Pr.CIT , V Kolkata Vs. SWATI BAJAJ – VERY RELEVANT AND VITAL PROVISIONS OF INDIAN EVIDENCE ACT MISSED BY COUNSELS LEADING TO A JUDGMENT WHICH NEED SERIOUS RECONSIDERATION OTHERWISE TAX AUTHORITIES ARE LIKELY TO APPLY PRESUMPTIONS TO DISCARD MANY TYPE OF EVIDENCE.

[DEV KUMAR KOTHARI]

Evidences and Indian Evidence Act – a pick and choose approach seems applied leading to some  wrong conclusions  and  judgment in case of SWATI BAJAJ which needs reconsideration to avoid  undesired consequences of tax authorites and Courts applying PRESUMPTIONS in unrestricted manner.

Judgment under study:

PRINCIPAL COMMISSIONER OF INCOME TAX FIVE, KOLKATA VERSUS SWATI BAJAJ - 2022 (6) TMI 670 - CALCUTTA HIGH COURT

Recent article by author on related subject is found at :

https://www.taxmanagementindia.com/visitor/detail_article.asp?ArticleID=10760

Income tax Act, 1961: Word “evidence” and related expressions in the Income-tax Act, 1961 . A study which seems very important in view of presumptions being applied by tax authorities and courts even for discarding documentary evidences.

An Article By: - DEV KUMAR KOTHARI October 19, 2022

Earlier article:

Some provisions from the Indian Evidence Act – which may be relevant in proceedings under tax laws

An Article By: - CA DEV KUMAR KOTHARI  March 8, 2016

With due respect to all  learned counsels who appeared on behalf of various assesses author feels that there was complete failure on part of counsels of  assesses in at least bringing on record all relevant provisions of Indian Evidence Act or general rules about evidences in context of ax laws.

Rather it appears that learned counsels of revenue have made successful attempt in highlighting provisions in a pick and choose manner or piecemeal manner, and convincing  honorable judges, in accepting their all pleadings which were basically based on some findings and conclusions of even first appellate authority and in ignoring all other relevant provisions and rules about evidences.

On reading of the above judgment author found that honorable High Court has considered partly  even only two provisions of the Indian Evidence Act 1872 as contained in section 4 and 114 of the Evidence Act and have not been applied fully.

Other vital provisions relating to evidences not at all been considered – not even find any mention in entire reported judgment.

 The judgment in favour of revenue and against assesses is mainly based on presumptions in favor of revenue and by ignoring presumptions which are in favor of assessees.

There is no  discussion about presumptions and   valuable  written ,primary, documentary and statuary documents  and their rebuttal has been permitted  based on verbal statements, presumption and applying theory of probability.

There is no attempt to find out extent of probability which can be applied , Rather based on  report of investigation all evidences which are well recognized under law have been discarded.

Other provisions  of the Evidence Act do not find even  any mention that can mean that either learned Counsels  have not  mentioned them or that honorable High Court has somehow missed to and have not considered other provisions. We find mention of the Indian Evidence Act at two places.

On search in document with ‘indian evidence Act’ we find two results. And on search with ‘evidence Act’ we  find five results inclusive  on search result for ‘Indian evidence Act’.

Relevant part of  paragraphs have been reproduced below with highlights added by the author:

