagination as to the way in which a lady advocate is coerced by respondent No.11 under the instructions of other respondents who have authorized him to serve the summons and thereafter by compelling Ms.Hima Patel to accompany him in absence of any lady police officer to the office premises of the petitioner and compelling her to open the same at 07.00 a.m. on 03rd November, 2023. Such an action on part of the respondents clearly shows that respondents have acted high-handedly, for which no explanation is forthcoming except that in order to prevent the sanctity of search operation, such action would require. Such lame excuse is rejected and action of the respondents is deprecated.
(ii) Another lame excuse was given by the respondent that inspite of request made for more lady constables, only eight lady constables were provided by the concerned authority and therefore, no lady constable was sent with respondent No.11 at the residence of Ms.Hima Patel. Such an excuse by the respondent authority is nothing but an afterthought as it was known to the respondent authority that summons was to be served at the residence of a lady advocate and therefore, it was incumbent and mandatory for the respondent authority to send a lady constable instead of two police personnel with rifle. Without presence of a lady constable with respondent No.11 and instead of sending lady constable, two police personnel with rifle were sent with respondent No.11 which shows clear intention of the respondent authority to coerce Ms.Hima Patel, lady advocate, to cooperate and thereafter a show is made before this Court that Ms.Hima Patel has cooperated with the respondent authority to go voluntarily with them to the office of the petitioner and open the office by calling her brother to provide keys of the office. It is also found from the record that till 11.00 a.m. no lady constable was available at the office premises and inspite of that, respondents started search operation by switching-off the CCTV cameras, which otherwise would have recorded search operation as well as the condition of alone lady in the office premises of the petitioner. Such high-handed action on part of the respondent authority is, therefore, deprecated. As we have already upheld the search operation, we are not inclined to issue any further direction except a caution to the respondent authority to take care in future if such a situation arises. We also expect the respondent authority to send an apology letter to Ms.Hima Patel for the action taken by them for contrary to the basic human approach by the respondent authority who generally are boasting about conducting search in a very cordial manner and citizen centric approach.
(iii) With regard to the contentions and allegations of the petitioner that petitioner and his family members were not permitted to contact any other person during the course of search, it was justified on part of the respondent authorities to see that the petitioner or his family members are not permitted to contact any outsiders as it would jeopardize the search operation. However, at the same time, for four days if the petitioner and his family members were prevented from using their mobile phone is an inhuman approach on part of the respondent authorities as, admittedly, the search operation was over on 03rd November, 2023 as the Panchnama was drawn by the search party by seizing mobile phones etc. of the petitioner and his family members and thereafter, under the guise of copying the data imaging, the petitioner and his family members were detained as if they were under house-arrest till 06th November, 2023. Copying of digital data has nothing to do with free movement of the petitioner and his family members. Therefore, such an action on part of the respondents is also highly deprecated. Merely because the search operation continued at other places of targeted group upto 06th November, 2023, the respondents could not have continued the search operation at the premises of the petitioner upto 06th November, 2023 depriving the petitioner to attend the court to conduct his cases which has resulted in violation of fundamental rights of the petitioner under Articles 19(1)(f) and 19(1)(g) of the Constitution of India. Under such circumstances, we are of the opinion that respondent authorities have acted high-handedly with the petitioner and his family members while conducting search operation without any basis and during the course of hearing, a lame excuse is made out to defend the actions of the respondent authority which is not in accordance with law.
11.4 With regard to the contention of the petitioner that respondent authorities have tried to mislead this Court by showing the details in a sealed cover by referring to various seized materials are concerned, we are of the opinion that respondent authorities have never tried to mislead this Court inasmuch as the respondent authorities have shown the materials which was seized during the course of search, more particularly images taken from the electronic gadgets of the petitioner, which prima facie satisfies this Court with regard to the valid initiation of search proceedings at the residential and office premises of the petitioner. However, this Court is concerned only with the manner in which the search was conducted which has caused lot of concerns and heart-burning to the citizens of this country.
