SEA PEARL V. INCOME TAX OFFICER

WP(C)/25055/2021

AI Insights

The case involves Sea Pearl, a partnership firm, which challenged an assessment order by the Income Tax Officer, treating a capital infusion of Rs. 4.33 crores as unexplained cash credit under Section 68 of the Income Tax Act. The firm, represented by its managing partner Ali Firoz and counsel Preetha S. Nair, argued that the assessment was perverse and ignored legal canons, leading to an unjust addition of income. The firm had already appealed to the Commissioner of Income Tax (Appeals) but feared that a stay would require a substantial deposit, prejudicing their position. The court found that while the assessment's factual basis was under appeal, it warranted a stay on coercive actions to allow for an uninterrupted appellate process.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 686709 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 12-11-2021
• Assessment Year: misc
• Laws Referred To: Income Tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: JOSE JOSEPH
• Assessee Lawyers: PREETHA NAIR
• Keywords: Assessment Order; Unexplained cash credit; Stay of coercive proceedings
• Section: 68

Judgement Text

"IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS FRIDAY, THE 12TH DAY OF NOVEMBER 2021 / 21ST KARTHIKA, 1943 WP(C) NO. 25055 OF 2021 PETITIONER/S: SEA PEARL PANNITHADAM ROAD, KECHERY P.O., THRISSUR-680501, REPRESENTED BY ITS MANAGING PARTNER ALI FIROZ. BY ADV PREETHA S.NAIR RESPONDENT/S: 1 INCOME TAX OFFICER NATIONAL FACELESS ASSESSMENT CENTRE, DELHI-110001. 2 COMMISSIONER OF INCOME TAX (APPEALS), NATIONAL FACELESS APPELLATE CENTRE, DELHI-110001. BY ADV.JOSE JOSEPH, SC THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 12.11.2021, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: WP(C) NO. 25055 OF 2021 -2- JUDGMENT Petitioner challenges an order of assessment dated 15.06.2021. 2. Petitioner is a partnership firm consisting of 21 partners. Petitioner filed its return for the year declaring a total income of Rs.Nil. The assessment was taken up for scrutiny. During the scrutiny, introduction of large amount of capital into the firm to the extent of Rs.4.33 crores was noticed. Assessee was asked to explain the source of investment made by its partners. Though the information sought for by the Assessing Officer was provided, the officer was dissatisfied with the explanation, and therefore he completed the assessment by holding the capital introduced, as unexplained cash credit under Section 68 of the Income Tax Act and added it to the total income of the assessee. 3. Petitioner contends that the capital introduced into the firm by the partners have been treated as unexplained cash WP(C) NO. 25055 OF 2021 -3- credit of the firm and without any justifiable explanation added as income of the assessee. According to learned Counsel for the petitioner, the Assessing Officer has gone on a completely wrong tangent and has rendered a perverse assessment order ignoring all canons of law that governs assessments under the Act. Adv. Preetha S. Nair, learned Counsel for the petitioner further submits that, even though an appeal has been preferred before the Commissioner of Income Tax (Appeal- National Faceless Assessment Centre), petitioner fears that stay will be granted only on condition of deposit of substantial portion of the amount assessed which would cause prejudice to the assessee. It is also argued that the assessment orders of this nature are issued by the Assessing Officers to compel assessees to deposit amounts while they pursue appellate remedy. 4. A perusal of assessment order, shows that the Assessing Officer has treated the capital infused into the partnership as an unexplained cash credit under Section 68 of the Act, since satisfactory explanation was not offered by the assessee. WP(C) NO. 25055 OF 2021 -4- Whether sufficient explanation was offered or not is a matter which requires appreciation of facts and hence, I am of the view that the circumstances of the case does not warrant interference in exercise of the jurisdiction under Article 226 of the Constitution of India. 5. It is submitted that an appeal has already been preferred before the appellate authority. There is no reason to assume that the appellate authority will not consider the merits of the contentions advanced by the petitioner. 6. However, having regard to the nature of contentions advanced by the learned Counsel for the petitioner as well as the findings in the order of assessment and the compelling situation now prevailing, I am of the view that the petitioner is entitled for a grant of stay of all coercive proceedings pursuant to Ext.P1 assessment order, during the pendency of the appeal. Necessarily the appeal has to be disposed of in a time bound manner. 7. Accordingly, I direct the 2nd respondent to consider and WP(C) NO. 25055 OF 2021 -5- pass appropriate orders on the appeal preferred by the petitioner, as expeditiously as possible, at any rate, within a period of six months from the date of receipt of a copy of this judgment. All coercive proceedings pursuant to the order of assessment dated 15.06.2021 shall be kept in abeyance till the disposal of the appeal. The writ petition is disposed of accordingly. Sd/- BECHU KURIAN THOMAS JUDGE uu 12.11.2021 WP(C) NO. 25055 OF 2021 -6- APPENDIX OF WP(C) 25055/2021 PETITIONER EXHIBITS Exhibit P1 (A) TO P1(C) TRUE COPIES OF THE ASSESSMENT ORDER ALONG WITH COMPUTATION STATEMENT AND NOTICE OF DEMAND DATED 15.6.2021. Exhibit P2 TRUE COPIES OF THE APPEAL DATED 11.8.2021. Exhibit P3 TRUE COPY OF THE STAY PETITION DATED 20.10.21. Exhibit P4 TRUE COPY OF THE FIRST RESPONDENTS ORDER DATED 18.10.2021. "