The Gujarat High Court on Tuesday, upheld the search and seizures conducted by the Income Tax (I-T) department at a lawyer's residence and office last year over alleged income tax evasion as valid.

The above development came in a petition moved by practicing advocate Maulik Sheth, challenging the manner of search conducted by the I-T officials between November 3 and 7 at his office and residence. He had told the court that documents held by him in his professional capacity were seized during the search operations. The petitioner-lawyer had alleged violation of his fundamental rights, including that of privacy.

A division bench of Justices Bhargav Karia and Niral Mehta ruled that incriminating material confiscated from the lawyer could be utilized by the department against third parties, particularly the advocate's clients, under specific conditions.

The bench stated that concerning the commencement of search proceedings, based on the material seized from the lawyer's premises and presented by the department before the bench in a sealed cover, "does not require any interference by this court" and the petitioner's challenge to the raid initiated under IT Act section 132 "would fail".

However, the bench noted that the "glaring misconduct" in conducting the search operation, which also involved a female colleague of the petitioner-lawyer, was required to be deprecated. It also criticized the manner in which the free movement of Sheth and his family members, including his children, was restricted during the search proceedings.

Sheth's associate was served summons at her residence by inspector at I-T department Amit Kumar on 3.11.2023 in the morning at 6.30 am. The Inspector was accompanied by two armed policemen at the time of service of summons.

The court deprecated Kumar's behavior, observing that the authority's explanation for providing him with police protection, 'two police persons accompanied him with rifles so that no untoward incident happens,' amounted to nothing more than a feeble excuse.

The Court stated, “It is also surprising and astonishing that the way in which Ms Hima Patel was coerced and her family members were handled by (Kumar) in presence of two police persons with rifles by impounding their mobile phones and switching it off on the pretext that they may not give information to any other persons with regard to the search operation.”

The court further remarked, “It is very difficult to understand by any stretch of imagination as to the way in which a lady advocate is coerced by (Kumar) under the instruction of other respondents (officials of I-T department) who have authorised him to serve the summons by compelling Ms Hima Patel, lady advocate, to accompany him, in absence of any lady police officers, to the office premises of the petitioner and compelled her to open the same at 7 am on 3.11.2023.”

The Court opined that such actions on the part of the respondents clearly showed that they had acted high-handedly for which no explanation was forthcoming.

“It was incumbent and mandatory for the respondent authority to send a lady constable with (Kumar) and instead of sending the lady constable, two policemen with rifles were sent with (Kumar) which shows clear intention of the respondent authority to coerce lady advocate to cooperate… Such highhanded action on part of the respondent authority is deprecated,” the court added.

The court clarified that in this case, the attorney-client privilege as defined in Section 126 of the Evidence Act does not hold. It declared that if a lawyer becomes aware of fraudulent or illegal activities committed by their clients after being engaged by them, incriminating material can be used against third parties. However, if the lawyer possesses documents belonging to their clients before being hired by the alleged tax evaders, the Income Tax department cannot take action based on such documents, even if they are incriminating.

The Court sternly urged the officials to issue a formal apology to advocate Ms./Mrs. Patel for their actions, which they condemned as a violation of basic human decency. The Court underscored the necessity of upholding a citizen-centric and amicable approach, pointing out the inconsistency between the authorities' behavior and their professed commitment to conducting searches respectfully.

Case No.: SPECIAL CIVIL APPLICATION - No. 20187 of 2023

Case Title: Maulikkumar Satishbhai Sheth vs Income Tax Officer, Assessment Unit, Ahmedabad

LL Citation: 2024 LiveLaw (Guj) 8