Nirmala Trust V. The Additional/Joint/VDeputy/Assistant Commissioner of Income Tax, Income Tax Officer, National E-Assessment Centre, New Delhi and The Principal Chief Commissioner of Income Tax, National E-Assessment Centre, New Delhi and The Income Tax Officer, Income Tax Office Banker Hillside Kottayam and The Principal Commissioner of Income Tax, Central Revenue Building, Cochin

WP(C)/1859/2023

AI Insights

The case involves Nirmala Trust, which is engaged in commercial loan activities and was selected for scrutiny under the Computer Aided Scrutiny Selection (CASS) due to unsecured loans from lenders who had not filed income tax returns. The Income Tax Department issued a show cause notice under Section 143(2) of the IT Act, 1961, leading to an assessment order that added income from unknown sources under Section 68 of the IT Act. The petitioner contested the inclusion of loans from five lenders, arguing that they were not given a chance to explain these transactions, thus violating natural justice. The respondents argued that the petitioner could appeal the assessment order, which is the appropriate legal remedy.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 796634 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 19-01-2024
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: CYRIAC TOM
• Assessee Lawyers: ABRAHAM MARKOS; V MARKOS; ISAAC THOMAS; P G CHANDAPILLAI; ABRAHAM JOSEPH MARKOS; SHARAD KODANTHARA; JOHN VITHAYATHIL; AIBEL MATHEW; SIBY MARKOSE SR
• Keywords: Creditworthiness; Genuineness of loan; Income Tax; Natural Justice; Unsecured loans
• Section: 143(2); 68; 133(6)

