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2025 (5) TMI 218 - HC - Income TaxApplicability of Section 65B of the Indian Evidence Act 1872 (and corresponding provisions in the Bharatiya Sakshya Adhiniyam 2023) to assessment proceedings before the Income Tax authorities - HELD THAT - Under the new law of evidence expert s certificate is also made mandatory. This is an extra requirement. We may now examine if the statutory requirement set out in the Evidence Act (now BSA) must be fulfilled before the assessing authority would receive the electronic record as evidence in the assessment proceedings. Our answer is in the negative. We hold that Section 65B of the Evidence Act 1872 as well as Section 63 of Bharatiya Sakshya Adhiniyam 2023 are inapplicable to the assessment proceedings before the assessing officer/appellate authority/tribunal. It is open to the assessee to challenge the genuineness of the material relied on by the department. But the non-furnishing of the certificate under Section 65B cannot be used as a shield to resist the reception of the electronic record. This is for the simple reason that the assessment proceedings are not judicial proceedings and the technical rules of the Evidence Act are inapplicable to them. There is yet another reason. The adverse materials have been seized from the electronic systems and instruments maintained by the assessee s/their employees. It would be too much to expect them to issue certificates in favour of the department which would use the material against them. We came across the Digital Evidence Investigation Manual 2014 issued by the Central Board of Direct Taxes in which it has been mentioned that since Section 65A and 65B of the Indian Evidence Act govern the integrity of the electronic record while handling any digital evidence the procedure has to be in consonance with the said provisions. We are however of the view that the contents of a manual cannot have any statutory value or force and in any event they cannot alter the legal position laid down by the Hon ble Supreme Court. When there is no statutory provision which makes the rules of Evidence Act applicable to the assessment proceedings under the Income Tax Act they cannot become applicable by virtue of the contents found in the manual issued by the department. We do not want to delve further into the matter as we are of the view that it may prejudice the case of the assessee s before the appellate forum. When we relegate a litigant to go before the appellate forum we should not render any finding on facts. That is why apart from clarifying on the legal issue of applicability of Section 65B of the Evidence Act we have not touched on any other aspect.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Court include:
2. ISSUE-WISE DETAILED ANALYSIS A. Maintainability of Writ Petitions in Presence of Alternative Remedy Legal Framework and Precedents: Section 246A of the Income Tax Act provides a statutory remedy of appeal before the Commissioner (Appeals). The Supreme Court in the landmark decision in Commissioner of Income Tax v. Chhabil Dass Agarwal (2014) reiterated the principle that where a complete statutory machinery exists for assessment, reassessment, penalty, and appeal, a taxpayer cannot bypass this and invoke writ jurisdiction under Article 226 of the Constitution unless exceptional circumstances exist. This principle was earlier laid down in C.A. Abraham v. ITO (1961) and has been consistently followed. Court's Interpretation and Reasoning: The Court emphasized that the availability of an effective alternative remedy in the form of appeal must be exhausted before seeking writ relief. The exceptions carved out in Chhabil Dass Agarwal-such as orders passed in total violation of natural justice-do not automatically entitle the assessee to bypass the appeal remedy. The writ court must exercise discretion judiciously and consider whether the alleged breach goes to the root of the matter. Application to Facts: Although the Single Judge had found breaches of natural justice, the Court observed that the writ petitioners had not exhausted the appeal remedy. The Court also noted that the alleged breaches, such as non-furnishing of panchnamas and reliance on statements without cross-examination, did not justify bypassing the statutory appeal mechanism. The Court held that the writ petitions were not maintainable at this stage. Treatment of Competing Arguments: The assessees argued that the principles of natural justice were violated and that the writ petitions should be entertained. The Court acknowledged these contentions but held that such issues could be effectively addressed in the appeal proceedings. The revenue's objection to maintainability was upheld. Conclusion: The writ petitions were dismissed on the ground of non-exhaustion of the statutory appeal remedy, reaffirming the principle that the existence of an alternative remedy bars writ jurisdiction except in exceptional cases which must be carefully scrutinized. B. Alleged Violation of Natural Justice in Assessment Proceedings Legal Framework: The principles of natural justice require that a party be given a fair opportunity to be heard, including access to documents relied upon and the right to cross-examine witnesses whose statements are used against them. Court's Reasoning: The Single Judge had held that the assessee was prejudiced by non-furnishing of 101 panchnamas, reliance on statements recorded without opportunity for cross-examination, and admission of electronic evidence without compliance with statutory requirements. However, the Division Bench observed that the assessees did not themselves request cross-examination before the Court, and thus, this ground did not justify bypassing the appeal remedy. The Court directed the revenue to furnish all panchnamas to enable effective appeal. Application to Facts: The