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AN INTERFACE OF EVIDENCE ACT, 1872 DEPOSITS IN FOREIGN BANKS AND ILLEGAL PAYMENTS TO

POLITICIANS AND OFFICIALS.

By:HARI OM ARORARAHUL PATHAK

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1. Introduction

The Statement that Evidence Act is not applicable to the proceedings under the Income

Tax Act is a misnomer. According to section 1, the Evidence Act applies to all judicial

proceedings before any court but not to affidavits presented to any court or Officer, nor to

proceedings before an arbitrator1. The Apex Court while analysing this section has held

that Evidence Act is not applicable to the proceedings under Income Tax Act2. However,

diluting this strict principle, the various courts in India have laid following propositions of

law relating to this subject:

1.1 Technical rules of evidence cannot apply - The ITO is not fettered by technical rules

of evidence and pleadings, and he is entitled to act on material which may not be accepted

as evidence in a court of law3.

2. Assessment procedure

Section 139 statutorily requires every person to furnish return of his income or the income of such other person during the previous year, in the prescribed form with verification and setting forth such other particulars as may be prescribed, on or before the due date. On failure to furnish such return the Assessing Officer is authorised to issue notice under section 142(1) for filing the return. Section 142(2) of the Act empowers the Assessing Officer to make such enquiry as he considers necessary with an objective to obtain full information in respect of the income or loss of any person. Section 142(3) of the Act obligates the Assessing Officer to give an opportunity of being heard to an assessee, in respect of any material gathered on the 1 The section 1 of Evidence Act reads as follows:“It extends to the whole of India except the State of Jammu and Kashmir and applies to all judicial

proceedings in or before any Court, including Courts-martial, other than Courts-martial convened under the Army Act, the Naval Discipline Act or the Indian Navy (Discipline) Act, 1934 or the Air Force Act but not to affidavits presented to any Court or Officer, nor to proceedings before an arbitrator; and it shall come into force on the first day of September, 1872”

2 Dhakeswari Cotton Mills Ltd. v. CIT (1954) 26 ITR 775 (SC); Also see, Dhakeswari Cotton Mills Ltd. v. CIT (1955) 27 ITR 126 (SC); Commissioner of Income Tax v. East Coast Commercial Co. Ltd. (1967) 63 ITR 449 (SC)

3 Ibid

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basis of any enquiry or any audit and proposed to be utilized for the purposes of the assessment. Section 143(2) of the Act provides for issuance of notice requiring an assessee on a date to be specified therein either to attend his office or to produce, or cause to be produced any evidence on which the assessee may rely in support of the return. The Gauhati High Court in Greenview Restaurant vs. Asstt. CIT (2003) 185 CTR (Gau) 651 : (2003) 263 ITR 169 (Gau) observed : "The underlying purpose of the exercise outlined in sub-sections (2) and (3) of section 143 of the Act is evidently to ascertain correctly the tax liability of the assessee and if for the said purpose, the Assessing Officer, for good reasons considers it necessary to issue a notice under section 143(2) in respect thereof, and the assessee produces evidence in support of his return, the Assessing Officer is obligated to consider the same and make further inquiries, if called for before making the final assessment of the total income to determine his tax liability. The clear mandate, therefore, is that in case the Assessing Officer is not inclined to accept the returned income he has to afford an opportunity to the assessee to produce evidence in support of the return already filed."

The apex Court in National Thermal Power Co. Ltd. vs. CIT (1999) 157 CTR (SC) 249 : (1998) 229 ITR 383 (SC) observed that the purpose of an assessment proceeding before the taxing authority is to assess correctly the tax liability of the assessee in accordance with law.

3 (i). Evidence vs. Material

Section 3 of the Indian Evidence Act defines evidence to mean and include all statements oral or in writing and all documents. Evidence in the form of affidavits, declarations and other means of the same kind is allowed to be adduced. Strict/technical rules of evidence, as are known to the Indian Evidence Act, are not applicable to proceedings, and thus the word 'evidence' has to be understood in the generic sense. The word 'material' is wider and shall include all explanations, submissions, contentions, claims, details, information, statements, affidavits, books of account, documents, record, etc. as are placed on records by the assessee or collected and confronted by the Assessing Officer [C. Vasantlal & Co. vs. CIT (1962) 45 ITR 206 (SC), J.S. Parker vs. V.B. Palekar (1974) 94 ITR 616 (Bom) and Vimal Chandra Golecha vs. ITO (1981) 25 CTR (Raj) 175 : (1982) 134 ITR 119 (Raj)]. The Supreme Court in Chuharmal vs. CIT (1988) 70 CTR (SC) 88 : (1988) 172 ITR 250 (SC) approved of the principle laid down by the Bombay High Court in the case of J.S. Parker (supra).

