The Madras High Court has dismissed petitions filed by AIADMK lawmaker SP Velumani challenging a ₹7 crore income tax assessment and penalty [SP Velumani Vs Assistant Commissioner of Income Tax].
Justice C Saravanan upheld the action taken by the Income Tax Department under Sections 153C and 271AAC(1) of the Income Tax Act. The Court found no procedural irregularity or violation of natural justice in the assessment proceedings.
"As such neither perversity is discernible in the impugned orders nor any procedural irregularity while passing the impugned orders. It cannot be, also said that there was any violation of principles of natural justice warranting an interference with the impugned orders," the Court held.
Pertinently, the Court also found it questionable that Velumani had declared a mere ₹4.4 lakh as annual income from his salary as MLA for the relevant period.
The case arose from a search conducted in December 2016 at the premises of SRS Mining, a firm linked to businessman J Sekar Reddy. During the search, officials seized loose sheets. These documents indicated that ₹7 crore had allegedly been given for distribution during the 2016 Tamil Nadu Assembly elections.
Based on this material, the Income Tax Department issued notice to Velumani under Section 153C in February 2022. He filed a return reiterating his earlier disclosure. For the assessment year 2017–18, he had declared a total income of ₹4.92 lakh, including ₹4.44 lakh as salary.
The assessing officer passed an order on December 29, 2022 making additions based on the seized material. A penalty order under Section 271AAC(1) followed on June 29, 2023.
Velumani challenged both orders before the High Court. Velumani argued that the proceedings were vitiated as he was denied the opportunity to cross-examine K Srinivasulu, a director of a company linked to the searched entity.
He contended that the IT Department had relied on Srinivasulu’s statement and that denial of cross-examination violated principles of natural justice.
The Court rejected this argument. It held that the IT Department had relied on seized documents and not on the witness’s statement.
“The Petitioner cannot scuttle the assessment proceeding by seeking cross-examination of the person whose statement has not been relied upon,” the Court made it clear.
The Court further noted that the declaration of salary of ₹4.4 lakh as MLA also did not inspire confidence.
"Though not relevant, at the outset it may be mentioned that prima facie, the above return declaring a salary as low as ₹4,44,152/- for the aforesaid assessment year by a sitting MLA of the Tamil Nadu State Assembly does not inspire confidence. This would require a re-look even otherwise," the Court said.
However, the Court clarified that it was not expressing any opinion on the merits of the additions or the penalty. It left it open to the petitioner to challenge the orders before the appellate authority.
Accordingly, the petitions were dismissed with liberty to Velumani to file appeals within 30 days. The Court directed that such appeals, if filed within time, be decided on merits without being influenced by its observations.
Velumani was represented by advocate AS Sriraman.
The Income Tax Department was represented by Senior Standing Counsel AP Srinivas along with Junior Standing Counsel ANR Jayaprathap.
[Read Judgment]