Now, with regard to the main issue in the entire matter is whether the respondents are entitled to use the seized materials in physical and digital form which, according to the respondent authorities, would be incriminating materials against any third party found during the course of search from the office and residential of the petitioner or not. To answer this question, the Court is aware of the fact that petitioner is a practicing advocate and is protected as per the provision of Section 126 of the Evidence Act. On both the sides, reliance is placed on various decisions on the issue of the protection granted to the professional under Section 126 of the Evidence Act, however we are of the opinion that provision of Section 126 of the Evidence Act would not per se apply to the facts of the case inasmuch as, as per the provision of Section 132 of the Income Tax Act, the documents were seized by the respondent authority during the course of search and as per sub-section (4A) of Section 132 of the Income Tax Act, the respondent authorities are entitled to seize the materials available during the course of search. When we have already upheld the initiation of the search as a valid action on part of the respondent authorities, the respondent authorities were entitled to copy and have the digital imaging of the data contained in the computers and servers of the petitioner. However, at the same time, whether the respondent authorities are entitled to use the materials seized during the course of search found to be incriminating against the third party or not, the question revolves around the doctrine of attorney-client privilege. With regard to the doctrine of attorney-client privilege, it is a very old concept and that would continue to operate irrespective of the provision Section 126 of the Evidence Act which has formally codified the same so far as the Indian context is concerned. Section 126 of the Evidence Act provides for privilege of the professional communication between the client and the attorney as such communication cannot be disclosed unless and until the same is permitted by the client to the attorney. However, in the facts of the case, when during the course of search such materials were seized by the respondent authorities, then respondent authorities are entitled to use such material if found incriminating so far as it refers to the petitioner is concerned.
12.1 The Delhi High Court in the case of S.R. Batliboi & Co. (supra), in somewhat similar facts, after analyzing the provision of Section 132(1) of the Act and after referring to the decision of the Apex Court in cases of ITO v. Seth Bros. [(1969) 2 SCC 324] and Manish Maheshwari v. Assistant CIT [(2007) 3 SCC 794], held as under.
“12. Over two score years ago the Division Bench of this Court had opined in N.K. Textiles Mills -vs- CIT, [1966] 61 ITR 58 propounded 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”. Our learned Brothers have designedly used the words “proceeding in question”, in order to clarify that material that may possibly be of relevance to the affairs of a third party, unconnected with the raided assessee and beyond the contemplation of the search and seizure exercise, should not be retained. All remaining doubts will be dispelled on a perusal of H.L. Sibal -vs- CIT, [1975] 101 ITR 112 in which the Division Bench has, inter alia, analysed Commissioner of Commercial Taxes -vs- Ramkishan Shrikishan Jhaver, [1967] 66 ITR 664 into four concomitants – (1)The authorized officer must have reasonable grounds for believing that anything necessary for the purpose of recovery of tax may be found in any place within his jurisdiction; (2) he must be of the opinion that such thing cannot be otherwise got at without undue delay; (3)he must record in writing the grounds of his belief; and (4) he must specify in such writing, so far as possible, the thing for which search is to be made. Where material or document or assets belong to a third party, totally unconcerned with the person who is raided, none of these conditions are fulfilled. In Sibal the belongings of a house-guest of Shri Sibal were searched and some money found therein was seized. The Court had concluded that the authorization for the search of the house-guest was prepared after the planned search of Shri Sibal. The warrants were quashed partly for this reason.
13. An indiscriminate seizure deracinates the personal liberty and privacy of the citizen and is anathematic to law. It can be proscribed under Article 226 of the Constitution. The question of “indiscriminate search” has to be answered by the Court by looking into the evidence and the facts of each case. Taking note of the observations in Seth Bros. their Lordships have further enunciated the law in the case of CIT -vs- Jawahar Lal Rastogi, (1970) 2 SCC 225 in these words:
14. It must, however, be stated that the findings that the action of the Commissioner of Income Tax and the Income Tax Officer amounted to “indiscriminate search” and was beyond the “legitimate scope of Section 132” depends upon the evidence in each case and no general rule can be laid down in that behalf.
15. Coming back to the contention 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. It is also our view that the Income Tax Department cannot make fishing or roving inquiry to initiate proceedings against all these companies which are the clients of the Petitioner. It has been argued orally as well as in the synopsis 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.