3 (ii) "Evidence." "Evidence" means and includes-- (1) all statements which the Court permits or requires to be made before it by witnesses, in relation to matters of fact under inquiry; such statements are called oral evidence; (2) all documents produced for the inspection of the Court; such documents are called documentary evidence.

"Proved." A fact is said to be proved when, after considering the matters before it, the Court either believes it to exist, or considers its existence so probable that a prudent man ought, under the circumstances of the particular case, to act upon the supposition that it exists."Disproved." A fact is said to be disproved when, after considering the matters before it, the Court either believes that it does not exist, or considers its non-existence so probable that a prudent man ought, under the circumstances of the particular case, to act upon the supposition that it does not exist.

"Not proved." A fact is said not to be proved when it is neither proved nor disproved.

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"May presume."-Whenever it is provided by this Act that the Court may presume a fact, it may either regard such fact as proved, unless and until it is disproved, or may call for proof of it:

"Shall presume."-Whenever it is directed by this Act that the Court shall presume a fact, it shall regard such fact as proved, unless and until it is disproved:

"Conclusive proof."-When one fact is declared by this Act to be conclusive proof of another, the Court shall, on proof of the one fact, regard the other as proved, and shall not allow evidence to be given for the purpose of disproving it.

Section 5. Evidence may be given of facts in issue and relevant facts. 5. Evidence may be given of facts in issue and relevant facts.- Evidence may be given in any suit or proceeding of the existence of non-existence of every fact in issue and of such other facts as are hereinafter declared to be relevant, and of no others. Explanation.--This section shall not enable any person to give evidence of a fact which he is disentitled to prove by any provision of the law for the time being in force relating to Civil Procedure.

Section 17. Admission defined.-An admission is a statement, oral or documentary, which suggests any inference as to any fact in issue or relevant fact, and which is made by any of the persons, and under the circumstances, hereinafter mentioned.

Section 18. Admission by party to proceeding or his agent.-Statements made by a party to the proceeding, or by an agent to any such party, whom the Court regards, under the circumstances of the case, as expressly or impliedly authorized by him to make them, are admissions. by suitor in representative character-Statements made by parties to suits suing or sued in a representative character, are not admissions, unless they were made while the party making them held that character.

Section 34. Entries in books of account when relevant. 34. Entries in books of account when relevant. - Entries in books of account, regularly kept in the course of business, are relevant whenever they refer to a matter into which the Court has to inquire, but such statements shall not alone be sufficient evidence to charge any person with liability.

Section 45. Opinions of experts. 45. Opinions of experts.-When the Court has to form an opinion upon a point of foreign law, or of science, or art, or as to identity of handwriting [or finger impressions], the opinions upon that point of persons specially skilled in such foreign law, science or art, [or in questions as to identity of handwriting] [or finger impressions] are relevant facts. Such persons are called experts.

4. (i) Affidavit, statement and cross-examination

An affidavit is not a mere typed format, to be signed and attested as an empty formality. An affidavit is a solemn and voluntary declaration or statement of facts in writing, relating to matters in question or at issue, and sworn or affirmed and signed by the deponent before a person or officer duly authorized to administer such oath or affirmation. An affidavit constitutes important evidence. It should bear proper stamp duty. It should be duly attested preferably by a Notary. When a Notary/Oath Commissioner administers an oath/affirmation, he is mandatorily required to enter the name and particulars as prescribed and obtain the signature of the deponent in the register. On furnishing of an affidavit, the Assessing Officer is entitled to cross-

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examine the deponent and the assessee can be required to produce the deponent in person for cross-examination. If the assessee fails to produce, the affidavit can be ignored. If the Assessing Officer fails to cross-examine, the statements made in the affidavit become unchallengeable as held by the Supreme Court in Mehta Parikh & Co. vs. CIT (1956) 30 ITR 181 (SC). When the deponent is required to be produced for cross-examination, it is desirable that the deponent is permitted to go through the contents of the affidavit and refresh his memory, as held by the Supreme Court in State of Karnataka vs. K. Yarappa Reddy AIR 2000 SC 185.

