Income tax assessment quashed for violating natural justice by switching from Section 68 to Section 69A without proper notice

The HC set aside an income tax assessment order where revenue authorities issued a show cause notice under Section 68 but passed the final assessment under Section 69A, adding Rs.1,50,45,00,000/- as unexplained money. The court held this violated principles of natural justice as the assessee was not given proper opportunity to explain regarding Section 69A provisions, which are independent from Section 68. The assessment order was declared unenforceable and treated as a show cause notice, with revenue authorities directed to serve proper notice within 15 days if proceeding under Section 69A.

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Issues Involved:

1. Whether the assessment order dated 20th March 2024, adding Rs.1,50,45,00,000/- as unexplained money under Section 69A of the Income Tax Act, 1961, was valid given the initial show cause notice was under Section 68.
2. Whether the principles of natural justice were violated by not affording the petitioner an opportunity to explain the addition under Section 69A.
3. Whether the petitioner should be allowed to respond to the assessment order and any additional grounds raised by the revenue authorities.

Issue-wise Detailed Analysis:

1. Validity of Assessment Order:
The core issue was whether the assessment order dated 20th March 2024, which added Rs.1,50,45,00,000/- as unexplained money under Section 69A, was valid. The petitioner contended that the show cause notice initially proposed the addition under Section 68 as unexplained cash credits. The petitioner argued that the provisions of Sections 68 and 69A are independent, and a change in the basis of addition without proper notice was improper. The court noted that Section 68 pertains to cash credits found in the books of an assessee, whereas Section 69A deals with unexplained money or valuables not recorded in the books. The court found that the assessment order was passed under Section 69A without prior notice, which was inconsistent with the initial notice under Section 68.

2. Violation of Natural Justice:
The petitioner argued a violation of the principles of natural justice, as they were not given an opportunity to explain the addition under Section 69A. The court agreed, emphasizing that the language of Section 69A necessitates giving the assessee a chance to explain the source of unexplained money. The court referenced the Supreme Court judgment in New Delhi Television Ltd. v. Deputy Commissioner of Income Tax, which underscored the necessity of notifying the assessee of the grounds for any proposed variation. The court ruled that the absence of notice regarding Section 69A deprived the petitioner of a fair opportunity to respond, thus violating natural justice principles.

3. Opportunity to Respond:
The court concluded that the assessment order was vitiated due to the failure to provide notice under Section 69A. Consequently, the order was declared unenforceable. However, the court allowed the revenue authorities to treat the impugned order as a show cause notice, permitting the petitioner to respond. The court directed the authorities to serve any additional grounds as an addendum to the show cause notice within 15 days and allowed the petitioner to respond within two weeks, with an additional seven days if an addendum is served. The court mandated that the Faceless Assessing Unit activate the portal for the petitioner's response and provide a personal hearing via video link, ensuring the entire process is completed within eight weeks.

Conclusion:
The writ petition was disposed of with directions to ensure compliance with natural justice principles by allowing the petitioner to respond to the assessment order and any additional grounds. The court emphasized the need for procedural fairness and the opportunity for the petitioner to be heard before a final decision is made.

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