No prosecution u/s 275B when electronic gadgets and ERP user IDs and passwords was provided to search party – Sessions Court
In a recent judgment, the Sessions court has set aside the summon order holding hat Vague or incongruous answers to questions do not attract section 275B except when they are related to the passwords or secret codes of the electronic devices
ABCAUS Case Law Citation:
ABCAUS 3822 (2023) (12) AC
Important Case Laws relied upon by parties:
Commissioner of Central Excise, Bolpur versus Ratan Melting
Wire Industries Mehmood Ul Rehman v. Khazir Mohammad Tunda, (2015) 12 SCC 420
S.N. Mukherjee v. Union of India, (1990) 4 SCC 594
Lalankumar Singh & Ors. Versus State of Maharashtra, 2022 Livelaw (SC) 833
Pepsi Foods Ltd. v. Special Judicial Magistrate, (1998) 5 SCC 749
Income Tax Officer versus Anil Tuteja and others
R. Sai Bharathi vs J. Jayalalitha
Raj Kumar Khurana vs State of NCT of Delhi
of NCT of Delhi and Anr, 2009 III AD CR (SC) 305
Deepak Gaba & ors vs State of UP and Anr [Crl Appeal no 2328 of 2022]
Cheminova India Limited and Others v. State of Punjab and Another
In the instant case, the revision petitions were filed before the Hon’ble Sessions Court by the Revisionist against the Trial court in issuing summons for the prosecution under section 275B read with section 278B of the Income Tax Act, 1961 (the Act).
A search under Section 132 of the Act was conducted at the office premises of a company and subsequently a show cause notice was issued to the company and its officials (the revisionists) by Director of Income Tax (Investigation) under Section 275B of the Act on the allegations that unrestricted access to books of accounts, emails and messenger chats was not facilitated.
Later, the sanction under Section 279 of the Act was given to prosecute the revisionists and a complaint under Section 190(c)/200 Cr.P.C for the offences under section 275B read with section 278B of the Act was filed by the Income Tax Officer against the revisionists.
The Hon’ble Sessions Court observed that the offence under Section 275B of Act is the failure to afford the necessary facility to the authorised officer to inspect any books of account or other documents maintained in the form of electronic records. Thus, the said alleged offence stands committed with the act of failure or omission to afford the necessary facility to the authorised officer for inspection of electronic records.
One of the argument of the Revisionist was that no offence was committed under Section 275B of the Act as its ingredients were not fulfilled. It is argued that the said section is attracted, if there is denial of “necessary facility” “to inspect” the books of accounts or other documents as required under Section 132 (1)(iib) of the Act, which in turn provides for the obligation to allow “facility to inspect” the books or other documents “maintained in electronic form” only and not in respect of physical books of accounts or documents. It was argued that necessary facility to inspect even the physical records was not denied and same was duly provided.
It was argued that the requirement under Section 275B read with Section 132 (1)(iib) is only to provide necessary facility to inspect the books of accounts or other documents maintained in the form of electronic record, and as such if the access to data stored in electronic form is provided, then there is no question of any contravention of Section 275B read with Section 132 (1)(iib) of the Act because what is required under the law is “to afford the necessary facility to inspect”. It is argued that a person cannot be held guilty the moment such facility to inspect is afforded.
It was also argued that criminal law has to be strictly interpreted and the Courts cannot add anything which is not mentioned in the law and in fact, the breach of conduct or immoral act is not offence, if the same is not an offence as per law.
It was further argued that the ingredients of offence under Section 275B of the Act were not established for taking cognizance in the present case. It was argued that none of the accused persons was found to be in possession or control of books of accounts and other documents, maintained in electronic form, necessary facility to inspect of which was denied. It was argued that entire books of accounts of the company were maintained in ERP accounting system, access of which was duly provided by physically handing over the laptop containing ERP accounting system along with the user IDs and passwords during search and this fact was also recorded. Also, dump of books of accounts in multiple pen drives was also handed over.
It was also argued that the laptop, mobile phones, and other electronic devices of the accused persons were taken over by the respondent, which also contains emails and messenger chat.
It was argued that time sought by the accused was to submit reports to be downloaded or prepared from the ERP software and not for inspection of ERP software. It was argued that by reading the statement of all the accused persons, it can be seen that none of the accused persons deflected or skirted to comply with Section 132 (1)(iib) of the Act. It was argued that there was no delay in affording access to the books of accounts and other documents in the electronic form because time was sought to prepare a report in requisite format from the very same data of which necessary facility to inspect was already provided, and there was no delay in providing necessary facility to inspect books of accounts or other documents in electronic form, rather time was sought to provide additional reports
It was further argued that the impugned summoning order of the Trial Court does not specify the offence for which the accused persons were summoned. it was argued that summoning order was issued after noting acts and omissions which do not constitute the ingredients of Section 275B of the Act.