The assessee is entitled to copy of statements recorded at its back; copy of reasons required to be statutorily recorded; copy of all material which has been collected at the back, is being referred to and relied upon and considered; copy of reports which are going to be made as a base for making any addition or allegation; copy of third party’s books, records, documents, statements, details, etc. to be used in the matter [Kevayam & Co. vs. G.S. Gaghel (2000) 119 STC 123 (MP); J.S. Refineries Ltd. vs. CST (1998) 109 STC 16 (SC), Mitsui & Co. Ltd. vs. CIT (2005) 195 CTR (Del) 104 and Tin Box Co. vs. CIT (2001) 166 CTR (SC) 509 : (2001) 249 ITR 216 (SC)].

Copy of the statement recorded on the back of the assessee before its user must be provided as held by the Allahabad High Court in Gargi Devi Jwala Prasad vs. CIT (1974) 96 ITR 97 (All). On providing the copy of statements or the reports or the material, the assessee is entitled to seek right of cross-examination as held by the Supreme Court in State of Kerala vs. K.T. Shaduli Yusuff (1977) 39 STC 478. The Supreme Court in Kishinchand Chellaram vs. CIT (1980) 19 CTR (SC) 360 : (1980) 125 ITR 713 (SC) held that the evidence to be used against the assessee must be provided to the assessee and an opportunity to confront should be given to an assessee else it cannot be used and no adverse inference can be drawn on such material [Also refer Kalra Glue Factory vs. Sales-tax Tribunal (1987) 65 CTR (SC) 233 : (1987) 66 STC 292 (SC); R.B. Shreeram Durga Prasad & Fatehchand Nursing Das vs. Settlement Commission & Anr. (1989) 75 CTR (SC) 187 : (1989) 176 ITR 169 (SC); Appropriate Authority vs. Vijay Kumar Sharma (2001) 168 CTR (SC) 611 : (2001) 249 ITR 554 (SC); CIT vs. SMC Share Brokers Ltd. (2007) 210 CTR (Del) 353 : (2007) 288 ITR 345 (Del); Prakash Chand Nahta vs. CIT (2008) 301 ITR 134 (MP)].

Clause (iii) of sub-section (3) of section 133A empowers the authority to record the statement of any person which may be useful for, or relevant to, any proceeding under the Act. However, such statement should not be on oath. The said section does not empower to administer oath before recording the statement. Such power is under section 132(4) of the Act. [Paul Mathews & Sons vs. CIT (2003) 181 CTR (Ker) 207 : (2003) 263 ITR 101 (Ker) and CIT vs. S. Khader Khan Son (2008) 214 CTR (Mad) 589 : (2008) 300 ITR 157 (Mad). The Madras High Court held that in view of the scope and ambit of the materials collected during the course of survey action under section 133A shall not have any evidentiary value. In Ashok Manilal Thakkar vs. Asstt. CIT (2006) 99 TTJ (Ahd) 1262, the Tribunal held :

"The statement of the assessee recorded under the provisions of section 133A(3)(iii) can be said to be useful or relevant to the assessment proceedings only in the circumstances when there is a material on record to prove the existence of-------------------- it cannot be said that only on the basis of statement given by the assessee the disclosed income was assessable as lawful income of the assessee." Such statement can be used with caution, if based on clinching material and after confronting the deponent. Section 131 also empowers the specified authorities to compel for personal appearance, to produce record and to record statements. Powers are as in a civil Court. On falsity, one can be prosecuted on non-appearance or non-answering penal consequences follow.

Principles of natural justice apply to the tax proceedings. The Supreme Court in Sahara India (Firm) vs. CIT (2008) 216 CTR (SC) 303 : (2008) 300 ITR 403 (SC)

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observed : "Rules of natural justice are not embodied rules. The expression ‘natural justice’ is also not capable of a precise definition. The underlying principle of natural justice, evolved under the common law, is to check arbitrary exercise of power by the State or its functionaries. Therefore, the principle implies a duty to act fairly, i.e., fair play in action. The aim of rules of natural justice is to secure justice or, to put it negatively, to prevent miscarriage of justice. These rules can operate only in areas not covered by any law validly made; they do not supplant the law but supplement it. The question whether the principle has to be applied or not is to be considered bearing in mind the express language and basic scheme of the provision conferring the power, the nature of the power conferred and the purpose for which the power is conferred and the final effect of the exercise of that power. It is only upon a consideration of all these matters that the question of application of the principles of natural justice can properly be determined." Its violation may nullify the action. However, under the Income-tax Act there are number of provisions safeguarding the principles and requiring to show cause.

