S.R. Batliboi & Co. v. Department of Income Tax (Investigation)
In the Delhi High Court
W.P.(C) 9479/2007 & CM 9520/2008
Before Justice Vikramajit Singh and Justice Rajiv Shakdher
Decided on May 27, 2009
Relevancy of the case: Providing a password for inspection of accounts during search and seizure procedure
Statutes & Provisions Involved
• The Information Technology Act, 2000 (Section 2)
• The Income Tax Act 1961 (Section 131)
Relevant Facts of the Case
• A writ petition has been filed by the petitioners to prevent the respondents from forcibly gaining or securing access to the data contained in two laptops belonging to them. On 11.9.2007, while conducting an audit of EMAAR, the laptops of two employees of the Petitioner were seized by the Deputy Director, Income Tax and subsequently on 17.9.2007, the DDIT issued summons under Section 131 of the Income Tax Act, 1961 to Ms Sandhya Sama and Shri Sanjay K. Jain, the employees of the Petitioner firm who provided them with the electronic data relating to three companies of the EMAAR Group.
• Nevertheless, the DDIT insisted on securing total and unrestricted access to the laptops obviously in order to gain information and data of all the other clients of the Petitioner. The seized laptops were sent by the Respondents to Central Forensic Science Laboratory (CFSL) who, however, could not ascertain the password and accordingly could not access the entire data on the laptops and the Petitioner was thereupon asked to disclose the password, which it again declined and the laptops were sealed in the presence of the said employees of the Petitioner.
Prominent Arguments by the Advocates
• The learned counsel for the petitioner submitted that the data concerning EMAAR is available on distinct files and has nothing to do with its 47 other clients and the Petitioners are willing to cooperate in the Search and to identify and provide any data stored in the laptops. Granting of absolute access to the IT Department of all the data even pertaining to the other clients would tantamount to a serious breach of confidentiality and grave professional misconduct and would be contrary to the obligations contained in the Chartered Accountants Act, 1949.
• The IT Department cannot make a fishing inquiry to initiate proceedings against all these companies which are the clients of the petitioner. An indiscriminate search frustrates the scheme of Sec 132 and emasculates the protective measures against draconian powers.
• The learned counsel for the respondent submitted to argue the matter with regard to de-sealing of the laptops and having access to the data in the laptops. The entire inspection of the data on the laptops is done without copying the data in any form for the purposes of informing the Court as to which files were connected with EMAAR-MGF and would be required by the Assessing Officer. The counsel submitted that IT Department has made a valid seizure of the laptops and petitioners are bound to provide the password under Sec 275B of the Act.
• It was also contended that under Sec 132, 158(B)(d), and 275(B) to buttress that once a search or seizure has validly commenced, anyone who has been drawn into the vortex of that whirlpool would have to suffer all its activities and consequences and such repercussions can visit even a third party. It was submitted that the objection of the petitioners is only material relating to other clients and not to material having a casual connection with EMAAR against whom search and seizure operation is directed.
Opinion of the Bench
• The powers of the Search and Seizure are very wide and thus the legislature has provided a safeguard that the Assessing Officer should have reasons to believe that a person against whom proceedings under Section 132 are to be initiated is in possession of assets.
• For a search and seizure to be legal, it should not be ordered for malafide reasons and must be predicated on the information received by the authority who believe it necessary to conduct such an operation.
• The impugned summons, are set aside, and the Respondents are directed to forthwith return the laptops to the Petitioner. The petition is allowed and the pending application stands disposed of.