Dr Ramasamy senior standing counsel -New Trend: Digital Evidence Vs Corroborative Evidence

DR B RAMASWAMY
Senior Standing Counsel Income Tax, Ministry of Finance, Government of India (Additonal Government Pleader) (Puducherry Madras High Court)
Introduction

DR B RAMASWAMY
Senior Standing Counsel Income Tax, Ministry of Finance, Government of India (Additonal Government Pleader) (Puducherry Madras High Court)
Introduction

[2024] 159 taxmann.com 762 (Article)

[2024] 159 taxmann.com 762 (Article)©
Date of Publishing: February 28, 2024
New Trend: Digital Evidence Vs Corroborative Evidence

DR B RAMASWAMY
Senior Standing Counsel Income Tax, Ministry of Finance, Government of India (Additonal Government Pleader) (Puducherry Madras High Court)
Introduction
The case in question, filed in 2023, involves a series of writ petitions challenging the seizure of .txt files by the 2nd respondent. The petitioner contends that the seizure and subsequent actions by the respondents, including the passing of assessment orders, were not conducted in accordance with the law and violated principles of natural justice. The core issues revolve around the collection of digital data evidence without a valid search warrant, non-compliance with the Digital Evidence Investigation Manual, and allegations of improper conduct during the search and seizure process.
The petitioner argues that the assessment orders, based on digital data, were passed without providing adequate opportunities for a personal hearing and without presenting corroborative evidence. In response, the respondents question the maintainability of the writ petitions, asserting that statutory appeals have been filed. They argue that the evidentiary value should be appreciated by the Appellate Authority and not through writ petitions. Additionally, the respondents contend that the procedures followed during the search and seizure were in accordance with the law and dispute the mandatory nature of the Digital Evidence Investigation Manual.
The court, after considering both parties’ arguments, rejects the respondents’ contentions on maintainability and upholds the petitioner’s right to pursue the writ petitions. The court emphasizes the significance of the Digital Evidence Investigation Manual and concludes that the assessment orders were passed in violation of principles of natural justice. Consequently, the court sets aside the assessment orders, remits the matter back for reconsideration, and provides specific directions to follow proper procedures. This introduction encapsulates the key elements and conflicts in the case, setting the stage for a detailed examination of the proceedings and the court’s findings.
This case is about the Income Tax Act and the steps that should be followed, along with the rules set by the Central Board of Direct Taxes (CBDT). The main question here is whether the evidence collected by the tax officials from undisclosed can be accepted in court or not. Another important question is whether the rules in the CBDT’s Digital Evidence Investigating manual are mandatory or just optional. There’s also a concern about how independent witnesses were positioned and their statements recorded during the investigation. Both sides in the case presented their arguments and referred to previous court judgments to support their points. In a nutshell, this case is all about understanding and applying the rules of the Income Tax Act, the CBDT, and deciding if the evidence collected digitally is valid in court.
The Hon’ble High Court of Judicature at Madras, vide an Order and Judgment dated 23.02.2024, decided the writ petitions filed by the petitioners against the Department of Income Tax “hereinafter referred to as the “Department”. The Order discusses the various aspects of the proceedings initiated by the Department while passing the assessment orders which are imperative for the society to understand as the IT Act percolates to the roots of the society and has an impact on all individual taxpayers.
The judgement imparts some understanding and awareness on the basic principles that are necessary for the individual taxpayers of the society to know. Issues decided and their impact on the Society at large Alternate remedy in Tax matters It is a well settled principle that a writ petition would not be entertained if an effective alternate remedy is available to the aggrieved person or if the statute itself provides for a grievance redressal mechanism.
However, relying upon the decision of the Hon’ble Apex Court in the case of CIT v. Chhabil Dass Agarwal [2013] 36 taxmann.com 36/217 Taxman 143/357 ITR 357 it was observed that the circumstances wherein the statutory authority has not acted in accordance with the provisions of the enactment in question or in defiance of the fundamental principles of judicial procedure or when an order has been passed in total violation of the principles of natural justice, would be exceptions to the rule of alternate remedy and thus, the writ petitions in such cases would be maintainable.