4 (ii) Similarly false and/or uncorroborated Retraction by the Assessee may land him in trouble, if followed and pursued by the concerned Department Authority. Assessee’s are advised not to retract statement, which is true and where the statement was given out of free will and without any Coercion, Threat, Influence and/or illegal means.

(iii) The Central Board of Direct Taxes on repeated occasions has issued instructions on this issues, recent circular dated 18.12.2014 bearing file no. 286/98/2013-IT (Inv. II) are reproduced hereunder for benefit of the colleagues:-

F. No. 286/98/2013-IT (Inv. II)Government of IndiaMinistry of Finance

Department of RevenueCentral Board of Direct Taxes

Room No. 265A, North BlockNew Delhi, the 18th December, 2014

To

1. All Principal Chief Commissioners of Income Tax2. All Chief Commissioners of Income Tax3. All Directors General of Income Tax (Inv.)4. Director General of Income Tax (I & CI), New Delhi

Subject: Admissions of Undisclosed Income under coercion/pressure during Search/Survey – reg.

Ref:        1)    CBDT letter F. No. 286/57/2002-IT(Inv.II) dt. 03-07-20022)    CBDT letter F. No. 286/2/2003-IT(Inv.II) dt. 10-03-20033)    CBDT letter F. No. 286/98/2013-IT(Inv.II) dt. 09-01-2014

Sir/Madam,

“Instances/complaints of undue influence/coercion have come to notice of the CBDT that some. assessees were coerced to admit undisclosed income during Searches/Surveys conducted by the Department. It is also seen that many such admissions are retracted in the subsequent proceedings since the same are not backed by credible evidence.  Such actions defeat the very purpose of Search/Survey operations as they fail to bring the undisclosed income to tax in a sustainable manner leave alone levy of penalty or launching of prosecution. Further, such actions show the Department as a whole and officers concerned in poor light.

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2.   I am further directed to invite your attention to the Instructions/Guidelines issued by CBDT from time to time, as referred above, through which the Board has emphasized upon the need to focus on gathering evidences during Search/Survey and to strictly avoid obtaining admission of undisclosed income under coercion/undue influence.3.   In view of the above while reiterating the aforesaid guidelines of the Board, I am directed to convey that any instance of undue influence/coercion in the recording of the statement during Search/survey/Other proceeding under the I.T. Act, 1961 and/or recording a disclosure of undisclosed income under undue pressure/coercion shall be viewed by the Board adversely.4.   These guidelines may be brought to the notice of all concerned in your Region for strict compliance.

5.   I have been further directed to request you to closely observe/oversee the actions of the officers functioning under you in this regard.

6.    This issues with approval of the Chairperson, CBDT”

5. Admission and retraction

(a) Any admission made before any authority or in any explanation before any other authority or person is of evidential value, It can be used against the assessee. Statements recorded by the authorities in search, survey or other proceedings can be used against the deponent and if found to be false may attract a criminal liability. The Supreme Court in Pullangode Rubber & Produce Co. Ltd. vs. State of Kerala 1972 CTR (SC) 253 : (1973) 91 ITR 18 (SC) observed : "Admission is an extremely important piece of evidence but it cannot be said that it is conclusive. It is open to the assessee who made the admission to show that it is incorrect and the assessee should be given a proper opportunity to show as to how and in what circumstances that admission was made and that the correct state of facts are different than the admission".

The burden to prove the admission as ineffective is on the assessee. If a statement is not recorded in normal manner, or if any coercion, undue influence or pressure is exercised, the deponent should inform the higher authority without further loss of time. In Pyare Lal Bhargava vs. State of Rajasthan AIR 1963 SC 1094 the Supreme Court observed : "it is unsafe to rely upon a confession, much less on a retracted confession, unless the Court is satisfied that the retracted confession is true and voluntarily made and has been corroborated in the material particulars.

One should be very careful and candid while retracting from a statement. A retraction to have any evidentiary value must be in a statement, not only denying the facts earlier stated but explaining the reasons for making a statement earlier and giving substituted facts in support of a retraction. A letter of retraction must be sent to the higher authorities and the concerned Assessing Officer. Its copy should be provided in the assessment proceedings. It should be made as early as possible else can be termed as an afterthought, to be rejected.

(b) (i) Letter of Retraction should be filed at the earliest, otherwise, it may lose it’s

evidential value. Copies of the Retraction letter should be sent to higher Authorities

including Additional Commissioner of Income Tax, Commissioner of Income Tax, CCIT

and CBDT. Retraction Letters if followed properly may entail Dept. action against the

concerned officials, including the charge sheet, Minor Penalty, Major Penalty Warning,

CENSOR etc.

