The Income Tax department has preferred a writ appeal challenging a judgment passed by a single judge of the Madras High Court quashing demand notices issued in 2016 to former Union Finance Minister P. Chidambaram, his wife Nalini Chidambaram, son Karti P. Chidambaram and daughter-in-law Srinidhi Karti Chidambaram seeking payment of tax, with penalty, for income earned by them through a 200-acre coffee estate in Kodagu during the financial year 2009-10.
When the appeal came up before the first Division Bench of Chief Justice Indira Banerjee and Justice A. Selvam on Tuesday, the standing counsel for the I-T department G. Hema Muralikrishnan got it adjourned by a week. Justice T.S. Sivagnanam had in November last allowed a batch of writ petitions filed by the assessees and held that the reopening of their assessments and consequential assessment orders were illegal, unsustainable and “a clear case of change of opinion.”
The petitioners’ case was that they sell raw coffee, grown in their estate, to curing houses after pulping and drying just to ensure that the quality of the product does not deteriorate. Claiming that the income derived through such sale of raw coffee would squarely fall under the definition of ‘agricultural income,’ they claimed that it was completely exempted from the purview of taxation as enunciated under Section 10(1) of the Income Tax Act of 1961.
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They also pointed out that even in case of sale of cured coffee, only 25% of the income was subject to tax and the rest was exempted as per Rule 7B(1) of the Income Tax Rules of 1962. However, they were surprised to receive notices on March 31, 2016 seeking to reopen assessment of their income for the financial year 2009-10 by invoking the powers conferred on the department under Section 148 of the Income Tax Act.
In his verdict, Mr. Justice Sivagnanam had pointed out that the assessment for the year 2009-10 had been closed on December 30, 2011. Thereafter, the assessment had been reopened after four years. “A mere reading of the reasons for reopening clearly show that there is no allegation against the petitioner that there has been omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment for that year,” the judge had said.
The I-T department had claimed that the Assessing Officer had in 2011 did not examine as to whether entire agricultural income was completely exempted or not. “This can hardly be a reason to believe that income chargeable to tax has escaped assessment as it is a clear case of change of opinion by the respondent,” the judge had added. He also held that singling out the petitioners and reopening their assessments alone was discriminatory.
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