2023 (11) TMI 543 - HC - Income Tax

Assessment u/s 153A r.w.s. u/s 143(3) - Search and seizure proceedings - admissibility of primary and secondary evidence - Reliance on the statement of employees and electronic evidences - violation of principles of natural justice - accumulation of unaccounted money - certain loose excel sheets and pen-drive were seized and statements were also obtained from the MD and certain other employees for which some of them have given their retractions too - HELD THAT - No justification need to be provided in the form of reasons by the petitioner while seeking for cross-examination of the witnesses. In the present case, the petitioner, in fact, provided the reasons which necessitated to cross-examine the witnesses whose statements were relied upon by the 1st respondent and a perusal of the reasons mentioned by the petitioner, appear to be just and reasonable and the 1st respondent ought to have provided the opportunity, but unfortunately, no opportunity was provided by which, right to lead rebuttal evidence is deprived of. It is clear that not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. In the present case, the statements of the employees of the petitioner company have been relied upon by the AO while passing the impugned order of assessment. When such being the situation, it is bounden duty of the AO to permit the petitioner to cross-examine the witnesses and not allowing the petitioner to cross-examine the said witnesses whose statements were made the basis of the impugned order, is no doubt, a serious flaw, by itself makes the order nullity inasmuch as it would amount to violation of principles of natural justice. Admissibility of electronic evidence - In the present case, it appears that the 1st respondent seized Pen-drive and other electronic equipments and based on the material available therein, the impugned order came to be passed. It is to be noted that when the 1st respondent had chosen to rely upon the electronic evidence which is available in the form of Pen-drive and other electronic equipments, the contents contained therein, have to be certified in terms of Section 65B of the Indian Evidence Act, which, admittedly, no such certification was done. Under the Indian Evidence Act, 1872, Section 65B prescribes a distinct framework that governs the admissibility of electronic evidence. As decided in Vetrivel Minerals vs ACIT 2021 (10) TMI 1020 - MADRAS HIGH COURT when the entire assessment has been framed only on the basis of the so called electronic record which are said to be copies of Excel Sheet, Excel work note book etc., non compliance of Section 65(B) of the Indian Evidence Act renders the document inadmissible in the eye of law as held by the Supreme Court in the judgment reported in Anvar P.V vs. P.K. Basheer 2014 (9) TMI 1007 - SUPREME COURT Only if the electronic record is duly produced in terms of Section 65B of the Evidence Act, the question would arise as to the genuineness thereof and in that situation, resort can be made to Section 45A opinion of examiner of electronic evidence.The Evidence Act does not contemplate or permit the proof of an electronic record by oral evidence if requirements under Section 65B of the Evidence Act are not complied with, as the law now stands in India. In view of the violation of the principles of natural justice and also due to the non compliance of Section 65(B) of the Indian Evidence Act, this Court feels that it is a fit case for setting aside the assessment orders. Since the impugned order has been passed in violation of principles of natural justice and due to non-compliance of Section 65(B) of the Indian Evidence Act, this Court has no hesitation to hold that the impugned order is liable to be set aside.

Issues Involved:
1. Violation of principles of natural justice.
2. Non-compliance with Section 65B of the Indian Evidence Act.
3. Denial of cross-examination opportunities.
4. Admissibility of electronic evidence.
5. Availability of alternative remedy.

Summary:

Violation of Principles of Natural Justice:
The petitioner argued that the assessment order dated 30.12.2022 was passed without providing an opportunity for cross-examination of witnesses whose statements were relied upon, which is a violation of the principles of natural justice. The court noted that the petitioner sought cross-examination of seven witnesses to test the veracity of their statements and that the respondent failed to provide this opportunity, thereby violating the principles of natural justice.

Non-compliance with Section 65B of the Indian Evidence Act:
The petitioner contended that the electronic evidence relied upon by the respondent was not certified as required under Section 65B of the Indian Evidence Act. The court agreed, stating that the electronic records must be certified to be admissible, and in the absence of such certification, the evidence is inadmissible.

Denial of Cross-examination Opportunities:
The court emphasized that the right to cross-examine witnesses is a fundamental right, and the authority must grant this request whenever made. The court cited several precedents, including "Thilagarathinam Match Works & others vs CCE" and "Andaman Timer Industries vs Commissioner of Central Excise," to support the necessity of cross-examination to ensure a fair trial.

Admissibility of Electronic Evidence:
The court reiterated that electronic evidence must comply with Section 65B of the Indian Evidence Act. The failure to provide a certificate under this section renders the electronic evidence inadmissible, as held in "Anvar P.V vs. P.K.Basheer and others."

Availability of Alternative Remedy:
The respondent argued that the petitioner had an alternative remedy before the Commissioner of Income Tax (Appeals). However, the court noted that the power of remand by the Commissioner (Appeals) was taken away by the Finance Bill 2001, and thus, the petitioner would lose the opportunity for a well-considered assessment order by the Assessing Officer.

Conclusion:
The court set aside the impugned orders dated 30.12.2022 and 28.06.2023, citing violations of principles of natural justice and non-compliance with Section 65B of the Indian Evidence Act. The matters were remanded back to the 1st respondent for de novo assessment with specific directions to provide all details of the seized materials, afford an opportunity for cross-examination, comply with Section 65B, and provide a personal hearing to the petitioner. The court also dismissed the argument regarding the availability of an alternative remedy, emphasizing the petitioner's right to a fair assessment process.

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