2022 (2) TMI 1313 - HC - Income Tax

Recovery notice - addition u/s 68 - petitioner submits that one of the main partners died and the Firm was left with other partners, who were wife and daughter and therefore they needed time to take over the business and practically the business has come to a stand still and the Firm continues only for the purpose of recovery of dues - HELD THAT - Taking note of the Assessment Order having been passed while observing that assessee has not filed any reply or response to the notice under Section 142(1) of the Income Tax Act and that the Assessing Officer in terms of Section 68 has treated the deposit as unexplained and treated it as deemed income of the assessee and had directed to add the same to the income of the assessee for the Assessment Year 2018-2019, it would meet the interests of justice to provide another opportunity to the petitioner to explain and file his objections regarding the proposed addition Accordingly, taking note of the circumstances referred to above detailing the bona fide lapse on the part of the petitioner, the Assessment Order at Annexure-G1 dated 26.04.2021 is set aside and consequently, the recovery notice at Annexure-G2 dated 08.11.2021 is set aside. The matter is relegated to the first respondent to resume the proceedings from the stage of reply to the show cause notice dated 16.03.2021.

Summary

Issues:
Challenge to recovery notice and assessment order for Assessment Year 2018-2019.

Analysis:
The petitioner sought to quash the recovery notice and assessment order for the Assessment Year 2018-2019. The petitioner explained that after the death of a partner, the business was left with the deceased partner's wife and daughter, causing the business to come to a standstill. For the Assessment Year 2018-2019, the petitioner declared a loss as no business activities were conducted. The petitioner responded to scrutiny notices and a show cause notice under Section 142(1) of the Income Tax Act, citing miscommunication and technical glitches as reasons for non-compliance.

The petitioner highlighted confusion regarding email communication due to an employee leaving, resulting in delays in responding to official notices. The petitioner attributed non-compliance with the show cause notice to genuine difficulties arising from the Covid-19 pandemic and other bona fide reasons. Despite the Assessing Officer treating a deposit as unexplained income and directing its addition to the petitioner's income, the court acknowledged the petitioner's genuine difficulties and decided to provide another opportunity to explain and file objections regarding the proposed addition.

The court set aside the Assessment Order and recovery notice, emphasizing the bona fide lapses on the petitioner's part and directing the first respondent to resume proceedings from the stage of replying to the show cause notice. The judgment concluded by disposing of the petition with the aforementioned observations, ensuring justice by granting the petitioner another chance to address the issues raised during the assessment process.