Thus, where an Assessee feels that the proceedings are inherently against the basic principles as pointed out in the judgement, it shall be open to the Assessee to directly approach the High Court under Article 226 of the Indian Constitution. Conduct of search proceedings a. Independent witnesses It is a requirement under Rule 112 of the IT Rules that during search and seizure that two independent witnesses who must be respectable inhabitants of the same locality must be present during the entire duration of the search proceedings. The Department had argued that for the purpose of convenience and to ensure the presence of the witness during the entire trial, one of the witnesses was from the GST Department.
The Court observed that no other meaning can be provided for the word “inhabitant of the same locality”. Therefore, it is clearly a violation of the rules if the independent witnesses are not the residents of the locality and it is against the very intent of the legislation. b. Digital Evidence Investigation Manual The Digital Evidence Investigation Manual was issued by the Department in the year 2015 under Section 119 of the Act.
It was further observed that in the age of a Digital India, the Department cannot claim the excuse of nonavailability of the hardware and the said manual had to be followed in letter and spirit since the same was issued under Section 119 of the Act. Also, it was held by the Hon’ble Court that the Department cannot take the plea that it is only optional for them to follow the manual. Further, if the manual has not been followed while collecting and preserving the evidences, without there being any corroborative evidence, the digital data collected as well as the search and seizure would be against the law and ab initio bad.
The Hon’ble Court while applying the ratio in the case of Commissioner of Customs v. Indian Oil Corporation
Limited, held that if the manual is not followed, the entire search proceedings would be against the law. c. Principles of Natural Justice and basic principles of jurisprudence The Assessee in the proceedings must be provided with the copies of the documents relied upon by the Department while passing an Assessment
Order Further, the right to cross-examine the witnesses whose statements were recorded is fundamental to the jurisprudence governing the law of evidence and there cannot be exceptions to the same. It was observed that the search was conducted and the show cause notices were issued in a hasty manner and immediately thereafter, the assessment order was passed without providing any opportunities of a personal hearing to the petitioner or the right of cross-examination of the witnesses.
Therefore, clearly the assessment orders were passed in violation of principles of natural justice. Power of the Court If the relief sought by the petitioner is limited and in the facts and circumstances of the case, if it is found that the petitioner is not entitled for a particular writ, instead of dismissing the petition, the Court is empowered to mould the relief and issue an appropriate writ. Impact on the Revenue The aforementioned observations of the Hon’ble High Court of Madras highlight the importance of the law and the procedure established through the various rules, manuals etc. in order to ensure that the assessment orders are valid and may not be set aside after following a thorough process.
The Order serves as a guiding light to the authorities so that the entire process is not rendered bad ab initio. A few pointers from the judgement are highlighted here in below: 1. The authority must follow the search in accordance with the details mentioned in the search warrant. 2. There should be a backup of all the documents relied upon and the entire set of documents sought to be relied upon must be made available to the Assessee. 3. The proceedings should not be conducted in a hasty manner and a reasonable time and opportunity should be provided to the Assessee. It must be ensured that the Assessee is afforded an opportunity of a personal hearing in view of the principle of Audi Alteram Partem. 4. Further, if the statements of witnesses during the proceedings are relied upon, an opportunity to cross-examine the witnesses must be provided to the Assessee. 5. Further, the manuals such as the Digital Evidence Investigation Manual which are issued by the authorities itself must be followed in letter and spirit. Any exception to use such manuals as options would only tarnish the impartiality and the reputation of the Authority. 6. The Assessment order must be a detailed one taking into consideration all the evidences relied upon the Authority.
HOW THIS ORDER CAN BE BENEFICIAL TO THE NATION:
This order provides a significant precedent regarding the proper conduct of search and seizure procedures by income tax authorities. The court’s emphasis on adherence to the Digital Evidence Investigation Manual issued by the CBDT and principles of natural justice sets a standard for future cases.

