AI Drafter 
TaxTMI 
TaxTMI 
2026 (5) TMI 1490
X X X X Extracts X X X X
X X X X Extracts X X X X
....al facts involved in the matters these are heard analogously and are disposed by a common order. ITA No.8754/Del/2025 (Assessment Year 2020-21) 3. The brief facts of the case are that a search and seizure under Section 132 of the Act was conducted on 23.03.2021 at different business and residential premises of Shri Parasmal Jain and Balar Marketing group wherefrom various incriminating papers/documents were found and seized relating to the assessee before us. The assessment in the case of the assessee was completed under Section 153C of the Act r.w.s. 143(3) of the Act on 30.12.2013 upon assessing income at Rs. 12,92,030/-. The assessee has received cash amounting to Rs. 40 lakhs through hawala cash token, i.e., accepting in cash exceeding Rs. 2 lakh from a person in a day, as it is clear violation of 269ST of the Act as per Revenue and on the alleged fact, show cause dated 08.02.2024 under Section 271DA r.w.s. 274 of the Act was issued. The assessee filed adjournment application. However, the proceeding was finalized upon levying penalty of Rs. 40 lakhs, the sum equal to the amount of cash received by the assessee as alleged. 4. The assessee company gave accommodation ent....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Shri Vimal Jain and none of the devices found from Shri Vimal Jain, or Shri Parasmal Jain or his family members connected with the assessee firm were found relevant. Not even Whatsapp chats with Parasmal Jain or any other employees of that assessee were found which should show Shri Vimal Jain was dealing with anyone on behalf of the assessee therein. It has further dealt with the issue of admissibility of electronic evidences in the following manner: "8. Now, as with regard to the issue of admissibility of electronic evidences, the ld. AR has heavily relied upon the Digital Evidence Investigation Manual,2014 (hereinafter called 'the Manual') of the Central Board of Direct Taxes to submit that a detailed procedure has been provided by the Board with regard to collection of digital evidences and the manner in which the same has to be relied during the assessment proceedings. 9. Here, at outset, we find it necessary to observe that this Manual is in the instructions though may not have been issued u/s 119 of the Act, but certainly form of atleast good practices, which Board has found fundamental and necessary to add credibility to electronic evidences. The Manual is....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ction 282 providing that service of notice in the form of any electronic record as provided in Chapter IV of the Information Technology Act, 2000 (21 of 2000) will constitute valid service." 11. In this context, it can be further observed that in para 1.5 the objectives of the Manual are mentioned which states that the aim of this Manual is to apprise the user of "basic legal provisions relating to digital evidence in Income-tax Act and other laws including Information Technology Act and Indian Evidence Act." 12. Then, to counter the assertion of ld. CIT(A) and ld. DR too, that provisions of Section 65B of Indian Evidence Act are not applicable to income tax assessment proceedings, we would like to reproduce from this Manual as to how the Board perceived the relevance of various provisions of the different statutes and how specifically referred to the provisions of section 65A and 65B of the Indian Evidence Act, 1872 and directed that "accordingly while handling any digital evidence, the procedure has to be in consonance of these provisions.". The relevant part in para 2.7.3 is as follows:- "2.7.1 The Information Technology Act-2000 has been enacted to pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....veral references to documents and records and entries in books of account and their recognition as evidence. By way of the THE SECOND SCHEDULE to the Information Technology Act Amendments to the Indian Evidence Act have been brought in so as to, incorporate reference to Electronic Records along with the document giving recognition to the electronic records as evidence. Further, special provisions as to evidence relating to electronic record have been inserted in the Indian Evidence Act, 1872 in the form of section 65A & 65B, after section 65. These provisions are very important. They govern the integrity of the electronic record as evidence, as well as, the process for creating electronic record. Importantly, they impart faithful output of computer the same evidentiary value as original without further proof or production of original. Accordingly, while handling any digital evidence, the procedure has to be in consonance of these provisions. 2.7.4 Under Indian Penal Code several acts of omission and commission relating to various documents and records are treated as offences. By way of the THE FIRST SCHEDULE to the Information Technology Act, Amendments to the Ind....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ives the court opportunity to draw an inference about the existence or non-existence of fact. 13.4 The ld. tax authorities like any other quasi judicial authorities when entering into any inquiry to reach a conclusion on the basis of evidences, also rely the statements in the form of oral evidences or documents including electronic records called documentary evidences which form substantive material for believing a fact to exist or otherwise existing either by way of a conclusive opinion on the basis of a prudent man approach. 13.5 In this context, the provisions in section 143(2) and 143(3) of the Income Tax Act 1961 become relevant and which are reproduced below:- "143(2) Where a return has been furnished under section 139, or in response to a notice under sub-section (1) of section 142, the Assessing Officer or the prescribed income-tax authority, as the case may be, if, considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not under-paid the tax in any manner, shall serve on the assessee a notice requiring him, on a date to be specified therein, either to attend the off....
