SEA PEARL vs. INCOME TAX OFFICER
What did the High Court hold?
The High Court held that the question of whether a sufficient explanation was offered by the assessee for the capital introduction is a matter requiring appreciation of facts. Therefore, the Court was of the view that the circumstances did not warrant interference under Article 226 of the Constitution of India. The Court acknowledged that an appeal had already been preferred before the appellate authority and saw no reason to assume that the appellate authority would not consider the merits of the petitioner's contentions. However, considering the nature of the contentions and the "compelling situation," the Court granted a stay of all coercive proceedings pursuant to the assessment order during the pendency of the appeal. The Court directed the appellate authority to dispose of the appeal expeditiously, within six months, and kept coercive proceedings in abeyance until then.
What were the facts?
The petitioner, Sea Pearl, a partnership firm, filed its return of income declaring Nil total income for the assessment year under challenge. During scrutiny, the Assessing Officer (AO) noticed the introduction of capital amounting to Rs. 4.33 crores. The AO sought an explanation for the source of this investment from the partners. Despite the assessee providing information, the AO was not satisfied. Consequently, the AO completed the assessment by treating the introduced capital as unexplained cash credit under Section 68 of the Income Tax Act, 1961, and added it to the assessee's total income. The assessee has filed an appeal before the Commissioner of Income Tax (Appeals).
What were the issues?
1. Whether the capital introduced into the firm by its partners was rightly treated as unexplained cash credit under Section 68 of the Income Tax Act, 1961, and added to the total income of the assessee. Assessee's contentions: The petitioner argued that the AO erred in treating the capital introduced by partners as unexplained cash credit. The assessee contended that the AO took a "completely wrong tangent" and passed a "perverse assessment order" by ignoring established legal principles. The petitioner also expressed apprehension that a stay on the assessment order would be granted by the appellate authority only upon depositing a substantial portion of the assessed amount, causing prejudice. It was further argued that such assessment orders are issued to compel assessees to deposit amounts during the appellate process. Revenue's contentions: The judgment does not record any specific contentions made by the revenue. However, it notes that the AO treated the capital infused as unexplained cash credit under Section 68 because a satisfactory explanation was not offered by the assessee.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Cause title — parties, addresses and appearances
JUDGMENT Petitioner challenges an order of assessment dated 15.06.2021. 2. Petitioner is a partnership firm consisting of 21 partners. Petitioner filed its return for the year declaring a total income of Rs.Nil. The assessment was taken up for scrutiny. During the scrutiny, introduction of large amount of capital into the firm to the extent of Rs.4.33 crores was noticed. Assessee was asked to explain the source of investment made by its partners. Though the information sought for by the Assessing Officer was provided, the officer was dissatisfied with the explanation, and therefore he completed the assessment by holding the capital introduced, as unexplained cash credit under Section 68 of the Income Tax Act and added it to the total income of the assessee.
Petitioner contends that the capital introduced into the firm by the partners have been treated as unexplained cash
WP(C) NO. 25055 OF 2021 -3- credit of the firm and without any justifiable explanation added as income of the assessee. According to learned Counsel for the petitioner, the Assessing Officer has gone on a completely wrong tangent and has rendered a perverse assessment order ignoring all canons of law that governs assessments under the Act. Adv. Preetha S. Nair, learned Counsel for the petitioner further submits that, even though an appeal has been preferred before the Commissioner of Income Tax (Appeal- National Faceless Assessment Centre), petitioner fears that stay will be granted only on condition of deposit of substantial portion of the amount assessed which would cause prejudice to the assessee. It is also argued that the assessment orders of this nature are issued by the Assessing Officers to compel assessees to deposit amounts while they pursue appellate remedy.
A perusal of assessment order, shows that the Assessing Officer has treated the capital infused into the partnership as an unexplained cash credit under Section 68 of the Act, since satisfactory explanation was not offered by the assessee.
WP(C) NO. 25055 OF 2021 -4- Whether sufficient explanation was offered or not is a matter which requires appreciation of facts and hence, I am of the view that the circumstances of the case does not warrant interference in exercise of the juri iction under Article 226 of the Constitution of India.
It is submitted that an appeal has already been preferred before the appellate authority. There is no reason to assume that the appellate authority will not consider the merits of the contentions advanced by the petitioner.
However, having regard to the nature of contentions advanced by the learned Counsel for the petitioner as well as the findings in the order of assessment and the compelling situation now prevailing, I am of the view that the petitioner is entitled for a grant of stay of all coercive proceedings pursuant to Ext.P1 assessment order, during the pendency of the appeal. Necessarily the appeal has to be disposed of in a time bound manner.
Accordingly, I direct the 2nd respondent to consider and WP(C) NO. 25055 OF 2021 -5- pass appropriate orders on the appeal preferred by the petitioner, as expeditiously as possible, at any rate, within a period of six months from the date of receipt of a copy of this judgment. All coercive proceedings pursuant to the order of assessment dated 15.06.2021 shall be kept in abeyance till the disposal of the appeal. The writ petition is disposed of accordingly. BECHU KURIAN THOMAS JUDGE uu 12.11.2021
WP(C) NO. 25055 OF 2021 -6-
Appendix — schedule of exhibits
More judgments on Section 68
- ACIT Central Bilaspur, Bilaspur vs Arun Kumar Agrawal, SaktiITSSA 26/RPR/2025[2018-19]Status: Disposed21 Oct 2026AY 2018-19
- Neo Incorporation, Rajkot vs DCIT Circle- 1(2), RajkotITA 471/RJT/2026[2012-2013]Status: Disposed21 Oct 2026AY 2012-2013
- Bliss Dealtrade Private Limited, Kolkata vs Income Tax Officer - Ward 9(2) Kolkata…ITA 208/KOL/2026[2012-13]Status: Disposed21 Oct 2026AY 2012-13
- Hemal Paresh Madeka, Rajkot vs Asst.Commissioner of Income Tax…ITA 955/RJT/2026[2020-21]Status: Disposed19 Oct 2026AY 2020-21
- Ajaybhai Dineshbhai Bagdai, Near Central… vs The Income Tax Officer, Ward-1(2)(1), New…ITA 74/RJT/2026[2013-14]Status: Disposed19 Oct 2026AY 2013-14
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