Wp/32203/2019 Of M/S.kandan And Kannan Medical Agency v. The Income Tax Officer

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED : 19.11.2019 CORAM THE HON'BLE MR.JUSTICE K.RAVICHANDRABAABU W.P.NO.32203 OF 2019ANDW.M.P.NOS.32480 & 32482 OF 2019 M/s. Kandan & Kannan Medical Agency,Represented by its PartnerNo.722, P.H.Road, Aminjikarai,Chennai – 600029....Petitioner The Income Tax Officer,Non Corp Ward 10(2),Chennai – 600034....Respondent Prayer : Writ Petition filed under Article 226 of the Constitution ofIndia praying to issue a Writ of Certiorari to call for therecords of the respondent in his proceedings in OrderNo.ITBA/AST/S/144/2019-20/1018316821(1) quash the assessmentorder dated 26.09.2019 passed therein in relation to theAssessment Year 2017-18. ORDER The petitioner is aggrieved against the Assessment Orderdated 26.09.2019 passed under Section 144 of the Income Tax Act,1961. Since the issue raised in this writ petition can beconsidered and decided based on the materials available beforethis Court as on this day, without filing a counter by therespondent, this writ petition itself is taken up for finaldisposal and decided as hereunder. https://hcservices.ecourts.gov.in/hcservices/ The petitioner is engaged in the business of wholesale andretail sale of veterinary medicines as a partnership firm. Inrespect of the Assessment Year 2017-18, the income-tax returnswere not filed in time due to certain disputes/differencesbetween the partners. The respondent issued a notice dated14.02.2018 under Section 142(1) of the Income Tax Act, 1961calling upon the petitioner to file the return of income for theAssessment Year 2017-18. By the time the return of incomefiled, the respondent proceeded to issue a notice dated07.06.2019 under Section 144(1) of the Income Tax Act, 1961. Inthe said notice, the respondent stated that the FIU return filedby the Bank of Maharashtra reveals cash deposits ofRs.15,69,000/- in the account of the petitioner duringdemonetization period and that in the absence of filing ofreturn of income in terms of Section 142(1) of the Income TaxAct, it was proposed to treat cash deposits as unexplained moneyunder Section 69A of the Income Tax Act. Subsequently, thepetitioner filed its return on 26.07.2019 and by letter dated30.07.2019 enclosed copy of e-acknowledgment along with annualaccounts and tax audit reports of the petitioner. While so,without any further notice or hearing, the respondent hasproceeded to pass a best judgment assessment order dated26.09.2019 under Section 144 of the Income Tax Act. Whilepassing the impugned assessment order, apart from treating thecash deposits during the demonetization period as unexplainedmoney and assessing the same under Section 69A of the Act, therespondent has rejected the net profit of Rs.3,35,340/- declaredin the accounts as very lowand proceeded to estimate thebusiness income at 8% of Turn Over of Rs.4,20,74,190/- and addedthe same to the total income of the petitioner under the headbusiness income. Before making such assessment of the businessincome at 8% of the total Turn Over, the respondent did notissued any notice calling for explanations nor affording anopportunity of hearing to the petitioner. Therefore, thepresent writ petition is filed. 3. The learned counsel appearing for the petitioner afterinviting this Court's attention to the notice issued underSection 142(1) of the Income Tax Act dated 14.02.2018 followedby the show cause notice dated 07.06.2019, submitted that theonly issue for which the Assessing Officer has chosen to callupon the petitioner to show cause, was with regard to thedeposits made in the petitioner's Bank account during thedemonetization period in respect of a sum of Rs.15,69,000/- andthat the issue regarding an addition on account of businessincome was not the issue referred to in the show cause notice atall. Therefore, he contended that without issuing any show causenotice on the other issue namely addition on account of businessincome, the Assessing Officer proceeded to pass the impugnedorder on that issue as well and therefore, he violated the principles of natural justice. 4. The learned counsel appearing for the Revenue based oninstructions submitted that in the show cause notice, it isspecifically stated that the petitioner failed to file thereturn in time for the Assessment Year 2017-18 and thereafter,the impugned order was passed. However, he is not disputing thefact that in the said show cause notice, the second issue namelyan addition on account of business income was not referred to. 5. Heard both sides and perused the materials placed beforethis Court. 