Facts of the Case

This case is primarily an Income Tax dispute, not a GST matter — GST returns are cited only as supporting documentary evidence. A.Rangasamy Engineers Private Limited, engaged in trading waste materials such as old newspaper and scrap, challenged an assessment order dated 22.12.2022 passed under Section 143(3) read with Section 144B of the Income Tax Act for AY 2021-22, along with the consequential demand notice. The petitioner had filed its return declaring NIL income after setting off carried-forward business losses; its return was selected for scrutiny, and despite the petitioner submitting four rounds of replies along with monthly GSTR-1 and GSTR-3B filings evidencing genuine transactions, the Assessing Officer treated certain purchase transactions as doubtful, reportedly because the sellers had not filed their own income tax returns.

Issues Involved

  1. Whether the assessment order treating the petitioner's purchase transactions as doubtful, despite documentary GST filings, warranted interference.
  2. Whether the petitioner should be required to pay 25% of the demand as a condition for stay pending its statutory appeal.

Petitioner's Arguments

  • The petitioner had submitted monthly GSTR-1 and GSTR-3B filings, along with other documentary evidence, corroborating genuine purchase transactions.
  • The transactions were treated as doubtful merely because the sellers had not filed their own income tax returns — information the department itself could access from GST portal filings by those sellers.

Respondent's Arguments

  • The sellers from whom purchases were made had not filed their income tax returns, which the department treated as grounds to view the transactions as doubtful.

Court Order / Findings

  • The Court observed, prima facie, that the petitioner was not liable to independently prove the seller's return-filing status and other particulars of the seller.
  • It declined to rule on the merits of the assessment itself since a statutory appeal was already pending before the appellate authority, leaving those contentions open for that forum.
  • However, limited to the specific question of the mandatory 25% pre-deposit, the Court held the petitioner was not liable to pay it and granted a stay of the demand notice, directing the appeal to be decided within six months, while clarifying the order would not serve as precedent.

Important Clarification

This is fundamentally an Income Tax Act scrutiny-assessment dispute — GST return filings (GSTR-1, GSTR-3B) are referenced only as evidence used by the taxpayer to demonstrate genuine transactions, not as the subject of any GST law ruling. The Court granted narrow, non-precedential interim relief (stay of the 25% pre-deposit) and expressly left the substantive assessment dispute to the pending Income Tax appellate process.

Sections Involved

  • Income Tax Act, 1961 — Section 143(3), Section 144B (faceless assessment), Section 220(6) (stay of demand pending appeal)
  • GST returns (GSTR-1, GSTR-3B) referenced only as evidentiary documents, not as the subject of adjudication

Decision – In Favour of

Decided in favour of the Petitioner to a limited extent — stay of the 25% pre-deposit demand granted pending appeal; the substantive assessment dispute was left to the statutory appellate authority.

Case Details

  • Court: Madurai Bench of Madras High Court
  • Case No.: W.P(MD)No.18172 of 2023 and W.M.P(MD)No.15159 of 2023
  • Coram: Hon'ble Mrs. Justice S. Srimathy
  • Date of Order: 27.07.2023

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