16. Our research has led us to a reading of District Registrar and Collector, Hyderabad – vs- Canara Bank, AIR 2005 SC 186, which concerns the challenge to Section 73 of the Stamp Act (as substituted by A.P.Act No.17 of 1986), permitting any person authorized by the Collector to inspect registers, books, papers, documents and proceedings and to take notes and extracts as may be deemed necessary. Chief Justice Lahoti considered not only several precedents delivered by Courts panning the globe, but also the Article 12 of the Universal Declaration of Human Rights, Article 17 of the International Covenant of Civil and Political Rights, the European Convention on Human Rights; and the Canadian Charter of Rights and Freedoms which emblazons that “Everyone has the right to be secure against unreasonable search and seizure”; and the New Zealand Bill of Rights which additionally qualifies that the said rights encompass the person, property or correspondence; and the Fourth Amendment of the US Constitution. Their Lordships emphasized upon Govind – vs- State of MP, AIR 1975 SC 1378, [1975] 2 SCC 148 in which the need to guard against the pernicious possibility of a “police-raj” was forcefully articulated. The triple tests distilled by the 7 Judge Bench in Maneka Gandhi -vs- Union of India, (1978) 1 SCC 248: AIR 1978 SC 597 were reiterated viz. that a law interfering with personal liberty must (a) be consonant with a prescribed procedure which should, (b) be compliant with one or more rights mentioned in Article 19 and (c) with Article 14 additionally. Their Lordships thought it to be essential that documents deposited or stored in a Bank must remain confidential. It is our considered opinion that the same privilege of confidentiality must extend to auditors as well. The decision of the High Court striking down unbridled power sought to be given in Section 73 of the Stamp Act was affirmed by the Supreme Court. This ratio can logically be extrapolated upon the facts of the present case to conclude that the Revenue is not empowered to make use of material stumbled upon by its officers in a Search conducted against a third party. The extracted paragraph from Canara Bank particularly calls for reproduction:-
17. In the Income Tax Act, 1961 elaborate provisions are made in regard to “search and seizure” in Section 132; power to requisition books of account, etc. in Section 132-A; power to call for information as stated in Section 133. Section 133(6) deals with power of officers to require any bank to furnish any information as specified there. There are safeguards. Section 132 uses the words “in consequence of information in his possession, has reason to believe”. (emphasis supplied) Section 132(1-A) uses the words “in consequence of information in his possession, has reason to suspect”. Section 132(13) says that the provisions of the Code of Criminal Procedure, relating to searches and seizure shall apply, so far as may be, to searches and seizures under Sections 132(1) and 132(1A). There are also Rules made under Section 132(14). Likewise Section 132-A(1) uses the words “in consequence of information in his possession, has reason to believe”. (emphasis supplied) Section 133 which deals with the power to call for information from banks and others uses the words “for the purposes of this Act” and Section 133(6) permits a requisition to be sent to a bank or its officer. There are other Central and State statutes dealing with procedure for “search and seizure” for the purposes of the respective statutes.
18. We may also advert to the several decisions of different High Courts where the material which was not found as a result of search and seizure was discarded for the purposes of assessment under Chapter XIV-B. In the case of CIT -vs- G.K Senniappan, (2006) 284 ITR 220 it was held that the material collected during Survey under Section 133 does not constitute “such evidence” based on which assessment under Section 158BB can be framed. In the case of CIT -vs- Ravi Kumar the Court held that loose slips found during a Search cannot constitute substantial evidence to invoke Section 69A of the Act. Similar views have been endorsed by a Division Bench of this Court in CIT -vs- Ravi Kant Jain: [2001] 250 ITR 141, where the Court emphasized on the fact that Block Assessment under Chapter XIV-B cannot be a substitute for regular assessment and thus the change of opinion of Revenue on audited accounts seized during search cannot form the basis for a special assessment. If apparently reliable material cannot be directly used against an assessee solely because it was not collected during a Search of that assessee, a fortiori, material palpably concerning a third party with no connection with the raided party must be ignored. It is also illogical that the rigours which apply to the Search of a particular notified person can be flagrantly ignored so far as an unconnected person is concerned. It is argued that under Section 153C the Department acts as a post-office, viz. it sends the seized material to the concerned Assessing Officer. This proposition advanced by the Revenue is legally acceptable so long as it is restricted to any person having dealings or transactions with the person who is the subject of the Search and Seizure operation.
19. Finally, so far as the prayers in the Petition are concerned, we are of the opinion that in a situation such as the one which we are seized with, in view of the fact that the Respondents have rejected the offer made by the Petitioner as recorded in our Order dated 18.11.2008 : the impugned summons, as referred to in Prayer (ii) of the Writ Petition are set aside, and the Respondents are directed to forthwith return the laptops to the Petitioner.
