2022 (10) TMI 376 - HC - Income Tax

Validity of reopening of assessment proceedings - unexplained loan receipts - as argued notice received prior to finalisation of the impugned assessment had granted only two days for filing of reply - HELD THAT - The assessment made in the hands of the company for the earlier year had come to be challenged . 2022 (4) TMI 1456 - MADRAS HIGH COURT a learned Single Judge of this Court dismissed the writ petition, granting liberty to the petitioner company to file a statutory appeal within a time frame fixed by the Court. All the matters relating to determination of the issue as to whether the cash credits resulting from the loans allegedly given by R.Srinivasan, are genuine. It is appropriate that the aforesaid issue be decided by the appellate authority, who would have the requisite mechanism to call for various relevant details and determine the facts in a proper manner. Petitioners draws attention to the fact that the notice received prior to finalisation of the impugned assessment had granted only two days for filing of reply. The notice is dated 24.12.2019 and calls for a reply to be filed on 26.12.2019. On 26.12.2019, the petitioner has written to the Department asking for various documents relied upon in notice dated 24.12.2019 and seeking more time to respond to the same. The impugned order of assessment has come to be passed on 26.12.2019, without reference to the petitioner's request. Though the above position might be construed as a violation of principles of natural justice, we are not inclined to set aside the impugned order merely on this score, bearing in mind the facts and circumstances as noted above. The appeals of the company as well as R.Srinivasan involving identical issues are before the Appellate authority and thus, it would stand to reason that the case of the petitioners is also taken up in appeal. In my considered view, a violation of natural justice is not fatal in all situations and a wholistic view should be taken of the issue, such that the interests of all parties are properly balanced. The powers of an appellate authority are co-terminus with that of an assessing authority and the details sought for by the petitioner may well be supplied to the petitioner by the appellate authority to ensure that the petitioner is granted full opportunity to put forth his case in appeal. In fine, the impugned assessment orders are upheld and the petitioner is granted liberty to file appeal, if he so desires, within a period of two (2) weeks from today.

Summary

Issues:
Challenge to assessment orders for AY 2012-13 under the Income Tax Act, 1961 based on receipt of a loan, connection between assessments of petitioner and R.Srinivasan, challenge to assessment of company for an earlier year, violation of natural justice in granting time for response, appellate authority's powers and granting liberty to file appeal.

Analysis:
The petitioners contested assessment orders for AY 2012-13 under the Income Tax Act, 1961 concerning a loan received from R.Srinivasan during FY 2011-12. R.Srinivasan's assessment was reopened due to unfiled income tax returns, leading to a challenge dismissed by the Court. The assessment completed in Srinivasan's hands was adverse, with a pending statutory appeal. The loan claimed by the petitioner was linked to cash credits in Srinivasan's bank accounts, intertwining their assessments.

The petitioner, a Director in a company, faced a similar challenge in an earlier assessment year regarding loans from Srinivasan. The company's challenge was dismissed by a Single Judge and a Division Bench, allowing for a statutory appeal. The Court emphasized the interconnection of issues surrounding the loans from Srinivasan, suggesting appellate authority review for a comprehensive decision.

Regarding the alleged violation of natural justice due to limited response time before the impugned assessment, the Court acknowledged the concern but upheld the assessment orders. The Court highlighted the importance of a holistic approach, considering ongoing appeals by the company and Srinivasan, ensuring all parties' interests are balanced. The appellate authority was tasked with providing necessary details for the petitioner's appeal, granting a two-week window for filing.

In conclusion, the Court upheld the impugned assessment orders, granting the petitioner liberty to file an appeal within two weeks. To streamline the process, all related appeals were to be consolidated for joint hearing. Both writ petitions were dismissed with liberty granted for filing appeals. No costs were imposed, and connected miscellaneous petitions were closed.