X X X X Extracts X X X X
X X X X Extracts X X X X
....or the purpose of proving its execution. However, in quasi judicial proceedings, like assessment, such strict mode of proof of Will is not necessary. That does not dispense with applicability of rules of fairness, prudence and natural justice which are foundation of evidence law. 13.9 As for our discussion with regard to this aspect we may mention here that under the Assessment proceedings the admission may be in the form of statements recorded at time of search and seizure under Section 132(4) of the Act and the statement have evidentiary value and can be used as evidence in any proceeding under the Act. Statement recorded during survey under Section 133A(3)(iii) unlike a statement under Section 132(4) of the Act, is not on oath and therefore has no evidentiary value, though it can still be used in proceedings being. Then during assessment proceedings u/s Section 131 of the Act, statement on oath are recorded by AO. However, statements recorded even on oath though binds the assessee cannot be independently used for making addition unless corroborated by evidences. Reliance can be placed on decision of Hon'ble Delhi High Court in PavitraRealcon (P) Ltd 2024) 340 CTR 225 / ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Evidence Act, secondary evidences, like photocopies of a documents, are also not held be reliable for completing assessment. Reliance can be placed on decision of Hon'ble Delhi High Court in Principal Commissioner Of Income Tax, vs Smt. Rashmi Rajiv Mehtadecidedon 4 March, 2024 vide ITA 984/2019(2024) 299 Taxman 82 (Delhi)(HC), wherein Hon'ble High Court has consider photo copy of an agreement of sale and held as follows; "No doubt the income tax proceedings are not bound by the technical rule of evidence, but where the addition is solely based on a photocopy of alleged document and the authenticity of such photocopy which is being made basis for making addition is being challenged by the assessee, then ostensibly onus will shift upon the Revenue to first establish the authenticity of such photocopy, thereafter, the onus may shift to the assessee to establish what is stated is correct. Here is the case where Revenue has failed to establish the authenticity of the photocopy of the alleged agreement to sell and thus, we are of the view that the addition on the basis of such photocopy the authenticity of which has not been established, the same cannot be sustained." ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re of considered view that 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. Based on aforesaid discussion we can certainly hold that the strict principles and Rules of 'mode of proof' under the Evidence Act may not be applicable to assessment proceedings but the aforesaid discussion leaves us to a conclusion that even if the Evidence Act is not made strictly applicable to the tax proceedings by the Income Tax Act 1961, 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 evidences, cannot be ignored even by quasi judicial authorities. Thus where the initial burden of proof is on the Revenue authorities to show that the receipts constitutes income, and only real income is liable to tax and more particularly in case of search assessments that addition is on the basis of incriminating material found during the search, the burden on the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ied the decision of the Hon'ble Supreme Court in Arjun Panditrao Khotkar v. Kailash Kushanrao Gorantyal and Others (2020) 7 SSC 1,and observed that in the said decision the Hon'ble Supreme Court, while explaining the mandatory nature of section 65B(4) of the Indian Evidence Act applied following two Latin maxims :-(i) impotentiaexcusatlegem; (ii) lex non cogitadimpossibilia, and thereafter held that these two maxims are the foundation with regard to admissibility of electronic evidences and though section 65B(4) of the Evidence Act is mandatory, yet, it would all depend on the facts of each case, how the same could be said to have been duly complied with. 20. Accordingly, in the said case of Suresh Kumar (supra), the Hon'ble Supreme Court considered the 'substantial compliance' of section 138C(4) to be sufficient and, therefore, we can firmly conclude that if, in the case of the Income-tax Act, 1961, there are no specific provisions with regard to admissibility of electronic evidences, then, the Manual issued by the Board would substantially hold the ground and the tax authorities are suppose to ensure that there is at least substantial compliance of the Manual to make the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dy to reach the Assessing officer are not there in the documents provided by the department. Ld. DR who is present virtually, has requested that the current incumbent DR of this Bench 'A' be directed to procure the relevant documents/ information. Accordingly, it is directed that department will ensure filing all the material establishing admissibility of the electronic evidences, specially the chain of custody document from the stage of handing over of the electronic devices to the Investigation Wing reaching the hands of the Assessing Officer. Ld. DR is requested to forward a copy of this order for information to the present incumbent DR of 'A' Bench and also to the concerned Assessing Officer. As, this Bench has considerably heard the matter at length, it is kept for further clarification on this aspect only for 14.08.2025. No further opportunity shall be granted to the department, and it will be presumed that there is no other piece of information/document available with the Assessing Officer than what has already been furnished in previous hearings." 