Judgement Text

"IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR. JUSTICE DINESH KUMAR SINGH FRIDAY, THE 19TH DAY OF JANUARY 2024 / 29TH POUSHA, 1945 WP(C) NO. 1859 OF 2023 PETITIONER/S: NIRMALA TRUST, NIRMALA TRUST BUILDING, KANJIRAPPALLY, KOTTAYAM - REPRESENTED BY ITS MANAGING PARTNER MR. BABU JOSEPH PAN : AABFN5872G, PIN - 686507 BY ADVS. ABRAHAM JOSEPH MARKOS V.ABRAHAM MARKOS ISAAC THOMAS P.G.CHANDAPILLAI ABRAHAM ALEXANDER JOSEPH MARKOS SHARAD JOSEPH KODANTHARA JOHN VITHAYATHIL AIBEL MATHEW SIBY JOSEPH MARKOSE (SR.) RESPONDENT/S: 1 THE ADDITIONAL/JOINT/VDEPUTY/ASSISTANT COMMISSIONER OF INCOME TAX, INCOME TAX OFFICER, NATIONAL E-ASSESSMENT CENTRE, NEW DELHI, PIN - 110001 2 THE PRINCIPAL CHIEF COMMISSIONER OF INCOME TAX NATIONAL E-ASSESSMENT CENTRE, NEW DELHI, PIN - 110001 3 THE INCOME TAX OFFICER INCOME TAX OFFICE BANKER HILLSIDE KOTTAYAM, PIN - 686002 4 THE PRINCIPAL COMMISSIONER OF INCOME TAX CENTRAL REVENUE BUILDING IS PRESS ROAD COCHIN, PIN - 682018 OTHER PRESENT: CYRIAC TOM-SC THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 19.01.2024, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: WP(C) NO. 1859 OF 2023 2 JUDGMENT Dated this the 19th day of January, 2024 The petitioner, is an assessee under the provisions of the Income Tax Act, 1961 (‘the IT Act’ for short). The petitioner assessee filed returns of his income for the assessment year 2021- 2022 on 25.01.2022, declaring total income of Rs. 16,52,780/-. Petitioner is engaged in the business of commercial loan activities. The petitioner case was selected for complete scrutiny under CASS for the reason that the petitioner assessee has taken unsecured loans from such persons who have not filed their return of income. Accordingly, a notice under Section 143(2) was issued and served on the petitioner on 28.06.2022. A show cause notice has been placed on record as Exts.P1, P4 and P5, contained the chart of 22 persons from whom the petitioner had accepted deposits on extend of Rs. 1,28,08,364/-. It is also mentioned that on the confirmation of depositors, deposits details ledger and bank account, it was noticed that the assessee had taken loan from 45 lenders. Out of the 45 lenders, only 7 lenders had filed their returns of income. Remaining 38 lenders were not assessed to tax. It is also noticed from the comparison of letters filed in Form 3CD for the assessment years 2020-2021 and 2021-2022 that the assessee had received new loan from 22 parties, who were not assessed to tax and their details had WP(C) NO. 1859 OF 2023 3 been given in the show cause notice dated 05.12.2022. 2. The assessee could furnish the details in respect of only 6 lenders from the tax receipts, source of the loan given by the lenders was not verified and the same did not prove the genuineness of loan and creditworthiness of lending parties. The petitioner had also not submitted the statement of bank account of any lender to prove the source of loan given by the lenders to provide the credit worthiness of these lenders. The details of 22 such parties were given in the show cause notice as mentioned above. The petitioner had filed reply to this said show cause notice dated 11.09.2022, the same has been placed on record as Exts.P2(a) to P2(c). 3. The assessing authority after considering the response of the reply to the show cause notice submitted by the petitioner and after giving him an opportunity of hearing to finalise the assessment order impugned in the present writ petition. 4. The learned counsel for the petitioner submits that the show cause notice in Ext.P1 would suggest that the petitioner had taken fresh loan from 22 persons whose details were given in the show cause notice. However, the assessment order would suggest that the petitioner had taken fresh loan from 28 persons during the WP(C) NO. 1859 OF 2023 4 assessment year 2021-2022. As per the response / reply given to the show cause notice, it was found that out, of all the lenders, only seven lenders were filing return of income and assessed tax. Notice under Section 133(6) was send to 8 lenders, only 5 lenders out of 8, replied to the notices issued under Section 133(6). 5. Subsequently, the case was referred to the verification unit to identify and verify the creditworthiness of the lenders. Thereafter, a show cause notice dated 05.12.2022, as mentioned in Ext.P1, was issued and served upon the petitioner- assessee, who was asked to prove the creditworthiness and genuineness with proper documentary evidence regarding the loan advanced to the petitioner by the parties. In response to the said notice, the petitioner had submitted documentary evidence of some of the lenders. On examination of the documentary evidence submitted by the petitioner, the creditworthiness of 17 lenders were found satisfactory. However, the creditworthiness and genuineness of loan from rest of the lenders were not found satisfactory and the said amount of 11 lenders had been added under Section 68 of the IT Act as the income of the petitioner from unknown sources on which the tax, interest and penalty have been levied and demanded. 