Madras High Court Set aside Assessment Order passed under faceless e-assessment scheme

madras-high-court-set-aside-assessment-order-passed-under-faceless-e-assessment-scheme

The Income Tax Department will usher in a paradigm shift in its working by introducing faceless e-assessment to impart greater efficiency, transparency, and accountability in the assessment process. With National e-Assessment Centre (NeAC), there would be no physical interface between the taxpayers and the tax officers.


A brief introduction on the faceless e-assessment scheme

Vide Notifications No. 61/2019 and  62/2019, dated 12-09-2019, CBDT notified an 'E-Assessment Scheme, 2019' to conduct e-assessments with effect from September 12, 2019.

The Government had notified e-Assessment scheme to facilitate the faceless assessment of income tax returns through completely electronic communication between tax officials and taxpayers.

Under the new system of faceless e-Assessment, taxpayers will receive notices on their registered emails as well as on registered accounts on the web portal www.incometaxindiaefiling.gov.in with real-time alert by way of SMS on their registered mobile number, specifying the issues for which their cases have been selected for scrutiny. The replies to the notices can be prepared at ease by the taxpayers at their own residence or office and be sent by email to the National e-Assessment Centre (NeAC) by uploading the same on the designated web portal.

This new initiative of faceless assessment is expected to increase ease of compliance for taxpayers as the cost and anxiety of taxpayers are likely to be greatly reduced. No human interface with the Department would be a game-changer. This is another initiative by CBDT in the field of ease of compliance for our taxpayers.

In this e-assessment scheme, 2019, certain cases of Assessment Year 2017-18 were assessed and the assessment order was passed. 

The present case law is in the context of an assessment order passed under this e-assessment scheme.

Summary

The assessee filed its return of income for the AY 2017-18 and subsequently notices under sections 143(2) and 142(1) were issued. The assessee duly replied to the notices.

The assessee was required to explain the source of cash deposit during the demonetization period. In the assessment order, the assessment order was passed and the sum was added as undisclosed income under section 69A.

Since the assessment was conducted as per the e-assessment scheme without any human involvement and that all the queries and replies were exchanged through online mode, it is the contention of the assessee that the assessing officer passed the order without correctly appreciating the facts of the assessee. Further, there was no opportunity to the assessee to explain the transactions before the assessing authority. Hence, the assessee filed the writ petition before the Hon'ble High Court.

After perusal, the High Court was of the view that the assessment proceeding has resulted in a distorted conclusion on facts. It further observed that the assessment proceedings no longer involve human interaction and are based on records alone. The assessment proceedings under the changed scenario would require proper determination of facts by proper exchange and flow of correspondence between the petitioner and the respondent Assessing Officer.

Finally, the High Court set aside the impugned order and the case was remitted back to the assessing officer for passing a fresh order after considering the additional representation of the assessee. It further directed that since the Government of India has done away with the human interaction during the assessment proceedings, the petitioner should explain its stand in writing so that the respondent assessing officer can come to an objective conclusion on facts based on the records alone.

Read the full text of the case law.

W.P.No.1732 of 2020

IN THE HIGH COURT OF JUDICATURE AT MADRAS

Reserved On
28.01.2020
Pronounced On
04.02.2020

CORAM

THE HONOURABLE MR.JUSTICE C.SARAVANAN

W.P.No.1732 of 2020
and
W.M.P.Nos.2006 & 2007 of 2020

Salem Sree Ramavilas Chit Company,
Private Limited,
Rep. by its President,
Mr.N.K.Ramalingam,
S/o.N.V.Krishnamurthy Chettiar,
aged about 66 years,
28, Sree Raamanivasam,
Arya Vysyal Street, Shevapet,
Salem – 636 002. ... Petitioner

Vs.

The Deputy Commissioner of Income Tax,
Circle 1(1), Income Tax Office,
No.3, Gandhi Road,

Salem – 636 007. ... Respondent
  

Prayer: Writ Petition filed under Article 226 of the Constitution of India, to issue a Writ of Certiorari, calling for the records in ITBA/AST/S/143(3)2019-20/1023185233(1) dated 27.12.2019 on the file of the respondent relating to the Assessment Year 2017-18 and quash the same.


      For Petitioner : Mr.G.Baskar

For Respondent : Mr.A.P.Srinivas
          Standing Counsel.


