2025 (5) TMI 218 - HC - Income Tax

Sections 65B and 63 not required for receipt of electronic records in income-tax assessment proceedings; genuineness can be challenged

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

HC held that Sections 65B of the Indian Evidence Act and 63 of the Bharatiya Sakshya Adhiniyam, 2023 do not apply to income-tax assessment proceedings ... Applicability 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. ISSUES PRESENTED AND CONSIDERED 1. Whether writ jurisdiction under Article 226 can be invoked to challenge assessment orders when an alternative statutory remedy of appeal under Section 246A is available, and scope of exceptions permitting bypass of the appellate remedy. 2. Whether breach of principles of natural justice in assessment/re-assessment proceedings (including reliance on statements recorded behind the assessee's back and non-furnishing of seized materials/panchnamas) permits exercise of writ jurisdiction or is a matter for the appellate authority. 3. Whether Sections 65A/65B of the Indian Evidence Act (and corresponding provisions in the Bharatiya Sakshya Adhiniyam) apply to income-tax assessment proceedings such that electronic records require statutory certificates for admissibility before the assessing officer. 4. Extent to which a writ court may direct specific procedural steps (cross-examination, production of seized materials, and conditions for reliance on statements of other persons) when setting aside assessments and remanding for de novo assessment; and whether such directions amount to impermissible micromanagement of assessment proceedings. ISSUE-WISE DETAILED ANALYSIS - 1. AVAILABILITY OF ALTERNATIVE REMEDY (APPEAL) AND EXCEPTIONS Legal framework: The Income-tax statute provides an appeal mechanism to the Commissioner (Appeals) under Section 246A; writ jurisdiction is discretionary and exceptional where an alternative statutory remedy is efficacious. Precedent treatment: Earlier Supreme Court rulings establish that the existence of a complete statutory machinery for assessment and relief ordinarily precludes relief by writ, subject to limited exceptions (e.g., total violation of natural justice, action beyond statutory power, use of repealed provisions). Interpretation and reasoning: The Court reaffirmed the principle that writ relief should not be routinely permitted where an adequate appeal exists. Even where an exception (such as violation of natural justice) is arguably made out, the availability of the exception does not create an automatic right to bypass appeal; the writ court must exercise discretion and consider whether the alleged grievance can be remedied adequately in the appellate forum. Ratio vs. Obiter: Ratio - statutory appeal remedy ordinarily bars writ relief; even established exceptions require judicial discretion before permitting bypass. Obiter - discussion of academic criticism of the rule cited but not relied upon to alter precedent. Conclusion: Petitioners were directed to pursue appeals under the statutory route; the writ court declined to entertain the petitions on grounds of non-exhaustion of alternative remedy while permitting certain limited relief to facilitate effective appeal (see cross-referenced directions regarding panchnamas). ISSUE-WISE DETAILED ANALYSIS - 2. ALLEGED BREACHES OF NATURAL JUSTICE, NON-FURNISHING OF PANCHNAMAS AND RELIANCE ON OTHER PERSONS' STATEMENTS Legal framework: Principles of natural justice require fair opportunity to meet evidence relied upon; assessing authorities are required to afford opportunity to make representations against adverse material. Precedent treatment: Authorities recognize that assessing officers are not strictly bound by rules of evidence but must bring adverse material to assessee's notice and allow representation; reliance on statements of third parties without opportunity for cross-examination can raise natural justice concerns. Interpretation and reasoning: The Single Judge found serious breaches - non-furnishing of 101 panchnamas, reliance on third-party statements recorded without affording cross-examination, and alleged prejudice to petitioners' ability to contest jurisdictional facts. The Division Bench accepted that these are potential breaches but held that they do not automatically justify bypassing the appellate remedy because (i) no direct request for cross-examination was made before the assessing officer by the present representatives, and (ii) the appellate forum can adjudicate these issues. The Court nonetheless directed the department to furnish all panchnamas to enable effective exercise of appeal rights and permitted the cross-examination issue to be raised before the appellate