Following CBDT’S Digital Evidence Investigation Manual During Search and Seizure is Mandatory & Not Optional | HC

Case Details: Saravana Selvarathnam Retails (P.) Ltd. vs. Assistant Commissioner of Income-tax - [2024] 160 taxmann.com 287 (Madras)

Judiciary and Counsel Details

• • Krishnan Ramasamy, J.
  • P.H. Arvind Pandiyan, Senior counsel, J. Sivanandaraj, Senior counsel, S. Kaushik Ramaswamy & Akhil R. Bhansali for the Petitioner.
  • AR.L. Sundaresan, Additional Solicitor General of India, A.P. Srinivas, Senior Standing Counsel & A.N.R. Jayaprathap, Junior Standing Counsel for the Respondent.

Facts of the Case

A search under section 132 was conducted on the assessee’s premises. During the search proceedings, electronic data was seized, and a show cause notice was sent. Subsequently, an assessment order was passed.

The assessee approached the Madras High Court and contended that the digital data evidence was collected from unknown locations without any valid search warrant and without following the CBDT’s guidelines laid down in the ‘Digital Evidence Investigation Manual’.

High Court Held

The High Court held that section 119 provides that the CBDT may issue such orders, instructions and directions from time to time to other income tax authorities for proper administration of the Income-tax Act. Such authority and other persons shall observe and follow such orders, instructions and directions of the Board. Therefore, if the CBDT issued any orders, instructions, directions, etc., for the Authorities, the same must be observed or followed by the Authorities concerned.

In the instant case, an issue of suspicion was involved about the collection and maintenance of data by the Department, whereby more than 52,000 files were corrupted, and the Department misplaced some of them due to the storage of data or files in a very poor and negligent manner.

Under these circumstances, before passing the assessment order, the data relied upon by the Assessing Officer (AO) had to be corroborated by any additional evidence since the same was a mandatory requirement as per the Digital Evidence Investigation Manual. The electronic data was collected without following the various procedures laid down in the Digital Evidence Investigation Manual.

Since AO had not followed the Digital Evidence Investigation Manual while collecting and preserving the evidence, as per the law laid down by the Apex Court in Dhakeswari Cotton Mills Limited v. Commissioner of Income Tax (1954) 26 ITR 775 (SC), if there is no corroborative evidence and proved in the manner known to law, the digital data collected by the Department in the course of search and seizure and thus, the said search and seizure is against the law and ab initio bad.

Therefore, the manual issued by the CBDT would be in the nature of orders, instructions and directions as prescribed under section 119(1). In such cases, the Department must follow it.

List of Cases Reviewed

• • State of Kerala v. M/s. Kurian Abraham Pvt. Ltd., and another (para 67), The Commissioner of Customs v. Indian Oil Corporation (2004) 3 SCC 488 (para 67)
  • Dhakeswari Cotton Mills Limited v. Commissioner of Income Tax (1954) 26 ITR 775 (SC) (para 69) followed.