From  paragraph 9:	Observation of author
This paragraph contain finding of CIT(A)  for  dismissing appeal of assessee and contains as follows about evidence: “ Further, the use of the word “material” in Section 143(3) showed that the Assessing Officer not being a Court could rely upon material which might not strictly be evidence admissible under the Indian Evidence Act, for the purpose of making an order of assessment.	Expression used in section  143.3 is “after taking into account all relevant material which he has gathered, And not only the word “material” There is no reference of Indian Evidence Act, in S.143 and in fact in the entire Income tax Act. It seems that provisions of S.131.  Power regarding discovery, production of evidence, etc. Which empowers tax authorizes with powers of a court  Civil Court   have been ignored. To hold that assessing officer not being a court, particularly in context of evidences.
From paragraph 16:
It is submitted that in terms of Section 114 of the Evidence Act, the Court may presume existence of certain facts and if read along with Section 4 of the Evidence Act which explains the words “may presume”, and the facts of the cases on hand being examined will clearly show the circumstances under which the Assessing Officers have acted and the facts were considered and also the normal human conduct of an investor, preponderance of probabilities and the surrounding circumstances and finding has been rendered. It is reiterated that the Tribunal clearly abdicated its powers, did not examine any of the facts which it is required to do in terms of the power conferred on the Tribunal under the Act. With the above submission, the learned Standing Counsel prayed for allowing the appeals.	In the entire judgment we find mention of only two provisions of the Evidence Act. These have also been considered in piecemeal manner and not as per entire context of those provisions. Other provisions relating to evidences , which are used by tax authorities while exercising powers of a civil court in terms of S. 131, have been ignored.
From paragraph 37
Further the CIT(A) holds that in Section 143 (3) the word used is “evidence” which will include circumstantial evidence also and in tax jurisprudence the word evidence has much wider connotation and further the word “material” used in Section 143(3) of the Act, showed that the assessing officer not being a court could rely upon material which might not be strictly admissible under the Indian Evidence Act and therefore the assessing officer is not fettered by the technical rules of evidence and would be entitled to act on the “material”.
From paragraph 84:
84. In N.R. Portfolio Pvt. Ltd., the substantial question of law framed for consideration was whether the Tribunal was right in deleting the additions under Section 68 of the Act and whether the decision of the Tribunal is perverse..... . Further, it was held that the provisions of the Evidence Act are not applicable but the Assessing Officer being a quasi-judicial authority, must take care and caution to ensure that the decision is reasonable and satisfies the balance of equity, fairness of justice and the principle of preponderance of probabilities apply. The assessee argued that the revenue must have evidence to show circulation of money from the assessee to the third party which contention was rejected by the Court holding it to be fallacious and after referring to the decision in A GOVINDARAJULU MUDALIAR VERSUS COMMISSIONER OF INCOME-TAX, HYDERABAD - 1958 (9) TMI 3 - SUPREME COURT wherein the Hon’ble Supreme Court observed that it is not the duty of the revenue to adduce evidence to show from what source income was derived and why it should be treated as concealed income and the assessee must prove satisfactorily the source and the nature of cash received during the accounting year and it is not necessary for the revenue to locate the exact source. Further, it was observed that the Court was conscious of the doctrine of “source of source” or “origin of origin” and pointed out as follows:	It seems wrong to say that the evidence Act is not applicable. Evidence Act is general law and deals with evidences in most of circumstances in lives  and dealing of people. It contains provisions about evidences relating to accounts and documents. There is no specific exclusion or non –application provision to exclude applicability of Indian Evidence act. One may reasonably ask that if Evidence Act is not applicable then why the said enactment is made available on website https://incometaxindia.gov.in/pages/acts/indian-evidence-act.aspx  ? The honorable Calcutta High Court has adopted and applied some of provisions of the Indian Evidence Act relating to presumptions. This shows that admittedly Evidence Act, is applicable. Unfortunately, other vital provisions have been considered as if not applicable.

“Presume” as discussed or mentioned in the judgment:

In the reported judgment we find use of word ‘presume’ at two places in paragraph 16 . These are in relation to provisions of the Indian Evidence Act. Relevant part from judgment  is reproduced below:

It is submitted that in terms of Section 114 of the Evidence Act, the Court may presume existence of certain facts and if read along with Section 4 of the Evidence Act which explains the words “may presume”, and the facts of the cases on hand being examined will clearly show the circumstances under which the Assessing Officers have acted and the facts were considered and also the normal human conduct of an investor, preponderance of probabilities and the surrounding circumstances and finding has been rendered. It is reiterated that the Tribunal clearly abdicated its powers, did not examine any of the facts which it is required to do in terms of the power conferred on the Tribunal under the Act. With the above submission, the learned Standing Counsel prayed for allowing the appeals.

From above noting about evidence and presume, in the judgment we find that these were only based on submissions by Standing Counsel of Revenue based  on part of provisions and based on observations of Appellate authority in some other cases.

Unfortunately  even entire provisions of S.4 and 114 have not been considered. The Counsels referred to a part of them, and  it seems that honorable Court was  convinced with the same and  no one attempted to see full text of even these  two provisions.

Entire provisions of S. 4 and 114 Of Evidence Act:

 On reading of entire provisions of S. 4 and 114 it is to be noted that even when a mandate of presumption is provided by use of phrase “shall presume”,  then also discretion is provided to the Court by use of words ‘Court  may  presume‘ that too until and unless it is disproved or may call for proof of it.