22.1 In response of same ld. Assessing Officer had also filed a response and....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ible-meaning it cannot be decrypted or traced back to the original content-and is therefore used as a digital fingerprint for the data. Even a minor change in the original dataset would result in a completely different hash value, which makes it an effective mechanism for data integrity verification. Hash value can be generated of any data set and it's a data unique value. Which mean, if two data sets having exactly the same data will be having the same Hash value. This function of hashing is used for ta integrity check in case of tampering of data after a hash value is produced. Majorly two types of hashing algorithm are used i.e., MD5 and SHAI. MD5 (Message Digest Algorithm 5): Produces a 128-bit hash value. It is efficient and widely supported across forensic platforms, and primarily used as a checksum to detect unintentional data corruption. SHA-1 (Secure Hash Algorithm 1): Produces a 160-bit hash value, typically rendered as a 40-character hexadecimal string. It provides a higher level of uniqueness and is often used for evidence validation in legal settings. The above procedure was duly followed in the case of the assessee, and Hash value was also recorded w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....roadmap that shows how evidence was collected, analyzed and preserved in order to be presented as evidence. Establishing a clear chain of custody is critical because electronic evidence can be easily altered. A clear chain of custody would demonstrate that electronic evidence is trustworthy. Preserving a chain of custody for electronic evidence, at a minimum, requires that i. No data has been added, changed, deleted from the seized information evidence ii. The seized/information evidence was duplicated exactly and completely. iii. A reliable and validated duplication process was used. iv. All media were secure and safe. Based on above, the chain of custody of the seized electronic evidence was never compromised in the process described above and followed in the case of the assessee. The cloned data is stored in 2 devices, 'a Working Copy' and 'a Master copy'. And the master copy is sealed permanently and is never desealed. The hash value (i.e.-a unique digital fingerprint representing all the information stored on the original device) is generated which remains the same throughout the search proceedings and later on during the assessment....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... except for making the extracts of digital images of Sambhav Software or statements annexed to the assessment order. The aforesaid directions of Board in para 9.1 and 9.6 of the Manual have been completely ignored by the AO. It appears that at time of initiation of search the process of collection of digital evidences was very much in accordance with the directions of Manual. The preparation of chain of custody document and taking E Certificate at time of making working copy, does show that authorities were conversant with the Manual or other instructions. They were aware that only evidence found in search is in the digital form so they with all caution initiated the process of collection of digital evidences form two phones in accordance with mandate of Manual and general principles of law, regulating collection of electronic evidence and to maintain its sanctity throughout, till it is ultimately relied in assessment and if needed at stage of judicial scrutiny. However, the attempt was either half hearted, if not to be presumed to be thwarted half way to prejudice of assessee. It is established that that tax authorities applied some provisions and instructions of the Manual, at ti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt order, the same do not contain any message which will narrate any transaction on its own, but, only mention some figures which are allegedly to be codes. When original Sambhav software could not be retrieved from any of the electronic devices the images in the phones of Mr. Vimal Jain were, no doubt, secondary evidences only and that all the more required that if they were to be relied the instructions given by the Board to ensure the authenticity of evidence become material directions to be followed. The evidences extracted from the phone howsoever relevant 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. Even if it is claimed by ld. DR to be not binding the aforesaid discussion has firmly established that the assessment though being a quasi judicial exercise had to be on the basis of evidences 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....