It was further argued that no offence was committed by any person either directly under Section 275B or under deeming Section 278B, both complaint and impugned order were silent whether each person is charged for the offence under Section 275B or under Section 275B read with section 278B, and that there are common allegations against each accused persons, including the company and therefore, the impugned order was en-masse summoning order which is liable to be struck of.
The Revenue contended that merely providing accounting entries through the ERP system and seeking additional time to provide basis/rationale of the said entries ought not to be construed as providing due access to the authorized officer for inspection of books of accounts. It was further argued that the accused persons were simply attempting to buy time in order to fabricate explanations to adjust their books of accounts before providing the same to the authorized officer.
It was argued that the seizure of electronic devices of the accused officials of the company by the department does not absolve them of the offences under Section 275B of the IT Act, as nothing surfacing out of the said electronic documents has been relied upon by the complainant department in their complaint. It was further argued that simply handing over the physical pen drives/laptops etc. does not render giving access to the facility and non-furnishing of required information by the accused was evident from their statements.
It was further argued that merely giving access to the digital devices connected to the remote server cannot be considered as providing necessary facility to inspect books of accounts and even the laptops handed over by the employee such as Zhaolei which are remotely connected to the server physically located outside the territory of India was insufficient access to the actual books of accounts of the accused company as the underline data source have not been afforded during the inspection.
Th Hon’ble Sessions Court observed that a holistic reading of the section 275B and 132(1)(iib) of the Act, it is clear that the offence under Section 275B is made out if the following ingredients are satisfied:
-Any person who is found to be in possession or control of any books of account or other documents;
-Maintained in electronic form
-Fails to afford necessary facility
-To inspect such books of account or other documents
The Hon’ble Sessions Court observed that the instant case pertained to books of accounts and other documents maintained in electronic form and not physical documents. The revisionists were duty-bound to afford necessary facility for inspection of such electronic records. The offences attracted only with respect to not affording necessary facility for inspection and not for not providing any information or documents.
The Hon’ble Sessions Court observed that the Prosecution Manual 2009 issued by the Directorate of Income Tax inter alia provides that if the authorized officer/DDIT/ADIT is unable to open or have access to files containing books of accounts or documents maintained on electronic media such as computers and the person incharge of the premises does not make available such computer codes or passwords, this act will constitute an offence u/s 275B. The authorized officers are advised to ask the passwords/secret codes specifically in the statement recorded on oath and the denial or deliberate non-furnishing of such passwords/secret codes shall be brought out in the statement recorded by the authorized officer. The evidence regarding the presence of Panchas, and their statements as witnesses, recorded contemporaneously, would be important to establish the commission of offence under this section. It has been further provided that if a person who is in control/possession of books of account/documents in electronic media, destroys the same to prevent their access by the authorized officer, it will constitute an offence u/s 204 of IPC.
The Hon’ble Sessions Court noted that on the tird day of the search a SCN was issued alleging that that the books of accounts were not being produced and necessary facility to inspect the same has not been provided. It was stated in the SCN that approval to free access to server is being denied and the persons were also not providing emails and messenger chats. It was stated that the search and seizure commenced two days before and the authorized officer had been demanding unrestricted access to books of accounts since then for all the relevant financial years, however, till the time of issue of SCN, the said facilitation had been deliberately denied which is in contravention of Section 275B of the Act.
Replying to the SCN, the accused company stated that it had submitted the necessary information including books of accounts including balance sheet, profit and loss accounts, notes to accounts, trail balance, detailed ledgers etc., which were made available to the authorized officers. It was submitted that with respect to emails and messenger chats, the access to the same was available for all the respective employees as part of laptops seized under the search and seizure proceedings and further, at the direction of the authorized officer, all the concerned employees were called during the course of search proceedings and their laptops and mobile phones were cloned/copied by the department officers. It was submitted that laptop belonging to officials of the company had complete access to company’s accounting ERP system was provided to the authorized officer and the backup of the said laptop was also taken after inspection.
The Hon’ble Sessions Court observed that it was not the case of the respondent that the accused persons did not provide the access to the ERP accounting system or that they have not provided the user IDs, passwords or secret codes of the ERP or electronic documents/books of accounts.
Further, the complaint was silent regarding which books of account or other document maintained in electronic form which were in possession and control of the accused persons were not provided, and for which the prosecution is launched.
