2024 (10) TMI 262 - HC - Income Tax

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 ... Unexplained money u/s 69A - initial show cause notice was u/s 68 - violation of principles of natural justice - HELD THAT:- The two provisions are entirely independent provisions. While under Section 68, if sum is found credited in the books of an assessee maintained for the previous year in absence of any explanation about the nature and source thereof or if the explanation is found to be not satisfactory, the sum so credited may be charged by the income tax as the income of the assessee for the previous year, while in the case of Section 69A, if it is found that the assessee is the owner of any money, jewellery or other valuable articles and the same is not recorded in the books of accounts, if any, maintained by him for any source of income and in absence of any explanation about the nature and source of acquisition of the same or in absence of satisfactory explanation, the above would be deemed to be income of the assessee for such financial year. In this case although, the notice to show cause clearly identified that the amount proposed to be added back was by invoking the provisions of Section 68 of the said Act and the petitioner on such premise had responded to the same, the final assessment order was passed by treating the same to be an “unexplained money” under Section 69A of the said Act. The revenue authorities had invoked the provisions of Section 69A add back Rs.1,50,45,00,000/- to the petitioner’s income as unexplained money, no notice in this regard had been served prior to taking a decision. Language used in Section 69A of the said Act clearly required the assessee to be afforded with an opportunity to explain. As such, even if the respondents were of the opinion that in this case Section 69A of the said Act ought to be invoked, in my view the respondents ought to have at least prior to passing of the assessment order granted an opportunity to the petitioner to explain as to why the aforesaid sum of Rs.1,50,45,00,000/-should not be added back as an unexplained money under Section 69A of the said Act. In absence of any notice, the petitioner was obviously taken by surprise and was denied the opportunity to appropriately explain The determination made by the respondents as is reflected in the assessment order stands vitiated by reasons of failure on the part of the revenue authorities to put the petitioner on notice in respect of addition u/s 69A of the said Act. Since, the above is violative of the principles of natural justice, the order impugned becomes unenforceable in law and is declared as such. The order impugned be treated as a show cause. This, however, shall not prevent the respondents from taking any additional point or raising any additional grounds if so advised. A notice would be required to be served as an addendum to the show cause notice, to the petitioner. Such addendum, if any, must be served within a period of 15 days from date. 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.