The Madras High Court has rendered a verdict remanding income tax reassessment and penalty orders, highlighting a critical deficiency in the participation of the petitioner.
The case revolves around two writ petitions filed by Vijayakumar, an income tax assessee, challenging the validity of an assessment order and a penalty order. The petitioner contended that they were not afforded a reasonable opportunity to contest the matter on its merits, prompting the legal challenge under Article 226 of the Constitution of India.
The crux of the issue lies in the initiation of reassessment proceedings for the assessment year 2015-16. Alleging an escaped income of Rs. 53,56,000, the Income Tax Department issued a notice under Section 148A(b) of the Income Tax Act, 1961 to the petitioner. Subsequently, an order under Section 148A(d) was issued when the petitioner failed to respond to the initial notice. Despite the issuance of notices under Section 148 and a show cause notice ( SCN ), the impugned orders were issued without the petitioner’s active participation.
The petitioner, represented by Ms. G. Vardini Karthik argued that the respondents failed to consider the debits from the petitioner’s bank account, which could significantly reduce the alleged escaped income. Further, it was also contended that the income chargeable to tax, not merely the income, should exceed Rs. 50 lakhs to warrant reassessment.
The respondent revenue, Assessment Unit of the Income Tax Department and the Income Tax Officer, represented by Mr. Prabhu Mukunth Arunkumar asserted that reassessment proceedings were initiated in compliance with all legal requirements. It was also emphasised that the petitioner’s failure to file an income tax return and the inclusion of undisclosed credits justified the reassessment.
The bench noted that the petitioner’s non-participation led to ex-parte decisions by the respondents. Acknowledging the petitioner’s argument regarding the consideration of bank account debits, the court found merit in the contention that the alleged escaped income might fall below the prescribed threshold if all relevant factors were considered.
Consequently, the single bench of Justice Senthilkumar Ramamoorthy set aside the impugned orders and remanded the matter for reconsideration. The petitioner was directed to submit a reply to the SCN within 15 days of receiving the court’s order.
Additionally, the court mandated the respondents to provide a reasonable opportunity for the petitioner to present their case, including a video conference hearing and to issue a fresh order within four months from the receipt of the petitioner’s reply.
The judgment highlights that the taxpayers shall be provided with adequate opportunities to contest assessments, thereby safeguarding the integrity of the tax system.
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