Salem Sree Ramavilas Chit Company, Private Limited, Rep. By Its President, Mr.n.k.ramalingam v. The Deputy Commissioner Of Income Tax, Circle 1(1), Income Tax Office

IN THE HIGH COURT OF JUDICATURE AT MADRAS Reserved On 28.01.2020Pronounced On 04.02.2020 CORAM THE HONOURABLE MR.JUSTICE C.SARAVANANW.P.No.1732 of 2020andW.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.... PetitionerVs.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 theConstitution of India, to issue a Writ of Certiorari, callingfor the records in ITBA/AST/S/143(3)2019-20/1023185233(1) dated27.12.2019 on the file of the respondent relating to theAssessment Year 2017-18 and quash the same. For Petitioner : Mr.G.BaskarFor Respondent : Mr.A.P.Srinivas Standing Counsel. In the Writ Petition, the petitioner has challenged theimpugned order passed by the respondent on 27.12.2019 in respectof the amount received by the petitioner post demonetizationi.e., between 09.11.2016 and 31.12.2016. 2.The learned counsel for the petitioner submits thatregular returns were filed for the Assessment Year 2017-18 on07.11.2017. After the returns were filed, proceedings were taken Page No 1 of 6 https://hcservices.ecourts.gov.in/hcservices/ up and notice for completing the assessment was issued underSection 143(2) of the Act on 09.08.2018 followed by noticesunder Section 142(1) of the Income Tax Act on 20.06.2019 and29.10.2019 to which the petitioner responded on 22.11.2019,26.11.2019 and 16.12.2019, respectively pursuant to which theimpugned assessment order has been passed. 3.It is the contention of the petitioner that in theimpugned order, the respondent Deputy Commissioner haserroneously came to a conclusion that the petitioner has notproperly explained the deposit of cash amounting Rs.67,37,500/-collected during the demonetization into their account and thatthe petitioner has claimed the source of cash deposit duringdemonetization as the accumulated cash balance as on 08.11.2016wrongly. In the impugned order, it has been concluded that thepetitioner has not properly explained the source and the purposeof huge cash along with party wise break up as was requestedvide 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 theinformations were furnished as early as on 17.02.2017 andthereafter as per the formats requested by the respondent. Hefurther submits that the petitioner had closing balance of cashon hand as on 31.10.2016 for a sum Rs.38,72,374/- which wouldconsist of both demonetized and non-demonetized cash until thenand thereafter, the petitioner received further cash depositfrom the various subscribers amounting to Rs.57,85,655/- out ofwhich a sum of Rs.26,77,716/- had already been deposited beforethe demonetization. 5.It is therefore contented that the amount which was notdeposited before the demonetization amounting to Rs.67,37,500/-was explained in terms of the details furnished on 17.02.2017 incompliance with the requirements of the Reserve Bank of India,pursuant to demonetization of ue curency on 08.11.2016. 5.It is therefore contented that the amount which was notdeposited before the demonetization amounting to Rs.67,37,500/-was explained in terms of the details furnished on 17.02.2017 incompliance 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 submitsthat the collection of amount by the petitioner during theperiod proceedings eight months was also not in variance withthe amounts collected by the petitioner. The petitioner hadcollected approximately a sum of Rs.57,85,655/- during the firstweek of November 2016, which is in the case of chit business isas usual the collection was made during the aforesaid period. Inany event, according to the petitioner, details which werecalled for by the respondent were furnished. He thereforesubmits that the observation made in the impugned order that thepetitioner has not properly explained cannot be countenanced. He Page No 2 of 6 further submits that the petitioner is governed by theProvisions of Chit Fund Act, 1982 and Tamil Nadu Chit FundsRules, 1984, as per which the petitioner required to maintainthe ledger details for each of the subscribers and the amountdeposited by the petitioner is only out of the amounts collectedwhich are reflected in the register under the Act and the rulesmade therein. He therefore submits that the amount ofRs.67,37,500/-, which is sought to be treated as unexplainedincome in the impugned order is nothing but the collection madefrom regular chit fund business of the petitioner. 7.The learned counsel for the petitioner therefore submitsthat the impugned order can be set aside and the case beremitted back to concerned officer to pass fresh orders afterconsidering the records filed by the petitioner on 17.02.2017.The petitioner further submits that if the respondent sorequire, the petitioner shall also furnish further details ofthe ledgers for verification by the officer to conclude the saidproceedings. 8.The learned counsel counsel for the petitioner wouldsubmit that if an opportunity to be given to the petitioner, thepetitioner would explain the entire transaction pertaining tocase flow upto 08.11.2016. 9.Per contra, the learned Standing Counsel for therespondent submits that the impugned order is well reasoned andtherefore, no requires no interference. He further submits thatthe petitioner has an alternate remedy by way of appeal beforethe Commissioner (Appeals) under the Income Tax Act, 1961. Hefurther submits that before passing any order, the Commissioner(Appeals) may call for an enquiry report and pass appropriateorders. 10.The learned Standing Counsel for the respondent submitsthat though the power of the Commissioner (Appeals) to remit thecase back to original authority has been taken away with effectfrom 01.06.2001, nevertheless the Commissioner (Appeals) cancall for the records from the Officer and pass appropriateorders under Section 250 r/w 251 of the Income Tax Act, 1961.He submits that while undertaking such an exercise, theCommissioner (Appeals) would act like an Original Authorityafter getting necessary report from the assessing officer. 