DCIT Vs Balar Marketing Pvt. Ltd. (ITAT Delhi)
Conclusion: In the absence of proper compliance with Section 65B and failure to establish a clear chain of custody, the digital evidence relied upon by the Revenue lacked legal admissibility and evidentiary value. Mere reliance on extracted data without demonstrating its authenticity and integrity could not sustain an assessment. Accordingly, the assessment framed on such unreliable material was liable to be set aside.
Held: During the search proceedings various electronic devices such as Hard disks, Mobile phones, Pen drives, etc were found and seized. During examination of these electronic devices, allegedly various incriminating evidence were found that included the exchange of Cash Tokens through Hawala Network of M/s B with various sales and purchase parties. Mr VJ, Administrative Head in the assessee-company allegedly admitted in his statement that he made cash transactions for assessee which was executed through Hawala route. The issue arose for consideration was whether the Digital Evidence Investigation Manual, 2014 was required to be adhered to by the tax authorities; whether provisions of the Evidence Act, with respect to digital evidence, were applicable to Income-tax proceedings? It was held that the fundamental principles of law of evidence defining what constituted 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 evidence, could not be ignored even by quasi-judicial authorities. With regard to the certificate u/s 65B, it must show as to how the data was retrieved and relevant incriminating evidence were extracted from the devices and by whom. Further, Revenue was required to maintain correct record of chain of custody, so as to show that when the data was retrieved or any extract taken during assessment proceedings the same were corroborated by hash values as recorded at time of making the working copy. The purpose of section 65B of Evidence Act was to provide a certificate to the computer output stating identity of the electronic record describing the manner in which the output electronic record was produced. The certificate should indicate particulars of the electronic device involved, like in the case in hand the two phones or the working copy involved for producing the output of images relied by AO. The authenticity was added by the extraction reports which formed basis of issuing the certificate. There was no extraction report of these two mobiles or of working copies though of some other devices found in search were placed in material before us. Then the certificate u/s 65B should have shown that the output to be relied as evidence was produced from the working copy and that the same was in lawful control of the person signing the certificate and certainly the chain of custody document would have established same. However, the chain of custody document filed was completely silent about the same. The burden on the Revenue was of proving that assessee had attempted to evade tax and this burden was to be discharged by establishing facts and circumstances from ‘relevant material’ driving conclusive inference that in fact assessee evade tax lawfully payable by it. Further, the relevant material would become admissible only once necessary compliances required as per due course of law are made. The due course here certainly was the instructions in Manual. The aforesaid discussion had firmly established that the assessment though being a quasi-judicial exercise had to be on the basis of evidence 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 was accepted that strict principles or rules of Evidence Act were not applicable or there was no necessity of certificate u/s 65B, still in order to give and add credibility to the conclusions drawn on the digital evidences AO should ensure that there was substantive compliances of the Manual and not just by way of eye wash. Thus, assessment had been framed on the basis of material, allegedly retrieved from digital devices, but which were not admissible under law so as to be relied for drawing conclusions, of fact in dispute, being proved on scales of probability even. The corresponding grounds by which assessee challenged the assessment order being framed on inadmissible electronic evidence thus deserved to be sustained.