authority. Ratio vs. Obiter: Ratio - natural justice violations are a recognized exception to the bar of alternative remedy but entail discretionary consideration by the writ court; furnishing seized materials/panchnamas may be ordered to facilitate effective appeal. Obiter - observations on factual severity of the alleged breaches and the possibility of prejudice but refraining from factual findings to avoid prejudicing appeals. Conclusion: The writ petitions were non-suited to statutory appeal; petitioners directed to file appeals after receipt of panchnamas. Contentions on natural justice preserved for appellate consideration; no automatic quashing of assessments on technical grounds. ISSUE-WISE DETAILED ANALYSIS - 3. APPLICABILITY OF SECTIONS 65A/65B (AND BSA CORRESPONDING PROVISIONS) TO ASSESSMENT PROCEEDINGS Legal framework: Sections 65A/65B of the Evidence Act (and corresponding provisions in the Bharatiya Sakshya Adhiniyam) prescribe conditions, including certification, for admissibility of electronic records as secondary evidence in judicial proceedings. Precedent treatment: Supreme Court authorities distinguish courts/tribunals from quasi-judicial/adjudicatory authorities, holding that strict rules of evidence do not bind assessing authorities; assessing officers are fact-finding authorities who may examine probative value of documents without strict compliance with Evidence Act technicalities. Interpretation and reasoning: The Court held that statutory provisions governing admissibility of electronic records under the Evidence Act/BSA are inapplicable to assessment proceedings before assessing officers, appellate authorities, or tribunals because the Evidence Act applies to judicial proceedings. The technical certification requirement of Section 65B cannot be used as a shield by assessee to resist reception of electronic records in assessment proceedings. Practical considerations (e.g., seized electronic material being under department custody) reinforce the inapplicability of requiring department-produced certificates from the assessee. Ratio vs. Obiter: Ratio - Sections 65A/65B (and corresponding BSA provision) do not apply to income-tax assessment proceedings; technical non-compliance with such certification does not render electronic material inadmissible in assessment proceedings. Obiter - reference to departmental manuals and procedural guidance; manuals cannot override statutory or precedent positions. Conclusion: Electronic records may be considered in assessment proceedings without the statutory certificate required for judicial proceedings; however, assessees remain free to challenge the genuineness and probative value of such material before the assessing or appellate authority. ISSUE-WISE DETAILED ANALYSIS - 4. PROPRIETY OF REMAND DIRECTIONS AND LIMITS OF JUDICIAL MICROMANAGEMENT Legal framework: Writ courts may set aside administrative action and remit matters, but must avoid undue interference with the discretion and procedure of specialized statutory authorities. Precedent treatment: Courts have cautioned against micromanaging quasi-judicial proceedings by issuing overly detailed directions that displace the statutory authority's discretion in conducting fact-finding and assessment. Interpretation and reasoning: The Single Judge had directed detailed steps (mandatory cross-examination, furnishing of seized materials, strict compliance with Section 65B, and limitations on using statements of other group members), effectively prescribing the manner of assessment. The Division Bench considered such directions to amount to impermissible micromanagement; it set aside the Single Judge's detailed operational directions but issued limited, pragmatic relief - ordering immediate supply of panchnamas and allowing assessees time to file appeals. The Court emphasized leaving substantive and procedural determinations (including cross-examination and use of third-party statements) to the assessing/appellate authorities while preserving the petitioners' right to raise those contentions on appeal. Ratio vs. Obiter: Ratio - writ courts should refrain from micromanaging assessment proceedings; remand directions must be limited and aimed at ensuring effective exercise of statutory remedies (e.g., provision of seized materials to facilitate appeal). Obiter - specific operational directions issued by the Single Judge were disproportionate and thus not upheld. Conclusion: Detailed procedural micromanagement by the writ court was disapproved; limited directions (furnishing of panchnamas and time to file appeals) were ordered to secure a fair opportunity before statutory forums while preserving departmental discretion in conducting reassessment.