SECTION 65B OF INDIAN EVIDENCE ACT (NOW SECTION 63 OF BHARATHIYA SAKSHYA ADHINIYAM, 2023) NOT APPLICABLE TO PROCEEDINGS BEFORE THE INCOME TAX ACT AUTHORITIES

[DR.MARIAPPAN GOVINDARAJAN]

In THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE – 2, MADURAI VERSUS M/S. VETRIVEL MINERALS (VV MINERALS), REP. BY ITS MANAGING PARTNER, MR. S. VAIKUNDARAJAN, M/S. VIJAY CEMENTS, REP. BY ITS PARTNER, MR. V. VELMURUGAN - 2025 (5) TMI 218 - MADRAS HIGH COURT - decided on 30.04.2025, a search was conducted in the premises of Vetrivel Minerals and Vijay Cements on 25.10.2028 and other days.  An order was passed under Section 127 of the Income Tax Act, 1961, directing to transfer the cases to Deputy Commissioner of Income Tax, Central Circle 2, Madurai. Against this Vetrivel Minerals filed a writ petition before the High Court.  The High Court dismissed the said appeal.  Against the order of Single Judge dismissing the appeal, Vetrivel Minerals filed an appeal before the Division Bench of the High Court.  This appeal was also dismissed.  SLP filed before Supreme Court was also dismissed on 14.10.2020.

The Department, on 16.07.2019, issued notices to Vetrivel Minerals for the assessment years from 2013 – 14 to 2018 – 19 under section 153A of the Act.  Similarly, notices were also sent to Vijay Cements for the assessment years 2017-18 and 2018 – 19.  The Department also issued a notice under Section 143(2) of the Act to Vijay Cements for the assessment year 2019 – 20 on 11.03.2020.  The writ petitioners filed replies to the show cause notices issued to them.  The petitioners sought for some documents from the Department.  The said requested was granted and they were given permission to take copy of the said documents. On 24.06.2021 assessment orders were passed in their cases.  The petitioners filed rectification applications for those assessment orders.  The rectification order was passed on 01.07.2021 under Section 154.

The writ petitioners filed writ petitions before the High Court, challenging the rectification orders passed by the Department.  The Single Judge allowed the writ petitions and set aside the assessment orders on the ground that the principles of Natural Justice have not been followed in the case of the petitioners.  The High Court, further, observed the following-

•  Even though as many as 101 panchnamas were prepared after the searches were concluded, they were not furnished to the assessee’s.
• Statements of certain persons including the employees of the assessee’s firms which were recorded behind the back of the writ petitioners were relied upon without affording opportunity of cross-examination of such witnesses.
• Electronic records were received in evidence in violation of the statutory mandate set out in Section 65B of the Indian Evidence Act, 1872.

The High Court further held that the writ petition is maintainable notwithstanding the fact that alternate remedy is available to the petitioners.  The High Court remanded the matter back to the Assessing Officer and issued the following directions to be followed in remand proceedings-

• to afford an opportunity of cross examination of the persons whose statements are relied upon by the respondent for making additions or disallowance;
• give the details of all the seized materials including the place of seizure and give copies of seized material demanded by the petitioners. In case, the department thinks that the seized materials sought for by the petitioners does not belong to the petitioners or the petitioners' group, communicate the same to the petitioners and in such event, in the assessment orders that framed either on the concerns that do not belong to the petitioners/petitioners' group or the assessment orders that are framed on the basis of the seized materials refused to be given to the petitioners/members of the petitioners' group, there would be no tax liability on the petitioners or members of the petitioners' group;
• the respondent should strictly comply with Section 65-B of the Indian Evidence Act if the respondent wants to use the electronic document by way of secondary evidence;
• none of the statements of the other group should be taken into consideration while framing the assessment on the petitioners or members of the petitioners' group and if the department thinks it is necessary to use the statement of the other group members, the petitioners/members of the petitioners' group should be given opportunity for cross examination, if demanded of the persons whose statements are relied on, by the petitioners or members of the petitioners' group;
• in case, if the department wants to fix the tax liability on the petitioners or on the members of the petitioners group, based on the search conducted and materials seized during the search conducted in the premises of the other group or in case, if the department wants to rely on the statement recorded under Section 132(4) during search conducted in the premises of the members of the other group, the said assessment proceedings can only be under Section 153-C of the Act. The limitation if any would stand extended and would start afresh for completion of the fresh assessment proceedings.

The Revenue filed writ appeals against the order of single judge before the High Court.    The Revenue contended the following before the High Court-

• The writ petitions ought to have been dismissed at the threshold for non-exhaustion of the appeal remedy. 
• When the Income Tax Act provides 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).

The assessees contended that the impugned order does not call for interference.

The High Court considered the submissions of the parties to the appeal.  The High Court was of the view that it would not go into the merits of the case since the assessees ought to have availed the alternative remedy.  The High Court observed that there is an increasing and regrettable reluctance on the part of the High Courts to interfere under art 226 even where the assessments are sought to be reopened completely without any jurisdiction. The High Court also considered the maximum that exceptions have been carved out in COMMISSIONER OF INCOME TAX & OTHERS VERSUS CHHABIL DASS AGARWAL - 2013 (8) TMI 458 - SUPREME COURT for by-passing the alternative remedy. When an order has been passed in total violation of the principles of natural justice, the assessee can, no doubt, seek writ remedy.  The writ court has to apply its mind and judiciously exercise its discretion as to whether the appeal remedy can be by passed.   It would always be possible to point out some breach of procedure or violation of principles of natural justice by the authority concerned. The writ court should not readily latch on to that argument to facilitate by-passing the statutory remedy. 

The High Court observed that the officials of the Income Tax Department had taken extraordinary pains to gather the incriminating materials and after putting the assessee’s on notice, the impugned orders came to be passed. The process had taken close to three years. The searches took place in October 2018. The assessment orders came to be passed in June 2021. It would not be appropriate to knock out all these proceedings and order de-novo assessments on a technical ground.   The High Court directed the department to furnish copies of all the panchnamas (101) prepared at the end of the searches made by them forthwith so that the assessee’s can effectively pursue their appeal remedy.

The High Court further observed that the petitioners have not asked for the cross examination of the witnesses.  The High Court was of the view that it would not be a ground to bypass the appeal remedy.  The High Court next considered the decision of the Single Judge on Section 65B of the Evidence Act.  The High Court analysed the provisions of Section 65B of the Evidence Act and also Section 63 of Bharat Sakhsya Adiniyanam, 2023.  The law of evidence mandatorily requires while dealing with the electronic evidence a certificate to be obtained from the experts.  The High Court was of the view that the provisions of Evidence Act are not applicable to the proceedings under the Income Tax Act. 

The High Court held that 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.

The High Court also analysed the Digital Evidence Investigation Manual, 2014 issued by the Department.  The High Court was 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.  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.

The High Court set aside the impugned order passed by the Single Judge.  The High Court directed the department to furnish the petition mentioned panchnamas (101) to the writ petitioners within three weeks from the date of receipt of copy of this order. The assessee’s are given four weeks from the date of receipt of panchnamas to file appeals under Section 246A of the Act. All the contentions of the assessee’s are left open except on the issue of applicability of Section 65B of the Indian Evidence Act.