12.2 The above decision of the Delhi High Court was carried before the Apex Court being Special Leave to Appeal (Civil) No.15043 of 2009 in which the Apex Court, by order dated 17th August, 2009, on consensus of the parties, held as under.
“Leave granted.
By consent of learned counsel for the parties, it is directed that the two laptops in question be de-sealed and the data be examined by the Director General of the National Informatics Centre or his nominee/representative in the presence of the representatives of the I.T. Department, the appellants and the EMAAR-MGF Group. All the data on the laptops shall be available for inspection by the I.T. Department to verify whether the data pertains to the Assessee in question.
It shall be open to the I.T. Department to copy the data relating to such folders/files in the said two laptops relating to the following entities/clients:-
1. Boulder Hills Leisure (P) Ltd.
2. Cyberabad Convention Centre (P) Ltd.
3. Emaar Hills Township (P) Ltd.
The Respondents shall provide authenticated hard copies of the data pertaining to EMAAR-MGF Group to the department. The Income Tax Department is permitted to inspect the data contained on other files/folders relating to the 46 other parties but this data shall not be copied in any form. If, according to the Assessing Officer, the files/folders pertaining to any of the 46 other parties are connected with the EMAAR-MGF Group and would be required by the Assessing Officer for making a proper assessment on the EMAAR-MGF Group, this may be pointed out in writing to the representative of S.R. Batliboi & Co. along with the material/reasons relied upon by the Income Tax Department for making its claim.
It shall then be open to S.R. Batliboi & Co. after considering the said material/reasons either to consent to the said claim made by the Income Tax Department or, alternatively, to challenge the same by adopting appropriate proceedings for this purpose. In the event S.R. Batliboi giving its consent or alternatively, failing in its challenge to the said claim made by the Income Tax Department, S.R. Batliboi & Co. shall then make available a hard copy of the contents of the said connected filed/folders.
The Civil Appeal is disposed of in the abovementioned terms. However, the question of law sought to be raised in the appeal is kept open.”
12.3 It is pertinent to note that while disposing of the Civil Appeal, the Apex Court has kept the question of law sought to be raised as open. In such circumstances, it would be incumbent upon this Court to go into the question of law which was raised before the Apex Court by the Income Tax Department as to whether the material which was seized from the professional during the course of search can be utilized against the third party or not.
13. Sub-section (4A) of Section 132 of the Act provides that where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search, it may be presumed that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person and the contents of such books of account and other documents are true and the signature and every other part of such books of account and other documents which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in the handwriting of, any particular person, are in that person’s handwriting, and in the case of a document stamped, executed or attested, that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested. Thus, sub-section (4A) of Section 132 of the Act which has been inserted by Amendment Act of 1975 with effect from 01st October, 1975, presumption is to be made with regard to the documents, books of accounts etc. found during the course of the search belonging to the person who is searched. In the facts of the present case, the petitioner, who is a practicing advocate, has been searched by the respondent authorities and during the course of the search, respondent authorities have gathered digital and physical documents from the residence and office premises of the petitioner. It was, therefore, submitted by learned Assistant Solicitor General appearing for the respondent authorities, that the respondents are entitled to have the presumption with regard to the documents and other materials seized during the course of search and the copies of documents taken by forensic imaging by the respondent authorities belonging to the petitioner and accordingly, if such documents are found to be incriminating leading to any tax evasion, then the respondents are entitled to consider the same in accordance with law without any restrictions as to whether the petitioner is involved for such incriminating material in any manner whatsoever or whether such documents are pertaining to or belonging to the petitioner or not in view of such presumption.
13.1 It was also submitted that the respondent authorities are, therefore, entitled to take action on the basis of the documents which are copied and seized by the respondent authorities found to be incriminating in any manner. In furtherance of such submission, it was submitted that the petitioner cannot have the protection of Section 126 of the Evidence Act, as, such protection is available to the clients of an attorney. The petitioner wants to have aid under Section 126, which stipulates that the petitioner cannot be compelled to give copies of documents which is a privileged communication, if the petitioner is not in knowledge of as to whether such document would give rise to any fraud or any other illegalities. Reference was made to the Illustrations (b) and (c) of Section 126 which shows that client’s say to the attorney that he wishes to obtain possession of property by use of forged deed or being charged with embezzlement and client retains the attorney to defend him in the course of the proceedings and it was observed by the attorney that entry has been made in the account of the client where the sum said to have been embezzled, which entry was not in the book at the commencement of his engagement, then in such circumstances, the obligation in the Section would not apply. It was also submitted that the Proviso to Section 126 also restricts the applicability of the same to any communication made in furtherance of any illegal purpose or in facts observed by the barrister, pleader or attorney or vakil in the course of his employment as such showing that any crime or fraud has been committed since the commencement of his employment. It was, therefore, submitted that assuming for a while that protection under Section 126 of the Evidence Act applies to the petitioner, the same would not be applicable to the incriminating documents found during the course of search by the respondent authorities even though the petitioner has no connection with such documents.
