Burden of Proof: Porus F Kaka Senior Advocate
Burden of Proof: Porus F Kaka Senior Advocate
Burden of Proof: Porus F Kaka Senior Advocate
Porus F Kaka
Senior Advocate
Burden of Proof –
Basic Principles
Onus of the burden of proof
• On the revenue authorities to show that the receipt
constitutes income and that income is liable to tax
• A claim that a particular income is exempt from
taxation lies upon the assessee
• Similarly, the state of affairs is real unless the revenue
proves the contrary.
• The burden of proving that a transaction is sham lies
upon the revenue, unless statutorily shifted i.e. GAAR
• Even the initial burden to prove concealment of
income is on the Revenue.
Burden of Proof – judicial precedents
Parimisetti
Seetharamamma v/s CIT CIT v/s Ramakrishna Deo CIT v/s Sati Oil Udyog Ltd.
57 ITR 532 (SC) 35 ITR 312 (SC) 372 ITR 746 (SC)
Where however a receipt is The law is well settled that The burden of proving that
of the nature of income, it is for a person who the assessee has
the burden of proving that claims exemption to attempted to evade tax is
it is not taxable because it establish it, and therefore, on the revenue which it
falls within an exemption it was for the assessee has to discharge by
provided by the Act lies to prove that the income establishing facts and
upon the assessee. sought to be taxed was circumstances from which
agricultural income a reasonable inference can
exempt from taxation be drawn that, in fact,
attempted to evade tax
lawfully payable by it.
Changing times …
• Form relevant (Duke of Westminister UK)
• Turbulence of Mcdowell (Indian SC) – Emphasis
on substance
• Azaadi Bachao Andolan & Vodafone (Indian SC) –
the balancing act
• Transfer Pricing regulations / Arm’s length regime
• LOB
• FATCA
• BEPS
• GAAR / Impermissible arrangements
• Automatic Exchange of Information
Burden (/ Responsibility?) in changing times ..
• SAAR : Transfer Pricing regulations – Initial burden to disclose related party
transactions and / or self benchmarking obligations
• FATCA – disclosures mandatory on the tax payer and intermediaries
• GAAR – Obligations changing with several countries framing provisions with
presumptive impermissibility of the transactions unless proved to the
contrary
• Checks though have been introduced in form of panels with higher officials to
prevent misuse
• Exchange of Information “automatic” is the new normal
• On 5.12.2017, the Council of the European Union (the Council) included
Panama on its list of “Uncooperative jurisdictions for tax purposes
Upon whom is the burden
of proof under GAAR? (1/2)
Australia Taxpayer
Belgium Tax authority
Brazil Taxpayer
Canada Shared
China Taxpayer
France Tax authority
Germany Shared
India Taxpayer
Indonesia Shared
Ireland Taxpayer
Italy Tax authority
Japan Tax authority
Source:
http://www.ey.com/Publication/vwLUAssets/Mapping_tax_enforcement’s_evolution/$FILE/GAAR.pdf
as on 2013
Upon whom is the burden
of proof under GAAR? (2/2)
Mexico Tax authority
Netherlands Tax authority
Poland Shared
Russia Taxpayer
Singapore Taxpayer
South Africa Shared
South Korea Taxpayer
Sweden Taxpayer
Switzerland Shared
Turkey Shared
UK Tax authority
USA Taxpayer
Source:
http://www.ey.com/Publication/vwLUAssets/Mapping_tax_enforcement’s_evolution/$FILE/GAAR.pdf
as on 2013
Mohan Manoj Dhupelia
(2015) 67 SOT 12 (Mum ITAT)
Income added on the basis of
Information that was received as a
part of tax information exchange
treaty that taxpayer was a
beneficiary of a Trust in foreign
country in whose account a huge
balance was maintained by taxpayer,
despite denial by the taxpayer
Evidentiary standards –Search, seizure,
illegally collected evidence, tax avoidances.
India Evidence Act, 1872
Section 3- “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 including electronic records produced for the
inspection of the Court;
such documents are called documentary evidence.
Types of Evidence
• Oral - statement of witness
• Documentary including electronic records
• Courts presumptions - conclusive and rebuttable.
