Lack of access to Seized Documents: Madras HC directs to treat Income Tax Assessment Order as SCN [Read Order]

The Madras High Court has directed the Income Tax Department to treat an assessment order as a show cause notice ( SCN ) due to the department's failure to provide the assessee with access to seized documents. The court also imposed a cost on the assessee for not requesting these documents earlier.

The petitioner, Hussain Mohideen, challenged an assessment order for the assessment year 2022-2023, alleging a breach of principles of natural justice.

The petitioner received an intimation under Section 144B of the Income Tax Act, 1961, followed by a notice under Section 142(1). This notice was replied to on 03.08.2023. Dissatisfied with the reply, the first respondent issued a show cause notice on 08.03.2024. The petitioner replied to this show cause notice on 16.03.2024, and the impugned assessment order was issued on 20.03.2024.

A. Chandrasekharan, counsel for the petitioner, submitted that a show cause notice was issued proposing a variation in respect of transactions with M/s. J.M. Jain Group. Referring to the show cause notice, counsel pointed out that the petitioner was called upon to explain why an addition of Rs. 3,75,91,225/- should not be made based on the total transaction value of Rs. 3,81,56,488/- with M/s. J.M. Jain Group.

The petitioner argued that he informed the respondents that he was not in a position to provide an explanation with regard to documents seized from the premises of M/s. J.M. Jain Group, further highlighting that information seized from these premises was referred to in considerable detail in the impugned order, whereas such details were not set out in the show cause notice.

Dr. B.Ramaswamy, representing the respondent, contended that multiple opportunities were provided to the petitioner, as is evident from paragraph 2 of the impugned order, including a reply to the show cause notice.

The bench of Justice Senthilkumar Ramamoorthy observed that the show cause notice called upon the petitioner to explain why an addition of Rs.3,75,91,225/- should not be made concerning transactions totaling Rs.3,81,56,488/- with M/s.J.M.Jain Group during the assessment year 2021-2022.

The petitioner, in his reply, admitted to purchasing goods from M/s.J.M.Jain Group, with such purchases duly reflected in his books of account as they were made through bank channels. However, the petitioner stated he could not offer an explanation regarding the documents seized from the premises of M/s.J.M.Jain Group and that only M/s.J.M.Jain Group could provide such an explanation.

The court noted that the petitioner did not request copies of the material seized from M/s.J.M.Jain Group’s premises in his reply.

It was further observed that, since a substantial addition was proposed based on materials seized from M/s.J.M.Jain Group's premises, these materials should have been provided to the petitioner. This would have allowed the petitioner to respond to the material before the assessment was concluded.

The court concluded that, due to the non-provision of this material, the assessment required reconsideration. It was also noted that the petitioner did not request this material despite having the opportunity to do so, which led to the conclusion of the assessment.

Therefore, the court directed the petitioner to pay costs of Rs.10,000/- to the Tamil Nadu State Legal Services Authority within two weeks from the date of receipt of a copy of the order.

The Madras High Court ruled the impugned assessment order to be treated as a show cause notice, and the respondent is directed to provide to the petitioner the material relied upon in the assessment order. Such material shall be provided to the petitioner within two weeks from the date of receipt of a copy of this order.

The petitioner was granted two weeks to submit a response after receiving the material. The department must provide access to the online portal for this purpose.

The department was further directed to grant the petitioner a reasonable opportunity to be heard, including a personal hearing via video conferencing, before issuing a fresh assessment order within three months of receiving the petitioner's response.

To Read the full text of the Order CLICK HERE

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