2009 (11) TMI 581 - HC - Income Tax

Block assessment - Survey - Since there was no response, when the third respondent called upon the petitioners to submit their objections to the proposal to assess the income, the petitioners sent objections dt. 21st Feb., 2007 denying the assessment as an AOP and a further letter dt. 21st March, 2007 seeking copy of the block assessment order, if any, passed against the AOP, so that the petitioners could take recourse to the Tribunal. Since there was no response therein, the petitioners believed that there were no proceedings.On receipt of the notice, it is open to the assessees to take such contentions as they deem fit, including on the question of recovery. The recovery proceedings, hence, shall be kept in abeyance till the orders of assessment are served.

Summary

Issues:
Challenge to notices of demand and summons issued by the first respondent in relation to income assessment under the IT Act, 1961.

Analysis:
The petitioners contested the notices of demand and summons issued by the first respondent regarding income assessment under the IT Act, 1961. The grievance stemmed from the fact that the Department passed an assessment order on a third party, Ganesan, for a specific block period. Subsequently, the petitioners were called upon to file returns of income under section 158BD of the Act, despite claiming no involvement in any association of persons (AOP). Assessment orders were passed against the petitioners based on amounts credited in Ganesan's books. The petitioners, maintaining they were not part of the AOP, sought clarification and copies of relevant statements, which were not provided timely. When treated as AOP members and asked for a substantial sum, the petitioners reiterated their non-involvement and requested due process. The petitioners' denial of AOP membership and lack of information on the assessment proceedings led to the current challenge.

The petitioners consistently denied being part of the AOP and emphasized that the sand quarrying business was solely conducted by Ganesan. Despite seeking clarifications and copies of relevant documents, the petitioners were not adequately informed about the assessment proceedings. They reiterated their non-membership in the AOP and requested copies of the assessment order to pursue legal recourse. The petitioners' belief in the absence of proceedings was shattered when they received notices treating them as AOP members and demanding substantial payments. Their response reiterated their lack of involvement in the AOP and disputed the liability for tax on income from the sand quarrying business.

The court analyzed the justification provided by the respondents, citing provisions of the IT Act related to notice service, particularly in cases of associations like AOPs. However, the court disagreed with the respondents, emphasizing that the petitioners consistently contested their AOP status and were never served notice regarding the assessment made on their behalf as AOP members. The court highlighted the importance of providing notice to allow for appeal rights and directed the third respondent to serve a copy of the assessment order on the petitioners promptly. The court emphasized the need for the petitioners to be informed of the assessment made as AOP members to exercise their appeal rights effectively. Recovery proceedings were ordered to be halted until the assessment orders were served, allowing the petitioners to contest the assessment legally.

In conclusion, the court allowed the writ petitions to the extent of directing the service of the assessment order on the petitioners and suspending recovery proceedings until proper notice was provided. The judgment underscored the importance of due process and informed participation in assessment proceedings, especially in cases involving association status and tax liabilities.