13.2 In response to such submission, learned senior advocate for the petitioner vehemently submitted that as per the doctrine of attorney-client privilege which is a well known principle, the respondent authorities cannot take any action on the basis of any document much less any incriminating documents of the client of the petitioner found during the course of search. It was submitted that clients of the petitioner have reposed the confidence and trust upon the petitioner with regard to their confidential documents and information and under the guise of search, the respondent authorities cannot take any action in breach of the trust reposed by the clients of the petitioner on the basis of the documents, if according to the respondents, they are incriminating documents.
13.3 Reliance was placed on the decision in case of Canara Bank (supra), wherein the Apex Court, after considering the right of privacy qua search and seizure in other countries as well as development of law in India and more particularly confidentiality of relationship between the Bank and its customers, has referred to the provisions of the Income Tax Act, in para-51 as under.
“51. In the Income Tax Act, 1961 elaborate provisions are made in regard to ‘search and seizure in sec.132; power to requisition books of account etc. in sec. 132A; power to call for information as stated in sec. 133. Sec. 133(6) deals with power of officers to require any Bank to furnish any information as specified there. There are safeguards. Sec.132 uses the words “in consequence of information in his possession, has reason to believe”. Sec. 132(1A) uses the words “in consequence of information in his possession, has reason to suspect”. Sec. 132(13) says that the provisions of the Code of Criminal Procedure, relating to searches and seizure shall apply, so far as may be, to searches and seizures under sec. 132(1) and 132(1A). There are also Rules made under sec.132(14). Likewise sec. 132A(1) uses the words “in consequence of information in his possession, has reason to believe”. Sec. 133 which deals with the power to call for information from Banks and others uses the words “for the purpose of this Act” and sec. 133(6) permits a requisition to be sent to a Bank or its officer. There are other Central and State statutes dealing with procedure for ‘search and seizure’ for the purposes of the respective statutes.”
13.4 The Apex Court thereafter considered the right to privacy dealing with the person and not the places and the copies of documents of the customers which are in the Bank must continue to remain confidential with regard to the person even if they are no longer at the customer’s house and may be voluntarily sent to the Bank. It was, therefore, submitted that when clients of the petitioner have parted with the documents which are confidential would remain confidential vis-a-vis the clients even if they are no longer on the place of the clients and have been voluntarily given to the petitioner by the clients of the petitioner and the respondent authorities, under the guise of presumption by invoking the provision of sub-section (4A) of Section 132, cannot take any action in respect of such documents if found to be incriminating in any manner. It was, submitted that right to privacy is referable to right of property theory and once that is so, as held by the Apex Court, when always there is some probable opinion, documents in possession of the petitioner tend, to secure any duty or to prove or to lead to the discovery of any fraud or omission in relation to any duty, the search or taking notes or extracts thereof, cannot be valid. It was, therefore, submitted that the respondent authorities have misunderstood the provision of Section 126 of the Evidence Act vis-a-vis doctrine of attorney- client privilege.
14. Considering such submission and the law developed over a period of time as has been considered by the Supreme Court of Canada as well as the American Court and the Apex Court, it appears that provision of Section 126 of the Evidence Act as has been relied on by the petitioner is required to be applied to the facts of the case from the point of view of the petitioner and not from the point of view of the clients of the petitioner whom the petitioner wants to protect by preferring this petition.
