Landmark Cases on Evidence, Onus and Natural Justice

The genuineness of AMP expenses, or any transaction, cannot be disregarded by the Assessing Officer if the assessee has discharged its onus of proof by providing full details and the department has also verified the same, for instance, by issuing notices under Section 133(6).

Additions on account of alleged on-money accepted by the assessee should be restricted to the profit element embedded within the on-money.

No addition can be made to income based solely on loose papers that lack specific details such as the name and date of payment. The tax department cannot draw inferences or make additions based on mere suspicion, conjectures, or surmises.

The Supreme Court holds that courts must look beyond the form to the substance of a transaction to discover the true state of affairs, especially when ingenuity is used to avoid tax and welfare legislations.

The burden of proof lies on the assessee to rebut the contents of documents or incriminating material discovered during a search and seizure operation, especially concerning undisclosed income, leveraging presumptions under sections like 132(4A) and 292C.

Materials collected during a survey operation under Section 133A of the Income Tax Act lack independent evidentiary value, and income cannot be assessed solely based on a statement made by a partner during such a survey.

An addition under Section 68 for cash credits or unexplained share capital cannot be sustained if the assessee substantiates identity and genuineness of transactions, even with partial confirmations from Section 133(6) enquiries. Further, Section 41(1) applies only when a trading liability ceases or is written off, not merely due to lack of creditor confirmation while the liability remains in the books.

An assessment order passed based on material gathered behind the assessee’s back and not supplied with an opportunity to rebut is not void ab initio; such an order can be rectified through a remand.

This case interprets Section 65-B of the Evidence Act regarding the admissibility of electronic records; however, its interpretation on this point has been declared per incuriam and does not lay down the law correctly.

Appellate courts, including the Income Tax Appellate Tribunal, admit additional evidence only under exceptional circumstances as specified in procedural rules, not as a matter of right. Concurrent findings of fact by lower authorities are generally upheld unless demonstrated to be perverse.

An Assessing Officer cannot make a capricious assessment or estimate income/profit without assigning reasons and supporting material, even when rejecting the assessee's books of account or making a best judgment assessment. The Assessing Officer must act judiciously and not based on pure guesswork.

Once an assessee discharges the initial burden of proof, for example by providing loan confirmations or producing creditors, their claim should not be rejected merely on suspicion. Appellate authorities should generally not remand a case to afford lower authorities or parties a second opportunity to adduce evidence if they failed to do so despite having the opportunity.

An addition made by the Assessing Officer is unsustainable and must be deleted if the AO fails to conduct an appropriate independent investigation, merely copies observations from the Investigation wing's appraisal report, and does not discharge the burden of proof. The AO must apply an independent mind, not just reproduce findings from others.

A violation of the principles of natural justice, such as audi alteram partem, does not automatically invalidate an assessment order unless the assessee demonstrates that actual prejudice resulted from such a violation. The order is not invalid but merely irregular if the initiation was valid but completion was incorrect due to a curable irregularity.

A procedural irregularity in an assessment or reassessment order, where the initiation of the proceeding was valid, does not necessarily render the order invalid if the irregularity is curable and amounts to a mere technicality.

When relevant documents or additional evidence have a direct bearing on an issue, they may be allowed to be produced or admitted at the appellate stage, potentially leading to a de novo adjudication by the Assessing Officer for fresh consideration.

A statement made under sections 107 and 108 of the Customs Act is not a statement made by a person accused of an offence, but Section 24 of the Indian Evidence Act applies because a customs officer is considered an officer in authority. This principle is extended to statements recorded under Section 132(4) of the Income Tax Act, where their voluntariness can be scrutinized, though they are admissible.

Where an assessee provides a prima facie probable explanation for a cash credit or unexplained entry, the onus shifts to the revenue to disprove it, and the assessee’s explanation cannot be rejected on mere surmises. Additionally, rejection of books of account under section 145(3) is not an absolute prerequisite for making additions under section 68.

Cross-examination is a fundamental requirement of natural justice and a sine qua non of due process for taking evidence. No adverse inference can be drawn against a party unless they are put on notice of the case against them, supplied with all evidence (oral and documentary), and given the opportunity to cross-examine hostile witnesses.

The right to cross-examine is not an absolute or universal right in income tax proceedings. The Income Tax Officer, while acting as a quasi-judicial tribunal and observing natural justice, is not bound by the Evidence Act or required to allow cross-examination of every piece of evidence or disclose the source of information.

The settlor of foreign bank accounts has the onus to explain investments not accounted for in their books or disclosed to revenue authorities.

A High Court decision can be relied upon to argue that there was no violation of natural justice, especially when the assessee was afforded sufficient opportunities.

An authority's reasons for a decision must be specific and correlate the facts on record with the conclusion reached; mechanical or "rubber-stamp" reasons are insufficient.