Therefore, presumptions applied by honorable high Court , as to truth of investigation reports are on piecemeal consideration of provisions.

Therefore, it is necessary to read and consider entire provisions of these two sections:

From the Indian Evidence Act:

Only two provisions of The Indian Evidence Act referred in the judgment are reproduced below with highlights of relevance with Income-tax Act.

4. “May presume”.––Whenever it is provided by this Act that the Court may presume a fact, it may either regard such fact as proved, unless and until it is disproved, or may call for proof of it.

 “Shall presume”.––Whenever it is directed by this Act that the Court shall presume a fact, it shall regard such fact as proved, unless and until it is disproved.

“Conclusive proof”.––When one fact is declared by this Act to be conclusive proof of another, the Court shall, on proof of the one fact, regard the other as proved, and shall not allow evidence to be given for the purpose of disproving it.

114. Court may presume existence of certain facts. ––

The Court may presume the existence of any fact which it thinks likely to have happened, regard being had to the common course of natural events, human conduct and public and private business, in their relation to the facts of the particular case.

The Court may presume ––

 (a) that a man who is in possession of stolen goods soon, after the theft is either the thief or has received the goods knowing them to be stolen, unless he can account for his possession;

(b) that an accomplice is unworthy of credit, unless he is corroborated in material particulars;

(c) that a bill of exchange, accepted or endorsed, was accepted or endorsed for good consideration;

(d) that a thing or state of things which has been shown to be in existence within a period shorter than that within which such things or states of things usually cease to exist, is still in existence;

(e) that judicial and official acts have been regularly performed;

 (f) that the common course of business has been followed in particular cases;

(g) that evidence which could be and is not produced would, if produced, be unfavourable to the person who withholds it;

 (h) that if a man refuses to answer a question which he is not compelled to answer by law, the answer, if given, would be unfavourable to him;

(i) that when a document creating an obligation is in the hands of the obligor, the obligation has been discharged. But the Court shall also have regard to such facts as the following, in considering whether such maxims do or do not apply to the particular case before it: ––

as to illustration  (a) –– a shop-keeper has in his bill a marked rupee soon after it was stolen, and cannot account for its possession specifically, but is continually receiving rupees in the course of his business;

as to illustration    (b) ––A.  a person of the highest character, is tried for causing a man’s death by an act of negligence in arranging certain machinery. B . a person of equally good character, who also took part in the arrangement, describes precisely what was done, and admits and explains the common carelessness of A and himself;

as to illustration (b) –– a crime is committed by several persons. A, B and C, three of the criminals, are captured on the spot and kept apart from each other. Each gives an account of the crime implicating D, and the accounts corroborate each other in such a manner as to render previous concert highly improbable;

as to illustration (c) –– A, the drawer of a bill of exchange, was a man of business. B, the acceptor, was a young and ignorant person, completely under A’s influence;

as to illustration (d) –– it is proved that a river ran in a certain course five years ago, but it is known that there have been floods since that time which might change its course;

 as to illustration (e) –– a judicial act, the regularity of which is in question, was performed under exceptional circumstances;

as to illustration (f) –– the question is, whether a letter was received. It is shown to have been posted, but the usual course of the post was interrupted by disturbances;

as to illustration   (g) –– a man refuses to produce a document which would bear on a contract of small importance on which he is sued, but which might also injure the feelings and reputation of his family;

 as to illustration (h) –– a man refuses to answer a question which he is not compelled by law to answer, but the answer to it might cause loss to him in matters unconnected with the matter in relation to which it is asked;

 as to illustration (i) –– a bond is in possession of the obligor, but the circumstances of the case are such that he may have stolen it

Unquote:

All above provisions relating to presumuption, provide that the Court has discretion in accepting and applying presumption and that such discretion is also subject to unless proved otherwise or disapproved.

If a party do not provide any information or evidence, or document etc.  to other party then it can be presumed that if it is  provided  to other party it will go against the party who is not providing the same or withholding the same.

Therefore, if relevant material based on which an investigation report is prepared, are not provided, then it should be presumption that if those information are provided, the same will go against findings in investigation report.

From the provisions and also illustrations provided it is clear that presumption is at discretion of Court to presume and it can be so  presumed only if it is not disproved. Therefore, the other party must be provided with relevant documents based on which instigation report is   prepared and relied on by the Court. This shows the essential requirement of allowing cross-examination of any person whose statement is relied on.