The Hon’ble Sessions Court observed that the complaint was also silent as to how the accused persons had not afforded the necessary facility to inspect the electronic records, when the electronic gadgets of the employees along with the user IDs and passwords to the ERP accounting system was duly provided to the search team. It was nowhere documented in the statements of accused persons that authorized officer was unable to open or have access to the files containing books of account or documents maintained in electronic media and the person In-charge of the premises does not make available such computer codes or passwords.
The Hon’ble Sessions Court further noted that the sanction order u/s. 279 of the Act records the reply filed by the revisionists in response to the SCN but it remained silent and did not appreciate about the seizure of the mobiles/electronic devices or laptops of the employees having access to the ERP system and which were also cloned by the search team.
The Hon’ble Sessions Court observed that the issue was whether the ACMM had applied mind before issuing the summons to the revisionists. The law regarding the issuance of summons is well settled. Section 204 Cr.P.C. provides that the Magistrate finding sufficient grounds for proceeding against the accused may issue the summons. It is axiomatic that at the stage of cognizance and summoning, the MM must apply its mind to the facts of the case to prima facie form an opinion whether there are sufficient grounds for summoning the accused for the alleged offences. It is also settled law that the summoning order may not be a detailed one but it must speak of the mind of the Court to adjudge that there is application of mind and sufficient grounds exists for summoning. The summons cannot be issued in mechanical manner or as a matter of course. The summoning order must indicate that the application of mind and satisfaction that facts alleged constitute any offence and prima facie sufficient grounds exists for summoning. In absence of any such indication, the rights of accused may be seriously affected.
The Hon’ble Sessions Court stated that the test that needs to be satisfied at the time of issuance of summons is that there must exist “sufficient grounds for proceeding” against the accused. The sufficient grounds are for forming prima facie view that the accused has committed the crime and not sufficient grounds that he may be convicted for the crime.
The Hon’ble Sessions Court observed that the Hon’ble Supreme Court held that there must be sufficient indication in the order passed by the Magistrate that he is satisfied that the allegations in the complaint constitute an offence and when considered along with the statements recorded and the result of inquiry or report of investigation under Section 202 CrPC, if any, the accused is answerable before the criminal court, there is ground for proceeding against the accused under Section 204 CrPC, by issuing process for appearance. The application of mind is best demonstrated by disclosure of mind on the satisfaction.
The Hon’ble Sessions Court further observed that the jurisprudence around the caution needed while exercising magisterial power regarding issuance of summons to an accused by magistrate is well settled and as held by the Hon’ble Supreme Court, order of the magistrate summoning the accused must reflect that he has applied his mind to the facts of the case and the law applicable thereto.
It was observed that the Hon’ble Apex Court delineated the law relating to summoning and held that the order of issuance of process is not an empty formality. The Magistrate is required to apply his mind as to whether sufficient ground for proceeding exists in the case or not. The formation of such an opinion is required to be stated in the order itself. The order is liable to be set aside if no reasons are given therein while coming to the conclusion that there is a prima facie case against the accused.
The Hon’ble Supreme Court stated that the recording of reasons is important to guarantee considerations by the authority, introduce clarity in the decisions and minimise chances of arbitrariness in decision- making.
The Hon’ble Sessions Court stated that there is no doubt that in criminal matters, summoning of the accused is a serious matter and should not be done in mechanical manner. Though no detailed order is required at the stage of summoning, but the order must reflect application of mind by the Magistrate and that he is prima facie satisfied that sufficient grounds exists for proceeding against the accused. Reasons are heart and soul of the judicial order and in the absence thereof, such orders become vulnerable. Also, if the reasons given turns out to be ex-facie incorrect, the order would be bad in law.
The Hon’ble Sessions Court opined that in the present case, the ACMM got swayed with the version of the Department. The summoning order was passed on the basis that accused persons gave vague or incongruous answers but that by itself does not satisfy the requirements of the offence under Section 275B of the Act. Further, the impugned order did not speak about the specific vague or incongruous answers on the basis of which the accused persons were summoned. It is settled law that the Court cannot act as the mouthpiece of the prosecution but has to apply its mind independently to the facts of the case to decide whether the ingredients of the alleged sections are prima facie made out and whether there are sufficient grounds for proceeding against the accused persons.
The Hon’ble Sessions Court held that the reasons furnished by the Trial Court Trial for summoning the accused persons were insufficient and does not satisfy the ingredients of section 275B/278B of the Act. Thus, the impugned summoning order was liable to be set aside.
Accordingly, the revision petitions were allowed and the impugned summoning order of the Trial Court was set aside.
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