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6.1 Evidence Act can have limited application - Though the provisions of the Evidence

Act do not apply to assessment proceedings, when the authorities are called upon to

consider the effect of the terms of a document the general principles embodied in sections

91, 92 and 94 of the said Act can be applied in construing the effect of the document4.

6.2 Totality of circumstances must be considered in circumstantial evidence - In a case

of circumstantial evidence the totality of the circumstances has got to be taken into

consideration and the combined effect of all those circumstances is determinative of the

question as to whether or not a particular fact is proved5.

6.3 Affidavits cannot be rejected straightaway - It is not open to the Tribunal to reject the

plea taken by the assessee in his affidavit merely on the ground that no documentary

evidence has been filed in support of that plea. Rejection of an affidavit filed by an

assessee is not justified unless the assessee has either been cross-examined or called upon

to produce documentary evidence in support of the affidavit sworn by him6.

6.4 Genuineness and validity of documents can be looked into - If a doubt arises as to

the validity or the genuineness of a document filed, for the limited purpose of a

proceeding before the authority under the Act, such authorities are bound to go into the

question of genuineness and validity7.

6.5 Surrounding circumstances must be considered while scrutinising documents - The

taxing authorities are not required to put on blinkers while looking at the documents

produced before them. They are entitled to look into the surrounding circumstances to

find out the reality of the recitals made in those documents8.

Hence, one can easy confer that non applicability of Evidence Act to Income Tax

proceedings may be true in strict sense if one goes by the wording of section 1 in

Evidence Act but generally speaking the principles of Evidence are applicable to the

4 A.V.N. Jagga Row v. CIT (1987) 166 ITR 862 (AP)5 CIT v. Rameshwar Prasad Bagla (1968) 68 ITR 653 (All) 6 Mehta Parikh & Co. v. CIT (1956) 30 ITR 181 (SC); Also see, L. Sohan Lal Gupta v. CIT

(1958) 33 ITR 786 (All) 7 ITO v. K. Jayaraman (1987) 168 ITR 757 (Mad)8 CIT v. Durga Prasad More (1971) 82 ITR 540 (SC)

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income tax proceedings. That is the word ‘Evidence’ is used in generic sense9. This

interface of Evidence Act with proceedings under the Income Tax Act has originated many

different concepts which are being discussed by the author through this article.

7. ‘Evidence’ under Income Tax Act

The Income Tax Act, 1961 does not defines the word ‘evidence’10. However, it recognises

this term in a list of sections where a party to the proceedings has to justify or substantiate

its claim or some related matters. The list has been produced here under in Table A. This

table has been divided into three columns; first column enlists the section numbers,

second column mentions the title of these sections and the third column explains the use

of word ‘evidence’ in these sections.

TABLE - A

Sections under Income Tax Act, 1961 where word ‘Evidence’ has been used11

Section No. Section Heading Purpose

32A Investment Allowance To justify claim, assessee to furnish

evidence for use/acquisition of ship

43B Certain Deductions to be only on

Actual Payment

Evidence of payment to be furnished by the

assessee

44AE Special Provision for Computing

Profits and Gains of Business of

Plying, hiring or leasing goods

carriages

To prove lower profits and gains than

presumptive rate

80HHC Deduction in Respect of Profits

Retained for Export Business

Evidence re: DEPB or Duty Drawback

88E Rebate in Respect of Securities

Transaction Tax

Payment of Securities Transaction Tax in

Prescribed Form

92CA Reference to Transfer Pricing Officer To Support Computation Made by

Assessee of Arm’s Length Price

115VX Determination of Tonnage Any Evidence as an Alternative to License

issued by Director General

115WE Assessment To Support any claim made in Return Filed

under s. 115WD

131 Power Regarding Discovery, This Whole Section Relates to Production

9 Ranka, N. M., “Onus of Adducing Evidence in Tax Proceedings,” Current Tax Reporter (Articles), vol. 218, 2008, p. 145.

10 For the definition of ‘evidence’ see, section 3 of Evidence Act, 1872. 11 The table has been prepared after analyzing various provisions under the Income Tax Act, 1961.

The list is inclusive and not exhaustive.

