The Madras High Court on Wednesday stayed further proceedings against former Union Minister P. Chidambaram and his family members with regard to the notice issued by the I-T Department, pertaining to their coffee estate in Karnataka.

Justice Rajiv Shakder before whom the petitions filed by P. Chidambaram, his wife Nalini Chidambaram and his son Karthi Chidambaram, challenging the order, came up, said, “Pending adjudication of writ petitions, the further proceedings pursuant to the demand are stayed”.

The family holds a 200-acre coffee estate in Coorg, Karnataka which was inherited by Chidambaram from his grandfather Raja Annamalai Chettiar in 1956. The estate has been apportioned into five units of 40 acres each, in the name of Chidambaram and his family members, as per a report in The Times of India.  

The former Union Minister and his family members in their petitions submitted that they receive agricultural income from the coffee estate owned by them. They sell the coffee grown in their estate as raw coffee after pulping and drying it but said that curing of the coffee is not done.

The petitioners submitted that under rule 7B(1) of the Income Tax rules, income derived from the sale of coffee grown and cured by the seller in India shall be computed as if it were income derived from the business and 25% of such income shall be deemed to be income liable to tax. However, they added that the above rule did not apply since they did not cure the coffee and they have claimed exemption of the entire income from the sale of coffee and pepper during the accounting year 2008-2009 as agricultural income under section 10(1) of the IT Act.

After six years following the submission of returns, the Assistant Commissioner of Income Tax, Chennai issued a notice on March 31, 2016 stating that he has reason to believe that income chargeable to tax for the assessment year 2009-10 has not been duly assessed. The notice issued by the authority further proposed to reassess the income for 2009-10. The petitioners challenged the reassessment notices and consequential demand of amount pursuant to the notice in the present writ petitions separately.

The senior counsel Vijay Narain, who appeared on behalf of former Union Minister and his family members, submitted that the income tax can be levied only if the coffee is cured by the petitioners and as it is going to be huge investment for installing the machinery, they sold the coffee to the curing operators as raw coffee. He further argued that if after a period of six years of assessment, the authorities want to reopen the assessment and reassess the income, then it is illegal and arbitrary and is being done only with an intention to defame the petitioner and his family.

The authorities issued the notice on December 29, 2016 at 4.45 pm asking the petitioners to appear the next day at 10.30 am without giving sufficient time. Further, even without considering the objections raised by the petitioners and without passing any speaking order, the authorities simply issued the notices for demand and reassessment which is illegal, the counsel argued.

The counsel further said that as per the orders of the Apex Court, the Assessing Officer has to furnish reasons for reopening the case whereas in the present case, the objections filed by the petitioners have not been considered at all before proceeding with the reassessment. Therefore, it was sought to quash the notices of reassessment and consequential demand by the authorities.

The matter was posted for further hearing to March 16, 2017.