14.1 Therefore, while analysing the provision of Section 126 of the Evidence Act, we are of the opinion that the same would not be applicable to the facts of the case in entirety as the communication or documents in possession of the petitioner would continue to be protected, subject to as explained by the said provision by giving Illustrations read with the Proviso of the said provision. Therefore, in order to apply the provision of Section 126 of the Evidence Act read with keeping in mind the doctrine of attorney-client privilege, the respondent authorities can consider the documents which are incriminating which falls under Illustrations (b) and (c) of Section 126 of the Evidence Act. However, the documents which are found to be incriminating which would be covered by the Illustration (a) of provision of Section 126 cannot be utilised or no action can be taken upon such documents which are found to be incriminating which covered by Illustration (a). Meaning thereby that where the petitioner is found to be in possession of any document of his clients which, according to the respondents are incriminating prior to the employment of the petitioner in his legal capacity, then no action can be taken against such documents. Whereas, if it is found by the respondent authorities that the petitioner has come to the knowledge of fraud or illegal activity, if any, to be committed by the client during the course of his engagement as illustrated by Illustrations (b) and (c) to Section 126, the respondent authorities invoking provision of sub-section (4A) of Section 132 of the Act can take appropriate action in accordance with law. Of course, these findings are arrived at keeping in mind the Proviso to Section 126 which makes it inapplicable in the communication made in furtherance of any illegal purpose or showing that the crime or fraud has been committed since the commencement of the employment of the attorney. Therefore, Illustrations (b) and (c) are in consonance with the Proviso to Section 126 of the Evidence Act.
14.2 The above observations are also highlighted by the respondent No.3 in the affidavit dated 19th December, 2023, wherein it is averred as under.
“9. Further, the Deponent hereby assures, that the seized digital data extracted on a separate hard disk from the working copy of the data, shall be analyzed on priority for the purpose of identifying data which is incriminating in nature. Further, considering the writ petitioner in question and possibility of applicability of section 126 of Indian Evidence Act, in compliance to the mandate of Hon’ble High Court of Gujarat, the incriminating data shall be separated as far as possible and the same shall be stored in a separate hard disk. Thereafter, the working copy of the data and the extracted hard disk containing the non-incriminating data shall be permanently sealed and shall not be accessed thereafter by the Income-tax Department. Both, the said hard disk and the working copy of the data shall be sealed in the presence of the Petitioner. A period of 4 weeks shall be required for completing this entire exercise depending upon the cooperation of the Petitioner.”
15. Considering the above approach of the respondent authorities which is clarified on oath by respondent No.3 who is a Principal Director of Income Tax (Investigation), Ahmedabad, being a responsible officer for conducting search under the provisions of Section 132 of the Act, we are of the opinion that judicious discretion shall be exercised by the respondent authorities while arriving at the conclusion with regard to the incriminating documents falling under two categories viz. as per Illustration (a) of Section 126 and Illustrations (b) and (c) of Section 126 read with the Proviso to the said Section and thereafter abide by the aforesaid averments in the affidavit placed on record.
15.1It is true that initially this Court has shown apprehension as to who will decide the incriminating documents, if any, found during the course of search from the office and residential premises of the petitioner and suggestion was made to the respondents as to appointment of any independent agency as agreed before the Apex Court in the case of S.R. Batliboi (supra) by the respondent Department. However, learned Additional Solicitor General objected to such suggestion of the Court and upon the instructions submitted that such practice would set a wrong precedence for unearthing the evasion of tax in the country and to curb the generation of black money in the economy and every assessee would take recourse to such precedence and therefore, the respondent authorities are not agreeable to such suggestion, as in the facts of the case of S.R. Batliboi (supra), the documents and the papers were found during the course of search at the place of search of a third person and not at the place of search of a Chartered Accountant, whereas in the facts of the case, petitioner who is though a practicing advocate, but has been searched by valid initiation by invoking provision of Section 132 of the Act and this Court having been satisfied with regard to the initiation of the search in case of the petitioner, the discretion is vested in the respondent authorities who are the highest authority of the Income Tax Department to conduct the search for taking or not taking action upon the incriminating documents and if such discretion is exercised judiciously, we hope that no further litigation would arise in the case of third parties whose documents were found during the course of the search.
15.2 However, it will be open for such third parties to raise all the contentions available under the law and observations made by this Court in the facts of the present case would not come in way if any action is taken by the respondent authorities against such third parties.
16. With the aforesaid observations, petition is disposed of. Rule is discharged.
17. Learned Additional Solicitor General, at the end of the submissions, made a prayer to extend the time limit for completion of the search proceedings and take necessary action in accordance with law as the statement was made before this Court that no action shall be taken pursuant to the search materials.
18. In view of the above statement made by the learned counsel for the respondent authority during the pendency of this proceeding, the time consumed by this petition in this Court would be considered for applying the provisions of the Act.
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