Varadarajaperumal Pradeepkumar Vs Income Tax Officer (Madras High Court)
Income Tax Assessment Order Invalid if SCN Lacked Time Limit for Response, Invalid Service of Assessment Order, & Order Suffers from Vice of Pre-Determination
In the case of Varadarajaperumal Pradeepkumar versus the Income Tax Officer, the Madras High Court dealt with a writ petition challenging an income tax assessment order dated December 29, 2019, for the assessment year 2017-18. The petitioner argued that the order was invalid due to lack of proper notice and pre-determination of the issue, making it unconstitutional.
Key Events and Background:
Business Operations:
- The petitioner, Varadarajaperumal Pradeepkumar, was a distributor for M/s. Bharathi Telemedical Ltd.’s Direct to Home (DTH) services under the trade name M/s. Accurate Enterprises during the relevant assessment year.
- During the financial year 2016-17, the Indian government demonetized Rs. 1000 and Rs. 500 currency notes on November 8, 2016, and allowed their exchange until December 30, 2016.
Scrutiny and Notices:
- For the assessment year 2017-18, the petitioner filed income returns on November 1, 2017.
- The petitioner’s case was selected for complete scrutiny under the Computer-Assisted Scrutiny Selection (CASS).
- On July 30, 2019, a notice under Section 142(1) of the Income Tax Act was issued, requiring the petitioner to provide various financial documents and bank statements.
Petitioner’s Compliance:
- The petitioner appeared before the tax authorities on August 22, 2019, and December 10, 2020, submitting the required documents, including cash deposit statements for the period during demonetization.
Assessment Order and Refund Adjustment:
- On March 17, 2021, the petitioner received an intimation under Section 245 of the Income Tax Act, indicating that a refund for the assessment year 2020-21 would be adjusted against an outstanding tax demand.
- The petitioner then discovered an assessment order dated December 29, 2019, had been issued and communicated only to the petitioner’s Chartered Accountant via email.
Grounds for Challenging the Order:
Improper Notice and Pre-determination:
- The petitioner argued that the show cause notice dated December 17, 2019, did not specify any proposal but was a pre-determined conclusion treating the cash deposits as unexplained income. This violated principles of natural justice and fairness as outlined in Article 14 of the Indian Constitution.
- The show cause notice also lacked a time limit for the petitioner to respond, rendering it defective.
Invalid Service of Order:
- The assessment order was sent only to the email address of the petitioner’s Chartered Accountant, which had not been actively used for a long time, resulting in the petitioner not being aware of the assessment order until much later.
Errors in Assessment:
- One of the bank accounts considered for unexplained income, Current Account No. 101697440267, was claimed to belong to the Electricity Board, not the petitioner.
Court’s Analysis and Decision:
Assessment of Show Cause Notice:
- The court reviewed the show cause notice and found it to be pre-determined, as it conclusively stated that the cash deposits would be treated as unexplained income, without offering a genuine opportunity for the petitioner to respond.
- The court cited the Supreme Court case Siemens Ltd. v. State of Maharashtra, which held that notices issued with pre-determined conclusions are arbitrary and violate due process.
Invalid Service of Order:
- The court deemed the service of the assessment order to the Chartered Accountant’s email as invalid, emphasizing that it was not properly communicated to the petitioner.
- It was highlighted that the petitioner was unaware of the assessment order until the intimation under Section 245 was received.
Court’s Directive:
- The court set aside the impugned assessment order dated December 29, 2019.
- The petitioner was instructed to submit objections within eight weeks from the date of receiving a copy of the court’s order, treating the assessment order as a show cause notice.
- If the objections were not filed within the specified period, the impugned order would be restored.
- No costs were imposed, and the connected miscellaneous petitions were closed.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
