Whether provisions of the Evidence Act, with respect to digital evidence, are applicable to Income-tax proceedings?
The issue of whether provisions of the Evidence Act, with respect to digital evidence, are applicable to Income-tax proceedings was there in Balar Marketing Private Limited (ITA Nos 3143 to 3148/Del/2023).
Let us have a short overview of the case:
Facts of the case –
During the search proceedings various electronic devices such as Hard disks, Mobile phones, Pen drives, etc were found and seized. During examination of these electronic devices, allegedly various incriminating evidence were found that includes the exchange of Cash Tokens through Hawala Network of M/s B with various sales and purchase parties. Mr VJ, Administrative Head in the assessee-company allegedly admitted in his statement that he made cash transactions for assessee which was executed through Hawala route.
1. Question – Whether the Digital Evidence Investigation Manual, 2014 is required to be adhered to by the tax authorities?
2. Question – Whether provisions of the Evidence Act, with respect to digital evidence, are applicable to Income-tax proceedings?
HELD
When it is said the provisions of Evidence Act are not applicable on the quasi-judicial authority, what is meant is that the strict rules of proof of a fact in a particular manner only is not applicable. In other words, it does not dispense with applicability of rules of fairness, prudence and natural justice which are foundation of evidence law.
Certain Rules of natural justice, prudence and common sense as enshrined in the Evidence Act certainly become applicable in all quasi-judicial proceedings also even if there is no strict application of Evidence Act. The fundamental principles of law of evidence defining what constitutes evidence, the relevancy of evidence for the issues under consideration, the principles of their admissibility in terms of valid mode of proof and probative value of the evidence, cannot be ignored even by quasi-judicial authorities.
With regard to the certificate u/s 65B, it must show as to how the data was retrieved and relevant incriminating evidence were extracted from the devices and by whom. Further, the Revenue is required to maintain correct record of chain of custody, so as to show that when the data was retrieved or any extract taken during assessment proceedings the same were corroborated by hash values as recorded at time of making the working copy. The purpose of section 65B of Evidence Act is to provide a certificate to the computer output stating identity of the electronic record describing the manner in which the output electronic record was produced. The certificate should indicate particulars of the electronic device involved, like in the case in hand the two phones or the working copy involved for producing the output of images relied by assessing officer. The authenticity is added by the extraction reports which forms basis of issuing the certificate. There is no extraction report of these two mobiles or of working copies though of some other devices found in search are placed in material before us. Then the certificate u/s 65B should have shown that the output to be relied as evidence was produced from the working copy and that the same was in lawful control of the person signing the certificate and certainly the chain of custody document would have established same. However, the chain of custody document filed is completely silent about the same.
The burden on the Revenue is of proving that the assessee has attempted to evade tax and this burden is to be discharged by establishing facts and circumstances from ‘relevant material’ driving conclusive inference that in fact assessee evade tax lawfully payable by it. Further, the relevant material would become admissible only once necessary compliances required as per due course of law are made. The due course here certainly is the instructions in Manual. The aforesaid discussion has firmly established that the assessment though being a quasi-judicial exercise had to be on the basis of evidence whose veracity can be tested in subsequent proceedings, like appeal or judicial review. This gives us an opportunity to hold that even if the case of revenue is accepted that strict principles or rules of Evidence Act are not applicable or there is no necessity of certificate u/s 65B, still in order to give and add credibility to the conclusions drawn on the digital evidences the Assessing Officer should ensure that there is substantive compliances of the Manual and not just by way of eye wash.
Thus, we have no hesitation to hold that assessment has been framed on the basis of material, allegedly retrieved from digital devices, but which are not admissible under law so as to be relied for drawing conclusions, of fact in dispute, being proved on scales of probability even. The corresponding grounds by which assessee challenges the assessment order being framed on inadmissible electronic evidence thus deserves to be sustained.
The copy of the order is as under:
