Search and Seizure Operations:- Forced confession of undisclosed income in the statement recorded u/s 132(4) of the act during search and seizure operations

Brief Introduction

1. Section 132(1) of the Income-tax Act can be invoked by the Commissioner ofIncome-tax or Chief Commissioner or Director General or Director or any other authorized Additional or Joint Director or Commissioner if “in consequence of information in his possession” he “has reason to believe…”. Generally, the specified authorities proceed to search a person, etc., not on mere whims & fancies but only on the basis of some valid and just information and after duly satisfying themselves that the conditions precedent prescribed under sub-section

(1) of section 132 are satisfied.

The income-tax authorities can enter into the place to be searched only during the hours during which it is open for conduct of business/profession and in case of any other place only after the sunrise and before the sunset. Once they enter there, they can remain there till the search is completed. According to section 132(4) of Income-tax Act, 1961 the authorized officer may, during the course of the search or seizure, examine on oath any person who is found to be in possession or control of any books of account, documents, money, bullion, jewellery or other valuable article or thing and any statement made by such person during such examination may thereafter be used in evidence in any proceeding under the Indian Income-tax Act, 1961.

The persons giving such statements during search proceeding remain under great mental pressure and stress. They also do not have the availability of relevant details, documents and books of account at the time of giving such statements, in the absence of which precise information the statements made during the search proceeding are often vulnerable on the ground that same cannot be correctly furnished. The assessee’s are, therefore, entitled to modify/clarify the statements by filing retraction statements after verifying the necessary details from the relevant records at a later point of time.

It is often argued by the Department that in the confessional statements during the course of search, there is a mention that there was no pressure and the statement was given voluntarily without any threat. In this connection, the Bombay Tribunal in Deepchand & Co. v. Asstt. CIT (1995) [IT Appeal Nos. 1231 to 1234 (Bom.) of 1993, dated 27-7-1994] has observed thus:

‘The stereotyped mention at the end of the statement that whatever was stated

was true and to the best of the knowledge and belief and the statement given was voluntary without any threat, force or undue influence, would not mean that the partners agreed for making additions. Putting certain expression at the end of the statement cannot be taken as true in view of the retraction. Retraction can be made only after understanding the correct meaning and consequences of the statement.’

2. Whether a Statement is required to be recorded for confession of undisclosed income during the search?

2.1. CBDT Instruction F. No. 286/2/2003-IT (Inv.), dated 10-3-2003 regarding confession of additional income during the course of search & seizure and survey operation is as under – In pursuance of the Finance Minister’s budget speech dated 28-2-2003 this instruction was issued by the CBDT and is as under:

“Instances have come to the notice of the Board where assessees have claimed that they have been forced to confess undisclosed income during the course of the search and seizure and survey operation. Such confession, if not based on credible evidence, are taken/retracted by the concerned assessees while filing return of income. In these circumstances, confession during the search and seizure and survey operation do not serve any useful purpose. It is, therefore, advised that there should be focus and concentration on collection of evidence of income which leads to information on what has not been disclosed or is not likely to be disclosed before the Income-tax department. Similarly, while recording statement during the course of search and seizure operation, no attempt should be made to obtain confession as to the undisclosed income. Any action on the contrary shall be viewed adversely”. This instruction is in line with the recommendation of the Task Force on Direct Taxes Chaired by Dr. Vijay Kelker.

2.2 Recommendation in final Report Para 3.27 of Task Force on Direct Taxes Chaired by Dr. Vijay Kelkar in this context

•The CBDT must issue immediate instruction to the effect that no raiding party should obtain any surrender whatsoever.

•Where, a taxpayer desire to voluntarily make a disclosure, he should be advised to make so after the search.

•All cases where surrender is obtained during the course of the search in violation of the instruction of the CBDT, the leader of the raiding party be subjected to vigilance enquiry.

•All statements recorded during the search should be Video recorded.

