In a recent ruling, the Madras High Court set aside the draft assessment issued under Section 144C of the Income Tax Act, 1961 by the assessing officer ( AO ). This decision was made due to AO’s failure to address the objections raised by the petitioner.
Kalyanasundaram Chandrasekaran, the petitioner received a notice under Section 148 of the Income Tax Act, 1961 on 29.03.2021, followed by further notices under Section 142(1). The assessing officer found that the petitioner transferred 5000 shares of Info-Drive Analytics Pvt. Ltd to Info-Drive Analytics (Mauritius) Pvt. Ltd for Rs. 12,50,000 during the financial year 2015-2016 but did not disclose the capital gains from the transfer. Consequently, the AO reopened the assessment and issued a notice questioning the matter.
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In response to the notice, the petitioner challenged the validity of the reassessment and pointed out the share transfer did not occur during the financial year 2015-16, but in the 2014-2015 financial year, outside the assessment year in question.
The petitioner filed a writ petition under Article 226 of the Constitution of India on the grounds of whether the reassessment was justified. The petitioner’s counsel argued that the procedure under Section 127 of the Income Tax Act was not followed and the Assessing Officer did not pass a speaking order on the objections raised which violates the Supreme Court judgment in GKN Driveshafts.
The petitioner submitted that the share transfer occurred in the financial year 2014-2015 to V.N. Seshagiri Rao, not in 2015-2016, as claimed by the Income Tax Department. The consideration was also misquoted as Rs. 12,50,000 instead of Rs. 11,50,000. The petitioner prayed to set aside the draft assessment and remand the matter for fresh adjudication.
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On the other hand, the respondent’s counsel argued that the petitioner had the option to raise objections before the Dispute Resolution Panel DRP, which had the authority to provide directions to the Assessing Officer, making a writ petition unnecessary. The counsel claimed that the assessment was reopened based on information from the assessment of Info-Drive India Ltd and there were indications of share transfers during the financial year 2015-16.
Justice C. Saravanan observed both sides’ arguments and records submission. The court noted that the petitioner had provided additional documents that show the transfer of shares to Mr. V.N. Seshagiri Rao on 12.02.2015, during the financial year 2014-15. The court further observed that the procedure outlined in the GKN Driveshafts judgment was not fully complied with as the petitioner’s objections were not adequately addressed in a speaking order.
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Therefore, the court set aside the draft assessment order issued under Section 144C of the Income Tax Act and remanded the matter to the Assessing Officer. The Assessing Officer was directed to consider the objections and issue a fresh draft assessment order within two months of receiving the petitioner’s objections. Hence, the writ petition of the petitioner was disposed of.
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