The Madras High Court on Wednesday set aside four assessment orders passed by the Income Tax Department on September 30, 2021, rejecting the declared income of ₹384.55 crore by SRS Mining, owned by J. Sekar Reddy and two other partners, for the assessment years 2014-15 to 2017-18 and instead assessing its income to be a whopping ₹4,442.13 crore for which it was liable to pay tax to the tune of ₹2,682.16 crore.
Chief Justice Munishwar Nath Bhandari and Justice N. Mala disposed of the writ petitions filed by the private firm, involved in lending excavators for mining, with a direction to the I-T Department to reconsider the issue and pass the assessment orders afresh after taking into account the findings recorded by them in their judgment. They also said the petitioner firm could make all its submissions before the Department.
The judges held that the Department ought not to have relied upon the statements of witnesses, who were not cross-examined by the petitioner firm, while passing the assessment orders, especially after having given an undertaking before a single judge of the High Court on September 28, 2021, that those statements would not be relied upon. “Such an act of the assessing authority is contemptuous in nature,” they observed.
The first Division Bench also deprecated the Department for having gone against its own statement made before the single judge. Though the Department argued that the statements of those witnesses were used only for corroboration, the Bench wrote, “The use of the statement even for corroboration could not be done without an opportunity of cross-examination. Otherwise, it cannot be termed to be an admissible evidence.”
It went on to state, “We find that the Department has played the game of hide and seek with the court as well as the assessee. Such an approach of the assessing authority cannot be accepted. The loose sheets (seized by the I-T sleuths from the premises of SRS Mining and connected places during a search and seizure operation) could not have been relied upon in the absence of supportive evidence to prove them.”
The Department had passed the assessment orders pursuant to the search and seizure operations undertaken by it at various places connected to SRS Mining in December 2016. Then, it had recovered huge cache of cash, in demonetised currency notes as well as the then newly printed currency notes in the denomination of ₹2,000, running to several crores of rupees. The I-T sleuths also recovered incriminating materials and recorded statements of the accountants and other employees of the firm.
The statement of an Additional Director in the Department of Geology and Mining was also recorded. On the basis of this evidence, the Department came to a conclusion that SRS Mining had unofficially been controlling river sand mining activity across the State since December 2013, though no licence was in its name, by bribing politicians and officials at a fixed charge ranging from ₹2 lakh to ₹2 crore every month, depending upon their cadre.
There were documents indicating that around ₹247.13 crore had been given as bribe. The sleuths also found certain materials indicating that just before the 2016 Assembly election, SRS Mining had received ₹217 crore from the then Public Works Department (PWD) Minister, O. Panneerselvam, ₹155.80 crore from the then Housing Minister, R. Vaithilingam, and ₹197 crore from the then Electricity Minister, Natham R. Viswanathan.
The money was reportedly redistributed by the employees and associates of SRS Mining to the party candidates for the purpose of bribing the voters. Further, there were materials indicating that though the PWD was involved in mining river sand in the State, only the individuals identified by the partners of SRS Mining were actually mining the sand and they indulged in selling the river sand for a much higher price than the government fixed prices.
The daily cash collections from sand mining in various districts used to reach the offices of SRS Mining in Chennai the next day and they used to get distributed to various places. Therefore, on the basis of voluminous materials, the Department passed exhaustive assessment orders each running to over 100 pages assessing the income of the firm to be much more than what it had declared.