• Surrounding circumstances
• Information available in public domain.
• An admission of fact - where contents are proved.
• Expert opinion- valuation or technical report
Applicability of Indian Evidence Act to Tax
proceedings
• Rules of Evidence and Indian Evidence Act (IEA) are applicable to proceedings in the
Courts before the judges and the Magistrates. They apply to judicial proceedings
• The AO is conducting quasi – judicial proceedings and is not a Court. However u/s. 131
and a few other provisions the Civil Procedure Code is made applicable to the IT
proceedings.
• The CIT(A) and the ITAT also are quasi-judicial.
• The Rule of Evidence and the provisions of the IEA do not apply strictly apply to the
proceedings under the IT Act.
• The proceedings however are to be concluded based on evidence only.
• Rules appealing to common sense in any case have to be applied in leading evidences in
support of the case and in relying thereon to adjudicate the case
• IT Act being the law of taxation, a statute, shall also be governed by Rules of Evidence
though not by the strictest application of the IEA.
Rules of Evidence –applicable to tax
proceedings.
• If revenue is inclined to tax the receipt it is they to lead the evidence.
• law can shift the burden of proof on the assessee to prove that
apparent is not real.
• evidence gathered behind the back of the assessee cannot be used
unless an opportunity of rebutting same is given.
• the rules of Natural Justice shall apply in admission of the evidence –
opportunity of hearing and cross-examination.
• statement made on oath is binding but not conclusive
Rules of Evidence –Cross Examination
• State of Kerala v. K.T. Shaduli Grocery Dealer Etc: (1977) 2 SCC 777 held,
“The question is what is the content of this provision which imposes an
obligation on the Sales Tax Officer to give and confers a corresponding right
on the assessee to be afforded, a reasonable opportunity “to prove the
correctness or completeness of such return”. Now, obviously “to prove”
means to establish the correctness or completeness of the return by any
mode permissible under law. The usual mode recognized by law for proving
a fact is by production of evidence and evidence includes oral evidence of
witnesses. The opportunity to prove the correctness or completeness of the
return would, therefore, necessarily carry with it the right to examine
witnesses and that would include equally the right to cross-examine
witnesses examined by the Sales Tax Officer.”
Rules of Evidence –Cross Examination
• CIT v. Virgin Securities & Credits: 332 ITR 396 (Del)
• CIT v. SMC Share Brokers Ltd: 288 ITR 345(Del)
• Gargi Din Jwala Prasad v. CIT: 96 ITR 97 (All)
• Moti Lal Padampat Udyog Ltd. v. CIT: (2007) 293 ITR 565.
• New India Assurance Company Ltd. v. Nusli Neville Wadia: (2008) 3
SCC 279.
Evidentiary standards – illegally collected
evidence
• If the search being condemned as illegal, what consequence it would have on the
seizure of the documents during such illegal search. Whether to exclude
relevant evidence merely on the ground that it is obtained by illegal search or
seizure.
• Dr. Partap Singh v. Director of Enforcement 155 ITR 166(SC)
Illegality of the search does not vitiate the evidence collected during
such illegal search. The only requirement is that the Court or the authority before
which such material or evidence seized during the search shown to be illegal, is
placed has to be cautious and circumspect in dealing with such evidence or
material.
• Pooran Mal v. Director of Inspection (Inv.) 93 ITR 505 (SC)
Even though the search and seizure were in contravention of provision of section
132, material seized would liable to be used against person from whose custody it
was seized.
Illegally Collected Evidence
USA UK
Exclusionary Rule applies, Regina Khan (Sultan) 1997 AC 558 (HL) – There
if criminal in nature is no right of privacy which is sufficient to
justify the exclusion of evidence which had
been obtained illegally
India
Pooran Mal v. Director of Inspection
(Investigation) [1974] 93 ITR 505 (SC) – Illegality
of the search does not vitiate the evidence
collected during such illegal search
Important of Electronic Evidence in Tax Dispute
(3) one or more computer or combination of computer shall be constituted single computer for the purpose of
sub-section (2)
Indian Evidence Act -1872- Section
Section 65B – Admissibility of Electronic Records (cont)