6. The impugned assessment order under Section 144 waspassed in respect of two issues viz., as under :- (1)Addition under Section 69A of the Income Tax Act :- Theassessee-firm has made a cash deposit of Rs.15,69,000/- inthe Current account number maintained by the petitionerwith Bank of Maharashtra, Shenoy Nagar Branch, during thedemonetization period. (2)Addition on Account of Business Income :- The AssessingOfficer found that the total sales made by the assessee-firm during the Financial Year 2016-17 was Rs.4,20,74,190/-whereas, net profit declared was Rs.3,35,340/- which is 0.80% only and thus, very low when compared tonormal/reasonable income that will be generated in thesimilar line of business. Therefore, the Assessing Officerremitted the business income of the assessee-firm at 8% ofTurn Over of Rs.4,20,74,190/- which works out toRs.33,65,935/- and added the same to the income of theassessee-firm under the head business income. 7. The grievance of the petitioner before this Court is thatthough, a show cause notice was issued by the Assessing Officerin respect of the first issue namely the cash deposit in theCurrent Account during the demonetization period, no show causenotice was issued in respect of the other issue viz., anaddition on account of business income. Therefore, it iscontended that the Assessing Officer is not justified in passingthe order of assessment in respect of the other issue as well,without issuing any notice to the petitioner. 8. I find force in the above contention of the petitioner,going by the show cause notice dated 07.06.2019 as well as theearlier notice issued under Section 142(1) dated 14.02.2018. 9. Perusal of the show cause notice clearly indicates thatthe only issue chosen by the Assessing Officer to call upon thepetitioner to show cause, was with regard to cash deposits madeduring the demonetization period. No doubt, it is admitted by the learned counsel for the petitioner that the petitioner didnot file any reply to the show cause notice. However, it isseen that the petitioner has filed a belated return where, it isstated that the petitioner has given details as to how such cashdeposits were made in the Current Account. In any event insofaras the second issue, namely an addition on account of businessincome, is concerned, admittedly, the assessment made on suchissue was not preceded by any show cause notice. 9. Perusal of the show cause notice clearly indicates thatthe only issue chosen by the Assessing Officer to call upon thepetitioner to show cause, was with regard to cash deposits madeduring the demonetization period. No doubt, it is admitted by the learned counsel for the petitioner that the petitioner didnot file any reply to the show cause notice. However, it isseen that the petitioner has filed a belated return where, it isstated that the petitioner has given details as to how such cashdeposits were made in the Current Account. In any event insofaras the second issue, namely an addition on account of businessincome, is concerned, admittedly, the assessment made on suchissue was not preceded by any show cause notice. 10. Therefore, this Court is of the view that it is betterthe matter is remitted back to the Assessing Officer for redoingthe assessment once again, after getting a reply from thepetitioner in respect of both the issues, apart from the belatedreturn filed already. 11. Since this Court has remitted the matter back to theAssessing Officer for redoing the assessment once again on boththe issues also by directing the petitioner to file the reply toboth the issues, a fresh show cause notice need not be issued tothe petitioner in respect of the second issue viz., an additionon account of business income. Accordingly, this writ petitionis allowed and the impugned assessment order is set aside.Consequently, the matter is remitted back to the AssessingOfficer to redo the assessment on the following terms :- (a) The petitioner shall file their reply within aperiod of two weeks from the date of receipt of a copyof this order in respect of both issues. (b) On receipt of such reply, the Assessing Officershall pass fresh order of assessment on merits and inaccordance with law, as this Court is not expressing anyview on the merits of the assessment in respect of boththe issues, since it is for the Assessing Officer toconsider and decide. (c) The whole exercise shall be done by the AssessingOfficer within a period of eight weeks from the date ofreceipt of the reply. (d) The Assessing Officer shall afford an opportunity ofpersonal hearing to the petitioner before concluding theassessment.personal hearing to the petitioner before concluding theassessment. No costs. Connected miscellaneous petitions are closed. Sd/- Assistant Registrar(CS IV) //True Copy// sni Sub Assistant Registrar To The Income Tax Officer,Non Corp Ward 10(2),Chennai – 600034. +1cc to Mr.P.V.Sudakar, Advocate, S.R.No.95939+1cc to Mrs.Hema Muralikrishnan, Advocate, S.R.No.96095 W.P.No.32203 of 2019 KK(CO)CS/26/12/2019