Rights of person searched towards recording of statements and subsequent retraction, if required

3. The rights of person searched regarding recording of statements and obtaining the copy of documents prepared during the course of search are as under:

• Every person who is examined under section 132(4) has a right to ensure that the facts so stated by him have been recorded correctly. The raided person may also decline or object to the recording of the statement at a late hour of the night or in early morning, on health ground or on grounds of mental and physical exhaustion as under such condition he may not be able to recollect facts or furnish categorical replies. In spite of objection if a statement is recorded, he may insist on recording his objection.

To have a copy of panchnama (first listing of evidence and findings made)

•To have a copy of any statement that is used against him by the department.

•The statement under section 132(4) is an important piece of evidence against the assessee. However, the statement is not conclusive and the person giving the statement can retract the same under the following circumstances:

(a) Where the statement is not given voluntarily but it is obtained under coercion or threat by the authorized officer or by the circumstantial evidence in that regard.

(b) The other circumstance is where the statement is given under the mistaken belief of either fact or law. Again the burden is upon the person giving the statement to prove that the statement given by him was factually incorrect or was untenable in law.

Patna High Court’s decision in case of Chief CIT v. State of Bihar through The Chief Secretary [2012] 205 Taxman 232/ 18 taxmann.com 70 (Patna)

4. Continuous interrogation/ recording of statement till late night on second day of search is violation of human rights.

4.1 Brief facts of the case – In the above case, the place of respondent was searched by the Income-tax department. Respondent-assessee, Rajendra Singh had made a complaint before the Bihar State Human Rights Commission that during the search and seizure operation the raiding party had committed various acts of omission and commission including violation of human rights that were as under:

(i) The officials of the Income Tax Department confined them in their house for two days in the course of search and seizure operation in their business and residential

premises almost uninterruptedly.

(ii) The search team confined his family members and did not allow them to cook food, thereby compelling them to purchase the same from outside.

(iii) The members of the search team misbehaved, abused and tortured respondent and his family members.

(iv) The members of the search team used methods of coercion for recording statements and obtaining signatures forcibly.

(v) The members of the search team hurt the religious sentiments of the Sikh Community by throwing buts of used cigarettes on the photograph of Golden Temple and Sikh Guru.

(vi) The members of the search team stole two Mobile Phones before leaving the premises.

4.2 Proceedings before Human Rights Commission – The Commission issued show-cause notice to the Income Tax Department to reply to the allegations of the respondent. The department filed its reply and report thereon. The Commission came to a finding that there was continuous interrogation without a break for more than 36 hours commencing at 9.30 A.M. on 8-9-2010and the first break was given only at 3.30 A.M. on 10.9.2010 forcing the applicant and his family members to remain awake during hours which were meant for sleeping. The continuous interrogation at odd hours in night is a torturous act being violative of basic human rights of an individual. The Commission broadly agreed with that the department may conduct such search and seizure operation, if need be for days together, but then they have to stop the same at proper time and resume it again at an appropriate time in the morning. The Commission observed that the search and seizure operations have to be carried out keeping in view the basic human rights of an individual, as every individual has inherent human rights which ought not to be infringed upon.

The Commission held that there had been violation of the human rights of respondent by the concerned officials of the Income Tax Department while continuing search and seizure operation, for which he would be entitled to monetary compensation and further asked the department to submit its response as to why the monetary compensation be not awarded to the applicant, recoverable from the salary of the concerned officials of the department.

4.3 Department’s Contentions before the High Court – The Department filed a writ petition before the Patna High Court against the order of the Commission on the following grounds:

(i) The order of the learned Single Member was without jurisdiction beingCoram non-judice. The order could have been passed only by all the three members sitting together and not by an individual member.

(ii) The complainant had not come to this Court with clean hands, as he had filed a complaint before the NHRC, National Commission of Minorities and the criminal case being Jakkanpur P.S.