6. Learned counsel for the petitioner submitted that the petitioner was never put to notice in respect of 5 persons, whose WP(C) NO. 1859 OF 2023 5 name found place in the assessment order being Basatin Antony, George K C, Rosamma Mathew, Lisha K Thayim and Suji Jospeh and therefore, without giving an opportunity in respect of the loan advanced by the said persons to the petitioner, the said amount has been added. Unless and until the petitioner would not have been put to notice in respect of loan amount of these 5 persons, the said amount should not have been added to the income returned by the petitioner under Section 68 of the Act. 7.Learned counsel for the petitioner therefore, submitted that as the petitioner was not put to notice in respect of the amount of loan advanced by these 5 persons to the petitioner, there has been a violation of the principle of natural justice as the petitioner was not given an opportunity to explain the loan advanced by the five lenders. He, therefore, submitted that to the extend of the addition of the amount of loan advanced by these 5 persons is incorrect and in violation of the principles of natural justice and therefore, the same is liable to be set aside. 8. Learned counsel for the respondent however submits that the petitioner has remedy of filing the appeal against the said assessment order and this court should not entertain the writ petition in view of the availability of the statutory remedy of appeal against the assessment order available to the petitioner. He further WP(C) NO. 1859 OF 2023 6 submitted that the petitioner may take all grounds which are taken before this court and the appellate authority will consider the appeal on merit and appropriate order will be passed. 9. I have considered the submissions advanced. From Ext. P1, it is evident that only the names of 22 persons were mentioned, from whom, the petitioner had taken fresh loan in the assessment year 2021-2022. However, the assessment order would mention that the petitioner had taken loan from 28 persons. The transaction of 5 persons as Basatin Antony, George K C, Rosamma Mathew, Lisha K Thayim and Suji Jospeh; were not put to notice to the petitioner for initiating its response. Unless and until the petitioner was not put to notice, in respect of the transaction of the aforesaid 5 persons, there was no occasion for him to give any response in respect of the proposed additions. Therefore, I find to the extend of the addition of amount of loan advanced by the aforesaid 5 persons with the return of income of the petitioner under Section 68, is not in accordance with law and the same has vitiated, the assessment order impugned in the present writ petition to that extent. 10. In view thereof, the present writ petition is disposed of, and the matter is remanded back to the assessing authority, to pass a fresh assessment order. The petitioner is directed to file his response / supporting documents in respect of the loan advanced by WP(C) NO. 1859 OF 2023 7 the 5 persons as Basatin Antony (Rs.5,60,000/-), George K C (Rs.3,57,961/-), Rosamma Mathew(Rs. 1,60,000/-), Lisha K Thayil (Rs. 70,000/-) and Suji Jospeh (Rs. 2,00,000/-). The respondents are directed to activate the link with intimation to the petitioner for enabling the petitioner to file his explanation in respect of these 5 transactions only. It is made clear that no opportunity is given in respect of the other creditors and the remand is only in respect of the 5 creditors as mentioned above. The petitioner shall be afforded only one opportunity for uploading his response with respect to these 5 creditors. After the link is activated, the petitioner shall file the response / reply or clarification in respect of the 5 creditors as mentioned above. The assessing authority shall passes the fresh assessment order. No recovery shall be effected, till the fresh assessment is passed from the petitioner of the tax, penalty etc in pursuance to Ext.P3 order. Sd/- DINESH KUMAR SINGH JUDGE SJ WP(C) NO. 1859 OF 2023 8 APPENDIX OF WP(C) 1859/2023 PETITIONER EXHIBITS Exhibit P1 TRUE COPY OF THE SHOW CAUSE NOTICE DATED 05.12.2022 ISSUED BY THE 1ST RESPONDENT. Exhibit P2(a) TRUE COPY OF THE RESPONSE DATED 09.12.2022 FILED BY THE PETITIONER WITH ACKNOWLEDGEMENT NUMBER 839896121091222 BEFORE THE 1ST RESPONDENT. Exhibit P2(b) TRUE COPY OF THE RESPONSE DATED 09.12.2022 FILED BY THE PETITIONER WITH ACKNOWLEDGEMENT NUMBER 840039931091222 BEFORE THE 1ST RESPONDENT. Exhibit P2(c) TRUE COPY OF THE RESPONSE DATED 09.12.2022 FILED BY THE PETITIONER WITH ACKNOWLEDGEMENT NUMBER 840019851091222 BEFORE THE 1ST RESPONDENT. Exhibit P3 TRUE COPY OF THE ASSESSMENT ORDER DATED 21.12.2022 TOGETHER WITH COMPUTATION SHEET AND NOTICE OF DEMAND ISSUED BY THE 1ST RESPONDENT. Exhibit P4 TRUE COPY OF THE NOTICE OF PENALTY PROCEEDINGS DATED 21.12.2022 ISSUED BY THE 1ST RESPONDENT. "