2022 (1) TMI 605 - HC - Income Tax

Assessment u/s 143(3) r.w.s. 144B - Prescribed procedure not followed - Addition u/s 68 - partnership firm received a particular amount in its capital through its partners - whether the present writ application should be entertained? - HELD THAT - When the legislature has thought fit to use the word non-est, it would mean a nullity. If it is to be treated as a nullity, then the argument of alternative remedy of an appeal should fail. The Writ Court should not be hesitant to quash and set aside an order which could be termed as non-est . Why do we say that the impugned assessment order in the present case could be termed as non-est? . We have read and re-read the draft assessment order and also the impugned assessment order. Mr. Shah is right in his submission that the impugned assessment order is nothing but an exact reproduction of the draft assessment order. Nothing as pointed out by the assessee has been taken into consideration. All that has been done by the Assessing Officer is to express doubts as regards the genuineness of the entries. We fail to understand what the Assessing Officer has tried to convey. When a partnership firm says that it received a particular amount in its capital through its partners and the identity of such partners with necessary details is disclosed, any further information in that regard would be asking the assessee to disclose source of the source. Even this part has been taken care of by the firm. In other words, the source of the source has also been disclosed. The relevant aspects as pointed out by the assessee cannot be said to have been looked into from a proper perspective. We don t find any discussion in the impugned assessment order. This is the reason why we are saying that the procedure as contemplated under Section 144B cannot be said to have been duly followed in the case on hand. It is open to the Assessing Officer to undertake further investigation with regard to that individual who has deposited this amount. So far as the responsibility of the assessee-firm is concerned, it is satisfactorily discharged. Whether that individual person is an income tax payer or not or from where he has brought this money is not the responsibility of the firm. The moment the firm gives a satisfactory explanation and produces the person who has deposited the amount, then the burden of the firm is discharged and in that case that credit entry cannot be treated to be the income of the firm for the purposes of income tax. It is open to the Assessing Officer to take appropriate action under Section 69 of the Act against the person who has not been able to explain the investment. In view of the aforesaid, we are left with no other option but to quash and set aside the impugned assessment order and remit the entire matter to the Assessing Officer for de novo consideration. On remand, we expect the Assessing Officer to meaningfully look into all the relevant aspects as highlighted by the assessee including the observations made by this Court in this order and even if the Assessing Officer still deems fit to reject the stance of the assessee, he shall to do so by assigning cogent reasons. Writ application succeeds in part. The impugned assessment order is quashed and set aside. The matter is remitted for de novo consideration to the Assessing Officer.

Issues Involved:
1. Validity of the assessment order under Section 143(3) read with Section 144B of the Income Tax Act.
2. Compliance with the principles of natural justice.
3. Applicability and interpretation of Section 68 of the Income Tax Act.
4. Procedural compliance under Section 144B of the Income Tax Act.
5. Availability and appropriateness of alternative remedies.

Detailed Analysis:

1. Validity of the Assessment Order:
The petitioner, a registered partnership firm, challenged the assessment order passed under Section 143(3) read with Section 144B, and the corresponding demand notice under Section 156. The firm argued that despite furnishing all necessary details regarding the introduction of capital by its partners, the Assessing Officer (AO) added ?2,71,75,000 to the returned income, treating it as unexplained cash credit under Section 68 of the Income Tax Act. The AO's assessment order was claimed to be an exact reproduction of the draft assessment order, ignoring the detailed objections and information provided by the petitioner.

2. Compliance with the Principles of Natural Justice:
The petitioner contended that the assessment order violated the principles of natural justice. The AO allegedly did not consider the information and objections submitted by the petitioner, leading to a mechanical and arbitrary assessment. The petitioner argued that the AO should have questioned the individual partners if there were doubts about the genuineness of the transactions, rather than the firm itself.

3. Applicability and Interpretation of Section 68:
Section 68 of the Income Tax Act stipulates that where any sum is found credited in the books of an assessee and the assessee fails to satisfactorily explain the nature and source thereof, the sum may be charged to income tax as the income of the assessee. The court emphasized that once the assessee (firm) provides details of the partners who introduced the capital, the burden shifts to the AO to verify the creditworthiness and genuineness of those partners and their sources. The court referred to the Gauhati High Court's decision in Nemi Chand Kothari vs. Commissioner of Income Tax, which clarified that the assessee is not required to prove the source of the source.

4. Procedural Compliance under Section 144B:
Section 144B, introduced to facilitate faceless assessments, mandates a specific procedure for conducting assessments. Sub-section (9) of Section 144B states that any assessment not made in accordance with the prescribed procedure shall be non-est (null and void). The court found that the AO did not follow the due procedure, as the final assessment order was a verbatim copy of the draft order, without considering the petitioner's responses. This procedural lapse rendered the assessment order non-est.

5. Availability and Appropriateness of Alternative Remedies:
The respondent (Revenue) argued that the petitioner should have pursued the alternative remedy of filing an appeal under Section 246 of the Income Tax Act. However, the court held that when an assessment order is non-est due to procedural non-compliance, the writ court can intervene, and the alternative remedy of appeal does not bar such intervention.

Conclusion:
The court quashed the impugned assessment order and remitted the matter to the AO for de novo consideration. The AO was directed to meaningfully consider all relevant aspects and the petitioner's submissions, and to pass a reasoned order in accordance with the law within eight weeks. The court emphasized the importance of adhering to the procedural requirements under Section 144B and the principles of natural justice in conducting assessments.

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