Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2025 Supreme(Mad) 4962

BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT
G.R.Swaminathan, M.Jothiraman, JJ.
The Assistant Commissioner of Income Tax, Central Circle-2 - Appellant
Versus
M/s. Vetrivel Minerals (VV Minerals), Rep.by its Managing Partner - Respondent
WA(MD)Nos.119 to 123 of 2022 and C.M.P.(MD)Nos.1186, 1187, 1188, 1190, 1192, of 2022
Decided On : 30-04-2025

Advocates Appeared:
For the Appellant : Mr.N.Dilip Kumar
For the Respondent: Mr.Sricharan Rangarajan, Senior Counsel, Mr.K.Ravi

The court emphasized the necessity of adhering to natural justice principles in tax assessments, including the right to cross-examine witnesses, and clarified that Section 65B of the Evidence Act does not apply to such proceedings.

Headnote:(A) Income Tax Act, 1961 - Sections 127, 153A, 143(2), 246A, and 154 - Writ appeals challenging assessment orders - The learned Single Judge set aside the assessment orders on grounds of breach of natural justice, including non-furnishing of panchnamas and reliance on unexamined statements - The court emphasized the necessity of affording cross-examination opportunities and adhering to statutory evidence requirements. (Paras 4, 11, 13, 18)

(B) Natural Justice - The principles of natural justice must be upheld in assessment proceedings, including the right to cross-examine witnesses whose statements are relied upon - The court noted that the absence of such opportunities can lead to serious prejudice against the assessees. (Paras 4, 10)

(C) Applicability of Evidence Act - The court clarified that Section 65B of the Indian Evidence Act does not apply to assessment proceedings under the Income Tax Act, allowing for the use of electronic records without strict adherence to evidentiary rules. (Paras 13, 15)

Facts of the case:
The revenue challenged the Single Judge's order allowing writ petitions filed by two assessees, following searches and subsequent assessment orders that were claimed to violate natural justice principles.

Findings of Court:
The assessment orders were quashed, and de-novo assessments were ordered, with specific directions for compliance with natural justice principles.

Issues: The main issues included the breach of natural justice in the assessment process and the applicability of the Evidence Act in tax assessments.

Ratio Decidendi: The court held that the principles of natural justice must be strictly adhered to in tax assessments, and that Section 65B of the Evidence Act does not apply to such proceedings.

Result: Writ appeals allowed.

JUDGMENT :

These writ appeals have been filed by the revenue challenging the common order dated 03.08.2021 allowing WP(MD)Nos.11261, 11271, 11272, 11273 and 11765 of 2021 filed by the assessees. There are two writ petitioners, namely, M/s.Vetrivel Minerals (V.V.Minerals) rep.by its Managing Partner S.Vaikundarajan and M/s.Vijay Cements rep.by its Partner V.Velmurugan. The broad case details stand captured in the following table :

2.Following the search conducted on the writ petitioners' premises and that of others on 25.10.2018 and other days, order under Section 127 of the Income Tax Act, 1961 was passed directing transfer of the cases set out in the schedule annexed to the order to DCIT, Central Circle-2, Madurai. Questioning the said move, WP(MD)No.16869 of 2019 was filed by M/s.V.V.Minerals. It was dismissed on 28.02.2020. WA(MD)No.417 of 2020 questioning the dismissal order dated 28.02.2020 was also dismissed. SLP filed against the order in WA(MD)No.417 of 2020 was dismissed on 14.10.2020.

3.In the meanwhile, notice dated 16.07.2019 was issued under Section 153A of the Act to M/s.V.V.Minerals for the assessment years 2013-14 to 2018-19. Notices under Section 153A of the Act were issued to Vijay Cements on 26.02.2020 for the assessment years 2017-18 and 2018-19. Another notice under Section 143(2) of the Act was issued to Vijay Cements on 11.03.2020 for the assessment year 2019-20. In response to the notices, the writ petitioners submitted their replies. They also wrote to the assessing officer requesting certain documents. The stand of the department is that permission was given to the assessee to take the copies. Finally, on 24.06.2021, assessment orders were passed under Section 143(3)/144 r/w.153A of the Act. Subsequently, rectification order was passed under Section 154 on 01.07.2021. Challenging the same, writ petitions were filed.

4.The learned Single Judge allowed the writ petitions and set aside the assessment orders primarily on the ground that the principles of natural justice were seriously breached. The learned Single Judge noted the following :

i) Even though as many as 101 panchnamas were prepared after the searches were concluded, they were not furnished to the assessees.

(ii) Statements of certain persons including the employees of the assessees' firms which were recorded behind the back of the writ petitioners were relied upon without affording opportunity of cross-examination of such witnesses.

iii) Electronic records were received in evidence in violation of the statutory mandate set out in Section 65B of the Indian Evidence Act, 1872.

The learned Judge concluded that the violation of the principles of natural justice had caused serious prejudice to the assessees. According to the learned Judge, only if the materials sought for by the assessees had been furnished, they could have established their contention as regards the non-existence of certain jurisdictional facts.

The question as to whether proceedings could have been taken under Section 153A or 153C of the Act cannot be answered in the absence of the material sought for by the assessees. The writ petitions were held to be maintainable notwithstanding the availability of alternative remedy. The assessment orders impugned in the writ petitions were quashed and de-novo assessments were ordered. Further, certain directions were also issued to guide the assessing officer as to how he should conduct the post-remand assessment proceedings. Para 26 of the order of the learned Single Judge reads as follows :

“26.As far as WP(MD)No.11765 of 2021, is concerned, it is said to be filed only to overcome the technical objection raised by the respondent and not challenging the assessment orders separately. Therefore, the assessment orders impugned in the present writ petitions are set aside and the matter is remanded back to the respondent assessing officer for denova assessment and while doing so, the respondent officer shall,

a)afford an opportunity of cross examination o