125 taxmann.com 28 (Article)
The First one Giga byte hard disk drive was built by IBM in 1980. It was about the size of a refrigerator, weighed about 250 kg and costs about $40,000. Today an external hard drive of more than a thousand times the same capacity can be bought for less than 1% of the price. This revolution in data storage and in Information technology has brought drastic changes in the ways businesses are conducted. Due to these changes, the legislature has been forced to act and change regulations, which has resulted in major amendments in the provisions of the Information Act, 2000, Indian Evidence Act, 1872 and Indian Penal Code 1860. These provisions have supplied the power to administrative and judicial authorities to admit electronic evidences and also prescribed a strict procedure regarding admissibility of electronic evidences. This article is an enquiry as to whether and to what extent the laws governing electronic evidence applies to income tax proceedings considering the fact that Income Tax Act, 1961 and the Evidence Act, 1872, have always shared a distant but never apart relationship.
Evidence act and electronic evidences
The definition of "evidence" as defined in Indian Evidence Act, 1872, was broadened by the Amendment Act of 2000, to include electronic records in documentary evidences.
Section 59 of Evidence Act which provides that documentary evidence prevail over oral evidence, was amended to include "contents of documents or electronic records" which puts electronic records in the purview of exceptions that prevails over oral evidences.
It is well recognised that computers are not infallible and must be regarded as imperfect devices1 perhaps that is the reason why the legislature has put strict restrictions on qualification of electronic records as admissible evidence in any proceedings.
Section 65A and 65B were inserted in the Evidence Act, to provide for the admissibility of electronic records. Section 65B of the Evidence Act 1872, provides for four conditions which have to fulfilled, only then the computer in question will be admissible in any proceedings. These conditions are spelled out in Section 65(B)(2) of the Act, which are broadly as under:
(a) The computer output containing the information was produced by the computer
during the period over which the computer was regularly in use by the person having lawful control over use of computer(b)Information so derived was regularly fed into the computer in the ordinary course of said activities(c)Throughout the material period of the information in review, the computer was operating properly(d)The electronic record is derived from such information fed into the computer in the ordinary course
In addition to conditions mentioned in section 65B(2), sub section (4) of section lays down the requirement of a certificate to be produced where it is desired to give a statement in evidence by virtue of this section. The three judge bench of Supreme Court in the case of Arjun Panditrao Khotkar v. Kailash Kushanrao Gorantyal2, has held that requirement of certificate under section 65B(4) is a condition precedent to the admissibility of electronic record as evidence.
The Supreme Court in the case of Anvar P.V. v. P.K. Basheer3 has observed that the purpose of these provisions (65B) is to sanctify electronic evidence and the requirement of giving an electronic certificate under Section 65B pertaining to any electronic evidence or electronic record is mandatory for treating such an evidence as admissible in law.
Amendments in income tax act, 1961
The Income Tax Act, 1961 has been amended thrice through Finance Act 2001, Finance Act 2002, and Finance Act 2009. Clause 22AA was inserted in Section 2 of the Act to provide for the inclusion of electronic record in the term document. In section 132(1), clause (iib) was inserted, which requires any person in possession or control of the books of accounts or other documents maintained in the form of electronic record to afford the authorised officer the necessary facility to inspect such books of the accounts.
With these amendments, the legislature has taken cognizance of the reality, yet the biggest challenge lies in preserving the relevance and sanctity of the Digital evidence and in this regard the question that we face is that;
In the light of the object and purpose of the amendments in Information Technology Act and Evidence Act, whether such provision which put strict restrictions on applicability of electronic evidences to be admissible in any proceedings are implied in the proceedings conducted under Income Tax Act, 1962?
Evidence act in income tax proceedings
The authorities discuss below show that the courts have time to time relied on the provisions of Evidence Act, even though they have refrained from applying the provision of the Act in a pedantic manner.
(1)The Supreme Court has held that while the rigour of the rules of evidence contained in the Evidence Act, are not applicable in proceeding arising out of Income Tax Act, but that does not mean that taxing authorities desirous of invoking the principles of the Act were prevented from doing so4.(2)The Andhra Pradesh High Court5 while acknowledging that the provisions of the Evidence Act do not apply to the proceedings initiated under the Act as the ITO is not a Court, went on the apply the principle that parties cannot be permitted to resile from the terms of the contract and introduce oral evidence where terms of a contract, or of a grant, or of any other disposition of property have been reduced to the form of a document, as embodied in section 60 of the Evidence Act.(3)The High Court of Karnataka6 has held that certain provision of the Evidence Act cannot be invoked in proceedings under Income Tax Act, as they relate to the criminal proceedings. The Court in this case refused to apply section 28 of the Evidence Act as it relates to criminal proceedings, the court however examined the facts of the case on the touchstone of section 58 of the Evidence Act.
The Supreme Court has read the due process in Indian Constitution by the process of interpretation of Article 14 and 21. Due process is not only substantive but also procedural. Missing, spoilt and tarnished evidence vitiates an otherwise fair process. The courts in US recognize that evidence of material and exculpatory value must be preserved. The authorities established under the Income Tax Act, 1962 entrusted with adjudicatory function are quasi-judicial bodies and hence are subject to maintain minimum fair procedure and due process of law.
As discussed above the electronic evidences even with all their affordabilities are more vulnerable to meddling and interference as compared to traditional evidences. Hence in accordance with requirement of Maintaining minimum fair procedure and due process of law, it is incumbent upon authorities to preserve electronic evidences which are relied upon by the authorities. Yet despite the amendments in Income Tax Act no procedure is prescribed by the Act for admissibility and preservation of electronic evidences. In absence of such procedure prescribed in the Income Tax Act, the provision of section 65B gains prominence. The CBDT's investigation manual of Digital Evidence7, acknowledges that the digital evidence collected and presented should be admissible in law and steps should be taken to maintain integrity of the data. The manual emphasis on the importance of section 65A and 65B of the Evidence Act and states that
"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."
In the case of Chetan Gupta v. Asstt. CIT8, the Delhi tribunal without addressing the issue that the provisions of section 65B were not followed, allowed a pen drive as an admissible evidence against the assessee. However in the light of the arguments cited above, we humbly submit that this position of law endangers the fairness of the adjudicatory process. Electronic evidences are highly vulnerable and can easily be manipulated as against an assessee. Even in case of absence of malice or bad faith, it is the duty of the income tax authorities to preserve the collected evidence. The decision of the Tribunal is not in consonance with the procedure prescribed by the CBDT manual as mention above, although it is pertinent to mention the manual was issued after the judgement.
To prove that evidence in possession of the authorities is spoiled or vitiated is an unsurmountable task and in such cases where the evidence are collected and kept in the custody of the Income Tax Authorities, such heavy burden of proof cannot be placed on the shoulders of the assessee. The vulnerabilities of the Electronic evidences are a pressing concern which has prompted the legislature to bring out ground breaking amendments; such changes should be interpreted in such a manner so as to give them a broad application. The intention of the legislature cannot be so interpreted so as to compromise the quality of evidence in quasi-judicial proceedings. The provisions in relation to admissibility and preservation of electronic evidences in the Information and Technology Act and the Evidence Act should not be treated as mere rigorous rules but should be treated with as much respect as principles of evidence law.