(iii) The Commission ought not to have heard the matter as the department had preferred Cr. Misc. No. 43811 of 2010 for quashing of the F.I.R. and the criminal case itself being sub-judice before the Chief Judicial Magistrate, Patna.

(iv) The Commission ought not to have held the concerned officials of the Income Tax guilty of violating human rights without affording an opportunity of hearing them personally under section 16 of the Protection of Human Rights Act, 1993

(v) The officer had acted in good faith and in discharge of his official duty.

(vi) The Commission had erred in holding that the complainant was not given sufficient break, as it was not possible for one officer to keep interrogating for 42 hours. Furthermore, the search and seizure manual permitted continuous interrogation.

The department submitted that, in fact, only 15 questions were asked by 10 P.M. on 9-9-2010 which would show that interrogation was not long enough and there were temporary breaks in between. It submitted that the search and seizure manuals do not lay down any time-limit of search and seizure operation. The petitioners in support of their submissions relied upon the case ofRajendran Chingaravelu v. R.K. Mishra, Addl. CIT [2010] 186 Taxman 305/ 320 ITR 1 (SC), wherein the Hon’ble Apex Court did not find any fault with long detention and interrogation of the appellant. The petitioners in short submitted that the search operation resulted in disclosure of undisclosed income of Rs. 86,66,220 from Respondent No. 3 and Rs. 4,81,66,220 in total from all the four brothers, including Respondent No. 3. The search and seizure protected the interest of the State and revenue.

4.4 Assessee’s contentions before the High Court

(1) Assessee contended before the High Court that Commission found that the search and seizure operation commenced at 9.30 A.M. on 8-9-2010 and he was continuously interrogated for 36 hours till 10 P.M. on 9-9-2010. He further submitted that the Commission noted that, though the exact time of commencement of interrogation was not mentioned in the statement but question No. 15 gave an idea about the duration. The officer interrogating Respondent No. 3 while asking question No. 15 told the applicant that he was being asked to produce books of account, but despite passage of more than 36 hours, the same

had not been produced. Learned counsel of Respondent further submitted that the Commission rightly observed that the operation commenced at 9.30 A.M. on8-9-2010 and the question No. 15 was being asked about 10 P.M. on 9-9-2010.

(2)Assessee contended that, it would appear from question No.16 that three hours additional time was granted to the Respondent No.3 to produce the records and the expiry time was mentioned as 1 A.M. of (10-9-2010). He submitted that the Commission noticed that recording of statement was temporarily suspended to be resumed in the morning after 31st question at 3.30 A.M. on 10.9.2010. The date and time had been endorsed by the officer along with his signature.

(3)Assessee further contended that the order of the Commission was in consonance with the objectives and purposes for which Protection of Human Rights Act, 1993 has been enacted. He submitted that all laws must conform to the charter of human values and dignity. In support of his submission, he relied upon a decision in the case of Ireland v. The United Kingdom, reported in (1978) ECHR 1 and in the case of Kalashnikov v. Russia, reported in (2002) ECHR 596.

4.5 Findings of the High Court

(1)High Court rejected the contention of the petitioner that the order passed by the learned Single Member was without jurisdiction. Single Member Bench is competent to hear a complaint regarding violation of human rights.

(2)The complainant made complaint to the National Commission of Minorities or to the police, addressing different and distinct concerns. Complainant ought to have mentioned in his complaint that he had written to the NHRC, which complaint was subsequently transferred to the SHRC. Such complaint eventually was to be endorsed to the competent body, e.g., SHRC would be an irregularity and in no way obviate or wipe off the act of violation of human rights and the same could not be a ground for rejection of the complaint filed by Respondent.

(3)High Court had made observation that one crucial fact remained undisputed that the interrogation continued till 3.30 A.M. on the second night of search and seizure as per the own record of department.

