Madras High Court
M/S.Smart Furniture vs Deputy Commissioner Of Income Tax on 4 January, 2024
Author: R.Mahadevan
Bench: R.Mahadevan, Mohammed Shaffiq
W.A. No.2845 of 2023
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 04.01.2024
CORAM
THE HONOURABLE MR.JUSTICE R.MAHADEVAN
AND
THE HONOURABLE MR.JUSTICE MOHAMMED SHAFFIQ
W.A. No.2845 of 2023
and
C.M.P. No.23686 of 2023
M/s.Smart Furniture
Rep. By its Partner, Mr.S.Ahilan Anand,
No.2/194, Mudichur Road, Mannivakkam,
Kanchipuram-600 048. ... Appellant
v.
Deputy Commissioner of Income Tax,
Central Circle-3(3), Investigation Building,
No.46 (Old No.108), Mahatma Gandhi Road,
Chennai-600 034. ... Respondent
Prayer : Writ Appeal is filed under Clause 15 of the Letter Patent, praying to
set aside the order in W.P.No.29242 of 2022 dated 21.08.2023.
For Appellant : Mr.T.V.Muthu Abirami
For Respondent : Mr.A.P.Srinivas
Senior Standing Counsel
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1/12
W.A. No.2845 of 2023
JUDGMENT
(Judgment of the Court was made by R.MAHADEVAN, J.)
The present writ appeal was filed challenging the order of the learned
Judge thereby rejecting the contention of the appellant herein that the impugned
order of assessment was made in violation of the principles of natural justice, on
the premise that the impugned order of assessment does not suffer from
infirmities warranting interference under Article 226 of the Constitution of India.
2. Brief facts:
i) The appellant is a partnership firm engaged in the business of trading of
furniture and home appliances.
ii) The appellant had filed the returns regularly by paying appropriate
taxes. For the assessment year 2020-21, they filed its return of income on
19.01.2021 declaring a total income of Rs.30,38,800/- while paying taxes to the
extent of Rs.10,41,116/-.
iii) While so, there was a survey under Section 133 A of the Income Tax
Act, 1961 (in short, "the Act") on 27.02.2020. Pursuant to the same, the
appellant's case was purportedly transferred under Section 127 of the Act and
assigned to the office of the 2nd Respondent. Thereafter, a notice under Section
143(2) of the Act, came to be issued on 30.06.2021, wherein reference was
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made to the survey under Section 133A of the Act, while calling upon the
appellant to submit evidence, if any, in support of their return of income. The
appellant responded to it vide its reply dated 26.07.2021. Thereafter, a notice
dated 17.11.2021 under Section 142(1) of the Act, was issued calling upon the
appellant to furnish the accounts and documents specified in the Annexure to
the said notice. The relevant portions are extracted hereunder:
“Your case has been notified and centralized to this Circle
vide Notification No.31/2020-21 in C.No.272A/Centralisation/
PCIT-1 / 2020-21 dated 02/11/2020.
For the relevant year under consideration (A.Y. 2020-21),
you are requested to produce the following:
1. Briefly explain sources of income of the firm and explain
the nature of business activities undertaken by the firm, if
any during the year.
2. Please furnish a copy of books of accounts of the firm in
softcopy- the financial statements, audit report (if any).
3. Please furnish computation of income of the firm from all
sources during the year.
4. Please furnish the address of office(s) shop, branch (if any)
and the godown.
5. Please furnish copy of partnership deed of the firm, codicil
deed (if any).
6. Please furnish complete family tree of the partners of the
firm, with name, age, occupation and assessment details.
7. Please furnish details of house properties owned by your
firm.
8. Please furnish the details of unsecured loans, with name
and present communication address of the creditors, PAN,
date and mode of receipt of the loan, interest payable and
purpose of the loan.
9. Please furnish copies of statement of all bank accounts of
the firm of the Financial Year 2019-20. Also, please give
details of the Bank accounts including F.D. And credit
cards in the following format:
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Name and address of Account No. and Interest received / Balance as on 31st
the bank with branch type of account accrued/ debited March of the
previous year
10. Please give the details of all investments of the firm in
movable and immovable properties with date(s) of acquisition/
construction/ investment, consideration paid and mode of
payment(s). Also please furnish the details of all the properties
disposed of during the year.
