vide Decision of High Court of Madras in Nagalinga Nadar. M.M. v. Additional Commissioner of Income-tax, Income-tax Department
Facts of the case:
1. The petitioner is a Firm and engaged in business of purchase and sale of edible oil as a trader. It had filed return of income on 20.09.2018 for the Assessment Year 2018-19, declaring the total income of Rs.16,400/-.
2. The revenue, thought of selecting the case for scrutiny under CASS (Computer Aided Scrutiny Selection) for the verification of transactions. Accordingly, notice under Section 143(2) of the Income Tax Act dated 22.09.2019 was issued.
3. Notice under Section 142(1) of the Act also along with the questionnaire, was issued on 28.12.2020, and the response was directed to be made on or before 06.01.2021.
4. In response to the same, the Assessee submitted documents as well as
information, vide their submission, dated 12.01.2021.
5. After considering the reply or submissions made by the Assessee, the revenue has come to the conclusion that unsecured credit claimed by the Assessee which were made by three persons or entities and from each of such persons or entities, heavy amount was transacted to the Assessee's account as unsecured credit.
6. Also the Assessee was asked by notice, dated 28.12.2020 as to the details of unsecured loan, copy of ITRs and a copy of bank accounts of the persons, from whom these unsecured loans have been accepted to substantiate the identity, credit-worthiness and genuineness of the lenders.
7. In response to the same also, the Assessee had given details on 12.01.2021, which were also considered by the revenue.
8. From those details furnished by the Assessee, with regard to the identity, credit-worthiness of the lenders, the revenue was able to find out that, one of the creditors, Manickavel Edible Oil Private Limited had filed ITR for the
Assessment Year 2018-19. for a total income of Rs.2,26,40,520/-.
9. However, another lender, namely, Sri Nagalinga Vilas Oil Mills is concerned, it has filed ITR for the Assessment Year 2018-19 only for a total income of Rs.1,35,580/-
10. Therefore, revenue, thought of issuing notice under Section 133(6) of the Act, dated 04.02.2021 to the lenders asked them to provide the copy of Audit report, profit and loss accounts, balance sheet, etc.
11. In response to the notice, both the lenders have provided similar reply and stated that, it has advanced money to various sister concerns and has also received funds from them.
12. Those details also were subsequently examined by the revenue. According to the revenue, on the examination of those details submitted both by the Assessee as well as the lenders, a position has emerged under which, the revenue has found that the Assessee has been following NIL income ITR since many years, and it filed return of income declaring a sum of Rs.16,400/- in the year under consideration.
13. The comparative table of turnover, purchase, expenses, profit, etc., for Assessment Year 2017-18 and 2018-19 also have been unearthed and stated by the revenue.
14. Therefore, the revenue had come to a conclusion that the comparative table has made it clear that, it has a typical balance sheet nature with high values of unsecured loans, creditors on liability side and debtors or loans and advances on asset side.
15. Therefore, it did not have any significant fixed asset or any capital, and similar trend can be noticed for the prior year also. The revenue also seems to have found that the said lender , namely, Sri Nagalinga Vilas Oil Mill also filed ITR on the total income of only Rs.1,34,580/-, however, it claimed to have given unsecured loan to the Assessee amounting to Rs.41,34,69,610/-.
16. In view of these revelations, the revenue thought of invoking Section 68 of the Act, and accordingly, the revenue issued a show cause notice on 31.05.2021, proposing an addition of the said Rs. 41,34,69,610/- under Section 68 of the Act, on account of the unsecured loan taken from Sri
Nagalinga Vilas Oil Mills, that is, one of the lenders and asked the show cause.
17. In response to the same, Assessee filed submissions dated 02.07.2021, 14.07.2021 and 07.08.2021 and it has also raised objections on the proposed addition.
18. These objections and the reply given by the Assessee in response to the notice proposing to make such addition, were considered by the revenue, and ultimately, the revenue has come to the conclusion that the said sum of Rs.41,34,69,610/- taken during the year as unsecured loan from Sri Nagalinga Vilas Oil Mill, is to be added to the total income of the Assessee under Section 68 of the Act, and accordingly, the assessment orders were issued along with the interest and penalty, etc.
19.The Learned Counsel appearing for the petitioner(Assessee) has made submission that in the present case, since the assessment has been made under the new scheme called “Faceless Assessment Scheme”, though the same has been introduced from the year 2019, very recently, it has given a statutory backing by insertion of Section 144(B) in the IT Act and the Assessee has to be relegated to file an appeal under the Statute and there could be no chance of meeting point between the officials concerned of the IT Department and the Assessee or their representatives under the new scheme.
20. Therefore, the learned Senior Counsel would contend that as the proposed addition is concerned, to the extent of more than 40 crores, since it is a huge sum, the petitioner definitely would be able to satisfy the authorities of the revenue by showing the books of accounts as well as the bank transactions that those credit, though unsecured, accepted from the lender, was the genuine transaction.
21. In this regard, mere filing of documents for the scrutiny or examination of the revenue may not be sufficient to satisfactorily convince the revenue officials, and therefore, in that regard, it became incumbent on the part of the Assessee to seek for a personal hearing, though he missed that opportunity at the first instance.
22. In this context, learned Standing Counsel for the Income Tax
Department would further submit that, before passing the impugned assessment order, enough opportunities were given, atleast four time notices had been given and in each of the time, the Assessee has promptly responded and produced the documents, so, what are all the documents available with the petitioner had been procured and those documents having been scrutinized, the revenue has come to such a conclusion.
Judgement: The High Court of Madras held the case as follows:
i. The high court of Madras held that 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, the Court felt that this writ petition can be entertained.
ii.The court added that the respondent revenue shall give one day personal hearing to the petitioner for which advance notice shall be given by the respondent to the petitioner and on receipt of the same, the petitioner without fail, shall appear on the date so fixed for personal hearing and produce all documents, if not anything already produced and try to explain, to the satisfaction of the revenue, the case of the Assessee.