O R D E R

In the Writ Petition, the petitioner has challenged the impugned order passed by the respondent on 27.12.2019 in respect of the amount received by the petitioner post demonetization i.e., between 09.11.2016 and 31.12.2016. 

2. The learned counsel for the petitioner submits that regular returns were filed for the Assessment Year 2017-18 on 07.11.2017. After the returns were filed, proceedings were taken up and notice for completing the assessment was issued under Section 143(2) of the Act on 09.08.2018 followed by notices under Section 142(1) of the Income Tax Act on 20.06.2019 and 29.10.2019 to which the petitioner responded on 22.11.2019, 26.11.2019 and 16.12.2019, respectively pursuant to which the impugned assessment order has been passed. 

3. It is the contention of the petitioner that in the impugned order, the respondent Deputy Commissioner has erroneously came to a conclusion that the petitioner has not properly explained the deposit of cash amounting Rs.67,37,500/- collected during the demonetization into their account and that the petitioner has claimed the source of cash deposit during demonetization as the accumulated cash balance as on 08.11.2016 wrongly. In the impugned order, it has been concluded that the petitioner has not properly explained the source and the purpose of huge cash along with party wise break up as was requested vide notice dated 20.06.2019 and 29.10.2019 under Section 142(1) of the Income Tax Act, 1961.

4. The learned counsel for the petitioner submits that the informations were furnished as early as on 17.02.2017 and thereafter as per the formats requested by the respondent. He further submits that the petitioner had closing balance of cash on hand as on 31.10.2016 for a sum Rs.38,72,374/- which would consist of both demonetized and non-demonetized cash until then and thereafter, the petitioner received further cash deposit from the various subscribers amounting to Rs.57,85,655/- out of which a sum of Rs.26,77,716/- had already been deposited before the demonetization. 

5. It is therefore contented that the amount which was not deposited before the demonetization amounting to Rs.67,37,500/- was explained in terms of the details furnished on 17.02.2017 in compliance with the requirements of the Reserve Bank of India, pursuant to demonetization of ue curency on 08.11.2016. 

6. The learned counsel for the petitioner further submits that the collection of amount by the petitioner during the period proceedings eight months was also not in variance with the amounts collected by the petitioner. The petitioner had collected approximately a sum of Rs.57,85,655/- during the first week of November 2016, which is in the case of chit business is as usual the collection was made during the aforesaid period. In any event, according to the petitioner, details which were called for by the respondent were furnished. He therefore submits that the observation made in the impugned order that the petitioner has not properly explained cannot be countenanced. He further submits that the petitioner is governed by the Provisions of Chit Fund Act, 1982 and Tamil Nadu Chit Funds Rules, 1984, as per which the petitioner required to maintain the ledger details for each of the subscribers and the amount deposited by the petitioner is only out of the amounts collected which are reflected in the register under the Act and the rules made therein. He therefore submits that the amount of Rs.67,37,500/-, which is sought to be treated as unexplained income in the impugned order is nothing but the collection made from regular chit fund business of the petitioner. 

7. The learned counsel for the petitioner therefore submits that the impugned order can be set aside and the case be remitted back to concerned officer to pass fresh orders after considering the records filed by the petitioner on 17.02.2017. The petitioner further submits that if the respondent so require, the petitioner shall also furnish further details of the ledgers for verification by the officer to conclude the said proceedings.

8. The learned counsel counsel for the petitioner would submit that if an opportunity to be given to the petitioner, the petitioner would explain the entire transaction pertaining to case flow upto 08.11.2016.

9. Per contra, the learned Standing Counsel for the respondent submits that the impugned order is well reasoned and therefore, no requires no interference.  He further submits that the petitioner has an alternate remedy by way of appeal before the Commissioner (Appeals) under the Income Tax Act, 1961.  He further submits that before passing any order, the Commissioner (Appeals) may call for an enquiry report and pass appropriate orders.

10. The learned Standing Counsel for the respondent submits that though the power of the Commissioner (Appeals) to remit the case back to original authority has been taken away with effect from 01.06.2001, nevertheless the Commissioner (Appeals) can call for the records from the Officer and pass appropriate orders under Section 250 r/w 251 of the Income Tax Act, 1961.  He submits that while undertaking such an exercise, the Commissioner (Appeals) would act like an Original Authority after getting necessary report from the assessing officer.