11. Reconcile the income declared in the Income tax return
filed by the firm and the tax credit claimed in the return of
income for A.Y.2020-21 with Form 26AS.”
iv) The appellant in response thereto, requested 15 days time vide letter
dated 22.11.2021. On 23.11.2021, the appellant submitted its explanation along
with supportive material on various dates viz., 23.11.2021, 30.11.2021,
08.12.2021, 20.01.2022 and 14.02.2022.
v) Thereafter, a show cause notice was issued on 16.03.2022, containing
the following proposals:
a) To disallow the excess remuneration of Rs.15,60,000/-
claimed by the assessee on the premise that the assessee had not
deducted tax at source on the above payments representing interest
expense.
b) To disallow a sum of Rs.3,38,385/- under Section 40(a)(ia)
of the Act.
vi) The petitioner submitted its reply to the above proposal vide its letter
dated 17.03.2022 along with evidence in support thereof.
vii) Yet another show cause notice dated 02.08.2022 was issued by the
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respondent, wherein while making reference to the survey proceedings, it was
alleged that there was an excess stock to the extent of Rs.3,86,63,654/-. In
response, the appellant recalculated the value of the excess stock found during
survey by adopting the profit percentage to be 30% and reducing the same from
the stock value taken at the time of survey to arrive at the purchase value.
Though, the appellant had offered profit only at the rate of 14.19% at the time of
survey, they were called upon to explain the above difference in the profit
margin.
viii) The appellant submitted its reply vide letter dated 05.08.2022, in
response thereto, along with documentary evidence.
xi) Thereafter, the Respondent issued another notice dated 16.08.2022
wherein the appellant was called upon to explain the difference in the value of
stock to the extent of Rs.29,36,013/-. The appellant submitted its response.
x) The impugned order of assessment was passed on 29.09.2022 adding a
sum of Rs.3,10,20,813/- as unexplained investment under Section 69B of the
Act on the premise that the appellant had not furnished any documentary
evidence explaining the source of purchase of excess stock to the tune of
Rs.3,10,20,813/-.
xi) Aggrieved by the order of assessment, the appellant preferred WP.
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No.29242 of 2022 before the writ court. By the order impugned herein, the
learned Judge disposed of the said writ petition, by granting liberty to the
appellant to file a statutory appeal before the appellate authority. Challenging
the same, the present writ appeal came to be filed.
3. It was submitted by the learned counsel for the appellant that they were
led to believe that their explanation in respect of alleged stock variation which
was originally fixed at Rs.3,86,63,654/- has been accepted, except for a sum of
Rs.29,36,013/-, inasmuch as in the notice dated 16.08.2022 explanation was
called for only in respect of Rs.29,36,013/-. The appellant had thus submitted its
response vide letter dated 18.08.2022 only with regard to the alleged difference
of Rs.29,36,013/-. To appreciate the above submission, it may be relevant to
extract the notice dated 02.08.2022, wherein it was proposed to treat
Rs.3,83,63,654/- representing excess value of stock and liable to be treated as
unexplained investment, while adding the same to the total income invoking
Section 69 of the Act and the notice dated 16.08.2022, wherein the stock value
was reworked and the appellant was called upon to explain the difference of
Rs.29,36,013/-. The relevant portion of the same is extracted hereunder:
Show Cause Notice dated 02.08.2022:
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A show cause notice in the above case has been issued to
the assessee on 16.03.2022. The assessee has furnished reply in
response to the above. In continuation to the above notice, the
assessee is requested to provide further details as under:
1. During the course of the survey proceedings, there is an
excess stock found to the tune of Rs.3,86,63,654/-. However,
during the assessment proceedings it is noted that the assessee
has recalculated the value of the excess stock found by way of
reducing 30% of the stock value taken at the time of survey
proceedings (i.e., considering cost purchase).
On the other hand, the assessee had offered gross profit at
the rate of 14.19% only of the unaccounted sales disclosed at the
time of survey proceedings.
The assessee is requested to provide the explanation in
respect of the above.
2. The assessee is requested to provide documentary
evidence explaining the source of purchase in respect of the
excess stock found during the course of survey proceedings.
3. The assessee is requested to explain the treatment of the
excess stock found during the course of survey proceedings in the
books of the accounts.
4. The assessee is required to file its submissions before the
undersigned on or before 08.08.2022 by 02.00 PM failing which
the excess stock to the tune of Rs.3.86 Cr shall be treated as
unexplained investment and shall be added to the total income of
the assessee for AY 2020-21 invoking the provisions of Section 69
of the Income Tax Act, 1961.”
Show cause notice dated 16.08.2022:
1. Vide reply dated 05.08.2022, the assessee has enclosed
sample copies of purchases, invoices and requested to rework the
earlier stock found during the course of survey at cost price or
net realizable value and arrived at entire stock value of
Rs.2,74,76,439/- against the value arrived at the time of survey
Rs.3,86,63,654/-. However, the assessee has not produced
evidence for arriving at the stock value of Rs.2,74,76,439/-, in
entirely. Considering the above facts, the stock value is reworked
on the basis of GP rate @ 14.19% offered by the assessee himself,
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which is tabulated as under:
Descriptions Amount Amount (in Rs.)
