2025 (4) TMI 610 - HC - Income Tax

Assessment order under Section 153C not time-barred due to COVID-19 extensions and TOLA provisions

Thiru. Ramanathan Murugappan Versus The Deputy Commissioner of Income Tax, Central Circle 3 (4), Chennai

The Madras HC ruled that an assessment order under Section 153C was not time-barred despite being passed beyond the normal two-year limitation period. The ... Assessment Order u/s 153C - Order passed long beyond the period of limitation as under Proviso to Section 153B - HELD THAT:- The period of limitation for making assessment or reassessment is two years from the end of the Financial Year of the search or nine months from the end of the Financial Year, in which, the Books of Account or Documents or Assets were seized or requisitioned and were handed over u/s 153C to the AO having jurisdiction over such other person, whichever is later. Thus, the period for passing the Assessment Order u/s 153C would have expired on 31.03.2023. However, with effect from 24.03.2020, the Country was under lock-down which resulted in large scale disruption of Governmental / social / political and economic activities. The Honourable Supreme Court came to the rescue of litigants and various departments and passed its first order on 24.03.2020 to extend the period of limitation. Ultimately, the Central Government passed Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 which was subsequently replaced by Taxation and Other Laws (Relaxation and Amendment of Certain Provisions Act) (TOLA) 2021 and statutorily extended the period of limitation. Several notifications have been issued extending the limitation. Thus, it cannot be said that the impugned Assessment Order was passed beyond the period of limitation. Therefore, the objection of the petitioner to the impugned Assessment Order is time-barred and without jurisdiction is over ruled. Respondent will be governed by the principle of preponderance of probability and not by strict rules of evidences. The respondent shall endeavour to summon and produce the said N.Viswanathan, Director of SLN Coffee Pvt. Ltd., for cross examination by the petitioner. In case, the said N.Viswanathan, Director of SLN Coffee Pvt. Ltd. fails to answer to the summons, appropriate steps may be taken to secure his presence in person for Cross Examination by the petitioner. It is expected that the entire exercise will be completed within a period of six months from the date of receipt of a copy of this order. ISSUES PRESENTED and CONSIDEREDThe primary legal issues considered in this judgment are: Whether the impugned Assessment Order dated 30.12.2021 was passed in violation of the principles of natural justice due to the denial of the petitioner's request to cross-examine N.Viswanathan, Director of SLN Coffee Pvt. Ltd. Whether the impugned Assessment Order was passed beyond the period of limitation as prescribed under the Income Tax Act, 1961, particularly considering the extensions due to the COVID-19 pandemic. Whether the procedural conduct of the respondent, including the issuance of notices and the timing of the assessment order, was lawful and justified.ISSUE-WISE DETAILED ANALYSIS1. Violation of Principles of Natural Justice Relevant legal framework and precedents: The petitioner argued that the denial of cross-examination violated principles established in cases such as Sona Builders Vs. Union of India and Andaman Timber Industries Vs. Commissioner of Central Excise, which emphasize the right to cross-examine as a component of natural justice. Court's interpretation and reasoning: The Court recognized the importance of cross-examination as part of the principles of natural justice, especially when the assessment was based on documents seized during a search. Key evidence and findings: The petitioner had repeatedly requested to cross-examine N.Viswanathan, whose statement was crucial to the assessment. This request was denied by the respondent. Application of law to facts: The Court found that the denial of cross-examination was a violation of natural justice, as the petitioner's defense relied on challenging the credibility of the evidence against him. Treatment of competing arguments: The respondent argued that cross-examination was unnecessary since the execution of the Sale Agreement was not denied. However, the Court disagreed, emphasizing the petitioner's right to challenge the evidence. Conclusions: The Court concluded that the assessment order was passed in violation of natural justice principles due to the denial of cross-examination.2. Limitation Period for Passing the Assessment Order Relevant legal framework and precedents: The limitation period under Section 153B of the Income Tax Act was considered, alongside the extensions provided by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020, and subsequent orders by the Supreme Court due to COVID-19. Court's interpretation and reasoning: The Court analyzed the statutory extensions and determined that the assessment order was not time-barred. Key evidence and findings: The assessment order was passed on 30.12.2021, and the Court found that the limitation period had been extended due to the pandemic. Application of law to facts: The Court applied the statutory extensions to conclude that the assessment order was within the permissible timeframe. Treatment of competing arguments: The petitioner argued that the order was time-barred, while the respondent maintained it was timely. The Court sided with the respondent based on the extensions. Conclusions: The objection regarding the order being time-barred was overruled.3. Procedural Conduct and Issuance of Notices Relevant legal framework and precedents: The procedural requirements under Sections 153C, 143(2), and 142(1) of the Income Tax Act were considered. Court's interpretation and reasoning: The Court acknowledged the procedural steps taken by the respondent but noted the haste in passing the assessment order. Key evidence and findings: The timeline of notices and replies indicated a rushed process, potentially compromising the petitioner's ability to respond adequately. Application of law to facts: The Court found that while the procedural steps were followed, the haste in concluding the assessment was problematic. Treatment of competing arguments: The petitioner argued that the process was rushed, while the respondent emphasized the impending limitation deadline. The Court recognized the urgency but stressed the need for fairness. Conclusions: The Court found the procedural conduct flawed due to the rushed nature of the assessment process.SIGNIFICANT HOLDINGS Core principles established: The judgment reaffirmed the importance of adhering to principles of natural justice, particularly the right to cross-examine, in tax assessments. Final determinations on each issue: The assessment order was set aside due to the violation of natural justice, and the case was remitted for a fresh assessment with the opportunity for cross-examination. Verbatim quotes of crucial legal reasoning: 'There is a palpable violation of the principles of natural justice as the petitioner's right to cross-examine the said N.Viswanathan, the Director of SLN Coffee Pvt. Ltd. has been denied.'The Court directed that a fresh assessment be conducted, allowing the petitioner to cross-examine N.Viswanathan, and emphasized that the process should be completed within six months, balancing the interests of both parties.