11.The learned Standing Counsel for the respondent furthersubmits that Assessment Year 2017-18 onwards, assessments arethrough e-proceedings. He submits that the Income TaxDepartment has developed an e-proceedings facility, wherein a Page No 3 of 6 simple method of communication between the department andassessee has been devised negating the visit by the assessee orhis representatives to the Department. The information which areloaded will be scrutinized and appropriate orders will bepassed. He further submits that is was open for the petitionerto call for the report of the respondent as per note on e-proceedings and the Commissioner (Appeals) has ample powers topass appropriate orders. 11.The learned Standing Counsel for the respondent furthersubmits that Assessment Year 2017-18 onwards, assessments arethrough e-proceedings. He submits that the Income TaxDepartment has developed an e-proceedings facility, wherein a Page No 3 of 6 simple method of communication between the department andassessee has been devised negating the visit by the assessee orhis representatives to the Department. The information which areloaded will be scrutinized and appropriate orders will bepassed. He further submits that is was open for the petitionerto call for the report of the respondent as per note on e-proceedings and the Commissioner (Appeals) has ample powers topass appropriate orders. 12.I have considered the arguments advanced on behalf of thepetitioner and the respondent. 13.I have also perused the records filed by the petitionerwhich precede the passing of the impugned order. As on31.10.2016 the petitioner has claimed a closing cash ofRs.38,72,374/-. The closing cash on hand during the precedingmonths of the same year is not much invariance with the closingcash on hand as on 31.10.2016. Similarly, during the same periodin 2015 also the petitioner has declared amounts similar to theclosing cash on hand. For a comparison, the closing cash on handfor the two periods are expected as under:- 14.The Government of India demonetized Rs.500 and Rs.1000notes on 08.11.2016. Between 01.11.2016 and 08.11.2016, thepetitioner had collected a sum of Rs.57,85,655/-which is alsodoes not appear to be usual as compared to collections madeduring the November 2015. Out of the total collection ofRs.57,85,655/-and a closing cash of Rs.38,72,374/- as on31.10.2016, the petitioner deposited an amount of Rs.26,77,716/- Page No 4 of 6 which is also not in variance with the cash deposits made by thepetitioner during the preceding financial year. Collection ofmonthly subscription/dues by the petitioner during the aforesaidperiod appear to be reasonable as compared to be same periodduring 2015. 15.The Government of India has introduced E-Governance forconduct of assessment proceedings electronically. It is alaudable steps taken by the Income Tax Department to pave wayfor an objective assessment without human interaction. At thesame time, such proceedings can lead to erroneous assessment ifofficers are not able to understand the transactions andstatement of accounts of an assessee without a personal hearing.The respondent should have to be therefore at least called foran explanation in writing before proceeding to conclude that theamount collected by the petitioner was unusual. 16.In my view, the petitioner has prima facie demonstratedthat the assessment proceeding has resulted in distortedconclusion on facts that amount collected by the petitionerduring the period was huge and remained unexplained by thepetitioner and therefore same was liable to be treated asunaccounted money in the hands of the petitioner under Section69A of the Income Tax Act, 1961. Therefore, the impugned ordermaking the petitioner liable to tax at the maximum marginal rateof tax by invoking Section 115BBE of the Income Tax Act, 1961placing reliance on the decision of the Honourable Supreme Courtin Smt. Shrilekha Banerjee Vs. CIT, 1964 AIR SC 697 appears tobe misplaced. 16.In my view, the petitioner has prima facie demonstratedthat the assessment proceeding has resulted in distortedconclusion on facts that amount collected by the petitionerduring the period was huge and remained unexplained by thepetitioner and therefore same was liable to be treated asunaccounted money in the hands of the petitioner under Section69A of the Income Tax Act, 1961. Therefore, the impugned ordermaking the petitioner liable to tax at the maximum marginal rateof tax by invoking Section 115BBE of the Income Tax Act, 1961placing reliance on the decision of the Honourable Supreme Courtin Smt. Shrilekha Banerjee Vs. CIT, 1964 AIR SC 697 appears tobe misplaced. 17.Since the assessment proceedings no longer involve humaninteraction and is based on records alone, the assessmentproceeding should have commenced much earlier so that beforepassing assessment order, the respondent assessing officer couldhave come to a definite conclusion on facts after fullyunderstanding the nature of business of the petitioner. Itappears that the return of income was filed by the petitioner on02.11.2017. However, the assessment proceeding commenced muchlater towards the end of the period prescribed under section 153of the Income Tax Act, 1961. In my view, assessment proceedingunder the changed scenario would require proper determination offacts by proper exchange and flow of correspondence between thepetitioner and the respondent Assessing Officer. 18.Under these circumstances, the impugned order is setaside and the case is remitted back to the respondent to pass afresh order within a period of sixty days from date of receiptof a copy of this order. Petitioner shall file additionalrepresentation if any by treating the impugned order as the showcause notice within a period of thirty days from date of receipt Page No 5 of 6 of a copy of this order. Since the Government of India has doneaway with the human interaction during the assessmentproceedings, it is expected that the petitioner will clearlyexplain its stand in writing so that the respondent assessingofficer can come to an objective conclusion on facts based onthe records alone. It is made clear that the respondent willhave to come to an independent conclusion on facts uninfluencedby any of the observation contained herein. 19.The Writ Petition stands allowed with the aboveobservation. No cost. Consequently, connected MiscellaneousPetitions are accordingly closed. Sd/-Assistant Registrar(C.S.VI)/True Copy/Sub Assistant RegistrarToThe Deputy Commissioner of Income Tax,Circle 1(1), Income Tax Office,No.3, Gandhi Road,Salem – 636 007.+1 cc to M/s.G.Baskar,Advocate Sr.No.8277AKM/28.02.2020/6P-3C / OrderinW.P.No.1732 of 2020 andW.M.P.Nos.2006 & 2007 of 2020 Page No 6 of 6 https://hcservices.ecourts.gov.in/hcservices/