Court found that the assessment proceedings were lengthy and detailed, involving searches and seizure of incriminating material. The Court was reluctant to set aside the entire proceedings on technical grounds without the statutory appeal being availed. It also noted that the assessing authorities had taken pains to gather evidence and had given notice to the assessees. Competing Arguments: The assessees contended serious prejudice due to procedural lapses. The revenue argued that procedural safeguards existed and the assessees had opportunity to raise these issues in appeal. The Court sided with the revenue on this point. Conclusion: While recognizing the importance of natural justice, the Court held that the alleged procedural lapses did not warrant writ intervention at this stage and must be addressed in appeal. However, it directed the department to furnish all seized materials to the assessees. C. Applicability of Section 65B of the Indian Evidence Act and Corresponding Provisions of Bharatiya Sakshya Adhiniyam, 2023 to Assessment Proceedings Legal Framework: Section 65B of the Indian Evidence Act, 1872, governs the admissibility of electronic records as evidence, requiring a certificate from a responsible official to prove the authenticity of computer-generated documents. Similar provisions are found in Section 63 of the Bharatiya Sakshya Adhiniyam, 2023, which additionally mandates an expert certificate. Court's Interpretation and Reasoning: The Court held that these provisions apply strictly to judicial proceedings and not to quasi-judicial or administrative proceedings such as income tax assessments. It relied on Supreme Court precedents (CIT v. East Coast Commercial Company, Amiya Bala Paul v. CIT, Commissioner of Customs v. South India Television, and Union of India v. Madras Bar Association) establishing that income tax authorities are not bound by strict rules of evidence. The Court reasoned that since the assessment proceedings are fact-finding and quasi-judicial in nature, the technical requirements of Section 65B do not apply. Key Evidence and Findings: The Court noted that the electronic evidence was seized from the assessee's premises and it would be unreasonable to expect the assessee to provide certificates favoring the department. The Court also observed that departmental manuals cannot override statutory law or Supreme Court rulings. Application to Facts: The Single Judge's direction to strictly comply with Section 65B was held to be erroneous. The Court clarified that non-furnishing of certificates under Section 65B cannot be used as a shield by the assessees to resist electronic evidence. Conclusion: Section 65B and corresponding provisions of the Bharatiya Sakshya Adhiniyam do not apply to income tax assessment proceedings. Electronic evidence seized during search can be relied upon without the formal certificates required in judicial proceedings. D. Appropriateness of Directions for De Novo Assessment and Procedural Safeguards Court's Reasoning: The Court found that the directions issued by the Single Judge-such as allowing cross-examination of witnesses, furnishing seized materials, and excluding statements of other groups unless cross-examined-amounted to micromanagement and undue interference with the discretion of the assessing authority. The Court emphasized the need to respect the statutory scheme and the expertise of tax authorities in conducting assessments. Application to Facts: Given the extensive search and investigation, and the passage of time, the Court held that setting aside the entire proceedings on technical grounds was inappropriate. The Court instead directed that the seized panchnamas be furnished to the assessees to enable effective appeal, leaving other contentions open for appellate consideration. Conclusion: The Court reversed the Single Judge's order for de novo assessment with procedural conditions, restoring the assessment orders subject to appeal and proper compliance with procedural fairness by the assessing authority. 3. SIGNIFICANT HOLDINGS "When the Income Tax Act provides a complete machinery for the assessment/re-assessment of tax, imposition of penalty and for obtaining relief in respect of any improper orders passed by the revenue authorities, the assessee could not be permitted to abandon the machinery and invoke the writ jurisdiction when he had adequate remedy open to him by way of an appeal to the Commissioner of Income Tax (Appeals)." "Even if the writ petitioner demonstrates that the case on hand falls under the exceptions carved out in Chhabil Dass Agarwal, still the writ court has to apply its mind and judiciously exercise its discretion as to whether the appeal remedy can be bypassed. There cannot be any automatic admission or entertaining of writ petitions even in such cases." "Section 65B of the Indian Evidence Act, 1872 as well as Section 63 of Bharatiya Sakshya Adhiniyam, 2023 are inapplicable to the assessment proceedings before the assessing officer/appellate authority/tribunal." "The non-furnishing of the certificate under Section 65B cannot be used as a shield to resist the reception of the electronic record. This is for the simple reason that the assessment proceedings are not judicial proceedings and the technical rules of the Evidence Act are inapplicable to them." "It would not be appropriate to knock out all these proceedings and order de-novo assessments on a technical ground. In any event, we cannot endorse the directions passed by the learned Single Judge which will have the effect of micromanaging the assessment proceedings and interfering with the discretion of the authority." "The appellant is directed to furnish the petition mentioned panchnamas (101) to the writ petitioners forthwith so that the assessees can effectively pursue their appeal remedy."
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