(in Rs.)
Entire stock valued at 3,86,63,654
MRP
Less Margin at 14.19% 54,84,373
Net Stock Value 3,31,79,231
arrived
2. Further the assessee had submitted the details explaining
the source of the above stock which is tabulated as under:
Descriptions Amount (in Rs.) Amount
(in Rs.)
Sundry Creditors 1,76,69,267
payable
Borrowed capital 1,50,74,001
Less Amount paid towards 25,00,000
Rent
Balance Loan used for 1,25,74,001
Total Funds used 3,02,43,268
The assessee is requested to furnish explanation in respect
of the difference arrived at the tune of Rs.29,36,013/- (33179281-
30243268) before the undersigned on or before 22.08.2022 by
4.00 PM failing which decision shall be made as per materials
available on records.”
(emphasis supplied)
4. It was further submitted by the learned counsel for the appellant that
they were led to believe by the notice dated 16.08.2022 that except for a sum of
Rs.29,36,013/-, the Respondent had accepted the explanation offered by the
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appellant and had confined their response only in respect of difference of
Rs.29,36,013/- in the reply dated 18.08.2022. The appellant had thus been
denied the opportunity to clarify/ explain as to the source of purchase of the
excess stock of Rs.3,10,20,813/-. However, the learned Judge had erred in
rejecting the writ petition on the premise that the dispute pertains to the
unexplained stock found during survey and thus, the appellant ought to have
filed a statutory appeal and it was not open to the Court to get into the
accounting method touching on the merits. It was also submitted by the learned
counsel for the appellant that the learned Judge had failed to see that the
challenge to the impugned order of assessment was on the ground that the same
was made in violation of the principles of natural justice and thus, falls within
the exceptions carved out to the rule of alternate remedy.
5. To the contrary, it was submitted by the learned counsel for the
Respondent that the order of the learned Judge does not warrant interference
inasmuch as the appellant has an effective alternative remedy.
6. Heard both sides and perused the records.
7. We find merit in the submission of the learned counsel for the appellant
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that the proceedings leading up to the passing of the impugned order lacks
clarity and has resulted in the appellant being led to believe that their response/
explanation in respect of the proposal to treat a sum of Rs.3,86,63,654/- as
excess stock, except to the extent of Rs.29,36,013/- was accepted inasmuch as
the Respondent had vide notice dated 16.08.2022 called for explanation only in
respect of a sum of Rs.29,36,013/-. This in turn has resulted in the appellant not
putting forth any further explanation in respect of the alleged excess stock over
and above Rs.29,36,013/-, thereby resulting in violation of principles of natural
justice.
8. Now, with regard to the rejection of the writ petition on the ground of
availing of alternative remedy, it is trite law that Courts would be loathe to
entertain a writ petition if alternate remedy is available. However, the rule of
alternate remedy is a self-imposed restriction, to which the Courts have carved
out exceptions some of them being violation of principles of natural justice, lack
of jurisdiction and error apparent on the face of record inasmuch as we have
already find that the impugned order suffers from violation of principles of
natural justice and the same warrants interference under Article 226 of the
Constitution of India.
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9. In the given circumstances, we are inclined to remand the matter back
to the assessing authority, who shall grant one more opportunity to the appellant
to put forth its explanation / objection in respect of excess stock, which has been
treated as unexplained investment under Section 69B of the Act. Accordingly,
the orders impugned in this appeal as well as in the writ petition, are set aside
and the Respondent is directed to grant an opportunity of hearing to the
appellant and to pass orders afresh, within a period of 12 weeks from the date of
receipt of a copy of this judgment.
10. This Writ Appeal stands disposed of on the above terms. No costs.
Consequently, connected miscellaneous petition is closed.
[R.M.D., J.] [M.S.Q., J.]
04.01.2024
Index: Yes/No
Speaking order / Non speaking order
Neutral Citation: Yes/No
mka
To
Deputy Commissioner of Income Tax,
Central Circle-3(3), Investigation Building,
No.46 (Old No.108), Mahatma Gandhi Road,
Chennai-600 034.
https://www.mhc.tn.gov.in/judis
R.MAHADEVAN, J.
AND
MOHAMMED SHAFFIQ, J.
mka
and
04.01.2024
https://www.mhc.tn.gov.in/judis