11. The learned Standing Counsel for the respondent further submits that Assessment Year 2017-18 onwards, assessments are through e-proceedings.  He submits that the Income Tax Department has developed an e-proceedings facility, wherein a simple method of communication between the department and assessee has been devised negating the visit by the assessee or his representatives to the Department. The information which are loaded will be scrutinized and appropriate orders will be passed. He further submits that is was open for the petitioner to call for the report of the respondent as per note on e-proceedings and the Commissioner (Appeals) has ample powers to pass appropriate orders.

12. I have considered the arguments advanced on behalf of the petitioner and the respondent. 


13. I have also perused the records filed by the petitioner which precede the passing of the impugned order. As on 31.10.2016 the petitioner has claimed a closing cash of Rs.38,72,374/-. The closing cash on hand during the preceding months of the same year is not much invariance with the closing cash on hand as on 31.10.2016. Similarly, during the same period in 2015 also the petitioner has declared amounts similar to the closing cash on hand. For a comparison, the closing cash on hand for the two periods are expected as under:-

madras-high-court-set-aside-assessment-order-passed-under-faceless-e-assessment-scheme

     14. The Government of India demonetized Rs.500 and Rs.1000 notes on 08.11.2016. Between 01.11.2016 and 08.11.2016, the petitioner had collected a sum of Rs.57,85,655/- which is also does not appear to be usual as compared to collections made during the November 2015. Out of the total collection of Rs.57,85,655/- and a closing cash of Rs.38,72,374/- as on 31.10.2016, the petitioner deposited an amount of Rs.26,77,716/- which is also not in variance with the cash deposits made by the petitioner during the preceding financial year. Collection of monthly subscription/dues by the petitioner during the aforesaid period appear to be reasonable as compared to be same period during 2015.

15. The Government of India has introduced E-Governance for conduct of assessment proceedings electronically. It is a laudable steps taken by the Income Tax Department to pave way for an objective assessment without human interaction. At the same time, such proceedings can lead to erroneous assessment if officers are not able to understand the transactions and statement of accounts of an assessee without a personal hearing. The respondent should have to be therefore at least called for an explanation in writing before proceeding to conclude that the amount collected by the petitioner was unusual.

16. In my view, the petitioner has prima facie demonstrated that the assessment proceeding has resulted in distorted conclusion on facts that amount collected by the petitioner during the period was huge and remained unexplained by the petitioner and therefore same was liable to be treated as unaccounted money in the hands of the petitioner under Section 69A of the Income Tax Act, 1961. Therefore, the impugned order making the petitioner liable to tax at the maximum marginal rate of tax by invoking Section 115BBE of the Income Tax Act, 1961 placing reliance on the decision of the Honourable Supreme Court in Smt. Shrilekha Banerjee Vs. CIT, 1964 AIR SC 697 appears to be misplaced..

17. Since the assessment proceedings no longer involve human interaction and is based on records alone, the assessment proceeding should have commenced much earlier so that before passing assessment order, the respondent assessing officer could have come to a definite conclusion on facts after fully understanding the nature of business of the petitioner. It appears that the return of income was filed by the petitioner on 02.11.2017. However, the assessment proceeding commenced much later towards the end of the period prescribed under section 153 of the Income Tax Act, 1961. In my view, assessment proceeding under the changed scenario would require proper determination of facts by proper exchange and flow of correspondence between the petitioner and the respondent Assessing Officer.

18. Under these circumstances, the impugned order is set aside and the case is remitted back to the respondent to pass a fresh order within a period of sixty days from date of receipt of a copy of this order. Petitioner shall file additional representation if any by treating the impugned order as the show cause notice within a period of thirty days from date of receipt of a copy of this order. Since the Government of India has done away with the human interaction during the assessment proceedings, it is expected that the petitioner will clearly explain its stand in writing so that the respondent assessing officer can come to an objective conclusion on facts based on the records alone. It is made clear that the respondent will have to come to an independent conclusion on facts uninfluenced by any of the observation contained herein.


19. The Writ Petition stands allowed with the above observation. No cost. Consequently, connected Miscellaneous Petitions are accordingly closed.

04.02.2020

Index :Yes/No 
Internet :Yes/No
jen


To
The Deputy Commissioner of Income Tax,
Circle 1(1), Income Tax Office,
No.3, Gandhi Road,
Salem – 636 007.


C.SARAVANAN, J.

Jen

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