(4)The search and seizure manual of the Income Tax Department does not prescribe any time-limit for search and survey operation and the same may continue for days if required, but it has to be in keeping with the basic human rights and dignity of an individual. The purpose of the Act is to give effect to the process of execution of actions of executive and bureaucratic machinery in line of accepted standard of basic human rights, which are internationally recognized. The laws and approach to law for its execution must conform to the charter of human values and dignity. Even a person accused of a serious offence has to be produced before the nearest Magistrate within 24 hours minus the time taken in reaching the Court.

(5) High Court had made observation that there was no possible justification to continue with the interrogation and keep Respondent No. 3 awake till 3 A.M. on the second night of search and interrogations. No reason had been assigned as to why the interrogations could not have been deferred till the morning of the next day. The officials could have continued with the interrogation on the next day in the morning after allowing Respondent No.3 to retire at an appropriate time in the night.

4.6 Ruling of the High Court

(1)The department would consider issuing appropriate instructions in future raids to record the duration of interrogation and breaks.

(2)The department would give due regard to human dignity and value the same as these cannot be ignored. No reason has been assigned by department, as to why it was absolutely imperative to continue with the interrogations at 3 A.M. on10-9-2010, when search and seizure had commenced on 8-9-2010 at 9.30 A.M.

(3)The High Court partially affirmed the order of the learned Commission holding that the department was guilty of violating human rights. The High Court conscious of the fact that the efforts of the team led to unearthing of undisclosed income from the petitioner and his three brothers totalling over Rs. 4,81,00,000. The High Court even agreed with the submissions of the petitioners that operations were conducted in best interest of revenue and in good faith.

(4)The High Court held that since no notice had been issued to the individual officials who by the impugned order had been asked to submit their response as to why monetary compensation be not awarded from their salary. In the absence of an opportunity to defend themselves against such charge in an enquiry, the learned Commission erred in issuing notice to the officials to show cause or respond as to why penalty may not be levied for awarding compensation to the complainant and was, accordingly, quashed.

(5)The High Court affirmed the findings of the learned Commission that the Income Tax Department had violated Human Rights of the complainant (Respondent No. 3) but only to the extent indicated in the High Court’s order.

(6)Writ application was only partially allowed so far response of officials were sought for levying monetary penalty. Its challenge against findings of violation of Human Rights was dismissed.

Mere admission not sufficient:-

It is against the settled principles of law so far as that a confession of an accused would need corroboration with evidences to convict the accused. It is a matter of acceptance that though an admission is an important piece of evidence but it is not conclusive and it is open to the assessee to show that it is incorrect. It shall not be out of place to quote the verdict of Hon’ble Supreme Court of India in case ofPullangode Rubber Produce Co. Ltd. v. State of Kerala [1973] 91 ITR

18 wherein their Lordships while observing that admission is an extremely important piece of evidence, held that, it cannot be said to be conclusive and the maker can show that it was incorrect. The landmark verdict was followed by the jurisdictional High Court of Delhi in case of S. Arjun Singh v. CWT [1989] 175 ITR 91.

Conclusion

5. In the course of search and seizure operations, an attempt is often made to extract information about undisclosed income with the desire to announce the success of the operation of search by the concerned authorities, for achieving their success in search operations. Income-tax Department adopts the pressure tactics for confessions of undisclosed income, which amounts to violation of human rights and on the contrary an assessee always complains of adopting pressure tactics by the department to extract confessions for declaration of undisclosed income. According to the CBDT Instruction Circular F. No.286/2/2003-IT(Inv.), dated 10-3-2003 which was issued after taking due recommendation of Kelker Committee, clearly states that ‘no attempt should be made to obtain confession/surrender as to the undisclosed income during search. Any action on the contrary shall be viewed adversely’. The Gujarat High Court’s decision in the case of Kailashben Manharlal Choksi v. CIT [2008] 174 Taxman 466 , held that ‘Statement recorded under section 132(4) at midnight during search operation is not voluntary statement, and may not be given weightage at the time of assessment after search’. The verdict given by the Patna High Court for violation of human right is an eye opener for those officials who do not respect the human rights of an assessee.