Case Law Details
Nirmala Trust Vs ACIT (Kerala High Court)
Introduction: In a pivotal judgment, the Kerala High Court addressed the procedural integrity within income tax assessments concerning unsecured loans. The case of Nirmala Trust Vs. ACIT highlighted the significance of issuing proper notices to taxpayers when questioning the details of unsecured loans received, marking a significant precedent for future assessments and procedural fairness under the Income Tax Act, 1961.
Detailed Analysis:
The crux of the matter revolved around the Income Tax Department’s addition to the petitioner’s income for the Assessment Year 2021-2022, due to alleged unsecured loans received from five individuals who had not filed their income tax returns. The petitioner, Nirmala Trust, engaged in commercial loan activities, was selected for complete scrutiny, leading to the identification of loans from 45 lenders, with only seven having filed their returns. A subsequent notice under Section 133(6) was issued to eight lenders, with responses received from only five.
Upon further examination, the assessment order included loans from 28 individuals for the year, of which five were not previously notified to the petitioner, violating the principles of natural justice by not providing an opportunity to explain these transactions. The court noted this discrepancy and emphasized the petitioner’s right to be informed and respond to any allegations or inquiries regarding their financial transactions.
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