2021 (10) TMI 684 - HC - Income Tax

Addition u/s 68 - unsecured loan - violation of principles of natural justice - HELD THAT - Here in the case in hand, as pointed out a huge sum has been added in the income of the Assessee for the concerned assessment year. Whether such a huge sum is a taxable income or not, is a major question to be decided in the issue, however, before going into the merits of that issue, whether complete opportunity had been given to the petitioner/Assessee, which includes the personal hearing. Very fairly, the learned Senior counsel has submitted that, specifically that chance of personal hearing, though was not asked by the petitioner/Assessee, that become incumbent on the part of the petitioner/Assessee to seek such a chance of personal hearing, in view of the peculiar facts of the case, where, the petitioner has been placed to explain with the documents already submitted to the revenue people to establish that the transactions under which, the petitioner/Assessee accepted that sum from a lender was a genuine transaction taken through the bank. This Court feel that, such a chance can be given to the petitioner/Assessee, otherwise even if appeal is field against the assessment order, if this point is once again raised before the appellate authority, the appellate authority also has to necessarily consider the same and in that case, the entire assessment process, which culminated in the impugned order, would get further delayed. Therefore, instead of relegating the Assessee to approach the appellate authority to raise the same point of getting a personal hearing from the revenue, this Court feel that, since the chance of getting a personal hearing is part and parcel of the principles of natural justice, therefore, it comes within the domain of the writ jurisdiction, and on that ground, this Court feel that this writ petition can be entertained. After giving such an opportunity of personal hearing as indicated above for one day, it is open to the revenue to proceed to pass a fresh order of assessment, in accordance with law and on merits.

Summary

Issues Involved:
1. Legitimacy of the assessment order under Section 143(3) read with Section 144B of the Income Tax Act, 1961.
2. Validity of invoking Section 68 of the Income Tax Act for adding unsecured loans to the total income.
3. Adherence to principles of natural justice, particularly the right to personal hearing under the Faceless Assessment Scheme.

Issue-wise Detailed Analysis:

1. Legitimacy of the Assessment Order under Section 143(3) read with Section 144B of the Income Tax Act, 1961:
The petitioner, a firm engaged in the business of edible oil trading, filed its return of income for AY 2018-19, declaring a total income of ?16,400. The case was selected for scrutiny under CASS, leading to notices under Sections 143(2) and 142(1) of the Act. The petitioner responded with the required documents. The revenue scrutinized the transactions, particularly the unsecured credits from three entities, and issued further notices under Section 142(1) and Section 133(6) to the lenders. The revenue concluded that the petitioner had a typical balance sheet with high unsecured loans and minimal fixed assets, leading to an addition of ?41,34,69,610 under Section 68 of the Act.

2. Validity of Invoking Section 68 of the Income Tax Act for Adding Unsecured Loans to the Total Income:
The revenue scrutinized the identity, credit-worthiness, and genuineness of the lenders. It was found that one lender, Sri Nagalainga Vilas Oil Mills, had a total income of only ?1,35,580 but claimed to have given an unsecured loan of ?41,34,69,610 to the petitioner. This discrepancy led the revenue to invoke Section 68, proposing the addition of the unsecured loan amount to the petitioner's income. The petitioner objected to this addition, but the revenue, after thorough scrutiny, upheld the addition in the assessment order dated 26.08.2021.

3. Adherence to Principles of Natural Justice, Particularly the Right to Personal Hearing under the Faceless Assessment Scheme:
The petitioner contended that the Faceless Assessment Scheme, introduced recently, did not afford a chance for personal hearing, especially during the COVID-19 pandemic. The petitioner argued that a personal hearing was crucial to explain the genuineness of the transactions with supporting documents. The revenue countered that multiple opportunities were given to the petitioner to submit documents, and the assessment was made after thorough scrutiny. The court acknowledged that personal hearing is part of the principles of natural justice and decided that the petitioner should be given an opportunity for a personal hearing to explain the transactions.

Judgment:
The court set aside the impugned assessment order and remitted the matter back to the respondent Assessing Authority for reconsideration. The revenue was directed to provide one day of personal hearing to the petitioner between 1st and 8th October, with advance notice. The petitioner was instructed to appear on the fixed date and produce any additional documents. The revenue was then to pass a fresh order of assessment in accordance with law and on merits. The court emphasized that no further personal hearing requests would be entertained. The writ petition was disposed of without costs, and connected miscellaneous petitions were closed.