1. Upholds Procedural Integrity: The order underscores the importance of following prescribed procedures during search and seizure operations. This helps in maintaining the integrity of the evidence collected and ensures that taxpayers’ rights are protected.
2. Mandatory Nature of Digital Evidence Investigation Manual: By categorizing the Digital Evidence Investigation Manual as mandatory and emphasizing its binding nature, the court reinforces the importance of standardized procedures in dealing with digital evidence. This can contribute to uniformity and fairness in such proceedings across the nation.
3. Ensures Principles of Natural Justice: The court’s stance on violations of principles of natural justice, such as the right to a personal hearing and cross-examination, provides assurance to taxpayers that their grievances will be addressed in a just and fair manner.
4. Prevents Arbitrary Assessments: The order addresses concerns regarding arbitrary assessments based on incomplete or corrupted data. This is crucial in ensuring that taxpayers are not unfairly burdened and assessments are grounded in accurate and reliable information.
5. Avoids Multiplicity of Proceedings: By providing comprehensive relief and setting aside all assessment orders, the court aims to avoid multiplicity of proceedings. This streamlines the resolution process and ensures that the matter is reconsidered in accordance with the law.
6. Promotes Accountability: The court’s scrutiny of the respondents’ actions and its insistence on following procedures promotes accountability within tax authorities. This can act as a deterrent against any laxity in the conduct of such operations.
7. Protecting Rights of the Assessees: The order protects the rights of the petitioner by setting aside assessment orders that were deemed to be in violation of principles of natural justice. This contributes to maintaining the integrity of the legal process and ensuring that individuals are treated fairly in dealings with tax authorities.
8. Protects Revenue Interests: While safeguarding the rights of the taxpayer, the order also recognizes the need to protect revenue interests. By setting aside assessment orders not conducted in adherence to the law, the court ensures a fair balance between taxpayer rights and revenue collection.
9. Clarity on Cross-Examination Rights: The order emphasizes the right to cross-examination and holds that denial of this right can render the order null and void. This reaffirms the importance of providing individuals with a fair opportunity to contest statements made against them, aligning with the principles of natural justice.
10. Remittance for Reconsideration: By setting aside the assessment orders and remitting the matter back for reconsideration by the concerned authority, the court ensures that the issues raised in the case are properly addressed. This contributes to the efficiency and fairness of the legal process.
11. Promoting Compliance with Legal Directives: The court’s insistence on following the Digital Evidence Investigation Manual and other legal provisions underscores the importance of compliance with established directives. This can contribute to a more transparent and accountable functioning of government agencies.
12. Setting Precedent for Validity of Search and Seizure Procedures: The court’s scrutiny of the search and seizure procedures, including the specifics of the search warrant and the adherence to rules, sets a precedent for the proper conduct of such actions by authorities. This can have broader implications for future cases and may encourage a more meticulous approach by government agencies.
13. Legal Clarity: The court’s detailed analysis provides legal clarity on issues related to search warrants, the role of independent witnesses, and the mandatory nature of certain guidelines. This clarity helps both government agencies and individuals understand their rights and responsibilities, contributing to a more transparent legal framework.
14. Judicial Precedents : The court’s reliance on judicial precedents in State of Kerala v. M/s. Kurian Abraham Private Ltd. and Commissioner of Customs v. Indian Oil Corporation Limited demonstrates a commitment to applying established legal principles to the present case. This practice enhances the overall coherence and reliability of the legal system by ensuring that decisions are grounded in a consistent and well-established body of legal doctrine.
15. Lack of Corroborative Evidence:The petitioner’s challenge regarding the absence of corroborative evidence and the court’s scrutiny of the procedures followed by the income tax department illuminate the profound significance of evidence-backed decision-making in legal proceedings. This aspect of the case underscores the court’s role as a vigilant guardian of justice, ensuring that the principles of fairness, transparency, and evidentiary support are not compromised in the process of administering legal judgments.
16. Admissibility of Digital Data : The petitioner’s challenge to the admissibility of digital data adds a layer of complexity to the case, delving into the intersection of technology and legal proceedings. The court’s decision on this matter will not only shape the trajectory of the current dispute but may significantly contribute to the formulation of legal principles governing the admissibility of digital evidence in the broader legal domain.
17. Affirmation of Rule of Law : The affirmation of the rule of law in this decision reflects the court’s dedication to the principles that underpin a just society. It safeguards individual liberties, demands accountability from authorities, and reinforces the pivotal role of legality in the functioning of the state. As a beacon of justice, the court’s ruling resonates as a testament to the enduring importance of the rule of law in maintaining the delicate balance between governmental authority and individual rights.