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Production of Evidence etc. of Evidence and Powers thereof

132 Search and Seizure Any statement made by a person during his

examination may be used as an evidence in

any proceeding - s. 132(4)

133A Power of Survey Statements of an Assessee or any other

Person Recorded under s. 133A(5) may be

used as an Evidence

143 Assessment Evidence to be Produced by Assessee to

support his return - s. 143(2)

Assessment to be made after Considering

the Evidence on record - s. 143(3)

144C Reference to Dispute Resolution Panel Dispute Resolution Panel to Issue

Directions after considering Evidence on

Record - s. 144C(6)

147 Income Escaping Assessment Word ‘Evidence’ used in Explanation 1 to

explain Disclosure

158BB Computation of Undisclosed Income of

the Block Period

Computation of Income has to be made

after Considering Evidence found as a

result of search

158BFA Levy of Interest and Penalty in Certain

Cases

Evidence of tax paid to be filed along with

return filed under s. 158BC

184 Assessment as Firm Firm to be assessed as such if partnership is

evidenced by instrument

245D Procedure on receipt of an Application

Under s. 245C

Settlement Commission to pass orders after

considering the evidence on record

245H Power of Settlement Commission to

Grant Immunity from Prosecution and

Penalty

Immunity may be withdrawn if the person

has furnished false evidence

245HA Abatement of Proceedings before

Settlement Commission

Evidence recorded by Settlement

Commission can be used by the Income

Tax Authorities

251 Power of Commissioner (Appeals) Evidence recorded by Settlement

Commission can be used by the

Commissioner (Appeals)

272A Penalty for Failure to Answer

Questions , Sign Statements, Furnish

Information, Returns or Statements,

Allow Inspections, etc.

Penalty for failure to give evidence under s.

131

273AA Power of Commissioner to grant Immunity may be withdrawn if the person

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Immunity from Penalty has furnished false evidence

278AB Power of Commissioner to Grant

Immunity from Prosecution

Immunity may be withdrawn if the person

has furnished false evidence

279 Prosecution to be at Instance of Chief

Commissioner or Commissioner

s. 279(3) discusses the admissibility of

evidence

279B Proof of Entries in Records or

Documents

Entries in Records or Documents to be

admitted as evidence

291 Power to Tender Immunity from

Prosecution

Immunity may be withdrawn if the person

has furnished false evidence

295 Power to Make Rules Rules to permit evidence at appellate stage

i.e. before the Commissioner (Appeals)

After going through this compilation one can easily confer that even if ‘evidence’ has not

been defined under Income Tax Act still it recognises its importance and use in income

tax proceedings.

8.1. Different Facets of Evidence Recognised by Courts in Income Tax

Apart from the above mentioned statutory recognition of word ‘Evidence’ in Income Tax

Act, there are a number of facets of evidence which are recognised in Income Tax

jurisprudence. These facets are discussed as under:

8.2 Confessional Statements: The concept of confessional statements which is a facet of

‘Evidence’ has been firmly recognised in Income Tax. Quite often such statements are

recorded by the authorities under s. 132(4) of the Income Tax Act. Such statements are

later on retracted/ rebutted or challenged as made under coercion or undue influence12.

Even the courts have raised doubt regarding the validity of uncorroborated confessional

statements especially when they are retracted or challenged13. The Central Board of Direct

Taxes has also issued an instruction to the field officer while recording such statements14.

8.3 Dying Declaration / Statement made in contemplation of death: The Punjab and

Haryana High Court has judicially recognised the evidentiary concept of dying

12 Lakshminarasimhan, G., “Confessional Statements - Recent Decision of Income Tax Appellate Tribunal,” Current Tax Reporter (Articles), vol. 198, 2005, p. 193.

13 Mriganka Mohan Sur v. Commissioner of Income Tax (1979) 120 ITR 529 (Cal); Also see Commissioner of Income Tax v. Orrissa Corporation (P) Ltd. (1986) 52 CTR (SC) 138 and M.S. Jewellery v. Assistant Commissioner of Income Tax (1994) 208 ITR 531 (Ker)

14 Circular F. No. 286/2/2003-IT (Inv.) dated 10 March 2003.

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declarations for charging the income tax assessee15. The Honourable High Court stressed

that “If an admission has been made by a party to proceedings under sections 17 and 18

of the 1872 Act, suggesting an inference that the income was unexplained then such an

admission is an admissible piece of evidence. Admissions have also been regarded as

substantive evidence because it sustains their veracity from the fact that maker has said

something against his own interest”. However, this view has been doubted by some on the

ground that Income Tax Act is a special statute and applicability of this concept should be

limited16.

8.4 Expert Opinion: In a recent decision, the division bench of Apex Court observed that

in matters relating to technological advancement, the department ought to examine

technical experts so that the matters could be disposed off expeditiously. One cannot go

merely by the contract between the parties in such cases17. Moreover, in matters relating

to valuation expert opinion of the official valuer is also considered the Income Tax Act18.