In case of treating a transaction as bogus and all documents and evidences including third party documents, are considered bogus. If such view is taken that tax authorities will have unlimited power to presume every transaction and all related documents and evidences as bogus. As is result of assuming presumption in these cases. As a result all transactions, documents including transactions reported on stock exchanges, settlement of securities and payment at stock exchanges, holding of securities in depositories , transfer of securities on instructions of security owner , issue of cheques and clearing of cheques by banks all have been doubted and presumed to be bogus as a result of assuming that every assessee was in a position and was part of alleged engineered or fabricated transactions.

While presuming in the manner no attempt has been made as to enquire about nature of assessee, his sources of income, his potential sources of earning black money, his capacity to pay casdh against cheque.

There is  no mentions of  a single  documentary or otherwise valid evidence of cash payment by any of any assessee against cheques . The presumption has been applied as a rule of thumb in a very presumptive and biased manner – the way in which lower departmental authorities applied presumption theory, has been approved by honorable High Court.

Earlier article:

https://www.taxmanagementindia.com/print/print_Article.asp?ID=6733

Some provisions from the Indian Evidence Act – which may be relevant in proceedings under tax laws

An Article By: - CA DEV KUMAR KOTHARI March 8, 2016

In the above article, many of provisions on the Indian Evidence Act were discussed, however, this need further updating in relation to presumptions , proving evidence, disapproving evidence,  rebuttal of evidence, requirement of cross examination etc.

Applicability of provisions of the Indian Evidence Act,1872:

It appears that honorable High Court has noted and applied argument that provisions of Indian Evidence Act does not apply to tax matters wrongly.

There is no answer to a pertinent counter question that if Evidence Act is not applicable than what are rules of Evidence to be applied in tax matters?

 And why honorable  High Court choose to apply in piecemeal manner even provisions of two sections referred in the judgment and ignored all other provisions of Evidence Act.

While doing so even preamble of the Evidence Act have been ignored. The preamble of which read as follows:

THE INDIAN EVIDENCE ACT, 1872 ACT NO. 1 OF 18721 [15th March, 1872.]

Preamble.-WHEREAS it is expedient to consolidate, define and amend the law of Evidence; It is hereby enacted as follows: - PART I RELEVANCY OF FACTS CHAPTER I.––PRELIMINARY

1. Short title. ––This Act may be called the Indian Evidence Act, 1872.

 Extent.––It extends to the whole of India  and applies to all judicial proceedings in or before any Court, including Courts-martial, other than Courts-martial convened under the Army the Naval Discipline Act the Indian Navy (Discipline) Act, 1934 (34 of 1934),] 7 [or the Air Force Act (7 Geo. 5, c. 51)] but not to affidavits  presented to any Court or officer, nor to proceedings before an arbitrator;

3. Interpretation-clause.––

In this Act the following words and expressions are used in the following senses, unless a contrary intention appears from the context: –– “Court”.––

“Court” includes all Judges and Magistrates  , and all persons, except arbitrators, legally authorised to take evidence

We find various provisions which provide about presumption as to document. Many of these provisions are relevant to accounts and related claims and counter claims and also  tax matters which depend mainly on books of account.

 From index of provisions in the Evidence Act itself  we notice the following:

PRESUMPTIONS AS TO DOCUMENTS

79. Presumption as to genuineness of certified copies.

80. Presumption as to documents produced as record of evidence.

81. Presumption as to Gazettes, newspapers, private Acts of Parliament and other documents.

81A. Presumption as to Gazettes in electronic forms.

82. Presumption as to document admissible in England without proof of seal or signature

83. Presumption as to maps or plans made by authority of Government.

84. Presumption as to collections of laws and reports of decisions. 85. Presumptions as to powers-of-attorney.

85A. Presumption as to electronic agreements.

85B. Presumption as to electronic records and electronic signatures.

85C. Presumption as to Electronic Signature Certificates.

86. Presumption as to certified copies of foreign judicial records.

87. Presumption as to books, maps and charts.

88. Presumption as to telegraphic messages.

88A. Presumption as to electronic messages.

89. Presumption as to due execution, etc., of documents not produced.

90. Presumption as to documents thirty years old.

90A. Presumption as to electronic records five years old.

Any of above provisions have not been discussed by honorable High Court.

In another article, author shall make an attempt to update  contents of  earlier article and  discuss more provisions of the Indina Evidence Act which need consideration in connection with transactions and related claims including claims by tax authorities.