18. Invalidity of Search : The court’s finding of potential invalidity in the search conducted, based on insufficient specificity in the search warrant, reflects its commitment to preserving constitutional principles, protecting individual rights, and maintaining the integrity of legal processes involving state actions. This underscores the court’s role as a guardian of the rule of law and a bulwark against arbitrary exercises of governmental authority.
19. Judicial Oversight : The court’s scrutiny of the search and seizure process exemplifies the judiciary’s indispensable role in maintaining the delicate balance between effective law enforcement and protecting individual liberties. It reinforces the concept that no individual or institution is above the law and that the judiciary plays a pivotal role in safeguarding the principles of accountability, fairness, and justice in the functioning of the state.
20. Setting a Precedent: The judgment’s role as a precedent extends beyond the confines of this specific case. It provides a legal compass for tax authorities, legal practitioners, and the judiciary in navigating similar legal terrain. This not only contributes to consistency and predictability in legal outcomes but also fosters a legal environment where future disputes of a similar nature can be resolved with reference to established legal principles. By setting a precedent, the judgment serves as a cornerstone in the evolution of jurisprudence related to tax assessments, search procedures, and digital evidence. It reinforces the notion that legal decisions have a broader impact, shaping the legal landscape for subsequent cases and contributing to the ongoing refinement of legal principles and practices
    Conclusion
    In summary, this order contributes to the establishment of clear guidelines, procedural integrity, and fairness in income tax proceedings, ultimately benefiting the nation by fostering a just and accountable taxation system.
    Therefore, in light of the observations made by the Hon’ble High Court of Madras, it is clear that any such proceedings conducted by the Department and Assessment Orders passed in total disregard to the principles of natural justice and the fundamental principles of jurisprudence, it is the right of the Assessee to approach the High Court under Article 226 of the Indian Constitution in order to seek an effective remedy. The observations of the Court reinforce the principle of rule of law inasmuch as even the statutory authorities can claim no exception in following a reasonable and fair procedure in exercising their power under the Acts. It is further needless to mention that the Department goes through of a cumbersome process of procuring the documents, analysing and interpreting them, conducting search and seizure proceedings, examining the witnesses before passing assessment orders and a failure to follow the basic procedure as established under the law leads to the entire process being nullified by a Court of law. Thus, these basic principles with respect to the fairness and reasonableness of procedure must be kept in mind so as to ensure that the means do not interfere with the ends sought to be achieved by the Authorities.
    The court’s comprehensive order in this case holds immense significance for the nation, as it establishes a robust precedent and addresses various aspects critical to the fair and lawful conduct of income tax proceedings. The ruling emphasizes procedural integrity, upholds the mandatory nature of the Digital Evidence Investigation Manual, ensures adherence to principles of natural justice, and prevents arbitrary assessments. The decision also promotes accountability, protects the rights of taxpayers, and sets clear standards for the admissibility of digital data.
    By contributing to legal clarity, judicial oversight, and the affirmation of the rule of law, the order acts as a beacon for future cases, guiding tax authorities, legal practitioners, and the judiciary in navigating similar legal terrain. The court’s commitment to setting a precedent ensures consistency, predictability, and fairness in the nation’s legal landscape, particularly in matters related to search and seizure procedures, adherence to legal directives, and the protection of individual rights.
    The decision’s multifaceted impact extends beyond the specific case, offering insights into the proper conduct of income tax proceedings, the handling of digital evidence, and the broader principles of justice and fairness. By addressing the lack of corroborative evidence, the potential invalidity of the search, and the importance of judicial oversight, the court affirms its role as a guardian of constitutional principles and a custodian of the rule of law.
    The court’s order not only rectifies specific grievances raised by the petitioner but also contributes to the overall enhancement of the legal framework governing income tax proceedings. It strikes a delicate balance between the interests of the state and the rights of individuals, promoting a taxation system that is just, accountable, and guided by established legal principles.
    In conclusion, the Court has set aside the four assessment orders passed by the 2nd respondent, remanding the matter for reconsideration by the relevant authority. Emphasizing the obligation of Income Tax Authorities to adhere to CBDT orders, the Court highlighted the violation of the Digital Evidence Investigation Manual in collecting electronic data. Procedural irregularities were noted, and the Court outlined specific directives for the 2nd respondent, including the provision of documents, allowing crossexamination, affording a personal hearing, and ensuring detailed assessment orders. These directives are extended to potential future show cause notices, emphasizing the need for adherence to due process and fairness in tax proceedings.
    Landmark Judgment by
    IN THE HIGH COURT OF JUDICATURE AT MADRAS
    THE HON’BLE Mr. JUSTICE KRISHNAN RAMASAMY

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