However, such evidences as mere opinions, however, can have no value unless buttressed

by acceptable reasoning and facts and expert willing and capable of supporting his

valuation on cross-examination, which equally is capable of discrediting any other

valuation substantially different from his own19.

8.5 Recently Hon’ble Supreme Court and Hon’ble High Courts have elaborated the issues

of Expert opinion, Attention is invited to the judgment of Hon’ble Supreme Court in the

case of CIT –vs- Bharat Cellular Ltd. (2011) 330 ITR 239 wherein the Apex Court has

inspection the need to get opinion from Technical Expert in cases involving complex

technical matters, head note of the judgment are reproduced hereunder for ready

reference:-

“INCOME-TAX DEPARTMENT-TECHNOLOGICAL ADVANCEMENT IN

COUNTRIES-MATTER REQUIRING EXAMINATION BY TECHNICAL EXPERTS-

GOING MERELY BY CONTRACT BETWEEN PARTIES NOT PROPER –

DEPARTMENT OUGHT TO EXAMINE TECHNICAL EXPERTS-MATTER

REMANDED”.

15 Rakesh Mahajan v. Commissioner of Income Tax (2008) 214 CTR (P&H) 218 16 Agarwal, Minu, “Evidentiary Value of Statement Made in Contemplation of Death in Income

Tax Proceedings,” Current Tax Reporter (Articles), vol. 214, 2008, p. 17217 Commissioner of Income Tax v. Bharti Cellular Ltd. (2011) 330 ITR 239 (SC)18 For details see, sections 50C, 55A, 142A and 269L of the Income Tax Act, 1961. 19 Rajaratnam, S., “Role of Expert Opinion,” Current Tax Reporter (Articles), vol. 163, 2000, p. 50.

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Judgment of Hon’ble High Court of Andhra Pradesh in the case of CIT –vs- Shri Girija

Smelters (P) Ltd., reported in (2015) 230 Taxman P. 28 is also relevant, head notes of the

judgment are reproduced hereunder for ready reference:-

“Where Assessing Officer verified registers maintained under Central Excise Act and

doubted accuracy of figures mentioned therein, he was totally unsuited for undertaking

exact production of material as same was outside his purview.

Section 69A, read with section 158 of the Income Tax Act, 1961 – Unexplained money

(Stock of finished products) – Block period 1988-89 to 1997-98 – Whether an Income-tax

Officer cannot carry out functions of an authority under Central Excise Act, and

determine quantity of production or to utter a final word on intricacies of manufacturing

process, that too, without referring to any reliable material – Held, yes – Assessee was a

manufacturer of Manganese alloys – Several registers were maintained and typical

procedure was followed for manufacture of alloys – Said finished product was subjected

to levy of excise duty – Whether where Assessing Officer doubted accuracy of figures

mentioned in registers, he was totally unsuited for undertaking activity of determining

exact production of material as same was outside his purview – Held, yes (Para 17) (In

favour of assessee)”

8.6 Onus / Burden to Prove: The initial burden to justify the claims made in the return

rests on the assessee. If the assessing officer wants to make addition on any new fact

brought to his notice outside the record produced by the assessee, then onus in such cases

shifts to the department20. In cases involving cash credits and undisclosed income the

burden of proof lies with the assessee to prove the identity of creditors21 or the source of

sum of money received by him22. Where in cases involving penalty, the department has

the burden of proof even after the assessment proceedings has been upheld23.

8.7 Entries in Diaries / Accounts / Slips of Paper etc.: The relevancy of entries in

accounts is often a point of conflict24. One party by merely producing his own books of

20 Supra note 921 C. Kant & Co. v. Commissioner of Income Tax (1981) 5 Taxmann 6422 Commissioner of Income Tax v. Lachmann Dass Oswal (1980) 4 Taxmann 2423 Commissioner of Income Tax v. Khoday Eswarsa & Sons (1972) 83 ITR 369 (SC) 24 For details see, section 34 of Evidence Act, 1872

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account cannot bind a third party. Although this entry may be relevant but provide only

corroborative evidence25. The same principle is applicable to the Income Tax Proceedings

also. In a case where certain entries in a diary kept by some person were found credited in

name of certain political leaders, the Apex Court refused to charge such other persons

with those entries26. This is true for entries in slips of paper and accounts also.