An appellate authority has the jurisdiction to admit additional evidence if it is necessary for a complete and effective adjudication of the matter.

Additions made on the basis of WhatsApp chats or loose papers seized during a search can be deleted if the assessee proves they were not involved in those transactions and the evidence lacks substantiation. The burden of proof lies with the revenue to connect the seized material to the assessee.

The Supreme Court held that tax authorities can go behind apparent transactions to uncover the real nature of affairs if a transaction appears non-genuine, a facade, or is designed to evade tax liability.

For substituted service of notice by affixation to be valid, the serving officer must exercise all due and reasonable diligence to find the assessee or their agent, strictly adhering to the procedure under Rule 17 of Order V of the Civil Procedure Code. Failure to follow this proper procedure renders the service invalid and cannot sustain subsequent proceedings.

The opinion of the District Valuation Officer (DVO) by itself is not sufficient for making an addition to income and requires other corroborated evidence. Such an opinion cannot be relied upon without rejecting the assessee's books of account.

The presumption under Section 292C of the Income-tax Act applies equally to both the revenue and the assessee, and the department cannot selectively apply or ignore parts of seized documents found during a search.

An audit report does not prevent the Assessing Officer from requesting further documentary evidence and details to verify the genuineness of a transaction and the assessee's conduct.

When an assessee fails to discharge the onus to prove the identity, creditworthiness, and genuineness of cash credits under Section 68, the Assessing Officer is justified in making an addition to income. Appellate authorities also possess the power to admit additional evidence during appeal proceedings, as the Evidence Act does not apply to their proceedings.

An affidavit filed by an assessee, when remaining uncontroverted and unrebutted by the revenue through cross-examination or counter-evidence, must be accepted as true and reliable. The rejection of such an affidavit without discrediting the deponent or requiring supporting evidence is not justified.

The Assessing Officer must base assessments on tangible material and evidence, not on mere assumptions, presumptions, conjectures, or surmises, particularly in search assessments under Section 153A where no incriminating material is found. The AO cannot disregard documentary evidence without specific material to controvert it.

An assessment or addition to income cannot be made solely based on a retracted statement, especially when it is not corroborated by seized material or other concrete evidence. The revenue must produce evidence to establish claims like understatement of sale consideration or 'on-money'.

A procedural irregularity occurring after a valid initiation does not automatically invalidate an order; such an irregularity may be curable and render the order merely irregular, particularly if it is a technicality.

Additional evidence can be admitted at the appellate stage only if the court deems it necessary for pronouncing its judgment or for substantial cause, not as a matter of right for the assessee. The mere importance of evidence does not justify its admission at the appellate stage if not produced before the AO.

The assessee bears the onus to establish any claim for deduction of expenditure when computing taxable income, especially when parties from whom purchases were allegedly made deny such transactions before sales tax authorities.

Denying an assessee the right to cross-examine witnesses constitutes a denial of the right to be heard, violating the principles of natural justice.

Where transactions are found to be bogus, additions on account of such transactions cannot be deleted by the Tribunal without examining the evidence on record. The Assessing Officer is justified in making additions, including 100% of bogus purchases, when transactions are proved to be non-genuine.

A statement made during a survey or search is substantial evidence and can be read against the assessee unless retracted with strong evidence of duress or coercion; a bald assertion of duress is insufficient.

Additions to income cannot be justified based on loose papers or rough notes found during a search if there is no other corroborative evidence to prove that the amounts represent undisclosed income or actual expenditures not recorded in books of account. The onus is on the revenue to discharge its burden of proof.

An assessment order enhancing income without disclosing the basis of enhancement and relying on mere suspicion is not sustainable. Best judgment assessment must be based on relevant material and cannot be arbitrary.

An assessment cannot be made solely on the basis of a statement recorded under sections 132(4) or 131(1A) without corroborating evidence, especially if such a statement is subsequently retracted.

An addition to an assessee's income based solely on information from a sales-tax department that purchases were bogus is not sustainable if the assessee has discharged the primary onus by showing payments through account payee cheques and producing vouchers for sales.

The assessment proceedings can be rendered invalid if the Assessing Officer records evidence, such as a statement, in the absence of the assessee without allowing for cross-examination.

A retracted statement obtained during a search under Section 132(4) can be disregarded if the Assessing Officer believes the retraction is baseless and intended to shield the assessee from evidence found.

The findings and conclusions of a Commission of Inquiry are not judicial pronouncements and do not have binding force or legal consequences. A commission's report is merely an opinion that lacks finality and authoritativeness.

Disallowance of expenses cannot be made if their genuineness is not challenged. For unexplained money, possession of gold jewellery by married ladies up to 500 grams is considered explained.

A retracted statement, even if made voluntarily, cannot be the sole basis for making an addition in income. Other corroborative material is required to sustain such an addition.