On the other hand the party in whose accounts an entry has been found cannot escape his

liability except if the third party himself admits such entry or certain other piece of

evidence is brought on record to fix the liability of third party e.g. Goods Receipt /

Transport Receipt that the goods were actually supplied to third party for which an entry

has been made27.

8.8. Recent judgements of Hon’ble High Courts and ITAT regarding Importance of

Applicability of Evidence Act in Income Tax proceedings are worth noting, Head Notes

of the judgements are reproduced:-

(2017) 164 ITD 470/81 taxmann.com 123 (Delhi – Trib.)IN THE ITAT DELHI BENCH “G”

Shyam Sunder Jindalv.

Assistant Commissioner of Income-tax, Central Circle-30, New Delhi*N.K. SAINI, ACCOUNTANT MEMBER

AND SMT. BEENA PILLAI, JUDICIAL MEMBER IT APPEAL NO. 5448/DELHI/2016

(ASSESSMENT YEAR 2006-07)APRIL 10, 2017

******Where Assessing Officer made addition to assessee’s income in respect of undisclosed amount kept in foreign bank, since documents relied upon did not contain signature of bank official and, moreover, requisite information was not received from foreign banking authority, impugned addition was to be set aside

********Section 68 of the Income-tax Act, 1961 – Cash credit (Bank deposits) – Assessment year 2006-07 – Assessee filed return declaring certain taxable income – During course of assessment proceedings, Assessing Officer noted that, Assessee maintained an account with HSBC Bank, Geneva, Switzerland – Assessing Officer asked Assessee to furnish complete statement, details and particulars of HSBC Bank account – In response to said notice, Assessee denied fact of maintaining any account in foreign bank – Assessing Officer having rejected Assessee’s explanation, made addition to his income in respect of amount standing in credit of foreign bank account – It was noted that documents relied by Assessing Officer were copies of 25 Santhanam, R., “Evidentiary Value of Entries in Diaries for Assessment,” Current Tax Reporter

(Articles), vol. 146, 1998, p. 169. 26 CBI v. V.C. Shukla & Ors. AIR 1998 SC 140627 Mettur Beardsell Ltd. v. Salom Textiles Ltd. AIR 2001 Mad 466

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copies which did not have any signature of bank official or name of bank or place or country where branch was situated – Moreover, Assessing Officer himself admitted in assessment order that requisite information from Swiss Banking Authority had not been received – Whether in view of aforesaid, impugned addition was to be set aside and, matter was to be remanded back for disposal afresh – Held, yes (In favour of Assessee/Matter remanded).

*******(2017) 249 TAXMAN 384/83 taxmann.com 375 (Delhi)

HIGH COURT OF DELHICommissioner of Income-tax, Central-III

v.Radico Khaitan Ltd.

S. RAVINDRA BHAT AND NAJMI WAZIRI, JJW.P. (C) NO. 7207 OF 2008

JULY 13, 2017Where revenue failed to establish any linkage between material seized from Assessee’s premises and those from premises of UPDA in respect of illegal payments made to various officials and politicians, no addition could be made to Assessee’s income in respect of payments so made

*******Section 69A, read with section 245D of the Income-tax Act, 1961 – Unexplained moneys (Bribes) – Block period 2000-01 to 2006-07 – Assessee – company was engaged in business of manufacturing and marketing Indian made foreign Liquor or IMFL – Assessee was subjected to a search and seizure operation under section 132 (1) – A search was also resorted to in residential premises of its directors: Uttar Pradesh Distiller’s Association (‘UPDA’) of which Assessee was a member and at residence of ‘M’, Secretary General of UPDA – In response to notice issued under section 153A, Assessee filed its return offering Rs. 4.5 crores for taxation – Assessee thereafter filed an application under section 245C before Settlement Commission offering Rs. 27.5 crores for taxation – After considering material on records, Commission settled concealed income of Assessee for all block years at Rs. 30 crores – Revenue filed instant appeal contending that Commission should have made addition to Assessee’s income in respect of illegal bribe payments made through UPDA to various officials and politicians – Whether since revenue failed to establish any linkage between material seized from Assessee’s premises and those from premise of UPDA in respect of aforesaid payments, impugned order passed by Settlement Commission did not require any interference – Held yes (Paras 24 and 25) (In favour of Assessee).

********

8.9 Conclusion

From the above discussion one can easily conclude that the concept of ‘Evidence’ and its

different facets are both statutorily and judicially recognised in Income Tax Jurisprudence

even if the word itself is not defined under the Income Tax Act and there is limited

applicability of Evidence Act by virtue of Section 1.

*****

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